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The Testing Ground Facility: a Progress Report
At the so-called Baltic Sea Region Energy Co-operation (BASREC) Ministerial Meeting in Lithuania in November 2002, the participating countries decided to establish a ‘testing ground’ for JI in the Baltic Sea Region (BSR). Although initially initiated by the five Nordic countries – Denmark, Finland, Iceland, Norway and Sweden – Germany joined in recently with a contribution of €5 million. Now, the fund is entering a new phase by inviting private investors and simultaneously stepping up activities to further develop its project portfolio.
In September 2003, the Testing Ground Agreement was concluded between governments in the Baltic Sea Region establishing a regional Testing Ground for Joint Implementation projects with the dual aim of stimulating an early follow-up of the Kyoto Protocol and to help the countries of the BSR to position themselves favourably in respect of fulfilling their own commitments under the Kyoto Protocol. More concrete, the facility – administered by the Nordic Environment Finance Corporation (NEFCO) - purchases AAUs and ERUs in the BSR on behalf of German and Nordic governments.
Objectives and target countries
The TGF invests in projects with a potential for delivering cost-effective ERUs (according to KP Art. 6) and AAUs (according to KP Art. 17) for the account of the investors, thereby helping to further clarify central issues of the JI project mechanism, develop the procedures and promote common understanding in the countries of the BSR.
Priority is given to projects located in host countries in the Testing Ground area, currently Poland, Lithuania, Latvia, Estonia and Russia. Moreover, project ideas are also being considered from Ukraine. Currently, the bulk of the portfolio is in Russia, reflecting the unparalleled technical potential for JI in that country.
Financial Resources
Capital raised up to now totals €15 million and is targeted at double that amount. Currently, NEFCO is seeking to involve private sector companies in the BSR to allow for such an increase. ERUs acquired by the TGF can be used in the EU ETS for compliance purposes, and according to programme manager Mr. Ash Sharma, the Facility is attracting quite some attention as allowance prices have been quite high.
Purchasing through the TGF reduces project risks through diversification as well as lowering compliance costs. Initial discussions have already been held with major utilities, and the full capital raising exercise will commence in October/ November 2005.
Project elegibility
The TGF invests in projects owned and operated by private enterprises, public utility companies, public private partnerships (PPPs) and municipal, regional or governmental authorities. Energy related projects are given priority with a focus on renewables, fuel switching, energy efficiency and energy conservation.
However, also other sectors such as waste (e.g. waste to energy, capturing of methane from landfills) and projects related to reduction of other GHGs (such as nitrous oxide) are eligible for financing.
Project Pipeline
Already two projects are at the draft ERPA stage, both involving renewable energy investments in the Baltic States (one biogas and one wind power). Other projects at mature stages of contracting include:
Russian Federation – district heating rehabilitation, methane capture and energy from municipal wastewater treatment, power plant energy efficiency improvement, and industrial fuel switching at paper and pulp mills.
Lithuania – landfill gas capture and utilisation, biogas from animal waste.
Moreover, one project from Latvia and three Ukrainian projects are included, and six new projects were presented to the Investment Committee recently.
Mr. Sharma: The TGF has little credible project ideas in Poland and Latvia, but we are working on this. In terms of size, almost all the projects are in the small to medium sized category (150,000-300,000 tCO2-eq.). The current qualified pipeline is over 5 million tCO2-eq.
JIQ: The TGF has been around for some time, what has been happening?
Mr Sharma: True, the Facility has been talked about for a long time but actually began life in December 2003, when the first tranche of capital closed. Much of 2004 was spent on preparatory work such as drafting contract documents, identifying projects and developing a project pipeline. Our main priorities are now to close the current projects, and grow the pipeline for 2006. There have also been delays due to a lack of institutional preparedness in our key markets.
JIQ: Can you be more specific regarding institutional constraints that have to be dealt with?
Mr Sharma: There has been no formal means of securing letters of approval (LoA) in Russia, but recent discussions in Moscow indicate that a Government ordinance or decree is imminent. This would pave the way for an LoA. We thus believe that these constraints will be resolved soon, so that the Russian JI potential can be tapped to the benefit of the various stakeholders.
JIQ: As the current qualified pipeline is already quite elaborate, what kind of (sustainability) criteria does the TGF use to choose among projects submitted?
Mr Sharma: The TGF applies various environmental and social criteria, including an emphasis on projects with cross media impacts, e.g. local pollution, and projects which improve public amenity such as district heating rehabilitation.
JIQ: TGF started off with a mandate to help develop the JI mechanism in the region. Is this still valid?
Mr Sharma: Yes, for example, TGF is attempting to promote ‘small scale JI’ investments (less than 250,000 tCO2-eq. during 2008-2012, which is proposed as a threshold by some buyers) in the Baltic countries where the market potential for larger projects is limited. It does so by decreasing transaction costs, using local capacity and replicating project designs, for instance, with a planned series of animal waste derived biogas projects (the first in Estonia has terms agreed).
For further information, please contact:
Mr Ash Sharma
Programme Manager
TGF, PO Box 249
FIN-00171 Helsinki, Finland
tel.: + 358 400 811 327
e-mail: ash.sharma@nefco.fi
Internet site: www.nefco.org/tgf
Interviews in JIQ Issue July 2005
Ms Tine Heyse on the first Belgian JI/CDM Tender Programme
Interviews in JIQ Issue April 2005
Mr Nikolaus Müllebner on the Austrian JI/CDM Tender Programme
Interviews in JIQ Issue October 2004
Ms Ulla Blatt Bendtsen on the Danish - Russian cooperation
Mr Sünnen on the KfW Carbon Facility
Interviews in previous JIQ Issues
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