CDM POTENTIAL FOR SMALL HYDRO

By Rohit VermaAsst. Director

MBA [Power Management]

Heads under which presentation is being made

Background of Kyoto Protocol

What is Kyoto Protocol ?

Discussion of the Concept of CDM and key terminology used in CDM.

Projects and their respective categories eligible for CDM benefits.

Understanding CDM Project Cycle.

Preparation of a Project Design Document for a Small Hydro Plant in Himachal Pradesh [Majhi Khad {4.5 MW}]

Kyoto Protocol and It’s background.• IPCC was established in 1988 jointly by UNEP (United

Nations Environment Programme) and WMO (World Meteorological Organization)

• IPCC - TAR concluded that continued emissions of Green House Gases (GHGs) in the Earth’s atmosphere by human activities will lead to unprecedented warming of Earth in the 21st century, unless measures were adopted to limit these emissions.

• On the basis of the Authoritative Assessment of the Climate Change by IPCC, United Nations Framework Convention on Climate Change (UN-FCCC) was set up in May 1992 to protect the Earth from global climate change due to “dangerous anthropogenic interference by human activities”

Kyoto Protocol and It’s background.• In 1992, at the UN Conference on Environment and

Development, the so-called “Earth Summit,” in Rio de Janeiro, the United Nations Framework Convention on Climate Change (UN-FCCC) was adopted by the a number of countries.

• Aim was to reduce the emission of Greenhouse gases.• 186 countries are party to this convention.• They meet annually in conference of parties {called COP}• In the third COP in 1997, Kyoto protocol was adopted.• It is mandatory and it will become effective as soon as the

countries ratifying it are accounting for at least 55% of the global GHG.

• India signed UN-FCCC on 10th June 1992 and ratified it in 1993

• Protocol divides the world into basically two parts.• Annex 1 countries :41 industrialized countries which account for

more than 75% of the world emissions.• Non annex 1 countries: Which are basically developing countries.• Under the protocol it is mandatory for a Annex 1 countries to reduce

their GHG by an average of around 5.8%,taking 1991 as base year. This is to be achieved by 2012 or 5.2% below their 1990 emission levels in 2008-12 (Phase-I)

• This can be done by reducing consumption of fossil fuels, investing in energy efficient technologies and development of renewables.

• Reduction of consumption of energy is ruled out as development will be adversly effected.

• Only option left is development of energy efficient technologies, renewable projects.

Kyoto Protocol to UN-FCCC

• India, a signatory to India, a signatory to UNFCCC since June UNFCCC since June 1992, has no binding 1992, has no binding commitment to reduce commitment to reduce GHG emissions GHG emissions

• Although INDIA is Although INDIA is ranked 5th in total ranked 5th in total GHG emissions, its GHG emissions, its emission / capita emission / capita remains lowremains low

• The Framework Convention The Framework Convention on Climate Change on Climate Change established the Conference of established the Conference of Parties (COP) as its supreme Parties (COP) as its supreme bodybody

• Quantified emission reduction Quantified emission reduction targets for each Annex-I targets for each Annex-I Country were Individually Country were Individually fixedfixed

Climate Change Science – How it has progressed?

The threats to humanity from climate change is now a reality.

Climate Scientists are in nearly unanimous agreement that atmospheric levels of CO2 must be limited to no more than 450 PPM in order to catastrophic chaos.

UK is now advocating global cuts in CO2 of 30% by 2020 and of 60% by 2050.

Green House GasesThe UN-FCCC basket includes six

keygreenhouse gases produced byhuman activities, namely

• Carbon Dioxide (CO2)• Methane (CH4) • Nitrous Oxide (N2O)• Hydro fluorocarbons (HFC)• Per fluorocarbons (PFC)• Sulphur Hexafluoride (SF6)

Concept of CDM

• If the annex 1{developed} nations ,commission a green project in their own country than it can prove incredibly expensive.

• So a way out has been found in CDM.

• Under CDM,an annex 1 country can get carbon credits, if it invests in a green project in a non annex 1 countries.

• The Clean Development Mechanism (CDM) is a project-based mechanism that allows public or private entities to invest in greenhouse gas (GHG) mitigating activities in developing countries and earn abatement credits, which can then be applied against their own GHG emissions or sold in the open market.

• The CDM has the dual objective of reducing greenhouse gas emissions and contributing to sustainable development in the host country.

• So annex 1 country can achieve their targets by

Reducing fossil fuel consumption. Investing as a sponsor in a host country and earning

carbon credits . Buying carbon credit from open market.

Clean Development MechanismArticle 12 of the Kyoto Protocol defines the clean development mechanism as -

“The purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3”.

Under the Kyoto Protocol of the UNFCCC, industrialized countries (Annex-I) have committed to reducing their emissions of greenhouse gases, including carbon dioxide and methane.

Under Clean Development Mechanism (CDM), Annex-I countries can reduce emissions by purchasing emission credits from other countries that invest in projects and programs that avoid GHG emissions and produce a net global reduction in emissions.

The mechanism depends, therefore, on the capacity to accurately assess the emissions avoided such that a net reduction can be verified and valued.

Clean Development Mechanism• Clean Development Mechanism was Clean Development Mechanism was

instituted in 2001 under Kyoto Protocol.instituted in 2001 under Kyoto Protocol.

• Came into force on 16Came into force on 16thth February 2005 February 2005 after European Community and many after European Community and many other Annex-I Countries along with other Annex-I Countries along with Russia ratified the Kyoto Treaty.Russia ratified the Kyoto Treaty.

• Major Non-Participating Annex-I Major Non-Participating Annex-I Countries to Kyoto Treaty currently are Countries to Kyoto Treaty currently are USA and Australia.USA and Australia.

CDM is one part of a set of incentives and financial options for bringing about mitigation, adaptation and sustainable development to arrest climate change.

Key CDM Terms and Concepts.Additionality:The CDM projects must be additional. This means that we should prove

that project is facing a number of barriers and will materialize only when it gets CDM benefits after it gets registered as a bonafide CDM project. We have to prove that it is not a business as Usual activity

BaselineThe baseline describes what will happen, and how many greenhouse gas

emissions will be there in the absence of project activity or if same goods /services are produced by conventional means. These emissions are then compared with the project emissions to get the net emission reductions and hence the amount of carbon credits.

Certified Emission Reduction (CER)The name given to a carbon credit from a CDM project. Credits from JI

projects are called Emission Reduction Units (ERU). CERs are equal to one ton of carbon dioxide equivalents (tCO2e).

Crediting PeriodThe crediting period is the length of time during which the project will

generate carbon credits. Under the Marrakech Accords, projects can choose between a 7-year period, which can be renewed twice to make a total of 21 years, or a one-off 10-year period.

Designated National Authority (DNA) for the CDMThe DNA is the focal point for CDM matters in your country. It is

frequently a unit in a government ministry that is responsible for administering CDM implementation and overseeing approval of projects.

Designated Operational EntityDOEs are accredited by the Executive Board and perform two

functions: validating CDM projects, and verifying and certifying emissions reductions from projects. The same DOE cannot perform both functions for one project unless it is a small-scale project.

CDM Executive BoardThe CDM Executive Board supervises the CDM and makes the final

decision about project registration and the issuing of carbon credits. The Board also makes the final decision whether to approve new baseline and monitoring methodologies and must approve new DOEs.

Project Design Document (PDD)The document that describes the prospective CDM project and how it

meets the validation requirements spelt out in the Marrakech Accords. The PDD is the main document assessed by the validator and is made available during the 30-day public comment period. 30 day public comment period is the period during which stakeholders, the public and NGOs can make submissions to the validator about whether or not the project meets the validation requirements and thus whether it should be approved or not

Monitoring and Verification

The reduction in emissions achieved by a CDM project must be monitored by the project operator consistently with the monitoring plan outlined in the Project Design Document (PDD). This data is then verified by a designated operational entity, which then certifies that the reductions have taken place and recommends that the Executive Board issues carbon credit.

Projects and their categories eligible for CDM benefits

ENERGY SECTOR

• Fuel subsitution:Subsitution of high carbon fuels [coal and oil] with low carbon fuels [natural gas ,renewables].

• Cogeneration projects• Capture and recovery of methane leakage from transport or flaring

in the oil or gas industry.• Energy generation by Renewable means

WASTE MANAGEMENT SECTOR:• Capture of biogases produced by municipal waste stored in

controlled landfill sites• Capture and recycling of biogas from sewage treatment plant.

INDUSTRIAL SECTOR• Any change in industrial processes resulting in a reduction in GHG

emission s, e.g. use of energy efficient ovens for glass production• Capture and use of methane produced by industrial wastewater

treatment equipment.• Improved energy efficiency in industrial projects

HOUSING AND TERTIARY SECTORS• Improved energy efficiencies in residential or tertiary buildings

(office, shopping malls etc.).

TRANSPORT SECTOR• Improved energy efficiencies of vehicles.

• Vehicle fuel substitution , e.g. substitution of gasoline or diesel with LPG or natural gas

• Substitution of high-energy consumption means of transport with low GHG emission means of transport e.g. replacement of individual means of transport (cars) by buses or trains.

AGRICULTURE SECTOR• Improved energy efficiency or use of low GHG emission energy sources to

drive irrigation pumps.• Reduced animal waste or capture and use of methane generated by animal

waste.

FORESTRY SECTOR• Afforestation: It consists of planning tress in areas that have not forests in

the last 50 years.

CDM PROJECT CYCLE

Prepare Project Design Document :

The first step in the process of formulization a CDM Project requires Project Participants to complete a Project Design Document, which describes in detail the project activity.

• The Project Design Document must include descriptions of the technical aspects of the project, the project purpose, its contribution to sustainable development, the Project Boundaries

• The proposed baseline methodology, a statement of the estimated operational life of the project, stakeholder comments, an analysis of environmental impacts for the project.

• An explanation of how the project activity meets CDM Additionality requirements, and a proposed formula for the calculation of the Greenhouse Gas emissions to be reduced and project leakage.

Designated National Authority Issues Letter Of Approval:• The host must confirm that it approves a CDM project for the purpose of the

Kyoto protocol and that the project assists it to achieve its sustainable development goals.

Validation by Designated Operational Entities :

Validation is the process of independent evaluation of a project activity by a DOE against the requirements of the CDM .

DOE will review the Project Design Document to confirm

• Participation in the CDM Project activity is voluntary • Project participants are signatories to the Kyoto Protocol.• Comments of the stakeholders have been considered.• Project activity will result in overall reduction of GHG• The baseline methodology and monitoring plan comply with CDM Executive

Board requirements

Registration by the CDM Executive Board

Registration is the formal acceptance by the CDM Executive Board of a validated project as a CDM Project activity.

Monitoring by Project Participants

Once the project activity has been Validated and Registered, the Project Participants will be required to implement the validated monitoring plan included as part of the Project Design Document .

Verification and Certification by Designated Operational Entities :

Verification is the periodic independent review and determination by an accredited DOE of the monitored enhanced reductions in Greenhouse Gas emissions that have occurred during the Verification period because of a CDM Project.

Issuance of CERs by the CDM Executive Board :

A Certification Report will contain a request to the CDM Executive Board for the issuance of CERs equal to the enhanced reductions of Greenhouse Gas emissions as verified by the DOE

Diagrammatic Representation of CDM Project Cycle.

Selection of a baseline methodology

• Use of existing /past data to calculate GHG emissions.• This approach requires an Investment analysis approach

regarding possible project alternatives utilizing alternative technologies.

Emissions from a “technology which is economically most attractive{ taking into account barriers to investment} is taken as a baseline.

• The average emissions of similar project activities undertaken in the previous five years, in similar circumstances, and whose performance is in the top 20% of their category”.

Baseline for electricity projects.

• We use the concept of Build margin and Operating margin.• The key concept is that of “avoided generation” i.e. what would have

happened without the GHG mitigation project.• Build margin means avoided generation means we are replacing a

facility that would otherwise have been built.• Operating margin means effecting the operation of current plants.• Generally we take an average of two to get a combined margin

approach.• The weighted average emissions rate of the most recent 20% of

plants built .• The weighted average of all resources except zero fuel-cost/must-

run facilities gives us the operating margin

•Unit-specific fuel consumption is now available

•Operating Margin (OM)

•Build Margin (BM)

•Combined Margin (CM)

•Average Emission (AV)

• Accurate & conservative data is now available based on the location of the plant.

•Possible to adopt baseline methodology such as ACM 002 or AMS I.D etc for CDM projects and development of PIN & PDD.

• Data for power production from captive power plants availabe for the last 4 years and annual updation is being done.

• Coal analysis on region based availability has been made.

Courtesy: Mr Urs Brodmann, CDM-India, Praveen Gupta & Sanjay Sharma , CEA.

Work done by CEA

Emission Factors

Outcome of CEA Study

Tools to determine Addionality • Means reduction in GHG emissions should be additional to what would have

happened in normal course [i.e. in the absence of the CDM activity]• We have to prove that the project is additional and is not a ‘business as

usual activity’.• For this we have to identify alternative projects which will produce

equivalent goods and services and they have to be examined in the light of the entire legal and regulatory framework in force in the host country.

• You have to show that the proposed project is financially not the most viable option.

• Investment barrier – it is not easy to secure investment /raise loans for the project.

• We have to show that the project faces other bariers like technology or lack of skilled manpower.

• Finally we have to show and prove conclusively that the project will become financially viable if it gets registered as a CDM project.

Default Carbon dioxide Emissions from fuels

CO2 Emissions from Fuel Usage

Summary of Global Warming Potentials

(GWP)

Process related Green House gas emission

NO COST OPTIONS: SAVING POTENTIAL

SL. NO.

HEAD SAVING POTENTIAL

UNIT INVESTMENT

,RS LAKH

EMISSION FACTOR

T/CO2

CER

1. POWER 24.55 LAKH KWh/ YEAR

NIL 0.00089 3542 3542

RECOMMENDATION

CALCULATION OF CER FOR ELECTRICITY

KWH X CO2 EF = TOTAL CO2 FROM ELECTRICITY

GWP OF CO2=1

CER= GWP X TONS OF CO2

LOW COST OPTIONS: SAVING POTENTIAL

SL. NO.

HEAD SAVING POTENTIAL

UNIT INVESTMENT

,RS LAKH

EMISSION FACTOR

T/CO2

CER

1. COAL 24026 TONS/YEAR

25 1.53 36760

36760

2. POWER

34.4 LAKH KWh/YEAR

11 0.00089 3061 3061

RECOMMENDATION

HIGH/VERY HIGH COST OPTIONS: SAVING POTENTIAL

SL. NO.

HEAD SAVING POTENTIAL

UNIT INVESTMENT

,RS LAKH

EMISSION FACTOR

T/CO2 CER

1. COAL 21316 TONS/YEAR

213.0 1.53 32613 32613

2. POWER

51.2 LAKH KWh/YEAR

112.3 0.00089 4557 4557

RECOMMENDATION

SAVING POTENTIAL IN CDM PROJECTS

SL. NO.

HEAD SAVING POTENTIAL

UNIT EMMISSION FACTOR

T/CO2 CER

1. COAL 45342 TONS/YEAR

1.53 69373 69373

2. POWER 110.15 LAKH KWh/YEAR

0.00089 9804 9804

TOTAL 79177 79177

VALUE OF CER

3.56 CRORES

VALUE OF CER= CER*VALUE/CER*CONVER RATE*NO OF YEAR

RECOMMENDATION

CDM OPTIONS, WHY?????

SL. NO.

SAVING POTENTIAL

HEAD UNIT SAVING IN RS.

INVESTMENT IN RS.

PAY OUT PERIOD

( MONTHS)

1. 45342 COAL TONS/YEAR

452.25 2025 53.73

2. 110.15 POWER

LAKH KWh/YEAR

275.7 248 10.79

TOTAL 727.95 2273 37.47

RECOMMENDATION

CDM OPTIONS, WHY?????

SL. NO.

HEAD SAVINGS IN RS.

INVESTMENT IN RS.LAKHS

PAY OUT PERIOD

( MONTHS)

ADDIONAL EARNING DUE

TO CDM

1. PAYOUTWITHOUT CDM

727.95 2273 37.47 NIL

2. PAYOUTWITH CDM

1084 2293 25.38 356LAKHS

TOTAL

RECOMMENDATION

• 43 projects issued 15.5 million CERs

• 334 registered projects forecast 600 million CERs by 2012

• >900 submitted projects forecast 750 million CERs by 2012

• Governments and companies in industrialized countries have budgeted more than 4.5 billion € for CER acquisition

Basic data on CDM

R&M /Retrofitting:

Renovation and modernization

Expansion

New plants

Fuel switch

CDM in power sector-Scenarios

Barriers to CDM in Power Sector

• No approved methodology in power sector.

•An approved baseline methodology requires specific data

•Non availability of fuel data on a power plant-specific basis

• Data may not be available or quality of data cannot be ensured, without which Projects cannot be registered

as of Oct, 2006

• CDM shall lead to “measurable and long term emission reductions that are additional”

• Determination of reductions requires definition of baseline methodology and monitoring of key parameters throughout the lifetime of the project

• Determination of Key performance indicators for data for large, medium and small plants.

Aims of methodologies

•CDM is an incentive to achieve additional emission reduction.

•It is not a reward for BAU scenario

•Goal is to make project happen because of CDM for non-viable projects

Purpose of CDM

PDD For a SHP

• The project in question is Majhi Khad small hydro power plant in Kangra district,H.P.Majhi Khad is a small tributary of Beas

• Its installed capacity is 4.5 MW <15 MW.So it qualifies to be a small scale CDM activity [CDM-SSC].

• PDD for a SSC contains the following: A: General Description of a Project Activity B: Baseline Methodology C: Duration of Project Activity D: Monitoring Methodology E: Calculation of GHG emissions reductions F: Environmental Impacts G: Stakeholders Comments

• So simplified modalities and procedures arrived at arrived at in COP.7 {decision 17} referred to as Simplified M and P for SSC are applicable.

• This has an Appendix B which contains Simplified Baseline and Monitoring Methodologies.

• Two methods are discussed under clause 29 for determining the baseline

• 29{a}-Average of approximate build and operating margin• 29{b}-Baseline emission reduction = [Energy produced by the

renewable project] GWH . [Emission coefficient] t CO2/GWH• Key Note: Emission coefficient is calculated by the weighted

average emissions of the current generation mix. Emission coefficient must be calculated in a transparent and

conservative manner.

• Choice of a grid.• We will choose the weighted average emission

coefficient of the current generation mix.• So we find the generation mix. • Find out the Northern regional grid carbon

intensity.• Calculate weighted average emission coefficient

of the current generation mix.• Calculate the baseline/Avoided emissions

How the Project brings about Wholesome Sustainable development{Social, Economic, Environmental and

Technological wellbeing}

• Following benefits would not have accrued to people in the absence of the project activity.

• Elimination of poverty by employment generation.200 people will be employed during the construction phase. About 6000 mandays of employment is generated during this phase and Rs 45 lakh is distributed as salaries/wages.

• Direct permanent employment to 30 persons during operation of the plant.

• Additional investment of Rs 26 crores in creation of infrastructure in an underdeveloped area.

• Setting up of rural industries in this difficult hilly terrain. This will lead to creation of jobs.

• Utilization of environment friendly and safe technologies. No GHG emissions.

• Project feeds power to regional grid which is facing shortage. So improvement in quality of power takes place.

• Project Purpose: • To generate electricity by renewable means. • Prevent environment damage. • Add capacity in generation.• To bring about sustainable development

• Technical Parametres:It intercepts water flow of around 56.91 Mcum over a net head of 167 m.A weir is constructed across river in Thatri village and a power house to the left flank of Mauji Khad in Khanyar village.

• Two Pelton turbines comprising two synchronous generators of capacity 2250KW each are used. Generating voltage will be 6.6KV which is stepped up to 33 KV.

Determining Additionality

• It is SSC activity .So additionality will be establish by simplified means. The project developers should identify at least one barrier listed in Attachment A of Appendix B.

Following barriers have been identified:• Investment barrier: Total Investment required is Rs 265 million,

which comes around 59 million/MW.This is quite high. Nearest substation is 6 Km away. Transmission lines of about 6 Km have to be laid down for evacuating power. It proves costly for a very small plant. Substation voltage is 33KV which is quit high.So voltage is to be stepped up. Costly equipment has to be procured for this purpose. Digging up for installation of hydroturbines and generators, laying transmission lines in a hilly area, prone to landslides is also quite risky and costly proposition.

• Geological Risks: High Earthquake zone.Site falls in Seismic zone 5.

• Hydrological Regime: High uncertainty with regard to availability of water in the stream.

• Prevailing practices: Due to above risks associated with SHP,the general practice amongst the planners is to go in for Fossil Fuel Fired mega power projects.

• 13168 CERs will be generated per year, assuming a rate of 6 dollars/CER, additional revenue of Rs 36 Lakh will accrue every year during crediting period. This will have the following beneficial impact:– IRR will increase from 12% to 14%.– Project will become financially viable.

• So the project is an additional project and is not business as usual activity. It would not have happened, if it was not registers as a CDM activity.

• Calculation of GHG Emissions: Formulae used is given in Appendix B of Simplified Methodologies and Procedures for SSC {Clause 29[b]}

• Project leads to no emissions as it is a renewable source. No leakage calculation is required.

• We use the current generation mix for northern grid.CEA publishes annual energy generation for each of the regional grid every year.

Thank You

for a Patient Hearing