INTERVIEW: Higher carbon prices needed for viability, says Africa cookstove developer

Cookstove credits -- carbon credits generated by projects to replace traditional, more polluting cooking methods with cleaner cooking methods -- are attracting new developers because of the relatively low commitment period required compared to other credits like forestry credits. UpEnergy is one of the older players in the field, having been involved in voluntary cookstove carbon projects since the late 2000s. Matt Evans, chairman and co-founder of the UpEnergy Group, spoke to Platts about the recent changes in the market for cookstove credits.

Q: What was the reason UpEnergy decided to focus on cookstove credits in particular?

A: UpEnergy was a nonprofit initiative started at UC Berkeley. The WHO now estimates that about 4 million deaths per year are due to indoor air pollution primarily from cooking with wood or other biomass fuel. The UpEnergy founding team, working for non-profit organizations at the time, co-wrote the first Gold Standard cookstove methodology and developed the first two large-scale voluntary cookstove projects.

Q: UpEnergy has been in this space for a while -- how are you seeing the transition in the carbon market in the last few months and the prevailing prices?

A: What's happening in the spot market is quite interesting. The spot prices of CORSIA-eligible credits are north of the value of most long-term offtake contracts that cookstove developers have signed over the last year. We've seen an increase in demand for offsets and new sources of capital in the market. In terms of retailers, there is a lot of interest in the co-benefits.

Most projects require a forward price, and financing, to get off the ground. The higher the carbon price, the better the stove or safe water technology we can get into use. Higher carbon prices drive more co-benefits.

For the credits of vintage 2021-2025, we are seeing large end-buyers paying retail prices between $6 and $8, with higher prices for smaller volumes. For large volumes, we are also seeing indicators that suggest the market is currently in contango. In the early days of cookstove projects, when EUAs were trading in the $20 range, voluntary buyers were eager to pay $10+ for high-quality VERs [Voluntary Emissions Reductions] with co-benefits. EUAs are now north of $60 but VER buyers haven't shown up as quickly and have been slower to commit to higher value purchases from compelling projects.

We are seeing an increase in informed VER buyers who have seen the devastation of wood and charcoal harvest and understand that biomass efficiency projects are allowing biomass stocks to sequester more carbon in the same way as other "nature based" projects.

Q: What are the challenges on developing cookstove projects in Africa?

A: There are myriad challenges. Some of our biggest challenges are operating distribution networks in countries where operations are challenging and creating interactions with our users that result in them valuing, and using, our products particularly in last mile contexts where customers are hard to reach. A further significant challenge is the high cost of capital in the space right now.

Q: What are the challenges of fuel-switching interventions such as biomass to electric in the cookstoves category and what do you see as a possible solution?

A: We are testing electric pressure cookers, and other fuel switch stoves that we think can delivery health benefits the improved cookstove field has sought for so long to deliver. It takes extensive user testing to understand the factors that will drive our customers to use them. We have some key insights, and a lot more to learn. The cleanest and most impactful stoves are more expensive and thus typically require more capital and a higher carbon price to be viable. More effort will be required to market these products, and to educate customers on the benefits. It's a much deeper sales process and needs a more efficient formula.

Q: What are your plans for expansion?

A: We are currently building exciting new projects in Uganda, Malawi, Zambia, and Mozambique. We are seeking buyers and investors to support our expansions into Latin America and South Asia.