PoA ExperiencesJoint Implementation Supervisory committee

Roundtable Consultations

Bonn, 16 June 2009Klaus Oppermann, KfW

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Source of KfW’s 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 year’s 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 > 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: Bank’s 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

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).

Thank you for your attention

Dr. Klaus OppermannKfW Bankengruppe

Klaus.oppermann@kfw.de