EcoSecurities Group Ltd All Rights Reserved EcoSecurities Group Ltd. Environmental Finance Solutions Using the Project Design Document The case of the Wigton wind farm in Jamaica Addis Abeba, October, 2003 Jan-Willem Martens

EcoSecurities Group Ltd All Rights Reserved CDM DesignProjectDocument CDM - CO 2, CH 4, N 2 O -Baseline scenarios, - Emission factors - Monitoring& verification, - Methodologies, etc.

EcoSecurities Group Ltd All Rights Reserved

EcoSecurities EcoSecurities leading greenhouse gas advisor (Environmental Finance survey, 2001 and 2002) Five offices around the world, 27 people Currently working on 32 CDM projects in 10 countries Active in capacity building, PDD development and sales of CERs

EcoSecurities Group Ltd All Rights Reserved EcoSecurities’ services are mutually reinforcing, creating synergies for our clients Carried Interests Transactional Services (Tendering & RFPs, Emissions trades, Financial advisory) Advisory Services (Project development emission concessions, contingent contracts) (Policy analysis, baselines, custom services) Origination through our international network of offices & agents Carried Interests Transactional Services (Tendering & RFPs, Emissions trades, Financial advisory) Advisory Services (Project development emission concessions, contingent contracts) (Policy analysis, baselines, custom services) Origination through our international network of offices & agents

EcoSecurities Group Ltd All Rights Reserved EcoSecurities Group Oxford (11) Rio de Janeiro (7) Den Haag (3) Los Angeles (2) Melbourne (1) EcoSecurities Group Employees = 27 New York (3)

EcoSecurities Group Ltd All Rights Reserved Overview of presentation CDM Project Development Project Design Document Introduction of the Wigton Windfarm case Baseline methodology (Annex 3) Application of the baseline methodology (Section B) Calculation of the emission reductions (Section E) Crediting period (Section C) Monitoring Plan (Section D) Environmental Impacts and Stakeholder Comments (Section F and G) Conclusion

EcoSecurities Group Ltd All Rights Reserved Initial Project Concept Project Implementation Pre-Feasibility Assessment– emission reductions and how much? Final Project Design-full Project Design Document Feasibility Assessment-is project eligible ? Validation, Registration, Approval Realisation of emission reductions Initial Project Concept Project Implementation Pre-Feasibility Assessment– emission reductions and how much? Final Project Design-full Project Design Document Feasibility Assessment-is project eligible ? Validation, Registration, Approval Realisation of emission reductions CDM Project cycle & Time Line of CERs

EcoSecurities Group Ltd All Rights Reserved Pre- & feasibility Assessment Transaction costs – in general to be paid upfront. Roughly between EUR 35,000 and EUR 145,000. Is this money available? Make first estimate of emission reductions. As a general rule, a project should generate about 20,000/annum CERs to benefit from the CDM. Is the project additional? In case of ODA: clear that money paid for CERs is no diversion of ODA funds? Host country: Should be party to the KP or plan to ratify KP; Project screening criteria from the DNA Discuss idea of submitting PIN.

EcoSecurities Group Ltd All Rights Reserved PDD Preparation and Approval Process Project develops Project Design Document Often with help of consultant to assist on technical details Project submits PDD for validation to validator Pre-validation is a possibility: Before validation the validator provides feedback on quality of PDD Validator submits New Methodologies (baseline and monitoring) for approval to the Methodology Panel Methodology Panel asks input from two independent reviewers

-10- EcoSecurities Group Ltd All Rights Reserved CDM approval process (2) The Meth Panel provides recommendation to CDM Executive Board who approves or rejects the Methodology (A, B or C) Upon approval the validator validates the project and submits it to the CDM EB for registration After registration the CDM project can start implementation

-11- EcoSecurities Group Ltd All Rights Reserved Estimated Transaction Costs Project preparation activitiesEstimated additional costs for CDM (in EUR) Additionality assessment, baseline study, calculation of emission reductions, monitoring plan, stakeholder meeting, PIN, PDD 20, ,000 Validation by independent or operational entity Host country approval 10, ,000 Marketing, sales of credits, contract negotiationsBroker fees Registration of the project – for CDM with the Executive Board. Pay international administration levy CDM: 5,000 – 30,000 per project Selling the emission reductions into the marketBroker success fee (3 -15%) Adaptation fee 2% of CERs Total35,000 – 145,000 + % of carbon revenues Construction / implementation of Project Monitoring of emissionsInternal costs Verification3,000-15,000 per time

-12- EcoSecurities Group Ltd All Rights Reserved Project Design Document (PDD) A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions by sources F. Environmental impacts G. Stakeholders comments Annex 1: Information on participants in the project activity Annex 2: Information regarding public funding Annex 3: New baseline methodology Annex 4: New monitoring methodology Annex 5: Table: Baseline data

-13- EcoSecurities Group Ltd All Rights Reserved Selection of case study Wigton Wind Farm Other cases: Solar home systems Household biogas digesters Small hydro power Landfill gas

-14- EcoSecurities Group Ltd All Rights Reserved Wigton Wind Farm Project: characteristics Development of a 20.7 MW Wind project (23 wind mills of 900 kW) Project located in Wigton, Jamaica Developed by Renewable Energy Systems (RES) and Petroleum Corporation of Jamaica (PCJ) Estimated annual output: 60 GWh per year Amount of CERs to be generated: 52,000 per year

-15- EcoSecurities Group Ltd All Rights Reserved Wigton CDM project development over time Jan 2002CERUPT: Submission of Project Idea Note (PIN) May 2002CERUPT: short list including Wigton July 2002EIA submitted for approval to National Environmental Planning Agency Aug. 2002Validation report Aug. 2002CERUPT: Submission of PDD and business plan March 2003CERUPT: Wigton CDM project contracted April 2003Wigton submitted to EB for the CDM for approval and registration May 2003Recommendation of Methodology Panel to EB: Wigton may be approved, but some changes required Summer 2003Start of construction End of 2004In operation

-16- EcoSecurities Group Ltd All Rights Reserved Section A of PDD: General description of project activity A. General description of project activity A.1 Title of the project activity: Wigton wind farm project A.2.Description of the project activity: A.3. Project participants: Project developer:RES (UK), PCJ (Jamaica), Constructor:NEG Micon (NL) Carbon advisor:EcoSecurities A.4. Technical description of the project activity: -A.4.1. Location of the project activity: -A.4.2. Category(ies) of project activity: Energy & Power – grid connected power generation -A.4.3. Technology to be employed by the project activity: -A.4.4. Additionality -A.4.5. Public funding of the project activity

-17- EcoSecurities Group Ltd All Rights Reserved A.4.4: additionality KP/MA: “The emission reductions of the project must be additional to any that would occur in absence of the project “ Marrakesh unclear on how to put this interpretation in practice. At last, at EB meeting 9 and 10, guidance from the Executive Board how additionality should be interpreted Demonstrate that the project is not the most likely baseline scenario (a) A flow-chart or series of questions that lead to a narrowing of potential baseline options; (b) A qualitative or quantitative assessment of different potential options and an indication of why the non-project option is more likely; and/or (c) A qualitative or quantitative assessment of one or more barriers facing the proposed project activity (such as those laid out for small-scale CDM projects); and/or (d) An indication that the project type is not common practice in the proposed area of implementation, and not required by a Party’s legislation/regulations.

-18- EcoSecurities Group Ltd All Rights Reserved Additionality in the PDD Baseline methodology should define how additionality is addressed (Annex 3.2 and 3.6 of the PDD) In Section B-3 and B-4 the methodology is applied on the project In section A.4-4 present a summary of why the project is additional

-19- EcoSecurities Group Ltd All Rights Reserved A.4.5. Public funding of the project activity ODA funding and CDM are often complementary: ODA often pays for project identification, feasibility study, capacity building of local staff. CDM functions as a good “exit” strategy for ODA donors or other public funders But: CDM should not lead to a diversion of ODA money If project also receives ODA funding, statement from ODA donor is required that no CERs are received in return for ODA funding It should also be clear that the project would not have been fully funded by public funding or by ODA The same applies for GEF (??)

-20- EcoSecurities Group Ltd All Rights Reserved Any questions so far?

-21- EcoSecurities Group Ltd All Rights Reserved Project Design Document (PDD) A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions by sources F. Environmental impacts G. Stakeholders comments Annex 1: Information on participants in the project activity Annex 2: Information regarding public funding Annex 3: New baseline methodology Annex 4: New monitoring methodology Annex 5: Table: Baseline data

-22- EcoSecurities Group Ltd All Rights Reserved Key questions to be addressed : How to calculate Carbon Emission Factor (CEF)? How to select the most appropriate baseline scenario? How has this been applied in the context of Wigton Windfarm?

-23- EcoSecurities Group Ltd All Rights Reserved Calculation of Carbon Emissions for a power plant Fuel consumption data (2001)million litremillion tonne CO2 million MWh produced CEF (tonne CO2 / MWh Calculation Data provided by plant use 2.68 kg CO2 per litre for diesel, 3.12 for bunker oil Data provided by plantD = B / C ABCD Bunker oil Hunts Bay Rockfort Old Harbour Diesel Fuel Hunts Bay Bogue

-24- EcoSecurities Group Ltd All Rights Reserved How to select the appropriate power plants? Electricity sector in Jamaica: Diesel power plants (487 MW, 11 plants) Bunker oil plants (23 MW, 8 plants) Hydro (179 MW, 9 plants) In the future: natural gas, diesel, bunker oil Key question: What is the appropriate baseline? -Hydro? => CEF = 0 tCO2/MWh -Diesel/Bunker oil? CEF is around 1 tCo2/MWh -Natural gas? CEF = 0.45 tCO2/MWh -Mix?

-25- EcoSecurities Group Ltd All Rights Reserved Baseline methodology Purpose: Selection of the most appropriate baseline scenario for a project taking into account the project circumstances Is defined for a specific project category If baseline methodology is available, Project can use approved methodology: -Small-scale guidelines for small-scale projects; -Land-fill gas (3); -Fuel switch (1); -Biomass project (1); -HFC gas project (1). If not, Project has to submit new Methodology by filling out Annex 3 of PDD

-26- EcoSecurities Group Ltd All Rights Reserved Annex 3 – New Methodology 1. Title of the proposed methodology: 2. Description of the methodology: 3. Key parameters/assumptions (including emission factors and activity levels), and data sources considered and used: 4. Definition of the project boundary related to the baseline methodology: 5. Assessment of uncertainties: 6. Description of how the baseline methodology addresses the calculation of baseline emissions and the determination of project additionality: 7. Description of how the baseline methodology addresses any potential leakage of the project activity: 8. Criteria used in developing the proposed baseline methodology, including an explanation of how the baseline methodology was developed in a transparent and conservative manner: 9. Assessment of strengths and weaknesses of the baseline methodology: 10. Other considerations, such as a description of how national and/or sectoral policies and circumstances have been taken into account:

-27- EcoSecurities Group Ltd All Rights Reserved 1.[Title] Baseline methodology for Renewable grid-connected power projects 2.Description of the methodology: 2.1. General approach (Please check the appropriate option(s)) a) Existing actual or historical emissions; b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment; c) The average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category. Annex 3: New methodology for Wigton Windfarm

-28- EcoSecurities Group Ltd All Rights Reserved Static Operating Margin Project Scenario Is the project different from the Business as Usual Scenario ? No Future Additions Recent Additions Projected Operating Margin Combined Margin Yes

-29- EcoSecurities Group Ltd All Rights Reserved 2.2 Overall description Wigtons baseline methodology is characterized by 3 steps: 1 - Is the project the baseline scenario? 2 - What is the most likely baseline scenario? 3 - Which power plants need to be included in the calculation of the baseline CEF?

-30- EcoSecurities Group Ltd All Rights Reserved Step 1 – Demonstrate that the project is not the business as usual scenario (a) Investment barriers (b) Technological barriers (c) Barrier due to prevailing practice (d) Other barriers

-31- EcoSecurities Group Ltd All Rights Reserved Step 2 – Determine the most likely baseline scenario in absence of the project Would the project have delayed future investments in the power sector? Yes -> Build Margin baseline methodology (Baseline = emissions from future power plants) No -> Operating Margin Baseline methodology (Baseline = emissions from existing power plants) Unclear -> Combined Margin baseline methodology (baseline = mix of Build Margin and Operating Margin)

-32- EcoSecurities Group Ltd All Rights Reserved Yes future expansion of the grid? Does the project delay or cancel Build Margin Yes Operating Margin No Static Operating Margin Project Scenario Is the project different from the Business as Usual Scenario ? No Future Additions Recent Additions Projected Operating Margin Combined Margin Unclear

-33- EcoSecurities Group Ltd All Rights Reserved Build/ Operating/ Combined Margin Build Margin Combined Margin Operating Margin Baseline emissions TCo2/year Crediting period

-34- EcoSecurities Group Ltd All Rights Reserved When would the project have delayed future investments in the power sector? Project is likely to delay future investments if: If it expands the capacity of an electricity grid to meet its peak demand; It has similar power supply characteristics as recent or future additions to the grid. Such characteristics include load profile, reliability, controllability, voltage, size; Project is not likely to delay future investments if: It does not have similar power supply characteristics as recent or future additions to the grid; The grid to which it will be connected has overcapacity and no expansion of the grid is expected in the near future; Its deployment is only limited controllable because it uses intermittent resources such as wind, solar or run-of-river hydro.

-35- EcoSecurities Group Ltd All Rights Reserved Step 3: Which power plants need to be included in the calculation of the baseline CEF? Baseline ScenarioDescription Build MarginThe project will delay future investments in electricity generation capacity. Future AdditionsCEF based on emissions future power plants Recent AdditionsCEF based on most recently added power plants Operating MarginProject will replace emissions from existing operating power plants. Static Operating MarginCEF based on emissions from current power plants, excluding the renewable energy must run power plants Projected Operating Margin CEF based on Static Operating Margin plus emissions from new fossil fuel power plants Combined MarginCombination of Static Operating Margin and Recent Additions

-36- EcoSecurities Group Ltd All Rights Reserved Yes future expansion of the grid? Does the project delay or cancel Build Margin Yes Operating Margin No Static Operating Margin No Project Scenario Is the project different from the Business as Usual Scenario ? No Future Additions Recent Additions Yes No Is information available on future addition(s) to the grid? Projected Operating Margin Yes No Yes Is information available on future additions to the grid? Is the energy park expected to alter significantly in the crediting period? Combined Margin Unclear

-37- EcoSecurities Group Ltd All Rights Reserved Summary Select a baseline methodology which suits your project category: If there is an existing methodology, apply this; If there is no methodology, define a new one. Follow the instructions of the baseline methodology to your project and select the appropriate baseline scenario Justify the choices you have made by referring to your project-specific circumstances Now: example of the Wigton windfarm

-38- EcoSecurities Group Ltd All Rights Reserved Any questions so far?

-39- EcoSecurities Group Ltd All Rights Reserved Project Design Document (PDD) A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions by sources F. Environmental impacts G. Stakeholders comments Annex 1: Information on participants in the project activity Annex 2: Information regarding public funding Annex 3: New baseline methodology Annex 4: New monitoring methodology Annex 5: Table: Baseline data

-40- EcoSecurities Group Ltd All Rights Reserved Section B B.1Title and reference of the methodology applied to the project activity: B.2.Justification of the choice of the methodology and why it is applicable to the project activity B.3.Description of how the methodology is applied in the context of the project activity: B.4.Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (i.e. explanation of how and why this project is additional and therefore not the baseline scenario) B.5.Description of how the definition of the project boundary related to the baseline methodology is applied to the project activity: B.6.Details of baseline development B.6.1 Date of completing the final draft of this baseline section (DD/MM/YYYY): B.6.2 Name of person/entity determining the baseline:

-41- EcoSecurities Group Ltd All Rights Reserved B.3.Description of how the methodology is applied in the context of the project activity: Step 1 - Wigton first wind park in the Caribean -> High investment risk, technology barriers, lack of familiarity with technology Step 2 – Most likely baseline scenario: would the project have delayed future investments in the power sector?  Wigton does not share the same power supply characteristics as many other power plants;  Wind power is an intermittent source which serves as base load in the dispatch  Wigton is likely to replace Existing park = Operating Margin baseline Step 3 – Emission factor methodology:  The generation capacity in Jamaica is likely to expand;  No reliable data was available on future additions to the power park.

-42- EcoSecurities Group Ltd All Rights Reserved Yes future expansion of the grid? Does the project delay or cancel Operating Margin No Static Operating Margin Project Scenario Is the project different from the Business as Usual Scenario ? Future Additions Recent Additions Projected Operating Margin No Yes Is information available on future additions to the grid? Is the energy park expected to alter significantly in the crediting period? Combined Margin Situation for the Wigton Wind Farm

-43- EcoSecurities Group Ltd All Rights Reserved Project Design Document (PDD) A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions by sources F. Environmental impacts G. Stakeholders comments Annex 1: Information on participants in the project activity Annex 2: Information regarding public funding Annex 3: New baseline methodology Annex 4: New monitoring methodology Annex 5: Table: Baseline data

-44- EcoSecurities Group Ltd All Rights Reserved E: Calculation of GHG emissions by sources E.1Formulae used to estimate emissions of the project activity within the project boundary -No project emissions for Wigton E.2Description of formulae used to estimate leakage -No leakage identified for Wigton. -E.3Sum of E.1 and E.2 -E.4Description of formulae used to estimate the anthropogenic emissions by sources of greenhouse gases of the baseline -E.5 Difference between E.4 and E.3 representing the emission reductions of the project activity -E.6 Table providing values obtained when applying formulae above

-45- EcoSecurities Group Ltd All Rights Reserved Other Elements of the methodology Step 4 - Determine period from which new plants are included Step 5 - Assessment of emission factors Step 6 - Calculate the weighted average emission factor Step 7 - Calculate emissions of the baseline

-46- EcoSecurities Group Ltd All Rights Reserved E: Calculate Carbon Emission Factors (CEFs) from fuel use Fuel consumption data (2001)million litremillion tonne CO2 million MWh produced CEF (tonne CO2 / MWh Calculation From source use 2.68 kg CO2 per litre for diesel, 3.12 for bunker oil Data from plantD = B / C ABCD Bunker oil Hunts Bay Rockfort Old Harbour Diesel Fuel Hunts Bay Gas Turbine Bogue Gas Turbine

-47- EcoSecurities Group Ltd All Rights Reserved Calculate weighted average: Static Operating Margin

-48- EcoSecurities Group Ltd All Rights Reserved “Recently added” methodology: past 5 years or past 10 years

-49- EcoSecurities Group Ltd All Rights Reserved Resulting baseline scenarios for the Wigton Windfarm

-50- EcoSecurities Group Ltd All Rights Reserved Project Design Document (PDD) A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions by sources F. Environmental impacts G. Stakeholders comments Annex 1: Information on participants in the project activity Annex 2: Information regarding public funding Annex 3: New baseline methodology Annex 4: New monitoring methodology Annex 5: Table: Baseline data

-51- EcoSecurities Group Ltd All Rights Reserved C. Duration of the project activity / Crediting period Starting date of project activity Expected operational lifetime Crediting period: 21 years (3 x 7 years) 10 years

-52- EcoSecurities Group Ltd All Rights Reserved D. and Annex 4: Monitoring methodology and plan No methodologies (Annex 4) approved at present Plan indicating which activities will be monitored once the project is operational Includes frequency of monitoring as well as responsibilities data collection and storage Development in close relation to emissions baseline Use similar project boundaries in order to compare as good as possible Data need to be kept in archive until two years after the last issuance of CERs for the project activity

-53- EcoSecurities Group Ltd All Rights Reserved D.1.Name and reference of approved methodology applied to the project activity: New methodology: “Direct monitoring of electrical output of IPP renewable energy projects” D.2.Justification of the choice of the methodology and why it is applicable to the project activity: D: Data for monitoring

-54- EcoSecurities Group Ltd All Rights Reserved D: Monitoring methodology and plan D.3. Data to be collected in order to monitor emissions from the project activity, and how this data will be archived: D.4. Potential sources of emissions which are significant and reasonably attributable to the project activity, but which are not included in the project boundary, and identification if and how data will be collected and archived on these emission sources. Identical table to fill out. No significant indirect on-site and off-site emissions identified.

-55- EcoSecurities Group Ltd All Rights Reserved D: Monitoring methodology and plan D.5.Relevant data necessary for determining the baseline of anthropogenic emissions by sources of GHG within the project boundary and identification if and how such data will be collected and archived.

-56- EcoSecurities Group Ltd All Rights Reserved D: Monitoring methodology and plan D.6. Quality control (QC) and quality assurance (QA) procedures are being undertaken for data monitored. Data items in tables contained in section D.3, D.4 and D.5, as applicable. D.7Name of person/entity determining the monitoring methodology:

-57- EcoSecurities Group Ltd All Rights Reserved F: Environmental impacts Environmental Impact Assessment (EIA) Review by National Environmental Planning Agency (NEPA) Main impacts during construction phase Visual impacts and noise

-58- EcoSecurities Group Ltd All Rights Reserved G: Stakeholder comments Consultation event 50 persons attended Part one: project information Part two: question, answer and discussion process Conclusions: No major concerns or objections raised Safety issue for local farmers

-59- EcoSecurities Group Ltd All Rights Reserved Further process Methodology will be re-submitted before 13 November, 2003 Methodology Panel Executive Board Meeting Re-validation of the project on the basis of the revised methodology Registration of the project in the CDM registry => June 2004?

-60- EcoSecurities Group Ltd All Rights Reserved Thank you.