-0--0- EcoSecurities Group Ltd. 2002 All Rights Reserved EcoSecurities Group Ltd. Environmental Finance Solutions Using the Project Design Document The.

-1-EcoSecurities Group Ltd. 2002 All Rights Reserved

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 DesignProject Document

CDM

- CO2, CH4, N2O

-Baseline scenarios,

- Emission factors

- Monitoring& verification,

- Methodologies,

etc.



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


EcoSecurities’ services are mutually reinforcing, creating synergies for our clients

Carried InterestsTransactional Services(Tendering & RFPs,Emissions trades,Financial advisory)

Advisory Services

(Project development emission concessions, contingent contracts)

(Policy analysis, baselines, custom services)

Origination through our international

network of offices & agents

Carried InterestsTransactional Services(Tendering & RFPs,Emissions trades,Financial advisory)

Advisory Services

(Project development emission concessions, contingent contracts)

(Policy analysis, baselines, custom services)

Origination through our international

network of offices & agents


EcoSecurities Group

Oxford (11)

Rio de Janeiro(7)

Den Haag (3)

Los Angeles (2)

Melbourne (1)

EcoSecurities Group Employees = 27

New York(3)


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


Initial Project

Concept

Project Implementation

Pre- Feasibility Assessment –emission reductions and how

much? Final Project Design - full Project Design Document

Feasibility Assessment - is project eligible ?

Validation, Registration,

Approval

Realisation of emission

reductions

Initial Project

Concept

Project Implementation

Pre- Feasibility Assessment –emission reductions and how

much? Final Project Design - full Project Design Document

Feasibility Assessment - is project eligible ?

Validation, Registration,

Approval

Realisation of emission

reductions

CDM Project cycle & Time Line of CERs


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.


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


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


Estimated Transaction Costs

Project preparation activities Estimated additional costs for CDM (in EUR)

Additionality assessment, baseline study, calculation of emission reductions, monitoring plan, stakeholder meeting, PIN, PDD

20,000 - 85,000

Validation by independent or operational entityHost country approval

10,000 - 25,000

Marketing, sales of credits, contract negotiations Broker fees

Registration of the project – for CDM with the Executive Board. Pay international administration levy

CDM: 5,000 – 30,000 per project

Selling the emission reductions into the market Broker success fee (3 -15%)

Adaptation fee 2% of CERs

Total 35,000 – 145,000 + % of carbon revenues

Construction / implementation of Project

Monitoring of emissions Internal costs

Verification 3,000-15,000 per time


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


Selection of case study

• Wigton Wind Farm

Other cases:

• Solar home systems

• Household biogas digesters

• Small hydro power

• Landfill gas


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


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


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


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.


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


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 (??)


Any questions so far?






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?


Calculation of Carbon Emissions for a power plant

Fuel consumption data (2001)

million litre million tonne CO2

million MWh produced

CEF (tonne CO2 / MWh

CalculationData provided by plant

use 2.68 kg CO2 per litre for diesel, 3.12 for bunker oil

Data provided by plant D = B / C

A B C D

Bunker oil

Hunts Bay 137 0.427 0.454 0.939

Rockfort 62 0.193 0.258 0.748

Old Harbour 365 1.137 1.147 0.991

Diesel Fuel

Hunts Bay 123 0.330 0.311 1.064

Bogue 93 0.250 0.220 1.134


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?


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


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:


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.

Annex 3: New methodology for Wigton Windfarm


Static OperatingMargin

Project Scenario

Is the project different from the Business as Usual

Scenario ?

No

Future Additions

Recent Additions

1

2

3

Projected Operating Margin

Combined Margin

Yes


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?


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


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)


Yes

future expansion of the grid?Does the project delay or cancel

Build Margin

Yes

Operating Margin

No


Project Scenario


Scenario ?

No

Future Additions

Recent Additions

1

2

3


Combined Margin

Unclear


Build/ Operating/ Combined Margin

Build Margin

Combined Margin

Operating Margin

Baseline emissions

TCo2/year

Crediting period


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

Baseline Scenario Description

Build Margin The project will delay future investments in electricity generation capacity.

Future Additions CEF based on emissions future power plants

Recent Additions CEF based on most recently added power plants

Operating Margin Project will replace emissions from existing operating power plants.

Static Operating Margin CEF based on emissions from current power plants, excluding the renewable energy must run power plants


CEF based on Static Operating Margin plus emissions from new fossil fuel power plants

Combined Margin Combination of Static Operating Margin and Recent Additions


Yes


Build Margin

Yes

Operating Margin

No


No

Project Scenario


Scenario ?

No

Future Additions

Recent Additions

Yes No

Is information available on future addition(s) to the grid?

1

2

3


YesNo

Yes

Is information available on future additions to the grid?

Is the energy park expected to alter significantly in the crediting period?

Combined Margin

Unclear


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


Any questions so far?






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:


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.


Yes


Operating Margin

No


Project Scenario


Scenario ?

Future Additions

Recent Additions

1

2

3


No

Yes

Is information available on future additions to the grid?

Is the energy park expected to alter significantly in the crediting period?

Combined Margin

Situation for the Wigton Wind Farm






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


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


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

Fuel consumption data (2001)

million litre million tonne CO2

million MWh produced

CEF (tonne CO2 / MWh

Calculation From source

use 2.68 kg CO2 per litre for diesel, 3.12 for bunker oil

Data from plant D = B / C

A B C D

Bunker oil

Hunts Bay 137 0.427 0.454 0.939

Rockfort 62 0.193 0.258 0.748

Old Harbour 365 1.137 1.147 0.991

Diesel Fuel

Hunts Bay Gas Turbine 123 0.330 0.311 1.064

Bogue Gas Turbine 93 0.250 0.220 1.134


Calculate weighted average: Static Operating Margin

Plant Technology Fuel MWh in 2001 % of total MWh CEFs CEF 2001

Calculation From source B = % of AFrom fuel use or assumed B * C

A B C DHunts Bay Steam bunker oil 454,364 14% 0.939 0.129

gas turbine diesel 310,675 9% 1.064 0.100Old harbour Steam bunker oil 1,147,211 35% 0.991 0.345Rockfort slow speed diesel bunker oil 257,538 8% 0.748 0.058Bogue gas turbine diesel 220,483 7% 1.134 0.076JEP Med Speed Diesel bunker oil 462,678 14% 0.748 0.105Jamalcoa Cogeneration bunker oil 79,467 2% 0.748 0.018EAL Cogeneration bunker oil 82,736 3% 0.748 0.019JPPC Slow Speed Diesel bunker oil 285,097 9% 0.748 0.065

Total: 3,300,249 100% 0.914


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

Year in operation

Name of plant Technology Fuel MWh in 2001 % of total output CEF

Weighted average CEF (t CO2 / MWh)

Calculation From source From source D = B * CA B C D

1998 EAL Cogeneration Bunker oil 82,736 57% 0.75 0.4272001 Bogue Simple Gas Turbine Diesel 62,098 43% 1.13 0.486

Total: 144,834 100% 0.913

Year in operation

Name of plant Technology Fuel MWh in 2001 % of total output CEF

Weighted average CEF (t CO2 / MWh)

Calculation From source From source D = B * CA B C D

1992 Bogue Simple Gas Turbine Diesel 66,128 6% 1.13 0.0631993 Hunts Bay Simple Gas Turbine Diesel 152,281 13% 1.06 0.1361995 JEP Medium Speed Diesel Bunker oil 462,678 39% 0.75 0.2911995 Jamalcoa Cogeneration Bunker oil 79,467 7% 0.75 0.0501996 JPPC Slow Speed Diesel Bunker oil 285,097 24% 0.75 0.1791998 EAL Cogeneration Bunker oil 82,736 7% 0.75 0.0522001 Bogue Simple Gas Turbine Diesel 62,098 5% 1.13 0.059

Total: 1,190,485 100% 0.830


Resulting baseline scenarios for the Wigton Windfarm

Baseline scenarios Wigton

49000

50000

51000

52000

53000

54000

55000

56000

57000

58000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Years

tCO

2e

Static OM 2001

RA- 5y.

CM

RA-10y.






C. Duration of the project activity / Crediting period

Starting date of project activity• Expected operational lifetime• Crediting period:

• 21 years (3 x 7 years)

• 10 years


D. and Annex 4: Monitoring methodology and plan

• No methodologies (Annex 4) approved at present

• Plan indicating which activities will be monitored once the project is operational

• Includes frequency of monitoring as well as responsibilities data collection and storage

• Development in close relation to emissions baseline

• Use similar project boundaries in order to compare as good as possible

• Data need to be kept in archive until two years after the last issuance of CERs for the project activity


D.1. Name and reference of approved methodology applied to the project activity:

New methodology: “Direct monitoring of electrical output of IPP renewable energy projects”

D.2. Justification of the choice of the methodology and why it is applicable to the project activity:

D: Data for monitoring


D: Monitoring methodology and plan

D.3. Data to be collected in order to monitor emissions from the project activity, and how this data will be archived:

D.4. Potential sources of emissions which are significant and reasonably attributable to the project activity, but which are not included in the project boundary, and identification if and how data will be collected and archived on these emission sources.

• Identical table to fill out.

• No significant indirect on-site and off-site emissions identified.



D.5. Relevant data necessary for determining the baseline of anthropogenic emissions by sources of GHG within the project boundary and identification if and how such data will be collected and archived.



D.6. Quality control (QC) and quality assurance (QA) procedures are being undertaken for data monitored.

Data items in tables contained in section D.3, D.4 and D.5, as applicable.

D.7 Name of person/entity determining the monitoring methodology:


F: Environmental impacts

• Environmental Impact Assessment (EIA)• Review by National Environmental Planning Agency (NEPA)

• Main impacts during construction phase

• Visual impacts and noise


G: Stakeholder comments

• Consultation event• 50 persons attended• Part one: project information• Part two: question, answer and discussion process

• Conclusions:

• No major concerns or objections raised

• Safety issue for local farmers


Further process

• Methodology will be re-submitted before 13 November, 2003

• Methodology Panel

• Executive Board Meeting

• Re-validation of the project on the basis of the revised methodology

• Registration of the project in the CDM registry => June 2004?


Thank you.

-0--0- EcoSecurities Group Ltd. 2002 All Rights Reserved EcoSecurities Group Ltd. Environmental Finance Solutions Using the Project Design Document The.

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