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Cost of reducing in a host country < Cost of CER thru CDM < Cost of reduction under the
developed country
The non annex country / the host country benefits in the form of a) sustainable development b)
access to better technology, funding and cheaper source of power.
• India faces a peak electricity generation shortage of over 20% and an energy shortage of
about 12%.
• Public concern and Government regulations on the harmful effects of businesses due to
pollution on environment are increasing by the day and will continue to do so,
specifically in the face of globalization and demand for corporate governance and social
responsibility.
• In this context, a few large companies and a majority of medium-sized companies in
India are establishing either Renewable Energy and / or Energy Efficiency Projects in
India, to reduce their dependency on fossil fuels (such as coal, diesel, and furnace oil
and fuel additives) and to ensure the supply of cost-effective, reliable and sustainable
energy sources for their industrial & commercial operations.
• If we look at the energy growth in the world we notice that much of the growth has take
in the non OECD countries, and mainly due to the explosive growth of India and China
demand.
Also The per capita consumption of power in India is 356 kWh, as against 600 kWh in
China, 8,305 kWh in Singapore and 20,868 kWh in USA. India’s per capita power
consumption is bound to increase, as it embarks upon ambitious sustainable development
goals.
To mitigate these deficiencies due to non renewable sources , India is implementing one of the
world’s largest programs on renewable energy, covering the entire gamut of technologies, which
are quite relevant to the needs of other developing countries in Africa, South America, the
Caribbean, South East Asia, Bangladesh, Sri Lanka and the Pacific Islands.
Mission:-
We plan to develop a sustainable model for development in Green Energy Space using
Process and Financial innovations.
About us
The table below shows the break up of CER’s obtained through different methodologies like CDM, JI
etc. CDM continues and will continue to be a sustainable supplier of Carbon credits in the near future.
Therefore developing countries like India and China would continue to be the leading source of
Carbon Credits.
Another interesting trend to note is the exponential growth of Voluntary and Retail Markets for CER’s.
This market is primarily driven by USA and is spreading to countries like India and China too. We
believe that there is a tremendous scope for these markets and we are looking at this market space too
for future growth opportunities.
World Carbon Trading Break up
2004 2005 1st Quarter 2006
Value in Value Value
Volume Million Volume Million Volume Million
Mt CO2e USD Mt CO2e dollars Mt CO2e dollars
Compliance
markets 107.7 543.59 368.3 2665.31 79.12 906.14
CDM 97 485.01 346.15 2544.3 75.61 886.5
JI 9.1 54.19 17.78 82.41 3.29 19.29
Others 0.96 4.39 4.37 38.59 - -
Voluntary
and Retail
markets 2.92 5.57 6.05 43.03 3.52 20.23
The business plan on how we plan to tap the above idea would be organized into 2 sections
1. The business model for effectively exploiting the India’s CDM potential and creating
sustainable development which means viewing India primarily as a resource base for
Carbon Credits.
2. The business model for exploiting the potential for voluntary emissions reductions and
retail markets for CER’s in India and South East Asia including countries like China, Japan
etc (possibly in the near future) ie viewing it as a market base for CER’s too.
The potential `green business space' on the selling side comprises of two groups:
1. Conventional businesses who are adopting green business practices and
technologies to reduce their costs and risks and at the same time build their `brand
loyalty'.
2. New businesses that are developing new green products & services to take
advantage of the growing business opportunities in the `green business space'.
Indian Carbon trading value Chain and the need gap analysis
Case Study
As a part of our analysis to understand the practical difficulties faced by the CDM project
developers, we did a case study on a typical small CDM renewable energy power project in May
2006. This company Salem Paper and Board Mills is located in Salem, Tamil Nadu intended to
develop a 2.5 MW plant using Renewable Energy sources and this is a how a typical SME CDM
project looks like.
Financial Projections for 7 years of the project - Cash flows without CER Revenues
( Cash flows calculated after taking into account earnings from CER revenues)
S. No Particulars Year 0 Year 1 For the 7th Year
From inputs obtained from the case study, our interactions with some CDM project developers,
energy consultants in India, we were able to obtain meaningful insights about the problems faced
by SME CDM developers. Our business model is therefore designed by addresses these
inefficiencies and provides better value to our customers.
Carbon trading cycle in India and some apparent inefficiencies
A cursory look at the figure would indicate that the CER market is skewed heavily in favor of the
buyers with no great advantage to sellers apart from CER revenues. Our business model has been
structured in such a way as to mitigate these inefficiencies and promote a robust CDM market in
India. Before we could explain our business model we would like to give a brief indication of
our presence across the various stages of our CDM project..
b) CDM project development – Preparation of PDD, PIN and obtaining Host country approval.
Helping the client in Quantifying Additionality, Emission Baselines and monitoring the
emissions.
We would initially establish ourselves in this business by providing advisory and project
development services. Quantifying Additionality which is establishing the fact that the project to
be developed would not have been implemented in the absence of it being eligible for
registration and for generating Carbon Credits is one of the key criteria in obtaining the
certification. Also establishing the Business As usual Scenario and calculating Baselines are too
sophisticated for the clients to do it by themselves and where intermediaries would play a
valuable role.
c) Arranging technology and Project financing for the projects.
(We would be with the project developer right from project identification phase till the
operational phase thereby offering an end to end solution)
The role of carbon aggregator or the SME based Carbon fund becomes important due to the
following reasons.
Projects which produces less than 10,000 CERS cannot be registered with the
Designated National Authority ( DNA). Typically SME project produce CER’s only in
that range. So the role of Carbon Aggregator becomes pronounced as the bundling of
CER’s is done by him who helps the companies to obtain the CER’s.
Costs of completing the CDM project cycle have a strong fixed element
Costs for PDD, methodology development, validation, verification are mostly fixed
Only CDM Executive Board administration fee is completely variable
Projects with less than 10,000 CERs per year have problems in recovering these costs
due to the high fixed cost component.
Many RE & EE projects are small and can be replicated widely, these projects have a
positive impact on the local environment.
Other than bundling technique, we propose a methodology called programmatic CDM which is
not prevalent in India and if implemented has the potential to reduce the registration and project
development costs for SME’s. By bundling and programming these projects we can greatly
eliminate reduce the fixed costs and provide greater value to our customers.
TECHNOLOGY
PROVIDERS
LEGAL
AUTHORITIES
GENERATING
COMPANY
REGULATORS
CARBON CREDIT
BROKERS
CONSULTANTS
this industry. We believe that our USP in this Carbon Trading Industry is the financial
innovation we can bring in this sector and if successful , these innovations could bring about a
sea change in CDM project implementation, financing, creating new asset classes and also
create a long term sustainable development
IMPLEMENTATION RISKS
DELIEVERY RISKS
REPUTATIONAL VALUE
We plan to develop a smart tool which can assist managers in prioritizing their energy and
carbon saving options. It shall help the investors in analyzing the variables that determine the
value and feasibility of an energy or carbon-saving project in the real-world commercial
environment. Following are the variables which we consider utmost important to rate a CDM
project.
2. Use of Securitisation in CDM projects
During our discussion with the Project Developers in India, one of the commonest problems
the Project Participants quoted was the issue with financing. Most financing deals to the project
developers from carbon funds occur after the carbon credits are fully validated, certified,
registered and transferred. It takes 1-2.5 years on an average for a typical small /and medium
size CDM project to be started and implemented and project developer is provided no
finance when he needs most. This causes many project developers not to take up
potentially lucrative CDM projects due to non availability of finances.
CARBON ASSET
MANAGEMENT
CLIMATE
EXCHANGE
CARBON FINANCE&
PROJECT FINANCE
ASSET MANAGEMENT
SERVICES
ADVISORY SERVICES
CARBON ADVISORY
Our vertically integrated business model gives us ‘economy of scope’ and helps us to provide
better value to customers.
1. Promotion of Exchange
AGENDA
Formalized national project approval procedures
CDM promotional publications & brochures
A national CDM website
2. Participating and Organizing of Investors forum:
Audience of such forums shall be Carbon investors, carbon brokers, national carbon funds
and VER brokers.
AGENDA
Marketing of CDM project portfolio in participating countries and their
neighbors.
Informed the sellers on Terms & Conditions of some of the existing Emission
Reductions purchase programs.
Informed the buyers on CDM institutional preparedness of countries in the
region (DNA & KP ratification).
Discussions between buyers and sellers regarding CDM project details.
This is the first affirmative step towards voluntary reduction of emissions, which is
probably the most effective option in the absence of a rule based reduction.
As already mentioned previously despite Asia being the greatest supplier of CER’s
there is still no centralized market for Carbon Exchanges. Most of the trade takes place
thru ETS and the Asian project developers are exposed to currency risks and country
risks.
This would result in the creation of an entirely new asset class to investors and would
help in garnering the much needed funds for CDM projects in India and also increase
the liquidity of the “Securitized Instruments”.
Even before the establishment of the SEBI, the BSE existed and they were the
unofficial regulators of the Indian Stock Exchange. In the same manner, this exchange
could well be unofficial regulator of the Indian CDM markets and would help in
efficient price discovery mechanisms.
This also gives the SME’s and other producers who lack scale to effectively hedge their
price and currency risks by buying standardized derivative contracts.
Also last but not the least, this model has been tested in the form of Chicago Climate
Exchange in USA. India in certain ways is similar to USA, both have not joined the
protocol (in the sense, USA has not ratified and India need not) but both of these
countries are under international pressure to reduce their emissions. VER has been the
driving force of CCX. By use of innovative marketing techniques we would be able to
be the market marker for Carbon Credits by generating the necessary liquidity and
participants for the Carbon Markets.
Creation of this would aid in the seamless integration of Asian Carbon market with the
global Carbon markets.
Why now?
Chicago Climate Exchange is already in talks with MCX to introduce financial derivative
contracts using Carbon Credits as the underlying to familiarize the corporate houses with
trading platforms. In an interview their CEO said that they would like to eventually establish
the Carbon Exchange very soon.
With Corporate houses like Tata’s, Reliance, Birla’s etc emphasizing on CSR and due to the
growing concern about Climate Change, there would a huge market which is virtually
untapped in India, if these corporate houses are targeted the right way. “The basic idea is this
, use Green energy as much as possible, Offset those amounts which you are polluting above
the stipulated value by buying Credits.”
This has to be established before the beginning of the end of the commitment 1 period as
prices are expected to Sky rocket by then. Also there is a possibility that countries like Russia
and USA would join the Kyoto Protocol in the second commitment period, which could
potentially increase the markets manifold.
Last but not the least, we would be the first Carbon Exchange in South East Asia and would
have the crucial early mover advantage even if other players come like CCX come in.
Like all exchanges, lack of liquidity would be the most important issue in the initial years.
However as market stabilizes and when the demand supply narrows ( ie when the Carbon
credits move from a buyers market to a more neutral market) there would be an exponential
surge in liquidity.
Regulatory issues would be another major hurdle. Rules with regard to Securitizations,
“True- Sale” status of SPV etc are not very clear. Also it would be an onerous task to register
the CER’s as securities under the Securities Act to make it eligible for trading.
If CCX moves in the market quite early, it might be a tough competitor as they already have
systems in place. However due to our vertically integrated business model, we would be able
to provide better services to investors, and the participants of our exchange.
Socially responsible Corporates in countries like India and China, taking a cue from the US
model start reducing their emissions at least on a voluntary basis. This would make India and
china as one of the key buyers in the market place.
We plan to tap this space by establishing India’s First Carbon Exchange, which could well be on
its way to become South East Asia’s Carbon exchange in the not so far future.
Profit before Depreciation and Tax 32,453 77,605 201,792 2,064,048 2,237,048
Less : Depreciation 0 0 0 0 0
Profit Before Tax 32,453 77,605 201,792 2,064,048 2,237,048
Less : Taxes 9,736 23,282 60,538 619,214 671,114
Profit After Tax 22,717 54,324 141,254 1,444,834 1,565,934
Note: 1) The numbers for the above statement is derived from the Revenue Statement we presented
in the executive summary. 2) We have used a very conservative estimate for estimating revenues
and have not included revenues from Carbon Exchange, Sale of Credits in India, Rating &
Registry services.
About us – The management team
One of the team members hails from South India and has deep business lineages in that part of
the country. We would be initially leveraging his contacts to obtain projects from SME’s. He has
an in-depth knowledge of portfolio and risk management, which would help us manage the
Carbon fund better – thanks to his International CFA Charter and his MBA specialization in
Finance.
The other member hails from a Business Family from North India. Her family has been into
manufacturing of energy devices for the last 2 decades. She brings with her a rich business
experience and a considerable knowledge of Marketing and Brand management, thanks to her
stints in senior positions in leading Retail organizations in India.