Emerging Role of Carbon Credits in Project Financing

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Emerging Role of Carbon Credits in Project
Financing
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Carbon Credit benefits

• Increase project revenues / IRR
• comparative disadvantage of Renewable Energy,
  Carbon revenue act as "subsidy" or supplements
  the electricity tariff.
• Access to both debt and equity financing
• Development Finance Institutions, as well as
  private corporations invest in/finance CDM
  projects since it is a cheap way to generate
  Emission Credits

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Carbon Credits Value Different Views
Classical View
Innovative View

• Carbon Credits as additional revenue
• Commercialization of Carbon Credits after
  financial closure
• Separation of Carbon Credits and project
  financials

• Carbon Credits as regular project revenue
• Consideration from early planning stage
• Carbon Credits as integral part of Project
  Financing

higher value ?
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Objective
Predictable and secured Carbon Credits
generation in advance Carbon Credits
transaction without risk affecting project
financials
Origination
Commercialization
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Risks in Carbon Credits Transactions
Registration Risk
Project Risks / Delivery Risks

• Delay of registration
• Failure of registration

- Underperformance- / late delivery penalties
Market Risks
Buyer Risk

• Market crash
• Market volatility
• Find Buyer

• Reliability of Buyer
• Ability to pay for CERs in future

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Market and Price Risks
Market fluctuations due to unknown emission
positions of Annex I countries as well as CER
supply situation
The price difference between OTC credits and
forward sales contracts can be divided into
different Risk categories
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CDM Risk Mitigation
Registration Risk
Project Risks / Delivery Risks

• Track Record and Experience of Consultant
• Early Cooperation

• Attention to Penalty clauses
• Guarantees
• Credit Wraps

Market Risks
Buyer Risk

• Fixed Rate ERPA
• Indexed Rate ERPA

• Reputation
• Balance Sheet

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EcoSecurities Proposition

• One Stop Shop CDM Solution
• Taking on all CDM related risks
• Unique Track Record since 1997
• Fixed or Indexed Rate ERPA Forwards
• No performance related penalties
• Strong Balance Sheet
• Market leader

Risk Free Origination
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EcoSecurities Risk free Carbon Credits
transaction impact on Project Financing
Easier to get debt financing since CERs generate
hard currency revenue streams in , or from
solvent and creditworthy Buyer Lower financing
costs due to lower interest rates of hard
currency loans Intangibility of CERs led the
transaction to be rated by the lender as Country
risk free Easier to get equity due to more
leverage (increased IRR) in the financing mix,
esp. when equity availability is limited
Increased IRR through predictable Carbon
Revenues
Increased CER Value by integrated approach
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Impact of Carbon Credits on Project IRR
IRR increases by 2-5
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Conclusion

• Access to Debt / Equity only under certain
  conditions
• Depends on how CDM risk is managed
• Who provides CDM Solution
• Maximizing CER value means
• Not to speculate on additional CDM benefit at a
  later stage and market situation
• But
• - To consider Carbon Credits as integral part of
  Project Financing

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Contact
EcoSecurities, India Liasion Office 76, Nariman
Bhavan, Nariman Point 400 021 Mumbai Ph 022
2283 9758 email india_at_ecosecurities.com web
www.ecosecurities.com