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KfW Carbon Fund Overview and Opportunities

Learn about the KfW Carbon Fund, its objectives, projects, and impact on global emissions reduction. Discover how German and European enterprises can benefit from compliance tools and project-based certificates.

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KfW Carbon Fund Overview and Opportunities

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  1. The KfW Carbon Fund37th REGULAR MEETING OF THE ALIDE GENERAL ASSEMBLY 2007 May 2007

  2. KfW Bankengruppe in brief • Promotional bank of the Federal Republic of Germany. • Founded in 1948. • Shareholders:Federal Republic of Germany (80%), German federal states (20%). • Headquarters:Frankfurt am Main; branch offices:Berlin and Bonn. • Foreign representations:Brussels and around 50 offices and representations worldwide • Balance-sheet total at the end of 2006:EUR 360 billion • 3,580 employees at the end of 2006 • Rating:AAA/Aaa/AAA.

  3. Brand Structure KfW Carbon Fund

  4. KfW Environmental and Climate Commitments • KfW Facts and Figures • Total loan commitments forenvironment- and climate protection measures in 2005: € 9.3 billion • Thereof two thirds for climate protection • Share of total commitments 20 % • Carbon mitigation effect of KfW climate protection programmes • Total annual reduction 1990 to 2004 in Germany across all sectors 10.5 mill. t CO2 • Annual CO2 mitigation effect of KfW programmes (energy efficiency in the building sector and wind power)(average 2003 to 2004) 3.9 mill. t CO2

  5. Carbon Market • Mission: to define a price/cost on carbon emissions, a value on emission reductions, and to enable trade of resulting allowances or credits Size of International Carbon Market Volume - Billions Tons of CO2 e Transactions – EUR Billions +5% +50% +139% +100% Source: Point Carbon

  6. CDM Market • “The CDM/JI market is a success: the project market is seen as more mature, and is resulting in cost effective emission reductions.” (source: Point Carbon) Size of CDM Market Volume - Millions Tons of CO2 e Transactions – EUR Billions -2% +10% +40% +93% Source: Point Carbon

  7. CDM Market - profile • China completely dominated the CDM sell side, bringing the bulk of the HFC-23 and adipic acid N2O Profile of CDM Market Country Sellers - 2006 Project Types - 2006 Source: Point Carbon

  8. The KfW Carbon Fund • Purchase programme for Carbon Credits (JI/CDM) • Purchase of compliance tools for the ETS (CERs, ERUs) • KfW acting as a trustee for programme participants • KfW buys as a trustee for programme participants • Target group: German and European enterprises, who • want to make use ofJI and CDM for compliance purposes and • do not have own access to projects abroad • Forward purchase contracts with sellers of carbon credits • „Emissions Reductions Purchase Agreement (ERPA)“

  9. The KfW Carbon Fund First tranche EUR 84 million • Launched in June 2004 • More than 6 million tons contracted; to be closed mid 2007 • KfW contribution with own funds: EUR10MM • German Government contribution: EUR4MM Second tranche EUR 100 million • Second Tranche launched in May/2007: targeting smaller Compliance Buyers and non trading companies • emphasis on Renewable Energy and Energy Efficiency • Partnership with European Investment Bank

  10. Present Status • Programme Volume (First Tranche):EUR 83.9 Mio. • 24 participating Enterprises fromGermany, Austria, France and Luxemburg • Supported by German Federal Government and KfW • 6.4 million tons CO2e contracted (per 31.03.07) • Sectors: focus on renewable energy (wind, hydro, biomass), methane avoidance (landfill gas, CMM, biogas) • Countries: focus on India, China, Brazil, Egypt All ERPAs to be concluded until mid 2007

  11. Fund Concept • Purchase programme (“Buyers’ Pool”) for project-based certificates • Purchase of compliance tools for the ETS (CERs, ERUs, project-based EU-Allowances) • commercial orientation • KfW purchases as a trustee for participants • in its own name, for the account of participants • on the basis of individual Agency Contracts between KfW and each participant • off-take contracts with suppliers of certificates (“ERPA”) • payment on delivery • up to 2012 with option to extend • fixed or variable pricing

  12. Objectives of the Fund • Background • Kyoto-Protocol (Clean Development Mechanism) • European Emissions Trading System (ETS), Linking Directive • Provide a service instrument for German and European enterprises which want to to use project-based certificates for compliance purposes • alternative to own measures and emissions trading • no internal capacities required • risk mitigation by diversification • Project development functionPromotion of projects and measures contributing to • reduction of global Greenhouse Gas Emissions • sustainable development in the host country

  13. Programme Structure - Tranche 1 Project 1 Participant 1 Agency contracts ERPA KfW Project Portfolio (“KfWCarbon Fund“) Project 2 Participant 2 Project 3 Participant 3 Projectn Participant x

  14. Programme Structure - Tranche 2 Project 1 Purchase and Agency Agreement Emission Reduction Purchase Agreement Buyer 1 EIB-KfW Carbon Programme KfW Programme Manager and Contracting Party EIB/KfW Underwriters Buyer 2 Project 2 Project 3 Buyer 3 Financing Facility EIB Facility Manager EIB/KfW Underwriters Projectn Buyer x

  15. Investment Policy • Eligible Projects • Emphasis on renewable energy and energy efficiency • Exclusions in line with Kyoto and ETS: • Nuclear, large hydro, forestry • Risk balanced portfolio • By countries, technologies, counterparties • Primary market activities • No emissions trading • Emphasis on forward contracts • Up to 2012; • Options for Post-Kyoto credits

  16. Portfolio Distribution Fondsportfolio (ERPA or LoI) as per 31.03.2007 Regional distribution of ER volumes Technological distribution of ER volumes

  17. Financing support for CDM /JI project preparation • Financing of preparatory measures: • Design of PDDs, Business Plans, Environmental Impact Assessment Reports or support of validation costs • Maximum amount of KfW financing: € 50,000.00; contribution of funds by project owner expected • Repayment by deduction from the first payment of KfW for CERs delivered due upon the first delivery of Certificates

  18. Financing options at KfW for project financing • Advance payments on ERPA: up to 50% of ERPA value upon provision of investment grade securities; separate loan agreement with KfW Carbon Fund • Project financing by KfW-IPEX and DEG: • min. loan amount of 20 Mio €; term up to 10 years; min. 30% equity contribution; interest fixed or variable; security package depending on project structure • min. loan amount of 1 Mio €; term 4 to 10 years; interest fixed or variable; collateral security (e.g. fixed assets); DEG financing share up to 35% of total project costs • Concessional Financing by KfW Development Bank

  19. Future Plans • Continuous purchase programme for compliance certificates • Purchase target of 9 million tons CO2e per year (including Post-Kyoto purchase) • Own underwriting capacity (“warehousing”) • EIB-KfW Carbon Programme • EUR 100 Million purchase facility for carbon credits (second tranche of the KfW Carbon Fund) • Value Added Features • Tailormade product for SMEs (delivery guarantee) • Financing facility for projects as advance payments • Risk-sharing between EIB and KfW

  20. The KfW Carbon Fund For more information: www.kfw.de/carbonfund Rose Cuten KfW Carbon Fund São Paulo Office Brasil Phone: 55 11 5187-5150 rcuten@degbrasil.com.br

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