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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.
figure 2.1: ftsm scheme developing country: Legislation: • feed-in law • guaranteed grid access • licensing FTSM roles and responsibilities (inter-) national finance institute(s) Organizing and Monitoring: • organize financial flow • monitoring • providing soft loans • guarantee the payment of the feed-in tariff image A WOMAN STUDIES SOLAR POWER SYSTEMS AT THE BAREFOOT COLLEGE. THE COLLEGE SPECIALISES IN SUSTAINABLE DEVELOPMENT AND PROVIDES A SPACE WHERE STUDENTS FROM ALL OVER THE WORLD CAN LEARN TO UTILISE RENEWABLE ENERGY. THE STUDENTS TAKE THEIR NEW SKILLS HOME AND GIVE THEIR VILLAGES CLEAN ENERGY. OECD country Legislation: • CO2 credits under CDM • tax from Cap & Trade • auctioning CO2 Certificates © GP/EMMA STONER 2 implementing the energy [r]evolution | FTSM SCHEME financing the energy [r]evolution with FTSM Based on both Energy [R]evolution Scenarios for developing (non- OECD) countries, a calculation has been done to estimate the costs and benefits of an FTSM programme using the following assumptions: power generation costs The average level of feed-in tariffs, excluding solar, has been calculated on the assumption that the majority of renewable energy sources require support payments of between 7 and 15 cents per kilowatt-hour. While wind and bio energy power generation can operate on tariffs of below 10 cents per kWh, other technologies, such as geothermal and concentrated solar power, will need slightly more. Exact tariffs should be calculated on the basis of specific market prices within each country. The feed-in tariff for solar photovoltaic projects reflects current market price projections. The average conventional power generation costs are based on new coal and gas power plants without direct or indirect subsidies. specific CO2 reduction per kWh The assumed CO2 reduction per kWh from switching to renewables is crucial for calculating the specific cost per tonne of CO2 saved. In non-OECD countries the current level of CO2 emissions for power generation averages 871 gCO2/kWh, and will reduce to 857 gCO2/kWh by 2030 (see Reference scenario Chapter 6). The average level of CO2 emissions over the period from 2010 to 2020 is therefore 864 gCO2/kWh. table 2.1: assumptions for ftsm calculations KEY PARAMETER 2010 2020 2030 AVERAGE FEED-IN TARIFF EXCL. SOLAR PV (ct/kWh) 12 11 10 AVERAGE FEED-IN TARIFF FOR SOLAR PV (ct/kWh) 20 15 10 financial parameters From the beginning of the financial crisis in mid-2008 it became clear that inflation rates and capital costs were likely to change very fast. The cost calculations in this programme do not take into account changes in interest rates, capital costs or inflation; all cost parameters are nominal based on 2009 levels. key results The FTSM programme would cover 624 TWh by 2015 and 4,960 TWh by 2030 of new renewable electricity generation and save 77.6 GtCO2 between 2010 and 2030. This works out at 3.8 GtCO2 per year under the basic Energy [R]evolution scenario and 82 GtCO2 or 4.1 GtCO2 per year under the advanced version. With an average CO2 price of $23.1 per tonne, the total programme would cost $1.62 trillion. This works out at $76.3 billion annually under the basic version and $1.29 trillion or $61.4 billion annually under the advanced scenario. Under the GDR scheme, this would mean that the EU-27 countries would need to cover 22.4% ($ billion 289) of these costs, or $14.4 annually. The costs for the USA would amount to $24.9 billion each year. India, on the other hand, would receive $13 billion per year between 2010 and 2030 to finance the domestic uptake of renewable power generation. The FTSM will bridge the gap between now and 2030, when electricity generation costs for all renewable energy technologies are projected to be lower than conventional coal and gas power plants. However, this case study has calculated even lower generation costs for conventional power generation than we have assumed in our price projections for the Energy [R]evolution scenario (see Chapter 5, page 52, Table 5.3.). This is because we have excluded CO2 emission costs. If these are taken into account coal power plants would have generation costs of 10.8 $cents/kWh by 2020 and 12.5 cents/kWh by 2030, as against the FTSM assumption of 10 cents/kWh over the same timescale. However, the advanced Energy [R]evolution case takes those higher costs into 23
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