accessing carbon finance case study: cdm and energy efficiency hakim zahar, p.eng. vice-president...

Accessing Carbon Finance

Case Study: CDM and Energy Efficiency

Hakim Zahar, P.Eng. Vice-President

ECONOLER INTERNATIONAL

February-March, 2007

Three Case Studies

1. Standard Energy efficiency project: Taishan Cement Works Waste Heat Recovery (WHR) and Utilisation for Power Generation Project

2. Project bundling: Landfill Gas Recovery and Flaring for 9 bundled landfills in Tunisia

3. Programmatic approach: Moldova Energy conservation and greenhouse gases emissions reduction

1st Case study: Taishan Cement Works WHR and Utilisation for Power

Generation Project• Project Description

• Status of the project for its registration

• CDM deal structure: tenders or sole source

• Financing of the CDM costs

• Methodology

• Additionality

1st Case study: Taishan Cement Works

• Project Description– Project Activity : waste heat recovery and utilization for power

generation project – Location: Taishan Cement Works in Ninyang County of Shandong

Province of the People’s Republic of China. – Host Party: China– Other Parties Involved: United Kingdom of Great Britain and

Northern Ireland– Authorized Participants: Natsource Europe Limited – Description: The Taishan Cement Works produces highquality

cement using the new dry process technique and has been being implemented in two phases – the 2500 tons per day clinker production line commenced operation in June 2003 and the 5000 tons per day clinker production began production November 2004.

1st Case study: Taishan Cement Works• Project Description

– Problematic: Energy demand has increased in tandem with cement production and the captive power plant has insufficient capacity to provide for this increase.

– Baseline: Taishan would have to take electricity either from the grid, or construct a new waste coal fueled captive power plant, the most economically attractive option.

– Project Activity: recovery and use of waste heat from the rotating kilns of the two cement clinker production lines. The waste heat is currently mainly vented to atmosphere, with a portion re-circulated within the clinker process. However the Project Activity will now capture the waste heat for use in a power generation plant, the exhaust heat of which can also still be recirculated to the clinker process. This power generation plant will be rated at 13.2MW and will produce annually 89.5 million kWh of electricity with no significant associated emissions of CO2.


• Project Description– Large Scale Project

– Categories: 1 and 4• The project activity falls under sectoral scope 4 –

Manufacturing Industries, specifically the cement sector.

• The project activity is also relevant to sectoral scope 1 – Energy– Mining/mineral production.

– Amount of Reductions: 105,894 metric tonnes CO2 equivalent per annum


• Status of the project for its registration– The start date of the Project Activity was 1st

July 2004, when equipment ordered.– Validation report: March 2006– Registration Date: June 24, 2006 – Crediting Period: 01 Jan 06 - 31 Dec 12

(Renewable)


• CDM deal structure: tenders or sole source– Xinwen Mining Group Company is permitted by the

National Development and Reform Commission of the People’s Republic of China to transfer to the Natsource Europe Limited no more than 800,000 tCO2e in total CERs for a period of 7 years from the starting date of the project.

• Financing of the CDM costs– Fee level: USD 19923.2


• Methodology– This Project Activity uses the approved methodology

AM0024 titled “Methodology for greenhouse gas reductions through waste heat recovery and utilization for power generation at cement plants” which was developed for this Project Activity and which was recommended for approval by the methodologies panel at their 17th meeting and accepted by the Executive Board at their 21st meeting.

– The methodology is applicable to the Project as the Project clearly utilises waste heat recovery for utilisation in a power generation unit at a cement plant.


• Methodology : The methodology lists five applicability criteria and all of these applicability criteria clearly apply to this Project Activity because:A. The electricity produced by the Project Activity is used within

the cement works where the Project Activity is located and there is no electricity export to the grid in the baseline scenario.

B. The Project Activity displaces electricity from an identified specific generation source which is a 15MW extension to the 37MW captive coal fired plant at the site (baseline). This 15MW extension, i.e. the baseline scenario, is a more economically attractive course of action than the proposed CDM Project Activity.


• Methodology : The methodology lists five applicability criteria and all of these applicability criteria clearly apply to this Project Activity because:C. There is sufficient publicly available information to identify

the specific generation source (baseline) which is a 15MW extension to the existing 37MW captive coal fired plant at the site.

D. The PDD demonstrates that in the baseline, waste heat use is only possible within the boundary of the clinker making process.

E. Waste heat is only planned to be used in the Project Activity and for recycling waste heat within the boundary of the clinker making process.


• CDM project additionality demonstration:1. Prior to the project starting date the Project Sponsor had entered

into a CDM development agreement with a CDM consulting company and started the preparation of a submission of a new methodology applicable to the project activity (NM0079).

2. The Project Activity is not the only option which is available to the Project Owners.

3. There is clear evidence that the Project Activity is less financially attractive than the baseline scenario for a wide range of scenarios (the Project IRR of the baseline scenario is 67% higher than the Project Activity)

4. There are technological barriers and barriers to prevailing practice


• CDM project additionality demonstration:5. No similar projects were found in Shandong Province and only

four similar projects have been identified as implemented in China at similar sized cement plants to date – two using imported equipment and two using domestic equipment. None of those projects located at a mine mouth cement plant where the incentives for carrying out the Project Activity are considerably different to cement works where there are no captive power plant options.

6. Clearly the CDM revenue represents a significant stream of revenue for the Project, counting for 19.2% of the annual revenue of the project during the crediting period assuming a conservative CER value of USD6 per ton and comparing it against avoided electricity purchases. This potential benefit directly increases the investment return of the Project Activity and compensates for its increased cost and increased risks.

2nd Case Study: Project bundling:Landfill Gas Recovery and Flaring for

9 bundled landfills in Tunisia

• Definition of bundling• Project Description • Status of the project for its registration • CDM deal structure: tenders or sole source • Financing of the CDM costs • Methodology • Additionality

Definition of bundling

• A bundle of CDM projects is defined as a collection or aggregation of several CDM projects.

• In a bundle, each activity could be undertaken individually as a CDM project activity (e.g. three wind farms) and the various project activities are only bundled together in order to reduce CDM-related transaction costs.

• A proposed CDM project shall be deemed to be a bundle of CDM projects :– The bundled technologies/measures should be independently owned

and operated;– The bundle should be implemented at different locations;– New CDM projects can be added to a bundle within the crediting

period;

2nd Case Study: 9 bundled landfills in Tunisia

• Project Description– Project Activity : Landfill Gas Recovery and Flaring for 9 bundled

landfills in Tunisia– Location: The nine landfills are disseminated over the Tunisian

Territory and close to the following cities: Bizerte, Sfax, Kairouan, Djerba, Gabes, Monastir, Sousse, Nabeul and Medenine.

– Host Party: Tunisia– Other Parties Involved: Italy– Authorized Participants: International Bank for Reconstruction and

Development (IBRD) as the Trustee of Italian Carbon Fund (ICF)– Large Scale Project – Categories: Waste handling and disposal


• Project Description– Description: The project activity will install a gas recovery and

flaring system in each of the nine landfills, in order to reduce CH4 emissions, and thus generate CERs, while ensuring safety at the Landfill sites, serving sustainable development purposes, and providing additional resources to environment protection in Tunisia. The nine landfills have an aggregated nominal capacity of 3,300 tons of waste per day; i.e. 1.2 million tons of waste/year.

– Baseline: Originally, none of the nine landfills was designed to be equipped with LFG management system.



• Status of the project for its registration– The starting date of the project activity is

expected to be 1st January 2007.– Validation report: February 2006– Registration Date: November 23, 2006 – Crediting Period: 01 Jan 07 - 31 Dec 12 (Fixed)


• CDM deal structure: tenders or sole source– The LFG recovery and flaring systems will be financed by the

National Waste Management Agency (ANGED), and operated by private contractors.

– Total investment of the LFG collection and flaring system in the nine landfills is estimated at 6.7 MUS$, which will be mobilized through a World Bank Loan.

– The World Bank will provide to the government of Tunisia with a loan to partially finance a Solid Waste Management Project to support the implementation of this programme

• Financing of the CDM costs • Fee level: USD 62081.8


• Methodology– Consolidated baseline methodology for landfill gas

project activities – ACM0001/Version3, dated 19 May 2006

– Project activity meets applicability criteria of the chosen methodology. This methodology is adopted in relation with the selected approach for Baseline taken from paragraph 48 of the CDM modalities and procedures: “(b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment”.


• Additionality 1. The project will start by July 2006, so the registration will occur

before the start of the first crediting period.2. There is no mandatory law or regulation, or any contractual

arrangement that force Landfill operators to collect and flare methane or to use it for electricity generation.

3. Considering the LFG project without CDM, the project would not have been adopted by Tunisia as it wouldn't generate any revenue, and its NPV would be negative (MUS$ -9.1), with an IRR also negative.

4. Common Practice for Controlled landfills in Tunisia will not consider CH4 extraction and flaring, and it is unlikely that LFG systems would be prevalent in the future without the CDM contribution.

5. The project activity will generate significant economic benefits through the sale of ERs that will justify contracting a loan to cover the investment expenses and to make project implementation possible.

Hakim Zahar

j'élimine ce diapo.

3rd Case Study: Programmatic approach: Moldova Energy conservation and

greenhouse gases emissions reduction

• Definition of programmatic approach• Project Description • Status of the project for its registration • CDM deal structure: tenders or sole source • Financing of the CDM costs • Methodology • Additionality

Definition of programmatic approach

• The program is the project, the program enacting• agent is project participant• The Program can be a private sector initiative or a

Government measure: voluntary or mandatory• Emission reductions are achieved by multiple

actions executed over time• Type, size and timing of the induced actions may

not be known at the time of registration

3rd Case Study: Moldova Energy conservation and GHG reduction

• Project Description– Project Activity: The project refers to energy conservation measures

in public buildings and consequently to GHG emission reduction.– Location: 32 public buildings in 9 municipalities of the Republic of

Moldova: Cantemir, Edinet, Falesti, Floresti, Hincesti, Ialoveni, Nisporeni, Straseni, Ungheni

– Host Party: Republic of Moldova– Bilateral and Multilateral Funds : Community Development Carbon

Fund (CDCF) Managing company: International Bank for Reconstruction and Development (IBRD) Netherlands

– Authorized Participants: Carbon Finance Unit Moldova – Small Scale Project


• Project Description– Description: This Moldovan project aims at GHG emission

reduction as result of efficiency improvements and fuel switching measures for a series of public buildings (kindergartens, schools, vocational schools, hospitals, policlinics etc.) implemented via the WB Moldova Energy II Project.

– Baseline: the most conservative scenario selection, has been chosen the scenario corresponding to five (5) percent annual heat consumption growth rate.

– Categories: Sectoral scope 1: Energy industries (renewable - / non-renewable sources); Sectoral scope 3: Energy demand


– Fee level: USD 5000


• Status of the project for its registration– The start date of the Project Activity was

January 15, 2006– Validation report: November 7, 2005– Registration Date: January 29, 2006 – Crediting Period: 20 Jan 06 - 19 Jan 16 (Fixed)


• CDM deal structure: tenders or sole source– The total Energy II project financing will be US$ 39.93 million, of

which US$35 million would be financed from an IDA credit, US$4.33 million from internal cash generation and municipal contributions and US$0.6 million from the Swedish International Development Agency (SIDA).

– The WB Energy II Project investment decisions refer to least cost technical solutions, which have to satisfy the required heating standards at minimum costs.

– The Community Development Carbon Fund (CDCF) will have the CER rights.

• Financing of the CDM costs :


• Methodologies– II.E Energy efficiency and fuel switching

measures for buildings – III.B Switching fossil fuels


• Additionality a) Investment barrier: a financially more viable alternative to the project

activity would have led to higher emissions; b) Technological barrier: a less technologically advanced alternative to

the project activity involves lower risks due to the performance uncertainty or low market share of the new technology adopted for the project activity and so would have led to higher emissions;

c) Barrier due to prevailing practice: prevailing practice or existing regulatory or policy requirements would have led to implementation of a technology with higher emissions;

d) Other barriers: without the project activity, for another specific reason identified by the project participant, such as institutional barriers or limited information, managerial resources, organizational capacity, financial resources, or capacity to absorb new technologies, emissions would have been higher’.

Thank you for your attention!

Hakim Zahar, [email protected]

+1 418 692-2592www.econolerint.com

mailto:[email protected]

http://www.econolerint.com/

accessing carbon finance case study: cdm and energy efficiency hakim zahar, p.eng. vice-president...

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