Richard Hosier Global Environment Coordination Unit World Bank

Accelerated Phase-out of CFCs in use in India India is estimated to operate 12,500 chillers in 2005 Most chillers are old and many use CFC’s CFC’s demonstrate high Ozone Depleting Potential (ODP) and high GWP CFC-11 has ODP of 1 but a GWP of 4000 By phasing out CFC’s, there is also a decrease in GHG concentrations and reduced radiative forcing Multilateral Fund of the Montreal Protocol allocated $1m to the above task Chillers average about $170,000 MLF allocation will not go far--$80/chiller Synergy between goals/objectives and leverage are key to the puzzle

What are the benefits arising from early chiller replacement? Global Environmental Benefits: Reduction in ODP under MP/MLF (159 kg/chiller) Reduction in GWP from refrigerant (640 t CO2 e ) instantaneously from phase-out Private Financial/Economic Benefits to Chiller Owners: 30% energy efficiency gain in moving from national average to world average Per chiller, savings of 214,000 kWh/yr or ~$12,000/yr (also CO2 e benefits—0.82 kg CO2 e /kWh) Still, 30% FIRR is insufficient to convince chiller owners to replace chillers before end of useful lifetime Benefit to Electricity Sector: Reduction of load capacity of ~130 kW/chiller

India Chillers: How to phase-out 1200 chillers with $1m? MLF provides $1m grant—30 chillers Total market has 189 ODP t Given GWP, equals 378,000 t CO 2 eq GEF provides $6m—185 chillers Interested in energy savings, 4.8 TWh over 20 years Equal to 3.9 m tonnes CO 2 eq plus replication CDM-Spanish Carbon Fund (SCF) or KfW as carbon buyer Purchase CERs from project—revenues to revolving fund Flows of CER’s, 488,905 valued at $5.85 m (until 2013) Private investors---$80m to make investment complete Can Market Transformation Convert the remainder?

Year Cash FlowCash Flow (-) (+) GEF/MLF CF Using synergies between MLF, GEF and CF to condition market, enhance revenues, thereby transforming market

Objectives Stimulate accelerated replacement of CFC-based chillers to new and more energy efficient technology by overcoming well-documented techno-economic and market barriers for energy efficiency products Actors: Industrial Development Bank of India (IDBI) to serve as Financial Intermediary and CDM coordinator World Bank: provide know-how & advice; GEF and MLF Implementing Agency; facilitate SCF(KfW)-IDBI agreement; plus some advance funding for CDM methodology development (Note: No WB loan) Private sector Chiller Owners

Options facing Chiller Owners Option 1: grant subsidy of 20% of cost of new centrifugal chiller based on normative price of $400/TR multiplied by rated cooler capacity, paid once the old chiller has been properly disposed of and CFCs reclaimed Option 2: carbon credits based on certified emission reductions (CERs) generated from actual energy savings achieved by the new chillers per year from the first year of installation of new centrifugal chillers until 2013 (SCF) sold at a fixed price through WB as agent

ML Fund GEF Carbon Finance Financial Framework Area Operational/ Project Management Framework Area Technical/ Implementati on Framework Area World Bank IDBI Bank MoEF ERPA Chiller Manufacturers / Energy Service Companies Grant Agreement Project Agreement GEF Council Approval ExCom Approval Work Program DOE Chiller Owners Contract MOU Registration MM&V Agency Contract SGA / ERTA MLF GEF Carbon Finance Financial Framework Area Operational/ Project Management Framework Area Technical/ Implementati on Framework Area World Bank IDBI Bank MoEF ERPA Chiller Manufacturers / Energy Service Companies Grant Agreement Project Agreement GEF Council Approval ExCom Approval Work Program DOE Chiller Owners Contract MOU Registration MM&V Agency Contract SGA / ERTA Project Implementation Arrangements

Financial Incentive Scheme Chiller owners that choose option 1 receive grant funds from the Project, but have to surrender their carbon credits to the Project, and these credits will be used to finance replacement of new chillers; No chiller owners will receive both grant funds and CDM for replacing the same chiller This scheme is similar to a revolving fund model. Repayment is made with carbon credits, instead of cash.

Financial Options in Diagram Option 1: Up-front subsidy Option 2: CER Subsidy WB (MLF, GEF) Chiller Owner Carbon Market IDBI IDBI IDBI Carbon Project Capital Other Banks CER 20% grant <80% loan (option) CER $ value WB (MLF, GEF) IDBI Carbon Capital Other Banks Carbon Market Chiller Owner Loan (option) CER $ value

Eligibility Centrifugal chillers to be replaced must be currently in use in India; Replacement of existing CFC centrifugal chillers with cooling capacity of 100 TR and above They must have a residual technical life of more than 5 years (must have been installed after 1993*) New chiller must have an energy consumption capacity rated at not more than 0.63 kW/TR, and be non-CFC or non-HCFC chillers For the replacing units, they must be installed on the first- come-first serve basis between January 1, 2008 and December 31, 2011; Rated capacity of new chillers must be within 5% of the baseline capacity.

Revision of Original Financing Package Project Implementation delayed due to Bank processing Spanish Carbon Fund is limited beyond 2012 Only ¼ of CERs could be issued post 2012 Resulted in may loss of CER revenue—no longer $6m in CDM revenue but $2-3m WB, representing client’s interest approached KfW KfW has a longer buying term than SCF Issued ERPA up to 2018 with Contract (pre) and Option (post) CER’s Contributing $13m to stimulate replication—982,000 CERs CDM revenues can account for larger share of refrigerator market phase out

Capturing synergies can lead to Greater Impact Global Environmental Impact GEF-direct 4.6 m tCO 2 e CDM 982,000 tCO 2 e MLF95,000tCO2e GEF- indirect 8 m tCO 2 e CDM $13 million GEF $6 million MLF$1million Private Sector $80 million Leveraging enables MLF Funds to achieve greater impact and investment

Conclusion Creatively took advantage of synergies between MLF, GEF, and Carbon Finance Successfully leveraging market transformation from $1m of MLF funding to meet multiple goals CDM remains challenging What happens after 2012? How can we turn CF cash flows into actual financing? How can we build projects using GEF and other funds to leverage in greater impact?

Looking toward the future…… Potential Urban Demand for Air Conditioning