How to Sell Emission Reductions after 2012 Boonrod Yaowapruek Senior CDM officer

27th September 2011

Company overview 2

Four ‘P’ s for Selling Emission Reductions after 2012

Product (Emission reductions: CER, VER,

ER etc)

+

Place (Contracts/Buyers/Markets)

+

Price

(Spot, Future, Forward prices)

+

Promotion (Communications)

Hedging

(selling)

Strategy

Company Overview 3

Product: the issuance of CERs is the result of a long and heavy

administrative process

Company Overview 4

Product: four categories of emission reductions

Project can secure

the CDM registration

before 31 December

2012

Project can NOT

secure the CDM

registration before

31 December 2012

Certified Emission reductions

generated before 31 December

2012

Certified Emission reductions

generated after 31 December

2012

Emission reductions generated

before 31 December 2012

Certified Emission reductions

generated after 31 December

2012

CERs can be exchanged

in EU ETS phase II

CERs might be able to

exchanged in EU ETS

phase III, subject to CER

Quality

Emission reductions can’t

be exchanged in any

compliance scheme(s).

Only voluntary market is a

left choice.

CERs might be accepted

in other cap-and-trade

schemes (not EU ETS).

Demand is limited at the

moment.

1

2

3

4

Company Overview 5

Place: potential customer (carbon credits buyer)

Scheme Compliance

period

Potential Buyers Remark

Kyoto

Protocol

2008–2012 Annex-I Countries such as

Japanese, Netherlands

governments, etc

No progress towards a new global climate agreement, and

thus the commitment gap from 2013 seems very likely.

EU-ETS •2005-2007

•2008-2012

•2013-2020

European compliance

players such as

Electrabel, RWE, Shell,

EDF, Holcim ,etc

From 1 Jan 2013 measures may be applied to restrict the

use of specific credits from project types. The use of credits

shall come from pre-2013 registered projects, except new

projects in Least Developed Countries.

Australia July 2015-2020 Power, industrial

processes, coal mining,

oil&gas exploration

It is expected that roughly half of the demand can be met by

domestic measures, and another half by international credits.

New Zealand From July 2010 Forestry, industrial,

transport, and energy

sectors

No limit to import international credits, but players can buy

NZUs from the government for NZD25 (or EUR14.4) per

permit.

Japan &

Keidaren

•2008-2012

•2013-2020 (not

yet pass into law)

Japanese installations Demand for post-2012 CERs is uncertainty. It may be met

through bilateral agreement rather than the CDM.

South Korea From 2015 (not

yet pass into law)

South Korea finalized the designed of its emission trading

scheme in April 2011. The bill has yet passed into law.

USA N/A N/A The US Congress is incapable of passing federal cap-and-

trade legislation.

Company Overview 6

Place: contract and counterparty risk

• Long term contract (upto 2020 and forward)

• Counterparty Risk is one of the most important element that all CER Sellers

should be considered before signing an ERPA (emission reduction purchase

agreement)

• Types of ER Buyers: • Compliance Buyers (End-User): Government, European Utilities,

• Carbon Funds

• CDM aggregators/developers

• CDM consultants: PDD developer

Company Overview 7

Price: historical spot CER prices

€ 5

€ 6

€ 7

€ 8

€ 9

€ 10

€ 11

€ 12

€ 13

€ 14

€ 15

€ 16

€ 17

€ 18

€ 19

€ 20

€ 21

€ 22

Daily Closing Price : BlueNext Spot CER (www.bluenext.eu)

Company Overview 8

Price: example forward or spot hedging

€ 5

€ 6

€ 7

€ 8

€ 9

€ 10

€ 11

€ 12

€ 13

€ 14

€ 15

€ 16

€ 17

€ 18

€ 19

€ 20

€ 21

€ 22

(3) Hedging @ Registration:

pCER = 11.90 x 85% = 10.1 EUR

April 2012

(3)

(4) Sold on Spot:

pCER = 10 x 96% = 9.6 EUR

Dec 2016

(4)

(2) Hedging @ Validation report webhosted:

pCER = 12.40 x 80% = 9.9 EUR

Nov 2011

(2)

Sep 2011

(1)

(1) Hedging @ PDD webhosted:

pCER = 13.50 x 70% = 9.5 EUR

Assumption on pricing pCERs Selling forward: •At PDD: 30% discount of sCER

•At Validation: 20% discount of sCER

•At Registration: 15% discount of sCER

•On Spot: 4% discount of sCER

Hedging (selling) Strategy

Company Overview 10

Risks and mitigation

Rank CDM Risk Mitigation

1 CDM Regulatory risk:

• Letters of approval

• Project validation

• Project registration

• CER issuance

• Follow up CDM EB guidelines on the CDM;

• Only write a “doable” monitoring plan in the PDD;

• Partner with Buyer to pool resources&knowledge to

fasten the CDM issuance process.

2 CERs Eligibility risk

• Buyer Risk for EU-ETS

• Seller Risk for EU-ETS

• Get the project registered by the end of 2012

• Sign ERPA and fix the price and ask a Buyer to

take EU-ETS risk.

3 CERs Price risk

Carbon revenue can be fluctuated

from 2 EUR/tCO2 to 20 EUR/tCO2

• Sign ERPA and fix the price.

How do you want to secure Risk and Revenues?

Company Overview 11

11

Allocation of Risks

Seller

ERPA*

Pricing structure(s)

Eligibility risk

Delivery dates

Upfront payment

CDM development costs

Events of Defaults

Remedies

Tax

….

Buyer

*Emission Reduction Purchase Agreement

Company Overview 12

When is a proper timing to sell ERs..

Operation D

E

Construction

Equipment

ordered

C

Financing

secured

B

Licenses

secured

Feasibility

study

A

PIN PDD LoA Validated Registered Issuing

Company Overview 13

Example of Hedging strategies

Strategy Hedging proposal Remark

1 • 100% of volume: price fixed at ERPA signing

All risks are hedged at ERPA

signing. Limited downside &

upside.

2

• 50% of volume: price fixed at ERPA signing;

• 50% of volume: prices fixed at CER deliveries

50% of volume is kept to sell

on Spot

3 • 40% of volume: price fixed at ERPA signing;

• 30% of volume: price fixed at first issuance of

CERs

•30% of volume: prices fixed at CER deliveries

Risks are hedged along with

the milestones. 30% of

volume is kept to sell on

Spot

GDF SUEZ and CDM activities

Company Overview 15

GDF SUEZ is a leading group in three key businesses

ENERGY EUROPE & INTERNATIONAL

The GROUP GDF SUEZ comprises six Business Lines, each active in a specific domain.

GDF SUEZ ENERGY EUROPE & INTERNATIONAL (BEEI) is the Business Line of GDF

SUEZ responsible for the Group’s international ENERGY activities outside France and

operates in eight Business Areas:

two European Business Areas

six Business Areas under the combined International Power – GDF SUEZ entity.

GDF SUEZ owns 70% of International Power’s issued share capital.

ENERGY

FRANCE

ENERGY

EUROPE &

INTERNATIONAL

(BEEI)

GLOBAL

GAS & LNG

INFRA-

STRUCTURES

ENERGY

SERVICES ENVIRONNEMENT

BENELUX &

GERMANY

EUROPE NORTH

AMERICA UK-EUROPE LATIN

AMERICA META AUSTRALIA ASIA

INTERNATIONAL POWER PLC

Company Overview 17

GDF SUEZ Energy Europe & International Global Presence as of 30th June 2011

Company Overview 18

GDF SUEZ is developing its presence in Asia Pacific

ENERGY EUROPE & INTERNATIONAL

Extensive knowledge as Developer & CER buyer

Within its diversified activities and developing synergies, the Group works

actively on originating and structuring of Clean Development Mechanism

(CDM) / Joint Implementation (JI) projects.

Development of CDM/JI Projects

(Equity investment)

CDM/JI Origination

(Purchase of CERs/ERUs)

EMISSION COMPLIANCE PORTFOLIO

- Compliant Buyer - (Purchaser of primary and

secondary CERs/ERUs)

CERs

ERUs

3) Latin America

Origination

Cell

2) Middle East,

Asia, Africa

1) Europe

Development

Cell

Company Overview 20

GDF SUEZ is your strong CDM partner

• Exclusive commitment through a Letter of Intent: Secure adequate time to finalize

main clauses of Emission Reductions Purchase Agreements

• Tailor-Made ERPA Contract: Adaptation of ERPAs in function of local Project Owner

Requirements

• Flexible Pricing Structure: indexed floating or fixed price, with a cap and/or floor,

options etc

• CER Payment: Payment on Delivery, with possibility for advance payment

• CDM Development Costs: Possibility to finance CDM development costs

• Project Type: Investment in projects at different stages of development.

ENERGY EUROPE & INTERNATIONAL

Any question/query, please contact..

Boonrod Yaowapruek Senior CDM officer

IPR-GDF SUEZ Asia

Boonrod.yaowapruek@iprplc-gdfsuez-asia.com

Tel : + 66 (0) 2 684 6064