Publicly Backed Guarantees as Policy Instruments to ... - SEF Alliance
Publicly Backed Guarantees as Policy Instruments to ... - SEF Alliance
Publicly Backed Guarantees as Policy Instruments to ... - SEF Alliance
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a <strong>SEF</strong> <strong>Alliance</strong> publication
a <strong>SEF</strong> <strong>Alliance</strong> publication
<strong>SEF</strong> <strong>Alliance</strong> Publications
About this Report
Acknowledgements
Contents
Contents
Contents
Contents
List of Charts and Tables
Abbreviations and Acronyms
INTRODUCTION<br />
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EXECUTIVE SUMMARY<br />
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1 PBGs IN THE FINANCE CONTINUUM FOR RE & EE<br />
1.1 Typology of ‘Transformational Technologies’
1.2 PBGs in the Finance Continuum for the Introduction of New<br />
Technologies<br />
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1.2.2
1.2.3 <br />
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1.2.4
1.2.3 <br />
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1.2.4
1.3 Prevalence of PBG Use in EE & RE Support Programs
1.3 Prevalence of PBG Use in EE & RE Support Programs
2 ECONOMIC RATIONALE FOR USE OF GUARANTEES<br />
2.1 The Market for Commercial Risk Management <strong>Instruments</strong><br />
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2.1.1
8 Source: Study by Kleimeier and Megginson quoted in Seidmann (2005).
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9 As example <strong>to</strong> illustrate numeral orders of magnitude: For a 10-year loan and a given risk-free rate of interest,<br />
the value of the guarantee is 3.7 percent of the value of the new investment when the standard deviation of <strong>as</strong>set<br />
values is 0.15, rising <strong>to</strong> 35.4 percent when the standard deviation is 0.35.<br />
10 Source: Seidman (2005). Bland and Yu estimated the cost of borrowing minus the guarantee fee for 445<br />
insured and 694 uninsured bonds offered in 1985 and found the net gain <strong>to</strong> be positive and inversely related <strong>to</strong><br />
credit ratings.<br />
11 B<strong>as</strong>el II qualifies most guarantee societies <strong>as</strong> guaran<strong>to</strong>rs if their guarantee product is in line with the regula<strong>to</strong>ry<br />
requirements.
2.2 Justification for <strong>Publicly</strong> <strong>Backed</strong> <strong>Guarantees</strong><br />
2.2.1 <br />
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2.2.2
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2.3 PBGs for the Transformation of the Financial Sec<strong>to</strong>r<br />
2.3.1 <br />
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2.3.2
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2.4 Institutional Economics: Information Function of PG Agencies
2.3.3 <br />
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2.4 Institutional Economics: Information Function of PG Agencies
3 TYPOLOGY OF PUBLICLY BACKED GUARANTEES<br />
3.1 Credit <strong>Guarantees</strong><br />
3.1.1 <br />
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3 TYPOLOGY OF PUBLICLY BACKED GUARANTEES<br />
3.1 Credit <strong>Guarantees</strong><br />
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3.1.4
3.2 Formul<strong>as</strong> for Risk Sharing<br />
3.2.1 <br />
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3.2 Formul<strong>as</strong> for Risk Sharing<br />
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3.3 Counter <strong>Guarantees</strong>
3.4 Capital Market <strong>Guarantees</strong><br />
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3.4.2
3.4 Capital Market <strong>Guarantees</strong><br />
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3.4.2
3.5 Risk <strong>Guarantees</strong><br />
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3.6 Near-alternatives <strong>to</strong> <strong>Guarantees</strong><br />
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3.7 Complementary <strong>Instruments</strong> <strong>to</strong> <strong>Guarantees</strong><br />
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3.7 Complementary <strong>Instruments</strong> <strong>to</strong> <strong>Guarantees</strong><br />
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3.8.2
4 PBGs FOR BUSINESS FINANCE IN HIGH-TECH SMEs<br />
4.1 PBGs for High-tech Entrepreneurial Start-ups<br />
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4.2 PBGs for Risk Capital Investments in High-tech SMEs
4.2 PBGs for Risk Capital Investments in High-tech SMEs
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4.3 PBGs for Loans <strong>to</strong> High-tech Start-ups<br />
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4.4 SME Performance <strong>Guarantees</strong> <strong>to</strong> Open Markets for SMEs
5 PBGs FOR PROJECT FINANCE<br />
5.1 PBGs for Innovative Projects with Above-average Risks<br />
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5.2 PBGs for RE-facilitating Infr<strong>as</strong>tructure Investments<br />
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5.2.5
5.3 PBGs for Investments in Small-scale Grid-connected RE
5.3 PBGs for Investments in Small-scale Grid-connected RE
6 PBGs FOR INVESTMENTS IN END-USER RE & EE<br />
6.1 Cost of Capital for End-user Investments in RE & EE<br />
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6.2 Market Aggregation and Loan Standardization Strategies<br />
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6 PBGs FOR INVESTMENTS IN END-USER RE & EE<br />
6.1 Cost of Capital for End-user Investments in RE & EE<br />
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6.2 Market Aggregation and Loan Standardization Strategies<br />
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6 PBGs FOR INVESTMENTS IN END-USER RE & EE<br />
6.1 Cost of Capital for End-user Investments in RE & EE<br />
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6.2 Market Aggregation and Loan Standardization Strategies<br />
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6 PBGs FOR INVESTMENTS IN END-USER RE & EE<br />
6.1 Cost of Capital for End-user Investments in RE & EE<br />
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6.2 Market Aggregation and Loan Standardization Strategies<br />
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6.2.3
6.2.3
6.3 PBGs for Individual Household Investments in EE and RE<br />
6.3.1
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6.4 Private Industry Investments in EE & RE<br />
6.4.1
6.4.2
7 PBGs IN DEVELOPING COUNTRIES<br />
7.1 Specific Challenges in Developing Countries<br />
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7.1.2
7.2 <strong>Guarantees</strong> <strong>to</strong> Promote Technology Transfer through DFI<br />
7.2.1
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7.2.4
7.3 PBGs for Business and Asset Finance in Developing and<br />
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84 For more information, ple<strong>as</strong>e see http://eandco.org/
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7.3.3
7.3.4
7.4 Matching Loan Tenor with RE & EE Revenues in Project<br />
Finance
7.4 Matching Loan Tenor with RE & EE Revenues in Project<br />
Finance
7.5 Are PBGs Successful in Changing Ingrained Lending<br />
Practices?
7.5 Are PBGs Successful in Changing Ingrained Lending<br />
Practices?
8 STRUCTURING PBG PROGRAMS<br />
8.1 Criteria and Success Indica<strong>to</strong>rs for Use of <strong>Guarantees</strong><br />
8.1.1 <br />
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8.2 Leveraging Ratios: Some B<strong>as</strong>ic Issues<br />
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8.3 Guarantee Pricing<br />
8.3.1
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8.3.4
8.4 Funding and Public Budget Accounting of PBGs<br />
8.4.1 <br />
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8.4.3
8.5 Developing EE/RE Finance Guarantee Programs: Topics and<br />
Steps for <strong>SEF</strong> <strong>Alliance</strong> Members <strong>to</strong> Consider<br />
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8.5.1
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8.5.3
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8.5.6
8.5.7 <br />
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8.5.8
8.5.8
8.5.9
ANNEXES<br />
Annex I: References
ANNEXES<br />
Annex I: References
Annex II: Typical Guarantee Structure & Terms<br />
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Annex III: US DOE Loan Guarantee Program<br />
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105 Commercial Technology means a technology in general use in the commercial marketplace in the United<br />
States at the time the Term Sheet is issued by DOE. A technology is in general use if it h<strong>as</strong> been installed in and<br />
is being used in three or more commercial projects in the United States in the same general application <strong>as</strong> in the<br />
proposed project, and h<strong>as</strong> been in operation in each such commercial project for a period of at le<strong>as</strong>t five years.<br />
The five year period shall be me<strong>as</strong>ured, for each project, starting on the in service date of the project or facility<br />
employing that particular technology. For purposes of this section, commercial projects include projects that<br />
have been the recipients of a loan guarantee from DOE under this part.<br />
106 Definition of leading edge biofuels from new law Section 1705: “Leading edge biofuel projects that will use<br />
technologies performing at the pilot or demonstration scale that the Secretary determines are likely <strong>to</strong> become<br />
commercial technologies and will produce transportation fuels that substantially reduce life-cycle greenhouse g<strong>as</strong><br />
emissions compared <strong>to</strong> other transportation fuels.” Example potential project from current 1705 renewable<br />
energy Solicitation: Commercialization of Advanced Design Bio-Refineries for Multi-Feeds<strong>to</strong>ck Processing in<strong>to</strong><br />
Biofuels.
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107 This summary is b<strong>as</strong>ed on discussion with Richard Corrigan, Senior Advisor <strong>to</strong> the US DOE, contact<br />
information for whom is provided below. Any and all mistakes are the responsibility of the author.<br />
108 Excerpted from the “Financing Alternative Energy: Development Finance Organizations (DFOs) <strong>as</strong> Deal<br />
Origination & Risk-Sharing Partners in DOE’s Loan Guarantee Program – Section 1705 FIPP” power point<br />
presented by Thom<strong>as</strong> H Cochran & Steven Klein, Advisors <strong>to</strong> US DOE, November 13, 2009.<br />
109 Ibid.
110 All projects must undergo a National Environmental <strong>Policy</strong> Act (NEPA) review, a federal mandated review<br />
that <strong>as</strong>sesses environmental impacts of projects supported by federal funding. NEPA review is estimated <strong>to</strong><br />
extend the typical project development ph<strong>as</strong>e an additional year. This poses difficulties for the Section 1705<br />
projects, funded by the Recovery Act, with construction start deadlines of September 30, 2011.<br />
111 Excerpted from the “Financing Alternative Energy: Development Finance Organizations (DFOs) <strong>as</strong> Deal<br />
Origination & Risk-Sharing Partners in DOE’s Loan Guarantee Program – Section 1705 FIPP” power point<br />
presented by Thom<strong>as</strong> H Cochran & Steven Klein, Advisors <strong>to</strong> US DOE, November 13, 2009.
110 All projects must undergo a National Environmental <strong>Policy</strong> Act (NEPA) review, a federal mandated review<br />
that <strong>as</strong>sesses environmental impacts of projects supported by federal funding. NEPA review is estimated <strong>to</strong><br />
extend the typical project development ph<strong>as</strong>e an additional year. This poses difficulties for the Section 1705<br />
projects, funded by the Recovery Act, with construction start deadlines of September 30, 2011.<br />
111 Excerpted from the “Financing Alternative Energy: Development Finance Organizations (DFOs) <strong>as</strong> Deal<br />
Origination & Risk-Sharing Partners in DOE’s Loan Guarantee Program – Section 1705 FIPP” power point<br />
presented by Thom<strong>as</strong> H Cochran & Steven Klein, Advisors <strong>to</strong> US DOE, November 13, 2009.
110 All projects must undergo a National Environmental <strong>Policy</strong> Act (NEPA) review, a federal mandated review<br />
that <strong>as</strong>sesses environmental impacts of projects supported by federal funding. NEPA review is estimated <strong>to</strong><br />
extend the typical project development ph<strong>as</strong>e an additional year. This poses difficulties for the Section 1705<br />
projects, funded by the Recovery Act, with construction start deadlines of September 30, 2011.<br />
111 Excerpted from the “Financing Alternative Energy: Development Finance Organizations (DFOs) <strong>as</strong> Deal<br />
Origination & Risk-Sharing Partners in DOE’s Loan Guarantee Program – Section 1705 FIPP” power point<br />
presented by Thom<strong>as</strong> H Cochran & Steven Klein, Advisors <strong>to</strong> US DOE, November 13, 2009.
110 All projects must undergo a National Environmental <strong>Policy</strong> Act (NEPA) review, a federal mandated review<br />
that <strong>as</strong>sesses environmental impacts of projects supported by federal funding. NEPA review is estimated <strong>to</strong><br />
extend the typical project development ph<strong>as</strong>e an additional year. This poses difficulties for the Section 1705<br />
projects, funded by the Recovery Act, with construction start deadlines of September 30, 2011.<br />
111 Excerpted from the “Financing Alternative Energy: Development Finance Organizations (DFOs) <strong>as</strong> Deal<br />
Origination & Risk-Sharing Partners in DOE’s Loan Guarantee Program – Section 1705 FIPP” power point<br />
presented by Thom<strong>as</strong> H Cochran & Steven Klein, Advisors <strong>to</strong> US DOE, November 13, 2009.
110 All projects must undergo a National Environmental <strong>Policy</strong> Act (NEPA) review, a federal mandated review<br />
that <strong>as</strong>sesses environmental impacts of projects supported by federal funding. NEPA review is estimated <strong>to</strong><br />
extend the typical project development ph<strong>as</strong>e an additional year. This poses difficulties for the Section 1705<br />
projects, funded by the Recovery Act, with construction start deadlines of September 30, 2011.<br />
111 Excerpted from the “Financing Alternative Energy: Development Finance Organizations (DFOs) <strong>as</strong> Deal<br />
Origination & Risk-Sharing Partners in DOE’s Loan Guarantee Program – Section 1705 FIPP” power point<br />
presented by Thom<strong>as</strong> H Cochran & Steven Klein, Advisors <strong>to</strong> US DOE, November 13, 2009.
Annex IV: USDA Loan Guarantee Programs<br />
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