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BARRIERS TO CDM PROJECT FINANCING. Presentation to CDM Financial Mechanism Training Course 18 September 2003 Clean Energy Finance Committee. How Will CDM Help Project Financing?. Advantages a) Direct: Revenues from CDM credits  Certified Emission Reductions (CERs)

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barriers to cdm project financing

BARRIERS TO CDM PROJECT FINANCING

Presentation to CDM Financial Mechanism Training Course

18 September 2003

Clean Energy Finance Committee

how will cdm help project financing
How Will CDM Help Project Financing?

Advantages

a) Direct: Revenues from CDM credits

 Certified Emission Reductions (CERs)

b) Indirect: Higher project status as a result of CDM designation

  • Publicity value
  • Will increase the project’s attractiveness to both equity investors and lenders
what are cers
What are CERs?
  • A product which project proponents can acquire and sell. Not a loan.
  • CER purchasers can count them towards their GHG reduction commitment under the Kyoto Protocol.
  • The payment for CERs will be made in a hard currency by very creditworthy buyer(s).
cer returns
CER Returns
  • Typically 7% - 55% of capital investment
  • Ratio varies according to project type

High  methane capture projects

Low  straightforward renewable energy projects

slide6

ROE Enhancement by CERs in forRenewable Energy Projects

  • Capex US$ 30 M: US$ 10 M equity,

assuming 2:1 debt/equity

  • 70,000tCO2e/year: US$ 0.21~0.35 M / year @ US$ 3~5
  • Increase in ROE: US$ 0.21~0.35 M / US$ 10 M

= 2.1~3.5%

requirements of cdm
Requirements of CDM

Additionality

a) Official languages

 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))

 A CDM project activity is additional if

anthropogenic emissions of greenhouse gases by

sources are reduced below those that would have

occurred in the absence of the registered CDM

project activity. (Marrakesh Annex Article 43)

slide8

Requirements of CDM

b) More strict interpretation:

 The CDM status will be given only to those projects

that cannot be implemented without it.

 Those projects that can/will be carried out in the

course of regular business (Business-As-Usual -

BAU - projects) are disqualified.

c) To qualify for CDM status, it is advisable not to start construction until the major part of the validation process is finished. This is to:

 Avoid being confused as a BAU project

 Allow professional observation and recording of the

current situation, making it available in baseline

setting.

slide9

Steps in CDM Process

PROJECT IMPLEMENTATION

CER Issuance and Registration

Project Design Document

Certification

Validation

Registration

Monitoring

Verification

Approval by Host Country

  • Project Participant
  • CDM Adviser
  • Designated Operating Entity
  • UNFCCC
  • Project Participant
  • Designated Operating Entity
  • Designated Operating Entity
  • UNFCCC

ENTITIES

  • Designated National Authority

3 months – 2 years

2 months

To be determined

Continuous over lifetime of project

To be determined

To be determined

To be determined

TIMING

costs of cdm one barrier
Costs of CDM – One Barrier

Transaction costs

  • Project Design Document (PDD)
    • In-house (manpower costs) or
    • CDM Specialists - (fixed fees + success fees)
  • Validation
    • Designated Operational Entity (DOE)
  • Registration
    • UNFCCC CDM Executive Board
  • Verification and Certification
    • Designated Operational Entity (DOE)

(Note: For approximate fee levels of costs, see the PCF 2001 annual report P.38) http://www.prototypecarbonfund.org/html/ar_home.htm

barriers to project financing
Barriers to Project Financing
  • CDM projects should not be the least cost option nor have the highest IRR, or else it will not be CDM eligible; hence less competitive, lower returns
  • Procedural risk – lengthy application/approval process for CDM registration and CER issuance
  • Performance risk – technology transfer/new technology, renewable fuel supply
  • Market risk – Power Purchase Agreement
  • Country/Region risk
  • Regulation risk– DNA approval requirements, regulatory changes which may render the project BAU
our cdm experiences
Our CDM Experiences

Renewable energy

  • Yala Rubber Wood Residue Power Plant, Thailand - 20MW power plant using rubber wood residue as biomass fuel will replace fossil-based grid-electricity
  • ATBiopower, Thailand - 22MW power plant fueled by emission-neutral rice husks will replace fossil-based grid-electricity
  • Bumibiopower Biomass Power Plant, Malaysia - 6MW power plant fueled by empty palm fruit bunches and shells
our cdm experiences1
Our CDM Experiences

 Methane capture

  • Philippines– anaerobic technology to be used to recover methane gas from municipal waste significantly reducing fossil fuel-based energy consumption of a city government
  • Philippines – landfill gas to energy
  • Malaysia – palm-oil mill will recover methane gas from wastewater; biogas will then be used to generate power, replacing fossil-based electricity
mitsubishi securities
Mitsubishi Securities
  • Wholesale investment banking arm of Bank of Tokyo-Mitsubishi
  • Full range of financial services related to equities, bonds, derivatives
clean energy finance committee
Clean Energy Finance Committee
  • Operating unit specializing in clean energy-related activities
    • CDM advisory
    • Production of Project Design Document – focus on CDM parameters
    • Financial advisory services – equity, debt, and CDM finance
  • Team of professionals dedicated solely to energy- related CDM projects in Asia
  • Close relationship to major Japanese investors – both CER buyers & equity investors
thank you

Thank You!

Andres del Rosario

CDM Consultant

adrcdm@info.com.ph

Clean Energy Finance Committee