Leading infrastructure development

Tracking climate finance

flows in South Africa:

reflections & challenges

Contribution to the OECD/IEA

Climate Change Expert Group Global Forum

19-20th March 2012, Paris

Climate finance is very complicated on the ground …..

• Donor commitments since 2003 > $2.5bn to South Africa

• Fragmented and unrealized potential to reach scale /replicate

• Poor alignment with national development priorities

• Low impact and high transaction costs

2

National Government

(National Treasury)

Private Banks

Development Banks

World Bank

GEF, adapta-tion fund,

others mechanism

Provinces Individual governments

Private Banks

Private Inves-

tors

Munici-palities

Devel-opment

corpora-tions

NATIONAL SOURCES INTERNATIONAL SOURCES

National Government

(Departments)

Provinces Municipalities Development Banks

Development Corporations

Individuals projects

NGO’s

Private Inves-

tors

Donors

Carbon

markets

Public

finances

Adapt

Fund SCCF LDCF

CIFs

SCF CTF

Carbon

Funds

MDG

UN-

REDD

SCAF

REEEP UN-

REED

Financial

institutions

(Public /

Private)

Mitigation /

Adaptation

interventions

Public sector

UNFCCC GEF

Institutio-

nal FDI

Venture

capital

Philan-

thropy

World Bank /

IMF

RDBs / BFIs

UN (and

agencies)

Capital

markets

Financial

resources

GEF TF

Source, Adapted from DNA Economics, 2011

Green Climate

Fund

Bilateral and multilateral support to South Africa

4

BILATERAL Committed: $525m – $1.5bn

(2007-2014)

MULTILATERAL Committed: $500m - $1.5bn

(including co-financings) (2010-2014)

Source of funding Financing instruments Intervention area

Loans, 88%

Grants, 7%

Tech Coop 5%

Renewable Energy

CDM market

Other green

technology

Climate policy

Energy Efficiency

Loans, 90%

Grants, 10%

Energy Efficiency

(SWH)

Natural Resource

Mgt

Technical capacity building

Other green tech

Renewable Energy

Private sources of funding in Renewable Energy sector

5

COMMERCIAL BANKS (1) $4.12bn

(1743MW RE)

NATIONAL DFIS (1) $2.54bn

(1743MW RE)

Source of funding Financing instruments Intervention area

Renewable Energy

(1) Financial close anticipated by July 2012. Potential double

counting of “resources” as part of domestic funding is supported

by bilateral specialist credit lines.

Private equity and exchange traded funds

$312.5bn

Renewable Energy

Energy Efficiency

Trading on green

business

Debt, 70%

Equity, 30%

Equity, 100%

National budgets: Environmental expenditure allocations (2012/13-2014/5 in ZAR’m) (Total $2.25bn)

0 1000 2000 3000 4000 5000 6000 7000 8000 9000

2012/13

2013/14

2014/15

Energy Environment

National Green Fund Environmental Protection

Agriculture & Forestries & Fisheries

6

Unpacking the Dept of Environmental Affairs’ budget (in ZAR’m)

• Programmes and projects relate to the “Working for’s” relating to wetlands, water, waste, rivers, fire through delivery of service while creating employment

7

0

500

1000

1500

2000

2500

3000

3500

Environmental Quality and Protection

Oceans and Coasts Climate Change Biodiversity and Conservation

Environmental Sector programmes

& projects

Green Fund

2012/13 2013/14 2014/15

Policy and regulation

Sustainable development investments

Strategies contained in departmental budgets

8

T rade & Industry

Respond and adapt to the impact of climate change by improving the monitoring of

water resources by refurbishing existing river flow gauging stations and constructing

4 new stations by 2013/14

Water

Energy Facilitate the implementation and adoption of new and renewable energy

technologies by supporting renewable energy projects, the demand side management

programme and the solar water gey ser programme.

Other governm ent initiatives

Industrial development- respond to the growing imperatives of climate change and

environmental concerns and opportunities through the promotion of green

industries and resource efficiency in the economy

T ransport emphasis will be placed on promoting job creation within the transport industry and

reducing its impact on the environment and climate change by promoting energy

efficient solutions and the use of cleaner fuels

Environmental policy alignmentPublic Enterprises

Agriculture Forestry and

Fisheries

NRM facilitates the development of insfrastructure and the sustainable use of natural

resources by providing an enabling framework for facilitating climate change

mitigation and adaptation

Econom ic Developm ent a) New Growth Path: Green Economy Accord. Reports on the implementation of the

green economy strategy over the MTEF period b) Subprogramme: Green Economy

identifies, develops and supports projects, incentives and other measures and

engages with government and non-governmental stakeholders to maximise the job

creation potential of green economic activ ities

Environmental management programme ensures that climate change strategies are

integrated into municipal planning processes by facilitating municipal development

management strategies that are responsive to climate change.

Will begin to implement its green buildings framework and step up efforts to green

state buildings as part of South Africa's strategies for mitigating the effects of global

warming

Public Works

COGT A: SALGA

Investment in green infrastructure and the retrofitting of infrastructure to be more

energy efficient is beign recognised as a government priority and is a focus area with

which the CIDB is aligned.

CIDB

JOBS FUND – R9bn (Green jobs programme?)

Domestic developments: Growing family of national green/climate funds

9

SUSTAINABLE SETTLEMENTS FACILITY – Under development

NATIONAL GREEN FUND – R800M (include multi-donor facility?)($100m)

DRYLANDS FUND – R6.5M

Government , donors &

development institutions Banks Equity investors

Bankable and

sustainable

Enabling

environment

Pre-

feasibility

Studies

Feasibility

Studies

Detailed

business plan

Investment

proposition Capital

raising

Civil society interventions

Project

inception

ACID MINE DRAINAGE – R208M

SWH REBATE R4.1BN

“SUSTAINABLE ENERGY INVESTMENT PARTNERS” FUND – Under development

IDC GREEN ENERGY

EFFICIENCY FUND – R500M

Expanded Public Works Programme (Adaptation focused) $375M

Climate finance tracking challenges

1. Donor driven vs. country driven agendas

2. Definitional challenges – recognition of climate finance vs development assistance

3. Common frameworks needed for donors and ring fencing of individual concerns

4. Pledged, committed and disbursed, currency challenges

5. Counting “climate finance” is difficult - donors engage directly with intermediaries and domestic partners and not always engaging through national structures and reported in “aggregate” (potential double counting)

6. Degree of sophistication of country level tracking system relative to the suite of instruments (grants, loans, guarantees, tech transfer) – “nationally appropriate climate support measures”

7. Tracking concessionary support “passed through” to the projects

8. Impact of donor funds at project level in leveraging additional resources

9. Detailed resourcing needs at country level needed to make bilateral negotiations more effective

10. Utility value of grants (e.g pilot studies) in delivering sustainable outcomes

11. Creating support for growing family of domestic green funding mechanisms

Recognition of need for coordination platform to improve efficacy of international & domestic interventions

10

Supporting country ownership: Creating a national investment plan for transition

11

National Green Fund – R800m

Enabling direct access: Providing support where needed along project cycle

12

Civil society & CSI

[Rxx bn]

National budget

$2.25bn

Bilateral & multilateral [ca. $2bn]

Domestic DFIs

$3.1bn –$5bn

Commercial Banks

$3.75bn

Institutional investors

10% ESG

Insurers

Rxx bn

TRACKING FINANCE ALONG A RISK TOLERANCE SPECTRUM

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

The Relationship between Private Sector Investment and Development Finance

Development Finance Cost (bn) Private Sector Investment

Green Transition 2015

Green Transition 2021

Low carbon & resource efficient &

climate resilient economy - 2030

Emerging principles to advance climate finance effectiveness @ country level

1. Own the definitions - equity, pragmatism, trust, innovation, transparency, accountability

2. Power of planning – what, when, where and how @ programme level

3. Power of the package (product) – finance, technology transfer, technical assistance

4. Power of the pack – Right partners for the right programmes

5. Power of the innovation – relevant and appropriate resources

6. From commitment to action – Prototype for immediate application

7. Lighthouse watch – Focus on the long road, not short term

6Ps – Planning, policy, programmes, processes, package, partners

14

Ms Chantal Naidoo

Development Bank of Southern Africa

Environmental Finance

chantaln@dbsa.org +27795048724

National Climate Change Response White Paper

Creating a sustainable framework to finance green & climate investments

15

Additional information: Creating platforms for coordination

Population Growth

Migration Patterns

Rate of urbanization

Consumption

Energy Supply patterns

Diminishing Natural

Resources

Regional Integration

Institutions & implementation

Access to resources

Sustainability & development

We are

living

in a resource

constrained world

climate finance

(grants/loans/guarantees)+

Technology transfer +

Technical assistance/cooperation

PLUS: private sector,

civil society and capital markets

National Climate Change Response Policy1

National Treasury have the mandate to establish an effective and enabling climate finance architecture and financing strategy for South Africa’s climate change and green economy response.

Climate finance responsibilities (in addition to multi-donor coordination) include:

• Establish an interim climate finance coordination mechanism to resource programmes referred to in White Paper.

• Appoint initial custodian of the mechanism

• Lead a multistakeholder task team to work on long term funding framework for climate finance within 3 years of publication (i.e. October 2014) (Ministers of Finance, EDD and DEA)

17 1. National Climate Change Response White Paper, (referencing Chapter 8 and 11.1.

18

Prototype for a National Green Fund

National Green Fund

[with defined programme windows]

Game plan to establish the interim mechanism

1. Leverage initial capitalisation: Capital raising to leverage initial investment (3x per year)

2. Impact: Transition SA to a green economy

3. Programme windows: Waste, natural resources, energy, build institutional capacity

4. Alignment: Climate policy proposes a National Climate Finance Coordination Mechanism which the fast start option could fulfil in the short term

Capital raising to market to crowd in at least $1bn financing commitments for first five years

Technical Partners

Product offering: 1. Performance

based grants 2. Concessional loan

facilities 3.Technical green

project support 4. Programmatic

support

NT initial capitalisati

on $100m over

3 years

Grants

International &

national sources

Loans and guarantee

s

Project implementers • Municipalities • Private sector • NGOs • Intergovernmental

Support and

advisory

Grants / Loans /

Guarantees

Proposed Climate Coordination Mechanism

19 Source: DBSA climate finance and green economy research, Dec 2010 – October 2011

CTCN

Global Green

Climate Fund Governments

Policy alignment

Implementation

mandate

Inclusive

consultations Channel

funds

MRV

Programmes and projects

Operational

phase subsidy/

grants

Working capital

needs

Promoter

contribution

(equity/ other)

Reporting progress

Representative

process on

priorities

Supplemented by

other sources:

Grants, loans,

specialist credit

lines, export credit

agencies, technical

assistance etc

Co-financing

and

development

with private

sector

Role of coordination mechanism in leveraging private and public capital

Source: Adapted from output of workshop of developing country DFIs hosted by the DBSA, AfD and World Resource Institute (29-31st August 2011)

Matching &

facilitation

Climate Coordination

Mechanism

Implementing agents

Other climate

finance sources

Benefits of coordination mechanism

• Integration: Existing development priorities with climate response

• Ownership: Country owned response strategy

• Demand driven: Bridging gaps that exist within domestic finance sector

• Clarity: Increased capacity to absorb appropriate & relevant technology transfer

• Partnerships: Financing, technical assistance, technology, institutional strengthening

• Transition: Scaled up infrastructure & industrial programmes to unlock growth

• Tracking: Performance based monitoring & evaluation and support

21

Background Information: National Climate Programmes with additional information on Renewable Energy IPPs

22

Additional information: Renewable Energy Programme in South Africa

Current national green & climate programme landscape

“Near term Priority Flagship Programmes” (DEA)

Green Economy Summit (DEA, DBSA)

Green Accord (DW&EA, NEDLAC, IDC, EDD, DTI, DOE, DPE, DHET, DOT, DIRCO)

Climate Change Response Public Works

Green buildings and the built environment Green cities and towns

Retrofitting

Water Conservation & Demand Management

Resource conservation & management Water management

Investment in the green economy

Renewable Energy Clean energy Rollout of renewable energy

Energy Efficiency & Energy Demand Management

Energy efficiency

Energy efficiency Rollout of solar water heaters

Transport Sustainable transport

Carbon emission reductions on roads

Waste management Sustainable waste management practices Sustainable consumption and production

Waste recycling, reuse & recovery

Carbon Capture & Sequestration Clean coal

Adaptation Research Agriculture, food production and forestry

Electrification of poor communities & reduction of fossil fuel open fire cooking & heating

Biofuels

Localisation strategies (youth, coops, skills)

Cooperation at COP17 and follow up

Monitoring and evaluation 23

Parameter

Policy Integrated Resource Plan 2, Integrated Energy Plan

National development aims Energy security, access

Green aims Shift fuel source & reduce energy demand

Target 3745 MW of “clean energy” by 2016/17

Approved programmes South African Renewables Initiative

Funding facility REFIT, Renewable Energy IPP Fund

Current priorities: Renewable energy

24

National Climate Change Response White Paper (Dept of Environment)

National Renewable Energy Programmes

Integrated Resource Plan (IRP2)

(Dept of Energy)

Green Accord (Economic Development

Dept)

Renewable Energy Programme – current status

• Significant investments remaining for IRP2 programme to be implemented (ca $11bn)

• Future focus on job creation, localisation of technology and creating technical capacity within South Africa for industrialization of clean energy and advancing efforts of small IPPs

• Resource mobilisation strategy will go into “high gear” requiring alternate instruments including investment and risk guarantees, connective infrastructure support and tech transfer agreements

25

South Africa – IRP 2 Allocations to date

Source: Dept of Energy & National Treasury, 2011 Source: DBSA indicative estimates (2012)