Can carbon finance contribute to the promotion of solar water heating in Bolivia?

Abstract

Residential applications of renewable energy can contribute to reducing greenhouse gas emissions while improving the quality of life for households. Thermosiphon solar water heaters are passive systems using solar energy to supply hot water for residential or industrial use. Replacing fuels or electricity for heating, solar water heating systems can substantially reduce a household’s energy demand. Despite the economic and environmental benefits, several barriers hinder the broader adoption of solar water heating in Bolivia. These include an investment barrier due to the high upfront costs, lack of awareness and little confidence in the technology. This study investigated whether carbon finance can contribute to overcoming these barriers: Access of the voluntary carbon market by registering a micro-scale project activity verified by the Gold Standard (GS) was investigated. Potential financial benefits were studied from both a project developer and an end-user perspective. For project baseline scenario determination and related emission reductions calculations, the CDM small-scale methodology AMS-I.J (solar water heating) and its stipulated energy saving method were applied, resulting in emission reductions of 0.425 tCO2 per square meter collector area. The state and recent development of the carbon market was studied in order to be able to make reasonable assumptions on the VER (Verified Emission Reduction) price. The maximum collector area generating emission reductions lower than micro-scale limits was estimated to be reached in the sixth year of the crediting period. Assuming this collector area and a constant VER price of 15 USD, 3.9% of capital investment expenditures (CAPEX) could be recovered within the first crediting period of 7 years and 16.4% of CAPEX within the maximum crediting time of 21 years. Sensitivity analysis showed that these numbers are significantly more affected by VER price changes than by increase of CAPEX. From an end-user perspective, Simple Payback Periods (SPP) of between 10.1 and 16.4 years without VER revenue was calculated, depending on the system size. Earnings from VER revenue will decrease the SPP to between 9.7 to 12.8 years. Given the determined relevant benchmark Internal Rate of Return of 13.82%; a negative Net Present Value (NPV) was calculated for all systems without and with VER revenue. VER revenue however would increase the NPV 186 USD for all systems, thus significantly reducing the investment barrier.