IAEA Meeting on Comprehensive Energy Planning国际原子能机构综合能源规划会议

Componentsofcashflow(costsandrevenues)inCDMprojects

1.Capitalcosts–allcapitaexpenditurestoestabishtheproject.TheseincludegeneralinvestmentsandthepurchaseofequipmentrequiredtoreduceGHGemissions.Futurereplacementandrehabilitationcostsarealsopartofcapitalcosts.2.OperatingCosts–i.e.fixedandvariablecosts:Fixedoroverheadcostsareincurredirrespectiveofhowmanyunitsareproducede.g.salaries,rentalsetc.Variablecostsarecoststhatvarywiththeprojectoutpute.g.costofmorefueltoproducemoreunitsofelectricity.3.Revenues–dependonthenatureoftariffsandotherproductandserviceprices.IncomefromthesaleofCERsisalsopartofrevenues.4.Interestpayments–Ifthediscountrateusedreflectsthecostofcapital(debtservicingcosts+returnstoequityinvestors),theninterestshouldbeincludedinthediscountrate.SourcesoffinancingRangeofpossibleinvestorsnationalgovernmentsofindustrialisedcountriesregionalmultilateraldevelopmentbanksinternationalfinancialinstitutionssuchastheWorldBankenvironmentalnon-governmentalorganisationsprivatecompaniesfromindustrialisedcountriesphilanthropicorganisationsandinternationalfoundationslocalcommercialbanksMarketingto

investorsTowininvestorsprojectdevelopersshouldknowwhichparametersarecriticalforinvestorsviz:

AssessneedsandtimeframeadquatelyIdentifyreasonablepriceparametersforthecarboncreditsDevelopasellingstrategywithanidealtransactionvolumeandsellingpriceconsiderappointingaconsultant,lawyer,ormarketagentwhocanactingoodfaithonyourbehalfi.edevelopplansandfacilitatecomplextransactionsEstablishamethodologytocalculateemissionreductionandprojectandprojectbaselinesi.e.amethodythatconformstoevolvingrulesoftheCDM.FinancingModelsConventionalProjectFinancing:CorporatefinancingbyprojecthostEquipmentleasefinancingUp-frontpaymentsLowinterestloansordebtMicro-credit(1)ConventionalProjectFinancing(e.g.banks):i.Advantages-frompointofviewofprojectsponsor:(a)Abilitytoraiselargeamountsofcapital(b)Improvedrateofreturnforequityproviders(c)Limitedornorecoursetotheassetsoftheprojectsponsorsii.Disadvantages:(a)Costandtimetoobtainprojectfinance(b)Contractsmustbewithcreditworthycounterparties(c)DelayedreturnsonequityFinancingModels(2)Corporatefinancingbyprojecthost(100%equityfinancingbydeveloper)i.Advantages:(a)ProjectretainsalltheCERrevenuefromproject(b)Financingmayberaisedmorerapidlyii.Disadvantage:(a)Lackofexpertise–unlikelythattheprojecthosthasallelementsofspecialisedexpertiserequired.Thiswouldrequireoutsourcingsomeelementsoftheprojecte.g.installationofplantandequipment.(3)Equipmentleasefinancing–dependsontypeofequipmentetci.Advantages:(a)Reducedup-frontexpenditureandclosermatchbetweenleasepaymentsandprojectrevenue(b)Managementofequipmentperformanceriskii.Disadvantages:(a)Limitedabilitytomodificationstoequipment(b)Relativelyhighcostofcapital

FinancingModels(4)SupplierCredit–financingprovidedbysuppliersofgoodsandservicesi.Advantages:(a)Widespreadavailability(b)Deferredpaymentforup-frontcapitalexpenditureii.Disadvantages:(a)Relativelyhighcostofcapital(5)Up-frontpaymentsi.Advantages:(a)Repaymentofup-frontcapitalexpenditurecanbebroughtforward(b)RelativelyrapidandlowcostduetodilligencebyCREbuyers(c)(Possibly)lessconservativeviewofCDM-specificrisksii.Disadvantages:(a)Riskallocationtowardsbuyer(b)LowernetCERrevenueforprojecthost/developer(c)MaynotsolveproblemofobtainingfinanceforconstructionFinancingModels(6)Lowinterestloansordebt–e.g.developmentbankswithlendingprogrammesi.Advantages:(a)Stablecurrency(b)SupportwithCDMcomponentii.Disadvantages:(a)Loansmustfittheobjectivesofthelendingprogramme(b)Stringentduedilligence(7)Micro-credit-aimedatprovidingsmallamountsofcredittolenderswithlimited

abilitytopayi.Advantages:(a)Accesstofinance–oftennocollateralii.Disadvanatages:(a)Limitedscale(b)HighinterestrateCDMprojectriskprofileandits

impactonCERpriceTypesofrisksinCDMprojects1.Genericprojectrisks:Counterpartyrisk–Canthecounterpartybereliedupontodeliver?InCDM,thecounterpartyistheCERsellerwhenenteringintoaforwardcontractwithaCERbuyer.Baselinerisks:Itisthesumofcarbonstockchangesontheprojectareaintheproject’sabsenceandsubjecttoexternalinfluences(e.g.pricevariationsoftimberoralternativelanduseproductsormigration).PDDshouldexplorethelikelihoodofoccurenceofbaseline-relatedrisks.Genericrisks(cont’d)(iv)Commercialrisks:

theserisksareunderthecontroloftheprojectdeveloper;itisprudentfortheprojectdevelopertomitigatethem.Riskmitigationshouldbeguidedbystandardsandcriteriaforgoodpracticeguidanceintheforestrysector.Highinitialcostscanberecoveredbyincreasedprojectpermanenceandcredibility-bothoftheselowercommercialrisks.(v)InstitutionalRisks:e.g.unplannedeventsinhost-country:

Radicalchangesingovernmentmayleadtoariskofalltypesofforeigndirectinvestment.Forexample,socialunrestleadingtoinvasionandsequestrationlosses.Thiscouldbemitigatediftheinvestorissuesalistofcountrieswhoseinstitutionalriskswillnotbecoveredbytheinvestor.(vi)Hostcountrytakesovercommitmentinthelandusesector:

Hostcountrymayundergoachangeofstatuswithintheclimateregimei.ebecomingAnnexI.TheeffectonA/RprojectsisaconversionofexpiringCERsissuedtopermanetreductionunitswiththesubsequentriskofthereleaseofsequesteredcarbonresidinginthehostcountry.ThiscouldbeavoidedthroughanMOUexante.

Genericrisks2.Plannigphaserisks:Feasibilityrisk:Riskthatfeasibilitystudiesdonotfindaprojectfeasible.Permitorlicencerisk:Riskthatpermitorlicencefortheoperationoftheprojectisnotgranted3.ConstructionPhaserisk:(i)Theriskthattheprojectisnotcommisionedonschedule.(ii)Capitalcostover-runrisk:Theriskthatthecostsinvolvedinimplementingtheprojectarehigherthanexpected.Thiscanbemanagedthroughenteringintofixedpricecontractsfortheprincipalcomponentsoftheproject.Constructionphaserisk(cont’d)4.Operationalphaserisks:Marketrisk:Theriskofpricefluctuationsfortheoutputsoftheprojecti.epricesmaybelowerthatexpectedduetolowerdemandorincreasedsupplyfromcompetitors.Financialrisks:Theriskthatinterestsrates,inflation,exchangeratesoranyotherfinancialvariablesmayadverselyaffectthefinancialperformanceoftheproject.

Risk(cont’d)

Projectsponsorsusuallyundetakeriskassessmentearlyintheprojectplanningprocess.Riskassessmentsteps:Riskidentification:Identificcationofalltherisksassociatedwiththeproject.Projectsponsorsandlendersmaycommissionstudiesfromindependentexperts.Riskmatrix:Amatrixthatplotseachriskagainstthephaseoftheprojectinwhichitoccurs,itslikelyimpactandhowitcanbemitigated.Quantitativeriskassessment:Qparingwithotherprojects.RiskMatrixRiskmatrixincreasesconfidenceofinvestorsifthedeveloperdemonstratesaproactiveattitudetowardsmitigatingrisks.Thematrixshouldcontainthefollowing:(i)categoriesofrisksinquestion(ii)exactnatureoftherisks(iii)whicharemostaffectedbyrisks(iv)allmitigationstrategiesadoptedtocounterthoserisks(v)thefinancialorotherconsequencesofanymitigationinstrumentsandstrategiesRiskTypeExamplesRiskmitigationTechnicalRisksDelayinimplementationduetolackofavailabilityofrawmaterialsorsparepartsPerformanceofbondsandcompletionguaranteesbysuppliersandcontractorsMarketRiskGlobaleconomicgrowthisslowerthanexpected–