Paper Three: Financing the Development Dividend South African Case Studies The Kuyasa Housing Energy Upgrade and Bellville Landfill Projects

Kuyasa: Low cost Housing Energy Upgrade CDM Retrofit 2309 low-cost RDP houses in Kuyasa, Khayelitsha with: ceiling insulation, solar water heaters and Compact Fluorescent Lights You have recently visited the 10 pilot houses of the Kuyasa project, so there is no need to dwell on this. Apart from highlighting: its suitability as a ‘quick win’ in the City’s energy strategy, its synergy with the City’s recently adopted Renewables and SWH targets, its potential as a demonstration project when the City hosts the ICLEI conference, and the status it has already gained internationally as a pioneering project in housing, sustainable energy and CDM.

Development Dividend Alleviates energy poverty Saves R600/hh/annum in energy costs Creates over 100 person years employment Improves health conditions for occupants Improves local air quality Contributes towards meeting renewable energy targets Example of sustainable energy in Western Cape Reduces peak energy demand Benchmark for replication throughout SA

Kuyasa Design Designed for replication (modular basis, per technology and per household) 1.5m existing low income houses in SA Huge housing backlog – greenfield housing SSN to develop a programmatic CDM project as part of its second funding phase

Financing Kuyasa Total Cost R28m Outflows: Upfront Project cost: R28m (Based on 10 year cash flow) Total Cost R28m Outflows: Upfront Project cost: R28m Ongoing Maintenance Costs R1.14m (NPV over 10 years at 12%) Community Carbon Income Current Anticipated Inflows: Carbon Income R5 m price of carbon is €15) Community repayment scheme R2.4m? (R20/hh/month, NPV over 5 years) Grant funding The Barrier to the implementation of Kuyasa is financial. The total cost of the project is R13.4m. There are no commercial returns. The details of the financial flows are set out. Some inflows have already been identified to help cover these costs. They include: Carbon income at 24% Kuyasa has been shortlisted for DEAT Poverty Alleviation funding of 22% There has to be some form of ownership over the interventions by the community. Through social studies and in consultation with the pilot houses an amount of R30 per month has been established as a reasonable contribution by the community. This leaves a shortfall of R5.2 million. Our investigations to date have identified a number of potential grant funding sources – but the overall available finance through these schemes is limited. The DBSA has indicated a willingness to grant a loan to the City on a programmatic basis. The City would need to underwrite this loan, or secure collateral. Cross-subsidisation of this project through the Bellville landfill’s carbon income could amply repay this loan. But lets put Kuyasa aside for a minute and take a look at the second CDM project: Bellville landfill.

The financial challenge… To finance Kuyasa, and programmatic Kuyasa in a sustainable manner. Now the objective of a REEEP project Key issues: no revenue, this is a public sector project Need to link to current government priorities and funding lines Premium CDM revenues = 20% of costs Economies of scale, CER price increases Transaction costs > CDM benefits

Bellville South Landfill Project Cape Town City Council landfill site, situated in Bellville South in Cape Town The landfill is currently operational, due to close in 2006 but with an outstanding application to remain open until 2009. City’s obligation to cap and passively extract the gas on closure. R30million

Bellville: Proposed CDM Project 2 Project Activities (Small Scale Methodologies used) Capping and Active Extraction of LFG Sale of LFG to adjacent Sacks Circle Industrial Area to replace LSO use Development Dividend Rehabilitation of landfill Provides funds to manage landfill reducing danger and discomfort to community 20 Jobs created Renewable energy source Reduces air pollution of industrial estate SSN, in conjunction with City, has developed CDM project There are two distinct project activities. Avoiding percolation of methane to atmosphere and avoiding emissions from using LSO as a fuel. The project uses small scale methodologies There are a number of benefits to the project – in box on right A summary of the project financials is shown. These figures have not been discounted. The project is clearly additional due to the private sector hurdle rate for investment in this project. Whilst the City is the project owner, it is anticipated that it will outsource the operation of the project on a concessionary basis, retaining some portion of the CER revenues and responsibility for marketing and selling these. SSN is currently marketing this project to potential purchasers on behalf of the CIty. The project has a complete PDD, and can be validated as soon as the operator is identified.

Financing plan City to put capping, project out to tender Implementer to undertake EIA, project activities and CDM activities Royalty from gas concession and CERs back to City (high IRR, CERs = 50% of project revenues) City to operate community fund, and CDM fund for other projects Landfills are ‘CDM goldmines’

Project Risks Issue of closure Implementer not interested in capping Gas contract still to be negotiated Poor relationship with community EIA required (timing, who) Kyoto ‘window’ closing City Waste Management in crisis Issues around IPP and electricity price Effect of drought on LFG levels

Current Status Project at standstill for over a year Confusion and delay in decision making results in project being unviable without capping Lack of capacity of municipality to deal with CDM from transactional perspective