Investing in CDM and PoAs in LDCs
Experiences of KfW
Matthias Börner
KfW Carbon Fund
EU Practitioners Workshop on Climate Change
Paris, 24th March 2011
Topics
1.
Why PoAs in LDCs?
2.
CDM Experiences in LDC Countries
3.
Experiences in the Design and Implementation of PoAs
4.
a)
Design of PoAs
b)
Implementation of PoAs
c)
Specific CDM / regulatory issues
Conclusions
2
1. Why PoA’s in LDC’s?
Reminder: Intention of CDM Programmes (PoA)
Small
Hydro
CH4: Animal
MiniHydro
SWH
Cookstove
waste / WW /
landfill
CFLs
E
X
A
M
P
L
E
S
Figures / ESMAP 2007
3
1. Why PoA’s in LDCs?
Situation in LDCs
 Only few stand alone CDM project types possible in LDCs
 Project sizes tend to be (very) small
 Bigger opportunity for programmatic intervention
 Typical PoA types suitable for LDCs
e.g. cook stoves, solar home systems, solar lanterns, household biogas
digesters etc.
 CDM can support sustainable development
In combination with or as a substitute for ODA support
 CERs generated in LDCs shall be eligible under EU ETS 3
4
2. CDM Experiences in LDCs
Up to now very few registered CDM projects in LDC’s
Reasons:
 Small potential
 Low CDM capacity / knowledge of Implementing Agencies
 Lack of experience at national (DNA) level leads to long processes
 Few project developers / CDM consulatants are based in LDC’s
Less competition, higher prices, lower quality
 Financing of projects is a challenge
 Implementation takes longer than in other countries
But:
 Situation is improving
 Development Impact of CDM is generally bigger than in other countries
5
3. Experiences in the Design and Implementation of PoAs
KfW Programmes
Carbon Programmes
POA Facility
1. KfW Carbon Fund (1st Tranche) Vol.: EUR 84 million, closed
2. EIB-KfW Carbon Programme I Vol.: EUR 88 million, closed
3. Belgian Carbon Purchase
Programme - Vol.: EUR 20 million
4. Post-2012 Carbon Credit Fund Vol.: EUR 125 million, (jointly with
EIB, CDC, ICO NIB; external fund
manager)
5. EIB-KfW Carbon Programme II Vol. EUR 100 million
- Purchase up to 2020
- Focus on PoA and LDCs
 Since Oct. 2008 on behalf of BMU
 Disseminate PoA-expertise
 Develop PoA proposals in
partnership with implementing
entities
 Advise on implementation
 Grants for PIN and PDD
development
© KfW • KfW Carbon Fund
6
3. Experiences in the Design and Implementation of PoAs
PoA Pipeline of KfW
PoA Pipeline Start of 2011
(34 projects)
Sector
Region
Energy Efficiency in
Buildings
Poland, Estonia,
Israel
Energy Efficiency in
SMEs
Poland, India
Banks
Household Stoves
Biogas
Nepal , Nigeria, Mexico
China, India
NGO, Banks
Public Institutions
Renewable Energy
(Solar Water Heater /
Mini Hydro)
South Africa,
Central America,
Philippines, Nepal
Vietnam, East Africa
Banks
Private companies
© KfW • KfW Carbon Fund
Operator (CE)
Banks + Public Supply
Company
7
3. Experiences in the Design and Implementation of PoAs
a) Design of PoAs
Main elements:
 Coordinating and Managing Entity
 Incentive Structure
 CDM Aspects
8
3. Experiences in the Design and Implementation of PoAs
a) Design of PoAs
Roles and Responsibilities of Coordinating and Managing Entity
● CDM Development of PoA (e.g. development of CDM documents, validation and
●
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●
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registration of PoA, etc.)
Regular Monitoring of ER in accordance with CDM methodology
Communication with UNFCCC
Technical Implementation of PoA (e.g. selection of technology, appointment of suppliers,
awareness / marketing campaigns, necessary approvals etc.)
Supervision and maybe support in operation
Management of Cash Flows
Financing Concept
Experiences:
● Most CMEs do not have the capacity to fulfill all these tasks and need support
● Some tasks can be outsourced to experts (e.g. consultants)
● Careful assessment of CME and evaluation of strengths and weaknesses is necessary
9
3. Experiences in the Design and Implementation of PoAs
b) Design of Incentive Structure
Program Participants (e.g. households, SMEs, etc.) need to be incentivized to
participate in PoA
Possible Incentive Structures:
●
●
●
●
CDM revenues subsidize interest on loans ( seed funding needed)
Investment Costs are subsidized by CDM revenues ( seed funding needed)
Maintenance contracts or guarantees are financed by CDM revenues
Payment on Delivery
Experiences:
● Ideal incentive structure needs to be identified for each individual PoA
● However, “ideal” incentive structure may be too complicated and risky
● Balance between complexity and incentive power needs to be found
10
3. Experiences in the Design and Implementation of PoAs
c) CDM Aspects
CDM requirements need to be assessed
Important CDM aspects:
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Is methodology available and suitable for PoA type?
Complexity of Baseline establishment
Can monitoring requirements be implemented in a PoA?
Is Carbon Impact big enough to finance PoA specific costs (CME administration etc.) and
incentive scheme?
● Validation issues (e.g. liability, complexity of validation etc.)
Experiences:
● Baselines and Monitoring requirements often very complex in PoAs
● PoAs should be simplified as much as possible, even if this leads to smaller CER
volumes (e.g. some methodology allow simplified monitoring systems based on default
values)
● Carbon Impact at current CER-prices often hardly sufficient (depending on PoA type)
● Validation is expensive, challenging and often needs to be supported
11
3. Experiences in the Design and Implementation of PoAs
Example of two extremes
CDM revenue is main revenue of the
programme:
CDM revenues form only small part of
programme revenues
● e.g. CFL Programmes
● e.g. Energy Efficiency / RE Programmes in SMEs
● Additionality: Mainly Financial
● Short repayment period of investments through
● Programme requires external funding
● Incentive: Subsidy of CFL costs
●
● Repayment depends (mainly) on delivery and sale
●
of CERs
● High risk for financing institution due to:
 Possible CER delivery shortfalls
 Future CER-price is unknown
● Risks are sometimes taken by private investors
● Financing:
 Private Investors
 Development Aid if private / commercial
funding is not possible
●
© KfW • Thema der Präsentation • Ort • Datum
●
energy savings
Incentive: Payment on Delivery
Additionality: Mainly Barriers
Risk for financing of investment measures similar
to normal project financing risk
Financing Options:
 Commercial financing for Investments
 Seed Funding may be needed
 Additional Subsidy (e.g. Development
Financing) may be needed if incentive
through CDM revenues is not sufficient
12
3. Experiences in the Design and Implementation of PoAs
Example of PoA structure
Role Structure – SIDBI as coordinator (Option II)
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ERPA
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KfW Carbon
Fund
ER
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Registration/selection
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Manufacturers /
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Industry
Association
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Purchase, sale and
installation of
systems
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on
Ma
it o
rk
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Transfer of CER ownership
SIDBI
PoA coordinator
Share of CER revenues
Debt service
Loans
SME
Steel industry
13
4. Conclusions
CDM Projects in LDCs are challenging.
CDM PoAs are very challenging.
What about CDM PoAs in LDCs???
Recommendations:
● PoAs need to be carefully identified, designed and structured
● Generally strong support is needed at all levels
● Know how for organization and implementation of projects in developing countries is
needed
● Financing possibilities often needed
Opportunities for Development Organizations:
● Expertise of such organizations is often needed
● Additional funds for development programs can be raised through CDM
● PoAs are a stepstone on the way to NAMAs and Sectoral Appraoches, Experiences can
be gained
14
Thank you for your attention!
Matthias Börner
Principal Manager
KfW Carbon Fund
KfW Bankengruppe
Palmengartenstraße 5-9
D-60325 Frankfurt
Tel.: +49-69-7431-3717
matthias.boerner@kfw.de