1. C ARBON P ARTNERSHIP F ACILITY 1 A PRIL 2014 S ELLER P ARTICIPANT T RAINING K EY C OMMERCIAL A SPECTS OF SUB -ERPA S

2. C ARBON P ARTNERSHIP F ACILITY Outline A.Contracting structure B.Experience in delivery C.Managing under-delivery D.Risk categories E.Possible solutions

3. C ARBON P ARTNERSHIP F ACILITY Contracting structure 3 CPF CPA C/ME CPA Other Buyers $ $ $ CERs ERPAs Sub-ERPAs

4. C ARBON P ARTNERSHIP F ACILITY Projects often under-deliver – Technical difficulties – Implementation delays – Monitoring capacity – Regulatory delays Under-delivery is detrimental to everyone: – Inefficient allocation of capital for buyers – Unpredictable/smaller revenue stream for sellers Delivery highly dependent on – Sectors (waste management ≠ hydropower ≠ HFCs) – Capacity of project entities (big, small, private, public) Downstream amendment of contracts to match volume and value is costly and time consuming Experience in delivery so far 4

5. C ARBON P ARTNERSHIP F ACILITY The challenge: allow enough flexibility for sellers to deliver, and enough certainty for buyers to receive assets. Potential issues: – Identify and develop enough CPAs to be included under the PoA in a given period of time Replacement/additional CPAs? – Manage under-/over-delivery of individual CPAs vis-à-vis the entire PoA? – Other lessons as we go along How to address default/liability issues? – Who should bear the risk? CMEs (public/private) CPAs (public/private) Buyers – How should the risk distribution be reflected in the price? – What remedies should be available? Managing under-delivery 5

6. C ARBON P ARTNERSHIP F ACILITY Market risk – Price fluctuations – Post-2012 framework – LIABILITY for delivery Financial risk – Buyers’ and sellers’ viability – CPA implementers’ viability Technology and implementation risk – Sector – CPA implementers’ technical capacity and experience Regulatory risk – CDM additionality risk – Methodology changes – Methodology, monitoring and verification risk Policy risks – Social and environmental quality risk – Host country regulatory risk Risk categories 6

7. C ARBON P ARTNERSHIP F ACILITY Flexible commercial agreements – Framework agreement between the seller and the CPF (General Conditions/Framework ERPA) – CPA Sub-ERPAs for each new CPA or batch of CPAs – No two projects are the same  contractual agreements need to be “tailor-made” Realistic assessments – Minimum annual delivery target according to CPA probability (certain, probable, risky) – Maximum contract value/volume – Seniority and sweep clauses to accelerate delivery and to facilitate negotiations of contracts with junior buyers for additional CERs – Put and/or call options – “Fungibility” of CERs from different CPAs Potential solutions 7

8. C ARBON P ARTNERSHIP F ACILITY Option 1 - Regular annual delivery 8 Max volume or value reached on year 9

9. C ARBON P ARTNERSHIP F ACILITY Option 2 - Front loading delivery 9

10. C ARBON P ARTNERSHIP F ACILITY Option 1: Regular delivery – Possibility to use call or put options, or to sell or auction extra CERs each year on the spot market Very low prices for the foreseeable future – Obligation to match Sub-ERPAs conditions to ERPA: Less flexibility to manage the PoA as a whole and to “benefit” from performing CPAs Option 2: Front loading – Allows better delivery management: CERs from any CPAs are swept until the maximum volume or value is reached – Easier to structure agreements with junior buyers for later delivery (if any) Pros and cons 10

11. C ARBON P ARTNERSHIP F ACILITY Brazil Morocco Vietnam Philippines Tanzania C/MEs experience