Multi-year Expert Meeting on Commodities

Palais des Nations, Geneva 24-25 March 2010

Review and identify opportunities

for the diversification of the energy matrix

by

Thierno Tall, Director African Biofuels and Renewable Energy Fund

ECOWAS, Togo

"The views expressed are those of the author and do not necessarily reflect the views of UNCTAD"

1

Geneva March 24, 2010

REVIEW AND IDENTIFY OPPORTUNITIES FOR THE

DIVERSIFICATION OF THE ENERGY MATRIX

2

CONTEXT:CONTEXT:RENEWABLE ENERGY I N AFRICARENEWABLE ENERGY I N AFRICA

1

3

► More than 70% of the population of sub-Saharan Africa has no access to electricity and more than 70% of the final energy consumption in sub-Saharan Africa is based on wood energy with all its consequence for the environment.

I. Energy Situation in AfricaI. Energy Situation in Africa

► 1 of 4 people in Africa has access to electricity► Electrification rates are expected to increase from 38% currently to 58% by 2030

Source UA

4

II. Energy in use in AfricaII. Energy in use in Africa

Source UA

5

► OpportunitiesAfrica is endowed with substantial renewable energy resourcesBut, just as in the specific case of the electricity sector, the Continent has been relatively slow at harnessing this potential (ref. World Bank and IEA studies and estimates).

► Key ChallengeSignificant financial barriers (due to high perceived risks). Some of the symptoms/consequences include:

Weak domestic public investmentLow foreign direct investmentLow private sector participationLimited international public risk capital instruments/fundsLimited financial expertise and sector experience locally

III. Opportunities and Challenges in RE in AfricaIII. Opportunities and Challenges in RE in Africa

6

►RegulatoryWill incentives remain in place?Will project continue to be considered “sustainable”?

►TechnologyIs the technology proven? At commercial scale?

►WeatherWill there be sufficient, steady wind, sunlight or water?

►Price pressureAre inputs (commodities, labor, maintenance), available at a reasonable and predictable

price?►Revenue Stream

Long-term offtake or PPA in place?Can the offtaker terminate or reduce tariffs?Long-term purchase of renewable energy credits?

IV. Project Risks Common in REIV. Project Risks Common in RE

Profitability of a Subset of CIP Projects

TechnologyExpected

project IRRExpected carbon

premium 1Expected total

IRR incl. carbonBiomass electricity

15% 4% 19%

Biomass heat

15% 5% 20%

Energy Efficiency

16% 1% 16%

Hydro 15% 3% 18%

Landfill Gas 16% 11% 27%

Wind 14% 1% 15%

15% 4.3% 19%

Source: Climate Investment Partnership (CIP)

V. Returns on Investment & Impact of Carbon FinanceV. Returns on Investment & Impact of Carbon Finance

8

► Provide entrepreneurial development services (including assistance with feasibility studies and business plan writing);

► Provide developers with a unique opportunity to receive both seed capital financing and to qualify for expansion financing or even through the external financing network;

► Disseminate information about country policy frameworks and investment opportunities; encourage regional policy harmonization; and conduct analytical and diagnostic national studies ;

► Create innovative public-private risk capital instruments

► Promote private sector participation

► Raise awareness of opportunities and challenges

► Organize technical seminars to ensure that entrepreneurs, financial firms and policymakers are informed of best practices in technical and financial areas. These seminars will be conducted in close collaboration with local and international centresof excellence and educational institutions.

VI. Solutions for RE in Africa: VI. Solutions for RE in Africa: Supporting the Private SectorSupporting the Private Sector

9

THE ROLE OF FINANCIAL THE ROLE OF FINANCIAL INSTITUTIONSINSTITUTIONS

2

10

I. A CDM Project Finance FacilityI. A CDM Project Finance Facility

Project 2

Project Finance Facility (PFF)

PFF Manager

Project 1 Project nProject 3

ABREFABREC

FSAGARI

Insurance Cie

Loan Providers

EBIDNEXIM

AFREXIMBDEAC

PTA Bank

Fin

anci

al R

etur

ns

Car

bon

Cre

dits

$

AFREXIM Insurance Cie

EDS + Grant

Providers

Loan Providers

Equity Investors Credit Guarantee

Providers

Delivery Insurance Providers

11

II. Three pillars of ABREFII. Three pillars of ABREF

Climate change Carbon market opportunities

Energy Security

African Biofuels&Renewable Energy Fund

(ABREF)

12

Project

Escrow a/c

Buyer

Lenders

Sale of Carbon credits

Sales

realization

Upfront

lending

Advisor

/arranger / Equity investment (ABREF)

Project asset

& assignment

of ERPA

Credit wrap

servicing

Sales agreement (ERPA)

ABREF / ABREC

III. Strategic Financing PositionIII. Strategic Financing Position

STUDY CASES

3

Nigeria's energy mix : oil (54%)biomass (35%) gas (10%)

Object of the project : Grid-Connected electricity generation from bagasse surplus

Project Scope : Global Biofuels Ltd (GBL) intends to establish a 90,000 liters per day ethanol refinery with 7,500 ha of cultivated sweet sorghum which provides the feestock for the refinery. The excess of bagasse will be used to add 15 MW of installed power and the resulting electricity surplus will be exported to the national grid. The renewable energy generated by the project activity will decrease the fossil fuel proportion of the national energy mix and thus will reduce the combined margin grid emission factor.

Total cost : US$ 107 million► Equity : US$ 22 million► Debt : US$ 85 million (US$ 20 million from EBID through NEXIM)► Carbon credits : 60,000 CERs/year

€ 14 / tCO2 → € 840 000 / yearSaving : US$ 467 million in State subsidies for fossil fuel consumption.

Services from ABREF : CDM development / CERs brokerage / fund raising

I. I. Ethanol project in Nigeria : Global Biofuels Ltd

Ghana’s energy mix : 45% from fossil fuel power plants28% from hydro3% from importation

Object of the project : Distribution of CFLs as replacement for ICLs in Ghana

Total of lamps : 16.34 million CFLs

Project Scope : The Ghana Efficient Lighting Programme is being carried out as a Public-Private partnership between the Government of Ghana and Stanford Development Services Company Limited (STEDCO). STEDCO will finance the purchase of the bulbs, the distribution and project management with the Government of Ghana providing some administrative support at the district and local level and some nominal financial support.

Total cost : US$ 38.37 million►Equity : US$ 12.22 million►Debt : US$ 26.15 million►Carbon credits : 353 000 tCO2 / year

Saving : US$ 185 million/ year (US$ 110/bbl for a thermal plant with a heat rate of 2300 bbl/ GWhgenerating an estimated energy at 730 GWh)

Services from ABREF : CDM development / CERs brokerage / fund raising

II. II. Ghana efficiency lighting projectGhana efficiency lighting project

Côte d’Ivoire energy mix : biomass (50%), oil (35%), gas (14%) hydroelectricity (1%)

Object of the project : Municipal Waste-To-Energy

Project Scope : SITRADE - the project owner - will collect and treat 200,000 tons of urban waste per year in a new facility located in Bingerville, North of Abidjan. After collection and sorting, waste will be treated through anaerobic digesters. The resulting biogas will be used to produce electricity while residual waste will be transformed into compost.

Organic fertilizer : 30,000 tons / year

Total cost : € 13.6 million► Equity : € 4.1 million► Debt : € 9.5 million (from EBID)► Carbon credits : 71,000 CERs/year

€ 12 / tCO2 → € 852 000 / yearSaving : US$ 6 million / year (US$ 110/bbl for a thermal plant with a heat rate of 2300 bbl/ GWh

generating an estimated energy at 730 GWh).

Services from ABREF : CDM development / CERs brokerage / fund raising

III. III. Waste project in Côte d’Ivoire – SITRADE

Mali’s energy mix : 80% from biomass (wood and coal); 16% from importation (hydrocarbons);

4% from hydro-electricity.

Object of the project : Rural solar lighting in Mali : 18 solar power stations with a total power of 6.48MW (7.7 GWh/yr) covering 20% of energy needs of 18 villages with an average of 28,600 households.

Total cost : US$ 136 million► Equity : US$ 13.6 million► Debt : US$ 122.4 million► Carbon credits : 8,000 tCO2 / year

Saving : US$ 1,9 million / year (US$ 110/bbl for a thermal plant with a heat rate of 2300 bbl/ GWh).

Services from ABREF : CDM development / CERs brokerage / fund raising

IV. IV. Solar lighting : rural and urban 1/3

Sierra Leone’s energy mix : 90% from fossil fuel power plants10% from hydro

Object of the project : Urban solar lighting in Sierra Leone : Solar street lighting in Freetown and other thirteen cities with a total of 10,000 units of solar systems

(250 kilometers of lighting)

Total power capacity: 3 MWc (3.6 GWh/year)

Total cost : US$ 29 million

► Equity : US$ 9 million► Debt : US$ 20 million► Carbon credits : 2,800 tCO2 / year

Saving : US$ 910,800 / year (US$ 110/bbl for a thermal plant with a heat rate of 2300 bbl/ GWh)

Services from ABREF : CDM development / CERs brokerage / fund raising

IV. IV. Solar lighting : rural and urban 2/3

Guinea’s energy mix : 57% from hydro43% from thermal source

Object of the project : Solar streets lighting in Conakry and other seven cities with a total of 4,485 units of solar systems (112 km of lighting).

Total power capacity: 1.34 MWc (1.6 GWh/year)

Total cost : US$ 20 million► Equity : US$ 2 million► Debt : US$ 18 million► Carbon credits : 1,000 tCO2 / year

Saving : US$ 404,800/ year (US$ 110/bbl for a thermal plant with a heat rate of 2300 bbl/ GWh)

Services from ABREF : CDM development / CERs brokerage / fund raising

IV. IV. Solar lighting : rural and urban 3/3

Republic of Guinea

Object of the project : 6 mini hydro power plants with a total capacity of 37.1 MW (162 GWh/year) providing access to electricity of 34% to its population

Total cost : US$ 129.14 million► Equity : US$ 13 million► Debt : US$ 116.14 million► Carbon credits : 123,120 tCO2 / year

Saving : US$ 41million/ year (US$ 110/bbl for a thermal plant with a heat rate of 2300 bbl/ GWh)

Republic of Mali :

Object of the project : 3 mini hydro power plants with a total capacity of 2.86 MW (21.5 GWh/year) covering energy needs of agricultural land irrigation and energy needs of 6 villages with an average of 3,500 households

Total cost : US$ 14 million► Equity : US$ 1.4 million► Debt : US$ 12.6 million► Carbon credits : 16,340 tCO2 / year

Saving : US$ 5.44million/ year

V. V. Small dams projects

21

Head of Project

Mr. Thierno Bocar TALL

Tel : (+228) 221 68 64Fax : (+228) 221 86 84

(+228) 222 81 51

E-mail : infos@faber-abref.org

www.faber-abref.org

THANK YOU FOR YOUR KIND ATTENTION

ContactsContacts

Information sources : CIP, IEA, UNDP, UNFCCC, World Bank