Project Finance for Clean Development

1. Project Finance for Clean Development Enabling & Sustaining the CDM WBCSD Side Event COP 10 Buenos Aires, 13 December 2004 Frank Joshua

2. The Context • Restricted access to investment finance • The carbon market is flourishing • There are vast numbers of projects chasing investment finance • There are vast amounts of investment resources (equity, debt, mezzanine finance) available for quality projects • Yet many CDM/JI projects are unable to raise investment finance and achieve financial close

3. Underlying Causes • Two principal sources of weakness: • 1. Poor quality of core project documentation • Developers’ lack of knowledge, experience and capacity to comply with international financial standards and requirements • Poor project structuring from a technical, financial and risk point of view • 2. Risk perception: combining a risky technology (renewable energy) with high risk emerging markets, and a risky commodity (carbon credits) • Inability of investors to accurately assess carbon “investment risk” • An informal survey of 11 European Development Finance Institutions & 1 IFI in November 2004 found that none had yet made a single investment in a CDM or JI project

4. A Capacity Development Solution • How to enable greater access to investment finance? • CIP’s Capacity Development Initiative designed to work with: • Project Developers – to raise the standard and quality of core project design, preparation and presentation • Investors– to raise awareness, develop analytical and financial tools to enable better assessment of carbon risk, improve the bankability of carbon contracts (ERPAs), and promote the use of carbon as collateral in project finance • National authorities – to design new policy instruments to support risk mitigation for finance providers & stimulate investments in clean energy & CDM/JI projects, and • Matchinvestment resources with high quality projects

5. Specific Outputs (1) • Templates & Tools • Core project design templates targeting specific technologies • wind, hydro, biomass, landfill gas-to-energy, geothermal, forestry, etc. • Financial templates to support use of carbon in investment structuring • Equity features, debt features, credit enhancement, currency hedge, balance sheet issues, etc. • Carbon investment risk assessment tools • Enable investors to better assess carbon risk • Support the development of innovative equity investment vehicles • Innovative financial and risk mitigation instruments • Performance guarantees (e.g. for landfill gas projects) • Down-payment insurance against CER/ERU non-delivery

6. Specific Outputs (2) • Institutional structures • Awareness raising for financial institutions (focusing on the potential to boost returns with carbon value) • Project IRR + carbon • Fund ROI + carbon • Enhance project financials with quality of carbon cash flows, etc. • Internet-based Resource Centre & Data Room (“CIPNET”) • Support financial negotiations between developers and investors • Enable investors to carry out due diligence online • Lower transactions cost

7. Key Benefits • The standardization of project investment memorandum and financing documents • Online business negotiations & facilitation of due diligence (using CIPNET’s Resource Centre & Data Room) • Lower transactions cost for project developers and investors • New analytical, financial and risk mitigation tools • Substantial additional investment resources for clean energy & CDM/JI projects (better project implementation) • Better delivery rate for projects with CER commitments • Replication of CDI to interested developing and transition countries

8. Other Benefits • Synergies with CDM/JI Process • Partnering with leading institutions with CDM/JI expertise • Getulio Vargas Foundation (FGV), Brazil • WBCSD & National BCSDs • UN agencies • Offering integrated CDM/JI business solution to developers and investors • CDM/JI technical issues • CDM/JI process • Carbon & Project Finance • And access to online training in global climate change • In cooperation with Earth Council’s “LEARN SD”

9. Climate Investment Partnership • CIP is a public-private association of financial institutions. Its mission is to mobilize investment finance for clean energy & CDM/JI projects. The CIP model includes: • A Project Finance Facility: Combines innovative financial structuring with the ability to find and screen eligible projects • CIP Funds: Provides direct hands-on financing support to individual projects; specialized carbon-linked equity investment vehicles; and securitization of carbon cash flows • IT Platform: Internet-based Resource Centre and Data Room (CIPNET) enabling project developers and investors to transact, carry out due diligence, negotiate & conclude financing agreements online… • JV partnerships: Identify, develop, and finance projects; and • Capacity development: “Project Finance for Clean Development”

10. Contacts Frank Joshua, CEO Direct: +41 22 795 1040 Mobile: +41 78 772 4183 Fax: +41 22 795 1049 Karen McClellan, Director, Investment Direct: +41 22 795 1041 Mobile: +44 77 9250 1109 Fax: +41 22 795 1049 www.climateinvestors.com