PoA%20Experiences%20Joint%20Implementation%20Supervisory%20committee%20Roundtable%20Consultations

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PoA ExperiencesJoint Implementation Supervisory
committeeRoundtable Consultations
Bonn, 16 June 2009 Klaus Oppermann, KfW
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Source of KfWs PoA Experience PoA
Support Center Germany

• Since October 2008 KfW runs PoA support program
  on behalf of German Environmental Ministry
• Enable public and private entities to identify
  PoAs.
• Develop concrete and realizable PoA proposals.
• Prepare for PoA implementation and operation.
• Facilitate PoA financing and marketing of carbon
  credits.
• PoA Blueprint Book ? www.kfw.de/carbonfund

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Early stage PoA portfolio
Sector Region Operator Typ
Energetic Building Rehabilitation (5) Eastern Europe, MENA, South Asia Banks Soft loans
Household stoves and domestic biogas (5) South Asia, Africa NGOs, public agencies, MFIs Grants, microfinance
Fuel switch, Energy efficiency in SMEs, service sector, transport (12) MENA, Asia, Latin America Banks, public agencies Payment on delivery credit lines, soft loans
Small and micro renewable energy (6) Africa, Latin America, South Asia Banks, public agencies Soft loans, payment on delivery credit lines
CFLs (2) Africa, Latin America Utilities Price discounts
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Looking deeper into four cases

• Energetic building rehabilitation Eastern
  Europe (EU)
• Insulation, windows, heating (EE FS)
• 20 CERs/building/p.a., investment costs 25,000
  EUR/building on average
• Soft loans, carbon impact 8, entering
  renovation cycle, building typology approach for
  monitoring.
• Energy Efficiency in public buildings MENA
• Lighting, cooling, intelligent control
  technology
• 120 CERs/Building/p.a., investment costs 30,000
  EUR/building on average
• Payment-on-delivery, carbon impact 36, each
  building monitored.
• Residential Biogas South Asia
• 2.5 CERs/unit/p.a., investment costs 180
  EUR/unit
• Grants payment on delivery (maintenance), 140
  carbon impact .
• Residential Solar Water Heating Africa
• 2 CERs/unit, investment costs 1,000 EUR/unit
• Grants, carbon impact 10, monitoring through
  sampling.
• 10 years carbon revenues undiscounted at 10
  EUR/t relative to initial costs

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Example German programmatic JI

• German DNA has approved 3 regional energy
  efficiency/fuel switching PoAs.
• 2 PoAs Energy efficient heating steam boilers
  (Northwest and South Germany)
• PoA operators public energy agency utility
• Payment-on-delivery programs 80 kt. p.a.
  expected (for both programs together)
• Example Modernization 10 MW oil-fired steam
  boiler 270 TEUR, 30 TEUR JI revenues per year.
• 1 PoA Climate Bonus Program heat pumps
  (Northwest Germany)
• PoA operator utility
• Conversion conventional heating to electric heat
  pumps (zero emissions because coverage of power
  sector within ETS)
• Grant program (frontloading of carbon revenues)
  50 kt. p.a. expected
• CO2 reductions per heat pump around 2 t p.a.

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Efficient lighting - CFL program

• Economics (example of an Indian give-away for
  free project)
• Procurement/distribution costs for high quality
  CFL 5 EUR/unit
• Carbon revenues 0,8 EUR/unit/a
  (0.1 MWh
  savings 0.8 tCO2/MWh 10 EUR/tCO2)
• Fixed costs (development, CDM process) 300 TEUR
• Operational costs (including monitoring) 50
  TEUR
• Break even requires gt 1.000,000 CFLs.
• Utility as PoA operator
• Interest in peak load reduction
• Competence with demand side EE measures
• Customer database
• Synergies meter reading monitoring on a sample
  basis.

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Programmatic carbon crediting

• PoA - Incentive or policy implementation program
  as CDM project
• Program operator receives CDM revenues
• Program participants receive incentive payment
• Incentives are provided against carbon ownership
• Market based private sector driven and bottom-up
  approach to sustainable sectoral transformation
  (difference to sectoral crediting)
• Addressing small and micro activities
• Core target group households, SMEs,
  municipalities.
• Economics and Finance
• Appropriate type and dimension of incentive
  (grant, soft loan..)
• Core deal incentive against carbon ownership
  (appropriate contracts)
• Funding of the programme (in particular seed
  funding).

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Specific interest of PoAs for JI

• PoA could have long term potential to boost JI.
• Public sector private sector asset distribution
  issue
• Approving a JI project means a wealth transfer
  public ? private sector
• PoA allows for implementation of public sector
  programs under JI.
• JI in EU-ETS countries
• Big emitters covered by ETS few opportunities
  for stand-alone projects
• Considerable potential for micro-activities
  including buildings and small industrial boilers
  ? PoA approach.

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PoA operators interests and requirements

• Required institutional capacity program
  experience.
• Not necessarily required carbon market
  experience.
• Potential PoA operators include (core
  interest/policy)
• Financial institutions attractive loan
  conditions.
• Utilities demand side energy efficiency
  measures.
• Producers of climate friendly technology
  marketing.
• Public agencies funding of policies.
• NGOs funding of sustainable development
  activities.
• Substantial synergy effects
• Ex. 1 Microfinance loan monitoring and CDM/JI
  monitoring.
• Ex. 2 Utility customer database/billing and
  quality control.
• Ex. 3 Banks loan contracts and CER/ERU
  ownership transfer.

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PoA operator responsibilities

• Running the program (core)
• Develop PoA concept and business plan
• Implement and operate PoA
• Do core deal carbon credits against incentive
  payment
• Sell carbon credits and refinance PoA
• Handle all involved financial flows.
• PoA procedures (potential for outsourcing)
• Organize validation and registration of PoA
• Check whether submitted CPAs fulfill the PoA
  eligibility criteria
• Operate record keeping system for each CPA
• Submit CPA Design Documents (CPA-DDs) to
  validator
• Communicate with DOE regarding monitoring
  reports
• Organize revalidation of PoA after revision of
  baseline methodology.

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PoA Funding

• Situation for PoA operator
• Costs development, implementation, operation
• Revenues carbon credits are only source of
  income.
• Funding requirements
• Development (concept, business plan, capacity,
  PDD)
• Seed Funding first generations of
  activities/incentives.
• Risk profile seed funding
• Performance risk of PoA operator
• Risk - often stable consumption activities low
  transfer risk (international carbon accounts)
  step wise implementation.
• Risk complete reliance on monitoring often no
  recourse to program participants (micro
  activities).
• Banks have no experience with PoA funding.

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PoA Seed Funding Case studySWH-South Africa
1.000 EUR/unit 10 grant 2CERs/unit 10EUR/CER
20 (10) Admin. fee on subsidy (CER revenues)
crediting period 10 years.
  No SWH EUR EUR EUR EUR EUR
Year Units CER Rev Cum Subsidy Admin MV Revenue Revenue Cum
1 5.000 50.000 500.000 100.000 -550.000 -550.000
2 10.000 200.000 1.000.000 200.000 -1.000.000 -1.550.000
3 15.000 450.000 1.500.000 300.000 -1.350.000 -2.900.000
4 20.000 800.000 2.000.000 400.000 -1.600.000 -4.500.000
5 0 1.000.000 0 100.000 900.000 -3.600.000
6 0 1.000.000 0 100.000 900.000 -2.700.000
7 0 1.000.000 0 100.000 900.000 -1.800.000
8 0 1.000.000 0 100.000 900.000 -900.000
9 0 1.000.000 0 100.000 900.000 0
10 0 1.000.000 0 100.000 900.000 900.000
11 0 950.000 0 95.000 855.000 1.755.000
12 0 800.000 0 80.000 720.000 2.475.000
13 0 550.000 0 55.000 495.000 2.970.000
14 0 200.000 0 20.000 180.000 3.150.000
15 0 0 0 0 0 3.150.000
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Summary of Experiences

• Development program (project) needs to be
  developed not only carbon component
• Institutional requirements experienced program
  implementers (in general not yet well integrated
  into carbon market major bottleneck in PoA
  deployment)
• Economics Minimum program size required for
  reaching break even
• Finance Risk of PoA Seed Funding mainly rely on
  post registration regulatory risk (monitoring and
  verification, revisions of methodologies)
• Very limited pre-2012 PoA carbon delivery
  expectation despite huge potential.

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Comments on PoA procedures

• PoAs are very similar to standard JI-projects
  from a regulatory perspective
• PoAs are a project by project approach
• Deployment of measures/activities over time
  associated with quantitative uncertainty on ERUs
  also in standard projects (e.g. MWh windpower
  p.a. number of fly-ash bricks p.a. )
• PoAs face major market entry barriers and are
  much more difficult to develop than ,standard
  projects
• ? Guiding principles
• As simple as possible
• As close to procedures for ,standard projects as
  possible.
• Most simple ruling would be a pure definition
  PoAs are projects with ex post determination of
  included project activities all JI (CDM) rules
  and procedures apply mutatis mutandis.

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Comments on proposed JI-PoA guidance

• No. 6 JPA single measure or set of (
  interrelated ) measures clarification that CE
  defines in its own deliberation JPA (in practice
  optimization calculus)
• No. 7 JPAs within the same PoA can use different
  methodology combinations relevant e.g. for
  biogas with or without methan component
• No. 11 Avoidance of double counting either CE
  procedure in determination or on JPA level in
  verification specification required
• No. 13/15 ,Crediting period of JI PoA versus
  crediting period of JPAs is not defined (in CDM
  28 ys. PoA lifetime CPA crediting periods)
• No 13 No AIE involvement in the JPA inclusion
  process (unnecessary as there is no consistency
  check as under CDM-PoA).

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Thank you for your attention
Dr. Klaus Oppermann KfW Bankengruppe Klaus.opperma
nn_at_kfw.de