Solar Water Heating for Climate Protection:

The Role for Carbon Finance

Presented At: COP11 MOP 1, Montreal Canada

30 November 2005By: 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

Country Fuel for Water Heating

Barbados Electricity (from oil); Solar

Brazil Electricity (from hydro, fossil fuels for peak)

China Natural Gas and LPG

India Electricity (from coal)

Mexico Natural Gas and LPG

South Africa Electricity (from coal)

Comparative Carbon Emissions from Fuels

Fuel Carbon Emission Factors (tC/TJ)

Natural gas 15.3

LPG 17.2

Kerosene 19.6

Crude oil 20.0

Coal (anthracite) 26.8

Peat 28.9

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 $1,800 300 $6.00 1.07 3.2

Brazil $840 200 $4.20 0.46 0.92

China $300 165 $1.81 0.45 0.75

India $350 100 $3.50 1.5 1.5

Mexico $1,740 285 $6.16 0.75 2.11

South Africa $845 150 $5.63 0.96 1.44

Renewable Energy System Cost & Carbon Abatement

Technology ApplicationApprox.

Size

ApproximateSystem cost

(US$)

EstimatedTons CO2

Reduced/Yr.

Tons CO2Reduced/

$1,000

PV Water Pumping, India 1.4 kWp $8,400 4.72 0.56

PV Home Lighting, Bangladesh 35 Wp $400 0.46 1.15

Solar Water Heating, Barbados 2.0 kWt $1,800 3.2 1.78

Wind Power, Jamaica 20.7 MW $26,000,000 52,265 2.01

Hydro Power, Guatemala 43.0 MW $59,856,000 144,180 2.41

Wind Power, Chile 2.0 MW $2,600,000 7,200 2.8

Solar Water Heating, India 1.4 kWt $350 1.5 4.29

Small Hydro, Peru 1.1 MW $850,000 4,561 5.37

Carbon Trading Prices

Carbon Market ProgramApprox. $/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/tonCO2

$10/tonCO2

$5/tonCO2

$10/tonCO2

$5/tonCO2

$10/tonCO2

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

Number of systems: 5,000SWH system cost: $1,850Total Equipment Cost $9,250,000Grid baseline in kgCO2/kWh: 0.8MWh savings/system/year 3.1CERs/system/year 2.5CERs/project/year 12,500Annual CER Revenue $7.50 per tCO2 $93,750CER Rev. 14 Yrs. undiscounted $1,312,500CER Rev. 14 Yrs. 5% discounting $927,998

CARIBBEAN - Residential Fee-for-Service Program

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

Thank You!

Green Markets International, Inc.691 Massachusetts Ave., Suite 7

Arlington, MA 02476 USAhttp://www.green-markets.org/SWH/

Thank You!

Green Markets International, Inc.691 Massachusetts Ave., Suite 7

Arlington, MA 02476 USAhttp://www.green-markets.org/SWH/