Scaling Up Finance for Water, Green Energy & Smart Infrastructure

Welcome to all of you, Mazin, uh, Danielle, Felicity. It's great to have you with us. And today we'll be discussing about the scaling up of finance for all these things that we care about when we talk about green transition, green finance. So, green energy, uh, smart infrastructure, water and so on. And as was mentioned before also by the commissioner Europe is one of the leading uh entities in the world in financing climate finance green transition and so on.

So you being coming from all these sectors that you support finance doing things on the ground also doing things on the ground from the Mazda side you can help us uh understand how we can scale up between Europe the GC region and the broader context. So what I will do is I will start with an opening question for all of you and I would like you to introduce yourself and say your first thoughts about um how we can really do more in the sense of working between DFIs development finance institutions investors from the Gulf actors on the on the ground on scaling the EUGCC minriangular participation. I just want your first first thoughts about that and of course I will start from the ladies. So, Felist, would you like to go first?

Thank you very much for the question and thank you for the invitation to be here and and thank you to everyone who's sitting here almost at lunchtime. Um, I think the key drivers for for the work that we're doing together um aren't a simple silver bullet, but are actually a combination of three things, which is what's probably in the silver bullet, which is partnership. Um and that is what's driving action which is blending bringing in concessional finance with commercial private finance to bring private finance to action and um clearly um clear policies cannot overestimate that um through testing piloting and scaling. So these are the things that we're working together and what really are I think driving all of our collaboration here on the the panel today.

Fantastic. Thank you Felicity. Uh Danielle.

Great. So what we do is we develop projects. So the last 12 years we have developed a portfolio of about five gawatts of projects across North Africa and emerging Europe. And what we do is we allow investors to come invest in those projects through funds um at cost which we think is a better way to invest than investing through energy companies where you have to deal with valuations etc. We've been doing that for for 12 years.

And what EBRD and EID and other European multilaterals have allowed us to do is to really get us to to a scale where in Europe in Egypt for example we have a few projects in the 500 $600 million category across the world steans we have about half a billion dollars of projects and we have been able to demonstrate two things that if you get to that scale you can do that uh profitably. uh the investors in our first uh fund receive a total return of 22% which is is very good for the industry. But the second thing that you can we have demonstrated you can do it in a bankable way where all of our revenues have been in dollars. Uh all of our contractors have been large European EPC suppliers. Um EIB has helped us to mobilize people like EFSD plus which have allowed us to lower the cost of financing for European manufacturers.

And we have identified about $200 billion dollars of additional growth opportunities that are needed for very similar investment. So the our industry has been very much being led by Mazda, people like Mazdar, people like Aqua, government affiliated institutions, we can refer to them like that who have definitely advanced the needle. But to be able to fill the gap to 200 billion, that's where we hope Alcasar come in and hopefully one day many more private equity funds to be able to fill that investment gap in that Mina region and emerging Europe region with private capital.

Thank you very much. Thank you very much Daniel. And uh let's see how this same question is read from the Gulf sides from the UAE and and Mazda please Mazen.

Sure. Sure. Um so just just for context as as as an introduction as you mentioned uh at Mazdar we are a pure play renewable energy company. So so we uh build own operate uh renewable energy projects at utility. Uh we're one of the largest renewable energy companies today with our overall capacity uh north of 50 gawatt and we have ambitions to grow to up to 100 gawatts making us one of the largest if not the largest renewable energy company by 2030.

So in the short term so so track record of delivery and ambitions to grow significantly uh over over the years I I I think to your question of what helps uh let's say scale and and and accelerate I think if I boil it down to to one word it's it's predictability

it's it's it's predictability in terms of cash flows predictabilities in terms of regulation and predictability in terms of offtake arrangements when it comes to investing in this space uh uh we especially companies like ours, we're not looking at a 5year, seven year or 10 year return. You're you're investing in an asset which has a 20, 25, sometimes even 30-year return profile. So, you're a long-term shareholder and therefore having that predictability over the longer term is extremely extremely important. Uh so I would say I would say predictability in regulation and and and and mechanisms that give investors the confidence and then obviously make projects bankable and and and and result in partnerships uh with with the likes of DFIS including EBRD.

Well, thank you very much for adding the final word partnerships because I heard from you vision and scale. I heard predictability and Europe being so regulated at least is predictable because you know what you expect and then you added partnerships. So I think all of you covered exactly the general let's say view of what we wanted to do but let's move now from theory to practice and Felicity I'm turning to you again because uh EBRD that you represent here and you do the strategic work for all this has been working with Infinity Power Mazda's uh Aqua Power and so on and you made projects happen would you like to share a bit with us from thinking to making it happen how this collaboration is actually instrumental in Yeah, thank you very much for the question. Um, I'd like to give two case studies which illustrate how we actually do it but both in Egypt in the Gulf of Suez. So common problem Egyptian government faced was how do we uh drive investments in wind and secure low tariffs.

Common problem um high perceived risk in Egypt due to lack of clarity about policies um and high cost of capital as a result. So the EBRD worked um together with the uh GCC to bring in investors and then looked for a additional concessional grant from the green climate fund to drive down the cost of capital and to set an example of how to overcome what is often perceived risk and and in this way we're coming to your point about predictability. But to build predictability, you need these positive stories. And so that's what we were doing. And we were able to achieve through that investment of a 650 megawatt wind farm a tariff rate of 3 cents per kilowatt.

Now that was very low at the time, but that led because it became more predictable to a bigger investment opportunity where we scaled to 1.1 uh g uh gigawatts. So this is the largest currently it's going to be uh be beaten but the largest scale in Africa in in the Gulf of Suez in the Ammun project um and that was uh then able to achieve a much lower tariff of 2.85 cents per kilowatt um and was supported by a commercial banker standard charter. So you see how what we do is you you come in, you start at a certain scale that predictability which I really think is a great term.

Thanks. Um then drives security and then we can move on to a bigger scale and we need that scale and we need to keep pushing as a as a DFI to really drive that story and push push push for more because we are facing a climate emergency.

That's amazing. Let me stay for a second to what you said about predictability not only allowing the project to happen but once you have secured that point then it allows the project to grow which is amazing if you think of that because if you if you go in terms of of chronology a few months back before you achieve that point you don't even know how the project will go on and then you're looking at something that goes bigger and that brings me now to to you Daniel because you have actually and and Alazar um has actually done quite quite a lot of work both in Egypt that we heard about but also in Montenegro around half a billion if I remember uh which are very important wind projects and again in your case would like to hear the insights from your experience how collaborating with the countries and also with the uh FIDs makes it happen from the side of those that make the work happen on the ground.

Yeah, thank you. So when we look at renewable energy investments, the track record in in private equity has been spotted mainly because in North America, Europe and the oil exporting countries of the GCC, so the wealthy nations of the GCC have had quite a lot of investment. So you see quite a lot of investors chasing not so many projects. That's why the returns have been in the five, six, seven% category that you have seen historically. Then if we look under the hood on for example Egypt which is an oil gas importing country um Alcasar has there a three gawatt um portfolio that we have developed over the last 12 years we were the first uh private company to sign this BO program with the prime minister of Egypt following Mazda after a much larger one that they did and when we look at the fundamental analysis it's a country that today is 84% dependent on gas and when you look at the LCO E of gas in Egypt, they are spending about 12 cents per kilowatt hour.

You could look at a wind farm and a wind farm in Egypt, this is public knowledge, these PPAs are at around 3 cents per kilowatt hour. And at 3 cents per kilowatt hour, we have projects that are substantially profitable because of the very healthy wind generation. So what does that do? This allows Egypt to go towards the energy transition. And every kilowatt hour that they displace from gas and replace with wind is saving them about 75% of the energy bill.

If they're able to mobile to go from the 4% they're only 4% win today. If they're able to go from that to the target that they have of 42% they will be able to save tens of billions of dollars per year which is important to EG because we're talking we're talking about standard charter. We're talking to the chief economist of standard charter. We're asking UAE and Qatar has done this amazing investments in Egypt of 35 billion and 30 billion respectively during the last weeks and last months. However, the credit notch of Egypt only moved up by one notch.

Why was the impact not stronger? And what they explained to us is that the debt burden, the amount of of debt that the country has, they still need to see a way how that debt will be reduced over time. And essentially, if you're able to free that gas so that Egypt goes from being a gas importer that they are today, they import gas from Israel today and they can go back to being a gas exporter, which is what they were in in 2003, they were investment grade, that would be very helpful to the economy. So, that's an example. We're making profits by doing something that makes sense.

You switch gears, you go to the western BAS, you have places like uh Serbia 65% coal dependent, Montenegro, Macedonia 45% coal dependent and really very few renewable energy assets to speak of. Mazda has done some of the very very few ones in the region. And at Alcaser, we started developing a portfolio four years ago where we're starting construction together with EBRD across four projects that add up to about half a billion dollars. And we had a very pleasant surprise recently where once we had developed the projects, we're able to sign uh PPA terms with one of the largest American technology companies. So not only our investors are making a return that is as high as any return we've made in our 12 years of existence, but also they're able to make this return by selling the power to an investment grade uh um buyer of electricity.

So you're in countries that are adjacent to Europe that are part of the European energy system. You're making a healthy return because you're in a place that is not crowded with investors. It's a little bit the opposite if we can say that and you can do it in a way that is profitable to your investors. So those are some of the examples where we see that if you go away from the crowded investment areas such as mainland Europe, the the wealthy countries of the GCC and you try to understand where investment makes sense, you can do it in a way that is not only risk adjusted but very profitable. No, I thank you very much for pointing out this dimension because we often say that, you know, green business is good business, but it's also good not only for the companies like like Alcasar that is involved in that.

It's good for the countries that promote it. And as you said in the case of of of Egypt, and it's one of many, you actually liberate and you you you set free resources that can enrich the national economy, which is fantastic. And I think that there's few I can think that this is the leading country in the GC region, the UAE that has taken this step with Mazda and many others. So um you like Min to Yeah, please.

Can I just add to that? I I I think just to your point, green business is is yes commercially viable, but I think one of the one of the things today is the fact that the ability to roll out and gets get a solar plant or a wind farm up and running compared to your conventional energy sources that the difference is massive and it's only getting bigger. So, so, so it takes in solar it could be as early as 12 to 24 months again depending on where you're operating while on the on the other hand when it comes to gas it could be five years and other more traditional sources nuclear could be 7 to 10 years. So, I think that that that's another very key element and that's one of the reasons that renewables specifically has gained a lot of attention especially in the recent past.

Amazing. Yes, you really have to say this

to the positive story. It's a 12% reduction in price of solar just last year. So the price is just gaining down which means your returns just on the investment go up faster and of course the country is all the time reducing its imports in many cases not all cases but in many cases that are relying on imports. So it really is an incredible story.

Absolutely. Yes. Yes.

Maybe interesting for the audience. President Fonderline came to to Montenegro to witness the signing of of our commitment to this half a billion dollar investment. And I was explaining to her that not only the the Europeans are very keen for these countries to stop being 65 and 45% coal dependent so they can clean up their their energy grid. But you look at the cost of power of Montenegro and Macedonia in the wholesale market the first half of this year is €135. We are signing PPAs at roughly half of that and our investors right here are making higher returns that we have made in our 12 years of existence even when we did the first deals in Jordan that were so profitable and so on.

So you are saving them 45% of the energy bill, 50% of the energy bill, or in Egyp, we're saving them 70% of the energy bill, but you're making profits that are well into the double digits for for infrastructure there are in percentile 92 or something,

you know, and all this all the time saving on carbon emissions. I mean, I forgot to quote the figure, but in in Egypt, the 1.1 billion uh uh gawatt, I mean, the 1.1 gawatt was saving 7 million tons of CO2. So, you know, you've got this additional co- benefit when you do it of profit, renewable energy, reduced imports, and you're meeting your climate ambition all in one.

I mean, really, there's not much to be said apart from why aren't we doing more.

Absolutely. And I don't want to divert the discussion because you guys are amazing how you took it off and I can just go off and you have the discussion. But what you just said, Felicity, also adds to the discussion that Europe has been leading globally about carbon markets because that's also a very important one. But we'll not go into that now. What I want to do is again I will turn to you Masin because actually all three of you are in the sense of promoting green business you're globe trotters you're doing things around the globe you're doing things uh in many different parts not only of Europe but the world uh the whole world and I want to hear from you Mazen because of your position and experience any collaboration examples that illustrate how for example the work that you do in Central Asia and Africa and so on can be used as a model to do even more with Europe.

Um, sure, sure. So, so, so maybe a couple of success stories uh, I guess, uh, to to to mention. Um, as you mentioned, CIS region, the CIS region is somewhere we've invested in it quite heavily. I guess specifically Usbekistsan is is a country that we can uh, we can we can call that as a very good success story. Usbekistsan as a result of the way they uh, they they put together their regulation.

Uh and this is where developing nations are actually at an advantage to developed nations because because regulation is not mature. You're starting off with a bit of a clean slate, right? So you can deise in the way that's most appealing to you that reduces the red tape uh effectively. So we we in Ubekistan for example in the past few years have invested north of $2 billion of projects which along obviously with multiple developed financial institutions as well including EBRD uh and and and managed to effectively put together projects of north of 2 gawatt of solar and wind. So I I think that is that is a very big success story.

The other one worth mentioning is uh you talked about infinity power. Infinity Power is is is where uh we we see Infinity Power as our Africa platform. Uh currently they uh they own operate uh close to 1.3 gawatt of projects but more importantly they've got a pipeline of close to 10 gawatt over the near term. So so significant growth potential and that's where we've partnered with the likes of EBRD uh to to effectively uh allocate capital.

So I I think those again success stories are good examples and they can be used to to to effectively uh execute successful projects elsewhere.

Absolutely. Thank you so much for this Felicity. I see you're ready to jump in.

Uh I can let you jump in or ask you something as a echoing on what on what Mas shared with us because I actually wanted to get back to you. um you have a lot of experience and I want you to help us understand along the lines of what we heard from Daniel and Mazen which are the tricks of the game if you like which are the ways that you address financing structures risk mitigation and so on so that when you go to developing economies or to emerging markets you really make things take off the ground

so I think that's the the role that I I direct the climate strategy delivery and our role is to replicate scale. So do the things again but do it bigger and then to unlock what initially looks a little bit complex at the beginning but looks feasible but a little bit complicated for business as usual banking. So that that is the work that I lead. Um and of course we really look towards risk mitigation instruments. Um so the EDF European uh sustainable development uh fund plus is an example where which we can tap into for concessional finance and guarantees.

Um and for example sovereign um sovereign guarantees the example in Egypt I g gave would not have been possible without the sovereign guarantee and that's where the the clear policies are really important to to ensure this predictability which we mentioned at the beginning and currency stability. So the EBRD does lend in local currency and increasingly this is important. Uh but then of course you need to hedge the risks of doing that and you need to be able to tap into capital markets. So we are looking at quite complex structures sometimes and looking at sustainable link loans and bonds um as structures to help enable that framework that suits the project in the country and helps develop this journey because the EBD is an investor for the long term. We're really trying to support with concessional finance the markets liberalize and the economies themselves drive what we've just said makes business sense and when it makes business sense we can take our concessional finance elsewhere to do it at scale to do these three things replicate scale up and unlock what looks a bit complicated to today but really is the opportunity of tomorrow.

So that's our logic and of course behind that replication needs to look simple and again that comes back to this predictability and also the storytelling that we are all doing that hopefully you're listening to which is this is doable. It's not so complex and we're all learning how to align different types of finance, different types of structures and that brings in and comes back to predictability. I'm so grateful you said that at the beginning.

Okay.

Yes, Daniel.

Because I think when when you look at countries such as the countries in North Africa or emerging Europe, I think there's a misperception on on risk. So the the last 12 years we build this uh 5 GT portfolio across our three funds. We mobilize about $5 billion of capital with project finance. And sometimes the fact that we have delivered this IR of more than 20% cash on cash to our investors is almost a problem because people imagine that if you are having high returns is because you're taking high risk on these projects. But these are projects that have without exception revenues that are 100% in dollars or in euros where those revenues are guaranteed either by an investment grade corporation or by a government through a 25-y year fixed price power purchase agreement.

And these are projects that have guarantees from political risk insurance from investment grade institutions where if that country defaults you will get your money back. These are projects where Europeans are guaranteeing the construction of the project to your investors. These are projects where global multilaterals are providing 20-year debt on a nonreourse basis. And these are projects that are not only are they may be located in an in an emerging market where there are risks, but they're underwritten in a way that billions of dollars of private capital can mobilize. And that's a misperception that's important that we work on on communicating that that's something we can manage.

No, that's that's so true. Um it I find it very interesting hearing both of you especially Felicity and you Mazen coming from the side of developers and then you uh Daniel in the middle making things happen on the ground which I think is very important but it's like I see from the two sides of of a glass and I see the same picture uh you know stability regulation predictability then finding which is the entry point in those emerging markets and so on. uh I don't know if you want to add something on this from your experience again especially focusing on this triangular collaboration that I mentioned before because you have Europe you have the GCC region and then you have the broader MINA in Africa and I think this is where we can start pointing down to the exact things that we can do on the ground and the opportunities and possibilities we have I'll come back to you Danielle with the same question actually on what we need to do to work more in this triangular cooperation between Europe Mina and GC or GC and Mina please.

Um yeah, I think from my perspective um like we at Mazdar we we have obviously uh a lot of relationships with the development financial institutions. Those relationships are primarily based around the non-reourse project financing side of things. So so so that that's something that is a model that has worked and and works really really well. Uh I think one thing which I would say is which which would help facilitate the flow of capital even more is is coming up with uh uh uh similar to infinity power co-investment platforms co-investment platforms where which are not just specific to individual projects or individual countries but more regions so multi-country platforms which then help with the deployment of capital. Yes, arranging non-reourse project financing at the project level is something which is doable.

It's a model that works but but taking that to the next step and effectively coming up with solutions uh in terms of raising equity more equity at the at the higher level. So that for us has worked really well at Infinity Power uh facility. Felicity I'm sure has a lot to say about that because we've been working on country platforms which is trying to get country ambition to pull in concessional finance in a more strategic way to drive. So we we were looking in uh Egypt we have the Noi platform which some of you may have heard of and in Turkey we have TIP the uh which is focused on transforming industrial decarbonization and we're looking also in uh at the early stages but in Kazakhstan and Beckistan and what what it is is like this exactly this approach but looking at it from our side of how to drive DFI concessional finance which is increasingly scarce to align to help pull in to what's needed when and where to to support the PIP pipeline now that country platform can be applied that logic which is what you're saying can be applied at a city level but also we look at supply chain financing in different sectors and I think you know really what we're saying is in order to get the scale and to get the efficiencies of scale and to replicate we need to drive more than just a single project we need to have a view of of a platform or portfolio of activities and you get synergies and and you get this predictability and this flow so it really helps

no thank you very much for this point because I think you raised two points that I think are very important when we're working also with the countries here in the GCC through our project. We need to take into account and we understood this. We need to take into account the full value chain of what you do when you do it. So thank you for bringing this up and also the countries and Masin you brought that that first up getting the countries that are on the receiving end to really put skin in the game that's very important otherwise you don't have I mean everything else is worse but I think putting you know those kinds of funds and capitals and all that we will have to close in two minutes so what I want to ask you uh is the following there was a gentleman speaking about space before here and he asked this fantastic question who would like to go with me to space tomorrow and people were just raising their hands. So what I want you to do is to speak to us about the dream.

We are where we are today. What is your dream for really scaling up what we're discussing especially in that that field of green transition, green energy, safe water and so on in this triangular or broader sense. But I want you to really share with us your dream for the next 10 or so years. What would you like to see? Daniel, go first.

So look, I I came to this region um because of an opportunity to work at Mazdar. Yeah. So I worked with Dr. Sutan in the early days and and what Mubala did is they made a large investment to be able to enter countries where Renee was not there before. first wind farm in Jordan, first wind farm in Egypt, first wind farms in and when we were starting Alcasta a few years later, that was the fear is can we build the scale to be able to do wind and solar development in these difficult countries once you're managing a few billion dollars the equity etc.

and you have that compass. One of our investors calls us the Gwagon of renewable energy. So once you develop a safe vehicle to go to these markets, you realize that there are hundreds of billions of investments that are not being invested. Just like I described the opportunity in Egypt, the opportunity in in Macedonia, you have Jordan, you have Central Asia, you have other countries of Africa. We have identified about $270 billion dollars of opportunities.

The bottleneck in our office is teams to be able to go and address this. So that their dream is that one day these opportunities there's an arbitrage. You can produce electricity at 3 cents in Egypt and make a much higher return than making electricity at 9 10 cents in Germany. Well, maybe one day there will be so much investment in these countries that they will not be dependent on gas and you will be able to manufacture steel to manufacture energy intensive products that you will be able to export into Europe in other forms and these economies would flourish as a result.

That's fantastic. This is why I often speak to this energy mega region between C Europe and and Mina region. And of course, nobody can blame Mazda for not having a dream or a vision. So, please share with us your thoughts. Um so maybe in just a just a couple of lines I think to your point Dream Vision I think it's given the technological advances that we've seen uh the the cost of production the significant decline and we only expect that to be to to be more and more the the the pace at which renewable energy can be deployed.

I mean uh I think one of one of one of the optimal scenarios that I would envision is in 10 years from now more than 50% if not more of the energy source is coming from renewables and and and because of these various reasons that I mentioned.

Thank you so much Mazen and Felicity please. Um, just in brief, I think we would love to see a real move from discrete projects to portfolios, platforms or city-led initiatives where you have a really cost-effective um approach to infrastructure, you know, desalinization and water and energy because it is at the nexus and that's what we're talking about. It's not just energy or it's all of them together and once we see that we'll have better projects and um so that's what I'd like to talk about next year.

Wonderful. Wonderful. Thank you so much. I told you they're a fantastic bunch of speakers. So, please join me in giving a very hand very strong hand of applause to our speakers.

Thank you so much.