Electricity projects in the developing CDM portfolio Jane Ellis, OECD 8 December 2004 Thanks

CDM portfolio: 201 proposed projects* 107 electricity projects with 3.5 GW “CDM” capacity Fuel switching Bureaucrat – so start with a caveat. This info based on detailed project data for 201 projects, i.e. where there is a PDD, or which investors signal interest in taking forward. Does not include “wish list” projects. Does also not include projects that are confidential. There are quite a few of these. However, it does include a large number of projects, and does show recent trends. So not a complete picture, but way more than the tip of the iceberg. After the caveat comes the good news. Elec gen the most popular project type. More than half. Corresponding to 3.5 GW. Two next largest slices are also energy-related: red = en eff/heating. And white = LFG (sometimes with elec gen, but classified elsewhere as main effect from CH4). Hydro the most popular project type. Then biomass (incl bagasse). 13 wind projects. Vary in size from 150 kW to 150 MW. 13 * For which detailed information is available.

CDM portfolio: expected credits News not so rosy for elec when you look at its importance in the portfolio. Just under a quarter – again mainly hydro/biomass. Total portfolio expects to generate 52 Mt CO2 eq/y. Equivalent to DK 1990 CO2 emissions. This pie chart highlights the huge scale of some non-elec projects. -- N2O “slice” is essentially one project. Very big (>10 million credits/year). This is more than all 96 hydro, biomass, wind, solar projects combined. -- F-gas “slice” is two projects. Also very big (> 1 million credits/year). -- Electricity projects (all fuels) very variable in size. Largest proposed wind project now 150 MW (Mexico). But some < 1MW. Also interesting to see what is NOT important in the portfolio – that is energy efficiency (red slice) and transport (orange). 52 Mt CO2-eq/y in 2008-2012

CDM market growing, but electricity projects losing market share... News from an electricity point of view is getting worse… Electricity has gone from dominating CDM market being less than a quarter. This has happened over the last 15 months. Even worse – absolute amount has hardly grown in 6m. Partly because some larger electricity projects (geothermal, hydro, wind) have been withdrawn, or are not progressing. This includes a proposed 200MW wind plant in Morocco. This will not help massive growth in renewables and energy efficiency…. And energy needs to be a big part of the solution too. So while lots of these non-electricity projects reduce GHG, and cheaply, they are often in areas that are not very replicable at a global level. So concentrating on these areas alone will not help us to achieve the significant GHG reductions that scientists tell us are needed. Will talk about the reasons for the declining importance of electricity projects later.

Methodology approval status Some electricity methods approved by EB: Grid-connected biomass (Oct 03, 6m) Hydro <60 MW, bagasse (Dec 03, 3-8m) Consolidated methodology (Sep 04) Replacement of single plant (Dec 04) Variable approval time Applicability initially limited - now quite broad Applicability of electricity AMs quite broad now...

Sticking points (i.e. why aren’t electricity projects more popular)? Renewable electricity projects still in many schemes’ “wish list” Some non-electricity projects are much larger scale (in terms of credits), lower investment and lower-cost ... and also lower CDM-risk: “additionality”, baseline, transaction costs … which leads to lower delays Project funding also an issue: CDM funds often to buy credits, not to finance projects Reasons for declining importance of elec projects Investment costs relatively high - cost of reductions relatively high. N2O less than 20 cents. Difficult for electricity to compete. carbon price relatively low, so a limited push for projects that reduce CO2 (compared to projects that reduce gases with a higher GWP). - lag-time for project development: brownfield projects where you add a burner to an existing factory is much quicker to get up and running. - scale of potential ERs - additionality: diff to put into practice - transaction costs. Very variable. But the higher estimates mean that a project would need to generate about 10 000 credits just to break even. (but some streamlining possible for small <15MW projects) - baseline - delays. Getting a method approved has been 3 months at best, often 6-9, sometimes longer. And then the project is after that.

Conclusions To date, CDM have helped plans for 3.7 GW in Africa, Asia, Latin America Proposed CDM projects expect to generate at least 52 Mt CO2-eq credits/year during 2008-2012 High potential (and political desirability) for electricity CDM projects Electricity projects a small and decreasing proportion of CDM portfolio (e.g. <3% of expected credits from wind) Delays, uncertainties, CDM-risks/costs all important barriers to date… but diminishing … but low C prices and low GWP reduces relative attractiveness of CO2-reducing projects Slow start, but there is increasing CDM and JI project development Proposed projects expect to mitigate 58 Mt CO2 eq in 2010. Equivalent to DK in 1990. High potential and desirability for elec CDM projects However, a small and decreasing proportion of CDM portfolio: <3% This is because delays, uncertainties, CDM risks/costs all important barriers to date. However, they’re diminishing. So far CDM/JI helped plans for 0.8 GW. So something, but not exactly a huge technology push so far. Hope that recent institutional developments reduce the time, cost and risks enough for more renewable elec projects to come forward.

Further information http://www.oecd.org/env/cc/ Taking stock of progress under the CDM http://www.oecd.org/dataoecd/58/58/32141417.pdf The CDM Portfolio: Update focusing on non-electricity projects http://www.oecd.org/dataoecd/25/32/34008610.pdf