Rena Gelb, Carbon Credit Capital, LLC

International CDM Projects:

Financing Requirements and Project Cycles

SEPTEMBER 07
Overview

„ Mostimportant source of financing for CDM

renewable energy projects is local debt
„ SmallCDM renewable energy projects face obstacles
in obtaining debt
„ These obstacles can be overcome by:
„Involvement of international financial institutions
„Involvement of foreign investors
„Recognition by local banks of cash flows from CDM as an
asset against which to lend
SEPTEMBER 07
What is a “project”? Example: Energy project
Promoters/Shareholders

Lenders X Y Z Government
Credit License/
agreement concession

Turnkey
Construction PPA
Contractors Project Power Purchaser

Company
Fuel supply Project O&M
agreement insurance Contract

Fuel Suppliers Insurers Operator

SEPTEMBER 07
How is a project financed?

Sources of Funds Uses of Funds

Other
8%
Convertible debt, Construction
Preferred equity, 11%
Common equity,
Carbon finance
30% Preliminary
Expenses
12%

Debt Plant and

70% Machinery
69%

SEPTEMBER 07
How does a project obtain debt?

„ Title to land
„ Licenses

„ Contract for sale of electricity

„ Equipment and construction
„ Credit worthy promoter
„ Contract for sale of CERs (ERPA)- potential source

SEPTEMBER 07
Who provides debt to projects?
„ Local banks-China, India, Brazil
„ Equipment providers
„ Multilateral Financial Institutions (MFIs) directly
„ MFIs through local banks
z Examples:

z International Finance Corporation (IFC) loan facility through China’s Industrial

Bank
z JapanBank for International Cooperation (JBIC) through Brazil’s Banco
National de Desenvolvimento Econômico e Social (BNDES)- US$500 million loan
agreement
z JBIC(and others) through the Central American Bank for Economic Integration
(CABEI)- US$100 million loan agreement, with a guarantee for the portion
financed by them
SEPTEMBER 07
What are other sources of financing?
Type of investment Sources Questions for
Foreign Investors
Grants MFIs Are there local
restrictions on the
share of foreign
Convertible debt Private Equity (PE)
ownership in the
Funds, MFIs
project?
Preferred equity PE Funds, MFIs
Is there a cap on the
return an investor can
Common equity Promoter/PE achieve?
Funds/MFIs
What are the tax
Purchase of CERs Carbon Funds implications of an
investment?

SEPTEMBER 07
What is the time frame for project implementation?

3-24 months 13-18 months 1 month

Pre-construction Construction Pre-Operating

a) Land title a) Site development a) Trial runs
b) Licenses b) Building
c) Environmental studies c) Civil works
d) Plant design
e) Power purchase
agreement
f) Financial closure
g) Equipment orders

SEPTEMBER 07
How long does the CDM process take?

1-3 months Cost= $10,000-$25,000 (small-scale)

PDD

Host Country
1-3 months
Letter of
Approval

Validation & 3-9 months Cost= $15,000-$20,000 (small-scale)

Registration

Sources of funds: Carbon funds, Project, CER buyers

SEPTEMBER 07
What are the costs of delays in reaching financial
closure?
„ Increased cost of building the project
„ Increased cost of debt
„ Penalties on delaying contracts
„ Inflation

„ Currency fluctuations
„ Solution:
„ Additional financing partners (e.g., MFIs, funds)

SEPTEMBER 07
Conclusions
„ Debt is largest portion of financing to CDM energy projects.
„ Primary source of debt is local banks.
z These may be limited in ability to fund projects due to underdevelopment of
financial system in emerging economies.
„ International investors can contribute to financing of projects by:
z Supporting the local financial institutions; and
z Investing directly to increase credit worthiness of project.

„ CDM can improve financing opportunities of projects by:

z Local banks recognizing ERPA as revenue streams; and
z Carbon credit buyers and funds providing additional financing to project aside
from purchasing carbon credits.

SEPTEMBER 07
 For further information please contact:
Rena Gelb, VP Operations and Director Carbon Finance
Carbon Credit Capital, LLC
561 Broadway, Suite 6A
New York, NY 10012
(212)-925-5697
Rgelb@carboncreditcapital.com
SEPTEMBER 07