1 Energy Saving Technologies & CDM - Business Opportunity with Japan - Clean Energy Finance Committee Mitsubishi UFJ Securities
2 Contents 1. Technology & CDM: Why this is a new business model? 2. CDM: revenue and costs 3. Business with Japan: NEDO-JETRO s Package program 4. Technology & CDM examples: 1. Iron & steel industry 2. Cement industry 2
3 1.Technology & CDM: Why this is a new business model?
4 What is CDM? Annex-I country (Investor) Technology Investment $$$$$$$ CDM Project Implementation Non Annex-I country (Host) greenhouse gases (GHGs) CO2, CH4, N2O, HFCs, PFCs, SF6 Carbon Credits (CER) CDM project CERs Advance Technology Transfer Sustainable Development Cost savings Good public image (Corporate Social Responsibility)
5 Project types (examples) Renwable Energy (hydro, wind, solar, biomass, etc.) Energy Efficiency Fuel Switching Demand-side management Recovery of Methane (oil/natural gas wells, landfill, coalmine, wastewater, animal waste) Destruction of HFC (HFC-23) and N 2 O SF 6 (electricity transmission/ distribution lines) Transportation Afforestation and reforestation Information on Japanese technologies available in NEDO s Energy Saving/GHG Emission Reduction Technologies guidebook for the sectors of: Common Technologies Iron & Steel Industry Cement Industry Chemical Industry Petroleum Refining Industry Nonferrous Metals Industry Paper and Pulp Industry Food Products Industry Fibers & Spinning Industry Glass Industry Electric Power and Power Generation Resources and Energy Transportation Sector Renewable Energy
6 CER revenue size by project type Type A: Only CER revenues HFC (HFC-23) N 2 O SF 6 Methane recovery Forestry CDM # of CER generated/project Type B: CER+additional revenues Renewable energy & methane recovery +electricity generation =>electricity sales to a grid # of CER generated/project > > Type C: CER + Cost reduction Energy efficiency projects Fuel swiching Demand-side management Transportation # of CER generated/project
7 2. CDM: Revenue & Costs how to estimate the revenue and know that your project is attractive to investors/cer buyers?
8 CDM: Revenue & Costs Revenue CER revenue Significant cost reduction by improving plant operation (Possible investment) Costs New equipment CDM-related costs, such as - Document preparation costs - Validation, verification, certification by third party - Monitoring costs - Administration & legal costs Some partners partially or fully cover CDM-related costs Important to know about the specific interest & funding power of your partner (CERs only, technology transfer, or CSR) Important to know how much CERs your project can generate
9 Emission reductions & CERs A CDM project CERs (carbon credits) How to calculate CERs? CER = GHG net emission reduction Hypothetically speaking, how much of the emission reduction can be achieved from the baseline by introducing a specific CDM project
10 CER revenues CERs = Emission Reduction = Baseline Emission Project Emission Leakage Baseline - What would happen in the absence of the Project - Not necessarily the continuation of current practice GHG emissions Baseline Emission Without the CDM Emission Reduction With the CDM Project Emission Year CERs
11 Emissions reductions:things to know Baseline methodologies Monitoring Monitoring methodologies Global warming potential Must use UN approved calculation methods Only an estimation before registration Needs to monitor actual emission reductions Must also use UN approved monitoring methods Each GHG has different level of impact to the global warming
12 Global Warming Potential GHG Global Warming Potential CO 2 CH 4 21 N 2 O 310 PFCs HFCs SF ton of CO 2 reduction = 1 CER For example: Reducing 1 ton of CH 4 = Reducing 21 ton of CO 2 1 ton of CH 4 => 21 CERs!
13 CDM process & costs Project Project proposal proposal -> -> Registration Registration Host country approval PDD preparation Validation Registration Project Project operation operation -> -> CER CER issuance issuance Monitoring (Investor country approval) Project owner s duty DOE checks the PDD At UN CDM Executive Board (EB) Project owner s duty Costs Costs Internal manpower or outsourcing US$15-20,000 Average CER/year * fixed fee - US$0.1/CER:first 15,000 CER - US$0.2/CER for the rest Monitoring Internal manpower PDD: Project Design Document (a project proposal using the special UN standard) DOE: Designated operational entity (A third entity accredited to conduct validation and verification by UN) Verification Certification CER Issuance DOE checks the monitoring result UN certifies the emission reduction verified by DOE CERsare issued by UN CDM EB Initial Verification US$10,000 Subsequent Verification US$5, Issued CER * fixed fee 2. 2% of issued CERs
14 3. Business with Japan: NEDO-JETRO s Package Program
15 Technology & CDM: Why a new business opportunity with Japan? JAPAN Strong demand for CDM projects and CERs Advanced technologies, especially for energy savings Putting an importance on CSR (contribution to sustainable development) CDM host country CDM as a new approach to finance energy saving & climate- /environmentallyfriendly technologies Additional revenue source Access to cutting-edge technologies Kyoto brand name
16 NEDO-JETRO s Package Program Launched in 2005 Targeted countries in the past: Argentina, Brazil, Chile Activities involved: Capacity building Feasibility studies A package plan Interim achievement: 2 iron and steel projects were identified and currently undergoing the NEDO Feasibility Study Program. Project Developer Project implementation << All in One Package >> Coordinated by JETRO Complete assistance throughout the whole CDM project cycle Technology Provider & Consulting Company Project identificaiton Technology applicability evaluation CDM qualification evaluation Assistance from the Consulting Company Project registration with UN Assistance from the Consulting Company Emission reduction monitoring Issuance of CERs by UN CDM EB NEDO CER credits purchasing agreement (ERPA)
17 Japan s Kyoto Mechanism Credits Acquisition Program Launched in July, 2006 Coordinated by NEDO No deadline established for proposal submission Advantage: NEDO has separate programs covering feasibility study, project development subsidies, and CDM-related fees NEDO as a technology promotion agency, With a strong interest in securing the credits through supporting the project development of using leading-edge technologies (e.g. energy conservation) Maximum funds available for contracting this year FY2006 budget for actual transaction Requiring amount of credits in total during the first commitment period ( ) 12.2 billion JPY ( US$ 100 million) 5.4 billion JPY ( US$ 46 million) 100 million ERs
18 Japanese Government s Program: Advantages Project Planning Stage Project Implementation Stage Feasibility Study (F/S), PDD preparation, etc. Validation, Registration Initial cost (When Project begins) Verification & Certification Credit Acquisition Feasibility Study Program JI/CDM Subsidies Preliminary costs (Validation costs) Post project review costs (monitoring, verification and certification costs.) Project expenses (equipment costs) Credit Acquisition Program
19 4. Technology & CDM Examples
20 CDM project example 1- iron & steel industry Converter waste gas recovery project Baseline Coke oven gas Blast Furnace gas Natural Gas Gas mixer Boiler & Turbine CDM methodology ACM0004 Electricity consumption CDM project OG gas recovery system Grid electricity Expected CERs: 80,000 CERs (or tco 2 /year) Expected revenue from the sale of CERs (1CER=US$10): US$800,000/year IRR (before CDM): 16% IRR (after CDM): 17% Characteristics: Feasibility study and PDD preparation covered by the NEDO program.
21 CDM project example 2- cement industry Approved methodologies for the cement industry (as of November 22, 2006) Fossil fuel substitution ACM0003 (4 registered, 5 under validation, 1 issued) Increasing the blend ACM0005 (10 registered, 14under validation) Waste heat recovery AM0024 (1 registered; 2 under validation), ACM0004 Use of non-carbonated calcium sources AM0033 (1 under validation) + Small scale methodologies CDM methodology ACM0003 Project emission: -CO 2 emission from alternative fuels - Drying alternative fuels - Net on-site fuel transportation Baseline scenario Partial substitutions (e.g.biomass) CaCo3 Clinker Kiln Fuels (e.g. coal)
22 If you are.. A project owner with a registered CDM project, or Have a specific idea or interested in implementing a renewable energy/energy efficiency/fuel switching/ N 2 O emission reduction projects, or Simply interested in learning more about the NEDO- JETRO CDM activities and Japan s credits acquisition program Contact US!
23 Contact Information NEDO JETRO JETRO Mexico Paseo de las Palmas No. 239 Piso 3, Col. Lomas de Chapultepec, C.P , Mexico, TEL: ; FAX:
24 About Us Mitsubishi UFJ Securities (MUS ) Investment banking arm of Mitsubishi Tokyo Financial Group. Subsidiary of Bank of Tokyo Mitsubishi UFJ. Clean Energy Finance Committee Operating unit specializing in CDM/JI consulting with 24 professionals Assistance with CDM/JI process Production of Project Design Document New methodology development for CDM project (4 methodologies approved by CDM EB, 6 methodologies under the Methodology Panel consideration)
25 Thank you for your attention! Yukimi Shimura (Stationed in Tokyo, Japan)
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