The opportunities to bridge the emissions gap with innovative business models

Internationally Transferred Mitigation Options» (ITMOs) are a concept within the framework of international climate change agreements, particularly in the context of the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC). ITMOs refer to a mechanism that allows countries to collaborate on emissions reduction efforts by transferring mitigation outcomes or efforts across borders.

Countries eligible to participate in ITMOs are committed to emissions reduction targets under the Paris Agreement. A country that is on track to exceed its emissions reduction target could provide support to another country to help it reduce its emissions. This support could come in the form of technology transfer, financial assistance, capacity building, or other means.

The Battery Energy Storage and Renewable Energy Programme in Senegal

Non-conventional renewable energy sources, such as wind and solar photovoltaic (PV) systems, exhibit inherent inflexibility. The recent integration of these renewables cause growing challenges for grid operators in managing the fluctuating supply and demand dynamics. This situation often results in inefficiencies, such as surplus energy production during daylight hours, necessitating continued reliance on predominantly fossil-based, flexible energy sources when renewable options are unavailable.

An ITMO-supported activity that is making substantial strides in addressing these challenges is the «Battery Energy Storage and Renewable Energy Programme in Senegal». On July 6th, 2021, an agreement was signed between Switzerland and Senegal. This agreement establishes a framework for Switzerland to offset a fraction of its carbon emissions through projects in Senegal. The program, developed and managed in a joint venture by Ongresso Energy and ACT Commodities, focuses on stabilizing Senegal’s national grid and reducing reliance on fossil fuelbased spinning reserves. The implementation of two utility-scale batteries contributes to the displacement of fossil fuels, subsequently curbing greenhouse gas emissions.

While the program development was partially funded by the off-taker, the coordination efforts among stakeholders—namely, the two governments, project owners, and the off-taker—present substantial challenges. Furthermore, the absence of a standardized methodology for calculating emission reductions in stand-alone battery storage systems required additional efforts from carbon developers. Carbon compensations are generally regarded as results-based, though some consideration for partial pre-purchasing, once projects achieve a de-risked commercial operation status, could alleviate the extended preinvestment phase for carbon developers.

Opportunities for innovative business model

The pivotal role of project developers and off-takers cannot be overstated in catalyzing the development and deployment of innovative financial mechanisms and business models for scaling investments in emerging climate mitigation technologies.

However, project developers face formidable challenges when seeking to assume pioneering roles in ITMOgenerating projects. Political, legal, and financial uncertainty, coupled with unclear technology priorities and methodologies, poses hurdles that offtakers can help mitigate by offering guidance, stability, long-term commitment, as well as support beyond project feasibility.

Indeed, one of the most pressing challenges stems from the unbalanced risk distribution between developers and off-takers, due to both the highly political nature and results-based financing structure of ITMOs. This is characterized by uncertain project implementation, lengthy MRV (Monitoring, Reporting, and Verification) processes for the certification of ITMOs, and delayed related payments. Developers bear the costs of project development and implementation, and shoulder the risk of non-achievement of results during these protracted periods, necessitating rebalancing risks and increasing support.

establishment of support mechanisms such as a reimbursable grant facility could help. This facility would provide the critical support needed to overcome the high entry costs and fasttrack the transition from project concept to operationalization and outcomes. Such support is essential for fostering a vibrant ecosystem of ITMO projects that can unlock the full potential of innovative financial mechanisms and business models to promote investments in emerging climate mitigation technologies.

In closing, ITMO off-takers hold the keys to unlocking the transformative potential of climate solutions. By addressing these challenges and providing robust support mechanisms, they can help project developers lead the charge in developing and implementing high-potential ITMOs, accelerating our collective journey towards a more sustainable and resilient future.