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GTZ IS Carbon Procurement Unit - PowerPoint

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					      Integrating
   Carbon Currency
into Project Financing

          R. Mohanakrishnan
GTZ IS – Carbon Procurement Unit, India
           September 2008
                    Financing…….
»   Project finance, financing projects based upon a
    financial structure where debt and equity are used to
    finance the project. Debt is repaid using the cash flow
    generated by operation of the project, rather than the
    general assets or creditworthiness of the project
    sponsors.


»   Carbon finance, financing of projects based upon
    financial structure where debt, equity, carbon emission
    reductions. Debt is repaid using the cashflow generated
    by operation of the project, Carbon Emission Reductions
    are transferred based on pre agreed price.


                                                              2
Carbon Financing



             Depends on project type
               / CER generation




                                       3
          Financing Options
1. Project Financing
    Project activity physical funding

    Equity

    Technology / O&M, ……

    Corporate loan



2. CDM Financing
    Transaction Costs - CDM Cycle

    PDD, Validation, New Baseline Methodology, Registration
    Charges, Verification

                                                              4
         Financing Options
3. ERPA Based Financing
    Transaction Costs - CDM Cycle

    PDD, Validation, New Baseline Methodology, Registration
    Charges, Verification


4. Institutional Financing
    State Level Nodal Agencies

    Technology Developers




                                                              5
              Carbon Financing
    NEW
                  PDD             PROJECT FUNDING
METHODOLOGY
                                   CDM FUNDING
                  HCA


               VALIDATION

                                    Project Financing
              REGISTRATION


          Project Commissioning


              MONITORING          1.EQUITY
                                  2.DEBT
                                  3.O & M
              CERs ISSUANCE
                                  4.TECHNOLOGY


                                                        6
       Integrating - Carbon Financing




         PROJECT
        DEVELOPER



ERPA
                       Equity Partner
                           Debt


       Carbon Credit
          Buyer
                                        7
  Transaction Mechanisms
Forward Contract
Option 1: Fixed Pricing
       »   X Euro / CER

       »   Upfront Financing (Part / Full)
       »   Pledge ERPA to Raise Money

Option 2: Market Linked Pricing
       »   X % of EUA / Secondary CER price, on the day of CER delivery
       »   Upfront Financing (Partial – Initial Vintage)




                                                                          8
Transaction Mechanisms

 Spot Contract
  »   Sales after CER Generation
  »   Fixed price
  »   Payment on Delivery of CERs
  »   No Risks




                                    9
  Upfront Financing – Guarantee Based
                                      - Case Study

         Project Details


      200 TPD MSW Project

        Under Construction

  Capital Investment 6.2 Crores


    Annual O & M – 3.2 Crores

3 Compost Projects – Single Project
           Developer
 CDM Transaction Cost by Project
           Developer

                                                     10
  Upfront Financing – Guarantee Based
                                      - Case Study

         Project Details                 CDM Transaction Details

                                               29,815 annual
      200 TPD MSW Project
                                           318,885 CERs till 2012
        Under Construction                    Under Validation

  Capital Investment 6.2 Crores       CER Contract Value – 9.83 Crores


    Annual O & M – 3.2 Crores         3 Separate Projects - Single ERPA

3 Compost Projects – Single Project
                                         Upfront Payment after ERPA
           Developer
 CDM Transaction Cost by Project
                                        Upfront Payment – 12 Crores
           Developer

                                                                          11
        Risks - Influencing Transaction
»       Regulatory
    •    Regulatory clearances of the Project
    •    Dynamics of CDM Regulatory Process (Validation, Registration)

»       Institutional
    •    Creditworthiness of Project Owner
    •    Stability of the political and investment of the project parties

»       Technology
    •    Creditworthiness of the technology
    •    Penetration of the technology
    •    Project Proponent technical expertise

»       Miscellaneous Risk
    •    Environmental and social compliance + additional benefit
    •    General Market Risks




                                                                            12
            What buyers are looking for?
»   Risk Free projects
    »   National Institutional risks : DNA / tax / sharing etc.,
    »   Non-delivery of CERs
    »   Projects with “financial closure” / Investment risk issues
    »   Easy and ready to implement
    »   High net worth and corporates (proven credibility)
    »   Technology Proven
    »   Regulatory scenario & additionality


                     Low cost High Volume CERs


                                                                     13
                   Challenges - I
   Lack of experience of Integrating Carbon Finance

   Carbon Revenue not conceived in early Stage

   Transparency in Carbon Market ????

   Bilateral investment for project funding 

   CER Transaction Lacking compared to China and
    Brazil

   Legal issues not addressed properly

                                                       14
                   Challenges - II
»   Time Lines – Lengthy
»   Credential - Project Developer
»   Guarantee
» Monitoring and Verification, significant barriers -
  Small and scattered projects




                                                        15
                    Way Ahead
   Integration of GHG emissions reduction activities in
    development assistance and national development
    programmes


   Response: Government's role critical as a facilitator
    with different Bilateral /multilateral organizations in
    organizing Carbon trade fairs or Expos


   To create a equal platform for small, medium and
    large sellers




                                                              16
17
German Technical Cooperation (GTZ)„s mission:
“International cooperation for sustainable development
worldwide”. Present in 130 partner countries,
~10.000 employees worldwide, turnover €1,018 million



                                  GTZ IS is extended
                                  business arm of GTZ




GTZ IS-CPU India is a conducive
platform bridging Indian and
German carbon markets


                                                         18
        GTZ CPU Offers...
1.   Project Identification
2.   Technology Assistance
3.   Upfront Financial Models
4.   Carbon Financing – Priority
5.   Structuring Financial Contracts
6.   Legal Assistance
7.   Sustained Delivery of emission rights




                                             19
         CDM Projects Criterion
» Project should generate ~200,000 CERs till 2012
» Minimum annual generation ~40,000 CERs
» Approved methodology
» Project„s credibility on timely and sustained CER delivery
» Strong possibilities of project commissioning and operation
» Environmental and social compliance and additional benefit
» Project implementation regulatory clearances
» Project developer business credentials and project operation
» Price expectation per emission credit


                                                                 20
Thanks for your attention

                         R. Mohanakrishnan
             Senior Carbon Trading Specialist

              Carbon Procurement Unit (CPU)
                          Gurgoan, Haryana
                         +91 99582 06262
                      mohan@gtzis-cpu.com
                         www.gtzis-cpu.com




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