PROJECT EXECUTIVE SUMMARY
GEF COUNCIL WORK PROGRAM SUBMISSION
AGENCY’S PROJECT ID: 502241
COUNTRY: Global
PROJECT TITLE: Fuel Cells Financing Initiative
for Distributed Generation Applications
GEF AGENCY: World Bank
OTHER EXECUTING AGENCY(IES): IFC
DURATION: 6 years
GEF FOCAL AREA: Climate Change
GEF OPERATIONAL PROGRAM: OP-7 – Reducing
the Long Term Costs of Low Greenhouse GasEmitting Energy Technologies
GEF STRATEGIC PRIORITY: CC-5 – Global
Market Aggregation and National Innovation for
Emerging Technologies
ESTIMATED STARTING DATE: January 2004
IA FEE: US$922,000
FINANCING PLAN (US$)
GEF PROJECT/COMPONENT
Project^
9,825,000
PDF A
25,000
PDF B
Sub-Total GEF
9,850,000
CO-FINANCING*
Others
9,000,000
Sub-Total Co-financing:
9,000,000
Total Project Financing:
18,850,000
FINANCING FOR ASSOCIATED
ACTIVITIES IF ANY
LEVERAGED RESOURCES IF ANY:
*Details provided under the Financial Modality
and Cost Effectiveness section
^US$825,000 of project funding is for M&E and
TA activities
CONTRIBUTION TO KEY INDICATORS OF THE BUSINESS PLAN: The Fuel Cells Financing
Initiative for Distributed Generation Applications “FCFI” contributes to the key targets of the
Business Plan by a) supporting a technology that is more efficient because it produces more
energy per unit of fuel used, b) significantly reducing the amount of carbon emissions due to the
fuel cell process itself, and c) forming a bridge to the hydrogen economy, where there is expected
to be significantly fewer carbon emissions. In these ways, the FCFI contributes to the key targets
of the Business Plan by reducing greenhouse gas (carbon dioxice) through emissions avoided as a
result of implementing fuel cell projects in developing countries.
RECORD OF ENDORSEMENT ON BEHALF OF THE GOVERNMENT(S):
Endorsement from the GEF Focal point of all countries participating in Stage 1 of this initiative will
be required prior to CEO endorsement of each project. For the first project under Stage 1, GEF
Focal Point endorsement from South Africa has been obtained and a copy is contained in the project
brief.
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Approved on behalf of the World Bank. This proposal has been prepared in accordance with GEF policies and
and meets the standards of the GEF Project Review Criteria for work program inclusion.
Project Contact Person:
Sandeep Kohli, Project Manager, IFC
Tel: 202-473-5317
Skohli@ifc.org
Warren Evans, for
GEF Executive Coordinator
The World Bank, October 6, 2003
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Sandee
Project
IFC
Project
Person
Tel. (2
email:S
1.
Project Summary
(a) Project Rationale, Objectives, Outputs and Activities
The Fuel Cells Financing Initiative for Distributed Generation Applications (FCFI) is
designed to accelerate the market for fuel cell technologies in distributed, stationary
power applications, as outlined in the strategy document titled, “Market Prospects and
Intervention Strategies to Accelerate the Deployment of Fuel Cells in Distributed Power
Generation in Developing Countries”. This document was presented to the GEF Council
at its December 2001 meeting. The concept note titled, “Fuel Cell Financing Initiative
for Distributed Generation Applications” was submitted to the GEF Council in April
2002. IFC obtained and received concept approval in June 2003 from the GEF for a US$
54 million of GEF funding after responding to the Council’s questions and clarifications.
This initiative is to be funded in two stages.
The overall objective of this initiative is to facilitate reduction of the long-term costs of
fuel cell technologies and to promote their use in GEF-eligible countries. The long term
objective of the initiative is to catalyze the creation of sustainable markets for fuel cells in
suitable stationary power applications in GEF eligible countries. The IFC/GEF initiative
is designed to support
market conditioning, regulatory reform, sustainable
commercialization and long-term financial viability of fuel cell technologies.
In Stage 1, the objective is to prove the environmental and economic benefits of fuel cell
technologies through an initial series of stationary power applications. A key goal is to
obtain operational experience and an understanding of transaction models and project
risks necessary to introduce these technologies in developing countries. The results of
Stage 1 are to be used to inform the design of the larger second stage of the initiative.
Therefore, appropriate emphasis on progress monitoring and choice of M&E indicators at
an individual project level is also a stated objective of this initiative. In addition, Stage 1
will also be used to impart appropriate technology training and information dissemination
within host countries through targeted Technical Assistance. Once again, this is likely to
help in laying the ground for Stage 2.
Stage 1 objectives will be achieved by:

Engaging fuel cell developers and suppliers to set up projects in developing
economies, since their current focus is almost exclusively on OECD economies.

Providing financial incentives to market participants for the development of
fuel cell based pilot projects in selected niche applications. As capital costs of
fuel cells are higher than conventional generation technologies, the GEF funds
are will be used to pay for the incremental costs of fuel cell technologies.

Completing due diligence and implementing selected fuel cell projects
conforming with criteria specified below.
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
Gaining and documenting operational experience and lessons learned about the
technologies and the business models to inform the implementation of Stage 2
of the initiative.
Activities of this project will facilitate the structuring of business transactions that
promote the use of fuel cell technologies and produce value for a variety of stakeholders
in the electricity market. Because of the nature of the technology and the variety of needs
and capabilities of parties to such transactions, a number of different project modalities
are likely to emerge. Examples of these project types can be found in the Project Brief in
the section titled, “Types of Projects”.
We anticipate several different types of transaction structures appropriate for
implementing and financing fuel cells projects under this program. Each transaction
structure must be defined from the points of view of the key parties including the
customer, the fuel cell marketer (be that an equipment vendor or an energy services
company) and the financial institution. Examples of these project types can be found in
the Project Brief in the section titled, “Transaction Types”.
The role of the private sector in identifying opportunities and examining the possibilities
and barriers to entering into such transactions is expected to be very important. We
believe private sector companies will be able to react more quickly to the changing nature
of electricity markets and supply, and may be able to capture opportunities that arise as a
result of deregulation. Specific project structures will be designed on a project by
project basis to take into consideration all stakeholders involved, including both private
sector and public sector entities. In addition, project structures will be designed to meet
the objectives of the two stages of this initiative.
Technical assistance (TA) grants may be required for a limited number of activities,
including education and training of technical specialists in country. Each project should
have an allocation of US$100,000 in case technical assistance is required, and a total of
US$300,000 is requested for TA activities under Stage 1 of the initiative. The TA funds
may also be used for other barrier removal activities associated with fuel cell
technologies, where such a need is perceived. This includes information dissemination,
and activities associated with the support/development of “best practices” for these types
of projects.Current Proposals
We seek an umbrella GEF Council approval for Stage 1 of the Fuel Cells Financing
Initiative (US$ 9 million of GEF funding in project support, and an additional US$
825,000 to cover technical assistance (“TA”) and monitoring and evaluation (“M&E”)
activities). We seek delegated authority from the GEF Council to the GEF Secretariat
for approval of each sub-project under Stage 1 of the initiative. This will entail US$
9.825 million of GEF funding in project support, TA and M&E in a maximum of three
projects in GEF eligible countries. The GEF funding as direct project support will not
exceed US$ 3 million per project. An additional US$ 275,000 per project will be
allocated for M&E and TA activities bringing the total GEF funds per project to US$
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3.275 million. The funds for M&E and TA activities are in keeping with the STAP
reviewer’s and with GEF concern for these issues.
We seek delegated authority for the GEF Secretariat to approve the detailed project
documents for the three projects, provided they comply with all GEF conditions, and
meet the criteria laid out in the Project Brief. In addition, we will ensure that each project
will have local GEF focal point endorsement and STAP review at the time of presentation
to GEF Secretariat.
An example of a project under Stage 1 is presented in Annex 2 of the Project Brief. This
project is in South Africa. The IFC has identified South Africa as a favorable
environment for the adoption of distributed generation, given current market conditions
and the emerging regulatory framework in the energy sector. Intelligent Energy (IE), the
lead project developer for the South African project has identified sizeable and practical
opportunities for the deployment of PEM fuel cell technology in distributed power
generation applications in South Africa. These include rural/remote applications, grid
support, uninterrupted power supplies, industrial power and renewable hydrogen
applications. IE is seeking to partner with major South African players including Eskom,
Afrox and Sasol in the establishment of sub-projects using fuel cells in Africa.
(b) Key Indicators, assumptions and risks
The overarching logical framework for this initiative can be found in Annex B of this
executive summary. Key performance indicators for the program are also outlined in the
logical framework, including indicators for levelized cost reductions and GHG emissions
on an avoided emissions basis. These will be monitored on a regular basis to ensure that
program objectives are being met. However, each project under Stage 1 of the initiative
will have as set of performance indicators that are specific to the application and structure
of the project. These will be outlined in the monitoring and evaluation plan of the
particular project, and will be submitted with the project document at the time of
approval by the GEF Secretariat.
Potential risks for the FCFI initiative are outlined in the section titled, “Risks” in the
Project Brief. Generally, these risks can be categorized into four main areas:
“Technology Risk”, “Affordability Risk”, “Commercial and Market Risks”, and “Policy
and Regulation Risks”. For a detailed explanation, see the “Risks” section of the Project
Brief.
In addition, perceived risks as conveyed through the general assumptions are identified in
the logical framework in Annex B of this document. Each project under Stage 1 of the
initiative will have its own set of assumptions based on the projects’ characteristics and
transaction structure.
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2.
Country Ownership
(a) Country Eligibility
Countries eligible for GEF financing must satisfy a two-part criterion. First, they must be
included in the list of IFC eligible recipient countries. Second, each of the eligible IFC
recipient countries needs to be a ratified signatory of the United Nations Framework
Convention on Climate Change (UN FCCC). GEF Focal Point endorsement for each
project participating in Stage 1 of the initiative will be obtained prior to GEF Secretariat.
(b) Country Drivenness
The concept of FCFI seeks to develop fuel cell markets in countries that have the
underlying resource base, and niche applications suitable for the technology. In addition
fuel cells will be placed in markets where the regulatory and policy programs support
these technologies. While the scope of the initiative is global, the following countries
were specifically mentioned in the GEF Secretariat Concept Agreement Review for this
initiative: Brazil, Chile, Mexico, Trinidad and Tobago, Philippines, India, Bangladesh,
Egypt, and South Africa.
3.
Program & Policy Conformity
(a) Fit to GEF Operational Program and Strategic Priority
Activities under this initiative will support the strategic priority, “Reducing the Long
Term Costs of Low Greenhouse Gas Emitting Energy Technologies” by providing
support to project developers who actively pursue fuel cell project in GEF-eligible
countries. The two-staged approach of this initiative is predicated on the fuel cell
manufacturing industry achieving specific price points along a declining cost curve.
Stage 1 of the initiative will provide mostly grant to developers to be used as a capital
cost buy-down. The larger Stage 2 of the initiative will contribute a larger amount of
funding, to be disbursed in a variety of financing mechanism, including loans, guarantees,
and grants. This approach will contribute to the overall strategic priority of reducing the
long term costs of this technology, while ensuring that the technology is deployed in
GEF-eligible countries.
(b) Sustainability
The International Energy Agency (IEA) estimates that distributed power generation could
reach about 5-7 GW by 2010. In practice small combustion generators are used
extensively in developing countries where central electricity supply is constrained.
Therefore, a market for smaller electricity generators already exists and we believe both
replicability and sustainability risks will be lower when a superior technology enters
these established markets at appropriate price levels.
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The current initiative will also help reduce GHG emissions by promoting clean
distributed generation alternatives in developing countries. This will attempt to offset
future investments in the more polluting technologies, such as diesel gensets, that are
currently in widespread use in locations with poor grid performance or non-existence of
grid infrastructure. The reduction of GHG emissions can also be achieved by employing
fuel cells in “premium power” applications. These are likely to grow in importance as
high value added industrial and commercial ventures are established in the developing
world.
(c) Replicability
This project is designed with an embedded mechanism for assessing the performance of
sub-projects at the initial demonstration stage and will incorporate experience and lessons
learned before proceeding to the more expanded second stage. Furthermore, by initiating
the second stage once research and development has succeeded in reducing prices to
more competitive levels, it is expected that the replication potential for future fuel cell
projects will be very high
(d) Stakeholder Involvement
Due the different types of transaction structures possible under this initiative, Stage 1 of
this initiative may include a range of potential sponsors, including technology
manufacturers, energy companies, local developers, and others. Primary challenges for
organizing and delivering fuel cell project financing will stem from the large number of
small projects which characterize most of this market. These challenges can best be met
by project aggregation, grouped typically by end-use sector. The following list examines
the types of project aggregators that could be formed to address some of the primary
challenges:
1.
2.
3.
4.
5.
6.
Electric Utility-Based Programs and ESCOs
Utility-Based Super-ESCO Programs
Fuel supplier sponsored ESCOs.
Manufacturer Sponsored Finance Programs and ESCOs
Vendor Finance Programs
Manufacturer-Sponsored ESCOs
We anticipate that project developers will involve all required stakeholders through either
equity participation, partnership arrangements, supply agreements or service contracts.
These arrangements will be finalized prior to approval by GEF Secretariat in a manner
that ensures that all stakeholders have incentives tied to the success of the project.
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(e) Monitoring and Evaluation
Project developers under Stage 1 will be required to report relevant data to the Task
Leader at the IFC on a quarterly basis. Regular monitoring of the projects will occur
through this reporting mechanism as well as through site visits as required.
Disbursements of grant money will be dependent upon the project developers’ ability to
establish a well thought through reporting mechanism (e.g. an MIS-based system, or
other system), as well as other conditions precedent. These will be specific to each
project’s key performance indicators, which will be defined prior to GEF Secretariat
approval.
Annual or semi-annual reviews would be conducted by an independent evaluator with the
project developers which would establish rigorous monitoring and evaluation protocols.
Participatory M&E will also be adopted to ensure that the views of stakeholders are taken
into account in assessing the project’s results. The results of evaluations also will be used
to guide revisions of Project design. Additional surveys or market analyses may be
needed throughout the Project period to assess specific areas of fuel cell development in
these markets, such as assessment of fuel cell developers in the market, change in
consumption or fuel use patterns of consumer, or a review of sector policies that impact
the project. These will be conducted by an independent evaluator, under the guidance of
the IFC
It is anticipated that M&E activities, including an analysis of the transaction structures
proposed under each project will begin prior to financial close of the project. A
comprehensive evaluation of each sub-project under Stage 1 of the FCFI initiative will be
conducted no later than five years after the project’s M&E activities have commenced.
This evaluation will be conducted by an independent evaluator and will look to monitor
the project’s progress and its ability to successfully achieve its stated goals and
objectives. Key performance indicators will be measured against the baseline that was
established at the project’s inception. Outcomes of this mid-term evaluation may be used
to make adjustments to the project’s structure, or to make changes in management, if
required.
An evaluation at the end of the project’s life will be conducted by an independent
consultant, and will look to evaluate the project’s success based on the stated objectives
for the project. Information gathered at this stage will be similar to the information
gathered at the mid-term review. The final evaluation will also look to track the project’s
progress against the baseline that was established at the project’s inception, as well as
against the mid-term review and the recommendations made at that time. Budget
estimates for M&E activities are US$ 215,000 per project, or US$ 645,000 for Stage 1.
4.
Financing Modality and Cost-Effectiveness
The total amount of grant funding for the Fuel Cells Financing Initiative for Distributed
Generation Applications is proposed to be US$54 million. Stage 1 of this project will
require a total of up to US$9.825 million, with a maximum of three projects receiving
funding of up to US$3.315 million, of which US$315,000 will be used for M&E and TA
activities, each. GEF funds will be used as a capital cost buy-down and will be limited to
8
the lower of 50% of the fuel cell capital cost, or US$2000/kW. The remaining project
costs will be provided by the parties involved in the transactions that will lead to
applications of fuel cells for distributed and stationary power generation.
Funding for Stage 2 of the initiative is estimated to be US$45 million. The concessionary
component of GEF resources in this stage is expected not to exceed 35% of the fuel cell
capital costs. Additional funding by GEF may be in the form of loans, equity or
guarantees, but total project funding will not exceed 50% of costs, or US$1000/kW. The
remaining project costs will be provided by the parties involved in the actual project
implementation.
In both Stages, each project under this initiative will look to attract various types of cofinancing. The specific co-financing sources for each project will be determined in detail
prior to approval by the GEF Secretariat.
Name of Cofinancier (source)
Sponsor for each
project, TBD
Sub-Total Cofinancing
5.
Co-financing Sources
Classification
Type
TBD
TBD
TBD
TBD
Amount
(US$)
At least
matching
TBD
Status
TBD
TBD
Institutional Coordination & Support
(a) Core commitments & Linkages
This initiative directly supports GEF’s Operational Program #7: “Reducing the LongTerm Costs of Low Green House Gas Emitting Technologies.” A GEF funded study
commissioned by IFC, and administered by United Nations Environmental Program
(UNEP) titled “Market Prospects and Intervention Strategies to Accelerate the
Deployment of Fuel Cells in Distributed Power Generation in Developing Countries” was
completed in October 2001. The accompanying report and results of this study were
presented to the GEF Council in December 2001. The final report incorporated
consultations with a wide range of fifty-five stakeholders during a workshop organized
together with UNEP and IEA in May 2001. Issues examined in the study included
environmental and economic benefits of fuel cell technologies, the current status of the
technology, expected cost trajectories, market potential and financing options. The study
also completed a preliminary analysis of the most favorable countries for GEF-supported
fuel cell projects.
This initiative directly supports the IFC’s dedication to promoting environmental projects
and initiatives in the private sector that expand markets for environmental goods and
services. The initiative also supports IFC’s recognition that there is an opportunity to
9
deploy advanced technologies sooner in developing countries in a manner that can allow
those countries to “leap frog” the traditional carbon emitting alternatives.
The FCFI will work with private sector developers, technology specialists, and local
industry members to ensure that the projects are implemented accordance with priorities,
action plans and programs that exist in the country where the project is located. In
addition, the FCFI will emphasize local ownership, as well as linkages with local industry
that can contribute to the overall success of each project.
(b) Consultation, Coordination and Collaboration between IAs, and IAs
and EAs, if appropriate
IFC as the executing agency for the initiative will coordinate its activities with the World
Bank as the implementing agency. Partnerships with other IAs and related multilateral,
bilateral, governmental and local organizational programs are considered key to the
successful replication and overall sustainability of the FCFI initiative, and will be sought
and developed over the course of the program.
(c) Project Implementation Arrangement
Implementation of this initiative will be managed by IFC. Each sub-project under Stage
1 of this initiative will be managed by a project developer who would report on the
project’s status on a regular basis. In addition, each project will have an independent
evaluator who will monitor and evaluate the project in accordance with the objectives of
each project and the overall objectives of Stage 1.
10
Annex A: Incremental Cost Calculation
Incremental cost analysis will be done on each of the three projects to be presented to the
GEF Secretariat. Per the concept paper previously approved by GEF, Stage 1 of the
initiative allows for the lower of 50% of capital costs of the fuel cells or US$2000/kW.
This figure was arrived at keeping in mind the existing pricing of fuel cell technologies
during Stage 1 (2004-2005). The costs of all listed fuel cell technologies are currently
well above US$ 2000/kW. Hence using the above criteria, at least US$1000/kW would
have to be borne by the project itself. While the cost of conventional technology would
be location and application specific, it is unlikely that such costs would be above
US$1000/kW, and hence the grant towards capital cost buy-downs would likely be
appropriate.
However, high capital costs are not the only barrier to fuel cell technology penetration.
There may be a need for training, market awareness exercises, as well as other such
barriers that would need to be addressed. The current RFP allowed for the instruments
other than simple grants to be used as a means to overcoming barriers to the development
and penetration of fuel cell technologies. Nonetheless all the responses proposed to use
the entire GEF funding for capital cost buy-downs. In the event that a new RFP is issued,
it is possible that the responses we receive may have a capital cost buy down components
alongside other financial instruments. The incremental cost analysis in such cases will
take into account the portion of funding that addresses issues of capital cost, while
separating out funds used to address other barriers.
The above statements
notwithstanding, the GEF funding per project will still meet the guidelines and support
caps as set out in the concept paper.
While most conventional alternatives will have lower capital costs, the appropriate
incremental cost analysis will have to look at overall life-cycle costs of the technologies,
as calculated using a levelized cost model. Such calculations look not only at the capital
cost component, but also the variable costs of fuel and maintenance over the life of the
project/technology to come up with levelized costs per unit of power or energy output.
This means that such analysis has to be very application and usage specific. Our
incremental cost analysis for each individual project will set out a baseline lifecycle cost
for the application, as measured by levelized costs of power for the end user and will
compare the same against levelized costs for conventional alternatives available. The
graph below shows an example of possible levelized costs for a hypothetical application,
as compared against conventional alternatives.
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Levelized Costs Analysis Under Fuel Cell Financing Initiative
levelized cost $/kWh
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$-
Stage 1
Additional GEF Support
Variable cost
GEF Financed Cap Costs
Co-Financed Capital Costs
Stage 2
Conventional Alternative
Stages of funding vs. conventional
It is clear from the graph that levelized costs have both a capital and a variable
component. The example above shows how a levelized cost for a particular application
may change over time, becoming coming closer in line with the costs of the conventional
alternative in $/kWh terms over the course of Stages 1 and 2 of this initiative.
These incremental costs would be monitored at specific intervals over a period of time,
and only when expected costs trajectories have been reached will the next stage of the
initiative commence. At no point should the amount of GEF grant monies applied
towards capital cost buy downs exceed the incremental capital costs. The incremental
cost analysis described above will be useful in selecting and calibrating applications that
have the maximum potential for replications and sustainability.
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Annex B: Project Logical Framework
Hierarchy of Objectives
Key Performance
Indicators
GEF Operational
Program:
Various indicators that
GEF benefits were
Operational Program #7: generated. Application of
“Reducing the LongGEF Climate Change
Term Costs of Low
indicators will depend on
Greenhouse Gas Emitting specific projects under
Technologies.”
Stage 1. See Annex 7 for
examples of key
indicators that might be
used in accordance with
Climate Change initiatives
of GEF.
Global Objective:
Outcome/Impact
Indicators:
To support the creation of
sustainable markets for
2.1 Major fuel cell
fuel cells (FCs) in
developers and/or
suitable stationary power manufacturers enter the
applications in GEF
market/GEF countries in
Eligible countries that
Stage 1.
enable the reduction of
GHG emissions.
Cost of fuel cell stack,
balance of plant, and
reformer technology
declines, making fuel cells
more cost competitive with
other technologies by the
end of Stage 2.
M&E / Data
Collection
Methodology
Critical
Assumptions
Project
sponsors/develop
ers; Government
regulatory
bodies; Fuel cell
manufacturers
and independent
research
institutes
Project Reports: (from Objectives
to Goal)
Baseline
assessments of
the projects, and
midterm and
final evaluations
Assumes that if
major fuel cells
developers enter
the market, the
market will grow.
Assumes that if key
barriers are
overcome (cost,
fuel supply,
regulations), the
fuel cell market
would grow in
these countries.
Successful and replicable
“transaction models” are
developed from Stage 1.
Output from each
Program component:
1. More fuel cell market
participants develop
projects in GEF eligible
countries
Output Indicators:
1.1 # of participants.
1.2 Increase the number of
FC project plans in GEF
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Reporting will be
done on an
ongoing basis for
many indicators
through project
sponsor’s self
reporting and
(from Outputs to
Objectives:)
Assumes that
financing
component will be
sufficient to
Hierarchy of Objectives
Key Performance
Indicators
eligible countries by at
least three.
1.3 # of FC (units or kW)
installed
2.1 overall $/kW decreases
2. Fuel cell component
2.2 % reduction in fuel cell
costs reduces, or there are component costs
reductions in $/kWh
2.3 % reduction in
(levelized cost) for fuel
levelized costs vs.
cell projects in the
conventional technology
specific market
2.3 % of project costs
that must be subsidized
decreases
3. Gained operational and
transactional experience
about these types of
projects to improve the
implementation of Stage
2 of the initiative (the
“learning by doing”
approach)
3.1 Have designed
effective contractual
mechanisms that allocate
acceptable levels of risk
(technological, financial,
etc) among project
stakeholders
3.1 Risk mitigation
mechanisms (i.e.:
insurance policies, service
agreements, O&M
agreements), that are sound
and legally enforceable are
developed
3.2 % of risk in that
stakeholders bears is not
disproportionate to its
contribution to the project
3.3 At least two successful,
unique transaction models
3.2 Have designed
transactional models and
management tools that
are diverse and can be
seen as replicable.
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M&E / Data
Collection
Methodology
through IFC
monitoring.
Other output and
key performance
indicators will be
monitored on an
annual basis
through an
independent
evaluator. An
independent
evaluator will
also perform a
thorough midterm review and
a final review on
all sub-projects
in Stage 1 of this
initiative. Some
statistics could be
gathered by
government
statistics,
industry statistics
or other sources
than the sponsor
itself.
Also, M&E
program manager
will perform
annual PSRs for
each sub-project.
Critical
Assumptions
encourage
developers, etc. to
develop fuel cell
projects in GEF
eligible countries
Assumes cost
trajectories
continue to fall
If replicable
models are
developed,
sponsors would
enter the market, to
use these models to
develop new
projects
Annex C: Response to External Reviews
(a) Convention Secretariat
[forthcoming]
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(b) Review by expert from STAP Roster
Fuel Cells Financing Initiative for Distributed Generation Application.
Review of GEF Project Brief of the Initiative of
The International Finance Corporation
August 2003
Dennis Anderson (STAP)
General
The IFC are seeking “an umbrella GEF Council approval for Stage 1 of the Fuel
Cells Financing Initiative (US$ 9.825 million of GEF funding)”. This would be for 3
GEF eligible projects, of which the first, in South Africa, is discussed in detail of the
report. Stage 2, for which approval is not currently sought, would be a larger project ($45
million) intended to build on the experience gained in Stage 1. This review argues that
the GEF should support the Stage 1 umbrella proposal, and makes a number of
suggestions.
The importance of fuel cells in achieving a low carbon energy economy has been
recognised by the scientific and engineering communities for more than 40 years, initially
as an adjunct to nuclear power—the energy from which would be used to produce
hydrogen, the ideal feedstock for fuel cells in transport—and more recently as an adjunct
to renewable energy. In the latter case, the production of hydrogen as an energy storage
and carrier medium for later use in fuel cells would enable the ‘intermittency problem’ to
be solved.
The fossil fuel industry also recognises the potential of fuel cells, and sees the production
of hydrogen from fossil fuels (with the carbon being sequestered or used for enhanced oil
recovery) as a means for it too to enter the ‘zero carbon’ energy markets. Both vehicle
manufacturers and manufacturers of electricity generation equipment have significant
research and demonstration programmes, the latter for stationary applications, with which
the present proposal is concerned. Even if used, in the first instance, with fossil fuels such
as natural gas, there are likely to be gains in terms of energy efficiency. Lastly, I believe
it is correct to say that all OECD countries have recognised the importance and potential
of the fuel cell and have demonstration projects of one form or another, as do a number of
developing countries, albeit on a modest scale, including India and China among others.
Hence fuel cell technologies enjoy the widespread professional support of industry,
governments and the scientific and engineering research community, all of whom
recognise its long-term potential. The puzzle is, why hasn’t it emerged for use on a larger
scale? Applications have been principally confined to aerospace (where the fuel cell has
been very successful), off-grid electricity supplies for defence and telecommunications
purposes, and a now significant and growing number of demonstration projects around
the world. The short answer, until concerns about climate change began to emerge a
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decade and a half ago, is that there was no need: oil and gas reserves were abundant—far
more abundant than predicted even 30 years ago—and the internal combustion engine for
transport and thermal stations for power generation were efficient, reliable and relatively
inexpensive. However, emerging concerns about climate change and technical
developments in the fuel cell have changed all this, and its importance and potential is not
in doubt.
Rationale for GEF Support for the Project
I would give the following reasons for supporting the project:
1.
It is a transforming technology, crucial, I believe, for achieving a low carbon energy
future, as has been recognised by the GEF operational programme documents and by
STAPs I, II and III.
2.
Through a small GEF grant (UNEP being the Implementing Agency) in 1999-2001,
the technology has been well reviewed for both stationary and non-stationary
applications. The GEF and the Implementing Agencies have done their homework.
3.
Although, of course, the investment would not be without risks, the two-stage
approach is a good way of managing risks. Indeed the $9 million for Stage 1 would
be in three parts in three separate countries.
4.
The technology is small scale and modular, which means there will be rapid
feedback of experience from the beginning. For example, the $3 million allocated for
the initiative in South Africa would enable several hundred fuel cell projects in the
range 0.1 to 3 kW to be implemented plus some of 25 kW. Thus we will be getting
feedback from the experiences of a large number of users.
5.
There is now significant experience emerging in other countries, mainly in OECD.
6.
The financing and institutional arrangements have been well thought through.
7.
Proper attention has been given to local ownership of the project, and a competent
agent for carrying it out has been identified.
I do, however, have a number of suggestions.
Suggestions
In terms of commercial applications, the technology is in is infancy, and will be new to
many engineers and enterprises. An appropriate portion of the GEF resources should be
allocated to the following ends:
1.
Monitoring progress with the project and sharing knowledge with others.
2.
Monitoring progress with non-GEF projects in other countries, such that the host
countries can learn from international experience.
3.
Servicing and maintenance of the fuel cells, which at this stage (especially the Stage
1 project), can be considered as a necessary investment.
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4.
Education and training of engineers and technicians.
I was also left not knowing what the fuel source would be—hydrogen from renewable
energy? natural gas? LPG? My hunch would be gas or LPG for this particular project;
hydrogen from renewable energy would be a logical step further down the line. However,
this needs to be clarified.
In addition, to avoid infrastructure difficulties, it will be necessary to locate the initial
applications in reasonable proximity of gas supplies.
Dennis Anderson, September 2, 2003
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(c) Response to comments from Secretariat and other Agencies
Fuel Cell Financing Initiative
Responses to Dennis Anderson’s STAP Review
Mr. Anderson’s report outlined two main concerns. The first concern was whether an
appropriate portion of GEF resources would be allocated to the following:
1. Monitoring progress with the project and sharing knowledge with others.
We agree with the STAP reviewer that the M&E process and lessons learned
dissemination are extremely important for this project, especially since this relates
to an emerging technology in a developing country. We fully anticipate that the
monitoring and evaluation of the project will be conducted in accordance with
M&E guidelines of the GEF. Each individual project will have its own
monitoring indicators, benchmarks, and monitoring plans to monitor the reduction
of barriers in the advancement of fuel cells. These will be project specific and
will be outlined in the documentation presented to the GEF Secretariat at time of
project approval. A full mid-term review will be conducted at the project’s midlife. A final review will be conducted at the completion of the project cycle.
An explanation of the activities and performance indicators for the M&E under
Stage 1 of this initiative is provided in the section titled, “Monitoring and
Evaluation” in the Project Brief. A detailed budget of these activities is also
provided in this section.
In keeping with the STAP reviewer’s concern about dissemination of lessons
learned and with GEF concern for these issues, IFC may use TA support to
disseminate lessons learned. It is envisioned that IFC will disseminate lessons
learned from individual projects by participating in industry events, such as
conferences, workshops, and other industry gatherings. In addition, IFC may
contribute lessons as appropriate via journal publications and industry discussion
groups, and may put out its own publication on the lessons from Stage 1.
2. Monitoring progress with non-GEF projects in other countries, such that
the host countries can learn from international experience.
The IFC will continue to monitor fuel cell projects from non-GEF countries.
Monitoring will include receiving updates from the National Renewable Energy
Laboratories (NREL), IEA Advanced Fuel Cells Implementing Agreement
(www.ieafuelcell.com ), the Japanese New Energy Foundation, the US
Department of Energy and the European Union. IFC will look to disseminate this
knowledge and information to its project developers as new information and
industry knowledge is gained. As noted in the response to the first issue above,
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money allocated to TA may be used to support lessons learned and dissemination
activities.
3. Servicing and maintenance of the fuel cells, which at this stage (especially
the Stage 1 project), can be considered as a necessary investment.
The appropriate allocation of risks for O&M will be addressed through the
servicing contracts and/or wrap-around warranties provided in the project. These
items are considered key to evaluating the relative “commercial” viability in
Stage 1 of the initiative, and these structures will be used to inform Stage 2. In
the project evaluation stage, IFC will look to ensure that servicing and O&M
issues are well thought through, and that solutions are available, prior to
presentation of that project in front of the GEF Secretariat. Funding for this will
be borne by the project developer, and sensitivity tests on projections will be
applied by IFC Task managers to illustrate worst case scenarios.
4. Education and training of engineers and technicians.
The current initiative is structured primarily to address OP7 barriers, though
attempts will be made to promote best technical practice as well as certification
for engineers and technicians. In responding to this particular suggestion, we
have now included in the project proposal a Technical Assistance (TA) budget for
training of technicians in host countries, as needed. The TA funds may also be
used for other barrier removal activities associated with fuel cell technologies,
where such a need is perceived. This includes information dissemination, and
activities associated with the support/development of specifications and “best
practices” for these types of projects. Information about TA can be found in the
appropriate section in this project brief.
The other question asked by STAP relates to the issue of the fuel source, and the location
of the fuel supply.
We anticipate that in Stage 1 the sub-projects would, for the most part, use Natural Gas or
LPG. In some applications, hydrogen produced as an industrial by-product or in bottled
form may also be used. We agree with the STAP reviewer that the location of projects
would have to account for access to appropriate fuel supplies. In addition, specific
attention will be paid to the proximity of the fuel source to the project, and issues of
transportation will be dealt with on a project-by-project basis. These will be outlined in
the document presented to the GEF Secretariat.
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UNDP Comments on WB/IFC Proposal
“Fuel Cell Financing Initiative for Distributive Generation Applications”
September 23, 2003
We have read this proposal with interest and are pleased to see that it is moving ahead.
However, we would have liked to see more information about the scale of the project, the
applications and nature of the installations, and how they will be pushed forward in the
South African context and possibly in two other countries. Although the strategy paper
upon which this proposal is based has been well thought-out and reviewed, we have no
similar level of comfort based upon this draft proposal.
In particular, page 8 of the Executive Summary states “In the South African project, the
key project partners have already been identified, but the specific roles have yet to be
clarified”. This shows the need for further negotiation prior to approval. It appears that
negotiations regarding two other proposals are at a very preliminary state (Philippines
and Mexico). Further, the Brief (page 7) indicates that “these discussions are still in early
stages, and hence it is possible that we may have to ask for re-bids if our ongoing
negotiations with potential sponsors fail. At that time, the new responses received could
be from any country.” At the time of submission to Council, we would have anticipated
that this proposed project would have been at a much more advanced state, including
detailed information on the incremental cost of the project.
Despite being included in the Project Brief (under “GEF/IFC Involvement to Date”), the
financing plan on the cover page also fails to acknowledge the UNEP-GEF MSP which
paid for most of the work on the strategy paper upon which this proposal is based.
In summary, while UNDP supports the IFC initiative on fuel cells in distributive
generation, we would expect to see a greater level of specificity in the proposal.
Fuel Cell Financial Initiative
Responses to UNDP Comments on Project Brief
The IFC understands and agrees with the comments made by UNDP with regard to
specific project proposals. However, at this point the IFC specifically seeks an umbrella
GEF Council approval for Stage 1 of the Fuel Cells Financing Initiative (US$ 9 million
of GEF funding in project support, and an additional US$ 825,000 to cover technical
assistance (“TA”) and monitoring and evaluation (“M&E”) activities). As outlined in the
Project Brief, IFC requests the Council to delegate specific sub-project approval to the
Secretariat, as these projects will occur in different timeframes during Stage 1. We
anticipate that the first sub-project may be ready for Secretariat approval in FY04, with
the other sub-projects being ready for presentation in FY05 orFY06.
At the time of GEF Secretariat approval, each sub-project will be presented in detail,
including the information about the scale of the project, the applications and nature of the
installations, and how they will be pushed forward in the country’s context.
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UNEP Comments on WB/IFC Proposal
“Fuel Cell Financing Initiative for Distributive Generation Applications”
This OP7 project follows the strategy developed in collaboration with IFC, UNDP and
Imperial College and moves to the demonstrate fuel cell technology. The accelerated cost
reduction of this technology is a worth while endeavor.
Two issues are of importance as UNEP understands.
1. Global Benefits
UNEP reinforces the STAP Roster review comments regarding global benefits and draws
attention to the report at
“http://www.uneptie.org/energy/act/pol/docs/FinalReport_FCStrategy.pdf” where
guidance on calculating benefits is available. There enough good opportunities to use
natural gas or positive benefit sources that the applications can avoid the increased GHG
emissions found in the full fuel cycle of some fossil fuels.
Regarding South Africa in this regard the entry of Mozambique natural gas to the South
African market would be a critical requirement.
2. O&M
The Energy service company approach wherein the fuel cells themselves are owned by
the service provider would seem to avoid exposing developing country agencies to risks
associated with early technology.
Fuel Cell Financial Initiative
Responses to UNEP Comments on Project Brief
The IFC agrees with all the comments of the UNEP, and will seek to incorporate them
into the specific sub-project as applicable.
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