What the hotel industry can learn from solar to finance CHP by Larry Thrall

The hospitality industry is poised for a boom in the use of combined heat and power systems (CHP) due to the low cost of natural gas and the ever-increasing cost of electricity. Hotels are a natural match for CHP due to their high baseload demand for energy and the ability to efficiently use the heat generated from these systems by offsetting hot water, heating and air-conditioning loads.
In addition, CHP technology has become more reliable, remains comparably inexpensive and creates efficiency. The spark spread is the difference between the cost of burning natural gas for electricity and buying that electricity directly from the grid. In the United States, this difference has never been larger -- and hotels can take advantage of this.
There is one problem, though, that stands in the way of CHP's widespread adoption.

The problem
The principal barrier to the sale of CHP is finance.
The majority of potential sales are constrained by their available investment capital. We estimate that nine of 10 potential clients will be limited by their capital budget to buy a CHP system. So far, the CHP industry has been actively pursuing this well-funded 10 percent of the market. Other major target market sectors -- such as municipalities, hotels and hospitals -- are not as flush with cash. These markets continue to limp along with the economy.
Further, most companies have other priorities for the limited use of their capital. In addition, CHP is a technology that is not familiar to most of the potential clients. As a result they are most likely not aware of their financial options when purchasing such a system. Last, these systems come with other risks such as gas price risk, operations and maintenance costs and equipment failure risk.

Next Learning from solar as a
solution
What can we learn from the solar industry? The solar business developed very quickly over the last three years into a thriving industry. This happened in part due to market conditions, tax incentives, rebates, and lower costs.
The primary mover was the ability for the financial sector to quickly develop products that could wrap all of these benefits up into a tight little package called a power purchase agreement (PPA). This is how traditional utility energy projects have been financed for years.

The power purchase agreement opened the door to finance these capital-intensive projects over a larger portion of their useful life. Innovators in the solar industry realized that they could structure smaller commercial and residential installations in the same way.
The birth of the solar PPA has been one of the primary reasons for the immense growth in the solar industry. It offers the end user the ability to buy solar power with little technology or finance risk. Finance companies can monetize the tax incentives and rebates while passing along some of these benefits to the customer in the form of a lower cost of energy.
Solar projects with paybacks of seven to 10 years and useful lives of more than 25 years are financed over 15 to 20 years. The investors are given an above market return and the customers
are given a lower cost of electricity. Everybody wins. The majority of solar customers would not have bought solar without this structure.

PPA contracts and operating leases for CHP
The CHP industry needs to offer PPA or off-balance sheet finance to its customers in order to compete. The customer needs to be convinced that they are not buying hardware, but instead buying a lower cost of energy. Inherently, CHP has different risks associated with it. These risks need to be addressed and assembled into a nice little package for the customer.

Technology risk
Whether it is a fuel cell, internal combustion engine or turbine, each technology has a risk.
Performance guarantees are usually offered by the manufacturers on their products that help ensure the production on heat and electricity on projects. For smaller and/or newer technology providers, additional insurance may be available to cover default on any performance guarantees that may be offered.

Mitigating natural gas price risks
The risk of natural gas prices during the life of the contract needs to be mitigated. Long-term natural gas contracts can be secured to match the term of the finance offered. Below are a few of the options offered by suppliers on how we structure natural gas contracts:
Flat rate contract -- Pay the same price for the life of the contract. This locks in a set price for the life of the contract, passing on more benefit towards the end when prices are more likely to have risen much more than the end years' contracted price.
Escalating price contract -- Start with a base rate, and increase it over the life of the contract.

This allows the customer to know what they will be paying and take more of these benefits up front while increasing the cost at a pace that the client is comfortable with. Usually the escalator is set at or below the projected escalated price of competing electricity prices.
Floating rate with collar -- The price will fluctuate with the market, but the client will have a ceiling set for the price during the life of the contract.
This allows the client to benefit from the potential lower market prices while paying a premium to hedge their ultimate risk of paying a price above that ceiling, which may be set at their estimated competing electricity prices.

O&M contracts
Operations and maintenance (O&M) of the CHP equipment is an important area in which the client does not want to undertake any risk. The customer wants to pay for electricity and heat, not equipment that may or may not work. This risk can be reduced with a comprehensive operations and maintenance agreement. O&M contracts should be full service, helping eliminate down time. The O&M contracts should match theterm of the finance offered.

Finance
Once we have developed the bundle of offerings above, we can then offer capital leases, operating leases or PPAs that match the same term as their service bundle. The longer the tenure, the higher the returns -- which increases the probability of closing a deal.

The current market supports up to a 10-year tenure on operating leases and PPAs. For projects over 10 MW, structured finance is available matching equity or tax equity investors as well as lenders for the debt component. Credit is still not easy to obtain, but more lenders are now interested in lending into this industry. Ideally, the client needs to have shown profit for two of the last three years, in addition to having a strong balance sheet. Debt service coverage ratio is expected to be at or above 1.25.

Rates for operating leases can be as low as two percent on a 10-year operating lease. This includes the 10 percent U.S. investment tax credit (ITC) that is given to the bank. Certain lenders are more comfortable with certain industries, so finding the right person at the right bank is important to finding the best deal.
There are a few brokers that specialize in energy-related finance that can help to secure the best possible finance for a certain type of client. For instance, a client may want to use their existing banking relationship and be declined or offered a shorter tenure or higher rate than what they may obtain from the same bank through a broker that is specific to this type of finance.

In summary
The key to implementing CHP for hotels is to reduce risk by properly addressing the associated risks: technology guarantees, solid operating and maintenance agreements, long-term natural gas contracts and insurance along with creative financing structured to the individual needs of the hotel.

This article originally appeared on Green Lodging

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First loans worth more than USD $3million approved under CDM Loan Scheme

A newly launched loan scheme aimed at increasing the number of Clean Development Mechanism (CDM) projects in developing countries has authorized the funding of more than USD $3 million towards 23 CDM projects. Xiaodi Cai : A way to a better life (CDM project 3965) Bonn, 12 September 2012 - A newly launched loan scheme aimed at increasing the number of Clean Development Mechanism (CDM) projects in developing countries has authorized the funding of more than USD $3 million towards 23 CDM projects.

The loan scheme is run jointly by the United Nations Office for Project Services (UNOPS) and the United Nations Environment Programme (UNEP) Risoe Centre on behalf of the United Nations Framework Convention on Climate Change (UNFCCC). It provides interest-free loans for CDM projects in least developed nations with fewer than ten registered CDM projects.

"We are pleased to see the momentum the CDM Loan Scheme is creating. Often these are small scale and innovative project ideas that benefit traditional communities," said Jan Mattsson, UNOPS Executive Director. "The next step for UNOPS is to distribute the loans to the selected entities and to monitor their progress towards clean energy solutions - making a real difference."

The selected projects are very diverse - ranging from household-level energy efficiency (such as energy-efficient cook stoves) to methane avoidance to transportation.

"The strong interest in the loan scheme and wide range of project types and locations are further indications of the continuing strong interest in, and relevance of, the CDM in the fight against climate change," said John Kilani, Director of the Sustainable Development Mechanisms programme at the UNFCCC secretariat.

The bulk of the selected projects come from Africa, with 17 of the 23 projects located on the continent.

"It is indeed very positive to see that the majority of the selected projects come from Africa," said John Christensen, Director of UNEP Risoe Centre.

"This indicates that the offset project
infrastructure is transforming market access."

There are also three projects in Asia, two in the Middle East and one in Latin America. The majority of the approved loans are programmes of activities (PoA), of which there are 13. Seven are small-scale projects and three are large-scale projects. The loans, subject to a formalized agreement, will cover the development of project design documents, validation by designated operational entities and the first verification of emissions.

Applications are currently being accepted for the second round of the CDM Loan Scheme. The deadline for applications is 30 September 2012.

For more information see: www.cdmloanscheme.org.

Culled from UNEP.ORG
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"You can take 2liters of acid and shut up" - Hon. Dino Melaye (former House member)

Former Nigeria House of Representative member, Dino Melaye, seems to know how to attracts attention to himself for whatever reason.

He was caught recently telling someone on twitter to "take 2litres of acid and shut up".

The incident occurred when a twitter handler @topeatiba initiated an online forum on the topic 'Who Is Dino Melaye' using the hashtag #WhoIsDinoMelaye?

After some tweets from other twitter users that questioned the former honourable's motive behind series of protests he led against the government he once benefited from, Dino Melaye seems to lost his cool as he fired back.

"@topeatiba you can take 2liters of acid and shut up"

In another response by Melaye, he said "@topeatiba I have always done (serve). (It) is either you were in comma or in jail when I was serving"

The motive behind the forum, according to the initiator, was to create a platform where the former representative member's recent activities and motive can be discuss and his idea better understood.

It will be recalled that fmr rep member, Dino Melaye was suspended from the House after he led a group that caused uproar on the House floor. He regained his seat but was defeated in the next general election that ought to return him back to the legislative arm of the government. He was also at the front of the OccupyNigeria protest in Lokoja, Kogi state in January 2012 when the federal government of Nigeria removed fuel subsidy.

Dino Melaye who has 13309 followers as at the time of this report is yet to remove the tweets from his account.

Report by Odedeyi Abiodun
Twitter: @abiodunodedeyi
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African farmers must do more to beat climate change: study By Alister Doyle (Reuters)

African farmers are finding new ways to cope with droughts, erosion and other ravages of climate change but need to develop even more techniques to thrive in an increasingly uncertain environment, scientists said on Friday.

Small holders have started to plant more drought - resistant and faster-growing crops to keep the harvests coming in, according to a survey of 700 households in Kenya, Ethiopia, Uganda and Tanzania.

"The good news is that a lot of farmers are making changes," said Patti Kristjanson, who heads a programme on climate change, agriculture and food security at the World Agroforestry Centre in Nairobi and led the study.
"So it's not all doom and gloom ... but much more needs to be done," she told Reuters.

Farmers, backed by researchers and international donors, needed to find better ways to store rain water, increase the use of manure and bring in hardier crops like sweet potatoes, she said. In the past decade, 55 percent of households surveyed said they had taken up faster-growing crop varieties, mainly of maize, and 56 percent had adopted at least one drought-tolerant variety, according to the findings in the journal Food Security.

FIGHTING EROSION
Fifty percent of the households were planting trees on their farms - helping to combat erosion, increase water and soil quality and bring in new crops like nuts.
Half of the farmers had introduced inter-cropping - planting alternate rows of, for instance of beans and maize, in the same field and then swapping the rows next season. Beans fix nitrogen in the soil, helping reduce the need for fertilisers.

But Friday's study found just a quarter of farmers were using manure or compost - avoiding the use of more expensive fertilisers. And only 10 percent were storing water, it added.
The study said that global warming, leading to erosion, less reliable rainfall and changes in the length of growing seasons, was adding to other stresses for farmers worldwide such as price spikes and a rising population.

Kristjanson said the study showed encouraging signs of many farmers' willingness to adapt.
But faster change may be needed because Africa is especially vulnerable to climate change, according to the U.N. panel of climate scientists which blames heat-trapping emissions of greenhouse gases from burning fossil fuels.

In Africa, up to 220 million people could be exposed to greater stress on water supplies by 2020 and yields from rain-fed agriculture in some countries could be cut by up to 50 percent by 2020, according to a 2007 U.N. report.

Culled from reuters.com

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