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Green Trade: Viable alternatives to CDM
Gurpreet Singh Walia, Senior Consultant, Carbon Advisory and Broking, Gensol Consultants
The telecom sector, one of the largest consumers of diesel in the country, needs to cut emissions to reduce its carbon footprint. Switching from grid/ diesel-based power to renewable energy (primarily solar photovoltaic [PV]) generation reduces electricity costs and provides excellent returns. It also provides other benefits in the form of certified emission reductions (CERs), renewable energy certificates (RECs) and verified carbon units (VCUs), which can be traded by companies. Most of the clean energy regimes worldwide have incorporated the clean development mechanism (CDM), as stated under the Kyoto Protocol. However, the European Union (EU) recently announced that it would not be buying CERs of Indian projects registered after December 2012.
To be registered under the CDM mechanism, a project has to be based on methodologies approved by the United Nations Framework Convention on Climate Change (UNFCCC). The CDM methodology for renewable energy projects of telecom users is evaluated under the AMSIF (Approved Methodology for Small-Scale CDM) category, which includes renewable electricity generation for captive use and mini-grids. As per the baseline scenario defined by the UNFCCC, a company is eligible for CDM benefits if it replaces grid/diesel-based power with renewable energy for operating its towers. However, project registration itself takes almost a year, following which CERs can be traded.
CERs are calculated as a product of electricity generated and the grid emission factor. For towers that are located in the northern, eastern, western and north-eastern grid regions, the grid emission factor is 0.9529, while for those in the southern grid region, it is 0.8970.
For instance, if a company powers 1,000 cell towers using 5 kW solar PV panels, it would generate a total of 8,760 MWh annually. Under the fixed crediting period registration, the company would earn approximately 8,000 CERs per year for 10 years. Alternatively, it can opt for a seven-year registration, which can be renewed three times during the project’s lifetime.
A cost-benefit analysis undertaken by Gensol Consultants reveals that for an average development and validation expense (including consultancy charges and appointing the validation agency) of Rs 3 million, about 1,200 telecom towers need to be powered by renewable energy to generate enough CERs to break even.
The CER spot market has declined significantly over the past four years, rendering it unattractive. CER prices reduced from about Euro 20 in August 2008 to less than Euro 3 in August 2012.
So far, the EU Emissions Trading System has been the biggest market for Indian CERs. However, its decision to disallow the trading of CERs of Indian projects registered after December 2012 has led to the emergence of CER alternatives.
One such alternative being explored by many developers in the solar power market is the Programme of Activities, which provides an organisational and methodological framework for component project activities with the same stated goal – to operate within a single registered CDM programme activity. While these projects are often linked to higher sustainability benefits, they are too small to recover the transaction costs involved.
In the absence of CDM, developers have begun exploring alternative environmental commodities like VCUs, which are usually accorded after the project is registered under the verified carbon standard (VCS). Under this, a project, developed in line with the approved CDM methodologies, earns 1 VCU for reducing 1 tonne of carbon dioxide equivalent emissions.
Another option is to get the project registered under the REC Registry of India. Under the REC mechanism, a project earns 1 REC on feeding 1 MWh of clean electricity into the grid. However, this is not beneficial for kW-scale off-grid plants installed for running telecom towers as these have not yet been allowed to generate and trade RECs on the market exchanges.Of the available alternatives, VCS seems to be the most plausible short-term solution followed by the REC mechanism, provided off-grid projects are brought within its ambit.
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