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Meeting energy needs through the Kyoto Protocol

Smaller energy projects are often well suited to developing countries but find it difficult to attract funding. The Kyoto Protocol, which sets targets for industrialised countries to reduce greenhouse gas (GHG) emissions, has established the Clean Development Mechanism (CDM) to help fund such projects.

CDM initiatives allow developed countries to fund projects that reduce GHG emissions in developing countries. These projects produce a reduction in GHG emissions that gain a certified value, which are sold in ‘carbon markets’. Larger GHG emitters can buy ‘carbon credits’ to offset their own emissions. Research from IT Power, UK and India, and the Energy Research Centre in the Netherlands, examines how the CDM process can benefit developing countries.

The majority of CDM investments have so far been in large-scale projects. Small-scale initiatives have been overlooked. A significant reason for this is that small-scale energy projects struggle to meet the considerable costs for entering the CDM process. One approach to reduce costs is to group together several small-scale projects into a larger one. This process is called ‘bundling’.

Bundles allow small-scale producers to participate without the need to become fully aware of all CDM processes. Instead, experts in CDM management from larger organisations act as coordinators. The research provides a comparison of three projects in different energy sector areas - solar energy, biomass production and energy efficiency. This comparison suggests:

Energy efficiency projects and biomass production – such as the recycling of wood, dung and crop waste – are viable for the CDM.
Solar energy projects are currently less viable due to low carbon credit generation per system. However, these may become more suitable as CDM credit prices rise.
Transaction costs are highest for energy efficiency, followed by solar and biomass projects. However the impact of transaction costs on the viability of the CDM projects is highest for solar projects.
Bundles can reduce costs significantly by using the same technology and baselines for measurements.
Bundles that involve projects developed by a single organisation have simpler contracts, with lower legal and organisational costs.
Bundles with a large number of project developers will be more complex, as each requires separate financing and credit agreements. The whole organisational task is also more complex to implement, particularly monitoring the projects.

Bundling projects together can create funds for small-scale energy projects where finance is lacking. To develop and successfully implement small-scale CDM project bundles, the research recommends:

Projects should be bundled at the earliest opportunity and with projects at similar stages, with the number of projects in each made as large as possible.
Projects should be assessed for eligibility before development begins and limited to those with common baselines and monitoring plans.
Marketing plans should be developed to raise awareness of opportunities in trade associations and other national, regional and local forums.
Methods to reduce or share risks must be developed through monitoring and verification, phased implementation, risk management and mitigation tools.
Effective national and regional authorities must be formed to support small-scale project developers and intermediaries.
Knowledge transfer for financial intermediaries and bundling organisations will support good governance.

Source(s):
‘A Guide to Bundling Small-scale CDM Projects’, IT Power, by Jay Mariyappan, Nishant Bhardwaj, Heleen de Coninck and Nico van der Linden, 2005 Full document.

Funded by: European Commission

id21 Research Highlight: 24 March 2006

Further Information:
John Green
IT Power
16-18 Whiteladies Road
Bristol, B88 2LG
UK

Tel: +44 (0)117 980 9441
Fax: +44 (0)125 639 2701
Contact the contributor: john.green@itpower.co.uk

IT Power, UK

Energy Research Centre, Netherlands

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