Hydropower as CDM Project Activities

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Hydropower as CDM Project Activities

• October, 2003
• International Affairs Department
• Hydroelectric Power Development Center
• New Energy Foundation (NEF)

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Contents

• What is CDM?
• Hydropower and CDM
• CDM Scheme and Keywords
• State of Hydropower CDM Projects
• Key Issues for Host Country of Hydropower CDM
  Projects

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• What is CDM?
• Hydropower and CDM
• CDM Scheme and Keywords
• State of Hydropower CDM Projects
• Key issues for Host Country of Hydropower CDM
  Projects

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Kyoto Protocol

• Adopted at the Third Conference of Parties
  (COP3), United Nations Framework Convention on
  Climate Change (UNFCCC) , held in Kyoto, Dec.
  1997
• International treaty containing legally binding
  constraints on greenhouse gas (GHG) emissions.
  (CO2, CH4, N2O, HFCs, PFCs, SF6)
• Industrialized Countries (Annex I Parties) agreed
  to limit their GHG emissions, -5 from 1990
  levels by 2008-2012.
• 3 flexible mechanism (Kyoto mechanism)
• Emissions trading
• Joint Implementation (JI)
• Clean Development Mechanism (CDM)

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Emission reduction targets

• Targets of Annex I Parties

• Developing countries (non-Annex I) have no targets

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Clean Development Mechanism (CDM)

• Help Annex 1 countries comply with their emission
  reduction commitments
• Contribute to the ultimate goal of the convention
  i.e., stabilization of GHG concentrations in the
  atmosphere
• Assist non-Annex 1 countries in achieving
  sustainable development

Investing country (Annex I)
Transfer to investing country
Host country
CER
CO2 emission
Distribute to host country
Assigned amount
Fund, technology, etc.
Before project
After project
CER Certified Emission Reduction
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• What is CDM?
• Hydropower and CDM
• CDM Scheme and Keywords
• State of Hydropower CDM Projects
• Key issues for Host Country of Hydropower CDM
  Projects

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Hydropower is effective for CDM

• Hydropower is one of few carbon-free energy
  sources capable of large scale low cost
  generation ? large potential of GHG reduction
• If all of the technically exploitable
  capability is exploited, CO2 reduction will be
• technically exploitable capability 11,570 TWh
• emission factor 0.5 t-CO2/MWh
• 5.79 billion t-CO2(25 of worlds CO2
  emission)

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CDM is effective for hydropower

• Construction cost 2,500 /kW, operation rate
  50, payout period 50 years? electricity
  price 3.1 cents/kWh(IRR 5) 5.8 cents/kWh(IRR
  10)
• If CO2 reduction unit is 0.5kg-CO2/kWh and carbon
  credit is 5/t-CO2 , additional income will be
  0.25 cent/kWh
• CO2 reduction effect 4 8 of electricity price
• Carbon finance may become important for
  hydro-power development

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Potential water power sources
Based on Survey of Energy Resources 1998 (World
Energy Council)
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Comparison of CO2 Emissions per kWh by Electric
Power Sources
0.975
0.742
0.608
0.519
Based on a report published by the Central
Research Institute of the Electric Power
Industry, Japan
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Benefits from CDM projects for hydropower in
South Asian Countries

• Usage of abundant potential of undeveloped
  hydropower resources
• Contribute to the stability of power supply
• Infrastructure development
• Revenues from sales of CER
• Development aid in addition to ODA
• Low running cost
• Other benefits from multi-purpose dams

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• What is CDM?
• Hydropower and CDM
• CDM Scheme and Keywords
• State of Hydropower CDM Projects
• Key Issues for Host Country of Hydropower CDM
  Projects

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CDM scheme
Host country participation
Project Planning
(Project developer)
Project developer
Designated National Authority (DNA)
Designated National Authority (DNA)
Investing country approval
Host country approval
Preparation of Project Design Document(PDD)
CDM Executive Board (CDM EB)
Approval of New Methodology (by CDM EB)
Designated Operational Entity (DOE)
Validation(by DOE) and Registration(by CDM EB)
Project developer
(Project developer)
Project Implementation/ Annual Monitoring
Designated Operational Entity (DOE)
Verification and Certification of Reductions
CDM Executive Board (CDM EB)
Issuance of CER
Add to Adaptation Fund
Project developer
Sale in Market
(Project developer)
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CDM related organizations (1)

• CDM Executive Board (CDM EB)
• Supervise the CDM projects under the authority
  and guidance of the COP/MOP
• Make recommendations on further modalities and
  procedures
• Approve new methodologies related to, baselines,
  monitoring plans and project boundaries
  ?Methodology panel
• Review provisions with regard to simplified
  modalities, procedures and the definitions of
  small scale project activities ?Small Scale
  CDM panel
• Be responsible for the accreditation of DOE
  ?CDM accreditation panel
• Register the validated projects as CDM project
  activities
• Issue CER according to the emission reduction
  verified by DOE
• COP
  Conference of Parties, MOP Meeting of Parties

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CDM related organizations (2)

• Designated Operational Entity (DOE)
• A body (private or public) accredited by the CDM
  EB to review projects
• Validate proposed CDM project activities
• Verify and certify reductions in anthropogenic
  GHG emissions Make information obtained from CDM
  project participants publicly available, as
  required by the executive board
• Designated National Authority (DNA)
• Parties participating in the CDM shall designate
  DNA
• Interfaces between project owner and the DOE
• Malaysia Conservation and Environmental
  Management Division, Ministry of Science,
  Technology and the Environment
• Bhutan National Environment Commission
  Secretariat

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Approval of New Methodology
Preparation of draft PDD (new methodology)
Submission to the CDM EB through DOE
Experts desk review, Public comments
Recommendation by Methodology Panel
Consideration by CDM EB
B-rank Changes required
C-rank Not approved
A-rank Approved
As of Sep. 2003 A-rank 2 projects
B-rank 4 projects C-rank 6 projects (2
hydropower projects included)
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Validation and Registration
Host country approval
Validation by Designated Operational Entity

• Validation points
• detailed scrutiny of the institutional capacity
  of the project stakeholders
• evidence underlying the calculations of carbon
  benefits
• systems to be used for monitoring
• Project Design Document will be made publicly
  available for comments

Submission to to CDM EB
Registration by CDM EB

• Registration finalized after a maximum of 8 weeks
  from receipt

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Verification, certification, and issuance of CERs
Project Implementation and Monitoring

• Emissions must be monitored during project life
  time
• Project developer must monitor and report as set
  out in the PDD
• Monitoring methodology must be approved by CDM EB
• Monitoring of environmental and social impacts is
  implicit in
• Environmental Impact Assessment

Verification

• Includes site visits, checks of monitoring data
  and calculation of emission reductions

Certification/Registration by CDM EB
Issuance of CERs

• CERs issue within 15 days, unless the CDM EB
  requests a review(only if fraud, malfeasance or
  incompetence of DOE is suspected)

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Project Design Document (PDD)

• General description of project activity
• Baseline methodology
• Applied methodology, additionality, project
  boundary
• Duration of the project activity/ Crediting
  period
• Monitoring methodology and plan
• Calculation of GHG emissions by sources
• Environmental impacts
• Stakeholders comments

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Baseline

• How to define without the project case
• Taking into account national policy, local fuel
  availability, power development plan, and so on.
• Choice a baseline methodology
• Existing actual or historical emissions, as
  applicable,
• Emissions from a technology that represents an
  economically attractive course of action,
• The average emissions of similar project
  activities undertaken in the previous 5 years, in
  similar circumstances, and whose performance is
  among the top 20 of their category

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Additionality

• What is additionality?(Reductions in emissions
  that are additional to any that would occur in
  the absence of the certified project activity.
  Kyoto protocol Article12-5c)
• Environment must reduce GHG emission
• Investment profitability of the project must
  increase dramatically by CER
• Financediversion of ODA is prohibited
• Technologymust use the state-of-art technology

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Additionality (2)
Emissions in the boundary
Emissions reduced anyway
Emissions before project implementation
Incentives (e.g. expected CER price)
Baseline scenario
P0
Baseline emissions Emissions for p(CER)0
Project emissions Emissions for p(CER)P0
Project scenario
Emissions reduced by CDM project
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Project boundary and leakage

• How to define Project boundary?
• Under control of the project participants
• Significant and reasonably attributable to the
  CDM project activity
• Hydropower project
• Within Power station
• Within connecting point to existing transmission
  line
• Methane emission from reservoir
• What is Leakage?
• Outside the project boundary and
• Measurable and attributable to the CDM project
  activity
• Hydropower project
• Decline of hydropower production downstream

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Monitoring

• What is the purpose of monitoring?
• For determining the baseline
• For estimating or measuring anthropogenic
  emissions occurring within the project boundary
  of a CDM project activity and leakage, as
  applicable
• For example Power generation (MWh)
• Quality Assurance (QA) Quality Control (QC)
• It is easy to measure relevant data
• There is little factor of over/underestimation

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Small-scale CDM projects

• What is Small-scale CDM project
• Renewable energy project activities Up to 15
  megawatts (or an appropriate equivalent)
• Energy efficiency improvement project
  activities Up to the equivalent of 15
  gigawatthours per year
• Other project activities Less than 15
  kilotonnes of carbon dioxide equivalent
  annually
• Simplified modalities and procedures
• Usage of simplified baseline/monitoring
  methodologies
• Same DOE can validate and verify the project
• Able to bundle similar projects

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• What is CDM?
• Hydropower and CDM
• CDM Scheme and Keywords
• State of Hydropower CDM projects
• Key Issues for Host Country of Hydropower CDM
  Projects

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Hydropower CDM projects submitted to World Bank
PCF and ERU-PT/ CERU-PT

• PCF 4 projects, ERU-PT/CERU-PT 9 projects(As
  of 3 June, 2003)
• Generation type 2 run of river, 4 run of river
  with reservoir, 7 dams (4 utilizes existing dams)
• Capacity distribution
• Country distribution
• Costa Rica, Panama 3
• Uganda, Romania 2
• Guatemala, Chile, Peru1

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Baseline methodology of hydropower CDM projects
submitted to the Methodology Panel

• 35 projects have been submitted to the
  Methodology Panel under the CDM Executive Board
  as New Methodology (As of 19 Sep. 2003)
• 4 are hydropower projects
• El Canada Hydroelectric Project (Guatemala)
• Peñas Blancas Hydroelectric Project (Costa Rica)
• La Vuelta and La Herradura Hydroelectric Project
  (Colombia)
• El Gallo Hydroelectric Project (Mexico)

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Overview of submitted hydropower projects
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Environmental issues

• Antipathy against large hydropower projects
  (especially in Europe) renewable but not
  sustainable
• Example of criticism by NPOs such as CDM Watch
• Significant GHG emissions during construction
• Inflated baselines
• Methane emissions from reservoirs
• Cost overrun, corruption
• Criticism of anyway project
• Most issues are not unique to hydropower
  projects, and dam, not hydropower itself, is the
  main target of criticism
• Need to appeal that hydropowers negative impact
  is small
• The state of the art technology, social
  development,

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• What is CDM?
• Hydropower and CDM
• CDM Scheme and Keywords
• State of Hydropower CDM projects
• Key Issues for Host Country of Hydropower CDM
  Projects

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Identification of CDM projects

• Key factors on Identification of a Host Country
• Participation in Kyoto Protocol
• Ratification on Kyoto Protocol
• Organization on CDM
• Investment conditions for Hydropower development
  as a IPP project.
• Government Policy
• Legal condition

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Key factors on Project Design Document

• Baseline methodology
• High average CO2 emissions units of power
  generation (High effect of hydropower project)
• High CO2 emissions power generation development
  plan (substitute for high CO2 emissions power
  generation)
• Additionality
• Project activity would not have occurred anyway
  due to a barrier
• Less hydropower development Plan
• Hydropower is more expensive than thermal power
  ( investment barrier)

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CDM project Approval by Host country

• Project Approval by DNA of Host country
• Prior to the submission of the validation report
  to the executive board,
• Submission to both of Host country and own party
  
• Written approval of voluntary participation from
  the DNA (Designated National Authority) of each
  party

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Validation of project activities

• How to validate a project activity?
• Independent evaluation of a project activity by a
  DOE (Designated operational entity) against the
  requirements of the CDM on the basis of the PDD.
• New baseline or monitoring methodology
• Review by the executive board
• Receipt of public comments
• Key factors on selection of DOE
• Knowledge for CDM scheme and validation
• Sympathy with hydropower developments
• Charge for service

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Verification Certification of project activities

• What is Verification?
• Periodic independent review and ex post
  determination by DOE of monitored reductions
• No prescribed length of the verification period
• What is Certification?
• Written assurance by the DOE
• A project activity achieved the reductions as
  verified

For implementing verification and certification
smoothly Clearly defining monitoring
methodology and Quality assurance in the PDD
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Agreement of CERs trade

• What is Agreement of CERs trade?
• Agreement between a CDM participant and a
  Purchase of CERs (Certified Emission Reductions),
  Carbon fund, Investor, and so on
• Share of risk concerning the amount of emission
  reductions by a CDM project activity

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Correlation between hydropower development
process and CDM procedure
Hydropower development process
CDM procedure
Master Plan - Power Development Plan -
Transmission Line Plan
Pre Feasibility Study - Preliminary survey
(Discharge, Geological condition) -
Reconnaissance survey (Topographic Geological
condition, General EIA) ? Schematic design
Financial evaluation
Need and items of EIA (Environmental Impact
Assessment)
Approach to host country as a CDM project

• Feasibility Study
• - Full-scale investigation
• (Boring, In-situ test,
• Hydrological Climate survey)
• ?
• - Basic design
• - Construction method
• - Construction cost estimation
• Financial evaluation

EIA - Natural Environment - Social Environment
Submission to both of own party and host party
(DNA) - Project participants - General
description (Title, Location, GHG, Schedule) -
Project support - Environmental Impacts - Finance
scheme - Baseline Methodology - Calculation of
Emission Reductions - PDD draft
- Negotiation with authorities and local
communities - Endorsement - License
PPA (Power Purchase Agreement) Financing /
Scheme EPC Contract
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Preparation of PDD - Project description -
Baseline methodology - Duration of the project
activity / Crediting period - Additionality -
Environment Impacts - Public funding of the
project activity - Stakeholders comments -
Calculation of Emission Reductions
Approval by both of own party and host party
(DNA)
Written Approval (Attach to PDD)
Selection and Contract with DOE
Submission of PDD to DOE
Validation - Review of PDD by DOE - Receipt of
public comments - Approval by both of own party
and host party
Within 8 weeks after the date of receipt of the
request for registration (unless a Party involved
in the project activity or at least three members
of the EB request a review of the proposed
issuance of CERs)
Validation Report (DOE submits to the executive
board)
Design for execution Detail design, Construction
method
Registration as a CDM project - Review by the
executive board
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Commencement of the work
(If needed) Implementation of Monitoring -
Submission to report
(If needed) Implementation of Monitoring
Construction management
Operation Start (Construction Completion)
Implementation of Monitoring - Submission to
report
Verification By DOE, - Periodic independent
review - On-site inspections - Determination of
Emission Reductions - Receipt of public comments
(Notice to Project participants, Each party,
the Executive board)
Operation Maintenance
Certification of Emission Reductions By DOE, -
Certification in writing - Receipt of public
comments (Notice to Project participants, Each
party, the Executive board)
Within 15 days after the date of receipt of the
request for issuance (unless a Party involved in
the project activity or at least three members of
the EB request a review of the proposed issuance
of CERs)
Certification Report (DOE submits to the
executive board)
Issuance of CERs (Certified Emission
Reductions) - Review by the Executive board
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Thank you for your kind attention !

• For more information and question
• http//cdm.unfccc.int/ (UNFCC CDM)
• Hydropower_at_nef.or.jp (NEF)