CDM PROJECTS AND FINANCING ENERGY INITIATIVES AT THE LOCAL LEVEL

1. CDM PROJECTS AND FINANCING ENERGY INITIATIVES AT THE LOCAL LEVEL City Energy Strategies Conference Cape Town November 2003 Energy for Africa. Forever.

2. What is the state of play? • Over the last two days: • Rationale and motivation for sustainable energy is clear: • sustainable development – diversify supply – emissions reductions – access to modern,clean, affordable energy services – lessen reliance on fossil/nuclear • Breakthroughs and viable projects have been highlighted, alongside the difficulties faced with implementation, both locally & internationally • Stockholm (integration & closed eco-cycles) to community ownership of biogas in Thailand to windfarms in the UK • Green electricity for WSSD – City Power, DSM & green tarriffs – Landfills (& CDM) – Housing – Transport solutions • Solutions exist, barriers challenged but we still seem to struggling with implementation, scaling up and building an investment case • But where are the investors, banks, financiers & funders?

3. Local conditions and barriers 1 • A number of barriers to successful implementation persist: • Policy framework: • White Paper on Renewable Energy – sending the right signals to investors & funders is crucial to lessen the risk & create a market • Commitment at local government level – are we convinced of the case? • Seemingly high cost of sustainable energy solutions • Technology cost & initial investment high – lower operating & maintenance costs for certain technologies over time with clear benefits • No level playing field – fossil fuels enjoyed subsidies over extended period- externalities not factored into the true price of electricity(to change?) • Markets & opportunities for sustainable energy use - but how to finance • They exist, but who is willing to pay, and what level of premium, if any ? • Financing sustainable energy solutions • 1% increase in the electricity price in Cape Town would raise R 30 million per annum for climate protection projects

4. Local conditions and barriers 2 • Perceptions by investors…risk, uncertainty, reward (returns) • Perception of risk within a changing regulatory regime • Skills and capacity to impement new technologies (?) • Bureacracy and time lag of project initiation to implementation • Behaviour of finance institutions – expectations (returns) slow to transform • Short term, high retruns – not conducive to sustainability • Need a portfolio of projects – from the more conventional to the more risky • Create the right incentives and disincentives • Treasury – 30% rebate on biodiesel as a fist step • Proposals for environmental fiscal reform – Treasury (internalise extarnalities) • Cost of new infrastructure and impact on price - long term planning & PPA’s • Feed-in laws to guarantee price stability for RE producers • Create an environment conducive to attracting investors • Create confidence that we are committed to implementing these solutions and that the risk can be lowered and managed adequately

5. Finance, funding & the CDM • How do we attract non-donor funding and financing? • Sources? • Project finance – Venture Capital – Equity Investors • Sustainability or ethical funds & financiers (Future Growth, Community Growth Fund) • New mechanisms to ensure the viability of projects • Are you willing to buy a stake in the projects in which you have an interest e.g in a new energy generation facility – public enterprises or limited duration JV’s • New markets, with new products through new partnerships • The food & agriculture industry enters a new market (fuel for cars) – local government works with agricultural waste producers to build energy plants • Clean Development Mechanism • Capacity building in the identification & implementation of projects • Overseas buyers of credits – not only for big projects, so tap into the value that others see us as having – your own carbon portfolio

6. The Role of Local Government & where to start • Local government must take a strong leadership role in championing the creation of sustainable options • Champion sustainable development and create the right environment • Developing new kinds of partnerships & approaches • Skills and capacity building for informed decision making • Adequate public participation – risk management! • Initiate multi-stakeholder dialogue with various stakeholders, especially in the finance community & local investors (equity issues) • Create your own “sustainability blueprint” and investment framework to create confidence with investors, consumers, etc

7. Creative Options & Opportunities • Local government are in a position to develop new ways of securing financing and funding from diverse sources to unlock opportunities • Create new funds: • Public-private joint initiatives – use LG financial muscle to leverage funds or create new dedicated funds • Working with trade unions – pension funds can be accessed through partnerships • Create new partnerships • Secure interest of overseas “sustainability” investors and asset managers (e.g. SAM) • Private sector with Aid Agencies - developing new models • DSM & Energy Efficiency • Rebate schemes in order to secure commitment from client base • Creat new funds & financing schemes from savings portfolio(refinancing or revolving funds)

8. CDM Private Financier – loan capital Public Sector Funder Local Authority The Project Equity Partner Community Empowerment Trust Creative Options & Opportunities • Look at the structure of projects in order to secure partners who might not ordinarily seemed to be players • Approaching old problems in a new way Sees long term value in the market – sees Munic can secure the investment 10% Sees long term value in the market • Buys a stake to sell at later date • Puts money in fund for other RE projects Raise own capital from the community

9. Genesis Eco-EnergyDr A. van der Linde (CEO) +27-82-825 0985es.enersys@mweb.co.za Davin Chown +27-83-460 3898 PO Box 363 Newlands 7725 davinc@icon.co.za Dr L. de Lange +27-82-481 0522 Louis.delange@sudoreco.com Energy for Africa. Forever.