What Goes Into a Good PIN and a PCF Project? PCF Training Workshop on Project Formulation under the Clean Development Mechanism Hanoi, Vietnam September 30 – October 2, 2002

Section A: Project Developer Identification of Project Developer Provide contact information and summary of relevant experience Identify other functions of project developer: Sponsor: entity that provides financial support for project, from whom PCF will purchase emission reductions Intermediary: –acts as liaison between PCF and operational entities, especially necessary when several small projects are bundled together or organized in umbrella project –e.g. energy service companies, energy utilities, local banks, funds, CDM Offices Technical Advisor: role restricted to the provision of advice and consulting

Section A: Project Sponsors Project Sponsors (please list all): Summarize main activities of all project sponsors Provide summary of financials (total assets, revenues, profits, etc.) Intent: to provide information on financial soundness of project and the entities involved in it Typically checked as project preparation advances as a part of financial due diligence of the project

Section A: Type of Project Type of Project and Activity Abatement: an activity that results in emission reductions CO2 Sequestration: an activity that results in the uptake and storage of carbon from the atmosphere In accordance with the decisions adopted at CoP7 in Marrakech, only aforestation and deforestation activities are eligible as CO2 sequestration projects Project could include a combination of Abatement and Sequestration, for example: Component 1: setting up a plantation forest to produce charcoal > sequestration Component 2: displacing use of coal with charcoal > abatement

Section A: Type of Project II Field of Activities: Energy Supply: Renewable Energy: Energy obtained from sources that are essentially inexhaustible e.g. wood, waste, geothermal, wind, photovoltaic, and solar thermal energy Energy Efficiency: project that results in reduction of amount of energy used to provide a given level of service, e.g. industrial upgrades Fuel Switching: project whereby a fossil fuel is replaced by another, cleaner one Demand Side Management: project that reduces energy demand from end-users, e.g. efficient lighting Transport: project where more efficient engines are used, a fossil fuel is replaced by another,cleaner one for transport or where a cleaner form of transportation is used Waste Management project that captures GHG emission from waste or wastewater Land Use, Land Use Change and Forestry: carbon sequestration through improved land use, land use change and forestry

Section A: Expected Schedule Earliest Possible Starting Date: Defined as date when project/equipment is fully operational, i.e. when emission reductions start to take place For PCF projects, an initial verification takes place before the starting date to ensure that project is compliant with its Monitoring Protocol (MP) Time Required Before Becoming Operational: Calculated from the time of submission of PIN First Year of CER Delivery:

Section A: Expected Schedule II Project Lifetime: Time over which project will generate emission reductions Coincides with useful lifetime of technology Can be large for CO2 sequestration (>50 years) PCF typically uses a time frame of 15 years as a “rule of thumb” for acquiring emission reductions  project has to be able to produce Emission Reductions with a reasonable cost within 15 years in order to be attractive for the PCF Current Status Intent: the earlier the proponent discusses with host government, the better Host government has to endorse the project early in the project cycle Host government is also a key party in the negotiation of the project agreements Upon project endorsement, host government becomes member of the PCF Host Country Committee

Section A: Position of Host Country with regards to Kyoto Protocol As a part of standard PCF agreements, the host country is required to ratify the Protocol within six months of its entry into force Eligibility requirements for participation in Kyoto Mechanisms include ratification of the Protocol and compliance with the Kyoto Protocol by the sponsoring country Host countries are encouraged to consider ratification of the Kyoto Protocol as early as possible

Section B: Expected Environmental Benefits Estimated Greenhouse Gases Abated/ CO2 Sequestered in “tons of carbon dioxide equivalent” Calculations/ projections over time and methodology/formula used must be provided Various Scenarios are required: until 2012, and for periods of 7, 10 and 14 years From seller’s perspective, better price if emission reductions are earlier PCF will not necessarily buy all emission reductions, but will commit to a minimum based on conservative estimate to reduce risk Emission reductions over and above the amount PCF will buy as a minimum can be shared by project entity, the government and the PCF

Section B: Baseline Scenario and Local Benefits Baseline (or Reference Scenario): KEY ELEMENT OF ANY PROJECT Provides the basis for calculating emission reductions and must be independently validated Must identify what would happen in the absence of the CDM project Specific Local and Global Environmental Benefits Expected Many projects have significant local benefits that may be monitored as part of the project’s MP

Section B: Socio-Economic Aspects Socioeconomic Aspects: Project has to contribute to sustainable development as defined by the host country What social and economic effects can be attributed to the project and which would not have occurred in a comparable situation without that project? What are the possible direct effects (e.g., employment creation, capital required, foreign exchange effects)? What are the possible other effects? (e.g., For example: training/education associated with the introduction of new processes, technologies and products and/or the effects of a project on other industries

Section C: Total Project Costs and Sources of Finance Total Project Cost Estimates Investment costs, including development costs, up to commissioning of project Sources of Finance to be Sought or Already Identified no specific rule on where other financing should be sought However, it is critical to identify other debt and/or equity finance Typical sources of funding: international development banks, government funding, private financing, supplier credit PCF contribution = typically 5-25% of total project costs PCF can contribute between 3 to 15 million USD, payable upon delivery of emission reductions If value of emission reductions < 3 million USD, project can be bundled with others – typically done by intermediaries or governments or qualify as small project ODA can be part of the project financing as long as ODA financing does not claim emission reduction credits

Section C: Total Project Costs and Sources of Finance II The quantum of upfront payment will depend on the assessed risk of the project by the World Bank, and will not exceed 25% of the total ER value purchased by the World Bank for the project. Any upfront payment will be discounted by a factor considered appropriate by the World Bank for the project Note: Preparation costs are eventually reimbursed by the project sponsors in first PCF payment(s) for the emission reductions

Section C: Financial Analysis If available, provide financial analysis Without carbon finance: provides basis for estimating viability of the project given the country and project-specific circumstances With carbon finance: provides basis for estimating what kind of an impact carbon finance has on the viability of the project IF financial analysis used as part of the baseline methodology, provides basis for estimating when the project becomes part of the baseline, e.g. the least cost expansion plan for energy production Use $3/t CO2 and estimated price

Conclusions 1.Develop an Idea 2.Conduct a Pre-feasibility Study Consider whether technology to be used is applicable If carbon financing is envisaged at this stage, it is important to consider baseline concept 3.Approach Financiers/ Obtain Financing 4.Approach PCF for Carbon Financing PCF Project Cycle begins  Talk to Government Officials throughout!