Innovative financial instruments for energy efficiency and renewable energy projects: Some concrete examples

Transcription

1 Innovative financial instruments for energy efficiency and renewable energy projects: Some concrete examples Jorund Buen, Co-Founder, Differ Africa Carbon Forum, 19 April

2 Outline > Carbon market innovations that help attract more carbon finance Programmes of Activities (PoAs) Nationally Appropriate Mitigation Actions (NAMAs) Standardised baselines > Examples of financial instruments for renewables and/or energy efficiency in developing countries (with or without carbon markets) ESCOs First win grants Bonds 2

3 Differ: Business idea To help replicating small-scale carbon reduction technologies (e.g. PV and energy efficiency) in developing countries through Investments investing in local project developers and originators (cash and sweat equity) developing our own concepts and companies advising project developers, project owners, investors and policy makers providing in-depth analysis for free on market conditions, feed-in-tariffs, financing and business opportunities Advisory Analysis 3

4 Differ: Current activity in Africa > Currently considering investments in e.g. project developers located in different East African countries PoAs (incl. clean cookstoves, PV, pico hydro and biogas), in Eastern and Southern Africa an emission reduction technology incubator located in a specific African country our own concepts and business models (within and outside the CDM/PoA space), including solar PV 4

5 Scaling up mitigation and incentives for financing From single measures to sectorwide efforts Single CDM projects CDM Programme of Activites Nationally Appropriate Mitigation Action - NAMA Sectoral Mechanism Mitigation action in Sub- Sector A Voluntary programme Sectorwide targets Capacity building Scale of mitigation financing 5

6 PoAs: Positives and negatives from the investor point of view PoA: Positive characteristics Low regulatory risk and reduced time to market for subsequent CPAs once PoA registered with first CPA Reduced regulatory risk for subsequent CPAs could enable upfront carbon finance Enables project types (and geographical areas) with more diffuse emission sources Can linked to policy goals (but with the risk of increased bureaucracy) Lower transaction cost per CPA; scalability PoAs: Challenges High upfront project development costs Third party verifiers liability for erroneous inclusion of CPAs could impose limits on projects offset volume Require more thought-through business model and detailed project management than single project Multi-country PoAs face increased risk of host country non-approval PoAs are new; regulatory changes likely Prepares for transition to NAMA 6 Monitoring challenges if competing PoAs (same project type, same country)

7 PoA financing approaches Cost item Rough cost estimate ( ) PoA design document (DD), k generic CPA-DD, initial CPA-DD Third party validation PoA-DD 35-65k and initial CPA-DD Subsequent CPA-DDs 10-30k Inclusion of additional CPAs (per 10-15k CPA) Registration 0, if <15kt/y or LDC Monitoring report, per CPA 10-20k Verification, per CPA 5-40k Issuance fee (share of proceeds) 8,5k /y (if 50kCERs/y), 0 if LDC Sum ~ k Debt/equity investment in PoA SPV PoA CME Originator Monitoring service provider Tech provider NB! Cost of the underlying project (e.g. producing, marketing and distributing cookstoves) come in addition 7

8 Why a standardised baseline is attractive for an investor: The example of charcoal NB! Not approved submitted by Perspectives via Ugandan DNA Item Project specific approach SBL Baseline scenario Baseline emission factor Additionality demonstration Project scenario Monitored project emissions Use of the combined tool + specific study Measurement campaign at several kilns in the region Project-specific: barriers analysis or financial demonstration 8 Default for pre-selected countries Default value Deemed additionality in LDCs/LICs Use of carbon-neutral biomass (wastes; new forest/bamboo plantation; invasive plants) to produce charcoal for households Power consumption Transportation CH 4 stream in the project Charcoal quality Uncertainties High Very low Resources needed Lead time: 1.5 years Cost: ~ 100,000 Time: 1-2 months Cost: ~ 10,000

9 Millions Supported/credited NAMAs for energy-efficiency: Building codes and appliance standards in Mexico s residential building sector 40 Housing stock in millions 35.6 Mil Mil Mil Mil Mil Mil. 5.8 Mil. new houses NAMA focused on new houses 10.8 Mil. new houses Existing houses Projection Sources: CONAVI, 2010 & Perspectives

10 Investment needs Source: Perspectives (2012) Minimum supporting finance: ~ 0.17 billion EUR/year 10

11 Low/medium risk: Bonds What about project/poa bonds? Smaller funding needs, easier to pull off but more risky > Developing country gets international institution (IFI) to guarantee for part of the value provided for a large-scale emission reduction initiative (NAMA) > Private investors invest in NAMA bonds, get interest and carbon credits in return > If fewer carbon credits are issued than planned, or the project is cancelled > Developing country s interest payments increased > IFI guarantee: reimburse bondholders principal and perhaps part of the interest payments and carbon credits > Developing country pays back the capital 11

12 Differ s starting point > Three challenges 1) Providing energy for all 2) Provide energy needed for growth 3) Provide 1) and 2) in a low-carbon way > Lots of new ventures must be established especially in developing countries to deal with these challenges > Advanced reduction technologies developed by OECD companies need to be adapted to and used in developing countries > Nevertheless, almost no funds targeted at seed funding of local companies in developing countries (or OECD companies) targeted at the three challenges above helping OECD SMEs with proven reduction technologies gain a foothold in developing countries, through localised testing and R&D 12

13 Medium/high risk: Energy service company (ESCO) approach > ESCO/leasing company owning and maintaining chillers > Income is function of power savings > Contracts 3-8y, payback 1-3y Today Newco 13

14 ESCO: Deal example > ESCO finances 50% of a textile factory s chillers costing $500,000 > Total energy savings of $400,000 in 1 st year, increase with power price > ESCO gets 50% of income for X months > Despite rapid payback, factory and building owners in most developing countries do not do this today Lack of available capital Lack of information Organisational setup not conducive for such initiatives > Although real barriers exist, the CER revenues at current prices do not justify CDM projects/poas 14

15 High risk: First win grants > Fund costs of first application of specific technology in specific developing country/ies? Ideally linked to commitment by grant recipient to produce additional units in the defined area at gradually reduced cost, and with gradually reduced grant support > Alternative: Cover a defined part of the buyer s documented losses in employing that technology compared to a baseline price of a comparable product/service? 15

16 Concluding remarks > Recent CDM rule changes have made it more attractive for investors but depressed CER prices are a barrier > Emerging carbon market mechanisms are immature, lack a clear link to private sector financing, and risk being too top-down to establish such private sector link > Early-stage finance of carbon reduction projects (with and without link to the carbon market) should be given priority to meet energy access and low carbon energy goals > Think small (as well): A quick decision on 100,000 USD and a man month of expert assistance can make a very large difference 16

17 Thank you for your attention Jorund Buen Co-Founder, Differ Group 17