The Baltic Sea Region Testing Ground Facility
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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 ERUs (and some AAUs) from energy related and other projects on behalf of its investors.
The Testing Ground Agreement, an intergovernmental agreement, was concluded in September 2003 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 favourably 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 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’s total fund capital reached EUR 35 million. The principal investors are:
• DONG Energy (Denmark)- Energy
• Fortum (Finland)- Heat and power
• Gasum (Finland) - Gas transmission
• Keravan Energia (Finland)- Heat and Power
• Kymppivoima (Finland)- Power
• Outokumpu (Finland)- Stainless steel
• Vapo (Finland) - Heat and power, biofuels
• Vattenfall Europe Wärme (Germany) - Heat and power
• Vattenfall Europe Generation (Germany) - Heat and power
The Nordic Environment Finance Corporation (NEFCO) is the Fund Manager.
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.
Currently the TGF activity is at the final stage of portfolio management ensuring successful implementation of the existing portfolio before winding up of TFG activities by early 2014. Some minor transactions are still to be completed based on individual procurement for certain investors before the winding up the TGF.
The Fund Manager has sought to diversify portfolio risk across project types, with an emphasis on renewable energy 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 has been performing well, with all projects registered/finally determined and issuing credits with final credits acquired in 2013 from emission reductions generated in 2012.
The Russian portfolio has been subject to regulatory and contractual delays and uncertainties following changes in domestic legislation in Russia, but credit transactions have been successfully completed in 2013 from two projects.
In 2012 the TGF portfolio consisted of eleven projects with an Emission Reductions Purchase Agreement (ERPA) in Russia (2), Estonia (3), Lithuania (4) and Ukraine (2).
In total, the TGF has committed through the ERPAs, to buy 2.87 million tonnes of CO2 equivalents of emission reductions. So far, projects have generated to date 2.63 million ERUs (with some AAUs). Most of these credits have been distributed to TGF investors.
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
Direct tel: +358 50 434 6447