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How Development Banks can Finance the Implementation of NAMAs

UNFCCC Climate Finance Briefing Warsaw - 12 November 2013 Jochen Harnisch, KFW - Competence Center Environment and Climate. How Development Banks can Finance the Implementation of NAMAs. About KfW Group. Development bank of Germany Founded in 1948 for implementation of the Marshall Plan

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How Development Banks can Finance the Implementation of NAMAs

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  1. UNFCCC Climate Finance Briefing Warsaw - 12 November 2013 Jochen Harnisch, KFW - Competence Center Environment and Climate How Development Banks can Finance the Implementation of NAMAs

  2. About KfW Group • Development bank of Germany • Founded in 1948 for implementation of the Marshall Plan • More than 5000 employees • We finance investment in Germany & Europe • We provide international project & export finance • We provide support for developing countries • USD 94 bn. of new commitments in 2012 (thereof 40% climate and environment) • USD 31.8 bn. for mitigation projects (e.g. energy, transport, waste, forestry) • USD 0.6 bn. for adaptation projects (e.g. water sector, agriculture) • USD 2.1 bn. of climate finance in developing countries • Instrument: Grants, concessional and commercial loans, guarantees, mezzanine and equity

  3. The International Development Finance Club (IDFC) • Network of 20 leading development finance institutions with mandates for national, sub-regional, regional and international activities around the world. • Combined assets of more than USD 2,100 billion • New commitments added up to approx. USD 390 billion • Activities : Green finance mapping, exchange on good practices in private sector mobilisation and support of GCF implementation • Current work plan: green infrastructure finance, support of SMEs, broader mapping of activities

  4. IDFC Climate Finance Mapping 2013 Source: Ecofys, 2013

  5. GHG Mitigation: Change Global Investment Pattern (IEA WEO 2011)

  6. Dimensions of NAMAs (Nationally Appropriate Mitigation Activity) National (low carbon) development strategy Sectoral or cross-sectoral policy mechanism Individual investment decisions

  7. UK-German International NAMA Facility: Selection Criteria (1/2) Eligibility Criteria: • applied at the first step of the selection process to assess all outlines submitted to the NAMA Facility for support. • ensure that outlined NAMA support projects fulfil the essential requirements for their later implementation through financial and technical support instruments. • Outlines need to fulfil all eligibility criteria in order to be further considered. Eligibility of the submitting entity ODA eligibility Degree of maturity Endorsement by the national government Time frame for implementation Feasibility Cooperation with a qualified delivery organisation Financing volume Concept for phase-out 7

  8. UK-German International NAMA Facility: Selection Criteria (2/2) Ambition Criteria: • applied to all outlines for NAMA support projects, which have successfully been assessed against the eligibility criteria • ensure that the NAMA Facility supports the most ambitious projects available • assessed on a point-grade system to allow a ranking of all submitted NAMA support projects Transformational Change Potential Does the NAMA support project contribute to a transformation of the national or sectoral development towards a less carbon-intensive development path? Co-benefits Does the NAMA support project provide important additional development co-benefits beyond the reduction of GHG emissions? Financial Ambition Does the NAMA support project foresee or enable a substantial funding contribution from other sources? Mitigation Potential Does the NAMA support project foresee substantial direct and indirect GHG emission reductions? 8

  9. Financial Instruments – OverviewDiversity of business models and regional foci and mandates Source of financing e.g. RE projects Project financing Market funds EE- and RE-financing Structured Funds, e.g. GCPF Promotional loans Concessional funds Development loans e.g. adaptation projects, capacity building, REDD loans at IDA and standard terms Grants / Budget support loans Public funds Performance of partner countries and viabilityof projects

  10. KfW Case Study: Wind Farm Gulf of el Zayt in EgyptAfrica's biggest wind farm with 200 MW and pilot project for bird protection • Rapidly growing energy requirements • expensive energy import • Rising pollutant emissions • Unused wind energy potential (> 10.000 MW) Problem • KfW loan (EU-NIF and EIB) for wind farm with grid connection (i.e. planning, construction, commissioning, connection, site development, consulting) • pilot project for bird protection (“shutdown on demand”) Total investment ca. 340 Mio. €; KfW ca. 191 Mio. € /zv. loan Approach • Efficient and ecologically sustainable electricity supply • Contribution to global climate protection and to Egypt's economic development • bird protection with a positive signal beyond the region Impact Topic of the presentation / location / date [dd.mm.yyyy] 3

  11. KfW Case Study: Energy Efficiency in Residential Buildings in IndiaAdopted experiences from the German subsidy practice • Share of private households on primary energy requirement: 37,5% • Ø electricity consumption of urban middle class: 8,000 kWh p.a. • Biggest economic energy saving potential in new residential housing complexes (up to 46%) Problem • Credit line to the National Housing Bank (NHB) to refinance housing loans in new energy-efficient buildings (at least 30% more efficient than reference buildings) • Introduction of an energy efficiency programme (Fraunhofer-TERI cooperation) and certificate) • Intensive complementary advice to NHB, building financiers and real estate developers Total inv. 60 m €KfW financing 50 m € Approach • 73 buildings in 11 housing projects certified (>20,000 apartments, emission reduction of 32,000 tonnes of carbon p.a. so far) • Three large housing financiers (80% market share) participating • International awards such as ADFIAP-Merit Impact

  12. KfW Case Study: The Global REDD Programme for Early MoversBridge financing for pioneers • Deforestation accounts for some 17% of global carbon emissions. • When the forest disappears, so do biodiversity and (poor) people's livelihoods • Decisions under the Framework Convention on Climate Change have yet to be made Problem • Innovative approach to greater outcomes orientation • Provide bridge financing between today and a future climate regime • Remunerates achievements of forest protection pioneers Initial investment volume: € 36.5 m Approach • Reduce emissions from forest destruction • Contribute to preserving biodiversity • Create positive REDD examples at an early stage Impacts 12

  13. NAMA Pilot: Ecocasa Program Mexico Level of ambition National interest and ownership • First NAMAin the sustainable housing sector • Supply of mortgage for low carbon housing and financial incentives for EE investment (incl. TA): Support for up to 27,000 low carbon houses (-20% CO2) and 800 passive houses (-80% CO2) • Co-financing to provide large-scale financing of EUR 160m and allow transformational effects • Mexico as one of the first non-Annex I countries pledging to reduce its GHG emissions voluntarily • NAMA program launched by the ntl. government in 2011 and integrated into the broader national climate strategy (PECC) • Co-benefit of poverty reduction: focus on low middle income households Maturity and bankability MRV system • Detailed NAMA concept developed by the National Housing Commission (CONAVI) and GIZ supported by the German Environment Ministry • Detailed economic analysis of the NAMA with a significant NPV • High modularity of the NAMA program • Robust and pragmatic MRV methodology for a baseline and different standards for energy efficient houses (EcoCasa I, EcoCasa II, Passive House)

  14. Results based sectoral approaches under EU AIF/LAIF • Carbon-Linked Incentive Scheme Indonesia (AIF) • Facility for Performance Based Climate Finance in Latin America (LAIF) EU KOM KfW Regional Partners Total EU Grant Funding: € 17 million Sector I I. Concept Development & Capacity building for Implementation EU TA grants Sector II Sector n Governments, public & private sector, local banks, consultants II. Roll-out Pilot Incentive Schemes EU grants to finance perfomance based incentive schemes • Initiation of substantial investments for pilot projects including leverage through bank lending • Competence for stakeholders in implementing performance based incentive schemes

  15. Key Elements of Project Preparation and Execution with KfW • Project scoping and priorisation • Bilateral government negotiations • Project prepraration by project executing agency & consultant • Project appraisal • Financing decision • Financing agreement • Project implementation by project executing agency incl. monitoring • Start of operation and final inspection • Performance review and final evaluation

  16. Strengthen the Pipeline of Bankable Projects • Huge uncovered investement needs and wealth of ideas for climate related projects exists • Scarcity of bankable climate projects, resulting from e.g. - weak regulatory frameworks (e.g. energy subsidies, collection of fees, lack of enforcement) - missing economic viability including concessional funding or missing sustainabilty of business model - inappropriate project implementation partner e.g. insufficient implementation capacíty, no realistic means to meet international fiduciary or environmental and social stantards, missing credit-worthiness  Involve development banks and other financiers no later than in design of feasibility study

  17. How to Make Supported NAMAs a Success? • Realistic expectations on private sector involvement in NAMAs implementation - simplicity, transparency and predictability are expected by private sector - be ready to accept the risk-return profiles of the private sector - state aid issues and distortion of (inter)national competition to be considered • Keep NAMA implementation simple - complexity adds perceived and real risks and transactions costs - focus on proven instruments: loans, grants, equity and guarantees - predictable selection criteria: use positive and negative lists for regions and technologies - flexible and cost-effective framework for monitoring and evaluation needed • Early focus on bankable NAMAs - firm alignment with national development priorities - transformational ambition should be commensurate with available funding - focus on win-win programmes in selected sub-sectors and countrie - involve your future financier early on

  18. Contact Details Competence Center Environment and ClimateDr. Jochen HarnischHead of Division KfW BankengruppePalmengartenstrasse 5–960325 Frankfurt am MainGermany Phone +49 69 7431 - 9695Fax +49 69 7431 - 3796Jochen.Harnisch@kfw.de

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