Following up on its enablement through carbon credits of South Africa's first mass greening project - the equipping of 70 000 low-income households in Nelson Mandela Bay (in Eastern Cape province) with solar water heating systems - Standard Bank Group is to make available some R22-million for use by local service providers and manufacturers of the systems to assist with continued roll-out of the project.
Launched in late 2010 by Standard Bank Group in collaboration with the Nelson Mandela Metropolitan Municipality, International Carbon, the Industrial Development Corporation (IDC) and the Solar Academy of Sub-Saharan Africa (SASSA), the project is in support of government's plan to have 1million houses equipped with solar water heaters by 2014.
The project has been registered to earn carbon credits with the Clean Development Mechanism (CDM) Executive Board of the United Nations Framework Convention on Climate Change (UNFCCC), under the Kyoto Protocol. The Protocol allows industrialised countries to invest in projects that reduce greenhouse gas emissions in developing countries. This enables industrialised nations to sponsor a net global reduction in carbon emissions at a lower overall economic cost for themselves. The CDM EB issues carbon credits only once a carbon-reducing activity is completed.
The Nelson Mandela Bay project which has a target of 230,000 solar water systems will take several years to complete, necessitating upfront financing to bridge to the revenue from the carbon credits. Standard Bank has therefore committed to making advance payments of up to R25-million to get the project started.
And, by hedging the price of the credits that will ultimately be sold by the bank in a market worth US$180-billion globally, the bank will make upwards of R140-million available to the continued roll-out of solar geysers over the next ten years. Hedging the price has also protected the project from the fall in the price of carbon credits triggered by the European debt crisis.
In providing the finance Standard Bank Group is working with the IDC, which is providing risk mitigation guarantees on R8 million, and International Carbon, which is completing CDM technical requirements.
"We are taking the risk of pre-paying for the Nelson Mandela Bay project credits because we want to help government fund those one million solar water heaters - and also because Standard Bank believes it needs to help mitigate the profound impact that climate change will have on South Africa's ability to grow and develop," says Geoff Sinclair, Standard Bank Group 's head of carbon sales and trading.
"However, it's a challenge to fund sustainable development using conventional financial instruments. Climate change poses a new challenge and so it has to be addressed using new tools.
"That said, creative financing in this sector is more than usually satisfying because it serves everyone, from grass roots to government. It uses the paper value of environmental financial instruments to unlock tangible financial value for people.
C"The Nelson Mandela Bay project, specifically, also proves to business and the person in the street that you can make a massive difference to the environment by doing something as simple as installing a solar geyser. It turns environmental theory into practical reality at the level of the everyday person."
Less than a year old, the Nelson Mandela Bay project is exceeding expectations, with some 70 000 solar water heaters having been installed to date.
Apart from breaking ground on the credits themselves, Standard Bank is also pioneering the UNFCCC's use of provisions for "programmatic" CDM where, rather than individual approval of each individual installation, the UN approves a programme of activities that is then audited for carbon credits on a statistical sampling basis.
This is a new mechanism that is particularly well suited for Africa given that many sustainable development project opportunities in sub-Saharan Africa consist of mass application of 'micro' technologies.
Standard Bank has been active in carbon credit markets since 2003, trading through its international operation in London, with additional dedicated specialists in China, Nigeria, Singapore and South Africa. Standard Bank's contacts and skills are applied in particular to helping customers in emerging markets extract maximum value for their projects.
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