Assessing Investment & Financial flowsfor Mitigation in the ENERGY Sector

UNDP I&FF Methodology Guidebook: Mitigation

Gambia 11-13 November 2009

Relevance of energy sector Primary source of global greenhouse gas

(GHG) emissions Emissions from this sector have grown faster

than those in any other sector since 1970, and will continue to be the largest source of global GHG emissions.

Energy sector key to development: energy-related GHG emissions are growing fast in most highly dynamic (high growth) developing countries

Some mitigation options bring important local co-benefits: energy security, low cost energy options, improved local environmental and health conditions, etc.

Characteristics of energy sector in Gambia

In Gambia, the energy sector accounts for 1593.39 Giga grams (Gg) of CO2 in 2006 compared to 885.7 Gg of CO2 in 1995

This is an increase 707.69 or 80% increase in CO2 over the period

Residential sector account for 78%, transport sectors 11% and and electricity generation 8%

The energy sector, which is now the most polluting sector, could contribute significantly in mitigating national GHG emissions with adoption of mitigation options.

Energy needs in rural areas are largely met by biomass fuel. Supply of wood for fuel is increasing due to bush encroachment in some parts of the country

I&FF ASSESSMENTSUMMARY OF KEY STEPS

Establish key parameters of assessment (scoping)

Collect data (historic- present - projections) Define baseline scenario and associated I&FF Define CC (mitigation) scenario and

associated I&FF Estimate incremental I&FF to implement

mitigation Evaluate policy measures

Define scope & boundaries for the assessment What are the key subsectors to be

included? Define the institutional framework Specify the time horizon for the

analysis: 2005-2030 recommended, base year 2005 recommended

Build on existing model for the sector where possible

1. Establish key parameters of the assessment

Define boundaries for the assessment1. Establish key parameters of assessment

Subsectors Data availability

Investment (baseline & prior 10 years)

Priority in mitigation scenario

High Medium

Low Rank

Fossil-fired generationTotal electricity

Oil supply

Gas supply

Coal supply

Petroleum refining

Electricity, gas distribution and water supplyGas distribution

Nuclear generation

Transmission and distributionRenewables including Large and small hydro

Example list of subsectors for screening and prioritization

Focus: Local data at adequate aggregation level to identify investment types (e.g. wind energy facilities, biomass fired power plant, etc.), public programmes (e.g. energy efficiency program to replace incandescent bulbs), their costs and financing sources

Recommended options: Sector investment & public programmes data, projections and development plansGHG Inventories, National Communications to UNFCCC

2. Compile historical I&FF data and other input data for scenarios

Data collection, rely on national accounts data

The System of National Accounts (SNA) constitutes the primary source of information about the economy

Systems of integrated environmental and economic accounts (SEEA) were developed to address statistical gaps

2. Compile historical I&FF data and other input data for

scenarios

Data collection, rely on national accounts data

Examples of I&FF data disaggregation in each sub-sector

Define the physical basis for the Baseline Scenario

A baseline scenario: description of what is likely to occur in the absence of ADDITIONAL policies to address climate change; expected socioeconomic trends (e.g., population growth and migration, economic growth), technological change (if relevant), and expected business-as-usual investments in the sector.

3. Define Baseline Scenario

3. Define baseline scenario

Characterizing baseline for each relevant energy supply and energy end-use subsector over the assessment period. Assuming no new climate change policies

are implemented Baseline scenario reflects

Current sectoral and national plans Expected socioeconomic trends Expected investments in the subsectors

Use of available model/s (e.g. used for National Communication) may facilitate scenario definition

Define baseline scenario

3. Define baseline scenario

Define physical basis for the Baseline Scenario

Information should be disaggregated by: year (starting 10 years before the

assessment’s Base Year) source (by corporations and

government) type (national funds, foreign direct

investment, official development assistance)

3. Define baseline scenario

Define physical basis for the Baseline Scenario

Energy scenarios used so far in Gambia:

Climate change scenarios the inventory was calculated using methodologies recommended in the GHG inventory reference manual produced by the IPCC.

This inventory used 1993 as the base year because more data was available that year than any other. In fact specific surveys were conducted in 1993 to generate data needed for the inventory exercise.

National Energy Policy, Strategy and Action Plan developed in November 2001

Compile annual estimates, disaggregated by investment entity, source, investment flow type, and financial flow type & disaggregate costs of conventional and unconventional sources of energy

Calculate the total investment cost in real, unannualized terms over the planning period

Estimate annual investment costs associated with the new plan

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

4. Derive I&FF for baseline scenario

4. Derive I&FF for baseline

scenarioEstimate annual I&FF

Cumulative investment(2005-2030)

Funding entity category

Source of funds (billion2005 $)

(%)

Governments Domestic funds (budgetary)

   

Foreign borrowing (loans)

   

Foreign aid (ODA)    Domestic equity    Foreign investment    Domestic debt    Foreign borrowing    Government support    Foreign aid (ODA)    Total    

Adding costs to baseline scenario

Mitigation scenario: incorporates measures to reduce GHG emissions

The mitigation scenario should describe expected socioeconomic trends, technological change (if relevant), relevant measures to mitigate GHG emissions, and the expected investments in key areas of the energy sector (e.g. end-use and supply subsectors) to implement those mitigation measures.

Costing tools and international information sources may help to identify I&FF needs for different mitigation options

5. Define Mitigation scenario

5. Define mitigation scenario

Category of Mitigation Measure

Energy Supply Measures Energy End-Use Measures

Reduce Combustion Emissions

Reduce Fugitive Emissions

Reduce Combustion Emissions

Reduce Energy Demand

Improve efficiency of energy use

Efficiency improvements in energy supply processes

Efficiency improvements in energy end-use technologies

Energy conservation measures

Reduce emissions per unit of energy production or use

Switch to lower carbon fuels

Switch to lower carbon fuels

Switch to alternative energy sources

Switch to alternative energy sources

Reduce fugitive losses (including recovery and use)

Energy Sector Mitigation Measures

5. Define mitigation scenario

Energy Sector Mitigation Measures

Options identified in the Initial National Communication of Gambia

Promote energy efficiency and reduce energy use as well as use of renewable energy

Replacement of firewood/charcoal by LPG for domestic energy, revitalization of river transport.

Greenhouse gas abatement using improved cooking stoves to reduce fuel wood consumption

5. Define mitigation scenario

Two approaches to define Mitigation Scenario

Approach #1: assume an end point for energy supply emissions E.g. setting a target in 2030 for emissions

from the energy supply sector Approach #2: assume a set of

technologies for energy supply: E.g. Review national potential for energy

policy that articulate a set of technological options, such as renewable energy, and other carbon-reducing options to meet future energy demand.

Compile annual estimates, disaggregated by investment entity, source, investment flow type, and financial flow type

Estimate annual investment costs associated with the alternative management plan

Calculate the total investment cost in real, unannualized terms over the planning period.

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

6. Derive I&FF for Mitigation Scenario

Projecting Investments6. Derive I&FF for mitigation scenario

Adding costs to mitigation scenarioCumulative

investment(2005-2030)

Funding entity category

Source of funds (billion 2005 $)

(%)

Households Equity and debtGovernments Domestic funds

(budgetary)   

Foreign borrowing (loans)

   

Foreign aid (ODA)    Domestic equity    Foreign investment    Domestic debt    Foreign borrowing    Government support    Foreign aid (ODA)    Total    

Subtract the baseline annual I&FF, by entity and source, from the mitigation annual I&FF, by entity and source.

Subtraction of the Baseline Scenario from the Mitigation Scenario.

Sum incremental amounts over all years, by entity and source.

7. Estimate changes in annual I&FF needed to implement adaptation

[

Subtract the baseline annual I&FF from the mitigation annual I&FF

7. Estimate changes in

annual I&FF needed to implement mitigation

For each chosen energy mitigation option, the analysis should identify the incremental investment (total dollars) by source (domestic funds, ODA, FDI etc.) up through 2030 necessary for its implementation

[

Summarizing incremental investments

7. Estimate changes in annual I&FF

needed to implement mitigation

Investment (billion 2005 $)

Cumulative (2005-2030)

Incremental

Funding entity category

Source of funds Baseline scenario

Adaptation Scenario

Households Equity and debt Baseline value

Adaptation value

Baseline minus Adaptation value

Governments Domestic funds (budgetary)Foreign borrowing (loans)

… … …

Foreign aid (ODA)

… … …

Domestic equity … .. …Foreign investment

… … …

Domestic debt … … …Foreign borrowing

… … …

Government support

… … …

Foreign aid (ODA)

… … …

Total Sum(Baseline)

Sum (Adaptation)

Sum (Baseline minus Adaptation)

Objective: Analyze additional efforts, funding and policy needs to implement measures identified in the mitigation scenario

Determine policy instruments and measures to encourage changes in I&FF

Identify the entities that are responsible for the significant incremental changes in I&FF

Determine the predominant sources of their funds, particularly important to distinguish between public and private sources of finance

8. Evaluate policy implications

Assess contribution and suitability of different policy options given country conditions

8. Evaluate policy

implications

Examples of mitigation & policy option Policy options

Mitigation measure

Economic Instrument

Regulations

Information

provision

Other instruments

Energy efficiency Improvement

Energy taxTradable permitsFiscal incentives for efficient appliances

Performance standards for electric applicances

Information campaignsLabelling of energy efficient equipment

Voluntary AgreementsR&D programme (to develop more efficient technologies)

Energy source switching (e.g. substitute biomass for fossil fuels)

GHG taxTradable permits

Power plant fuel portfolio standards

Information provision/campaigns

R&D programme (e.g. to develop Hydrogen)

Increased Renewable Energy Capacity

Capital grantsFeed-in tariffsTradable permits

Renewable targets

Green electricity validation

Voluntary Agreeements

For more information on synthesizing results, documentation & the completion of the report, please refer to the Reporting Guidelines

9. Synthesize results and complete report

Q&A CLARIFICATIONS

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Additional Information Possible models and methods

Name Developer

Platform

Metho-

dology

Cost (US$)/

Licensing

Web Site/Contact

Description

CO2DB IIASA, Windows Database

Free WWW.IIASA.AC.ATdowds@iiasa.ac.at

Database of CO2 emitting energy technologies

ENERGY COSTING TOOL

UNDP Excel Accounting

Free WWW.UNDP.ORGMINORU.TAKADA@UNDP.ORG

Estimates the amounts and types of energy investments required to meet the Millennium Development Goals

ENPEP Argonne National

Windows Various Depends on modules used and type of institution.

WWW.DIS.ANL.GOV GUENTER@ANL.GOV

Suite of Models for Integrated Energy/Environment Analysis

HOMER National Renewable Energy

Windows Optimization

Free www.nrel.gov/homer

Design of off- and on-grid electrification options

LEAP Stockholm Environment Institute

Windows Physical Accounting, Simulation

Free to qualified users from developing countries.

WWW.ENERGYCOMMUNITY.ORGLEAP@SEI-US.OR

Integrated Energy/Environment Analysis

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