Transcript Investors` Concerns and Criteria for CDM Energy Projects

Investors’ Concerns & Criteria for
CDM Electricity Projects
presented by
Christian Matossian
E7 Programme Manager
Project Manager, RWE Environmental Affairs
UNEP RISOE Second National Workshop (Phase II)
January 12-13, 2004
Cairo, Egypt
Second National Workshop (Phase II) – Cairo, Egypt
What is E7?
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January 12-13, 2004
January 12-13, 2004
Second National Workshop (Phase II) – Cairo, Egypt
What is E7 ?
• Non-profit group of 9 leading electricity companies from
G7 nations
• Created in 1992 (after Rio Summit) by CEOs
• Mission to be proactive on global electricity issues and
promote sustainable development
• Actions: electricity projects, capacity building, joint
positions, policy debate, stakeholder partnerships
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January 12-13, 2004
Second National Workshop (Phase II) – Cairo, Egypt
E7 climate change experience
• Climate change working group: Policy statements,
position papers, stakeholder dialogue
• Capacity building initiatives
• Electricity Projects (AIJ, CDM, and JI) – as developer &
investor
• Individual e7 member companies also have climate
change project experience from their commercial
investments and/or stewardship initiatives
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January 12-13, 2004
E7 climate change working group
• Group of climate change specialists from e7 companies
Second National Workshop (Phase II) – Cairo, Egypt
• Joint policy statements to COPs, CDM EB, WSSD, etc.
• Publications:
– The e7 Guide to Implementing Projects Under the Clean Development
Mechanism (November 2003)
– CDM and the Other Flexible Mechanisms – E7 and its Partners from
Around the World (October 2000)
– The Impact of Climate Change on The Strategies of the Electricity
Industry (October 2000)
– Other position papers and project lessons learned reports available on
www.e7.org
• Stakeholder dialogue with developing country utilities,
NGOs, international orgs, etc.
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January 12-13, 2004
E7 capacity building
Second National Workshop (Phase II) – Cairo, Egypt
• Over 30 projects completed
• Training, technical assistance, knowledge transfer to
developing country governments, electricity companies,
and organisations
• Current CDM capacity building programme with
UNDESA to begin in Q1-2004
– Electricity related CDM training from investors’ perspective
based on project experience
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January 12-13, 2004
E7’s AIJ, CDM, and JI projects
• Renewable energy development in Indonesia (AIJ)
Second National Workshop (Phase II) – Cairo, Egypt
• Thermal power plant efficiency measures in Jordan (AIJ)
• Wind park on Galapagos Islands in Ecuador (CDM)
• Micro-hydropower development in Bhutan (CDM)
• Energy efficiency measures in Bulgaria (JI)
• Hydropower development in Bolivia, Zimbabwe, and
Nicaragua (CDM)
• Wind power in Chile (CDM)
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Second National Workshop (Phase II) – Cairo, Egypt
E7 project case studies
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January 12-13, 2004
January 12-13, 2004
Second National Workshop (Phase II) – Cairo, Egypt
Renewables in Indonesia (AIJ)
• E7 financed and developed 4 MHPs, 200 SHS, and 1
wind-solar-diesel hybrid system
• Decentralised, rural electrification, demonstration project
• AIJ acknowledgement: Indonesia and Germany
• Management handed over to village-level micro utilities
in 2001
• Most systems are financially sustainable
• Monitored project and ancillary development for 3 years
(completed in 2003)
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January 12-13, 2004
Renewables in Indonesia (AIJ) –
Cont’d
• Project is CDM eligible since completed in 2001
Second National Workshop (Phase II) – Cairo, Egypt
• Exercise showed that project is not worthwhile to
register as CDM
1. AIJ calculated ER of 33,000 t CO2 vs. CDM calculated ER of
10,000 t CO2
 crediting period difference
 real vs. standardised carbon intensity
2. 245,000 USD transaction costs vs. 40,000 USD estimated
revenue from CERs
 High monitoring/verification costs associated with
decentralised supply and rural electrification
 Low than forecasted CERs, low price of CO2
• Other lessons/issues: complex AIJ registration process,
weak definition of SD, financial sustainability tariffing 10
January 12-13, 2004
Second National Workshop (Phase II) – Cairo, Egypt
Hydropower in Bolivia (CDM)
• CDM pilot project: 25 MW hydro, isolated grid, financially
sustainable, innovative investment scheme
• Feasibility study 90% complete. Now on hold due to
change in government policy
• Macro barriers:
– Legal and administrative framework not ready for this kind of
CDM project
– Change of government in 2002 with change in policy (gas
priority)
• Micro barriers:
– Joint venture agreement with local distribution company
– Fixed tariffs
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January 12-13, 2004
Second National Workshop (Phase II) – Cairo, Egypt
Wind power in Galapagos (CDM)
• CDM pilot project: wind park in Galapagos Islands (2000
kW) to replace diesel and to mitigate risk of fuel spills
• Project is in Feasibility phase. Schedule delayed 1.5
years.
• Macro barriers:
– Disconnection between ministries
– DNA not enough authority
– Legal and administrative framework not ready for this kind of
CDM project
• Micro barriers:
–
–
–
–
Environmental risks (bird issue)
Fixed tariff vs. Financially/technically sustainable tariff
Intervention of ministry into investment issues
legal precedent-setting
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Second National Workshop (Phase II) – Cairo, Egypt
Investment Considerations
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January 12-13, 2004
January 12-13, 2004
Second National Workshop (Phase II) – Cairo, Egypt
CDM/JI strategies: e7, companies
• E7 position (non-profit, demonstrative):
–
–
–
–
–
sustainable development
financial sustainability
parallel development goals
strong local partnership
small-scale projects
• RWE position (commercial, requirements):
– Need for CERs/ERUs based on emissions profile
– Participation in international funds such as PCF is attractive
because of high level of experience and low risk
– Otherwise, projects undertaken directly must satisfy company
criteria (IRR, acceptable risk, etc.)
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January 12-13, 2004
Impact of Carbon Finance on Project
Financing at $3/t CO2e
(estimates from PCF’s early experience)
Second National Workshop (Phase II) – Cairo, Egypt
Technology
Energy Eff.-Dist Heating
DIRR (%)
~2.0
Wind
0.9-1.3
Hydro
1.2-2.6
Gas Flare Reduction
2-4
Biomass with methane kick
>5.0
Municipal Solid Waste with methane kick
>5.0
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January 12-13, 2004
Volume and costs of project types
Specific transaction costs drop clearly with project size
10.00
Transaction costs [ EUR / t CO
2e]*
Second National Workshop (Phase II) – Cairo, Egypt
9.00
8.00
7.00
6.00
PWC
PCF
5.00
4.00
3.00
2.00
1.00
0.00
0
20
40
60
80
100
120
Volume of Credits generated by a CDM project [TSD t CO2e p.a.]
* Average cost estimate of PWC and PCF translated over a 10-year project life
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Second National Workshop (Phase II) – Cairo, Egypt
Conclusions &
Recommendations
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January 12-13, 2004
January 12-13, 2004
Second National Workshop (Phase II) – Cairo, Egypt
Host country factors attracting
CDM investors
• Host country CDM policy
– Established, clear, consistent CDM policy
– Strong DNA
– Clear requirements (Sustainable Development, etc.)
• Enabling investment environment
– Investment promotion office
• Techno-economic potentials
– Preliminary studies for project types/sizes with highest potential
– Data
• Easy baseline estimation
– Prepared for generation types
– Data
• Long-term investment protection / up front criteria
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January 12-13, 2004
Global factors affecting CDM
investors
• Kyoto mechanisms and regulations for CDM projects
have to be in force
Second National Workshop (Phase II) – Cairo, Egypt
– Ratification (Russia?)
• Fungability with other legal frameworks
– e.g. Decision on acceptance of CDM/JI within EU emissions
trading scheme
• Project type restrictions and additional requirements
should be minimised
– Restrictions on hydropower
– Financial additionality?
– Tranaction costs still discriminate against small/medium projects
• Calrify post 2012 situation
– Energy investment requires substantial capital for investment
over long periods
– Infrastructure has technical life beyond crediting periods
• Low price of CO2
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January 12-13, 2004
Questions / Discussion
Second National Workshop (Phase II) – Cairo, Egypt
For more information, please visit
www.e7.org
or contact:
Christian Matossian
Tel: +49 (0)201-121-5650
Fax: +49 (0)201-121-5595
Email: [email protected]
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