New Methodology on Cross-Border Electricity Transmission Approved by UN Climate Change Board
In its 69th meeting held in Bangkok, September 9-13, the Clean Development Mechanism (CDM) Executive Board of the United Nations Framework Convention on Climate Change (UNFCCC) approved a new methodology – the AM0108 “Interconnection between electricity systems for energy exchange.” The methodology is applicable in accounting for certified emission reductions (CER) due to the construction of new transmission lines connecting electricity grids with different carbon intensities. It now makes it possible for such cross-border electricity transmission projects to benefit from a new source of revenue from the sale of CERs. The new methodology is based on a proposal made by the African Development Bank (AfDB) through its African Carbon Support Programme (ACSP), with technical contributions from Carbon Limits, Norway. The ACSP has benefitted from the Fund for African Private Sector Assistance (FAPA), a joint initiative of the AfDB with the Governments of Japan and Austria.
African countries have had relatively limited participation in the CDM though it remains the only tested, accountable and truly international trade-based climate finance mechanism. This has been mainly due to the lack of methodologies that are applicable to the African situation. The successful approval of this new methodology will bridge these gaps to enhance Africa’s participation through the electricity transmission sector. The new methodology bears significant relevance for countries, such as Ethiopia, Democratic Republic of Congo, Zambia and Angola, which have extensive renewable energy resources that exceed their current national needs and could readily be exported. With the often prohibitive cost of infrastructure development, the additional revenues from the sale of CERs will contribute to the economic viability of such projects. It is timely as it comes on the heels of renewed targets for universal access to sustainable energy for all, particularly in Africa, and represents a valuable contribution to the enabling environment for financing the development of regional power pools and cross-border electricity trade towards these targets. Africa has enormous potential for clean energy production, with hydropower resources alone amounting to an estimated 1,750 TWh. With this scenario and expectations for carbon credit prices to rise in the future, despite the current all-time low prices, this new methodology creates significant opportunities for financial revenues of up to US $590 million per year (at a CER price of US $5) by 2020 in support of low carbon growth in Africa.
In fact, the methodology has been prepared specifically for one such interconnection project which is being developed jointly by the Ethiopian Electric Power Corporation (EEPCo) and the Kenya Electricity Transmission Company Limited (KETRACO). Once completed, the project will lead to an annual reduction of over 7 million tonnes of CO2 per year. This reduction is equivalent to the CO2 emissions from a coal-fired power station generating about 4,700 GWh of electricity per year, and is also practically equal to Ethiopia’s or Côte d’Ivoire’s current total annual CO2 emissions. Over the project’s 10-year crediting period, emission reductions (ER) will total approximately 70 million tonnes of CO2 and revenues from the sale of these ERs will strengthen the project’s viability.