Financing Structures and CDM Project Risks

1
Financing Structuresand CDM Project Risks

• Amr Abdel-Aziz, Ph.D. Integral Consult

2
CDM Project Cycle
3
Financing Structures
4
Direct Sale of CERs from a Host Country Driven
CDM Project

• CERs sold directly to an Annex I Purchaser
• No further involvement of the purchaser in the
  project
• Simple Emission Reduction Purchase Agreement
  (ERPA) to sell the CERs through a direct sale
  transaction
• CER Purchaser is limited to paying for CERs once
  they have been delivered (Less risk ? Higher
  Price)

5
Provision of Debt Finance in Return for Part
Payment in CERs

• Annex I project participant can be involved as
  financier to the underlying project
• Provides a portion of project finance in the form
  of a loan
• Receives CERs as part payment of a fixed
  proportion of the interest for that loan

6
Equity Investment in Return for Revenue Stream
from CERs

• Annex I Investor offers equity investment in a
  project
• In return for equity in the project and a share
  of the CERs arising from the project
• Project Participants and the investor may create
  a separate company to hold the CERs
• Annex I investor may take equity in the form of
  shares in this company

7
Technology Swap in Return for CERs

• Investor provides or licenses technology to a
  project
• Cost of technology paid for partially with CERs
  from the project

8
CDM Project Risks
9
POLITICAL RISKS

• Political stability
• Business environment
• Legal infrastructure
• Investment culture
• Changes in economic and energy related policies
• Failure to obtain national approval for a CDM
  Project

10
TECHNICAL, COMMERCIAL AND BUSINESS RISKS

• Technical Risk Underperformance of projects
• Business Risk Force-Majeure
• Commercial Risk - CER prices fluctuation
• Investment culture

11
CDM PROJECT SPECIFIC RISKS

• Possibility of rejection of the project by the
  CDM Executive Board (Additionality, Baseline)
• Establishing legal title to the CERs
• Community or NGO opposition to a CDM project
• Inaccurate Monitoring or Verification of Emission
  Reductions

12
Negotiations Issues with Investors

• CER Price
• Duration of Contract (first crediting period or
  project duration)
• Financing Structure
• Split of CERs ( for each party)
• Investors entry point in project cycle
• Sale of Verified Emissions Reductions (VERs) or
  Certified Emissions Reductions (CERs)