Driving Sustainable Energy Development in Africa through ... Kornik.pdf• CDM (‘Clean Development...
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EAPIC18 September 2008
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Driving Sustainable Energy Development in Africa through the CDM
EAPIC 2008, 16-18 September, Nairobi, Kenya1
CONTENTS
• Overview of the Carbon Markets
• CDM in Energy in East Africa
• Some Case Studies
EAPIC 2008, 16-18 September, Nairobi, Kenya2
UNDER THE CDM, COUNTRIES CAN USE CREDITS EARNED FROM REDUCING EMISSIONS ABROAD TO MEET THEIR CAPS
• Switzerland finds it costly to reduce emissions
• Cheap GHG emission reduction projects can be implemented in South Africa
• CDM (‘Clean Development Mechanism’) allows industrialised countries to invest in emission reduction projects in developing countries as an alternative to more costly emission reductions at home. CDM credits are called ‘CERs’ and can be used to meet a country’s cap
• Switzerland buys credits (‘CERs’) from project developers in South Africa
CERs
Revenue
CDM project
Hypothetical example
EAPIC 2008, 16-18 September, Nairobi, Kenya3
THERE ARE SIX GHG’S CONTROLLED UNDER THE KYOTO PROT OCOL, EACH WITH VARYING IMPACTS ON GLOBAL WARMING
310
21
1Carbon dioxide (CO2)
Methane (CH4)
Nitrous Oxide (N2O)
Hydrofluorocarbons (HFCs)
1,300HFC-43-10mee
1,300HFC 134a
2,900HFC 152a
11,700HFC 23
Perfluorocarbons (PFCs)
7,400PFC compounds C5-18
6,500PFC-14
23,900Sulphur Hexafluoride (SF6)
Greenhouse gas chemicalGlobal warming potentialtCO2eq*
1
2
3
4
5
6
Examples
Burning of fossil fuels
Organic waste decomposition
Fertilizer production
Refrigerator systems
High voltage insulation
Gas insulated switchgear
EAPIC 2008, 16-18 September, Nairobi, Kenya
ENERGY INDUSTRIES, WASTE HANDLING AND DISPOSAL AND PREVENTION OF FUGITIVE EMISSIONS ACCOUNT FOR MOST PROJECTS
4
Percent of CDM projects by scope (as of 1 Aug 08)
Energy industries
Waste handling & disposal
Fugitive emissions
Agriculture Manu-facturing industries
Other
6568
20
55
Including…
• Renewable energy
• Natural gas
• Waste heat recovery
• Energy efficiency
• Waste water treatment
• Landfill gas
• Methane recovery from biomass decay
• Gas recovery from oil wells
• Pipeline leak reduction
• Coal bed methane capture
• Methane recovery from manure and agricultural residue
• Fuel switch
• Cogeneration
• Energy efficiency
• HFC avoidance
• N20 avoidance in fertilizer production
• Transport efficiency
• Forestry
EAPIC 2008, 16-18 September, Nairobi, Kenya
CARBON TRANSACTIONS GROWING EXPONENTIALLY AND EXPEC TED TO REACH USD100BN IN 2008
5
24
50
70
13
25
88
6
00 0 3
1
9
2004
1
11
2005
5
31
2006
64
2007
100
2008f
Others
CDM
European market
Value of global carbon transactionsUSD bn
EAPIC 2008, 16-18 September, Nairobi, Kenya
MOST AFRICAN COUNTRIES HAVE SIGNED THE KYOTO PROTOC OL AND HAVE SET UP DNA’S WHILE VERY FEW HAVE REGISTERED PR OJECTS
6
Registered projects
Registered DNA
Signed Kyoto Protocol
Have not signed Kyoto Protocol
# Number of projects
14
1
1
1
4
42
South Africa
Tanzania
UgandaNigeria
Egypt
TunisiaMorocco
EAPIC 2008, 16-18 September, Nairobi, Kenya
AFRICA GENERATES A DISPROPORTIONATELY SMALL AMOUNT OF GREENHOUSE GAS EMISSIONS
7
Source: World Mapper, http://www.worldmapper.org/images/largepng/299.png
Greenhouse gas emissions by country
EAPIC 2008, 16-18 September, Nairobi, Kenya
BUT WILL BE DISPROPORTIONATELY AFFECTED BY THE IMPA CTS OF GLOBAL WARMING
Human vulnerability
8
Flood riskDrought and human conflict risk
Increased malaria from increased temperatures
Melting
glaciers
Sea level rising and coastal flooding
Source: CARE International & Maplecroft, “Humanitarian Impact of Climate Change”
EAPIC 2008, 16-18 September, Nairobi, Kenya
AFRICA IS LAGGING BEHIND OTHER DEVELOPING REGIONS I N TERMS OF CDM PROJECTS
9
143
355
248
105
126
729
106354 1314
2718 5
1,133
India
China
Brazil
MexicoSouth Africa
Number of CDM projects by region (as of 1 Aug 08)
#Number of countries with projects
19 18 7 4 2
Asia and Pacific
Latin America & Carribean
Africa Middle East
Other Total
50
EAPIC 2008, 16-18 September, Nairobi, Kenya
A NUMBER OF BARRIERS TO CDM EXIST IN EAST AFRICA WH ICH SHOULD BE ADDRESSED
10
RecommendationBarrier
• Conduct sustained awareness campaigns in order to sensitize stakeholders from public and private sectorAwareness and
information
• Build technical capacity of project developers – project owners, technical and financial services providers, and key actors from public institutions
Technical capacity
• Provide direct support to start-up projects
• Sensitize financial services sectorAvailability of financial services
• Install efficient DNA equipped with sufficient financial and human resources
• Establish a transparent and unbureaucratic project approval process
Institutional capacity
• Streamline climate change and CDM into policy framework
• Include sectoral regulations relevant to different types of CDM projects
Legal / Policy framework
Source: GTZ, “Clean Development Mechanism in Relation to Energy in East Africa”
EAPIC 2008, 16-18 September, Nairobi, Kenya11
CONTENTS
• Overview of the Carbon Markets
• CDM in Energy in East Africa
• Some Case Studies
EAPIC 2008, 16-18 September, Nairobi, Kenya
THE CDM YIELDS FOUR MAIN BENEFITS
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DescriptionBenefit
• The CDM assists in reducing global greenhouse gas emissionsReduction in GHG
emissions
• One of the core goals of the CDM is to contribute to sustainable development in developing countries by focusing on projects with strong development benefits
Sustainable development
• Results in an inflow of Euro-denominated foreign investment into developing countriesForeign investment
• Promotes technology transfer of emission reduction technologies from industrialised to developing countriesTechnology transfer
EAPIC 2008, 16-18 September, Nairobi, Kenya
PRIORITY PROJECTS SHOULD FOCUS ON ADDRESSING KEY SUSTAINABLE DEVELOPMENT ISSUES
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Projects should contribute to broad development goals…
• Eradicate extreme poverty and hunger
• Achieve universal primary education
• Promote gender equality and empower women
• Reduce child mortality
• Improve maternal health
• Combat HIV / AIDS, malaria and other diseases
• Ensure environmental sustainability
• Develop a global partnership for development
… Tailored for an individual country’s prioritiese.g. Ensure environmental sustainability
• Water scarcity and pollution
• Desertification and deforestation
• Degradation of fresh water ecosystems
• Water pollution and aquatic ecosystems
• Land degradation and deforestation
• Threats to biodiversity and ecosystems
• Land degradation and deforestation
• Habitat degradation and threats to biodiversity
• Water availability and pollution
• Water availability and access to safe water
• Livestock, soil erosion and land degradation
• Threats to biodiversity and endemism
Uganda
Ethiopia
Kenya
Tanzania
Source: UNEP, UNDP
EAPIC 2008, 16-18 September, Nairobi, Kenya
CDM CAN ASSIST IN SUSTAINABLE ENERGY DEVELOPMENT
14
4,706Biomass fromforest residues
735
4,001Biofuel fromJatropha
Biomass from residualaaste from wood industries
261Fossil-fuel basedcogeneration
6,230Biomass fromagricultural residues
173Combined Cycle
23,593
3,686
25,488
929
32,154
1,051
Energy generation potentialMWEnergy source
Reduction in emissions‘000 tCO2e
Kenya Ethiopia Tanzania Uganda
Source: World Bank, “Low-carbon energy projects for development in Sub-Saharan Africa”
EAPIC 2008, 16-18 September, Nairobi, Kenya15
CONTENTS
• Overview of the Carbon Markets
• CDM in Energy in East Africa
• Some Case Studies
EAPIC 2008, 16-18 September, Nairobi, Kenya
CASE STUDY: CARBON CREDITS CAN TURN A MARGINAL RENE WABLE ENERGY PROJECT INTO A PROFITABLE ONE
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Case study: Zafarana Wind Farm, Egypt
Capex
63
56
18
With carbon credits
Without carbon credits
14
8
With carbon credits
Without carbon credits
NPVUSDm
IRRPercent
CapexUSDm
EAPIC 2008, 16-18 September, Nairobi, Kenya
CASE STUDY: CARBON CREDITS CAN ASSIST IN FINANCING ENERGY EFFICIENCY PROJECTS
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Case study: Energy efficient street light retrofit, Johannesburg
NPV impact on municipalityUSDm
35
5
11
19
TotalFree energy efficient fixtures
Share of savings over time
Free installation
EAPIC 2008, 16-18 September, Nairobi, Kenya
CARBON REGISTRATION TAKES PLACE IN PARALLEL TO PROJ ECT IMPLEMENTATION AND TAKES UP TO 12 MONTHS
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# Approximate number of months
Monitoring and verification
Issuance of CERs
Project documen-tation (PDD)
Host country approval (DNA)
UNFCCC regis-tration
Initial scope (PIN)
Project registration CER issuance
Validation (DOE)
CDM development
1 1 3 2 1 1
Project development Feasibility
analysisFinancial closure
Con-cept
Cons-truction
Operation
Develop carbon strategy
Carbon commer-cialisation
Exclusivity agreement
Term sheetTransaction of CERs
ERPA
Due diligence
EAPIC 2008, 16-18 September, Nairobi, Kenya
CONCLUSION: CARBON CREDITS CAN HELP MAKE SUSTAINABL E ENERGY DEVELOPMENT POSSIBLE
• The additional carbon revenue stream improves profitability and increases returns
• Upfront sale or other structuring of carbon credits can be used to subsidise capex or optimise project cash flows
• Inclusion of carbon credits opens up access to debt and equity financing. For example, South Pole’s Gold Standard Fund with Credit Suisse and AIL Structured Finance provides equity and mezzanine debt into renewable energy projects
19
Some of the financial benefits of carbon credits
EAPIC 2008, 16-18 September, Nairobi, Kenya20
Thank youfor your attention
JohannesburgJon Kornik1st Floor, Oxford GateHyde Park Lane, Hyde Park2196 JohannesburgPhone: +27 11 280 6620Fax: +27 11 280 [email protected]
BangkokIngo PuhlPhone: +66 2 678 [email protected]
BeijingMarco HirsbrunnerPhone: +86 10 8454 [email protected]
JakartaPaul ButarbutarPhone: +62 21 726 [email protected]
ZurichThomas CamerataPhone: +41 44 633 78 [email protected]
Mexico CityChristian DanneckerPhone: +52 55 11 [email protected]
Taichung (Taiwan)Jules ChuangPhone: +886 919 27 25 [email protected]