Hydropower as CDM Project Activities October 2003 International

Hydropower as CDM Project Activities October, 2003 International Affairs Department Hydroelectric Power Development Center New Energy Foundation (NEF)

Contents l What is CDM? l Hydropower and CDM l CDM Scheme and Keywords l State of Hydropower CDM Projects l Key Issues for Host Country of Hydropower CDM Projects 1

l What is CDM? l Hydropower and CDM l CDM Scheme and Keywords l State of Hydropower CDM Projects l Key issues for Host Country of Hydropower CDM Projects 2

Kyoto Protocol Adopted at the Third Conference of Parties (COP 3), United Nations Framework Convention on Climate Change (UNFCCC) , held in Kyoto, Dec. 1997 l International treaty containing legally binding constraints on greenhouse gas （GHG) emissions. (CO 2, CH 4, N 2 O, HFCs, PFCs, SF 6) l Industrialized Countries (Annex I Parties) agreed to limit their GHG emissions, -5% from 1990 levels by 2008 -2012. l 3 flexible mechanism (Kyoto mechanism) l – Emissions trading – Joint Implementation (JI) – Clean Development Mechanism (CDM) 3

Emission reduction targets l Targets of Annex I Parties EU Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxemburg Netherlands Portugal Spain Sweden UK EU total l Reduction target -21% -7. 5% -21% 0% 0% -21% 25% 13% -6. 5% -28% -6% 27% 15% 4% -12. 5% -8% Emission share 0. 4% 0. 8% 0. 4% 3. 1% 6. 7% 0. 6% 0. 3% 2. 9% 0. 1% 1. 2% 0. 4% 1. 6% 0. 4% 4. 1% 23. 1% Countries transiting to market economy Bulgaria Croatia Czech Estonia Hungary Latvia Lithuania Poland Romania Russia Slovakia Slovenia Ukraine Reduction target -8% -5% -8% -8% -6% -8% 0% Emission share 0. 9% 1. 1% 0. 2% 0. 6% 0. 2% 0. 3% 3. 1% 1. 5% 16. 6% 0. 4% 0. 1% 5. 0% Developing countries (non-Annex I) have no targets Other countries Australia Canada Iceland Japan Liechtenstein Monaco New Zealand Norway Switzerland US Reduction target 8% -6% 10% -6% -8% 0% 1% -8% -7% Emission share 2. 3% 3. 3% 0. 0% 6. 8% 0. 0% 0. 4% 0. 3% 33. 6% 4

Clean Development Mechanism (CDM) Help Annex 1 countries comply with their emission reduction commitments l Contribute to the ultimate goal of the convention i. e. , stabilization of GHG concentrations in the atmosphere l Assist non-Annex 1 countries in achieving sustainable development l Transfer to investing country Host country Investing country (Annex I) CO 2 emission CER Distribute to host country Before project After project Fund, technology, etc. Assigned amount CER: Certified Emission Reduction 5

l What is CDM? l Hydropower and CDM l CDM Scheme and Keywords l State of Hydropower CDM Projects l Key issues for Host Country of Hydropower CDM Projects 6

Hydropower is effective for CDM l Hydropower is one of few carbon-free energy sources capable of large scale & low cost generation → large potential of GHG reduction l If all of the “technically exploitable capability” is exploited, CO 2 reduction will be … technically exploitable capability 11, 570 TWh × emission factor 0. 5 t-CO 2/MWh = 5. 79 billion t-CO 2（25％ of world’s CO 2 emission) 7

CDM is effective for hydropower l Construction cost: 2, 500 $/k. W, operation rate 50%, payout period 50 years ⇒ electricity price: 3. 1 cents/k. Wh（IRR 5%） 5. 8 cents/k. Wh（IRR 10%） l If CO 2 reduction unit is 0. 5 kg-CO 2/k. Wh and carbon credit is $5/t-CO 2 , additional income will be 0. 25 cent/k. Wh – CO 2 reduction effect： 4 ～ 8 % of electricity price l Carbon finance may become important for hydropower development 8

Potential water power sources Based on “Survey of Energy Resources 1998 (World Energy Council)” 9

Comparison of CO 2 Emissions per k. Wh 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 10

Benefits from CDM projects for hydropower in South Asian Countries l l l l 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 11

l What is CDM? l Hydropower and CDM l CDM Scheme and Keywords l State of Hydropower CDM Projects l Key Issues for Host Country of Hydropower CDM Projects 12

CDM scheme Host country participation Project developer Designated National Authority (DNA) CDM Executive Board (CDM EB) Designated Operational Entity (DOE) Project Planning Investing country approval (Project developer) Host country approval Preparation of Project Design Document(PDD) Approval of New Methodology (by CDM EB) Validation(by DOE) and Registration(by CDM EB) Project developer Project Implementation/ Annual Monitoring Designated Operational Entity (DOE) Verification and Certification of Reductions CDM Executive Board (CDM EB) Issuance of CER Project developer Designated National Authority (DNA) Add to Adaptation Fund Sale in Market (Project developer) 13

CDM related organizations (1) l 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 14

CDM related organizations (2) l 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 l 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 15

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 A-rank: Approved B-rank: Changes required C-rank: Not approved As of Sep. 2003 A-rank: 2 projects B-rank: 4 projects C-rank: 6 projects (2 hydropower projects included) 16

Validation and Registration Host country approval Validation by Designated Operational Entity l 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 l Project Design Document will be made publicly available for comments Submission to to CDM EB Registration by CDM EB l Registration finalized after a maximum of 8 weeks from receipt 17

Verification, certification, and issuance of CERs Project Implementation and Monitoring l 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 l Monitoring of environmental and social impacts is implicit in Environmental Impact Assessment Verification l Includes site visits, checks of monitoring data and calculation of emission reductions Certification/Registration by CDM EB Issuance of CERs l CERs issue within 15 days, unless the CDM EB requests a review (only if fraud, malfeasance or incompetence of DOE is suspected) 18

Project Design Document (PDD) l l General description of project activity Baseline methodology – Applied methodology, additionality, project boundary l l l Duration of the project activity/ Crediting period Monitoring methodology and plan Calculation of GHG emissions by sources Environmental impacts Stakeholders comments 19

Baseline l 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 20

Additionality l What is “additionality”? （Reductions in emissions that are additional to any that would occur in the absence of the certified project activity. Kyoto protocol Article 12 -5 c） – Environment： must reduce GHG emission – Investment： profitability of the project must increase dramatically by CER – Finance：diversion of ODA is prohibited – Technology：must use the state-of-art technology 21

Project boundary and leakage l 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 l What is “Leakage”? – Outside the project boundary; and – Measurable and attributable to the CDM project activity – Hydropower project; • Decline of hydropower production downstream 23

Monitoring l 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) l Quality Assurance (QA) & Quality Control (QC) – It is easy to measure relevant data – There is little factor of over/underestimation 24

Small-scale CDM projects l 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 l Simplified modalities and procedures – Usage of simplified baseline/monitoring methodologies – Same DOE can validate and verify the project – Able to bundle similar projects 25

l What is CDM? l Hydropower and CDM l CDM Scheme and Keywords l State of Hydropower CDM projects l Key Issues for Host Country of Hydropower CDM Projects 26

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） l Generation type: 2 run of river, 4 run of river with reservoir, 7 dams （4 utilizes existing dams） l Capacity distribution l Country distribution： l – Costa Rica, Panama: 3 – Uganda, Romania: 2 – Guatemala, Chile, Peru: 1 27

Baseline methodology of hydropower CDM projects submitted to the Methodology Panel l 35 projects have been submitted to the Methodology Panel under the CDM Executive Board as “New Methodology” (As of 19 Sep. 2003) l 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) 28

Environmental issues Antipathy against large hydropower projects (especially in Europe): renewable but not sustainable l Example of criticism by NPOs such as “CDM Watch” l – – – 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 l Need to appeal that hydropower’s negative impact is small l – The state of the art technology, social development, … 30

l What is CDM? l Hydropower and CDM l CDM Scheme and Keywords l State of Hydropower CDM projects l Key Issues for Host Country of Hydropower CDM Projects 31

Identification of CDM projects l 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 32

Key factors on Project Design Document l Baseline methodology • High average CO 2 emissions units of power generation (High effect of hydropower project) • High CO 2 emissions power generation development plan (substitute for high CO 2 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) 33

CDM project Approval by Host country l 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 34

Thank you for your kind attention ! For more information and question http: //cdm. unfccc. int/ (UNFCC CDM) Hydropower@nef. or. jp (NEF)