sizwe kuzwayo dna carbon finance workshop info/gauteng...kyoto protocol (1997) unfccc (1992) project...
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Sizwe Kuzwayo
DNA Carbon Finance Workshop
May 2010, Tshwane
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AGENDA
• Who is CEF Carbon
• Climate Change, Kyoto Protocol & CDM
• The CDM project cycle
• Additionality?
• The carbon price vs. risk?
• Project financing
• Why CEF Carbon?
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• CEF – research &
development of alternative
energy solutions
• CEF Carbon – subsidiary,
established to develop &
access carbon funding for
eligible projects
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– Rising Temperatures
Climate Change: the evidence
Source: IPCC (2001) Climate Change 2001: Working Group 1 Summary for Policymakers
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Source: Courtesy of Andrew Goudie, Oxford University Centre for the Environment
The Evidence cont’d
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Kyoto Protocol (1997)
UNFCCC(1992)
Project based Emission based
Clean Development Mechanism (CDM)
Art. 12 Kyoto Protocol
Joint Implementation (JI)Art. 6 Kyoto Protocol
International Emission Trading (IET)Art. 17 Kyoto Protocol
Between Annex-I andnon-Annex-I Countries
Trading of AAUs betweenAnnex-I Countries
Voluntary Market
Climate Protection
European Climate Change Program (ECCP)
Trading of EUAs between energy intensive
companies in the EU
EU EmissionTrading Scheme (EUETS)
since 2005
BackgroundElements of Global Climate Protection
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Basic Principles of the CDM
Annex 1 Countries
(Developed)
Investor Countries can
provide financing &
sustainable development for
compliance
Non-Annex 1 Countries
(Developing)
Host countries produce CERs
by mitigating CO2 through
emission reduction projects
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Kyoto Protocol – Developed countries (JI)
• Cap - reduce GHG
emissions by 5,2% of
1990 levels– (CO2, CH4, N2O, PFC,
HFC, SF6)
• 3 ways to reduce:
– Investing in efficient
technology
– Buy credits from
other developed
countries (JI)
– Buy credits from
developing
countries (CDM)
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Kyoto Protocol – Developing countries (CDM)
• No Cap, project based
mechanism
• ER = BE – PE - leakage
• Additional income stream
into a project which
deliberately employs
cleaner ways of
conducting business as
usual
• More than 115 approved
methodologies and
growing
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STATUS OF THE CDMMEASURING SUCCESS
2,171 registered CDM projectsTo date: > 5,018 projects
> 2.8 billion CERs expected
to the end of 2012
In
pipeline:
• Africa (44/129) – 2% of
global CER’s
• SA (17/33) 24% of
African volumes
We need more
projects!
Started with
opportunistic projects:
N20, LFG
Although there are
CDM opportunities, CDM
is not pot of gold at end
of tunnel!
• Process not as easy
as it looks!
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All CDM projects must be registered with the CDM Executive Board
… by following a well defined process
Project Idea Note
(PIN)
Letter of Endorsement
(LoE)
Designated
National Authority
(DNA)
CDM Executive
Board (CDM EB)
Project Developer
Designated
Operational Entity
(DOE)
Project Developer
Designated
National Authority
(DNA)
Project Design Document
(PDD)
Document DecisionBody
Optional
This ensures the project and the ensuing reductions
meet the relevant requirements of Article 6 of the
Kyoto Protocol, the host country rules and the CDM
EB’s guidelines
Project Registration Validation
Project
Idea
?
Designated
Operational Entity
(DOE)
Host Country Rules
Verification of
actual
reductions
Letter of Approval (LoA)
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Types of projects
Is there, does it, is it…..??
• an approved CDM methodology
• meet the Sustainable Development
criteria (ESE)
• Additional
Renewable
Energy
(Wind, Hydro,
Solar, etc)
Waste
Management
(LFGTE, Waste Heat
Capture &
Reutilization, etc)
Energy
Efficiency
(CFL, SWH,
etc)
You possibly
have a CDM
project !!
Some questions???
• Will it reduce GHG emissions?
• What will it be displacing?
• What is the proposed technology?
• What is the project boundary?
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A project is additional
if the project activity
results in a greater
GHG emissions
reduction than would
have happened in
the absence of the
project activity
Additionality
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Carbon pricing
Source: Point Carbon & Carbon Positive
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Risk vs. Price
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CDM vs. Project Cycle
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Global Trading schemes
Allowances:
• EU-ETS 2007 - 2,061MT = $50 billion
• EU-ETS 2008 - 3,093MT = $91 billion
Project based transactions (2008):
• CDM-Primary - 389MT = $6.5 billion
(down from: 552MT @ $7.4 billion in 2007)
• CDM-Secondary - 1,072MT = $26.2 billion
(up from: 240MT @ $5.4 billion in 2007)
Market size
2006 = $ 30 billion
2007 = $ 60 billion
2008 = $126 billionSource: World Bank
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Project Model
Project SPV
Shareholders
Financier CEF Carbon
Possible Public Entity
(Municipality)
Feas
ibili
ty
Fun
din
g
Div
iden
ds
CDM Reg.; CER Revenue
Interest and Repayments CER Off-Take
Debt
Electricity Buyer
Rev
enu
e
Elec
tric
ity
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Project Finance
• DFIs, commercial banks, private banks
• Ring-fenced structure – no recourse to
shareholders
• Equity requirement “skin in the game”,
sweat equity not enough
• Risk averse
• Assessed on the basis of cash flows
• Project must be Bankable
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Acquiring Project Finance
• Solid Feasibility study with Preliminary
Design
• O&M strategy
• Shareholder Agreements
• Solid ERPA and PPA – reliable
counterparties
• Good Cash Flows
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Cautious Financiers
• Reliable Technologies
• Agreements in Place
• Conditions Precedent – EIA, CDM
registration
• Post 2012 uncertainties, growing appetite
for African projects
• Identify and Mitigate Risks
• Debt Equity Ratio
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Why CEF Carbon?
• In-house fully integrated Carbon business
– Project finance & project management team
– CDM project development
– CDM technical team (PDD development)
– Carbon trading
• Alternative Energy development mandate from Government
• Schedule 2 status according to PFMA
• Strong, existing CDM project portfolio & established track record
• End to end CDM project development at no cost to the project owner
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Why?