Baseline methodologies in the power generation sector

1. Baseline methodologies in the power generation sector “High-level Roundtable on CDM Reform” Session 3 October 5th, 2005 World Bank Headquarters, Washington, D.C. Marcos Castro, mcastro@ambiente.gov.ec Ecuadorian CDM Promotion Office

2. Brief review… • Approved meths for electricity projects up to date • Consolidated meth: some critical issues • Improving methodological tools (power generation sector case)

3. Why focus (in this presentation) on meths for CDM power generation projects? • demand for electricity is growing rapidly in many CDM host countries • many projects in the electricity sector are being developed as potential CDM projects • assessing additionality & baselines is often more difficult for projects in the electricity sector, i.a.: • project “boundaries”  grid • BAU capacity additions vs. proposed CDM activities • much work has been done on assessing appropriate methods to determine baselines in the electricity sector.

4. Approved meths for electricity projectsby September 05 Overall: 19 meths (incl. 4 SSC-meths) • 3 (1 ACM) --- Renewable energies (w/o biomass) • 4 (1 ACM (tbc)) --- Biomass power generation • 5 (1 ACM) --- Biogas PG (LFG, wastewater, animal waste) • 3 (1 ACM) --- Others (waste heat; fuel-switch) • 4 --- SSC meths: grid-connected, fuel-switch, etc. Well covered sector by approved methodologies… but: • Some particular project types/circumstances not addressed yet • Balance between broad applicability and accurate results ensured?

5. Projects in the pipeline using these methsby September 05 Out of 142 projects: at least at validation stage • 33 (23 ACM) --- Renewable energies • 29 (/ ACM) --- Biomass power generation • 4 (3 ACM) --- Others (waste heat; fuel-switch) • [ 29 (20 ACM) --- Biogas w/o power generation ] 97 out of 141 SSC-projects • 80 --- grid-connected SSC meth

6. Determination of additionality Once adopted, broad incorporation of “additionality tool” in newly approved methodologies. • Despite not mandatory, precedent has been set for addressing assessment of additionality  discussions on requirements of “additionality tool” • Incorporation of additionality tool in baseline methodologies: has been consistency ensured between (i) baseline scenario development and (ii) demonstration of project additionality? • ACM002: recent guidance, but still general • Feedback with ongoing EB work on treatment of national/sectoral policies & regulations (↔ AT Step1)

7. CEF calculation approach: rationale • Weighted-average • Operating margin: reflects the effect of the project on grid operation • Build margin: reflects the effect of the project on grid expansion • Combined margin: reflects a project’s short-term effect on the OM and longer-term effect on BM. Different choices for CEF calculation methods can significantly impact the level of baseline emissions, and consequently, the number of CERs generated.

8. CEF calculation method • Weighted average: 1 • Operating margin : / • Build margin: / • Combined margin: 8  incorporation of ACM002: 6 • AVG/OM: 2 • [displaced fossil EF: 2 ] • [no claim of ER: 2 ]

9. Combined margin approach is becoming the preferred (standard ?) approach for EF calculation. • It does not clearly fit into one of the three baseline approaches (based on actual emissions & on emissions from planned plants). • Notwithstanding, it is perceived as a comprehensive approach to setting baselines, since it reflects a project’s short-term effect on the operating margin and longer-term effect on the build margin. • It is supposed to be flexible: if justified by specific system & project circumstances, participants may propose particular weightings (but: weightings to be approved by EB).

10. Consolidated meth ACM002 Objectives of meth consolidation • Reduce methodological uncertainty & accelerate the process of providing ‘approved’ methodological guidance • Reduce transaction costs • Clarify and, to some extent, simplify the application of methodologies in PDD development

11. Some critical aspects of consolidation as carried on by EB: • Consolidation ↔ standardization • Scope of consolidation: went beyond approved methodologies / elements • Trade-off: gain methodological certainty but accept some arbitrary guidance • Limited participation of interested stakeholders along the consolidation process, due to feedback mechanisms

12. Some key features • Applicability: grid-connected electricity generation from renewable sources • excludes: hydro projects involving construction of reservoirs • adjusted versions for biomass & biogas projects • new revision: projects that retrofit existing capacity • Additionality • “Consolidated additionality tool” shall be used • Baseline scenario • “System operation & expansion without proposed CDM project” • Shall be consistent with “alternative scenario assessment” carried on with additionality tool (revised version)

13. Some key features (2) • Baseline emissions: calculation of emission factor (EF) • Ex-ante or ex-post calculation • Project participants may choose • Combined margin approach (CM) • 4 OM EF calc methods (with conditions for choosing method) • 2 BM EF calc methods (dito) • Default weighting: 0.5 OM + 0.5 BM = grid EF • Alternative weightings: need EB consideration ( discussion paper) • Leakage • Considered negligible; do not need to be accounted for. • Monitoring • Linked monitoring meth; straightforward (relies on dispatch centre data).

14. Does it sufficiently allow to account for national circumstances? • While broad applicability conditions, limited space for incorporating specific characteristics of system expansion & operation • Calculation methods include some mandatory tresholds & parameters, that may significantly affect ER calculations (simplification rather than conservativeness!). • Choice of OM & BM calculation methods • Weightings for CM • Sound guidance pending for justifying other weightings • Electricity imports • EF= 0 tC02/MWh

15. Data vintage • Data intensive? • Depends on methods selected by a particular project. • Official dispatch data preferred, but works also with aggregated data. • Avoids application of “black box” models • Least-cost planning tools ( backwards looking BM calculation) • Dispatch simulation models ( if selected, ex post dispatch analysis)

16. Smoothening the process… • Int’l regulatory/administrative level • EB has adopted procedures for requests for clarifications & revisions of approved meths • Window is open for submitting new or adjusted meths that better reflect national circumstances • e.g. Chile / Colombia • But: measures that will improve pace of meth review process? • National institutional level • Mainstreaming the CDM in the national power sector ( appealing sector) • Involvement of sector agencies as to address tasks that will smoothen the CDM project development cycle

17. Improving the process… (2) • Key tasks at national level (basic agenda with sector agencies) • Ensure access to consistent grid operation & expansion information • Develop sound sector reference scenario • Agree on baseline emission factors (OM / BM / weighting procedures) • Arrange procedures for official reporting of i.a. updated ex-ante EF & monitored ex-post EF • Significant impact on timelines & transaction costs • PDD development; • Approval/validation/registration; verification

18. Gracias!