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RECs _ CDM for SWH - Intl Experience

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					Innovative Financing for Solar Water
Heating: Carbon & Renewable Energy
         Certificate Trading
Examples and Lessons from Selected
    International Experiences

          Green Power and Solar
        Thermal Energy Symposium
       Washington DC, Oct. 5th, 2005

             Steven Kaufman
      Green Markets International, Inc.
Presentation Overview


   International carbon reduction trading, the Clean Development
    Mechanism (CDM), and solar water heating

     Example CDM solar water heating experience: Kuyasa Project, Cape
       Town, South Africa

   International Renewable Energy Certificate (REC) trading, and
    RECs for solar water heating

     Example solar water heater REC experience: Australia

   Lessons for program design and market participation
Innovative Financing for Solar Water Heating
   Green Markets International is a non-profit
    organization working to expand the use of renewable
    energy for climate protection and development.
   Conducting REEEP-supported initiative, focusing on
    financial and commercial innovations for solar water
    heating in the Caribbean region and Brazil:
       Developing model business plans for SWH ESCO
       and fee-for-service operations
       Building stakeholder knowledge of carbon trading
       and helping to develop SWH CDM projects
       Exploring international REC trading possibilities
International Carbon Markets

   Fueled by mandatory requirements of the Kyoto
    Protocol, international trade in greenhouse gas
    reductions is now a large and rapidly growing market.
   Governments and private companies in industrialized
    countries with emission reduction obligations have
    already committed over a billion dollars for emission
    reductions from projects outside their borders.
   The international carbon market has the potential to
    provide an important boost for renewable energy
    projects and markets in many parts of the world.
The Kyoto Protocol & Carbon Trading
       Under the Kyoto Protocol, three mechanisms
       enable cross-border trading in greenhouse gas
       (GHG) emissions reductions:
           International Emissions Trading (IET)
               Trading blocks of emissions credits between emissions-capped
               industrialized countries, called Annex 1* countries

           Joint Implementation (JI)
               Project-based trading among Annex 1 countries

           Clean Development Mechanism (CDM)
               Project-based trading between Annex 1 and non-Annex 1 countries
               Certified Emission Reductions (CERs), created in the CDM process,
               can be used by Annex 1 countries to meet their reduction
               commitments during 2008-2012, and can accrue for project activities
               that commence before 2008.
*Countries with emissions caps under the Kyoto Protocol are technically “Annex B” countries, though they are called Annex 1
here, referring to Annex 1 of the UNFCCC. In practice, these terms are commonly used interchangeably.
Eligibility Requirements for the CDM
CDM Projects Must:
      Be implemented in a non-Annex 1 country that is a party to the
       Kyoto Protocol
      Be additional to what would occur in the absence of the project
       activity
      Support sustainable development in the host country
      Obtain approval of host country’s Designated National
       Authority for the CDM
      Result in real, measurable, long-term climate change benefits

CDM Projects Must Not:
      Divert Official Development Assistance (ODA)
      Involve nuclear power
CDM Project Cycle & Transaction Costs


                                                                 Estimated
    Step                                                          Cost - $US
    Project Identification, Project Idea Note Development             20,000
    Baseline Study & Monitoring Plan                                  20,000
    Project Design Document Preparation                               25,000
    Stakeholder Consultation & Host Country Approval                  10,000
    Validation by an Operating Entity                                 30,000
    Registration Fee                                                  30,000
    Transaction Negotiation & Contracting                             20,000
    Project Monitoring (Periodic)                                      varies
    Initial Verification by Operating Entity & Certification          15,000
    Periodic Verification                                             10,000
    Approximate Total:                                             >180,000

    Note: Actual costs can vary considerably depending on various factors.
Challenge for Small-Scale Projects

Transaction costs can be proportionally much higher for
  small-scale projects, since many of the costs are fairly
  fixed and do not vary much based on project size
   Parties to the climate convention recognized that small-
    scale projects often have substantial sustainable
    development benefits, and that high transaction costs
    could prevent small-scale projects from participating in the
    CDM
   Parties to the convention instructed the CDM Executive
    Board to develop simplified modalities and procedures for
    small-scale projects.
CDM Simplifications for Small-Scale Projects

Simplified modalities and procedures for small-scale
  projects include:
 Simplified Project Design Document
 Simplified, pre-approved methodologies for baseline setting and
  monitoring plans
 Ability to bundle project activities at various stages in the CDM
  cycle
 Simplified requirements for environmental impact analysis
 Lowered project registration fees
 Shorter review period for project registration
 Same Designated Operational Entity can validate and verify &
  certify emissions reductions for a specific small-scale project
Small-Scale CDM Project Definitions

  Project activities defined as “small-scale” for
    CDM participation include:
  Renewable energy systems with less than 15 MW
   capacity
  Energy efficiency projects less than 15 GWh/year
  Other projects emitting less than 15 kilotonnes
   CO2/year
  Small-Scale CDM Project Categories with Approved Methodologies*

Project Type           Project Activity Category
I. TYPE I:             I.A. Electricity generation by the user
RENEWABLE              I.B. Mechanical energy for the user
ENERGY                 I.C. Thermal energy for the user [Note: this category is applicable for solar water heating]
PROJECTS               I.D. Renewable electricity generation for a grid
II. TYPE II:           II.A. Supply side energy efficiency improvements – transmission and distribution
ENERGY                 II. B. Supply side energy efficiency improvements – generation
EFFICIENCY             II.C. Demand-side energy efficiency programmes for specific technologies
IMPROVEMENT            II.D. Energy efficiency and fuel switching measures for industrial facilities
PROJECTS               II.E. Energy efficiency and fuel switching measures for buildings
                       II.F. Energy efficiency and fuel switching measures for agricultural facilities and activities
III. TYPE III:         III. A. Agriculture
OTHER                  III. B. Switching fossil fuels
PROJECT                III. C. Emission reductions by low-greenhouse gas emitting vehicles
ACTIVITIES             III. D. Methane recovery
                       III. E. Avoidance of methane production from biomass decay through controlled combustion
*As of February 15, 2005 and outlined in Appendix B of the simplified modalities and procedures for small-scale CDM project activities
 CDM Participation & Transaction Costs

                                                           Estimated Cost - $US
                                                            Non-SSC           SSC
Cost Item:                                               CDM Project CDM Project
Project Identification, Project Idea Note Development          20,000       15,000
Baseline Study & Monitoring Plan                               20,000        5,000
Project Design Document Preparation                            25,000       20,000
Stakeholder Consultation & Host Country Approval               10,000        7,000
Validation by an Operating Entity                              30,000        8,000
Registration Fee                                               30,000        5,000
Transaction Negotiation & Contracting                          20,000       15,000
Project Monitoring (Periodic)                                   varies       varies
Initial Verification by Operating Entity & Certification       15,000        5,000
Periodic Verification                                          10,000        5,000
Approximate Total:                                          >180,000      >85,000
Note: Actual costs vary considerably depending on various factors.
SSC=Small-Scale
    Kuyasa: Sustainable Energy CDM Project Involving SWH

   Location: Community of
    Kuyasa, Cape Town,
    South Africa
   Project Activities: Three
    Residential Energy
    Enhancements:
     - Solar Water Heaters
    (150 liters avg.)
     - Insulated Ceilings
     - CFLs

   Number of households:                    Source: SouthSouthNorth
    2,307 existing homes in
    phase 1, and 4,000 new
    homes in phase 2
Kuyasa Solar Water Heating Component

Pre-Project Situation: people heated water on
 stove tops

CDM Project Baseline: emissions from hot water
 via electric tank water heaters based on
 “suppressed demand” for this energy service

Emission Reduction Estimates: based on model
 output for thermal energy from SWH, electric
 water heater efficiency of 70%, and coal-fired
 electricity generation = 1.288 tons CO2/sys/year
Kuyasa Project: Revenue from Carbon Trading

The project is now registered with the CDM, but
 project participants have not yet completed
 carbon reduction sales transactions

Participants anticipate generating revenue equal
 to at least 12% of the project’s capital costs,
 based on a CO2 price of €8; at higher carbon
 prices, carbon reduction sales could potentially
 supply 76% of capital costs at €25 and 100% at
 €33 (Source: SouthSouthNorth)

Carbon prices have recently been increasing
  Carbon Trading Prices

                                       Approx. $/TonCO2
    Carbon Market Program
                                       (Summer 2005)
    Clean Development
                                       $5 to $10
    Mechanism (CDM)

    European Union Emission
                                       $20 to $30
    Trading System (EU ETS)

    Retail and other voluntary
                                       $3 to $15
    markets




Source: Point Carbon, various others
International Trade in Renewable Energy Certificates

  There have been a few international REC
   transactions:
  Guatemala hydro RECs to the Netherlands
  Symbolic REC contribution to WSSD from ENEL:
   wind farm in Cost Rica and geothermal in Italy
  Probably some voluntary transactions within North
   America, with more activity to come…
  To date, though, experience is very limited.
RECs for Solar Water Heating: Australia

 Key Features of Australia’s REC Program for SWH
  Regulations adopted in 2001 enable solar water heaters to generate
   RECs for compliance with Australia’s Mandatory Renewable Energy
   Target (MRET) which requires 2% of electricity generation by
   renewables though 2010.
  SWH systems must either be installed in a new building, or it must
   replace an electric water heater or an electric-boosted solar water
   heater that has been installed for over 1 year.
  RECs anticipated over 10 years are credited to SWH system buyers
   upon registration. Typical SWH systems are eligible for between 10
   and 64 RECs depending on the user’s location and system type. A
   table in the MRET regulations specifies the amount of RECs.
RECs for Solar Water Heating: Australia, cont.

 Program Features and Reported Results
  Registering a Solar Water Heater to obtain RECs costs A$20
   (US$15) and must be done within 1 Year of SWH installation
  Agents provide SWH REC registration services and buy RECs from
   SWH owners, which eases market participation
  REC prices have reportedly ranged from nearly A$40 (the cost of the
   fine charged to parties not meeting REC obligations) for the first few
   years to the mid-A$20’s more recently
  Australia’s SWH REC program has boosted Australia’s solar water
   heating market considerably, especially during the first few years of
   the program when REC prices were higher
Lessons From Selected International Experiences

 Regarding Carbon Trading and REC Rules and Markets
   The carbon market for Kyoto compliance is large and growing, but
   participation can be arduous

   SWH initiatives still can benefit from Kyoto carbon markets if scale is
   sufficient to cover participation costs; simplified procedures also help
   Australia’s simple REC rules, upfront crediting, and agents to ease
   participation give a good boost to the SWH market
   Simple rules and procedures, and active intermediaries, could
   facilitate SWH in US REC markets and emerging carbon markets,
   such as RGGI (the Northeast’s Regional Greenhouse Gas Initiative)
             THANK YOU!


     For more information, see:
http://www.green-markets.org/SWH
 Green Markets International, Inc.
 691 Massachusetts Ave., Suite 7
    Arlington, MA 02476 USA




Note: Cover Photos Courtesy of SouthSouthNorh

				
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