Finnfund

Finnfund invests in a Honduran power project making environmental history.

The Honduras-based CISA hydropower company has produced the world’s first emission reductions certified under the Kyoto Protocol. This is a CDM (Clean Development Mechanism) project for promoting sustainable development in the developing world while offering industrialised countries a cost-effective way of cutting their greenhouse gas emissions. 

The emission reductions certified in October 2005 were created at the hydropower plant in the town of La Esperanza, operated by Consorcio de Inversiones S.A. (CISA). The plant replaces electricity generated by fossil fuels. After certification of the reductions, the company can sell them to industrialised countries that wish to meet their obligations in the Kyoto agreement.

Experience useful in future projects

The first 2210 Certified Emission Reductions (CERs) produced by CISA were purchased by the Community Development Carbon Fund (CDCF) operated by the World Bank. One CER is equivalent to a one-tonne reduction in carbon dioxide emissions.

The CDCF is due to purchase 310 thousand tonnes of CISA’s emission reductions by 2012.

The World Bank’s CDCF supports small environment and development projects in local communities of poor developing countries. The main backers of the Fund are western companies and governments that wish to acquire CERs. There are presently four projects in Latin America in which the CDCF is participating, the largest being the power plant in La Esperanza.

“We hope that our experience from this project can be of benefit in other small-scale CDM projects,” said Ronald Turner, director general of CISA.

Helping end Honduras’ power shortages

Turner, a Canadian, is the developer and main owner of the La Esperanza power plant. Under his leadership a long-unused power station was rebuilt into two small hydropower units with capacities of 485 and 960 kilowatts. At the same time, the old dam was raised in height and its silted-up reservoir was restored.

Finnfund became a minority CISA shareholder during the third investment phase, when an 11.5 megawatt power plant is being constructed. This third unit will come on line in spring 2006. The total cost of the CISA power plant project is about 13 million US dollars.

In a rural area suffering from poverty and unemployment, the investment has significant development impact. CISA is selling electricity to the Honduras power grid and the new plants will guarantee steady availability of power to the 40 000 inhabitants of La Esperanza and surrounding communities.

Development of this central American country is being held back by a shortage of electricity. The situation is particularly bad in the poor countryside, where the electricity grid reaches fewer than 40% of inhabitants. In addition to its poor coverage, the grid suffers from frequent blackouts and major voltage fluctuations.

Jobs for the poor countryside

More reliable electricity supplies are just one benefit. Construction and maintenance of the new power plants have provided jobs for dozens of La Esperanza inhabitants. The power company is also committed to planting 25 000 tree saplings annually over the next two decades.

The trees are intended to reduce erosion of the mountain slopes and thus curb the build-up of silt in the reservoir above the plants. Ronald Turner says that local inhabitants have keenly participated in the forestation project.

“People in the local communities have volunteered to plant the saplings. They understand the importance of forests, and will reap the benefits in the future.”

Local and environmental advantages

Senior Investment Manager Helena Korhonen of Finnfund points out that the CISA project shows the concrete environmental, social and economic benefits of CDM projects for inhabitants of poor districts and thus for project owners.

“This project really does have triple bottom line effects. Apart from local interest in forest planting and football matches, it’s been great to hear Ron’s stories about how the young men can now buy shoes, bicycles and hair gel for the first time in their lives to attract the girls’ attention,” Korhonen laughs.

La Esperanza and particularly the village of Santa Anita around the power plant area experiences genuine poverty, she adds.

“Every now and then it’s good for all of us to see the conditions that people have to live in. This project can genuinely help families by creating jobs for men and women. I wish all projects could do the same.”

Honduras a pioneer in emission trading

The director of environment at the World Bank, Warren Evans, believes that issuing the first CERs is a vital step in implementing the Kyoto Protocol.

“Projects that meet CDM criteria are concrete proof that climate change can be mitigated in a cost-effective way and sustainable development can be promoted in the project countries,” Evans said.

Last October saw the certification of a second power project in Honduras, from which the government of Finland is buying 200 000 tonnes of emission reductions. This is the five-megawatt hydropower station at Rio Blanco which replaces an oil-fired power station. In 2003 more than 60% of the electricity generated in Honduras was generated in diesel fired power stations.

For further information please contact Ms Helena Korhonen, Senior Investment Manager, tel. +358 9 3484 3307 or by email firstname.lastname@finnfund.fi