cdm projects-mus's csr activities
TRANSCRIPT
Various Barriers Various Barriers Associated with CDM Associated with CDM
ProjectsProjects
May 26th, 2006
Clean Energy Finance Committee
TBLI 2006
2
1. What is CDM
a)Clean Development Mechanism(CDM): a mechanism to monetize environmental value of pro-environmental projects.
b)CDM thus gives additional revenues to Greenhouse Gas(GHG) mitigation projects.
c) In addition, CDM status often helps with financing. A project is more attractive to equity and debt investors with CDM status.
3
2. Certified Emissions Reductions (CERs)a)Represents GHG mitigation contribution
of a project. Measured in tonnes of CO2.
b)CERs can be sold in exchange for hard currency.
c)Reduction before 2008 (1st year of Kyoto Protocol commitment period) can be included.
4
3. CDM Process
a) Project Design Document (PDD). ・ Core document in the CDM process ・ Includes preliminary calculation of CERs. ・ Must be prepared in accordance with an approved methodology. ・ Can be produced by the developer but often outsourced to CDM professionals.
5
3. CDM Process (Continued)
b) Initial approval (Validation). ・ Host country government. ・ CDM Executive Board.
c) Project implementation.
d) CER issuance based on actual reduction.
6
3. CDM Process (Continued)CDM Steps
Project
Design
Document
Validation Registration Monitoring Verification CertificationCER issuance
and registration
Host
Country
Confirmation
Designated
Operational
Entity
Project implementation
• Conducted by project participants
• Provides basis for verification
• Assurance by a DOE
• Certifies the amount of verified reduction
• Issuance of Certified Emission Reductions (CERs)
• To be recorded at EB registry
• Conducted by a DOE (Different DOE except for small projects.)• Determines that the monitored emission reduction has in fact occurred
7
4. Barriers• CDM is one of the best mechanism that
provides incentive to GHG mitigation projects existing today.
• However, there are many barriers associated with the CDM.
• Such barriers can be categorized into10 types among 11 stakeholders.
8
5. Barriers: conceptual schema
Project Developer
Trading partner Host govt.
Financing party
Technology supplier
Investor country government
Trading partner
Financing party
Technology supplier
①②
③
④⑦
⑧
⑨
⑩
Host country External
Raw material supplier
⑤
Other
⑥
Note 1: External trading partner includes CER buyer Note 2: “Other” can include geographical, social and cultural considerations not listed in 1 – 5
(from Mitsubishi Research Institute)
9
6. Barrier Analysis
○ Barriers associated with Project Developer● Barriers associated with Project Developer’s counter party
Barrier category Specific BarrierAwareness level of pro-environmental projects ÅõL ow Motivation ÅõSmall scale and potential ÅõProfitability ÅõL ack of financing ÅõL ack of know-how, technologies, skills andcreditworthiness ÅõCreditworthiness of project developer ÅõCompliance risk ÅõGovernment regulations ÅúBounty system ÅúL aw, accounting and taxation system ÅúGovernment approval risk ÅúCreditworthiness of project developer ÅõInstability of demand ÅúUnstable product price ÅúUncertainty of industry, market, operation level ÅúDistribution risk ÅúCreditworthiness of project developer ÅõCreditworthiness of raw material supplier ÅúInstability of supply and price ÅúQuality ÅúOn time delivery ÅúCost overrun on construction ÅúUncertainty of industry, market and operation level ÅúUncertainty of raw material and energy supply ÅúCreditworthiness of project developer ÅõProfitability ÅõFund-raising capability ÅõDeterioration in financial standing ÅõAwareness level of pro-environmental projects ÅúL iquidity Åú
Ö@ Host Government - Project Developer
Within Project Developer
ÖA Trading Partners within the Host Country - Project Developer
ÖB Raw Material Supplier - Project Developer
ÖC Host County F inancing Party - Project Developer
10
6. Barrier Analysis (Continued)
○ Barriers associated with Project Developer● Barriers associated with Project Developer’s counter party
Barrier category Specific BarrierCreditworthiness of project developer ÅõSkilled labor ÅõAccessibility ÅúHigh cost ÅúCreditworthiness of technology supplier ÅúUnpredictable events related to the technology ÅúUncertainty of industry, market, operation level ÅõCompliance risk ÅõSocial acceptability, cultural and custom issue ÅúLocation ÅúLoss of employment ÅúUnpredictable events related to technology ÅúCreditworthiness of project developer ÅõSkilled labor ÅõAccessibility ÅúHigh cost ÅúCreditworthiness of technology supplier ÅúExchange Rate risk of host country ÅúUnpredictable accidents related to technology ÅúCreditworthiness of project developer ÅõProfitability ÅõDeterioration financial standing ÅõExchange Rate risk of host country ÅúL iquidity ÅúCreditworthiness of project developer ÅõUncertainty of project implementation ÅõCompliance risk Åõ
ÖI External Government - Host Government Political risk and unpredicted events Åú
ÖD Technology Supplier in Host County - Project Developer
ÖE Other - Project Developer
ÖH External Trading Partner - Project Developer
ÖG External F inancing Party - Project Developer
ÖF External Technology Supplier - Project Developer
11
7. Case Study – Gas power-gen in India
Project Owner
Trading partner Host govt.
Financing party
Technology supplier
Investor country government
Trading partner
Financing party
Technology supplier
①②
③
④⑦
⑧
⑨
⑩
Host country External
Raw material supplier
⑤
Other
⑥
Project Owner
Trading partner Host govt.
Financing party
Technology supplier
Investor country government
Trading partner
Financing party
Technology supplier
①②
③
④⑦
⑧
⑨
⑩
Host country External
Raw material supplier
⑤
Other
⑥
Project Owner
Trading partner Host govt.
Financing party
Technology supplier
Investor country government
Trading partner
Financing party
Technology supplier
①②
③
④⑦
⑧
⑨
⑩
Host country External
Raw material supplier
⑤
Other
⑥
Project Developer
Trading partner Host govt.
Financing party
Technology supplier
Investor country government
Trading partner
Financing party
Technology supplier
①②
③
④⑦
⑧
⑨
⑩
Host country External
Raw material supplier
⑤
Other
⑥
Upgrade to single to combined cycle at 42MW gas power plant in NE India
Power tariff•Lack of confidence in long term stability of power tariff
Credit supply and return on investment•Heavy upfront investment – US$32m for a 42MW plant (payback est. at 4 years)
Technology risks•Water-cooled system needs reliable water supply and creates thermal pollution problem•Air-cooled system can be installed, but no regional expertise in specialized maintenance needs
12
8. Case Study –Cement Works Energy efficiency in China
Project Owner
Trading partner Host govt.
Financing Technology supplier
Investor country government
Trading partner
Financing party
Technology supplier
①②
③
④⑦
⑧
⑨
⑩
External
Raw material supplier
⑤
Other
⑥
Project Developer
Trading partner Host govt.
Financing Technology supplier
Investor country government
Trading partner
Financing party
Technology supplier
①②
③
④⑦
⑧
⑨
⑩
Host countryExternal
Raw material supplier
⑤
Other
⑥
Loss of employment•Technology can only be applied to large plants•Social pressure to maintain smaller plants which provide significant employment in some localities
Heavy investment requirement•Cement must be sold at a higher price tobe viable•Loss of competitiveness leads to non-implementation
Government Policy•Govt. is actively encouraging use of this technology
•Customers unwilling to pay higher price, even for higher quality cement•Business interruption during retrofit leads to loss of business
13
9. Main Barriers and Solutions
a) Counted among key barriers are financial issues.
b) Key issues are how to increase ・ Profitability and ・ Fund Raising-Capacity
14
UnfeasibleIncreasing
fund-raising capacity
Raising project profitability
Business-as-usual
UnfeasibleIncreasing
fund-raising capacity
Raising project profitability
Business-as-usual
High
Low
Low
Fund-raisingCapacity
Project Profitability
c) These subjects correspond to the two amber boxes.
9. Main Barriers and Solutions (Continued)
15
10. Raising Project Profitabilitya) Return from pro-environmental projects alone is often too
small to implement them.
Monetize their environmental contribution to augment the return.
b) The CDM is a typical example of such approach. However, pro-environmental projects which can benefit from the CDM are likely to be limited, even on the assumption that CDM rules will become less restrictive in the future.
c) Need to create a new scheme that covers the omitted projects under CDM.
16
11. Increasing Fund-Raising Capacitya)A large number of worthy pro-
environmental projects, even when their profitability is high enough, are precluded from implementation for lack of funding/financing.
b)Possible solutions are1.Public-Private Partnerships2.Capital Market Avenues
17
11. Increasing Fund-Raising Capacity (Continued)
• Public-Private Partnership With partial funding by the public sector and
indirect supports by Governments / International Financial Institutions, risks can be mitigated.
• Capital Market Avenues Create investment vehicles to channel
developed country green money to developing countries’ pro- environmental projects.
18
12. Clean Energy Finance Committee1) Established in Feb. 2001 to assist renewable energy
and energy efficiency projects with our firm’s financial expertise.
2) The Committee is a fully-fledged business unit with twenty-eight staffs (twenty-two full-time professionals), speaking twelve languages in total.
3) Networking with local consultants in Hong Kong, Philippines, Indonesia, Brazil and Argentina.
4) A global leader in CDM consultancy: one of the only three private firms in the world with more than three approved methodologies.
19
13. Mitsubishi UFJ Securities’ Approach to CDM1) MUS’s services are to assist project developers in
obtaining CERs through ・ PDD Production ・ Acquisition of required approvals 2) MUS also helps with the sale of the CERs if the clie
nt so wishes. Not tied to any particular buyer, MUS always looks after the best interest of project developers (CER sellers).
20
14. ContactMitsubishi UFJ Securities Co., Ltd.Clean Energy Finance Committee
S. NishidaContact: [email protected]
21