Carbon Credits Are Financing Renewable
Energy Projects in India
Sep 4, 2008 - Anupam Tyagi - RenewableEnergyWorld.com
|Photo Credit: Anupam Tyagi.
Data: Institute for Global Environmental Strategies
Ghaziabad, India - When a firm in India invests
in a renewable energy source to meet growing energy needs,
it may be able to acquire carbon credits. These carbon credits
are sold on international markets generating income for
the owner of the credits. Carbon credits, which are issued
to organizations based on their efforts to limit climate
change, and renewable energy projects are intricately linked
A carbon credit represents the removal of
one ton of carbon dioxide or its green-house gas (GHG) equivalent
from the environment. Firms in the European Union and the
OECD member countries are buying carbon credits — called
CER (Certified Emission Reductions) — from firms in India.
CER are registered and issued by the Executive Board of
the Clean Development Mechanism (CDM) of United Nations
Framework Convention on Climate Change. CER are used to
meet a part of the obligations in the EU and OECD countries
to reduce GHG emissions; obligations that were agreed upon
in the Kyoto Protocol and are now mandated by national governments.
|"We have developed Biogas projects to help
local organizations and farm owners where the
potential funding from CDM carbon credits will
be used to recover our cost for design, development,
construction and operation."
- Prabhu Dayal, President, C Trade
The World Bank estimates that in 2006 approximately
US $5 billion worth of CER were sold. The European Climate
Exchange added CER Futures for trading in March 2008, followed
by CER Options in May 2008. The CER for December 2008 delivery
was trading at about US $30 (EU €21) on September 1 on the
European Climate Exchange.
Financing of renewable energy projects via
carbon credits is a relatively new activity in India. It
requires simple and innovative models that are easy to implement,
manage and finance. Renewable energy firms like C TRADE
are working to help develop renewable energy projects through
carbon financing. The company's president, Prabhu Dayal,
explains: "We have developed Biogas projects to help local
organizations and farm owners where the potential funding
from CDM carbon credits will be used to recover our cost
for design, development, construction and operation."
C-TRADE develops renewable energy projects
in developing countries and finances them partly by having
the rights to the carbon credits that the project will generate.
Its biogas renewable energy projects turn waste manure from
farms into electricity that the farmers use. The projects
are completed on a Build-Operate-Transfer (BOT) basis, transferring
the asset to the farmer at the end of the agreement period.
C-Trade finances the entire operation. "The farmer does
not have to invest anything. They give C TRADE rights to
carbon credits," says Dayal.
Because many of the renewable energy projects
in India tend to be on the smaller scale, innovative business
models have made aggregation of investments possible in
these projects. Developers of these projects are starting
to use the growing market for carbon credits to finance
a part of their project costs.
The Wind Market and Carbon Credit Financing
In recent years, the wind energy market has
grown significantly and much of this growth can be attributed
to supportive governmental policies and innovations in management
and financing. A 6.5-megawatt (MW) wind energy project in
the state of Madhya Pradesh was issued 10,413 CER for offsetting
green house gas emissions over a 13-month period. With 5
wind turbines, the wind farm is owned by a consortium of
5 companies but operated and maintained by the supplier.
Wind turbines in another 9.6-MW project being
developed by a hotel firm are also operated and maintained
by their supplier. This project is expected to generate
15,245 CER annually for 10 years. At the CER price of US
$30, the project could generate about US $457,000 annually,
which is equivalent to about US $47 worth of CER per KW
of installed capacity.
In India, an additional 70,000 MW of electricity
generation capacity is expected to be built between 2007
and 2012 and about 21% of this addition is expected to come
from renewable sources. Small Hydro potential in India is
estimated to be 15,000 MW and as of March 2008 about 2,000
MW projects have already been installed. Small hydro electric
projects of various sizes are taking advantage of carbon
The mountainous state of Uttarakhand has an
active list of hydro electric projects of various sizes
under development and at the proposal stage. Many potential
project sites have been identified in the state for development
of hydro-electric projects. These include a large number
of run-of-river projects ranging from 0.4 MW to 230 MW,
and also a few large projects (between 25 and 100 MW) based
on water storage. The four small hydro projects for which
project design documents have been prepared for CDM are
expected to generate 160,000 carbon credits valued at US
$1.6 million per year [Note: This is based on a CER priced
at US $10, not the current price of US $30 — the value at
current CER price will be three times this amount].
Other CDM Benefit
In the past sugar mills in India have been
able to generate energy for their use from bagasse (sugarcane
pulp) however, the mills were unable to supply the surplus
power to the grid, and had little incentive to use efficient
technologies. Some of the CDM projects are changing this.
One bagasse-based renewable energy project at a sugar factory
in India is expected to offset 42,446 tons of carbon dioxide
annually for ten years. This 9-MW biomass renewable project
was issued 33,434 CER between May 2006 and March 2007. It
supplies electricity to the state electricity grid, replacing
the need to build more fossil-fuel based power plants.
In the past few years a large number of renewable
energy projects have benefited from carbon financing, meeting
the energy security needs, and preventing the release of
green house gases into the atmosphere. Still, many dispersed
and disaggregated renewable energy activities have not yet
been able to tap markets for carbon credits. With the development
of the carbon credit market and new approaches to renewable
energy businesses and policy this may change in the future.
Anupam Tyagi is a RenewableEnergyWorld.com
Indian Correspondent based in Ghaziabad, India.