Becoming Green and Gold: Applying the CDM to Wind Energy

Transcription

1 Becoming Green and Gold: Applying the CDM to Wind Energy Introductory document Renewable Energy City Summit May 2008 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from South Pole Carbon Asset Management Ltd. This material was used by South Pole Carbon Asset Management Ltd during an oral presentation; it is not a complete record of the discussion.

2 UNDER KYOTO, COUNTRIES CAN USE CREDITS EARNED FROM REDUCING EMISSIONS ABROAD TO MEET THEIR CAPS Background to the Kyoto Protocol Hypothetical example As of December 2007, 176 states (including EU- 27, Canada, Japan and SA) have signed the Kyoto Protocol to the UNFCCC Annex 1 countries have committed to limiting their GHG emissions in the period to a specified percentage of 1990 emissions (a net reduction of 5%)* Non-Annex 1 countries do not have binding emission reduction commitments, but can host offset projects under the Clean Development Mechanism (CDM) CERs Revenue Switzerland finds it costly to reduce emissions Cheap GHG emission reduction projects can be implemented in South Africa CDM ( Clean Development Mechanism ) is an arrangement allowing industrialised countries to invest in emission reduction projects in developing countries as an alternative to more costly emission reductions at home. CDM credits are called CERs and can be used to meet a country s cap Switzerland buys credits ( CERs ) from project developers in South Africa CDM project 1

3 CDM PROJECTS MAKE UP A MULTI-BILLION RAND INTERNATIONAL INDUSTRY SPANNING A NUMBER OF TECHNOLOGIES Annual value of CERs issued Rm CDM project regions Percent of CERs 28,300 Korea Brazil Other China 1049 projects in 50 countries Only 25 projects in Africa, including 13 in South Africa Number of projects expected to increase significantly due to: India CDM project sectoral scopes Percent of projects Manufacturing industries Agriculture Fugitive fuel emissions 8 Waste handling and disposal Other 6 54 Energy industries Increased demand as new Annex I Parties ratify the Kyoto Protocol (e.g. Australia and the US) Increased supply as CDM awareness and skills increase 2

4 WIND ENERGY ACCOUNTS FOR 12% OF ALL CDM PROJECTS AND GENERATES SIGNIFICANT VALUE Annual value of CERs issued by wind projects Rm CDM wind project regions Percent of projects 1,300 Other Brazil Republic of Korea China 127 wind projects in 14 countries Account for 12% of all CDM projects No registered wind projects in South Africa India 40 3

5 IN ORDER TO BE ELIGIBLE FOR CARBON CREDITS, PROJECTS NEED TO MEET A NUMBER OF CRITERIA Factor Additionality Description Emission reductions must not have occurred in the absence of the CDM This is proved is some barrier to project implementation exists (e.g. investment or technological barrier) or the project is not feasible without carbon credits Sustainable development One of the aims of the CDM is to develop projects which lead to sustainable development In order to get project approval, this sustainable development aspect needs to be proven in terms of social, economic or environmental criteria Methodology compliance In order for credits to be issued, a project must comply with and register under an approved methodology from the UNFCCC Wind projects can be registered under either ACM0002 or AMS-1.D 4

6 CDM PROJECTS GENERATE AN ADDITIONAL REVENUE STREAM AND OPEN UP NEW FINANCING AVENUES CER revenue CERs are issued after emission reductions have occurred However can enter into forward contracts during project planning stage: Eliminates CER price risk Can be used as collateral for loans Can arrange upfront payment for a proportion of CERs sold Expect approximately R1.3m in CER revenue per annum per MW of capacity Carbon financing South Pole s Gold Standard Fund with Credit Suisse and AIL Structured Finance provides financing to renewable energy projects: Up to 40% of capital Between 3-15m per project Access to prioritised debt financing 5

7 International leader in Carbon Credits and Project Financing Registration of carbon credits for no upfront fee Strategic carbon advice Equity financing Debt financing Technology support 6 Jon Kornik Principal, South Africa j.kornik@southpolecarbon.com