Solar Water Heating for Climate Protection: The Role for Carbon Finance Presented At: COP11 MOP 1, Montreal Canada 30 November 2005 By: Steven Kaufman Green Markets International, Inc.

Presentation Overview  Solar Water Heating & Climate Protection  Baseline Conditions in Six Countries  Market Barriers & Carbon Finance Potential  Solar Water Heating CDM Project Ideas & Example  Conclusions

Innovative Financing for Solar Water Heating Green Markets International is a non-profit organization working to boost sustainable energy for climate protection and development. As one activity, we are coordinating a project to advance financial and commercial innovations for solar water heating in Brazil and the Caribbean region. Project partners include:  Vitae Civilis Institute, Brazil  Caribbean Solar Technologies, Anguilla Project sponsors include:  Renewable Energy & Energy Efficiency Partnership  Blue Moon Fund  Oak Foundation

Innovative Financing for Solar Water Heating The initiative involves the following components:  Developing model business plans for SWH ESCO and fee-for-service operations in Brazil and the Caribbean region  Helping stakeholders to understand opportunities for carbon trading and prepare SWH CDM projects  Exploring international REC trading possibilities

Water Heating Contribution to Energy Use Water heating contributes substantially to overall energy end use in many countries and is responsible for a significant amount of greenhouse gas emissions  In China, roughly 25% of household energy consumption is for water heating  For India’s residential sector, water heating accounts for about 25% of household electricity consumption  In the Mexico City Metropolitan Area, water heating is estimated to account for about 43% of all LPG consumption  In South Africa, water heating accounts for 40% or more of domestic energy use  In the United States, water heating accounts for about 20% of energy use in households and 15% in commercial buildings

Water Heating Baseline Fuels in Six Countries Typical Fuel Source for Residential Water Heating CountryFuel for Water Heating BarbadosElectricity (from oil); Solar BrazilElectricity (from hydro, fossil fuels for peak) ChinaNatural Gas and LPG IndiaElectricity (from coal) MexicoNatural Gas and LPG South AfricaElectricity (from coal)

Comparative Carbon Emissions from Fuels FuelCarbon Emission Factors (tC/TJ) Natural gas15.3 LPG17.2 Kerosene19.6 Crude oil20.0 Coal (anthracite)26.8 Peat28.9 Solid biomass*29.9 *The Carbon Emission Factor for solid biomass assumes the biomass is harvested unsustainably and therefore is not carbon neutral. Source: IPCC Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories: Workbook (Volume 2)

Carbon Abatement from Solar Water Heating Cost & Estimated Carbon Abatement of SWH Systems in Selected Countries Country Average cost of system (US$) Liters in average system Average retail cost per liter Tons CO2 abated per 100 liters per year Tons CO2 abated per system per year Barbados$1,800300$ Brazil$840200$ China$300165$ India$350100$ Mexico$1,740285$ South Africa$845150$

Renewable Energy System Cost & Carbon Abatement Technology Application Approx. Size Approximate System cost (US$) Estimated Tons CO2 Reduced/Yr. Tons CO2 Reduced/ $1,000 PV Water Pumping, India1.4 kWp$8, PV Home Lighting, Bangladesh35 Wp$ Solar Water Heating, Barbados2.0 kWt$1, Wind Power, Jamaica20.7 MW$26,000,00052, Hydro Power, Guatemala43.0 MW$59,856,000144, Wind Power, Chile2.0 MW$2,600,0007, Solar Water Heating, India1.4 kWt$ Small Hydro, Peru1.1 MW$850,0004,

Carbon Trading Prices Carbon Market Program Approx. $/TonCO2e (Fall 2005) Clean Development Mechanism (CDM) $6 to $14 European Union Emission Trading System (EU ETS) $21 to $25 Retail and other voluntary markets $3 to $20

Potential CER Revenue from Solar Water Heating 10 year Crediting 14 Year Crediting 21 Year Crediting $5/ton CO 2 $10/ton CO 2 $5/ton CO 2 $10/ton CO 2 $5/ton CO 2 $10/ton CO 2 Barbados 9%18%12%25%19%37% Brazil 5%11%8%15%12%23% China 12%25%19%38%28%57% India 21%43%30%60%45%90% Mexico 6%12%8%17%13%25% South Africa 9%17%12%24%18%36% CER revenue as a percentage of SWH system cost over different crediting periods Estimates based on undiscounted revenue streams

Impediments to Growth of Solar Water Heating Markets  High upfront cost vs. conventional water heaters  Lack of available financing options  Low awareness about lifecycle financial benefits  Quality control problems in some markets

Carbon Finance Benefits for Project Developers Emission reduction sales can help to overcome financial and other barriers by:  Supplying an additional revenue source  Improving project economics (increasing IRR)  Enhancing project viability in other ways (e.g., emission reduction purchase commitment from creditworthy buyer can increase confidence on the part of other prospective investors)

Solar Water Heating CDM Project Ideas CDM participation and CER revenue can potentially boost solar water heating projects and markets by:  Helping to secure commercial or government-supported loans for consumers’ SWH purchases  Improving project economics and helping to leverage capital for commercial fee-for-service operations  Contributing to capital costs or supporting the implementation of public or private SWH initiatives in other ways

Potential CER Revenue: Solar Water Heating

Conclusions  Water heating accounts for a significant portion of total energy use among households, businesses and industries, in some cases 30% or more. Thus, the potential for carbon abatement from solar water heating is substantial  The carbon intensity of baseline fuels for conventional water heating varies but is considerable in many locations  Solar water heating systems are usually more cost-effective than photovoltaic applications as a greenhouse gas reduction measure and can be comparable to wind farms and hydroelectric facilities. Solar water heating is particularly competitive where system costs are comparatively low and where the carbon intensity of the baseline fuel is high  Solar water heating activities can generate substantial revenue from carbon market participation. In some locations, undiscounted revenue flows could equal 25–50% or more of system costs at $10 per ton of CO2 and 14 year crediting

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