Financing Instruments and Models

None of the three countries in this case study has a comprehensive feeding-in regulation that is beneficial for regenerative energy sources. The article presented here gives an overview of how such a regulation could be implemented in South Africa, without being a financial burden for the country.

The SEPCo project worked up a model to promote wind energy in Cuba that would be cost-neutral on the Cuban economy. In this model, investors receive a feed-in fee from the wind turbines that is in line with the avoided costs of the generation of electricity. 90 % of the electricity in Cuba in generated in oil-fired power plants. As the efficiency of the power plants is low and the grid losses are great, wind turbines in good locations can produce electricity competitively starting at an oil price of 20 dollars per barrel. The investors run the entire risk (and collect all of the potential profits) in this model: if the price of oil increases over time and the wind turbines operate as expected, the investments will post profits. If oil prices drop below a certain level, investments in the turbines will not pay for themselves. The Cuban state would benefit from the investments at any rate as jobs will be created in the country, people will receive training, and external costs for the generation of electricity will be avoided.

The talks during the workshops in the three countries showed that the countries have great expectations for the CDM process. However, there is a common misconception that the Third World countries have a right to these "certified emission reduction units" (CERs) and can sell the certificates to the industrial nations. In addition, the value of the CERs is often estimated to be very high (20 €/t CO2 equivalent). And yet, the prices for the certificates will only be known when the first commitment period has begun, i.e. in 2008, and these prices may then vary with the further development of the Kyoto obligations, the general economic development, the national energy policies of the most important emitters of Greenhouse gases, and the development of energy prices. In addition, one often forgets that basing projects on the uncertain sales price of CERs does not make them more creditworthy. CERs can thus hardly be used to finance initial investments. The article gives an overview over the functionality of the CDM, as well as contact points.

In Mexico, the SEPCo project found, even a slight levy on tourism would provide a surprisingly substantial contribution to the electrification of rural areas. The tourism sucharge could provide power to all off-grid households (some one million households or five million people) within around seven years. In addition, tourism could be made more environmentally friendly and attractive with this levy. The proposed surcharge would be used as an instrument of closing the urban/rural gap in Third World countries, thus also reducing social tensions. The target countries and the tourists would both benefit from the redistribution of wealth from industrial to Third World countries that the tourism surcharge entails.

Financing options for projects to provide a sustainable energy supply at the German and European level are discussed in the paper.

Two documents (the German Feed in Law in English and German) that are linked from this page give the necessary background for a deeper understanding of the regulation.