The Global Environment Facility Pacific Alliance For Sustainability (GEFPAS) “Low Carbon Islands” project, executed by IUCN and implemented by UNEP in collaboration with the Niue government, aims to establish a Low Carbon Fund (LCF) of approximately US$80,000 to promote renewable energy and energy efficiency in Niue targeting private sector. After consultations with the main stakeholders of the project (Project Management and Coordination Unit, Niue Development Bank/Niue Commercial Enterprises Limited (NCEL) , Treasury, Niue Power Corporation, Niue Chamber of Commerce, Ministry of infrastructure, and Department of Environment) conducted by the independent consultant Marco Arena from the 5th to the 11th of May, 2015, it was decided to develop a proposal that outlined the structure of fund to be submitted for approval to Treasury, Niue Development (NDB), NCEL and IUCN.
This document describes the fund and its functioning in seven different sections: 1) Contracting Parties, 2) Functioning, 3) Operation Costs and Risks, 4) Reporting, 5) Termination, 6) Sustainability of the fund, 7) Communication strategy. The annexes include the LCF – Application Form Template, LCF Quarterly Report Template and the LCF – Cost-Benefit Analysis.
2. Contracting Parties
IUCN, Niue Development Bank/NCEL, and Treasury are the main parties of the Low Carbon Fund and thereinafter will be referred to as “Parties”. The paragraph below outlines a short description of the Parties and their role in the Fund.
- Niue Development Bank’s mission and purpose is to help accelerate economic and social development in Niue by providing lending/finance options for business and personal customers. It is associated with NCEL, which runs its operations. The two banks are jointly managed by Mr. Matt Macpherson. The role of these two institutions will be running the operations of the fund, reporting quarterly to the rest of the parties.
- The Treasury administers and disburses funds for all external projects in Niue. The Financial Secretary is Poi Kapaga. Funds will be channeled through this department and then disbursed to the NDB/NCEL
- IUCN is the international organization that manages the execution of the Low Carbon Islands project in Niue, Tuvalu, and Nauru.
Disbursement of funds
Once all parties agree about the features of the fund, a sub-grant agreement will be drafted and signed by the parties. This sub-grant agreement should specify, among other details, how the fund will function and reporting obligations among the different Parties.
Funds will be transferred from IUCN to the Treasury that will then channel them to the NDB to operate the fund according to the guidelines detailed in the sub-grant agreement. Beneficiaries of the fund will be all those customers that meet the requirements outlined in next section.
Figure 1 outlines the relationships among the parties
The objective of the fund is to provide a sustainable incentive for the private sector (businesses and households) to switch towards energy efficient appliances. This is in line with the efforts of Niue Power Corporation to decrease the dependency of Niue from fossil fuel through targeting energy demand instead of supply. The appliances targeted by the fund are washing machines, fridges, and freezers that, according to 2011 Census data and recent surveying, make up for most of the energy demand in the country. Two main types of customers will be able to access the fund:
• Customers A: Customers willing to buy an appliance directly without accessing a loan,
• Customers B: Customers willing to buy an appliance accessing a loan with NDB/NCEL.
To ensure that the targeted appliances will effectively be more energy efficient, the project will rely on two joint labelling schemes promoted by Australia – Department of Industry and Science and New Zealand – Energy Efficiency and Conservation Authority (EECA) . The first scheme uses a user-friendly star system to assign efficiency ratings to different appliances. 0 stars equates to a non-energy efficient appliance, while 6 stars corresponds to maximum efficiency. Only fridges and freezers that score 3.5 or more, and washing machines that score 4 or more stars will be eligible to apply to the fund. The selection of the thresholds has been selected based on three main characteristics of the Niue and the Australian markets:
- From a short assessment conducted by the consultant during the mission in Niue, most of the appliances currently in the country do not have an energy efficiency rating. Those rated do not score more 2 stars on average. Based on the analysis conducted by the consultant the average yearly difference in consumption between appliances rated 1-3 stars and appliances rated 3.5 or above is 226 KWh for refrigerators and 125 KWh for washing machines which can be considered a reasonable saving target given the project.
- From an analysis of the refrigerators sold in the Australian markets (at this link the database) 6% of the top rating models score 3,5 stars or higher, while washing machines 8% of the top rating models score 4 stars or higher. This selection of the star rating thresholds results in a good balance of energy efficient products on the market that are eligible for the incentive. 6% and 8% of market share allows customers and retailers to find easily eligible appliances and at the same time is not too wide that customers and retailers would have bought the appliance anyways regardless of the financial incentive provided by the fund.
- The preliminary CBA (See Annex III for more detail) conducted for the Low Carbon Fund in Niue shows that given this selection of thresholds, the benefits of the project outweigh its costs by a 4.9 factor.
Figure 2 – Example of label present on appliances from in NZ and Australian markets
The second scheme that is taken into account is the Energy Star – Superior Energy Efficiency. This certification, that can be given in addition to the star rating or by itself, is awarded to qualified appliances with superior energy efficiency standards that on average use 30% less energy than standard products.
(Figure 3 – Energy Star. Superior Energy Efficiency logo)
The financial incentives provided by the fund have been calculated measuring the mark-up price for energy efficient appliances on the Kiwi market and adjusted for Customer B given the average cost of interest on a loan for home appliances.
If Customers A will satisfy the eligibility criteria, they can apply for a 25% discount on the appliance.
If Customers B will satisfy the eligibility criteria, they can apply to a 0% rate loan and a 10% discount on the appliance.
These incentives are considered to be high enough to provide a substantial incentive towards energy efficiency, but at the same time not to create a perverse incentive to purchase more appliances than the real need. The economics of the incentive scheme has been tested in a preliminary CBA.