e7 Private CDM Investor CDM Program + Experience presented by Klaus Baumann e7 Senior Program Manager/Project Director RWE Environmental Affairs UNEP RISOE Jerba CDM Investor Forum September, 2004 Jerba, Tunisia

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 2 What is e7 ? Non-profit group of 9 leading electricity companies from G7 nations (AEP, EdF, ENEL, HQ, Kansai, OPG, RWE, SP, TEPCO) Created in 1992 (after Rio Summit) Mission to be proactive on global electricity and climate change issues and promote sustainable development Actions: investment in CDM/JI projects, capacity building, joint positions, policy debate, stakeholder partnerships

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 3 e7’s AIJ, CDM and JI projects Renewable energy development in Indonesia (AIJ) Thermal power plant efficiency measures in Jordan (AIJ) Wind park on Galapagos Islands in Ecuador (CDM) Micro-hydropower development in Bhutan (CDM) Energy efficiency measures in Bulgaria (JI) Hydropower development in Bolivia, Zimbabwe, and Nicaragua (CDM) Wind power in Chile (CDM)

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 4 Selected e7 project case studies

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 5 Renewables in Indonesia (AIJ) e7 financed and developed 4 MHPs, 200 SHS, and 1 wind-solar-diesel hybrid system Decentralised, rural electrification, demonstration project AIJ acknowledgement: Indonesia and Germany Monitoring phase until 2003 Macro barriers - non-transparent national CDM policy / SD indicators, capacity building problems Micro barriers - high transactions costs (US$ 245,000 vs. 40,000), less CERs than forecasted)

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 6 Hydropower in Bolivia (CDM) CDM pilot project: 25 MW hydro, isolated grid, financially sustainable, innovative investment scheme Feasibility study 90% complete. Now on hold due to change in government policy Macro barriers: –Legal and administrative framework not ready for this kind of CDM project –Change of government in 2002 with change in policy (gas priority) Micro barriers: –Joint venture agreement with local distribution company –Fixed tariffs

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 7 Wind power in Galapagos (CDM) CDM pilot project: wind park in Galapagos Islands (2000 kW) to replace diesel and to mitigate risk of fuel spills Project in feasibility phase; delayed 1.5 years. Macro barriers: –Disconnection between ministries –DNA not enough authority –Legal and administrative framework not ready for this kind of CDM project Micro barriers: –Environmental risks (bird issue) –Fixed tariff vs. Financially/technically sustainable tariff –Intervention of ministry into investment issues –legal precedent-setting

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 8 Investment Considerations

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 9 CDM strategies: e7 – e7 member companies e7 position (non-profit, pilot projects): –Sustainable development –Financial sustainability –Parallel development goals –Strong local partnership –Small-scale projects RWE position (commercial, requirements): –Need for CERs/ERUs based on NAP/ plant allocation –Participation in international funds such as PCF is attractive because of high level of experience and low risks –Otherwise, projects undertaken directly must satisfy company criteria (IRR, acceptable risk, etc.)

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 10 Impact of Carbon Finance on Project Financing at $3-4/t CO2e (estimates from PCF’s experience) Technology  IRR (%) Energy Efficiency - District Heating~2.0 Wind Hydro Gas Flare Reduction2-4 Biomass with methane kick>5.0 Municipal Solid Waste with methane kick>5.0

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 11 Conclusions & Recommendations

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 12 Host country factors attracting CDM investors Investment climate –Government responsiveness to needs of investors, Investment promotion (office), Power sector legal framework, adeq. tariffs, Host country CDM policy –Established, clear, consistent CDM policy –Strong DNAs (clear, effective approval procedures) –Clear requirements (host country approval (responsibility), Sustainable Development, etc.) Techno-economic potentials –Preliminary studies for project types/sizes with highest potential –Data availability Easy baseline estimation –Prepared for generation types –Data availability

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 13 Global factors affecting CDM investors Kyoto mechanisms and regulations for CDM projects have to be in force –Ratification (Russia?) + CDM EB rules/methodologies Fungibility with other legal frameworks –e.g. EU linking directive - CDM/JI within EU emissions trading scheme Project type restrictions and additional requirements should be minimised –Restrictions on hydropower –Financial additionality? –Transaction costs Clarify post 2012 situation –Energy investment requires substantial capital for investment over long periods –Infrastructure has technical life beyond crediting periods Price of CO2

September 2004 Jerba CDM Investor Forum – Jerba, Tunisia 14 Questions / Discussion For more information, please visit or contact: Klaus Baumann