PoA Course CH4 L1

Module 2: PoA Management

Chapter 4: Financial Management

Lecture 1

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Business Models

CDM Related Costs

Types of Financing

Cost Sharing

CDM Costs

Costs VS Revenues

CPA implementer related costs:

CME related costs:

You should now have an understanding of the CDM related costs and possibilities for financing PoAs

• Operation and maintenance

Ensure that the CER revenues

surpass the CDM related costs

Equity

Grants and Subsidies

Debt

CER Income

High up-front costs for later CER revenues

Intermediary Between CME and end user

CME Deals Directly with the End User

CME Deals with Investors

Grants are amounts of finance provided by third parties with no need to be repaid

• PoA design
• Business plan
• Structuring the CME
• PoA administration
• PoA-DD preparation

Different Business Models for Operation

Lenders need security of repayment of debt and interests

CME shares ownership of PoA with investors in exchange for finance

Example:

Business model and institutional requirements for efficient industrial boilers

Business model and institutional requirements for Compact Fluorescent Lamps (CFL)

Business model and institutional requirements for Small-Scale Hydropower (SHP)

• Forward sales contracts for carbon credits can be used as collateral for debt

• External shareholders can be venture capitalists, private equity investors or CDM developers

PoAs may differ in number of stakeholders involved, technologies/activities and institutional arrangements

CER

Income

Grants sources are usually:

CER

Income

Identify barriers:

Grants usually require the activities to meet specific terms

CER

Income

CDM

Costs

VS

Identify barriers:

Identify the barriers; CFL PoA have identified:

• Initial cost barrier
• Technological barrier
• Information/behavior barrier

• Financial barrier
• Technological expertise required

Small-scale technology at community/household level can attract financing from micro-finance institutions

PoAs with capital-intensive technology and equipment can attract financing from development and commercial banks

Investors receive dividends but run the risk of losing their investment if the PoA fails

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Small- and micro-size and activities

CPA

Revenue

• Governments
• NGOs
• Philanthropic Foundations

• Financial barrier
• Technological expertise required

A financial institution can assume the role of a CME

Provide an Incentive to End-users

Attract Upfront Capital for Future CERs

Funds provided through periodic capital injections based on achievements

Assist to Access Other Financing

Financial institution acting as a CME

A utility company is a given potential CME for CFL programmes

Specific costs can be shared between CME and CPA

Examples:

• Identifies potential participants / end users
• Provide concessional loans in exchange of a share of CERs

Domau, 2011: "CME Starter Kit", Climate Focus

• Small loans directly to the end-user

• Lessen financial barriers
• High creditability

Domau, 2011: "CME Starter Kit", Climate Focus

Leverage advance payments from a future CER buyer

• CME deals directly with the end-users, or

• With intermediaries in between the CME and the end-users

Domau, 2011: "CME Starter Kit", Climate Focus

Important role in PoA start-up phase with high uncertainty and low access to loans

The carbon component increase the financial attractiveness of the activity

Stakeholders to involve besides the end users:

CPA

Operation

Costs

• Large loans
• Backed by collateral

and long-term tenure

Used to cover costs of the CDM registration requirements

Subsidies are usually provided by governments with no need to be repaid

An Energy Service Company (ESCO) acts as intermediary

• CFL suppliers to secure the timely provision of a large amount of high quality CFLs

Subsidising or lowering the retail price of the product /service to the end-user

e.g. efficient lighting projects, where the end-user can get a discount or receives the lamp for free

CDM

Costs

e.g. renewable energy PoAs generate and sell electricity, and the carbon revenues increase the internal rate of return increasing the attractiveness of the PoA for investors

Buyers require a discount on the CER

E

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• Implements the refurbishment activities

To continue learning more about CME management proceed to Lecture 2 by clicking the arrow below

CFL distribution for free or discounted prices to address to address initial cost barrier

Most PoAs rely on a mix of equity and debt to finance the programme

Programme

Preparation and

Implementation

Cost

Programmes with lower perceived risk can negotiate higher CER prices

Experienced hydropower market players acting as CPA owners

• Used to create an incentive for activities that contribute to specific policy objectives

Fixed-price carbon sales agreement can be regarded as long-term cash flow

• Feasibility studies
• Permit applications
• CPA-DD preparation
• Registration and validation
• Technology investment etc.

• Testing & labeling organization to assure the quality of the distributed CFLs

Parts of the ESCO payments should be dependent on the CER volume generated to provide an incentive for proper work

Clear business plan and financial guarantee usually a prerequisite

• Not exposed to price fluctuation and more attractive for investors

Free replacement of defective CFLs e.g. one-year guarantee

• Less need for support from CME

Larger-size activities

• CME deals with company investors

• Retailers to support the CFL distribution process

T i m e

Covering costs such as dissemination of equipment, service and maintenance, programme coordination, monitoring and reporting

e.g. household biogas PoAs, where carbon finance covers maintenance and repair costs provided free-of-charge to end-users

ESCO can also be a manufacturer, local supplier or engineering consultants

Example:

CDM

Costs

Promotional and awareness raising activities to overcome information/behavior barrier

Hayashi et. al., 2010: "PoA Blueprint Book", KfW Bankengruppe

No share of proceeds shall be due for project activities and PoAs hosted in least developed countries

Hayashi et. al., 2010: "PoA Blueprint Book", KfW Bankengruppe

Climate Focus, 2013: "The Handbook for Programmes of Activities"

Curnow and Hodes, 2009: "Implementing CDM Projects - A Guidebook to Host Country Legal Issues", UNEP Risoe Centre

Climate Focus, 2013: "The Handbook for Programmes of Activities"

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