2. Clinic: PIN preparation Hakim Zahar, P.Eng. Vice-President ECONOLER INTERNATIONAL & Natasa Markovska, D.Sc. EE Senior Scientific Collaborator Consultant March, 2007 Macedonia Accessing Carbon Finance

3. Schedule of Clinic’s activities 09:30- 10:00Brief presentation on PIN template and key issues 10:00- 10:15 Composition of working groups 10:15-Each group will work on a Project using the PIN template 15:30- 16:00 Open Forum 16:00- 16:15 Summary and closure

4. Let us take a look at the PIN template ! Clear description of project activities and type of technology Identification of project participants and Institutional arrangement for project implementation –Roles of participants and their technical and financial capability to undertake them. –Identification and status of the third party involvement Example: PPA negotiation in case of a electricity generation project or an agreement with municipal government regarding ownership of the waste in case of a landfill project

5. Let us take a look at the PIN template ! Demonstration of additionality and determination of baseline Scenario and Emission Reductions –Roles of participants and their technical and financial capability to undertake them. –why the project should not happen on its own? –What could have happened in the absence of the project ? –Sources of emission reductions and total ER volume

6. Project Financing –Project costs estimation –Identification of underlying finances and expected financing gap –Financial analysis -- How will the carbon financing impact on the implementation of the project? Demonstration of Environmental sustainability –The status of EIA and/or acquisition of relevant environment certificates such as FSC (Forest Steward Council) certificate for a biomass project –Compliance with social and environmental safeguard requirements plus relevance to the sustainable development priorities of the host country –Macedonia national sustainable development goals for CDM projects net environmental benefit net contribution to economic development improvement in social conditions Community Benefit –Type of benefits the project can generate for local communities Let us take a look at the PIN template!

7. Criteria for Successful PIN Commercially viable technology Credible baseline scenario and adequate ERs volume –the ER volume must be big enough to make a project viable under the CDM -- for example, a project generating a minimum threshold of 50,000 tCO2/year. Projects with lower than 50,000 tCO2/year may be bundled –Small-scale projects which are programmatic and scalable in nature are encouraged –Hydropower projects must have a maximum of installed capacity threshold of 20 MW. Projects can be bundled –Proposals of carbon sequestration activities are not being accepted at this time

8. Basis for Successful PIN Competent Project participants and clear institutional arrangement –Technically experienced and sound project developers with clear division of functions. Early involvement of credible technical, financial, and economic specialists to establish that all project selection criteria are in place Pool of in-house resources to bring to completion projects that are technically sound and sustainable –Demonstration of sound legal arrangement -- for example, who owns, who operates, and what type of agreement between project participants as well as with third party (e.g. power purchase agreement, ownership agreement, water right) Viable business and operation model that help reduce transaction costs –Potential for scale up –Involvement of intermediaries who can invest, bundle, and implement project-related CDM services locally

9. Basis for Successful PIN Sound financing structure –Sound financial health of project sponsors and co- financiers. –The sooner the project can achieve financial closure, the better the chances of selection are Environment impact and sustainability of the project –In consistent with the WB’s social and environmental safeguard requirements AND the host Country’s overall sustainable development framework Sizable community benefits –Most eligible criteria for small-scale project under the CDCF –Community Benefits Questionnaires

10. Key issues

11. Baseline Scenario & Additionality Baseline Conservative Baseline Project Emissions time Emissions Reductions Baseline scenario represents emissions in the absence of the CDM project activity Additionality tools: - financial analysis and/or - barriers analysis

12. Methodology review: –Approved consolidated methodologies ACM0001 to ACM0010 –Approved methodologies AM0001 to AM0045 –Approved meth. for small scale projects 21 meth. (AMS-type.category) 3 types: renewable (4), energy efficiency (6) and others (waste management, fossil fuel switching, etc.) (11) –New methodologies: Time consuming and add risky Baseline & Monitoring Methodologies

13. Browse UNFCCC CDM website http://cdm.unfccc.int/methodologies/index.html

14. How to chose the appropriate methodology –Screening methodologies –Seek the applicability of the meth to the proposed project Verify if the project is eligible under small scale meth (simplified rules) If not, identify a consolidated meth (broader scope) As last option, approved meth. –Boundary Baseline & Monitoring Methodologies

15. Emissions estimate: –Baseline emissions –Project emissions Formula in methodologies or IPCC guidelines Tools –Tool to determine methane emissions avoided from dumping waste at a solid waste disposal site –Tool to determine project emissions from flaring gases containing methane –WB spreadsheets : methane from biomass decay Determination of emission factor –(AMS I.D or ACM0002) –IPCC default values Estimation of emissions reductions

16. Ratio of conversion into TCO2 for Macedonia Combined margin (CM) emission factor for Macedonian electricity grid : 0.915 tCO2/MWh Conversion and Emission Factors by Fuel Types within the Energy Sector (Base Year 2000) – 2 nd National Communication

17. CO2 abatement cost of the Renewable energy sources technologies in Macedonia Source: Ministry of Environment and Physical Planning/GEF- UNDP, 2004

18. A synopsis of CDM PDD Guidebook Good Practice and Mistakes to Avoid

19. Tips & Tricks #1 Don’t take a pass on using pre-approved methodologies and IPCC guidelines/GHG emission factors wherever possible or reasonable… –The methodology development process is improving, but is still risky and relatively time- consuming for a CDM developer

20. Use a pre-approved or B-rated methodology wherever possible to reduce delays and costs!

21. Tips & Tricks #2 Don’t build your house on a sand foundation… –Get the baseline right first, and double check calculations for possible errors –Make sure all potential baseline scenarios have been considered and foregone options justified –For many approved methodologies, there is only one relevant baseline scenario identified ! –If sampling required for baseline or ongoing monitoring, demonstrate homogeneity within strata (e.g. economic characteristics of target group, technology size)

22. Tips & Tricks #3 Don’t reinvent the wheel when developing or adapting an existing methodology to your project –Keep methodology as simple as possible. –Avoid trying to say it better than language that was already approved, or trying to say more than you need to… Be explicit, systematic, and ordered (i.e. take a “cook book” approach, not a story- telling one)

23. Tips & Tricks #4 Don’t include irrelevant or overly detailed technical information in your document –This is subjective and differs by project type (see guidebook for examples and perspective of DOEs). –Don’t include attachments in language other than English or detailed permits and licenses only of interest to DOE

24. Tips & Tricks #5 Don’t create delays by being incomplete or lazy in your responses. –Always address every aspect in template. If section is not applicable, say so, for reason “X”. No one likes forms. Don’t give Reviewer an easy reason to reject!

25. Tips & Tricks #6 Don’t commit to an overly conservative baseline that negates much of ER benefit –Reality is that most projects’ ER estimates are revised downward following reviews. –Leaving some headroom is prudent, provided you know volume risk.

26. Tips & Tricks #7 Don’t make mistakes in investment analysis when demonstrating additionality. –Powerful way to demonstrate that proposed project isn’t common practice or most financially feasible alternative w/out carbon finance. –Don’t assume project is not additional just because NPV is positive, or IRR is high. –Don’t consider carbon revenue in NPV or IRR analyses of baseline. –Don’t consider interest payments in NPV –Don’t forget to treat depreciation as cash flow

27. Tips & Tricks #8 Don’t be inconsistent –Keep arguments and assumption same across all sections of your project document –Keep emission factors constant between baseline and project calculations –Crediting and starting periods should not contradict each other –Clarify when crediting starts if different project stages and leave at least 3 months from start of validation

28. Thank you for your attention! Hakim Zahar, P.Eng hzahar@econolerint.com +1 418 692-2592 www.econolerint.com Natasa Markovska, D.Sc. EE natasa@manu.edu.mk natasa@manu.edu.mk +389 2 32 35 427