download the mexico energy revolution scenario

WORLD ENERGY [R]EVOLUTION
A SUSTAINABLE ENERGY OUTLOOK
2
implementing the energy [r]evolution | FTSM SCHEME
Finance for renewable energy projects is one of the main obstacles in
developing countries. While large scale projects have fewer funding
problems, there are difficulties for small, community based projects,
even though they have a high degree of public support. The experiences
from micro credits for small hydro projects in Bangladesh, for example,
as well as wind farms in Denmark and Germany, show how both strong
local participation and acceptance can be achieved. The main reasons
for this are the economic benefits flowing to the local community and
careful project planning based on good local knowledge and
understanding. When the community identifies the project rather than
the project identifying the community, the result is generally faster
bottom-up growth of the renewables sector.
The four main elements for successful renewable energy support
schemes are therefore:
• A clear, bankable pricing system.
• Priority access to the grid with clear identification of who is
responsible for the connection, and how it is incentivised.
• Clear, simple administrative and planning permission procedures.
• Public acceptance/support.
The first is fundamentally important, but it is no good if you don’t
have the other three elements as well.
the feed-in tariff support mechanism
The basic aim of the FTSM is to facilitate the introduction of feedin
laws in developing countries by providing additional financial
resources on a scale appropriate to the circumstances of each
country. For those countries with higher levels of potential
renewable capacity, the creation of a new sectoral no-lose
mechanism generating emission reduction credits for sale to Annex
I countries, with the proceeds being used to offset part of the
additional cost of the feed-in tariff system, could be appropriate.
For others there would need to be a more directly funded approach
to paying for the additional costs to consumers of the tariff. The
ultimate objective would be to provide bankable and long term
stable support for the development of a local renewable energy
market. The tariffs would bridge the gap between conventional
power generation costs and those of renewable generation.
the key parameters for feed in tariffs under FTSM are:
• Variable tariffs for different renewable energy technologies,
depending on their costs and technology maturity, paid for 20 years.
• Payments based on actual generation in order to achieve properly
maintained projects with high performance ratios.
• Payment of the ‘additional costs’ for renewable generation based
on the German system, where the fixed tariff is paid minus the
wholesale electricity price which all generators receive.
• Payment could include an element for infrastructure costs such
as grid connection, grid re-enforcement or the development of a
smart grid. A specific regulation needs to define when the
payments for infrastructure costs are needed in order to achieve
a timely market expansion of renewable power generation.
22
A developing country which wants to take part in the FTSM would
need to establish clear regulations for the following:
• Guaranteed access to the electricity grid for renewable
electricity projects.
• Establishment of a feed-in law based on successful examples.
• Transparent access to all data needed to establish the feed-in
tariff, including full records of generated electricity.
• Clear planning and licensing procedures.
The average additional costs for introducing the FTSM between
2010 and 2020 under the Energy [R]evolution scenario are
estimated to be between 5 and 3 cents/kWh and 5 and 2 cents/kWh
under the advanced version. The cost per tonne of CO2 avoided would
therefore be around $25.
The design of the FTSM would need to ensure that there were
stable flows of funds to renewable energy suppliers. There may
therefore need to be a buffer between fluctuating CO2 emission
prices and stable long term feed-in tariffs. This would be possible
through the proposed Greenhouse Development Rights scheme,
which would create a stable income for non-OECD countries (see
Chapter 2.3, Table 2.7 and 2.8). The FTSM will need to secure
payment of the required feed-in tariffs over the whole lifetime
(about 20 years) of each project.
In order to be eligible, all renewable energy projects must have a clear
set of environmental criteria which are part of the national licensing
procedure in the country where the project will generate electricity.
Those criteria will have to meet a minimum environmental standard
defined by an independent monitoring group. If there are already
acceptable criteria developed these should be adopted rather than
reinventing the wheel. The members of the monitoring group would
include NGOs, energy and finance experts as well as members of the
governments involved. Funding will not be made available for
speculative investments, only as soft loans for FTSM projects.
The FTSM would also seek to create the conditions for private
sector actors, such as local banks and energy service companies,
to gain experience in technology development, project development,
project financing and operation and maintenance in order to
develop track records which would help reduce barriers to further
renewable energy development.
the key parameters for the FTSM fund will be:
• The mechanism will guarantee payment of the feed-in tariffs over
a period of 20 years as long as the project is operated properly.
• The mechanism will receive annual income from emissions
trading or from direct funding.
• The mechanism will pay feed-in tariffs annually only on the basis
of generated electricity.
• Every FTSM project must have a professional maintenance
company to ensure high availability.
• The grid operator must do its own monitoring and send generation
data to the FTSM fund. Data from the project managers and grid
operators will be compared regularly to check consistency.