Mandatory Energy-Efficiency Standard for Room Air Conditioners

in Ghana,

Alfred Ofosu-Ahenkorah,

Ghana Energy Foundation

COP-11/MOP-1 2005

Project Objectives

• Make Room Air Conditioner Standard mandatory and enforceable in Ghana by building a modern testing Laboratory at the Ghana Standards Board.

• The removal of the least efficient air conditioners on the Ghanaian market will save significant amounts of energy

• Reduce growing dependence on imported energy

• Reduce cost of electricity for consumers

The Electricity Demand-Supply Situation -1

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The Electricity Demand-Supply Situation-2

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Challenges in the Energy Sector-1• Rapidly growing demand for energy by all

sectors due to the expanding economy and the growing population.

• Risk of fundamental imbalance between energy production and indigenous resource, which is imminent for all the major energy forms.

• Risk of over reliance on imports to meet local shortfalls of conventional fuels, which could threaten the country’s supply security, making it vulnerable to external pressures.

• Operational inefficiencies by utilities leading to high losses and consequently increasing cost of supply and distribution.

Challenges in the Energy Sector-2

• Over reliance on wood fuels, which could threaten the country’s forest, cover.

• High levels of end-use inefficiency culminating in waste of final energy forms.

• Inadequate investments to match the growing demand due to lack of capital.

BOTTLENECKS TO EFFICIENT ENERGY UTILISATION

• Lack of Information on efficient methods and technologies

• Shortage of skilled energy management professionals

• Absence of energy efficient technologies on the local market

• Absence of clear policy, standards and regulations on performance of industrial and commercial equipment and household appliances.

• Difficulty in accessing financing for energy efficiency projects

Potential Energy Savings from Standards in Ghana – 1998

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Room Air Conditioners

Refrigerators

Residential Lighting

Why Would Standards be a CDM Project?

• EE standards face a number of barriers -- enforcement, testing labs, public awareness, etc.  Major upfront analysis as well.

• These all have costs that need to be paid for

• CERs are a good way to attract investors for upfront costs, such as a testing lab.

• CERs are a good way to pay for monitoring and enforcement, which can also be expensive.

• In the case of Ghana, without CERs, there is no way this standard can be implemented.

From the CDM Perspective

• This is a unique kind of project – a government policy itself being the CDM project

• Energy Foundation and QualityTonnes submitted this project as NM0072 to the Meth Panel. MP requested guidance from CDM EB.

• CDM EB could not agree on whether mandatory government policies can count for CDM

• Methodology on hold until MOP decides

The Proposed Standard• Require that the minimum air conditioner have an

“Energy Efficiency Ratio” or EER of 2.8 or higher.

• The EER is the amount of electricity required per unit of “cooling,” expressed as watt/watt or Btu/hr/watt. Cooling Capacity is the maximum amount of “cooling” that a unit can provide, expressed as Btu/hr or kW.

• Any AC units below this standard cannot be sold in the Ghanaian market.

• A testing lab would be required to enforce the standard.

• The goal is to stop the “dumping” in Ghana of inefficient units that cannot be sold in the West

Potential Energy & Cost Savings• The RAC Standard will save Ghanaian consumers an average of $64

million annually in energy bills. • The average price of RAC may go up by about 3% for the proposed

standard, however, the new RACs will use about 9% less energy, paying off the investment very quickly.

• Payback on the initial incremental investment in efficiency by consumers is less than 9 months.

• Carbon dioxide emissions will be reduced by about 2.8 million tons over 30 years (104,890 tons per year).

• A 2003 compliance with the standard would have immediately freed up 13 megawatts of generating capacity and by 2014 will be saving the equivalent of a 150MW generating plant. By 2020, this standard alone will be saving about 950GWh per year, freeing up nearly 250MW of generating capacity at net negative cost to the economy.

• In contrast, the 200MW Bui hydropower plant is being constructed at a cost of nearly US$600 million.

National Energy Savings

Standard High Benefits Low Benefits

2.8 EER up to 2010 1,453 GWh 1200 GWh

up to 2020 8,522 GWh 6764 GWh

up to 2030 19,497 GWh 15109 GWh

3.0 EER up to 2010 2555 GWh 2121 GWh

up to 2020 15430 GWh 12222 GWh

up to 2030 38296 GWh 29554 GWh

3.2 EER up to 2010 3520 GWh 2931 GWh

up to 2020 21174 GWh 16713 GWh

up to 2030 53841 GWh 41292 GWh

Carbon Emissions Savings

High Benefits Low Benefits

2.8 EER up to 2010 0.2 mt of CO2 0.16 mt of CO2

up to 2020 1.2 mt of CO2 0.9 mt of CO2

up to 2030 2.8 mt of CO2 2.1 mt of CO2

3.0 EER up to 2010 0.34 mt of CO2 0.3 mt of CO2

up to 2020 2.1 mt of CO2 1.7 mt of CO2

up to 2030 5.5 mt of CO2 4.2 mt of CO2

3.2 EER up to 2010 0.5 mt of CO2 0.4 mt of CO2

up to 2020 2.9 mt of CO2 2.3 mt of CO2

up to 2030 7.8 mt of CO2 5.9 mt of CO2

Issues as a CDM Project

• Ownership of CERs – who owns the credits for such a dispersed project? Proposal in this case: Ghana Standards Board

• Additionality – need to show that the policy itself could not be implemented without CDM. This is possible in the case of Ghana but may be tricky in other cases. May require an additional level of proof by the project developer beyond the current additionality test tool.

Issues (con’t)

• Double-Counting – in the case of this project, no one should be able to claim credit from buying a new AC unit – whether its retailers, distributors or individuals. Ghana DNA can enforce through approval process.

• Monitoring: Methodology requires sampling of key variables (hours of use, etc.). Method proposes sampling to a margin of error of less than 5% -- then discounting ERs by the margin of error to be conservative. Sampling is allowed in CDM.

Issues (con’t)

• Free Riders: Could be a problem with other types of programmatic CDM (eg: a voluntary EE program). The mandatory standards avoids that problem by making only one entity – the government standards agency – the sole holder of CERs.

• Leakage: No additional leakage should occur in this case but again, could be an issue in other types of policy-CDM programs.

Key Benefit from a CDM and Ghanaian Perspective

• One can really scale up CER output if large-scale program/policy CDM is allowed.

• Can be a major push to implement policies that may be too difficult to implement in many developing countries.

• This project will save Ghanaian consumers millions of dollars in lower energy bills and free up electricity for Ghana’s strained grid.

• GDP grew at an average annual rate of 4.7% from 1995-1997, but drought-induced power shortages in 1998 hampered industrial and service sector outputs and limited GDP growth to 2.0%, with rolling blackouts into 2000.

• Economy is back on growth path. GDP Growth in 2002 -5.2%, 2003 – 5.8%, 2004-5.8%, projected to cross the 6% mark in 2006.

• Air conditioning use is rising rapidly as more homes and businesses purchase room units.

Additionality• The Ghana air conditioner standard depends on the

construction of a modern testing laboratory. • These are expensive, difficult to maintain and require a trained

staff. Few developing countries have government-run testing labs, because of these barriers.

• There are no plans to build a testing lab in Ghana, and thus according to the policy of the Government, the standard will only be voluntary without the testing lab, the primary means of enforcement and monitoring. As such, the standard will most likely be worthless in terms of getting the least efficient models dropped from the market.

• Only with carbon investment is the testing lab likely to get built and the standard – with all of its benefits – likely to be implemented.

Investment Requirements and Sources

• Development Cost = US$0 (much of analysis has been completed)

• Installed cost of equipment = US$1.4million

• Other Costs =US$0.625million ($25k one time investment for Staff training, staff cost per year=US$60k/yr for 10 years=$625k)

• Total Cost =US$2.025million

• Ghana Govt contribution=US$684,110

• Carbon Finance= US$1,240,890 over 10 years

• Indicative CER/VER unit price=US$5/tonne CO2.

Project Risks• The economy has a severe recession or political instability

disrupts economic growth. In that case, fewer room air conditioner units would be sold. However, given Ghana’s political stability over the years, this seems like a modest risk. The monitoring of the CO2 reductions will provide a challenge as sales numbers (important here will be import data which is publicly available), surveys on use of air conditioners and other data will need to be performed as much as every year or two. The monitoring costs of the project will be higher than single-site projects and will depend on high-quality, statistically significant survey data. This risk is mitigated somewhat by the amounts of technical assistance provided to Ghana already from USAID and the UN Foundation. This work has already led to voluminous amounts of data and built capacity.

The Next Steps, as agreed 02/02/02 meeting with Parliamentary Select Committees

• Legislative Instrument enforcing standards to be passed by Parliament, under Act 541, – by June 2002.. Now by Dec 9th 2005

• Voluntary Labelling Regime by January 2003… Now January 2006

• Testing Facility to be built – completed by Dec. 2004… Now expected in December 2006

• Testing and Full enforcement by January 2005…Now January 2007

• Refrigerator, Lighting and Electric Motor Standards to be developed beginning May 2002… Now January 2006

Ghana Air Conditioner Label

Appliance Standards Worldwide

*as of 1999

*