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EcoSecurities Group Ltd. Environmental Finance Solutions Using the Project Design Document The case of the Wigton wind

EcoSecurities Group Ltd. Environmental Finance Solutions Using the Project Design Document The case of the Wigton wind farm in Jamaica . Addis Abeba, October, 2003 Jan-Willem Martens www.ecosecurities.com. CDM. Project . Design. Document. CDM - CO 2 , CH 4 , N 2 O Baseline scenarios,

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EcoSecurities Group Ltd. Environmental Finance Solutions Using the Project Design Document The case of the Wigton wind

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  1. EcoSecurities Group Ltd.Environmental Finance SolutionsUsing the Project Design Document The case of the Wigton wind farm in Jamaica Addis Abeba, October, 2003 Jan-Willem Martens www.ecosecurities.com

  2. CDM Project Design Document • CDM • - CO2, CH4, N2O • Baseline scenarios, • Emission factors • Monitoring& verification, • Methodologies, • etc.

  3. EcoSecurities • EcoSecurities leading greenhouse gas advisor (Environmental Finance survey, 2001 and 2002) • Five offices around the world, 27 people • Currently working on 32 CDM projects in 10 countries • Active in capacity building, PDD development and sales of CERs

  4. Advisory Services (Policy analysis, baselines, custom services) Originationthrough our international network of offices & agents Carried Interests Transactional Services (Tendering & RFPs, Emissions trades, Financial advisory) (Project development emission concessions, contingent contracts) EcoSecurities’ services are mutually reinforcing, creating synergies for our clients Advisory Services (Policy analysis, baselines, custom services) Originationthrough our international network of offices & agents Carried Interests Transactional Services (Tendering & RFPs, Emissions trades, Financial advisory) (Project development emission concessions, contingent contracts)

  5. EcoSecurities Group Oxford (11) New York (3) Den Haag (3) Los Angeles (2) Melbourne (1) Rio de Janeiro (7) EcoSecurities Group Employees = 27

  6. Overview of presentation • CDM Project Development Project Design Document • Introduction of the Wigton Windfarm case • Baseline methodology (Annex 3) • Application of the baseline methodology (Section B) • Calculation of the emission reductions (Section E) • Crediting period (Section C) • Monitoring Plan (Section D) • Environmental Impacts and Stakeholder Comments (Section F and G) • Conclusion

  7. Pre Pre - - Feasibility Assessment Feasibility Assessment – – Realisation of Realisation of Final Project Design Final Project Design - - full full emission reductions and how emission reductions and how emission emission Project Design Document Project Design Document much? much? reductions reductions Initial Initial Project Project Project Project Implementation Implementation Concept Concept Feasibility Assessment Feasibility Assessment - - is is Validation, Validation, project eligible ? project eligible ? Registration, Registration, Approval Approval CDM Project cycle & Time Line of CERs

  8. Pre- & feasibility Assessment • Transaction costs – in general to be paid upfront. Roughly between EUR 35,000 and EUR 145,000. Is this money available? • Make first estimate of emission reductions. As a general rule, a project should generate about 20,000/annum CERs to benefit from the CDM. • Is the project additional? • In case of ODA: clear that money paid for CERs is no diversion of ODA funds? • Host country: • Should be party to the KP or plan to ratify KP; • Project screening criteria from the DNA • Discuss idea of submitting PIN.

  9. PDD Preparation and Approval Process • Project develops Project Design Document • Often with help of consultant to assist on technical details • Project submits PDD for validation to validator • Pre-validation is a possibility: Before validation the validator provides feedback on quality of PDD • Validator submits New Methodologies (baseline and monitoring) for approval to the Methodology Panel • Methodology Panel asks input from two independent reviewers

  10. CDM approval process (2) • The Meth Panel provides recommendation to CDM Executive Board who approves or rejects the Methodology (A, B or C) • Upon approval the validator validates the project and submits it to the CDM EB for registration • After registration the CDM project can start implementation

  11. Estimated Transaction Costs

  12. Project Design Document (PDD) • A. General description of project activity • B. Baseline methodology • C. Duration of the project activity / Crediting period • D. Monitoring methodology and plan • E. Calculations of GHG emissions by sources • F. Environmental impacts • G. Stakeholders comments • Annex 1: Information on participants in the project activity • Annex 2: Information regarding public funding • Annex 3: New baseline methodology • Annex 4: New monitoring methodology • Annex 5: Table: Baseline data

  13. Selection of case study • Wigton Wind Farm Other cases: • Solar home systems • Household biogas digesters • Small hydro power • Landfill gas

  14. Wigton Wind Farm Project: characteristics • Development of a 20.7 MW Wind project (23 wind mills of 900 kW) • Project located in Wigton, Jamaica • Developed by Renewable Energy Systems (RES) and Petroleum Corporation of Jamaica (PCJ) • Estimated annual output: 60 GWh per year • Amount of CERs to be generated: 52,000 per year

  15. Wigton CDM project development over time • Jan 2002 CERUPT: Submission of Project Idea Note (PIN) • May 2002 CERUPT: short list including Wigton • July 2002 EIA submitted for approval to National Environmental Planning Agency • Aug. 2002 Validation report • Aug. 2002 CERUPT: Submission of PDD and business plan • March 2003 CERUPT: Wigton CDM project contracted • April 2003 Wigton submitted to EB for the CDM for approval and registration May 2003 Recommendation of Methodology Panel to EB: Wigton may be approved, but some changes required • Summer 2003 Start of construction • End of 2004 In operation

  16. Section A of PDD: General description of project activity • A. General description of project activity • A.1 Title of the project activity: Wigton wind farm project • A.2. Description of the project activity: • A.3. Project participants: Project developer: RES (UK), PCJ (Jamaica), Constructor: NEG Micon (NL) Carbon advisor: EcoSecurities • A.4. Technical description of the project activity: • A.4.1. Location of the project activity: • A.4.2. Category(ies) of project activity: Energy & Power – grid connected power generation • A.4.3. Technology to be employed by the project activity: • A.4.4. Additionality • A.4.5. Public funding of the project activity

  17. A.4.4: additionality • KP/MA: “The emission reductions of the project must be additional to any that would occur in absence of the project “ • Marrakesh unclear on how to put this interpretation in practice. At last, at EB meeting 9 and 10, guidance from the Executive Board how additionality should be interpreted • Demonstrate that the project is not the most likely baseline scenario • (a) A flow-chart or series of questions that lead to a narrowing of potential baseline options; • (b) A qualitative or quantitative assessment of different potential options and an indication of why the non-project option is more likely; and/or • (c) A qualitative or quantitative assessment of one or more barriers facing the proposed project activity (such as those laid out for small-scale CDM projects); and/or • (d) An indication that the project type is not common practice in the proposed area of implementation, and not required by a Party’s legislation/regulations.

  18. Additionality in the PDD • Baseline methodology should define how additionality is addressed (Annex 3.2 and 3.6 of the PDD) • In Section B-3 and B-4 the methodology is applied on the project • In section A.4-4 present a summary of why the project is additional

  19. A.4.5. Public funding of the project activity • ODA funding and CDM are often complementary: ODA often pays for project identification, feasibility study, capacity building of local staff. CDM functions as a good “exit” strategy for ODA donors or other public funders • But: CDM should not lead to a diversion of ODA money • If project also receives ODA funding, statement from ODA donor is required that no CERs are received in return for ODA funding • It should also be clear that the project would not have been fully funded by public funding or by ODA • The same applies for GEF (??)

  20. Any questions so far?

  21. Project Design Document (PDD) • A. General description of project activity • B. Baseline methodology • C. Duration of the project activity / Crediting period • D. Monitoring methodology and plan • E. Calculations of GHG emissions by sources • F. Environmental impacts • G. Stakeholders comments • Annex 1: Information on participants in the project activity • Annex 2: Information regarding public funding • Annex 3: New baseline methodology • Annex 4: New monitoring methodology • Annex 5: Table: Baseline data

  22. Key questions to be addressed : • How to calculate Carbon Emission Factor (CEF)? • How to select the most appropriate baseline scenario? • How has this been applied in the context of Wigton Windfarm?

  23. Calculation of Carbon Emissions for a power plant

  24. How to select the appropriate power plants? Electricity sector in Jamaica: • Diesel power plants (487 MW, 11 plants) • Bunker oil plants (23 MW, 8 plants) • Hydro (179 MW, 9 plants) • In the future: natural gas, diesel, bunker oil • Key question: What is the appropriate baseline? • Hydro? => CEF = 0 tCO2/MWh • Diesel/Bunker oil? CEF is around 1 tCo2/MWh • Natural gas? CEF = 0.45 tCO2/MWh • Mix?

  25. Baseline methodology • Purpose: Selection of the most appropriate baseline scenario for a project taking into account the project circumstances • Is defined for a specific project category • If baseline methodology is available, Project can use approved methodology: • Small-scale guidelines for small-scale projects; • Land-fill gas (3); • Fuel switch (1); • Biomass project (1); • HFC gas project (1). • If not, Project has to submit new Methodology by filling out Annex 3 of PDD

  26. Annex 3 – New Methodology • 1. Title of the proposed methodology: • 2. Description of the methodology: • 3. Key parameters/assumptions (including emission factors and activity levels), and data sources considered and used: • 4. Definition of the project boundary related to the baseline methodology: • 5. Assessment of uncertainties: • 6. Description of how the baseline methodology addresses the calculation of baseline emissions and the determination of project additionality: • 7. Description of how the baseline methodology addresses any potential leakage of the project activity: • 8. Criteria used in developing the proposed baseline methodology, including an explanation of how the baseline methodology was developed in a transparent and conservative manner: • 9. Assessment of strengths and weaknesses of the baseline methodology: • 10. Other considerations, such as a description of how national and/or sectoral policies and circumstances have been taken into account:

  27. Annex 3: New methodology for Wigton Windfarm • 1. [Title] Baseline methodology for Renewable grid-connected power projects • 2. Description of the methodology: • 2.1. General approach (Please check the appropriate option(s)) • a) Existing actual or historical emissions; • b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment; • 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.

  28. No Yes Is the project different from the Business as Usual 1 Scenario ? 2 3 Project Future Combined Recent Projected Operating Static Operating Scenario Additions Margin Additions Margin Margin

  29. 2.2 Overall description • Wigtons baseline methodology is characterized by 3 steps: • 1 - Is the project the baseline scenario? • 2 - What is the most likely baseline scenario? • 3 - Which power plants need to be included in the calculation of the baseline CEF?

  30. Step 1 – Demonstrate that the project is not the business as usual scenario • (a) Investment barriers • (b) Technological barriers • (c) Barrier due to prevailing practice • (d) Other barriers

  31. Step 2 – Determine the most likely baseline scenario in absence of the project Would the project have delayed future investments in the power sector? Yes -> Build Margin baseline methodology (Baseline = emissions from future power plants) No -> Operating Margin Baseline methodology (Baseline = emissions from existing power plants) Unclear -> Combined Margin baseline methodology (baseline = mix of Build Margin and Operating Margin)

  32. No Does the project delay or cancel future expansion of the grid? No Unclear Yes Build Margin Operating Margin Is the project different from the Business as Usual 1 Scenario ? Yes 2 3 Project Future Combined Recent Projected Operating Static Operating Scenario Additions Margin Additions Margin Margin

  33. Combined Margin Build Margin Build/ Operating/ Combined Margin Baseline emissions TCo2/year Operating Margin Crediting period

  34. Step 3: Which power plants need to be included in the calculation of the baseline CEF?

  35. No Does the project delay or cancel future expansion of the grid? No Unclear Yes Build Margin Operating Margin Is the energy park expected to alter No significantly in the crediting period? Yes Is information available on future Is information available on future addition(s) to the grid? additions to the grid? Yes No No Yes Is the project different from the Business as Usual 1 Scenario ? Yes 2 3 Project Future Combined Recent Projected Operating Static Operating Scenario Additions Margin Additions Margin Margin

  36. Summary • Select a baseline methodology which suits your project category: • If there is an existing methodology, apply this; • If there is no methodology, define a new one. • Follow the instructions of the baseline methodology to your project and select the appropriate baseline scenario • Justify the choices you have made by referring to your project-specific circumstances • Now: example of the Wigton windfarm

  37. Any questions so far?

  38. Project Design Document (PDD) • A. General description of project activity • B. Baseline methodology • C. Duration of the project activity / Crediting period • D. Monitoring methodology and plan • E. Calculations of GHG emissions by sources • F. Environmental impacts • G. Stakeholders comments • Annex 1: Information on participants in the project activity • Annex 2: Information regarding public funding • Annex 3: New baseline methodology • Annex 4: New monitoring methodology • Annex 5: Table: Baseline data

  39. Section B • B.1 Title and reference of the methodology applied to the project activity: • B.2. Justification of the choice of the methodology and why it is applicable to the project activity • B.3. Description of how the methodology is applied in the context of the project activity: • B.4. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (i.e. explanation of how and why this project is additional and therefore not the baseline scenario) • B.5. Description of how the definition of the project boundary related to the baseline methodology is applied to the project activity: • B.6. Details of baseline development • B.6.1 Date of completing the final draft of this baseline section (DD/MM/YYYY): • B.6.2 Name of person/entity determining the baseline:

  40. B.3. Description of how the methodology is applied in the context of the project activity: Step 1 - Wigton first wind park in the Caribean -> High investment risk, technology barriers, lack of familiarity with technology Step 2 – Most likely baseline scenario: would the project have delayed future investments in the power sector? • Wigton does not share the same power supply characteristics as many other power plants; • Wind power is an intermittent source which serves as base load in the dispatch • Wigton is likely to replace Existing park = Operating Margin baseline Step 3 – Emission factor methodology: • The generation capacity in Jamaica is likely to expand; • No reliable data was available on future additions to the power park.

  41. Yes Does the project delay or cancel future expansion of the grid? No Operating Margin Is the energy park expected to alter significantly in the crediting period? Yes Is information available on future additions to the grid? No Situation for the Wigton Wind Farm Is the project different from the Business as Usual 1 Scenario ? 2 3 Project Future Combined Recent Projected Operating Static Operating Scenario Additions Margin Additions Margin Margin

  42. Project Design Document (PDD) • A. General description of project activity • B. Baseline methodology • C. Duration of the project activity / Crediting period • D. Monitoring methodology and plan • E. Calculations of GHG emissions by sources • F. Environmental impacts • G. Stakeholders comments • Annex 1: Information on participants in the project activity • Annex 2: Information regarding public funding • Annex 3: New baseline methodology • Annex 4: New monitoring methodology • Annex 5: Table: Baseline data

  43. E: Calculation of GHG emissions by sources • E.1 Formulae used to estimate emissions of the project activity within the project boundary • No project emissions for Wigton • E.2 Description of formulae used to estimate leakage • No leakage identified for Wigton. • E.3 Sum of E.1 and E.2 • E.4 Description of formulae used to estimate the anthropogenic emissions by sources of greenhouse gases of the baseline • E.5 Difference between E.4 and E.3 representing the emission reductions of the project activity • E.6 Table providing values obtained when applying formulae above

  44. Other Elements of the methodology • Step 4 - Determine period from which new plants are included • Step 5 - Assessment of emission factors • Step 6 - Calculate the weighted average emission factor • Step 7 - Calculate emissions of the baseline

  45. E: Calculate Carbon Emission Factors (CEFs) from fuel use

  46. Calculate weighted average: Static Operating Margin

  47. “Recently added” methodology: past 5 years or past 10 years

  48. Resulting baseline scenarios for the Wigton Windfarm

  49. Project Design Document (PDD) • A. General description of project activity • B. Baseline methodology • C. Duration of the project activity / Crediting period • D. Monitoring methodology and plan • E. Calculations of GHG emissions by sources • F. Environmental impacts • G. Stakeholders comments • Annex 1: Information on participants in the project activity • Annex 2: Information regarding public funding • Annex 3: New baseline methodology • Annex 4: New monitoring methodology • Annex 5: Table: Baseline data

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