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Clean Development Mechanism (CDM) Funding for Windfarms

Clean Development Mechanism (CDM) Funding for Windfarms. Dr John Green, Director, IT Power Carbon. Presentation Outline. The CDM Market CDM funding for windfarms Case study describing the first windfarm in the world to become a CDM project Obtaining advice. CDM Host Countries.

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Clean Development Mechanism (CDM) Funding for Windfarms

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  1. Clean Development Mechanism (CDM) Funding for Windfarms Dr John Green, Director, IT Power Carbon

  2. Presentation Outline • The CDM Market • CDM funding for windfarms • Case study describing the first windfarm in the world to become a CDM project • Obtaining advice

  3. CDM Host Countries Green: Potential CDM host countries Blue : EC countries: Linking Directive connects CDM market with EU ETS market Yellow: European countries with economies in transition   Red: Countries outside of the European Union that have ratified the Kyoto Protocol  White: Countries that have not ratified the Kyoto Protocol   Source: Point Carbon

  4. How the CDM can Accelerate Wind Power Development • Additional source of revenue • Help secure other finance • Offset foreign exchange risks for imported equipment • Promote technology transfer

  5. Funding from the CDM • Example of a 45MW wind farm in China: • Total investment approximately US$50 million • CERs of approximately 90,000/year • Price at US$6 per tCO2 would lead to income of approximately US$5.4 million over 10 years • Discounted, this represents approximately 8% of total investment costs

  6. Overview of the CDM Market • Current CER price: €3-€8 • EU ETS price: €18-€28 • World Bank’s PCF price objectives is US$3/tCO2 • 1 Certified Emission Reductions (CER) = 1 tonne reduction of carbon dioxide equivalent saved compared to the project baseline

  7. Buyers of CERs • In 2003-4 the major buyers (accounting for 90% of the transactions) were: • Japanese Companies • World Bank Carbon Finance Business • Netherlands Government • Private funds and ETS participants are now playing a strong role in the market

  8. Limitations • Bureaucratic procedures • CDM Executive Board & Methodology Panel • National policies • Transactions costs (up-front and on-going) • Market price • Too low & uncertain for many projects • Post-2012 uncertainty • Relatively low demand • No demand from the USA • Russian/Ukrainian supply

  9. Documentation required for a CDM Project • Baseline study - emissions that would occur in the absence of the proposed project • Project Design Document (PDD) - 60+ pages needed to demonstrate that this project is “additional” • Contract for selling emissions reductions

  10. Issues to be Considered • Need to demonstrate why the project activity is not likely occur as part of the business as usual (BAU) scenario • Need to identify the additionality over the baseline • Need to demonstrate how the project meets/supports the sustainable development criteria of the host country • Evidence of CDM funding being taken into account before the final decision is given for the project to go ahead

  11. CDM Costs • Costs • Project Design Document ~€75k • Verification ~€8k • Registration ~€15k • Annual certification ~€8k • Small-scale CDM a little cheaper • Minimum project size for it to be profitable? • Approximately 10,000 tCO2e/year

  12. World’s first windfarm CDM Project Case study - IT Power wrote the Project Design Document (PDD) for the Chinese Huitengxile project

  13. Huitengxile Windfarm • 25.8MW windfarm in Inner Mongolia • Twelve 900kW and ten 1,500kW turbines • Needed to demonstrate that the windfarm would not have been built without CDM • Emission reductions: windfarm electricity production * emission coefficient of grid • US$2.75 million obtained from CDM over 10 years, representing 8% of the project costs

  14. Huitengxile Windfarm • IT Power wrote the Project Design Document (PDD), advised on the sale price for the CERs and produced a business plan for the project • The project documentation was validated in 2005, becoming the first CDM project in China • CERs from the first year of operation will become available in Autumn 2006

  15. Obtaining Advice • UNFCCC website: www.unfccc.de • Point Carbon: www.pointcarbon.com • IT Power: www.itpower.co.uk

  16. IT Power Carbon Capabilities • Project Design Documents • Advice on selling CERs • Corporate sustainable energy & GHG emission reduction advice

  17. Advantages of working with IT Power Carbon • Most successful company at getting CDM funding for windfarm projects • Experience of working on 800+ sustainable energy projects in 100 countries • Working for World Bank, UNDP, Shell, etc • Offices in UK, China, India, Mongolia, Australia, USA, Kenya, South Africa and Uganda

  18. IT Power’s 800+ projects,in 100 countries over 25 years

  19. Carbon Neutral Travel • IT Power offsets it carbon dioxide emissions from flights by purchasing compact florescent lights (CFL) for households in Yunnan and Mongolia • 1 CFL: approximately US$3 • Cost: US$12.32 / tCO2 • Flights: 0.25 kgCO2 / mile • US$12.64 / 1,000 miles

  20. For further information: Dr John Green john.green@itpower.co.uk Tel: +44 117 980 9441

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