Johannes Henkel

Berlin University of TechnologyDepartment of Energy Systemswww.ensys.tu-berlin.de

CDM Programme of Activities vs. Conventional CDM – a case study on the Economics of

Rural Electrification in Kenya

Institutions, Efficiency and Evolving Energy Technologies34st IAEE International Conference Stockholm

Concurrent Session: Electrification of Developing Countries22.06.2011

Johannes HenkelRoland Monjau

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Outline

• Motivation

• CDM Programme of Activities

• Case study: Rural electrification in Kenya by using small Hydro

• Results: Economics of the case study

• Conclusions

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Size of project Project type (example)

Emission reduction(kt CO2/a)

Transaction costs (€/t CO2)

Very largeLarge power plants, natural gas power plants, geothermal

>200 0.1

Large

Wind power, solar thermal, energy efficiency of large industrial plants

20 – 200 1

SmallFuel switching of small boilers, small Hydro

2 – 20 10

Very smallEfficiency measures in households

0.2 – 2 100

Micro Photovoltaics, CFLs < 0.2 1000

Source: Michalowa et al., 2003

Motivation

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Size of existing CDM projects

Source: UNFCCC, registered projects and projects under validation, 29th April 2011

<0.2 0.2-2 2-20 20-200 >2000%

20%

40%

60%

80%

20042005200620072008200920102011

Annual CO2 reduction [kt CO2/a]

Sh

are

of

pro

jects

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Size of existing CDM projects (Detail)

<0.2 0.2-2 2-10 10-200%

5%

10%

15%

20%

20042005200620072008200920102011

Annual CO2 reduction [kt CO2/a]

Sh

are

of

pro

jects

Source: UNFCCC, registered projects and projects under validation, 29th April 2011

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What is CDM Programme of Activities (PoA)?

• One CDM PoA Project Design Document:– General description of activities– Application of baseline and monitoring methodology

to a typical CDM Project Activity (CPA)– Environmental analysis can be done at PoA level– Additional CPAs must be approved by the national

authority only (Cost of a CPA are ~10% of “normal” CDM cost)

– Longer running period

• But:– Higher project development cost (higher complexity)– Higher fix costs (by ~50%)

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Example: Ordinary CDM vs. PoA

Ordinary CDM Programmatic CDM

Cost in €

Description Cost in €

Description

CDM Project development costs

90,000 Negotiations, PDD, Stakeholder consultation, Validation, LoA, Registration

CDM PoA fixed development costs

125,000 Same as CDM, but higher validation and PDD costs

CDM project annual M&V costs

30,000 Monitoring and Verification

CDM PoA fixed annual M&V costs

45,000 Same as CDM, but higher DOE costs

CDM CPA marginaldevelopment costs

4,000 Contract, Inclusion to PoA, short DD

CDM CPA marginal O&M costs

200 Automatic reporting

Source: Heuberger 2008

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Case study: Rural electrification in Kenya

• Use of Hydro energy for rural electrification• Site identification approach:

1. Potential for MHP2. Population density3. Electricity demand from companies (non-household)

• Rough estimation results in 50-70 sites in Kenya having at least the demand of a 100 kW MHP

• Selection of 12 specific sites in Central Kenya• Financing project by ROSCAS (=rotating savings and

credit association) – by this form community-based finance is possible whilst transforming subscribers into customers and owners

• Households are connected to the mini grid consecutively

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14 km Ø „micro- grid“ (Phase I) consisting of:

• 100 kW Kaplan turbine/800 households (HH)

• Generator set and 11kV transformer station

• 11KV/400V transformer station per 180 HH• Load limiter 110W for every HH

Interconnection Plant (Phase II)

• 1.8 MW Kaplan turbine • Generator set and 11kV transformer

station • 11 kV transmission line

Schematic depiction of the Rural Energy Access Model REAM

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Gpower´s role:

•Technical support and training

•Consultation and mentoring on socio-economic issues

• Phase I year 1-5

Gpower´s role:

•Transition from active guidance to supervising role

•Maintaining influence through ownership of 30% of shares

• Phase II year 5

Implementation of Interconnection grid and >1 MW Hydro Power Plant

• Access for larger commercial consumers

• raise of load limit for households

•load smoothing

Integration of the individual companies under a generation and distribution holding company

• ROSCAs extended on inter-community level

• financial support for reproducing the REAM model

Increasing implementation of 8-12 isolated mini-grids with a generation capacity of 100kWp

•Minimum 800 households connected

•Load limited to 110W per household

Independent generation and distribution companies for each minigrid with local shareholders

Rotating Saving and Credit Associations (ROSCAs) offer financing for social or commercial community activities

Technical dimension Legal dimension Social dimension

Technical dimension Legal dimension Social dimension

Project setting

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Map of sites

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Overview of the involved sites

Site #

Site name Generation capacity (kW)

Maximum connections

Start of project (given in semester from mid- 2009 onwards)

households in grid area

1 Rianjuwe 200 800 8 10002 Kiangurwe 200 800 1 30003 Riakaruira 500 800 2 50004 Inanjugu 300 800 3 30005 Interconnection

site1800 0 10 0

6 Gitii 300 800 4 30007 Kii 80 500 9 5008 Muchungwa 500 800 5 50009 Muketura 60 500 9 500

10 Muromu 200 800 6 200011 Urumandi 200 800 7 200012 Riagecheru 200 800 8 2000

Overall 4540 8200 27000

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Monte-Carlo-Analysis of the Project Economics

Variable short description Value according to the REAM model

Assigned PDF

Investment dataGenerator € 93,174 triangularConnection cost per household € 309.5 triangularInterconnection plant per kW € 780 triangularOperating cost per semesterREAM holding operating cost € 35,000 triangularGenerator set per 100kW € 3,364 normalPrimary distribution grid € 5.24 normalREAM model dataCost for connection without shareholder status € 150 uniformDeficit in payment rate 0.00% uniformcost of electricity flat rate € 5.42/month fixed valuePrice per kWh for productive consumption € 0.10 UniformNumber of stakeholder per site 800Technical dataNumber of connections established at each site and semester 200 Truncated normal distributionElectricity consumption limit provided to households 59.4 fixed valueMultiplier for consumption after interconnection grid access 2.50 fixed value

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Cumulated cashflow analysis

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

minimummaximummean

Year

Financing gap

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Results: Elasticities

Input variable Elasticity ε # of connected households 1.022Grid cost per connection -0.850Interconnection scheme cost -0.520Initial Generator cost -0.225O&M grid -0.175O&M generator -0.159Operating cost Holding company -0.146Additional generator cost -0.036Deficit in repayment -0.018

1. Regression analysis

2. Calculation of elasticities according to Pindyk and

Rubinfeld 1991:

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Results – CER Transaction costs

Small Scale CDM methodology Type I.A ”Electricity generation by the user”

10,00 €

9,00 €

8,00 €

7,00 €

6,00 €

5,00 €

4,00 €

3,00 €

2,00 €

Tran

sact

ion

cost

10,00 €

9,00 €

8,00 €

7,00 €

6,00 €

5,00 €

4,00 €

3,00 €

2,00 €

Tran

sact

ion

cost

10,00 €

9,00 €

8,00 €

7,00 €

6,00 €

5,00 €

4,00 €

3,00 €

2,00 €

Tran

sact

ion

cost

Boxplots for static schedule Boxplots for randomized schedule Boxplots for randomized schedule up to 1600 con.

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Conclusions

• Transaction costs of conventional (bundled) CDM average 3-4€ lower

• Reason: Programmatic approach has no effect, as the project activities follow each other directly

• If the Rural Electrification Access Models is reproduced, PoA is financially beneficial

• If all involved sites are known ex-ante, bundled CDM is the better option

• Cost structure gives implicit incentive for defining a PoA as broadly as possible: „Claims are constituted“

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Thank you for your attention!

Johannes Henkel

Berlin University of TechnologyDepartment of Energy SystemsEinsteinufer 25 (TA 8)D-10587 BerlinGermany

johannes.henkel@tu-berlin.dewww.ensys.tu-berlin.deTel: +49 30 314-21710Fax: +49 30 314-26908