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How Development Banks can Finance the Implementation of NAMAs

UNFCCC Climate Finance Briefing

Warsaw - 12 November 2013

Jochen Harnisch, KFW - Competence Center Environment and Climate

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About KfW Group

› Development bank of Germany

› Founded in 1948 for implementation of the Marshall Plan

› More than 5000 employees

› We finance investment in Germany & Europe

› We provide international project & export finance

› We provide support for developing countries

› USD 94 bn. of new commitments in 2012 (thereof 40% climate and environment)

› USD 31.8 bn. for mitigation projects (e.g. energy, transport, waste, forestry)

› USD 0.6 bn. for adaptation projects (e.g. water sector, agriculture)

› USD 2.1 bn. of climate finance in developing countries

› Instrument: Grants, concessional and commercial loans, guarantees, mezzanine and equity

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› Network of 20 leading development finance institutions with mandates for national, sub-regional, regional and international activities around the world.

› Combined assets of more than USD 2,100 billion

› New commitments added up to approx. USD 390 billion

› Activities : Green finance mapping, exchange on good practices in private sector mobilisation and support of GCF implementation

› Current work plan: green infrastructure finance, support of SMEs, broader mapping of activities

The International Development Finance Club (IDFC)

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IDFC Climate Finance Mapping 2013

Source: Ecofys, 2013

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GHG Mitigation: Change Global Investment Pattern (IEA WEO 2011)

0

100

200

300

400

500

600

700

800

900

1000

Renewables Nuclear Total CCS Total FossilPlants

Trans & Distr. Biofuels Total extraction Total EnergyEfficiency

An

nu

al G

lob

al In

vest

men

t [U

SD

bill

ion

]

CPS World

NPS World

450 World

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Dimensions of NAMAs (Nationally Appropriate Mitigation Activity)

National (low carbon) development strategy

Sectoral or cross-sectoral policy mechanism

Individual investment decisions

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UK-German International NAMA Facility: Selection Criteria (1/2)Eligibility Criteria:

› applied at the first step of the selection process to assess all outlines submitted to the

NAMA Facility for support.

› ensure that outlined NAMA support projects fulfil the essential requirements for their

later implementation through financial and technical support instruments.

› Outlines need to fulfil all eligibility criteria in order to be further considered.

Eligibility of the

submitting entity

Endorsement by the national

government

Cooperation with a qualified

delivery organisation

Degree of maturity

Time frame for implementation

ODA eligibility

Financing volume

Feasibility

Concept for phase-out

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UK-German International NAMA Facility: Selection Criteria (2/2)Ambition Criteria:

› applied to all outlines for NAMA support projects, which have successfully been

assessed against the eligibility criteria

› ensure that the NAMA Facility supports the most ambitious projects available

› assessed on a point-grade system to allow a ranking of all submitted NAMA support

projects

Transformational

Change Potential

Co-benefits

Financial Ambition

Mitigation Potential

Does the NAMA support project contribute to a transformation of the national

or sectoral development towards a less carbon-intensive development path?

Does the NAMA support project provide important additional development co-

benefits beyond the reduction of GHG emissions?

Does the NAMA support project foresee or enable a substantial funding

contribution from other sources?

Does the NAMA support project foresee substantial direct and indirect GHG

emission reductions?

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Financial Instruments – OverviewDiversity of business models and regional foci and mandates

Performance of partner countries and viability of projects

e.g. adaptation projects, capacity building, REDD

Market funds

Public funds

Source of financing

Grants / Budget support loans

loans at IDA and standard terms

Development loans

Promotional loans

Structured Funds, e.g. GCPF

Project financing

Concessionalfunds

e.g. RE projects

EE- and RE-financing

103Topic of the presentation / location / date [dd.mm.yyyy]

KfW Case Study: Wind Farm Gulf of el Zayt in EgyptAfrica's biggest wind farm with 200 MW and pilot project for bird protection

Impa

ctA

ppro

ach

Pro

blem

› Rapidly growing energy requirements

› expensive energy import

› Rising pollutant emissions

› Unused wind energy potential (> 10.000 MW)

› KfW loan (EU-NIF and EIB) for wind farm with grid

connection (i.e. planning, construction, commissioning,

connection, site development, consulting)

› pilot project for bird protection (“shutdown on demand”)

› Efficient and ecologically sustainable electricity supply

› Contribution to global climate protection and to Egypt's

economic development

› bird protection with a positive signal beyond the region

Total investment ca. 340 Mio. €; KfW ca. 191 Mio. € /zv. loan

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KfW Case Study: Energy Efficiency in Residential Buildings in India Adopted experiences from the German subsidy practice

› Share of private households on primary energy requirement: 37,5%

› Ø electricity consumption of urban middle class: 8,000 kWh p.a.

› Biggest economic energy saving potential in new residential housing

complexes (up to 46%)

› Credit line to the National Housing Bank (NHB) to refinance housing

loans in new energy-efficient buildings (at least 30% more efficient than

reference buildings)

› Introduction of an energy efficiency programme (Fraunhofer-TERI

cooperation) and certificate)

› Intensive complementary advice to NHB, building financiers and real

estate developers

› 73 buildings in 11 housing projects certified (>20,000 apartments,

emission reduction of 32,000 tonnes of carbon p.a. so far)

› Three large housing financiers (80% market share) participating

› International awards such as ADFIAP-Merit

Pro

ble

mA

ppro

ach

Imp

act

Total inv. 60 m €KfW financing 50 m €

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KfW Case Study: The Global REDD Programme for Early MoversBridge financing for pioneers

› Deforestation accounts for some 17% of global carbon

emissions.

› When the forest disappears, so do biodiversity and

(poor) people's livelihoods

› Decisions under the Framework Convention on Climate

Change have yet to be made

› Innovative approach to greater outcomes orientation

› Provide bridge financing between today and a future

climate regime

› Remunerates achievements of forest protection pioneers

› Reduce emissions from forest destruction

› Contribute to preserving biodiversity

› Create positive REDD examples at an early stage

Pro

ble

mA

ppro

ach

Imp

acts

Initial investment volume: € 36.5 m

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NAMA Pilot: Ecocasa Program Mexico

› First NAMA in the sustainable housing sector

› Supply of mortgage for low carbon housing and financial incentives for EE investment (incl. TA): Support for up to 27,000 low carbon houses

(-20% CO2) and 800 passive houses (-80%

CO2)

› Co-financing to provide large-scale financing of EUR 160m and allow transformational effects

Level of ambition

› Mexico as one of the first non-Annex I countries pledging to reduce its GHG emissions voluntarily

› NAMA program launched by the ntl. government in 2011 and integrated into the broader national climate strategy (PECC)

› Co-benefit of poverty reduction: focus on low middle income households

National interest and ownership

› Detailed NAMA concept developed by the National Housing Commission (CONAVI) and GIZ supported by the German Environment Ministry

› Detailed economic analysis of the NAMA with a significant NPV

› High modularity of the NAMA program

Maturity and bankability

› Robust and pragmatic MRV methodology for a baseline and different standards for energy efficient houses (EcoCasa I, EcoCasa II, Passive House)

MRV system

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Results based sectoral approaches under EU AIF/LAIF

EU KOMKfW

Regional Partners

Total EU Grant

Funding:€ 17 million

1. Carbon-Linked Incentive Scheme Indonesia (AIF)2. Facility for Performance Based Climate Finance in Latin America (LAIF)

I. Concept Development & Capacity building for Implementation EU TA grants

II. Roll-out Pilot Incentive Schemes EU grants to finance perfomance based incentive schemes

Sector I

Sector II

Sector n

Governments,

public & private sector,

local banks,

consultants

Initiation of substantial investments for pilot projects including leverage through bank lending

Competence for stakeholders in implementing performance based incentive schemes

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Key Elements of Project Preparation and Execution with KfW

1. Project scoping and priorisation

2. Bilateral government negotiations

3. Project prepraration by project executing agency & consultant

4. Project appraisal

5. Financing decision

6. Financing agreement

7. Project implementation by project executing agency incl. monitoring

8. Start of operation and final inspection

9. Performance review and final evaluation

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Strengthen the Pipeline of Bankable Projects

› Huge uncovered investement needs and wealth of ideas for climate related

projects exists

› Scarcity of bankable climate projects, resulting from e.g.

- weak regulatory frameworks (e.g. energy subsidies, collection of fees, lack of

enforcement)

- missing economic viability including concessional funding or missing sustainabilty of

business model

- inappropriate project implementation partner e.g. insufficient implementation

capacíty, no realistic means to meet international fiduciary or environmental and

social stantards, missing credit-worthiness

Involve development banks and other financiers no later than in design of

feasibility study

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How to Make Supported NAMAs a Success?

› Realistic expectations on private sector involvement in NAMAs implementation

- simplicity, transparency and predictability are expected by private sector

- be ready to accept the risk-return profiles of the private sector

- state aid issues and distortion of (inter)national competition to be considered

› Keep NAMA implementation simple

- complexity adds perceived and real risks and transactions costs

- focus on proven instruments: loans, grants, equity and guarantees

- predictable selection criteria: use positive and negative lists for regions and technologies

- flexible and cost-effective framework for monitoring and evaluation needed

› Early focus on bankable NAMAs

- firm alignment with national development priorities

- transformational ambition should be commensurate with available funding

- focus on win-win programmes in selected sub-sectors and countrie

- involve your future financier early on

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Contact Details

Competence Center Environment and ClimateDr. Jochen HarnischHead of Division

KfW BankengruppePalmengartenstrasse 5–960325 Frankfurt am MainGermany

Phone +49 69 7431 - 9695Fax +49 69 7431 - 3796Jochen.Harnisch@kfw.de