Energy Saving Technologies & CDM- Business Opportunity with Japan -

Clean Energy Finance CommitteeMitsubishi UFJ Securities

2

1. Technology & CDM: Why this is a new business model?

2. CDM: revenue and costs3. Business with Japan: NEDO-JETRO’s Package

program4. Technology & CDM examples:

1. Iron & steel industry2. Cement industry

Contents

1.Technology & CDM:Why this is a new business model?

What is CDM?

Non Annex-I country(Host)

Annex-I country

(Investor)

Carbon Credits (CER)

TechnologyInvestment

$$$$$$$

greenhouse gases (GHGs)

CO2, CH4, N2O, HFCs, PFCs, SF6

CDM Project Implementation

CDM project

Advance Technology Transfer Cost savings

Good public image(Corporate Social

Responsibility)

CERs

Sustainable Development

Project types (examples)• Renwable Energy (hydro, wind,

solar, biomass, etc.)• Energy Efficiency• Fuel Switching• Demand-side management• Recovery of Methane (oil/natural

gas wells, landfill, coalmine, wastewater, animal waste)

• Destruction of HFC (HFC-23) and N2O

• SF6 (electricity transmission/ distribution lines)

• Transportation • Afforestation and reforestation

Information on Japanese technologies available in NEDO’s “Energy Saving/GHG Emission Reduction Technologies” guidebook for the sectors of:• Common Technologies• Iron & Steel Industry• Cement Industry• Chemical Industry• Petroleum Refining Industry• Nonferrous Metals Industry• Paper and Pulp Industry• Food Products Industry• Fibers & Spinning Industry• Glass Industry• Electric Power and Power Generation• Resources and Energy• Transportation Sector• Renewable Energy

CER revenue size by project type

Type A: Only CER revenues

• HFC (HFC-23)• N2O• SF6

• Methane recovery

• Forestry CDM

# of CER generated/project

Type B: CER+additional

revenues

• Renewable energy & methane recovery +electricity generation =>electricity sales to a grid

# of CER generated/project

Type C:CER + Cost

reduction

• Energy efficiencyprojects

• Fuel swiching• Demand-side

management• Transportation

# of CER generated/project> >

2. CDM: Revenue & Costs how to estimate the revenue and

know that your project is attractive to investors/CER buyers?

CDM: Revenue & CostsRevenue• CER revenue• Significant cost

reduction by improving plant operation

• (Possible investment)

Costs• New equipment• CDM-related costs, such as…

- Document preparation costs- Validation, verification,

certification by third party- Monitoring costs- Administration & legal costs

• Some partners partially or fully cover CDM-related costs

• Important to know about the specific interest & funding power ofyour partner (CERs only, technology transfer, or CSR)

• Important to know how much CERs your project can generate

Emission reductions & CERs

A CDM project CERs(carbon credits)

How to calculate CERs?

CER = GHG net “emission reduction”

Hypothetically speaking, how much of the emission reduction can be achieved from the

baseline by introducing a specific CDM project

Baseline- What would happen in the absence of the Project- Not necessarily the continuation of current practice

CER revenues

Baseline Emission

Project Emission

Emission Reduction

CERs

Year

GHG emissions

Without the CDM

With the CDM

Emission Reduction

Baseline Emission LeakageProject

Emission==CERs

Emissions reductions:things to know• Must use UN “approved”

calculation methods

• Only an estimation before registration� Needs to monitor actual emission reductions

• Must also use UN “approved”monitoring methods

• Each GHG has different level of impact to the global warming

Baseline methodologies

Monitoring

Monitoring methodologies

Global warming potential

Global Warming Potential

23900SF6

140-11700HFCs6500-9200PFCs

310N2O21CH4

1CO2

Global Warming PotentialGHG

1 ton of CO2 reduction = 1 CERFor example:

Reducing 1 ton of CH4 = Reducing 21 ton of CO21 ton of CH4 => 21 CERs!

CDM process & costs

Monitoring • Project owner’s duty

1. Project proposal -> Registration1. Project proposal -> Registration

2. Project operation -> CER issuance2. Project operation -> CER issuance

PDDpreparation

• DOE checks the monitoring result

• CERs are issued by UN CDM EB

CER Issuance

≈≈≈≈US$15-20,000

Internal manpower or outsourcing

Average CER/year * fixed fee- US$0.1/CER:first 15,000 CER- US$0.2/CER for the rest

1. Issued CER * fixed fee2. 2% of issued CERs

Initial Verification ≈US$10,000Subsequent Verification ≈US$5,000

MonitoringInternal manpower

Registration

Validation • DOE checks the PDD

• At UN CDM Executive Board (EB)

Verification

Certification• UN certifies the emission reduction verified by DOE

• Project owner’s duty

CostsCosts

PDD: Project Design Document (a project proposal using the special UN standard)

DOE: Designated operational entity(A third entity accredited to conduct validation and verification by UN)

(Inv

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3. Business with Japan: NEDO-JETRO’s Package Program

Technology & CDM: Why a new business opportunity with Japan?JAPAN

• Strong demand for CDM projects and CERs

• Advanced technologies, especially for energy savings

• Putting an importance on CSR (contribution to sustainable development)

CDM host country•CDM as a new approach to finance energy saving & climate-/environmentally-friendly technologies

•Additional revenue source

• Access to cutting-edge technologies

•“Kyoto” brand name

NEDO-JETRO’s Package Program

Technology Provider & Consulting Company• Project identificaiton• Technology applicability evaluation• CDM qualification evaluation

Assistance from the Consulting Company• Project registration with UN

Assistance from the Consulting Company• Emission reduction monitoring• Issuance of CERs by UN CDM EB

Project Developer

Project implementation

NEDO• CER credits purchasing agreement (ERPA)

<< All in One Package >><< All in One Package >>Coordinated by JETROCoordinated by JETRO

Complete assistance throughout the Complete assistance throughout the whole CDM project cyclewhole CDM project cycle

• Launched in 2005

• Targeted countries in the past:�Argentina, Brazil, Chile

• Activities involved:� Capacity building� Feasibility studies� A package plan

• Interim achievement:� 2 iron and steel projects

were identified and currently undergoing the NEDO Feasibility Study Program.

Japan’s Kyoto Mechanism Credits Acquisition Program

• Launched in July, 2006

• Coordinated by NEDO• No deadline established for proposal submission

• Advantage: NEDO has separate programs covering feasibility study, project development subsidies, and CDM-related fees

• NEDO as a technology promotion agency,

⇒With a strong interest in securing the credits through supporting the project development of using leading-edge technologies (e.g. energy conservation)

100 million ERsRequiring amount of credits in total during the first commitment period (2008-2012)

5.4 billion JPY ( US$ 46 million)

FY2006 budget for actual transaction

12.2 billion JPY ( US$ 100 million)

Maximum funds available for contracting this year

Japanese Government’s Program: Advantages

Verification&

Certification

CreditAcquisition

Validation,Registration

Initial cost (When Project

begins)

Feasibility Study (F/S), PDD preparation, etc.

Project Implementation Stage Project Planning Stage

Feasibility Study Program

JI/CDM Subsidies• Preliminary costs (Validation costs)• Post project review costs (monitoring,

verification and certification costs.)• Project expenses (equipment costs) Credit

AcquisitionProgram

4. Technology & CDM Examples

CDM project example 1- iron & steel industryConverter waste gas recovery project

• Expected CERs: 80,000 CERs (or tCO2/year)• Expected revenue from the

sale of CERs (1CER=US$10): US$800,000/year• IRR (before CDM): 16%• IRR (after CDM): 17%• Characteristics: Feasibility study and PDD preparation

covered by the NEDO program.

CDM projectOG gas recovery system

Boiler & Turbine

Gas mixer

BaselineCoke oven gasBlast Furnace gasNatural Gas

Electricity consumption

Grid electricity

CDM methodology ACM0004

CDM project example 2- cement industryApproved methodologies for the cement industry (as of November 22, 2006)• Fossil fuel substitution ���� ACM0003 (4 registered, 5 under validation,

1 issued)• Increasing the blend ���� ACM0005 (10 registered, 14under validation) • Waste heat recovery ���� AM0024 (1 registered; 2 under validation), ACM0004• Use of non-carbonated calcium sources ���� AM0033 (1 under validation)• + Small scale methodologies

Baseline scenario

Kiln

CaCo3

Partial substitutions (e.g.biomass)

Fuels (e.g. coal)Clinker

Project emission: - CO2 emission from alternative fuels - Drying alternative fuels- Net on-site fuel transportation

CDM methodology ACM0003

If you are…..• A project owner with a registered CDM project, or

• Have a specific idea or interested in implementing a renewable energy/energy efficiency/fuel switching/N2O emission reduction projects, or

• Simply interested in learning more about the NEDO-JETRO CDM activities and Japan’s credits acquisition program

Contact US!

Contact Information

• NEDOhttp://www.nedo.go.jp/english/index.html

• JETRO http://www.jetro.go.jp/

• JETRO MexicoPaseo de las Palmas No. 239 Piso 3, Col. Lomas deChapultepec, C.P. 11000, Mexico, TEL: +52-55-5202-7900; FAX: +52-55-5202-8003

About Us

Mitsubishi UFJ Securities (MUS )Mitsubishi UFJ Securities (MUS )Investment banking arm of Mitsubishi Tokyo Financial Group. Subsidiary of Bank of Tokyo Mitsubishi UFJ.

Clean Energy Finance CommitteeClean Energy Finance CommitteeOperating unit specializing in CDM/JI consulting with 24 professionals• Assistance with CDM/JI process

• Production of Project Design Document• New methodology development for CDM project

(4 methodologies approved by CDM EB, 6 methodologies underthe Methodology Panel consideration)

Thank you for your attention!

Yukimi Shimura

E-mail: shimura-yukimi@sc.mufg.jp

(Stationed in Tokyo, Japan)