PoA Experiences Joint Implementation Supervisory committee Roundtable Consultations

1. PoA ExperiencesJoint Implementation Supervisory committeeRoundtable Consultations Bonn, 16 June 2009 Klaus Oppermann, KfW

2. Source of KfW’s PoA Experience: PoA Support Center Germany • Since October 2008 KfW runs PoA support program on behalf of German Environmental Ministry: • Enable public and private entities to identify PoAs. • Develop concrete and realizable PoA proposals. • Prepare for PoA implementation and operation. • Facilitate PoA financing and marketing of carbon credits. • PoA Blueprint Book → www.kfw.de/carbonfund

3. Early stage PoA portfolio

4. Looking deeper into four cases • Energetic building rehabilitation – Eastern Europe (EU): • Insulation, windows, heating (EE & FS); • 20 CERs/building/p.a., investment costs 25,000 EUR/building on average; • Soft loans, carbon impact 8%*, entering renovation cycle, building typology approach for monitoring. • Energy Efficiency in public buildings – MENA: • Lighting, cooling, intelligent control technology; • 120 CERs/Building/p.a., investment costs 30,000 EUR/building on average; • Payment-on-delivery, carbon impact 36%, each building monitored. • Residential Biogas – South Asia: • 2.5 CERs/unit/p.a., investment costs 180 EUR/unit; • Grants + payment on delivery (maintenance), 140% carbon impact . • Residential Solar Water Heating – Africa: • 2 CERs/unit, investment costs 1,000 EUR/unit; • Grants, carbon impact 10%, monitoring through sampling. * 10 year’s carbon revenues undiscounted at 10 EUR/t relative to initial costs

5. Example German programmatic JI • German DNA has approved 3 regional energy efficiency/fuel switching PoAs. • 2 PoAs: Energy efficient heating & steam boilers (Northwest and South Germany): • PoA operators: public energy agency & utility; • Payment-on-delivery programs: 80 kt. p.a. expected (for both programs together); • Example: Modernization 10 MW oil-fired steam boiler: 270 TEUR, 30 TEUR JI revenues per year. • 1 PoA: Climate Bonus Program heat pumps (Northwest Germany): • PoA operator: utility; • Conversion conventional heating to electric heat pumps (zero emissions because coverage of power sector within ETS); • Grant program (frontloading of carbon revenues): 50 kt. p.a. expected; • CO2 reductions per heat pump: around 2 t p.a.

6. Efficient lighting - CFL program • Economics (example of an Indian give-away for free project): • Procurement/distribution costs for high quality CFL: 5 EUR/unit; • Carbon revenues: 0,8 EUR/unit/a (0.1 MWh savings; 0.8 tCO2/MWh; 10 EUR/tCO2); • Fixed costs (development, CDM process): 300 TEUR; • Operational costs (including monitoring): 50 TEUR; • Break even requires > 1.000,000 CFLs. • Utility as PoA operator: • Interest in peak load reduction; • Competence with demand side EE measures; • Customer database; • Synergies meter reading – monitoring on a sample basis.

7. Programmatic carbon crediting • PoA - Incentive or policy implementation program as CDM project: • Program operator receives CDM revenues; • Program participants receive incentive payment; • Incentives are provided against carbon ownership; • Market based private sector driven and bottom-up approach to sustainable sectoral transformation (difference to sectoral crediting); • Addressing small and micro activities; • Core target group: households, SMEs, municipalities. • Economics and Finance: • Appropriate type and dimension of incentive (grant, soft loan..); • Core deal: incentive against carbon ownership (appropriate contracts); • Funding of the programme (in particular seed funding).

8. Specific interest of PoAs for JI • PoA could have long term potential to boost JI. • Public sector – private sector asset distribution issue: • Approving a JI project means a wealth transfer public → private sector; • PoA allows for implementation of public sector programs under JI. • JI in EU-ETS countries: • Big emitters covered by ETS: few opportunities for stand-alone projects; • Considerable potential for micro-activities including buildings and small industrial boilers → PoA approach.

9. PoA operators – interests and requirements • Required: institutional capacity; program experience. • Not necessarily required: carbon market experience. • Potential PoA operators include (core interest/policy): • Financial institutions: attractive loan conditions. • Utilities: demand side energy efficiency measures. • Producers of climate friendly technology: marketing. • Public agencies: funding of policies. • NGOs: funding of sustainable development activities. • Substantial synergyeffects: • Ex. 1: Microfinance loan monitoring and CDM/JI monitoring. • Ex. 2: Utility customer database/billing and quality control. • Ex. 3: Bank’s loan contracts and CER/ERU ownership transfer.

10. PoA operator – responsibilities Running the program (core): • Develop PoA concept and business plan; • Implement and operate PoA; • Do core deal: carbon credits against incentive payment; • Sell carbon credits and refinance PoA; • Handle all involved financial flows. PoA procedures (potential for outsourcing): • Organize validation and registration of PoA; • Check whether submitted CPAs fulfill the PoA eligibility criteria; • Operate record keeping system for each CPA; • Submit CPA Design Documents (CPA-DDs) to validator; • Communicate with DOE regarding monitoring reports; • Organize revalidation of PoA after revision of baseline methodology.

11. PoA Funding • Situation for PoA operator: • Costs: development, implementation, operation; • Revenues: carbon credits are only source of income. • Funding requirements: • Development (concept, business plan, capacity, PDD); • Seed Funding first generations of activities/incentives. • Risk profile seed funding: • Performance risk of PoA operator; • Risk - : often stable consumption activities; low transfer risk (international carbon accounts); step wise implementation. • Risk +: complete reliance on monitoring; often no recourse to program participants (micro activities). • Banks have no experience with PoA funding.

12. PoA Seed Funding: Case studySWH-South Africa: 1.000 EUR/unit; 10% grant; 2CERs/unit; 10EUR/CER; 20% (10%) Admin. fee on subsidy (CER revenues); crediting period 10 years.

13. Summary of Experiences • Development: program (project) needs to be developed not only carbon component; • Institutional requirements: experienced program implementers (in general not yet well integrated into carbon market – major bottleneck in PoA deployment); • Economics: Minimum program size required for reaching break even; • Finance: Risk of PoA Seed Funding mainly rely on post registration regulatory risk (monitoring and verification, revisions of methodologies); • Very limited pre-2012 PoA carbon delivery expectation despite huge potential.

14. Comments on PoA procedures • PoAs are very similar to ‚standard JI-projects‘ from a regulatory perspective: • PoAs are a project by project approach; • Deployment of measures/activities over time associated with quantitative uncertainty on ERUs also in ‚standard projects‘: (e.g. MWh windpower p.a.; number of fly-ash bricks p.a. …); • PoAs face major market entry barriers and are much more difficult to develop than ,standard projects‘; • → Guiding principles: • As simple as possible; • As close to procedures for ,standard projects‘ as possible. • Most simple ruling would be a pure definition: PoAs are projects with ex post determination of included project activities – all JI (CDM) rules and procedures apply mutatis mutandis.

15. Comments on proposed JI-PoA guidance • No. 6: JPA = single measure or set of ( interrelated ) measures: clarification that CE defines in its own deliberation JPA (in practice optimization calculus); • No. 7: JPAs within the same PoA can use different methodology combinations: relevant e.g. for biogas – with or without methan component; • No. 11: Avoidance of double counting – either CE procedure in determination or on JPA level in verification: specification required; • No. 13/15: ,Crediting period’ of JI PoA versus crediting period of JPAs is not defined (in CDM: 28 ys. PoA lifetime + CPA crediting periods); • No 13: No AIE involvement in the JPA inclusion process (unnecessary as there is no consistency check as under CDM-PoA).

16. Thank you for your attention Dr. Klaus Oppermann KfW Bankengruppe Klaus.oppermann@kfw.de