e7 Private CDM Investor CDM Program Experience

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e7 Private CDM Investor CDM Program Experience
presented by Klaus Baumann e7 Senior Program
Manager/Project Director RWE Environmental Affairs
UNEP RISOE Jerba CDM Investor Forum 22-24
September, 2004 Jerba, Tunisia
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What is e7 ?

• Non-profit group of 9 leading electricity
  companies from G7 nations (AEP, EdF, ENEL, HQ,
  Kansai, OPG, RWE, SP, TEPCO)
• Created in 1992 (after Rio Summit)
• Mission to be proactive on global electricity and
  climate change issues and promote sustainable
  development
• Actions investment in CDM/JI projects, capacity
  building, joint positions, policy debate,
  stakeholder partnerships

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e7s AIJ, CDM and JI projects

• Renewable energy development in Indonesia (AIJ)
• Thermal power plant efficiency measures in Jordan
  (AIJ)
• Wind park on Galapagos Islands in Ecuador (CDM)
• Micro-hydropower development in Bhutan (CDM)
• Energy efficiency measures in Bulgaria (JI)
• Hydropower development in Bolivia, Zimbabwe, and
  Nicaragua (CDM)
• Wind power in Chile (CDM)

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• Selected e7 project case studies

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Renewables in Indonesia (AIJ)

• e7 financed and developed 4 MHPs, 200 SHS, and 1
  wind-solar-diesel hybrid system
• Decentralised, rural electrification,
  demonstration project
• AIJ acknowledgement Indonesia and Germany
• Monitoring phase until 2003
• Macro barriers
• - non-transparent national CDM policy / SD
  indicators, capacity building problems
• Micro barriers
• - high transactions costs (US 245,000 vs.
  40,000), less CERs than forecasted)

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Hydropower in Bolivia (CDM)

• CDM pilot project 25 MW hydro, isolated grid,
  financially sustainable, innovative investment
  scheme
• Feasibility study 90 complete. Now on hold due
  to change in government policy
• Macro barriers
• Legal and administrative framework not ready for
  this kind of CDM project
• Change of government in 2002 with change in
  policy (gas priority)
• Micro barriers
• Joint venture agreement with local distribution
  company
• Fixed tariffs

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Wind power in Galapagos (CDM)

• CDM pilot project wind park in Galapagos Islands
  (2000 kW) to replace diesel and to mitigate risk
  of fuel spills
• Project in feasibility phase delayed 1.5 years.
• Macro barriers
• Disconnection between ministries
• DNA not enough authority
• Legal and administrative framework not ready for
  this kind of CDM project
• Micro barriers
• Environmental risks (bird issue)
• Fixed tariff vs. Financially/technically
  sustainable tariff
• Intervention of ministry into investment issues
• legal precedent-setting

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• Investment Considerations

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CDM strategies e7 e7 member companies

• e7 position (non-profit, pilot projects)
• Sustainable development
• Financial sustainability
• Parallel development goals
• Strong local partnership
• Small-scale projects
• RWE position (commercial, requirements)
• Need for CERs/ERUs based on NAP/ plant allocation
• Participation in international funds such as PCF
  is attractive because of high level of experience
  and low risks
• Otherwise, projects undertaken directly must
  satisfy company criteria (IRR, acceptable risk,
  etc.)

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Impact of Carbon Finance on Project Financing at
3-4/t CO2e(estimates from PCFs experience)
Technology DIRR ()
Energy Efficiency - District Heating 2.0
Wind 0.9-1.3
Hydro 1.2-2.6
Gas Flare Reduction 2-4
Biomass with methane kick gt5.0
Municipal Solid Waste with methane kick gt5.0
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• Conclusions Recommendations

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Host country factors attracting CDM investors

• Investment climate
• Government responsiveness to needs of investors,
  Investment promotion (office), Power sector legal
  framework, adeq. tariffs,
• Host country CDM policy
• Established, clear, consistent CDM policy
• Strong DNAs (clear, effective approval
  procedures)
• Clear requirements (host country approval
  (responsibility), Sustainable Development, etc.)
• Techno-economic potentials
• Preliminary studies for project types/sizes with
  highest potential
• Data availability
• Easy baseline estimation
• Prepared for generation types
• Data availability

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Global factors affecting CDM investors

• Kyoto mechanisms and regulations for CDM projects
  have to be in force
• Ratification (Russia?) CDM EB
  rules/methodologies
• Fungibility with other legal frameworks
• e.g. EU linking directive - CDM/JI within EU
  emissions trading scheme
• Project type restrictions and additional
  requirements should be minimised
• Restrictions on hydropower
• Financial additionality?
• Transaction costs
• Clarify post 2012 situation
• Energy investment requires substantial capital
  for investment over long periods
• Infrastructure has technical life beyond
  crediting periods
• Price of CO2

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• Questions / Discussion

For more information, please visit
www.e7.org or contact Klaus Baumann Email
klaus.baumann_at_rwe.com