1. Buyers' and Seller's Perspectives on JI : The Fund Perspective
Ash Sharma
Facility Manager,
Testing Ground Facility (TGF) Carbon Fund
UNFCCC Technical Workshop on Joint Implementation
Bonn, February 2007

2. Scope of Today’s Discussion
About NEFCO and the Testing Ground Facility
TGF Strategies Regarding Joint Implementation
Project Risks and Mitigation
Pricing and Risk Management

3. Key Features of the Testing Ground Facility
A regionally focused carbon purchase fund, acquiring AAUs & ERUs on behalf of its investors (compliance vehicle)
Countries of operation : Baltic states, Poland, Russia & Ukraine
Focus on energy related projects (but also other project types can be included)
A Public Private Partnership based model, including 6 Governments and 8 private sector companies
Subscribed capital currently stands at €35 million
Fund management services provided by NEFCO (Experience : almost 100 transactions in Russia, > €80m)
Current portfolio of 14 projects

4. STRUCTURE & ACTIVITIES
NORDIC ENVIRONMENT FINANCE CORPORATION
THE INVESTMENT FUND
TGF
NEDF
OTHER
FUNDS
LOANS
MEZZANINE.
RISK-
CAPITAL
EMISSIONS
PURCHASES
CONDI-
TIONAL
GRANTS
GRANTS
SOFT
LOANS
LOCAL
FUND
PROJECT
ENTERPRISES
MUNICIPALITIES

5. TGF Investor Base (as of June 2006)

6. TGF Strategies regarding JI
Technology / Project Type :
focus on energy related projects (mandate)
renewables (mainly wind, solid biomass and biogas)
energy efficiency (energy sector, supply and demand side, industrial projects)
other project types fuel switching, methane avoidance etc
Defined geographic focus where NEFCO is strong
Baltic Sea Region (active since 1991) & Ukraine (since 2004)
Project size : focus on small to medium sized projects but also interested in larger volumes
average so far ~216,000 tCO2e reflects initial fund size
Overall, portfolio approach aims to diversify/distribute delivery risk across TGF portfolio

7. Project Risks and Mitigation
Business risks of the underlying project
construction risk and construction delay risk
performance risk, mainly technology risk and risks relating to resource availability (e.g. biomass, wind)
counterparty risks (financial standing and technical capacity)
environmental and social risks
Financial risks
Adequate cashflow to cover project overruns, O&M, debt servicing and a reasonable return on equity
Sectoral (competitive) and regulatory risks esp. renewables
Baseline risks
CDM methodologies / project specific methodologies

8. TGF works in two groups of countries :
Country Risks
TGF works in two groups of countries :
Countries with advanced economies in transition, part of EU and with generally favourable investment climate
Countries with intermediate level of transition to market economy, often difficult business environment and barriers to investment
Key Country risks
Kyoto Risk, failure to comply with Kyoto obligations such as calculation of AAUs, registries, inventories etc
Political risks (foreign exchange convertibility, expropriation etc)
For TGF, given our mandate, country risks are "priced in"

9. Pricing and Risk Management
Pricing depends on risk, main factors for TGF:
project maturity (TGF risk appetite favours engaging with projects at an early stage, projects with LoAs demand higher prices)
transfer risk (ie payment on verification (VERs) vs delivery to nominated registry (ERUs)
size of project (e.g Baltic states, small projects but lower HC risk)
technology / project types (premium for renewables demanded)
Other risk factors
host country risks, project risks / performance risks, creditworthiness of seller (difficulties in EITs/ emerging markets)
Competition from other buyers - not risk related, but an increasingly important price determinant in our markets

10. For Further Information
Ash Sharma
Facility Manager, TGF
NEFCO
Mobile
Office
For general information visit
In Ukraine:
Vladimir Morozov
TGF Representative
Office :
Mobile