The Baltic Sea Region Testing Ground Facility (TGF) is a regional carbon finance facility structured as a Public Private Partnership between Governments and private sector utilities and industrial companies in the Baltic Sea Region. It is a compliance vehicle which purchases AAUs and ERUs from energy related and other projects on behalf of its investors.

In September 2003 an intergovernmental agreement, the Testing Ground Agreement, was concluded between several of the governments in the Baltic Sea Region establishing a regional Testing Ground for Joint Implementation with the aim to stimulate an early follow-up of the Kyoto Protocol and to help the countries of the Baltic Sea Region to position themselves favorably in respect of fulfilling their own commitments under the Kyoto Protocol. The countries participating in the Testing Ground cooperation are Denmark, Estonia, Finland, Germany, Iceland, Latvia, Lithuania, Norway, Poland, Russia and Sweden.

As a part of the Testing Ground cooperation a new fund, the Testing Ground Facility (TGF), was established at the end of December 2003, to provide financial assistance to investment projects by purchasing emission reduction credits.

Following the closure of the second subscription on 31st March 2006, the TGF now has a total fund capital of 35 million. The principal investors are:

• Kingdom of Denmark
• Republic of Finland
• Federal Republic of Germany
• Republic of Iceland
• Kingdom of Norway
• Kingdom of Sweden
• DONG Naturgas A/S (Denmark)- Energy
• Fortum Power and Heat Oy (Finland)- Heat and power
• Gasum Oy (Finland)- Gas transmission
• Keravan Energia Oy (Finland)- Heat and Power
• Kymppivoima Oy (Finland)- Power
• Outokumpu Oy (Finland)- Stainless steel
• Vapo Oy (Finland)- Heat and power, biofuels
• Vattenfall Europe Berlin AG & Co. KG (Germany)- Heat and power

The Nordic Environment Finance Corporation (NEFCO) is the Fund Manager. NEFCO is an international financial institution with wide experience of financing environment and energy projects in the potential host countries in the region.

The TGF invests in projects with a potential for delivering cost-effective ERUs (according to Article 6 of the Kyoto Protocol) and AAUs (according to Article 17 of the Kyoto Protocol) for the account of the investors.

TGF portfolio overview

The Fund Manager has sought to diversify portfolio risk across project types, with an emphasis on renewable energies and energy efficiency projects, and the TGF’s countries of operation (Russia, the Baltic States and Ukraine), taking into account the technical and realizable potential in those markets.The portfolio shows a strong emphasis on renewable energy and energy efficiency projects. The projects are distributed between wind, biomass/biogas technologies and cleaner production projects.

The TGF is split between the Baltic and Ukrainian portfolio and the Russian portfolio.
The former is performing well, with all projects registered/finally determined and issuing
credits. In the aggregate, these projects are generating 42% of the credits expected by the end of 2011. The Russian portfolio has been subject to regulatory and contractual delays and uncertainties following further changes in domestic legislation in Russia.

At the end of 2011, the TGF portfolio consisted of eleven ERPA projects in Russia (3),
Estonia (3), Lithuania (3) and Ukraine (2). One new transaction was completed during the year, for a cleaner production project in eastern Ukraine.

In total, the Facility has committed, in the form of Emission Reductions Purchase Agreements (ERPAs), to buy 2.98 million tonnes of CO2 equivalents of emission reductions. So far, all non Russian projects have generated to date 1.07 million ERUs, equivalent to 31% of the fund capital. The bulk of these have been distributed to TGF investors.

Read our carbon finance and funds operational review for 2011

Contact information:

Kari Hämekoski
Manager, Carbon Finance and Funds, e-mail: kari.hamekoski(at)nefco.fi

Carbon Finance and Funds
c/o Nordic Environment Finance Corporation
P.O. Box 249
FI-00171 Helsinki
FINLAND
Direct tel: +358 50 434 6447