Hydropower Hydropower as CDM Project Activitiesas CDM Project Activities

October, 2003

International Affairs DepartmentHydroelectric Power Development Center

New Energy Foundation (NEF)

2

ContentsContents

What is CDM?Hydropower and CDMCDM Scheme and KeywordsState of Hydropower CDM ProjectsKey Issues for Host Country of

Hydropower CDM Projects

3

What is CDM?Hydropower and CDMCDM Scheme and KeywordsState of Hydropower CDM ProjectsKey issues for Host Country of

Hydropower CDM Projects

4

Kyoto ProtocolKyoto 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)

5

Emission reduction targetsEmission reduction targets

EU Reductiontarget

Emissionshare

Countries transitingto market economy

Reductiontarget

Emissionshare

Othercountries

Reductiontarget

Emissionshare

Austria -21% 0.4% Bulgaria -8% 0.9% Australia 8% 2.3%

Belgium -7.5% 0.8% Croatia -5% Canada -6% 3.3%

Denmark -21% 0.4% Czech -8% 1.1% Iceland 10% 0.0%

Finland 0% 0.4% Estonia -8% 0.2% Japan -6% 6.8%

France 0% 3.1% Hungary -6% 0.6% Liechtenstein -8% 0.0%

Germany -21% 6.7% Latvia -8% 0.2% Monaco -8% 0.0%

Greece 25% 0.6% Lithuania -8% 0.3% New Zealand 0% 0.4%

Ireland 13% 0.3% Poland -6% 3.1% Norway 1% 0.3%

Italy -6.5% 2.9% Romania -8% 1.5% Switzerland -8% 0.3%

Luxemburg -28% 0.1% Russia 0% 16.6% US -7% 33.6%

Netherlands -6% 1.2% Slovakia -8% 0.4%

Portugal 27% 0.4% Slovenia -8% 0.1%

Spain 15% 1.6% Ukraine 0% 5.0%

Sweden 4% 0.4%

UK -12.5% 4.1%

EU total -8% 23.1% Developing countries (non-Annex I) have no targets

Targets of Annex I Parties

6

Clean Development Mechanism (CDM)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

CER

Distribute tohost country

Transfer toinvesting country

Before project After project

Host countryInvesting country (Annex I)

Assigned amount

CO

2 em

issi

on

Fund, technology, etc.

CER: Certified Emission Reduction

7

What is CDM?Hydropower and CDMCDM Scheme and KeywordsState of Hydropower CDM ProjectsKey issues for Host Country of

Hydropower CDM Projects

8

Hydropower is effective for CDMHydropower 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 world’s CO2 emission)

9

CDM is effective for hydropowerCDM 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

10

Potential water power sourcesPotential water power sources

0

1000

2000

3000

4000

5000

Africa NorthAmerica

SouthAmerica

Asia Europe MiddleEast

Oceania Japan

Pow

er g

ener

atio

n (T

Wh) undeveloped

planed or under construction

installed

Based on “Survey of Energy Resources 1998 (World Energy Council)”

11

Comparison of CO2 Emissions per kWh Comparison of CO2 Emissions per kWh by Electric Power Sourcesby Electric Power Sources

0.088 0.0380.130 0.111

0.887

0.704 0.4780.408

0.0110.0150.0220.0290.0530

0.2

0.4

0.6

0.8

1

1.2

Coa

l

Oil

LN

G

LN

G C

C

Pho

tovo

ltaic

s

Win

d

Nuc

lear

Geo

ther

mal

Hyd

ropo

wer

CO

2 em

issi

ons

(kg-

CO

2.kW

h)

Fuel

Facility and Operation

Based on a report published by the Central ResearchInstitute of the Electric Power Industry, Japan

0.975

0.742

0.6080.519

12

Benefits from CDM projects for Benefits from CDM projects for hydropower in South Asian Countrieshydropower 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

13

What is CDM?Hydropower and CDMCDM Scheme and KeywordsState of Hydropower CDM ProjectsKey Issues for Host Country of

Hydropower CDM Projects

14

CDM schemeCDM scheme

Project Planning

Project Implementation/ Annual Monitoring

Verification and Certification of Reductions

Issuance of CER

Add to Adaptation Fund

Preparation of Project Design Document(PDD)

Approval of New Methodology (by CDM EB)

Validation(by DOE) and Registration(by CDM EB)

CDM Executive Board (CDM EB)

Designated Operational Entity (DOE)

Designated Operational Entity (DOE)

CDM Executive Board (CDM EB)

(Project developer)

Designated NationalAuthority (DNA)

Project developer

Project developer Sale in Market

Project developer

(Project developer)

(Project developer)

Host countryparticipation

Investing country approval Host country approvalDesignated NationalAuthority (DNA)

15

CDM related organizations (1)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

16

CDM related organizations (2)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

17

Approval of New MethodologyApproval 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 approvedA-rank: Approved

As of Sep. 2003 A-rank: 2 projects B-rank: 4 projects C-rank: 6 projects (2 hydropower projects included)

18

Validation and RegistrationValidation and Registration

Host country approval

Validation by Designated Operational Entity

Submission to to CDM EB

Registration by CDM EB

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

Registration finalized after a maximum of 8 weeks from receipt

19

Verification, certification, and issuance Verification, certification, and issuance of CERsof CERs

Project Implementation and Monitoring

Verification

Certification/Registration by CDM EB

Issuance of CERs

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

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

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

20

Project Design Document (PDD)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

21

BaselineBaseline

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

22

Additionality 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– Finance ： diversion of ODA is prohibited– Technology ： must use the state-of-art

technology

24

Project boundary and leakageProject 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

25

MonitoringMonitoring

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

26

Small-scale CDM projectsSmall-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

27

What is CDM?Hydropower and CDMCDM Scheme and KeywordsState of Hydropower CDM projectsKey Issues for Host Country of

Hydropower CDM Projects

28

Hydropower CDM projects submitted to Hydropower CDM projects submitted to World Bank PCF and ERU-PT/ CERU-PTWorld 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, Peru:10

1

2

3

4

5

29

Baseline methodology of hydropower CDM Baseline methodology of hydropower CDM projects submitted to the Methodology Panelprojects 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)

31

Environmental issuesEnvironmental 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 hydropower’s negative impact is small– The state of the art technology, social development, …

32

What is CDM?Hydropower and CDMCDM Scheme and KeywordsState of Hydropower CDM projectsKey Issues for Host Country of

Hydropower CDM Projects

33

Identification of CDM projectsIdentification 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

34

Key factors on Project Design DocumentKey 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)

35

CDM project Approval by Host countryCDM 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

Thank you for your kind attention !Thank you for your kind attention !

For more information and question

http://cdm.unfccc.int/ (UNFCC CDM)Hydropower@nef.or.jp (NEF)