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Supporting NAMA development in Chile

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This presentation informs on work carried out for the Chilean government regarding a proposal for a NAMA (Nationally Appropriate Mitigation Action) in “self-supply energy systems based on …

This presentation informs on work carried out for the Chilean government regarding a proposal for a NAMA (Nationally Appropriate Mitigation Action) in “self-supply energy systems based on non-conventional renewable energy” in Chile. The proposal was developed in cooperation with Fundación Chile and financed by the International Climate Initiative of the German government through the Mitigation Momentum project (www.mitigationmomentum.org). The development of the proposal was undertaken in a consultative process involving key governmental, private sector and civil society stakeholders. Frauke Röser, Managing Consultant International Climate Policies at Ecofys, gave the presentation during a webinar in February 2014.

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  • 1. Supporting NAMA development in Chile Ecofys webinar 20/02/2014 Frauke Roeser
  • 2. Outline Introduction to NAMAs Case Study – Chile Self-supply Renewable Energy Q&A 2 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 3. Backdrop 3 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 4. The evolution of NAMAs in the climate negotiations > Paragraph 1 (b) (ii) of the Bali Action Plan of 2007: > “ […] Nationally appropriate mitigation actions by developing country Parties in the context of sustainable development, supported and enabled by technology, financing and capacity building, in a measurable, reportable and verifiable manner.” COP 13 Bali • Bali Action Plan first mentions NAMAs 4 COP 15 Copenhagen • NAMA submissions by countries • „NAMAs to be subject to MRV“ © ECOFYS | 20/02/2014 | Frauke Roeser COP 16 Cancun • NAMA Registry agreed • „NAMAs aim at achieving deviation from business as usual“ COP 17 Durban • Guidelines for Biennial Update Reporting (including NAMAs) COP 19 Warsaw • NAMA Registry operational
  • 5. Key aspects of a NAMA A NAMA is a voluntary intervention by a developing country government: > Which is in line with national and/or local development priorities > Which receives support from domestic and/or international sources > Which has effect on reducing GHG emissions either directly or indirectly > Which is measurable, reportable and verifiable ("MRVable") to ensure transparency of the NAMA outcomes 5 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 6. NAMA Types > NAMAs can be: – Strategies (e.g. renewable strategy – wind, solar, tidal) – Policies and Programmes (e.g. energy efficiency standard, Feed-in tariff, energy efficient lighting programme) – Projects (e.g. Bus Rapid Transit lane) 6 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 7. Differences of NAMAs to CDM Element NAMA National Strategy Policy Programme Project CDM* Type of activity - Funds flow To government To project developer Carbon credits No Yes Sustainable development benefits Very important Prerogative of host (‘nationally appropriate’) country *Clean Development Mechanism 7 © ECOFYS | 20/02/2014 | Frauke Roeser - Individual Project - Aggregation of projects
  • 8. Global NAMA action > 87 NAMAs and 37 feasibility studies in 35 countries in the NAMA database > Tracking of global NAMA activity Source: www.nama-database.org 8 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 9. State of play of NAMAs > 40 submissions to the UNFCCC Registry: 36 supported; 4 unilateral > NAMA Database contains 87 NAMAs and 37 studies from 35 countries Not known 6 Submitted to registry Not submitted to registry Implementation 3 Proposal/ Planning 10 Concept 0 10 Source: www.nama-database.org 9 68 34 © ECOFYS | 20/02/2014 | Frauke Roeser 20 30 40 50 60 70 80 Number of NAMAs
  • 10. Regional distribution of NAMAs NAMA > Latin America most active region Europe, 11% Middle East and Africa, 26% – Followed by Africa – Europe: Serbia submitted 12 NAMAs Latin America, 50% Asia, 13% > Broader regional spread than CDM – Africa and Least Developed countries notably larger share CDM Latin America Econo13% mies in Africa 2% > Possible reasons – NAMA emphasize sustainable transition 1% development Asia Pacific 84% Source: http://cdm.unfccc.int/Statistics/Public/CDMinsights/index.html, accessed 15/01/2014 10 © ECOFYS | 20/02/2014 | Frauke Roeser – Flexibility in design
  • 11. Sectoral distribution of NAMAs NAMA > Energy supply largest share (36%) Waste 14% Buildings 14% Agriculture 2% Industry 11% Forestry 4% Transport 19% Energy supply 36% Source: Ecofys et al 2013 Industry 10% CDM Waste 11% Forestry Transpo 0.6% rt 0.35% © ECOFYS | 20/02/2014 | Frauke Roeser > Broader sectoral coverage than in CDM – Esp. transport and buildings notably more relevant – Less stringent MRV requirements – Accounting for medium to long Energy Supply 75% Source: http://cdm.unfccc.int/Statistics/Public/CDMinsights/index.html, accessed 15/01/2014 11 buildings > Possible reasons Building s 1.3% Agricult ure 2.4% – Followed by transport and term emission reduction and transformational change possible
  • 12. NAMA Finance > New and additional funds agreed: > US$30 bn as fast start finance for 2010 – 2012 > „Mobilize“ US$100bn per annum by 2020 > Establishment of Green Climate Fund (GCF) > Few NAMAs in implementation > Finance still mainly focussing on readiness activities > Only one dedicated NAMA implementation fund: NAMA Facility of UK and Germany > Need to provide finance to build confidence > Public finance likley to be limited > Important role of the private sector 12 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 13. Outline Introduction to NAMAs Case Study – Chile Self-supply Renewable Energy Q&A 13 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 14. Mitigation Momentum > Support to the Chilean government through the Mitigation Momentum project – Funded by the German International Climate Initiative – Partnership with Energy Reserach Centre of the Netherlands (ECN) > Counterpart in Chile – Ministry of Environment – Ministry of Energy – Centre for Renewable Energy (CER) > Local partner Fundacion Chile 14 © ECOFYS | 20/02/2014 | Frauke Roeser www.mitigationmomentum.org
  • 15. Energy context Chile > Between 2012 and 2020, electricity consumption is projected to increase at a rate around 5.9% > By 2020 ca. 8000 MW of new generation capacity will be needed to satisfy demand > Chile relies heavily on hydropower and has almost no indigenous fossil energy resources. Source: Minsiterio de Energia Chile/ CER > Recent droughts and environmental challenges have limited the development of hydro projects. There is continued concern over access to competitively priced gas supplies. > As a result, around half of new capacity under construction is coal 15 © ECOFYS | 20/02/2014 | Frauke Roeser :
  • 16. Energy Strategy Chile > Strong emphasis on nonconventional renewable energy (NRCE) in Chile’s National Energy Strategy > Law 20.257 sets a target of 10% NRCE by 2024 > New institutions to boost NCRE – the Renewable Energy Centre (CER) Source: Gobierno de Chile, Ministerio de Energia, 2012 16 © ECOFYS | 20/02/2014 | Frauke Roeser :
  • 17. Objective of the NAMA Promote the incorporation of renewable energy systems for selfsupply. All non-conventional renewable energy projects qualify as long as 50% of the generated energy is consumed onsite. 17 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 18. Barriers – Renewable energy Financial • Payback periods of RE vs. core business investments in the sector • Banking institutions not accustomed to small-scale RE project finance • Unwillingness to invest in pre-feasibility studies when outcomes are uncertain Capacity • Access to qualified installers and consulting companies to deliver projects • Access to qualilfied technicians to operate and maintain equipment Awareness Regulatory 18 • Lack of understanding of technologies and benefits • Lack of trust • Long and difficult process to gain approval for injecting electricity to the grid © ECOFYS | 20/02/2014 | Frauke Roeser
  • 19. NAMA Components 19 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 20. Levelized cost of energy > Aim is to lower the Levelized Cost of Energy below or near the retail energy rate while maximizing the leverage of programme funds. 20 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 21. Financial Component 21 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 22. Example guarantee fund NAMA Guarantee Fund The guarantee funds are granted and set aside to cover loan defaults. Guarantee funds are invested in a low risk investment like govt. treasuries Funds from the commercial financial institution and development bank are used for the actual loans Portfolio loss allocation Total contribution: 80% $10 million Non recoverable funds (losses): Years to depletion: Leverage on non-recoverable funds: Leverage including recoverable funds (worst case scenario): CORFO+Int. development bank Portfolio loss allocation Total contribution: Leverage 0% $50 million 2.00 Commercial Financial Insitution Portfolio loss allocation Total contribution: 20% $30 Project loans Terms Int. rate Tenor 3.75% 15 years Projected volume of loans Total projected investments 22 -$6.40 million 23 years 15.63 10.00 © ECOFYS | 20/02/2014 | Frauke Roeser million Share financing Equity 20% Loans 80% Defaults Exp.rate 10% $80 million $100 million
  • 23. Impacts of the NAMA > GHG emissions – Impacts depend on size of fund and leverage of financial instruments. Theoretical potential as much as 1.7 million tonnes CO2/e per year > Job creation – Distributed renewable energy projects will create jobs from installation, ongoing operations and maintenance. > Market creation – NAMA will enable more suppliers to establish in Chile, lowering costs from cumulative learning effects, reduced regulatory costs and increased competition of suppliers. > Mitigation capacity – The mitigation capacity of Chile will increase as the RE market expands, financing institutions gain experience with RE project finance and high-skilled workers develop critical skills. 23 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 24. Outlook > Chile NAMA is one of five successful NAMAs under the NAMA Facility call in 2013 – Chile: Self-supply Renewable Energy – Costa Rica: Low Carbon Coffee NAMA – Mexico: NAMA for Sustainable New Housing – Colombia: Transit-oriented Development – Indonesia: Sustainable Urban Transport Program Indonesia Source: nama-facility.org > British German NAMA Facility is first dedicated fund for NAMA implementation > Implementation expected to begin in 2014 24 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 25. What made the NAMA a success? > Strong government owernship and support > In line with national strategy and priorities > Stakeholder based approach to NAMA design > In depth review of key barriers to mitigation – investment in renewable energy applications – Mix of interventions to address barriers > Early engagement with finance sector – Detailed design of finance mechanism > Concrete, realistic, implementable 25 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 26. Outline Background on NAMAs Case Study - Chile Q&A 26 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 27. Thank you! Ecofys Germany GmbH International Climate Policies Am Karlsbad 11 10785 Berlin Germany Frauke Röser T: +49 (0)30 29773579-32 E: f.roeser@ecofys.com 27 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 28. Financing of NAMAs 28 © ECOFYS | 20/02/2014 | Frauke Roeser
  • 29. MRV of Self-supply renewable energy NAMA in Chile 29 © ECOFYS | 20/02/2014 | Frauke Roeser