1. Investing in CDM and PoAs in LDCs Experiences of KfW
Matthias Börner
KfW Carbon Fund
EU Practitioners Workshop on Climate Change
Paris, 24th March 2011

2. Topics Why PoAs in LDCs? CDM Experiences in LDC Countries
Experiences in the Design and Implementation of PoAs
Design of PoAs
Implementation of PoAs
Specific CDM / regulatory issues
Conclusions

3. 1. Why PoA’s in LDC’s? Reminder: Intention of CDM Programmes (PoA)
EXAMP L ES
Small Hydro
Mini-Hydro
Cook-stove
SWH
CFLs
CH4: Animal waste / WW / landfill
Figures / ESMAP 2007

4. 1. Why PoA’s in LDCs? Situation in LDCs
Only few stand alone CDM project types possible in LDCs
Project sizes tend to be (very) small
Bigger opportunity for programmatic intervention
Typical PoA types suitable for LDCs
e.g. cook stoves, solar home systems, solar lanterns, household biogas digesters etc.
CDM can support sustainable development
In combination with or as a substitute for ODA support
CERs generated in LDCs shall be eligible under EU ETS 3

5. 2. CDM Experiences in LDCs
Up to now very few registered CDM projects in LDC’s
Reasons:
Small potential
Low CDM capacity / knowledge of Implementing Agencies
Lack of experience at national (DNA) level leads to long processes
Few project developers / CDM consulatants are based in LDC’s
Less competition, higher prices, lower quality
Financing of projects is a challenge
Implementation takes longer than in other countries
But:
Situation is improving
Development Impact of CDM is generally bigger than in other countries

6. 3. Experiences in the Design and Implementation of PoAs KfW Programmes
Carbon Programmes
KfW Carbon Fund (1st Tranche) - Vol.: EUR 84 million, closed
EIB-KfW Carbon Programme I - Vol.: EUR 88 million, closed
Belgian Carbon Purchase Programme - Vol.: EUR 20 million
Post-2012 Carbon Credit Fund - Vol.: EUR 125 million, (jointly with EIB, CDC, ICO NIB; external fund manager)
EIB-KfW Carbon Programme II - Vol. EUR 100 million - Purchase up to Focus on PoA and LDCs
POA Facility
Since Oct on behalf of BMU
Disseminate PoA-expertise
Develop PoA proposals in partnership with implementing entities
Advise on implementation
Grants for PIN and PDD development
© KfW • KfW Carbon Fund

7. PoA Pipeline Start of 2011 (34 projects)
3. Experiences in the Design and Implementation of PoAs PoA Pipeline of KfW
PoA Pipeline Start of 2011 (34 projects)
Sector
Region
Operator (CE)
Energy Efficiency in Buildings
Poland, Estonia,
Israel
Banks + Public Supply Company
Energy Efficiency in
SMEs
Poland, India
Banks
Household Stoves
Biogas
Nepal , Nigeria, Mexico China, India
NGO, Banks
Public Institutions
Renewable Energy
(Solar Water Heater /
Mini Hydro)
South Africa, Central America, Philippines, Nepal Vietnam, East Africa
Private companies
Beispiele:
Energetic building rehabilitation – East 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.
Residential Solar Water Heating – Africa:
2 CERs/unit, investment costs 1,000 EUR/unit;
Grants, carbon impact 10%, monitoring through sampling.
Domestic Biogas – South Asia:
2.5 CERs/unit/p.a., investment costs 180 EUR/unit;
Grants + payment on delivery (maintenance), 140% carbon impact .
Weitere Informationen zur Pipeline:
9 kurz vor Validierung
Rest im PIN Stadium
Erfahrung:
Sehr grosses Interesse an PoAs, insbesondere in Ländern und von Akteueren, die bisher kein Zugang zum Carbon Markt hatten
© KfW • KfW Carbon Fund 7 7

8. 3. Experiences in the Design and Implementation of PoAs a) Design of PoAs
Main elements:
Coordinating and Managing Entity
Incentive Structure
CDM Aspects

9. 3. Experiences in the Design and Implementation of PoAs a) Design of PoAs
Roles and Responsibilities of Coordinating and Managing Entity
CDM Development of PoA (e.g. development of CDM documents, validation and registration of PoA, etc.)
Regular Monitoring of ER in accordance with CDM methodology
Communication with UNFCCC
Technical Implementation of PoA (e.g. selection of technology, appointment of suppliers, awareness / marketing campaigns, necessary approvals etc.)
Supervision and maybe support in operation
Management of Cash Flows
Financing Concept
Experiences:
Most CMEs do not have the capacity to fulfill all these tasks and need support
Some tasks can be outsourced to experts (e.g. consultants)
Careful assessment of CME and evaluation of strengths and weaknesses is necessary

10. 3. Experiences in the Design and Implementation of PoAs b) Design of Incentive Structure
Program Participants (e.g. households, SMEs, etc.) need to be incentivized to participate in PoA
Possible Incentive Structures:
CDM revenues subsidize interest on loans ( seed funding needed)
Investment Costs are subsidized by CDM revenues ( seed funding needed)
Maintenance contracts or guarantees are financed by CDM revenues
Payment on Delivery
Experiences:
Ideal incentive structure needs to be identified for each individual PoA
However, “ideal” incentive structure may be too complicated and risky
Balance between complexity and incentive power needs to be found

11. 3. Experiences in the Design and Implementation of PoAs c) CDM Aspects
CDM requirements need to be assessed
Important CDM aspects:
Is methodology available and suitable for PoA type?
Complexity of Baseline establishment
Can monitoring requirements be implemented in a PoA?
Is Carbon Impact big enough to finance PoA specific costs (CME administration etc.) and incentive scheme?
Validation issues (e.g. liability, complexity of validation etc.)
Experiences:
Baselines and Monitoring requirements often very complex in PoAs
PoAs should be simplified as much as possible, even if this leads to smaller CER volumes (e.g. some methodology allow simplified monitoring systems based on default values)
Carbon Impact at current CER-prices often hardly sufficient (depending on PoA type)
Validation is expensive, challenging and often needs to be supported

12. 3. Experiences in the Design and Implementation of PoAs Example of two extremes
CDM revenue is main revenue of the programme:
CDM revenues form only small part of programme revenues
e.g. Energy Efficiency / RE Programmes in SMEs
Short repayment period of investments through energy savings
Incentive: Payment on Delivery
Additionality: Mainly Barriers
Risk for financing of investment measures similar to normal project financing risk
Financing Options:
Commercial financing for Investments
Seed Funding may be needed
Additional Subsidy (e.g. Development Financing) may be needed if incentive through CDM revenues is not sufficient
e.g. CFL Programmes
Additionality: Mainly Financial
Programme requires external funding
Incentive: Subsidy of CFL costs
Repayment depends (mainly) on delivery and sale of CERs
High risk for financing institution due to:
Possible CER delivery shortfalls
Future CER-price is unknown
Risks are sometimes taken by private investors
Financing:
Private Investors
Development Aid if private / commercial funding is not possible
© KfW • Thema der Präsentation • Ort • Datum 12 12

13. 3. Experiences in the Design and Implementation of PoAs Example of PoA structure

14. 4. Conclusions CDM Projects in LDCs are challenging.
CDM PoAs are very challenging.
What about CDM PoAs in LDCs???
Recommendations:
PoAs need to be carefully identified, designed and structured
Generally strong support is needed at all levels
Know how for organization and implementation of projects in developing countries is needed
Financing possibilities often needed
Opportunities for Development Organizations:
Expertise of such organizations is often needed
Additional funds for development programs can be raised through CDM
PoAs are a stepstone on the way to NAMAs and Sectoral Appraoches, Experiences can be gained

15. Thank you for your attention!
Matthias Börner
Principal Manager
KfW Carbon Fund KfW Bankengruppe Palmengartenstraße 5-9 D Frankfurt Tel.: