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Investors’ Concerns & Criteria for CDM Electricity 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. What is E7?. What is E7 ?.

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Investors’ Concerns & Criteria for CDM Electricity Projects

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  1. 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

  2. What is E7?

  3. 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

  4. 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

  5. E7 climate change working group • Group of climate change specialists from e7 companies • 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.

  6. E7 capacity building • Training, technical assistance, knowledge transfer to developing country governments, electricity companies, and organisations • Over 30 projects completed • Current CDM capacity building programme with UNDESA to begin in Q1-2004 • Electricity related CDM training from investors’ perspective based on project experience

  7. E7’s AIJ, CDM, and JI projects • Renewable energy development in Indonesia (AIJ) • 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)

  8. E7 project case studies

  9. 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)

  10. Renewables in Indonesia (AIJ) – Cont’d • Project is CDM eligible since completed in 2001 • Exercise showed that project is not worthwhile to register as CDM • 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 • 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

  11. 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

  12. 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

  13. Investment Considerations

  14. 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.)

  15. Impact of Carbon Finance on Project Financing at $3/t CO2e(estimates from PCF’s early experience)

  16. Volume and costs of project typesSpecific transaction costs drop clearly with project size * Average cost estimate of PWC and PCF translated over a 10-year project life

  17. Conclusions & Recommendations

  18. 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

  19. Global factors affecting CDM investors • Kyoto mechanisms and regulations for CDM projects have to be in force • 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

  20. Questions / Discussion 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: christian.matossian@rwe.com

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