Bidding process – The White – ERF Paper

Lets talk more about the bidding process, assuming you managed to read the Energy Reduction Fund White Paper released 24 April 2014. We talked about profiling you risk in our post ‘The White – ERF Paper’ on 2 May 2014. It has been attracting worldwide interest. What we don’t know is why it is so. We can only speculate many are expecting a ‘big bang’ or ‘flip flop’ for the policy. Regardless, it is better than doing nothing, so lets assume we can get past the regulatory uncertainty and look at things assuming you business can access the funds, has eligible projects, and has in place safeguard mechanisms.

First question you need to ask is are you strategic or tactical in your approach – or a hybrid. We might suggest hybrid is a good hedge. Why because you can be reactive to changes without being too hung up on risk factors. Also, providing funding could be as easy as the 2014/2015 Federal Budget being approved, without the specialist legislation. Yep, the good ole executive bypass is possible. But that is the government’s risk.

To bid in you need to create a program with a project size that has a prospect of being awarded funding. We note that some say, and repeated by Energetics (a consulting firm that is known to influence policy on Climate), claim 2,000 t CO2 equivalent abatement will get you a jersey. However, remember this is a reverse auction – the lowest price wins! There is no guarantee the best project will win. You could be forgiven for getting a little suspicious over who and what will be rewarded.

That said, the usual suspects for the preparation to be included in the bidding, may actually preclude you too! Namely, the requirement of ‘additionality’ for the projects. Back in 2012, August 14 – CO2Land org looked a little harder at additionality and its association with the word ‘real’ (concluding real was used as a synonym) and found:

  • Specifically ISO 14064-2 (project accounting) does not include ‘Real’ because during development of ISO 14064-2 ‘Real’ was regarded as a programmatic rule/criteria, which is outside the scope of ISO 14064-2.
  • ISO 14064-2 is a standard rather than a program
  • ISO 14064-2 (Clause 5.4) specifies the following requirement in regards to additionality: “The project proponent shall select or establish, justify and apply criteria and procedures for demonstrating that the project results in GHG emissions reductions or removal enhancements that are additional to what would occur in the baseline scenario.”
  • Additionality is incorporated into ISO 14064-2 is based on the core principles of ISO standards in general, i.e. that ISO standards not be a barrier to trade (WTO-TBT – anyone following development of ISO 14067 (product) will know this is a major issue). As such, ISO standards must be policy-neutral (extended to include program-neutrality). This is of course very important for market confidence.
  • ISO 14064 deals with the concept of additionality by requiring that the GHG project has resulted in GHG emission reductions or removal enhancements in addition to what would have happened in the absence of that project. It does not use the term “additionality”…Thus the project proponent may apply additionality criteria and procedures, or define and use boundaries consistent with relevant legislation, policy, GHG programmes and good practice.”
  • Although the concept/requirement of additionality is within the requirements of ISO 14064-2, the simple reason why the ‘term’ additionality is not present within the requirements of ISO 14064-2 is because of certain sensitivities/perceptions/politics of certain parties involved in the development of the standard –

And, the following references helpful in gaining a more complete understanding:

Oh dear, I wonder if they understand the standard says the concept should be policy- neutral. Why to give confidence to the market, elementary is it not?

But, here comes the good news. If you are aware, adopt a pragmatic approach, and are proactive in that you go low first up and go early you might just get there for your funding. All you got to do is keeping improving on your targets into the future.

What projects might have the better chance of winning a place. Energy Efficiency projects are probably the best suited for the auction process and the pre-qualification needs.

The conclusion: If you have done nothing meaningful before about your energy use. You can now be rewarded? Good policy, hey!

To ponder, Mark Jackson – a professional, asked in the Australasian Renewable Energy and Carbon Professionals Group on LinkedIn: “Is anyone else getting a sense that renewables are not getting a fair airing…budget etc”.

The White – ERF paper

Have you read the Energy Reduction Fund White Paper released 24 April 2014? No, but I heard Hockey say the Clean Energy Regulator is gone – was the reply. Then another said: Isn’t Hunt the Minister. We replied yeah, but it was an interview for the news and you know what that means. But seriously, what does it mean?

The answer may have come from a company that markets itself as emphasising Climate Change Matters. No, not left wing, not opportunist. Just pragmatic of what is best for you to plan for what is ahead and how to best cope with it. So what can you do to cope? How do you position to be safe?

It is not really that simple. But at least it gives you a chance to prepare. So what is the greater risk? The hubris (excessive ambition, self-confidence) of the government, other parties not supporting the government position for the Direct Action Plan and appearing to support the repeal of the carbon pricing mechanism. Add to that those other parties that will not support either plan and you could say now and into the next senate period the legislation to support the Direct Action Plan will not pass the senate vote.

So the risk is prolonged regulatory uncertainty. But, prudent behaviour and textbook risk management says you must assess risk by anticipating that risk has associated alternatives.

What alternative? The bluster of government says the Energy Reduction Fund will be implemented and the related reverse auction process will commence 1 July 2014. Or, the Clean Energy Act – and the regulator stay put. Or, nothing happens – we blunder on and questions remain in terms of price liabilities. And, of course for business that is not good not good for spruiking ‘open for business’.

What methods would you use to profile your risk? I hear some say a scenario-based approach. But, is it really safe to say the stories lines are plausible because the causal relationships can be demonstrated? In these cases when scenario planning is integrated with a systems thinking approach to scenario development, it is sometimes referred to as dynamic. That is the point here the nature of dynamic is difficult to assess as certainty. Maybe good ‘old fashioned’ (Howard era) sensitivity analysis might be a better way to manage your risk profile. Nonetheless it would be remiss to say you can avoid the need to develop your position and become involved.

Assuming the Emissions Reduction Fund is on track as described in the White Paper: The reverse auction, with $300 million to spend, will begin on 1 July 2014. There are a set number of eligible type projects to participate. Methodologies can include a method to enable facilities reporting under NGERS to bid in the auction.

Baselines have a threshold, but what is different is the inclusion of ‘meaningful’. This differs from ‘generic’ and you need to have an understanding of the likelihood of what happens when or if you exceed the baselines. For example in July 2014 you are in one threshold and after 1 July 2015 above the line.

What is your safeguard position – it is up to you to get involved.

We will give you time to read the paper. But shortly, we might talk more on the bidding process.   If we decide to get involved!