developing a project utilizing the cdm scheme of the kyoto protocol worldbank workshop on cdm...
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Developing a Project utilizing the CDM
Scheme of the Kyoto Protocol
Worldbank Workshop on CDM
Jakarta, Indonesia
September 13th, 2006
Oliver WALTER
Financing is a most decisive step in the entire project development process, it is not a bolt-on element, which can be set up at the end of a process, but must be secured and embedded early in the process!
Finance Dept./Institutions shall be involved at an early stage of a project!
a good and bankable project must be identified at the beginning!
lack of realistic and viable projects!
convincing approach towards potential lenders (also bankers have to be trained!)
Financing in the Project Development Process
Sources for Kyoto related financing might be:
• Funds/donors:
Global Environment Facility, GEF, www.gefweb.org
Special Climate Change Fund http://unfccc.int/cooperation_and_support/financial_mechanism/special_climate_change_fund/items/3657.php
• Export Credit Agencies
so far, only limited experience and they do not consider it as their task!
• International Financial Institutions (EIB, SIDA, NDF,..)
often, grants by IFIs are a hindrance for a CDM project, as concessional financing is not permitted.
• commercial banks
required tenors, amounts,..?
Sources of Financing / Risk Insurance
Establishing the necessary enabling environments, including removing of barriers remains an essential element not only in relation to financing but also to the overall process of technology transfer.
important aspect for prove of financial additionality in Baseline Study!
take into account trade, investment and environmental policies!
sustainable development objectives have to be made palatable to financial institutions/ ECAs (generally, MoF is behind National Carbon Fund and ECA, one budget pot! - national measures vs. flexible instruments.)
innovative legislation linked with incentives
a good understanding and cooperation between involved government institutions is a precondition, often a MoU is of great value!
(Financial) environments
• focus on creditworthiness of Borrower/Guarantor and country risk often requires challenging security packages
• more and more, traditional securities do not suffice anymore in particular for high volume projects (pledge, mortgage, corporate guarantees, prom. notes,…)
cash payments for CERs by a purchasing fund/national JI/CDM program are considered as bankable security from a
lender’s point of view!
Collateral Structure
• Emission Reduction Purchase Agreements are concluded between the owner of the CERs in the host country and the buyer of the
Certificates. Upon Commercial Operation of a plant (= start of repayment period) and successful Monitoring, CERs will be generated, issued and thereafter transfered from the national register
of the host country to the fund‘s country.
• So far, only PPAs were accepted as security by banks, nowadays ERPAs become more commonly accepted by Lenders as bankable and reliable collateral.
• it is favourized to have CER payments by the buyer to be effected on an off-shore escrow account, serving as partial repayment of the loan.
ERPA as collateral – escrow account
• collect info and build up detailed knowledge of CDM regulations
• select good, CDM-eligible project
• company’s in-house common understanding and convince Management for CDM as useful instrument and benefit
• bankable security structure for set-up financing
• have a clear picture on additional CDM related cost PIN at early stage to potential buyer/Validator for 1st cross check might save
stranded cost
• together with client early positioning towards involved (non-) govt. institutions (Ministries, Consultants, Banks, Embassies, OE,…)
• close co-operation between related government entities
Key factors for success
Carbon Financing Structurep
artia
l rep
aym
en
t of lo
an
payments for CERs
PDD, Validation Registration
CERsERPA
co-operation
support of approval
host country govt. - DNA
Government
support, LoE, LoA
co-o
pe
ratio
n
Lender
credit agreement
cover
additional collateral package
Exporter
Importer
supply
contra
ct
ECA
cover
nat. JI/CDM Fund off-shore escrow account
Simplified CER revenue calculation
Project: Hydro Power Plant, MEUR 100
Installed Capacity: 2 x 45 MW
Annual Output: 220.000 MWh
Carbon Factor acc. to BLS: ~ 1 ton of CO2e/MWh
Tons of CO2 avoidance: approx. 220.000 tons of CO2e per annum
CERs: approx. 220.000 CERs shall be issued/annum
Commercial operation: 1/2008
Kyoto Period: 2008-2012
Price per CER: EUR 5,-
Revenues: EUR 5.500.000,- during 1st Kyoto Comm.Period
(5,5% contribution)
VA TECH FINANCE JI / CDM experience
Project in force and under implementation:
EUR 300.000.000
Projects with a considerable volume under development, inter alia:
India: Biomass, MEUR 16
Mexico: Waste Treatment, MEUR 18
Bhutan: Hydro Power, MEUR 150
Case Study:
HEPP TSANKOV KAMAK
Financing of a Pilot Project
under the Kyoto Protocol
Project Data
Hydro Power Plant Tsankov Kamak (2x40 MW)
• Total Project Cost: approx. EUR 200 Mio.
• Client: NEK, Natsionalna Elektricheska Kompania
(investor, owner, operator & borrower)
• Exporters: - VA TECH HYDRO
- ALPINE MAYREDER
- Verbundplan
Starting Point in 2001
Approach of IFIs and ECAs (OeKB) for Financing:
Project Cost:
MEUR 200 versus MEUR 5 max. OeKB cover for BG
Security:
NEK corporate risk versus request for State Guarantee
Tenor:
16 y versus cover of up to 5 y repayment period
Client:
100% state owned versus cover only for private clients
Development
• Kyoto Protocol approach: Tsankov Kamak to be realized as Joint Implementation (JI)-Project based on the Kyoto Protocol
• Memorandum of Understanding: Sept. 2nd, 2002 Ministry of Environment, Austria – Bulgaria
• Pilot Project: November 2002 Tsankov Kamak declared as Pilot Project between Austria & Bulgaria
• Supply Contracts: signed Oct. 1st, 2003
• Credit Agreements: signed Nov. 14th, 2003, Financial Closing 4/2004
Deal of the Year 2003, declared by Trade Finance MagazineDeal of the Year 2003, declared by Trade Finance Magazine
Financing
EXPORT CREDIT AGREEMENT
- EUR 100 mio. loan
- Tenor: 16 years
- ECA: Cover of 5 Export Credit Agencies (A, CZ, D, F, S)
COMMERCIAL CREDIT AGREEMENTS
- 4 loans, in total EUR 120 mio.
- Tenor: 7 years
Collateral structure
a mixture of structured security package consisting of,
inter alia, Bulgarian government involvement, various
escrow accounts, pledge of assets, mortgage of the
site, promissory notes,…
BASELINE STUDY: elaborated by Austrian Consultant- international Validation- official recognition as JI-project
EMISSION REDUCTION PURCHASE AGREEMENT:
concluded between NEK and Kommunalkredit for transfer of ERUs revenues serve as collateral!
EMISSION REDUCTION UNITS (ERUs):
Upon commercial operation (2008), ERUs will be generated and purchased by the Republic of Austria (approx. 200.000 ERUs/year).
KYOTO PROTOCOL ASPECTS
(KYOTO-) FINANCING STRUCTURE
Paym
ent of
interest, prin
cipal
Emission Payments
off shore
escrow accounts
MEER, MoF
4 annual payments
Em
ission Reduction
Purchase A
greement
Em
ission
Certificates
Base Line
Study (BLS)
Kommunalkredit
KWI
DNV
validation
of BLS
info for
BLS
NEK(Bulgarian Utility
company)
Austrian Supplier’s Group
OeKBG3G1
AgreementsSupp
ly
cont
ract
s
Comm. lenders
intercreditor agreement
Loan
reinsurance
VA TECH FINANCE GmbH
Pledge Agreement
ECA lenders
SUMMARY
AUSTRIA
• 1st JI/CDM project
• Export increase
• Purchase of ERUs
• increase of ECA/OeKB
cover
MEUR 5 MEUR 80!!!
BULGARIA
• green, clear energy
• Reduction of CO2-Emissions
• Job creation
• know-how transfer
• financial viability (ERUs)
• WWTP Devin
Excellent cooperation between both countries:Ministries, Embassies, Commercial Councils, Banks,…..
• Target: contribution to Austria’s Kyoto target by purchase of emission reduction certificates
• Effectiveness: since December 3rd, 2003
• Basis: Environmental Promotion Law
• Agent:Kommunalkredit Public Consulting
Austrian CDM-program IAustrian CDM-program I
Preferred project categories:
• building/rehab of electricity units working with renewable energy (wind, hydro, biomass, biogas,…)
• avoidance/treatment of deposit gas
• measures resulting in lower energy consumption
• waste measures with CO2 reducing effect
• change of energy (renewable or lower C-content)
Austrian CDM-program IIAustrian CDM-program II
Criteria:
• accordance with UNFCCC and Kyoto Protocol
• consent of both countries, preparedness of co-operation
• measurable reduction of GHG, due to project
• contribution to sustainability in host country
• no minimum quantities of emission reduction certificates
• Memorandum of Understanding is advisable
• availability of local structures & know how to execute CDM project
• good relations to regional / local institutions in host country
Austrian CDM-program IIIAustrian CDM-program III
win-win-situation for Indonesia and Austriawin-win-situation for Indonesia and Austria
AUSTRIA
• continuation on
cooperation on the hydro
sector
• export increase
• purchase of CERs
• reaching Austria’s
• national Kyoto target
INDONESIA • green, clear energy
• Reduction of CO2-Emissions
• Job creation
• know-how transfer
• financial viability (CERs)
• improved natural resources utilization, sustainable industrial development, acceleration of national economic growth,…
As the bilateral CDM Implementation Agreement is already signed between Indonesia and Austria, the start of project realization could be within a very short time frame after a Project Identification Note has been agreed
CONTACT DETAILS:
VA TECH HYDRO NDONESIA
Josef M. ULLMERUllmerJo@vatech.co.id
G. ENZENHOFEREnzenhGe@vatech.co.id
VA TECH Bld. 2nd Floor
Jl. Talang No. 3
Proklamasi
Jakarta 10320 - Indonesia
Tel.: +62-21-3906929
Fax: +62-21-3905006
VA TECH HYDRO AUSTRIA
Andre SCHOPPERAndre.schopper@vatech-hydro.at
Penzinger Strasse 76
A – 1141 Vienna
Austria
Tel.: +43-1-89100-3948
Fax: +43-1-89100-3821
VA TECH FINANCE
Oliver WALTERwalter@vatech-finance.com
Serravagasse 10
A – 1140 Vienna
Austria
Tel.: +43-1-8920903-23
Fax: +43-1-89 55 205
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