1. Views on POAs Martin Schröder SEVENTH CDM JOINT COORDINATION WORKSHOP 12 th March 2011

2. 2 KfW Carbon Programmes & POA facility © KfW KfW Carbon Fund Carbon Programmes 1. KfW Carbon Fund (1 st Tranche) - Vol.: EUR 84 million, closed 2. EIB-KfW Carbon Programme I - Vol.: EUR 88 million, closed 3. Belgian Carbon Purchase Programme - Vol.: EUR 20 million 4. Post-2012 Carbon Credit Fund - Vol.: EUR 125 million, (jointly with EIB, CDC, ICO NIB; external fund manager) 5. EIB-KfW Carbon Programme II - Vol. EUR 100 million - Purchase up to 2020 - Focus on PoA and LDCs POA Facility Since Oct. 2008 on behalf of BMU Disseminate PoA-expertise Develop PoA proposals in partnership with implementing entities Advise on implementation Grants for PIN and PDD development

3. 333 KfW Carbon Fund PoA Pipeline - PoA Support Center PoA Pipeline Start of 2011 (34 projects) SectorRegionOperator (CE) Energy Efficiency in Buildings Poland, Estonia, Israel Banks + Public Supply Company Energy Efficiency in SMEs Poland, IndiaBanks Household Stoves Biogas Nigeria, Mexico China, India NGO, Banks Public Institutions Renewable Energy (Solar Water Heater / Mini Hydro) South Africa, Central America, Philippines, Nepal Vietnam, East Africa Banks Private companies © KfW KfW Carbon Fund

4. 4 A reminder: the original intent of POAs Figures / ESMAP 2007 Cook- stove CFLs SWH Mini- Hydro Small Hydro EXAMPLESEXAMPLES CH4: Animal waste / WW / landfill

5. 5 Content 1. Experiences in the application of PoAs 2. Thoughts on possible innovations 3. Views on standards and rules

6. 6 PoA experience – key lessons The incentive structures needed are sophisticated Project ownership and strong management on the ground are essential The regulatory side still bears open issues

7. 7 POAs & incentives: Typical approaches: Improvement of loan conditions Offering price discounts/subsidies for climate friendly products Funding of demand side management programmes

8. 888 Example: South African SWH Programme - Project Structure KfW Carbon Fund Coordinating Entity Donor of additional subsidies Trustee of funds Manufacturers / Installers Association for Registration Households Local Bank Applying for Registration Registration UNFCCC ERPA Purchase, sale and installation of systems Payment of additional subsidies Debt financing Transfer of CERs rights Issuance of CERs Project Participant CER revenues (partly): Payment on Delivery or Upfront payment Administration Fee (Upfront)-Payment for CERs Subsidies Insurance insurance policy

9. 9 POA experience – hurdles & measures HurdlesPotential measures in design & implementation Financial / Incentives - Making POAs an attractive offer to partners / end user - Profound demand check for POA service/product - Clear / innovative incentive structure - Long term acquisition / managt team Legal / Institutional - Achieving robust contractual set up & manage DOE / DNA relations - Define i.e. demand fitting agreements between user / plant owner and CME - DOE: Be prepared to discuss liabilities - DNA: Be prepared to discuss consistency of POA / CPAs with emerging policy Regulatory- Dealing with moving target pCDM (i.e. methodologies, additionality) - Identify / limit to clear project case, i.e. not over-loading eligibility (trade-offs) - Compensate for lower track record in POA with even more regulatory intelligence (+ meth. development) - Bearing monitoring in mind at all stages

10. 10 Coordinating / Managing Entity (CME) Early lesson on CMEs: Smaller CMEs overestimate capacity – partly first time CDM movers. Ownership partly more on consulting side than on (plant) operator side. Much focus on validation – but what (also) counts is getting ready for implementation & monitoring & issuance. Conclusions: 1. CME needs to analyze strengths and stay in its core business. 2. Remaining needs can be covered by strong partners (i.e. CDM consultant and monitoring experts). Avoid private knowledge. 2. Develop a robust business model and an institutional structure. 3. Working on PoAs requires patience / thus be prepared to be patient.

11. 11 Content Experiences in the application of PoAs Thoughts on possible innovations Views on revised standards and rules

12. 12 Possible innovations I POAs - the stepping stone towards NAMAS In future embedding to national action may be more important Standardized baselines are crucial also for wider approaches Linkages to post 2012 setup currently undefined Source: A concept for the development of NAMA on the basis of scaled-up programmatic CDM activities (Draft, KfW / Southpole)

13. 13 Possible innovations II Further options of improvement (besides rules & regulations) Facilitating upfront payments / absorbing risks – beyond coverage of transaction costs in a loan scheme. Gathering best practice on incentives schemes – including contractual side. Facilitating specific exchange on POAs with regulatory bodies (i.e. POA contact point)

14. 14 Views on revised standards and rules IssueStatus & views DOE liability COP/MOP gave EB the mandate to decide Discussions broadened from DOE liabilities in POA to general liability Current DOE practice seems, i.e. actually auditing all CPAs / forwarding liabilities to CME Options: Limiting DOE liabilities DOEs, reduced obligations to replace CER, other coverage of replacement risk JI approach / switch to CME liabilities Key challenge: unsolved regulatory issues result in an over-average risk for POAs in the rush towards registration prior to 2012.

15. 15 Views on revised standards and rules IssueStatus & views Methodology development / simplification More top down methodologies, partly not approved Option to introduce standardized baselines Issue of timelines / capacities The POA tailored / new methodologies do not dispose of track record (i.e. clarifications) Options: Even higher priority on top down meths & defaults Fast track for clarifications on POAs Addtionality for POA Unclear applicability RE additionality guidance (positive list), public call for input ongoing. Options: Introduction of specific POA positive list / Reviving baseline penetration rates

16. Thank you for your attention! For further information: martin.schroeder@kfw.demartin.schroeder@kfw.de www.kfw.de/carbonfund