Following in the footsteps of the enablement through carbon credits of South Africa's first mass greening project which entailed equipping 70 000 low income houses in Nelson Mandela Bay with solar water heating systems, Standard Bank is making available some R22 million for use by local service providers and manufacturers of these systems to assist with continued roll-out of the project.
Launched in late 2010 by Standard Bank in collaboration with the Nelson Mandela Metropolitan Municipality, International Carbon, Industrial Development Corporation (IDC) and the Solar Academy of Sub-Saharan Africa (SASSA), the project supports government’s plan to have one million houses equipped with solar water heaters by 2014.
Government’s solar water heater plan forms part of South Africa’s Green Economy Accord which was launched at COP 17 in Durban in 2011. The Accord is one of the most comprehensive social pacts on green jobs in the world, the primary focus of which is the creation of 300 000 new jobs by 2020 via green industries.
Standard Bank’s 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 to 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 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 USD180 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. Standard Bank is also 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 their goal of 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'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 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."
“The Nelson Mandela Bay project, specifically, also proves to business and the person in the street that you can make a massive difference by doing something as simple as installing a solar geyser. It turns environmental theory into practical reality at the level of the everyday person.”