Project Idea Note: Solar Water Heating Fee-For-Service Program in Brazil

PROJECT IDEA NOTE (Based on the World Bank’s PIN Template) A. Project description, type, location and schedule Name of Project: Solar Water Heating Fee for Service Program in Brazil Technical summary of the project Objective of the project

Project description and proposed activities

The project’s objective is to expand the use of solar water heating in Brazil by using CER revenue to improve the financial performance of solar water heating fee-for-service programs, thus enabling one or more Energy Services Companies (ESCOs) or Solar Water Heater (SWH) manufacturers to conduct such operations on a commercial basis. The project will involve the installation of solar water heaters for schools, hospitals, and other commercial, industrial, and residential facilities in Brazil by one or more ESCOs and/or SWH manufacturers, either individually or as a single CDM project bundle. The ESCO(s) and/or SWH manufacturer(s) will own and maintain the solar water heaters and will provide solar heated water to end-users on a service-fee basis. Revenue from a combination of energy provision service fees and CER sales will make the installations viable and profitable for the participating company(ies).

The project is anticipated to be implemented over a period of five years, with installations possible throughout Brazil. Building up over time, the project will ultimately involve the installation of 20,000 square meters of solar water heating collectors over the next five years. Technology to be employed The project will employ flat plate solar thermal collectors, a Please note: support can only be technology that has been locally manufactured and fieldprovided to projects that employ proven in Brazil for many years. In most cases, the solar commercially available technology. It would be useful to water heaters will circulate potable water through the flat provide a few examples of where plate collectors, a field-proven design applicable in Brazil and other climates where protection against freezing is not the proposed technology has been employed. necessary. All of the technology to be used in the project is commercially available. Project developer Name of the project developer Organizational category Other function(s) of the project developer in the project

Vitae Civilis Institute

Non Governmental Organization Intermediary and technical advisor

Project Idea Note: Solar Water Heating Fee-For-Service Program in Brazil Summary of the relevant experience of the project developer

Address

The project developer is an established NGO based in São Paulo state, which has been implementing a project to increase solar water heating in Brazil over the past two years. The project developer is working in conjunction with consultants who have considerable experience in the energy sector and CDM project development. Vitae Civilis Institute Praça 10 de Agosto 51 São Lourenço da Serra SP - Brazil - 06890-000 Délcio Rodrigues +55 (11) 8374 8000 [email protected], http://www.vitaecivilis.org.br

Contact person Telephone E-mail and web address, if any Project sponsors (List and provide the following information for all project sponsors) Name of the project sponsor TBD Organizational category Private company Address (include web address, if TBD any) Main activities The project sponsors will include one or more ESCOs and/or

SWH manufacturers active in Brazil. Under the project, the sponsor company(ies) will install, own, and operate solar water heating systems and sell heated water to clients in Brazil. They, or possibly a third-party aggregator, will monitor installations, arrange CDM verification reports, and own the CERs until transferring ownership to the CER buyer. Summary of the financials: Summarize the financials (total assets, revenues, profit, etc.) in not more than 5 lines. Type of the project Greenhouse gases targeted Type of activities Field of activities a. Energy supply Location of the project Region Country City Brief description of the location of the project Expected schedule Earliest project start date Estimate of time required before becoming operational after approval of the PIN Expected first year of verified

TBD

The project will reduce CO2 emissions. Emissions abatement Renewable energy South America Brazil Various - throughout the country The project will involve solar water heater installations in locations throughout Brazil 2006 TBD

Project Idea Note: Solar Water Heating Fee-For-Service Program in Brazil Emission Reduction or CER / ERU delivery Project lifetime Current status or phase of the project Current status of the acceptance of the Host Country: Letter of No Objection is available / Letter of Endorsement is under discussion or available / Letter of Approval is under discussion or available / Host Country Agreement is under discussion or signed / Memorandum of Understanding is under discussion or available / etc. The position of the Host Country with regard to the Kyoto Protocol

2007 Either 10 or 21 During an initial discussion, Brazil’s DNA indicated general approval of the project concept.

Brazil, the Host Country, has ratified the Kyoto Protocol

B. Expected environmental and social benefits Estimate of Greenhouse Gases Up to and including 2012: 22,500 tCO2 abated / CO2 Sequestered (in Up to a period of 10 years: 48,240 tCO2-equivalent metric tons of CO2-equivalent)

Baseline scenario: CDM/JI projects must result in GHG emissions being lower than “business-as-usual” in the Host Country. At the PIN stage questions to be answered are at least: • Which emissions is the proposed Clean Development Mechanism (CDM)/Joint Implementation (JI) project displacing? • What would the future look like without the proposed CDM/JI project? • What would the estimated total greenhouse gas (GHG) reduction be? (About ¼ - ½ page)

Up to a period of 7 years: 28,950 tCO2-equivalent Up to a period of 14 years: 73,970 tCO2-equivalent The project will abate approximately 6,400 tCO2 per year once all 20,000 m2 of collector are installed. The project will displace fuels used in conventional water heaters in Brazil. These include natural gas, LPG, oil, and electricity in water heaters that supply hot water for largescale facilities. Emissions abatement will include the direct displacement of CO2 by substituting solar energy for natural gas, LPG, oil, and electricity to heat water. Electricity displacement will correspond with times of peak demand, when fossil fuel facilities provide power at the grid’s operating margin. In the project’s absence, the facilities that obtain solar water heaters from the project participant(s) on a fee-for-service basis would instead rely on fossil fuels and electricity to heat water. At less the 15 MW equivalent, the project qualifies to use the CDM’s simplified modalities and procedures; as such, it would use the approved baseline methodology AMS I.C., for thermal energy to the user, as outlined in Appendix B. The project meets CDM additionality requirements since it would “not have occurred anyway” due to the existence of various barriers of the type outlined in Attachment A of Appendix B, including prevailing practices in Brazil, where

Project Idea Note: Solar Water Heating Fee-For-Service Program in Brazil the water heater market is overwhelmingly dominated by conventional water heaters that use fossil fuels and electricity, and investment barriers, since the installed cost of the conventional alternatives is substantially lower than that of solar water heaters. As indicated in methodology AMS-I.C. “[f]or renewable energy technologies that displace technologies using fossil fuels, the simplified baseline is the fuel consumption of the technologies that would have been used in the absence of the project activity times an emission coefficient for the fossil fuel displaced. IPCC default values for emission coefficients may be used.” “For renewable energy technologies that displace electricity the simplified baseline is the electricity consumption times the relevant emission factor calculated as described in category I.D, paragraphs 6 and 7.” Based on the mix of fossil fuels displaced, in combination with electricity displacement, using IPCC default figures for fossil fuels and an electricity emissions factor calculated according to paragraphs 6 and 7 for projects in category I.D., preliminary estimates indicate that the emissions displacement will equal approximately 0.32 tons CO2 per m2 of collector surface per year, or a total of approximately 6,400 tCO2/yr for 20,000 m2 of collector installations. Specific global & local environmental benefits (In total about ¼ page) Which guidelines will be applied? Local benefits Local environmental benefits will include the displacement

of air pollutants associated with the combustion of fossil fuels used to heat water (i.e., directly) and fossil fuels used to generate electricity to heat water. In cases where solar water heaters displace electricity, some additional local (or host country) environmental benefits will accrue by reducing the need to add electric capacity, which in Brazil now often involves new thermal installations, and new hydro electric facilities, where the existing undeveloped hydro resources are found mainly in the Amazon basin. Global benefits CO2 reduction benefits will be calculated according to the methodology outlined under AMS-I.C. in Appendix B of the simplified modalities and procedures for small-scale CDM projects. Socio-economic aspects The project will result in energy cost savings for the solar What social and economic effects water heater end users, which will include public facilities can be attributed to the project such as hospitals and schools and also private enterprises. In and which would not have the case of public facilities, the benefit will accrue broadly to occurred in a comparable

Project Idea Note: Solar Water Heating Fee-For-Service Program in Brazil situation without that project? the public. Indicate the communities and the number of people that will benefit from this project. Which guidelines will be applied? What are the possible direct effects (e.g., employment creation, capital required, foreign exchange effects)? What are the possible other effects? Environmental strategy/ priorities of the Host Country: A brief description of the relationship of the consistency of the project with environmental strategy and priorities of the Host Country (Not more than ¼ page)

The project will create jobs in solar water heating installation and maintenance, and will contribute to growth in Brazil’s solar water heating manufacturing industry.

According to Brazil’s 2004 National Communication to the UNFCCC, “[i]n 2002, Brazil proposed the “Brazilian Energy Initiative” under the Global Sustainable Development Summit (Rio +10), in Johannesburg, South Africa, which called on countries to commit to increasing the share of new sources of renewable energy to 10% of their domestic energy supply, which demonstrates the country’s commitment to these sustainable development measures. As an example, Brazil’s federal government is seriously committed with Proinfa – National Incentive Plan for Alternative Energy Sources that expects to install an additional 3.3GW capacity to the grid through small hydro, wind and biomass cogeneration projects.

C. Finance Total project cost estimate Development costs Installed costs Other costs Total project costs Sources of finance to be sought or already identified Equity Debt – Long-term Debt - Short term Not identified Carbon finance contribution sought Carbon finance contribution in advance payments. (The quantum of upfront payment will depend on the assessed risk of the project by the World Bank.) Sources of carbon finance Indicative CER/ERU or vER Price (subject to negotiation )

US$6.5 million US$6.5 million TBD

US$920,000 TBD

TBD US$12.50 per CER / ton CO2

Project Idea Note: Solar Water Heating Fee-For-Service Program in Brazil Total Emission Reduction Purchase Agreement (ERPA) Value A period until 2012 (end of the first budget period) A period of 10 years US$600,000 A period of 7 years US$360,000 A period of 14 years (2 * 7 years) US$925,000 If financial analysis is available for the proposed CDM activity, provide the forecast financial internal rate of return for the project with and without the CER revenues. Provide the financial rate of return at the expected CER price above and US$3/ tCO2e. DO NOT assume any upfront payment from the PCF in the financial analysis that includes PCF revenue stream. Please provide a spreadsheet to support these calculations.