The connection between a windswept former Soviet military base called Türisalu and the Kyoto Protocol might not be apparent to many, but for Danish wind project development firm Global Green Energy the link was obvious -- here was potential for a wind farm and a way to make it financially viable.
Türisalu, in the small Baltic country of Estonia, seemed ideal for a wind farm. As well as possessing good wind conditions, its military past made it a brownfield site unsuitable for any residential development. But in a country yet to shake up its fossil-fuel dominated power market to create the right financial conditions for renewables development, some form of income beyond that from the sale of the wind farm's output was essential. Global Green Energy, with experience under its belt from an earlier successful wind power project using the same model, fixed its focus on getting it qualified for Joint Implementation (JI) status.
JI is one the Kyoto Protocol's flexible mechanisms by which more developed countries invest in clean energy projects in less developed markets to secure cheaper carbon emission credits. For an industrialised country it is often cheaper to reduce emissions by investing in a less developed country than at home. All signatories to the Kyoto Protocol are committed to reducing their carbon emissions. JI allows countries to claim credit for investment in another industrialised country, while investment in developing countries comes under the Clean Development Mechanism (CDM) umbrella.
"Estonia is among the countries with the best potential for Joint Implementation," says Ash Sharma, manager at NEFCO, the organisation of Baltic countries investing in JI projects. "It has a carbon-intensive baseline...new projects displace a lot of from the grid." Estonia's nearly exclusive use of coal shale for energy extraction offers its more developed neighbours in Europe's far north, Sweden, Denmark and Finland, plenty of Kyoto emissions credits to mine. They have all put money into a range of clean energy initiatives -- hydropower efficiency projects, biomass plants and wind farms.
Credits for Denmark
At Türisalu, Global Green Energy and its local Estonian subsidiary, Tuulepargid, are awaiting final building approval for 13 wind turbines. Not only will they deliver 21.45 MW of energy to the grid, but also 400,000 tons of greenhouse gas emission reduction credits for Denmark. If approved, the Türisalu wind farm will follow on the heels of the just-opened 18.4 MW Pakri wind farm, on the jutting Pakri peninsula in southwest Estonia. It is the first completed project to be partially financed through a JI agreement.
Pakri, also a former Soviet military site, cost EUR 24 million to build and Norway's Vardar Eurus, which bought the project from Global Green Energy, plans to offset some of that investment cost by selling 500,000 tons of CO2 equivalent (CO2e) credits to the Finnish government. In addition to building approvals, Vardar had to work with the Estonian government to get approval for sale of the CO2e credits to Finland, a process Vardar project leader Johannes Rauboti describes as "a long time coming." Rauboti says JI agreements are an important element of financing of not only Pakri, but also Vardar's stake in the 50.6 MW extension to Pakri, called Paldiski, and of the 24 MW Viru Nigula wind farm being developed further east along the coast. Paldiski's CO2e credits will go to the Netherlands, while Viru Nigula's are scheduled to go to Sweden.
Fly in the ointment
While the JI projects help Estonia meet its own EU commitments to renewable energy -- it is committed to getting 5.1% of its generation from renewables by 2010 -- both Sharma and Rauboti say there is a fly in the ointment. Last year, Estonia's government announced it was planning to limit the amount of wind-delivered electricity it would buy at a fixed price to just 200 MW. The limit would begin in 2009.
Viive Savel, executive officer at Estonia's fuel and energy market division at the economic affairs ministry, says the limit is not intended as a cap per se. "Estonia never planned to introduce any restrictions concerning new wind," Savel says. Instead, "technical reasons," which Savel describes as problems with load balancing more than 200 MW of wind in Estonia's system, necessitate the limits.
The cap proposal is still working its way through Estonia's parliament and Jaan Tepp of the Estonia Wind Association says he hopes the government might stretch that 200 MW limit a little bit before making a final ruling. But developers agree the possibility of not receiving the fixed price is functioning as a cap -- and the cap has already put a damper on further development.
Wait and see
"Yes, it's a bit stalled," says Sharma. "It's holding back the whole JI process [in Estonia]. We have a project of our own and it is also kind of stalled right now." Vardar's Rauboti agrees the brakes are on and his company will have to look elsewhere for the future. "We'll wait and see, with this law," he says. "Maybe we'll look at Lithuania, and then there's northwest Russia. Perhaps we'll look there."
Global Green's project manager, Jens Peter Andersen, says Türisalu is now the only Estonian project in the company's wind farm portfolio. The rest of its attention is concentrated in Italy and Germany and possibly countries such as Romania in future. "The additional small income we will get from [selling] emissions credits is nice," Andersen says. "But now we're just going to wait and see. Look at us...it took five-and-a-half years to get Pakri going. It has not been as easy, or as fast, as anticipated," he adds.
In general, the Joint Implementation program seems to be proving less attractive than the Clean Development Mechanism. Of 104 JI projects validated in the world so far, 15 are wind power projects with a combined capacity of 543 MW. In the CDM program, 76 of the 649 projects are for wind farms with a combined capacity of 2860 MW. Although 12% of all CDM projects in the pipeline are wind power related compared with 15% of JI projects, the average size of the CDM projects is much bigger. The CDM wind projects are proposed for 13 countries, including India and China and several in Latin America.