european wind energy conference 2006 27 february - 2 march 2006, athens, greece

European Wind Energy Conference 2006 27 February - 2 March 2006, Athens,

Greece

PROMOTING PROMOTING WIND ENERGYWIND ENERGY THROUGH THROUGH THE FLEXIBLE MECHANISMSTHE FLEXIBLE MECHANISMS

OF THE KYOTO PROTOCOL OF THE KYOTO PROTOCOL

D.D. Diakoulaki, G. Dimitropoulos, PDiakoulaki, G. Dimitropoulos, P. . GeorgiouGeorgiou, , CC. . TourkoliasTourkolias National Technical University of AthensNational Technical University of Athens, Lab. of Industrial & Energy Economics, Lab. of Industrial & Energy Economics

Ε. Ε. GeorgopoulouGeorgopoulou, , SS. . MirasgedisMirasgedis, , YY. . Sarafidis, D. LalasSarafidis, D. LalasNational Observatory of AthensNational Observatory of Athens, Inst. for Environmental Research & Sustainable , Inst. for Environmental Research & Sustainable

DevelopmentDevelopment

EWEC 2006 National Technical University of Athens 2

Contents

The Clean Development MechanismThe scope of the presentation

Pre-selection of host countries

Financial analysis of wind energy projectsResults without CDM

Results with CDM

Sensitivity Analysis

Conclusions

EWEC 2006 National Technical University of Athens 3

Flexible Mechanisms

A co-operative framework within the Kyoto ProtocolAnnex-I countries: to meet their commitments in

the most cost-effective waynon-Annex-I countries: to support sustainable

development

►Emissions Trading

►Joint Implementation

►Clean Development Mechanism

EWEC 2006 National Technical University of Athens 4

Clean Development Mechanism

Article 12 of KP: “any Annex I country or any licensee legal entity of Annex I country is allowed to be credited for emissions reductions achieved by investing in projects located in non-Annex I countries”

that would not have been implemented without the

incentive of CDM

Lack of knowledge and/or financial resources in non-Annex-I countries

Lack of satisfactory profit for Annex-I countries

EWEC 2006 National Technical University of Athens 5

Questions

Is wind energy an appropriate type of CDM project?

Is CDM an appropriate tool for the development of

wind energy exploitation in developing countries ??????

EWEC 2006 National Technical University of Athens 6

The scope of the presentation

To demonstrate the effect of CDM on typical Wind Energy projects

To identify attractive investment opportunities on wind energy in smaller CDM markets (of particular interest for Greek investors)

To investigate the impact of key-parameters on the project’s profitability

EWEC 2006 National Technical University of Athens 7

Existing CDM projects (1)

Agriculture12%

Energy efficiency14%

Fossil fuel switch4%

Cement4%

Wind11%

Solar1%

Geothermal1%

Tidal0%

CH4 reduction9%

HFC & N2O reduction2%

Biogas4%

Biomass energy22%

Hydro16%

Renewables55%

513 projects registered or under validation 22/12/2005

EWEC 2006 National Technical University of Athens 8

Existing CDM projects (2)

107 Mt CO2/yr from projects registered or under validation22/12/2005

Renewables16%

CH4 reduction15% Biogas

1%

Cement2%

Energy efficiency4%

Fossil fuel switch1%

Tidal0%

HFC & N2O reduction59%

Agriculture4%

Biomass energy5%

Hydro4%

Wind4%

Geothermal1%

Solar0%

EWEC 2006 National Technical University of Athens 9

Geographical distribution of Wind projects

India61%

China16%

Rest of Asia7%

Morocco4%

Central America5%

South America7% 55 Wind energy Projects

Total Capacity: 2140 MW

Total Emissions Reduction: 3100 kt CO2 eq/yr

EWEC 2006 National Technical University of Athens 10

Moldova

Georgia

Armenia

Bosnia & Herzegovina

Serbia & Montenegro

Albania

F.Y.R.O.M.LebanonJordanEgyptLibya

TunisiaAlgeria

Non-Annex I Countries

Pre-selection of host countries

EWEC 2006 National Technical University of Athens 11

Project specification

Capacity: 51 MW (60 x 850 kW) Hub height: 60 m Rotor diameter: 52 m

Investment cost: 1000 €/kW Operational and Maintenance cost: 15 €/kW,year

Assumed to be the same in all host countries

EWEC 2006 National Technical University of Athens 12

Data Requirements

Without CDM

Load factorsElectricity tariffs

With CDM

Load factorsElectricity tariffs

+Baseline emission

factorValue of CERs

EWEC 2006 National Technical University of Athens 13

Load factors

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Calculated on the basis of data on average wind speed

EWEC 2006 National Technical University of Athens 14

Electricity prices

Determined on the basis of local data

0.0000

0.0100

0.0200

0.0300

0.0400

0.0500

0.0600

0.0700

(€/

kW

h)

EWEC 2006 National Technical University of Athens 15

Results of Financial Analysis

-10%

-5%

0%

5%

10%

15%

20%

IRR

EWEC 2006 National Technical University of Athens 16

Baseline Emission Factors

Calculated on the basis of local data as the average of: Operating margin: existing electricity system Build margin: recent additions to the system

0.000

0.100

0.200

0.300

0.400

0.500

0.600

Egypt Armenia Moldova Jordan Georgia Tunisia Algeria Syria

(t C

O2/M

Wh

)

EWEC 2006 National Technical University of Athens 17

Value of CERs

Values fluctuations in the carbon market

Basic scenario 15 €/t CO2

Pessimistic scenario 10 €/t CO2

Optimistic scenario 25 €/t CO2

EWEC 2006 National Technical University of Athens 18

Results

0%2%4%6%8%

10%12%14%16%18%

IRR

Without With CDM

Registration in CDM is expected to increase IRR by 1.5% – 2%

CERs: 15 €/t CO2

EWEC 2006 National Technical University of Athens 19

Sensitivity Analysis

Parameter Pessimistic Optimistic

Load factor -20% +20%

El. tariff - +20%

Investment cost +20% -20%

Emission factor -20% +20%

Value of CERs 10 €/t CO2 25 €/t CO2

EWEC 2006 National Technical University of Athens 20

A marginal case: Egypt

0%

2%

4%

6%

8%

10%

12%

Basicscenario

Load Factor Electricitytariff

Investmentcost

Emissionfactor

CERs value

IRR

Pessimistic Optimistic

Sensitivity Analysis

EWEC 2006 National Technical University of Athens 21

A promising case: Jordan

0%

5%

10%

15%

20%

25%

Basicscenario

Load Factor Electricitytariff

Investmentcost

Emissionfactor

CERs value

IRR

Pessimistic Optimistic

Sensitivity Analysis

EWEC 2006 National Technical University of Athens 22

Average impact

0% 10% 20% 30% 40% 50% 60%

Emission Factor +20%

CERs value 25 € /t CO2

Electricity Price +20%

Load Factor +20%

Investment Cost -20%

IRR increase

EWEC 2006 National Technical University of Athens 23

Conclusions

Interesting investment opportunities on wind energy exist in some developing countries

The CDM has a relatively small impact on the project’s profitability

The influence of CDM relevant parameters is very lowEmission factor (country specific)CERs value

The most critical factors influencing IRR are:Investment cost: to be reduced through subsidiesLoad factor: to carefully select the site Electricity tariffs: to be provided in host countries

EWEC 2006 National Technical University of Athens 24

Thank you

for your attention !