Accessing Carbon Finance Clinic: PIN Preparation

2. AccessingCarbonFinance Clinic: PIN preparation Hakim Zahar, P.Eng. Vice-President ECONOLER INTERNATIONAL & Natasa Markovska, D.Sc. EESenior Scientific Collaborator Consultant March, 2007 Macedonia

3. Schedule of Clinic’s activities 09:30- 10:00 Brief presentation on PIN template and key issues 10:00- 10:15 Composition of working groups 10:15- Each group will work on a Project using the PIN template 15:30- 16:00 Open Forum 16:00- 16:15 Summary and closure

4. Let us take a look at the PIN template! • Clear description of project activities and type of technology • Identification of project participants and Institutional arrangement for project implementation • Roles of participants and their technical and financial capability to undertake them. • Identification and status of the third party involvement Example: • PPA negotiation in case of a electricity generation project or • an agreement with municipal government regarding ownership of the waste in case of a landfill project

5. Let us take a look at the PIN template! • Demonstration of additionality and determination of baseline Scenario and Emission Reductions • Roles of participants and their technical and financial capability to undertake them. • why the project should not happen on its own? • What could have happened in the absence of the project ? • Sources of emission reductions and total ER volume

6. Letus take a look at the PIN template! • Project Financing • Project costs estimation • Identification of underlying finances and expected financing gap • Financial analysis -- How will the carbon financing impact on the implementation of the project? • Demonstration of Environmental sustainability • The status of EIA and/or acquisition of relevant environment certificates such as FSC (Forest Steward Council) certificate for a biomass project • Compliance with social and environmental safeguard requirements plus relevance to the sustainable development priorities of the host country • Macedonia national sustainable development goals for CDM projects • net environmental benefit • net contribution to economic development • improvement in social conditions • Community Benefit • Type of benefits the project can generate for local communities

7. Criteria for Successful PIN • Commercially viable technology • Credible baseline scenario and adequate ERs volume • the ER volume must be big enough to make a project viable under the CDM -- for example, a project generating a minimum threshold of 50,000 tCO2/year. Projects with lower than 50,000 tCO2/year may be bundled • Small-scale projects which are programmatic and scalable in nature are encouraged • Hydropower projects must have a maximum of installed capacity threshold of 20 MW. Projects can be bundled • Proposals of carbon sequestration activities are not being accepted at this time

8. Basis for Successful PIN • Competent Project participants and clear institutional arrangement • Technically experienced and sound project developers with clear division of functions. • Early involvement of credible technical, financial, and economic specialists to establish that all project selection criteria are in place • Pool of in-house resources to bring to completion projects that are technically sound and sustainable • Demonstration of sound legal arrangement -- for example, who owns, who operates, and what type of agreement between project participants as well as with third party (e.g. power purchase agreement, ownership agreement, water right) • Viable business and operation model that help reduce transaction costs • Potential for scale up • Involvement of intermediaries who can invest, bundle, and implement project-related CDM services locally

9. Basis for Successful PIN • Sound financing structure • Sound financial health of project sponsors and co-financiers. • The sooner the project can achieve financial closure, the better the chances of selection are • Environment impact and sustainability of the project • In consistent with the WB’s social and environmental safeguard requirements AND the host Country’s overall sustainable development framework • Sizable community benefits • Most eligible criteria for small-scale project under the CDCF • Community Benefits Questionnaires

10. Key issues

11. Conservative Baseline Baseline Emissions Reductions Project Emissions time Baseline Scenario & Additionality • Additionality tools: • financial analysis and/or • barriers analysis Baseline scenario represents emissions in the absence of the CDM project activity

12. Baseline & Monitoring Methodologies • Methodology review: • Approved consolidated methodologies • ACM0001 to ACM0010 • Approved methodologies • AM0001 to AM0045 • Approved meth. for small scale projects • 21 meth. (AMS-type.category) • 3 types: renewable (4), energy efficiency (6) and others (waste management, fossil fuel switching, etc.) (11) • New methodologies: Time consuming and add risky

13. Baseline & Monitoring Methodologies Browse UNFCCC CDM website http://cdm.unfccc.int/methodologies/index.html

14. Baseline & Monitoring Methodologies • How to chose the appropriate methodology • Screening methodologies • Seek the applicability of the meth to the proposed project • Verify if the project is eligible under small scale meth (simplified rules) • If not, identify a consolidated meth (broader scope) • As last option, approved meth. • Boundary

15. Estimation of emissions reductions • Emissions estimate: • Baseline emissions • Project emissions • Formula in methodologies or IPCC guidelines • Tools • Tool to determine methane emissions avoided from dumping waste at a solid waste disposal site • Tool to determine project emissions from flaring gases containing methane • WB spreadsheets : methane from biomass decay • Determination of emission factor • (AMS I.D or ACM0002) • IPCC default values

16. Ratio of conversion into TCO2 for Macedonia • Combined margin (CM) emission factor for Macedonian electricity grid :0.915 tCO2/MWh • Conversion and Emission Factors by Fuel Types within the Energy Sector (Base Year 2000) – 2nd National Communication

17. CO2 abatement cost of the Renewable energy sources technologies in Macedonia Source: Ministry of Environment and Physical Planning/GEF-UNDP, 2004

18. Good Practice and Mistakes to Avoid A synopsis of CDM PDD Guidebook

19. Tips & Tricks #1 • Don’t take a pass on using pre-approved methodologies and IPCC guidelines/GHG emission factors wherever possible or reasonable… • The methodology development process is improving, but is still risky and relatively time-consuming for a CDM developer

20. Use a pre-approved or B-rated methodology wherever possible to reduce delays and costs!

21. Tips & Tricks #2 • Don’t build your house on a sand foundation… • Get the baseline right first, and double check calculations for possible errors • Make sure all potential baseline scenarios have been considered and foregone options justified • For many approved methodologies, there is only one relevant baseline scenario identified ! • If sampling required for baseline or ongoing monitoring, demonstrate homogeneity within strata (e.g. economic characteristics of target group, technology size)

22. Tips & Tricks #3 • Don’t reinvent the wheel when developing or adapting an existing methodology to your project • Keep methodology as simple as possible. • Avoid trying to say it better than language that was already approved, or trying to say more than you need to… • Be explicit, systematic, and ordered (i.e. take a “cook book” approach, not a story-telling one)

23. Tips & Tricks #4 • Don’t include irrelevant or overly detailed technical information in your document • This is subjective and differs by project type (see guidebook for examples and perspective of DOEs). • Don’t include attachments in language other than English or detailed permits and licenses only of interest to DOE

24. Tips & Tricks #5 • Don’t create delays by being incomplete or lazy in your responses. • Always address every aspect in template. If section is not applicable, say so, for reason “X”. No one likes forms. Don’t give Reviewer an easy reason to reject!

25. Tips & Tricks #6 • Don’t commit to an overly conservative baseline that negates much of ER benefit • Reality is that most projects’ ER estimates are revised downward following reviews. • Leaving some headroom is prudent, provided you know volume risk.

26. Tips & Tricks #7 • Don’t make mistakes in investment analysis when demonstrating additionality. • Powerful way to demonstrate that proposed project isn’t common practice or most financially feasible alternative w/out carbon finance. • Don’t assume project is not additional just because NPV is positive, or IRR is high. • Don’t consider carbon revenue in NPV or IRR analyses of baseline. • Don’t consider interest payments in NPV • Don’t forget to treat depreciation as cash flow

27. Tips & Tricks #8 • Don’t be inconsistent • Keep arguments and assumption same across all sections of your project document • Keep emission factors constant between baseline and project calculations • Crediting and starting periods should not contradict each other • Clarify when crediting starts if different project stages and leave at least 3 months from start of validation

28. Thank you for your attention! Hakim Zahar, P.Eng hzahar@econolerint.com +1 418 692-2592 www.econolerint.com Natasa Markovska, D.Sc. EE natasa@manu.edu.mk+389 2 32 35 427