Assessing Investment

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Assessing Investment Financial flowsfor
Mitigation in the ENERGY Sector
UNDP IFF Methodology Guidebook Mitigation
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Relevance of energy sector

• Primary source of global greenhouse gas (GHG)
  emissions
• Emissions from this sector have grown faster than
  those in any other sector since 1970, will
  continue to be the largest source of global GHG
  emissions
• Energy sector key to development energy-related
  GHG emissions are growing fast in most highly
  dynamic (high growth) developing countries
• Energy sector was responsible for 87 of GHG
  emissions in Turkmenistan in 2004
• Some mitigation options bring important local
  co-benefits energy security, low cost energy
  options, improved local environmental health
  conditions, etc.

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Relevance of energy sector

• Relevant energy subsectors mitigation options
  vary according to each country circumstances
  development priorities
• REGIONAL CENTRE PLEASE INSERT PIE CHART FOR THE
  COUNTRY ON DIFFERENT SOURCES OF EMISSIONS WITHIN
  ENERGY SECTOR WITH HELP OF THE COUNTRY NATIONAL
  COMMUNICATION

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IFF ASSESSMENTSUMMARY OF KEY STEPS

• Establish key parameters of assessment (scoping)
• Collect data (historic- present - projections)
• Define baseline scenario associated IFF
• Define CC (mitigation) scenario associated IFF
• Estimate incremental IFF to implement mitigation
• Evaluate policy measures

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• Define scope boundaries for the assessment
• What are the key subsectors to be included?
• Define the institutional framework
• Specify the time horizon for the analysis
  2005-2030 recommended, base year 2005 recommended
• Build on existing model for the sector where
  possible

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Energy-related GHG emissions in Turkmenistan
(2004)
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Define boundaries for the assessment
Example list of subsectors for screening
prioritization
Subsectors Data availability Investment (baseline prior 10 years) Priority in mitigation scenario Priority in mitigation scenario Priority in mitigation scenario Priority in mitigation scenario
Subsectors Data availability Investment (baseline prior 10 years) High Medium Low Rank
Fossil-fired generation
Total electricity
Oil supply
Gas supply
Coal supply
Petroleum refining
Electricity, gas distribution water supply
Gas distribution
Nuclear generation
Transmission distribution
Renewables including Large small hydro
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• Focus Local data at adequate aggregation level
  to identify investment types (e.g. wind energy
  facilities, biomass fired power plant, etc.),
  public programmes (e.g. energy efficiency program
  to replace incandescent bulbs), their costs
  financing sources
• Recommended options Sector investment public
  programmes data, projections development
  plansGHG Inventories, National Communications to
  UNFCCC

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• Data collection, rely on national accounts data
• The System of National Accounts (SNA)
  constitutes the primary source of information
  about the economy
• Systems of integrated environmental economic
  accounts (SEEA) were developed to address
  statistical gaps

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Data collection, rely on national accounts data
Examples of IFF data disaggregation in each
sub-sector
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• Define the physical basis for the Baseline
  Scenario
• A baseline scenario description of what is
  likely to occur in the absence of ADDITIONAL
  policies to address climate change expected
  socioeconomic trends (e.g., population growth
  migration, economic growth), technological change
  (if relevant), expected business-as-usual
  investments in the sector.

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Define baseline scenario

• Characterizing baseline for each relevant energy
  supply energy end-use subsector over the
  assessment period
• Assuming no new climate change policies are
  implemented
• Baseline scenario reflects
• Current sectoral national plans
• Expected socioeconomic trends
• Expected investments in the subsectors
• Use of available model/s (e.g. used for National
  Communication) may facilitate scenario definition

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Define physical basis for the Baseline Scenario

• Information should be disaggregated by
• Year (starting 10 years before the Base Year)
• Source (by corporations government)
• Type (national funds, foreign direct investment,
  official development assistance)

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• Compile annual estimates, disaggregated by
  investment entity, source, investment flow type,
  financial flow type disaggregate costs of
  conventional unconventional sources of energy
• Calculate the total investment cost in real,
  unannualized terms over the planning period
• Estimate annual investment costs associated with
  the new plan
• Develop a breakdown of total investments into
  major categories (e.g., ODA, FDI, domestic funds)

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Estimate annual IFF
Adding costs to baseline scenario
Cumulative investment (2005-2030) Cumulative investment (2005-2030)
Funding entity category Source of funds (billion 2005 ) ()
Governments Domestic funds (budgetary)    
Governments Foreign borrowing (loans)    
Governments Foreign aid (ODA)    
Corporations Domestic equity    
Corporations Foreign investment    
Corporations Domestic debt    
Corporations Foreign borrowing    
Corporations Government support    
Corporations Foreign aid (ODA)    
Total    
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• Mitigation scenario incorporates measures to
  reduce GHG emissions
• The mitigation scenario should describe expected
  socioeconomic trends, technological change (if
  relevant), relevant measures to mitigate GHG
  emissions, the expected investments in key
  areas of the energy sector (e.g. end-use supply
  subsectors) to implement those mitigation
  measures.
• Costing tools international information sources
  may help to identify IFF needs for different
  mitigation options

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Energy Sector Mitigation Measures
Category of Mitigation Measure Energy Supply Measures Energy Supply Measures Energy End-Use Measures Energy End-Use Measures
Category of Mitigation Measure Reduce Combustion Emissions Reduce Fugitive Emissions Reduce Combustion Emissions Reduce Energy Demand
Improve efficiency of energy use Efficiency improvements in energy supply processes Efficiency improvements in energy end-use technologies Energy conservation measures
Reduce emissions per unit of energy production or use Switch to lower carbon fuels Switch to lower carbon fuels
Reduce emissions per unit of energy production or use Switch to alternative energy sources Switch to alternative energy sources
Reduce emissions per unit of energy production or use Reduce fugitive losses (including recovery use)
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Two approaches to define Mitigation Scenario

• Approach 1 assume an end point for energy
  supply emissions
• E.g. setting a target in 2030 for emissions from
  the energy supply sector
• Approach 2 assume a set of technologies for
  energy supply
• E.g. Review national potential for energy policy
  that articulate a set of technological options,
  such as renewable energy, other carbon-reducing
  options to meet future energy demand

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• Compile annual estimates, disaggregated by
  investment entity, source, investment flow type,
  financial flow type
• Estimate annual investment costs associated with
  the alternative management plan
• Calculate the total investment cost in real,
  unannualized terms over the planning period.
• Develop a breakdown of total investments into
  major categories (e.g., ODA, FDI, domestic funds)

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Projecting Investments
Adding costs to mitigation scenario
Cumulative investment (2005-2030) Cumulative investment (2005-2030)
Funding entity category Source of funds (billion 2005 ) ()
Households Equity debt
Governments Domestic funds (budgetary)    
Governments Foreign borrowing (loans)    
Governments Foreign aid (ODA)    
Corporations Domestic equity    
Corporations Foreign investment    
Corporations Domestic debt    
Corporations Foreign borrowing    
Corporations Government support    
Corporations Foreign aid (ODA)    
Total    
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• Subtract the baseline annual IFF, by entity
  source, from the mitigation annual IFF, by
  entity source
• Subtraction of the Baseline Scenario from the
  Mitigation Scenario
• Sum incremental amounts over all years, by entity
  source

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• For each chosen energy mitigation option, the
  analysis should identify the incremental
  investment (total dollars) by source (domestic
  funds, ODA, FDI etc.) up through 2030 necessary
  for its implementation

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Summarizing incremental investments
REGIONAL CENTRE PLEASE INSERT COUNTRY FIGURES
FOR THE COUNTRY
Investment (billion 2005 ) Investment (billion 2005 ) Investment (billion 2005 )
Cumulative (2005-2030) Cumulative (2005-2030) Incremental
Funding entity category Source of funds Baseline scenario Adaptation Scenario Incremental
Households Equity debt Baseline value Adaptation value Baseline minus Adaptation value
Governments Domestic funds (budgetary)
Governments Foreign borrowing (loans)
Governments Foreign aid (ODA)
Corporations Domestic equity ..
Corporations Foreign investment
Corporations Domestic debt
Corporations Foreign borrowing
Corporations Government support
Corporations Foreign aid (ODA)
Total Sum (Baseline) Sum (Adaptation) Sum (Baseline minus Adaptation)

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• Objective Analyze additional efforts, funding
  policy needs to implement measures identified in
  the mitigation scenario
• Determine policy instruments measures to
  encourage changes in IFF
• Identify the entities that are responsible for
  the significant incremental changes in IFF
• Determine the predominant sources of their funds,
  particularly important to distinguish between
  public private sources of finance

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Examples of mitigation policy option
Policy options Mitigation measure Economic Instrument Regulations Information provision Other instruments
Energy efficiency Improvement Energy tax Tradable permits Fiscal incentives for efficient appliances Performance standards for electric applicances Information campaigns Labelling of energy efficient equipment Voluntary Agreements RD programme (to develop more efficient technologies)
Energy source switching (e.g. substitute biomass for fossil fuels) GHG tax Tradable permits Power plant fuel portfolio standards Information provision/campaigns RD programme (e.g. to develop Hydrogen)
Increased Renewable Energy Capacity Capital grants Feed-in tariffs Tradable permits Renewable targets Green electricity validation Voluntary Agreeements
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• For more information on synthesizing results,
  documentation the completion of the report,
  please refer to the Reporting Guidelines

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QA CLARIFICATIONS
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Possible models and methods
Name Developer Platform Metho-dology Cost (US)/Licensing Web Site/Contact Description
CO2DB IIASA, Windows Database Free WWW.IIASA.AC.ATdowds_at_iiasa.ac.at Database of CO2 emitting energy technologies
ENERGY COSTING TOOL UNDP Excel Accounting Free WWW.UNDP.ORGMINORU.TAKADA_at_UNDP.ORG Estimates the amounts types of energy investments required to meet the Millennium Development Goals
ENPEP Argonne National Windows Various Depends on modules used type of institution. WWW.DIS.ANL.GOV GUENTER_at_ANL.GOV Suite of Models for Integrated Energy/Environment Analysis
HOMER National Renewable Energy Windows Optimization Free www.nrel.gov/homer Design of off- on-grid electrification options
LEAP Stockholm Environment Institute Windows Physical Accounting, Simulation Free to qualified users from developing countries. WWW.ENERGYCOMMUNITY.ORGLEAP_at_SEI-US.OR Integrated Energy/Environment Analysis