1. CD4CDM - RW4 Tunis, 27-29 August 2004 1 Capacity Development for CDM Additionality Analysis Vale Do Rosario Bagasse Cogeneration (VRBC) Project - Brazil Tunis, 27-29 August 2004 Samir Amous, APEX, Tunisia Regional Centre for North Africa and Middle-East

2. CD4CDM - RW4 Tunis, 27-29 August 2004 2 Cogeneration Bagasse - Brazil  Additionality analysis included in Chapter B (Baselines)  Introductory analysis explaining that the Power grid in Brazil is evolving towards a increasing thermal electricity share  the project will provide for additional reductions in GHG emissions

3. CD4CDM - RW4 Tunis, 27-29 August 2004 3 Cogeneration Bagasse - Brazil  Four question to justify Additionality: 1. Would the project be initiated within the public sector in the absence of CDM ? 2. Would the project be initiated within the private sector in the absence of CDM ? 3. Would VR initiate the project in the absence of the CDM ? 4. Would public-sector policies and/or programs to promote the use of such RE ?

4. CD4CDM - RW4 Tunis, 27-29 August 2004 4 1. Would the project be initiated within the public sector in the absence of CDM ? No because: Brazil is currently intensively investing on the development of Nat Gas. The thermal electricity will reach 17% in 2004 (vs 9% in 2001) Public sector Brazil is not investing on bagasse companies  there is a need to make efforts to establish a new spirit towards liberalization of the Elec. Sector Documentation: National/Regional energy policies and Plan

5. CD4CDM - RW4 Tunis, 27-29 August 2004 5  No, because 1. The economic performance of the projects without CERs are insufficient  unable to remove technical, institutional, and financial barriers: Cost for cogénération: US$ 35 to US$ 105/MWh Marginal cost for electricity in Brazil : US$ 33/MWh 2. Would the project be initiated within the private sector in the absence of CDM ?

6. CD4CDM - RW4 Tunis, 27-29 August 2004 6  No, because Internal Rate of Return  2004- 2011  16% (without CERs), and 22% (with CERs=US$5) Lack of financial and entrepreneureal capacity to achieve the implementation of cogen. 2. Would the project be initiated within the private sector in the absence of CDM ?

7. CD4CDM - RW4 Tunis, 27-29 August 2004 7  Reasons justifying Additionality: High transaction costs  bureaucracy to obtain agreements for Environmental impact assessment  Institutional burdens No standard contractual agreements for selling electricity to the grid (guaranty of duration, guarantee of effective payment, etc.)  Regulatory burdens No guarantee of performances of Bagasse Cogenerator  Technical burdens 2. Would the project be initiated within the private sector in the absence of CDM ?

8. CD4CDM - RW4 Tunis, 27-29 August 2004 8  No: Corporate culture barrier against high level investments such as Cogen Cogen is not a central activity of the Company Investment on cogeneration should be compared against other investment opportunities with equal risks 3. Would the present Promoter initiate the project in the absence of the CDM ?

9. CD4CDM - RW4 Tunis, 27-29 August 2004 9  No: Presidentiel Decree to develop cogeneration waited since 1997, never published  Regulatory burdens The Governement is financing the expansion of gas based thermal plants for electricity generation  attractive tariffs for Natural Gas 4. Would the current public policies encourage RE development such as Bagasse?

10. CD4CDM - RW4 Tunis, 27-29 August 2004 10