Clinic: PIN preparationHakim Zahar, P.Eng.

Vice-PresidentECONOLER INTERNATIONAL

&

Natasa Markovska, D.Sc. EESenior Scientific Collaborator

Consultant

March, 2007

Macedonia

Accessing Carbon Finance

Schedule of Clinic’s activities

09:30- 10:00 Brief presentation on PIN template and key issues

10:00- 10:15 Composition of working groups

10:15- Each group will work on a Project using the PIN template

15:30- 16:00 Open Forum

16:00- 16:15 Summary and closure

Let us take a look at the PIN template!• Clear description of project activities and type of

technology

• Identification of project participants and Institutional arrangement for project implementation– Roles of participants and their technical and financial

capability to undertake them.

– Identification and status of the third party involvement Example:

• PPA negotiation in case of a electricity generation project or

• an agreement with municipal government regarding ownership of the waste in case of a landfill project

Let us take a look at the PIN template!

• Demonstration of additionality and determination of baseline Scenario and Emission Reductions – Roles of participants and their technical and financial

capability to undertake them.

– why the project should not happen on its own?

– What could have happened in the absence of the project ?

– Sources of emission reductions and total ER volume

• Project Financing– Project costs estimation– Identification of underlying finances and expected financing gap– Financial analysis -- How will the carbon financing impact on the

implementation of the project?

• Demonstration of Environmental sustainability– The status of EIA and/or acquisition of relevant environment certificates such

as FSC (Forest Steward Council) certificate for a biomass project– Compliance with social and environmental safeguard requirements plus

relevance to the sustainable development priorities of the host country– Macedonia national sustainable development goals for CDM projects

• net environmental benefit• net contribution to economic development• improvement in social conditions

• Community Benefit– Type of benefits the project can generate for local communities

Let us take a look at the PIN template!

Criteria for Successful PIN• Commercially viable technology

• Credible baseline scenario and adequate ERs volume – the ER volume must be big enough to make a project

viable under the CDM -- for example, a project generating a minimum threshold of 50,000 tCO2/year. Projects with lower than 50,000 tCO2/year may be bundled

– Small-scale projects which are programmatic and scalable in nature are encouraged

– Hydropower projects must have a maximum of installed capacity threshold of 20 MW. Projects can be bundled

– Proposals of carbon sequestration activities are not being accepted at this time

Basis for Successful PIN • Competent Project participants and clear

institutional arrangement – Technically experienced and sound project developers with clear

division of functions. • Early involvement of credible technical, financial, and economic

specialists to establish that all project selection criteria are in place

• Pool of in-house resources to bring to completion projects that are technically sound and sustainable

– Demonstration of sound legal arrangement -- for example, who owns, who operates, and what type of agreement between project participants as well as with third party (e.g. power purchase agreement, ownership agreement, water right)

• Viable business and operation model that help reduce transaction costs– Potential for scale up – Involvement of intermediaries who can invest, bundle, and

implement project-related CDM services locally

Basis for Successful PIN • Sound financing structure

– Sound financial health of project sponsors and co-financiers.

– The sooner the project can achieve financial closure, the better the chances of selection are

• Environment impact and sustainability of the project– In consistent with the WB’s social and environmental

safeguard requirements AND the host Country’s overall sustainable development framework

• Sizable community benefits – Most eligible criteria for small-scale project under the

CDCF – Community Benefits Questionnaires

Key issues

Baseline Scenario & Additionality

Baseline

Conservative Baseline

Project Emissions

time

Emissions Reductions

Baseline scenario represents emissions in the absence of the CDM project activity

Additionality tools:- financial analysis and/or - barriers analysis

• Methodology review:

– Approved consolidated methodologies

• ACM0001 to ACM0010

– Approved methodologies

• AM0001 to AM0045

– Approved meth. for small scale projects

• 21 meth. (AMS-type.category)

• 3 types: renewable (4), energy efficiency (6) and others (waste management, fossil fuel switching, etc.) (11)

– New methodologies: Time consuming and add risky

Baseline & Monitoring Methodologies

Baseline & Monitoring Methodologies

Browse UNFCCC CDM website

http://cdm.unfccc.int/methodologies/index.html

• How to chose the appropriate methodology

– Screening methodologies

– Seek the applicability of the meth to the proposed project

• Verify if the project is eligible under small scale meth (simplified rules)

• If not, identify a consolidated meth (broader scope)

• As last option, approved meth.

– Boundary

Baseline & Monitoring Methodologies

• Emissions estimate:– Baseline emissions

– Project emissions

• Formula in methodologies or IPCC guidelines

• Tools– Tool to determine methane emissions avoided from dumping

waste at a solid waste disposal site

– Tool to determine project emissions from flaring gases containing methane

– WB spreadsheets : methane from biomass decay

• Determination of emission factor – (AMS I.D or ACM0002)

– IPCC default values

Estimation of emissions reductions

Ratio of conversion into TCO2 for Macedonia• Combined margin (CM) emission factor for Macedonian electricity

grid : 0.915 tCO2/MWh• Conversion and Emission Factors by Fuel Types within the Energy

Sector (Base Year 2000) – 2nd National Communication

CO2 abatement cost of the Renewable energy sources technologies in Macedonia

Source: Ministry of Environment and Physical Planning/GEF-UNDP, 2004

A synopsis of CDM PDD Guidebook

Good Practice and Mistakes to Avoid

Tips & Tricks #1

• Don’t take a pass on using pre-approved methodologies and IPCC guidelines/GHG emission factors wherever possible or reasonable…– The methodology development process is

improving, but is still risky and relatively time-consuming for a CDM developer

Use a pre-approved or B-rated methodology wherever possible to reduce delays and costs!

Average time to final decision from the date of initial methodology submission

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Rejection Approval

Tips & Tricks #2

• Don’t build your house on a sand foundation… – Get the baseline right first, and double check

calculations for possible errors– Make sure all potential baseline scenarios have

been considered and foregone options justified– For many approved methodologies, there is only one

relevant baseline scenario identified !– If sampling required for baseline or ongoing

monitoring, demonstrate homogeneity within strata (e.g. economic characteristics of target group, technology size)

Tips & Tricks #3

• Don’t reinvent the wheel when developing or adapting an existing methodology to your project– Keep methodology as simple as possible. – Avoid trying to say it better than language that

was already approved, or trying to say more than you need to…

• Be explicit, systematic, and ordered (i.e. take a “cook book” approach, not a story-telling one)

Tips & Tricks #4

• Don’t include irrelevant or overly detailed technical information in your document – This is subjective and differs by project type

(see guidebook for examples and perspective of DOEs).

– Don’t include attachments in language other than English or detailed permits and licenses only of interest to DOE

Tips & Tricks #5

• Don’t create delays by being incomplete or lazy in your responses. – Always address every aspect in template. If

section is not applicable, say so, for reason “X”. No one likes forms. Don’t give Reviewer an easy reason to reject!

Tips & Tricks #6

• Don’t commit to an overly conservative baseline that negates much of ER benefit – Reality is that most projects’ ER estimates

are revised downward following reviews. – Leaving some headroom is prudent, provided

you know volume risk.

Tips & Tricks #7

• Don’t make mistakes in investment analysis when demonstrating additionality. – Powerful way to demonstrate that proposed project

isn’t common practice or most financially feasible alternative w/out carbon finance.

– Don’t assume project is not additional just because NPV is positive, or IRR is high.

– Don’t consider carbon revenue in NPV or IRR analyses of baseline.

– Don’t consider interest payments in NPV– Don’t forget to treat depreciation as cash flow

Tips & Tricks #8

• Don’t be inconsistent – Keep arguments and assumption same

across all sections of your project document– Keep emission factors constant between

baseline and project calculations– Crediting and starting periods should not

contradict each other– Clarify when crediting starts if different

project stages and leave at least 3 months from start of validation

Thank you for your attention!

Hakim Zahar, P.Enghzahar@econolerint.com

+1 418 692-2592www.econolerint.com

Natasa Markovska, D.Sc. EEnatasa@manu.edu.mk

+389 2 32 35 427