Ghana’s Programmatic CDM Proposal for Energy Efficiency

Standard for Room Air Conditioners

A.K. Ofosu Ahenkorah

Energy Foundation

COP/MOP 12

Nairobi 2006

CDM Project Objectives

• Make Mandatory Room Air Conditioner Standard enforceable in Ghana by building a modern testing Laboratory at the Ghana Standards Board.

• Reasons:• The removal of the least efficient air conditioners

from the Ghanaian market will save significant amounts of energy

• Reduce growing dependence on imported energy• Reduce cost of electricity for consumers

Basis of Standard: Room Air Conditioner Survey 2001 & Analysis

• Objectives of Survey:

To establish the basis for a proposed minimum energy efficiency standard for Room Air Conditioners (RAC)

Findings

• Purchase price increases w/ cooling capacity

• Wide range of prices within capacity categories

• Prices may not increase with efficiency

• Wide range of efficiency within capacity categories

• Most expensive not necessarily most efficient!

All UnitsPurchase Price vs. Efficiency

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2 2.25 2.5 2.75 3 3.25EER

US$RAC Units

The Proposed Standard• Require that the minimum air conditioner have an

“Energy Efficiency Ratio” or EER of 2.8 or higher.

• The EER is the amount of electricity required per unit of “cooling,” expressed as watt/watt or Btu/hr/watt. Cooling Capacity is the maximum amount of “cooling” that a unit can provide, expressed as Btu/hr or kW.

• Any AC units below this standard cannot be sold in the Ghanaian market.

• A testing lab would be required to enforce the standard.

• The goal is to stop the “dumping” in Ghana of inefficient units that cannot be sold in the West

Potential Energy & Cost Savings• The RAC Standard will save Ghanaian consumers an average of $64

million annually in energy bills.

• Payback on the initial incremental investment in efficiency by consumers is less than 9 months.

• The average price of RAC may go up by about 3% for the proposed standard, however, the new RACs will use about 9% less energy, paying off the investment very quickly.

• Carbon dioxide emissions will be reduced by about 2.8 million tons over 30 years (104,890 tons per year).

• A 2003 compliance with the standard would have immediately freed up 13 megawatts of generating capacity and by 2014 will be saving the equivalent of a 150MW generating plant. By 2020, this standard alone will be saving about 950GWh per year, freeing up nearly 250MW of generating capacity at net negative cost to the economy.

• In contrast, the 400MW Bui hydropower plant is being constructed at a cost of nearly US$600 million.

National Energy and Consumer Cost SavingsEnergy Savings (2.8 EER)

High growth, high electricity prices & low interest rates.

Low growth, low electricity prices, & high interest rates

up to 2010 1,453 GWh 1,200 GWh

up to 2020 8,522 GWh 6,764 GWh

up to 2030 19,497 GWh 15,109 GWh

(Dollar savings to consumers, NPV, 2010)

$245.10 million $116.64 million

Emission reduction, up to 2010

0.2 mt of CO2 0.16 mt of CO2

up to 2020 1.2 mt of CO2 0.9 mt of CO2

up to 2030 2.8 mt of CO2 2.1 mt of CO2

Cost and Saving of New Room Air Conditioners

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Per-Capita 2001 Dollars

2030202520202015201020052000

Energy Saving

Price Change

Net Saving

Why Would Standards be a CDM Project?

• Although Mandatory Standards relate to Policy and Legislation issues EE standards face a number of barriers:

• Enforcement, testing labs, public awareness, etc.  Major upfront analysis as well and all these have costs that need to be paid for

• CERs are a good way to attract investors for upfront costs, such as a testing lab.

• CERs are a good way to pay for monitoring and enforcement, which can also be expensive.

• In the case of Ghana, without CERs, there is no way this standard can be implemented.

From the CDM Perspective

• This is a unique kind of project – a government policy itself being the CDM project

• Energy Foundation and QualityTonnes submitted this project as NM0072 to the Meth Panel. MP requested guidance from CDM EB.

• CDM EB could not agree on whether mandatory government policies can count for CDM until COP/MOP 2005-Montreal

Issues Raised • Ownership of CERs – who owns the credits for such a

dispersed project? Proposal in this case: Ghana’s Energy Commission – The Energy Regulator

• Additionality – need to show that the policy itself could not be implemented without CDM. This is possible in the case of Ghana but may be tricky in other cases. May require an additional level of proof by the project developer beyond the current additionality test tool.

• Monitoring: Methodology requires sampling of key variables (hours of use, etc.). Method proposes sampling to a margin of error of less than 5% -- then discounting ERs by the margin of error to be conservative. Sampling is allowed in CDM.

Issues (con’t)• Double-Counting – in the case of this project, no one should

be able to claim credit from buying a new AC unit – whether its retailers, distributors or individuals. Ghana DNA can enforce through approval process.

• Free Riders: Could be a problem with other types of programmatic CDM (eg: a voluntary EE program). The mandatory standards avoids that problem by making only one entity – the Government Energy Regulator – the sole holder of CERs.

• Leakage: No additional leakage should occur in this case but again, could be an issue in other types of policy-CDM programs.

• Decision http://unfccc.int/meetings/cop_11/items/3394.php in the document called "Further guidance relating to the clean development mechanism", para. 20. now clears the way for programmatic CDM

Additionality• The Ghana air conditioner standard depends on the

construction of a modern testing laboratory. • This is an expensive piece of equipment, difficult to maintain

and require a trained staff. Few developing countries have government-run testing labs, because of these barriers.

• There are no plans to build a testing lab in Ghana, and thus according to the policy of the Government and to avoid unnecessary litigation, the standard will only be voluntary without the testing lab, the primary means of enforcement and monitoring. As such, the standard will most likely be worthless in terms of getting the least efficient models dropped from the market.

• Only with carbon investment is the testing lab likely to get built and the standard – with all of its benefits – likely to be implemented.

Investment Requirements and Sources

• Development Cost = US$0 (much of analysis has been completed)

• Installed cost of equipment = US$1.4million• Other Costs =US$0.625million ($25k one time

investment for Staff training, staff cost per year=US$60k/yr for 10 years=$625k)

• Total Cost =US$2.025million• Ghana Govt contribution=US$684,110• Carbon Finance= US$1,240,890 over 10 years• Indicative CER/VER unit price=US$5/tonne

CO2.

Project Risks

• the economy has a severe recession or political instability disrupts economic growth. In that case, fewer room air conditioner units would be sold. However, given Ghana’s political stability over the years, this seems like a modest risk.

• The monitoring of the CO2 reductions will provide a challenge as sales numbers (important here will be import data which is publicly available), surveys on use of air conditioners and other data will need to be performed as much as every year or two.

• The monitoring costs of the project will be higher than single-site projects and will depend on high-quality, statistically significant survey data. This risk is mitigated somewhat by the amounts of technical assistance provided to Ghana already from USAID and the UN Foundation. This work has already led to voluminous amounts of data and built capacity.

Current Status & Next Steps

• Legislative Instrument enforcing standards passed by Parliament, under Act 541 in November 2005

• Public Education to Commenced September, 2006• Mandatory Labeling to commence November 30, 2006• Testing Facility to be built – expected completion

date????• Testing and Full enforcement after completion of Test

Facility• Refrigerator, Deep Freezer Standards being developed

Ghana Air Conditioner Label

Appliance Standards Worldwide

*as of 1999

*

Thank you

www.ghanaef.org