central america carbon finance guide (2nd edition)

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Energy and Environment Partnership with Central America

Central American Carbon Finance Guide

Cover: Design, Lic. Carlos Gómez, CCAD / Photo: Lic. Gandhi Montoya, CCAD

© Copyright 2007, GreenStream Network Ltd. and BUN-CA

2nd Edition, November 2007

The Ministries of Environment of the Central American countries are aware of the implications of the climate change challenge in our age, big efforts are being carried out to combat it, through the use of the abundant renewable resources of the region for energy generation and fossil fuels substitution. This Carbon Finance Guide will encourage the renewable energy projects execution, permitting to project developers to incorporate in a practical way on their action plans the additional benefits of the Certificates of Emissions Reductions trading.

Dr. Marco Antonio González Secretary Executive

Central American Commission on Environment and Development

Contacts: [email protected]

[email protected]

[email protected]

This Guide may be freely quoted for non-commercial purposes, provided that this Guide is acknowledged as the source and authors’ copyright is recognised.


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FOREWORD The Energy and Environment Partnership with Central America (EEP) is pleased to present the second edition of the Central American Carbon Finance Guide, which includes the latest information in the global carbon market. The EEP, launched during the 2002 United Nations World Summit on Sustainable Development in Johannesburg, contributes to make possible that the renewable energy resources play a major role in satisfying the energy needs of the Central American region. This effort is supporting the sustainable development in the region, reducing greenhouse gas emissions and aiding in mitigate the negative effects of global climate change. The Partnership is an initiative of the Ministry for Foreign Affairs of Finland in coordination with the Central American Commission on Environment and Development (CCAD) and the Central American Integration System (SICA); and recently the Austrian Development Agency has joined this effort. It is actively working in the eight countries of the regional integration system—Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Panama—with the main aim of implementing sustainable demonstrative projects on the appropriate use of renewable energy sources, such as bioenergy, hydroelectric, solar, wind and geothermal technologies. Most of the EEP’s projects are helping to reduce the greenhouse gas emissions. At the same time, the financial capitalization of this benefit will increase project developers' profitability, thus giving them an additional incentive to implement such projects. One problem though has been the lack of sufficient general information about carbon financing for small and medium-sized projects. Thus, we have decided to fill that gap by providing this Carbon Finance Guide, updating the information in this second edition, in order to contribute with the public and private sector in obtaining financial benefits as a result of their efforts. The Carbon Finance Guide is a tool to be used during projects preparation. It will help to steer developers towards implementing bankable and small-scale renewable energy project proposals that will increase their profitability in the long term. Additionally, the guide will provide information and advice on emerging international carbon markets, the Kyoto project-based Clean Development Mechanism (CDM) and other certificate markets. GreenStream Network Ltd., a Finnish consulting company, prepared this document as a result of a participatory process, which included valuable comments and suggestions from local and international experts, to whom we are most grateful for their help. The NGO BUN-CA was in charge of producing the Central American information. This publication is available in both English and Spanish. More information on the Partnership can be found on the Internet in both Spanish and English (www.sica.int/energia). This report can also be downloaded from our web site free of charge in both languages. We shall also be updating the web version of this publication as time permits. We welcome any comments and proposals for improvement.

Dr. Markku Nurmi

Director General, Ministry of the Environment, Finland Chairman of the Steering Committee of the Partnership


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ACKNOWLEDGEMENTS

This Guide is a result of a participatory process involving parties from Central America, Finland and elsewhere. The authors are grateful for all the suggestions and help they have received from many individuals and organisations while writing this guide.

We would like to thank especially the Energy and Environment Partnership with Central America (EEP) that made this Guide possible. Many persons within the Partnership have provided valuable comments and support during the process. We would like to express our special gratitude to Dr. Markku Nurmi from the Finnish Ministry of Environment and Chairman of the Steering Committee of the Partnership, Mr. Hannu Eerola and Mr. Veikko Soralahti from the Finnish Ministry for Foreign Affairs; Mr. Rudolf Huepfl and Ms. Michaela Ellmeier for the Austrian Cooperation for Development; Mr. Otto Leonel García Mansilla, Ms. María Eugenia Salaverría, Mr. Ismael Antonio Sánchez and Mr. Mauricio Ayala from the Regional Coordinator Office, as well as all the members of the Steering Committee representing all the Central American countries.

Carbon Finance and Clean Development Mechanism are new instruments that are constantly evolving. Therefore a lot of the information is outdated already when printed. We have tried to incorporate in this guide the most recent developments in the field to the extent possible. It is our intention to maintain the web version of this guide updated from time to time as the market evolves and new rules and procedures for CDM emerge. Feedback from the users of this Guide is most welcome in this process.

Principal authors of the guide are Mr. Aleksi Lumijarvi from GreenStream Network Ltd., Mr. José María Blanco from BUN-CA and Mr. Ismael Antonio Sánchez from the EEP Regional Coordination Office.

External financing for this guide was provided by the Ministry for Foreign Affairs of Finland and the Austrian Cooperation for Development through the Energy and Environment Partnership with Central America. Both GreenStream Network Ltd. and BUN-CA appreciate the support.


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TABLE OF CONTENTS Foreword …………………………………………………………………..3 Acknowledgements................................................................. 4 Table of Contents .................................................................... 5 Abbreviations........................................................................ 10 Abbreviations........................................................................ 10 1Introduction........................................................................ 12

1.1Background...........................................................................................................12 1.2Purpose of the Central American Carbon Finance Guide ...............................13 1.3Structure of the Guide .........................................................................................13 1.4UNFCCC and the Kyoto Protocol ......................................................................13

2 CDM Projects.................................................... 16 2.1What is CDM?......................................................................................................16 2.2Definition of Small-scale CDM Projects ............................................................16 2.3Participation Requirements for CDM Projects.................................................17 2.4CDM Project Cycle ..............................................................................................18 2.5Project Preparation, Validation and Registration ............................................20

Project Preparation and Host Country Approval ....................................................20 Project Design Document (PDD)............................................................................21 Baseline Methodology ............................................................................................22 Additionality 25 Crediting Period and Duration of the Project..........................................................26 Monitoring Plan and Methodology .........................................................................27 Environmental Impacts ...........................................................................................29 Stakeholder Comments ...........................................................................................29 Project Validation and Registration ........................................................................29

2.6Project Implementation Phase............................................................................30 Monitoring 31 Verification and Certification .................................................................................31 Issuance of Certified Emission Reductions.............................................................31

2.7Sale of the Emission Reductions .........................................................................32 Prices and Risks ......................................................................................................32

2.8Costs Related to the CDM Project Cycle ...........................................................33 3 Financing Small-Scale Renewable Energy

Projects ........................................................... 35 3.1Introduction..........................................................................................................35 3.2Impacts of Carbon Finance to Project Financing .............................................35 3.3Project Financing .................................................................................................36 3.4Types of Capital ...................................................................................................36

Equity Capital .........................................................................................................37 Debt capital ……………………………………………………………………...37 Mezzanine Capital...................................................................................................38

3.5Financial project cycle .........................................................................................38 Pre-feasibility Studies .............................................................................................39 Feasibility Study and Business Plan .......................................................................40 Financial plan ..........................................................................................................43


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Financial appraisal and negotiations ....................................................................... 47 Financial package and documents for financial closing ......................................... 48 Financing sources for small scale renewable energy sources ................................. 49

4 Central American countries information........... 51 General Indicators ................................................................................................. 51 4.1.2 REGIONAL INITIATIVES ........................................................................55 4.2.1 DESCRIPTION OF THE ENERGY SECTOR..........................57 4.2.2 NATIONAL CDM POLICY ..........................................................58 4.2.3 RELEVANT ORGANISATIONS .................................................58

4.2 BELIZE 4.3 COSTA RICA ....................................................................................................... 60

4.3.1. DESCRIPTION OF THE ENERGY SECTOR ...................................... 60 4.4 EL SALVADOR ................................................................................................... 67

4.4.1 DESCRIPTION OF THE ENERGY SECTOR ....................................... 67 General Information .............................................................................................. 67

4.5 GUATEMALA .....................................................................................................73 4.5.1 DESCRIPTION OF THE ELECTRIC SECTOR .................................... 74 4.5.2 NATIONAL ACTIVITIES IN THE CLEAN DEVELOPMENT

MECHANISM (CDM) ................................................................... 78 4.5.3 RELEVANT ORGANIZATIONS.............................................................. 78

4.6 HONDURAS 4.6.1 DESCRIPTION OF THE ENERGY SECTOR..............................................82

4.7 NICARAGUA 4.8 PANAMA

5 International Carbon Market.......................... 100 5.1Background ........................................................................................................ 100 5.2Volume of the Carbon Market.......................................................................... 101 5.3Byers and Sellers in the Carbon Market ......................................................... 101

CERs in the EU Emissions Trading Scheme ........................................................ 103 5.4Technologies in the Projects.............................................................................. 104 5.5Current situation of the projects……………………………………………105 5.6Non-Kyoto Regimes ........................................................................................... 105

Annex I – Article 12 of the Kyoto Protocol .......................... 107 Annex II – Small-scale CDM project Design Document ....... 108

Contents ................................................................................................................... 108 Annexes .................................................................................................................... 108 CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT ACTIVITY............................................................................................................... 114 INFORMATION REGARDING PUBLIC FUNDING ....................................... 115

Annex 3 ……………………………………………………………….116 Annex 4 ……………………………………………………………….116 Annex III – Selected Technical Assistance Funding for Project

Development.................................................. 117 Annex IV – Equity, Grants and Loans .................................. 119 Annex V – Carbon Finance................................................... 122 Annex VI – Regional contacts ............................................. 123 Annex VII – CDM PROJECT ACTIVITIES FROM CENTRAL

AMERICA REGISTERED BY THE CDM EXECUTIVE BOARD ........................................................... 127


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1)Costa Rica.............................................................................................................130 Rio Azul landfill gas and utilization project in Costa Rica ............130

2)El Salvador ...........................................................................................................131 LaGeo, S. A. de C. V, Berlin Geothermal Project, Phase Two, El

Salvador ..........................................................................................131 3)Guatemala ............................................................................................................133

Project GT1 Las Vacas Hydroelectric Project. ..............................133 4)Honduras ..............................................................................................................134

Rio Blanco Small Hydroelectric Project.........................................134 5)Nicaragua..............................................................................................................136

Monte Monte Rosa Bagasse Cogeneration Project (MRBCP) .......136 6)Panama .................................................................................................................139

Concepción Hydroelectric Project ..................................................139 Annex VIII References........................................................ 142 List of Figures Figure 1. Compliance assessment under the Kyoto Protocol. According to the Kyoto

Protocol, Annex I Parties shall ensure that their greenhouse gas emissions during the five-year Kyoto commitment period 2008-2012 do not exceed their Assigned Amounts (AA), with a view to reducing their overall emissions below 1990 levels in the commitment period. AA is calculated from country’s emissions in the base year 1990. Base year emissions multiplied by five (since there are five years in the commitment period) minus the Kyoto Protocol reduction target (see Table 2) is country’s Assigned Amount (orange bar). This is further adjusted by Land-use, Land-use Change and Forestry activities (LULUCF, Articles 3.3. and 3.4, green bar). Through Articles 6 (Joint Implementation), 12 (Clean Development Mechanism) and 17 (Emissions Trading) countries can acquire or sell compliance units (pink bar). The sum of the actual emissions during the five years of the commitment period 2008-12 (right-hand side of the diagram) shall be less than or equal to the final amount of compliance units in country’s accounts (left-hand side of the diagram). Source: UNFCCC Secretariat. Articles here refer to Kyoto Protocol Articles......................................................................................................15

Figure 2 Necessary steps in the early CDM project cycle (preparation, validation and registration). ............................................................................................................20

Figure 3. Concept of Baseline. Baseline is the hypothetical development of the emissions if the project is not realised. It has to take into account probable future developments, like efficiency improvements, planned investments, etc. Once the project is implemented, the realised project emissions are compared to the established baseline. The difference is the emission reduction which can be credited to the project..............................................................................................22

Figure 4. Schematic presentation of the additionality requirements...............................26 Figure 5. Implementation phase of a CDM project.........................................................30 Figure 6. Prices of project-based emission reductions in 2005-06 (US$ per tCO2e).

Source: World Bank: State and Trends of the Carbon Market 2006 (Update January 1 – September 30, 2006). www.carbonfinance.org. ..................................33

Figure 7. World Bank estimate for the CDM project cycle costs for small-scale projects. Source: World Bank. Small-scale CDM Projects, An Overview. www.carbonfinance.org/cdcf. .................................................................................34


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Figure 8. Impact of Carbon Finance on the IRR of selected projects. (DH=District Heating). Source: World Bank................................................................................ 36

Figure 9. Financial Structure of a project. ...................................................................... 37 Figure 10. CDM project cycle and parallel project financing steps. Source: World Bank.

................................................................................................................................. 38 Figure 11. Development of the volume of the carbon transactions in terms of volume of

CO2e traded. Figures in million of tonnes. Contracted volumes 2004-2006 (Q1-Q3),. Source: World Bank. State and Trends of the Carbon Market 2006. .......... 101

Figure 12. Location of emission reduction projects (share of volume of ERs supplied). Source: the World Bank. State and Trends of the Carbon Market 2006. (www.carbonfinance.org). .................................................................................... 102

Figure 13. Market buyers (share of volume of ERs purchased). Source: the World Bank. State and Trends of the Carbon Market 2006. (www.carbonfinance.org) ............ 102

Figure 14. Price development and trading volume for the EU Allowances (EUAs). Source: GreenStream Network Ltd....................................................................... 103

Figure 15. Technology share of emission reduction projects (in percent of total volume contracted). Source: the World Bank. State and Trends of the Carbon Market 2004. (www.carbonfinance.org). LFG = Landfill Gas, HFC = Hydrofluorocarbons, LULUCF = Land-use, Land-use Change and Forestry......................................... 104

Figure 16. Total forecasted volume of issued credit by 2012 from different CDM & JI project types, in Mt CO2e Source: Point Carbon. Carbon Market Analyst. 16 December 2005. .................................................................................................... 105

List of Tables

Table 1. Greenhouse gases (GHG) covered by the Kyoto Protocol. The emissions of the various GHGs can be converted into carbon dioxide equivalent emissions by multiplying them with the GWP. The GWPs in the table are based on the IPCC Second Assessment Report (see Article 5 of the Kyoto Protocol) and can be revised in the future. GWPs are based on the climatic effects of the GHGs over a 100-year time horizon. ............................................................................................ 14

Table 2. Greenhouse gas reduction targets in the Annex B of the Kyoto Protocol. ....... 14 Table 3. Status of Ratification of the Kyoto Protocol in the Central American Countries.

All the countries have ratified the Protocol (Belize has accessed the Protocol because it was not a signatory). Official updated list of Designated National Authorities can be found at http://cdm.unfccc.int/DNA.........................................18

Table 4. Approved methodologies for small-scale CDM projects by January 2007. Source: http://cdm.unfccc.int/methodologies/index.html. ...................................... 23

Table 5. Emission factors used in the determination of the baselines in small isolated systems. Source: Indicative simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories. Source: http://cdm.unfccc.int/methodologies/...................................................................... 24

Table 6. Monitoring information to be provided in the Project Design Document. Two examples of different data types are given..............................................................28

Table 7. Business Plan outline for projects. Source: World Bank 2002. ........................ 42 Table 8. Project costs and commercial strategy..............................................................43 Table 9. Proposed financial structure – sources of finance identified. ........................... 44 Table 10. OECD risk classification of Central American countries as of June 2004.

Source: http://www.oecd.org/dataoecd/35/2/32366062.pdf. ..................................44


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Table 11. Credit ratings of host country and company. See www.moodys.com, www.standardandpoors.com, www.fitchibca.com and www.oecd.org for ratings. Sites may require registration. ................................................................................45

Table 12. Key results of financial analysis. ....................................................................45 Table 13. Financial due diligence. ..................................................................................47 Table 14. Examples of national and commercial export credit and guarantee institutions.

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ABBREVIATIONS AA Assigned Amount AAU Assigned Amount Unit AHPPER Asociación Hondureña de Pequeños Productores de Energía Renovable AMM Administrador del Mercado Mayorista, Guatemala ANAM Autoridad Nacional del Ambiente ARESEP Autoridad Reguladora de Servicios Públicos BUN-CA Biomass Users Network – Central America BEL Belize Electricity Limited CABEI Central American Bank for Economic Integration CAF Corporación Andina de Fomento CCAD Comisión Centroamericana de Ambiente y Desarrollo CDB Caribbean Development Bank CDCF Community Development Carbon Fund CDM Clean Development Mechanism CDM EB CDM Executive Board CEL Comisión Ejecutiva Hidroeléctrica del Río Lempa, El Salvador CER Certified Emission Reduction CHP Combined Heat and Power CMNUCC Convención Marco de las Naciones Unidas para el Cambio Climático CNDC Centro Nacional de Despacho de Carga, Nicaragua CNE Comisión Nacional de Energía, Nicaragua y Honduras CNEE Comisión Nacional de Energía Eléctrica, Guatemala COP Conference of the Parties to the UNFCCC COPE Comisión de Política Energética, Panamá CRIE Comisión Regional de Interconexión Eléctrica DEE Dirección de Energía Eléctrica, El Salvador DGE Dirección General de Energía, Honduras y Guatemala DNA Designated National Authority DOE Designated Operational Entity DSE Dirección Sectorial de Energía, Costa Rica EEP Energy and Environment Partnership with Central America EIB European Investment Bank ENEE Empresa Nacional de Energía Eléctrica, Honduras ENEL Empresa Nicaragüense de Electricidad ENTRESA Empresa Nicaragüense de Transmisión, S.A. EPR Empresa Propietaria de la Red ERPA Emission Reduction Purchase Agreement ERSP Ente Regulador de Servicios Públicos, Panamá ESMAP Energy Sector Management and Assistance Program ET Emissions Trading ETESA Empresa de Transmisión Eléctrica, S.A., Panamá ETESAL Empresa de Transmisión Eléctrica de El Salvador EU European Union EU15 Old EU Member Status until 1 May 2005 EUA European Emission Allowance EU ETS EU Emissions Trading Scheme FENERCA Financiamiento de Empresas de Energía Renovable en América Central FIDIC Federación Internacional de Ingenieros Consultores FOCER Fortalecimiento de la Capacidad para Energía Renovable


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GESAL Geotérmica Salvadoreña (actualmente denominada La Geo) GHG Greenhouse Gases GSN GreenStream Network Ltd. GWh Gigawatt-hour GWP Global Warming Potencial HFC Hydrofluorocarbons ICE Instituto Costarricense de Electricidad IDB Inter.-American Development Bank IETA Internacional Emissions Trading Association IFC International Finance Corporation IIC Inter-American Investment Corporation INE Instituto Nicaragüense de Energía IRR Internal Rate of Return JI Joint Implementation kW Kilowatts kWh Kilowatt-hours LGE Ley General de Electricidad, El Salvador y Guatemala LIE Ley de la Industria Eléctrica, Nicaragua LULUCF Land-use, Land-use Change and Forestry MARENA Ministerio del Ambiente y los Recursos Naturales, Nicaragua MARN Ministerio de Ambiente y Recursos Naturales, Guatemala y El Salvador MDL Mecanismo de Desarrollo Limpio MEM Ministerio de Energía y Minas, Guatemala MER Mercado Eléctrico Regional MIF Multilateral Investment Fund MINAE Ministerio de Ambiente y Energía, Costa Rica MM Mercado Mayorista MW Megawatts MWh Megawatt-hours NDF Nordic Development Fund NPV Net Present Value OECD Organisation for Economic Co-operation and Development PCF Prototype Carbon Fund PCN Project Concept Note PDD Project Design Document PIN Project Idea Note PPA Acuerdo de Compra-Venta de Energía RMU Removal Unit SERNA Secretaría de Recursos Naturales y Ambiente, Honduras SICA Sistema de la Integración Centroamericana SIEPAC Sistema de Interconexión Eléctrica para América Central SIGET Superintendencia General de Electricidad y Telecomunicaciones, El

Salvador SSC-PDD Small-scale Project Design Document tCO2e metric tons of carbon dioxide equivalent UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme UNEP United Nations Environment Programme UNIDO United Nations Industrial Development Organization UNFCCC United Nations Framework Convention on Climate Change VER Verified Emission Reduction


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1 INTRODUCTION 1.1 Background

The main objective of the Energy and Environment Partnership between Finland, Austria and Central America is to promote the use of renewable energy sources and clean technologies in Central America in a sustainable manner, and to make energy services more accessible to the poor, particularly to those in rural areas. Several of the projects under preparation within the framework of the Partnership will reduce greenhouse gas emissions. The capitalisation of this benefit can in some cases significantly improve the profitability of the projects. This calls for clear guidance on how to include the climate aspect in the project preparation and implementation from the outset.

The international markets for greenhouse gas emission reductions and renewable electricity certificates have been fragmented. Several years, the market for Kyoto Protocol’s Certified Emission Reductions (CERs) was dominated by few players (e.g. World Bank’s Prototype Carbon Fund and the Cerupt programme of the Government of the Netherlands). New market entrants are rapidly changing the picture, however. Different governmental programs, such as the CDM/JI Pilot Programme of the Finnish Government, as well as growing participation by private companies are making the market more complex and increasingly competitive. Especially the European Emissions Trading Scheme which started on 1st January 2005 and the Linking Directive, which links CDM with the scheme, are changing the international carbon market significantly. Furthermore, various non-Kyoto systems, such as renewable energy certificate schemes, voluntary initiatives (e.g. Chicago Climate Exchange) and U.S. state-level regimes, make the situation even more complicated. A great deal of knowledge and understanding is required from the project developers if they wish to maximize the carbon benefits for their projects.

On the other hand, carbon finance does not convert a bad project into a good one. Carbon finance can improve the profitability of a project that is sound, sustainable and well structured in its own right. Many good ideas are not realised as projects because there is a lack of capacity to develop bankable project proposals. This is especially true when it comes to small-scale renewable energy projects. In an ideal situation, a good concept can be developed into a bankable and solid project proposal and carbon finance is used to further improve the feasibility of the project.

In March 2003, the power company Pohjolan Voima Oy and other Finnish members of the Energy and Environment Partnership expressed a need for a guide on how to ensure that greenhouse gas emission reductions generated by projects in Central America fulfil international requirements and can thus be capitalised. Similarly, many Central American project developers have expressed need for such guidance. Many Central American initiatives, including FOCER (Strengthening of the Capacity for Renewable Energy in Central America) and FENERCA (Financing Renewable Energy Enterprises) have already prepared guidebooks on renewable energy projects, calculation of emission reductions and project finance. In addition, The Ministry for Foreign Affairs of Finland and Finpro have recently prepared a general investment guide “Financing Business Opportunities in Latin America and the Caribbean”. This Central American Carbon Finance Guide complements the former initiatives by providing specific guidance on the preparation of bankable project proposals and on the use of carbon finance for small-scale renewable energy projects in Central America. It also contains a collection of links to other documents and organisations that are useful for the development of these projects.


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1.2 Purpose of the Central American Carbon Finance Guide

This guide is intended to help project developers, financiers, technology suppliers and government officials to understand how to prepare bankable small-scale renewable energy project proposals in Central America, how to benefit from the emerging international carbon markets through CDM or other schemes, and how to manage related risks.

The authors hope that the guide will be a practical reference tool for all parties involved in CDM and other climate-related projects in Central America. For this, we encourage feedback from actual users of the guide in order to improve the possible future versions of it.

It is our wish that this guide will for its part contribute towards an increased number of successful small-scale renewable energy projects utilizing carbon finance in the region and further improve the competitive position of the Central American countries in the international carbon markets vis-à-vis other world regions.

1.3 Structure of the Guide

In the first Chapter (1.4) we give background information on UNFCCC and the Kyoto Protocol. This is useful for those who want to understand better the underlying policies but not strictly necessary for the project developer. Chapter 2 explains what is meant with CDM and small-scale projects, how the project cycle looks like and what are the related costs. Chapter 3 gives a short introduction to project financing and helps developers to understand typical requirements of financial institutions to participate in projects. Chapter 4 describes all CDM project activities from Central America registered by the CDM Executive Board up to December 31, 2006. It is the main purpose of this Chapter to help potential project developers interested in presenting CDM projects to know more about the information included in the Project Design Document (PDD), that is; the methodology applied, the project description, how the project contributes to sustainable development of the country and the estimate of CO2 Emission Reduction. Chapter 5 gives a brief outlook on the emerging international carbon markets. In the Annexes, contact information for organisations providing technical assistance and financing is provided.

This guide is published in two separate versions in English and Spanish. Apart from the printed version, an electronic version is available in the web at www.sica.int/energia.

1.4 UNFCCC and the Kyoto Protocol

To mitigate climate change, different international, national and corporate policy frameworks are being developed. In 1992, the world’s governments adopted the UN Framework Convention on Climate Change (UNFCCC).1 The ultimate objective of the Convention is to achieve stabilization of atmospheric concentrations of greenhouse gases (GHGs) at levels that would prevent dangerous anthropogenic (human-induced) interference with the climate system. UNFCCC has a permanent secretariat in Bonn (www.unfccc.int) and its supreme decision-making body is the annual Conference of Parties (COP).

The Convention divides countries into two main groups. Annex I Parties include the relatively wealthy industrialized countries that were members of the Organisation for Economic Co-operation and Development (OECD) in 1992, as well as countries with economies in transition. All other countries that are Parties to the Convention not listed in Annex I – mostly the developing countries – are known as Non-Annex I Parties. The 1 UNFCCC was adopted in the United Nations Conference on Environment and Development (UNCED) celebrated in June 1992 in Rio de Janeiro, Brazil (also known as “The Earth Summit” or “The Rio Conference”). The Convention text can be found at www.unfccc.int/resource/docs/convkp/conveng.pdf.


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Annex I countries are subject to a specific commitment to adopt climate change policies and measures with the non-legally binding aim that they should have returned their greenhouse gas emissions to 1990 levels by the year 2000. This target has only been achieved by few Annex I countries.2 As of May 2004, the UNFCCC has been ratified by 189 countries. See Appendix I for the list of Annex I and non-Annex countries.

In 1997, governments took a further step forwards and adopted the Kyoto Protocol to the UNFCCC that broke new ground with its legally binding constraints on greenhouse gas emissions.3 Kyoto Protocol’s innovative flexible mechanisms – Joint Implementation (JI), Clean Development Mechanism (CDM) and Emissions Trading (ET) – aim at cutting the cost of curbing emissions. The greenhouse gases covered by the Kyoto Protocol include the six gases listed in Table 1. It is important to note that traditional atmospheric pollutants, e.g. sulphur oxide, are not greenhouse gases and do not fall under the climate change agreements. Table 1. Greenhouse gases (GHG) covered by the Kyoto Protocol. The emissions of the various GHGs can be converted into carbon dioxide equivalent emissions by multiplying them with the GWP. The GWPs in the table are based on the IPCC Second Assessment Report (see Article 5 of the Kyoto Protocol) and can be revised in the future. GWPs are based on the climatic effects of the GHGs over a 100-year time horizon.

Greenhouse Gas Global Warming Potential (GWP) Carbon dioxide (CO2) 1 Methane (CH4) 21 Nitrous oxide (N2O) 310 Hydrofluorocarbons (HFCs) various gases, different GWPs Perfluorocarbons (PFCs) various gases, different GWPs Sulphur hexafluoride (SF6) 23,900

The core of the Kyoto Protocol is a set of legally binding emissions targets for industrialized countries. These amount to a total cut among all Annex I Countries of at least 5% from 1990 levels by 2008-2012 (The Kyoto commitment period). The total cut is shared out so that each Annex I Country has its own individual emissions target. These individual targets, which are listed in the Protocol’s Annex B, were decided upon in Kyoto through intense negotiation. Table 2 enlists the targets for the Annex I countries. Table 2. Greenhouse gas reduction targets in the Annex B of the Kyoto Protocol.

Country Target EU-15, Bulgaria, Czech Republic, Estonia, Latvia, Liechtenstein, Lithuania, Monaco, Romania, Slovakia, Slovenia, Switzerland

-8%

US -7% Canada, Hungary, Japan, Poland -6% Croatia -5% New Zealand, Russian Federation, Ukraine 0% Norway +1% Australia +8% Iceland +10%

The targets in Table 2 are used to calculate the Assigned Amounts (AAs) for the Annex I countries. These are further adjusted on the basis of the changes in the carbon stocks of each country. Specific Removal Units (RMUs) were invented in the 7th Conference of Parties in Marrakesh, Morocco in November 2001 to be used in the accounting of the so-called LULUCF activities. RMUs are issued for instance when the forests of a country act 2 E.g. Russia because of the economic restructuration and recession, Germany due to the impacts of the reunification, and the UK that shifted remarkably from coal to gas after 1990. 3 Kyoto Protocol to the Convention on Climate Change was adopted in the 3rd Conference of the Parties to the UNFCCC in Kyoto, Japan, in December 1997. The Protocol text can be found at www.unfccc.int/resource/docs/convkp/kpeng.pdf.


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as a net carbon sink, i.e. more carbon is tied in the biomass than released during a certain period. Figure 1 gives an idea of the compliance assessment under the Kyoto Protocol. Figure 1. Compliance assessment under the Kyoto Protocol. According to the Kyoto Protocol, Annex I Parties shall ensure that their greenhouse gas emissions during the five-year Kyoto commitment period 2008-2012 do not exceed their Assigned Amounts (AA), with a view to reducing their overall emissions below 1990 levels in the commitment period. AA is calculated from country’s emissions in the base year 1990. Base year emissions multiplied by five (since there are five years in the commitment period) minus the Kyoto Protocol reduction target (see Table 2) is country’s Assigned Amount (orange bar). This is further adjusted by Land-use, Land-use Change and Forestry activities (LULUCF, Articles 3.3. and 3.4, green bar). Through Articles 6 (Joint Implementation), 12 (Clean Development Mechanism) and 17 (Emissions Trading) countries can acquire or sell compliance units (pink bar). The sum of the actual emissions during the five years of the commitment period 2008-12 (right-hand side of the diagram) shall be less than or equal to the final amount of compliance units in country’s accounts (left-hand side of the diagram). Source: UNFCCC Secretariat. Articles here refer to Kyoto Protocol Articles.

(i)

Old EU Member States (EU15) of the European Union will take advantage of a scheme under the Protocol, known as the burden-sharing agreement or the “bubble”, to redistribute their -8% reduction targets among themselves. For instance Finland has a target of 0%, Sweden +4%, Spain +15% and Germany -21% under the EU agreement. New Member States will not be included burden-sharing agreement for Kyoto period 2008-2012. At the moment it seems that new Member States can be included to the burden-sharing agreement earliest at 2013.

As to possible commitments for subsequent periods, the Kyoto Protocol states that these shall be established in amendments to targets in Annex B and the Parties to the Protocol shall initiate the consideration of such commitments at least seven years before the end of the first commitment period (i.e. in 2005 at latest).

To enter into force, Kyoto Protocol needed to be ratified by 55 countries incorporating countries included in Annex I, which accounted in total for at least 55% of the total carbon dioxide emissions for 1990 of the countries included in Annex I. Years of speculation as to whether or not the Protocol would enter into force ended, when Russia announced that it would ratify the Protocol in October 2004. The protocol entered into force on 16 February 2005. In 16 February 2007, 168 parties have ratified the Protocol. USA and Australia have stated their intention not to ratify the Protocol.


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2 CDM PROJECTS This chapter explains the principal characteristics of the CDM project cycle with special emphasis on the small-scale projects. It is intended as a simple guide to understand the CDM requirements and develop high-quality projects that fulfil the small-scale CDM criteria.

2.1 What is CDM?

Clean Development Mechanism (CDM) is defined in the Article 12 of the Kyoto Protocol. The purpose of the CDM is to:

Assist non-Annex I Parties (developing countries) in achieving sustainable development and in contributing to the objective of the climate change convention (UNFCCC); and

Assist Annex I Parties (industrialised countries) in achieving compliance with their quantified emission limitation and reduction commitments under the Kyoto Protocol.

Renewable energy, energy efficiency and waste management projects are examples of activities that often reduce greenhouse gas (GHG) emissions and thus contribute to the global efforts to mitigate climate change. Clean Development Mechanism makes it possible to certify the reduction of GHG emissions from projects that fulfil certain criteria. The sale of the resulting Certified Emission Reductions (CERs) can provide additional cash flow to the projects and improve their feasibility. CDM projects may be implemented in developing countries that have ratified the Kyoto Protocol.

Industrialised countries can use the resulting Certified Emission Reductions (CERs) for compliance under the Kyoto Protocol. Countries may also authorise private entities to participate in CDM. Several greenhouse gas regimes are emerging, where companies can utilise CERs for compliance purposes. For instance, the European Union is preparing the mechanism to link CERs to the EU Emissions Trading Scheme. Companies that have obligations under

the EU Emissions Trading Scheme could then acquire CERs and use them in the EU ETS for compliance.

The modalities and procedures for CDM projects were approved in 2001 in the 7th Conference of the Parties to the UNFCCC in Marrakesh, Morocco.4

Box 1. Purpose of CDM.

Purpose of CDM

Assist developing countries in achieving sustainable development

Assist industrialised countries in achieving compliance with their Kyoto

commitments

2.2 Definition of Small-scale CDM Projects

It is widely recognised that small-scale projects face significant transaction costs, turning them less feasible than larger-scale projects. In order to overcome this problem, specific streamlined modalities and procedures for small-scale CDM projects were approved in 2002 in the 8th Conference of the Parties to the UNFCCC in New Delhi, India.5

According to the revised CDM rules, a small-scale project must fall into one of three categories with the following criteria:

4 Decision 17/CP.7 Modalities and procedures for a clean development mechanism as defined in the Article 12 of the Kyoto Protocol. Source: http://www.unfccc.int 5 Decision 21/CP.8 – Annex II. Simplified modalities and procedures for small-scale clean development mechanism project activities. Revision: decision -/CMP.2 Further guidance relating to the clean development mechanism. Source: http://www.unfccc.int


17

1. Renewable energy generation units with a maximum output capacity of 15 MW of electricity output, 45 MW thermal output, or an appropriate equivalent,

2. Measure aimed at improving energy efficiency and thus reducing energy consumption by a maximum of 60 GWh of electricity or 180 Gwh of thermal heat per year.

3. Other measure that reduce emission by a maximum of 60 kilotons of carbon dioxide equivalents per year (ktCO2e/year).

In category 1, maximum output capacity is defined as installed or rated capacity, as indicated by the manufacturer of the equipment or plant, disregarding the actual load factor of the plant.

Category 3 projects may include, for example, agricultural projects, fuel switching, industrial processes and waste management.

The three project categories are mutually exclusive. If a small-scale project has components in different categories, each component shall meet the threshold criterion of each applicable category, e.g. for a project with both a renewable energy and an energy efficiency component, the renewable energy component shall meet the criterion for “renewable energy” and the energy efficiency component that for “energy efficiency”.

Debundling Debundling means the fragmentation of a large project activity into smaller parts. A small-scale project activity that is part of a large project activity is not eligible to use the simplified rules for small-scale CDM projects. The full project activity or any component of the full project activity

shall follow the regular CDM modalities and procedures.6 Box 2. Small-scale CDM Projects.

Small-scale CDM Projects

Small renewable energy projects (≤ 15 MW electricity output or ≤ 45 MW thermal output)

Small energy efficiency projects (savings ≤ 60 GWh of electricity or

≤ 180 Gwh of thermal heat per year)

Other small projects (emissions ≤ 60 ktCO2e per year)

2.3 Participation Requirements for CDM Projects

The country hosting a CDM project must be a Party to the Kyoto Protocol and willing to voluntarily participate in the CDM. It must also have a designated national authority in place. Table 3 lists the ratification dates and the Designated National Authorities (DNA) of the Central American Countries.

6 Exact rules for determining debundling can be found at the official CDM website http://cdm.unfccc.int.


18

Table 3. Status of Ratification of the Kyoto Protocol in the Central American Countries. All the countries have ratified the Protocol (Belize has accessed the Protocol because it was not a signatory). Official updated list of Designated National Authorities can be found at http://cdm.unfccc.int/DNA.

Country Signature Ratification Designated National Authority

Belize - 26 September 2003

(Accession)

National Meteorological Service of Belize

Costa Rica 27 April 1998

9 August 2002 Costa Rican Office for Joint Implementation

El Salvador 8 June 1998

30 November 1998

Ministry of Environment and Natural Resources of El Salvador

Guatemala 10 July 1998

5 October 1999 Ministry of Environment and Natural Resources of Guatemala

Honduras 25 February 1999

19 July 2000 Secretariat of Natural Resources and Environment of Honduras

Nicaragua 7 July 1998 18 November 1999

Nacional Office for Clean Development and Climate Change

Panama 8 June 1998

5 March 1999 National Authority for the Environment

The contacts that have been established through the Energy and Environment Partnership may be helpful in promoting potential CDM projects in these countries. The partnership is an initiative of the Ministry for Foreign Affairs of Finland, the Central American Commission on Environment and Development and the Central American Integration System; also, recently the Austrian Development Agency has join this effort. 2.4 CDM Project Cycle

All CDM projects must follow a special project cycle. They must be validated and registered before they can generate Certified Emission Reductions (CERs). Validation is the process of independent evaluation of a proposed CDM project by a Designated Operational Entity (DOE) against the requirements set out by COP and further elaborated by the CDM EB. The validation is based on a Project Design Document (PDD). Registration is the formal acceptance of a validated project as a CDM project activity by the CDM Executive Board (CDM EB).

Once the project has been implemented, it starts to generate emission reductions. The emission reductions must be constantly monitored according to a pre-established monitoring plan. The monitored emission reductions are then verified and certified by a DOE. Based on the certification report of the DOE, the CDM EB instructs the CDM registry administrator to issue a quantity of CERs that corresponds to the verified amount of emission reductions. These CERs, less certain fees that are deducted (see 0), are then forwarded to the registry accounts of the project participants according to their request.


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In the following chapters, the CDM project cycle is explained step-by-step.


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2.5 Project Preparation, Validation and Registration

The first phase of the CDM project cycle consists of the project preparation, validation and registration. In preparing the project, the project participants must interact at least with local stakeholders, the host country’s DNA and a DOE. As a result of the preparation, a PDD is completed. The PDD is then validated by the DOE. The validated project is finally submitted to the CDM EB for registration. Figure 2 demonstrates the steps in this part of the project cycle.

Figure 2 Necessary steps in the early CDM project cycle (preparation, validation and registration).

Designated Operational Entity (DOE)

CDM Executive Board

Project Participants

Project Design Document (PDD)

Project Preparation:

• Prepare the Project Design Document (PDD)

• Invite comments from local stakeholders

• Obtain host country approval

• Select the Designated Operational Entity (DOE)

• Submit the PDD for validation to the DOE

Project approval

Validation Report

Comments

Host CountryLocal stakeholders

Stakeholders, accredited organisations, Parties

Project Validation:

• Review the PDD

• Confirm that CDM requirements are fulfilled

• Make the PDD publicly available for 30 days

• Make a validation report (or reject the project)

• Submit a registration request to CDM Executive Board

• Make the validation report publicly available

Comments

Project Registration:

• Registration happens automatically in four weeks unless a review is requested

Request for registration


CDM Executive Board



Project Preparation:

• Prepare the Project Design Document (PDD)

• Invite comments from local stakeholders

• Obtain host country approval

• Select the Designated Operational Entity (DOE)

• Submit the PDD for validation to the DOE

Project approval

Validation Report

Comments

Host CountryLocal stakeholders Host CountryLocal stakeholders

Stakeholders, accredited organisations, Parties

Project Validation:

• Review the PDD

• Confirm that CDM requirements are fulfilled

• Make the PDD publicly available for 30 days

• Make a validation report (or reject the project)

• Submit a registration request to CDM Executive Board

• Make the validation report publicly available

Comments

Project Registration:

• Registration happens automatically in four weeks unless a review is requested

Request for registration

Project Preparation and Host Country Approval

Under every CDM project, there is a project idea which may be promoted by a local community, a project developer, a government institution, an equipment vendor and so on. The early steps of a CDM project are not different from any other project. A business plan must be written and a feasibility study prepared, financing must be organised etc. Chapter 3 discusses some issues related to project financing. Information on preparing business plans and feasibility studies for

Central American energy projects can be found for example in FENERCA’s website http://www.bun-ca.org/fenerca.htm

It is good to take into account the special features of CDM from the very beginning of the project development. Often in the early stages of the project development a simple document called Project Idea Note (PIN) is used. While PINs are not officially part of the CDM project cycle, they are useful to facilitate the discussions and negotiations between the potential project participants and most CDM financiers use them. The PIN contains


21

the principal aspects of the project including a preliminary calculation of the emission reduction. Among others, the Finnish Carbon Procurement Programme Finnder (http://www.environment.fi/finnder) and the Carbon Finance Unit at the World Bank (http://www.carbonfinance.org) has their own PIN templates.

Each CDM project must be approved by the host country. This is done through a Letter of Approval issued by the DNA of the host country. According to the rules of the CDM, the Letter of Approval must contain the following information:

The DNA approves the voluntary participation of the Host Country in the Project as a CDM project for the purpose of Article 12 of the Kyoto Protocol;

Statement that the Project will assist the host country to achieve sustainable development; and

The DNA approves the Project as a CDM Project Activity and authorises the participation of the Project Participants in the Project.

Apart of these minimum requirements, in practice it is useful to receive some additional information from the DNA. The following list contains some points that are not required by the CDM rules but are useful for the smooth implementation of the project7:

The Host Country is a Party to the Kyoto Protocol and is in compliance with its obligations under that agreement;

The Project, as proposed, is in compliance with all relevant national laws;

7 World Bank 2003: Approval of Clean Development Mechanism Projects by the Host Country. This document is available from Prototype Carbon Fund’s website http://www.carbonfinance.org/pcf under legal documents and also contains a model Letter of Approval.

DNA acknowledges the Project Participants' right, title and interest in an to all of the greenhouse gas emission reductions generated by the Project (and any CERs which are created out of the Project);

Any public funding of the Project does not result in a diversion of official development assistance (if public funding is involved); and

DNA will cooperate with the Project Participants and the CDM EB to facilitate the CDM process and give assistance, where necessary, for the issuance and transfer of CERs to the Project Participants.

A Letter of Approval is required from each party that participates in the project, including the host country, or an organisation authorised by it.


The basic official document describing a CDM project is called Project Design Document (PDD). The latest version of the PDD can be downloaded from UNFCCC, http://cdm.unfccc.int. For small-scale CDM projects, there exists a simplified PDD, which can be found at the same site.

The parts of the simplified PDD are listed in Box 3.


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Box 3. CDM Small-scale PDD.

CDM Small-Scale PDD

A. General description of the small-scale project activity

B. Application of a baseline and monitoring methodology

C. Duration of the project and the crediting period

D. Environmental impacts

G. Stakeholders’ comments

Annex 1: Project participants and their contact information

Annex 2: Information regarding public funding

Annex 3: Baseline information

Annex 4: Monitoring information

Baseline Methodology

The most important concept related to CDM projects is the project baseline. The baseline is the scenario that reasonably represents the GHG emissions that would occur in the absence of the proposed CDM project. The baseline is thus an imaginary construction of what would happen in the future if the proposed CDM project were not implemented.

Figure 3 demonstrates the concept of baseline. The actual realized emissions of the project are compared to the baseline, which is always set up ex-ante. The emission reduction generated by the project is then the difference of the baseline emissions and realised project emissions.

.

Figure 3. Concept of Baseline. Baseline is the hypothetical development of the emissions if the project is not realised. It has to take into account probable future developments, like efficiency improvements, planned investments, etc. Once the project is implemented, the realised project emissions are compared to the established baseline. The difference is the emission reduction which can be credited to the project.

2002 2004 2006 2008 2010 2012 2014Year

EstimatedProject

Emissions

Emissions,tCO2e

Emission Reduction Purchase Agreement, e.g. 2004-2014Current

Emissions

Baseline

Realised Project Emissions

Realised Emission Reduction

2002 2004 2006 2008 2010 2012 2014Year

EstimatedProject

Emissions

Emissions,tCO2e


Emissions

Baseline



EstimatedProject

Emissions

Emissions,tCO2e


Emissions

Baseline



Emissions,tCO2e


Emissions

Baseline




23

The CDM Executive Board has approved a number of simplified methodologies for determining the baseline and monitoring requirements for small-scale CDM projects (Table 4). New small-scale methodologies may be proposed by project participants. The proposal should

include information about the activity and describe how a simplified baseline and monitoring methodology would be applied to it. The proposals for new methodologies are evaluated by the Small Scale Working Group.

Table 4. Approved methodologies for small-scale CDM projects by January 2007. Source: http://cdm.unfccc.int/methodologies/index.html.

Type and name of methodology for small-scale CDM projects

TYPE I – RENEWABLE ENERGY PROJECTS

I.A. Electricity generation by the user

I.B. Mechanical energy for the user

I.C. Thermal energy for the user

I.D. Grid connected renewable electricity generation

TYPE II – ENERGY EFFICIENCY IMPROVEMENT PROJECTS

II.A. Supply side energy efficiency improvements – transmission and distribution

II.B. Supply side energy efficiency improvements – generation

II.C. Demand-side energy efficiency programmes for specific technologies

II.D. Energy efficiency and fuel-switching measures for industrial facilities

II.E. Energy efficiency and fuel-switching measures for buildings

II.F. Energy efficiency and fuel switching measures for agricultural facilities and activities

TYPE III – OTHER PROJECT ACTIVITIES

III.A. Agriculture

III.B. Switching fossil fuels

III.C. Emission reductions by low-greenhouse gas emitting vehicles

III.D. Methane recovery in agricultural and agro industrial activities

III.E. Avoidance of methane production from biomass decay through controlled combustion

III.F. Avoidance of methane production from biomass decay through composting

III.G. Landfill methane recovery

III.H. Methane recovery in wastewater treatment

III.I. Avoidance of methane production in wastewater treatment through replacement of anaerobic lagoons by aerobic systems


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Type and name of methodology for small-scale CDM projects

III.J. Avoidance of fossil fuel combustion for carbon dioxide production to be used as raw material for industrial processes

III.K. Avoidance of methane release from charcoal production by shifting from pit method to mechanized charcoaling process

The simplified baselines can be found in the official CDM website http://cdm.unfccc.int/. As an example, the category I.D. (Grid connected renewable electricity generation) is explained in the following.

I.D. Simplified Baselines for Renewable Electricity Generation for a Grid This category includes small (<15 MWe) projects that supply electricity generated by renewable resources (e.g. hydro, biomass, wind, geothermal, photo-voltaics) to a distribution system. The system must be (or would have been without the CDM project) supplied by at

least one fossil fuel or non-renewable biomass fired generating unit.

For a small isolated system where all fossil fuel fired generating units use fuel oil or diesel fuel, the baseline is the annual electricity generated by the renewable project (in kWh) times an emission coefficient for a modern diesel generating unit of the relevant capacity operating at optimal load. These systems include for instance local mini-grids with diesel generators. The emission factors to be used are given in Table 5.

Table 5. Emission factors used in the determination of the baselines in small isolated systems. Source: Indicative simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories. Source: http://cdm.unfccc.int/methodologies/

Emission factors for small diesel generator systems, kgCO2e/kWh

Case:

Mini-grid with 24

hour service

Mini-grid with temporary service (4-6 hours/day)

Productive applications

Water pumps

Mini-grid with storage

Load factor: 25% 50% 100%

< 15kW

≥ 15kW and <35 kW

≥35 kW and <135 kW

≥135 kW and < 200 kW

> 200 kW

2.4

1.9

1.3

0.9

0.8

1.4

1.3

1.0

0.8

0.8

1.2

1.1

1.0

0.8

0.8


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For all other systems, including renewable energy projects that supply electricity to the national grid, the baseline is calculated as follows. The baseline is the annual electricity generated by the renewable project (in kWh) multiplied by an emission coefficient (in kgCO2e/kWh). The emission coefficient is calculated either as:

the average of the approximate operating margin and the build margin, or

the weighted average emissions of the current generation mix.

The approximate operating margin is the weighted average emissions (in tCO2e/MWh) of all generating sources serving the system, excluding hydro, geothermal, wind, low-cost biomass, nuclear and solar generation. The “build margin” is the weighted average emissions of recent capacity additions to the system, defined as the lower of most recent 20% of plants built or the 5 most recent plants.

The following examples illustrate the calculation.

Example 1: A small 0.5 MW hydropower plant will be constructed in a village. The electricity in the village is currently provided by a 1 kW diesel generator, which runs 24 hours a day. From Table 5 we see that the load factor corresponding to 24-hour mini-grid is estimated at 25%. The emission factor for the generator is therefore 0.8 kgCO2e/kWh or 0.8 tCO2e/MWh (>200kW). Our hydropower plant has an estimated load factor of 50% (4380 hours per year at peak load). The annual renewable energy production is therefore 0.5 MW x 4380 h = 2,190 MWh. Consequently, since the electricity produced by the hydropower replaces electricity produced by the diesel generator, the emission reduction amounts to 2,190 MWh x 0.8 tCO2e/MWh = 1,752 tCO2e per year.

Example 2: The same 0.5 MW hydropower plant will be constructed but this time connected to the national grid.

The electricity in the national grid is currently produced as follows:

- 40% hydropower (0 tCO2e/MWh) - 50% diesel power (0.7 tCO2e/MWh) - 10% natural gas CC (0.4 tCO2e/MWh)

The weighted average emissions are therefore 50% x 0.7 + 10% x 0.4 = 0.39 tCO2e/MWh.

The approximate operating margin is 83% x 0.7 + 17% x 0.4 = 0.65 tCO2e/MWh (excluding hydropower which is assumed to be baseload).

If the latest plants constructed in the country were all natural gas combined cycle plants (CC), the build margin would be 0.4 CO2e/MWh. The average of the approximate operating margin and build margin would be (0.65+0.4)/2 = 0.53 tCO2e/MWh.

If the plant had a load factor of 50% (4380 hours per year at peak load) as in our earlier example, the emission reductions would be 2,190 MWh x 0.53 tCO2e/MWh = 1,161 tCO2e per year.

Additionality

CDM projects must be additional. This means that the GHG emissions must be reduced below those that would have occurred in the absence of the registered CDM project. In other words, projects that would have been implemented anyway, even in the absence of the CDM, may not earn emission reductions.

Figure 4 gives a general idea about the additionality requirement. For instance, a project that is required by the national legislation is generally not considered additional. As an example, a typical CDM project would be methane capture from a landfill site. However, if the capture is required by the host country national legislation, this project would generally not be considered additional, unless the project’s performance clearly exceeds the minimum requirements of the legislation. On the other hand, a renewable energy


26

project that is less profitable for the investors than a fossil-fuel-based alternative (when income from the sale of the CERs is not taken into account), would potentially pass the additionality test.8

Figure 4. Schematic presentation of the additionality requirements.

For the small-scale CDM projects the additionality requirements are somewhat simplified. Small-scale CDM projects are considered additional if the project participants are able to demonstrate that the project activity would have not be implemented in the absence of CDM due to the existence of one or more of the following barriers:

Investment barrier: a financially more viable alternative to the CDM project would have led to higher emissions;

Technological barrier: a less technologically advanced alternative to the project involves lower risks and would have led to higher emissions;

8 The CDM EBb has developed a tool for the demonstration and assessment of additionality. The tool is available from UNFCCC, http://cdm.unfccc.int/methodologies/.

Barrier due to prevailing practice: prevailing practice or existing regulatory requirements would have led to an alternative with higher emissions;

Other barriers: institutional barriers, limited information or organizational capacity, restricted financial resources or other reasons identified by the project participants show that the emissions would have been higher without the CDM project.

Crediting Period and Duration of the Project

The Kyoto Protocol states that Certified Emission Reductions obtained from the year 2000 onwards can be used for compliance (see Annex I, point 10). The problem resulting from the fact that Kyoto Protocol was not in force before February 2005 was resolved in Marrakech Accords through the so-called early action provisions.9

The crediting period is the period during which the CDM project generates CERs. Projects may generate CERs only after the date of their registration.

The starting date of a CDM project is the date at which the implementation or construction or real action of a project activity begins. Project activities started between 1 January 2000 and the first registration of a CDM project by the CDM Executive Board had to provide documentation at the time of registration showing that the starting date fell within this period.

CDM project participants may choose either a 10-year crediting period with no option of renewal, or a seven-year baseline, which may be renewed at most two times (3x7 years = 21 years). On 9 The text on the early crediting in the Marrakech accords was modified in Milan in CoP9 for clarity. The first CDM was registered in November 2004


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each renewal, a DOE must determine that the original baseline is still valid or has been updated taking into account of new date where applicable.

In other words, a 10-year baseline is risk-free, as it is unchangeable once it has been validated. On the other hand, renewable seven-year baseline can produce CERs for a longer period (14 or 21 years), provided that the original baseline remains valid or only changes slightly. There is a risk, however, that after seven years the project has become business-as-usual and the revalidation determines that it is no longer additional.

In our Example 2 in Chapter 2.5.3, the project participants could choose to use the calculated baseline 0.53 tCO2e/MWh for a 10-year period. Alternatively, they could opt for a 3 x 7 year baseline using 0.53 tCO2e/MWh for 7 years, after which the baseline has to be recalculated based on the actual situation of the grid at that time.

Monitoring Plan and Methodology

When a CDM project is implemented, it must be systematically monitored over the whole crediting period, so that the actual emission reductions can be calculated. Project participants must include a monitoring plan in the PDD. The monitoring plan tells how data is collected and archived in order to:

Estimate the emissions from the project;

Determine the baseline of the project; and

Calculate the emission reductions and possible leakage of the project.

Monitoring plan must reflect good monitoring practice and be appropriate to the circumstances of the project. Project participants are responsible for implementing the monitoring plan

contained in the PDD. They must archive the relevant monitored data and report it to a DOE.

Leakage means changes in emissions which occur outside the project boundary, are measurable and caused by the project. For example, if second-hand equipment transferred from another place were used in a CDM project, the emissions could increase in the original site of the equipment and the impact of this leakage must be taken into account. In biomass projects, leakage could mean increased deforestation and this has to be also addressed in the PDD.

Simplified modalities and procedures for small-scale CDM project activities also include simplified monitoring methodologies, including leakage considerations. As an example, in case of renewable energy generation for a grid, monitoring shall consist of metering the electricity generated by the project. In the case of co-firing biomass with fossil fuels, the amount of biomass and its energy content must also be monitored.

The Table 6 specifies the minimum information that must be provided for monitored data and it has to be included in the PDD.


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Table 6. Monitoring information to be provided in the Project Design Document. Two examples of different data types are given.

ID No.

1 2

Data type

Quantitative Qualitative

Data variable

Electricity to the grid Origin of Biomass

Data unit

GWh Fuel provider name and location

Measured, calculated or estimated (M,C,E)

M E

Recording frequency

Monthly Weekly

Proportion of data to be monitored

100% 100%

Archive (electronic/ paper)

Electronic Electronic

How long data is kept?

Minimum 2 years after last CER issuance

Minimum 2 years after last CER issuance

Comment Data measured by grid operator

The manager fills in the origin of the fuel from the fuel bookkeeping.


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Environmental Impacts

One of the two principal objectives of the CDM is to contribute towards the sustainable development of the host country. Therefore the analysis of the environmental impacts of the CDM projects is important. The host country has the right and the responsibility to define its sustainable development goals. The project participants must submit to the DOE documentation on the analysis of the environmental impacts of the project, if this is required by the host country e.g. by the national environmental legislation or as part of the CDM endorsement procedure.

Stakeholder Comments

Public participation may be considered essential for the social sustainability of a project and it is an important part of the CDM project cycle. Project participants must invite comments by local stakeholders and include in the PDD a summary of the comments received and an explanation of how the comments were taken into account.

Public participation in industrial projects is increasingly incorporated in national and local legislation and regulations; stakeholders’ opinions are often asked before granting e.g. construction or environmental permits for a project. In many cases the CDM requirements for stakeholder comments can be integrated in this process. It is important to note, however, that the CDM modalities require comments from local stakeholders independently of any national requisites.

Project Validation and Registration

Validation is the independent evaluation of a project by a DOE against the requirements of the CDM. Project participants should select and contract an operational entity to validate their proposed CDM project. To date, 17

operational entities have been designated. Different DOEs may have different sectoral scopes. 24 entities have applied for accreditation (so-called applicant entities or AEs). Applicant entities may validate projects during their application process.10 The CDM EB maintains a list of all designated operational entities and applicant entities in its website and it is good to check the actual situation at http://cdm.unfccc.int/DOE/. The DOE selected to do the validation (the validator) shall review the PDD and any supporting documentation (e.g. analysis of the environmental impacts, comments from local stakeholders, technical project documentation) and confirm that the CDM requirements have been met. The validator must also receive a written approval of voluntary participation (Letter of Approval, see 0) from the DNA of the host country. The approval must include confirmation that the project assists the host country in achieving sustainable development.11

The validator then makes the PDD publicly available for a period of 30 days. During that period Parties to the Kyoto Protocol, stakeholders and organizations that are accredited observers of the UNFCCC can make comments on the PDD. PDDs available for public comments can also be found in the CDM EB website at: http://cdm.unfccc.int/Projects/Validation.

The project participants shall clearly mark any confidential information as such in order to avoid its publication. According to the CDM rules, the information used to determine additionality, to describe the baseline methodology and to support 10 If the applicant entity later fails to be accredited by the CDM Executive Board, the validation may become invalid. It is important to take this into account when making the contract with the validator. 11 Written approval is also required from any other country that is Party to the Kyoto Protocol and participates in the project, e.g. an Annex I country that will buy the emission reductions.


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environmental impact assessment may not be considered as confidential.

Registration is the formal acceptance of a validated project by the CDM EB. Registration is a prerequisite for the verification, certification and issuance of CERs related to the project (see http://cdm.unfccc.int/Projects for the list of registered projects). Registration happens automatically, unless a review is requested by a Party involved in the project or at least three members of the CDM EB. For registration fees, see Chapter ¡Error! No se encuentra el origen de la referencia..

The procedures for validation and registration are evolving as the CDM EB continues its work. The latest procedures can always be found in internet at

http://cdm.unfccc.int/Reference/Procedures.

2.6 Project Implementation Phase

Once a CDM project has been registered, constructed and commissioned, the project implementation phase begins. The emission reductions generated by the project must be monitored. The monitored emission reductions have to be verified and certified by a DOE. Based on the certification report, the CDM EB will issue the corresponding CERs, which are then forwarded to the project participants according to their instructions. Figure 5 describes the CDM project implementation phase. In the following, each step is shortly explained.

Figure 5. Implementation phase of a CDM project.

Participants CERs for adaptationParticipants CERs for adaptation


CDM Executive Board


Monitoring Report Monitoring: • Implement the monitoring plan which is part of

the Project Design Document (PDD)

• Archive the relevant monitored data

• Prepare a Monitoring Report • Submit the monitoring report to the Designated

Operational Entity (DOE) Verification and Certification:

• Make the Monitoring Report publicly available

• Check the documentation provided • Conduct on-site inspections as appropriate • Review monitoring results and methodologies

• Determine the emission reductions occurred • Prepare a verification report • Make the Verification Report publicly available

• Certify the emission reductions

• Prepare a certification report

Issuance of CERs: • Issuance happens automatically in 15 days,

unless a review is requested

Request for issuance of CERs

Certification Report

CDM Registry Administrator

CERs for the Project CERs for administrative costs


CDM Executive Board


Monitoring Report Monitoring: • Implement the monitoring plan which is part of

the Project Design Document (PDD)

• Archive the relevant monitored data

• Prepare a Monitoring Report • Submit the monitoring report to the Designated

Operational Entity (DOE) Verification and Certification:

• Make the Monitoring Report publicly available

• Check the documentation provided • Conduct on-site inspections as appropriate • Review monitoring results and methodologies

• Determine the emission reductions occurred • Prepare a verification report • Make the Verification Report publicly available

• Certify the emission reductions

• Prepare a certification report

Issuance of CERs: • Issuance happens automatically in 15 days,

unless a review is requested

Request for issuance of CERs

Certification Report

CDM Registry Administrator

CERs for the Project CERs for administrative costs


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Monitoring

Monitoring is the systematic surveillance and measurement of the project performance, which makes it possible to measure or calculate the amount of emission reductions that the project generates. Monitoring is the responsibility of the project participants and it must be conducted according to the monitoring plan in the registered PDD (see Chapter 0).

The most typical monitoring activity in a renewable energy project is the measurement of its energy output. Normally, the baseline in a renewable energy project is defined in terms of tonnes of CO2 reduced per energy produced. For example, each megawatt-hour (MWh) of electricity generated by a wind turbine could replace other generation capacity in the grid and reduce CO2 emissions by a certain amount. The actual amount of emission reductions generated is thus directly proportional to the amount of electricity produced by the generator (if the wind does not blow, emissions are not reduced). Therefore it is essential to know the exact amount of electricity produced each year to estimate the emission reductions generated during the same year.

The monitored data must be archived either in paper or electronic format, as described in the monitoring plan. The monitoring report is prepared on the basis of this data and submitted to the DOE. The monitoring report is the fundamental document, in which the following steps of the project cycle are based.

Verification and Certification

Verification is the periodic independent review and determination of the monitored emission reductions that have occurred as a result of a CDM project during the verification period. The verification is done by the DOE. The length of the verification period is not

defined in the CDM rules; quite often the verification is performed annually.12 In small-scale CDM projects it is possible to use the same DOE for validation (see Chapter 0) and verification; in larger projects different entities must be used.

The DOE performing the verification must:

Make the monitoring report publicly available13;

Determine whether the provided documentation is in accordance with the PDD;

Conduct on-site inspections as appropriate;

Review monitoring results and the application of the methodologies;

Determine the amount of emission reductions; and

Provide a verification report to the project participants, the Parties involved and the CDM Executive Board.

Certification is a written assurance by the DOE that during a specified time period the CDM project achieved the emission reductions as verified. The DOE prepares the Certification Report based on the Verification Report. The Certification Report is also made publicly available. The Certification Report is submitted to the CDM EB and it is a formal request to issue CERs.

Issuance of Certified Emission Reductions

The issuance of the CERs happens automatically 15 days after the CDM EB has received the Certification Report, unless a review is requested. (A Party involved in the project or at least three members of the CDM EB have the right to request a review.)

12 A less-frequent verification is one way of reducing transaction costs. Often the necessary verification frequency is defined in the ERPA. 13 For confidential information, see Chapter 0.


32

The CDM Registry Administrator works under the authority of the Executive Board. If no review is requested, the Registry Administrator will issue the quantity of CERs specified in the Certification Report into an account of the Executive Board in the CDM Registry. From that account:

A share of 2% will be forwarded to a special account to assist developing countries particularly vulnerable to climate change impacts in meeting the costs of adaptation;

A registration fee of USD 0.10 is charged for the first 15,000 certified emission reduction issued for each project each year. The fee is USD 0.20 for all units in excess of this amount. The proceeds from the fees are used to cover administrative expenses.14

The remaining CERs will be forwarded to the accounts of the project Parties and participants according to their request.

The CDM registry has accounts for all the non-Annex I Parties. The first version of the registry is operative and a new version update is underway. The new version will make it possible to connect the registry on the international transaction log (ITL). Until the ITL makes it possible to transfer CERs to national registries of Annex I Parties, Annex I Parties will also have temporary accounts in the CDM Registry. The aim is to have the ITL operating with registries in April 2007.

2.7 Sale of the Emission Reductions

From the project developer’s point of view, the purpose of the CDM is to improve the feasibility of the project by providing additional revenues. The proceeds from the sale of the emission reductions can be seen as internalizing the global environmental benefits that the 14 See Chapter 2.8 for more information.

project is generating. The project reduces greenhouse gas emissions either directly of indirectly, and this benefit can be given a price through emerging international carbon markets.15

The project may benefit from the sale of the CERs in several ways. Typically, the cash flow of the project is improved through the sale of the CERs by means of a long-term Emission Reduction Purchase Agreement (ERPA). ERPAs are often based on a payment-on-delivery principle, i.e. the buyer pays for the CERs over the crediting time of the project when it receives them. A ERPA template is available from The International Emissions Trading Association (IETA), http://www.ieta.org.

Signing an ERPA in hard currency terms with a creditworthy international investor can also facilitate the negotiations with the lenders and thus make the financial closing of the project easier. Sometimes the buyer of the CERs is willing to provide an upfront payment, as well. Naturally a discount rate is applied when upfront money is made available; often a guarantee is also required for upfront payments, which may result costly.

Prices and Risks

Projects may sell emission reductions that are certified or not. Reductions that are expected to be Kyoto-compliant are more expensive than those that are not. Non-Kyoto emission reductions can be used e.g. to voluntary offset emissions or in non-Kyoto compliance systems (see Chapter 5 for description of non-Kyoto carbon markets). The distribution of risks between the seller and the buyer has also impacts on the price of the emission reductions. The higher risks the seller is assuming, the higher price it can expect to get from the CERs (see Figure 6).

15 For more information on international carbon markets, see Chapter 5..


33

Based on World Bank’s experience, other key determinants of price are:16

Creditworthiness and experience of the project sponsor and the viability of the project;

Confidence in the quality of the ongoing carbon asset management and hence delivery of ERs over the life of the project;

Structure of the contract (e.g., spot vs. forward contracts as well as amount of upfront payment, applied

16 World Bank: State and Trends of the Carbon Market 2004. www.carbonfinance.org

discount rate in case of upfront payment), including liabilities the seller is willing to undertake in case it fails to deliver upon contract commitments;

ER vintage, since only some vintages are eligible to meet compliance obligations;

Cost of validation and potential certification;

Host country support and willingness to cooperate, and

Additional environmental and social benefits.

Figure 6. Prices of project-based emission reductions in 2005-06 (US$ per tCO2e). Source: World Bank: State and Trends of the Carbon Market 2006 (Update January 1 – September 30, 2006). www.carbonfinance.org

2.8 Costs Related to the CDM Project Cycle

Getting a project through the CDM cycle implies additional costs. The costs vary greatly depending on the complexity of the project, use of external consultants, etc. The costs of the validation are based on the agreement negotiated between the project participants and the operational entity and they depend on the complexity

of the project, geographical location, etc. Validation costs vary typically between 5,000 and 25,000 USD. The World Bank experience with larger projects has shown project preparation costs in the range of USD 110,000 – 260,000.


34

Figure 7. World Bank estimate for the CDM project cycle costs for small-scale projects. Source: World Bank. Small-scale CDM Projects, An Overview. www.carbonfinance.org/cdcf.

Preparation and review of the Project

Simplified Project Design Document

Validation process

Project Appraisal and Negotiation

Periodic verification & certification

Construction and start up

Project completion

3 months

2 months

2 mon

ths

3 months

1-3 years

Up to 2

1 yea

rs

• Upstream Due Diligence, carbon risk assessment and documentation: $ 20K

• Baseline assessment: $10 K• Monitoring: $5K

• Contract, Processing •and documentation: $20k

• Consultation and Project Appraisal: $35K• Negotiations and Legal documentation: $20K

Total through Negotiations• All expenses: $110 K

• Initial verification at start-up: $3-5K

• Verification: $2-5K• Supervision: $2-10K

Cost Reduction with Stream-Lined Procedures

Some experts estimate that the costs for small-scale projects may be overestimated. It is also worth noting that sometimes the transaction costs can be shared between the seller and the buyer.

At the time of issuance, an administrative fee is charged for each CER (see Chapter 0). A part of the proceeds that the administrative fee is expected to generates is charged upfront when the

project is registered. The registration fee is determined based on the expected average annual emission reduction for the project activity over its crediting period. No registration fee is charged for CDM projects that are expected to reduce emission by less than 15,000 tCO2e per year.

.


35

3 FINANCING SMALL-SCALE RENEWABLE ENERGY PROJECTS

This section provides a general overview on how to develop a bankable project proposal and what are the main concerns that the financing institutions have when considering the financing of an energy project.

3.1 Introduction

Few other project developers than larger companies have the necessary resources to finance their project ideas from out of the pocket. In most cases, external debt or equity is needed. This chapter outlines the overall procedure for financial structuring of renewable energy projects. It is impossible to provide here a complete handbook of project financing; we rather try to give a basic idea for the developer. Many banks and other financing institutions have plenty of material on this issue. One source of information specific to Central America is Fenerca (Financiamiento de Empresas de Energía Renovable en América Central, www.fenerca.org), which has manuals on preparation of business plans, etc. The steps described here seek to meet in general terms most financing institutions’ information requirements. However, each financing institution has its own guidelines for approval of finance. The project developer should establish and maintain a good dialogue with the relevant representative at each financing institution and always follow each financing institutions specific guidelines when submitting an application.

3.2 Impacts of Carbon Finance to Project Financing

It is important to bear in mind that carbon finance is only a small part of the total financing of the project. According to some estimates, carbon finance can generally improve the financial rate of return of a project by 1-5 percentage points, depending on the type of the project and other conditions.

Furthermore, most of the carbon contracts are payment on delivery, so even if significant cash flow resulted from the sale of the emission reductions, it would not solve the problem of initially financing the project.

Figure 8 shows World Bank’s estimates on carbon finance’s impact on project financing. It can be seen that with biomass projects and methane capture the impact is most significant due to the high GWP of methane.

Carbon finance does not turn a bad project into a good-one. On the other hand, it may significantly improve the probability for good project ideas to be realised as projects. Some of the impacts that carbon finance may have on the project’s viability are:

Carbon finance improves the IRR on equity and may thus get new investors on board, who otherwise would not be interested in the investment;

The ERPA with a creditworthy counterpart gives the project a cash flow in hard currency, which may facilitate the negotiations with the lenders; and

Parties interested in purchasing the emission reductions may bring additional resources, technical expertise and know-how to the project.

In order to be able to benefit from carbon finance through CDM or other mechanisms, the underlying financial structure of the project must be solid. The following chapters aim at giving some insight into the traditional project financing.


36

Figure 8. Impact of Carbon Finance on the IRR of selected projects. (DH=District Heating). Source: World Bank.

Impact of Carbon Finance on Sample Renewable Energy and Energy Efficiency Projects

0

2

4

6

8

10

12

14

16

18

20

DH Wind Hydro Bagasse Biomass Methane

Fina

ncia

l IR

R (%

)

IRR w ith carbon f inance

IRR w ithout carbon finance

3.3 Project Financing

Traditionally, commercial banks lend money against fixed assets and the total amount of the loan must be guaranteed by the borrower. In project financing, the creditors provide financing to a project solely based on the merits of the project itself, with limited or no recourse to the companies sponsoring the project. (i.e. non-recourse or limited recourse financing). Typically a separate project company (sometimes called special purpose company or special purpose vehicle) is established by the project sponsors to implement the project. The benefits of such arrangement for the sponsors include:

It allows the sponsors to borrow funds to finance a project without increasing their liabilities beyond their investment in the project. On the sponsor’s balance sheet, their exposure to the project is the amount of their equity contribution and nothing more.

Lenders to the project (e.g. commercial or development banks) assume part of the project risks, since they are lending without full recourse

and primarily on the basis of project assets.

On the other hand, establishing a special project company incurs transaction costs which may be significant in a small project. Also, non-recourse financing is more expensive than traditional lending against guarantees because of the higher risks for the lender. Many banks are also unfamiliar with project financing and unwilling to lend based on the merits of the project without full guarantees. If the project sponsor has sufficient financial capacity to implement the project without a special purpose company, this may be an option in a small project.

Independently of whether the project will be financed using conventional full-recourse financing or project financing, the CDM investors or buyers of emission reductions are most interested in the financial soundness of the project. Therefore, a properly made business plan and a feasibility study are always required.

3.4 Types of Capital

To implement a project, capital (or financing) is needed. There are basically


37

three types of capital available for all projects:

Equity;

Debt; and

Mezzanine capital.

Every type of capital plays a special role in project financing and it is important to understand the characteristics of each of them. The challenge of financial structuring is to set up a combination of debt, equity and mezzanine financing that

optimizes the use of various financial sources. A typical project may involve e.g. 20-40% of equity provided by the project sponsors and 60-80% of debt provided by commercial banks, international financial institutions and/or bilateral government lenders.

Figure 9 shows a typical financial structure of a project.

Figure 9. Financial Structure of a project.

Equity Capital

Equity represents the funds injected by the owners of the project and it is the lowest ranking capital of all in terms of its claims on the assets of the project. Normally all the other obligations must be satisfied before any dividends to the project owners can be paid. Equity investors therefore bear the highest risk in the project. If the project fails, the equity investors will most probably lose a significant part of their equity investment. On the other hand, if the project is successful, the equity investors can also make the biggest gains. After all the other obligations are met, everything that remains belongs to the equity investors.

Debt capital

In contrast to equity capital, debt has the highest ranking of all capital. Senior debt has first claim over all the assets of a project and must be repaid first, normally

according to a predetermined schedule. Therefore the debt bears the lowest risk of all capital and correspondingly the returns on debt are usually limited to the interest payments, irrespective of how successful the project may be.

Lenders would usually prefer a low debt-equity ratio passing majority of the risks to the equity investors. A high debt-equity ratio reduces equity investors’ exposure to the project risks and increase their potential returns when the project is successful. On the other hand, high leverage increases the risk of default which would result in equity investors losing all their investment. Normally the higher the project risks, the lower the debt-equity ratio. Projects exposed to market risks tend to have 60-65% debt leverage, whereas an energy project with firm take-or-pay power purchase agreement could reach 70-80% leverage. As lenders become more familiar with carbon finance, a long-term ERPA with a

Equity

Project Company

Lenders

Project Owners

Insurers

Dividends

Debt Service Loan

Payments

Premium

Equity

Project Company

Lenders

Project Owners

Insurers

Dividends

Debt Service Loan

Payments if triggered

Premium


38

creditworthy counterparty can also help raise project’s leverage.

Mezzanine Capital

Mezzanine capital has characteristics from both equity and debt and it is therefore a more flexible instrument than either pure equity or debt capital. Structurally it is subordinated in priority of payment to senior debt, but it is senior to common stock or equity.

Examples of mezzanine financing are subordinated loans, preferred shares and convertible bonds. For instance subordinated loans have characteristics of debt in that regular payments of interest are involved. However, payments are subordinated to senior debt and need only be made when project funds are available. For bearing greater risks than senior loans, mezzanine capital requires higher returns. This is achieved either

through higher interest rates or partial participation in the project’s profits.17

3.5 Financial project cycle

This chapter adds the financial project cycle to the CDM project cycle presented earlier in Figure 7. Although there are several ways of moving forward, most projects follow to some extent the steps presented in Figure 10. Generally there is first a pre-feasibility phase followed by the preparation of a more detailed feasibility study and business plan. When external finance is needed (either loans or equity capital or both), a package of documentation has to be prepared for the potential financiers. In the following chapters the steps needed until the financial closing of the project are briefly explained. 17 UNIDO. BOT Guidelines. Vienna 1996.

Figure 10. CDM project cycle and parallel project financing steps. Source: World Bank.



Validation process




Project completion

3 months

2 months

2 months

3 months

1- 3 years

Up to 21 years


1. Pre-feasibility Study

• Project outline

• Draft business plan

• Sponsors

• Financial sources2. Feasibility Study • Detailed project plan

• Business plan

• Sponsors

• Financial sources

5. Construction

• Recognised international standards for contracts (e.g. FIDIC)

• Bidding procedure

3. Financial Appraisal & negotiations • Final business plan

• Finncing plan

• Risk assessment and mitigation strategies

4. Financial package and documents for financial closing

• Negotiations with each financial institution

• Loan agreement & legal documents

• Project agreements (e.g. PPA, ERPA, fuel supply)

• Contracts with suppliers and constructors

• All public approvals

• Legal opinions of the total package

6. Reporting to financial institutions

• Annual and quarterly reports



Validation process




Project completion

3 months

2 months

2 months

3 months

1- 3 years

Up to 21 years


1. Pre-feasibility Study

• Project outline

• Draft business plan

• Sponsors

• Financial sources2. Feasibility Study • Detailed project plan

• Business plan

• Sponsors

• Financial sources

5. Construction

• Recognised international standards for contracts (e.g. FIDIC)

• Bidding procedure

3. Financial Appraisal & negotiations • Final business plan

• Financing plan

• Risk assessment and mitigation strategies

4. Financial package and documents for financial closing

• Negotiations with each financial institution

• Loan agreement & legal documents

• Project agreements (e.g. PPA, ERPA, fuel supply)

• Contracts with suppliers and constructors

• All public approvals

• Legal opinions of the total package

6. Reporting to financial institutions

• Annual and quarterly reports


39

Pre-feasibility Studies

The purpose of the pre-feasibility stage is to investigate the project outline and screen the opportunities without spending major resources on extensive studies of the entire project. It is also an important stage in order to gain interest from co-investors and potential financing institutions and authorities, and achieve non-binding Letters of Interest for the project development. During the pre-feasibility stage, it is also important to receive early input from financial institutions for optimal project design. The pre-feasibility phase of the financial project cycle corresponds time-wise to the preparation of the PIN in a CDM project cycle.

Often the first questions relate to the organisation of the project. Is there a group of people, companies or other organisations who are willing to invest in, or to be part of the project? If the project is implemented by an existing company, does it have the sufficient resources to do it on its own or are other equity investors or lenders needed? Does the project merit the formation of a special project company (see Chapter 3.3)? Most financial institutions emphasize the sponsor’s financial strengths and proven capabilities to implement the project. Thus, any project development should be started by identification of key owners and receiving letters of interest from these before contacting financial institutions.

Besides organisation, the first questions are also related to money. Who is going to give the seed money for the development of the project? There are different sources that provide grants for pre-feasibility studies or business development (see Annex III) but generally the project developers have to be prepared to invest some of their own resources (time, work and money), as well.

The principal objective of the pre-feasibility study is to determine whether: 18

All possible project alternatives have been examined;

The project concept justifies a detailed analysis by a feasibility study;

Any aspects of the project are critical to its feasibility and need in-depth investigation; and

The project idea, on the basis of the available information, should be considerer either non-viable or attractive enough for a particular investor.

The pre-feasibility study should look at the project from economic, market-related, technical, financial and managerial point of view. Normally, the PIN (as discussed in Chapter 0) would also cover much of the basic information requirements for pre-feasibility-studies. However, the PIN concentrates on emission reductions, whereas the emphasis in the pre-feasibility study is on the financial viability of the project.

Different project alternatives should be assessed in the pre-feasibility phase, so that in later stages the most viable alternative can be selected as the basis for the project. The project developers may have fixed ideas or be blind to some flaws of the project concept; therefore it is important to involve impartial outsiders in the preparation and/or revision of the feasibility study.

Most financing institutions have a two-step approval procedure with an initial review and final approval. The pre-feasibility study should be used in the initial phase to open the dialogue with the financing institutions. It is recommended to have meetings, in person or by telephone conference, with key contacts from each potential source of finance before submitting an initial written 18 UNIDO. Manual for the Preparation of Industrial Feasibility Studies. Vienna 1991.


40

application for finance. The representatives from financial institutions could contribute by valuable advice and input to the project. Often the initial approval from the financing institutions is a precondition for the later approval of the full finance of the project.

The host country authorities for approval of the potential CDM project should also be contacted already at this stage, and the pre-feasibility study should be accompanied, if possible, by a Letter of Interest from the authorities in the host country.

Feasibility Study and Business Plan

Feasibility study and business plan differ both in scope and in detail. The feasibility study gives an overview of different possibilities comparing various project alternatives, technology options etc., while business plan gives the details of a specific selected activity. Whereas feasibility study concentrates on such issues as electricity tariffs, competition, taxation and fuel availability, the business plan focuses on business structure, management plans, specific business targets, staffing and so on. The feasibility study and business plan together should provide potential lenders or equity investors with sufficient information to undertake a decision on investments or lending. This phase of the financial project cycle corresponds to the PCN/PDD phase of the carbon finance cycle.

When the potential investors or lenders are assessing the feasibility study and business plan, they normally focus on such key factors as:19

The company/sponsor can demonstrate that it operates its current businesses profitably, can service its debt, and has the know-

19 http://carbonfinance.org. Document Library. PCF Implementation Note #7: Financial Risk Assessment and Mitigation: Risk-based Structuring and Pricing, Annex 6.

how and capacity to operate the proposed project;

A business plan indicates that the project can be developed and operated in a manner that will enable it to provide a reasonable return to investors while servicing debt;

Summary of the projects technical outline demonstrates documented efficient and proven technology. A detailed technical project plan should be made available upon request or be enclosed as appendix;

The project has a credible customer base – or in the case of independent power or heat producers, an offtaker – with the financial capacity to purchase the project’s output during the debt repayment period; and

The sponsors and the project company have sufficient financial strength so that neither the sponsors nor the project have liabilities that would undermine the ability of the project to achieve and maintain profitability.

Feasibility Study

The feasibility study includes basically the same information as the pre-feasibility study but in a much more detailed level. It addresses supply and demand characteristics in the specific market of the project. Prices and pricing trends for project inputs (e.g. fuels) and outputs (e.g. electricity) and their sensitivities are discussed. The feasibility study should answer such questions as: Can you get into the market? Can you secure all necessary contracts? Are your financial projections realistic? What are the worst-case and the best-case scenario?

Depending on the size and other characteristics of the project, the feasibility study would typically include:

Executive Summary;

Project background and history, including presentation of project


41

sponsors’ financial strength and past experiences in project implementation;

Market analysis and marketing concept;

Description of the project location, site and environment;

Description of the project technology and engineering issues, including examples where the technology has been successfully utilised in other similar projects;

Project organisation and overhead costs;

Required human resources and their availability;

Project implementation schedule;

Total investment costs and project financing (proposed capital structure indicating which parties are expected to provide the project’s financing);

Financial evaluation (payback period, IRR and NPV calculations, sensitivity analyses and presentation of main assumptions); and

Description of project’s environmental and social impacts or other special requirements of the financiers.

In small projects, a properly done pre-feasibility study together with the business plan can be sufficient without a full-scale feasibility study, if it essentially answers the questions above.

Business Plan

The business plan offers a different point of view from the global perspective of the feasibility study. It provides details about the operation, the market, project management and the project organisation’s financials. It also addresses how to create a profitable income stream for the project’s investors.

The business plan should be a well-structured document of maximum 25 pages plus appendices. The business plan should be fact-based and focus on the presentation of facts and numbers.

An example of an outline for a business plan is presented in Table 7.


42

Table 7. Business Plan outline for projects. Source: World Bank 2002.

Proposed Business Plan Outline

1. Executive Summary 1.1. Description of project and business history, current status, customer, beneficiaries, size of

program, expectations for future project 1.2. Target markets, expected sales and expected emission reductions (ER) volumes 1.3. Project marketing and outreach Strategy 1.4. Budget and financial projections; expected contributions 2. Mission 2.1. Sponsor: Current scope of activities and responsibilities (utilize existing information e.g. from

annual reports) 2.2. Project: Brief explanation of project’s fit with sponsor’s mission 3. Project Strategy 3.1. Business concept 3.2. Marketing strategy – sales estimates and prices by product/customer class 3.3. Cost structure and supplier analysis 3.4. Competition -- capability of other companies to provide similar services 4. Management Structure and Capabilities 4.1. Sponsor(s) 4.1.1. Directors and managers 4.1.2. Budget, including sources of financing 4.1.3. Structure, capabilities and experience: similar projects that sponsor has closed (number,

financing provided, current status) 4.2. Project management plan 4.2.1. Legal authority (i.e. permits) 4.2.2. Structure 4.2.3. Roles and responsibilities of each position 4.2.4. Names and backgrounds of critical personnel (sponsor staff, technical assistance, consultants,

advisory board, if applicable) 5. Technology & procurement 5.1. Proposed technology concept 5.2. Potential suppliers 5.3. Reference projects or documentation for mature technology 5.4. Proposed purchase procedures 5.5. Proposed contract structures 6. Project Risk Management 6.1. Risk identification 6.2. Proposed strategies for mitigating risks (including long term offtake contracts) 7. Project Budget and Financial Projections 7.1. Estimated requirements for construction period 7.2. Estimated requirements for first 3 years of` operation 7.3. Budget for full operation 7.4. Financing Plan 7.5. Sensitivity analysis of key assumptions: power sales, ERPA, main costs etc.


43

Financial plan

An important part of the business plan is the financial plan of the project. There are four key elements where the financial plan should focus at: project costs, financial structure (equity, debt), return on investment and risks. The financial plan should be based on a continued dialogue with the financing institutions since the pre-feasibility stage. It should result in a structure of the capital that would be sufficient for providing the project with liquid funds for the project implementation and start up. At the same time, the financial structure should be adapted to the risk profile of the project and make sure that the project manages to repay the capital expenditures even in the worst-case scenario.

Project Costs

Since reliable cost estimates are fundamental to the appraisal of a project, in it necessary to check carefully all cost items that could have a significant impact on the financial feasibility of the project. The costs can generally be divided in three phases: development (pre-investment) costs, project implementation (investment) costs and operating costs. Pre-investment costs include for instance the preparation of the pre-feasibility and feasibility studies and business plan, related travelling etc. The project implementation costs include costs related to insurances, land acquisition, taxes, legal expenses,

necessary permits, site preparation, engineering, procurement and construction, interests during the construction period, trial runs, start-up and commissioning costs etc. Operating costs may consist of such items as fuel, salaries and social benefits, rent, water, power, gas, taxes, office supplies, maintenance, marketing, administration, depreciation and financial costs.

Operating costs are supposed to be financed from the revenues generated by the project. However, there may be significant operating expenses before the project starts to generate sufficient income. An important part of the investment costs, which is often neglected, is the initial working capital. In the analysis of the investment costs it should therefore be carefully checked whether the initial working capital requirements are properly considered in the cost estimates. This helps to avoid unexpected shortage of finance during start-up of project operations.

Table 8 shows the project development and implementation cost table from the World Bank’s PCN. It divides the costs into development costs, installed costs (sum of capital costs and installation costs) and other costs (e.g. legal costs, start-up costs, initial working capital). These are the total project costs that must be financed through a combination of debt and equity. The table also includes a brief description of the commercial strategy of the project.

Table 8. Project costs and commercial strategy.

Estimate of Total Project Costs (pre-investment and investment phase) Development costs US$ / € and a brief clarification

Installed costs US$ / € and a brief clarification

Other costs US$ / € and a brief clarification

Total project costs US$ / € and a brief clarification

Commercial strategy A brief description of the commercial strategy of the project


44

Financial Structure

The financial plan should suggest the financial structure to cover all the costs presented in Table 8. It should include names of sources of debt and equity to be sought or already identified, contribution of each, and status of commitment. Any letters of intent or any other evidence of interest from financiers should be attached as enclosures to the

financing plan. Table 9 presents a model to describe the financial structure of a project. For typical division between equity and debt, see Chapter 3.4. Annex IV list some potential sources of debt and equity for projects in Central America.20

20 More information can be found in “Financing Business Opportunities in Latin America and the Caribbean” published by the Finnish Ministry for Foreign Affairs. It can be found in Finpro’s website at www.finpro.fi.

Table 9. Proposed financial structure – sources of finance identified.

Source US$ (€)

% Status of Commitment

Terms for finance(interest rate, repayment time, tenor, insurance

requirements) EQUITY

Sponsor 1 Sponsor 2 Other Shareholders Other Shareholders Total Equity

DEBT Foreign bank loan Export credit Local bank (local currency) loan

Total Debt TOTAL FINANCING Financing Gap (Project cost minus total financing)

On a regular basis, OECD undertakes a global country-risk classification, classifying all countries in the world into 7 risk classes (see Table 10). Financing institutions consider the foreign investment risk in country risk category 1 as low, and most commercial OECD based financing institutions are closed for investments in OECD country category 6 and 7 without guarantees in terms of sovereign counter guarantees, export credit guarantee or other guarantee.

However, if the proposed project is financially strong and profitable, the project developer may search for risk mitigation strategies and counter guarantees, such as export guarantees, to attract foreign credits even though the country risk is rated as high (see Chapter 0 for more information on export guarantees).

Table 10. OECD risk classification of Central American countries as of June 2004. Source: http://www.oecd.org/dataoecd/35/2/32366062.pdf.

Country OECD risk category

Belize 6 Costa Rica 3 El Salvador 4 Guatemala 6 Honduras 7 Nicaragua 7 Panama 4

The OECD risk classifications of the various Central American countries imply that different financing strategies should be developed for projects in e.g. Honduras and Nicaragua, than for Costa Rica and El Salvador. The latter may attract more commercially oriented financing at the current stage.


45

The international credit rating agencies (S&P, Moody’s, Fitch) also give ratings for countries, as well as for companies. Their ratings for the host country and the project sponsors are important indicators

for investors and financing institutions. Therefore, ratings should be collected whenever possible and presented as part of the financing plan (see Table 11).

Table 11. Credit ratings of host country and company. See www.moodys.com, www.standardandpoors.com, www.fitchibca.com and www.oecd.org for ratings. Sites may require registration.

Rating Agency* Country Company

S&P

Moody’s

Fitch

OECD NA

Financial Analysis

An important part of the financial plan is the financial analysis. It should be able to demonstrate that the project is profitable, able to generate sufficient return for the investors and service its debt. Financial forecasts provide insight into the risks, important issues and burden sharing within the project; they are not an objective in themselves. Forecasts should not be “Too Good To Be True”.

Most financing institutions prefer to receive cash flow projections for the project along with the financial analysis both in paper copies and in electronic form (Excel files or similar). An Excel template for making a simple analysis can be found at http://carbonfinance.org/ docs/PINFinancialAnalysis.xls. Some of the key results of the financial analysis are listed in Table 12.

Table 12. Key results of financial analysis.

2004 05 06 07 08 09 10 11 12 13

Cash flow (before CERs)

Cash flow (after CERs)

Net Present Value NPV (before CERs)

Net Present Value NPV (after CERs)

Estimated financial internal rate of return FIRR (before CERs)

Estimated financial internal rate of return FIRR (after CERs)

Debt Service Coverage Ratio (before CERs)

Debt Service Coverage Ratio (after CERs)


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The critical assumptions should be highlighted and their values explained in the financial plan. Sensitivity tests should be carried out for critical factors such as:

Power or heat sales

Emission reduction sales

Resources, e.g. wind resources, availability and price of biomass or hydrological data

Interest rate levels

Exchange rate levels

Production costs

The sensitivity test should result in a base case financial projection, a worst case scenario and a break-even scenario to illustrate the security margins in the project.

The financial plan should also include a proposal for key financial covenants. A covenant is a promise in the debt agreement that certain activities will or will not be carried out. The purpose of a covenant is to give the lender more security. Covenants can cover everything from minimum dividend payments to levels that must be maintained in working capital. Typical covenants could relate for instance to:

Equity ratio (recommended level of 35 – 50% in developing countries).

Ratio of Net Debt to EBITDA (Earnings before Interests, Taxation, Depreciation and Amortisation) to illustrate the debt service capabilities of the project cash flow.

Financial risk assessment and mitigations The key financial risks should be highlighted:

Market/price risk – power or other sales

Financing institutions prefer long term contracts with financially sound power company. Otherwise, the tariff structure and expected tariff development should be evaluated in detail. Sensitivity analysis

should be carried out to investigate the break-even level of power tariff (or price of other products sold) for the project.

Financial risk

Financial risks could be mitigated by an appropriate financial structure; the higher the risk, the higher the share of equity in the project that is required to raise finance. The level of foreign debt should to certain extent match the level of hard currency income, e.g. from the ERPA, combined with the cash-flow of the project in relation to the recent years inflation and development of the exchange rate of the local currency. The debt-repayment structure should be adapted to the cash-flow generation of the project. The project risks could be split into the following factors and a mitigation plan should be developed for each:

Construction risk and performance risk

These risks can be mitigated by sufficient pre-investigations, planning and use of well-known engineering and construction companies. This should be combined with an appropriate contract structure, e.g. FIDIC (Federación Internacional de Ingenieros Consultores). The FIDIC contract model regulates the exact responsibilities of each contracting party and defines financial punishment for delays and non-fulfilment of contracts.

Counterparty risks

Counterparties here could refer to fuel suppliers, power or heat offtakers or any other parties outside the project, whose fulfilment of contractual obligations is important for the success of the project. The counterparty risks should be mitigated by evaluation of the financial strength and performance records of the counterparty coupled with appropriate contract structure.

Contract risk

Contract risk should be mitigated by appropriate legal advisors and legal opinions.


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Environmental and social risk

These risks should be evaluated in the pre-feasibility study, and the projects should be appropriately designed to handle these issues, e.g. through an environmental and social management plan prepared as part of the environmental and social assessment..

Country risk

Foreign investors and foreign financing institutions may search to cover the risk associated with investments in the host country either through export guarantee agencies or private political risk insurance companies. As an alternative, the political risks could be split in main items and evaluated individually. Naturally, foreign investments would be attracted to host countries with positive valuation of the following factors:

Is the investment climate stable for foreign investors?

Is there low risk for depreciation of the local currency?

Is there a reliable legal framework and efficient court system?

As previously mentioned, the host country’s OECD rating coupled with the foreign investors’ evaluation of the investment climate may exclude some commercial bank financing options and other financing strategies should be identified.

Financial appraisal and negotiations

Financial appraisal is a method used to evaluate the viability of a proposed project by assessing the value of net cash flows that result from its implementation. Due diligence is part of the appraisal process and it serves to confirm all material facts in regards to the lenders or investors participation in the project. During the financial due diligence process, most financing institutions would examine to some extent the items presented in Table 13.

Table 13. Financial due diligence.

Objective Evidence Sound sponsor/company

Audited financials for at least 3 years [and auditor’s management letter] demonstrating sound financial performance and management. Ratio analysis including: margin analysis, debt service coverage ratio, operating ratios, debt/equity ratio, self-financing ratio

Sound Project Business

A business plan that shows a clear strategy, an understanding of the market, socio-political, financial, and technical challenges the project faces, and financial projections (covering at least five years of operations after project completion) demonstrating the financial viability of the project (including project capital cost estimates, project financing plans, income statements, balance sheets and cash-flow statements). Ratio analysis as above.

Sound offtaker / credible market for output

Business plan should also include market analysis – especially analysis of demand – indicating historical and projected trends in sales volumes both in physical and monetary terms, customers, tariffs. (a) In the case of an independent power and/or heat producer: an affidavit indicating a sound purchase agreement (for contracted sales) or viable market (for merchant sales). Ideally: take-or-pay PPA with viable offtaker and automatic indexation of tariffs. (b) In the case of an integrated utility or other company with numerous customers: a market assessment describing the customer base and growth trends, and potential threats from substitutes or competitors; indicating sufficient demand for the product at projected prices to enable the project to operate profitably.

Limited debt and liability exposure

A statement summarizing potentially large debts and liabilities, required only to the extent that they are not revealed in the audited


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financial statements Technology, procurement procedures and construction

1. Approved technical concept

2. Solid project management during implementation

3. Adequate contract structure to protect the project developers towards delays in delivery and costs overruns

4. Plan for appointing recognized construction companies only

Before the appraisal, the project developer should have had a detailed examination of the project with the contact person at the financing institution in order to make sure the project is adapted to the financing institutions requirements and guidelines to the extent possible.

The appraisal and commitment for one financing institution may often be conditional upon approvals from other financing institutions in order to ensure the banks commitment to only fully financed projects. After appraisal, the financing institutions often present additional assumptions in order to reduce the risk profile in the project. This often strengthens the project and reasonable requirements should be met. However, most financing institutions would also accept reasonable arguments and a constructive negotiations process would result in a satisfying result for all parties.

Financial package and documents for financial closing

Preparation of the loan agreements normally build on the standard loan agreements from the financing institutions, unless several financing institutions would share the same loan agreement either through syndicated loan agreements (for the largest projects) or club-deals with 2 – 4 banks.

In addition to the loan agreements with lending institutions, the following

documentation should be ready before financial closing.

Financial documentation checklist:21

For each sponsor and the project company the following documents should be available (where applicable):

Experience statement, including all the projects the firm has closed, their current status, and additional details on projects similar to the CDM project

Any ratings and reports from D&B, S&P, Fitch, OECD (country only).

Public filings, if any.

Audited financial statements for most recent three years.

Company By-Laws/Articles of Association.

List of Directors and Managers of the Company.

Shareholders Agreement.

List of Company Subsidiaries, if not included in financial statements.

List of Company Debts (maturities, interest rates, security) if not included in financial statements.

Paper and electronic copies of company financial projections including assumptions, balance sheet, income statement, cash flow; include proposed projects and other planned investments.

Before appraisal, the following documents should be ready to submit to the financing institutions upon requests:

Major project contracts (e.g. engineering, procurement and construction).

Purchase contracts (e.g. power).

Concessions, licenses and permits.

21 http://carbonfinance.org. Document Library. PCF Implementation Note #7: Financial Risk Assessment and Mitigation: Risk-based Structuring and Pricing, Annex 1


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Financing agreements, letters of intent or similar from banks, equity providers, carbon finance sources, etc.

Technical assistance agreements, if applicable.

Laws governing project operations (e.g. build, operate, transfer laws, and government decrees).

Sources of major procurements.

Paper and electronic copies of project financial projections including assumptions, per unit (e.g. USD/MWh, USD/ton) product costs and prices (tariffs), income statement, and cash flow.

Financing sources for small scale renewable energy sources

A brief presentation of potential sources of finance for small-scale energy projects in Central America is given in the annexes. The annexes list institutions’ types of financial contribution and their main criteria for finance/support and links to make it easier for the reader to screen the possibilities and be able to contact the respective sources for more detailed information about their conditions for contributing to the project. Often, the contact persons from these organisations and financial institutions can also advise on interested sponsors and local sources for finance of project development and financing of the projects.

The Annexes are:

Sources for general support for project preparation and technical assistance (Annex III)

Sources for equity, grants and loans (Annex IV)

Carbon finance sources (Annex V)

More complete information can also be found in the book “Financing Business Opportunities in Latin America and the

Caribbean”, which is available from the Finnish Ministry for Foreign Affairs and from the Finpro website www.finpro.fi

Export Finance of Equipment for Projects

Export credit and guarantee agencies may have a possible role in risk mitigation for small-scale energy projects for the imported part of the equipment. In some countries, such as the USA, the US-Exim Bank is responsible for both the export credits and the export guarantee. In other countries, such as in Finland, Finnvera will issue the export-guarantees, while commercial banks and the exportbank, FIDE – The Finnish Export Finance Development, will be responsible for the export credit. The export guarantee institutes and export credit banks can normally advice on contact persons in their sister organisation (see Table 14). Export credits may be applied to finance part of a CDM project, for instance:

supply of equipment for e.g. wind turbines, biomass boilers, photovoltaics or hydropower plants or turn-key projects

supply of specific consulting services, e.g. wind-mapping or hydrology and power design studies

The main terms and conditions for export credits are regulated by OECD, and the maximum credit time for power stations is 12 years.

It is normally the supplier of the equipment that would facilitate the contact to the export credit agency and the export guarantee agency until approval of the finance, where after these agencies will contact the CDM project developer and if applicable, the counter guarantee institute, for preparing the documentation for the project.


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Export guarantees may come in various forms22:

Credit Risk Guarantees

Buyer Credit Guarantees

Letter of Credit Guarantees

Investment Guarantees

Bond Guarantees

Finance Guarantees 22 Ministry of Foreign Affairs of Finland: Financing Business Opportunities in Latin America and the Caribbean

Raw Material Guarantees

A traditional export credit arrangement consist of a contracted amount, whereof minimum 15% should be paid up-front by the local partner/project company and up to 85% of the contract could be financed by an export credit. Of the export credit, the OECD export guarantee institutes may cover up to 90% of the commercial risk and 100% of the political risk. The remaining risk must be carried by the supplier of the equipment or the supplier’s bank.

Table 14. Examples of national and commercial export credit and guarantee institutions.

Examples of export credits & guarantee institutes23 Links to guidelines

CESCE (Spain) www.cesce.es

Compagnie Francaise d'Assurance (COFACE) www.coface.com

Eksportkreditfonden i Danmark (EKF) (Denmark) www.ekf.dk

Eksportkreditnemden i Sverige (EKN) (Sweden) www.ekn.se

ERG (Switzerland) www.swiss-erg.com

Export Credit Guarantee Department (ECGD) (UK) www.ecgd.gov.uk/

Finnvera (Finland) www.finnvera.fi

HERMES (Germany) www.hermes-kredit.com

MIGA (World Bank Group) www.miga.org

Atradius (Switzerland, Germany, Spain) www.atradius.com

US EXIMBANK (United States) www.exim.gov

23 Source: www.giek.no


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4 CENTRAL AMERICAN COUNTRIES INFORMATION

4.1 REGIONAL AND COUNTRY INFORMATION

This section introduces a general overview of the Central American electric industry, as well as the vision of the electric market in each one of the 7 countries of the region. 4.1.1 CENTRAL AMERICAN REGIONAL CONTEXT

General Indicators

The Central American countries together had a population of approximately 41 million inhabitants as of 2006, and a GDP estimated around US$110 billion, after the institutional consolidation of the transformation of the electric industry in almost all of the countries. This transformation process started in the early 90s, and was characterized by the separation of the generation, transmission and distribution activities. This new management mode promotes competitiveness within the generation and commercialization markets, while transmission and distribution activities, which has natural monopolies characteristics, are regulated activities.

Table 15 shows the main social and economic indicators of Central America.

Table 15. Central American Social and Economic Indicators, 2006

Country Area (km2)

Population (inhab)

Population Density

(inhab/km2)

GDP 2006 (US$)a

GDP per capita (US$)

Belize 22,800 287,730 12.61 1,778.0 6,179b Costa Rica 50,700 4,401,800 86.82 22,145.1 5,030 El Salvador 21,041 6,990,700 332.24 18,554.6 2,654 Guatemala 108,889 13,018,800 119.56 35,414.2 2,720 Honduras 111,900 7,518,300 67.18 9,214.8 1,225 Nicaragua 130,000 5,919,200 45.53 5,361.8 905 Panama 75,517 3,272,100 43.32 16,954.0 5,181

TOTAL 520,847 41,408, 630 109,422.5 Source: ECLAC, based on official figures. Preliminary figures for the year 2006. Central American electric statistics. LC/MEX/L.772, 09 April 2007 a. million of current Dollars b: 2004 statistics

As of the year 2006, the region had a total installed power of 9,321 MW, of which hydroelectricity represented 43% and other renewable sources of energy: geothermal, biomass co-generation and


52

wind, represented 12%. Plants operated with fossil fuels, as steam, diesel, gas and mineral carbon represented 45%, in accordance with the Table 16.

Table 16. Installed Capacity in Central America (in MW and %), 2006

Country Belize C.R. El Salv. Guat. Hond. Nic. Pan. Region

Total Regional n/a 2,095.7 1,281.8 2,126.8 1,474.1 767.2 1,575.8 9,321.4

Total Fossil Fuel n/a 422.2 588.7 1,116.7 912.5 438.5 743.3 4,221.9Total Renewable n/a 1,673.5 693.1 1,010.1 561.6 328.7 832.5 5,099.5

Hydroelectricity n/a 1,411.5 460.9 717.9 501.8 104.4 832.5 4,029 Geothermal 0 165.7 151.2 33 0 97.5 0 447.4 Wind 0 68.6 0 0 0 0 0 68.6 Co-generation n/a 27.7 81.0 259.2 59.8 126.8 0 554.5

Renewable (%) 42.6 80.0 54.1 47.5 38.1 42.8 52.8 51.1 Fossil Fuel(%) 57.4 20.0 45.9 52.5 61.9 57.2 47.2 48.9 Source: ECLAC, based on official figures. Preliminary figures for the year 2006. Central American Isthmus:

Electric Sub Sector statistics. LC/MEX/L.772, 09 April 2007 Figure 11 shows electric generation in the year 2006, in accordance with the corresponding source. Generation reached 35,758.8 GWh in the entire region. Hydroelectricity had the highest contribution with a total of 17,677 GWh (51%), followed by fossil fired generation with 13,898 GWh (38%). Other renewable sources such as geothermal generation had 2,696 GWh (7%), co-generation 1,231.1 (3%) and wind generation – only in Costa Rica - contributed with 273 GWh (1%)48.

In view of the sustainable growth forecasts for Central America, it is estimated that the electric demand throughout the region will sustain the same growth trend of approximately 5% a year, which will represent a demand for additional installed capacity of 550 MW a year, in order to maintain at least the same quality of service offered throughout year 2006. This scenario includes a probable participation of renewable energy sources of approximately 50-50%, additional to the installed capacity.

48 Source CEPAL, based on official figures. Preliminary figures for 2006. Central American Isthmus. Statistics of Sub Sector Electricity. LC/MEX/L. 772,09 April 2007.

1%

3% 7%

51%38%

Hydro

Geothermal

Cogeneration

Eolic

Thermal

Figure 11. Electric Generation in Central America (in GWh), 2006.

Wind

Fossil Fuel


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The historical participation of renewable energy for the electric generation in Central America has been decreased. Table 17 indicates that the trend up to year 2006 in the region – with the exception of Costa Rica- has increased its dependency on imported fossil fuels for the electric industry.

Table 17. Share of renewable energy in electric generation (%) Region C.R. El Salv. Guat. Hond. Nic. Pan. Bel. 1980 71.1 98.8 98.7 20.0 91.6 53.7 55.0 0.01990 91.1 98.7 93.6 92.3 100.2 61.2 84.0 0.01998 60.4 92.4 53.0 55.4 54.3 21.8 51.3 34.12000 67.0 99.1 57.6 54.2 60.5 16.9 70.5 35.82002 59.1 98.4 50.6 40.6 38.7 23.4 64.7 28.02006 51.1 80.0 54.1 47.5 38.1 42.8 52.8 42.6

Ref.: (1980-2002) CNE/ESMAP, [email protected], Strategy for the Promotion of Investments in Renewable Energy, Managua, February 01, 2005 Ref.: (2006) ECLAC, based on official figures. Preliminary figures for the year 2006. Central American Isthmus. Statistics for the electric sub/sector. LC/MEX/L.772, 09 April 2007

According to data compiled by BUN-CA, there is an interesting potential in the Central American region to continue developing an investment portfolio for renewable energy sources. Table 18 presents a preliminary technical potential estimation of 31,000 MW as of year 2006, being the hydroelectric potential the most significant one, if we include small to large hydroelectric generation plants.

Table 18. Estimated technical potential from renewable energy sources (in MW)

Country Hydro Geothermal Wind Co-

generation with residues

Total

Belizea 27 0 20 27 74 Guatemalab 5,000 1,000 7,800 250 14,050 Hondurasc 3,200 126 60 52 3,438 El Salvadord 839 450 50 1,339 Nicaraguae 1,740 1,000 250 100 3,090 Costa Ricaf 5,802 235 600 24 6,661 Panamag 2,341 40 400 20 2,801

Total 18,949 2,851 9,155 498 31,453 Source: a: Estimated compilation by BUN-CA from several sources as of year 2006 b: Energy statistics. Electric sub-sector, 2001-2006, Ministry of Energy and Mines (the wind potential is still a preliminary theoretical estimate under study) c: Action Plan for the Implementation of a National Sustainable Energy Policy, SERNA, June 2005 d: Energy Policy of the Government of El Salvador, May 2007 (the hydro potential includes the technical potential for the binational projects of El Tigre and La Paz) e: Strategy for the promotion of Renewable Energy Sources in Central America, ECLAC, May 28, 2004

f: Ibid e

g: Ibid e

For the partial use of this potential it is necessary to know the institutional structure of the electric market in each country. In accordance with Table 19, in Central America at the end of the year 2006,


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there were a total of 216 participants, comprised by 159 generators (38 public institutions and 121 private), 8 transmission companies, 22 distributors and 27 on commercialization. Table 19: Institutional structure of the Central American electric market (2006)

Country Guatemala Honduras El Salvador Nicaragua Panama Costa Rica

Electric Market Wholesale Monopoly Wholesale Wholesale Wholesale Monopoly

Electric Sector Authority

Direction General of Energy (Ministry of Energy and Mines-MEM)

Direction General of Energy (Secretary of State of Naturals Resources and Environment-SERNA)

Direction General of Energy Eléctrica (Ministry of Economy)

Ministry of Energy and Mines (MEM)

Commission on Energy Policy (Ministry of Econmy and Finances -MEF)

Direction on Energy Sector (Ministry of Environment and Energy - MINAE)

Market Operator and Manager

Administrator of the Wholesale Market (AMM)

National Company on Electric Energy (ENEE)

Transactions Unit (UT)

Center of National Charge Dispatch (CNDC)

Center of National Dispatch (CND)

Center of National Dispatch

Electric Sector Regulator

National Commission on Electric Energy (CNEE)

National Commission on Energy (CNE)

General Regulator of Electricity and Telecomunications (SIGET)

Nicaraguan Institute on Energy (INE)

Regulator Institution for Public Utilities (ERSP)

Regulator Authority for Public Utilities (ARESEP)

Public Generators

1 13 12 4 3a 5

Private Generators

19 27 12 10 21 32

Transmission

3 (ETCEE, TRELEC

and other)

1 (ENEE) 1 (ETESAL)1

(ENTRESA)

1 (ETESA) 1 (ICE)

Distributors 3 1 5 2 3 8

Commercialization

13 1 13 0 0 0

Total agents by country

39 43 43 17 28 46

a. The state company is the Panama Canal Authority (Autoridad del Canal de Panamá) that uses energy for auto consumption Original source: BUN-CA, 2005. FENERCA: Promotion of Renewable Energy in Central America: Opportunities for Policy statements –update as of March 2005-. Updated information by BUN-CA as of 2006.


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4.1.2 REGIONAL INITIATIVES

Regional Electric Markets

As a result of the changes generated by the privatization processes in the 90’s and the later institutional transformation, many private investors groups have positioned themselves in the Central American energy industry. Regional governments, with the exception of Belize, are currently working on the unification of a regional energy market, for which they undersigned a Treaty in 1996 expressing their willing to create a unified competitive market in the region.

In order to build the Regional Energy Market (MER), the Central American countries have approved and ratify the Framework Treaty for the Central American Energy Market49 (Tratado Marco del Mercado Eléctrico de América Central), which entered into effect on January 1999, providing the necessary legal framework for the region to operate a regional electric market through the Network Owner Company (Empresa Propietaria de la Red (EPR for its acronym in Spanish)) incorporated in 1998; this is a company governed by private law and responsible for building, managing, and maintaining the regional interconnected system. Based on the guidelines of the Treaty, the governments approved the general design of the MER in the year 2002, consisting of a seventh market, parallel with the six national electric systems, with independent rules from the others, and contacted through the Regional Transmission Network (Red de Transmisión Regional (RTR)).

The Framework Treaty also created the Regional Commission for Electric Interconnection (Comisión Regional de Interconexión Eléctrica (CRIE)) as the entity regulating the MER, responsible for insuring that the principles set forth in the Framework Treaty and its Regulations are being respected by all participants. The CRIE as the regulator is 49 The Framework Treat of the Electric Market was undersigned by 6 countries on December 30, 1996

the highest authority of MER and shall exercise its activities in close coordination with the national regulators, who are its natural counterparts in each one of the Central American countries.

The Framework Treaty also establishes the Regional Operating Entity (Entidad Operadora Regional (EOR)), an organism created as part of the regional integration process, in charge of the technical operation and dispatch of the interconnected system and the operation of the regional market.

As of year 2006, the ongoing negotiations for the construction of a regional transmission network called the Electric Interconnection System for Central America (Sistema de Interconexión Eléctrica para América Central –SIEPAC-), consist in the development of the first regional interconnected transmission system with a capacity of 230 KV and a length of 1,785 Km, to start up the wholesale electric market of Central America.50.

Central American Integration System

Regarding the management of the Central American electric system it is necessary to mention the proactive role of the Secretary General Central American Integration System (Secretaría General del Sistema de la Integración Centroamericana (SG/SICA)), in the execution and coordination of the mandates of the Central American Presidential Summits and the decisions reached by the Foreign Affairs Ministerial Councils.

SICA, has made a request to the various regional organizations within the framework of the Meso American Energy Integration Program (Programa de Integración Energética Mesoamericana –PIEM) to develop a regional strategy for this sector at the light of the regional energy vulnerability, caused by the high dependency of the countries on imported fossil fuels. In this context, in February 2005, the Ministers of the Environment met in San Pedro Sula to issue the San Pedro Sula Declaration on 50 Ref.: http://www.eprsiepac.com


56

Renewable Energy and the Environment, which set up the CCAD that in coordination with the energy sector authorities supports the Regional Energy Plan.

During the Declaration of the III Meeting of Ministers of the Environment and Energy of the Central American Integration System (SICA) member countries, held on October 10, 2006 in Panama City, it was decided to create the Energy Coordination Unit of the Region and the Dominican Republic, attached to the Secretary General of SICA, and task it with the coordination of actions regarding sustainable energy, highlighting on the investments made on renewable energy sources for electric generation projects.


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4.2 BELIZE

Figure. 12 Political Map of Belize 4.2.1 DESCRIPTION OF THE ENERGY SECTOR

General Information

Belize maintains its electric structure based on the Electricity Law Nº13 of 1992. This law has as its objective to regulate every aspect related to the electrical service in Belize.

The Energy Sector in Belize is a private vertical monopoly; the only enterprise with license to generate, transmit and distribute electricity is the Belize Electricity Limited –BEL-. There is a regulating entity of the power sector at the state level, the Public Utilities Commission –PUC-.

Installed capacity: In 2006 the installed capacity in Belize was approximately 82 MW, including 32 MW hydroelectric (Mollejon and the Chalillo projects), 25 MW diesel generation; and 25 MW purchased from Mexico.

The demand for energy in Belize grows at an average rate of 9% annually. BEL estimates that it will require an additional capacity to support a peak demand of about 67 MW in 2006, starting with a 18-MW hydro development at Vaca on the Macal River that will be online by 2009, and a bagasse power cogeneration facility

wit a capacity of 13.5 MW expected to be online by the end 2007.

Generation: Power generation in Belize for 2006 was composed of a total of 360.879 MWh of which 88.243 MWh corresponded to public generation by BEL with hydroelectric plants and 46.491 MWh with thermal plants. A total of 18.831 MWh where generated using renewable energy sources, such as solar and biomass. In addition about, 51% of the generation (180.510 MWh) corresponded to imports from Mexico.

Transmission: The transmission system is also operated by BEL. There is an interconnection to the electricity systems of Guatemala and Mexico, which is extremely important for Belize since it imported about 30% of its energy by 2006.

Distribution: Due to the nature of the monopolistic vertical integration of the Belizean electric system, BEL is in charge of the electric distribution, which in 2006 served about 65,000 customers.

Legal framework focused on renewable energy

The main legislation related to the Belizean energy sector is the following:

Law of 1950: Creation of the Belize Electricity Board (BEB). In 1950 the law of the electricity act was revised to provide for the establishing of the Belize Electricity Board. This government institution was charged with the responsibility to generate electric energy, transmit, and distribute to the general public.

Law Nº13 of 1992: Establishment of the Belize Electricity Limited (BEL). In 1992 the electricity act was amended to provide for the privatization of the electricity sector and BEB became Belize Electricity Limited, a private company owned by it shareholders with the government retaining 51% of the voting stock. In 1999 the Government of Belize further divested itself of its holding in BEL and so Fortis Inc. became BEL’s majority shareholder.


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Law of 1999: Creation of the Public Utilities Commission (PUC). The Public Utilities Act was created in August of 1999 to provide for the establishment of a Public Utilities Commission whose main functions would be to regulate the public utilities and protect the interests of the customers at large.

The electricity market

The electricity market in Belize is guided under an opportunity market where prices play an important role. Currently, BEL sells and distributes 100% of the electricity; however,

there are several private small entities that generate electricity for its own consumption.

In Belize the purchase tariffs are proposed by BEL since it is the only distributing entity with license to sell to the public. This proposed tariff has to be known and approved by the PUC before entering into force.

4.2.2 NATIONAL CDM POLICY

Belize recently discovered some low production oil reserves which are commercially exploited, but it doesn’t have proven gas or carbon reserves. Up to now, the petroleum utilized to generate electricity is imported.

Belize plans to satisfy future demand with:

A series of hydroelectric plants that are in their initial phase, being of relevance the Vaca and Hydro Maya developments.

Improvements to existing diesel plants.

Currently the country has no Climate Change nor Clean Development Mechanism -CDM- Office appropriately installed. This is managed in the Ministry of Natural Resources, under the coordination of the Department of Environment.

4.2.3 RELEVANT ORGANISATIONS

Ministry of Natural Resources

More information with: Ismael Fabro

Tel: +501 822-2816 / 2542 Fax: +501 822-2862 E-mail: [email protected]

Public Utilities Commission – PUC- The Public Utilities Commission is an autonomous body, created in 1999, and is the government agency in charged of regulating with the responsibility to regulate all public utilities in Belize. They issue licenses and set the retail price for the sale of electricity to the general public. The objective of the PUC is to regulate everything related with the supply of the public utilities in Belize, such as electricity, water, and telecommunications.

More information with: Anna Rossington

Tel: +501 222-4938 E-mail: [email protected]

Office of Electricity Supply – OES- This Office had been responsible for all matters related to electricity in Belize, prior to the creation of the Public Utilities Commission in 1999. Presently it is in charge of rural electrification and wireman licensing.

More information with: Herman Charlsworth


Belize Electricity Limited -BEL- This utility is the sole commercial, transmitter, and power distributor current in Belize. BEL is a public limited liability company, incorporated in 1992.

Ratification of the UNFCCC Date signed: June 13, 1992 Ratification Date: October 31, 1994 Kyoto Protocolo Adhesion date: September 26, 2003


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Under the Electricity Law Nº13, the Ministry of Energy and Communications gave an exclusive license to BEL (initiating in 1993) to generate, transmit and provide electricity in Belize. It is majority owned by Fortis Inc. of Canada since 1999 and holds a license issued by the Public Utilities Commission to operate in Belize. It has offices in all the districts of Belize along with a 115kv national grid that is interconnected to the Mexican national grid.

More information with: Michael Polonio



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4.3 COSTA RICA

Figure 13 Political Map of the Republic of Costa Rica. 4.3.1. DESCRIPTION OF THE ENERGY SECTOR

General Information

Costa Rica has an electric marked characterized by the presence of one state owned company that dominates the market (ICE), and which is vertically integrated, generating, transmitting and distributing electric energy. Notwithstanding, there are a total of 27 private generating companies under operation that sell to ICE the energy produced, together with the CNFL, two city hall companies, 2 of the 4 rural electrification cooperatives and one cooperative consortium. The distribution system is comprised of 8 companies, besides the ICE, 2 city hall companies, 4 rural electrification cooperatives and a corporation whose shares are mainly owned by ICE – National Company of Force and Light (CNFL)-. Likewise, in accordance with the legislation in force, generation by private investors to be sold to ICE, cannot be higher than 15% of the total installed capacity of the country, and an additional 15% from private generation plants, that will sell electricity to ICE, through a public bid process under the sales price competition regime, that at the end of the contracting

process will be transferred to ICE. There is also an electric sector regulating body that participates in the determination of rates and tariffs and that also looks for the compliance of quality, quantity, reliability, continuity, opportunity and optimum performance of the public utilities, such as electricity, water, telecommunications, and fuel, among others, called the Public Utilities Regulating Authority. (ARESEP for its acronym in Spanish).

Installed capacity: In the year 2006 the installed capacity of Costa Rica was 2,095.7 MW, which included 1,411.5 MW from hydroelectric plants, 165.7 MW from geothermal, 68.6 MW from wind and 422.27 MW from plants owned by ICE. Private participation, other electric companies and the rural electrification cooperatives had 379.07 MW hydroelectric, 29.55 MW geothermal, 3.70 biomass generation and 48.75 MW from wind parks.

Demand grows at an average of 5% a year. In accordance with the National Plan for Electric Generation Expansion for the period 2001-2016, it’s required to add about 1,000 MW generation capacity, of which 80 to 90% must come from renewable sources and 10-20% consist on the installation of complementary fossil fuel plants.

Generation: There are several companies that participate in generation51 that as of the year 2006 generated 8,637.1 GWh. A total of 6,596.6 GWh corresponded to generation with hydroelectric plants, 1,214.9 GWh with geothermal plants and biomass, wind generation 273.5 GWh and 545.4 GWh with fossil fuel plants.

Transmission: The transmission system is operated by the ICE. Currently it has 1,712 km of connection lines (706 km at 138 Kw and 1,006 km at 230 Kw), through them a total of 51 These are the ICE, “Compañía Nacional de Fuerza y Luz-CNFL”, the “Junta Administrativa del Servicio Eléctrico de Cartago-JASEC,” the “Empresa de Servicios Públicos de Heredia-ESPH, COOPELESCA, the BOT Miravalles and 27 additional private companies with ongoing projects.


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1,279,372 customers were served as of December 2006. Costa Rica is interconnected with Panama and Nicaragua.

Distribution: Energy distribution in Costa Rica is under the responsibility of 8 companies of which 4 public companies are in charge of the distribution in the Large Metropolitan Area, where the majority of the customers live. In addition, there are 4 rural electrification cooperatives that distribute electricity in that area. To this date, 98.13% of the population of Costa Rica has access to electricity.

Legal Framework targeted at renewable energy

The main laws in force in Costa Rica, related to renewable energy are:

Law Nº449 dated April 8, 1949, Law for the creation of the Electricity Institute of Costa Rica (ICE for its acronym in Spanish).

Law Nº7200 dated October 18, 1990: participation in the private electric system started with the passing of the 7200 Law of 1990. This Law authorizes the Autonomous or parallel Electric Generation and declares the public interest of the ICE to purchase from non conventional energy sources and cooperatives and private companies, in which at least 35% of the capital stock is owned by Costa Rican citizens who establish electric plants with limited capacity. This law authorizes to install up to 15% of the total capacity of the National Interconnected System (SNI for its acronym is Spanish). With the support of this law a total of 189.85 MW is generated for the SNI, representing a 10.2% of the total installed capacity in Costa Rica, grouped in a total of 32 plants.

Law 7200 was amended by the Law No. 7508 on May 31, 1995. It modifies the percentage of the Costa Rican capital and the concession terms. It adds a second

chapter on the competition regime for projects with a maximum capacity of 50 MW; it also includes a section on transitional disposition referring to the undersigning of treats for electrical interconnection with other national companies on energy in Central America. This Law also authorizes to install an additional 15% to the one stipulated in the Law 7200.

Under the protection of this Law a total of 29.55 MW of the Geothermal Plant Miravalles III was installed, representing 1.4% of the country’s installed capacity, as well as the hydroelectric Project of La Joya with a capacity of 51 MW.

Law Nº8345: Participation of the Rural Electrification Cooperatives and the Municipal Public Utilities for National Development: This Law authorizes MINAE to grant water concessions for the production of hydroelectricity to cooperatives, allowing a more active participation of these companies in the electric market.

Electric Market

The electric Market in Costa Rica is dominated by the ICE, mainly because it enjoys full right to use water concessions to generate hydroelectricity in accordance with Law Nº449. Electricity prices for generation and costumers are established by the ARESEP. See Figure 14.

The National Plan for the Electric Generation Expansion in Costa Rica (2001-2016), forecasts a 5.4% increase for low demand and 5.7% for high demand. This plan summarizes the electric generation development strategies to satisfy future demand, considering the various technological options available. Of the hydroelectric projects to be developed by ICE for the Expansion Plan, there are 3 hydroelectric, plus 2 at the feasibility stage, that could contribute with approximately, 1,330 MW in the next ten years. The expansion plan


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Ratification of the UNFCCC

Date of signing: June 13, 1992

Date of Ratification: June 13, 1994

Kyoto Protocol

Date of signing: April 27, 1998

Date of Ratification: August 9, 2002

also considers the contribution of the other public generation companies to generate 252.9 MW through hydroelectric projects by the National Company of Power and Light, the Cartago Electric Service Board of Directors, Coneléctricas R.L. and CoopeGuanacaste R.L. Regarding geothermal energy, the development of Las Pailas Project is being studied. It has an estimated capacity of 35 MW. A total of 120- 180 MW Figure 14. Chart of the electric market in Costa Rica

fossil fuel energy plant would be generated by the Project Garabito, which is expecting to star operation by the year 2010. The alternatives regarding fossil fuel energy include gas turbines with diesel fuel, mid speed engine bunker and combined cycle steam turbines.


Costa Rica has recognized, based on equity and in accordance with their shared but differentiated responsibilities, the need to voluntarily contribute to the climate change mitigation.

Costa Rica has a National Climate Change Program, through which they perform researches on inventories, vulnerability studies, ozone layer and the national communications are carried out, financed by national resources and the contributions of external entities.


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To this date, Costa Rica does not have a specific legislation on carbon transactions. There is a Forestry Law, which incorporates the concept of Environmental Paid Services (PSA for its acronym in Spanish) for private forest owners and forest plantations, in compensation for the preservation and handling of forests or reforestation, financed by a tax on hydrocarbons.

The Costa Rican Office for Joint Implementation (Oficina Costarricense de Implementación Conjunta (OCIC)) that was established in 1995, today called the Costa Rican Association for Joint Implementation (ASOCIC)), is the national authority that facilitates the attraction of investments, provides general guidelines, assesses projects and sees to the follow up of projects, and reports to the CMNUCC Secretary representing the Government of Costa Rica in the negotiations at the Convention, and other multilateral and bilateral organizations on Climate Change.

Costa Rica has carried out 9 projects approved by the UNFCCC Secretariat, 4 renewable energy projects (1 hydroelectric and 3 wind), 4 forestry projects and one waste water treatment in coffee processing plants. All generation projects are operating and produce approximately 6.4% of the energy consumed in the country.

The OCIC (for its acronym in Spanish) is the National Designated Authority of Costa Rica.

More information at: William Alpizar

Tel: +506 222-5616 Ext. 108 E-mail: [email protected]

4.3.3RELEVANT ORGANIZATIONS

Ministry of the Environment and Energy -MINAE- This Ministry is in

charge of drafting energy policies, as well as of protecting the country’s natural resources.

More information at: Roberto Dobles Mora, Minister

Tel: +506 257-1417 / 223-2124 Fax: +506 257-0697 www.minae.go.cr

Julio Cesar Matamoros Alfaro, Viceminister of Energy Tel: +506 233-4533 ext 159 Fax: +506 257-0232 www.minae.go.cr

Energy Sector Directorate –DSE (for its acronym in Spanish) - is a Technical Secretariat for the Energy Sector Planning, comprised of the entities part of this secretariat. The DSE was established with the purpose to make efforts aimed at: a) developing, implementing and consolidating the drafting, execution and control of a permanent energy planning system; b) obtaining the necessary elements for an accurate decision making at the qualitative level regarding specific energy options; c) developing a holistic energy model plan; and d) investigating sources that can replace non renewable energy. It was created by an agreement entered into force on February 15, 1984 between the MINAE, ICE, the Costa Rican Oil Refinery (RECOPE) and ARESEP.

More information at: Gloria Villa

Tel: +506 257-3662 Fax: +506 257-2434 E-mail: [email protected] www.dse.go.cr

Public Services Regulating Authority -ARESEP- The Law that created the ARESEP, transformed the former National Electricity Service (Servicio Nacional de Electricidad (SNE)), on its functions and duties of the ARESEP, it states that the Regulating Authority will fix prices and rates; in addition, it will take care of the compliance with quality,


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quantity, reliability, continuity, timeliness and best service. Among the defined public services we can mention the supply of electric energy in generation, transmission, distribution, and commercialization.

More information at: Fernando Herrero Acosta,

Regulator General

Adolfo Lobo,

Direction of Energy Tel: +506 220-0102 Fax: +506 290-2010 www.aresep.go.cr

Costa Rican Institute for Electricity (Instituto Costarricense de Electricidad –ICE)- The ICE, was created by the Special Law Nº449 dated April 8, 194952 as an autonomous institution in charge of the development of energy resources in the country. One of the duties of ICE is to develop in Costa Rica the energy producing sources, particularly water resources, and in stimulating the use of electricity for industrial and population development. Since 1963, ICE has undertaken the responsibility for establishing and operating the country’s telecommunication services. The ICE group is currently comprised of the “Compañía Nacional de Fuerza y Luz, S.A. (CNFL)”, Radiográfica Costarricense, S.A. (RACSA), the ICE-Electricidad and ICE-Telecommunications. The ICE participates in all the chain stages.

More information at: www.ice.go.cr

Tel: +506 220-62131

52 The Law To create ICE was amended by the laws: Nº2749 of May 24, 1961; Nº3003 of July 11, 1962; Nº3154 of July 31, 1963 and Nº5507 of April 19, 1974.

National Company for Power and Light (Compañía Nacional de Fuerza y Luz, S.A.-CNFL)- It was founded on April 8, 1941, as a corporation where the ICE has the majority of shares. Its mission is to contribute to the economic and social development of the country by supplying to the market a competitive electric service. The CNFL has become the dominant energy distribution and commercialization company in the Costa Rican market, although it only serves 2% of the national territory, it covers a total area of 903 km2 of the Large Metropolitan Area, including the capital city of San José. Besides buying from ICE, the CNFL has an installed capacity for power generation of 55.5 MW through the operation of seven hydroelectric plants.

More information at: Pablo Cob Saborío

General Manager Tel: +506 295-5020257-8647 E-mail: [email protected] www.cnfl.go.cr

Heredia Public Utility Service -ESPH- The Law Nº767 dated October 25, 1949, was enacted under the name of Municipal Electric Service of Heredia. In the Law Nº5889 dated April 1, 1976, it was created the Company for Public Utility Services of Heredia (ESPH). Law Nº 7789 dated April 30, 1998 transformed this company so it could adapt itself to the changes of the time. The ESPH has, besides electric energy distribution in the Province of Heredia, other three basic services for the population: potable water supply, public lighting, and sewage.

More information at: Allan Benavides Vílchez, General

Manager Tel: +506 562-3787 o 562-3788

Fax: +506 237-6566E-mail: [email protected] www.esph-sa.com


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Electric Service Management Board of Cartago (Junta Administrativa del Servicio Eléctrico de Cartago -JASEC)- Created through the Law Nº3300 dated July 23, 1964. In the Law Nº 7799 dated April 30, 1998 they transformed the company to adapt it to the new times. The JASEC is a public service company which supplies electricity to five towns in the Province of Cartago. Its main function is to exclusively supply the electric company of the municipality of Cartago with electricity.

More information at: Oscar Meneses, General Manager

Tel: +506 592-2828 Fax: +506 551-4529 E-mail: [email protected] ó [email protected]

Costa Rican Association of Energy Producers (Asociación Costarricense de Productores de Energía –ACOPE)- ACOPE was created in 1989, and currently represents more than 40 hydroelectric, wind and biomass private producers who generate in the country with a production capacity of 135 MW in total. It is important to point out that private generation has had an important boom in Costa Rica, despite the fact that the majority of the companies only generate energy to sell to ICE or the National Power and Light Company (Compañía Nacional de Fuerza y Luz (CNFL)). Private generation in Costa Rica is supported by Laws N° 7200 and 7508 that authorize the Autonomous or parallel Electric Generation.

More information at: Mario Alvarado, Director Executive

Tel: +506 258-4141 Fax: +506 258-4136 E-mail: [email protected]

COOPESANTOS R.L. This Cooperative was created in January 1965,

with the purpose of supplying electric energy to the area of Santos and Caraigres, covering the towns of Dota, Tarrazú, León Cortés, Acosta and part of the South and West of the El Guarco, Cartago, Desamparados, Aserrí and Mora towns. This cooperative covers a territory of 1,500 km2, with 1,200 km in distribution lines, serving a total of 125 communities with a population of 100,000 inhabitants who are directly benefited.

More information at: Elías Calderón Monge, Manager

Tel: +506 546-2525 Fax: +506 546-6173 E-mail: [email protected] www.coopesantos.com

COOPEGUANACASTE R. L. It was created in January 1965, aimed at providing its target population with electricity. This cooperative covers a territory of 1,500-2,000 km2, with approximately 2,000 km of distribution lines, serving some of the towns located at the North Zone and North Pacific of the country, directly benefiting around 33,200 members associated. Currently it is building the hydroelectric Canalete project that will have a capacity of 17.5 MW.

More information at: Harry Gutiérrez, General Manager

Tel: +506 680-2121 E-mail: [email protected] www.coopeguanacaste.com

COOPEALFARORUIZ R.L. was created in November 1972 to provide electric service to society. The Cooperative covers a territory of 250 km with distribution lines, serving the Alfaro Ruíz, Naranjo, Valverde Vega and San Ramón towns, directly benefitting around 5,000 persons.


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More information at: Erick Rojas, General Manager

Tel/Fax: +506 463-3273 E-mail: [email protected] www.coopealfaroruiz.com

COOPELESCA R.L. Was created in January 1965 with the purpose of providing electric service to the town of San Carlos and the north zone. This cooperative covers 4,956 km2, with about 2,200 km of distribution lines, serving some of the communities located in the Sarapiquí, San Carlos, San Ramón, Alajuela, los Chiles and Grecia towns, directly benefiting a total of 32,500 direct members. Coopelesca R.L. operates around 47,000 meters. It is participating in the generation stage with the Chocosuela hydroelectric Project with 4 machines in cascade form that generate 25.5 MW.

More information at: Omar Miranda Murillo, General

Manager Tel: +506 461-1550 Fax: +506-460-5755 E-mail: [email protected] www.coopelesca.co.cr

CONELÉCTRICAS R.L. On June 26, 1989 the four previously mentioned rural electrification cooperatives in Costa Rica, merged into one new cooperative called the National Consortium of Electrification Companies of Costa Rica R.L., known as Coneléctricas R.L. One of the main purposes of this union is to develop hydroelectric generation projects. The four cooperatives together provide electric service to a population of 500,0000 persons covering an area of 11,500 km2, which represents around 22% of the national territory.

More information at: Carlos Rodríguez, General Manager

Tel: +506 460-0044

Fax: +506-460-6363 E-mail: [email protected]


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4.4 EL SALVADOR

Figure 15 Political Map of the Republic of El Salvador 4.4.1 DESCRIPTION OF THE ENERGY SECTOR

General Information

El Salvador approved the General Electricity Law in 1996, which promotes free competition in power generation, transmission and distribution, as well as the restructure of the previous vertically integrated national power company - Executive Hydroelectric Commission of the Lempa River (Comisión Ejecutiva Hidroeléctrica del Río Lempa- CEL). This Law led to the privatization of the distribution system in 1998, to the sale of 276 MW generation plants in 1999 and to the privatization of the transmission system in the year 2000. Besides, this Act also established a regulating entity, the General Regulator of Electricity and Telecommunications (Superintendencia General de Electricidad y Telecomunicaciones (SIGET)), a Wholesale Market operator, and the Transactions Unit (UT). The Government of El Salvador decided to restructure the electric sector by establishing an attenuated vertical disintegration model (separated accounting per activity and neutrality of the transmission system), free access to the transmission and distribution network by third parties, insuring freedom of

entrance on objective and non discriminatory basis. The government also created several generation companies, and separated the generation coordination, maintenance and expansion of the transmission system. Besides, 4 electric distribution companies were created, which currently operate in specific regions of the country. The National Energy Council (CNE) was created in July 2006, as a private-public entity, in order to contribute to modify the pattern generation towards renewable energy, among other things, subject to the availability of the resources. In May 2007, the Government of El Salvador announced the Energy Policy, aimed to insure a reliable, secure and competitive energy supply, as a vital element to guarantee the quality of life of the population, the sustainable development of society and the competitiveness of the productive sectors53. Figure 16 presents a scheme of the changes of the electric structure in El Salvador.

Antes Ahora

Empresas Generadoras

Empresas Distribuidoras

Transmisión: ETESAL

Generación

Transmisión

Distribución

CELCEL

MercadoMercadoMayoristaMayorista

(UT)(UT)

EEODEUSEM

CAESS CLESA

DELSUR

SIGET (Ente Regulador)

(Políticas y Planificación)DGEE

Antes Ahora

Empresas Generadoras

Empresas Distribuidoras

Transmisión: ETESAL

Generación

Transmisión

Distribución

CELCEL

MercadoMercadoMayoristaMayorista

(UT)(UT)

EEODEUSEM

CAESS CLESA

DELSUR

SIGET (Ente Regulador)

(Políticas y Planificación)DGEE

Fuente: BUN-CA, 2003

Figure 16. Change in the Structure of the Electric sector in El Salvador Generation: As of 2006, El Salvador had an installed capacity of 1,186.3 MW. The distribution corresponds on 460.9 MW to hydroelectric plant generation (39%), 151.2 MW to geothermal plants (13%), 53 Energy Policy. Government of El Salvador, May, 2007.


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and 574.8 MW to fossil fuel plants (48%)54. The annual energy demand growth in El Salvador ranges between 6% and 7%, which evidences the need to increase the capacity of the system in at least 50 MW per year, since production capacity has not been increased in this same ratio, and consequently, in order to satisfy the internal demand it is necessary to import energy.55 . Although it is true that El Salvador has used the import mechanism due to its commercial advantages, the country has had the necessary installed capacity (with its reserve) to cover the domestic demand. Besides, a national policy for capacity increment was implemented. Proof of this has been the re-powering of the hydroelectric plants (84 MW), owned by the “Comisión Ejecutiva Hidroeléctrica del Río Lempa” (CEL). In addition, the 50 MW Thermal Plant of Talnique was built, through the incorporation of the company “Inversiones Energéticas INE”, property of CEL), which started up in late 2006. The 44 MW Unit 3 of the Geothermal Plant in Berlin was built by LaGeo between 2005 and 2006 and started operations in April 2007. In mid 2007, the production of the Geothermal Field of Berlin was increased in 10 MW with a Binary Cycle project. As of 2006, the State owned electricity company “CEL”, which is the main hydroelectric company in El Salvador, completed the rehabilitation and re-powering process of its 4 hydroelectric plants, and is also considering the construction of new plants as a result of the market growth perspective. CEL already concluded the modernization cycle of 10 of the units installed in its four hydroelectric plants. This process 54 Ibid 30 55 “Profound Energy Changes Requested”, El Salvador.com, August 15, 2003.

initiated in the year 2000, and increased CEL’s generation system in 21%, additional 84 MW. By the year 2007, CEL will have an installed capacity of 472 MW. The total investment of this process was USD 64 million. Transmission: The transmission system is operated under the responsibility of the Electric Transmission Company of El Salvador (“Empresa de Transmisión Eléctrica de El Salvador (ETESAL)), and CEL is the major shareholder. There is an electric interconnection system with Guatemala and Honduras (called Northern Triangle), which is extremely important for El Salvador, since it allows to import energy. Distribution: This is a totally privatized sector in El Salvador, divided between 5 companies distributed in the urban and rural areas, which serve 1,314,890 customers. These distributing companies are CAESS (Compañía de Alumbrado Eléctrico de San Salvador), CLESA (Compañía de Luz Eléctrica de Santa Ana), EEO (Empresa Eléctrica de Oriente) and DEUSEM (Distribuidora Eléctrica de Usulután) –owned by the US Corporation AES – which all together serve approximately 75% of the market; and the other distribution company DELSUR (Distribuidora del Sur), - owned by PPL Global- serves the remaining 25 % of the users. In 2006, the peak demand reached 872 MW56. Plant generation injections amounted to 6,194 GWh in 2006, of which 38% corresponded to hydroelectric plants, 20% to geothermal, 40% to fossil fuel and 2% to biomass57. Legal Framework targeted at Renewable Energy The main renewable energy legislation of El Salvador includes: 56 Statistics Bulletin. Transactions Unit S.A., January-December 2006 57 Ibid 30


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Decree Nº 843, dated October 10, 1996, the general Electricity Act and its Regulation (Ley General de Electricidad y su Reglamento) Agreement Nº70, dated July 25, 1997).

Decree Nº354 dated July 10, 1998, National Electricity and Telecommunications Investment Fund Act (Ley del Fondo de Inversión Nacional de Electricidad y Telefonía).

SIGET Agreement NºE-13-99, dated July 19, 1999, Regulation for the Operation of the Transmission System and the Wholesale Market (Reglamento de Operación del Sistema de Transmisión y del Mercado Mayorista).

Agreement N° 27, dated January 11, 2001 of the Ministry of Economy, by which the Electric Energy Directorate was established.

SIGET Agreement N° 59-E-2001 dated August 14, 2001, Norm applicable to the bidding process for the granting of geothermal and hydraulic resource concession for electric generation purposes.

Decree Nº1216, dated April, 2003, Reforms to the General Electricity Act.

In June 2007, the Presidency of the Republic, through the Ministry of Economy, the Ministry of Environment and Natural Resources and the Ministry of Finances, submitted the Law proposal “Fiscal Incentives for the Promotion of Renewable Energy” to the Legislative Assembly. (www.minec.gob.sv). Electric Market The wholesale Market of El Salvador, is comprised of the Contracts Market (MC) and the Market for System Regulation (MRS), which is managed and operated by the Transactions Unit (Unidad de

Transacciones S.A. de C. V. (UT)). The UT operates the Market for System Regulation and uses the Contract Market for the scheduled dispatch. Generators, distributors and traders, in addition to the large consumers of more than 5 MW capacity can participate in the UT. The generation scheme is highly dependent form the rainy season, because the hydroelectric plants produce approximately 40% of the total capacity of the country. The operation norms of the Transmission System and the Wholesale Market are set forth in the Operations Regulation issued by the UT for this effect. Although the WM Operations Regulation does not allow the direct participation of producers with a capacity below 5 MW, the Commercialization Regulation approved in November, 2000 incorporates other mechanisms that enable their participation in the WM as a “market indirect agent”, which operates through the distribution networks in their respective zones. One way to insure the participation of small producers, within the current legal and institutional framework, is through the creation of marketing entities capable of managing the risks inherent to this activity. Figure 17 shows the type of electric market that operates in El Salvador .


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GENERACION DISTRIBUCIONTRANSMISIÓN:ETESAL

MERCADO MAYORISTA

(UT)CONSUMIDORES

Generación Generación PúblicaPública

Generación Generación PrivadaPrivada

ImportacionesImportaciones

Grandes Grandes ConsumidoresConsumidores

UsuariosUsuariosFinalesFinales

ExportaciónExportación

Mercado deMercado deContratos Contratos

MercadoMercadoReguladorRegulador deldel

SistemaSistema

ComercializadorasComercializadoras

GENERACION DISTRIBUCIONTRANSMISIÓN:ETESAL

MERCADO MAYORISTA

(UT)CONSUMIDORESGENERACION DISTRIBUCIONTRANSMISIÓN:

ETESAL

MERCADO MAYORISTA

(UT)CONSUMIDORES





















SistemaSistema




SistemaSistema



Figure 17.Chart of the Electric Market in El Salvador 4.4.2 CLEAN DEVELOPMENT NATIONAL POLICY

El Salvador, upon subscribing and ratifying the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol, has recognized that the human activities affect the emission of greenhouse gases (GHG), and therefore commits to follow worldwide efforts to mitigate the climate change. The Ministry of the Environment (MARN), with the support of the World Bank Carbon Finance, developed the Electric Sector Baseline Study of El Salvador in 2003, which determined that for small scale projects (with a capacity equal to or lower than 15 MW), and new energy efficiency projects (lower than or equal to 15 GWh savings per year), the emission factor was calculated based on

the “Combined Margin” methodology, recommended by the Executive Board of the CDM, obtaining an emission factor for El Salvador of 0.609 tons of CO2 per MWh58. National Structure of the Clean Development Mechanism in El Salvador The Ministry of the Environment and Natural Resources (MARN for it Spanish Acronym) was appointed by the Secretariat of the Convention on Climate Change as the Designated National Authority for the Clean Development Mechanism in El Salvador, with the purpose of supporting and developing activities aimed at implementing CDM in the country. The Management of Physical Resources and Energy was created within the organizational chart of the Ministry of the Environment and Natural Resources (MARN) in which the Clean Development Unit operates. This Unit has been entrusted with the implementation of the activities related to CDM in El Salvador, and works in coordination with the Focal Point of the 58 MARN, Carbon Fund. Baseline Study for the Electric Sector of El Salvador. Page. 1. San Salvador, 2003. Updated 2006.



Date of Ratification: December 4, 1995

Kyoto Protocol


Date of Ratification: November 30, 1998


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United Nations Framework Convention on Climate Change. Two Advisory Technical Committees were set up by the government as part of the national structure of the CDM in El Salvador, which support the actions and positions of the country regarding CDM,

specifically in the reduction of the Green House Gas emissions and carbon sequestration. As a result of these efforts, El Salvador negotiated a CDM project portfolio in 2006, which together shall reduce 563,232 tons of carbon dioxide per year.

4.4.3 RELEVANT ORGANIZATIONS Ministry of the Environment and Natural Resources – (MARN for its Spanish acronym) - The MARN is the Designated National Authority for Climate Change and CDM in El Salvador. This Ministry acknowledges the necessity to coordinate efforts, aimed at executing actions to protect the environment and the sustainable management of the country’s natural resources, reason why it links its work with all the society sectors. More information at:

Ing. Rebeca Magaña Tel: +503 2267 9334 [email protected] www.marn.gob.sv

Direction of Electric Energy - (DEE for its Spanish Acronym) - The DEE is a special technical Administrative Unit attached to the Ministry of Economy. It was created through Agreement Nº27 of January 11, 2001 with the purpose of aiding this Ministry as the regulator entity of the electric sector policies in El Salvador. More information at:

Ing. Jorge Rovira, General Director Tel: +503 2231 – 5843 E-mail: [email protected]

General Superintendence for Electricity and Telecommunications -SIGET- The SIGET was established in

1996 by the Law to Create the SIGET. This is an autonomous institution whose highest authority is the General Superintendent appointed by the President of the Republic. This institution is responsible for insuring the compliance with all the laws and regulations applicable to electricity and telecommunications in El Salvador. The duties of SIGET include: seeking for the quality of the services, approve the tariffs established by the distributors within their geographical areas of distribution, enforce the electricity sector regulatory requirements, sanction the incompliance to its regulation, resolve conflicts between operators and coordinate with the environmental authorities. More information at:

Ing. Giovanni Hernández Electricity Manager Tel: +503 2257 4438 y 79 E-mail: [email protected]

Transactions Unit- (UT for its Spanish Acronym)- The General Electricity Law assigns to the Transactions Unit (UT) the responsibility as Market Administrator and Independent Operator of the Transmission System, in which all operators and final users participate. The UT manages the power system of El Salvador, and oversees the quality and reliability of the electric service supply, and of the commercial operation of the markets established by the General


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Electricity Law; for instance the Contracts Market and the System Regulator Market (MRS for its Spanish acronym). More information at:

Ing. Luis González, General Manager Tel: +503 2247-7300 Fax: +503 2247-7301 E-mail: [email protected]

Ing. Benjamín Mejía

E mail: [email protected] www.ut.com.sv

Hydroelectric Executive Commission of the Lempa River -CEL- This entity was created through the Executive Decree for the Creation of CEL dated October 3, 1945, Published in the Official Gazette Nº139 dated October 8 of that same year. Since its creation CEL was the single company in charge of all the electric sector activities. In 1996, with the approval of the General Electricity Law, CEL split its main activities in order to organize independent companies within the electric market, and promote the higher possible competitiveness within the sector. In 1998 the electricity distribution was privatized, thus separating activities and creating GESAL (Salvadoran Geothermal, 1999 – currently LaGeo) and ETESAL (Salvadoran Transmission Company, 1999). In 1999, the company Duke Energy bought the fossil fuel generation facilities. In accordance with the provisions of the Law, CEL has become an electric energy generation company that uses and takes care of the water resources of the country, and competes in the market together with other energy generators. In 2004, CEL signed a Cooperation Agreement on Wind Energy with the UCA and MARN, reason why, since June 2006 the country has measures of the wind energy power at the Cerro Verde

(San Isidro), Metapán (La Hachadura), Ahuachapán and la Unión (Monteca). More information at:

Ing. Alvaro Ibarra Director of the Wind Project Tel. + 503 2211 6284 E mail: [email protected] www.cel.gob.sv

Transmission Company of El Salvador (Compañía de Transmisión de El Salvador, S.A.) -ETESAL- Initiated operations on October 1, 1999. This company resulted from the transformation of CEL’s Transmission Division during the modernization process of the system, initiated in 1996, with the main responsibility to operate the national electric transmission system. ETESAL expansion plans respond to the demand growth analysis, and to the identified need to expand the transmission system and the domestic electric development policies59. More information at:

Ing. José Ernesto Gálvez Orellana, General Manager Tel: +503 2211-6600 Fax. +503 2211-6663 E-mail: [email protected]

Geotérmica Salvadoreña, S.A.-LaGeo- (Salvadoran Geothermal) Started as an independent generator as of November 1, 1999 with the start up of operations of the geothermal plants in Ahuachapán with 95 MW and in Berlín with 56.2 MW, as a product of the transformation process of CEL’s Geothermal Division. Regarding the renawable energies, LaGeo is researching on solar, ocean tide energy, biofuels, and hydrogen projects, among others. In addition, it is working jointly 59 Review the reforms to the General Electricity Act issued in 2003 at ww.siget.gob.sv


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with the CCAD and HSBC in the drafting of a Practical Guide for Renewable Energy Project Developers. More information at:

Lic. José Antonio Rodríguez General Manager Tel. + 503 2211 6703

E mail [email protected]

Ing. Salvador Handal Renewable Energy Project Coordinator E mail: [email protected] Tel. + 503 2211 6793


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4.5 GUATEMALA

Figure 18. Political Map of the Republic of Guatemala.

4.5.1 DESCRIPTION OF THE ELECTRIC SECTOR

General Information

Guatemala initiated the reform process of the electric sub sector with the enactment of the 1996 General Electricity Law (Ley General de Electricidad (LGE)). This law norms the development of the energy generation, transportation, distribution and commercialization activities, according to principles and statements applicable to all natural or legal persons, with a private, private-public, or state share, regardless of their level of autonomy, or constitution regime.

Figure 19 shows the transition of the electric market in Guatemala.

Figure 19. Change in the structure of the electric sector in Guatemala.

Generation: As of December 2006, Guatemala had an installed capacity of 2,111.7 MW. Of this capacity 738 MW corresponded to generation with hydroelectric plants, 29 MW to geothermal plants, 322 MW to sugar cane bagasse generators, and 1,028 MW to those that use oil derivates and coal.

In the year 2006, the generation was 7,916 GWh – public sector with 2,335 GWh and 5,581 GWH by the private sector - of which 93.94% corresponded to the generation for the National Interconnected System, 5.19% to self producers, while the remaining 0.87% was generated to cover the demand in


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remote areas. As far as generation by type of resource used, 52.61% corresponded to the use of renewable energy sources (hydro energy, geo energy and sugar cane bagasse), while 47.38% was generated from coal and oil derivatives.

Transportation: The transportation system is divided into the main and the secondary systems. The main system, shared by all generators, is currently owned by the INDE and operated by the Electric Energy Transportation and Control Company (Empresa de Transporte y Control de Energía Eléctrica (ETCEE)); the system also includes the Guatemala - El Salvador – Honduras interconnection. The secondary system is comprised of the electric infrastructure other than the main system and the distribution networks by exclusion. It is operated by the Central American Electric Transportation Company (Transportista Eléctrica Centro Americana S.A. (TRELEC)).

Distribution: In 1998 the companies “Unión FENOSA” and “Iberdrola” acquired the distribution in Guatemala. Iberdrola supplies the Central Zone of Guatemala with electric energy (Empresa Eléctrica de Guatemala Sociedad Anónima, EEGSA); while the Distribuidora de Electricidad de Occidente, Sociedad Anónima (DEOCSA), supplies the western part of the country and the Distribuidora de Electricidad de Oriente, Sociedad Anónima (DEORSA) covers the eastern part of the country, both owned by “Unión Fenosa”. There are other companies besides the ones mentioned that distribute energy, like for example the 13 municipalities electric companies (EEM) and some other private distribution companies in isolated systems, adding up to a total of 16 distribution companies in the country.

The maximum demand reached 1,380 MW in 2006.

Commercialization: There are 7 electric commercialization companies of which

COMEGSA (Comercializadora Eléctrica de Guatemala S.A.), is one. This company was created by “Empresa Eléctrica de Guatemala EEGSA”. COMEGSA is not committed by the Energy Purchase Sales Contracts and they can buy at the Wholesale Market at prices below than the ones that EEGSA has to pay due to the purchase contracts undersigned before 1998, which were re negotiated to adapt them to the General Electricity Law. As a result of this, it has attracted many of the large consumers that were previously supplied by EEGSA.

Guatemala exchanges energy with El Salvador, where the Guatemalan market serves the electric system of El Salvador, if there is not a deficit risk, which is estimated as the mean demand of 25 MW during the year.

Legal Framework targeted on Renewable Energy

The Ministry of Energy and Mines (MEM) policy is aimed at fostering the development of renewable sources, allowing in the mid and long term to attract investors interested in the renewable energy sector, consequently improving the environmental quality of the energy sector.

Among the most important renewable energy legislation in Guatemala, it is worthwhile mentioning:

Political Constitution of the Republic of Guatemala

Decree Nº93-96, dated November 13, 1996, General Electricity Law

Government Agreement Nº256-97, dated March 21, 1997, Regulation of the General Electricity Law

Government Agreement Nº299-98, dated May 25, 1998, Regulation of the Wholesale Market Manager

Trade and Operational Coordination Standards of the Wholesale Market Manager


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Decree Nº52-2003, dated October 28, 2003. Law of Incentives for the development of renewable energy projects

Government Agreement No. 63-2007, Policy for the Preservation, Protection, and Improvement of the Environment and Natural Resources. March, 2007

Electric Market

The wholesale electric market of Guatemala has a twofold structure: Power and Energy markets. The Power Market seeks to promote private investments in Guatemala. This market obliges large consumers to contract the maximum net projected power for at least one year, plus a reserve charge of (3%), plus total losses of the transmission system. (+ 4.5%).

The offer is based on 1 year history of the generator, since they are not available in 100% all year round. Hydroelectricity generators without a reservoir have problems since they cannot guarantee energy during peak hours, (4 hours a day), therefore this type of contract does not have any minimum or maximum time restrictions.

This market seeks the identification and transparency among fixed costs (FC) and variable costs (VC) and there are market mechanisms, like the economic signals to compensate both types of costs. Energy and power products are identified, as well as quality and reliability services, such as the toll service. These products and services are bought and sold among agents and through specific markets.

The Energy Market seeks to guarantee the energy demand and exchange among participants. The costs per “machine” are determined in 4 manners in this market:

Generation variable costs for oil based companies (fuel and not fuels)

The price of water for hydro companies: water prices are supplied by the generator in accordance with

its own methodology which is reviewed quarterly a year.

Energy contract prices are freely agreed among the parties.

Energy import supply.

On the other hand, within the legal and institutional framework of the Electric sub sector of Guatemala it is important to highlight the modalities of the electric market and types of contracts, defined as:

o The opportunity or spot market: for price based on the short term marginal price.

o Bilateral Transactions: term contracts (firm contracts freely agreed among the parties)

o Power deviation market: Not firm contracts with interruptible demand and a price established by the AMM on a monthly bases.

On the consumer’s side:

o Free market (large users with a power demand over 100Kw) and a regulated market (regulated users with a power demand below 100 Kw).

Some of the main guidelines that define the participation in the wholesale market, as established by the Regulation for the Wholesale Market Manager (article 5), include:

Generators should have a maximum power over 10 MW.

Distributors should have more than 20,000 users.

Transporters should have a firm connected power over 10 MW.

Commercializers (including importers and exporters) should buy or sell in blocks over 10 MW.

Large users should have a demand equal or over 100 kW.

Figure 20 shows the electric market share in Guatemala


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Figure 20.Chart of the electric market in Guatemala


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4.5.2 NATIONAL ACTIVITIES IN THE CLEAN DEVELOPMENT MECHANISM (CDM)

The national activities within the CDM represent opportunities to attract direct foreign investment to significantly support electric generation projects with renewable sources, among other, that reduce or avoid the emission of greenhouse gasses into the atmosphere and thus contribute to the sustainable development of the country.

In Guatemala the National Office for Clean Development – ONDL – supports the Ministry of Environment and Natural Resources for the projects analysis and its contribution to the sustainable development of the country. The Ministry of Environment and Natural Resources due the Governmental Agreement No. 388-2005 was legally constituted as the Designated National Authority (DNA), responsible for the Clean Development Mechanism.

More Information at: Raúl Castañeda Illescas

National Office on Clean Development Ministry of the Environment and Natural Resources E-mail: [email protected] TEL: (502) 242-30500 www.marn.gob.gt

4.5.3 RELEVANT ORGANIZATIONS

Ministry of the Environment and Natural Resources (MARN for its acronym in Spanish)

Is the governmental body in charge of the formulation and execution of the policies regarding the enforcement of the regime for the preservation, protection, sustainability and improvement of the environment and the natural resources, as well as the human right to a healthy and ecologically balanced environment, preventing pollution, reducing the depletion of the environment, and the loss of our natural heritage. Regarding the development of renewable energy, the MARN is empowered to: “Control environmental quality, approve environmental impact assessments –EIA-, put them in practice in the event of environmental hazards and seek for their compliance as well as sanctioning their incompliance”60

More information at: Carlos Abel Noriega

Direction of Enviromental Management and Natural Resources

Ministry of Environment and Natural Resources

E-mail: [email protected]

Tel: (502)242-30500 www.marn.gob.gt

National Program on Climate Change –Ministry of the Environment and Natural Resources.

Upon ratifying the UNFCCC, Guatemala carried out activities to comply with the commitments undertaken as part of the Convention. The first step was to sign and ratify the Kyoto Protocol in July 1998 and July 1999 respectively.

60 Law for the Creation of the Ministry of the Environment and natural Resources, Art. 3

Date of signing: June 13, 1992 Ratification Date: March 28, 1995 through Legislative Decree No. 15-95, the ratification instrument was deposited at the United Nations Secretariat on December 15, 1995.

Kyoto Protocol

Date of signing: July 10, 1998

Ratification Date: July 7, 1999,

Through Legislative Decree No.-23-99



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It submitted the First National Communication on Climate Change in 2001, and at the end of 2003 it created the National Climate Change Program by means of Agreement No. 134-2003 of the Ministry of the Environment and Natural Resources.

The National Inventory on Greenhouse Gasses was done through the National Program on Climate Change, using 1990 as the baseline year. To this date, they have also worked on the preliminary assessment on greenhouse gasses, based on the year 2000.

Other activities of the National Program for Climate Change include studies and the preparation of climate, social and economic scenarios as part of the research on the vulnerability and adaptation to climate change.

Besides, regional and local strategies have been promoted to identify, quantify and reduce the negative impact of global warming and the change and variance of the climate. These activities are mainly aimed at the energy sector, agriculture, and the change in the use of land and forestry.

More information at: Carlos Enrique Mansilla M.

Coordinator of the National Program on Climate Change E-mail: [email protected] [email protected] TEL: (502) 242-30500, ext. 2306

www.marn.gob.gt

Ministry of Energy and Mines -MEM- Is the governmental institution in charge of drafting and coordinate state policies, plans and programs of the electric sub sector, and the enforcement of the General Electricity Law and its regulation.61 It is also responsible for granting the authorizations to install the electric generating plants, transportation services, and final 61 Ley General de Electricidad, Art. 3

distribution of electricity, and the constitution of indefinite easements in public and private property; prepare the social and economic assessment reports in order to grant the resources to fully or partially pay electrification investment projects and rural electrification for social and public utility.

More information at:

Jorge Alberto Asturias Ministry of Energy and Mines E-mail: [email protected] TEL: (502) 24760680 www.mem.gob.gt

General Energy Directorate -DGE- Is the dependency of the Ministry of Energy and Mines aimed at drafting and coordinate the State policies and plans as well as indicatives plans, to promote the use of renewable energy and the efficient use of energy resources to enhance the quality of life of the Guatemalan population. The Electricity Department is in charge of providing the terms of reference and gives the permissions to allow the project developers to use the public domain resources.

More information at: Victor Hugo Araujo

Director of Energy and Mines E-mail: [email protected] TEL: (502) 477-0746 / 477-0747 www.mem.gob.gt/energia/index.htm

National Commission for Electric Energy (Comisión Nacional de Energía Eléctrica –CNEE) - Is the technical body of the Ministry of Energy and Mines, which operates independently to exercise its duties, in charge of the following activities, among other:62

62 General Electricity Law, Art. 4


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Comply with, and enforce the General Electricity Law and its Regulation, and impose sanctions to wrongdoers.

Seek for the compliance with the obligations of the awarders and concessionaires, protect the user’s rights and prevent behaviors that attempt against free competition as well as abusive or discriminatory practices.

Define the transmission and distribution rates, subject to regulations in accordance with the General Electricity Law, as well as the methodology to calculate these.

More information at: Sergio O. Velásquez M.

National Commission on Electric Energy, CNEE E-mail: [email protected] TEL: (502) 2366-4202 www.cnee.gob.gt

Wholesale Market Manager -AMM- The wholesale market was installed in 1998, as the body in charge of the set of purchase and sales operations of the energy and potency blocks, which are carried out at the short and long term among market agents. Its operation is regulated by the General Electricity Law, its Regulation and the Regulation for the Wholesale Market Manager (Governmental Agreement Nº299-98). The management of the wholesale market is in charge of a private non profit entity, named the Wholesale Market Manager (Administrador del Mercado Mayorista –AMM-). Among the main duties of the AMM are: a) coordinate the operations of generating plants, the minimum cost for international interconnections and transportation lines for the set of operations of the wholesale market, b) establish the short term market prices for power and energy transfers among generators, commercializes, distributors, importers and exporters, when

they do not correspond to freely agreed long term contracts, and c) guarantee the security and supply of electric energy.

More information at: Yury Urbina

Tel: (502) 233-27901 E-mail: [email protected] www.amm.org.gt

National Electrification Institute (Instituto Nacional de Electrificación-INDE-) was established in 1959, in accordance with Decree Nº1287, as a semi autonomous and decentralized entity of the State. The INDE had the monopoly of the electric service and operated as the sub sector ruler. Currently, it participates in the electric market as the transportation agent through the “Empresa de Transporte y Control de Energía Eléctrica -ETCEE-” providing service to all the agents of the National Interconnected System (Sistema Nacional Interconectado –SNI-), and to the exporters and importers. The “Empresa de Generación de Energía Eléctrica –EGEE-”, is also part of the “Grupo INDE”. In 1994 the sub sector started its reforms with the elimination of the monopoly and the ruling role of INDE and in 1997 due the change in the regulating framework of the sub sector, INDE decided to restructure the company carrying out processes to segregate operations.

More information at: Julio Roberto Alvarez

National Institute of Electrification INDE Tel: (502) 242-21920 E-mail: [email protected] www.inde.gob.gt

Private Generators: As of 1992 the Government allowed the private sector participation in the electric generation, several generating plants were built through exclusive supply contracts with EEGSA and INDE. The liberalization of the electric


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market in 1996, opened the participation of the private sector in the electric generation sector, represented by the National Generation Association (Asociación Nacional de Generaciones (ANG)), and they also created the Association of Renewable Energy Generators (Asociación de Generadores con Energía Renovable (AGER)). As of 2006, the private generation of electric energy represented around 70% of the total energy produced in the country63.

More information at: Karla Sobalvarro

National Generation Association, ANG TEL: (502) 2333-4955 E-mail: [email protected]

Cristhian Escobar Association of Renewable Energy Generators, AGER Tel: (502) 2334-4848 E-mail: [email protected] www.ager.org.gt

63 Energy Statistics. Electric Sub sector, 2001-2006, Ministry of Energy and Mines.


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4.6 HONDURAS

Figure 21. Political Map of the Republic of Honduras 4.6.1 DESCRIPTION OF THE ENERGY SECTOR

General Information The development of the electric sub sector in Honduras is grounded on the National Energy Company (Empresa Nacional de Energía Eléctrica (ENEE)), the National Energy Commission (la Comisión Nacional de Energía (CNE)) and the Secretariat of State for Natural Resources and the Environment (Secretaría de Estado de Recursos Naturales y Ambiente (SERNA)), through the Energy Directorate, which have the specific duty to operate the system, regulate and establish standards and promote the electric sub sector respectively. Currently, there is a State Commission for Modernization, attached to the Presidency of the Republic, that is currently analyzing the new Regulatory Framework for the Electric Sub Sector in Honduras, as a continuation of the provisions set forth in the Framework Law of the Energy Sub sector, approved in 1994; by which it maintained the segmentation of the ENEE in generation, transmission, and distribution and the promotion of the electric generation

with renewable sources, for which the National Congress approved on June 1, 2007 the Law for the Promotion of Energy from Renewable Sources, aimed at, among other, fostering the investment and development of energy projects, using natural resources thus allowing to reduce the dependency on imported fuels. Generation: The electric generation installed capacity of Honduras as of 2006 was 1,548 MW. From this total, 30% (464.4 MW) are the ENEE hydroelectric plants, 8% (124,6 MW) ENEE fossil fuel plants, 3,9% (59,8 MW) biomass, 2,5% (38,5 MW) hydraulic plants for the private sector and the remaining 55,6% (860.7MW) there are private sector fossil fuel plants. In the year 2007 the Interconnected National System (Sistema Nacional Interconectado (SIN)) accounted a consumption of 2,515,043 gallons of diesel among the ENEE plants and rentals, equivalent to 31% of the consumption in hydrocarbons at the national level. Figure 22 shows the distribution of the generation according to source. Figure 22 Installed Capacity in Honduras by Source (MW)

Térmica; 985.34

Biomasa; 59.8

Hidraúlica ; 502.7

Source: www.enee.hn The current electric system of Honduras has seven hydroelectric plants and seven fossil fuel plants owned by the ENEE. It is worthwhile highlight that the Hydroelectric Plant in Francisco Morazán (El Cajón), with an installed capacity of 300 MW represents


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around 20% of the total generation capacity of the country. In addition to the ENEE plants, as of 2006 there were eight private hydraulic power plants in Honduras (La Nieve, Zacapa, La Esperanza, Babilonia, Yojoa, Río Blanco, Cececapa and Cuyamapa) with a capacity between 480 KW and 12 MW, in addition to four large private fossil fuel generation companies64, which are: ELCOSA, EMCE, LUFUSSA y ENERSA. Transmission: The transmission system is also operated by the ENEE. This system is interconnected to the electric systems in Guatemala and El Salvador, comprised of the so called “Triángulo del Norte” (Northern Triangle). Honduras is also interconnected with Nicaragua, Costa Rica and Panama by a transmission line of 230 KW. The National Interconnected System coordinates its operation through the National Dispatch Center, attached to the ENEE. Distribution: the electric distribution is under the responsibility of the ENEE due to the vertical integration of the electric sector in Honduras. As of today it covers 70.72% of the total Honduran population (ENEE, May 2007). Legal Framework Targeted on Renewable Energy Among the legislation to promote renewable energy it is worthwhile highlighting the 1994 Framework Law of the Energy Sub Sector (Decree Nº158-94, Published in the Official Gazette dated November 26, 1994, Framework Law of the Energy Sub Sector and its Regulation, Agreement Nº934-97, published in the Official Gazette dated April 4, 1998), which 64 http://www.enee.hn/sin1.htm

regulates electric energy generation, transmission, distribution and commercialization activities in Honduras. This Law is deemed as a very important step forward in the promotion of private investment, since it allows the participation of the private sector in both energy generation and transmission. The following amendments to this first effort in 1994 were made by the Honduran National Congress on a later date, to promote generation based on renewable sources:

Decree Nº 85-98, dated April 1998, Law for the Renewable Energy Incentives published in the Official Gazette of April 29, 1998

Decree Nº 131-98, published in the

Official Gazette dated May 20, 1998

Decree Nº 89-98, published in the Official Gazette dated October 22, 1998

Decree Nº 267-98 published in the

Official Gazette dated December 5, 1998, containing a series of amendments to the Incentives for Renewable Energy Law.

Decree Nº 176-99, Published in the

Official Gazette dated February 23, 2000


Official Gazette dated July 4, 2000

Decree Nº 9-2001, Published in the Official Gazette dated May 21, 2001


Official Gazette dated October 14, 2003.

In order to continue with the promotion of renewable energy, the National Congress approved a new Law on June 1, 2007, “Law


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for the Promotion of Electric Energy Generation with Renewable Resources” (Ley para la Promoción de la Generación de Energía Eléctrica con Recursos Renovables) which came to replace the Incentives Law published in 1998. This new Law contains fiscal incentives for energy projects construction, production, and sales; in addition the incentives are linked to the kilowatt-hour prices. The incentives offered in the 1998 Incentives Law remain in force and longer terms and better guarantees are offered for any new projects, notwithstanding that the new Law has not yet been passed and has not yet been published in the Official Gazette. Electric market Honduras has been very proactive in the promotion of its energy renewable sources and offers one of the most attractive incentive packages in all Central America, with “standardized” long term power purchase agreements, including tax exemptions, an additional payment for the energy generated by renewable energy and a dispatch guarantee, thus expanding the scope of incentives with this new Promotion Law. According to the data compiled by the BUN-CA, as of the year 2006, there were around 25 renewable energy projects that have submitted requests to formalize power purchase-sales agreements for a new capacity between 150-190 MW, distributed as follows: 90 MW hydro, 10 MW biomass, 60 MW wind and 30 MW in geothermal. The Honduran electric market is vertically integrated. Every project interconnected to the electric network must negotiate the sales of energy with the ENEE, since it is the only entity authorized by Law to buy energy from private developers. The baseline price paid by the power purchase agreements could be a maximum

price equal to the Short Term Marginal Cost (CMCP for its acronym in Spanish), which remains unchanged as a reference for the contract throughout the effective term of the contract which can be up to 15 years, with a 1.5% annual increase for a maximum term of 11 years. According to the Framework Law the production of energy through the construction or leasing of generating plants or units or through any other means is allowed. Likewise, the electric energy generating companies private or mixed, that use renewable and sustainable resources to sell their production shall have the following options:

Sell directly to a consumer or distributing company in which case it should build the lines needed to connect to the national network owned by ENEE, or pay the transmission toll costs.

If the sale is at the initiative of a private

or public-private company, the ENEE shall pay a maximum price equal to the short term marginal cost, calculated by the ENEE and approved by the National Energy Commission (CNE for its acronym is Spanish), plus a ten percent incentive (10%). The dispatch of this energy is a priority over the fossil fuel or oil derivatives plants.

The Figure 23 shows the current electric market of Honduras.


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GENERACION DISTRIBUCIONTRANSMISIÓN:ENEE

COMPRADOR ÚNICO(ENEE) CONSUMIDORES

ENEEENEE




ENEEENEE



GENERACION DISTRIBUCIONTRANSMISIÓN:ENEE

COMPRADOR ÚNICO(ENEE) CONSUMIDORESGENERACION DISTRIBUCIONTRANSMISIÓN:

ENEE

COMPRADOR ÚNICO(ENEE) CONSUMIDORES

ENEEENEE







ENEEENEE



ENEEENEE



ENEEENEE




Figure 23. Scheme of the electric market in Honduras

4.6.2 CLEAN DEVELOPMENT NATIONAL POLICY

The CDM actions related with energy are in charge of the Energy General Directorate (DGE), which is part of the Secretariat of State for Natural Resources and the Environment (SERNA) in Honduras. The DGE should identify the energy projects that could be eligible for the Clean Development Mechanism of the Kyoto Protocol. The country has also developed a national Greenhouse Inventory (GHI), based on the year 1995 to calculate emission reductions. The sectors included in the inventory are energy, industrial processes, agriculture, changes in the use of land and waste management. As of the year 2006, Honduras had 10 projects listed in the Clean Development Mechanism, 9 hydroelectric power plants in different stages of the projects cycle, with a total of 177,636

Tons of CO2 e/year, and 1 project for methane sequestration with a reduction potential of 23,023 tons of CO2e/year. For 2007 a total of 6 projects have requested to be recorded at the UNFCCC; 5 co-generation with biomass projects (558,589 Tons of CO2 e/year), and 1 methane sequestration project (13,034 Ton CO2 e/year65). 4.6.3 RELEVANT ORGANIZATIONS Secretariat of State for Natural Resources and the Environment -SERNA- Was created by means of the Decree Nº 218-96 dated December 17, 1996, published at the Official Gazette Nº 28148 of December 30, 1996, with the following duties:

Formulation, coordination, execution and assessment of the polices related to the protection and use of the hydro resources, the new and renewable sources of energy;

All activities related to the hydroelectric and geothermal energy generation and transmission, as well as the mining activity and fossil fuel exploration and exploitation;

65 SERNA, e-mail communication, July, 09,2007

Date of signing: June 13, 1992 Ratification Date: October 19, 1995.

Kyoto Protocol

Date of signing: February 25, 1999 Ratification Date: July 19, 2000



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Coordination and assessment of the policies related to the environment, ecosystems, the national system of natural protected areas, and national parks and the protection of the plants and animal life; as well as the research and control services for every form of contamination.

More information at:

Lawyer Tomas Eduardo Vaquero Morris, Secretary of State Office Tel: +504 235-7833 Fax: +504 232-6250 E-mail: [email protected]

Marco Antonio Flores, Energy General Director Tel: +504 232 6227 E-mail: [email protected]

National Electric Energy Company (Empresa Nacional de Energía Eléctrica-ENEE-) Created by the Decree N°48 dated February 20, 1957. It is a public autonomous organization responsible for the electric energy production, transmission, and distribution in Honduras. At present the ENEE manages the National Interconnected System and is its main Generator, and the only one in the fields of transmission and distribution. More information at:

Glenda Castillo, Planning and Development Department Tel: +504 220-0470 / 220-0471 Fax: +504 220-0470

National Energy Commission-CNE- Created by means of Decree Nº 131-98 of the Law to Motivate Production, Competitiveness and Support to Human Development, in replacement of the National Energy Commission (CNEE), and the National Public Service Oversight Commission (CNSSP). Its

objective is to regulate electric energy generation, transmission, distribution and commercialization throughout the national territory. More information at:

Isaías Aguilar, President Tel: +504 232-6057 Fax: +504 232-4459 E-mail: [email protected]

Honduran Association of Small Producers of Renewable Energy -AHPPER- Which is a private, non for profit association, incorporated in the year 2001, with the sole purpose of promoting economic development in the country by seeking social, economic and environmentally effective solutions to the various problems faced by the energy sector in the country. More information at:

Evelyn Nuñez, Executive Director Tel/fax: +504 235-8533 www.ahpper.hn

E-mail: [email protected]


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4.7 NICARAGUA

Figure 24. Political Map of Nicaragua 4.7.1 Description of the Electric Sector General Information The new authorities of Nicaragua enacted in 2007 the Law No. 612 “Reform Law and Addition to Law No. 290”, “Law for the Organization, Competitiveness and Procedures for the Executive Branch” (29/01/07) of the Ministry for Energy and Mines (MEM for its acronym in Spanish). The MEM, among other functions formulates, proposes, coordinates and executes the Strategic Plan and Public Policies of the Energy Sector and Geological Resources; and also approves standards, licenses, and concessions. Its functions and attributions are established in Law No. 612. The National Electric Transmission Company (ENATREL), the Nicaraguan Electricity Company (ENEL) and the Nicaraguan Oil Company (PETRONIC) are attached to the Ministry of Energy and Mines. The Nicaraguan Energy Institute (INE) is in charge of supervising and regulating electric energy industry.

Structure of the Nicaraguan Electric Sector The Law of the Electric Industry No. 272 (LIE, for its acronym is Spanish) contains the General Legal Framework for the Electric Industry. This law divides the electric sector into three sectors: generation, transmission and distribution. Generation has private and public plants especially for fossil fuels. Approximately 30% of the oil imports and by-products are earmarked to electric generation. Generators can sell electricity among themselves, to distributors, and directly to large consumers. Nicaragua currently generates around 3,000 GWh a year, with an installed generation capacity of 700 MW. Nevertheless, the effective capacity in 2006 and 2007 dropped to less than 500 MW, due to the lack of water and failures of the generation plants. Transmission is state owned, although secondary transmission is not. Secondary transmission is the one built by a market agent to connect to the National Interconnected System (SIN for its acronym in Spanish). The National Electric Transmission Company (ENATREL, for its acronym in Spanish) is the State Company in charge of the energy transportation through its high voltage lines of 69 KV and more, according to the toll approved by the regulator (INE) and its substations. The Nicaraguan transmission network is connected to the one of Honduras and Costa Rica through a 230 KV line. In 2009 a new 230 KV high voltage line, known as the SIEPAC Project (Electric Interconnected System for Central America) will start operations. The operation of the transmission network is under the responsibility of the National Load Dispatch Center (CNDC, for its acronym is Spanish), as ENATREL’s organizational entity.


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Distribution: is totally private, incorporating all the lines and transformers under 69 KV within the SIN. In the year 2000, it was granted through a privatization process to only one Spanish company controlled by Union Fenosa, in association with minority Nicaraguan shareholders. The distribution company handles the distribution system of the Pacific coast and the center of the country through two subsidiaries Disnorte and Dissur, which together serve around 620,000 users66. The Atlantic Coast is not part of the National Interconnected Network, where private companies can operate as electric energy generators, transmitters and distributors. ENEL, the state owned company, provides most of the electric energy service in this area. Legal framework targeted to renewable energy The electric sector of Nicaragua is governed by a series of broad and itemized Laws, Decrees and Regulations. Their texts can be found in the Web sites of the Ministry of Energy and Mines (www.mem.gob.ni), the Nicaraguan Energy Institute (www.ine.gob.ni), and at the National Assembly (www.asamblea.gob.ni). The Laws key to investing in the renewable energy sector are the following: Law 217 General Environmental and Natural Resources Law (1996), Law 261 Municipal Law (1997), Law 272 Electric Industry Law (1998), Law 443 Law for the Exploration and Exploitation of Geothermal Resources (2002), Law 467 Law for the Promotion of the Hydroelectric sub sector (2003), Law 532 Law for the Promotion of Electric Energy from Renewable Sources (2005), and the amendments to the LIE (Law 494), to the Law for the Exploration and Exploitation of Geothermal Resources (Law 594). 66 www.ine.gob.ni

Electric market The LIE establishes the creation of a Wholesale Electric Market with specific standards which accomplishment corresponds to all the economic agents participating in the electric energy activities (Generation, Transmission and Distribution), it is regulated by the INE. This institution approves the rates, including the distribution requests. The CNDC functions as the intermediary among the distributors and generators that dispatches at the lowest marginal cost. Each distributor has the obligation to contract the purchase of electric energy with the generators located within the national territory or abroad, in order to cover a percentage of their forecasted demand; the remaining can be bought, or the excess can be sold at the spot market or international markets. The distribution companies can purchase or sell electric energy through agreements or at the spot market, and also can import it from abroad. The current Law 554 for Energy Stability, grants the INE the power to temporarily regulate prices, also in the spot market. There are a total of 11 concessionaries of electric generators, which supply the system interconnected with Nicaragua (See Table 20). Additionally, there are seven generation licenses to supply isolated systems (See Table 21).


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Table 20: Concessionary Electricity Generators for the interconnected system

Name Date of Licence Duration (years)

Type of generation Power (MW)

Nicaragua Sugar Estates 21/8/98 15 Biomass-cogeneration 40

EEC 11/12/98 20 Bunker 70.5

Tipitapa Power 1998 20 Bunker 40

CENSA Dec. 1998 20 Bunker 63

GECSA 27/6/00 30 Bunker 123

GEOSA 27/6/00 30 Bunker 115

Hidrogesa 27/2/01 30 Hydroelectric 100

Monte Rosa 16/10/01 15 Biomass-cogeneration 56.5

GEMOSA 29/3/01 30 Geothermal 70

Polaris Energy 9/10/03 20 Geothermal 10

GESARSA 9/10/03 15 Bunker 6 Table 21: Licenses for Generation to Supply the Isolated Systems Name Date of Licence Duration (years) Type of generation Power (MW)

EMEEA-Wiwili 17/10/9 30 Hydroelectric 1.3 ENEL (Corn Island) 4/11/9 30 D 1.2 ASOLPIC 27/3/0 30 Hydroelectric 0.03 APRODELBO (Bocay) 27/3/0 30 Hydroelectric 0.23 ATDER 27/3/0 30 Hydroelectric 0.9 Puerto Cabezas Power 16/10/0 20 B 4.5 Egomsa (Ometepe) 3/11/0 15 D 2.5

Main Actions regarding rural electrification The MEM is responsible for the electrification development in rural areas, particularly in small population communities where the economic agents of the electric industry are not interested in participate. Therefore, to develop rural electrification, it is necessary to allocate available resources through the organisms with jurisdiction. Recent MEM data indicate that in Nicaragua, approximately 60% of the population has access to electric

services. In rural areas it is estimated that only around 35 to 40% of the population have this access. Currently, the MEM is executing the National Plan for Rural Electrification in Concessional Areas (PLANERAC), through the Nicaraguan Fund for the Electric Industry Development (FODIEN), which has a short term electrification program, with defined projects in the area of concession for the private distributing companies.


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Likewise, the strategy for the electrification of rural areas that do not have concessions, PLANER-ANC, was developed with the support of the Inter American Development Bank (IADB), aimed at developing electrification in isolated areas outside the Disnorte-Dissur area of concession. This strategy includes, among other, the implementation of at least two rural electrification projects using renewable energy resources. This strategy includes the following programs, among other: “Rural Electrification Program in Isolated Areas” (PERZA) – World Bank, “Hydroelectricity Development at Small Scale for Productive Uses in Areas Outside the Network” (PCH) - UNDP. 4.7.2. National CDM Policy

As of 1990, the Government of Nicaragua started an energy reform process to insure the reliable and efficient energy supply, and promote economic efficiency in the energy sector to attract the necessary resources for the expansion of the electric energy infrastructure. This process ended in April 1998, with the approval of the Law Nº272 Electric Industry Law (Ley de Industria Eléctrica” (LIE)) . Nicaragua, upon the ratification of the Kyoto Protocol and the United Nations Framework Convention on Climate Change, agreed to prepare a national inventory of Greenhouse Effect Gases (GHE), to fulfill the following purposes: identify the processes that release and extract Greenhouse Effect Gases; identify the actors that produce these emissions and the amounts produced; prepare and submit the basic reports demanded by the agreement and learn and obtain complementary

information on climate change, economy, metering methods, etc. Nicaragua completed its first National GHE Inventory with the support of the World Environmental Fund (FMAM-GEF), through the United Nations Development Program (UNDP), using the established guidelines. This instrument reflects the status of emissions, as well as the capacity of GHE absorption by the country, using 1994 as the base line year. The outcome of the study shows that the forestry sector and the change in the use of land represent the greatest source of carbon dioxide emissions and at the same time the maximum GHE absorption of the country; therefore it establishes that Nicaragua is a “carbon pool country” mainly due to the natural regeneration of the vegetation. Clean and Renewable Energy Potential

Nicaragua has a high potential for renewable and clean energy resources. Among these resources we can find the following: Hydro energy, geothermal, biomass, wind and solar energy. The hydroelectric potential of projects over 10MW is estimated at 3,212 MW in 60 identified sites.

The exploitable geothermal potential is estimated at 5,000 MW, concentrated in the fields along the volcanic area of the Pacific Coastline.

With regard to wind resources, it is estimated that around 800 MW, are located mainly in Rivas and Chontales. Nevertheless, the Atlantic Coast has great wind potential and the IADB is supporting an assessment to define this potential in Bluefields, Monkey Point, Puerto Cabezas and Laguna de Perlas. The biomass resource has been estimated at 200 MW, but limited to the Nicaraguan Pacific area. A higher potential is found in the

UNFCCC Ratification Signing date: June 13, 1992Ratification Date: October 31, 1995

Kyoto Protocol Signing date: July 7, 1998 Ratification date: November 18, 1999


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Atlantic area, where the land can be used to plant African Palms. Solar energy is mainly produced in the Pacific and Central area. A solar map of Nicaragua was developed by the Central American University (UCA) and the INE, which allows optimizing this resource to apply solar systems. National Office for Clean Development and Climate Change Thanks to the support of the UNDP/Nicaragua, the National Office for Climate Change and Clean Development (ONDL for its acronym in Spanish) was created in 2002, as an entity attached to the Ministry of the Environment and Natural Resources (MARENA). This entity is governed by a Board of Directors with the participation of the public sector and civil society. The office was accredited as the National Designated Authority for the Clean Development Mechanism in charge of the governmental authorizations for CDM projects. One of the main priorities of this office is to facilitate the entry of Nicaragua into the carbon market. It currently offers technical assistance to project developers and promotes the creation of national capabilities to use this new financial instrument on climate change mitigation projects. Nicaragua has undersigned Memorandums of Understanding (MOU) to facilitate the transaction of carbon certificates with the Netherlands, Finland, Canada and Denmark. In addition, it carried out a national firewood survey aimed at characterizing firewood production, commercialization and supply, to assess its impact on the environment and the forests. The Office has developed a simple and quick process to give the governmental authorizations required by the CDM projects.

The process is detailed in the ONDL Web site: http://www.ondl.gob.ni/ Besides, the “National Climate Change Council” was set up as a multi-sector organization with the participation of the public sector, civil society and academic institutions and organizations. The Council is a consultation organism in this matter. Examples of Renewable Energy Projects The Ministry of Energy and Mines, with the financial support of the Global Environment Fund (GEF) through the UNDP, has launched a national project called: “Small Scale Hydroelectric Development for Productive Uses in Areas outside the Network”. The purpose of the project was to reduce the emission of the Greenhouse Effect Gases (GHE) caused by the use of fossil fuels in electric generation for productive uses in the rural areas not integrated into the National Interconnection System (SIN for its acronym in Spanish). A total of 30 sites with sufficient potential (9MW) to develop projects associated with productive uses were pre selected out of the potential sites identified within the country. Relevant Organizations Ministry of Energy and Mines, (Ministerio de Energía y Minas (MEM)) Emilio Rapaccioli, Minister Tel: +505 222-5576 Fax: +505 222-4629 www.mem.gob.ni Lorena Lanzas, Vice Minister Tel: +505 222-5576 Fax: + 505 222-4629 www.mem.gob.ni Donald Espinosa, Executive Secretary Tel: +505 222-5576 Fax: +505 222-4629


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E-mail: [email protected] www.mem.gob.ni National Electric Transmission Company (Empresa Nacional de Transmisión Eléctrica S.A., ENATREL)) Salvador Mansell, General Manager Tel: +505 277-4159 Nicaraguan Electricity Company (Empresa Nicaragüense de Electricidad, ENEL) Ernesto Martínez Tiffer, Executive President Tel: +505 278-5830, 270-1044, 270-1066 Fax: +505 267-4377

Nicaraguan Energy Institute (Instituto Nicaragüense de Energía, INE) David Castillo Tel: +505 228-2057 / 228-2058 Fax: +505 222-7052 www.ine.gob.ni Ministry of the Environment and Natural Resources (Ministerio del Ambiente y Recursos Naturales, MARENA) Lic. Juana Argeñal Sandoval, Minister and Coordinator CDM and CC Tel: +505 263-2596 / 233-1868 Fax: +505 263-2596 www.marena.gob.ni/cambioclimatico In the Table 22 there is a list of contacts in Nicaragua.

Table 22: List of contacts, consultants and providers Name

Institution or Company

Position or Specialiyt Telephone

(505) E-mail

Fernando Sánchez

Ministerio de Energía y Minas

Políticas y Planificación 222-5576 [email protected]

Rodolfo López Centro Nacional de Despacho

Director General 276-0533 276-0501

[email protected]

Leonardo Mayorga

Proleña Desarrollo de Proyecto 249-0116 278-7252

[email protected] [email protected]

Roberto Vargas Industria GEMINA, SA

Desarrollo de Proyecto 249-1129 [email protected]

Rebeca Leaf Atder-BL Desarrollo de Proyecto, PCH 6122030 [email protected]

Maria Engracia de Trinidad

Proleña Desarrollo de Proyectos, políticas, financiamiento

278-7252 278-2257

[email protected]

César Barahona Centro de Producción más Limpia

Políticas Eficiencia Energética 279-3136

[email protected] [email protected] www.cpmlnic.org.ni

Bo Ekstrand EFICONTROL Desarrollo de Proyecto eficiencia energética

268-2413 266-0697

[email protected]

Leonie Argüello PNUD Desarrollo de Proyectos 266-1701 [email protected] Patricia Rodríguez Rivera

MULTICONSULT Consultores 278-2530 278-0639

[email protected]

Susan Kinne Grupo FENIX, UNI Desarrollo de Proyectos 278-3133 fé[email protected] www.grupofenix.org

Francisco López PETRONIC Presidente Ejecutivo 267-2130 [email protected] Leopoldo José de la Jara

SINTER Suplidor 278-0177

Vladimir Delagneu

Tecnosol Suplidor 249-9871

Luis Lacayo Lacayo

Ecami Suplidor 276-0925 276-0252

[email protected]

Jurgen Kulke Altertec Suplidor 265-0693 [email protected] www.alcatel.com


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4.8 PANAMA

Figure 25: Political Map of Panamá

4.8.1. DESCRIPTION OF THE ENERGY SECTOR General Information Law 6 dated February 3, 1997 enabled the de-regularization and privatization of the Electric Sector of Panama, and also dictated the Regulatory and Institutional Framework to Render Public Electricity, and it was created the Energy Policy Commission (Comisión de Política Energética (COPE)) attached to the Ministry of Economy and Finance, whose purpose is to draft global policies and define the energy sector strategy. The Law was amended in 1998, to encompass an energy market driven by commercial participants capable of generating, selling, and buying energy by means of agreements and in the spot market. The State of Panama had four main goals in mind while designing the market: 1) promote competition and efficiency; 2) enhance energy coverage, quality and service; 3) regulate the distribution and transmission services, and 4) improve environmental quality. Based on the foregoing, and protected by the above mentioned Law, the State of Panama sold 51% of the fossil fuel generation company shares, 49% of the shares of the hydraulic generation companies and 51% of the shares of the electric distribution companies. As far as transmission concerns, the State kept 100% of the shares of the electric transmission company, in charge of the Electric

Energy National Dispatch Center (Centro Nacional de Despacho(CND)).

Figure 26 describes the privatization process of the former electric sector in Panama, which was former a state owned company, and was divided into three large blocks.

Generation: Panama has two types of generating plants: hydroelectric and fossil fuel. The main hydroelectric plants are: Fortuna, Estí, La Estrella and Los Valles (located in the provinces of Chiriquí), and Bayano located in the Province of Panama. The main fossil fuel electric plants are Bahía Las Minas, located in the province of Colón; Pedregal Power, Pan Am and COPESA located in the Province of Panama. Generators located in Panama participate in generation; as well as self-generators and co-generators located in Panama that sell energy surpluses; and the companies that trade generation form other countries and sell it in the Wholesale Market of Panama through international interconnections. Between the years 2000 and 2006, energy consumption grew up to 4.7%. The total installed capacity as of 2006 was 1,541 MW, of which 87.6% (1,349.25 MW) corresponded to public service plants, 11.7% (179.80 MW) to self-generating plants connected to the National Interconnected System (Sistema Interconectado Nacional (SIN)) and 0.82% (12.6 MW) as part


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of the isolated generation systems. Of this total, 55.33% (852.50 MW) corresponded to hydroelectric plants, while 44.67 % (688.3 MW), to fossil fuel plants. Transmission: Panama is interconnected to Costa Rica and consequently to Central America. The transmission system is property of the State owned public Electric Transmission Company (Empresa de Transmisión Eléctrica, S.A. (ETESA)). Total gross generation in 2006 was 5,989.4 MW, a figure that includes total production of self generators and generators in isolated areas. In 2006, the average electricity price was $0.1619/KWh and the SIN’s peak demand was 971.34 MW.

Distribution: Electric distribution in Panama is under the responsibility of three private companies that emerged when the former IRHE sold its assets: “Empresa de Distribución Eléctrica Metro-Oeste, S. A.”, “Empresa de Distribución Eléctrica Chiriquí, S.A.”, and “Empresa de Distribución Eléctrica Elektra Noreste, S.A.” The electric sector of Panama is supported on the National Dispatch Center (Centro Nacional de Despacho (CND)), the National Authority for Public Utilities (ASEP)), the Commission for Energy Policies (Comisión de Política Energética (COPE)) and the Office for Rural Electrification (Oficina de Electrificación Rural (OER)).

Actual Actual

MERCADO ELÉCTRICO

Ente ReguladorEnte Regulador( ER )( ER )

Comisión deComisión dePolítica EnergéticaPolítica Energética

( COPE )( COPE )

EMPRESA DE TRANSMISIÓN ELÉCTRICAEMPRESA DE TRANSMISIÓN ELÉCTRICAY DESPACHO DE ENERGÍAY DESPACHO DE ENERGÍA

EMPRESAS DE DISTRIBUCIÓNEMPRESAS DE DISTRIBUCIÓNELEKTRANORESTE METRO-OESTE CHIRIQUÍ

Antes Antes

EMPRESAS DE GENERACIÓNEMPRESAS DE GENERACIÓNBAHÍA

LAS MINAS HIDRO

BAYANOHIDRO

CHIRIQUÍHIDRO

FORTUNAOtros

Generadores Independientes Generación

G G

T T

Distribución D D

Transmisión

I RHE I RHE

OER OER Elect. Rural Elect. Rural

Actual Actual

MERCADO ELÉCTRICO MERCADO ELÉCTRICO




( COPE )( COPE )


( COPE )( COPE )



EMPRESAS DE DISTRIBUCIÓNEMPRESAS DE DISTRIBUCIÓNELEKTRANORESTE METRO-OESTE CHIRIQUÍ

EMPRESAS DE DISTRIBUCIÓNEMPRESAS DE DISTRIBUCIÓNELEKTRANORESTE METRO-OESTE CHIRIQUÍMETRO-OESTEMETRO-OESTE CHIRIQUÍCHIRIQUÍ

Antes Antes


LAS MINAS HIDRO

BAYANOHIDRO

CHIRIQUÍHIDRO

FORTUNAOtros

Generadores Independientes


LAS MINAS HIDRO

BAYANOHIDRO

CHIRIQUÍHIDRO

FORTUNAOtros

Generadores Independientes Generación

G G

T T

Distribución D D

Transmisión

Generación G G

T T

Distribución D D

Transmisión

I RHE I RHE

OER OER Elect. Rural Elect. Rural

Fuente: Comisión de Política Energética (COPE)

Figure 26. Change in the structure of the electric sector in Panama.

Legal Framework Targeted on Renewable Energy. The main electric sector legislation of Panama, focused on renewable energy is:

• Law N° 26 dated January 29, that creates the

Public Utilities Regulator Entity, later re-structured and renamed as the National Authority for Public Utilities through Decree Law 10 dated February 22, 2006.

• Executive Decree N° 279 dated November 14, 2006, by which the single text of Law 26, dated January 29, 1996, was adopted, added and amended by means of Decree Law dated February 22, 2006.

• Law 6 dated February 3, 1997, that states the Regulatory and Institutional Framework for the Rendering of Public Electricity (Marco Regulatorio e Institucional para la Prestación del Servicio Público de Electricidad) creating

Autoridad Nacional de los Servicios Públicos

(ASEP)


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the Commission for Energy Policies (Comisión de Política Energética (COPE)). In Article 155 of this Law, it states that "It is the Interest of the State to promote the use of new and renewable energy sources, in order to diversify the electric sources, mitigate the negative environmental effects, and reduce the dependency of the country on traditional fuels..."

• Decree Nº 29 dated August 27, 1998, by which the Office for Rural Electrification was created and its later move to the Social Investment Fund (FIS) building, through Executive Decree No.141 dated October 7, 1999.

• Law Nº45 dated August 4, 2004, that establishes an incentives regime to promote hydroelectric and other new, renewable and clean generation systems, besides other provisions.

• Resolution N° JD-760 dated June 5, 1998, by which the “Quality Standards for Electric Consumption Metering” were approved.

• Decree Nº 22 dated June 19, 1998, by which Law No. 6 dated February, 1997 was regulated.

• Resolution N° JD-101 dated August 27, 1997 and its Amendments, by which the Regulation of the Rights and Duties of Public Utilities Users was created.

Electric Market The wholesale electricity market includes the Agreements and Spot Markets, becoming the mechanism for sell and buys energy and/or power purchase sale among the producers

and consumer agents (distributors, large customers and exports). The basic model adopted establishes competition in electric energy production at the wholesale level. Distributors and large consumers can make direct purchases from producer agents, while distributors use the captive final users market within their area of concession. This structure entered into effect in July 1998 and its management was entrusted to the National Dispatch Center or CND (for its acronym in Spanish) The CND manages the Electric Wholesale Market based on the Commercial Rules approved by the former Regulator of Public Utilities, now called National Authority for Public Utilities (ASEP). The contracts market establishes the contracts agreed upon for the mid and long terms among the Electricity Wholesale Market Participants. There are two types of contracts in this market: Energy and/or power purchase sales contracts among Producer and Consumer Participants. These contracts may have the following variables: exclusively power, exclusively energy, and power and energy.


In Article 79 of Law N°41, “General Environment Law”, Panama acknowledges that carbon sequestration is an environment service provided by forests. Therefore, the country establishes the mechanisms to obtain the economic and financial gains promoted by the flexible energy mechanisms contained in the Kyoto Protocol.

UNFCCC Ratification Signing date: March 18, 1993Ratification Date: May 23, 1995 Kyoto Protocol Signing date: June 8, 1998 atification date: March 5, 1999


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Figure No. 27 presents the map of CDM projects in the Republic of Panama.

Eólicos

Hidroeléctricos

Captación

Reforestación

Biomasa

Transporte

Eólicos

Hidroeléctricos

Captación

Reforestación

Biomasa

Transporte

Eólicos

Hidroeléctricos

Captación

Reforestación

Biomasa

Transporte

Source: National Environmental Authority. www.anam.gob.pa (Wind, Hydroelectric, Tapping, Re-forestry, Biomass, Transportation

The National Environment Authority is the Climate Change Focal Point, and the Designated National Authority (DNA) of Panama at the CDM Executive Board, whose responsibility falls on the figure of the Deputy Manager: Eduardo Reyes, Deputy Manager ANAM E-mail: [email protected] Tel: (507) 500-0800 / 500-0867 Fax: 500-0800 http://www.anam.gob.pa The National Environmental Authority (ANAM, for its Acronym in Spanish), is not only responsible for drafting, coordinating, and overseeing the execution of the climate change national policy, but also has created the National Climate Change Program of the ANAM, in accordance with Resolution N°AG-00402001, dated February 14, 2001, with the functions to assist in the execution of the activities and commitments undertaken by the

Republic of Panama through the ratification of the United Nations Framework Convention on Climate Change and the Kyoto Protocol. As of 2006 the ANAM has the Climate Change and Desertification Unit (UCCD for its acronym in Spanish) within the Operational Structure of the ANAM. One of the duties of the UCCD is to continue with the implementation of the National Climate Change Program of Panama, which encompasses the National Inventories and Mitigation of the Greenhouse Gasses effect. This component has the national inventory of Greenhouse Effect Gasses, and is also in charge of keeping a record of the national activities of mitigation projects, endorsed and periodically certified; these have to be submitted by the ANAM to the International Institutional Regime by the ANAM, through National Communications.

Figure 27. Map of the CDM Projects in the Republic of Panama.


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This sub program was the beginning and design of and implementation of the country’s CDM strategy, by including a promotion component for projects that are qualified to

participate in the international carbon market. In the Table 23, shows the total of 107 CDM projects:

Table 23. CDM Projects in Panama Type Amount CERs/year

Hydroelectric 82 6537991.84 Solid Wastes Management 7 1763819.00

Transportation 2 25680600.00 Biomass 3 483750.00 Wind 11 1886160.00 Energy Efficiency 2 26528.00

Total 107 36,378848.84 Source: ANAM 2007

Panama already has 5 projects registered at the CDM Executive Board, these appear in Table 24:

Table 24. CDM Registered Projects in Panama Project Capacity

MW CERs/year

Los Algarrobos Hydroelectric Plant 9.73 42,660

Dolega Hydroelectric Plant 3.12 13,679

Concepción Hydroelectric Plant 10 10,522

Macho de Monte Hydroelectric Plant 2.4 43,844

Paso Ancho Hydroelectric Plant 5 19,000

Total 30.25 129,705 Source: ANAM 2007

Three projects are in the pipeline to be registered at the CDM Executive Board, please see Table 25:

Table 25. Projects to be registered at the CDM Project Capacity,

MW CERs/year

Estí Hydroelectric Plant 111.50 326,496

Bayano Hydroelectric Plant 86.00 31,635

Fortuna Hydroelectric Plant 9.00 13,709

Total 206.50 371,840 Source: ANAM 2007


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It is important to mention that the promoters of the projects that have qualified as CDM, have voluntarily committed themselves to carry out development projects for the communities in their projects for amounts around 20% and 30% of the income earned from the CER’s annual sales. Consequently, CDM projects represent a great contribution for the sustainable development of the country. It is worthwhile highlighting that this has become a key factor for society to accept these projects,

because once included the citizen participation component, the near communities have a greater opportunity to receive more expedite contributions that will improve their sustainable development and their quality of life.

Local Registry Process:

Panama has a local CDM Project registry process, with the following steps (see Table 26):

Table 26. Process for the Registry of CDM Projects in Panama

Activity Responsible 1. Project Initial Idea. Promoter 2. Proceedings with the corresponding authorities to fulfill legal requirements to operate program activities (E.g.: licenses, permits, concessions, etc.) Promoter

3. Submit the following requirements before the ANAM. (Forms available at the ANAM Web page: www.anam.gob.pa) 3.1 PIN-Project Idea Note (World Bank version) 3.2 Community Benefits Questionnaire (Community Development Carbon Fund version) 3.3 Registry of Project Impact Assessment or the Environmental Audit. and its PAMA.

Promoter

4. Issuance of the Letter of Non Objection once it enters the EIA or the respective PAMA (15 days)

ANAM – AND

5. Issuance of the Letter of Complacency once the Environmental Impact Assesment or the respective PAMA is approved (5 days)

ANAM – AND

6. Submission of the Project Design Document (PDD) together with the approved EIA or PAMA resolution and the Report of Validation.

Promoter DOE

7. Issuance of the Letter of Approval (15 days) (Letter of Approval) ANAM - AND

Source: ANAM 2007

4.8.3 RELEVANT ORGANIZATIONS Energy Policy Commission -COPE- Was created by the Law N°6 dated February 3, 1997, and this establishes the ‘’Regulatory and Institutional Framework for the Rendering of Public Electricity”, which is an entity attached to the Ministry of Economy and Finance, with the aim of drafting global policies and define the energy sector strategy in Panama; its main objective is to foster the supply of reliable, diversified energy at the lowest cost by promoting the efficient use and

development of renewable energy resources in an environmentally sustainable manner, increasing coverage and respecting the legal security of investments.

More information at http://www.mef.gob.pa/cope/ National Environmental Authority -ANAM- Created by means of Law N°41 dated July 1, 1998, as the State autonomous entity that rules natural resources and the environment to insure the compliance and enforcement of the laws, regulations and


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national environment policies. It is under the Presidency or the Republic through the Ministry of Planning and Economic Policy. More information at: http://www..anam.gob.pa National Public Utility Authority -ASEP- Former Regulator of Public Utilities and current National Authority of Public Utilities as a State autonomous organization, in charge of controlling and overseeing water and sewage, sanitation, electricity, telecommunications, radio and television utilities, as well as the transmission and distribution of natural gas, subject to the provisions of the Law and the respective public utilities standards in force.

More information at: http://www.ersp.gob.pa/electric Rural Electrification Office –OER- Is a State entity that operated linked to the Social Investment Fund (FIS), attached to the Ministry of the Presidency. The OER has the mission to promote electrification in the rural non profitable, isolated, and without a concession areas; assess the options for the rendering of the service in the respective area, through market mechanisms, according to their possibilities, understanding that the best option is the one that requires the lowest initial investment subsidy by the State. More information at: http://www.fis.gob.pa

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5 INTERNATIONAL CARBON MARKET This Chapter explains briefly the current state and likely future trends of the international carbon market. Emphasis is given to the project-based transactions, especially to Certified Emission Reductions (CERs).

5.1 Background

Because of existing or expected regulations or for voluntary reasons, many governments and companies have started to implement measures to reduce greenhouse gas emissions. Greenhouse gases are not local pollutants; they mix up high in the atmosphere affecting the thermal balance of the earth. Therefore for the global climate change the impact of one tonne of CO2 emitted in Finland is equal to one tonne emitted in Central America. This phenomenon is the basis for the development of the so-called international carbon market, where either emission allowances or emission reductions (such as Certified Emission Reductions) are traded.

The carbon market can be divided at least in two ways. As to the tradable commodities, they can be either:

Emission allowances under a cap-and-trade scheme; or

Emission reductions based on specific projects.

Assigned Amount Units (AAUs) allocated to Annex I countries under the Kyoto Protocol and the European Emission Allowances (EUAs) allocated to European companies under the European Union Emissions Trading Scheme (EU ETS) are examples of emission allowances. In both cases, a cap is given for emissions and an amount of allowances corresponding to that cap is allocated. In the case of the Kyoto Protocol, the Annex I countries have a defined Assigned Amount, which is the cap of the greenhouse gas emissions for a country; in the case of the EU ETS, the companies included in the scheme have an established cap based on the national allocation plan. In a cap-and-trade system a participant, whose emissions are below its allocated amount, can sell the excess allowances

to a participant whose emissions exceed its allocated amount. In the end of a budget period a participant must always surrender allowances corresponding to its actual emissions.

Emission reductions are tradable commodities that are based on a hypothetical baseline, i.e. what would have happened in the absence of an emissions reduction project that was implemented. Joint Implementation (JI) and Clean Development Mechanism (CDM) in the Kyoto Protocol are examples of project-based emission reduction mechanisms.

Another way to divide the carbon market is based on the regime where the carbon commodities are used. In this way, the tradable commodities can be divided for example in Kyoto-compliant and non-Kyoto-compliant instruments. Non-Kyoto-compliant tradable instruments include for instance verified emission reductions (VERs) used voluntarily by some companies for marketing purposes, for demonstrating good corporate citizenship, or for developing special “climate-neutral” products or brands. Also regulations in countries not intending to ratify the Kyoto Protocol (notably some States in the USA and Australia) create markets for non-Kyoto-compliant carbon commodities.

Another environmental commodity which has a lot in common with emission allowances and emission reductions is the green electricity certificate or guarantee of origin. This market is based on certificates or guarantees which are given to electricity producers using renewable sources for power generation. Often one certificate is given for each megawatt-hour of electricity generated from renewable source. These certificates are then traded both in voluntary and in regulatory markets. More information on renewable certificates can be found at www.recs.org.

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In the following, the carbon market is analysed with a special emphasis on the market for Certified Emission Reductions (CERs) generated by CDM projects.

5.2 Volume of the Carbon Market

After first known carbon transactions occurred in 1995 global, carbon market has grown year after year. Figure 28 illustrates the development of global carbon market in terms of volume of CO2e traded since 2000. Figure 28. Development of the volume of the carbon transactions in terms of volume of CO2e traded. Figures in million of tonnes. Contracted volumes 2004-2006 (Q1-Q3),. Source: World Bank. State and Trends of the Carbon Market 2006.

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In 2006, financial value of the market was EUR some 26 billion. This is almost seven times over the value in 2004. In 2006, the share of the CDM projects was about EUR about thee billion.

In 2005, launching of the European Emissions Trading Scheme (EU ETS) increased especially the financial value of the global carbon market on completely new level. During the year, the EU ETS market volume exceeded EUR 5.4 billion. In 2006 the EU ETS market continued to grow and its value was some 23 billion euros. One reason for the financial value of EU ETS being so high, was relatively high prices of allowances in 2005 and early 2006 (see also section 5.3.1). In terms of CO2 traded, the volume of EU ETS market was over 260 million tonnes in 2005 and over 800 million in 2006.

Establishment of the EU ETS also increased demand for project based emission reductions.

The future development of the global carbon market depends naturally on the supply and the demand in the market.

Years of speculation as to whether or not the Kyoto Protocol would enter into force ended, when Russia announced that it would ratify the Protocol in October 2004. When the Protocol entered into force on 16 February 2005, the Annex I countries was set legally binding emission targets for Annex I countries for the period 2008-2012. It has been estimated that Annex I countries have to reduce their emissions or purchase emission reductions (or allowances) about 3800-5000 MtCO2e in the period 2008-2012 to meet their Kyoto obligations. From this demand about 1500-2100 MtCO2e is estimated to come from EU 15 countries and the rest from the other Annex I countries.

It has been estimated that the potential supply on the carbon market will be 5300-11000 MtCO2e in period 2008-2012. The estimated supply contain emissions reductions potentially supplied trough clean development mechanism (1750-3150 MtCO2e), joint implementation (250-750 MtCO2e) and international emissions trading (4200-7000 MtCO2e). The largest CDM countries will potentially be China, India, Brasilia, Mexico and South Korea.

Nevertheless, estimates on the global supply and demand are uncertain and there are several factors affecting the supply and the demand.

5.3 Byers and Sellers in the Carbon Market

As said earlier, the shift in the projects has been towards Kyoto compliance projects, which means that the majority of the projects is today implemented either in the developing or the transition countries.

Figure29 shows the location of the projects in volume terms. It can bee seen that the leading areas are Asia and Latin America. Largest

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individual country is India, which currently accounts nearly third of the volume.

The largest buyer by far is EU and the second largest is Japan (Figure30). These two areas accounted together over 80 % of volume purchased during January 2004 – April 2005.

During the period, private firms purchased two-thirds of the total volume. Governments purchased the rest. Governments demand for emissions reductions is estimated to grow rabidly, because of countries obligations to fulfil their Kyoto targets.

Figure 29. Location of emission reduction projects (share of volume of ERs supplied). Source: the World Bank. State and Trends of the Carbon Market 2006. (www.carbonfinance.org).

Figure 30. Market buyers (share of volume of ERs purchased). Source: the World Bank. State and Trends of the Carbon Market 2006. (www.carbonfinance.org)

January 2005 - March 2006

January 2004 - December 2004 January 2005 - March 2006

January 2004 - December 2004

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CERs in the EU Emissions Trading Scheme

EU ETS is the world’s largest carbon market. The Scheme drives the European private firm’s demand for emissions reductions, because the linking directive links CERs from CDM projects and ERUs from JI projects into the Scheme.

The scheme was launched in the beginning of 2005. It covers about 11,500 installations in energy, cement, metal, pulp and paper and other industries. Within the scheme some 2.2 billion EU emission allowances (EUAs) are allocated annually during the first trading period 2005-2007.

Figure31 shows the price development of EUAs. Trading with forward contracts of EUAs started well before 2005. During 2003-2004 the price was under 10 € most of the time. In February 2005, few weeks after the scheme was launched, the price started rising. After few months of trading the price achieved € 20. At highest emission allowances were traded at € 31. The publication of the verified emission in May 2006 showed that there is significant surplus of allowances in the phase 1 (2005–2007) lead to collapse of the carbon prices. The decline has continued and in the February 2007 emission allowances are traded between € 1–2.

The Price development of emission allowances (forward)

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The ETS directive recognizes the need to link project-based emission reductions, such as CDM and JI, into the EU ETS. The exact rules are set out in the so-called linking directive, which amends the EU ETS directive. The linking directive was formally approved on 13 September 2004 and official published in 13 November 2004 by the Council of European Union. After the publication, the EU member states had 12 months to implement the changes

required by the linking directive. Nevertheless, many member states have not implemented the directive still in the beginning of 2007. That is partly caused by the fact that implementing of the directive have certain links in the member states allocation plans for EUAs for the period 2007-2012, which are still under preparation.

The principal features of the linking directive are:

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EU member states may allow companies to use CERs for compliance starting from 2005 and ERUs starting from 2008. CERs and ERUs are converted into EUAs in the national registry and the resulting EUAs are immediately redeemed for compliance purposes;

CERs from nuclear projects are excluded, as well as tCERs and lCERs from sinks projects for the time being;

Hydroprojects exceeding 20 MW must fulfil the guidelines of the World Commission on Dams;

Each member state must establish a maximum amount of CERs and ERUs which may be used as a percentage of the initial allocation for each installation during the period 2008-2012.

5.4 Technologies in the Projects

Figure32 shows historical the distribution of emission reduction projects contracted among different technologies.

Figure33 shows forecast of the distribution until 2012.

It can bee seen that HFC (Hydrofluorocarbons) projects had the largest share followed by animal waste, hydropower and biomass related projects. Animal waste related projects have increased most of their share from the previous period. The renewables based projects are estimated play more and more significant role. The share of HFC-23 related projects is not

estimated to grow beyond 2008, because there is limited number of targets for those projects.

The large share of HFC projects is mainly due to the enormous Global Warming Potential (GWP) of these greenhouse gases. For example HFC23 (has a GWP of 11,700 (each tonne of HFC23 corresponds to 11,700 tCO2e, most of the HFC-projects base on decomposition of HFC23).

Figure 32. Technology share of emission reduction projects (in percent of total volume contracted). Source: the World Bank. State and Trends of the Carbon Market 2004. (www.carbonfinance.org). LFG = Landfill Gas, HFC = Hydrofluorocarbons, LULUCF = Land-use, Land-use Change and Forestry.

January 2004 - December 2004 January 2005 - March 2006

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Figure 33. Total forecasted volume of issued credit by 2012 from different CDM & JI project types, in Mt CO2e

Source: Point Carbon. Carbon Market Analyst. 16 December 2005.

5.5 Current situation of the projects

In every week there is drawn up several PDDs. Until the end of the 2005, those documents had been drawn up already concerning well over 800 CDM and JI projects. These projects are to produce emissions reduction of over 1100 MtCO2e by the end of the 2012, Nevertheless, it have been estimated that 40 % of volume illustrated in PDDs is not going to realize.

For now, only a little share of those potential projects has been registered. CDM executive board registered the first CDM project in 18 November 2004. Before July 2005, only 10 projects were registered. Since the registration of projects seems to gotten more speed; until the beginning of February 2006, the board had registered 86 CDM projects. The projects registered already are to produce 30,4 million tonnes of emissions reductions annually.

5.6 Non-Kyoto Regimes

Besides of the Kyoto Protocol (and EU ETS which is legally independent of Kyoto but closely tied to it), there are some other markets

for verified emission reductions. Generally, the prices paid in these markets are lower than the prices for CERs (except maybe for some segments of the retail market). On the other hand, the rules and regulations for the verification of the emission reductions may also be easier to fulfil. The largest non-Kyoto carbon market is the NSW Greenhouse Gas Abatement Scheme in Australia with an estimated volume EUR 23.2 million in the first half of 2005. Another example of such non-Kyoto systems we can mention Chicago Climate Exchange, The Climate Trust and the retail market. All non-Kyoto markets are still relatively small.

The New South Wales (NSW) GHG Abatement Scheme in Australia imposes mandatory greenhouse gas benchmarks on all NSW electricity retailers and other parties. Participants are required to reduce their GHG emissions by offsetting their excess emissions through the surrender of so-called abatement certificates. These certificates are created by accredited abatement certificate providers and can be traded. The penalty level is AUD 10.50. In late 2005 and in the beginning of 2006 the spot prices were between AUD 13.70-13.90.

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More information can be found at www.greenhousegas.nsw.gov.au.

The Chicago Climate Exchange (CCX) is a pilot GHG cap-and-trade system in which a group of North American companies have voluntarily agreed to limit their GHG emissions. These companies can comply

through internal reductions, purchase of allowances from other companies facing emission limitations, or purchase of credits from ER projects that meet specific criteria. In the December 2005 prices were between USD 1.50-2.00 per tonne. More information on CCX can be found at www.chicagoclimatex.com.

The Climate Trust in Oregon, USA (www.climatetrust.org) is a non-profit organisation established in 1997 as Oregon Climate Trust. The Trust plays a key role in implementing Oregon's carbon dioxide standard, which requires new power plants to offset approximately 17% of their carbon dioxide emissions. A plant developer may choose to meet part or all of its reduction target by paying funds to the Climate Trust, which uses the funds to buy emission reductions.

The Retail Market refers to individuals, corporations and events that purchase small volumes of emission reductions from projects that have consumer appeal. These ERs are not usually intended for compliance, although they may have been generated in compliance with CDM or JI procedures. Instead, their purpose is to demonstrate concern about climate change and to take some responsibility for the impact of corporations and businesses on climate in a transparent and responsible way. The retail market is growing rapidly and often pays a premium for ERs that will be achieved within a year or so of purchase. Prices for reductions from small projects with a strong sustainable development contribution command premiums in the marketplace, with prices ranging from US$0.5–12/tCO2e.


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ANNEX I – ARTICLE 12 OF THE KYOTO PROTOCOL 1. A clean development mechanism is hereby defined.

2. The purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3.

3. Under the clean development mechanism:

a. Parties not included in Annex I will benefit from project activities resulting in certified emission reductions; and

b. Parties included in Annex I may use the certified emission reductions accruing from such project activities to contribute to compliance with part of their quantified emission limitation and reduction commitments under Article 3, as determined by the Conference of the Parties serving as the meeting of the Parties to this Protocol.

4. The clean development mechanism shall be subject to the authority and guidance of the Conference of the Parties serving as the meeting of the Parties to this Protocol and be supervised by an executive board of the clean development mechanism.

5. Emission reductions resulting from each project activity shall be certified by operational entities to be designated by the Conference of the Parties serving as the meeting of the Parties to this Protocol, on the basis of:

a. Voluntary participation approved by each Party involved;

b. Real, measurable, and long-term benefits related to the mitigation of climate change; and

c. Reductions in emissions that are additional to any that would occur in the absence of the certified project activity.

6. The clean development mechanism shall assist in arranging funding of certified project activities as necessary.

7. The Conference of the Parties serving as the meeting of the Parties to this Protocol shall, at its first session, elaborate modalities and procedures with the objective of ensuring transparency, efficiency and accountability through independent auditing and verification of project activities.

8. The Conference of the Parties serving as the meeting of the Parties to this Protocol shall ensure that a share of the proceeds from certified project activities is used to cover administrative expenses as well as to assist developing country Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation.

9. Participation under the clean development mechanism, including in activities mentioned in paragraph 3(a) above and in the acquisition of certified emission reductions, may involve private and/or public entities, and is to be subject to whatever guidance may be provided by the executive board of the clean development mechanism.

10. Certified emission reductions obtained during the period from the year 2000 up to the beginning of the first commitment period can be used to assist in achieving compliance in the first commitment period.


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ANNEX II – SMALL-SCALE CDM PROJECT DESIGN DOCUMENT

CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD)

Version 03 - in effect as of: 22 December 2006

Contents

A. General description of the small scale project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / crediting period D. Environmental impacts E. Stakeholders’ comments Annexes

Annex 1: Contact information on participants in the proposed small scale project activity

Annex 2: Information regarding public funding Annex 3: Baseline information

Annex 4: Monitoring Information


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Revision history of this document Version Number

Date Description and reason of revision

01 21 January 2003

Initial adoption

02 8 July 2005 • The Board agreed to revise the CDM SSC PDD to reflect guidance and clarifications provided by the Board since version 01 of this document.

• As a consequence, the guidelines for completing CDM SSC PDD have been revised accordingly to version 2. The latest version can be found at <http://cdm.unfccc.int/Reference/Documents>.

03 22 December 2006

• The Board agreed to revise the CDM project design document for small-scale activities (CDM-SSC-PDD), taking into account CDM-PDD and CDM-NM.


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SECTION A. General description of small-scale project activity A.1 Title of the small-scale project activity: >> A.2. Description of the small-scale project activity: >> A.3. Project participants: >> A.4. Technical description of the small-scale project activity: A.4.1. Location of the small-scale project activity: >> A.4.1.1. Host Party(ies): >> A.4.1.2. Region/State/Province etc.: >> A.4.1.3. City/Town/Community etc: >> A.4.1.4. Details of physical location, including information allowing the unique identification of this small-scale project activity : >> A.4.2. Type and category(ies) and technology/measure of the small-scale project activity: >>

A.4.3 Estimated amount of emission reductions over the chosen crediting period: >> A.4.4. Public funding of the small-scale project activity: >> A.4.5. Confirmation that the small-scale project activity is not a debundled component of a large scale project activity:


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SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the small-scale project activity: >> B.2 Justification of the choice of the project category: >> B.3. Description of the project boundary: >> B.4. Description of baseline and its development: >> B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered small-scale CDM project activity: B.6. Emission reductions:

B.6.1. Explanation of methodological choices: >>

B.6.2. Data and parameters that are available at validation: (Copy this table for each data and parameter) Data / Parameter: Data unit: Description: Source of data used: Value applied: Justification of the choice of data or description of measurement methods and procedures actually applied :

Any comment: B.6.3 Ex-ante calculation of emission reductions: >> B.6.4 Summary of the ex-ante estimation of emission reductions: >>


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B.7 Application of a monitoring methodology and description of the monitoring plan:

B.7.1 Data and parameters monitored: (Copy this table for each data and parameter) Data / Parameter: Data unit: Description: Source of data to be used:

Value of data Description of measurement methods and procedures to be applied:

QA/QC procedures to be applied:

Any comment: B.7.2 Description of the monitoring plan:

>> B.8 Date of completion of the application of the baseline and monitoring methodology and the name of the responsible person(s)/entity(ies) >> SECTION C. Duration of the project activity / crediting period C.1 Duration of the project activity: C.1.1. Starting date of the project activity: >> C.1.2. Expected operational lifetime of the project activity: >> C.2 Choice of the crediting period and related information: C.2.1. Renewable crediting period C.2.1.1. Starting date of the first crediting period: >> C.2.1.2. Length of the first crediting period: >>


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C.2.2. Fixed crediting period: C.2.2.1. Starting date: >> C.2.2.2. Length: >> SECTION D. Environmental impacts >> D.1. If required by the host Party, documentation on the analysis of the environmental impacts of the project activity: >> D.2. If environmental impacts are considered significant by the project participants or the host Party, please provide conclusions and all references to support documentation of an environmental impact assessment undertaken in accordance with the procedures as required by the host Party: >> SECTION E. Stakeholders’ comments >> E.1. Brief description how comments by local stakeholders have been invited and compiled: >> E.2. Summary of the comments received: >> E.3. Report on how due account was taken of any comments received: >>


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Annex 1

CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT ACTIVITY

Organization: Street/P.O.Box: Building: City: State/Region: Postfix/ZIP: Country: Telephone: FAX: E-Mail: URL: Represented by: Title: Salutation: Last Name: Middle Name: First Name: Department: Mobile: Direct FAX: Direct tel: Personal E-Mail:


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Annex 2

INFORMATION REGARDING PUBLIC FUNDING


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Annex 3

BASELINE INFORMATION

Annex 4

MONITORING INFORMATION

- - - - -


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ANNEX III – SELECTED TECHNICAL ASSISTANCE FUNDING FOR PROJECT DEVELOPMENT

Institution Technical assistance

Main criteria for achieving finance Link to guidelines / contact details

Central American Bank for Economic Integration (CABEI)

Project Preparation Facility of USD 5 million

Eligible countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua The facility is tied to the global lines of credits for each country. CABEI has offices in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.

www.bcie.org

Caribbean Development Bank (CDB)

Pre-investment and pre-feasibility studies can be financed by the Basic Needs Trust Fund (BNTF)

Eligible country: Belize Community Groups, Non-Government Organisations, Government Organisations and Agencies and Community-Based Organisations may apply by using the BNTF Request Form available at the website.

www.caribank.org Caribbean Development Bank P.O. Box 408 Wildey, St. Michael Barbados, W.I. Tel. +246-431 1600 Fax +246-426 7269 [email protected] Belize office: BNTF Office c/o Social Investment Fund Constitution Drive P.O. Box 459 Belmopan Cayo District, Belize Tel: 501-822-0239/0508 Fax: 501-822-0279

World Bank Trust Funds

Various types of technical assistance in the pre-investment stage

Several funds with different specific targets and criteria which may be obtained by contacting each fund.

http://www.worldbank.org/rmc/tf/

Energy Sector Management and Assistant Program (ESMAP)

Technical assistance, specific studies

ESMAP is a trust fund under the World Bank. It is a global technical assistance program which provides policy advice on sustainable energy development to governments of developing countries. ESMAP also contributes to the transfer of technology and knowledge in energy sector management and the delivery of modern energy services to the poor.

www.esmap.org

Inter-American Development Bank (IADB)

Technical Co-operation Program

Special priority for project development within environment and small scale finance.

www.iadb.org

Multilateral Investment Fund (MIF)

Technical assistance grants

MIF is part of the IDB Group. Support for small-scale interventions and pilot projects

www.iadb.org/mif

Nordic Project Fund (NOPEF)

Interest free loans and grants for project

For projects outside Europe. Requires strong Nordic interest, applicants must be companies that operate in the Nordic region.

www.nopef.com


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Institution Technical assistance

Main criteria for achieving finance Link to guidelines / contact details

development Loans may cover up to 40% of approved development expenses Covers: feasibility studies, evaluation of potential business partners, financial analysis and documentation preparation, legal assistance, contract negotiations

Ministry for Foreign Affairs of Finland: EIT Appropriation

Technical assistance for feasibility studies, training, acquisition of expert services and planning costs

Eligible applicants: Finnish companies for economic, industrial and technological projects in developing countries. May cover up to 50% of the project development, and the applicant must normally cover the remaining costs.

www.formin.fi


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ANNEX IV – EQUITY, GRANTS AND LOANS Institution Financial

instruments Main terms and criteria for

achieving finance Link to guidelines /

contact details Central American Bank for Economic Integrations (CABEI)

Direct loans Co-financing Guarantees Micro-finance through intermediaries Special facility for sustainable development

Elegible countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua.

www.bcie.org CABEI has offices in Guatemala, El Salvador, Honduras and Nicaragua.

Caribbean Development Bank (CDB)

Direct loans Co-finance

Eligible country: Belize

www.caribank.org Caribbean Development Bank P.O. Box 408 Wildey, St. Michael Barbados, W.I. Tel. +246-431 1600 Fax +246-426 7269 [email protected] Belize office: BNTF Office c/o Social Investment Fund Constitution Drive P.O. Box 459 Belmopan Cayo District, Belize Tel: 501-822-0239/0508 Fax: 501-822-0279

Corporación Andina de Fomento (CAF)

Loans Project structuring and financing Co-financing Guarantees Equity investments

Elegible country: Panama www.caf.com

Inter-American Development Bank (IADB)

Loans Guarantees Grants

IDB supports economic and social development and regional integration in Latin America and the Caribbean. It does so mainly through lending to public institutions, but it also funds some private projects, typically in infrastructure and capital markets development.

www.iadb.org IDB has headquarters in Washington D.C. It has an office in each of the Central American Countries.

Inter-American Investment Corporation (IIC)

Direct loans Direct equity or quasi-equity investments Credit to local financial intermediaries Guarantees for and investments in capital markets offerings

ICC is part of the IDB Group. IIC’s mission is to promote and support the development of the private sector and the capital markets in its Latin American and Caribbean member countries as the institution charged with fostering the development of small and medium-size enterprises to further sustainable economic development. All Central American countries are IIC’s members.

www.iic.int Central American Regional Office Mr. Gustavo Romero Edificio Centro Colón, Piso 12, Paseo Colón, entre calles 38 y 40 Apartado postal 1142-1007 San José, Costa Rica Tel: (506) 233-2543 Fax: (506) 257-0083

Multilateral Investment Fund (MIF)

Grants Loans Equity

MIF is also part of the IDB Group. Its mandate is to support innovative private sector development and

www.iadb.org/mif MIF has offices in each of the Central American


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Institution Financial instruments

Main terms and criteria for achieving finance

Link to guidelines / contact details

Quasi-equity

improve economic prospects for those less equipped to benefit from market reforms. MIF can provide resources to both public and private sector organizations. Private sector agencies can include non-governmental organizations, industry associations, chambers of commerce, etc. but must be non-profit. Organisations from all the Central American countries are eligible.

Countries.

International Finance Corporation (IFC)

Loans, equity finance, syndicated loans, risk management products, intermediary finance

The International Finance Corporation (IFC) is a member of the World Bank Group. It promotes sustainable private sector investment in developing countries as a way to reduce poverty and improve peoples’ lives. IFC’s Project Criteria includes: • The project must be located in a

developing country that is a member of IFC (all Central American countries);

• It must be in the private sector; • It must be technically sound; • It must have good prospects of

being profitable; • It must benefit the local economy;

and • It must be environmentally and

socially sound, satisfying IFC environmental and social standards as well as those of the host country.

www.ifc.org

Nordic Development Fund (NDF)

Long-term concessional loans to public sector Financial support for private sector activities: -Subordinated loans -Credit lines via local financing institutions -Equity

Partner countries Honduras and Nicaragua. NDF’s activities to support private sector development are not limited to partner countries.

www.ndf.fi NORDIC DEVELOPMENT FUND P.O. Box 185, FIN-00171 Helsinki Finland

Finnish Fund for Industrial Cooperation (Finnfund)

Equity financing Investment loans Mezzanine financing Guarantees (in exceptional cases) Co-financing

Finnfund is a Finnish development finance company that provides long-term risk capital for private projects in developing countries. Apart from co-investing with Finnish companies Finnfund finances ventures that use Finnish technology, cooperate with Finnish partners on a long-term basis or generate major environmental or social benefits.

www.finnfund.fi P.O. Box 391 FIN-00121 Helsinki Finland tel. +358 9 348 434 fax +358 9 3484 3346

E+Co. Debt Equity

E+Co provides early stage seed capital between USD 25,000 – 250,000 for sustainable energy ventures.

www.energyhouse.com E+Co Latin America and Caribbean (LAC) Regional Office Fernando Alvarado,


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Institution Financial instruments

Main terms and criteria for achieving finance

Link to guidelines / contact details

LAC Regional Manager P.O. Box 13443-1000 San José, Costa Rica Tel: 506 296 3532 Fax: 506 296 4810 Email: [email protected]


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ANNEX V – CARBON FINANCE Technical assistance related to carbon finance, examples

Institution Description Website UNCTAD UNCTAD/Earth Council Institute Carbon

Market Programme contains useful information on carbon markets and CDM, including a self-learning course on CDM.

www.unctad.org/ghg

UNDP UNDP’s Energy for Sustainable Development website has many resources, including the UNDP CDM User’s Guide

www.undp.org/energy/climate.htm

UNEP Capacity Development for the CDM (CD4CDM) is UNEP’s CDM capacity building programme.

http://cd4cdm.org/unepcdm.htm

UNIDO UNIDO’s Sustainable Energy and Climate Change Programme has various CDM-related capacity building activities

http://www.unido.org/doc/18258

World Bank World Bank’s Carbon Finance Unit has several facilities that provide technical assistance related to carbon finance: - BioCFPlus - PCFPlus - CDCFPlus

www.carbonfinance.org


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ANNEX VI – REGIONAL CONTACTS Contacts in Belize

Name Institution Telephone

(501) E-mail

Ismael Fabro Ministerio de Recursos Naturales y Ambiente

822-2444 / 2630 [email protected]

Gilbert Canton Comisión de Servicios Públicos 227-1185 [email protected] Michael Polonio Belize Electricity Limited 227-0954 [email protected] Robert Tillett Belize Sugar Industry 322-2150 [email protected] Ademek Klaus Tropicales Limited 882-0078 [email protected] Ambrose Tillett Consultor de Energía Renovable 274-555 [email protected] Dylan Vernon PNUD 822 2688 [email protected] José García TUNICH NAH Consultants 225 2036 [email protected] Kevin Denny Kelosha Corporation Belize Ltd 422 3666 [email protected] Luis Aké Consultor Energía Renovable 225-2084 [email protected] [email protected] Lennox L. Neal Belize Sugar Industry 322 2150 [email protected] Joseph Sukhnandan Belize Electricity Limited (BEL) 222 7054 [email protected] Henry Anderson University of Belize 822 3680 [email protected]

Contacts in Costa Rica


(506) E-mail

Gloria Villa MINAE 257-3662 [email protected] Giovanni Castillo MINAE 257-3662 [email protected] Francine Solera MINAE 257-3662 [email protected] Misael Mora ICE 220-6955 [email protected] www.ice.go.cr Henry Solís Compañía Nacional de Fuerza y Luz 295-1261 [email protected] Dennis Mora Compañía Nacional de Fuerza y Luz, S.A. 296 4608 [email protected] www.cnfl.go.cr Pablo Manso Oficina Costarricense de Implementación Conjunta 222-5616 [email protected] Lucio Pedroni CATIE 558 2334 [email protected] Oscar Coto Consultor 271-3210 [email protected] Fernando Alvarado E+CO 296-3532 [email protected] Gustavo Romero Corporación Interamericana de Inversiones / BID 257-1418 [email protected] Leyda Mercado PNUD 296-1544 [email protected] Ana María Majano INCAE 433-9908 [email protected] Enrique Morales Grupo SARET 443-0001 [email protected] Leonel Umaña Mesoamerica Energy 209-7956 [email protected]

Contacts in El Salvador


(503) E-mail

Rebeca Magaña Ministerio del Ambiente y Recursos Naturales 2267 9334 [email protected] Jorge Rovira Dirección de Energía, MINEC 2281-1122 [email protected] Salvador Rivas Dirección de Energía, MINEC 2231-5616 [email protected] Giovanni Hernández SIGET 2288-0066 [email protected] Miguel Domínguez CEL 2211-6138 [email protected] Ernesto Hayem Ministerio de Agricultura y Ganadería 2228-7061 [email protected] Luis Boigues SABES 2275 9864 [email protected] Arturo Solano Tecnosolar 2260 2448 [email protected] José Antonio Rodríguez LaGeo 2211-6700 [email protected] Mauricio Arévalo Central Hidroeléctrica Sensunapán 2453 0168 [email protected] Ernesto Cano Generadora Mirazalcos 2264 0562 [email protected] Hermes Landaverde INGENDEHSA, S.A. de C.V. 2273 6243 [email protected] Axel Söderberg Dematheu & Cia 2210-6995 [email protected] José María Vides Generadora Cucumacayán 2451 7140 [email protected] Alberto Valdivieso Eco Carbón Chaparral 2289-5654 [email protected] Levy Portillo Planta Piloto de Biodiesel 2631-1723 César Villalta UCA 2210-6662 [email protected] Carolina Dreikorn PNUD 2263-0066 [email protected] Yolanda Salazar Centro de Producción más Limpia 2264-4622 [email protected] Ana Graciela Cortez DIMMA Consultores S.A de C.V 2274-9050 [email protected] Roberto Bonilla SEESA de C.V. 2270-9518 [email protected]

Contacts in Guatemala


(502) E-mail


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(502) E-mail

Carlos Mansilla Ministerio de Medio Ambiente 2423 0500 [email protected] Raúl Castañeda Ministerio de Medio Ambiente 2423 0500 [email protected] Víctor H. Araujo Ministerio de Energía y Minas 2476-1892 [email protected] Yuri Urbina Administrador del Mercado Mayorista – AMM 2332-7901 [email protected] Julio Roberto Alvarez Instituto Nacional de Electrificación - INDE 2422-1920 [email protected] Lorena Córdova Instituto Nacional de Bosques – INAB 2473-5215 [email protected] Rodolfo Cardona PNUD 2384-3100 [email protected] Roberto Arimany DINTERSA 2332-3807 [email protected] Lou Ingram LUEX 2220-3133 [email protected] Juan Pablo Dary Solar Pública 2333-7346 [email protected] Germán Juárez COMEGSA 2420-4200 [email protected] Ricardo Asturias OCTAGON 2367-6324 [email protected] Cristhian Escobar AGER 2334-4848 [email protected] Hugo Arriaza Morales NRECA International Ltd 2368-1169 [email protected] Luis Arturo Mérida Agroindrustrias La Laguna 2331-7999 [email protected] Alaide García Energía y Ambiente 2473-3409 [email protected] María Amalia Porta Centro Guatemalteco de P+L 2334-4848 [email protected] Guillermo García Pilones de Antigua 9783-1050 [email protected] Carlos Raúl Montes Alimentos Campestres S.A. 2258-5609 [email protected]

Contacts in Honduras


(504) E-mail

Olga Alemán Secretaría de Recursos Naturales y Ambiente 2326227 [email protected] Jorge Rivera AHPPER 235-7395 [email protected] Elsia Paz Proyecto Hidroeléctrico La Esperanza 985-4037 [email protected] Loyda Alonso SOLUZ 557-5127 [email protected] Manuel Ma-Tay Proyecto Hidroeléctrico Hidro Yojoa 224-0703 [email protected] Sonia de Rivera CENIT S.A. de C.V. 227-0982 [email protected] Mauro del Oro Proyecto Hidroeléctrico La Nieve 566-0430 [email protected] Jorge Mejía EcoAldeas de Honduras 226-5484 [email protected] Roberto Núñez EMCE 236-8788 [email protected] Oscar Aguilar Servicios y Mantenimientos Tecnológicos 239-2157 [email protected] Glenda Castillo ENEE 220-0470 www.enee.hn Juan R. Medrano ADESOL 239-5691 [email protected] Julio Cárcamo PNUD 220-1100 [email protected] Jorge Bueso CENOSA 669-1403 [email protected] Ignacio Osorto AHDESA 246-1610 [email protected]

Contacts in Nicaragua


(505) E-mail

Mayra Antonia Salinas Ministerio de Ambiente 233 1684 [email protected] Luis Molina Ministerio de Energía y Minas 222-5576 [email protected] Violeta Barberena Ministerio de Energía y Minas 222-5576 [email protected] David Castillo Instituto Nicaragüense de Energía 228-2057 [email protected] www.ine.gob.ni Ernesto Martínez Tiffer Empresa Nicaragüense de Electricidad 278-5830 [email protected] Rodolfo López Centro Nacional de Despacho 276-0533 [email protected] Sergio Narváez Instituto de Desarrollo Rural 270-3412 [email protected] Roberto Vargas Industria GEMINA, S.A 249-1129 [email protected] Rebeca Leaf ATDER-BL 612-2030 [email protected] Víctor Salazar Pereira Funproteca 311-2090 [email protected] María Engracia Trinidad Proleña 278-7252 [email protected] César Barahona Centro de Producción Más Limpia 278-3136 [email protected] www.cpmlnic.org.ni Leoni Argüello PNUD 266-1701 [email protected] Susan Kinne Grupo FÉNIX, UNI 278-3133 [email protected] Fernandolino Narváez ANPPER 244-4288 [email protected] Pedro Silva Ingenio San Antonio 343-2546 [email protected] Francisco Zamora Atlantic, S.A. 278-1477 [email protected] Mathias Craig BlueEnergy 202 744-5840 [email protected]

Contacts in Panamá


(507) E-mail

Eduardo Reyes Autoridad Nacional del Ambiente 500-0823 [email protected] www.anam.gob.pa Darysbeth Martínez Autoridad Nacional del Ambiente 500-0800 [email protected] Francisco Carrizo Autoridad Nacional del Ambiente 998-4271 [email protected] Anastasio González Autoridad Nacional del Ambiente (Regional

de Herrera) 996-7675 [email protected]


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(507) E-mail

Michael Mihalitsianos Autoridad Nacional de los Servicios Públicos 508-4501 [email protected] Wolfram González Ministerio de Comercio e Industria 560-0600 /700 [email protected] Rafael De Gracia Autoridad Nacional de los Servicios Públicos 508-4602 [email protected] Heine Aven Luz Buena 232-7690 [email protected] Eusebio Girau Unión Europea 265- 3235 [email protected] Roberto Moreno Proyecto Eólico Santa Fe 6614-6052 [email protected] Víctor Pérez PROLACSA 987-8249 [email protected] Manuel González Proyecto SOLEDUSA 998-6046 [email protected] Elías Dawson Hidroeléctrica ENEL La Fortuna 206-1855 [email protected]

Contacts in Dominican Republic


(1 809) E-mail

Luis Geraldo Matos Secretaría de Medio Ambiente y Recursos Naturales

472 1144 [email protected]

Pasi Kapanen Vice Cónsul Finlandia, República Dominicana 563 5625 [email protected] Rosendo Alvarez Cámara Escandinava Báltica de Comercio de

la República Dominicana 333-3330 [email protected]

Cirilo Marte COAPI 858 4433 [email protected]

Contacts in Finland


(358) E-mail

Markku Nurmi Ministerio de Ambiente 204907013 [email protected] Veikko Soralahti Ministerio de Relaciones Exteriores 91605 6362 [email protected] Hannu Eerola Ministerio de Relaciones Exteriores 91605 6109 [email protected] Mikael Udd ABB Oy 503341951 [email protected] www.abb.com Bengt Tammelin Finnish Meteorological Institute (FMI) 91929 4160 [email protected] www.fmi.fi Aleksi Lumijarvi GreenStream Network 40529 1315 [email protected] Jyrki Leppänen NAPS Systems Oy 207545 653 [email protected] Jukka Pietikäinen FINNFUND 93484 3307 [email protected] Juha Huotari Wärtsilä Biopower 10709 5454 [email protected] Arjo Heinsola Universidad de Jyväskylä 14260 2212 [email protected] Veli-Pekka Heiskanen VTT Processes 14672 533 [email protected] Markku Patajoki Neste Oil 104584225 [email protected] Matti Lilja Pöyry Energy 10 3324 957 [email protected]

Contacts in Austria

Name Institution

Telephone E-mail

Robert Zeiner Agencia Austríaca para el Desarrollo 431 9039 9500 [email protected] Martin Lugmayr Agencia Austríaca para el Desarrollo 431 9039 9544 [email protected] Gottfried Traxler Agencia Austríaca para el Desarrollo 431 9039 9544 [email protected] Rudolf Huepfl Adviser on Energy for Development 431 7263 391 [email protected]

Regional Contacts

Name Institution Telephone E-mail Aníbal Quiñónez SG-SICA (503) 2248-8800 [email protected] Carlos Roberto Pérez SG-SICA (503) 2248-8821 [email protected] Marco A. González CCAD (503) 2248-8800 [email protected] Leyla Zelaya CCAD (503) 2248-8849 [email protected] Ricardo Aguilar CCAD (503) 2248-8902 [email protected] Rafael Guillén CCAD (503) 2248-8850 [email protected] Otto García AEA (503) 2248-8854 [email protected] María Eugenia Salaverría AEA (503) 2248-8855 [email protected] Mauricio Ayala AEA (503) 2248-8854 [email protected] Yanira Pascasio de Ayala AEA (503) 2248-8920 [email protected] Ismael Sánchez AEA (503) 2210-6662 [email protected] Harry Brautigam BCIE (504) 240-2243 www.bcie.org Kathya Fajardo BCIE (504) 240-2243 [email protected] Marja Luoto Embajada de Finlandia CA (505) 278 1216

/18 [email protected]

Elina Sana Embajada de Finlandia CA (505) 278 1216 /18

[email protected]

Salvador Tapia Embajada de Finlandia CA (505) 278 1216 /18

[email protected]

Hubert Neuwirth Cooperación Austríaca para el Desarrollo

(505) 266 3316 managua@@ada.gv.at


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Helga Schomoigl Cooperación Austríaca para el Desarrollo

(52) 55 52544418 [email protected]

Armando Guzmán Banco Mundial, Washington (202) 522 0338 [email protected] Robert Kaplan BID, Washington (202) 623-1304 [email protected] Fernando Cuevas CEPAL, México (525) 55263-9600 [email protected] Catalina Santamaría UNFF, Nueva York (212) 963-4703 [email protected] Eduardo Rodas Plan Puebla Panamá - Energía (502) 2422-1858 [email protected] José María Blanco BUN-CA (506) 283-8835 [email protected] www.bun-ca.org


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ANNEX VII – CDM PROJECT ACTIVITIES FROM CENTRAL AMERICA REGISTERED BY THE CDM EXECUTIVE BOARD This section is intended to present general information of each Central American country activities on CDM more representative projects, registered by the CDM Executive Board up to December 31, 2006. A brief summary of the Project Design Document (PDD) for each selected project is presented. Emphasis has been put on the methodology applied, the project description, how the project contributes to sustainable development of the country and the estimate of CO2 Emission Reduction. The complete information for each project can be downloaded from the web site: http://cdm.unfccc.int/Projects/registered.html The following Table indicates for each project the host country, other parties, registration date, methodology, CO2 emission reductions and the reference number used to be registered by the CDM Executive Board.


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CDM PROJECT ACTIVITIES FROM CENTRAL AMERICA REGISTERED BY THE CDM EXECUTIVE BOARD Registered Title Host Parties Other Parties Methodology* Reductions** Ref

13-oct-05 Rio Azul landfill gas and utilization project in Costa Rica Costa Rica Netherlands AM0011 ver. 1 156084 37

03-mar-06 Cote small-scale hydropower plant Costa Rica Finland AMS-I.D. ver. 7 6431 251

12-mar-06 Landfill Gas to Energy Facility at the Nejapa Landfill Site, El Salvador El Salvador Canada

Luxembourg ACM0001 ver. 2 183725 167

25-may-06 LaGeo, S. A. de C. V., Berlin Geothermal Project, Phase Two El Salvador Netherlands ACM0002 ver. 4 176543 297

17 Dec 05 "Las Vacas" Hydroelectric project Guatemala Spain AM0005 90363 73 21 Jan 06 Matanzas Hydroelectric Plant Guatemala AMS-I.D. ver. 6 38493 172 23 Jan 06 San Isidro Hydroelectric Plant Guatemala AMS-I.D. ver. 6 13389 174 09-nov-06 Candelaria Hydroelectric Project Guatemala AMS-I.D. ver. 8 18922 604

02 Dec 06 El Canadá Hydroelectric Project Guatemala Canada Netherlands ACM0002 ver. 6 118527 606

11 Jan 05 RIO BLANCO Small Hydroelectric Project Honduras Finland AMS-I.D. ver. 4 17800 28 23 Apr 05 Cuyamapa Hydroelectric Project Honduras AMS-I.D. ver. 5 35660 45 03-jun-05 Cortecito and San Carlos Hydroelectric Project Honduras AMS-I.D. ver. 5 37466 51 19 Aug 05 La Esperanza Hydroelectric Project Honduras Italy AMS-I.D. ver. 4 37032 9

26-nov-05 Cuyamel Hydroelectric Project Honduras United Kingdom of Great Britain and Northern Ireland AMS-I.D. ver. 6 25353 83

09 Jan 06 LA GLORIA Hydroelectric Project Honduras United Kingdom of Great Britain and Northern Ireland AMS-I.D. ver. 6 20464 154

02-mar-06 CECECAPA Small Hydroelectric Project Honduras Finland AMS-I.D. ver. 6 1877 156 02-mar-06 Yojoa Small Hydropower Project Honduras Finland AMS-I.D. ver. 6 1069 157 02-mar-06 Zacapa Mini Hydro Station Project Honduras Finland AMS-I.D. ver. 7 915 235

02-sep-06 Eecopalsa – biogas recovery and electricity generation from Palm Oil Mill Effluent ponds, Honduras Honduras AMS-I.D. ver. 8

AMS-III.H. ver. 2 27615 492

08 Apr 06 San Jacinto Tizate geothermal project Nicaragua United Kingdom of Great Britain and Northern Ireland ACM0002 ver. 4 280703 198

22-jun-06 Monte Rosa Bagasse Cogeneration Project (MRBCP) Nicaragua Brazil AM0015 56020 191


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CDM PROJECT ACTIVITIES FROM CENTRAL AMERICA REGISTERED BY THE CDM EXECUTIVE BOARD Registered Title Host Parties Other Parties Methodology* Reductions** Ref

01-oct-05 LOS ALGARROBOS HYDROELECTRIC PROJECT (PANAMA) Panama Spain AMS-I.D. ver. 5 37213 81

24 Dec 05 PROJECT FOR THE REFURBISHMENT AND UPGRADING OF DOLEGA HYDROPOWER PLANT (PANAMA).

Panama Spain AMS-I.D. ver. 6 12167 135

24 Dec 05

PROJECT FOR THE REFURBISHMENT AND UPGRADING OF MACHO DE MONTE HYDROPOWER PLANT (PANAMA).

Panama Spain AMS-I.D. ver. 6 10963 133

21-oct-06 Concepción Hydroelectric Project Panama AMS-I.D. ver. 8 36126 597 * AM - Large scale, ACM - Consolidated Methodologies, AMS - Small scale ** Estimated emission reductions in metric tonnes of CO2 equivalent per annum (as stated by the project participants)

Background: In accordance with the modalities and procedures for a CDM (Annex decision 17/CP.7) : "41. The registration by the Executive Board shall be deemed final eight weeks after the date of receipt by the Executive Board of the request for registration, unless a Party involved in the project activity or at least three members of the Executive Board request a review of the proposed CDM project activity. The review by the Executive Board shall be made in accordance with the following provisions

• (a) It shall be related to issues associated with the validation requirements; • (b) It shall be finalized no later than at the second meeting following the request for review, with the decision and the reasons for it being communicated to the project participants and

the public."


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1) Costa Rica

The republic of Costa Rica has a population of 4,321,717 people, the Spanish is the official language and the currency is the Colon. Official website of the country is: www.casapres.go.cr

Rio Azul landfill gas and utilization project in Costa Rica

Methodology Applied AM: 0011: Landfill Gas recovery with Electricity Generation and no Capture or Destruction of Methane in the Baseline Scenario Reference 0037 Project Description The project activity consists in constructing and operating a landfill gas recovery system, flaring equipment and a 3.7 MW electricity generation plant. The internal combustion engines will burn the collected methane at the site to generate electricity to the national interconnected grid The project will use the landfill gas generated from the Rio Azul municipal landfill site in the city of San José, Costa Rica. The site is owned by the Ministry of Health and has been in operation since the early 70’s, but it was not until the 1990’s that it became a landfill. In 1995, a concession was given to the National Power and Light Company (CNFL), a local utility to use the landfill gas to generate electricity. On January 2001, the public bid No. 13-2000 promoted by CNFL, awarded the project to the Corporate Group SARET. Since this is the first landfill gas energy project to be developed in the Central American and Caribbean region, SARET will use the expertise of the British firm Combined Landfill Projects (CLP).

The construction of the project started on November 2003 and commercial operation started on August 2004. Sustainable development contributions From Costa Rica perspective, the project will contribute to:

Meet the growing demand for electricity based on alternative and locally available sources, instead of relying on imported fuel oil.

Demonstrate that global and local environmental benefits can be generated through an integrated and mainstreamed approach to support national sustainable development priorities.

Prove that landfill gas technology for energy conversion is environmentally, institutionally and technically feasible despite the related barriers and associated risks

Improve the deteriorated sanitary conditions of the local communities by reducing toxic and odorous gases emissions

Decrease the risk of landslides by accelerating the settlement process of the deposited solid waste

CO2 Emission Reduction Using the projected emissions given by the First Order Decay (FOD) model and the quantity of methane used to generate electricity since August 18, 2004, it is estimated that 1,560,836 ton of CO2 equivalent will be avoided during the 10-year crediting period. According with the operation schedule there is not intention to flare any methane; however, this situation will happen when the power plant equipment is on maintenance.


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2) El Salvador

The Republic of El Salvador has a 6,874,926 population, the capital city is San Salvador and the official language is Spanish. The official website of the government is www.casapres.gob.sv

LaGeo, S. A. de C. V, Berlin Geothermal Project, Phase Two, El Salvador

Methodology Applied Consolidated baseline methodology for grid-connected electricity generation from renewable sources (ACM0002, 2004). Reference 0297 Project Description Commercial use of the Berlin Geothermal field started in 1992 with 10 MW installed power and backpressure turbines. At present the Berlin Geothermal Power Plant has installed 2 condensing units (flash power plants) of 31.5 MW each; these units started operation in late 1999. The power plant is fed by 8 producer geothermal wells supplying a two-phase fluid (steam + liquid) at around 100 kg of steam per second, 10 bar (absolute) pressure and 180 °C Eْxtracted fluid is a 3-1 ratio water-steam mixture. After being fed into the turbine to generate electricity the steam is partly evaporated (80%), and partly re-injected (20%), along with the separated fluid. The geothermal fluid transportation system includes a two-phase flow pipeline, which will connect production wells to steam separators, steam pipelines from separators to the plant area and geothermal water pipelines to the re-injection wells

The project will increase the exiting power generation capacity through the drilling of up to ten producers and three re-injection geothermal wells and the installation of a new condensation power unit with maximum gross output to the generator of 44 MW (maximum net output to the grid of 42 MW). The Berlin Geothermal Field is characterized by a depth between 1,000 and 1,500 m in the range of 280-300 °C, 115 bar pressure, and good rock permeability. Reservoir dimensions and characteristics are enough to sustain a 44 MW power plant for the entire life of the project, with an expected field depletion of about 1% per year The expected plant lifetime is of at least 30 years e main contributions to El Salvador’s sustainable development for this project are: a) The efficient use geothermal resources, while minimizing impact on the environment. b) The use of an indigenous and

cleaner source will reduce the already high dependency on imported fossil fuel for electricity generation

c) Reduction of greenhouse gases (GHG) emissions - which would be generated in the absence of the project.

d) The Berlin Geothermal Power Plant has a community engagement program aimed to create a balanced and constructive environment with neighboring municipalities of Berlin City. The fundamental elements of the program, used to maximize benefits to the community, are the generation of local employment opportunities, social investment activities, development of sustainable small


132

businesses, and protection of the local environment.

e) Construction and maintenance of road infrastructure that ensures communication and commercial activities in the surroundings of the project site.

f) LaGeo Project includes a biodiversity inventory research project to be done by Universidad de El Salvador and a conservation and reforestation program in areas around the geothermal power plant.

CO2 Emission Reduction The Berlin Geothermal Power Plant is interconnected to the El Salvadoran grid and is expected to avoid emissions of 176 543 tCO2 yearly, i.e. total emission reductions of 1 235 798 tCO2 over the first 7-year crediting period.

.


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3) Guatemala

The Republic of Guatemala has a population of 12,951,547 people; the capital is the City of Guatemala, the Quetzal is their currency and Spanish is the official language. The official website is: www.guatemala.gob.gt

Project GT1 Las Vacas Hydroelectric Project.

Methodology Applied AM0005: Baseline methodology (barrier analysis, baseline scenario development and baseline emission rate, using combined margin) for small grid-connected zero-emissions renewable electricity generation. Monitoring methodology for small grid-connected zero-emissions renewable electricity generation. Reference 0073 Project Description The project activity consists of a hydroelectric plant using wastewater as a main source with a installed capacity of 45 MW located at an reservoir on the Las Vacas river 18 kilometers northeast of Guatemala City. Construction of the first phase was finished on May 2002 with 20 MW, second and third phase of the Project to total 45 MW were available on May 2003. Las Vacas hydroelectric plant (Hidroeléctrica Río Las Vacas – HRLV) generates an average of 120 GWh of electricity per year that is sold to COMEGSA, Guatemala’s largest power purchaser, under a Power Purchase Agreement (PPA). The project is connected to Guatemala’s national electric system, thus displacing electricity on the national grid that is primarily generated by fossil fuel. Electricity produced by Las Vacas plant is transmitted to the national grid via a 18 km transmission line that connects the plant to the Ciudad Quetzal substation. Because of the plant’s proximity to Guatemala City, the major demand centre, the

project improves voltage levels and reduces transmission losses by an estimated 0.86 MW. The hydroelectric plant is designed as a Peaking Plant in which water is stored in a reservoir in order to produce electricity during the peak demand hours. Sustainable development contributions Las Vacas project contributes to the sustainable development of the region in different ways:

by creating new jobs in the region and thus improving local income levels and living standards;

injecting new investment in the region that helps improve local infrastructure, assists local businesses, and creates indirect jobs to support the project;.

reducing dependence on imported fossil fuel;

reducing local air contaminants generated burning fossil fuels, eg. CO, NOx, SO2, particulates;

• improving availability, reliability and voltage levels of electricity in the region and reducing transmission losses;

improving water quality in the Las Vacas river by oxygenating the water, collecting and recycling plastics that gather at the dam, and by dredging and sorting sediments in the river for use in the construction industry;

improving tree cover and reducing soil degradation in the area by initiating a number of reforestation programs;

increasing local awareness of environmental issues by initiating an environmental program in the local schools.

Three important local environmental initiatives are being carried out as part of Las Vacas project that contribute to the


134

sustainable development of the region. The objectives of these initiatives are to improve water quality in the Las Vacas river basin, recycle waste products that collect in the river, reduce soil degradation and increase forest cover in the local area. The main initiatives are:

a plastics recycling plant;

a sludge storage area; and

reforestation program

CO2 Emission Reduction Using the combined margin method and an import and export adjustment, an Emission Factor of 0.753 tCO2/MWh has been estimated. Based on this factor and an average annual generation of 120 GWh an annual emission reduction of 90,363 tCO

2 is

calculated. For a chosen crediting period of 3 crediting periods of 7 years, it is estimated that the project will reduce emissions by 1,897,623 tCO

2.

4) Honduras

The Republic of Honduras has a 7,346,532 people population, the capital city is Tegucigalpa, official language is Spanish and the currency is Lempira. The governmental website is: www.casapresidencial.hn

Rio Blanco Small Hydroelectric Project

Methodology Applied: Type 1: Renewable Energy Projects Category I.D.: Renewable Electricity Generation for a Grid of the simplified M&P for small-scale CDM project activities Reference: 0028 Project Description:

The project activity contemplates the production of clean hydroelectric power that will contribute ti reduce the Honduran imported petroleum bill and reduce CO2 emissions, which would had occurred otherwise, in the absence of this project. The Main Objective is to generate clean energy while operating and maintaining the facility, selling the power to ENEE (National Power Utility) through a PPA with duration of 15 years, that can be extended to the convenience of both parties to sell power to a big consumer, or the regional energy market while contributing to the sustainable development of its area of influence and the country. The project is a run-off-river renewable hydroelectric generating plant which is composed by Tyrol type dimension dam, a 233m tunnel, a forebay that will be used to remove any sediment carried by the incoming flow of water, a 1,500.00 m penstock, and a powerhouse with its discharge channel and access road. The hydrology in the area is satisfactory, the nominal capacity of generation is of 5,000.00 kW, the transmission line has approximately a length of 1.5 kilometers. The production of firm annual energy will be 22,000.00 kWh/year, and 17,800.00 tonnes/year of CO2e will be avoided. The net head is of 125.50 meters. No population displacement is required. Honduras is at present at crossroads: extremely vulnerable to worl oil prices and victim of climate changes phenomena such as El Niño and La Niña. Having its own water reserves for hydroelectricity production affected and habing come down to low levels for two years in the road, it has prevented the largest hydroelectric central Francisco Morazán (commomly known as El Cajón, 300WM), to operate al full capacity, forcing the country to increase its dependency on fossil fuels by generating more than 50% of the countries needs of electric energy and to


135

import energy from countries such Costa Rica to cover energy deficits. Sustainable development contributions: Lacking a clear National energy Policy that would foster expansion of the generation system through renewable energy sources, the country has compromised its sustainable development paying a heavy burden on badly needed hard currency to pay for its fossil fuels. This situation hampers the well being of the vast poor majority that lives in rural areas and marginal ruban areas, specially the most vulnerable groups such as women, children and elders. On the other hand, 40% of final use of energy for cooking purposes is still done by non sustainable extraction of firewood that in conjunction with peasant’s pressure over the fragile forest vocation soils (more than 70% of the country) are depleting our forest thus affecting river basins. Situation that has to be reverted, and this is the subject of this project’s small contributions to sustainable development at local, municipal and at national level. The Río Blanco Hydroelectric Project will contribute to sustainable development though the following ways: 1. Generation of improved quality electricity

for the San Francisco de Yojoa Municipality, which will foster the produclive use of electricity in communities that still don't have it, as well than in the rest of the country;

2. Help the country to reduce the imported oil bill, which will strengthen our energy autarchy;

3. Reduction of Green House Gases emissions, specifically CO2;

4. Strengthening of the country 's rural electrification coverage;

5. Serve as a small demonstrative project for clean renewable energy generation in the country;

6. Preservation of the RIO BLANCO River basin;

7. Reforestation of project's area of influence;

8. Permanent and temporary Job generation at the Central through the project's implementation;

9. Production of indirect employment in the area;

10. Improvement of hand quality labor in the area by training in different technical areas and

11. Contribution to local community by payment of taxes.

CO2 Emission Reduction: The firm energy derived from this project is assumed to be constant during each year of the crediting period and will replace an equivalent amount of capacity from thermal plants. The plant is scheduled to start operating on mid year 2004.


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RIO BLANCO HYDROELECTRIC

PROJECT

Year CO2 eq

tonnes abatedCumulative

(tonnes)

2004 7,416.67 7,416.67 2005 17,800 25,216.67 2006 17,800 43,016.67 2007 17,800 60,816.67 2008 17,800 78,616.67 2009 17,800 96,416.67 2010 17,800 114,216.672011 17,800 132,016.672012 17,800 149,816.672013 17,800 167,616.672014 10,383.33 178,000 Total 178,000

5) Nicaragua

The Republic of Nicaragua has a population of 5,773,456 people, the capital city is Managua and the currency is the Cordoba. Spanish is the official language, and the governmental website is: www.presidencia.gob.ni

Monte Monte Rosa Bagasse Cogeneration Project (MRBCP)

Methodology Applied: AM0015: Bagasse-based cogeneration connected to an electricity grid. Reference: 0191

Project Description: Monte Rosa Bagasse Cogeneration Project (MRBCP) activity aims to increase its energy efficiency and cogeneration capacity in order to supply electricity to the grid, therefore adding value to the bagasse produced by the company. Currently, the total installed electric power capacity is 26 MW, but only 18 MW are actually used, leaving 8 MW as standby. Through phased installation of substantially more capacity, improved energy efficiency in its processes, and generation of sufficient bagasse around the harvest season, Monte Rosa has generated surplus electricity of about 94.000 MWh during the 2001 – 2003 period, and will generate surplus electricity of approximately 93.000 MWh in 2004, increasing to 120.000 MWh in 2008. These sales of electricity to the grid allow it to


137

participate in the emissions reduction market. Monte Rosa does not have a power purchase agreement. Instead, it opted to commercialize its surplus electricity in the spot market, known in Nicaragua as “mercado de ocasión”. There are 2 phases for this project. The first expansion (1

st phase) was in cane season 2001-

2002 with the installation of an extraction turbogenerator of 15 MW. At that time, Monte Rosa started to sell energy to the grid. The second expansion (2

nd phase) consists of

the phased addition of steam turbogenerators and a 900 psi (62 bar) high-pressure boiler which will burn the sugar cane residue produced in the mill to generate steam. The steam will be directed to the turbogenerators, generating electricity at a voltage of 13.800 volts. The steam leaving the turbines is condensed in a cooling tower, and the condensate is recycled and redirected to the boilers (a simple steam cycle). The electricity voltage is increased to 69.000 volts at an on-site substation. It is then transmitted to another sub-station 15 km away, located in the city of El Viejo, Nicaragua. The main investments of this 2nd phase project will be:

Installation of a new 900-psi (62 bar) high-pressure boiler,

Installation of three new turbogenerators. (1 condensing type of 15 MW, and 2 extraction type of 20 MW each)

Installation of a new cooling tower.

Installation of 2 new transformers and other equipment at the sub-station.

These new investments will be staged over a five-year period. As the new turbogenerators are installed, old turbogenerators will be retired. The Monte Rosa is concerned that bagasse cogeneration is a sustainable source of energy that brings not only advantages for mitigating

global warming, but also creates a sustainable competitive advantage for the agricultural production in the sugarcane industry in Nicaragua. Monte Rosa also believes that bagasse cogeneration is very important for the energy strategy of the country in that cogeneration is an alternative to postpone the installation and/or dispatch of thermal energy generation utilities. It is expected that the sale of the CER generated by the project will boost the attractiveness of bagasse cogeneration projects, helping to increase the production of this energy and decrease dependency on fossil fuel The project participant also considers the following as benefits of the project: 1. The creation of 35 direct jobs at the

industrial area, and also indirect jobs. 2. Increasing biomass use will diminish the

need to import fossil fuel and thus improve Nicaragua’s balance of payments. In other words, the 98.200 MWh annually that the Monte Rosa expansion project will provide to the grid (average over 14 years) will reduce Nicaraguan imports of approximately 119.800 barrels/yr of fuel oil #6 (bunker), thus saving about US$3,5 million per year in imported fuel costs.

3. Technological development due to use of

bagasse cogeneration as a source of renewable energy. Monte Rosa could also serve as an example for encouraging other bagasse cogeneration projects, by starting to consider CERs revenue to reach their financial feasibility.

Environmental Contribution

Besides reducing the GHG emissions by implementing its expansion projects, Monte Rosa has implemented, in August of 2004, an Environmental Management System. Its name is Plan de Gestión Ambiental (Environmental


138

Management Plan). The system controls the following environmental aspects of the plant:

Residual water

Gas emissions

Solid Waste

Noise

Dust

Air quality

Sustainable development contributions: Increasing biomass use at MRBCP will diminish the need to import fossil fuel and also improve Nicaragua’s balance of payments. In other words, the 98.200 MWh annually that the Monte Rosa expansion project will provide to the grid (average over 14 years) will reduce Nicaraguan imports of approximately 119.800 barrels/yr of fuel oil

#6 (bunker) and also save about US$3,5 million per year in imported fuel costs. Because of the high cost of fossil fuel, Nicaragua has planned for some time to increase its base load capacity from renewables. The Nicaraguan government, through the National Energy Commission (CNE), is formulating a new energy policy that has as main objectives: increase the confidence of foreign and domestic investors; increase rural electrification (Nicaragua has the lowest electrification index in Latin America, 50%); and finally permanently promote the use of renewable and clean sources. CO2 Emission Reduction:

Years Annual Estimation of Emission Reductions

in Tonnes Of CO2e 2002 15.876 2003 26.006 2004 30.673 2005 69.955 2006 76.549 2007 83.775 2008* 89.305

Total Estimated Reductions (Tonnes Of Co

2e) 392.139

Total Number of Crediting Years 7 Annual Average Over The Crediting

Period of Estimated Reductions (Tonnes Of Co

2e)

56.020

*It’s admitted that the Project’s 1st

Crediting Period will be considered from March 1st, 2002 to March

1st, 2009. However, the table above doesn’t consider the year 2009 due to uncertainties about the

beginning of its harvest season, when the electricity generated by the cogeneration system become operational.


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6) Panama

The Republic of Panama has 3,228,186 people population; the capital is Panama City and the Spanish is the official language. Governmental website: www.presidencia.gob.pa

Concepción Hydroelectric Project

Methodology Applied: Project TYPE I – Renewable Energy Projects Category 1.D. – Grid connected renewable electricity generation (version 8). Reference: 597 Project Description: This PDD presents the Concepción Hydroelectric Project, a proposed small-scale, run-of-river development in Western Panama. The electric energy-generating Concepción Project is designed for an installed capacity of 10.0 MW and is expected to generate in average 67 GWh/yr. Concepción will be connected to EDECHI’s distribution line in the “El Porvenir” substation (EDECCHI stands for “the Electric Distribution Company of the Province of Chiriquí”). Via EDECHI, the Project will sell the energy production to various energy-based generators connected to the grid based on an economic dispatch. By so doing, the generation at Concepción will displace parts of certain expensive, polluting generation sources currently connected to National Interconnected System (SIN, a system that integrates all generating plants in the country, as well as all transmission and distribution networks). During year 2004, about 30% of the country generation was based on fuel oil or diesel and, despite the high cost associated with this type of generation, Panama has plans in place to expand the thermal generation within the next few years. Small-Scale developments like

Concepción are not factored into the electricity supply-demand planning and consequently, operation of this Project will result in an effective displacement of electricity produced by the expensive, marginal thermal power stations. The objectives of the Project in the medium- and long-term are:

Inject additional clean, safe and reliable capacity to the Panamanian Electric System.

Contribute to the decrease of emissions of Greenhouse Gases (GHG) in Panama, resulting is a cleaner environment

Reduce the dependence of imported fuels.

The results of Project implementation will be:

Electricity Generation of 67 GWh/yr

Generation of short- and long-term employment in the project area (about 200 jobs will be created for local people in Boqueron during the construction phase)

Direct physical and financial contributions to community infrastructure projects adjacent to the project site (roads, river crossings, etc.)

Generation of Business to major Panamanian Contractors

Contribution in the reduction of the price of energy to the end consumers

The run-of-river development is located on the Piedra River, downstream the Macho de Monte Hydroelectric Plant, about 26 Km far from the City of David, Province of Chiriquí.


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The project uses the flows of the Macho de Monte, Bregue y Piedra Rivers. The project consists of a daily regulation dam, a conveyance system and one surface powerhouse. Concepción is a run-of-river development with the intake on the Piedra River, discharging in the same. In detail, the works include a low-height combined concrete and rockfill diversion dam, an intake structure incorporated in the concrete part of the dam, a desander, a fibreglass-reinforced polyester resin pipe conveyance, a surge tank, a steel bifurcation, a surface powerhouse with two horizontal-axis Francis turbine-generators, a tailrace canal and an electric substation. The power works are located on the left bank of the river. The gross head of this plant is 65.0 m and with losses at design discharge of some 6 m, the net head amounts to 59.0 m. The design discharge of the powerhouse is 20.0 m3/s, resulting in a 10-MW plant installed capacity. Sustainable development contributions: The entering in operation of the Concepción Project will increase the amount of renewable energy connected to the grid. Currently (2004), the Panamanian National Electric Generation System is formed both by hydro and thermal generating sources (34.4% thermal and 65.6% hydro, on the year 2004- generation basis). The regulatory framework establishes the operation of generation plants and units on a merit-order dispatch basis, according to the generation cost. The fact that hydroelectric plants have a low cost for energy production and can be managed to optimise the use of water confers them a higher dispatch priority than thermal generators (Concepción is basically a run-of-river development with zero production costs) Thus, the increase of low-cost hydro energy available - such as Concepción becoming available – will reduce the use of higher-cost energy produced by fossil fuel fired power plants. Without the Concepción Project, an

increase in demand under the business as usual scenario would result in low cost Hydroelectric units coming on line first and then, residual fuel oil and then, diesel generators. During its operation, the Concepción Project will offset these more expensive residual fuel oil and diesel units and this will happen because the dispatch system will seek keeping the electricity price low and therefore, will prioritise low cost production over more expensive units (in the case of thermal units, the major component of the production costs are the variable costs, mainly determined by fuel costs). At present, there are limited resources and/or possibilities in the country to upgrade older existing power plants, alternative that might sometimes be cheaper than new Hydroelectric plants. Further, since the sector has been deregulated, there is no legislation in place or planning whatsoever to upgrade such facilities, if any. Consequently, it is likely that any non-hydro new capacity will use the lowest-cost technology available such as combustion turbines, internal combustion engines, or combined-cycle technology. CO2 Emission Reduction: Calculations based on the simplified methodology allowed for small-scale projects indicate that Concepción will result in an annual emissions avoidance of 36,153 tons of CO2 equivalent per year (tCO2e/year). Calculation was based on evaluating the “approximate operating” and the “build” margins based on the electrical system operating as of December 2004 according to data published by the Energy Policy Committee (COPE), the Economy and Finance Ministry (MEF) of the Republic of Panama.

141

Years Annual estimation of emission reductions in Tonnes of CO2 e

Year 1 (2007) 35,590 Year 2 (2008) 36,153 Year 3 (2009) 36,153 Year 4 (2010) 36,153 Year 5 (2011) 36,153 Year 6 (2012) 36,153 Year 7 (2013) 36,153 Year 8 (2014) 36,153 Year 9 (2015) 36,153 Year 10 (2016) 36,153 Year 11 (2017) 36,153 Year 12 (2018) 36,153 Year 13 (2019) 36,153 Year 14 (2020) 36,153 Year 15 (2021) 36,153 Year 16 (2022) 36,153 Year 17 (2023) 36,153 Year 18 (2024) 36,153 Year 19 (2025) 36,153 Year 20 (2026) 36,153 Year 21 (2027) 36,153

Total estimated reductions (tonnes of CO2 e) 758,650

Total number of crediting years 21

Annual average over the crediting

period of estimated reductions

(tonnes of CO2 e)

36,126

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ANNEX VIII REFERENCES

IETA. CDM Emission Reductions Purchase Agreement v.2.0. 2004. www.ieta.org

Ministry for Foreign Affairs in Finland. Financing Business Opportunities in Latin America and the Caribbean. Helsinki, Finland 2003. http://www.finpro.fi/

Ministry for Foreign Affairs, Finland. Clean Development Mechanism (CDM) and Joint Implementation (JI) Pilot Programme – Operational Guidelines. Helsinki, Finland 2003. http://global.finland.fi/english/projects/cdm/

Point Carbon. The Carbon Market Analyst: Outlook for 2004: An update. Oslo, Norway 2004. www.pointcarbon.com

Rodríguez, Jorge 2004. Guía Metodológica: Cómo desarrollar proyectos exitosos dentro de la iniciativa de cambio climático. La Habana, Cuba, 2004.

UNDP. The Clean Development Mechanism: A User’s Guide. New York, USA, 2003. http://www.undp.org/energy/climate.htm#cdm

UNFCCC. Simplified modalities and procedures for small-scale CDM project activities. New Delhi, India, 2002. http://cdm.unfccc.int/Reference/Documents

UNFCCC. Simplified project design document for small-scale CDM project activities. Bonn, Germany, 2003. http://cdm.unfccc.int/Reference/Documents

UNIDO. Guidelines for Infrastructure Development through Build-Operate-Transfer (BOT) Projects. Vienna, Austria, 1996. www.unido.org

UNIDO. Manual for the Preparation of Industrial Feasibility Studies. Newly revised and expanded edition. Vienna, Austria, 1991. www.unido.org

World Bank. State and Trends of the Carbon Market 2004. Washington, D.C. 2004. www.carbonfinance.org

World Bank. Small Scale CDM Projects: An Overview. Washington, D.C. 2003. www.carbonfinance.org/cdcf/

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