June 19th, 2012

Carla RicchettiClimate Business Group

IFC - Climate BusinessOpportunities in Emerging Markets

Why climate business innovation in emerging markets?

The top 15 countries = 80% of emissions

BRIC countries = 30% of emissions.

Per capita emissions (tonnes Co2e per annum

)

Source: WRI, CAIT

National em

issions (Gt CO

2e per annum)

Increased resource scarcity necessitates a departure from the business-as-usual growth model

…requiring much greater resource productivity increases

Interlinked resources (climate capacity for GHG, energy, water and land) in combination with…

…rising resource demand due to increasing populations and wealth…

…drive increasing real prices and volatility…

…primarily impacting the world’s poorest people…

Climate change cuts across IFC’s strategic priorities

Water

Security /quality

Food Safety Land Security

Energy SecurityEnergy intensity of water

Biofuels

1st and 2nd generation

Destruction of rain forest for biofuels & agri

Increase in

Catchment size

Water intensity of energy, pollution

Climate Change

Population GrowthEnvironmental pressures

Urbanization

Energy intensity

of food &

food prices

Water intensity

of foods

Burning of agricultural lands pre/post harvest

•Abatement potential, 2030 (GtCO2e per year)

•38•Total

4.6

7.8

1.5

3.5

3.2

1.7

2.0

1.5

1.0

1.1

•10.0•Power

•Petroleum & Gas

•Cement

•Iron & Steel

•Chemicals

•Other Industry

•Transport

•Buildings

•Waste

•Forestry

•Agriculture

•38•Total

•North America

•Western Europe

•Eastern Europe

•OECD Pacific

•Latin America

•Rest of developing Asia

•Africa

•China

•India

•Middle East

•Air & Sea Transport 0.8

1.4

2.7

8.4

2.8

5.7

4.5

1.4

1.9

3.2

5.1

•By sector •By region

However, global and cross-sectoral action is required to reach full potential, 70% of which is in the developing world

• SOURCE: Global GHG Abatement Cost Curve v2.0

•27 GtCO2e per year in developing world alone

•Focus of innovation

• 1 Additional infrastructural investment for supply above BAU level is necessary to fully close the gap

• 2 All greenhouse gases

Innovation will be required to reach necessary resource productivity levels for economic growth

• SOURCE: GDP: Global Insight; Water: McK global supply-demand model; GHGs: IPCC; Oil: IEA WEO 2008 reference scenario; Power: IEA WEO 2008 (historic) and McKinsey Global Abatement Cost Curve v2.0(2030); Food/feed: FAO 2008; IIASA

•Percent •Technical potential

•Historical growth rate

•1995-2008

•1.3

•1.7

•0.8

•1.4

•Water1

•GDP/m3•2.5

•Food/feed

•Yield/hectare

•Carbon2

•GDP/tCO2e

•Energy

•GDP/BTU

•Materials

•GDP/Tonnes

•4.0

•3.3

•1.5

•3.2

•6.4

•Required growth rate

•2008-2030

•3.7

•1.3

•5.3

•1.5

•3.2 ▪ While technically possible, current solutions are still expensive for adoption in much of the developing word

▪ Investment in innovation will be required in order to bring these price points down

Breakthrough innovations will disrupt billion dollar markets, creating new opportunities to capture value

•Disruption scenarios •Growth business •Declining business

•Market size

•$ billions, 2010

•214 •470

•118

•90

•470

•29

•147

•1,100

•3,100

•88

•120

•240

•2,460

•30

•Current CleanTech market •Total addressable market

•Disruption area

▪ 30% reduction in energy use

▪ Ban of incandescent bulbs

▪ Heat reflective windows/films▪ LEDs and lighting controls▪ Energy service companies▪ Advanced HVAC

▪ Traditional light bulb▪ Power/energy company•Energy

efficiency•2

▪ 2-10x increases in US natural gas capacity from shale discoveries

▪ CHP/micro CHP▪ LNG growth▪ Biomass fuel▪ Advanced CCS

▪ Oil refinery▪ Petrochemical•Innovation

in fossil fuel•3

▪ SmartMeters in all homes by 2020

▪ Grid energy storage proliferates

▪ SmartMeters▪ High voltage DC technology▪ In home energy management▪ Grid IT

▪ Traditional meters▪ Meter reading services

•Overhaulingpower infra-structure

•4

▪ 15% of new car sales to be xEV in 2015

▪ Biofuels 5% of liquid fuels by 2020

▪ Battery and electric motors▪ Power electronics▪ Charging infrastructure/comms▪ Biofuels production

▪ Gasoline stand▪ Traditional power train

companies•New mobility•5

▪ >10x energy efficient building material

▪ 8% of chemicals bio-based by 2012

▪ Carbon negative cement▪ Gel based insulation▪ Bio-based chemicals and plastics

▪ Traditional windows▪ High emission cement▪ Fiber glass insulation▪ Fossil based plastics

•Materials•6

▪ 90% of world population with water potential shortage

▪ Advanced pipes, pumps, valves▪ Desalination plants▪ Efficient irrigation systems

▪ Existing agricultural region▪ Manufacturing plants (textile,

chemical, semiconductors, etc)

•Water•7

▪ 20% of power from renewables by 2020

▪ Wind, geothermal, biomass to heat and power, solar power equipment and services

▪ Grid energy storage

▪ Coal, oil burning power plant building, and operation•Renewable

power generation

•1

•Source: McKinsey

IFC and Climate BusinessClimate business will only scale and have impact with significant private

sector participation – that is where IFC has an important role to play

•9

ENERGY: Low carbon generation, energy efficiency, storage, smart

grids.

TRANSPORTATION: Vehicles, systems, fuels and logistics

WATER: Capture, treatment, conservation, wastewater

treatment

AIR & ENVIRONMENT: Emission control, trading and offsets

BUILDINGS: Low carbon strategy, energy efficiency, sustainable

materials.

MANUFACTURING: Green chemicals, RE/EE supply chain, cleaner

production.

AGRICULTURE & FORESTRY: Land mgmt, low carbon and adaptation

strategies, biomass.

RECYCLING & WASTE: Recycling and waste treatment services

IFC invested $1.7 billion in Climate Business in FY11*

US$ millions

IFC has a portfolio of 91 projects amounting to $5.3 billion

* This represented about 14% of IFC’s total investments that year

▪ Infrastructure & Natural Resources finance on/off-grid renewable capacity; resource efficiency in power, transport & information and telecommunications; water

▪ Manufacturing, Agribusiness & Services finance resource efficiency across sectors; climate industry equipment and supply chains; agribusiness and forestry

▪ Financial Markets works through banks, leasing companies, funds and other intermediaries to finance small/medium investments

▪ Clean Technology – investments in innovative, transferable, scalable climate technologies

▪ Climate Financial Products & Funds to better serve companies and attract more capital across all sectors

By 2013, IFC aims to increase its climate business to 20% of its total annual commitments

IFC optimizes for a “triple bottom line” set of criteria when prioritizing investments

1 Financial returns

Traditional investor

3 Sustainable Businesses

IFC

Triple bottom line criteria

1 Economic development

Climate / Environment

2

Single bottom line criteria

▪ IFC believes it can realize attractive returns while pursuing development & climate goals

▪ IFC’s network of capabilities and unique understanding of markets allow it to understand, take on, and mitigate certain risks that traditional investors cannot

IFC’s capabilities make it uniquely positioned to fill a funding gap in the developing world

Relevant domain expertise (tech + sector)

PE/Venture funds IFCInvestment banks

Global network of local expertise

Limited in many dev-eloping geographies, especially IDAs

Limited in many dev-eloping geographies, especially IDAs

Breadth of global net-work, at local level, across stake-holders

Full cycle capital access

Company building expertise

Deploys only equity Limited ability to fund across capital structure due to incentives

Can seamlessly deliver financial products according to company maturity

Deep technology expertise, building sector knowledge

General knowledge in sectors, lack of technology expertise

Deep knowledge across sectors, gaining technology expertise

Core competency Extremely limited Experience from a range of sectors

Success factors

Examples on how IFC can work with firms in Emerging Markets

The six hot spots relate to IFC’s Climate Business mission and global development priorities…

▪ Climate change mitigation and adaptation

▪ Sustainable expansion of access to energy, water and food

▪ Increasing resource productivity

•Priorities •Primary drivers •Innovation hot spots

▪ Rural electrification▪ Oil independence

•Clean energy•1

▪ Solar, Wind▪ Biosystems▪ Energy storage

•Industrial efficiency•3

▪ Waste reduction and management▪ Market competitiveness and long term

sustainability

▪ Waste▪ Energy efficiency▪ Biosystems

•Sustainable urbanization•2

▪ Pollution and health management in growth centers

▪ Sustainable consumption models

▪ Buildings▪ Energy efficiency▪ Energy storage▪ Water

•Agriculture, water, and forestry

•4▪ Sustainable land use▪ Support for population growth

▪ Water▪ Biosystems▪ Energy efficiency

•IFC Climate Businessmission

Solar: illustrative investment theses•Early stage •B •Growth •C•A •Project

•Selected markets/ geographies

•Investment stage•Technology/

•business model thesis

•Rural China, India, South Africa, MENA, Caribbean

•B •C•Secondary power supplies to displace diesel generation with clean energy (e.g., integration with telecom tower power loads)

•China, India, South Africa, MENA, Caribbean

•A•Innovative business models for rooftop & portable solar PV

•Urban China, Southeast Asia SSA

•A •B •C•Innovative solar manufacturingopportunities, in PV module/cells, balance of systems, and concentrated solar power

Energy Storage: illustrative investment theses•Early stage •B •Growth •C•A •Project

•Urban China, India, Russia, Brazil, LAC, SSA

•Electric batteries for mobile and stationary energy storage

•A •B

•SSA•Micro fuel cells for small scale energy production in underserved rural areas

•A

•Selected markets/ geographies

•Investment stage•Technology/

•business model thesis

Water: illustrative investment theses•Early stage •B •Growth •C•A •Project

•Innovative technologies in wastewater treatment as, increasingly, health care costs are priced in

•Urban China, India

•A •B

•Technology/

•business model thesis

•Selected markets/ geographies

•Investment stage

•As water access becomes increasingly scarce, energy-efficient desalination to provide potable water

•Middle East •A •B

•Smart water (sensors, controls, data analysis)

•Urban China, Middle East

•A •B

Waste: illustrative investment theses•Early stage •B •Growth •C•A •Project

•China, India, Indonesia, Caribbean

•Small scale waste-to-energy and thermal gasification

•A •B •C

•Selected markets/ geographies

•Investment stage•Technology/

•business model thesis

•MICs, MENA•Recycling municipal solid waste or industrial waste, including e-waste where regulatory environment enables

•A •B •C

Bioenergy & Biochemicals: illustrative investment theses •Early stage •B •Growth •C•A •Project

•Biochemicals and biofuels to displace oil as transportation fuel and inputs for chemical industry

•China, Thailand, Brazil

•A •B

•Technology/

•business model thesis

•Selected markets/ geographies

•Investment stage

•Small scale biomass for electricity & heat generation for off-grid applications, using agriresidues or energy crops (mostly in tropical climates)

•India, Brazil, Thailand

•A •B •C

Buildings & Energy Efficiency:illustrative investment theses •Early stage •B •Growth •C•A •Project

•Efficient building materials, heating/HVAC, lighting, and building controls as urbanization in the developing world continues

•China, India, Brazil, Middle East

•A •B •C

•Technology/

•business model thesis

•Selected markets/ geographies

•Investment stage

•Manufacturing of advanced meters and demand response hardware as urbanization in the developing world continues

•Urban China, India, Brazil and East Asia

•A •B •C

Annex – Examples of IFC’s investments

Resource EfficiencyIFC finances the implementation of energy, water and other resource efficiency initiatives across all sectors by supporting solution providers and buyers. IFC has been particularly active in sectors such as cement, metals, pulp & paper, chemicals, food processing, “Green Buildings,”and water and energy distribution. Some examples below:

Assan Demir (Turkey):US$4 million to improve energy efficiency of the aluminum plant. The production improvements minimized heat loss in furnaces, reduced temperature in casting operations and installed efficient lighting systems.

Drujba glass (Bulgaria): US$ 2 million to increase recycling of waste glass through equipment to wash and sort glass by color and remove debris and contamination to yield glass of better quality.

JK Paper (India): 15 measures to reduce water usage financed with an IFC cleaner production loan. These measures are expected to save 3.4 million m3 of water p.a., representing 17% average savings for the two plants.

Jain Irrigation (India): US$60 million to support the increased production of the company’s micro irrigation systems.

Optima (Mexico): US$10 million to support Energy Service Company [ESCO] to promote energy & water saving services to mainly hotel clients.

Supply Chain IFC invests in equipment and component manufacturers to support best practice technology, scale up production and drive down unit costs. Transactions have included efficient engines, motors, and lighting, as well as the supply chain for wind and solar (in the Philippines, India, Russia and China).

Suntech (China, 2009): US$50 million in convertible debt to finance the expansion of the company’s manufacturing capacity to 1 GW

SunPower Corporation (Philippines, 2010): US$75 million in debt to finance capex and working capital needs for the companies solar cell and module facilities in the Philippines

Goldwind (China, 2010): US$75 million equity investment to finance the company’s facilities in China’s frontier regions and for R&D

Gamesa (India, 2011): €11 million loan to finance Gamesa’s new wind turbine manufacturing facility in Chennai, India

Lattice Power (China 2011): US$12.5 million to finance its manufacturing expansion and new silicon based LED chips

Weg (Brazilian Company investing in India): US$25 million to finance clear Electric motors for industrial fans, blowers and pumps, machine tools, household appliances, power tools, and disk drives.

CleantechIFC invests in venture and growth capital stage companies in, or moving to, developing countries, across the full gamut of Cleantech, including: renewable energy, energy efficiency, recycling, and water. In FY11 we invested $70 million.

Atero Recycling (India): is a pioneer in the nascent domestic e-waste recycling market that operations across the full spectrum of the e-waste recycling activities.

Azure Power (India): is an independent solar power producer and the first private sector company to implement a megawatt scale grid connected solar photovoltaic power plant in India.

Microvast (China): is a growing research and technology driven company offering advancedpower solutions for applications including electric vehicles, electric bikes, and power tools, as well as patented battery materials.

Shuoren (China): Shuoren designs and implements blast-furnace dehumidification technologies for major steel manufacturers in China.

Sunborne Energy (India): is a solar focused on developing solar power projects in India, mainly using solar thermal or CSP technology.

InfrastructureIFC has invested in hydro, wind, solar, geothermal, and biomass. In FY11 we committed $428 million, which represents 70% of all power capacity investments. Examples of investments in wind and solar power:

China Windpower Group (China, 2010): US$10 million in equity along with US$45 million “A”loan and US$95 million in “B” loans to construct a US 150 million 201 MW greenfield wind farmin Gansu using Sinovel 1.5 MW turbines

Zorlu Enerji Rotor (Turkey, 2010): EUR55 million in long term debt to finance 135 MW greenfield wind project using GE 2.5 MW turbines

Solar Power Co. (Thailand, 2010): ~US$3.4 million in equity for 18 MW (3 x 6 MW) greenfield solar PV power plants

AST (India, 2011): US$5.5M in equity and US$10 million A loan for firm providing solar PV/battery power systems to cell phone tower operators to displace diesel gensets

Climate FundsIFC has invested over $250 million in 12 Climate Change Funds

South Asia:

GEF South Asia Clean Energy Fund, $10m

Aloe II (Green Investment

Asia Sustainability Fund I) $19m

China:

China Environment Fund III$15m

China Environment Fund IV $20m

Southern Africa:

Evolution One Fund, $20m

GEF Africa Forestry Fund, $20m

East Asia:

Asia Environment Partners, $25m

Clean Resources Asia Growth Fund, $25m

Asia Water Fund, $20m

MAP Clean Energy $25m

Latin America:

Clean Tech Latin America Fund II, $20m

IFC’s Climate Business Agenda

Thought Leadership

• Methodologies for setting and monitoring climate goals and standards

• GHG intensity accounting, impact assessment and efficiency guidelines

• Standards: investment indices; “green investment” definitions

• Research: climate risk assessments

• Capacity building for private and public clients related to climate business/policy

• Engagement with DFIs, institutional investors, academia and civil society

Business Opportunities

• Support IFC investments with global knowledge and technical expertise

• Develop scalable climate business models

• Invest in new and transferable technologies

• Develop relations with global and local climate technology companies

• Stay abreast with climate-related business solutions and markets

Innovation

• Advisory services: addressing regulatory, knowledge, skill and risk perception barriers

• Leverage and adapt existing financial products (e.g., carbon)

• Develop new innovative financial products

• Develop efficient mechanisms to leverage public funds with private investment: tap into new climate finance

• Scale up through intermediation with financial institutions and funds