A BIOMASS ENERGY PORTFOLIO FOR THE CZECH REPUBLIC
- small-scale project bundling for Joint Implementation
Among the Kyoto Protocol flexible mechanisms, the Joint Implementation (JI) is relevant in the countries of Central and Eastern Europe (CEE). Unfortunately, projects in this region that would qualify for JI co-financing are often small (<10,000 tons of CO2e per year). This usually does not fit the requirements of CO2-credit buyers who prefer contracting large projects (>50,000 tons of CO2e per year) in order to minimize the transaction costs. To use the emission reduction potential of small projects and at the same time keep the transaction costs down a concept of flexible portfolio has been devised.
This concept involves assembling a set of projects of the same or similar type into a bundle characterized by the following features:
- Use of standardized baselines and standardized emission reduction calculations
- Flexibility allowing failing projects to be replaced by new projects (the portfolio arrangement reducing the risk of a total failure)
- Gradual implementation allowing the set of projects to be implemented over a period of several years
- Involvement of a ‘bundling facility’ - a financing intermediary between the end-buyer and the individual projects
The above-mentioned bundling approach has been applied in practice for the first time when developing the “Biomass Energy Portfolio for the Czech Republic”, a JI-project for the Dutch Emission Reduction Unit Procurement Tender (ERUPT) in the years 2000-2002. The portfolio contains 14 biomass energy subprojects. These projects consist of replacement, renewal, extension or new construction of municipal or industrial heating systems, where biomass (wood and straw) boilers replace old coal or gas-based boiler systems. The owners of the systems are mainly municipalities, three of them are private companies. In two projects a cogeneration (CHP) system was installed. The thermal capacity of the installations ranges from 500 to 9000 kWth. The total thermal capacity of the portfolio amounts to 56 MWth. The subprojects vary in their level of development. The first were implemented in 2001 and the last in 2004. So far a total of 522,320 ERUs (tons of CO2e generated by JI in the first Kyoto commitment period 2008 - 2012) has been contracted by the Dutch government. Bioheat International BV, a newly established carbon finance facility, handles the financial transactions between the Dutch government and the subprojects. The JI contribution accounts for between 10 to 20% of the total investment cost of each of the subprojects. The “Biomass Energy Portfolio for the Czech Republic” is the first project that has fulfilled the ERUPT contractual conditions.
It is envisaged that the bundling approach has a large potential for replication both in JI projects in CEE as well as CDM projects in Latin America and Southeast Asia. A number of new JI/CDM proposals using this approach are currently underway.
