For more information: Thierno Bocar Tall Email: [email protected] [email protected] 128, Boulevard du 13 janvier BP : 2704 Lome – TOGO http://www.faber_abref.org TABLE OF CONTENTS APPENDIXES ------------------------------------------------------------------------------------------------------------ II GLOSSARY OF KEY TERMS ------------------------------------------------------------------------------------------ II EXECUTIVE SUMMARY ---------------------------------------------------------------------------------------------- III 1 INTRODUCTION --------------------------------------------------------------------------------------------------1 2 RENEWABLE ENERGY IN AFRICA: A MARKET ANALYSIS ---------------------------------------------3 2.1 2.2 2.3 3 ABREC: A CATALYST FOR RET IN AFRICA ---------------------------------------------------------------- 9 3.1 3.2 3.3 3.4 4 BUILDING UP THE INVESTMENT INFRASTRUCTURE ACROSS AFRICA -------------------------------------- 22 PROJECT PIPELINE ORIGINATION AND DEVELOPMENT--------------------------------------------------- 22 ENTERPRISE DEVELOPMENT SERVICES---------------------------------------------------------------------- 24 SEED CAPITAL FINANCING --------------------------------------------------------------------------------- 25 TECHNICAL WORKSHOPS AND SEMINARS ---------------------------------------------------------------- 25 CARBON MARKETS ACTIVITIES ----------------------------------------------------------------------------- 26 RISK MANAGEMENT ---------------------------------------------------------------------------------------- 27 ACE-TAF: ENVIRONMENTAL AND SOCIAL POLICY-------------------------------------------------- 28 6.1 6.2 6.3 6.4 7 GOVERNANCE AND MANAGEMENT TEAM --------------------------------------------------------------- 17 THE KEY TEAM ----------------------------------------------------------------------------------------------- 18 ORGANIZATIONAL CHART ---------------------------------------------------------------------------------- 19 ACE-TAF: A STRATEGIC CONTRIBUTION ---------------------------------------------------------------- 21 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6 CORPORATE MANDATE ------------------------------------------------------------------------------------- 9 ORGANIZATIONAL STRUCTURE ----------------------------------------------------------------------------- 10 ACE-TAF: A STRATEGIC ROLE---------------------------------------------------------------------------- 14 ABREF: A SYNERGISTIC RELATIONSHIP ------------------------------------------------------------------- 15 ABREC: GOVERNANCE STRUCTURE AND FUNCTIONAL ORGANIZATION -------------------- 17 4.1 4.2 4.3 5 THE ENERGY SECTOR IN AFRICA ---------------------------------------------------------------------------- 4 STATE OF RENEWABLE ENERGY IN AFRICA ----------------------------------------------------------------- 4 BARRIERS AND SOLUTIONS FOR RET IN AFRICA ----------------------------------------------------------- 6 IMPLEMENTATION ------------------------------------------------------------------------------------------- 28 DUE DILIGENCE --------------------------------------------------------------------------------------------- 29 MONITORING AND REPORTING ---------------------------------------------------------------------------- 30 COMMON PROBLEMS WITH ESIAS IN AFRICA------------------------------------------------------------ 30 ACE-TAF: FINANCIAL RESOURCES ----------------------------------------------------------------------- 31 7.1 7.2 ACE TAF FINANCIAL PROJECTION ----------------------------------------------------------------------- 31 THE CREATION OF A SUBFUND: AFRICAN GREEN DEVELOPMENT FUND (AGDF) --------------------- 34 Business Plan: ABREC Appendixes Appendix 1: ABREF’s Structure Appendix 2: ABREC Shareholders Appendix 3: ABREC & ACE TAF key team Appendix 4: Pipeline of Pre-selected Projects Glossary of Key Terms ABREC Africa Biofuels and Renewable Energy Company ABREF Africa Biofuel and Renewable Energy Fund ACE-TAF Africa Clean Energy - Technical Assistance Facility. A Special Purpose Vehicle managed by ABREC BDEAC Banque de Développement des Etats de l'Afrique Centrale DBSA Development Bank of Southern Africa EBID ECOWAS Bank for Investment and Development. Equivalently, BIDC or Banque d'Investissement et de Développement de la CEDEAO FAGACE Fonds Africain de Garantie et de Coopération Économique PTA Bank Eastern and Southern African Trade and Development Bank SPV Special Purpose Vehicle governed by a specific and legally binding agreement and administered as a separate fund entity for accounting and reporting purposes RE Renewable Energy EDS Enterprise Development Services ii Business Plan: ABREC Executive Summary The world is on the verge of unprecedented growth in the production and use of renewable energy and biofuels. Although these energy sources supply less than 5% of the world’s energy needs, fluctuating oil prices, national security concerns, global climate concerns, the desire to increase farm incomes, and a host of new and improved technologies are propelling many governments to enact powerful incentives for the production and use of alternative sources of energy. This, in turn, is sparking a large new wave of interest and investment in renewables and biofuels. Renewable Energy in Africa: Ample Opportunities and Difficult execution Notwithstanding these trends, Africa’s share of clean technology financing flows, including carbon credits, remains disproportionately small. In 2009, there was no recorded venture capital investment in Middle East and Africa and asset finance flows reached only US$2.5 billion, most of which into wind and solar; this compares with global investment in clean energy of close to US$162 billion in the same year. In terms of the carbon market, Africa accounted for only 1.96 percent of all registered CDM projects as of August 31, 2010 (only 46 out of 2,350 projects) and most of these projects (17 out of 46) were located in just one country, South Africa. By contrast, sub-Saharan Africa’s contribution to global emissions is relatively small—5 percent of the global total.1 Globally, China is the largest supplier of CERs in the world, issuing 47.67% of all CERs, according to the United Nations Framework Convention on Climate Change (UNFCCC). Still, the potential in Africa is impressive. Assessments conducted by the International Energy Agency confirm that Africa is a potential superpower in renewable energy and biofuels, and a recent World Bank study indicates high potential in terms of CDM opportunities as well. By using the framework of methodologies approved by the CDM, this World Bank study estimates a technical potential of more than 3,200 low carbon energy projects, including 361 large programs, each consisting of hundreds or even thousands of single activities. If fully implemented, this estimated technical potential could provide more than 170 GW of additional power-generation capacity, more than twice the region’s current installed capacity. The additional energy provided, both electrical and thermal, would equal roughly four times the region’s current modernenergy production. Structural problems in Africa have impeded the development of a flourishing renewable energy sector. These problems include: (i) financial impediments; (ii) scarcity of skilled human resources; (iii) lack of awareness and information sharing; (iv) institutional and regulatory hurdles; and (v) infrastructure and market barriers. With low levels of investment affecting the entire energy sector, Africa is generally characterized as having: 1. Low energy consumption per-capita In Africa the key contributing sectors with respect to emissions are forestry and agriculture, which together account for 73 percent of emissions from the region (and 13 percent of the global total emissions from these sectors). 1 iii Business Plan: ABREC 2. High dependency on traditional fuels and oil as fuel 3. Majority of population living in rural areas without access to commercial, stable source of energy ABREC: A Catalyst for RET in Africa In 2008, African institutions (Ecobank, IEI, EBID) along with African states launched a unique initiative for promoting the development of RE in Africa with the creation of a company that structured the financing of RE energy projects. In March 2010 a successor to the former company was incorporated as the African Biofuels and Renewable Energy Company (ABREC) with the mandate to: “Promote the identification, development, financing and implementation of selfsustaining biofuels and renewable energy projects in Africa.” To achieve this objective ABREC devised two strategies: 1. Structuring a series of special purpose vehicles with a mandate to execute ABREC’s vision in specific renewable energy strategies. The African Clean EnergyTechnical Assistance Facility (ACE-TAF) will be the first of such vehicles. It will conduct project origination and evaluation. It will help enterprise develop RE capabilities and it will provide seed capital for selected RE projects; 2. Sponsoring a private equity fund to be managed by an independent third party fund management company with an international reputation and proven track record in structuring and managing institutional strength renewable energy private equity funds. ABREC’s ambition is to become the hub for clean Energy in Africa and as such it upholds a wider agenda that includes policy formation; developmental imperatives and building an educational infrastructure. These objectives will entail: 1. Working closely with states for regional policy harmonization, conducting analytical and diagnostic national studies, enhancing access to information on technology and regional regulations, disseminating information about country policy framework and investment opportunities; 2. Providing services to corporations and project promoters, including: advisory services, energy efficiency program development, training, seminars organization and management of carbon credit (ABREC is considering launching a dedicated special purpose vehicle for carbon); 3. Collaborating with research bodies and other academic institutions to enhance policy analysis and policymaking capacity. iv Business Plan: ABREC Shareholders ABREC’s shareholders include EBID as the founding institution as well as African states and leading African institutions that have made a commitment to develop a sustainable renewable energy sector across Africa. Their investment in ABREC is recognition of the leading role that ABREC will play in working with both the private and public sectors across Africa to promote the development of the clean energy sector. Whilst providing both financial and political support to ABREC and its affiliates, African states will remain passive investors with limited voting rights and will not interfere in the strategic direction or day-to-day operations of the company. Organizational structure The current organizational structure is a strategic choice originally guided by the World Bank. In line with the broader objectives of ABREC’s founders, it was decided to put in place a framework that would allow ABREC to develop over time the capacity skills and financial clout to structure and launch the next generation of Renewable Energy Funds. Thus recognizing the importance of attracting the support of international investors and adopting best international practices, the founders of ABREC opted outsource the management of its first fund to a reputed international fund manager with an established track record in renewable energy that will run the fund as an institutional private equity vehicle. The founders also recognized the need to foster capacity building in the renewable energy sector and to promote a coordinated response to climate change. Thus, it was decided to set up a technical assistance facility (ACE-TAF) to be managed by ABREC. This structure, the first vehicle that will be launched by ABREC, has attracted broad institutional and political support. ABREC created with an International Company status, headquartered in Lomé, will be active in all African regions. To achieve a successful continent coverage, four regional offices will be created: - ABREC West Africa, based in Accra ABREC Central Africa ABREC South Africa ABREC North Africa Each regional office will be hosted by a regional institution, partner of ABREC. So far, a number of prominent institutions have expressed an interest in hosting ABREC offices, including the Banque de Développement des Etats de l'Afrique Centrale (BDEAC), the Eastern and Southern African Trade and Development Bank (PTA Bank), and the Development Bank of Southern Africa (DBSA). The regional offices will focus on projects based in their geographic area whereas interregional projects will be under the management of ABREC headquarter. v Business Plan: ABREC The legal relation between the Headquarter and regional offices will depend on the constraint of hosting institutions. Thus in some cases, regional offices may be shareholders of ABREC or merely partners. Building an African Renewable Energy Database ABREC will develop the information database and local contacts necessary to evaluate legal and regulatory issues specific to each country. Parallely it will promote technical and financial, project evaluation expertise. Promoting Skill Formation ABREC will also promote skills formation at the public and private sector level in Africa by means of a series of technical workshops and seminars. These courses primarily aimed at fostering an investment culture will focus on, institutional and regulatory aspects of renewable energy (including the development of national and sectoral policies as well as regional policy harmonization); finance and business models appropriate to ensure faster uptake and scaling-up of renewable energy in Africa; and clean energy technology choices and technical evaluation. ACE-TAF selection of early stage bankable projects ACE-TAF’s key objective is to help the RE sector mature. It will develop a robust pipeline of bankable projects to offer in priority to ABREF and eventually other investors in Africa. ACE-TAF will also set up a scheme to seed capital for high potential projects that are matured for investment by ABREF. Selecting and scoping bankable projects ACE-TAF will help entrepreneurs and project developers assess the feasibility of renewable energy projects, prepare business plans and investment proposals and undertake the preparatory work (permitting, engineering, contracting, fundraising, etc.) needed to develop an investment opportunity. ACE-TAF aims to become the choice provider of technical assistance for African RE entrepreneurs and project sponsors and will focus on the following: 1. 2. 3. 4. 5. 6. 7. pipeline of potential investable projects for ABREF and other investors pre-feasibility and full feasibility studies for entrepreneurs project evaluation services Assist entrepreneurs in writing business plans Assist entrepreneurs and financial institutions with CDM transactions Negotiate power purchase or other off-take agreements Provide seed capital to carefully selected projects ABREF will cooperate with ACE-TAF to the extent that much of ACE-TAF’s origination efforts will be steered by ABREF’s investment objectives. As such the latter will have vi Business Plan: ABREC priority above other institutional investors in reviewing and selecting projects presented by ACE-TAF. ACE-TAF will also provide seed capital for selected high potential projects in which ABREF has a strong interest in investing once the company is scaled and matured by a first round of financing. Such strategy in light of the state of the renewable energy market in Africa will concern likely concern Greenfield projects that require early stage start up structuring and seed financing. ABREF – A private equity Fund ABREF is to be incorporated as a private equity fund with the sole objective to make profitable investments. To facilitate such objective it will be supported by an Advisory board staffed by senior financiers from the International Fund Manager (IFM) and ABREC. ABREC’s representatives will be senior African and International businessman. In line with the guidance agreed by the IFM, ABREF’s advisory board will have purely a consultative role and will help promote the fund at the pinnacles of the African and International public and private sector. IFM personnel will also have seats on ABREC’s board and ACE-TAF’s Investment Committee. This measure will help ACE-TAF deploy capital according to commercial private equity practices whilst helping ABREF in its pipeline development efforts. It will also secure a coherent graduation of early stage projects into mature investable companies compliant with ABREF investment criteria. More broadly these measures will position ABREF as a key contributor to the development of an investment infrastructure for renewable energy projects across Africa. These measures should also result in skills transfer to ABREC that will empower it to launch the next generation of renewable energy funds and fulfil its objective of fostering private investment in the renewable energy sector in Africa. Activities to Date ABREC has conducted feasibility studies and helped for carbon trading in public and private sector. Besides, ABREC has signed a number of memoranda of understanding with project developers in West Africa and multilateral organizations with a view to exclusive cooperation on the feasibility studies related to the implementation of biofuel and renewable energy projects in Africa. vii Business Plan: ABREC Governance Structure and Functional Organization To ensure sound governance and accountability, ABREC will put in place a structure independent oversight and public reporting of its activities. The governance structure ABREC will include a Managing Director and a Board of Directors. ABREC’s Board Directors will appoint an Investment Committee to oversee the investment activities ACE-TAF. of of of of Collectively, the Board of Directors of ABREC will represent one of the most seasoned team of financiers in Africa. The Board will be staffed by the leaders of some of the leading African institutions and include some of the most seasoned bankers on the continent and at the international level. In addition to seasoned bankers the Board of Directors, will include experts in Renewable Energy and representatives of anchor donors and investors. ACE-TAF will be an affiliate of ABREC and more specifically a Special Purpose Vehicle headed by a coordinator and under the supervision of ABREC’s Managing Director. Whilst the Managing Director will have the overall responsibility for the operations of ABREC, including ACE-TAF, he will report to the Board of Directors on a regular basis. In addition to providing strategic and operational guidance To ensure that the pipeline development and the seed financing benefit ABREF, the fund manager has committed to assist ACE-TAF to develop and implement appropriate business systems, adopt best practices and develop effective investment selection, monitoring and exiting capabilities. To ensure accountability, particularly with respect to the judicious use of seed capital funds, ACE-TAF will put in place a rigorous reporting and financial auditing system. In this respect, the Board of Directors will ensure that an annual report on the operations of each of ABREC and ACE-TAF is provided to the appropriate stakeholders within 90 days after the end of each financial year and that ACE-TAF reports on the progress of its seed investments on a biannual basis. The Board of Directors will also approve key corporate policies; and it will ensure that appropriate internal controls and auditing procedures are in place. In addition, the Investment Committee will be responsible for overseeing the investments made by ACE-TAF. As a key accountability measure, the Investment Committee will promptly report on its discussions to the Board of Directors by distributing the minutes of its meetings and, where appropriate, by oral reports at Board meetings. viii Business Plan: ABREC In its effort to ensure efficient governance and accountability, ABREC will follow guidance provided by OHADA and the Committee of Sponsoring Organizations of the Threadway commissions (COSO), which is recognized worldwide for providing guidance on critical aspects of organizational governance, business ethics, internal control, enterprise risk management, fraud and financial reporting. Internal procedures following guidance of COSO and OHADA will be submit to the board for validation. Risk mitigating This structure of governance and organization will help better address the main concerns investors have in Africa. The table below showcases the concerns of investors and how ABREC organization will mitigate them. Investors concerns How ABREC will mitigate them? Lack of private equity track ABREF will be managed independently by an International fund manager with proven track record in RE private equity Shortage of bankable projects ACE-TAF will develop a project pipeline for institutional investors and supported by the IFM will provide seed capital for selected projects that will be groomed for ABREF Political interference Government will be passive investors that will not interfere with the management of ABREC Differing Returns Expectations Create a special share class for investors that prioritise developmental objectives and will cap their investment returns and distribute surpluses in favour of other investors or reinvestment in developmental programs Financial Resources ABREC ABREC will be fully funded by its founding shareholders. Its funding level and future revenue stream will be sufficient to fund its operations and development plans. ACE-TAF ACE-TAF will finance its operations mainly from an annual fee charged to ABREF, from client fees it receives for projects undertaken and finally it will require Donors contributions to help bridge its funding requirement. The annual fee charged to ABREF is for pipeline development services ACE-TAF renders to ABREF and will be regulated by contractual agreement between the latter parties. ACE-TAF will also charge subsidy-rate fees to coroporates and entreprenurs for project work undertaken. ix Business Plan: ABREC We have estimated that ACE-TAF has a shortfall of $9.524m reprsenting 60% of its operational cost for the next five years. In addition 20% of the minium the sum sought to deploy seed capital investments has been secured with ABREC and UNEP. Donors will play an important role in the success of ACE-TAF by helping amongst others to bridge the operating funding shortfall gap and to fund the seed capital investment programme. Therefore, it is crucial at this stage to secure additional funding commitments for the initial phase of operations. We expect that the seed investing programme will generate postive returns for the Donors. Performance Criteria ACE-TAF will set explicit criteria by which management and stake-holders will be able to assess progress in the pursuit of the corporate mandate and ensure appropriate use of financial resources. This will include specific objectives on the number of projects evaluated and funded, the number of external seminars organized, and a ceiling on the proportion of resources devoted to administration and overhead expenditures. x Business Plan: ABREC 1 Introduction The world is on the verge of unprecedented growth in the production and use of renewable energy and biofuels. Although these energy sources supply less than 5% of the world’s energy needs, fluctuating oil prices, national security concerns, global climate concerns, the desire to increase farm incomes and a host of new and improved technologies are propelling many governments to enact powerful incentives for the production and use of alternative sources of energy. This, in turn, is sparking a large new wave of interest and investment in biofuels and renewable energy. For Africa, the potential to be an active producer of alternative sources of energy is high. Not only is Africa a potential superpower in renewable energy and biofuels, as concluded in studies and assessments conducted by the International Energy Agency (“IEA”) and the World Bank. By using the framework of methodologies approved by the CDM, a recent World Bank report estimates that just in the energy sector, sub-Saharan Africa could host in excess of 3,200 CDM projects that could attract over $150 billion in investment, produce additional carbon revenues of $98 billion and reduce greenhouse gases by some 9.8 billion tonnes of carbon dioxide through the life of the projects. These projects would add 150 GigaWatts of renewable electricity capacity, more than twice the current installed capacity.2 In addition, there are significant complementarities between public policy in Africa and private-sector projects in clean energy. Biofuels and renewable energy operate at the intersection of three key global challenges: income poverty, energy security, and climate change. Clean energy projects operating in rural areas create employment directly where the majority of income-poor people live, provide the opportunity to supply energy to areas not currently on the electricity grid, and contribute to the global fight against climate change (in addition to improving air quality locally by reducing the amounts of ground-level ozone and other air pollutants associated with extensive burning of wood and charcoal). However, key barriers (including financial sector impediments, lack of human resources, and lack of information on technology) have served to raise the level of perceived risk, dissuade entrepreneurs from taking risks, and deter both domestic and foreign investment in renewable energy and even in the broader energy sector. To encourage entrepreneurship and to promote investment in renewable energy projects across Africa, ABREC will launch a set of Enterprise Development Services (“EDS”) and seed capital financing activities, under a special vehicle named ACE-TAF. These instruments are specifically designed to complement the activities and contributions of ABREF, a new renewable energy investment fund for Africa. Christophe de Gouvello, Felix B. Dayo, and Massamba Thioye (2008) “Low-carbon Energy Projects for Development in Sub-Saharan Africa Unveiling the Potential, Addressing the Barriers” (World Bank). 2 1 Business Plan: ABREC The proposed approach to promoting renewable energy and investing in entrepreneurship builds on existing efforts with the novelty that the specific linking of early stage and subsequent growth investment will garner significant synergies. The general experience of efforts to date have shown that assisting entrepreneurs to take risks, to innovate the way they deliver goods and services, and to experiment and refine their business models, can be an efficient and effective way to develop and grow new sustainable energy markets. However the approach is unlikely to mature to any appreciable scale unless more mainstream investment capital can be encouraged to participate at the early stages of enterprise growth. To this end, new approaches are needed to provide solid linkages between the early stage seed capital support and the subsequent commercial capital energy investment activities. The objectives and operations of ABREC are the primary focus of this business plan. After a market analysis of renewable energy in Africa and the identification of key barriers to a wider adoption of renewable energy technologies, this document reviews the corporate mandate of ABREC and its organizational structure, provides an overview of ABREC’s governance structure and functional organization discusses the main contributions and functions and concludes with a synopsis of the financial projections. Box 1. CDM Potential in Africa According to a World Bank study, the potential for CDM projects in sub-Saharan Africa is: 3,200 projects that can provide up to 170 GW of additional power-generation capacity, about 4 times the region’s current modern-production. More than 12% of the global hydropower potential is located in Sub-Saharan Africa but less than 10% of the 1.1 GW capacity is exploited More than 9,000 MW could be produced through geothermal power but few countries are even exploiting this source of energy. Total forest cover of 650 million hectares accounting for approximately 17% of the world’s total forest cover 9m/s of average wind speed per 80m Most African countries enjoy about 325 days of sunlight per year but solar power remains marginal in most countries. Average sunshine potential in West Africa represents 5 to 6 kWh/m² per day. 2 Business Plan: ABREC 2 Renewable Energy in Africa: A Market Analysis Africa’s vast size, abundant natural resources and suitable agro-climatic conditions makes it an ideal location for the implementation of solar, wind, hydro, biomass, biofuels and other types of renewable energy technologies (“RET”). Consistent with Africa’s current state of infrastructure development and geography of needs, these sources of energy are also well suited for more remote locations as off-grid or local grid applications. Overall, the implementation of RET promises to alleviate many of the key problems that face Africans on a daily basis and to make a significant contribution on global climate change. Although significant barriers have prevented the potential of RETs from being harnessed, global trends and a renewed focus on clean energy present a unique opportunity for Africa. After a brief overview of the state of the energy sector and renewable energy in Africa, this section outlines the key barriers to the implementation of clean energy projects in Africa and discusses how ABREC will assist both entrepreneurs and governments to overcome these challenges. Box 2. Biomass as a Key Energy Source in Africa The primary source of energy in Sub-Saharan Africa is traditional biomass. Over 90% of the total energy consumption is biomass in Ethiopia, DPR Congo and Tanzania. Projections estimate that this will further increase, together with population increase and higher energy needs. In total energy consumption, populous countries, such as Nigeria, South Africa and Egypt have the highest levels of consumption of biomass. 3 Business Plan: ABREC 2.1 The Energy Sector in Africa Consumption of modern forms of energy is very low in Africa, where the primary source of energy is traditional (i.e. non-commercial) biomass. This includes mostly wood fuel (wood and charcoal) but also agricultural residues and animal wastes. Broadly, there are two exceptions to this rule: North Africa which relies primarily on oil and gas as a source of energy, and South Africa which depends most heavily on coal (Box 1). Traditional biomass energy use has severe health and environmental drawbacks. Unvented biomass cooking stoves are a major contributor to indoor air pollution and respiratory illnesses in highland areas of Sub-Saharan Africa. More broadly, reliance on traditional biomass contributes to biodiversity loss, destructive deforestation practices and the prevalence of burnings across Africa. The latter are a major source of surface ozone and the dominant contributor to greenhouse gas (GHG) emissions from Africa.3 Indicative of the failure of the conventional energy sector to provide sufficient levels of energy is the extremely low rate of access to electricity across Sub-Saharan – by far the lowest of any region in the world. With the exception of South Africa and Mauritius, electricity consumption is essentially confined to enterprises and high-income households. For most Sub-Saharan African countries, the proximate causes of this underperformance have been low rates of investment by the private sector and poor financial performance by utilities. Overall, Africa has 13% of world’s population and produces 7% of the world’s commercial energy, but it consumes only 3% of the world’s commercial energy. The IEA estimates that, by 2030, there could still be close to 600 million people in Africa without access to electricity, out of a total of 1.4 billion worldwide. 2.2 State of Renewable Energy in Africa Africa is endowed with substantial renewable energy resources, but similar to the case of the electricity sector, the Continent has been relatively slow at harnessing this potential. The indicators on the extent of the gap between potential and implementation are quite striking: More than 12% of the global hydropower potential is located in Sub-Saharan Africa but less than 10% of the 1.1 GigaWatt capacity is exploited. More than 9,000 MegaWatts could be produced through geothermal power but few countries are even exploiting this source of energy. Most African countries enjoy about 325 days of sunlight per year but solar power remains marginal in most countries. With favourable agro-climatic conditions and available arable land (including semi-arid lands which are suitable for crops like Jatropha) Africa can become a While fossil fuels contribute less than 4% of GHG emissions from Africa, burnings contribute close to 40% and deforestation accounts for roughly 17%. 3 4 Business Plan: ABREC global superpower in the supply of biofuels but most countries do not even have a specific national biofuels policy or consumption targets. Predictably, Africa also underperforms in terms of external financing flows into the clean energy sector and access to carbon revenues. In 2009, there was no recorded venture capital investment in Middle East and Africa and asset finance flows reached only US$2.5 billion, most of which into wind and solar; this compares with global investment in clean energy of close to US$162 billion in the same year. In terms of the carbon market, Africa accounted for only 1.96 percent of all registered CDM projects as of August 31, 2010 (only 46 out of 2,350 projects) and most of these projects (17 out of 46) were located in just one country, South Africa. By contrast, sub-Saharan Africa’s contribution to global emissions is relatively small—5 percent of the global total.4 Globally, China is the largest supplier of CERs in the world, issuing 47.67% of all CERs, according to the United Nations Framework Convention on Climate Change (UNFCCC). More recently, a combination of factors have raised the profile of RETs across Africa. These include: high and variable oil prices, recurrent crises affecting power utilities (including most recently and prominently in South Africa), and key global initiatives on global warming and promotion of clean energy. In addition, there is increasing recognition among development and energy specialists that RETs effectively operate at the intersection of three key global challenges: Energy security Climate change Poverty reduction In particular, clean energy projects operating in rural areas create employment directly where the majority of the income-poor live, provide the opportunity to supply energy to areas where the majority of the energy-poor live, and contribute to the global fight against climate change.5 Figure 1. World Population without Electricity, 2002-2030 In Africa the key contributing sectors with respect to emissions are forestry and agriculture, which together account for 73 percent of emissions from the region (and 13 percent of the global total emissions from these sectors). 5 In addition to improving air quality locally by reducing the amounts of ground-level ozone and other air pollutants associated with extensive burning of wood and charcoal. 4 5 Business Plan: ABREC 2.3 Barriers and Solutions for RET in Africa The launch of a new renewable energy investment fund in ABREF and a complementary set of Enterprise Development Services (“EDS”) and seed capital activities under ABREC, more precisely ACE-TAF is aimed at helping to overcome the barriers that have, thus far, impeded a faster take-up of the available opportunities in renewable energy in Africa. The key innovation in this initiative is the institutional link between ACE-TAF and ABREF which provides the opportunity for technical and financial assistance from the beginning to the later stages of a project’s lifecycle. This synergistic approach of promoting investments provides a unique opportunity to address some of the key gaps facing African entrepreneurs in the clean energy sector, and by extension, it will also create the opportunity for ACE-TAF to work with both government and conventional financial institutions in developing the sector awareness and policies necessary to boost the clean energy sector. In addition, as ACE-TAF establishes its own track record in project origination and evaluation, it will be able to extend its contribution to the building of technical capacity and the strengthening of investment infrastructure in Africa even after ABREF itself is fully invested, which is expected to happen within four years. 2.3.1 Structural Problems Structural problems impeding the development of Renewable Energies in Africa can be effectively grouped into five categories: financial barriers (high perceived risks); infrastructure and market barriers; lack of skilled human resources; institutional and regulatory hurdles; and lack of awareness and information sharing. In practice, the lack of information and general awareness of new technologies certainly impacts each of the other categories, and these barriers are generally inter-related. 1. Financial barriers are a compound problem of lack of ready access to start-up capital, low income, higher real and/or perceived risk, and lack of financing mechanisms appropriate for RETs and local conditions. A relatively underdeveloped financial sector in combination with lingering concerns on the investment environment and lack of awareness of newer technologies has constrained the response of conventional financial institutions to the opportunities available in the clean energy sector in Africa. 2. Infrastructure and market barriers arise partly out of a previous pattern of underinvestment in the energy sector and related financial fragilities of power utilities and partly out of the patchwork of small national markets constrained by a lack of regional policy harmonization. 3. Lack of skilled human resources is in part a general issue of the level of education and training and in part a specific issue related to a lack of well-trained entrepreneurs with information on the opportunities and challenges of new technologies. In some countries where relatively more skilled workers may be available, there tends to be a lack of a critical mass necessary for technology intensive projects. These shortcomings add to the overall transaction costs for 6 Business Plan: ABREC clean energy and raise the sectoral risk perceived by both domestic financial institutions and external investors. 4. Institutional and regulatory hurdles include: (i) policy-related shortcomings such as a lack of clear policy targets for RETs, lack of fiscal incentives for clean energy production combined with existing subsidies for conventional energy sources, and more generally, a lack of guidance on future energy policy; (ii) institutional barriers such as monopoly structures for existing producers and lack of purchase agreements or feed-in tariffs for independent producers; and (iii) weak environmental regulation and enforcement. 5. Lack of awareness and scarcity of information on technology selection creates knowledge and credibility gaps at the level of consumers, lenders, developers, utility companies and planners, particularly in the context of local conditions and more recent technological advances. In Africa, planners as well as potential developers and investors often lack the technical information base to effectively identify and select RETs. Consumers also lack information on the potential energy savings from energy efficiency and sometimes carry negative perceptions given failures with past projects—which likely suffered from poor design, lack of quality implementation, and insufficient maintenance. In aggregate, this set of problems tends to raise transaction costs and has played a key role in preventing Africa from getting its full share of clean energy investment and carbon revenues. 2.3.2 Priorities and Strategies: Overcoming the Structural Problems Over the medium term, the public policy priorities for Africa are primarily driven by the need to promote economic development and to increase access to energy. In this context, recent efforts to plug power supply gaps by stepping up investment in oil-fired thermal generating plants are not a sustainable solution given rising oil prices and the negative impact on emissions. On the other hand, there are significant complementarities between public policy and private-sector projects in clean energy. For example, biofuels and renewable energy projects operating in rural areas create employment directly where the majority of income-poor people live, provide the opportunity to supply energy to areas not currently on the electricity grid, and contribute to the global fight against climate change. However, realizing the ample potential of renewable energy in Africa will require concerted and co-ordinated efforts by all stakeholders. The key strategies necessary to overcome the previously identified set of interlocking barriers include: 1. Building confidence in the investment community and promoting African entrepreneurship; 2. Development of institutional capacity to facilitate carbon financing; 3. Establishment of appropriate regulatory framework (e.g., setting of feed-in tariff); 7 Business Plan: ABREC 4. Infrastructure planning and investment for market access (e.g. transmission lines, rural roads, decentralized power generation and distribution); 5. Strengthening skills and knowledge of local manpower on clean energy technologies (e.g., training targeting specific labour forces); and 6. Dissemination of technical and economic information on clean energy technologies (e.g., information campaigns with equipment providers). 2.3.3 The Approach of ABREC ABREC will help to address these structural problems by working with entrepreneurs, financial institutions and regional governments. ACE-TAF, the operational arm of ABREC by providing EDS (including assistance with licensing and permitting, preparation of feasibility studies, and writing of business plans); will enhance the local capacity of human, technical and managerial skills. ABREC and ACE-TAF will combine with ABREF to provide developers with a unique opportunity to receive both seed capital financing from ACE-TAF, and also to qualify for expansion financing either from ABREF or other private equity investors. As part of the latter effort, ACE-TAF will promote the development of carbon finance desks at conventional financial institutions locally. To help ensure that the public sector also contributes to the promotion of RETs, ABREC will help to: disseminate information about country policy frameworks and investment opportunities; encourage regional policy harmonization; and conduct analytical and diagnostic national studies. Finally, a series of technical seminars will ensure that ACE-TAF personnel, entrepreneurs, financial firms and policymakers are informed of best practices in technical and financial areas. These seminars will be conducted in close collaboration with local and international centres of excellence and educational institutions. Box 3. The Congo Basin and the Kilimandjaro threatened Total forest cover of 650 million hectares accounting for approximately 17% of the world’s total forest cover. After the rainforest, the Congo Basin is the second lung of the planet. It is estimated that by 2080 there will be significant decrease in extents of suitable rain-fed land and production potential for cereals due to climate change and the proportion of arid and semi-arid lands in Africa is likely to increase by 5-8% (60-90 million hectares). The Third Assessment Report of the Intergovernmental Panel on Climate Change (IPCC TAR) reports a warming of approximately 0.7°C over most of Africa. Snow and Ice cover has decreased, and sea levels have risen by 10-20 cm; the Kilimandjaro has shrunk by over 70%. By the end of this century, global mean surface temperature is expected to increase between 1.5 ° C and 6° C. 8 Business Plan: ABREC 3 ABREC: A Catalyst for RET in Africa The Africa Biofuel and Renewable Energy Company (“ABREC”), together with the African Clean Energy-Technical Assistance Facility (“ACE-TAF”) and the African Biofuel and Renewable Energy Fund (“ABREF” or the “Fund”), aims to promote African entrepreneurship and to catalyze international and domestic support to stimulate sustainable investments in Africa in the clean energy sector. This section provides an introduction to ABREC’s mandate and organizational structure, including a discussion on the role of ACE-TAF, ABREC’s key vehicle; the linkages with ABREF, ABREC’s strategic partner. The section concludes with a brief summary of ABREC’s activities to date. 3.1 Corporate Mandate The corporate mandate of ABREC is To create an investment infrastructure that will promote the identification, development, financing and implementation of self-sustaining biofuel and renewable energy projects in Africa. The primary instruments for the pursuit of this mandate will be: ABREF and ACE-TAF The unique relationship with ABREF provides ABREC with access to industry best-practices, operational guidance from the inception of activities and a source of revenues. ACE-TAF will be the primary vehicle and a Centre of Excellence in RE project evaluation, EDS and seed capital financing. To ensure achievement of its mandate, ABREC will: 1. Establish and entrench a culture of corporate entrepreneurship built around the guiding principle that: “Entrepreneurs learn best from entrepreneurs”. 2. Aim for Administrative Excellence, Organizational Excellence and Technical Excellence under the guiding principle of: “Adopting best international practices in each core function”. 3. Organize its professional staff around three main service lines: Project Originators, Research Analysts, and Negotiators. 4. Organize its project evaluation systems around three primary steps: (a) Eligibility Review, (b) Pre-feasibility Appraisal, and (c) Feasibility Assessment. 5. Develop a proprietary methodology for a voluntary emission reduction. 6. Require the technical staff to contribute regularly to two series of working papers to be published by ACE-TAF: a. Technical Papers (aimed at disseminating information on technical and financial evaluation of RE projects in Africa and promoting sectoral investment), and 9 Business Plan: ABREC b. Policy Papers (aimed at analyzing sectoral policy options and promoting regional policy harmonization). 3.2 Organizational Structure Organizationally, ABREC’s structure consists of: 1. A series of special purpose vehicles with the African Clean Energy-Technical Assistance Facility (ACE-TAF) being the first vehicle launched by ABREC. ACE-TAF will not only conduct project origination and evaluation but also provide enterprise development services. 2. A standalone investment fund managed by an International Fund Manager. The experience of the International Fund Manager and its collaboration with ABREC will achieve skills transfer to help the latter launch the next generations of African Renewable Energy Funds. DUET Infrastructure Partners has been selected, after an international tender, to manage the fund. Brief presentation of DUET Duet is a global alternative asset management firm founded in 2002. The Group manages over US$2.4 billion of equity as of the 1st of January 2011, across three business areas: Hedge Funds, Infrastructure & Real Estate Funds of Hedge Funds. Duet Group employs 73 professionals in London, New York, Tokyo, Singapore, New Delhi, Dubai and Istanbul. The ABREF’s structure is presented in appendix 1. Besides overseeing ACE-TAF and collaborating with ABREF, ABREC will: 1. Contribute to sectoral policy analysis and harmonization across countries; 2. Raise general awareness regarding biofuel and renewable energy among the public and private sector through seminars and training; 3. Collaborate with research and other academic institutions to enhance policy analysis and policymaking capacity, deliver effective training programs, and boost technical and sectoral information sharing; 4. Develop energy efficiency program in collaboration with international institutions. 5. Provide advisory services to investors and projects’ promoters; 6. Promote the development of sector-appropriate conventional financial institutions across Africa. financing instruments at 10 Business Plan: ABREC ABREF will be a leading renewable energy fund with a target size of over US$500 million, with first closing expected to raise US$100 million by mid-2012. ABREF will be run as a commercial private equity fund with the usual governance structure including an investment committee and an advisory board. DUET will have sole responsibility over investment decisions. The Fund is expected to make its first investments in 2013, for which a potential pipeline of projects has already been identified by ABREC. These investments are intended to kick-start the renewable energy industry in Africa with specific focus on (i) energy-efficiency, (ii) solar, (iii) wind, (iv) hydropower, (iii) new cogeneration, (iv) fuel switching, (v) landfill gas, and (vi) biofuels. Chart 1. ABREC: Organizational Structure ECOWAS States African Institutions Services agreement DUET ABREC Investment mgt agreement ACE TAF ACF (TBC) SPFn (TBD) FABER Organizationally, ACE-TAF will be an SPV managed by ABREC under a legally binding agreement. ACE-TAF’s mandate encompasses the development of a pipeline of projects that will be offered to ABREF, as well as the funding of feasibility studies and the preparation of business plans. In addition, ACE-TAF will provide limited amounts of seed capital funding for high potential projects supervised by a Seed Financing investment committee staffed by ABREC personnel and IFM personnel. This organization will allow ACE-TAF and then ABREC to build its own track record in fund management and strengthen Africa’s investment infrastructure. 11 Business Plan: ABREC ABREF will be a stand-alone private equity fund managed by an independent International Fund Manager. This association provides unique advantages for ABREC in two keys areas. First, it is the intention of the International Fund Manager and ABREC that a key part of International Fund Manager’s role is to ensure that there is meaningful skill transfer to the staff of ABREC so that, once ABREF is fully invested, ABREC is able to operate as a stand-alone entity in Africa to continue to develop world-class RE projects and secure funding for them. Second, ACE-TAF will benefit financially from the allocation of services agreement fees earned for its pipeline development work in favour o ABREF and potential capital gains from its seed capital financing. ABREC is also considering the opportunity of starting a new vehicle for managing the carbon credits from projects in which it is involved. The purpose of the vehicle hereafter named African Carbon Fund (ACF) is to collect carbon credits and offer them to the carbon market. So far, ABREC along with its traditional partners, EBID and ECOBANK, have financed projects which have generated about two million tons of carbon credit. Considering its continental mandate, ABREC along with its regional partners will create four regional offices. A number of prominent institutions have expressed an interest in hosting ABREC offices. The Offices to be created are: - ABREC West Africa, Accra ABREC Central Africa ABREC East & South Africa ABREC North Africa The relationship between the regional office and ABREC’s headquarter will be as flexible as possible. While some hosting institutions will require shares on ABREC, others will be liaised by a bilateral agreement. The primary objective of regional offices will be to identify potential projects which could be considered for early stage financing. Overall, this structure represents an innovative way to align interests during ABREC transition to a Centre of Excellence in both RE project evaluation and EDS. It will also provide a solid platform on which to ensure that donor contributions to ACE-TAF effectively act as a catalyst for the sustained promotion of RE across Africa. 3.2.1 Brief History In 2008, ECOWAS Bank for Investment and Development (“EBID”, or the “Bank”) appointed Mr. Thierno Bocar TALL to manage a new initiative (the “Initiative”) to explore how Africa could effectively participate in the growth of the global biofuel and renewable energy sectors. Funding and technical assistance was secured from a number of multi‐lateral and regional institutions, most notably the World Bank’s Carbon Finance Assist Program and ECOWAS member states who wished to promote sustainable economic development in ECOWAS and across Africa. The Initiative proposed the establishment of an investment fund aimed at identifying and financing biofuel and renewable energy projects in Africa – the African Biofuel and 12 Business Plan: ABREC Renewable Energy Fund (“ABREF”) ‐ and launched ABREC to group together the interests of African stakeholders who shared the vision of a private sector-led and investment-focused continental strategy. The current structure with ABREC delegating ABREF management to an international fund management company is a strategic choice originally guided by a study conducted with the assistance of the World Bank. It was decided to delegate the management of the Fund to an established fund manager as it provided the best framework to allow ABREC to create the necessary capacity and establish the required track record to be in a position to launch the next generation of investment funds. Indeed, having ABREF managed by an international fund manager with a proven track record will build trust and mitigate the first-time fund concern investors may have, in addition to provide international best practices to ABREC. Thus, in recognizing the importance of attracting the support of international investors and adopting best international practices, the founders of ABREC strategically opted to create the jointly-owned fund management company and to open participation in its share capital to an international fund manager. For the record, the founders of ABREC are the governments of Burkina-Faso, Cape Verde, Gambia, Guinea, Nigeria and Togo as well as the following financial institutions: EBID, Ecobank Group, FAGACE, and IEI of Nigeria. The remaining countries of ECOWAS intend to make their equity contributions available by early 2011. In addition, ABREC has received strong expressions of interest for participation in ABREC from other governments around the continent as well as financial institutions such as BDEAC (CEMAC), PTA Bank (COMESA) and DBSA (SADC). Finally, it is important to emphasize that the ECOWAS Commission and UEMOA have jointly signed an MOU in support of ABREC. The stated intent of the founders of ABREC is to foster capacity building in the renewable energy sector and to promote a co-ordinated response to climate change. This vision includes a key role for ACE-TAF, which is an SPV managed by ABREC under a bilateral and legally binding agreement. ACE-TAF is dedicated to: (i) project origination and evaluation; (ii) the provision of technical assistance to entrepreneurs; (iii) seed capital financing in close relationship with ABREF and (iv)the implementation of bilateral institutions strategy. Organizationally, ACE-TAF will be managed in a manner similar to special funds and facilities at multilateral and financial institutions. Following an international tender process ABREC will select an independent Investment Fund Manager for ABREF. It is expected that ABREF will launch its marketing and fundraising campaign as well as its investment operations early 2011 3.2.2 Stakeholders of ABREC In addition to the project promoter EBID, ABREC’s shareholders include African states and leading African institutions that have made a commitment to developing a sustainable renewable energy sector across Africa. These sponsors have recognized the leading role that the company will play in working with both the private and public sectors across Africa to promote the development of the clean energy sector6(see appendix 2). 13 6 In the circumstances, African governments will not directly contribute equity capital to ABREF. Business Plan: ABREC ABREC will be active in every region of Africa. Organizationally, ABREC has an International Company status and is based in Lomé, Togo, but as capacity is developed and project origination progresses, four regional offices will be set up to ensure continental coverage. 3.3 ACE-TAF: A Strategic Role ACE-TAF will be the main vehicle of ABREC for project origination and evaluation and seed capital financing. ACE-TAF will act as a focal point for the provision of technical assistance to entrepreneurs, financial institutions and governments as it: 1. Develops a pipeline of potential projects to be considered for financing by ABREF; 2. Assists entrepreneurs for pre-feasibility and full feasibility studies; 3. Delivers project evaluation services; 4. Offers Enterprise Development Services; 5. Provides limited seed capital assistance for selected projects; Initially, as it builds internal capacity and establishes its own credibility, ACE-TAF’s project pipeline will be developed in close co-operation with ABREF. The seed capital financing will be managed by a seed capital financing Investment Committee in cooperation with DUET. ABREF will have the first choice of selecting projects sourced by ACE-TAF that meet its investment criteria. Projects that do not interest ABREF will be offered by ACE-TAF to other institutional investors. On the ground, ACE-TAF will help entrepreneurs and developers assess the feasibility of a venture, prepare business plans and investment proposals and undertake the preparatory work (permitting, engineering, contracting, fundraising, etc.) needed to mature an investment opportunity. These services will include: Identification and training of new ‘pre-commercial’ clean energy entrepreneurs and project developers, Targeted coaching services for specific promising investment opportunities, and Co-financing of pre-investment feasibility studies. Some of the project development costs to be covered could include: (i) project technical assessments, (ii) regulatory compliance and framework reviews, (iii) negotiations of power purchase or other off-take agreements, (iv) operational and maintenance cost review and analysis, (v) environmental impact assessments, and (vi) other aspects of the permitting process. As a direct complement to these EDS activities, ACE-TAF also intends to provide seed capital financing intended to grow the scale and scope of selected companies to qualify for subsequent round of financing, potentially from ABREF, but also from other investors. As ACE-TAF develops a network of project originators with continental coverage, it is anticipated that four regional offices will be set up: West Africa, Southern and eastern Africa, Central Africa, and Northern Africa. Initially, activities will be conducted from Lomé, Togo; this 14 Business Plan: ABREC will help ensure that systems and procedures are appropriately adopted throughout the organizations from the start of operations. To carry out project tasks, ACE-TAF will initially rely extensively on external experts while it develops its own internal sector and project specialists. Over time, as ACE-TAF builds more inhouse expertise, the share of work done by internal staff should increase, providing a significant capacity building exercise for African expertise and cost savings. 3.4 ABREF: A Synergistic Relationship As an option, ABREF could select projects from ACE-TAF’s pipeline and consider them for investment purposes. Nevertheless, the IFM is totally free to develop its own pipeline independently. While ABREC’s main objective is to build capacity and nurture a strong pipeline of investment grade projects in Africa, the primary objective of ABREF is to achieve commercial based private equity returns in accordance to its investment criteria. By contrast, ACE-TAF will focus on smaller and/or early stage projects which require technical assistance and are eligible for seed capital financing. Over time, some of the projects in ACETAF’s pipeline are expected to mature sufficiently to become of interest to ABREF, and given the close relationship, ABREF will retain the right of first refusal for any projects identified by ACE-TAF To summarize ACE TAF will have a special relationship with ABREF but not exclusive. As a key contribution to the development of Africa’s investment infrastructure, ABREF’s fund manager, is committed to assisting ACE-TAF to develop and implement appropriate business systems, adopt best practices and develop investment decision-making capabilities. In order to achieve this skills transfer, international fund manager will: Hold joint bi-monthly meetings in Africa to review pipeline projects and generally assist with pipeline management; these meetings will be held at the offices of ACE-TAF; Assist with staff training by including one member of ACE-TAF in selected deal team; and Assist with overall monitoring and management by placing senior members on the Board of ABREC and the seed financing Investment Committee of ACE-TAF. Financially, ACE-TAF will also benefit from a recurrent source of business revenue as a result of its pipeline development work. As indicated in the financial summary in Section 6 below, ABREC will receive service agreement fees from the IFM from which it will compensate ACETAF for its pipeline development work. Activities to Date ABREC has conducted feasibility studies and helped for carbon trading in public and private sector. 15 Business Plan: ABREC Figure 2 : Capture and flaring of methane from Figure 1: Production of bioethanol from sweet municipal solid waste with Hysacam (Cameroun). sorghum with Global Biofuels (Nigeria) Besides, ABREC has signed a number of memoranda of understanding with project developers in West Africa and multilateral organizations with a view to exclusive cooperation on the feasibility studies related to the implementation of biofuel and renewable energy projects in Africa. The table below summarize ABREC project activities to date: PROJECTS COUNTRIES CATEGORIES ACTIVITIES Solar pv public lightning including 10,000 solar streetlights dispatched over 14 towns SIERRA LEONE Public Feasibility study Cogeneration project from organic waste with power injection into the grid (about 28,5 GWh/year) of Ouagadougou BURKINA FASO Public / Private Feasibility study & carbon credits transactions Production of compost from municipal solid waste in Accra GHANA Private Feasibility study & carbon credits transactions Solar public lightning in the main streets of regional capitals and Conakry (4 485 lamps over 8 towns). GUINEE Public Feasibility study Rubber trees plantation (Afforestation and production of latex) CÔTE D’IVOIRE Private carbon credits transactions Municipal Solid waste management in (registered project at the UNFCCC) CÔTE D’IVOIRE Private carbon credits transactions 16 Business Plan: ABREC PROJECTS COUNTRIES CATEGORIES ACTIVITIES Capture and flaring of methane emitted by the decay of municipal solid waste in Douala (registered at the UNFCCC) CAMEROUN Private carbon credits transactions Production of bioethanol from sweet sorghum NIGERIA Private carbon credits transactions 20 MW Wind farm in Zamfara State NIGERIA Private carbon credits transactions Industrial charcoal production CONGO Private carbon credits transactions Construction of a solar PV power plant and rural lightning by solar PV kits NIGER Public Feasibility study 30MW wind farm in Enugu State NIGERIA Private carbon credits transactions 360MW natural gas combined cycle power plant in Téma GHANA Public / Private carbon credits transactions 4 ABREC: Governance Organization Structure and Functional To ensure sound governance and accountability, ABREC will put in place a structure of independent oversight and public reporting of its activities. This structure will be headed by a Board of Directors consisting of the most seasoned team of financiers in Africa and supported by assistance from International fund manager; and it will include the publication of annual financial reports, which will be subject to an external audit, as well as the publication of operational reports on the investment activities of ACE-TAF. 4.1 Governance and Management Team The governance structure of ABREC will include a Managing Director, an Investment Committee and a Board of Directors. While the Managing Director will have the overall responsibility for the operations of ABREC and ACE-TAF, he will report to the Board of Directors on a regular basis. In addition to providing strategic and operational guidance, the Board will also appoint an Investment Committee for ACE-TAF. It is expected that the Board of Directors will consist of eight individuals and the Investment Committee will be composed of five individuals, including independent experts, IFM personnel and representatives of anchor donors and investors. 17 Business Plan: ABREC Collectively, the Board of Directors of ABREC will represent one of the most seasoned team of financiers in Africa. The Board will be staffed by the leaders of some of the leading African institutions and include some of the most seasoned bankers on the continent. ABREF’s fund manager will assist ACE-TAF to develop and implement appropriate business systems, adopt best practices and develop effective investment decision-making capabilities. As discussed previously, this skills transfer will include the fund manager providing oversight for project pipeline management at ACE-TAF by seating on ABREC’s board and on ACE-TAF Investment Committee. To ensure accountability, particularly with respect to the judicious use of seed capital funds, ABREC and ACE-TAF will put in place a rigorous reporting and financial auditing system. In this respect, the Board of Directors will: Ensure that an annual report on the operations of ABREC and ACE-TAF is provided to stakeholders within 90 days after the end of each financial year. Approve, on an annual basis, a written statement of investment and project selection policies, standards and procedures. 4.2 The key team ABREC and ACE TAF key team is composed of: Board members; ABREC and ACE TAF staff; Associated consultants. (For details on the key team see Appendix 3.) Chart 2. Governance Structure of ABREC Advisory and Oversight Executive Management Operational Management Investment Committee Board of Directors Managing Director ACE-TAF Administration and Finance 18 Business Plan: ABREC Approve a corporate communications policy designed to help ensure effective relations and exchanges between ABREC and its stakeholders, including on its investment policy and record of investments. Ensure that appropriate accounting policies and internal controls are in place to safeguard the assets of ABREC, including by reviewing and approving the annual report of ABREC as well as the quarterly and annual consolidated financial statements of ABREC; ensuring that internal audits are conducted in respect of ABREC and its operations; ensuring that an annual auditor’s report is prepared on ABREC’s financial statements, compliance with the stated investment policy, and the record of investments. In addition, the Investment Committee will be responsible for overseeing the investment management and project selection function of ACE-TAF. As a key accountability measure, the Investment Committee will promptly report on its discussions to the Board of Directors by distributing the minutes of its meetings and, where appropriate, by oral reports at Board meetings and provide donors semi-annual updates on the performance of companies financed through its seed capital financing scheme The choice of an SPV structure for ACE-TAF is designed to facilitate (i) expenditure control, (ii) stewardship and financial reporting, and (iii) planning and budgeting. The related legal agreement between ABREC and ACE-TAF will specify inter alia: (i) the mandate and areas of operation for ACE-TAF, (ii) the sources and uses of funds, and (iii) the services to be provided by ABREC. In terms of accounting systems, ACE-TAF will be a separate entity with its own bank account, and financial records and controls 7.Quarterly operational and financial reports will also be available from ACE-TAF and communicated to key stakeholders. The terms of reference (“ToR”) for the Managing Director, Board of Directors and the Investment Committee are attached as Appendices 6-8 to this Business Plan. 4.3 Organizational chart Administratively, ABREC will be a lean organization focused on operational activities, especially through ACE-TAF. At full operation, the contemplated functional structure of the Company is provided below. This structure reflects the need for a governance structure, including a Board of Directors and a sufficient level of separation of management and operational functions that will ensure good stewardship and adequate financial reporting practices. Initially, ABREC will rely extensively on external consultants and employ a minimum of its own structure and employees. That is, the structure discussed herein will be attained over the course of time, as ABREC’s own internal capacity is strengthened and brought online and as warranted by the level of activity in the project development pipeline. 19 7 Standard rules on Fund Accounting (which is common in public sector agencies, multilateral organizations, and legal firms) will be adopted. Business Plan: ABREC Chart 3. Organizational chart of ABREC The corporate organizational chart will be gradually staffed as the company, its activities and its financial resources grow. It is anticipated that the skills base of the organization will evolve to reflect the structuring and increasing complexity of the African market. Within the framework of its policy of corporate governance, the company prepared a document of good governance on the basis of standard COSO (Committee Of Sponsoring Organizations). It puts forward the identification and the evaluation of the operational risks, the procedures, controls, the reporting and the piloting of the whole of the process of administrative management and financial. It lays also down an internal policy of communication. 20 Business Plan: ABREC Box 4. Projects under implementation with ABREC’s support Bingerville Landfill (Côte d’Ivoire) Municipal Waste-To-Energy project from SITRADE (Côte d’Ivoire): The project is the first CDM project ever registered in the West African Economic and Monetary Union (UEMOA) at UNFCCC (on 09 July 2009) with ABREC support in cooperation with ECOSUR. The project will collect and treat 200,000 tons of urban waste per year in a new facility located in Bingerville, North of Abidjan. After collection and sorting, waste will be treated through anaerobic digesters. The resulting biogas will be used to produce electricity while residual waste will be transformed into compost. The project is expected to avoid more than 71,000 tons of CO2 eq. per year. Another project under implementation is Sekondi Takoradi Waste from Ghana. The waste dump at Sofokrom is located 300 meters from the road and habited area. It is situated in an L-shaped valley that is filled for less than one fourth from November 2005. The shape of the area where currently the waste has been dumped is oval shaped. Average depth ca. 11 meters, 500 meters by 2 km. Animal pests like birds and insects are prevalent. People select recyclables on site. There is no control or technological applications, therefore there’s no protection against groundwater pollution. There has been fire half a year ago. Sekondi Takoradi Waste Guinea waste water treatment project 5 ACE-TAF: A Strategic Contribution Under the leadership of ABREC, ACE-TAF will ensure that entrepreneurship, institutional and project management capacity is strengthened across the continent through the adoption of international best practices, the provision of enterprise development support, the development of robust financing mechanisms, and engagement in policy consultancy and advocacy. To complement this effort, ABREF will play a catalytic role in promoting new investments in renewable energy and biofuels across the African continent. The heart of these objectives is developing robust projects that can mature sufficiently to be invested by ABREF or other funds in Africa. This section discusses how ABREC and ACE-TAF will help to develop infrastructure across Africa by supporting entrepreneurship and promoting investments in renewable energy. It also discusses each of the main areas of responsibility of ACE-TAF, namely pipeline building, 21 Business Plan: ABREC enterprise development services, seed capital financing, technical workshops and seminars, and carbon credits. The section concludes with a discussion of the main risks facing the project selection and seed capital investment activities of ACE-TAF. 5.1 Building Up the Investment Infrastructure across Africa Successful execution of their mandate means that ABREC and ACE-TAF will need to develop expertise and capacity for technical and financial evaluation of projects as well as the information database and local contacts that will be necessary to originate projects across Africa and evaluate legal and regulatory issues specific to each country. ACE-TAF personnel will conduct initial desk reviews on the suitability of each project but more complex assessments will be primarily conducted by external experts. Over time, as ACE-TAF builds more in-house expertise, the share of work done by staff should increase, providing a significant capacity building exercise for African expertise. Whilst the project origination and evaluation activities will initially focus on sourcing potential projects for ABREF to consider, ACE-TAF will also process early stage projects that to promote African entrepreneurship and support Africa’s needs for small and medium-sized projects such as off-grid energy generation. In these cases, the goal for ACE-TAF will be to develop and mature these projects further for institutional funding. . As an integral part of the skills formation and entrepreneurial development program, ACE-TAF will prepare (in close collaboration with international centres of excellence and regional educational institutions) a series of external workshops and seminars. ACE-TAF will continue its work of origination and development activity well beyond the period during which ABREF is conducting investment operations. 5.2 Project Pipeline Origination and Development As mentioned above, the initial focus of ACE-TAF will be on the development of a project pipeline of RET projects that can be considered for funding by ABREF. ACE-TAF will initially benefit from guidance from ABREF to help ensure that best practices are adopted by ACETA. 5.2.1 Project Origination ACE-TAF will need to develop region-specific origination teams that will identify potential developers and candidate projects and be able to conduct an initial desk review on their suitability and stage of development. As to date, ABREC and ABREF have originated two projects (Energy forestry in Ghana and Togo and fuel and chemical production from lignocellulosic biomass in Ghana) and selected 19 projects among 90 identified. For more details regarding the projects selected and originated, see Appendix 4. Whilst this pipeline is currently concentrated on West African countries, ABREC and ACE-TAF mandate is pan-African. In 2012, work will intensify to broaden the geographic focus of the pipeline. 22 Business Plan: ABREC 5.2.2 Project Evaluation The projects chosen must all have the potential to stimulate the development of biofuels and renewable energy in Africa, using wherever possible carbon finance to enhance project returns. ACE-TAF will target projects with: Proven technology and a development team with a proven track record who are prepared to build an investment partnership with the Fund Key success and risk factors that are clearly identified and understood An approved CDM Methodology (exception: biofuels, energy-efficiency projects) The support of the Host Country Government (as required) Initially, ACE-TAF will focus its project evaluation efforts on carrying out pre-feasibility assessments of the projects already selected for the pipeline. Where this high level review confirms that a more detailed feasibility assessment is warranted, a combination of internal and external specialists will begin the process of detailed technical and financial evaluations. The chart below provides a general overview of the proposed ACE-TAF approach to renewable energy project evaluation. Chart 4. ACE-TAF Project Evaluation: General Approach Construction and Commissioning Time Feasibility • Readily available site and resource data is utilized to judge whether a more detailed f easibility analysis is needed. • An in-depth review of a project’s viability providing inf ormation on a project’s physical characteristics, f inancial viability, and environmental and social impacts. • Detailed and ref ined inf ormation must be collected and intricate methodology applied. • Engineering includes the design and planning of the physical aspects of the project. • Development involves the planning, arrangement, and negotiation of f inancial, regulatory, contractual and other nonphysical aspects of the project • Certain construction activities can be started bef ore completion of engineering and development, and the two conducted in parallel. Engineering and Development Pre-feasibility Money 23 Business Plan: ABREC 5.2.3 Linkages with ABREF ACE-TAF will not work exclusively for ABREF and will undertake early stage projects that would otherwise required further development in terms of ABREF’s mandate (consistent with ABREC’s broader investment objectives).8 In these cases, the goal for ABREC will be to more actively assist promoters in developing these projects to make them eventually eligible for funding from ABREF or other external funding sources. The diagram below provides schematics for cooperation in pipeline development between ABREF and ACE-TAF. 5.3 Enterprise Development Services As a Centre of Excellence in EDS, ACE-TAF will be responsible for capacity building, feasibility studies, business facilitation and business planning aimed at promoting entrepreneurship in Africa. In the initial phases, ACE-TAF will necessarily rely on outside consultants for these expert services. Over time, the Company will develop internal capacity to provide enterprise development services internally and employ more local experts rather than outside consultants. The chart below provides an overview of how ACE-TAF intends to develop this internal capacity. ACE-TAF will also assist project developers by providing access to research and best practices. Furthermore, ACE-TAF will engage in policy dialogues and consensus building with national governments to ensure that regulation and domestic policy both work effectively to promote renewable energy projects, and to promote policy harmonization across the region. In order to achieve the objectives as indicated above, ABREC acquired in 2011 approximately 10 000 square meters of land (1 ha) intended for the creation of a 200-seat training center and research laboratory for new technologies in the field of renewable energies. In this context, partnerships will be established with research centres and universities in Africa. Given the anticipated size of ABREF, namely $300m at first close and $1bn at maturity, the Fund will aim to invest in approximately ten projects after first close and between fifteen and twenty projects at maturity. As such the average investment size per project is likely to be $50m or higher so the fund will be seeking to invest in major renewable energy projects rather than small or development-stage projects. 8 24 Business Plan: ABREC 5.4 Seed Capital Financing The Seed Capital Financing programme is intended to provide seed capital for projects with exceptional potential. The successful execution of such a programme is predicated upon 1) Participation of the IFM in the investment decision 2) An explicit but non-binding intention of ABREF to invest in the project once it is structured and matured. The Seed Capital financing will be in the form of cash in exchange for a shareholding in the company or at market the value of project development work undertaken or financed by ACE-TAF in exchange for equity, or a combination of the two. Such project development work may comprise (i) project technical assessments, (ii) regulatory compliance and framework reviews, (iii) negotiations of power purchase or other off-take agreements, (iv) operational and maintenance cost review and analysis, (v) environmental impact assessments, and (vi) other aspects of the permitting process; whether it is undertaken by ACE-TAF staff or by third party vendors financed by ACE-TAF. 5.5 Technical Workshops and Seminars ABREC will be a knowledge repository and disseminate information about RE capacity building to the private and public sector in Africa by means of technical workshops and seminars. These courses will focus on: policy, institutional and regulatory aspects of renewable energy (including the development of national sectoral policies and regional policy harmonization); finance and business models appropriate to ensure faster uptake and scaling-up of renewable energy in Africa; and clean energy technology choices and technical evaluation. 25 Business Plan: ABREC Strategic Partnerships In developing and implementing its program of technical workshops and seminars, ABREC will establish training and development linkages with relevant educational institutions as well as other agencies focused on capacity building. In addition to maximizing leverage of expertise and existing initiatives, this approach is specifically geared to promoting the development of capacity building networks. To date, ABREC has reached understandings with the recently established ECOWAS Centre for Renewable Energy and Energy Efficiency (ERC). This agency is charged with leading and coordinating activities in the plan of action of the ECOWAS Regional White Paper on Energy Access (which focuses on renewable energy and energy efficient technologies and services). Central to ERC’s mandate are specific objectives related to: capacity building “of market enablers and market players to develop and implement renewable energy and energy efficiency investment projects/ programs in the region” knowledge management and communication, including “dissemination of renewable energy and energy efficiency technologies and services, as well as exchange of academicians and students amongst research institutes/centres and universities in member states” development of “a harmonized policy, regulatory and institutional framework” geared to promoting the development of clean energy. Through ABREC, the work of ERC can be leveraged to the benefit of countries in other regions of Africa, and the focus and the work of ERC may even be formally extended to countries in other regions of Africa. In addition, ABREC has initiated discussions with: 1. Renewable Energy and Energy Efficiency Partnership (REEEP). This agency initiates and funds targeted interventions in two specific areas: (i) assisting governments in creating favourable regulatory and policy frameworks, and (ii) promoting innovative finance and business models to activate the private sector. It also disseminates knowledge through news items, publications, its website and events. 2. Sustainable Energy Programme of UNDP. This agency undertakes capacity assessments and capacity development programmes geared to expanding access and deployment of renewable energy technologies. 5.6 Carbon markets activities ABREC and ACE-TAF will also undertake to provide assistance to project developers in Africa with respect to carbon credits revenue mobilization. As in the case of project evaluation tasks, external consultants will be extensively used in an initial phase while internal capacity in this area is developed. During the initial phase, the costs of developing of CDM project cycle and documentation will be supported by the purchasers of carbon credits. The set of services provided by ACE-TAF in this area is expected to eventually include: 1. Clean Development Mechanism (“CDM”) 26 Business Plan: ABREC 2. Voluntary carbon market 3. Project Design Documentation & Validation 5.7 Risk Management ACE-TAF will develop, and provide seed capital for, projects in a region of the world which is considered as relatively risky for investors. These higher risks will be managed, in part, by specific criteria on the experience of project promoters, either in the specific sector or in developing projects in their country of operation. In addition, ACE-TAF will: (i) require coinvestment (either/both by the project promoters and external funders such as local commercial banks); (ii) nominate experienced entrepreneurs for the Board of Directors of the project companies; and (iii) engage in a detailed process of feasibility assessment and due diligence (for which ACE-TAF will benefit from the experience of external consultants and from the oversight provided by international fund manager staff). Additionally, it will be important that rules governing the selection of projects are clear but also pragmatic (see the discussion in Sections 5.2 and 5.4 above as well as Appendices 2-4). The primary risks facing ACE-TAF and the means to mitigate those risks are discussed below. 5.7.1 Country risk Country risk can be mitigated through close working relationships with the governments of the respective countries for whom the services to be provided by the projects are of critical importance. These governments can and will need to assist by ensuring that obligations from utilities are met, by issuing permits for projects, and by facilitating private investment through appropriate legislation and regional policy harmonization; ABREC will further mitigate country risk through diversification of its investments into different countries, through sharing the risk with project developers and possibly through political risk insurance. 5.7.2 Market risk Investment in renewable energy and biofuels in a number of African countries will be the first of their kind. Whilst there may therefore be little risk from competitors or alternative technologies, there will be a risk from being the first in the market. This risk will be mitigated through the selection of appropriate project partners in each country and through the commissioning of thorough feasibility studies. 5.7.3 Economic risk The investment cost of any project will need to be assessed against the pricing and tariff regime of the country concerned in the case of electricity generation projects. Having the benefit of carbon credits earned under the CDM mechanism will assist the economic returns on the project. 5.7.4 Management Risk The main management risk arises from the possibility that the management of ABREC do not have a suitable background or track record to identify structure and execute transactions or even the capacity to put in place the type of complementary financing network that will facilitate the implementation of a successful exit strategy from seed capital investments. This risk will be mitigated by: the guidance provided by international fund manager and the oversight provided by the Investment Committee and Board of Directors of ABREC; recruiting 27 Business Plan: ABREC good candidates for the key management positions at ACE-TAF; and developing strong relationships and credibility with local financial institutions. 6 ACE-TAF: Environmental and Social Policy Unexpected environmental and social impacts can result in project delays, additional costs or even project failure from causes which could have been anticipated thorough a successful assessment of environmental and social risks. Conversely, accurate environmental and social assessments and related management plans can result in the improved economic performance of projects as a result of: 1. Local information received during public consultation; 2. Reduced costs through risk mitigation and impact mitigation plans; 3. Affected communities contributing to project success through inclusion and impact mitigation; and 4. Goodwill from governments and other stakeholders. Therefore, project related environmental and social impact assessments (“ESIA”) form a key part of project risk management and ACE-TAF will consider them as a critical metric in the due diligence process. To this end, ACE-TAF will comply with the International Finance Corporation’s environmental and social policy and performance standards to ensure the implementation of a stringent approach to avoid adverse impact on workers, communities and the environment, or where avoidance is not possible, to reduce, mitigate or compensate its effects. ACE-TAF will also abide by the Equator Principles where they provide useful guidance or procedures to ensure compliance. ACE-TAF will not participate in projects which fail to meet these standards and will use covenants to legally bind company management teams to abide by the ACE-TAF’s environmental and social policy. Those projects which fail to meet the environmental and social policy will be re-engineered to comply prior to investment. ACE-TAF will follow the IFC Exclusion List that defines the types of projects that IFC does not finance. 6.1 Implementation Environmental and social risks, and related costs, will be included within the initial screening process for investment opportunities. Risks will be analysed in the context of the project’s area of influence. Projects advancing beyond the screening process will be categorised according to their environmental and social risk profile into three categories, as required by the Equator Principles, which determine the resource requirements for compliance: Category A Projects: Projects with potential significant adverse social or environmental impacts that are diverse (geographically or thematically), irreversible or unprecedented. Category B Projects: Projects with potential limited adverse social or environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures. 28 Business Plan: ABREC Category C Projects: Projects with minimal or no adverse social or environmental impacts, including certain financial intermediary projects with minimal or no adverse risks. Category C projects require no further environmental and social assessment or action. The IFC performance standards require compliance in eight key areas: 1. Social and Environmental Assessment and Management System; 2. Labour and Working Conditions; 3. Pollution Prevention and Abatement; 4. Community Health, Safety and Security; 5. Land Acquisition and Involuntary Resettlement; 6. Biodiversity Conservation and Sustainable Natural Resource Management; 7. Indigenous Peoples; and 8. Cultural Heritage. The first IFC performance standard outlines the process through which the environmental and social risks are identified and how such risks will be managed in order to fulfil the requirements of the latter seven performance standards. Compliance consists of an effective environmental and social management system composed of five key sections: i. Environmental and social impact assessment. Category A projects require the completion of a comprehensive ESIA which includes an examination of technically and financially feasible alternatives to the source of any impacts. Category B projects may also require an ESIA but with a narrower scope; ii. Management plan. This strategy indicates: (i) specific mitigation and compensation measures which must be followed to ensure compliance with the latter seven IFC performance standards; and (ii) processes for the implementation of the following three sections, formulated in clear, detailed action plans; iii. Organizational capacity training; iv. Community engagement; and v. Monitoring and reporting. The last seven standards outline the criteria for environmental and social sustainable and responsible investing in each specific area of environmental and social risk. For every project developed by ACE-TAF, these standards will be met, and in addition, the environmental, health and safety guidelines prescribed by the World Bank’s Pollution Prevention and Abatement Handbook will be followed. 6.2 Due Diligence To ensure compliance with the IFC environmental and social policy, ACE-TAF’s Co-ordinator will be appointed as environment officer for ACE-TAF. The Co-ordinator will ensure that initial screening and categorisation are completed correctly and that projects under consideration are aware of and comply with the environmental and social standards of ACE-TAF. In 29 Business Plan: ABREC addition, third party environmental and social policy consultants will be engaged to independently audit ESIAs and management programmes to ensure they are of a sufficient standard for all category A projects and as required for category B projects. The consultants used will be internationally recognised firms approved by the African Development Bank. They will commonly work alongside local firms who bring experience of the local environmental and social regulations which must also be met for compliance with the IFC performance standards. 6.3 Monitoring and Reporting Monitoring the implementation of the management program across the life-cycle of the project and reporting to management and investors is an essential part of compliance. Monitoring and reporting requirements vary depending on the risk profile of the project and the processes outlined in the monitoring action plan will be project specific. High risk projects with greater and more varied impacts will have more detailed and complex action plans for mitigation and compensation, which require more frequent and more detailed monitoring. Monitoring requirements are likely to change over the life-cycle of a project. Typically environmental and social impacts are greater and more varied during the construction and early operation phase of a project after which impacts become more predictable and static. The mitigation and compensation action plans will reflect this through an emphasis on action to be taken during high risk periods which will require more resources in monitoring and reporting. Third party consultants will be engaged to assist with the monitoring and reporting process with all category A and, as required, for category B projects. Third party consultants provide an independent verification that the management program is being followed. All members of ACE-TAF’s operational teams will receive environmental and social impact training to allow ACE-TAF to directly monitor the implementation of the management program during scheduled site visits for traditional investment monitoring. This will alleviate the dependence on third part consultants. While independent monitoring of the operation of the management program will remain a compliance requirement in high risk projects, the frequency of such visits and the associated costs can be reduced. 6.4 Common problems with ESIAs in Africa African development projects have often had significant environmental and social policies. Typical causes include: problems in executing 1. Lack of commitment from developers and financiers to rigorously pursue the policy; 2. Bureaucracy which inhibit government involvement or development governments which ignore or distrust environmental significance; hungry 3. Ineffective public consultation due to scarcity of local knowledge or a lack of commitment to the process, which reduces the effectiveness of the assessment; and 4. Lack of availability of environmental experts with local knowledge and experience. Notwithstanding these obstacles, ACE-TAF is fully committed to its environmental and social policy and its obligations to the IFC performance standards as a means to enhance the overall performance of its investments. ACE-TAF regards the policy as a crucial part of the 30 Business Plan: ABREC investment process and will not invest in projects where these risks are not adequately addressed. Box 5. Ethanol project in Nigeria: Global Biofuels Ltd Global Biofuels Ltd (GBL) intends to establish a 90,000 liters per day ethanol refinery with 7,500 ha of cultivated sweet sorghum which provides the feedstock for the refinery. The excess of bagasse will be used to add 15 MW of installed power and the resulting electricity surplus will be exported to the national grid. The renewable energy generated by the project activity will decrease the fossil fuel proportion of the national energy mix and thus will reduce the combined margin grid emission factor. The project is expected to avoid more than 60,000 CERs/year. This project is under validation at UNFCCC. 7 ACE-TAF: Financial Resources ACE-TAF will be administratively autonomous with its specific funding sources. ABREC and ACE-TAF will publish separated financial accounts and operational reports. The governance and administrative support that it receives from ABREC will be compensated by ACE-TAF at pre-agreed market rates. The ACE-TAF financing model is predicated upon financial suppport from Donors and benevolent institution. 7.1 ACE TAF Financial projection ACE TAF will finance its operations mainly from an annual fee charged to ABREF, from client fees it receives for projects undertaken and finally it will require Donors contributions to help bridge its funding requirement. The annual fee charged to ABREF is for pipeline development services ACE-TAF renders to the Fund and it is regulated by contractual agreement between the latter parties. ACE TAF will also charge subsidy-rate fees to coroporates and entrepreneurs for project work undertaken. Donors will play an important role in the success of ACETAF by helping amongst others tocontribute fund the seed capital investment programme. Therefore, it is crucial at this stage to secure additional funding commitments for the initial phase of operations. We expect that the seed investing programme will generate postive returns for the Donors. ACE-TAF will monitor the development of companies within the renewable energy and biofuel sector and will strengthen the management capacity of related projects in Africa. This contribution will be done by setting up pipelines of projects, developing companies, partly financing the seed capital, organizing technical workshops and seminars. 31 Business Plan: ABREC 7.1.1 The financial balance The evolution of accounts; be it estimated operating accounts statements or Resources/application of funds statements, shows a sharp increase in constant rise over the period 2012 – 2016. The accounts analysis of ACE- TAF has been done before taking into account external financing except the startup allocation of USD 500,000 from ABREC. 7.1.2 Provisional operating accounts statements The evolution of operating accounts of ACE-TAF show that products should grow from USD 270,000 in 2012 to USD 1,308,000 in 2016; that is mean annual increase of 96%. The growth of ACE TAF products also follows the same trend, mainly boosted by revenues coming from the implementation of the feasibilities studies of projects. The table below shows the operating budget of ACE TAF. 32 Business Plan: ABREC ACE TAF OPERATING BUDGET US $ 000 2012 Assumptions Projects evaluated Workshops & Seminars (number) SEED Capital Projects exited Private projects among evaluated ASSUMPTIONS ON ACTIVITIES ACETAF ACETAF OPERATING BUDGET REVENUES 3.1 Grants received from ABREC ABREF Pipeline development fees 3.2 Project Review & Evaluation Identification Due diligence 3.3 Enterprise Development Services 3.4 Income from Workshops & seminars 3.5 Income from SEED CAPITAL investment OPERATING COSTS 4.1 Project Review & Evaluation Identification 1 000 Due diligence 5 000 4.2 Enterprise Development Services Counseling Workshops & Seminars ( 2/yr) 4.3 External consulting fees 4.4 Staff Costs 4.5 Various Management fees 4.6 Miscellaneous 5000 150000 OPERATING PROFIT (LOSS) EXPENDITURE Investment & renewal Variation BFR ACE TAF TREASURY OVERALL CUMULATIVE CASH 2014 5 2 3 10 2 5 12 2 6 3 7 9 2015 18 2 9 3 13 2016 24 2 12 5 20 270 F.R. F.R. 110 10 100 100 60 470 F.R. F.R. 220 20 200 200 50 554 F.R. F.R. 264 24 240 240 50 956 F.R. F.R. 396 36 360 360 50 150 1 308 F.R. F.R. 528 48 480 480 50 250 726 30 5 25 1 215 60 10 50 1 307 72 12 60 1 544 108 18 90 1 790 144 24 120 100 300 60 130 96 10 200 300 120 429 96 10 240 300 144 445 96 10 360 300 216 445 105 10 480 300 288 463 105 10 - 456 RESOURCES 2013 - 745 - 753 - 588 - 482 44 -745 -753 -588 -482 600 1000 1200 1800 2400 -556 -556 -1745 -2301 -1953 -4254 -2388 -6642 -2882 -9524 P.M. 33 Business Plan: ABREC Operating expenses should increase between 2012 and 2016 up to USD 1,790,000 in 2016. In a context of growing activity, the increase of expenses is accompanied by productivity gains, the expenses increase by 36% in average over the period. Consequently, without considering the external financing at the start-up of ACE-TAF, the operating income should be at USD -456,000 in 2012 and at USD – 482,000 in 2016. This result should be in deficit over the period if appropriate resources are not brought in for the start-up of ACE-TAF. 7.1.3 Financing requirements The treasury of ACE TAF is negative over the entire period without the setup of initial allocations in form of equity and assimilated equity fund. ACE TAF will hold a stake in the form of risk capital (seed capital) for amount up to an average of USD 200,000. The amount of participation to the seed capital could be modulated in relationship with other structures acting in the domain for a synergy of actions. The cumulated cash needs in the treasury of ACE-TAF, in order to be consistent with its financial balance, would go from USD 506,000 in 2012 to USD 9,524,000 in 2016. 7.2 The creation of a subfund: African Green Development Fund (AGDF) To cover the financing requirements for ACE TAF as indicated above, ABREF proposes to establish a subfund with a capital of $10m : the African Green Development Fund(AGDF) managed by ABREC. The main contributors of AGDF will be the potential investors of ABREF. In the meantime (alongside with others institutions), the contribution from other institutions will be seeked (UNEP, UNDP, UN Fundation, Bilateral DFIs, etc). 34 Business Plan: ABREC APPENDIXES 35 1 Business Plan: ABREC – Appendix 1 ABREF Structure 1 Business Plan: ABREC – Appendix 2 ABREC SHAREHOLDERS FINANCIAL INSTITUTIONS / COUNTRIES AMOUNTS (US$) PERCENTAGE ECOWAS Bank for Investment and Development (EBID) 200,000 7% International Energy Insurance (IEI) of Nigeria 200,000 7% ECOBANK Development Corporation (EDC) 100,000 4% Fonds Africain de Garantie et de Coopération Economique (FAGACE) 86,000 3% NEXIM Bank (Nigeria EXIMBANK) 200,000 7% Total share for Financial Institutions 786,000 28% BURKINA FASO 200,000 7% CAPE VERDE 64,000 2% COTE D’IVOIRE 200,000 7% GAMBIA 196,000 7% GHANA 400,000 14% GUINEA 200,000 7% NIGERIA 194,000 7% SIERRA LEONE 198,000 7% SENEGAL 200,000 7% TOGO 200,000 7% Total share for Countries 2,052,000 72% TOTAL 2,838,000 100% Financial Institutions ECOWAS Member States 1 Business Plan: ABREC – Appendix 3 ABREC & ACE TAF KEY TEAM The Board Members Thierno Bocar TALL – Chairman CEO, African Biofuel & Renewable Energy Company (ABREC) Adji Otèth AYASSOR – Member Minister of Economy & Finance, Republic of Togo Tony MADOJEMU – Member Chief Executive Officer, International Energy Insurance (IEI) Assets Ltd El Hadj Ibrahima THIAM – Member Chairman & CEO, ECOWAS Regional Electricity Regulatory Authority (ERERA) Michael CARRICK – Member Chief Executive Officer, Duet Infrastructure Partners Robert U. ORYA – Member Managing Director, Nigerian Export-Import Bank (NEXIM) Mahama KAPPIAH – Member Executive Director, ECOWAS Regional Centre for Renewable Energy and Energy Efficiency (ECREEE) 2 Business Plan: ABREC – Appendix 3 The ABREC Staff Thierno Bocar TALL – Chairman and Chief Executive Officer Mr. Thierno Bocar TALL holds a Master Degree in Finance and Economics. He was appointed as the Chairman and CEO of ABREC in February 2011 and brings to this position over 25 years of experience. Sylvain FEDY – Head of Finance and Administration Mr. Sylvain FEDY holds a Master Degree in Business Management. He joined ABREC as the Head of Finance and Administration in January 2011 with 8 years of experience. Grace Odile A. DURCHBACH – Administrative Assistant Mrs. Odile A. DURCHBACH holds a Master Degree in Human Resource Management. She joined ABREC as the Administrative Assistant in January 2011 with 9 years of experience. Boris Ekoue G. AMAGLI – IT Specialist Mr. Boris E. G. AMAGLI holds a BTEC Higher National Diploma in IT. He joined ABREC as the IT Specialist in January 2011 with 7 years of experience. The ACE TAF Staff Christian Hoyobony TOKORO – Projects Officer Mr. Christian H. TOKORO holds Master Degree in Industrial Physics and Electrical Energy and its Environment. He joined ABREC as the Projects Officer in January 2011 with 5 years of experience. Abdel Karim TRAORE – CDM Specialist Mr. Abdel Karim TRAORE holds a Master of Sciences in New and Renewable Energy. He joined ABREC in June 2011 with 2 years of experience. 3 Business Plan: ABREC – Appendix 3 The Associated Consultants with ACE-TAF Papa Momar NGOM – CDM Specialist Mr. NGOM holds a Master Degree in Electro-mechanics with 10 years of experience in Renewable Energies sector. Nicolas Jacques Alphonse DIENG – Project and Financial Analyst Mr. DIENG holds a Master Degree in Economic Sciences with 33 years of experience in the preparation, the studies, the structuring, the administration and the follow-up-evaluation of projects. John Gerald O’BRIEN – Environmental Finance Advisor Mr. O’BRIEN holds a Master Degree in Environment with 14 years of experience in Environment and Climate Change sector. Joel AGBEMELO-TSOMAFO - Lawyer, environmental inspector & appraiser Mr. Joel AGBEMELO-TSOMAFO holds a Master’s Degree in Law and Environment with 13 years of experience in Environmental sector. Aliou BA – Energy and Environment Specialist Mr. Aliou BA holds a Master’s Degree in Energy and in Management of Sustainable Development Projects with 20 years of experience in the Energy sector. Moussa DIOP – Energy, CDM and Environment Specialist Mr. Moussa DIOP holds a Master’s Degree in Energy, Environment and Economic Management with 21 years of experience in CDM, Renewable Energies and Energy Efficiency. 1 Business Plan: ABREC - Appendix 4 THE PIPELINE OF THE PRE-SELECTED PROJECTS N° TITLE SECTOR COUNTRY COST / FINANCING(US$ MILLION) Total Equity Requested costs CARBON CREDITS (TCO2/YR) Observations WASTE MANAGEMENT Prefeasibility study, seeking fund to undertake the feasibility studies and 36 000 the Environment impact Assessment 1 Waste to Energy. The harvest of Energy and recyclables from household waste (Basanda Company Ltd) Private Ghana 15,046 4,514 10,532 2 Lagos State Waste-To-Electric (WTE) Energy (Highland Nigeria Ltd Power Projet) Private Nigeria 102 15,3 86,7 Feasibility study is completed. 60 000 Environment impact Assessment ongoing 3 Municipal solid waste to Energy Private Sierra Leone 19 5,7 13,3 Feasibility study ongoing. 45 000 Undertake Environment impact Assessment WIND POWER 4 Enugu wind farm 30 MW (Kedari Capital Ltd) Public/Private Nigeria 48,437 9,68 38,757 The PIN and the feasibility study are 25 000 completed. Environment impact Assessment ongoing 5 Zamfara wind farm 20MW (Kedari Capital Ltd) Public/Private Nigeria 32,625 6,525 26,1 The PIN and the feasibility study are 17 000 ok. Environment impact Assessment ongoing 6 South Africa flag 10 MW wind farm business (Haiko Green Consulting) Private South Africa 16 4,8 11,2 The PIN and the feasibility study are 46 250 ok. Environment impact Assessment ongoing 7 NEK 50MW Wind Park Project Private Ghana 121,4 36,42 84,98 The PIN and the feasibility study are 46 000 ok. Environment impact Assessment ongoing 2 Business Plan: ABREC - Appendix 4 N° 8 TITLE 30MW Wind farm SECTOR COUNTRY Public Niger COST / FINANCING(US$ MILLION) Total Equity Requested costs 51 5,1 CARBON CREDITS (TCO2/YR) Observations The PIN and the feasibility study are ok. Environment impact Assessment ongoing 45,9 SOLAR POWER 9 Production of 1.5MWc solar power plant in Gambia Public Gambia 7,753 10 Electrification by photovoltaic solar system in over 80 villages Public Niger Public 11 Solar power station with 10MWp installed 12 Production of a concentrating solar thermal power plant of 50 kW 13 Solar power station with 10MWp installed 2 5,753 Only the project profile is available 30 30 Feasibility study ongoing. it will be available before the end of August 2011. Niger 50 50 Feasibility study ongoing. it will be available before the end of August 2011. Public Niger 0,57 Private Togo 1,07 0,057 0,513 Feasibility study is completed. 1,07 Feasibility study is completed. BIOMASS TO ENERGY 14 Production of Biomass fuel briquettes used as efficient substitutes of Fire Wood & Charcoal Cogeneration by waste from mango and tomato 15 processing industry and agricultural waste (4.76 MW to 10.76 MW) Private Côte d'Ivoire 12,461 3,792 8,669 90 000 Feasibility study is ok. the PIN ongoing Public/Private Burkina Faso 20 6 14 34 000 Feasibility study and the PIN are completed 0,506 4,554 ENERGY EFFICIENCY Promoting of Appliance Energy Efficiency and 16 Transformation of the Refrigerating Appliances Market in Ghana Public Ghana 5,06 Only the project profile is available 3 Business Plan: ABREC - Appendix 4 N° TITLE SECTOR COUNTRY COST / FINANCING(US$ MILLION) Total Equity Requested costs CARBON CREDITS (TCO2/YR) Observations AFFORESTATION / REFORESTATION 17 Development of rubber trees Private Côte d'Ivoire 1294 790 504 495 000 Feasibility study and PIN are completed BIOFUEL 18 Biodiesel production from Jatropha Private Burkina Faso 4,5 1,65 2,85 Project profile 19 Jatropha Oil production Public Ghana 50,41 18,15 32,26 Feasibility study summary COSTS (US$ MILLION) SECTORS NUMBER TOTAL COSTS EQUITY REQUESTED Waste Management 3 136,046 25,514 110,532 Wind Power 5 97,062 21,005 76,057 Solar Power 5 89,393 2,057 87,336 Biomass 2 32,461 9,792 22,669 Energy Efficiency 1 5,06 0,506 4,554 Afforestation / Reforestation 1 1294 790 504 Biofuel 2 54,91 19,8 35,11 TOTAL 19 1708,932 868,674 840,258 4 Business Plan: ABREC - Appendix 4 THE TWO ORIGINATED PROJECTS BY ABREC AND ABREF 1. Energy Forestry in Africa Owners: MIRO Forestry Company; African Biofuel & Renewable Energy Company (ABREC); African Biofuel & Renewable Energy Fund (ABREF). Objectives The project aims at: Producing wood chip biomass from sustainable energy forestry. Providing high energy biomass for decentralized electricity production in West Africa and for biomass export to support regional and global renewable energy requirements. Carbon positive, as the trees sequester more carbon than is subsequently released in burning of the wood chips for power generation. Providing rural employment and electrical power for rural development. Regenerating and commercializing degraded land areas while promoting indigenous flora and fauna. A commercial and profit focused business opportunity led by an experienced team with proven track record. 5 Business Plan: ABREC - Appendix 4 Financial requirements The project requires US$25 million of total funding of which: US$10 million is required for forestry operations directly related to producing the wood biomass feedstock; and US$15 million is required for a 500,000 tons per annum wood chip plant and associated operational infrastructure. 2. Ligno-cellulosic conversion to chemicals and fuels Owners: African Biofuel & Renewable Energy Company (ABREC); African Biofuel & Renewable Energy Fund (ABREF). Description: The project consists in converting residues (and, for energy crops, whole plants) into a potentially wide array of organic chemicals, liquid transportation fuels and direct energy. Benefits: The benefits are obvious: increased food availability for the home market, with potential for export; increased revenue from cash crops, both to farmers and processors; substantial new revenue stream from ligno-cellulosic residues, benefitting farmers, industry, infrastructure (through export of power) and commerce. finally, government tax revenues, both direct and indirect, increase. Financial requirements The project requires US$400 million of total funding of which: US$100 million for equity; and US$300 million for debt.
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