Sizwe Kuzwayo
DNA Carbon Finance Workshop
May 2010, Tshwane
AGENDA
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Who is CEF Carbon
Climate Change, Kyoto Protocol & CDM
The CDM project cycle
Additionality?
The carbon price vs. risk?
Project financing
Why CEF Carbon?
• CEF – research &
development of alternative
energy solutions
• CEF Carbon – subsidiary,
established to develop &
access carbon funding for
eligible projects
Climate Change: the evidence
– Rising Temperatures
Source: IPCC (2001) Climate Change 2001: Working Group 1 Summary for Policymakers
The Evidence cont’d
Source: Courtesy of Andrew Goudie, Oxford University Centre for the Environment
Background
Elements of Global Climate Protection
Climate Protection
UNFCCC
(1992)
Voluntary Market
European Climate
Change Program (ECCP)
Kyoto Protocol
(1997)
Project based
Clean Development
Mechanism (CDM)
Art. 12 Kyoto Protocol
Between Annex-I and
non-Annex-I Countries
Joint Implementation (JI)
Art. 6 Kyoto Protocol
Emission based
International
Emission Trading (IET)
Art. 17 Kyoto Protocol
Trading of AAUs between
Annex-I Countries
EU Emission
Trading Scheme (EUETS)
since 2005
Trading of EUAs
between energy intensive
companies in the EU
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
Kyoto Protocol – Developed countries (JI)
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Cap - reduce GHG
emissions by 5,2% of
1990 levels
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(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)
Kyoto Protocol – Developing countries (CDM)
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No Cap, project based
mechanism
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ER = BE – PE - leakage
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Additional income stream
into a project which
deliberately employs
cleaner ways of
conducting business as
usual
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More than 115 approved
methodologies and
growing
STATUS OF THE CDM
MEASURING SUCCESS
To date: 2,171 registered CDM projects
• 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!
> 5,018 projects
In
pipeline: > 2.8 billion CERs expected
to the end of 2012
All CDM projects must be registered with the CDM Executive Board
… by following a well defined process
Optional
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Project Developer
Project
Idea
Project Idea Note
(PIN)
Designated
National Authority
(DNA)
Letter of Endorsement
(LoE)
Project Developer
Project Design Document
(PDD)
Host Country Rules
Designated
Operational Entity
(DOE)
Verification of
actual
reductions
Body
Document
CDM Executive
Board (CDM EB)
Designated
Operational Entity
(DOE)
Project Registration
Validation
Decision
Designated
National Authority
(DNA)
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
Letter of Approval (LoA)
Types of projects
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Renewable
Energy
Waste
Management
(Wind, Hydro,
Solar, etc)
(LFGTE, Waste Heat
Capture &
Reutilization, etc)
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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Energy
Efficiency
(CFL, SWH,
etc)
Is there, does it, is it…..??
an approved CDM methodology
meet the Sustainable Development
criteria (ESE)
Additional
You possibly
have a CDM
project !!
Additionality
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
Carbon pricing
Source: Point Carbon & Carbon Positive
Risk vs. Price
CDM vs. Project Cycle
Global Trading schemes
Allowances:
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EU-ETS
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EU-ETS
2007
2008
- 2,061MT
- 3,093MT
Project based transactions (2008):
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CDM-Primary
- 389MT
= $50 billion
= $91 billion
= $6.5 billion
(down from: 552MT @ $7.4 billion in 2007)
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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 billion
Source: World Bank
Project Model
Financier
Debt
Dividends
Feasibility
Funding
Shareholders
Project SPV
Interest and
Repayments
Revenue
CER Off-Take
Electricity
Possible Public
Entity
(Municipality)
CDM Reg.; CER
Revenue
Electricity Buyer
CEF Carbon
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
Acquiring Project Finance
• Solid Feasibility study with Preliminary
Design
• O&M strategy
• Shareholder Agreements
• Solid ERPA and PPA – reliable
counterparties
• Good Cash Flows
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
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
Why?
Ndolivhuwa!
Sizwe Kuzwayo
[email protected]
CEF Carbon
+27 (0)10 201 4700