Transcript Presentazione di PowerPoint

Milano EWEC
Session on Carbon finance
9 may 2007
Renewable Energy innovative financing
mechanisms
by
Roberto Vigotti
Opportunities for RE in
S.Mediterranean countries
–Current low penetration of RE in electricity
generation: 8.5% across region - only 0.5%
from “new” renewables, rest is large hydro
–Substantial regional RE potential, especially
wind and solar
–Regional similarities in RE resources, economic
and rural development  economies of scale
in technology manufacturing
–Stronger private sector infrastructure which needs
attractive return on capital
Options for S.Med Countries
•
SMed countries can make use of additional income
streams from industrialised countries through several
mechanisms:
– Sale of Certified Emission Reductions (CERs)
through the Clean Development Mechanism
(CDM). CDM is at present the most developed
international mechanism, however with some
essential drawbacks:
– Sale of Tradable Renewable Energy Certificates
(TRECs):
relatively simple, potentially high priced,
depending on bi or multilateral agreements
between countries.
– Sale of Verified Emission Reductions (VERs): to
brokers or companies, for compensation of GHG
emissions: less complex than CDM, higher prices,
however still a very small market.
Carbon market: current structure
• Two main types of Carbon transactions:
– Allowance-based transactions
– Project-based transactions
• Segments of the Carbon Market:
– The Kyoto Protocol
– The EU Emissions Trading Scheme
– Approval of climate mitigation plans in Japan, Canada
– Non-Kyoto regime
– Voluntary market
– Retail market
How the market develops ?
• Investors are generally attracted by high returns on
investment
– competitive prices,
– low financial risk and,
– few commercial barriers
• Investment in few countries where direct private foreign
investment are already concentrated
• At present, analysis of the nature of CDM projects: not
RUE / RE but rather industrial gas, landfill sites and
agriculture
Southern Mediterraneans
potential countries for CDM
• Countries having ratified the KP
– Algeria, Egypt, Israel, Lebanon, Jordan, Morocco, Syria,
Tunisia
• Countries that have not yet ratified the KP
– Libya, West Bank/Gaza
• Most countries have established their DNA and are eligible
to CDM
The Architecture of CDM
International Institutions (UNFCCC)
Create Demand
Control Legal Instruments
National Governments
Establish Policy
National Institutions (DNA)
Project Developers
Create Projects
Market Carbon Credits
Carbon Markets
Determine Prices
Sales and Purchases
CDM Project Life Cycle
Design
Feasibility Study
Project Concept
Accepted by Host
Country
Project Design
Document (PDD)
PDD approved by
National CDM Authority
Validated by
Operational Entity (OE)
Validation
/ Registration
Registered by CDM
Executive Board
Implementation
/ Monitoring
Project Implemented
Emissions Reduction
Monitored
Verification
/ Certification
Issuance
CERs banked or sold
Verified by Operational
Entity (OE)
CDM Executive
Board Issues CERs
CDM barriers
Time
constraint
National
regulations
Uncertaint
y
Lack of
capacity
Transaction
costs
Lack of
information
National
priorities
Sourcextensive
Abatement
costs
policy and administrative prerequisites , high up-front costs, long
lead times, insecure and possibly low prices, complex rules and procedures.
Main barriers and constraints
for CDM in the Med. region
 Lack of awareness at high decision-makers level of CDM
opportunities and benefits
 Weak capacity of potential project developers
 Lack of understanding of Carbon market fundamentals
(pricing, legal, and technical)
 Volatile and speculative nature of the emerging carbon
market
 Absence of a clear strategy (project by project basis)
 Different approaches of the countries in the North
(environment) and in the south (development)
Carbon Finance and CDM
an opportunity for green energy projects development and
new investments in the Mediterranean region
Example of the Zafarana wind power CDM project in Egypt
Zafarana Wind Power Plant as
a CDM Project
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Zafarana project: 120 MW wind power plant
More than 440 GWh of electricity per year (based on
capacity factor 42 %)
Around 90,000 TOE Saved yearly
About 230,000 t of Certified Emission Reductions annually
(CERs) if designated as CDM
Expected life time 20 - 25 years
A cooperation project between NREA of Egypt and JBIC of
Japan who supports project financing
Additionality

Probably, the most important issue for CDM-project
baseline methodology approval is whether the project
satisfies the additionality criterion

Two interpretations turning the condition into fulfillment of
two criteria :

Soft interpretation ; Environmental Additionality
Hard interpretation; insists on proving that the project,
being more expensive without counting CER revenues
compared to the alternative base line, would not be
implemented if the CDM project did not exist

Zafarana Project Satisfies BOTH !!
Baseline Methodology Steps
The project is additional because:
•
There is no incentive program to promote wind power
projects currently in Egypt
•
The cost for a wind power plant is higher than for
conventional thermal power plants, in terms of levelized
cost of KWh produced
•
The economic growth in Egypt has led to stricter terms and
conditions for foreign financial assistance
•
Currently wind generated KWh cost cannot compete with
thermal generated kWh cost and thus needs at least CDM
support to be implemented
Profitability?
At present € per ton CO2 & around 0.56kg CO2 avoided
emissions per kWh produced from thermal power stations
Wind produced kWh will have a bonus of around 4 piaster
which cannot close the gap between wind and thermal
generation
CDM cannot solely make uncompetitive projects
economically attractive
Rather, CDM can make near economic projects
feasible or more attractive
The way forward:recommendations
 Importance of regional sharing of competence for the
designing of projects.
 Design the teams and manage the channels through
which projects can be built.
 The stake is the post-Kyoto.
 Importance of development of sectoral policies and sets
of associated projects that would be useful for the
country’s development that could be eligible for CDM.
 Efforts are being made.
The way forward - recommendations
 CDM cannot be a substitution for the countries' public
policies
 CDM participates in these policies and has to develop with
them coherently
 The DNA have an important role to play (to ensure that
projects address SD)
 The key factor: participation of the private sector
What are the benefits of TRECs?
• Remove physical barrier to trade of RES-E
• Facilitate international trade in RES-E
• Provide a robust mechanism for tracking & verification of
RES-E
• Provide a robust & reliable system to prove compliance with
public support schemes
Critical success factors for TRECs
• Creating demand is key - demand for TRECs is higher in
mandatory schemes
• Willingness of regions to coordinate & harmonise systems need for a common vision
• Common standards are key to harmonisation
– Definitions
– Roles, procedures and responsibilities
– Technical standards
– Levels of verification
• Interaction of TREC systems with regulatory policies must
be clear
Criteria for a sound certificate
system
• Clear definitions of eligible RES sources and
technologies
• Information content & validity of certificates
• Manageable and simple
• Robust against error and fraud - system of verification
needed
• Compatible with existing policies
• If utilised to support growth in RES-E then additionality
required
Opportunities for pilot trades of
TRECs
TRECs from renewable energy projects in Southern
Mediterranean countries might be imported into Europe :
 as a contribution or supplementary to the RE
targets of the importing country;
 in a common TREC market;
 in a voluntary TREC market (e.g. for green
electricity products).
In the current situation in the Mediterranean region the most sensible way
forward is through dialogue, the set up of pilot trades and utilising them
as learning opportunities and the investigation of options for multilateral
arrangements.
Dialogue is important because unlocking RE resources and
stimulating RE technology uptake against lowest cost can only
be achieved through the development of a market with
substantial size.
Role of countries in pilot trades
TRCs can generate direct benefits for the trading countries,
but can also provide learning opportunities and input for
dialogue
To progress toward pilot trading, participating governments
need to:
 Set the aims for future bilateral arrangements to increase
the deployment of renewable energy technologies
between the countries;
 support and adequately resource the development and
execution of a pilot trading scheme between the countries;
and
 agree on a model to commence bilateral cooperation to
introduce the pilot trading scheme.
Case study: Italy-SMC TREC
trading
– TREC trading between Italy and the SM region
(Algeria, Egypt, Libya, Morocco and Tunisia)
– Trading period: from 2010 to 2020
– Reciprocity conditions of Italy’s domestic TREC
(green certificate) system:
– Additionality
• Directive 2001/77/EC forbids any non-EU
imports of RES-E or Guarantees of Origin from
counting towards national RE obligations
– Driver: additional quota on top of existing 2+%
electricity generation obligation on suppliers in Italy
Key actions to allow TRC transfer
into the Italian market
In Italy such possibility is subject to several factors:
• Adoption in the host country of “similar” mechanisms for
supporting renewable sources
• Physical connection between the electric grids
• Reciprocity mechanism that allow stakeholders of Med
countries to realize RE plants in Italy thanks to
mechanisms in place in their countries similar to GC
• The adoption of an ad hoc regulatory frame to allow a
foreign entrepreneur to sell RE energy so produced
• Creation of an authority super partes for arbitrage
• An agreement between Italian TSO and the corresponding
local authority
Impact on RE investment in SMC
– TREC quota: 1% over eligible electricity
generation in Italy, assumed 280 TWh by 2020
– Model results (simplified assumptions: 80% wind,
15% concentrated solar power, 5% solar PV):
• Average additional annual revenue to RE
projects in SMC: USD 47.1 million
• Additional generation capacity: 1,150 MW
• Additional electricity production: 2,810 GWh
• TREC revenue support could contribute up to
25% of capital investment required for
development
 Increase of 3.2% on installed capacity, 1.9%
power generation over 2003 in SMC region
TRECs & CDM: comparison
CDM
TREC systems
System being established
worldwide
Already operating in some
countries
Renewables compete with
other technologies
More suitable for RE projects
High transaction costs
Could be used in conjunction
with CDM – RE projects sell CERs
and TRECs
Could use RECs system for
validation, monitoring and
verification of CDM projects
CDM and TRECs
• Both can provide additional funding for
renewable energy projects
• CDM has wider coverage
• Few opportunities for selling TRECs at present,
outside of established national systems
• Funding through the CDM is available now,
though the market is still emerging
[email protected]
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