Transcript RECs & CDM for SWH - Int'l Experience

Innovative Financing for Solar Water
Heating: Carbon & Renewable Energy
Certificate Trading
Examples and Lessons from Selected
International Experiences
Green Power and Solar
Thermal Energy Symposium
Washington DC, Oct. 5th, 2005
Steven Kaufman
Green Markets International, Inc.
Presentation Overview

International carbon reduction trading, the Clean Development
Mechanism (CDM), and solar water heating
Example CDM solar water heating experience: Kuyasa Project, Cape
Town, South Africa

International Renewable Energy Certificate (REC) trading, and
RECs for solar water heating
Example solar water heater REC experience: Australia

Lessons for program design and market participation
Innovative Financing for Solar Water Heating

Green Markets International is a non-profit
organization working to expand the use of renewable
energy for climate protection and development.

Conducting REEEP-supported initiative, focusing on
financial and commercial innovations for solar water
heating in the Caribbean region and Brazil:
Developing model business plans for SWH ESCO
and fee-for-service operations
Building stakeholder knowledge of carbon trading
and helping to develop SWH CDM projects
Exploring international REC trading possibilities
International Carbon Markets

Fueled by mandatory requirements of the Kyoto
Protocol, international trade in greenhouse gas
reductions is now a large and rapidly growing market.

Governments and private companies in industrialized
countries with emission reduction obligations have
already committed over a billion dollars for emission
reductions from projects outside their borders.

The international carbon market has the potential to
provide an important boost for renewable energy
projects and markets in many parts of the world.
The Kyoto Protocol & Carbon Trading
Under the Kyoto Protocol, three mechanisms
enable cross-border trading in greenhouse gas
(GHG) emissions reductions:
 International Emissions Trading (IET)
Trading blocks of emissions credits between emissions-capped
industrialized countries, called Annex 1* countries
 Joint Implementation (JI)
Project-based trading among Annex 1 countries
 Clean Development Mechanism (CDM)
Project-based trading between Annex 1 and non-Annex 1 countries
Certified Emission Reductions (CERs), created in the CDM process,
can be used by Annex 1 countries to meet their reduction
commitments during 2008-2012, and can accrue for project activities
that commence before 2008.
*Countries with emissions caps under the Kyoto Protocol are technically “Annex B” countries, though they are called Annex 1
here, referring to Annex 1 of the UNFCCC. In practice, these terms are commonly used interchangeably.
Eligibility Requirements for the CDM
CDM Projects Must:

Be implemented in a non-Annex 1 country that is a party to the
Kyoto Protocol

Be additional to what would occur in the absence of the project
activity

Support sustainable development in the host country

Obtain approval of host country’s Designated National Authority
for the CDM

Result in real, measurable, long-term climate change benefits
CDM Projects Must Not:

Divert Official Development Assistance (ODA)

Involve nuclear power
CDM Project Cycle & Transaction Costs
Step
Project Identification, Project Idea Note Development
Baseline Study & Monitoring Plan
Project Design Document Preparation
Stakeholder Consultation & Host Country Approval
Validation by an Operating Entity
Registration Fee
Transaction Negotiation & Contracting
Project Monitoring (Periodic)
Initial Verification by Operating Entity & Certification
Periodic Verification
Approximate Total:
Estimated
Cost - $US
20,000
20,000
25,000
10,000
30,000
30,000
20,000
varies
15,000
10,000
>180,000
Note: Actual costs can vary considerably depending on various factors.
Challenge for Small-Scale Projects
Transaction costs can be proportionally much higher for
small-scale projects, since many of the costs are fairly
fixed and do not vary much based on project size

Parties to the climate convention recognized that smallscale projects often have substantial sustainable
development benefits, and that high transaction costs
could prevent small-scale projects from participating in the
CDM

Parties to the convention instructed the CDM Executive
Board to develop simplified modalities and procedures for
small-scale projects.
CDM Simplifications for Small-Scale Projects
Simplified modalities and procedures for small-scale
projects include:
 Simplified Project Design Document
 Simplified, pre-approved methodologies for baseline setting and
monitoring plans
 Ability to bundle project activities at various stages in the CDM
cycle
 Simplified requirements for environmental impact analysis
 Lowered project registration fees
 Shorter review period for project registration
 Same Designated Operational Entity can validate and verify &
certify emissions reductions for a specific small-scale project
Small-Scale CDM Project Definitions
Project activities defined as “small-scale” for
CDM participation include:
Renewable energy systems with less than 15 MW
capacity
Energy efficiency projects less than 15 GWh/year
Other projects emitting less than 15 kilotonnes
CO2/year
Small-Scale CDM Project Categories with Approved Methodologies*
Project Type
I. TYPE I:
RENEWABLE
ENERGY
PROJECTS
II. TYPE II:
ENERGY
EFFICIENCY
IMPROVEMENT
PROJECTS
III. TYPE III:
OTHER
PROJECT
ACTIVITIES
Project Activity Category
I.A. Electricity generation by the user
I.B. Mechanical energy for the user
I.C. Thermal energy for the user [Note: this category is applicable for solar water heating]
I.D. Renewable electricity generation for a grid
II.A. Supply side energy efficiency improvements – transmission and distribution
II. B. Supply side energy efficiency improvements – generation
II.C. Demand-side energy efficiency programmes for specific technologies
II.D. Energy efficiency and fuel switching measures for industrial facilities
II.E. Energy efficiency and fuel switching measures for buildings
II.F. Energy efficiency and fuel switching measures for agricultural facilities and activities
III. A. Agriculture
III. B. Switching fossil fuels
III. C. Emission reductions by low-greenhouse gas emitting vehicles
III. D. Methane recovery
III. E. Avoidance of methane production from biomass decay through controlled combustion
*As of February 15, 2005 and outlined in Appendix B of the simplified modalities and procedures for small-scale CDM project activities
CDM Participation & Transaction Costs
Estimated Cost - $US
Non-SSC
SSC
Cost Item:
CDM Project CDM Project
Project Identification, Project Idea Note Development
20,000
15,000
Baseline Study & Monitoring Plan
20,000
5,000
Project Design Document Preparation
25,000
20,000
Stakeholder Consultation & Host Country Approval
10,000
7,000
Validation by an Operating Entity
30,000
8,000
Registration Fee
30,000
5,000
Transaction Negotiation & Contracting
20,000
15,000
Project Monitoring (Periodic)
varies
varies
Initial Verification by Operating Entity & Certification
15,000
5,000
Periodic Verification
10,000
5,000
Approximate Total:
>180,000
>85,000
Note: Actual costs vary considerably depending on various factors.
SSC=Small-Scale
Kuyasa: Sustainable Energy CDM Project Involving SWH

Location: Community of
Kuyasa, Cape Town,
South Africa

Project Activities: Three
Residential Energy
Enhancements:
- Solar Water Heaters
(150 liters avg.)
- Insulated Ceilings
- CFLs

Number of households:
2,307 existing homes in
phase 1, and 4,000 new
homes in phase 2
Source: SouthSouthNorth
Kuyasa Solar Water Heating Component
Pre-Project Situation: people heated water on
stove tops
CDM Project Baseline: emissions from hot water
via electric tank water heaters based on
“suppressed demand” for this energy service
Emission Reduction Estimates: based on model
output for thermal energy from SWH, electric
water heater efficiency of 70%, and coal-fired
electricity generation = 1.288 tons CO2/sys/year
Kuyasa Project: Revenue from Carbon Trading
The project is now registered with the CDM, but
project participants have not yet completed
carbon reduction sales transactions
Participants anticipate generating revenue equal
to at least 12% of the project’s capital costs,
based on a CO2 price of €8; at higher carbon
prices, carbon reduction sales could potentially
supply 76% of capital costs at €25 and 100% at
€33 (Source: SouthSouthNorth)
Carbon prices have recently been increasing
Carbon Trading Prices
Carbon Market Program
Approx. $/TonCO2
(Summer 2005)
Clean Development
Mechanism (CDM)
$5 to $10
European Union Emission
Trading System (EU ETS)
$20 to $30
Retail and other voluntary
markets
$3 to $15
Source: Point Carbon, various others
International Trade in Renewable Energy Certificates
There have been a few international REC
transactions:
Guatemala hydro RECs to the Netherlands
Symbolic REC contribution to WSSD from ENEL:
wind farm in Cost Rica and geothermal in Italy
Probably some voluntary transactions within North
America, with more activity to come…
To date, though, experience is very limited.
RECs for Solar Water Heating: Australia
Key Features of Australia’s REC Program for SWH
 Regulations adopted in 2001 enable solar water heaters to generate
RECs for compliance with Australia’s Mandatory Renewable Energy
Target (MRET) which requires 2% of electricity generation by
renewables though 2010.
 SWH systems must either be installed in a new building, or it must
replace an electric water heater or an electric-boosted solar water
heater that has been installed for over 1 year.
 RECs anticipated over 10 years are credited to SWH system buyers
upon registration. Typical SWH systems are eligible for between 10
and 64 RECs depending on the user’s location and system type. A
table in the MRET regulations specifies the amount of RECs.
RECs for Solar Water Heating: Australia, cont.
Program Features and Reported Results
 Registering a Solar Water Heater to obtain RECs costs A$20
(US$15) and must be done within 1 Year of SWH installation
 Agents provide SWH REC registration services and buy RECs from
SWH owners, which eases market participation
 REC prices have reportedly ranged from nearly A$40 (the cost of the
fine charged to parties not meeting REC obligations) for the first few
years to the mid-A$20’s more recently
 Australia’s SWH REC program has boosted Australia’s solar water
heating market considerably, especially during the first few years of
the program when REC prices were higher
Lessons From Selected International Experiences
Regarding Carbon Trading and REC Rules and Markets
The carbon market for Kyoto compliance is large and growing, but
participation can be arduous
SWH initiatives still can benefit from Kyoto carbon markets if scale is
sufficient to cover participation costs; simplified procedures also help
Australia’s simple REC rules, upfront crediting, and agents to ease
participation give a good boost to the SWH market
Simple rules and procedures, and active intermediaries, could
facilitate SWH in US REC markets and emerging carbon markets,
such as RGGI (the Northeast’s Regional Greenhouse Gas Initiative)
THANK YOU!
For more information, see:
http://www.green-markets.org/SWH
Green Markets International, Inc.
691 Massachusetts Ave., Suite 7
Arlington, MA 02476 USA
Note: Cover Photos Courtesy of SouthSouthNorh