Nearly four million households in Latin America, Africa and Asia could benefit from small ‘pico-hydro’ (or family-hydro) units to supply electricity for domestic and local productive uses. The uptake of this technology could, in some countries, be stimulated through the Clean Development Mechanism, which forms part of less developed countries’ efforts to meet their emission reduction targets under the Kyoto Protocols.

Researchers from IT Power, UK, the Renewable Energy Association of the Philippines and the Vietnam Support Programme for Sustainable Energy Development analysed the potential for bundling the thousands of tiny family hydro systems into a package that would qualify to earn credits as Certified Emission Reductions (CER). Countries with emissions reduction commitments can buy CERs through the CDM, which enables industrialised countries to buy credits and support greenhouse gas emission reduction initiatives, such as clean energy in less developed countries. It was established under the Kyoto Protocol to achieve sustainable development and contribute to the cost-effective mitigation of climate change.

The researchers found that although Vietnam has about 120,000 family hydro units installed, they are not replacing significant previous energy consumption and CO2 emissions and therefore would not earn many CER credits. Furthermore, many systems in Vietnam are sold in local markets, often with no post-sale maintenance contracts, making monitoring of emission reductions for CDM purposes very difficult. In the Philippines, however, rural household energy consumption of mainly of diesel and kerosene is high so the potential replacement is greater. In both countries, financing from a successful CDM agreement would greatly improve the quality, efficiency and price of the technology to poor rural households. The project found that the ‘carbon finance’ could reduce family-hydro costs to end users by up to 15 percent in the Philippines.

A CDM project is not without risks. Renewable energy technologies such as pico-hydro might not be acceptable to rural households and may not be able to afford it, especially if natural disasters or economic downturns happen. Other potential significant barriers to a CDM project include:

• The size of the market, market delivery mechanisms, rural energy consumption levels, end-user acceptance, technology transfer capabilities, and institutional capacity for CDM all affect whether such a project will work. These factors create significant risk for delivery of CERs.
• Using CDM to support family hydro is only likely to be viable where at least 1 megawatt (measure of power equal to 1 million watts) of system capacity is being installed each year of the project.
• CDM transaction costs are high, particularly with relatively low carbon prices being offered for projects of this type.
• Streamlining procedures can reduce transaction costs but the costs of bundling need to be taken into account too.

Family hydro is a viable prospect for CDM. It does, however, require the right organisational approach, a large number of systems and risk mitigation to be taken into account in the project design. The project’s sustainable development benefits should be marketed in order to raise the carbon price. Its viability would be further enhanced if:

• standard sizes of hardware are used for bundled projects
• detailed information is first obtained on hydro resources, household incomes, current energy use and alternative energy choices before projects are launched
• monitoring for CERs is built into contracts with equipment dealers
• the crediting period is limited to lower the risk of insufficient CER delivery
• international CDM experience is used to further simplify baseline surveys and monitoring for small scale projects and demonstrate the successful development of bundles.

Source(s):
‘CDM Project to Stimulate the Market for Family Hydro for Low Income Families. Final Technical Report’, by Jason Mariyappan, Simon Taylor, Joanna Church and John Green, April 2004 Full document.

Funded by: UK DFID KaR 8150

id21 Research Highlight: 28 September 2005

Further Information:
IT Power
Grove House
Lutyens Close
Chineham, Hampshire
RG24 8AG, UK

Tel: +44 (0)1256 392700
Fax: +44 (0)1256 392701
Contact the contributor: minihydro@itpower.co.uk

IT Power, UK

Other related links:
'Meeting greenhouse gas targets and supporting development: a win-win situation?'

'Beyond Kyoto: towards a north-south bargain on climate change'

'Can the south afford to go green?'

'Can Europe’s ex-communist states profit from the trade in greenhouse gas?'

'Carbon trading and forests – opportunities for local development'

Clean Development Mechanism home page

The United Nations Framework Convention on Climate Change