The role of PPPs in scaling up financial flows in the post-Kyoto regime !Public Private Partnerships: A Focus on Energy Infrastructures and Sustainable Growth, Ca’ Foscari University, 9 May 2014 !

Giulia  Galluccio  

Climate  finance  needs  •  Resources  to  address  climate  change  need  to  be  scaled  up  considerably  

over  the  next  few  decades  both  in  developed  and  developing  countries  (medium  evidence,  high  agreement).  IPCC  WGIII  AR5  

•  Interna3onal  financial  support  pledges  from  COP15  to  COP  19:  –  Every  two  years  statements  on  plans  for  delivering  USD  100  billion  /year  by  

2020  to  developing  countries  –  Pledges  funds  are  to  be  new,  addi3onal  to  previous  flow,  and  may  come  from  

a  wide  variety  of  sources,  public  and  private,  bilateral  and  mul3lateral,  &  alterna3ve  sources  

•  The  total  climate  finance  currently  flowing  to  developing  countries  is  es3mated  to  be  between  39  to  120  billion  USD  per  year    

•  70-­‐100  billion  USD  could  annually  be  needed  over  the  next  40  years  to  finance  adapta3on  to  the  inevitable  impacts  of  climate  change  in  developing  countries  

Future  investment  needs  to  stabilize  CO2  

Figure  SPM.9.  WGIII  AR5  

PPPs  and  climate  change  (I)  

•  Innova3ve  sources  of  finance  will  be  needed,  moving  beyond  carbon  trading  schemes…  

•  The  Public-­‐Private  partnership  (PPP)  model  have  already  been  used  as  a  risk  sharing  structure  to  bring  private  funds  on  the  table  in  several  contexts  would  usually  not  have  being  presented  

•  Only  limited  efforts  have  been  made  to  inves3gate  exis3ng  business  models  capable  to  aYract  the  private  sector  investment  in  climate  mi3ga3on  and  adapta3on  projects.  

PPPs  and  climate  change  (II)  •  The  analysis  performed  over  two  decades  panel  data  confirms  

the  interna3onal  climate  agreements  among  the  key  drivers  of  PPP  energy  investments  in  developing  countries  

•  On  the  contrary  PPP  investments  in  water  and  transport  infrastructures  appeared  not  s3mulated  by  the  Kyoto  Protocol  

•  We  analysed  a  representa3ve  sample  of  4324  PPP  projects  in  low-­‐  and  middle-­‐income  countries  in  three  main  sectors  (WB  PPIAF  Project  Database  hYp://ppi.worldbank.org/)  

   

Analysis  of  exis3ng  PPPs    

 

! 61!

Figure'11'Total'PPPs'sample'by'sector'''

a) number of new projects b. total investments commitments

Figure'12'Energy'PPPs'investment'commitments''

a. development status b. sub-sctors

Figure'13'PPP'investments'in'electricity'by'subsector'

Energy'54%'Transport'

30%'

Water'and'sewerage'

16%'

Source:'PPI'Database,'World'Bank'and'PPIAF'

Energy'63%'

Transport'30%'

Water'and'sewerage'

7%'

Source:'PPI'Database,'World'Bank'and'PPIAF'

Pipeline'7%'

Financial'Closure'93%'

Source:'PPI'Database,'World'Bank'and'PPIAF'

Electricity))

89%)

Natural)Gas)11%)

Source:)PPI)Database,)World)Bank)and)PPIAF)

Electricity)distribu.on)

10%)

Electricity)distribu.on,)genera.on,)

and)transmission)

7%)Electricity)transmission)

4%)

Electricity)genera.on)

79%)

The  energy  case    

•  Electricity  genera3on  and  renewable  energy  sectors  confirm  their  great  poten3al  in  terms  of  capacity  to  aYract  private  finance  via  PPPs  

•  Around  1500  new  facili3es  in  the  2  decades  and  570GW  installed  capacity  (US$520  billion)  of  which  150  GW  in  renewable  energy  projects  (US$190  billion)  

! 63!

Looking at the energy sources, the growth of renewable energy generation,

highlighted by IEA at global level, is also confirmed by the present study of PPP

investments.

Total investments in renewable energy PPP projects, so far have reached the

amount of 190 billion US$ (over 135 billion US$ when including only the

projects reaching the financial closure), and all the new projects in the pipeline

(totalling around 54.7 US$ billion) are related to the renewable energy sector.

In terms of installed capacity, the renewable sector cover the 26% of the total

projected50 installed capacity (150GW over 570GW) (Figure 16).

Figure'16'Installed'capacity'of'PPP'energy'generation'projects'

The impact of the 352 pipeline projects on the renewables share, is also shown by

Figure 17a. When including the latest projects still under development, the share

of renewable energy increase of the 8%.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!50!We! refer! to! projected! installed! capacity!when! including! the! 352!projects!still!in!the!pipeline.!

!"!!!!

!100!!

!200!!

!300!!

!400!!

!500!!

!600!!

1990! 1991! 1992! 1993! 1994! 1995! 1996! 1997! 1998! 1999! 2000! 2001! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011!

GW#

Renewable!energy!

Non"renewable!energy!

Shib  towards  renewable  PPPs  

•  PPPs  are  able  to  capture  the  progressive  shib  towards  low-­‐carbon  sources  of  energy  in  developing  na3ons  

! 64!

Figure'17'Electricity'generation'investments'in'PPPs'by'energy'source'

a) including pipeline projects b) excluding pipeline projects

Figure 18 again provides a meaningful overview of the past and future energy

investments trends in the electricity generation segment both in the renewable and

non-renewable sector as extracted from our selected sample of projects. When

including the amount of investments coming from the pipeline projects (dotted

line), for the first time in the period, PPPs investments in renewable energy

generation exceed those in the fossil fuels energy sectors, thus showing the

evidence of a progressive switch toward low-carbon sources of energy.

Figure' 18' Renewable' and' nonIrenewable' PPP' energy' projects' in' the' electricity' generation'segment'(total'annual'investment'commitments'Iincluding'pipeline)'

Renewable(37%(

Coal(38%(

Diesel(10%(

Natural(gas(15%(

Nuclear(0%(

Renewable(29%(

Coal(43%(

Diesel(11%(

Natural(gas(17%(

Nuclear(0%(

!"!!!!

!10,000!!

!20,000!!

!30,000!!

!40,000!!

!50,000!!

!60,000!!

!70,000!!

!80,000!!

!90,000!!

1990!1991!1992!1993!1994!1995!1996!1997!1998!1999!2000!2001!2002!2003!2004!2005!2006!2007!2008!2009!2010!2011!

Coon

stan

t''2011'US$'(m

illion)'

Non"renewable!

Renewable!

!!!!!!!!!!!!!!!!!Pipeline!

PPPs  and  the  carbon  market  

•  We  found    that  the  business  model  has  been  tested  in  the  carbon  market  (10,9GW  installed  as  CDM)  

! 71!

Figure'26'PPP'and'CDM'projects'shares'

a) installed capacity b) investment commitments

Figure'27'Installed'capacity'of'PPP'and'CDM'projects'in'renewable'energy'in'the'period'2005I2011'

Recent literature (Vagliasindi 2012) has worked on the hypothesis that developing

countries are more likely to attract more investment in renewable based

generation after the entry into force of the Kyoto Protocol. We extended the

analysis including the more recent data from the PPI database and using our

selected sample of PPPs. We assessed the significance of differences between

PPPs volume of investments in electricity generation (and in the segment

renewable energy) prior and after 2005 using the statistical t-test and comparing

the means of the two samples.

CDM$7%$

Non*CDM$93%$

CDM$14%$

Non+CDM$86%$

!"!!!!

!20!!

!40!!

!60!!

!80!!

!100!!

!120!!

2005! 2006! 2007! 2008! 2009! 2010! 2011!

!!

Non"CDM!

CDM!

CDM Non-CDM

PPPs  and  innova3on  

•  High-­‐tech  projects:  PPP  model  demonstrates  ability  to  overcome  financial  and  technological  barriers  and  to  aYract  private  finance  in  high-­‐tech  climate  related  projects  :  –  CC  Mi3ga3on:  Ouarzazate  Concentrated  Solar  Power  Sta3on.  A  complex  risk  sharing  structure  involving  concessional  finance  

–  CC  Adapta3on:  SMART  Tunnel  in  Kuala  Lumpur.  An  innova3ve  solu3on  for  climate  disaster  risk  reduc3on  

•  Behavioural  change  and  new  business  models:  water  PPPs  give  evidence  of  the  unlocked  poten3al  of  this  sector  in  achieving  CC  adapta3on  co-­‐benefits:  Metro  Manila  water  concessions,  Urban  Water  concessions  in  Cochabamba.  

Conclusions  

•  Mainstreaming  climate  change  into  PPPs  –  The  PPP  model  is  already  part  of  the  adopted  solu3on  when  referring  to  

infrastructure  investments.  In  an  ideal  context,  climate  change  issues  should  therefore,  be  simply  mainstreamed  in  investment  planning…but  avoiding  to  lose  the  capacity  to  aYract  financial  resources  locked  for  the  climate  agenda.  

•  IntegraDon  of  climate  and  PPP  pracDces  –  More  integra3on  among  the  climate  and  PPP  prac3ces  would  be  desirable.  

There  is  small  emphasis  on  the  contribu3on  that  PPPs  can  provide  to  CC  policies  from  both  sides.  

•  ImplementaDon  of  databases  –  A  beYer  integra3on  of  databases,  and  the  crea3on  of  a  specific  climate  PPPs  

focus  would  help  future  research  and  dissemina3on  of  lessons  learned.  •  Ad-­‐hoc  climate  change  PPPs  

–  Ad  hoc  sector  oriented  climate  change  PPPs  promo3on  should  be  adopted  by  governments  and  PPPs  focal  points.  NAPs  or  NAMAs  can  be  the  right  place  for  a  PPPs  porholio  defini3on  

 

Thank  you      

giulia.galluccio@cmcc.it  

Ouarzazate  CSP  Sta3on  

•  A  MDBs  climate  PPP  project  •  Main  features:  

–  25-­‐years  BOOT  (financial  closure  Nov.  2012)  –  One  of  the  largest  CSP  plants  (first  phase  160MW)  –  Es3mated  avoidance  of  240,000  tCO2  per  year  –  One  of  the  first  Climate  Investment  Fund  (CTF)  projects  –  It  involves  US$900  Mln  of  concessional  finance  provided  by  7  lenders    

Ouarzazate  CSP  Sta3on  

•  A  good  example  of:  –   a  complex  risk  sharing  and  transfer  structure  –  a  well  coordinated  public  procurement  phase  

SMART  Tunnel  in  Kuala  Lumpur  

•  Main  features:  –  40-­‐years  BOT  (financial  closure  2003)  –  The  tunnel  operates  as  toll  road  or  water  tunnel  –  Bri3sh  Construc3on  Industry  Award  in  2008  and  the  UN  Habitat  Scroll  of  Honour  Award  in  2011  

•  2  main  objec3ves:    –  mi3gate  the  impact  of  seasonal  flash  floods  –  relieve  the  city  of  the  traffic  conges3on  

•  A  good  example  on  how  the  user-­‐fee  PPP  business  model  can  serve  the  adapta3on  agenda  

•  It  addresses  the  need  to  design  new  infrastructural  solu3ons  to  mi3gate  adverse  CC  impacts      

 

SMART  Tunnel  in  Kuala  Lumpur  (2)  

•  It  demonstrates  the  capacity  to  aYract  private  capital  and  ingenuity  in  high-­‐tech  investments  and  in  long-­‐las3ng  partnership  with  the  public  

•  Clear  objec3ves  led  to  a  successful  project  –  It  paved  the  way  for  the  defini3on  of  a  PPP  na3onal  framework  under  the  9Th  Malaysian  Development  Plan  

–  Infrastructure  improvement  and  upgrading  through  PPPs  are  part  of  the  Malaysian  plan  to  reduce  the  carbon  footprint  of  Malaysian  ci3es  in  the  second  decades  of  this  century  

Water  PPPs  

•  Water  PPPs  are  among  the  first  PPP  projects  that  have  been  developed  in  developing  countries  to  provide  water  services  and  improve  access  to  water.  Despite  the  great  importance  of  the  water  sector  in  the  climate  change  context  the  analysis  of  PPP  panel  data  showed  that  water  PPPs  are  not  driven  by  the  climate  global  agenda.  

•  The  analysis  of  best  and  worst  case  studies  gave  evidence  of  the  unlocked  poten3al  of  this  sector  in  achieving  CC  adapta3on  co-­‐benefits  – Metro  Manila  water  concessions  –  Urban  Water  concessions  in  Cochabamba  

Metro  Manila  Water  Concessions  

•  The  concessions  encountered  financial  difficul3es,  the  strong  coopera3on  and  public  commitment  to  clear  contractual  targets  were  crucial  –  Extension  of  water  services  and  reduc3on  of  water  losses  –  13%  of  water  losses  in  East  Manila  and  water  connec3ons  increased  of  48%  since  2006  in  West  Manila  

•  Water  sufficiency  is  a  strategic  priority  of  the  Philippines  Na3onal  Climate  Change  Ac3on  Plan  2011-­‐2028  

•  Concessionaires  are  now  working  with  US  NCAR  to  integrate  CC  risks  and  CC  adapta3on  analysis  into  investment  planning  

Urban  water  concessions  in  Cochabamba  

•  The  40-­‐years  Agua  del  Tunari  ROT  concession  survived  only  7  months  with  a  drama3c  escala3on  of  events  in  2000  

•  Main  failure  components:  –  Inadequate  ins3tu3onal  capacity  in  managing  the  en3re  PPP  process  

•  Failed  compe33ve  bidding,  direct  nego3a3on    –  Lack  of  communica3on  with  all  stakeholder  par3es  –  Too  ambi3ous  objec3ves  

• Water  services  rehab  and  Misicuni  dam  construc3on  

Urban  water  concessions  in  Cochabamba  today  

•  The  new  Agua  para  Todos  PPP  is  successfully  opera3ng  with  a  Public  Private  Community  Partnership  since  2005  –  Aber  5  years  of  implementa3on  of  the  partnership  25,000  people  had  access  to  modern  water  services.  

–  Agua  para  Todos  won  the  2005  SEED  Award  –  All  the  previous  failure  components  were  successfully  addressed