INDIA S INCREASING POWER DEMAND AN OPPORTUNITY FOR CDM PROJECTS DILEMMAS FOR HYDRO PROJECTS By A. K. SACHDEVA Ex

1. INDIA�S INCREASING POWER DEMAND � AN OPPORTUNITY FOR CDM PROJECTS & DILEMMAS FOR HYDRO PROJECTS By A. K. SACHDEVA Executive Director, NHPC

2. INDIAN POWER SCENARIO In India the aggregate installed capacity as on 30th June 2006 is 1,26,089 MW comprising - Thermal 83,272 MW - Hydro 32,726 MW A massive capacity addition of 1,00,000 MW in the period 2002-12 was considered necessary to meet the annual energy requirements of 975.2 BU and peak demands of 1,57,107 MW by the end of XI plan (2011-12).

3. INDIAN POWER SCENARIO Per capita consumption of electricity in India is 606 kWh against a world average of 2326 kWh. India has approximately 1,20,016 MW of untapped hydropower potential.

4. Benefits of Hydro Power Hydro projects assist sustainable developments in many ways. Hydropower provides high level of service to power system (reliability, flexibility, efficiency). Hydropower supports intermittent renewable such as Wind, Solar power etc. Hydropower saves scarce fuel reserves and insures energy security.

5. Benefits of Hydro Power Hydro Power projects having storage can serve as multipurpose providing irrigation, drinking water, flood-mitigation, navigation and tourism industries. Majority of hydropower potential is run of the river type and does not cause large-scale resettlement, and does not adversely affect the environment. Many International studies consider hydropower as the best available option for reducing GHG emissions and present as a good candidate for CDM benefits.

6. Intergovernmental Panel on Climate Change (IPCC) IPCC was established in 1988 by UNEP(United Nation Environment Programme) and WMO to provide policy makers, scientific information on climate change. IPCC Report concluded that Green House Gases (GHG) will result in warming of earth by next century, unless measures were adopted to limit emissions.

7. The United Nations Framework Convention on Climate Change On the basis of Report, United Nations Framework Convention on Climate Change (UNFCCC) was formulated in May 1992 for global climate protection. India signed UNFCCC on 10th June 1992 and ratified that in 1993.

8. Kyoto Protocol to The UNFCCC Kyoto Protocol to the Convention, established the Conference of Parties (COP) as its supreme body. COP3 held in Kyoto, Japan agreed to legally binding set of obligations to reduce their emissions of GHG.

9. Commits Industrialised Countries (Annex I Parties / Countries) to reduce their Green House Gas (GHG) emissions by, on average, 5.2 % below 1990 levels in 2008-12 (Phase I). Individual, quantified emission targets for each Annex-1Country fixed.

10. Green House Gases Six Green House Gases covered Carbon Dioxide (CO2) Methane (CH4) Nitrous Oxide (N2O) Hydro fluorocarbons (HFC) Per fluorocarbons (PFC) Sulphur Hexafluoride (SF6)

11. Flexible Mechanisms Clean Development Mechanism (CDM) Joint Implementation (JI) Emission Trading (ET)

12. Clean Development Mechanism (CDM) Article 12 of the Kyoto Protocol defines the clean development mechanism. �The purpose of the clean development mechanism shall be to assist Parties1 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�.

13. Clean Development Mechanism (CDM) Clean Development Mechanism was instituted in 2001 under Kyoto Protocol. Came into force on 16th February 2005 after Russia and European Community ratified it. Major non participants: USA and Australia.

14. CDM Project Cycle

15. ROLE AND RESPONSILILITIES IN THE CDM PROJECT CYCLE Activity Definition Responsible entity Project development Developing a CDM project Project promoter Project design document Developing a CDM PDD Project promoter Validation Implementation evaluation of DOE PDD including calculation of Baseline emission and estimated Project emissions Host country approval Approval from host government Project promoter is mandatory and host govt. Registration Formal acceptance of a validated PDD Executive board Project implementation Commissioning and operation of the Project promoter and monitoring CDM project and measuring and recording Project performance related Indicators/ parameters Verification Periodical independent review of DOE monitored GHG reduction Certification Written assurance on the actual DOE GHG reductions verified Issuance of CERs Issuance of CERs based on Executive board DOE�s certification CDM - clean development mechanism: PDD � project design document: DOE: design operational entities: GHG � green house gas; CERs � certified emission reduction

17. Host Country Approval Criteria by DNA, INDIA Social well being Economic well being Environmental well being Technological well being

18. Approved Methodology AMS-ID : Grid Connected renewable electricity generation up to 15 MW( including small hydro). AM0005 : This methodology was applicable to Small Grid connected zero emissions renewable electricity generation projects including electricity capacity additions, i.e. less than or equal to 60 MW. Valid from 14 Apr 04 to 02 Mar 2006. At present not active and has been replaced by ACM0002.

19. Approved Methodology ACM0002: Consolidated baseline methodology for grid-connected electricity generation from renewable sources. Applicable to New hydro electric power projects with reservoirs having power densities (installed power generation capacity divided by the surface area at full reservoir level) greater than 4 W/m2.

21. CDM Documentation Cost

22. Unit Cost of Energy

23. Internal Rate of Return (IRR)

24. Routes Available Carbon Fund / Financial Institutions Consultant route Sharing of cost & risk

25. Issues/ Areas of interest for CDM Hydro Project (Not defined by UNFCCC). Environmental Issues Overall environmental impact due to all the projects in the basin including the proposed project. Downstream Environment flow assessment and impacts. Environmental Impact Assessment & Public Hearing Documentation. Environmental Management Programme.

26. Issues/ Areas of interest for CDM Hydro Project (Not defined by UNFCCC). Social & Local issues Rehabilitation and Resettlement issues including resettlement plan and other documentations. Land Acquisition - transparency & fairness - Procedure for fixation of cost of land etc. Cultural Management Plan including Tribal Strategy & documentation in its Consultation process & Agreement. Consultation / Agreement with local population including scheduled tribes if any.

27. Issues/ Areas of interest for CDM Hydro Project (Not defined by UNFCCC). Security Aspects Archaeological surveys in the project areas. Plan for Archaeological structures security. Dam Safety Plan. Disaster management plan.

28. Issues, Concerns & Dilemmas Conforming to Eligibility Criteria, Documentation for CER Revenue, & Non delivery Risks. Threshold & CDM Eligibility Criteria Hydroelectric plants with power densities ( Installed power generation capacity divided by the flooded surface area) less than 4 w/m2 cannot use current methodology. Hydroelectric power plants with power densities greater than 4 w/m2 but less than or equal to 10 w/m2 can use the current approved methodologies, with an emission factor of 90 g CO2eq/kWh for project reservoir emissions;

29. Issues, Concerns & Dilemmas Conforming to Eligibility Criteria, Documentation for CER Revenue, & Non delivery Risks. Threshold & CDM Eligibility Criteria Hydroelectric power plants with power densities greater than 10 W/m2 can use current approved methodologies and the project emissions from the reservoir may be neglected.

30. Issues, Concerns & Dilemmas Approved Methodology: Additionality Criteria: Transaction costs & revenue stream Financing institution: Availability of Base Line Data: Requirement of Consultant Price Differentiation of CER

31. Huge gap between different generating CERs CER (Early Stage) : 3 - 7 Euro Approved Methodology : 6 -7 Euro Registered Project : 15 Euro Issued CER : 18 Euro EU Allowance : 18 � 30 Euro

32. Issues, Concerns & Dilemmas Uncertainty of Continuance of this Process of CDM Beyond 2012 Additional/Stricter Guidelines by some countries/unions Tariff Policy & Apportioning of CDM benefits between developers & consumer Issues/ Areas of interest for CDM Hydro Project (Not defined by UNFCCC). Campaign by developed countries against hydro projects

33. Campaign against Hydro by Developed Countries. Hydro Project is a good source of GHG emission rather than reduction as per certain studies carried out in tropical regions. Tropical studies because of decomposition, leaves, twigs and other rapidly degradable biomass received through floods remaining buried in the reservoir.

34. Campaign against Hydro by Developed Countries. There is a misconception that the dam promoters underestimated the economic costs of medium & large hydropower projects as well as resettlement and rehabilitation issues and the compensation on account of lost lands, homes, and sources of livelihood. Large hydropower projects don�t currently take into account hydrological impacts of climate change. Recent times have shown in that extremes of draughts and floods due to climate change causing serious implications for the dam performance towards energy generation.

35. Campaign against Hydro by Developed Countries Large hydropower projects have major social and ecological impacts. Efforts to mitigate the impacts of large hydro typically fail Large hydro promoters oppose measures to prevent the construction of destructive project Large hydro reservoirs are often rendered non-renewable by sedimentations

36. European Union Requirements For hydro electric projects with a generating capacity exceeding 20MW: Member States when approving such projects must take into account relevant criteria, including those set out in the World Commission on Dams (WCD) November 2000 Report �Dams and Development � A New Framework for Decision-Making�. To fulfill this obligation the UK DNA requires a declaration from project participants in these projects, indicating that the development of the proposed project activity will respect the criteria and guidelines identified in the Report produced by the World Commission on Dams.

37. WCD Recommendations comprehensive and participative assessments of water and energy needs and options for meeting these needs; developers held legally accountable to negotiated agreements with affected communities; prior and informed consent of indigenous peoples; full access to relevant project information; feasibility studies to include sensitivity analyses of potential cost and time overruns and shortfalls in production; agreement at the design stage of participative monitoring and adaptive management procedures to be followed through project lifetime.

38. Conclusion The uncertainties and concerns which still exist for Hydro power CDM projects should be got addressed at the earliest, through the CDM executive board to enable hydro power utilities to take initiative for CDM projects. CDM process for hydro sector should be got simplified specially in the area of additionality and differentiation from business as usual.

39. Conclusion An independent methodology for hydro power CDM projects be formulated and got approved. Hydro utilities should adopt the consultant as well as carbon fund/financial institution route. Kyoto protocol signatories must immediately take up the matter of extension of this process beyond 2012. CERC should notify proportional benefits for hydro power developers based on revised tariff policy

40. Conclusion Request for reduction in transaction cost for Hydro projects which are otherwise capital intensive be taken up CEA may complete the process of baseline data of all the grids at the earliest. Indian carbon fund be instituted and financial institutions should promote financing of CDM projects Maximum utilization of CDM during first regime of 2008-2012 be aspired for.

41. THANK YOU