additionality and project cycle tunis, august 27-29, 2004 tims/eeaa cd4cdm- fourth regional workshop...

Additionality and Project Cycle Tunis, August 27-29, 2004

TIMS/EEAA CD4CDM- Fourth Regional Workshop (Phase II) UNEP RISOE / APEX

AdditionalityAdditionalityinin

NovaGerar Gas to Energy NovaGerar Gas to Energy Landfill Project Landfill Project

Amr Abdel-Aziz, Ph.D. Consultant



AdditionalityAdditionality

Emission reductions that are additional to any that would occur in the absence of the project

Most critical issue for project acceptanceProject will be refused if additionality is not

proven

DefinitionDefinition

ImportanceImportance

Year

Em

issi

on

s

Baseline

2004 2025

Project

Project AdditionalityEnvironmental Additionality

Year

Baseline

2004 2025

Project

Em

issi

on

s

•New Policies•Attractive econ.




Flow chart of series of questions that lead to narrowing down of potential options

Qualitative or quantitative assessment of different potential options and an indication of why the project is more likely

Qualitative or quantitative assessment of one or more barriers facing proposed project

An indication that the project type is not common practice in the proposed area of implementation

How to DemonstrateHow to Demonstrate




Economic Technology

In Easier TermsIn Easier Terms

Institutional

Barriers



NovaGerar Landfill ProjectNovaGerar Landfill Project

CH4

Excess Flared

Some Used to Generate Electricity



Project DesignProject Design

0

50,000

100,000

150,000

200,000

2000 2005 2010 2015 2020 2025

Year

MW

h/y

r

MWh Installed

MWh Capacity

4 MW5 MW7 MW

9 MW11 MW12 MW

Difference Flared



Additionality in AM003Additionality in AM0031. Continue BAU (no collection)2. LFG collection and flaring 3. High efficiency flaring and

power generation

Baseline and project are the only plausible options

Calculate a conservative IRR (excluding CERs)

IRR < Conservative acceptable IRR

Project IRR 4%

Gov. Bond Rate = 22%

Additional

Not Additional

Y

N

Not Required

Additional



IRR Calculations -- ElementsIRR Calculations -- ElementsCapital Costs (-ve)

– Electricity Generator (1 kW * 12 unit)– Flaring equipment – Gas plant– Assembling and testing– Connection to grid

Operating Costs (-ve)– Gas plant and flaring equip. O&M– Maintenance and supervision– Administrative expenses (PCF and EB)– Land rent

Others (-ve)– Income Tax

Revenue (+ve)– Carbon credits– Electricity sales



IRR Calculations -- ElementsIRR Calculations -- ElementsEquipmentFlaring Equipment ($) 314,308Gas Plant($) 301,370Assembling and Testing 34,133Connection to Grid (2 sites) 416,665Preoperational costs 150,000

1,216,4761 Mw Generating System(5*200kW) 748,509

Operational CostsGas Plant and Flaring O&M ($/yr) 126,012Engine Maintenance ($/yr) 230,544Carbon credits expenses ($/yr) 12,000Electricity Administrative expenses ($/yr) 120,000World Bank Administration costs($/yr) 20,000Land Rent ($/yr) 16,000Total /yr 524,556

TaxesIncome Tax 24.0%Additional Tax (>240,000/yr) 10.0%PIS+COFINS Tax 18.7%

52.7%Free Electricity to Municipality 10.0%

RevenueElec. Tarrif ($/MWh) 43



IRR Calculations – Cash FlowIRR Calculations – Cash FlowYear Capital Costs

Operational Costs Elec. Sales Net Cash Flow

0 (799,811) (174,012) 0 (1,390,488)1 0 (174,012) 0 (174,012)

2 0 (174,012) 0 (174,012)3 (3,410,701) (524,556) 670,568 (3,322,880)4 0 (524,556) 670,568 146,012 5 (794,093) (524,556) 832,211 (486,439)6 0 (524,556) 832,211 307,655 7 (1,684,907) (524,556) 1,155,495 (1,053,968)8 0 (524,556) 1,155,495 630,939 9 (1,787,518) (524,556) 1,478,779 (833,295)

10 0 (524,556) 1,478,779 954,223 11 (1,896,378) (524,556) 1,802,063 (618,870)12 0 (524,556) 1,802,063 1,277,507 13 0 (524,556) 1,802,063 1,277,507 14 (1,036,112) (524,556) 1,963,705 403,038 15 0 (524,556) 1,963,705 1,439,149 16 0 (524,556) 1,963,705 1,439,149 17 0 (524,556) 1,963,705 1,439,149 18 0 (524,556) 1,963,705 1,439,149 19 0 (524,556) 1,963,705 1,439,149 20 0 (524,556) 1,963,705 1,439,149

IRR 4% < Benchmark IRR Additional

Flaring and collection

Generators

IncrementalIncremental



Benchmark IRRBenchmark IRR

Government bond rate plus suitable project risk premium

Commercial lending rate

Expert views on expected IRRs for this or comparable project types

Other hurdle rates that can be applied for the country or sector



Application of Additionality TestApplication of Additionality TestPart 1: Has construction of the project already started

Part 2: Is Execution of Project based on direct on indirect legal obligation?

Project Economically less attractive

N

Y

NPart 3a: Financial or Economic barrier (Benchmark Approach)

Y

Project is more attractive

N

Part 4: Are many projects, based on same type of technology recently implemented without CDM (50/20 test)

Y

Project Additional

IRR 4% < acceptable IRR

No landfill in Brazil employs this technology



General Advice When Proving AdditionalityGeneral Advice When Proving Additionality

Transparent information should be provided

Documented evidence has to be available

Conservative interpretation of documented evidence as how it is used to demonstrate additionality

Conservative assumptions to be used

additionality and project cycle tunis, august 27-29, 2004 tims/eeaa cd4cdm- fourth regional workshop...

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