Rob Short Environmental Specialist DBSA 19 th November 2003

4. Intermediation of Small-Scale Carbon-Financed Clean Infrastructure Projects – The Development Bank of Southern Africa’s Experience and Prospects Rob Short Environmental Specialist DBSA 19th November 2003

5. Presentation Contents • Introduction to the DBSA • Background • Experiences • Barriers • Prospects • Next Steps

6. The DBSA • Infrastructure DFI. • Owned by the South African Government. • Mandate to operate in the Southern African Development Community (SADC). • Self-capitalised. • Key operational units: International Finance Unit, Project Finance Unit (SA) and SA public sector units.

7. Background • Signed agreement at the WSSD in 2002. • Assist our clients in accessing an additional finance source for their sustainable development objectives. • To assist the DBSA in promoting and developing new markets. • To enhance our developmental impact. • Develop our relationship with the World Bank.

8. Experience to date…….Energy • Main area of success. • Use of biomass to generate energy through the installation of a wood fired boiler (SA – Private). • 5MW and 3.9 MW micro-hydro plants (SA – Private). • Micro-hydro in Zambia (Private). • Financing opportunity for a combined wind and hydro. • Discussions around solar water heating.

9. Experience to date…….Waste Management • Enormous interest in landfill capture and use. • DBSA is currently supporting two feasibility studies with local authorities. • Been interest in bagasse but no real progress. • The cost of land filling is becoming a significant issue. • Discussions with rural local authorities re agricultural residues. • Significant interest in composting as part of resource recovery initiatives.

10. Experience to date……Fuel Switching • Approached re biodiesel (including a sink element). • Conversion of diesel generators to natural gas.

11. Experience to date…….General Points • No energy efficiency projects, though are working with donors in this area. • No transport, but is emerging awareness of the opportunity. • Have not turned away any CF projects for financing yet…..is early days though. • Issue of amount of financing required is a potential problem (tends to be too small). • No bundled projects to date.

12. Barriers • Barriers are more broadly about project development, than just around the supply of financing. • ER Price (concerns about losing out on the upside). Wait and see approach. • Lack of project development funds for small-scale start-ups, specifically with regard to CF element. • Lack of regulatory certainty in terms of CF and also the restructuring of the energy sector.

13. Barriers (Cont.) • Lack of knowledge and capacity (in many areas including the financial sector). • Grant mind set. • Lack of entrepreneurs (with financial experience) in this sector because of historical and existing institutional set-ups. • Need for upfront payments (unrealistic expectations). • Energy prices (low income generating ability) • Development of PPAs. • Perceived lack of support from Government.

14. Addressing the Barriers…… • Have the benefits of intermediation been proven? • Buying down the risk through the provision of project feasibility support. • Providing comfort to other financiers through our involvement (depth of due diligence and expertise available in house). • Other financiers do not want to take whole risk. • Shown opportunities in and support for this area which has stimulated activity.

15. Addressing the Barriers…… • Internal advocacy for CF (lack of internal familiarity re these projects – risk and project leaders). • Building understanding of what should be considered in a contract. • Assisting project developers in identifying and mitigating risks upfront (value of local knowledge). • Better understanding of potential currency fluctuations and hedging opportunities. • In at the beginning of the process.

16. Prospects…… • Confident for a number of reasons. • Enabling environment for these projects in SA and the region is about to change for the better. • DNA being set up in South Africa. Process beginning in other SADC countries e.g. Mozambique and Zambia. • South Africa in the process of finalizing its renewables\clean energy policy (includes a target).

17. Prospects….. • Number of key grant processes that will change perceptions of the opportunities that exist i.e. REMT (WB – GEF), SAWEP (UNDP – GEF) and other EU initiatives. • South Africa’s (and therefore the region’s) up coming energy “problem” offers opportunities e.g. DSM and energy efficiency. • Problems with quality of supply in some areas (promoting idea of “shared benefits”).

18. Prospects……. • Support for natural gas in the region offers fuel switching opportunities. • The cost of developing and managing landfill space is increasing. Waste minimization is therefore looking more attractive. • Opportunities for bundling solar water and energy efficiency projects. • Need the first examples.

19. Next Steps……. • Identifying possibilities in the different categories of small-scale projects to be taken through to implementation. To show their potential and to test different methods of financial structuring. • Need to identify bundling opportunities (housing sector?). • Work with other funds and banks in the region. • Mobilize more project development support internally and externally.