Impact Investment Profile

Investor

FMO

Investee

Clean Energy

FMO, the Dutch development bank, invests to improve lives and livelihoods across the globe in sectors including food, water, and energy. Clean Energy (CE) is a special purpose vehicle designed solely to finance the construction of Mongolia's first wind farm.

Investor Targeted Impact

Increase renewable energy use and access in emerging markets in Asia

Investor

Name FMO
Investor description Founded in 1970, FMO is the Dutch development bank. FMO believes a strong private sector leads to economic and social development, empowering people to employ their skills and improve their quality of life. FMO specializes in sectors where its contribution can have the highest long-term impact, namely financial services, energy, agribusiness, food, and water.

Investee

Name Clean Energy
Sector Energy
Geography East Asia - Mongolia
Investee business model Clean Energy (CE) is a special purpose vehicle (SPV) set up by Newcom LLC, a leading Mongolian clean energy and infrastructure holding and investment management company, to construct and operate the Salkhit Wind Farm in Mongolia. As an SPV, CE is legally a separate entity, which reduces the risk to Newcom LLC, the majority shareholder in CE, in the case that the wind farm is unsuccessful. The use of SPVs is common in project finance to separate the assets and liabilities of the parent, operating company and the subsidiary, project company.Wind farms are collections of wind turbines that use renewable wind power to generate electricity, without producing greenhouse gas emissions. The 50-megawatt Salkhit Wind Farm, located 70 kilometers southeast of the Mongolian capital Ulaanbaatar, is expected to supply up to 5% of the country’s electricity after becoming fully operational in 2013. The wind farm earns revenue by selling its produced energy to the country’s electricity providers. CE may earn additional revenue streams through receiving carbon credits, for which CE has already completed registration.
Motivations for investment FMO was interested in the investment opportunity primarily because of its environmental impact potential. Wind is a more sustainable and environmentally friendly energy source than coal, which historically has comprised upwards of 95% of Mongolia’s energy supply. Also, not only is the country’s topography well-suited to generating wind power, but Mongolia is seeking to expand energy supply because, under current conditions of economic growth, its demand outstrips supply. In addition to supporting Mongolia’s sustainable growth, FMO saw the investment as an opportunity to catalyze the role of renewable energy in the region. Salkhit will be Mongolia’s first wind farm, and success could build investor confidence that may drive further investment. Salkhit will also be Mongolia’s first private sector investment into the power sector and the country’s first independent power producer.Finally, the project meets FMO’s criteria for corporate governance and financial return. Newcom, the operating company, is highly respected in Mongolia, and it operates in compliance with the International Finance Corporation’s corporate governance guidelines. From a financial return perspective, FMO owns a 15% stake in CE and will earn dividends on its capital, with an opportunity to exit the structure within a defined time period.

Investment

Instrument Debt, Equity
Investment size EUR 21.4 million - Senior Debt; EUR 5.3 million – Equity (includes EUR 672,000 that was a one-time conversion from grant capital initially provided to assess the project’s feasibility)
Source of deal The deal was referred to FMO by the European Bank for Reconstruction and Development (EBRD), a co-investor in Clean Energy.
Stage of company at time of investment Start-up
Purpose of investment The investment into CE will finance the construction of the wind farm. FMO’s funding will also finance the construction of 28 kilometres of transmission lines to bring the energy on to the Mongolian electricity grid. FMO initially provided a grant to assist in the business planning and feasibility assessment for the wind farm’s construction. This capital was convertible to equity upon financial close.
Investment impact objectives The Salkhit Wind Farm will increase access to and the share of renewable energy in Mongolia, and reduce the country’s carbon footprint. It is expected to cut carbon emissions by 180 thousand tons, save 1.6 million tons of fresh water, and save 160 thousand tons of coal annually. The clean power generated by this 50 megawatt wind farm will service customers connected to the Mongolian central grid. The transaction, Mongolia’s first significant renewable energy project and first new generation connected to the grid in 30 years, is also hoped to pave the way for increased private investment in renewable energy in the country.
Social and environmental metrics tracked on investment FMO applies a proprietary scorecard to assess the nonfinancial performance of its investments, which takes into account environmental, social, and governance factors. Environmental metrics tracked on this investment include:Number of carbon emissions avoidedWater savingsTons of avoided coal

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