1

Mr. Anat Prapasawad

Executive Officer

Business Development Department

TMB Bank Public Company Limited

Sustainable Energy and Practice-

Financing Issues

Presented by

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Opportunities

Overview of the barriers and/or risks affecting investment in RE projects

Risk / Return analysis to asses each major risk and the means to mitigate its potential impact on the project

Financial risk management instruments currently supporting RE projects and those that could be developed to reduce uncertainty as barriers

Innovative financial services

TopicsTopics

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Opportunities Opportunities Technologies DistributionTechnologies Distribution

Renewable• Biofuel

(biodiesel ethanol)

• PV• Biomass gen,

Co-gen• Waste to energy• Wind Turbine• Hydro• Geothermal• Etc.

Energy Efficiency

• Controling

• Replacing

• Modifying

Fuel Switching

Conventional fuel

Biofuel/NG

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TE = Traditional Energy

NRE = New & Renewable

Energy

2011

NRE0.5%

TE16.5%

CommercialEnergy83.0. %

200252,939 KTOE

81,753 KTOE

TE11%

NRE8%

CommercialEnergy81%

TARGET

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Thailand Thailand TTargets in 2011argets in 2011

RE Power1,060 KTOE (2,400 MW*)

Liquid Biofuel1,570 KTOE

Heat3,910 KTOE

6,540 KTOE8%

of final energy use in 2011 (81,753 KTOE)

* Existing 560 MW

Industry Agriculture Transport Agriculture

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RE Power ProductionRE Power Production

Solar 200 MWWind 100 MWMSW 100 MW

Biomass 740 MWSmall Hydro 350 MWSolar Home System 50 MWSPP 300 MW

1840 MW*(+560 MW)

* Existing SPP 560 MW

RPS 5% Obligation for newfossil power plant

Incentives• Guaranteed buy back• Soft loan• Tax incentive

MSW=Municipal Solid Waste

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Thailand Target of REThailand Target of RE

2003 2012 5% 8%

Electricity 2,400 MW (1,060 KTOE)

Heat 4,000 KTOE ; Industry + Agri.

Biofuel 1,570 KTOE ; Transport + Agri.

Measures: 1. RPS 5% (Renewable Portfolio Standard)2. Incentives3. R&D

970Ethanol

600Biodiesel

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Barriers risks?Barriers risks?

“Financial risk management is a key element of any commercial investment in conventional energy …, yet little attention has been

paid to its use in the development of renewable energy technologies, particularly in developing countries, … if used

transfer certain types of risks away from investors and lender.”

Monique BarbutDirector

Division of Technology, Industry and EconomicsUNEP

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“The financial incentive package for each country is carefully crafted to suit its economic, legal, and fiscal system. The types of

incentives used include concessional import duties, excise tax benefits, corporate and income tax benefits (including tax

exemptions, holidays, credits, and deduction as well as depreciation), subsidies against investment cost, low interest

loans, and premium power purchase prices.”

World Bank Discussion Paper No. 391

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Type of FinanceType of Finance

Funding of major capital

Cashflow of the project as sources of fund for repayment

Asset of the project as collateral

Risk management through transference (allocate to parties best able and willing to accept)

Project Finance (PF)Project Finance (PF)

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Corporate Finance Comparison Corporate Finance Comparison with Project Financewith Project Finance

< Corporate Finance>

Financiers

Company

Project Assets

< Project Finance>

Sponsor Companies Financiers

GovernmentContractorsSuppliersCustomersManagersInsurers

Limited resourse

Contractual Assignment

Project Entity

Project Assets

FinanceR

isk transfe

rence

to co

ntra

ct

ConsultantsESCO

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Major Risk & ManagementMajor Risk & Management

Major risk categories

(throughout project cycle)

Control of risks

(identifying, analyzing, allocating)

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Project Feasibility AnalysisProject Feasibility Analysis

Financial aspect

Marketing aspect

Technical aspect

Management aspect

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Major Risk CategoriesMajor Risk Categories(throughout project cycle)(throughout project cycle)

Project Identification

Project Development

Project Appraisal

Project Implementation

Project Operation

Project Cycle

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Typical BarriersTypical Barriers

High transactionRelatively small sizeLow marginal returnPerceived weak credit worthiness of companiesResource availability and supply riskCountry risk (political & economy instability)Lack of legal and Institutional Frameworks to support RE projectsAnalytical barriers (quality&availability information)Cognitive barriers

Other priority investmentUnfamiliarity with technologiesCollateral problemLack of expertise in companyFI lack of knowledgeBenefit sharingCultural

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Risk Management InstrumentsRisk Management Instruments

Contracts (gov., suppliers, consultant, ESCO)Insurance / ReinsuranceCredit enhancement products (Guarantee)Alternative risk transfer instruments (various type of asset backed securities)Private sector risk managementRisk poolingSecuritization structureBundling small projects (reduce transaction cost)Carbon Finance Guarantee

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How to build portfolio? : Lesson LearnedHow to build portfolio? : Lesson LearnedBarriersBarriers

1. 1 Access ability to financial resources1.2 Low priority projects 2. Technical Barriers2.1 Unfamiliarity with technologies2.2 Lack of capacity to develop projects2.3 Bad experience with consultants/suppliers 3. Management Barriers3.1 Lack of time3.2 No policy to invest

1. Financial Barriers

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Lesson LearnedLesson LearnedRemoval of BarriersRemoval of Barriers

1. 1 Access ability to financial resources PFI

1.2 Low priority projects PFI

Technical Barriers

2.1 Unfamiliarity with technologies ESCO

2.2 Lack of capacity to develop projects ESCO

2.3 Bad experience with consultants/suppliers FI

Management Barriers

3.1 Lack of time PFI

3.2 No policy to invest PFI

Financial Barriers

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Project Cycle

How to develop projects (FI views)How to develop projects (FI views)

PI : Project Identification (financial & technical screening)

PD : Project Development (feasibility & engineering design)

PA : Project Approval (FI + Shareholders)

PR : Procurement

OM : Operation + Maintenance (Repayment)

PG : Performance Guarantee

PDD : Project Due Diligence

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Case Study Ethanol ProjectCase Study Ethanol Project: Demand: Demand

• Government policy : deplete all of UPG 95* consumption with gasohol (comprising a mixture of gasoline and ethanol) by yr.2007

UPG 95: Unlead Petroleum Gasoline with 95% octane

184,915

798,693

1,985,780

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

litres/day

2005 2007 2009

Yr

Thailand 's projection of ethanol demand

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Ethanol ProjectEthanol Project: Supply: Supply

• Total licensee 24 plants, registered capacity 4.985 Million litres/day

• Yr.2006 : operate only 3 plants with total production capacity 0.285 Million litres/day

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Ethanol ProjectEthanol Project: Case Study: Case Study

• Plant capacity : 200,000 litres/day• Raw material : tapioca• Investment cost : 35 M. US$

• Land and land improvement 3.25 M. US$

• Building 0.75 M. US$

• Machinery 24.13 M. US$

• Pre-operation 1.63 M. US$

• Stock of raw material 0.50 M. US$

• Working capital 4.25 M. US$

• Contingency 0.50 M. US$

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Ethanol ProjectEthanol Project: Project IRR: Project IRR

Raw material cost(US$/ton) 47.5 50 52.5 55 57.5

75 26.6% 30.2% 33.9% 37.5% 41.1%87.5 21.5% 25.0% 28.6% 32.2% 35.8%100 16.6% 20.0% 23.5% 26.9% 30.5%

112.5 12.2% 15.3% 18.6% 21.9% 25.4%125 8.3% 11.2% 14.1% 17.3% 20.5%

Ethanol price (cent/litre)

75

87.5

100

112.

5

125

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

IRR

Raw material cost

Revenue : Ethanol Project

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Ethanol ProjectEthanol Project: Barriers: Barriers

• Security of raw material • Technology

– Proven technology– Efficiency– Contractor– EPC (Turn-key)

• Marketing– Uncertainty price– Buying agreement (non-firmed)

• High Investment Cost

Project BarriersProject Barriers

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Ethanol ProjectEthanol Project: Barriers: Barriers

• Government Policy

• Commercial Bank Policy

External BarriersExternal Barriers

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Ethanol ProjectEthanol Project: Barriers: Barriers

• Security of raw material Through Contracts

• Technology Through proven technologies/

Bank guideline

• Marketing Through Contracts

• High Investment Cost Equity Fund

Removal of BarriersRemoval of Barriers

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Mr. Anat Prapasawad

Executive Officer

Business Development Department

TMB Bank Public Company Limited

Thank you

Presented by