ENERGY SECTOR Opportunities

Blending & other Innovative Instruments

Felice ZACCHEO

Head of Unit

Unit C6 Sustainable Energy and Climate Change

DG DEVCO

3 billion people cook and heat their homes using open fires

and simple stoves burning biomass (wood, animal dung

and crop waste) and coal.

Over 4 million people die prematurely from illness attributable to the

the household air pollution from cooking with solid fuels (WHO,

2016).

Need to increase access to energy and do it with renewables: facts & figures

1.2 billion people without access to electricity (IEA, 2016)

Energy poverty Energy financingAnnual requirement for the period from 2010 to 2030 to achieve the universal access to modern energy services and doubling the share of renewable energy in the global mix :

• $50 billion for energy access (current spending is $9 billion)

• $442-650 billion for renewable energy (current baseline of $258 billion).

Except for Europe all regions need to increase investment to meet targets. The

largest annual funding gap by far is in developing Asia.

• $560 billion for energy efficiency (current spending is $130 billion).

(SE4All Advisory Board’s Finance Committee Report on Scaling Up Finance for

Sustainable Energy Investments, 2015)

Climate change

3 pillars of the EU strategy

1. Increase access to renewable energy

2. Increase renewable energy generationcapacity and energy efficiency

3. Contribute to the fight against climate change

• Council Decision on Climate and Energy 2014

• Council Conclusions on Energy and Development 2016

• New European Consensus for Development 2016

• Council Conclusions on Energy and Climate Diplomacies 2017

• Global vision: Sustainable Energy for All UN initiative–2011, UN 2030 Agenda for Sustainable Development-SDG7-2015, Paris Agreement 2016, COP22 Marrakech 2016, COP23 Bonn–2017, G7 and G20 energy, climate and development groups

• The 2030 Agenda for Sustainable Development

• The Paris Agreement

• Addis Ababa Action Agenda (Financing for Development)

• The Africa-EU strategic partnership for energy: 'Energising Africa'

• Global Strategy on the European Union's Foreign and Security Policy

• The international dimension of the EU Energy Union

• New European Consensus on Development

• Council conclusions on energy and development

• European External Investment Plan

International engagement

Political ownership of reform agenda

23 Joint Declarations

Africa Renewable Energy Initiative (AREI)

Contribution to National/Regional and Global Indicative Programmes with (EUR 2.7 billion to sustainable energy in Sub-Saharan Africa)

Covenant of Mayors in SSA to strengthen the role of local authorities

Capacity building

Technical Assistance Facility (TAF) – supporting Reforms and regulatory frameworks

Investments

Regional Blending facilities

ElectriFI

European External Investment Plan (EIP)

3 drivers of the EU strategy

FINANCIAL ASPECTS

EUR 3.7 billion allocated from EU

development funds to sustainable

energy actions in developing countries

(2014-2020)around EUR 2.7 billion

for Sub-Saharan Africa

30 partner countries have significant

allocations to the energy sector (NIP)17 are located

in Sub-Saharan Africa

+priority area for EU cooperation with

regions: Sub-Saharan African, ACP,

Central Asia and Caribbean

+ Sustainable energy is one of the five

thematic areas under the Development

Cooperation Instrument (DCI) thematic

programme Global Public Goods and

Challenges (GPGC) for 2014-2020

Political ownership

Energy as focal sector: Rwanda

• In 2016, the EU signed a 6-years budget support agreement to support Rwanda’s agenda (EUR 177 M) in the energy sector

So far, the EU support has helped Rwanda to increase by 10% the electricity access rate of its population

• To provide access to modern energy for the population• To contribute to the development of industrial activities Prerequisite for the achievement of Rwanda’s goal: a middle-income country by 2020

Objective:

Political ownership

Energy as focal sector: Cote d'Ivoire

• National Indicative Programme (NIP) (EUR 139 M): o To provide access via strengthening and extending the grid in

Abidjan, Bouake, San Pedro;o For actions aiming to increase the percentage of renewable

energy and promoting energy efficiency actions; o To increase the role of mini-grids and independent systems

• More than six different Technical Assistance Facility (TAF) actions and missions since 2014

Strengthening and extending of the BOUAKE electricity distribution network

Political ownership

• EU strongly supports AREI which is an Africa-led initiative established in COP21 with the objective to accelerate and scale up the harnessing of the continent's huge renewable energy potential.

• Its objectives are to achieve at least 10 gigawatts of new and additional renewable energy generation capacity by 2020, and mobilise the African potential to generate 300 gigawatts by 2030.

• EU commitment: EUR 1.5 billion to support 5GW of new renewable energy by 2020 (half AREI objective by 2020).

• State of Play: 19 projects with an estimated EU support of EUR 315 million adopted. Expected to leverage EUR 3.9 billion of investments, Cover the needs of about 1.3 million families Add 1.8 GW of renewable energy generation.

• Enhanced cooperation through existing instruments.

Africa Renewable Energy Initiative (AREI)

Political ownership

Established in 2007 as one of the partnerships created under the ground-breaking Joint Africa-EU Strategy (JAES), at the 2007 Lisbon Summit, the AEEP’s overall objective is to improve access to secure, affordable and sustainable energy for both continents.

AEEP has served as a long-term framework for strategic dialogue between Africa and the European Union on the key energy issues and challenges in the 21st century, with a focus on:

• sharing knowledge• setting political priorities • developing joint programmes

Political ownership

• AEEP 2nd Stakeholder Forum by EU, AUC and Government of Italy(Milano, May 2016):

o Cross-sectoral exchange between high level policy makers with key private sector, academia and civil society representatives in order to facilitate partnerships for on-the-ground implementation;

o Influence energy policy to provide an enabling framework for stakeholders to contribute to rapid development of sustainable energy in Africa.

• 500+ participants: African and EU Ministers, Commissioners and senior officials from the AU and EU, as well as policy-makers, regional institutions, international organizations, the banking and finance industry, the private sector, academia, civil society, and the media.

• Mix of structured panel discussions, targeted networking and business match-making events, media campaigns, and an exhibition and fair showcasing some new technological innovations.

Political ownership

Phase III

1. Improve planning & monitoring capacities of local authorities

2. Prepare Sustainable Energy Access & Climate Action Plans (SEACAPs)

3. Prepare urban sustainable energy & climate related investments

4. Facilitate dialogue with private sector & finance institutions

5. Foster & support cooperation among local authorities & cooperation

between different levels of government

Covenant of Mayors in Sub-Saharan Africa (CoM SSA)

• CoM SSA is a regional CoM initiative that supports SSA cities• CoM SSA is part of the Global Covenant of Mayors for

Climate and Energy (GCoM)• Launched in 2015 – 105 signatory cities as of May 2018 • In addition, 13 pilot cities• Phase I & II (launch & kick-off) (AAP 2015 & 2016): EUR 16MEnergy AAP 2017

Scaling-up and finance: increase number of cities, access to finance, project preparation, TA, twinning, coordination with blending platforms and other initiatives

Phase III (2019-2022) – EU contribution of EUR 25M:

New approach in line with EIP/innovative financing: enabling environment bring in the private sector boost private investments

Political ownership

Women at the centre of EU-Africa energy cooperation

Main EU priorities:

Sustainable Energy and Gender

New Consensus for Development

Agenda 2030 (SDG 5 & 7)

EU Gender Action Plan II

Women and Sustainable Energy Initiative • CfP 2017: 120 eligible concept notes

• 18 full project proposals

• 3 projects selected: EUR 18.1M over 5 years

WISE - Women Increasing Sustainable Energy Access and Use: EUR 5.5M for 5 years to help women establish sustainable businesses in Sierra Leone, Uganda and Kenya

Breaking the Barriers - Promoting women entrepreneurship in sustainable energy value chains through innovative approaches: EUR 4.9M for 3.5 years in Ethiopia, Honduras, Burkina Faso and Malawi

DESFERS - Economic and Social Development of Women through Renewable Energy in the Sahel: EUR 7.6M for 5 years to facilitate access to women entrepreneurship in the sustainable energy sector in Senegal, Mali and Niger

Political ownership

Making sustainable energy investments a reality

Technical Assistance Facility (TAF)

Three TAF contracts > 40 million EUR

Since December 2013

Duration: 6 years

Geographic coverage:

Central and West Africa

East and Southern Africa

Rest of the World

Covers all partner countries, high quality and expertise and support in:

Policy advice

Capacity building

Identification

Mobilisation of funding

Technology transfer

Supports regulatory & policy reforms in partner countries' energy sectors

Assists in the fine-tuning of policies to create a conducive environment for private sector investments

Capacity building

The EU's TAF has supported the development of a harmonised continental regulatory framework for Africa aiming to

strengthen the electricity industry and attract investment.

Analysis of regional & continental regulations

Identification of gaps

Development of strategy & action plan

Harmonized Regulatory Framework for the Electricity Market in AfricaEU SE4All Technical Assistance Facility (TAF) Eastern & Southern Africa

• Economic Regulatory Framework

• Technical Regulatory Framework

• Enabling market environment

• Enhancing RE Frameworks

• Establishing the norms, standards &

frameworks for energy efficiency

The proposal was adopted in July 2017 by the 55 Heads of State meeting during the 29th African Union Summit.

Key pillars for Regulatory Harmonization:Objectives:

African Union Commission (AUC):

Support the work of AUC for integrated, competitive & harmonized electricity

Capacity building

July 2015 Africa Investment Facility (AfIF)

Regional Blending facilities

7 Investment facilities set up for infrastructures in regions worldwide

40 % of projects are energy-related

Blending: an instrument for achieving EU external policy objectives, complementary to other aid modalities. It combines EU grants with loans or equity from public and private financiers.

Investments

17

Regional Blending facilities

Examples

Through AFIF:

Enhancing Vocational Training delivery for the power sector in Nigeria (NAPTIN)

SUNREF Nigeria

Through ITF:

Africa Energy Guarantee Facility(AEGF)

Clean Cooking Programme for Africa

Environmental Credit Lines for Kenya, Uganda and Tanzania – EngagingBanks in Energy Transition Projects

Geothermal Risk Mitigation Facility for East Africa (GRMF)

Renewable Energy Performance Platform (REPP)

Investments

Technical Assistance Facility – SSA Africa

Niger: Hybrid Power Plant Agadez

• Improve and secure the electricity supply of Agadez at a lower cost• Develop the country's RE potential and reduce CO2 emissions • Train Nigelec engineers and technicians in photovoltaic

technologies to enable them to operate large solar power plants themselves

Very low level of electricity supply to Agadez from the coal production site at Tchirozérine, 75 km from Agadez

50% of the population is connected to a very old grid Increasing electricity demand: historic trend and forecast

Total budget: EUR 34 mEU: EUR 16.4 m (2 m TA)AFD: EUR 16 mBeneficiary: EUR 1.6 m

2017

Low electricity supplyElectricity demand: increasing trendsSignificant RE potentialAgadez: migration flow hub

EU support to design and fund the construction of a new power plant using solar energy

Objectives:

Improve securityEconomic & social conditionsStabilize immigrants

Improve electricity supply for the 200,000 to 500,000 people

Investments

• 147MW run-of-riverhydropower plant.

• Located at the border betweenDRC and Rwanda downstreamof Ruzizi II.

• A rock filled dam will be 30mhigh and 120m long with a227km2 watershed.

• Tunnel of 3.9km and 6.7mdiameter.

• Max flow of 150m3/s.

• 3 Francis turbines of 49MWeach.

• Regional power project undera PPP structure.

The proposed Ruzizi III

EPC Costs M EUR

Civil Works 326

MechanicalEquipment

79

ElectricalEquipment

63

Substation – T-Line

15

TOTAL 483

19

Ruzizi III Investments

Indicative budget: EUR 299 m EU: EUR 44 mEIB: EUR 97 m AFD: EUR 14 m KfW: EUR 27 mAfDB: EUR 117 m

2015

Regional Blending Facilities – Western Neighbourhood

Montenegro Grid Section: Trans-Balkan Electricity Corridor (I)

• Montenegrin power transmission system integrated into the wider European energy market.

• Approximately 165 km long 400 kV overhead transmission line from Lasta to Pljevlja and then to the border with Serbia.

• A new 400kV substation in Lastva and upgraded substation in Pljevlja.

Contributes to the establishment of a Western Balkans regional electricity market through the creation of a 400 kV transmission corridor between Montenegro, Serbia and Bosnia and Herzegovina.

Total cost: EUR 127 mKfW EUR 25 mEBRD EUR 60 mWBIF EUR 28.5Beneficiary EUR 17 m

2015

Results:

Investments

Benefits:

• Social welfare benefits associated with the investment on the Montenegrin part are estimated at EUR 7.5 million in 2018 and EUR 5 million in 2023.

• Reduced transmission losses and additional electricity generators on the grid, leading to lower electricity prices for residents, industry and investors.

• Secure power supply in Montenegro by eliminating overloads in the system and so reducing outages.

Regional Blending Facilities – East Neighbourhood

Georgia: Jvari – Khorga Interconnection (Transmission Line & Substation)

• Eliminate existing bottlenecks in the power transmission network in the western part of Georgia• Increase transmission reliability• Improve the country’s security of supply • Facilitate hydropower development and boost the country’s power export and transit potential• Create new jobs on substations in Jvari and Khorga (50 new jobs for local residents)

Jvari-Khorga region in north western Georgia 68 km of transmission lines and a new 500/220kV substation Extension of the Black Sea Transmission Network (BSTN)

Total cost: EUR 59.85 mKfW EUR 22.15 mEBRD EUR 25.20 mNIF Grant EUR 8.0 mGoG EUR 4.5 m

2012

Untapped hydropower reservesLarge potential for GHG emissions savingsGeographical location

Further development of RE resources by expanding the transmission infrastructure to export clean energy to neighbouring markets

'Energy bridge' in the Neighbourhood: Caucasian countries, Turkey/Western Europe, Caucasian and Middle Asia

Objectives:

Investments

Regional Blending Facilities – South Neighbourhood

Morocco: Integrated Wind Energy Programme

• Boost electricity production while protecting the environment and offering clean energy• Meet growing electricity needs• Create new jobs• Develop high level expertise• Promote R&D in the area of wind power

Three wind farms: Tanger II, Midelt and Jbel al Hadid Capacity of 450 MW structured through PPP Programme in line NIF and the Mediterranean Solar

Total cost: EUR 797 mKfW EUR 130 mEIB EUR 350 mNIF Grant EUR 15 mBeneficiary EUR 74 mPrivate sector EUR 228 m

2013

Heavy reliance in energy importIncreasing energy consumption levelsIncreasing price of oil products

Energy strategy focused in the development of RE

Part of the Energy Strategy that places RE at the epicentre of it

Objectives:

Sustainable economic growth

Investments

E

I

P

Technical assistance

• To help developing bankable projects which could be financed under

pillar 1

• To support activities aimed at enhancing business climate under pillar 3

2Enhanced

Investment Climate

• Political and policy dialogue for economic reforms

• Support legal, institutional and regulatory frameworks

• Engaging with the private sector

3European Fund for

Sustainable Development (EFSD)

Mobilising investments and improving access to finance

EFSD Guarantee Fund(especially for the private sector – EFSD Guarantee)

Regional Investment Platforms (Africa and the EU

Neighbourhood)

1

23

One-stop-shop / web portal

External Investment Plan(EIP)

Investments

ElectriFI – global (with FMO, EDFI)

• 2015, launched Paris COP, operationalised 2016

• 120M+ from budget (+10M Power Africa, +5M Sweden)

• Instrument to reduce investment risks for the private sector

• Flagship instrument for S/M scale investments

• Strong focus on access and with rural focus, decentralised and off

grid solutions

• Projects financially sustainable; potential to scale

• Early stage, high risk with flexible financing

• Ticket size 500K – 10M EUR

Investments

• Financing of max 50%, always additional to other funders

• Deployed where projects are too risky for commercial banks

alone and too small for development banks

• Under blending with FMO, sub-delegated to EDFI Management

Company Synergies & coherence between EDFI operations

• Referrals in both ways

• From initial calls for proposals to open door policy and active

sourcing

ElectriFI – global (with FMO, EDFI)

Investments

26

ElectriFI invests in Azuri Technologies

• Country: First phase in Kenya (subsequent phases will expand to other East African countries, including Tanzania, Uganda and Zambia

• Installed capacity: 0.4 MWh• Technology: Pay-as-you-go Solar Home Systems in Kenya• Business model: ElectriFI was approached to help structuring and funding a

new off-balance-sheet debt-financing facility. The main purpose is to provide working capital for the expansion of off-grid energy and service provision in East Africa.

• Impact: 30,000 households connected, 150,000 of beneficiaries with improved/new access

• Finance amounts (rounded):• Total amount: EUR 3 m (expected to

grow to USD 20 m)• ElectriFI investment: EUR 1.5 m

(leverage 2x)• GHG emissions saved in tons of CO2eq:

3,768

Investments

27

• Country: Haiti

• Installed capacity: 3.5 MW

• Technology: Solar PV with battery storage, diesel genset backup

• Business model: AC Micro-grids - promotor is developing,operating and maintaining solar micro-grids, power provideragreements signed with municipalities. Interconnectivity ofmicro-grids will permit an installed capacity of 3.5 MW.

• Project stage: Micro-grids are running in 1 municipality; 5 townsare being studied.

• Impact: 27.000 households (136.000 people)

• Finance amounts (rounded):

Total project cost: USD 14 m

ElectriFI: USD 2.5 m as convertible debt

• Additionality: Expansion and Bridge financing

Sigora connects 3,420 households to 24/7 renewable electricity in Northern Haiti through support from the EU funded ElectriFI

Investments

28

• Country: India

• Installed capacity: 600kW

• Technology: Solar PV with battery storage

• Business model: DC Micro-grids (Developing, constructing, operating and maintaining). Low consumer payments (USD 0,45/week), roving collectors (potential business opportunity when PAYG arrives in India)

• Company stage: Established in 2010; 1850 hamlets served (~23.000 households)

• Impact: 55.000 new connections (330.000 people)

• Finance amounts (rounded)

Total project cost: USD 2.500.000

ElectriFI: USD 1.000.000 (equity)

• Additionality: Catalyse 2 other investors

Mera Gao Power connects 15.000 households to electricity in off-grid rural hamlets in India - ElectriFI

Investments

• First movers: Zambia, Nigeria, Cote d'Ivoire, Benin (more to

come, incl. Asia and Pacific)

• We can consider anything with the sustainable energy sector,

with private sector interest, from access, to RE generation to

energy efficiency

• Source of funds: NIPs, 85 M EUR

• Structure will respond to specific country situation

• Flexibility on defined and agreed focus through selection criteria

(technology, business model, geographic focus, ticket sizes, focus

on sectors such as agri-production …)

• Implementation as of 2nd sem 2018

ElectriFI – country windows (with FMO, EDFI)

Investments

Climate Investor OneWith FMO

• 30M EUR EU contribution, total of 1.3BLN USD

• 20 RE investments increasing access to 7.1 M people, 1.8 mill

tCO2/year avoided, 1.100 MW additonal capacity

• Other co-financiers (NL, USAID, pension funds …)

• Equity investment facility, medium scale projects (50-100 M

USD), mainly on-grid

• 3 funds offering "whole-of-life" financing solutions

• Structured (tier) risk structure (EU first loss)

• Regional key, EU contributions earmarked for SS Africa

• Technology focus: solar, wind, run-of-river hydro

• Under implementation since end 2017

Investments

31

Country Morocco Morocco Morocco Tanzania Djibouti Vietnam

Technology Solar PV On-Shore Wind Solar PV On-Shore Wind On-Shore Wind Near-shore Wind

Capacity (MW) 85 50 30 70 60 50

Development Costs USD 1.5 m USD 2.8 m USD 1.1 m USD 2.8 m USD 7 m USD 5 m

Development loan from CIO USD 0.7 m USD 1.5 m USD 0.6 m USD 1.4 m USD 1.4 m USD 2.5 m

Construction Costs USD 88 m USD 80 m USD 31 m USD 122 m USD 128 m USD 95 m

Investment opportunity for CEF USD 43 m USD 39 m USD 15 m USD 91 m USD 25 m USD 71 m

Estimated GHG Avoided (tCO2eq/year) 327,000 174,000 171,000 69,000

Estimated Number of People Served 580,000 446,000 530,000 124,000

Climate Investor One: Projects

Project Sites

Tanzania Vietnam Morocco Djibouti

Investments

Africa Renewable Energy Scale-Up Facility AFD Group (AFD and Proparco)

• 24M EUR EU contribution

• 5 projects with 250 MW of increased renewable energy

generation capacity, reducing GHG emissions by 300,000 CO2

tons eq/yr

• 12 M EUR > AFD to reinforce public sector actions: public policy,

sector planning, tender preparation for IPP on-grid projects,

electrification sector strategies

• 12 M EUR > Proparco to support private sector projects in the off-

grid and mini-grid sub-sectors focussing on solar

• GUARANTEE FACILITY with 50% covered by EU

• Implementation started 2nd sem 2017

Investments

The Energy-Digital Nexus: Building electricity networks fit for the future to enable productive uses of energy,

job creation and financial inclusion

How?

Preparatory phase: Exploratory mission under the EU Technical Assistance Facility

(TAF) for Sustainable Energy for All

• Catalyse and accelerate the adoption of digital solutions to increase partner countries’ access toaffordable, reliable, sustainable and modern energy

• Use the energy-digital nexus to boost the quality of project pipeline, while targeting productive uses ofenergy, job creation and financial inclusion

• Ambitious focus on challenging environments (Sahel, fragile states, SIDS)

Boost visibility, awareness and technical assistance at country and regional level to improve quality of project pipeline

Target the scope at micro-grids and off-grid autonomous power systems with RE, innovative digital technologies and business models focused on productive uses of energy

Boost micro-financing and crowdfunding capabilities that energy access projects can draw on and leverage digital technologies in their deployment

Step 1

Step 2

Step 3

Vision for this action: We can’t solve tomorrow’s challenges with tools of the past

NEW! Solving tomorrow's challenges through digitalisation

Investments

34

• Contact the following facilities directly:

EIP one-stop-shop (https://ec.europa.eu/commission/priorities/stronger-global-actor/eu-external-investment-plan/how-you-can-engage-external-investment-plan-one-stop-shop_en)

ElectriFI (http://electrifi.eu/)

Proparco (http://www.proparco.fr/fr)

Climate Fund Managers (http://www.climatefundmanagers.com/nl/)

How to get involved?