CDM Projects: Renewable Energy and Energy Efficiency

Projects

Project cycles and

Technical Issues

Contents

• CDM as one incentive option– Additional revenue from CDM – How CDM increase the financial feasibility of the project

• Baseline– Definition and principles– Where in CDM process?– Baseline scenario– Baseline methodology

• Additionality– Definition– Demonstration of Additionality

• Leakage• Monitoring Methodology

CDM as an incentive

CDM Scheme in a project

• Transaction cost in addition to the underlying project financing

• Additional stream of income during the operation stage

Traditional Project cycle Vs CDMFeasibility

Study/Design/Environmental Impact Assesment

Construction stage

Financing

CDM Documentation (Due dilligence, PDD)

Operation stage Verification

CER Payment

Transaction, negotiation

Registration

Legend: : Expenses

: Income

Carbon Funds for CDM•Purchase of Emission Credits from Projects that generate GHG emission reductions

•Most of CER buyers conduct the forward purchase contract through an ERPA

•Few buyers are open for equity participation and/or provision of debt using ERPA as the collateral

•Buyers:– Multilateral funds – Bilateral Funds – Brokers– Private entity

Cashout

Cashin

Equity

Debt

Construction Capital for underlying c limate fr iendly project

Yrs 0 1 2 3 4 5 6 7 8 …………………………………….15-20

Carbon Revenues for10-21 years

World Bank Emissions Reductions Purchase Agree ment is bankable and additional revenue commitment helps bring projects to financ ial closure

= annual payments under carbon purc hase agreement

= annual payments under power purchase or othersource of revenues to underlying proje ct

Carbon sales revenues are commonly in the range from 10-50% of total revenues for power and waste management projects

Construc tion

Operation

Understanding the impact of carbon finance on project financing and financial sustainability

8

How much does it cost?• For a project with 33,000 t CER/year• Assumption: 8 US$/CER

Amount (US$) Remarks

15,000-30,000

Consultancy for Documentation and validation

10,000-15,000 Validation5,100 Registration

2008 264,000 27,900Share of proceeds

(2008-2012)

2009 264,000 37,500Verification

(2008-2012)2010 264,000 2011 264,000 2012 264,000

264,000Adaptation fee at 2% of CER issued

(33,000 CER)

N/ A2007

YearExpected revenue at US$ 8/ t CER

(US$)Estimated cost

Expense and Fees related to Post-Registration Activities

• Verification expense by DOE: 10,000 US$

• Share of proceeds – CERs issuance charges

• NIL for all project generating CERs < 15,000 every year

• 0.1 US$/ CER (for the first 15,000 CERs)• 0.2 US$/CER (for CERs>15,000/year)

– Adaptation fee @ 2 % of CERs issued

Baseline

Baseline Definition

• Marrakech accords, modalities and procedures for CDM, article 44:

“…….the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases that would occur in the absence of the proposed project activity….”

ConceptGHG emissions (Ton of CO2 eq)

Time (Years)

In the absence of the project (baseline)

Project

Real, long term and measurable emission reductions

Baseline Scenario

• Marrakech accords, modalities and procedures for CDM, article 48:

a) Existing actual or historical emissions, as applicable; or

b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment; or

c) The average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category

Baseline scenario should take into account national and/or policies and circumstances

Where in CDM Process?

Submission of Project Design Document (PDD) including application of Baseline and Monitoring methodology

Project Design Document• CONTENTS

A. General description of project activity

B. Application of a baseline and monitoring methodology

C. Duration of the project activity / crediting period

D. Environmental impacts

E. Stakeholders’ comments

• Annexes

Annex 1: Contact information on participants in the project activity

Annex 2: Information regarding public funding

Annex 3: Baseline information

Annex 4: Monitoring plan

Baseline methodologies

• Approved and consolidated baseline methodologies (EB)

• Proposed new methodology

Baseline methodologies

• 31 Approved methodologies

• 9 Consolidated methodologies

• Small scale methodologies

• http://cdm.unfccc.int/methodologies/PAmethodologies

Baseline methodologies: Renewable energy

Methodology number

Activity

AM 0007Analysis of the least-cost fuel option for seasonally-operating biomass cogeneration plants

AM 0010Landfill gas capture and electricity generation projects where landfill gas capture is not mandated by law

AM0019

Renewable energy project activities replacing part of the electricity production of one single fossil-fuel-fired power plant that stands alone or supplies electricity to a grid, excluding biomass projects

AM0026Methodology for zero-emissions grid-connected electricity generation from renewable sources in Chile or in countries with merit order based dispatch grid

ACM 0002Consolidated methodology for grid-connected electricity generation from renewable sources

ACM0006Consolidated methodology for grid-connected electricity generation from biomass residues

AMS I.B Mechanical energy for the user AMS I.C Thermal energy for the user AMS I.D Grid connected renewable electricity generation

Large Scale project

Small Scale project

Baseline methodologies: Energy efficiency/fuel switching

Methodology number

Activity

AM0014 Natural gas-based package cogeneration

AM0024

Methodology for greenhouse gas reductions through waste heat recovery and utilization for power generation at cement plants

AM0032Methodology for waste gas or waste heat based cogeneration system

AM0017Steam system efficiency improvements by replacing steam traps and returning condensate

AM0018 Steam optimization systems

AM0020Baseline methodology for water pumping efficiency improvements

AM0029Methodology for Grid Connected Electricity Generation Plants using Natural Gas

ACM0004Consolidated methodology for waste gas and/or heat for power generation

ACM0007Methodology for conversion from single cycle to combined cycle power generation

ACM0009Consolidated methodology for industrial fuel switching from coal or petroleum fuels to natural gas

AMS-II.A. Supply side energy efficiency improvements – transmission and distribution

AMS-II.B. Supply side energy efficiency improvements – generation

AMS-II.C. Demand-side energy efficiency programmes for specific technologies

AMS-II.D. Energy efficiency and fuel switching measures for industrial facilities

AMS-II.E. Energy efficiency and fuel switching measures for buildings

AMS-II.F. Energy efficiency and fuel switching measures for agricultural facilities and activities

Large Scale project

Small Scale project

Application of approved methodologies

• Small scale renewable energy connected to the Grid: Application of AMS I.D for installed capacity < 15 MW– Biomass: Rice husk, palm kernel shell,

bagasse– Mini Hydro projects– Wind, Solar power generation connected to

the grid

Application of approved methodologies

• Small scale renewable energy: Electrical energy generation by the user, mechanical energy for the user, and thermal energy for the user– Utilization of Combined Solar, Wind and

Biomass for a Small Agro-Processing Unit Solar cooker

Application of Approved Methodology

• Renewable energy or natural gas power plant connected to the grid, Large scale – Geothermal projects– Hydropower projects– Natural gas combined cycle

Additionality

• Marrakech accords, modalities and procedures for CDM, article 43:

“A CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity”

Additionality

– The definition is not sufficient to guarantee the environmental integrity of a CDM project

– Tools to demonstrate additionality (EB)

– COP/MOP Decision: call for input to simplify/improve current additionality tool

– Provide evidences!

Tool to demonstrate additionality

• Identification of alternatives to the project activity;

• Investment analysis to determine that the proposed project activity is not the most economically or financially attractive;

and/or

• Barriers analysis;

• Common practice analysis; and

• Impact of registration of the proposed project activity as a CDM project activity

Leakage

• Marrakech accords, modalities and procedures for CDM, article 51:

“Leakage is defined as the net change of anthropogenic emissions by sources of greenhouse gases which occurs outside the project boundary, and which is measurable and attributable to the CDM project activity”

Monitoring Methodology

• Monitoring plan:– Monitor baseline emissions– Monitor project emissions– Monitor leakages– Estimation and calculation of emission reductions– Address the uncertainty (data)– Quality assurance/Quality control– Monitoring management– Designated system/human resources

Be consistent with the algorithm/methodology used to estimate the Baseline and Project emissions

Monitoring PlanB.7.1 Data and parameters monitored:

(Copy this table for each data and parameter) Data / Parameter: Data unit: Description: Source of data to be used:

Value of data applied for the purpose of calculating expected emission reductions in section B.5

Description of measurement methods and procedures to be applied:

QA/QC procedures to be applied:

Any comment:

Challenges: Lessons learned

• It takes time!• Developing baseline scenarios• Argumentation and evidences to demonstrate

additionality• Spend time in developing the methodology for

leakage• Use approved methodologies!

More information on the Carbon Finance, World Bank Jakarta

Contact:

Josef Leitmann

jleitmann@worldbank.org

Farida Zaituni

fzaituni@worldbank.org