Economics and Financing

Economics and Financing

Economics and Financing

 

Financing mechanisms include grants, loans, self-financing and private sector financing. In addition to these options, carbon financing has been utilized by some projects to improve the financial margins of CFL programs. This section will contain information on each available financing option. 

 

In order to further understand the economics of CFL programs and the potential return on investment, please see the illustrative Economics table in the Program Design section of the Knowledge Center. This table represents a hypothetical CFL program costs and explores how the economic and environmental benefits compare to those costs.

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The Global Environment Facility (GEF) unites 182 countries in partnership with international institutions, civil society organizations, and the private sector to address global environmental issues while supporting national sustainable development initiatives.

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  • Global Environment Facility Grants
    • Global Environment Facility Grants

       

      Today the GEF is the largest public funder of projects to improve the global environment. The GEF, recognizing the substantial environmental benefits of large-scale implementation of CFLs, has provided grants for CFL programs in many developing countries. They provide grants to various types of projects ranging from several thousand dollars to several million dollars.

      Map of JEF projects

       

      © Global Environment Facility

       

      GEF has collaborated with the UNDP or the World Bank in funding many CFL prorams. Examples include Argentina, Czech Republic, Philippines, South Africa, Vietnam, Bangladesh, Pakistan, Russia and China. To find out more visit www.gef.org.

The World Bank and other multi-lateral development banks (MDBs) have provided loans to a number of countries for implementing CFL programs.

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  • World Bank and other multi-lateral development bank (MDB) loans

GPOBA grants come from World Bank’s Global Partnership on Output-Based Aid. GPOBA funding is open to applicants from international financial institutions, bilateral donors, NGOs, public and private infrastructure operators, and national and local governments. 

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  • World Bank Global Partnership of Output-Based Aid (GPOBA)
    • World Bank Global Partnership of Output-Based Aid (GPOBA)

       

      GPOBA activities are grouped under two funding windows: 

       

       

       

       

      A woman using tap water

                                        © Global Partnership on Output-Based Aid (GPOBA)

       

      GPOBA  recently provided a grant to the Ethiopian Electric Power Company (EEPCo) to fund the cost of connecting 286,000 households in rural areas to the grid. The one-off subsidy paid for the cost of providing a five-year loan to connect poor customers to the electricity grid and deliver two compact flourescent lamps per household. The program promoted energy conservation and helped customers reduce their electricity bills. To find out more  visit http://www.gpoba.org.

The Kyoto Protocol is a supplementary agreement to the 1992 United Nations Framework Convention on Climate Change and came into force in February of 2005. The treaty includes provisions for a Clean Development Mechanism (CDM), which gives monetary value to GHG reductions achieved through projects implemented in developing countries.

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  • Carbon Financing
  • Carbon Financing
    • Carbon Financing

       

      The CDM allows industrial countries and authorized private entities to acquire credits in exchange for financing climate protection measures in developing countries, simultaneously contributing to sustainable development. The resulting credits, called certified emissions reductions (CERs), can be used by industrial countries to meet their climate protection obligations. 

       

      A CFL giveaway activity

       

      Using CDMs to finance CFL programs makes economic sense because CFL programs typically have negative marginal GHG abantement costs; savings in electricity costs rapidly pay for up-front program investments.

       

       In addition, many CFL Programs are giveaway programs, with no income stream, making CER revenues essential to improving the project's economic viability to utilities and individuals. To learn more about CDM visit the Program Design section of the Knowledge Center.

       

       

       

       

       

       

      © Ashok Sakar / World Bank

    • Carbon Financing

       

      The economic benefits of carbon finance under CDM can be quite substantial. In the economic analysis example cited in the illustrative finance model, if carbon credits are valued at a market price of US$10.00 per ton, the total carbon revenues will be about US$3.2 million, or more than US$3.20 per CFL.

       

      However, CDM projects impose substantial survey, analysis and verification requirements, which can increase program administration costs. Some of the difficulties of project registration may be overcome with the emergence of the concept of programmatic CDM, also known as PoA, which  combines several small projects  in a spatial and temporal (up to 28 years) scale, without defining more than one project in the beginning. The PoA concept can facilitate the implementation of large-scale CFL programs (which may be spread over several cities or municipalities or regions, each one of which can be considered as an individual project) that are easier to implement.

       The Ain Beni Mathar Integrated Combined Cycle Thermo-Solar Power Plant

      © Dana Smillie / World Bank

       

      To find out more about carbon finance and the requirements of the CDM program, visit the Program Design section of the Knowledge Center.

The economics of CFL programs are very attractive and  may offer the private sector sufficient incentive to implement CFL programs.

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  • Private Sector Financing
    • Private Sector Financing

       

      Private sector financing can be especially attractive if potential revenues from the sale of carbon credits through CDM are also available.

       

      For example, the Indian Bureau of Energy Efficiency, the national agency responsible for promoting energy efficiency, has encouraged private sector implementation of CFL programs in different regions of India by creating a Program of Activities (PoA) under the CDM provisions of the UN Framework Convention for Climate Change (UNFCCC). This allows for smaller, long term projects to receive carbon credits as a group.

       

      To find out more about carbon financing through CDM go to the carbon financing link below. To find out more about programs that have registered for CDM, visit the CDM Project Database at http://cdm.unfccc.int/Projects/index.html and search for CFL projects. 

       

      Rows of solar panel at a thermo-solar power plant

        

      © World Bank

       

In some developing countries utilities or government agencies finance the cost of CFL programs.

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  • Local Utility or Government Financed
    • Local Utility or Government

       

      In some developing countries utilities or government agencies finance the cost of CFL programs. Examples include the CFL initiative of the Mauritius Central Electricity Board (CEB) in which the CEB purchased CFLs in bulk and sold up to 4 CFLs to customers at a low price. The objective of the CEB was to reduce electricity consumption and peak loads. The Bangalore Efficient Lighting Program (BELP), sponsored by the local utility BESCOM, is another example of self-financing. To learn more read these case studies or go to the illustrative economics page, which gives an example of the financing of a CFL program.

       

      A CFL Bulb

                                               © Ashok Sakar / World Bank 

TEst Summary