Richard HosierGlobal Environment Coordination Unit

World Bank

Accelerated Phase-out of CFCs in use in India

India is estimated to operate 12,500 chillers in 2005

Most chillers are old and many use CFC’sCFC’s demonstrate high Ozone Depleting

Potential (ODP) and high GWPCFC-11 has ODP of 1 but a GWP of 4000By phasing out CFC’s, there is also a decrease in

GHG concentrations and reduced radiative forcingMultilateral Fund of the Montreal Protocol

allocated $1m to the above taskChillers average about $170,000 MLF allocation will not go far--$80/chillerSynergy between goals/objectives and leverage are

key to the puzzle

What are the benefits arising from early chiller replacement?Global Environmental Benefits:

Reduction in ODP under MP/MLF (159 kg/chiller)Reduction in GWP from refrigerant (640 t CO2e)

instantaneously from phase-outPrivate Financial/Economic Benefits to Chiller

Owners:30% energy efficiency gain in moving from national

average to world averagePer chiller, savings of 214,000 kWh/yr or ~$12,000/yr

(also CO2e benefits—0.82 kg CO2e/kWh)Still, 30% FIRR is insufficient to convince chiller

owners to replace chillers before end of useful lifetimeBenefit to Electricity Sector:

Reduction of load capacity of ~130 kW/chiller

India Chillers: How to phase-out 1200 chillers with $1m?

MLF provides $1m grant—30 chillers Total market has 189 ODP t Given GWP, equals 378,000 t CO2 eq

GEF provides $6m—185 chillers Interested in energy savings, 4.8 TWh over 20 years Equal to 3.9 m tonnes CO2 eq plus replication

CDM-Spanish Carbon Fund (SCF) or KfW as carbon buyer

Purchase CERs from project—revenues to revolving fund Flows of CER’s, 488,905 valued at $5.85 m (until 2013)

Private investors---$80m to make investment complete

Can Market Transformation Convert the remainder?

Year

Cash Flow

(-)

(+)

GEF/MLFCF

ObjectivesStimulate accelerated replacement of CFC-

based chillers to new and more energy efficient technology by overcoming well-documented techno-economic and market barriers for energy efficiency products

Actors: Industrial Development Bank of India (IDBI) to serve

as Financial Intermediary and CDM coordinatorWorld Bank: provide know-how & advice; GEF and

MLF Implementing Agency; facilitate SCF(KfW)-IDBI agreement; plus some advance funding for CDM methodology development (Note: No WB loan)

Private sector Chiller Owners

Options facing Chiller OwnersOption 1: grant subsidy of 20% of cost of

new centrifugal chiller based on normative price of $400/TR multiplied by rated cooler capacity, paid once the old chiller has been properly disposed of and CFCs reclaimed

Option 2: carbon credits based on certified emission reductions (CERs) generated from actual energy savings achieved by the new chillers per year from the first year of installation of new centrifugal chillers until 2013 (SCF) sold at a fixed price through WB as agent

ML FundGEFCarbon Finance

Financial

Framework

Area

Operational/

Project Management

Framework

Area

Technical/

Implementation

Framework

Area

World Bank

IDBI Bank

MoEFERPA

Chiller Manufacturers / Energy Service

Companies

Grant

AgreementProject

Agreement

GEF Council

Approval

ExCom

Approval

Work Program

DOE

Chiller Owners

Contract

MOU

Registration

MM&V Agency

ContractSGA /

ERTA

MLF GEFCarbon FinanceFinancial

FrameworkArea

Operational/Project

ManagementFramework

Area

Technical/Implementati

onFramework

Area

World Bank

IDBI Bank

MoEFERPA

Chiller Manufacturers / Energy Service

Companies

GrantAgreement

ProjectAgreement

GEF CouncilApproval

ExCom Approval

Work Program

DOE

Chiller Owners

Contract

MOU

Registration

MM&V Agency

ContractSGA /ERTA

Financial Incentive SchemeChiller owners that choose option 1

receive grant funds from the Project, but have to surrender their carbon credits to the Project, and these credits will be used to finance replacement of new chillers;

No chiller owners will receive both grant funds and CDM for replacing the same chiller

This scheme is similar to a revolving fund model. Repayment is made with carbon credits, instead of cash.

Financial Options in DiagramOption 1: Up-front

subsidyOption 2: CER

SubsidyWB(MLF, GEF)

Chiller Owner

Carbon

Market

IDBI IDBI IDBICarbon Project

CapitalOther Banks

CER

20% grant

<80% loan

(option)

<80% loan

(option)

CER

$ value

WB(MLF, GEF)

IDBI IDBICarbon Capital Other

Banks

Carbon

Market

Chiller Owner

Loan (option

)

Loan (option)

CER

CER

$ value

$ value

Eligibility Centrifugal chillers to be replaced must be

currently in use in India;Replacement of existing CFC centrifugal chillers

with cooling capacity of 100 TR and aboveThey must have a residual technical life of more

than 5 years (must have been installed after 1993*) New chiller must have an energy consumption

capacity rated at not more than 0.63 kW/TR, and be non-CFC or non-HCFC chillers

For the replacing units, they must be installed on the first-come-first serve basis between January 1, 2008 and December 31, 2011; Rated capacity of new chillers must be within 5% of the baseline capacity.

Revision of Original Financing PackageProject Implementation delayed due to Bank

processingSpanish Carbon Fund is limited beyond 2012

Only ¼ of CERs could be issued post 2012Resulted in may loss of CER revenue—no longer $6m in

CDM revenue but $2-3mWB, representing client’s interest approached KfW

KfW has a longer buying term than SCFIssued ERPA up to 2018 with Contract (pre) and Option

(post) CER’sContributing $13m to stimulate replication—982,000

CERsCDM revenues can account for larger share of

refrigerator market phase out

Capturing synergies can lead to Greater Impact Global Environmental Impact

GEF-directGEF-direct4.6 m tCO4.6 m tCO22ee

CDM CDM 982,000 tCO982,000 tCO22ee

MLF MLF 95,00095,000tCO2etCO2e

GEF-GEF-indirectindirect

8 m tCO8 m tCO22ee

CDMCDM$13 million$13 million

GEF GEF $6 million$6 million

MLF MLF $1 $1 millionmillion

Private SectorPrivate Sector$80 million$80 million

Leveraging enables MLF

Funds to achieve greater impact and investment

ConclusionCreatively took advantage of synergies between

MLF, GEF, and Carbon FinanceSuccessfully leveraging market transformation

from $1m of MLF funding to meet multiple goalsCDM remains challenging

What happens after 2012?How can we turn CF cash flows into actual

financing?How can we build projects using GEF and other

funds to leverage in greater impact?

Looking toward the future……Potential Urban Demand for Air Conditioning

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