Central America Carbon Finance Guide (2nd Edition)

2
Energy and Environment Partnership with Central America

Central American Carbon Finance Guide
Cover: Design, Lic. Carlos Gmez, CCAD / Photo: Lic. Gandhi Montoya, CCAD
Copyright 2007, GreenStream Network Ltd. and BUN-CA
2
nd
Edition, November 2007

The Ministries of Environment of the Central American countries
are aware of the implications of the climate change challenge in our
age, big efforts are being carried out to combat it, through the use of
the abundant renewable resources of the region for energy generation
and fossil fuels substitution.
This Carbon Finance Guide will encourage the renewable energy
projects execution, permitting to project developers to incorporate in
a practical way on their action plans the additional benefits of the
Certificates of Emissions Reductions trading.

Dr. Marco Antonio Gonzlez
Secretary Executive
Central American Commission on Environment and Development

Contacts: isanchez@ing.uca.edu.sv
aleksi.lumijarvi@greenstream.net
jblanco@bun-ca.org

This Guide may be freely quoted for non-commercial purposes, provided that this Guide is
acknowledged as the source and authors copyright is recognised.

3
FOREWORD
The Energy and Environment Partnership with Central America (EEP) is pleased to
present the second edition of the Central American Carbon Finance Guide, which includes
the latest information in the global carbon market. The EEP, launched during the 2002
United Nations World Summit on Sustainable Development in Johannesburg, contributes
to make possible that the renewable energy resources play a major role in satisfying the
energy needs of the Central American region. This effort is supporting the sustainable
development in the region, reducing greenhouse gas emissions and aiding in mitigate the
negative effects of global climate change.

The Partnership is an initiative of the Ministry for Foreign Affairs of Finland in
coordination with the Central American Commission on Environment and Development
(CCAD) and the Central American Integration System (SICA); and recently the Austrian
Development Agency has joined this effort. It is actively working in the eight countries of
the regional integration systemBelize, Costa Rica, Dominican Republic, El Salvador,
Guatemala, Honduras, Nicaragua and Panamawith the main aim of implementing
sustainable demonstrative projects on the appropriate use of renewable energy sources,
such as bioenergy, hydroelectric, solar, wind and geothermal technologies.

Most of the EEPs projects are helping to reduce the greenhouse gas emissions. At the
same time, the financial capitalization of this benefit will increase project developers'
profitability, thus giving them an additional incentive to implement such projects. One
problem though has been the lack of sufficient general information about carbon financing
for small and medium-sized projects. Thus, we have decided to fill that gap by providing
this Carbon Finance Guide, updating the information in this second edition, in order to
contribute with the public and private sector in obtaining financial benefits as a result of
their efforts.

The Carbon Finance Guide is a tool to be used during projects preparation. It will help to
steer developers towards implementing bankable and small-scale renewable energy project
proposals that will increase their profitability in the long term. Additionally, the guide will
provide information and advice on emerging international carbon markets, the Kyoto
project-based Clean Development Mechanism (CDM) and other certificate markets.

GreenStream Network Ltd., a Finnish consulting company, prepared this document as a
result of a participatory process, which included valuable comments and suggestions from
local and international experts, to whom we are most grateful for their help. The NGO
BUN-CA was in charge of producing the Central American information. This publication
is available in both English and Spanish.

More information on the Partnership can be found on the Internet in both Spanish and
English (www.sica.int/energia). This report can also be downloaded from our web site free
of charge in both languages. We shall also be updating the web version of this publication
as time permits. We welcome any comments and proposals for improvement.

Dr. Markku Nurmi
Director General, Ministry of the Environment, Finland
Chairman of the Steering Committee of the Partnership

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ACKNOWLEDGEMENTS

This Guide is a result of a participatory process involving parties from Central America,
Finland and elsewhere. The authors are grateful for all the suggestions and help they have
received from many individuals and organisations while writing this guide.

We would like to thank especially the Energy and Environment Partnership with Central
America (EEP) that made this Guide possible. Many persons within the Partnership have
provided valuable comments and support during the process. We would like to express our
special gratitude to Dr. Markku Nurmi from the Finnish Ministry of Environment and
Chairman of the Steering Committee of the Partnership, Mr. Hannu Eerola and Mr.
Veikko Soralahti from the Finnish Ministry for Foreign Affairs; Mr. Rudolf Huepfl and Ms.
Michaela Ellmeier for the Austrian Cooperation for Development; Mr. Otto Leonel Garca
Mansilla, Ms. Mara Eugenia Salaverra, Mr. Ismael Antonio Snchez and Mr. Mauricio
Ayala from the Regional Coordinator Office, as well as all the members of the Steering
Committee representing all the Central American countries.

Carbon Finance and Clean Development Mechanism are new instruments that are
constantly evolving. Therefore a lot of the information is outdated already when printed.
We have tried to incorporate in this guide the most recent developments in the field to the
extent possible. It is our intention to maintain the web version of this guide updated from
time to time as the market evolves and new rules and procedures for CDM emerge.
Feedback from the users of this Guide is most welcome in this process.

Principal authors of the guide are Mr. Aleksi Lumijarvi from GreenStream Network Ltd.,
Mr. Jos Mara Blanco from BUN-CA and Mr. Ismael Antonio Snchez from the EEP
Regional Coordination Office.

External financing for this guide was provided by the Ministry for Foreign Affairs of
Finland and the Austrian Cooperation for Development through the Energy and
Environment Partnership with Central America. Both GreenStream Network Ltd. and
BUN-CA appreciate the support.


5

TABLE OF CONTENTS
Foreword ..3
Acknowledgements................................................................. 4
Table of Contents.................................................................... 5
Abbreviations........................................................................ 10
Abbreviations........................................................................ 10
1Introduction........................................................................ 12
1.1Background........................................................................................................... 12
1.2Purpose of the Central American Carbon Finance Guide............................... 13
1.3Structure of the Guide ......................................................................................... 13
1.4UNFCCC and the Kyoto Protocol ...................................................................... 13
2 CDM Projects.................................................... 16
2.1What is CDM?...................................................................................................... 16
2.2Definition of Small-scale CDM Projects ............................................................ 16
2.3Participation Requirements for CDM Projects................................................. 17
2.4CDM Project Cycle .............................................................................................. 18
2.5Project Preparation, Validation and Registration............................................ 20
Project Preparation and Host Country Approval ....................................................20
Project Design Document (PDD)............................................................................21
Baseline Methodology............................................................................................22
Additionality 25
Crediting Period and Duration of the Project..........................................................26
Monitoring Plan and Methodology.........................................................................27
Environmental Impacts...........................................................................................29
Stakeholder Comments...........................................................................................29
Project Validation and Registration........................................................................29
2.6Project Implementation Phase............................................................................ 30
Monitoring 31
Verification and Certification.................................................................................31
Issuance of Certified Emission Reductions.............................................................31
2.7Sale of the Emission Reductions ......................................................................... 32
Prices and Risks......................................................................................................32
2.8Costs Related to the CDM Project Cycle ........................................................... 33
3 Financing Small-Scale Renewable Energy
Projects ........................................................... 35
3.1Introduction.......................................................................................................... 35
3.2Impacts of Carbon Finance to Project Financing............................................. 35
3.3Project Financing ................................................................................................. 36
3.4Types of Capital ................................................................................................... 36
Equity Capital .........................................................................................................37
Debt capital ...37
Mezzanine Capital...................................................................................................38
3.5Financial project cycle ......................................................................................... 38
Pre-feasibility Studies.............................................................................................39
Feasibility Study and Business Plan.......................................................................40
Financial plan..........................................................................................................43

6
Financial appraisal and negotiations.......................................................................47
Financial package and documents for financial closing.........................................48
Financing sources for small scale renewable energy sources.................................49
4 Central American countries information........... 51
General Indicators .................................................................................................51
4.1.2 REGIONAL INITIATIVES........................................................................55
4.2.1 DESCRIPTION OF THE ENERGY SECTOR..........................57
4.2.2 NATIONAL CDM POLICY..........................................................58
4.2.3 RELEVANT ORGANISATIONS.................................................58
4.2 BELIZE
4.3 COSTA RICA....................................................................................................... 60
4.3.1. DESCRIPTION OF THE ENERGY SECTOR ......................................60
4.4 EL SALVADOR................................................................................................... 67
4.4.1 DESCRIPTION OF THE ENERGY SECTOR .......................................67
General Information..............................................................................................67
4.5 GUATEMALA..................................................................................................... 73
4.5.1 DESCRIPTION OF THE ELECTRIC SECTOR....................................74
4.5.2 NATIONAL ACTIVITIES IN THE CLEAN DEVELOPMENT
MECHANISM (CDM) ...................................................................78
4.5.3 RELEVANT ORGANIZATIONS..............................................................78
4.6 HONDURAS
4.6.1 DESCRIPTION OF THE ENERGY SECTOR..............................................82
4.7 NICARAGUA
4.8 PANAMA
5 International Carbon Market.......................... 100
5.1Background ........................................................................................................ 100
5.2Volume of the Carbon Market.......................................................................... 101
5.3Byers and Sellers in the Carbon Market ......................................................... 101
CERs in the EU Emissions Trading Scheme........................................................103
5.4Technologies in the Projects.............................................................................. 104
5.5Current situation of the projects105
5.6Non-Kyoto Regimes ........................................................................................... 105
Annex I Article 12 of the Kyoto Protocol .......................... 107
Annex II Small-scale CDM project Design Document ....... 108
Contents ................................................................................................................... 108
Annexes .................................................................................................................... 108
CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT
ACTIVITY............................................................................................................... 114
INFORMATION REGARDING PUBLIC FUNDING....................................... 115
Annex 3 .116
Annex 4 .116
Annex III Selected Technical Assistance Funding for Project
Development.................................................. 117
Annex IV Equity, Grants and Loans .................................. 119
Annex V Carbon Finance................................................... 122
Annex VI Regional contacts ............................................. 123
Annex VII CDM PROJECT ACTIVITIES FROM CENTRAL
AMERICA REGISTERED BY THE CDM EXECUTIVE
BOARD ........................................................... 127

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1)Costa Rica............................................................................................................. 130
Rio Azul landfill gas and utilization project in Costa Rica............130
2)El Salvador ........................................................................................................... 131
LaGeo, S. A. de C. V, Berlin Geothermal Project, Phase Two, El
Salvador ..........................................................................................131
3)Guatemala ............................................................................................................ 133
Project GT1 Las Vacas Hydroelectric Project...............................133
4)Honduras .............................................................................................................. 134
Rio Blanco Small Hydroelectric Project.........................................134
5)Nicaragua.............................................................................................................. 136
Monte Monte Rosa Bagasse Cogeneration Project (MRBCP) .......136
6)Panama ................................................................................................................. 139
Concepcin Hydroelectric Project..................................................139
Annex VIII References........................................................ 142

List of Figures

Figure 1. Compliance assessment under the Kyoto Protocol. According to the Kyoto
Protocol, Annex I Parties shall ensure that their greenhouse gas emissions during
the five-year Kyoto commitment period 2008-2012 do not exceed their Assigned
Amounts (AA), with a view to reducing their overall emissions below 1990 levels
in the commitment period. AA is calculated from countrys emissions in the base
year 1990. Base year emissions multiplied by five (since there are five years in the
commitment period) minus the Kyoto Protocol reduction target (see Table 2) is
countrys Assigned Amount (orange bar). This is further adjusted by Land-use,
Land-use Change and Forestry activities (LULUCF, Articles 3.3. and 3.4, green
bar). Through Articles 6 (J oint Implementation), 12 (Clean Development
Mechanism) and 17 (Emissions Trading) countries can acquire or sell compliance
units (pink bar). The sum of the actual emissions during the five years of the
commitment period 2008-12 (right-hand side of the diagram) shall be less than or
equal to the final amount of compliance units in countrys accounts (left-hand side
of the diagram). Source: UNFCCC Secretariat. Articles here refer to Kyoto
Protocol Articles......................................................................................................15
Figure 2 Necessary steps in the early CDM project cycle (preparation, validation and
registration). ............................................................................................................20
Figure 3. Concept of Baseline. Baseline is the hypothetical development of the
emissions if the project is not realised. It has to take into account probable future
developments, like efficiency improvements, planned investments, etc. Once the
project is implemented, the realised project emissions are compared to the
established baseline. The difference is the emission reduction which can be
credited to the project..............................................................................................22
Figure 4. Schematic presentation of the additionality requirements...............................26
Figure 5. Implementation phase of a CDM project.........................................................30
Figure 6. Prices of project-based emission reductions in 2005-06 (US$ per tCO2e).
Source: World Bank: State and Trends of the Carbon Market 2006 (Update
J anuary 1 September 30, 2006). www.carbonfinance.org. ..................................33
Figure 7. World Bank estimate for the CDM project cycle costs for small-scale projects.
Source: World Bank. Small-scale CDM Projects, An Overview.
www.carbonfinance.org/cdcf..................................................................................34

8
Figure 8. Impact of Carbon Finance on the IRR of selected projects. (DH=District
Heating). Source: World Bank................................................................................36
Figure 9. Financial Structure of a project. ......................................................................37
Figure 10. CDM project cycle and parallel project financing steps. Source: World Bank.
.................................................................................................................................38
Figure 11. Development of the volume of the carbon transactions in terms of volume of
CO2e traded. Figures in million of tonnes. Contracted volumes 2004-2006 (Q1-
Q3),. Source: World Bank. State and Trends of the Carbon Market 2006...........101
Figure 12. Location of emission reduction projects (share of volume of ERs supplied).
Source: the World Bank. State and Trends of the Carbon Market 2006.
(www.carbonfinance.org). ....................................................................................102
Figure 13. Market buyers (share of volume of ERs purchased). Source: the World Bank.
State and Trends of the Carbon Market 2006. (www.carbonfinance.org)............102
Figure 14. Price development and trading volume for the EU Allowances (EUAs).
Source: GreenStream Network Ltd.......................................................................103
Figure 15. Technology share of emission reduction projects (in percent of total volume
contracted). Source: the World Bank. State and Trends of the Carbon Market 2004.
(www.carbonfinance.org). LFG =Landfill Gas, HFC =Hydrofluorocarbons,
LULUCF =Land-use, Land-use Change and Forestry.........................................104
Figure 16. Total forecasted volume of issued credit by 2012 from different CDM & J I
project types, in Mt CO2e Source: Point Carbon. Carbon Market Analyst. 16
December 2005. ....................................................................................................105
List of Tables
Table 1. Greenhouse gases (GHG) covered by the Kyoto Protocol. The emissions of the
various GHGs can be converted into carbon dioxide equivalent emissions by
multiplying them with the GWP. The GWPs in the table are based on the IPCC
Second Assessment Report (see Article 5 of the Kyoto Protocol) and can be
revised in the future. GWPs are based on the climatic effects of the GHGs over a
100-year time horizon.............................................................................................14
Table 2. Greenhouse gas reduction targets in the Annex B of the Kyoto Protocol. .......14
Table 3. Status of Ratification of the Kyoto Protocol in the Central American Countries.
All the countries have ratified the Protocol (Belize has accessed the Protocol
because it was not a signatory). Official updated list of Designated National
Authorities can be found at http://cdm.unfccc.int/DNA.........................................18
Table 4. Approved methodologies for small-scale CDM projects by J anuary 2007.
Source: http://cdm.unfccc.int/methodologies/index.html.......................................23
Table 5. Emission factors used in the determination of the baselines in small isolated
systems. Source: Indicative simplified baseline and monitoring methodologies for
selected small-scale CDM project activity categories. Source:
http://cdm.unfccc.int/methodologies/......................................................................24
Table 6. Monitoring information to be provided in the Project Design Document. Two
examples of different data types are given..............................................................28
Table 7. Business Plan outline for projects. Source: World Bank 2002.........................42
Table 8. Project costs and commercial strategy..............................................................43
Table 9. Proposed financial structure sources of finance identified. ...........................44
Table 10. OECD risk classification of Central American countries as of J une 2004.
Source: http://www.oecd.org/dataoecd/35/2/32366062.pdf. ..................................44

9
Table 11. Credit ratings of host country and company. See www.moodys.com,
www.standardandpoors.com, www.fitchibca.com and www.oecd.org for ratings.
Sites may require registration. ................................................................................45
Table 12. Key results of financial analysis. ....................................................................45
Table 13. Financial due diligence. ..................................................................................47
Table 14. Examples of national and commercial export credit and guarantee institutions.
.................................................................................................................................50

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ABBREVI ATI ONS
AA Assigned Amount
AAU Assigned Amount Unit
AHPPER Asociacin Hondurea de Pequeos Productores de Energa Renovable
AMM Administrador del Mercado Mayorista, Guatemala
ANAM Autoridad Nacional del Ambiente
ARESEP Autoridad Reguladora de Servicios Pblicos
BUN-CA Biomass Users Network Central America
BEL Belize Electricity Limited
CABEI Central American Bank for Economic Integration
CAF Corporacin Andina de Fomento
CCAD Comisin Centroamericana de Ambiente y Desarrollo
CDB Caribbean Development Bank
CDCF Community Development Carbon Fund
CDM Clean Development Mechanism
CDM EB CDM Executive Board
CEL Comisin Ejecutiva Hidroelctrica del Ro Lempa, El Salvador
CER Certified Emission Reduction
CHP Combined Heat and Power
CMNUCC Convencin Marco de las Naciones Unidas para el Cambio Climtico
CNDC Centro Nacional de Despacho de Carga, Nicaragua
CNE Comisin Nacional de Energa, Nicaragua y Honduras
CNEE Comisin Nacional de Energa Elctrica, Guatemala
COP Conference of the Parties to the UNFCCC
COPE Comisin de Poltica Energtica, Panam
CRIE Comisin Regional de Interconexin Elctrica
DEE Direccin de Energa Elctrica, El Salvador
DGE Direccin General de Energa, Honduras y Guatemala
DNA Designated National Authority
DOE Designated Operational Entity
DSE Direccin Sectorial de Energa, Costa Rica
EEP Energy and Environment Partnership with Central America
EIB European Investment Bank
ENEE Empresa Nacional de Energa Elctrica, Honduras
ENEL Empresa Nicaragense de Electricidad
ENTRESA Empresa Nicaragense de Transmisin, S.A.
EPR Empresa Propietaria de la Red
ERPA Emission Reduction Purchase Agreement
ERSP Ente Regulador de Servicios Pblicos, Panam
ESMAP Energy Sector Management and Assistance Program
ET Emissions Trading
ETESA Empresa de Transmisin Elctrica, S.A., Panam
ETESAL Empresa de Transmisin Elctrica de El Salvador
EU European Union
EU15 Old EU Member Status until 1 May 2005
EUA European Emission Allowance
EU ETS EU Emissions Trading Scheme
FENERCA Financiamiento de Empresas de Energa Renovable en Amrica Central
FIDIC Federacin Internacional de Ingenieros Consultores
FOCER Fortalecimiento de la Capacidad para Energa Renovable

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GESAL Geotrmica Salvadorea (actualmente denominada La Geo)
GHG Greenhouse Gases
GSN GreenStream Network Ltd.
GWh Gigawatt-hour
GWP Global Warming Potencial
HFC Hydrofluorocarbons
ICE Instituto Costarricense de Electricidad
IDB Inter.-American Development Bank
IETA Internacional Emissions Trading Association
IFC International Finance Corporation
IIC Inter-American Investment Corporation
INE Instituto Nicaragense de Energa
IRR Internal Rate of Return
JI Joint Implementation
kW Kilowatts
kWh Kilowatt-hours
LGE Ley General de Electricidad, El Salvador y Guatemala
LIE Ley de la Industria Elctrica, Nicaragua
LULUCF Land-use, Land-use Change and Forestry
MARENA Ministerio del Ambiente y los Recursos Naturales, Nicaragua
MARN Ministerio de Ambiente y Recursos Naturales, Guatemala y El Salvador
MDL Mecanismo de Desarrollo Limpio
MEM Ministerio de Energa y Minas, Guatemala
MER Mercado Elctrico Regional
MIF Multilateral Investment Fund
MINAE Ministerio de Ambiente y Energa, Costa Rica
MM Mercado Mayorista
MW Megawatts
MWh Megawatt-hours
NDF Nordic Development Fund
NPV Net Present Value
OECD Organisation for Economic Co-operation and Development
PCF Prototype Carbon Fund
PCN Project Concept Note
PDD Project Design Document
PIN Project Idea Note
PPA Acuerdo de Compra-Venta de Energa
RMU Removal Unit
SERNA Secretara de Recursos Naturales y Ambiente, Honduras
SICA Sistema de la Integracin Centroamericana
SIEPAC Sistema de Interconexin Elctrica para Amrica Central
SIGET Superintendencia General de Electricidad y Telecomunicaciones, El
Salvador
SSC-PDD Small-scale Project Design Document
tCO2e metric tons of carbon dioxide equivalent
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
UNEP United Nations Environment Programme
UNIDO United Nations Industrial Development Organization
UNFCCC United Nations Framework Convention on Climate Change
VER Verified Emission Reduction

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1 I NTRODUCTI ON
1.1 Background
The main objective of the Energy and Environment Partnership between Finland, Austria
and Central America is to promote the use of renewable energy sources and clean
technologies in Central America in a sustainable manner, and to make energy services more
accessible to the poor, particularly to those in rural areas. Several of the projects under
preparation within the framework of the Partnership will reduce greenhouse gas emissions.
The capitalisation of this benefit can in some cases significantly improve the profitability of
the projects. This calls for clear guidance on how to include the climate aspect in the
project preparation and implementation from the outset.
The international markets for greenhouse gas emission reductions and renewable electricity
certificates have been fragmented. Several years, the market for Kyoto Protocols Certified
Emission Reductions (CERs) was dominated by few players (e.g. World Banks Prototype
Carbon Fund and the Cerupt programme of the Government of the Netherlands). New
market entrants are rapidly changing the picture, however. Different governmental
programs, such as the CDM/JI Pilot Programme of the Finnish Government, as well as
growing participation by private companies are making the market more complex and
increasingly competitive. Especially the European Emissions Trading Scheme which
started on 1
st
January 2005 and the Linking Directive, which links CDM with the scheme,
are changing the international carbon market significantly. Furthermore, various non-
Kyoto systems, such as renewable energy certificate schemes, voluntary initiatives (e.g.
Chicago Climate Exchange) and U.S. state-level regimes, make the situation even more
complicated. A great deal of knowledge and understanding is required from the project
developers if they wish to maximize the carbon benefits for their projects.
On the other hand, carbon finance does not convert a bad project into a good one. Carbon
finance can improve the profitability of a project that is sound, sustainable and well
structured in its own right. Many good ideas are not realised as projects because there is a
lack of capacity to develop bankable project proposals. This is especially true when it
comes to small-scale renewable energy projects. In an ideal situation, a good concept can
be developed into a bankable and solid project proposal and carbon finance is used to
further improve the feasibility of the project.
In March 2003, the power company Pohjolan Voima Oy and other Finnish members of
the Energy and Environment Partnership expressed a need for a guide on how to ensure
that greenhouse gas emission reductions generated by projects in Central America fulfil
international requirements and can thus be capitalised. Similarly, many Central American
project developers have expressed need for such guidance. Many Central American
initiatives, including FOCER (Strengthening of the Capacity for Renewable Energy in
Central America) and FENERCA (Financing Renewable Energy Enterprises) have already
prepared guidebooks on renewable energy projects, calculation of emission reductions and
project finance. In addition, The Ministry for Foreign Affairs of Finland and Finpro have
recently prepared a general investment guide Financing Business Opportunities in Latin
America and the Caribbean. This Central American Carbon Finance Guide complements
the former initiatives by providing specific guidance on the preparation of bankable project
proposals and on the use of carbon finance for small-scale renewable energy projects in
Central America. It also contains a collection of links to other documents and organisations
that are useful for the development of these projects.

13
1.2 Purpose of the Central American Carbon Finance Guide
This guide is intended to help project developers, financiers, technology suppliers and
government officials to understand how to prepare bankable small-scale renewable energy
project proposals in Central America, how to benefit from the emerging international
carbon markets through CDM or other schemes, and how to manage related risks.
The authors hope that the guide will be a practical reference tool for all parties involved in
CDM and other climate-related projects in Central America. For this, we encourage
feedback from actual users of the guide in order to improve the possible future versions of
it.
It is our wish that this guide will for its part contribute towards an increased number of
successful small-scale renewable energy projects utilizing carbon finance in the region and
further improve the competitive position of the Central American countries in the
international carbon markets vis--vis other world regions.
1.3 Structure of the Guide
In the first Chapter (1.4) we give background information on UNFCCC and the Kyoto
Protocol. This is useful for those who want to understand better the underlying policies but
not strictly necessary for the project developer. Chapter 2 explains what is meant with
CDM and small-scale projects, how the project cycle looks like and what are the related
costs. Chapter 3 gives a short introduction to project financing and helps developers to
understand typical requirements of financial institutions to participate in projects. Chapter
4 describes all CDM project activities from Central America registered by the CDM
Executive Board up to December 31, 2006. It is the main purpose of this Chapter to help
potential project developers interested in presenting CDM projects to know more about
the information included in the Project Design Document (PDD), that is; the methodology
applied, the project description, how the project contributes to sustainable development of
the country and the estimate of CO2 Emission Reduction. Chapter 5 gives a brief outlook
on the emerging international carbon markets. In the Annexes, contact information for
organisations providing technical assistance and financing is provided.
This guide is published in two separate versions in English and Spanish. Apart from the
printed version, an electronic version is available in the web at www.sica.int/energia.
1.4 UNFCCC and the Kyoto Protocol
To mitigate climate change, different international, national and corporate policy
frameworks are being developed. In 1992, the worlds governments adopted the UN
Framework Convention on Climate Change (UNFCCC).
1
The ultimate objective of the
Convention is to achieve stabilization of atmospheric concentrations of greenhouse gases
(GHGs) at levels that would prevent dangerous anthropogenic (human-induced)
interference with the climate system. UNFCCC has a permanent secretariat in Bonn
(www.unfccc.int) and its supreme decision-making body is the annual Conference of
Parties (COP).
The Convention divides countries into two main groups. Annex I Parties include the
relatively wealthy industrialized countries that were members of the Organisation for
Economic Co-operation and Development (OECD) in 1992, as well as countries with
economies in transition. All other countries that are Parties to the Convention not listed in
Annex I mostly the developing countries are known as Non-Annex I Parties. The

1
UNFCCC was adopted in the United Nations Conference on Environment and Development (UNCED)
celebrated in J une 1992 in Rio de J aneiro, Brazil (also known as The Earth Summit or The Rio
Conference). The Convention text can be found at www.unfccc.int/resource/docs/convkp/conveng.pdf.

14
Annex I countries are subject to a specific commitment to adopt climate change policies
and measures with the non-legally binding aim that they should have returned their
greenhouse gas emissions to 1990 levels by the year 2000. This target has only been
achieved by few Annex I countries.
2
As of May 2004, the UNFCCC has been ratified by
189 countries. See Appendix I for the list of Annex I and non-Annex countries.
In 1997, governments took a further step forwards and adopted the Kyoto Protocol to the
UNFCCC that broke new ground with its legally binding constraints on greenhouse gas
emissions.
3
Kyoto Protocols innovative flexible mechanisms Joint Implementation (JI),
Clean Development Mechanism (CDM) and Emissions Trading (ET) aim at cutting the
cost of curbing emissions. The greenhouse gases covered by the Kyoto Protocol include
the six gases listed in Table 1. It is important to note that traditional atmospheric
pollutants, e.g. sulphur oxide, are not greenhouse gases and do not fall under the climate
change agreements.
Table 1. Greenhouse gases (GHG) covered by the Kyoto Protocol. The emissions of the various
GHGs can be converted into carbon dioxide equivalent emissions by multiplying them with the
GWP. The GWPs in the table are based on the IPCC Second Assessment Report (see Article 5 of the
Kyoto Protocol) and can be revised in the future. GWPs are based on the climatic effects of the
GHGs over a 100-year time horizon.
Greenhouse Gas Global Warming Potential (GWP)
Carbon dioxide (CO
2
) 1
Methane (CH
4
) 21
Nitrous oxide (N
2
O) 310
Hydrofluorocarbons (HFCs) various gases, different GWPs
Perfluorocarbons (PFCs) various gases, different GWPs
Sulphur hexafluoride (SF
6
) 23,900
The core of the Kyoto Protocol is a set of legally binding emissions targets for
industrialized countries. These amount to a total cut among all Annex I Countries of at
least 5% from 1990 levels by 2008-2012 (The Kyoto commitment period). The total cut is
shared out so that each Annex I Country has its own individual emissions target. These
individual targets, which are listed in the Protocols Annex B, were decided upon in Kyoto
through intense negotiation. Table 2 enlists the targets for the Annex I countries.
Table 2. Greenhouse gas reduction targets in the Annex B of the Kyoto Protocol.
Country Target
EU-15, Bulgaria, Czech Republic, Estonia, Latvia, Liechtenstein,
Lithuania, Monaco, Romania, Slovakia, Slovenia, Switzerland
-8%
US -7%
Canada, Hungary, Japan, Poland -6%
Croatia -5%
New Zealand, Russian Federation, Ukraine 0%
Norway +1%
Australia +8%
Iceland +10%
The targets in Table 2 are used to calculate the Assigned Amounts (AAs) for the Annex I
countries. These are further adjusted on the basis of the changes in the carbon stocks of
each country. Specific Removal Units (RMUs) were invented in the 7th Conference of
Parties in Marrakesh, Morocco in November 2001 to be used in the accounting of the so-
called LULUCF activities. RMUs are issued for instance when the forests of a country act

2
E.g. Russia because of the economic restructuration and recession, Germany due to the impacts of the reunification, and the UK
that shifted remarkably fromcoal to gas after 1990.
3
Kyoto Protocol to the Convention on Climate Change was adopted in the 3
rd
Conference of the Parties to the UNFCCC in Kyoto,
J apan, in December 1997. The Protocol text can be found at www.unfccc.int/resource/docs/convkp/kpeng.pdf.

15
as a net carbon sink, i.e. more carbon is tied in the biomass than released during a certain
period. Figure 1 gives an idea of the compliance assessment under the Kyoto Protocol.
Figure 1. Compliance assessment under the Kyoto Protocol. According to the Kyoto Protocol, Annex
I Parties shall ensure that their greenhouse gas emissions during the five-year Kyoto commitment
period 2008-2012 do not exceed their Assigned Amounts (AA), with a view to reducing their overall
emissions below 1990 levels in the commitment period. AA is calculated from countrys emissions in
the base year 1990. Base year emissions multiplied by five (since there are five years in the
commitment period) minus the Kyoto Protocol reduction target (see Table 2) is countrys Assigned
Amount (orange bar). This is further adjusted by Land-use, Land-use Change and Forestry activities
(LULUCF, Articles 3.3. and 3.4, green bar). Through Articles 6 (Joint Implementation), 12 (Clean
Development Mechanism) and 17 (Emissions Trading) countries can acquire or sell compliance
units (pink bar). The sum of the actual emissions during the five years of the commitment period
2008-12 (right-hand side of the diagram) shall be less than or equal to the final amount of
compliance units in countrys accounts (left-hand side of the diagram). Source: UNFCCC
Secretariat. Articles here refer to Kyoto Protocol Articles.
(i)
Old EU Member States (EU15) of the European Union will take advantage of a scheme
under the Protocol, known as the burden-sharing agreement or the bubble, to
redistribute their -8% reduction targets among themselves. For instance Finland has a
target of 0%, Sweden +4%, Spain +15% and Germany -21% under the EU agreement.
New Member States will not be included burden-sharing agreement for Kyoto period
2008-2012. At the moment it seems that new Member States can be included to the
burden-sharing agreement earliest at 2013.
As to possible commitments for subsequent periods, the Kyoto Protocol states that these
shall be established in amendments to targets in Annex B and the Parties to the Protocol
shall initiate the consideration of such commitments at least seven years before the end of
the first commitment period (i.e. in 2005 at latest).
To enter into force, Kyoto Protocol needed to be ratified by 55 countries incorporating
countries included in Annex I, which accounted in total for at least 55% of the total carbon
dioxide emissions for 1990 of the countries included in Annex I. Years of speculation as to
whether or not the Protocol would enter into force ended, when Russia announced that it
would ratify the Protocol in October 2004. The protocol entered into force on 16 February
2005. In 16 February 2007, 168 parties have ratified the Protocol. USA and Australia have
stated their intention not to ratify the Protocol.


16
2 CDM PROJ ECTS
This chapter explains the principal characteristics of the CDM project cycle with special emphasis on the
small-scale projects. It is intended as a simple guide to understand the CDM requirements and develop
high-quality projects that fulfil the small-scale CDM criteria.
2.1 What is CDM?
Clean Development Mechanism (CDM)
is defined in the Article 12 of the Kyoto
Protocol. The purpose of the CDM is to:
Assist non-Annex I Parties
(developing countries) in achieving
sustainable development and in
contributing to the objective of the
climate change convention
(UNFCCC); and
Assist Annex I Parties (industrialised
countries) in achieving compliance
with their quantified emission
limitation and reduction
commitments under the Kyoto
Protocol.
Renewable energy, energy efficiency and
waste management projects are examples
of activities that often reduce greenhouse
gas (GHG) emissions and thus contribute
to the global efforts to mitigate climate
change. Clean Development Mechanism
makes it possible to certify the reduction
of GHG emissions from projects that
fulfil certain criteria. The sale of the
resulting Certified Emission Reductions
(CERs) can provide additional cash flow
to the projects and improve their
feasibility. CDM projects may be
implemented in developing countries that
have ratified the Kyoto Protocol.
Industrialised countries can use the
resulting Certified Emission Reductions
(CERs) for compliance under the Kyoto
Protocol. Countries may also authorise
private entities to participate in CDM.
Several greenhouse gas regimes are
emerging, where companies can utilise
CERs for compliance purposes. For
instance, the European Union is
preparing the mechanism to link CERs to
the EU Emissions Trading Scheme.
Companies that have obligations under
the EU Emissions Trading Scheme could
then acquire CERs and use them in the
EU ETS for compliance.
The modalities and procedures for CDM
projects were approved in 2001 in the 7
th

Conference of the Parties to the
UNFCCC in Marrakesh, Morocco.
4

Box 1. Purpose of CDM.
Purpose of CDM
Assist developing countries in
achieving sustainable development
Assist industrialised countries in
achieving compliance with their Kyoto
commitments

2.2 Definition of Small-
scale CDM Projects
It is widely recognised that small-scale
projects face significant transaction costs,
turning them less feasible than larger-
scale projects. In order to overcome this
problem, specific streamlined modalities
and procedures for small-scale CDM
projects were approved in 2002 in the 8
th

Conference of the Parties to the
UNFCCC in New Delhi, India.
5

According to the revised CDM rules, a
small-scale project must fall into one of
three categories with the following
criteria:

4
Decision 17/CP.7 Modalities and procedures for a clean
development mechanismas defined in the Article 12 of the
Kyoto Protocol. Source: http://www.unfccc.int
5
Decision 21/CP.8 Annex II. Simplified modalities and
procedures for small-scale clean development mechanism
project activities. Revision: decision -/CMP.2 Further
guidance relating to the clean development mechanism.
Source: http://www.unfccc.int

17
1. Renewable energy generation
units with a maximum output
capacity of 15 MW of electricity
output, 45 MW thermal output,
or an appropriate equivalent,
2. Measure aimed at improving
energy efficiency and thus
reducing energy consumption by
a maximum of 60 GWh of
electricity or 180 Gwh of thermal
heat per year.
3. Other measure that reduce
emission by a maximum of 60
kilotons of carbon dioxide
equivalents per year
(ktCO2e/year).
In category 1, maximum output capacity is
defined as installed or rated capacity, as
indicated by the manufacturer of the
equipment or plant, disregarding the
actual load factor of the plant.
Category 3 projects may include, for
example, agricultural projects, fuel
switching, industrial processes and waste
management.
The three project categories are mutually
exclusive. If a small-scale project has
components in different categories, each
component shall meet the threshold
criterion of each applicable category, e.g.
for a project with both a renewable
energy and an energy efficiency
component, the renewable energy
component shall meet the criterion for
renewable energy and the energy
efficiency component that for energy
efficiency.
Debundling
Debundling means the fragmentation of a
large project activity into smaller parts. A
small-scale project activity that is part of a
large project activity is not eligible to use
the simplified rules for small-scale CDM
projects. The full project activity or any
component of the full project activity
shall follow the regular CDM modalities
and procedures.
6

Box 2. Small-scale CDM Projects.
Small-scale CDM Projects
Small renewable energy projects
( 15 MW electricity output
or 45 MW thermal output)
Small energy efficiency projects
(savings 60 GWh of electricity or
180 Gwh of thermal heat per year)
Other small projects
(emissions 60 ktCO2e per year)

2.3 Participation
Requirements for
CDM Projects
The country hosting a CDM project must
be a Party to the Kyoto Protocol and
willing to voluntarily participate in the
CDM. It must also have a designated
national authority in place. Table 3 lists
the ratification dates and the Designated
National Authorities (DNA) of the
Central American Countries.

6
Exact rules for determining debundling can be found at the
official CDM website http://cdm.unfccc.int.

18
Table 3. Status of Ratification of the Kyoto Protocol in the Central American Countries. All the
countries have ratified the Protocol (Belize has accessed the Protocol because it was not a
signatory). Official updated list of Designated National Authorities can be found at
http://cdm.unfccc.int/DNA.
Country Signature Ratification Designated National Authority
Belize - 26 September
2003
(Accession)
National Meteorological Service of
Belize
Costa Rica 27 April
1998
9 August 2002 Costa Rican Office for Joint
Implementation
El Salvador 8 June
1998
30 November
1998
Ministry of Environment and Natural
Resources of El Salvador
Guatemala 10 July
1998
5 October 1999 Ministry of Environment and Natural
Resources of Guatemala
Honduras 25 February
1999
19 July 2000 Secretariat of Natural Resources and
Environment of Honduras
Nicaragua 7 July 1998 18 November
1999
Nacional Office for Clean
Development and Climate Change
Panama 8 June
1998
5 March 1999 National Authority for the
Environment

The contacts that have been established through the Energy and Environment Partnership
may be helpful in promoting potential CDM projects in these countries. The partnership is
an initiative of the Ministry for Foreign Affairs of Finland, the Central American
Commission on Environment and Development and the Central American Integration
System; also, recently the Austrian Development Agency has join this effort.

2.4 CDM Project Cycle
All CDM projects must follow a special
project cycle. They must be validated and
registered before they can generate
Certified Emission Reductions (CERs).
Validation is the process of independent
evaluation of a proposed CDM project by
a Designated Operational Entity (DOE)
against the requirements set out by COP
and further elaborated by the CDM EB.
The validation is based on a Project Design
Document (PDD). Registration is the
formal acceptance of a validated project
as a CDM project activity by the CDM
Executive Board (CDM EB).
Once the project has been implemented,
it starts to generate emission reductions.
The emission reductions must be
constantly monitored according to a pre-
established monitoring plan. The
monitored emission reductions are then
verified and certified by a DOE. Based on
the certification report of the DOE, the
CDM EB instructs the CDM registry
administrator to issue a quantity of CERs
that corresponds to the verified amount
of emission reductions. These CERs, less
certain fees that are deducted (see 0), are
then forwarded to the registry accounts
of the project participants according to
their request.

19
In the following chapters, the CDM
project cycle is explained step-by-step.

20
2.5 Project Preparation, Validation and Registration
The first phase of the CDM project cycle consists of the project preparation, validation and
registration. In preparing the project, the project participants must interact at least with
local stakeholders, the host countrys DNA and a DOE. As a result of the preparation, a
PDD is completed. The PDD is then validated by the DOE. The validated project is finally
submitted to the CDM EB for registration. Figure 2 demonstrates the steps in this part of
the project cycle.

Figure 2 Necessary steps in the early CDM project cycle (preparation, validation and registration).

Designated Operational Entity
(DOE)
CDM Executive Board
Project Participants
Project Design Document
(PDD)
Project Preparation:
Prepare the Project Design Document (PDD)
Invite comments from local stakeholders
Obtain host country approval
Select the Designated Operational Entity (DOE)
Submit the PDD for validation to the DOE
Project approval
Validation Report
Comments
Host Country Local stakeholders
Stakeholders, accredited
organisations, Parties
Project Validation:
Review the PDD
Confirm that CDM requirements are fulfilled
Make the PDD publicly available for 30 days
Make a validation report (or reject the project)
Submit a registration request to CDM Executive
Board
Make the validation report publicly available
Comments
Project Registration:
Registration happens automatically in four
weeks unless a review is requested
Request for registration
(DOE)
CDM Executive Board
Project Design Document
(PDD)
Project Preparation:
Prepare the Project Design Document (PDD)
Invite comments from local stakeholders
Obtain host country approval
Select the Designated Operational Entity (DOE)
Submit the PDD for validation to the DOE
Project approval
Validation Report
Comments
Host Country Local stakeholders Host Country Local stakeholders
Stakeholders, accredited
organisations, Parties
Project Validation:
Review the PDD
Confirm that CDM requirements are fulfilled
Make the PDD publicly available for 30 days
Make a validation report (or reject the project)
Submit a registration request to CDM Executive
Board
Make the validation report publicly available
Comments
Project Registration:
Registration happens automatically in four
weeks unless a review is requested
Request for registration

Project Preparation and Host
Country Approval
Under every CDM project, there is a
project idea which may be promoted by a
local community, a project developer, a
government institution, an equipment
vendor and so on. The early steps of a
CDM project are not different from any
other project. A business plan must be
written and a feasibility study prepared,
financing must be organised etc. Chapter
3 discusses some issues related to project
financing. Information on preparing
business plans and feasibility studies for
Central American energy projects can be
found for example in FENERCAs
website http://www.bun-
ca.org/fenerca.htm
It is good to take into account the special
features of CDM from the very beginning
of the project development. Often in the
early stages of the project development a
simple document called Project Idea
Note (PIN) is used. While PINs are not
officially part of the CDM project cycle,
they are useful to facilitate the discussions
and negotiations between the potential
project participants and most CDM
financiers use them. The PIN contains

21
the principal aspects of the project
including a preliminary calculation of the
emission reduction. Among others, the
Finnish Carbon Procurement Programme
Finnder
(http://www.environment.fi/finnder)
and the Carbon Finance Unit at the
World Bank
(http://www.carbonfinance.org) has their
own PIN templates.
Each CDM project must be approved by
the host country. This is done through a
Letter of Approval issued by the DNA of
the host country. According to the rules
of the CDM, the Letter of Approval must
contain the following information:
The DNA approves the voluntary
participation of the Host Country in
the Project as a CDM project for the
purpose of Article 12 of the Kyoto
Protocol;
Statement that the Project will assist
the host country to achieve
sustainable development; and
The DNA approves the Project as a
CDM Project Activity and authorises
the participation of the Project
Participants in the Project.
Apart of these minimum requirements, in
practice it is useful to receive some
additional information from the DNA.
The following list contains some points
that are not required by the CDM rules
but are useful for the smooth
implementation of the project
7
:
The Host Country is a Party to the
Kyoto Protocol and is in compliance
with its obligations under that
agreement;
The Project, as proposed, is in
compliance with all relevant national
laws;

7
World Bank 2003: Approval of Clean Development
MechanismProjects by the Host Country. This document is
available fromPrototype Carbon Funds website
http://www.carbonfinance.org/pcf under legal documents
and also contains a model Letter of Approval.
DNA acknowledges the Project
Participants' right, title and interest in
an to all of the greenhouse gas
emission reductions generated by the
Project (and any CERs which are
created out of the Project);
Any public funding of the Project
does not result in a diversion of
official development assistance (if
public funding is involved); and
DNA will cooperate with the Project
Participants and the CDM EB to
facilitate the CDM process and give
assistance, where necessary, for the
issuance and transfer of CERs to the
Project Participants.
A Letter of Approval is required from
each party that participates in the project,
including the host country, or an
organisation authorised by it.

Project Design Document (PDD)
The basic official document describing a
CDM project is called Project Design
Document (PDD). The latest version of
the PDD can be downloaded from
UNFCCC, http://cdm.unfccc.int. For
small-scale CDM projects, there exists a
simplified PDD, which can be found at
the same site.
The parts of the simplified PDD are
listed in Box 3.

22
Box 3. CDM Small-scale PDD.
CDM Small-Scale PDD
A. General description of the small-scale
project activity
B. Application of a baseline and monitoring
methodology
C. Duration of the project and the crediting
period
D. Environmental impacts
G. Stakeholders comments
Annex 1: Project participants and their
contact information
Annex 2: Information regarding public
funding
Annex 3: Baseline information
Annex 4: Monitoring information
Baseline Methodology
The most important concept related to
CDM projects is the project baseline. The
baseline is the scenario that reasonably
represents the GHG emissions that
would occur in the absence of the
proposed CDM project. The baseline is
thus an imaginary construction of what
would happen in the future if the
proposed CDM project were not
implemented.
Figure 3 demonstrates the concept of
baseline. The actual realized emissions of
the project are compared to the baseline,
which is always set up ex-ante. The
emission reduction generated by the
project is then the difference of the
baseline emissions and realised project
emissions.
.

Figure 3. Concept of Baseline. Baseline is the hypothetical development of the emissions if the
project is not realised. It has to take into account probable future developments, like efficiency
improvements, planned investments, etc. Once the project is implemented, the realised project
emissions are compared to the established baseline. The difference is the emission reduction which
can be credited to the project.
2002 2004 2006 2008 2010 2012 2014
Year
Estimated
Project
Emissions
Emissions,
tCO2e
Emission Reduction Purchase Agreement, e.g. 2004-2014
Current
Emissions
Baseline
Realised Project Emissions
Realised Emission Reduction
2002 2004 2006 2008 2010 2012 2014
Year
Estimated
Project
Emissions
Emissions,
tCO2e
Current
Emissions
Baseline
Estimated
Project
Emissions
Emissions,
tCO2e
Current
Emissions
Baseline
Emissions,
tCO2e
Current
Emissions
Baseline


23
The CDM Executive Board has approved
a number of simplified methodologies for
determining the baseline and monitoring
requirements for small-scale CDM
projects (Table 4). New small-scale
methodologies may be proposed by
project participants. The proposal should
include information about the activity
and describe how a simplified baseline
and monitoring methodology would be
applied to it. The proposals for new
methodologies are evaluated by the Small
Scale Working Group.

Table 4. Approved methodologies for small-scale CDM projects by January 2007. Source:
http://cdm.unfccc.int/methodologies/index.html.
Type and name of methodology for small-scale CDM projects
TYPE I RENEWABLE ENERGY PROJECTS
I.A. Electricity generation by the user
I.B. Mechanical energy for the user
I.C. Thermal energy for the user
I.D. Grid connected renewable electricity generation
TYPE II ENERGY EFFICIENCY IMPROVEMENT PROJECTS
II.A. Supply side energy efficiency improvements transmission and distribution
II.B. Supply side energy efficiency improvements generation
II.C. Demand-side energy efficiency programmes for specific technologies
II.D. Energy efficiency and fuel-switching measures for industrial facilities
II.E. Energy efficiency and fuel-switching measures for buildings
II.F. Energy efficiency and fuel switching measures for agricultural facilities
and activities
TYPE III OTHER PROJECT ACTIVITIES
III.A. Agriculture
III.B. Switching fossil fuels
III.C. Emission reductions by low-greenhouse gas emitting vehicles
III.D. Methane recovery in agricultural and agro industrial activities
III.E. Avoidance of methane production from biomass decay through controlled
combustion
III.F. Avoidance of methane production from biomass decay through composting
III.G. Landfill methane recovery
III.H. Methane recovery in wastewater treatment
III.I. Avoidance of methane production in wastewater treatment through
replacement of anaerobic lagoons by aerobic systems

24
Type and name of methodology for small-scale CDM projects

III.J. Avoidance of fossil fuel combustion for carbon dioxide production to be
used as raw material for industrial processes
III.K. Avoidance of methane release from charcoal production by shifting from pit
method to mechanized charcoaling process

The simplified baselines can be found in
the official CDM website
http://cdm.unfccc.int/. As an example,
the category I.D. (Grid connected
renewable electricity generation) is
explained in the following.
I.D. Simplified Baselines for Renewable
Electricity Generation for a Grid
This category includes small (<15 MW
e
)
projects that supply electricity generated
by renewable resources (e.g. hydro,
biomass, wind, geothermal, photo-
voltaics) to a distribution system. The
system must be (or would have been
without the CDM project) supplied by at
least one fossil fuel or non-renewable
biomass fired generating unit.
For a small isolated system where all
fossil fuel fired generating units use fuel
oil or diesel fuel, the baseline is the
annual electricity generated by the
renewable project (in kWh) times an
emission coefficient for a modern diesel
generating unit of the relevant capacity
operating at optimal load. These systems
include for instance local mini-grids with
diesel generators. The emission factors to
be used are given in Table 5.

Table 5. Emission factors used in the determination of the baselines in small isolated systems.
Source: Indicative simplified baseline and monitoring methodologies for selected small-scale CDM
project activity categories. Source: http://cdm.unfccc.int/methodologies/

Emission factors for small diesel generator systems, kgCO2e/kWh
Case:

Mini-grid
with 24
hour
service
Mini-grid with
temporary service
(4-6 hours/day)
Productive
applications
Water pumps
Mini-grid with
storage
Load factor: 25% 50% 100%
< 15kW
15kW and <35 kW
35 kW and <135 kW
135 kW and < 200 kW
> 200 kW
2.4
1.9
1.3
0.9
0.8
1.4
1.3
1.0
0.8
0.8
1.2
1.1
1.0
0.8
0.8


25
For all other systems, including
renewable energy projects that supply
electricity to the national grid, the
baseline is calculated as follows. The
baseline is the annual electricity generated
by the renewable project (in kWh)
multiplied by an emission coefficient (in
kgCO2e/kWh). The emission coefficient
is calculated either as:
the average of the approximate operating
margin and the build margin, or
the weighted average emissions of the
current generation mix.
The approximate operating margin is the
weighted average emissions (in
tCO2e/MWh) of all generating sources
serving the system, excluding hydro,
geothermal, wind, low-cost biomass,
nuclear and solar generation. The build
margin is the weighted average
emissions of recent capacity additions to
the system, defined as the lower of most
recent 20% of plants built or the 5 most
recent plants.
The following examples illustrate the
calculation.
Example 1: A small 0.5 MW hydropower
plant will be constructed in a village. The
electricity in the village is currently
provided by a 1 kW diesel generator,
which runs 24 hours a day. From Table 5
we see that the load factor corresponding
to 24-hour mini-grid is estimated at 25%.
The emission factor for the generator is
therefore 0.8 kgCO2e/kWh or 0.8
tCO2e/MWh (>200kW). Our
hydropower plant has an estimated load
factor of 50% (4380 hours per year at
peak load). The annual renewable energy
production is therefore 0.5 MW x 4380 h
= 2,190 MWh. Consequently, since the
electricity produced by the hydropower
replaces electricity produced by the diesel
generator, the emission reduction
amounts to 2,190 MWh x 0.8
tCO2e/MWh = 1,752 tCO2e per year.
Example 2: The same 0.5 MW
hydropower plant will be constructed but
this time connected to the national grid.
The electricity in the national grid is
currently produced as follows:
- 40% hydropower (0 tCO2e/MWh)
- 50% diesel power (0.7 tCO2e/MWh)
- 10% natural gas CC (0.4 tCO2e/MWh)
The weighted average emissions are
therefore 50% x 0.7 + 10% x 0.4 = 0.39
tCO2e/MWh.
The approximate operating margin is
83% x 0.7 + 17% x 0.4 = 0.65
tCO2e/MWh (excluding hydropower
which is assumed to be baseload).
If the latest plants constructed in the
country were all natural gas combined
cycle plants (CC), the build margin would
be 0.4 CO2e/MWh. The average of the
approximate operating margin and build
margin would be (0.65+0.4)/2 = 0.53
tCO2e/MWh.
If the plant had a load factor of 50%
(4380 hours per year at peak load) as in
our earlier example, the emission
reductions would be 2,190 MWh x 0.53
tCO2e/MWh = 1,161 tCO2e per year.

Additionality
CDM projects must be additional. This
means that the GHG emissions must be
reduced below those that would have
occurred in the absence of the registered
CDM project. In other words, projects
that would have been implemented
anyway, even in the absence of the CDM,
may not earn emission reductions.
Figure 4 gives a general idea about the
additionality requirement. For instance, a
project that is required by the national
legislation is generally not considered
additional. As an example, a typical CDM
project would be methane capture from a
landfill site. However, if the capture is
required by the host country national
legislation, this project would generally
not be considered additional, unless the
projects performance clearly exceeds the
minimum requirements of the legislation.
On the other hand, a renewable energy

26
project that is less profitable for the
investors than a fossil-fuel-based
alternative (when income from the sale of
the CERs is not taken into account),
would potentially pass the additionality
test.
8

Figure 4. Schematic presentation of the
additionality requirements.

For the small-scale CDM projects the
additionality requirements are somewhat
simplified. Small-scale CDM projects are
considered additional if the project
participants are able to demonstrate that
the project activity would have not be
implemented in the absence of CDM due
to the existence of one or more of the
following barriers:

Investment barrier: a financially
more viable alternative to the CDM
project would have led to higher
emissions;
Technological barrier: a less
technologically advanced alternative
to the project involves lower risks
and would have led to higher
emissions;

8
The CDM EBb has developed a tool for the demonstration
and assessment of additionality. The tool is available from
UNFCCC, http://cdm.unfccc.int/methodologies/.
Barrier due to prevailing practice:
prevailing practice or existing
regulatory requirements would have
led to an alternative with higher
emissions;
Other barriers: institutional barriers,
limited information or organizational
capacity, restricted financial resources
or other reasons identified by the
project participants show that the
emissions would have been higher
without the CDM project.

Crediting Period and Duration of
the Project
The Kyoto Protocol states that Certified
Emission Reductions obtained from the
year 2000 onwards can be used for
compliance (see Annex I, point 10). The
problem resulting from the fact that
Kyoto Protocol was not in force before
February 2005 was resolved in Marrakech
Accords through the so-called early
action provisions.
9

The crediting period is the period during
which the CDM project generates CERs.
Projects may generate CERs only after
the date of their registration.
The starting date of a CDM project is the
date at which the implementation or
construction or real action of a project
activity begins. Project activities started
between 1 January 2000 and the first
registration of a CDM project by the
CDM Executive Board had to provide
documentation at the time of registration
showing that the starting date fell within
this period.
CDM project participants may choose
either a 10-year crediting period with no
option of renewal, or a seven-year
baseline, which may be renewed at most
two times (3x7 years = 21 years). On

9
The text on the early crediting in the Marrakech accords
was modified in Milan in CoP9 for clarity. The first CDM
was registered in November 2004

27
each renewal, a DOE must determine
that the original baseline is still valid or
has been updated taking into account of
new date where applicable.
In other words, a 10-year baseline is risk-
free, as it is unchangeable once it has
been validated. On the other hand,
renewable seven-year baseline can
produce CERs for a longer period (14 or
21 years), provided that the original
baseline remains valid or only changes
slightly. There is a risk, however, that
after seven years the project has become
business-as-usual and the revalidation
determines that it is no longer additional.
In our Example 2 in Chapter 2.5.3, the
project participants could choose to use
the calculated baseline 0.53 tCO2e/MWh
for a 10-year period. Alternatively, they
could opt for a 3 x 7 year baseline using
0.53 tCO2e/MWh for 7 years, after
which the baseline has to be recalculated
based on the actual situation of the grid
at that time.

Monitoring Plan and
Methodology
When a CDM project is implemented, it
must be systematically monitored over
the whole crediting period, so that the
actual emission reductions can be
calculated. Project participants must
include a monitoring plan in the PDD.
The monitoring plan tells how data is
collected and archived in order to:

Estimate the emissions from the
project;
Determine the baseline of the project;
and
Calculate the emission reductions and
possible leakage of the project.
Monitoring plan must reflect good
monitoring practice and be appropriate to
the circumstances of the project. Project
participants are responsible for
implementing the monitoring plan
contained in the PDD. They must archive
the relevant monitored data and report it
to a DOE.
Leakage means changes in emissions
which occur outside the project
boundary, are measurable and caused by
the project. For example, if second-hand
equipment transferred from another
place were used in a CDM project, the
emissions could increase in the original
site of the equipment and the impact of
this leakage must be taken into account.
In biomass projects, leakage could mean
increased deforestation and this has to be
also addressed in the PDD.
Simplified modalities and procedures for
small-scale CDM project activities also
include simplified monitoring
methodologies, including leakage
considerations. As an example, in case of
renewable energy generation for a grid,
monitoring shall consist of metering the
electricity generated by the project. In the
case of co-firing biomass with fossil fuels,
the amount of biomass and its energy
content must also be monitored.

The Table 6 specifies the minimum
information that must be provided for
monitored data and it has to be included
in the PDD.


28

Table 6. Monitoring information to be provided in the Project Design Document. Two examples of
different data types are given.

ID No.

1 2
Data type

Quantitative Qualitative
Data variable

Electricity to the grid Origin of Biomass
Data unit

GWh Fuel provider name and location
Measured, calculated or
estimated (M,C,E)

M E
Recording frequency

Monthly Weekly
Proportion of data to be
monitored

100% 100%
Archive (electronic/
paper)

Electronic Electronic
How long data is kept?

Minimum 2 years after last
CER issuance
Minimum 2 years after last CER
issuance

Comment Data measured by grid
operator
The manager fills in the origin of
the fuel from the fuel
bookkeeping.


29
Environmental Impacts
One of the two principal objectives of
the CDM is to contribute towards the
sustainable development of the host
country. Therefore the analysis of the
environmental impacts of the CDM
projects is important. The host country
has the right and the responsibility to
define its sustainable development goals.
The project participants must submit to
the DOE documentation on the analysis
of the environmental impacts of the
project, if this is required by the host
country e.g. by the national
environmental legislation or as part of the
CDM endorsement procedure.
Stakeholder Comments
Public participation may be considered
essential for the social sustainability of a
project and it is an important part of the
CDM project cycle. Project participants
must invite comments by local
stakeholders and include in the PDD a
summary of the comments received and
an explanation of how the comments
were taken into account.
Public participation in industrial projects
is increasingly incorporated in national
and local legislation and regulations;
stakeholders opinions are often asked
before granting e.g. construction or
environmental permits for a project. In
many cases the CDM requirements for
stakeholder comments can be integrated
in this process. It is important to note,
however, that the CDM modalities
require comments from local
stakeholders independently of any
national requisites.
Project Validation and
Registration
Validation is the independent evaluation
of a project by a DOE against the
requirements of the CDM. Project
participants should select and contract an
operational entity to validate their
proposed CDM project. To date, 17
operational entities have been designated.
Different DOEs may have different
sectoral scopes. 24 entities have applied
for accreditation (so-called applicant
entities or AEs). Applicant entities may
validate projects during their application
process.
10
The CDM EB maintains a list
of all designated operational entities and
applicant entities in its website and it is
good to check the actual situation at
http://cdm.unfccc.int/DOE/.

The DOE selected to do the validation
(the validator) shall review the PDD and
any supporting documentation (e.g.
analysis of the environmental impacts,
comments from local stakeholders,
technical project documentation) and
confirm that the CDM requirements have
been met. The validator must also receive
a written approval of voluntary
participation (Letter of Approval, see 0)
from the DNA of the host country. The
approval must include confirmation that
the project assists the host country in
achieving sustainable development.
11

The validator then makes the PDD
publicly available for a period of 30 days.
During that period Parties to the Kyoto
Protocol, stakeholders and organizations
that are accredited observers of the
UNFCCC can make comments on the
PDD. PDDs available for public
comments can also be found in the CDM
EB website at:
http://cdm.unfccc.int/Projects/Validatio
n.
The project participants shall clearly mark
any confidential information as such in order
to avoid its publication. According to the
CDM rules, the information used to
determine additionality, to describe the
baseline methodology and to support

10
If the applicant entity later fails to be accredited by the
CDM Executive Board, the validation may become invalid.
It is important to take this into account when making the
contract with the validator.
11
Written approval is also required fromany other country
that is Party to the Kyoto Protocol and participates in the
project, e.g. an Annex I country that will buy the emission
reductions.

30
environmental impact assessment may
not be considered as confidential.
Registration is the formal acceptance of a
validated project by the CDM EB.
Registration is a prerequisite for the
verification, certification and issuance of
CERs related to the project (see
http://cdm.unfccc.int/Projects for the
list of registered projects). Registration
happens automatically, unless a review is
requested by a Party involved in the
project or at least three members of the
CDM EB. For registration fees, see
Chapter Error! No se encuentra el
origen de la referencia..
The procedures for validation and
registration are evolving as the CDM EB
continues its work. The latest procedures
can always be found in internet at
http://cdm.unfccc.int/Reference/Proced
ures.
2.6 Project
Implementation
Phase
Once a CDM project has been registered,
constructed and commissioned, the
project implementation phase begins.
The emission reductions generated by the
project must be monitored. The monitored
emission reductions have to be verified and
certified by a DOE. Based on the
certification report, the CDM EB will
issue the corresponding CERs, which are
then forwarded to the project participants
according to their instructions. Figure 5
describes the CDM project
implementation phase. In the following,
each step is shortly explained.

Figure 5. Implementation phase of a CDM project.

Participants CERs for adaptation Participants CERs for adaptation
(DOE)
CDM Executive Board
Monitoring Report
Monitoring:
Implement the monitoring plan which is part of
the Project Design Document (PDD)
Archive the relevant monitored data
Prepare a Monitoring Report
Submit the monitoring report to the Designated
Operational Entity (DOE)
Verification and Certification:
Make the Monitoring Report publicly available
Check the documentation provided
Conduct on-site inspections as appropriate
Review monitoring results and methodologies
Determine the emission reductions occurred
Prepare a verification report
Make the Verification Report publicly available
Certify the emission reductions
Prepare a certification report
Issuance of CERs:
Issuance happens automatically in 15 days,
unless a review is requested
Request for issuance of CERs
Certification Report
CDM Registry Administrator
CERs for the Project CERs for administrative costs
(DOE)
CDM Executive Board
Monitoring Report
Monitoring:
Implement the monitoring plan which is part of
the Project Design Document (PDD)
Archive the relevant monitored data
Prepare a Monitoring Report
Submit the monitoring report to the Designated
Operational Entity (DOE)
Verification and Certification:
Make the Monitoring Report publicly available
Check the documentation provided
Conduct on-site inspections as appropriate
Review monitoring results and methodologies
Determine the emission reductions occurred
Prepare a verification report
Make the Verification Report publicly available
Certify the emission reductions
Prepare a certification report
Issuance of CERs:
Issuance happens automatically in 15 days,
unless a review is requested
Request for issuance of CERs
Certification Report
CDM Registry Administrator
CERs for the Project CERs for administrative costs

31
Monitoring
Monitoring is the systematic surveillance
and measurement of the project
performance, which makes it possible to
measure or calculate the amount of
emission reductions that the project
generates. Monitoring is the responsibility
of the project participants and it must be
conducted according to the monitoring
plan in the registered PDD (see Chapter
0).
The most typical monitoring activity in a
renewable energy project is the
measurement of its energy output.
Normally, the baseline in a renewable
energy project is defined in terms of
tonnes of CO
2
reduced per energy
produced. For example, each megawatt-
hour (MWh) of electricity generated by a
wind turbine could replace other
generation capacity in the grid and reduce
CO
2
emissions by a certain amount. The
actual amount of emission reductions
generated is thus directly proportional to
the amount of electricity produced by the
generator (if the wind does not blow,
emissions are not reduced). Therefore it
is essential to know the exact amount of
electricity produced each year to estimate
the emission reductions generated during
the same year.
The monitored data must be archived
either in paper or electronic format, as
described in the monitoring plan. The
monitoring report is prepared on the
basis of this data and submitted to the
DOE. The monitoring report is the
fundamental document, in which the
following steps of the project cycle are
based.
Verification and Certification
Verification is the periodic independent
review and determination of the
monitored emission reductions that have
occurred as a result of a CDM project
during the verification period. The
verification is done by the DOE. The
length of the verification period is not
defined in the CDM rules; quite often the
verification is performed annually.
12
In
small-scale CDM projects it is possible to
use the same DOE for validation (see
Chapter 0) and verification; in larger
projects different entities must be used.
The DOE performing the verification
must:
Make the monitoring report publicly
available
13
;
Determine whether the provided
documentation is in accordance with
the PDD;
Conduct on-site inspections as
appropriate;
Review monitoring results and the
application of the methodologies;
Determine the amount of emission
reductions; and
Provide a verification report to the
project participants, the Parties
involved and the CDM Executive
Board.
Certification is a written assurance by the
DOE that during a specified time period
the CDM project achieved the emission
reductions as verified. The DOE
prepares the Certification Report based
on the Verification Report. The
Certification Report is also made publicly
available. The Certification Report is
submitted to the CDM EB and it is a
formal request to issue CERs.
Issuance of Certified Emission
Reductions
The issuance of the CERs happens
automatically 15 days after the CDM EB
has received the Certification Report,
unless a review is requested. (A Party
involved in the project or at least three
members of the CDM EB have the right
to request a review.)

12
A less-frequent verification is one way of reducing
transaction costs. Often the necessary verification frequency
is defined in the ERPA.
13
For confidential information, see Chapter 0.

32
The CDM Registry Administrator works
under the authority of the Executive
Board. If no review is requested, the
Registry Administrator will issue the
quantity of CERs specified in the
Certification Report into an account of
the Executive Board in the CDM
Registry. From that account:
A share of 2% will be forwarded to a
special account to assist developing
countries particularly vulnerable to
climate change impacts in meeting
the costs of adaptation;
A registration fee of USD 0.10 is
charged for the first 15,000 certified
emission reduction issued for each
project each year. The fee is USD
0.20 for all units in excess of this
amount. The proceeds from the fees
are used to cover administrative
expenses.
14

The remaining CERs will be
forwarded to the accounts of the
project Parties and participants
according to their request.
The CDM registry has accounts for all
the non-Annex I Parties. The first
version of the registry is operative and a
new version update is underway. The
new version will make it possible to
connect the registry on the international
transaction log (ITL). Until the ITL
makes it possible to transfer CERs to
national registries of Annex I Parties,
Annex I Parties will also have temporary
accounts in the CDM Registry. The aim
is to have the ITL operating with
registries in April 2007.
2.7 Sale of the Emission
Reductions
From the project developers point of
view, the purpose of the CDM is to
improve the feasibility of the project by
providing additional revenues. The
proceeds from the sale of the emission
reductions can be seen as internalizing
the global environmental benefits that the

14
See Chapter 2.8 for more information.
project is generating. The project reduces
greenhouse gas emissions either directly
of indirectly, and this benefit can be given
a price through emerging international
carbon markets.
15

The project may benefit from the sale of
the CERs in several ways. Typically, the
cash flow of the project is improved
through the sale of the CERs by means
of a long-term Emission Reduction Purchase
Agreement (ERPA). ERPAs are often
based on a payment-on-delivery principle,
i.e. the buyer pays for the CERs over the
crediting time of the project when it
receives them. A ERPA template is
available from The International
Emissions Trading Association (IETA),
http://www.ieta.org.
Signing an ERPA in hard currency terms
with a creditworthy international investor
can also facilitate the negotiations with
the lenders and thus make the financial
closing of the project easier. Sometimes
the buyer of the CERs is willing to
provide an upfront payment, as well.
Naturally a discount rate is applied when
upfront money is made available; often a
guarantee is also required for upfront
payments, which may result costly.
Prices and Risks
Projects may sell emission reductions that
are certified or not. Reductions that are
expected to be Kyoto-compliant are
more expensive than those that are not.
Non-Kyoto emission reductions can be
used e.g. to voluntary offset emissions or
in non-Kyoto compliance systems (see
Chapter 5 for description of non-Kyoto
carbon markets). The distribution of risks
between the seller and the buyer has also
impacts on the price of the emission
reductions. The higher risks the seller is
assuming, the higher price it can expect
to get from the CERs (see Figure 6).

15
For more information on international carbon markets, see
Chapter 5..

33
Based on World Banks experience, other
key determinants of price are:
16

Creditworthiness and experience of
the project sponsor and the viability
of the project;
Confidence in the quality of the
ongoing carbon asset management
and hence delivery of ERs over the
life of the project;
Structure of the contract (e.g., spot
vs. forward contracts as well as
amount of upfront payment, applied

16
World Bank: State and Trends of the Carbon Market
2004. www.carbonfinance.org
discount rate in case of upfront
payment), including liabilities the
seller is willing to undertake in case it
fails to deliver upon contract
commitments;
ER vintage, since only some vintages
are eligible to meet compliance
obligations;
Cost of validation and potential
certification;
Host country support and willingness
to cooperate, and
Additional environmental and social
benefits.

Figure 6. Prices of project-based emission reductions in 2005-06 (US$ per tCO2e). Source: World
Bank: State and Trends of the Carbon Market 2006 (Update January 1 September 30, 2006).
www.carbonfinance.org

2.8 Costs Related to the
CDM Project Cycle
Getting a project through the CDM cycle
implies additional costs. The costs vary
greatly depending on the complexity of
the project, use of external consultants,
etc. The costs of the validation are based
on the agreement negotiated between the
project participants and the operational
entity and they depend on the complexity
of the project, geographical location, etc.
Validation costs vary typically between
5,000 and 25,000 USD. The World Bank
experience with larger projects has shown
project preparation costs in the range of
USD 110,000 260,000.

34

Figure 7. World Bank estimate for the CDM project cycle costs for small-scale projects. Source:
World Bank. Small-scale CDM Projects, An Overview. www.carbonfinance.org/cdcf.
Preparation and review of the Project
Simplified Project Design Document
Validation process
Project Appraisal and Negotiation
Periodic verification &
certification
Construction and start up
Project completion
3
m
o
n
th
s
2

m
o
n
t
h
s
2

m
o
n
t
h
s
3 months
1
-
3

y
e
a
r
s
U
p

t
o

2
1

y
e
a
r
s
Upstream Due Diligence, carbon risk
assessment and documentation: $ 20K
Baseline assessment: $10 K
Monitoring: $5K
Contract, Processing
and documentation: $20k
Consultation and Project Appraisal: $35K
Negotiations and Legal documentation: $20K
Total through Negotiations
All expenses: $110 K
Initial verification at start-up: $3-5K
Verification: $2-5K
Supervision: $2-10K
Cost
Reduction
with Stream-
Lined
Procedures

Some experts estimate that the costs for
small-scale projects may be
overestimated. It is also worth noting that
sometimes the transaction costs can be
shared between the seller and the buyer.
At the time of issuance, an administrative
fee is charged for each CER (see Chapter
0). A part of the proceeds that the
administrative fee is expected to
generates is charged upfront when the
project is registered. The registration fee
is determined based on the expected
average annual emission reduction for the
project activity over its crediting period.
No registration fee is charged for CDM
projects that are expected to reduce
emission by less than 15,000 tCO2e per
year.
.


35
3 FI NANCI NG SMALL-SCALE RENEWABLE
ENERGY PROJ ECTS
This section provides a general overview on how to develop a bankable project proposal and what are the
main concerns that the financing institutions have when considering the financing of an energy project.
3.1 Introduction
Few other project developers than larger
companies have the necessary resources
to finance their project ideas from out of
the pocket. In most cases, external debt
or equity is needed. This chapter outlines
the overall procedure for financial
structuring of renewable energy projects.
It is impossible to provide here a
complete handbook of project financing;
we rather try to give a basic idea for the
developer. Many banks and other
financing institutions have plenty of
material on this issue. One source of
information specific to Central America
is Fenerca (Financiamiento de Empresas
de Energa Renovable en Amrica
Central, www.fenerca.org), which has
manuals on preparation of business
plans, etc. The steps described here seek
to meet in general terms most financing
institutions information requirements.
However, each financing institution has
its own guidelines for approval of
finance. The project developer should
establish and maintain a good dialogue
with the relevant representative at each
financing institution and always follow
each financing institutions specific
guidelines when submitting an
application.
3.2 Impacts of Carbon
Finance to Project
Financing
It is important to bear in mind that
carbon finance is only a small part of the
total financing of the project. According
to some estimates, carbon finance can
generally improve the financial rate of
return of a project by 1-5 percentage
points, depending on the type of the
project and other conditions.
Furthermore, most of the carbon
contracts are payment on delivery, so
even if significant cash flow resulted
from the sale of the emission reductions,
it would not solve the problem of initially
financing the project.
Figure 8 shows World Banks estimates
on carbon finances impact on project
financing. It can be seen that with
biomass projects and methane capture
the impact is most significant due to the
high GWP of methane.
Carbon finance does not turn a bad
project into a good-one. On the other
hand, it may significantly improve the
probability for good project ideas to be
realised as projects. Some of the impacts
that carbon finance may have on the
projects viability are:
Carbon finance improves the IRR on
equity and may thus get new
investors on board, who otherwise
would not be interested in the
investment;
The ERPA with a creditworthy
counterpart gives the project a cash
flow in hard currency, which may
facilitate the negotiations with the
lenders; and
Parties interested in purchasing the
emission reductions may bring
additional resources, technical
expertise and know-how to the
project.
In order to be able to benefit from
carbon finance through CDM or other
mechanisms, the underlying financial
structure of the project must be solid.
The following chapters aim at giving
some insight into the traditional project
financing.
36

Figure 8. Impact of Carbon Finance on the IRR of selected projects. (DH=District Heating).
Source: World Bank.
Impact of Carbon Finance on Sample Renewable Energy and
Energy Efficiency Projects
0
2
4
6
8
10
12
14
16
18
20
DH Wind Hydro Bagasse Biomass Methane
F
i
n
a
n
c
i
a
l

I
R
R

(
%
)
IRR with carbon f inance
IRR without carbon finance

3.3 Project Financing
Traditionally, commercial banks lend
money against fixed assets and the total
amount of the loan must be guaranteed
by the borrower. In project financing, the
creditors provide financing to a project
solely based on the merits of the project
itself, with limited or no recourse to the
companies sponsoring the project. (i.e.
non-recourse or limited recourse
financing). Typically a separate project
company (sometimes called special
purpose company or special purpose
vehicle) is established by the project
sponsors to implement the project. The
benefits of such arrangement for the
sponsors include:
It allows the sponsors to borrow
funds to finance a project without
increasing their liabilities beyond their
investment in the project. On the
sponsors balance sheet, their
exposure to the project is the amount
of their equity contribution and
nothing more.
Lenders to the project (e.g.
commercial or development banks)
assume part of the project risks, since
they are lending without full recourse
and primarily on the basis of project
assets.
On the other hand, establishing a special
project company incurs transaction costs
which may be significant in a small
project. Also, non-recourse financing is
more expensive than traditional lending
against guarantees because of the higher
risks for the lender. Many banks are also
unfamiliar with project financing and
unwilling to lend based on the merits of
the project without full guarantees. If the
project sponsor has sufficient financial
capacity to implement the project without
a special purpose company, this may be
an option in a small project.
Independently of whether the project will
be financed using conventional full-
recourse financing or project financing,
the CDM investors or buyers of emission
reductions are most interested in the
financial soundness of the project.
Therefore, a properly made business plan
and a feasibility study are always required.
3.4 Types of Capital
To implement a project, capital (or
financing) is needed. There are basically
37
three types of capital available for all
projects:
Equity;
Debt; and
Mezzanine capital.
Every type of capital plays a special role
in project financing and it is important to
understand the characteristics of each of
them. The challenge of financial
structuring is to set up a combination of
debt, equity and mezzanine financing that
optimizes the use of various financial
sources. A typical project may involve
e.g. 20-40% of equity provided by the
project sponsors and 60-80% of debt
provided by commercial banks,
international financial institutions and/or
bilateral government lenders.

Figure 9 shows a typical financial
structure of a project.

Figure 9. Financial Structure of a project.
Equity Capital
Equity represents the funds injected by
the owners of the project and it is the
lowest ranking capital of all in terms of its
claims on the assets of the project.
Normally all the other obligations must
be satisfied before any dividends to the
project owners can be paid. Equity
investors therefore bear the highest risk
in the project. If the project fails, the
equity investors will most probably lose a
significant part of their equity investment.
On the other hand, if the project is
successful, the equity investors can also
make the biggest gains. After all the other
obligations are met, everything that
remains belongs to the equity investors.
Debt capital
In contrast to equity capital, debt has the
highest ranking of all capital. Senior debt
has first claim over all the assets of a
project and must be repaid first, normally
according to a predetermined schedule.
Therefore the debt bears the lowest risk
of all capital and correspondingly the
returns on debt are usually limited to the
interest payments, irrespective of how
successful the project may be.
Lenders would usually prefer a low debt-
equity ratio passing majority of the risks
to the equity investors. A high debt-
equity ratio reduces equity investors
exposure to the project risks and increase
their potential returns when the project is
successful. On the other hand, high
leverage increases the risk of default
which would result in equity investors
losing all their investment. Normally the
higher the project risks, the lower the
debt-equity ratio. Projects exposed to
market risks tend to have 60-65% debt
leverage, whereas an energy project with
firm take-or-pay power purchase
agreement could reach 70-80% leverage.
As lenders become more familiar with
carbon finance, a long-term ERPA with a
Equity
Project Company
Lenders
Project Owners
Insurers
Dividends
Debt Service Loan
Payments
Premium
Equity
Project Company
Lenders
Project Owners
Insurers
Dividends
Debt Service Loan
Payments if triggered
Premium
38
creditworthy counterparty can also help
raise projects leverage.
Mezzanine Capital
Mezzanine capital has characteristics
from both equity and debt and it is
therefore a more flexible instrument than
either pure equity or debt capital.
Structurally it is subordinated in priority
of payment to senior debt, but it is senior
to common stock or equity.
Examples of mezzanine financing are
subordinated loans, preferred shares and
convertible bonds. For instance
subordinated loans have characteristics of
debt in that regular payments of interest
are involved. However, payments are
subordinated to senior debt and need
only be made when project funds are
available. For bearing greater risks than
senior loans, mezzanine capital requires
higher returns. This is achieved either
through higher interest rates or partial
participation in the projects profits.
17

3.5 Financial project
cycle
This chapter adds the financial project
cycle to the CDM project cycle presented
earlier in Figure 7. Although there are
several ways of moving forward, most
projects follow to some extent the steps
presented in Figure 10. Generally there is
first a pre-feasibility phase followed by
the preparation of a more detailed
feasibility study and business plan. When
external finance is needed (either loans or
equity capital or both), a package of
documentation has to be prepared for the
potential financiers. In the following
chapters the steps needed until the
financial closing of the project are briefly
explained.

17
UNIDO. BOT Guidelines. Vienna 1996.

Figure 10. CDM project cycle and parallel project financing steps. Source: World Bank.
Validation process
certification
Project completion
3months
2months
2months
3months
1
- 3years
Upto21years
Cost
Reduction
with Stream-
Lined
Procedures
1. Pre-feasibility Study
Project outline
Draft business plan
Sponsors
Financial sources
2. Feasibility Study
Detailed project plan
Business plan
Sponsors
Financial sources
5. Construction
Recognised international standards
for contracts (e.g. FIDIC)
Bidding procedure
3. Financial Appraisal & negotiations
Final business plan
Finncing plan
Risk assessment and mitigation strategies
4. Financial package and documents for financial closi ng
Negotiations with each financial institution
Loan agreement & legal documents
Project agreements (e.g. PPA, ERPA, fuel supply)
Contracts with suppliers and constructors
All public approvals
Legal opinions of the total package
6. Reporting to financial
institutions
Annual and quarterly reports
Validation process
certification
Project completion
3months
2months
2months
3months
1
- 3years
Upto21years
Cost
Reduction
with Stream-
Lined
Procedures
1. Pre-feasibility Study
Project outline
Draft business plan
Sponsors
Financial sources
2. Feasibility Study
Detailed project plan
Business plan
Sponsors
Financial sources
5. Construction
Recognised international standards
for contracts (e.g. FIDIC)
Bidding procedure
3. Financial Appraisal & negotiations
Final business plan
Financing plan
Risk assessment and mitigation strategies
4. Financial package and documents for financial closi ng
Negotiations with each financial institution
Loan agreement & legal documents
Project agreements (e.g. PPA, ERPA, fuel supply)
Contracts with suppliers and constructors
All public approvals
Legal opinions of the total package
6. Reporting to financial
institutions
Annual and quarterly reports
39
Pre-feasibility Studies
The purpose of the pre-feasibility stage is
to investigate the project outline and
screen the opportunities without
spending major resources on extensive
studies of the entire project. It is also an
important stage in order to gain interest
from co-investors and potential financing
institutions and authorities, and achieve
non-binding Letters of Interest for the
project development. During the pre-
feasibility stage, it is also important to
receive early input from financial
institutions for optimal project design.
The pre-feasibility phase of the financial
project cycle corresponds time-wise to
the preparation of the PIN in a CDM
project cycle.
Often the first questions relate to the
organisation of the project. Is there a
group of people, companies or other
organisations who are willing to invest in,
or to be part of the project? If the project
is implemented by an existing company,
does it have the sufficient resources to do
it on its own or are other equity investors
or lenders needed? Does the project
merit the formation of a special project
company (see Chapter 3.3)? Most
financial institutions emphasize the
sponsors financial strengths and proven
capabilities to implement the project.
Thus, any project development should be
started by identification of key owners
and receiving letters of interest from
these before contacting financial
institutions.
Besides organisation, the first questions
are also related to money. Who is going
to give the seed money for the
development of the project? There are
different sources that provide grants for
pre-feasibility studies or business
development (see Annex III) but
generally the project developers have to
be prepared to invest some of their own
resources (time, work and money), as
well.
The principal objective of the pre-
feasibility study is to determine whether:

18

All possible project alternatives have
been examined;
The project concept justifies a
detailed analysis by a feasibility study;
Any aspects of the project are critical
to its feasibility and need in-depth
investigation; and
The project idea, on the basis of the
available information, should be
considerer either non-viable or
attractive enough for a particular
investor.
The pre-feasibility study should look at
the project from economic, market-
related, technical, financial and
managerial point of view. Normally, the
PIN (as discussed in Chapter 0) would
also cover much of the basic information
requirements for pre-feasibility-studies.
However, the PIN concentrates on
emission reductions, whereas the
emphasis in the pre-feasibility study is on
the financial viability of the project.
Different project alternatives should be
assessed in the pre-feasibility phase, so
that in later stages the most viable
alternative can be selected as the basis for
the project. The project developers may
have fixed ideas or be blind to some
flaws of the project concept; therefore it
is important to involve impartial outsiders
in the preparation and/or revision of the
feasibility study.
Most financing institutions have a two-
step approval procedure with an initial
review and final approval. The pre-
feasibility study should be used in the
initial phase to open the dialogue with the
financing institutions. It is recommended
to have meetings, in person or by
telephone conference, with key contacts
from each potential source of finance
before submitting an initial written

18
UNIDO. Manual for the Preparation of Industrial
Feasibility Studies. Vienna 1991.
40
application for finance. The
representatives from financial institutions
could contribute by valuable advice and
input to the project. Often the initial
approval from the financing institutions
is a precondition for the later approval of
the full finance of the project.
The host country authorities for approval
of the potential CDM project should also
be contacted already at this stage, and the
pre-feasibility study should be
accompanied, if possible, by a Letter of
Interest from the authorities in the host
country.
Feasibility Study and Business
Plan
Feasibility study and business plan differ
both in scope and in detail. The feasibility
study gives an overview of different
possibilities comparing various project
alternatives, technology options etc.,
while business plan gives the details of a
specific selected activity. Whereas
feasibility study concentrates on such
issues as electricity tariffs, competition,
taxation and fuel availability, the business
plan focuses on business structure,
management plans, specific business
targets, staffing and so on. The feasibility
study and business plan together should
provide potential lenders or equity
investors with sufficient information to
undertake a decision on investments or
lending. This phase of the financial
project cycle corresponds to the
PCN/PDD phase of the carbon finance
cycle.
When the potential investors or lenders
are assessing the feasibility study and
business plan, they normally focus on
such key factors as:
19

The company/sponsor can
demonstrate that it operates its
current businesses profitably, can
service its debt, and has the know-

19
http://carbonfinance.org. Document Library. PCF
Implementation Note #7: Financial Risk Assessment and
Mitigation: Risk-based Structuring and Pricing, Annex 6.
how and capacity to operate the
proposed project;
A business plan indicates that the
project can be developed and
operated in a manner that will enable
it to provide a reasonable return to
investors while servicing debt;
Summary of the projects technical
outline demonstrates documented
efficient and proven technology. A
detailed technical project plan should
be made available upon request or be
enclosed as appendix;
The project has a credible customer
base or in the case of independent
power or heat producers, an offtaker
with the financial capacity to
purchase the projects output during
the debt repayment period; and
The sponsors and the project
company have sufficient financial
strength so that neither the sponsors
nor the project have liabilities that
would undermine the ability of the
project to achieve and maintain
profitability.
Feasibility Study
The feasibility study includes basically the
same information as the pre-feasibility
study but in a much more detailed level.
It addresses supply and demand
characteristics in the specific market of
the project. Prices and pricing trends for
project inputs (e.g. fuels) and outputs
(e.g. electricity) and their sensitivities are
discussed. The feasibility study should
answer such questions as: Can you get
into the market? Can you secure all
necessary contracts? Are your financial
projections realistic? What are the worst-
case and the best-case scenario?
Depending on the size and other
characteristics of the project, the
feasibility study would typically include:
Executive Summary;
Project background and history,
including presentation of project
41
sponsors financial strength and past
experiences in project
implementation;
Market analysis and marketing
concept;
Description of the project location,
site and environment;
Description of the project technology
and engineering issues, including
examples where the technology has
been successfully utilised in other
similar projects;
Project organisation and overhead
costs;
Required human resources and their
availability;
Project implementation schedule;
Total investment costs and project
financing (proposed capital structure
indicating which parties are expected
to provide the projects financing);
Financial evaluation (payback period,
IRR and NPV calculations, sensitivity
analyses and presentation of main
assumptions); and
Description of projects
environmental and social impacts or
other special requirements of the
financiers.
In small projects, a properly done pre-
feasibility study together with the
business plan can be sufficient without a
full-scale feasibility study, if it essentially
answers the questions above.
Business Plan
The business plan offers a different point
of view from the global perspective of
the feasibility study. It provides details
about the operation, the market, project
management and the project
organisations financials. It also addresses
how to create a profitable income stream
for the projects investors.
The business plan should be a well-
structured document of maximum 25
pages plus appendices. The business plan
should be fact-based and focus on the
presentation of facts and numbers.
An example of an outline for a business
plan is presented in Table 7.
42

Table 7. Business Plan outline for projects. Source: World Bank 2002.

Proposed Business Plan Outline
1. Executive Summary
1.1. Description of project and business history, current status, customer, beneficiaries, size of
program, expectations for future project
1.2. Target markets, expected sales and expected emission reductions (ER) volumes
1.3. Project marketing and outreach Strategy
1.4. Budget and financial projections; expected contributions
2. Mission
2.1. Sponsor: Current scope of activities and responsibilities (utilize existing information e.g. from
annual reports)
2.2. Project: Brief explanation of projects fit with sponsors mission
3. Project Strategy
3.1. Business concept
3.2. Marketing strategy sales estimates and prices by product/customer class
3.3. Cost structure and supplier analysis
3.4. Competition -- capability of other companies to provide similar services
4. Management Structure and Capabilities
4.1. Sponsor(s)
4.1.1. Directors and managers
4.1.2. Budget, including sources of financing
4.1.3. Structure, capabilities and experience: similar projects that sponsor has closed (number,
financing provided, current status)
4.2. Project management plan
4.2.1. Legal authority (i.e. permits)
4.2.2. Structure
4.2.3. Roles and responsibilities of each position
4.2.4. Names and backgrounds of critical personnel (sponsor staff, technical assistance, consultants,
advisory board, if applicable)
5. Technology & procurement
5.1. Proposed technology concept
5.2. Potential suppliers
5.3. Reference projects or documentation for mature technology
5.4. Proposed purchase procedures
5.5. Proposed contract structures
6. Project Risk Management
6.1. Risk identification
6.2. Proposed strategies for mitigating risks (including long term offtake contracts)
7. Project Budget and Financial Projections
7.1. Estimated requirements for construction period
7.2. Estimated requirements for first 3 years of` operation
7.3. Budget for full operation
7.4. Financing Plan
7.5. Sensitivity analysis of key assumptions: power sales, ERPA, main costs etc.

43
Financial plan
An important part of the business plan is
the financial plan of the project. There
are four key elements where the financial
plan should focus at: project costs,
financial structure (equity, debt), return
on investment and risks. The financial
plan should be based on a continued
dialogue with the financing institutions
since the pre-feasibility stage. It should
result in a structure of the capital that
would be sufficient for providing the
project with liquid funds for the project
implementation and start up. At the same
time, the financial structure should be
adapted to the risk profile of the project
and make sure that the project manages
to repay the capital expenditures even in
the worst-case scenario.
Project Costs
Since reliable cost estimates are
fundamental to the appraisal of a project,
in it necessary to check carefully all cost
items that could have a significant impact
on the financial feasibility of the project.
The costs can generally be divided in
three phases: development (pre-
investment) costs, project
implementation (investment) costs and
operating costs. Pre-investment costs
include for instance the preparation of
the pre-feasibility and feasibility studies
and business plan, related travelling etc.
The project implementation costs include
costs related to insurances, land
acquisition, taxes, legal expenses,
necessary permits, site preparation,
engineering, procurement and
construction, interests during the
construction period, trial runs, start-up
and commissioning costs etc. Operating
costs may consist of such items as fuel,
salaries and social benefits, rent, water,
power, gas, taxes, office supplies,
maintenance, marketing, administration,
depreciation and financial costs.
Operating costs are supposed to be
financed from the revenues generated by
the project. However, there may be
significant operating expenses before the
project starts to generate sufficient
income. An important part of the
investment costs, which is often
neglected, is the initial working capital. In
the analysis of the investment costs it
should therefore be carefully checked
whether the initial working capital
requirements are properly considered in
the cost estimates. This helps to avoid
unexpected shortage of finance during
start-up of project operations.
Table 8 shows the project development
and implementation cost table from the
World Banks PCN. It divides the costs
into development costs, installed costs
(sum of capital costs and installation
costs) and other costs (e.g. legal costs,
start-up costs, initial working capital).
These are the total project costs that
must be financed through a combination
of debt and equity. The table also
includes a brief description of the
commercial strategy of the project.

Table 8. Project costs and commercial strategy.
Estimate of Total Project Costs (pre-investment and investment phase)
Development costs US$ / and a brief clarification
Installed costs US$ / and a brief clarification
Other costs US$ / and a brief clarification
Total project costs US$ / and a brief clarification
Commercial strategy A brief description of the commercial strategy of the project

44
Financial Structure
The financial plan should suggest the
financial structure to cover all the costs
presented in Table 8. It should include
names of sources of debt and equity to
be sought or already identified,
contribution of each, and status of
commitment. Any letters of intent or any
other evidence of interest from financiers
should be attached as enclosures to the
financing plan. Table 9 presents a model
to describe the financial structure of a
project. For typical division between
equity and debt, see Chapter 3.4. Annex
IV list some potential sources of debt and
equity for projects in Central America.
20

20
More information can be found in Financing Business
Opportunities in Latin America and the Caribbean
published by the Finnish Ministry for Foreign Affairs. It can
be found in Finpros website at www.finpro.fi.

Table 9. Proposed financial structure sources of finance identified.
Source US$
()
% Status of
Commitment
Terms for finance(interest rate,
repayment time, tenor, insurance
requirements)
EQUITY
Sponsor 1
Sponsor 2
Other Shareholders
Other Shareholders
Total Equity
DEBT
Foreign bank loan
Export credit
Local bank (local
currency) loan

Total Debt
TOTAL FINANCING
Financing Gap (Project
cost minus total financing)

On a regular basis, OECD undertakes a
global country-risk classification,
classifying all countries in the world into
7 risk classes (see Table 10). Financing
institutions consider the foreign
investment risk in country risk category 1
as low, and most commercial OECD
based financing institutions are closed for
investments in OECD country category 6
and 7 without guarantees in terms of
sovereign counter guarantees, export
credit guarantee or other guarantee.
However, if the proposed project is
financially strong and profitable, the
project developer may search for risk
mitigation strategies and counter
guarantees, such as export guarantees, to
attract foreign credits even though the
country risk is rated as high (see Chapter
0 for more information on export
guarantees).

Table 10. OECD risk classification of Central
American countries as of June 2004. Source:
http://www.oecd.org/dataoecd/35/2/323660
62.pdf.
Country OECD risk
category
Belize 6
Costa Rica 3
El Salvador 4
Guatemala 6
Honduras 7
Nicaragua 7
Panama 4

The OECD risk classifications of the
various Central American countries imply
that different financing strategies should
be developed for projects in e.g.
Honduras and Nicaragua, than for Costa
Rica and El Salvador. The latter may
attract more commercially oriented
financing at the current stage.
45
The international credit rating agencies
(S&P, Moodys, Fitch) also give ratings
for countries, as well as for companies.
Their ratings for the host country and the
project sponsors are important indicators
for investors and financing institutions.
Therefore, ratings should be collected
whenever possible and presented as part
of the financing plan (see Table 11).

Table 11. Credit ratings of host country and company. See www.moodys.com,
www.standardandpoors.com, www.fitchibca.com and www.oecd.org for ratings. Sites may require
registration.
Rating Agency* Country Company
S&P

Moodys

Fitch

OECD
NA
Financial Analysis
An important part of the financial plan is
the financial analysis. It should be able to
demonstrate that the project is profitable,
able to generate sufficient return for the
investors and service its debt. Financial
forecasts provide insight into the risks,
important issues and burden sharing
within the project; they are not an
objective in themselves. Forecasts should
not be Too Good To Be True.
Most financing institutions prefer to
receive cash flow projections for the
project along with the financial analysis
both in paper copies and in electronic
form (Excel files or similar). An Excel
template for making a simple analysis can
be found at http://carbonfinance.org/
docs/PINFinancialAnalysis.xls. Some of
the key results of the financial analysis are
listed in Table 12.

Table 12. Key results of financial analysis.
2004 05 06 07 08 09 10 11 12 13
Cash flow (before CERs)
Cash flow (after CERs)
Net Present Value NPV (before
CERs)

Net Present Value NPV (after
CERs)

Estimated financial internal
rate of return FIRR (before
CERs)

Estimated financial internal
rate of return FIRR (after
CERs)

Debt Service Coverage Ratio
(before CERs)

Debt Service Coverage Ratio
(after CERs)

46
The critical assumptions should be
highlighted and their values explained in
the financial plan. Sensitivity tests should
be carried out for critical factors such as:
Power or heat sales
Emission reduction sales
Resources, e.g. wind resources,
availability and price of biomass or
hydrological data
Interest rate levels
Exchange rate levels
Production costs
The sensitivity test should result in a base
case financial projection, a worst case
scenario and a break-even scenario to
illustrate the security margins in the
project.
The financial plan should also include a
proposal for key financial covenants. A
covenant is a promise in the debt
agreement that certain activities will or
will not be carried out. The purpose of a
covenant is to give the lender more
security. Covenants can cover everything
from minimum dividend payments to
levels that must be maintained in working
capital. Typical covenants could relate
for instance to:
Equity ratio (recommended level of
35 50% in developing countries).
Ratio of Net Debt to EBITDA
(Earnings before Interests, Taxation,
Depreciation and Amortisation) to
illustrate the debt service capabilities
of the project cash flow.
Financial risk assessment and
mitigations
The key financial risks should be
highlighted:
Market/price risk power or other sales
Financing institutions prefer long term
contracts with financially sound power
company. Otherwise, the tariff structure
and expected tariff development should
be evaluated in detail. Sensitivity analysis
should be carried out to investigate the
break-even level of power tariff (or price
of other products sold) for the project.
Financial risk
Financial risks could be mitigated by an
appropriate financial structure;
the higher the risk, the higher the share
of equity in the project that is required to
raise finance. The level of foreign debt
should to certain extent match the level
of hard currency income, e.g. from the
ERPA, combined with the cash-flow of
the project in relation to the recent years
inflation and development of the
exchange rate of the local currency. The
debt-repayment structure should be
adapted to the cash-flow generation of
the project. The project risks could be
split into the following factors and a
mitigation plan should be developed for
each:
Construction risk and performance risk
These risks can be mitigated by sufficient
pre-investigations, planning and use of
well-known engineering and construction
companies. This should be combined
with an appropriate contract structure,
e.g. FIDIC (Federacin Internacional de
Ingenieros Consultores). The FIDIC
contract model regulates the exact
responsibilities of each contracting party
and defines financial punishment for
delays and non-fulfilment of contracts.
Counterparty risks
Counterparties here could refer to fuel
suppliers, power or heat offtakers or any
other parties outside the project, whose
fulfilment of contractual obligations is
important for the success of the project.
The counterparty risks should be
mitigated by evaluation of the financial
strength and performance records of the
counterparty coupled with appropriate
contract structure.
Contract risk
Contract risk should be mitigated by
appropriate legal advisors and legal
opinions.
47
Environmental and social risk
These risks should be evaluated in the
pre-feasibility study, and the projects
should be appropriately designed to
handle these issues, e.g. through an
environmental and social management
plan prepared as part of the
environmental and social assessment..
Country risk
Foreign investors and foreign financing
institutions may search to cover the risk
associated with investments in the host
country either through export guarantee
agencies or private political risk insurance
companies. As an alternative, the political
risks could be split in main items and
evaluated individually. Naturally, foreign
investments would be attracted to host
countries with positive valuation of the
following factors:
Is the investment climate stable for
foreign investors?
Is there low risk for depreciation of
the local currency?
Is there a reliable legal framework and
efficient court system?
As previously mentioned, the host
countrys OECD rating coupled with the
foreign investors evaluation of the
investment climate may exclude some
commercial bank financing options and
other financing strategies should be
identified.
Financial appraisal and
negotiations
Financial appraisal is a method used to
evaluate the viability of a proposed
project by assessing the value of net cash
flows that result from its implementation.
Due diligence is part of the appraisal
process and it serves to confirm all
material facts in regards to the lenders or
investors participation in the project.
During the financial due diligence
process, most financing institutions
would examine to some extent the items
presented in Table 13.
Table 13. Financial due diligence.
Objective Evidence
Sound
sponsor/comp
any
Audited financials for at
least 3 years [and auditors
management letter]
demonstrating sound
financial performance and
management. Ratio
analysis including: margin
analysis, debt service
coverage ratio, operating
ratios, debt/equity ratio,
self-financing ratio
Sound Project
Business
A business plan that shows
a clear strategy, an
understanding of the
market, socio-political,
financial, and technical
challenges the project
faces, and financial
projections (covering at
least five years of
operations after project
completion) demonstrating
the financial viability of the
project (including project
capital cost estimates,
project financing plans,
income statements,
balance sheets and cash-
flow statements). Ratio
analysis as above.
Sound offtaker
/ credible
market for
output
Business plan should also
include market analysis
especially analysis of
demand indicating
historical and projected
trends in sales volumes
both in physical and
monetary terms,
customers, tariffs.
(a) In the case of an
independent power and/or
heat producer: an affidavit
indicating a sound
purchase agreement (for
contracted sales) or viable
market (for merchant
sales). Ideally: take-or-
pay PPA with viable
offtaker and automatic
indexation of tariffs.
(b) In the case of an
integrated utility or other
company with numerous
customers: a market
assessment describing the
customer base and growth
trends, and potential
threats from substitutes or
competitors; indicating
sufficient demand for the
product at projected prices
to enable the project to
operate profitably.
Limited debt
and liability
exposure
A statement summarizing
potentially large debts and
liabilities, required only to
the extent that they are
not revealed in the audited
48
financial statements
Technology,
procurement
procedures
and
construction
1. Approved technical
concept
2. Solid project
management during
implementation
3. Adequate contract
structure to protect the
project developers
towards delays in
delivery and costs
overruns
4. Plan for appointing
recognized
construction companies
only

Before the appraisal, the project
developer should have had a detailed
examination of the project with the
contact person at the financing institution
in order to make sure the project is
adapted to the financing institutions
requirements and guidelines to the extent
possible.
The appraisal and commitment for one
financing institution may often be
conditional upon approvals from other
financing institutions in order to ensure
the banks commitment to only fully
financed projects. After appraisal, the
financing institutions often present
additional assumptions in order to reduce
the risk profile in the project. This often
strengthens the project and reasonable
requirements should be met. However,
most financing institutions would also
accept reasonable arguments and a
constructive negotiations process would
result in a satisfying result for all parties.
Financial package and
documents for financial closing
Preparation of the loan agreements
normally build on the standard loan
agreements from the financing
institutions, unless several financing
institutions would share the same loan
agreement either through syndicated loan
agreements (for the largest projects) or
club-deals with 2 4 banks.
In addition to the loan agreements with
lending institutions, the following
documentation should be ready before
financial closing.
Financial documentation checklist:
21

For each sponsor and the project
company the following documents
should be available (where applicable):
Experience statement, including all
the projects the firm has closed, their
current status, and additional details
on projects similar to the CDM
project
Any ratings and reports from D&B,
S&P, Fitch, OECD (country only).
Public filings, if any.
Audited financial statements for most
recent three years.
Company By-Laws/Articles of
Association.
List of Directors and Managers of the
Company.
Shareholders Agreement.
List of Company Subsidiaries, if not
included in financial statements.
List of Company Debts (maturities,
interest rates, security) if not included
in financial statements.
Paper and electronic copies of
company financial projections
including assumptions, balance sheet,
income statement, cash flow; include
proposed projects and other planned
investments.
Before appraisal, the following
documents should be ready to submit to
the financing institutions upon requests:
Major project contracts (e.g.
engineering, procurement and
construction).
Purchase contracts (e.g. power).
Concessions, licenses and permits.

21
http://carbonfinance.org. Document Library. PCF
Implementation Note #7: Financial Risk Assessment and
Mitigation: Risk-based Structuring and Pricing, Annex 1
49
Financing agreements, letters of
intent or similar from banks, equity
providers, carbon finance sources,
etc.
Technical assistance agreements, if
applicable.
Laws governing project operations
(e.g. build, operate, transfer laws, and
government decrees).
Sources of major procurements.
Paper and electronic copies of project
financial projections including
assumptions, per unit (e.g.
USD/MWh, USD/ton) product costs
and prices (tariffs), income statement,
and cash flow.

Financing sources for small
scale renewable energy sources
A brief presentation of potential sources
of finance for small-scale energy projects
in Central America is given in the
annexes. The annexes list institutions
types of financial contribution and their
main criteria for finance/support and
links to make it easier for the reader to
screen the possibilities and be able to
contact the respective sources for more
detailed information about their
conditions for contributing to the project.
Often, the contact persons from these
organisations and financial institutions
can also advise on interested sponsors
and local sources for finance of project
development and financing of the
projects.
The Annexes are:
Sources for general support for
project preparation and technical
assistance (Annex III)
Sources for equity, grants and loans
(Annex IV)
Carbon finance sources (Annex V)
More complete information can also be
found in the book Financing Business
Opportunities in Latin America and the
Caribbean, which is available from the
Finnish Ministry for Foreign Affairs and
from the Finpro website www.finpro.fi

Export Finance of Equipment for
Projects
Export credit and guarantee agencies may
have a possible role in risk mitigation for
small-scale energy projects for the
imported part of the equipment. In some
countries, such as the USA, the US-Exim
Bank is responsible for both the export
credits and the export guarantee. In other
countries, such as in Finland, Finnvera
will issue the export-guarantees, while
commercial banks and the exportbank,
FIDE The Finnish Export Finance
Development, will be responsible for the
export credit. The export guarantee
institutes and export credit banks can
normally advice on contact persons in
their sister organisation (see Table 14).
Export credits may be applied to finance
part of a CDM project, for instance:
supply of equipment for e.g. wind
turbines, biomass boilers,
photovoltaics or hydropower plants
or turn-key projects
supply of specific consulting services,
e.g. wind-mapping or hydrology and
power design studies
The main terms and conditions for
export credits are regulated by OECD,
and the maximum credit time for power
stations is 12 years.
It is normally the supplier of the
equipment that would facilitate the
contact to the export credit agency and
the export guarantee agency until
approval of the finance, where after these
agencies will contact the CDM project
developer and if applicable, the counter
guarantee institute, for preparing the
documentation for the project.
50
Export guarantees may come in various
forms
22
:
Credit Risk Guarantees
Buyer Credit Guarantees
Letter of Credit Guarantees
Investment Guarantees
Bond Guarantees
Finance Guarantees

22
Ministry of Foreign Affairs of Finland:
Financing Business Opportunities in Latin
America and the Caribbean
Raw Material Guarantees
A traditional export credit arrangement
consist of a contracted amount, whereof
minimum 15% should be paid up-front
by the local partner/project company and
up to 85% of the contract could be
financed by an export credit. Of the
export credit, the OECD export
guarantee institutes may cover up to 90%
of the commercial risk and 100% of the
political risk. The remaining risk must be
carried by the supplier of the equipment
or the suppliers bank.

Table 14. Examples of national and commercial export credit and guarantee institutions.
Examples of export credits & guarantee institutes
23
Links to guidelines
CESCE (Spain) www.cesce.es
Compagnie Francaise d'Assurance (COFACE) www.coface.com
Eksportkreditfonden i Danmark (EKF) (Denmark) www.ekf.dk
Eksportkreditnemden i Sverige (EKN) (Sweden) www.ekn.se
ERG (Switzerland) www.swiss-erg.com
Export Credit Guarantee Department (ECGD) (UK) www.ecgd.gov.uk/
Finnvera (Finland) www.finnvera.fi
HERMES (Germany) www.hermes-kredit.com
MIGA (World Bank Group) www.miga.org
Atradius (Switzerland, Germany, Spain) www.atradius.com
US EXIMBANK (United States) www.exim.gov

23
Source: www.giek.no

51
4 CENTRAL AMERI CAN COUNTRI ES
I NFORMATI ON

4.1 REGIONAL AND COUNTRY INFORMATION
This section introduces a general overview of the Central American electric industry, as well as the vision of the electric
market in each one of the 7 countries of the region.
4.1.1 CENTRAL AMERICAN REGIONAL CONTEXT
General Indicators
The Central American countries together had
a population of approximately 41 million
inhabitants as of 2006, and a GDP estimated
around US$110 billion, after the institutional
consolidation of the transformation of the
electric industry in almost all of the countries.
This transformation process started in the
early 90s, and was characterized by the
separation of the generation, transmission and
distribution activities. This new management
mode promotes competitiveness within the
generation and commercialization markets,
while transmission and distribution activities,
which has natural monopolies characteristics,
are regulated activities.

Table 15 shows the main social and economic
indicators of Central America.

Table 15. Central American Social and Economic Indicators, 2006
Country
Area
(km
2
)
Population
(inhab)
Population
Density
(inhab/km
2
)
GDP 2006
(US$)
a

GDP per
capita
(US$)
Belize 22,800 287,730 12.61 1,778.0 6,179
b

Costa Rica 50,700 4,401,800 86.82 22,145.1 5,030
El Salvador 21,041 6,990,700 332.24 18,554.6 2,654
Guatemala 108,889 13,018,800 119.56 35,414.2 2,720
Honduras 111,900 7,518,300 67.18 9,214.8 1,225
Nicaragua 130,000 5,919,200 45.53 5,361.8 905
Panama 75,517 3,272,100 43.32 16,954.0 5,181
TOTAL 520,847 41,408, 630 109,422.5
Source: ECLAC, based on official figures. Preliminary figures for the year 2006. Central American electric
statistics. LC/MEX/L.772, 09 April 2007
a. million of current Dollars
b: 2004 statistics

As of the year 2006, the region had a total installed power of 9,321 MW, of which hydroelectricity
represented 43% and other renewable sources of energy: geothermal, biomass co-generation and

52
wind, represented 12%. Plants operated with fossil fuels, as steam, diesel, gas and mineral carbon
represented 45%, in accordance with the Table 16.

Table 16. Installed Capacity in Central America (in MW and %), 2006
Country Belize C.R. El Salv. Guat. Hond. Nic. Pan. Region
Total Regional n/a 2,095.7 1,281.8 2,126.8 1,474.1 767.2 1,575.8 9,321.4

Total Fossil Fuel n/a 422.2 588.7 1,116.7 912.5 438.5 743.3 4,221.9
Total Renewable n/a 1,673.5 693.1 1,010.1 561.6 328.7 832.5 5,099.5
Hydroelectricity n/a 1,411.5 460.9 717.9 501.8 104.4 832.5 4,029
Geothermal 0 165.7 151.2 33 0 97.5 0 447.4
Wind 0 68.6 0 0 0 0 0 68.6
Co-generation n/a 27.7 81.0 259.2 59.8 126.8 0 554.5

Renewable (%) 42.6 80.0 54.1 47.5 38.1 42.8 52.8 51.1
Fossil Fuel(%) 57.4 20.0 45.9 52.5 61.9 57.2 47.2 48.9
Source: ECLAC, based on official figures. Preliminary figures for the year 2006. Central American Isthmus:
Electric Sub Sector statistics. LC/MEX/L.772, 09 April 2007

Figure 11 shows electric generation in the
year 2006, in accordance with the
corresponding source. Generation reached
35,758.8 GWh in the entire region.
Hydroelectricity had the highest contribution
with a total of 17,677 GWh (51%), followed
by fossil fired generation with 13,898 GWh
(38%). Other renewable sources such as
geothermal generation had 2,696 GWh (7%),
co-generation 1,231.1 (3%) and wind
generation only in Costa Rica - contributed
with 273 GWh (1%)
48
.

In view of the sustainable growth forecasts for Central America, it is estimated that the electric
demand throughout the region will sustain the same growth trend of approximately 5% a year,
which will represent a demand for additional installed capacity of 550 MW a year, in order to
maintain at least the same quality of service offered throughout year 2006. This scenario includes a
probable participation of renewable energy sources of approximately 50-50%, additional to the
installed capacity.

48
Source CEPAL, based on official figures. Preliminary figures for 2006. Central American Isthmus. Statistics of Sub Sector Electricity.
LC/MEX/L. 772,09 April 2007.
1%
3%
7%
51%
38%
Hydro
Geothermal
Cogeneration
Eolic
Thermal
Figure 11. Electric Generation in Central America
(in GWh), 2006.
Wind
Fossil Fuel

53
The historical participation of renewable energy for the electric generation in Central America has
been decreased. Table 17 indicates that the trend up to year 2006 in the region with the exception
of Costa Rica- has increased its dependency on imported fossil fuels for the electric industry.
Table 17. Share of renewable energy in electric generation (%)
Region C.R. El Salv. Guat. Hond. Nic. Pan. Bel.
1980 71.1 98.8 98.7 20.0 91.6 53.7 55.0 0.0
1990 91.1 98.7 93.6 92.3 100.2 61.2 84.0 0.0
1998 60.4 92.4 53.0 55.4 54.3 21.8 51.3 34.1
2000 67.0 99.1 57.6 54.2 60.5 16.9 70.5 35.8
2002 59.1 98.4 50.6 40.6 38.7 23.4 64.7 28.0
2006 51.1 80.0 54.1 47.5 38.1 42.8 52.8 42.6
Ref.: (1980-2002) CNE/ESMAP, Wolfgang@Mostert.dk, Strategy for the Promotion of Investments in Renewable
Energy, Managua, February 01, 2005
Ref.: (2006) ECLAC, based on official figures. Preliminary figures for the year 2006. Central American Isthmus.
Statistics for the electric sub/sector. LC/MEX/L.772, 09 April 2007

According to data compiled by BUN-CA, there is an interesting potential in the Central American
region to continue developing an investment portfolio for renewable energy sources. Table 18
presents a preliminary technical potential estimation of 31,000 MW as of year 2006, being the
hydroelectric potential the most significant one, if we include small to large hydroelectric generation
plants.
Table 18. Estimated technical potential from renewable energy sources (in MW)
Country Hydro Geothermal Wind
Co-
generation
with residues
Total
Belize
a
27 0 20 27 74
Guatemala
b
5,000 1,000 7,800 250 14,050
Honduras
c
3,200 126 60 52 3,438
El Salvadord 839 450 50 1,339
Nicaragua
e
1,740 1,000 250 100 3,090
Costa Rica
f
5,802 235 600 24 6,661
Panama
g
2,341 40 400 20 2,801
Total 18,949 2,851 9,155 498 31,453
Source:
a: Estimated compilation by BUN-CA from several sources as of year 2006
b: Energy statistics. Electric sub-sector, 2001-2006, Ministry of Energy and Mines (the wind potential is still a
preliminary theoretical estimate under study)
c: Action Plan for the Implementation of a National Sustainable Energy Policy, SERNA, June 2005
d: Energy Policy of the Government of El Salvador, May 2007 (the hydro potential includes the technical
potential for the binational projects of El Tigre and La Paz)
e: Strategy for the promotion of Renewable Energy Sources in Central America, ECLAC, May 28, 2004
f: Ibid e
g: Ibid e
For the partial use of this potential it is necessary to know the institutional structure of the electric
market in each country. In accordance with Table 19, in Central America at the end of the year 2006,

54
there were a total of 216 participants, comprised by 159 generators (38 public institutions and 121
private), 8 transmission companies, 22 distributors and 27 on commercialization.
Table 19: Institutional structure of the Central American electric market (2006)
Country Guatemala Honduras El Salvador Nicaragua Panama Costa Rica
Electric Market Wholesale Monopoly Wholesale Wholesale Wholesale Monopoly
Electric Sector
Authority
Direction
General of
Energy
(Ministry of
Energy and
Mines-MEM)
Direction
General of
Energy
(Secretary of
State of
Naturals
Resources
and
Environment-
SERNA)
Direction
General of
Energy
Elctrica
(Ministry of
Economy)
Ministry of
Energy and
Mines (MEM)
Commission
on Energy
Policy
(Ministry of
Econmy and
Finances -
MEF)
Direction on
Energy
Sector
(Ministry of
Environment
and Energy -
MINAE)
Market Operator
and Manager
Administrator
of the
Wholesale
Market
(AMM)
National
Company on
Electric
Energy
(ENEE)
Transactions
Unit (UT)
Center of
National
Charge
Dispatch
(CNDC)
Center of
National
Dispatch
(CND)
Center of
National
Dispatch
Electric Sector
Regulator
National
Commission
on Electric
Energy
(CNEE)
National
Commission
on Energy
(CNE)
General
Regulator of
Electricity and
Telecomunicati
ons (SIGET)
Nicaraguan
Institute on
Energy (INE)
Regulator
Institution for
Public
Utilities
(ERSP)
Regulator
Authority for
Public
Utilities
(ARESEP)
Public
Generators
1 13 12 4 3
a
5
Private
Generators
19 27 12 10 21 32
Transmission
3 (ETCEE,
TRELEC
and
other)
1 (ENEE) 1 (ETESAL)
1
(ENTRE
SA)
1 (ETESA) 1 (ICE)
Distributors 3 1 5 2 3 8
Commercializati
on
13 1 13 0 0 0
Total agents by
country
39 43 43 17 28 46
a. The state company is the Panama Canal Authority (Autoridad del Canal de Panam) that uses energy for auto consumption
Original source: BUN-CA, 2005. FENERCA: Promotion of Renewable Energy in Central America: Opportunities for Policy
statements update as of March 2005-. Updated information by BUN-CA as of 2006.


55
4.1.2 REGIONAL INITIATIVES
Regional Electric Markets
As a result of the changes generated by the
privatization processes in the 90s and the later
institutional transformation, many private
investors groups have positioned themselves in
the Central American energy industry. Regional
governments, with the exception of Belize, are
currently working on the unification of a
regional energy market, for which they
undersigned a Treaty in 1996 expressing their
willing to create a unified competitive market in
the region.
In order to build the Regional Energy Market
(MER), the Central American countries have
approved and ratify the Framework Treaty for
the Central American Energy Market
49
(Tratado
Marco del Mercado Elctrico de Amrica
Central), which entered into effect on January
1999, providing the necessary legal framework
for the region to operate a regional electric
market through the Network Owner Company
(Empresa Propietaria de la Red (EPR for its
acronym in Spanish)) incorporated in 1998; this
is a company governed by private law and
responsible for building, managing, and
maintaining the regional interconnected system.
Based on the guidelines of the Treaty, the
governments approved the general design of
the MER in the year 2002, consisting of a
seventh market, parallel with the six national
electric systems, with independent rules from
the others, and contacted through the Regional
Transmission Network (Red de Transmisin
Regional (RTR)).
The Framework Treaty also created the
Regional Commission for Electric
Interconnection (Comisin Regional de
Interconexin Elctrica (CRIE)) as the entity
regulating the MER, responsible for insuring
that the principles set forth in the Framework
Treaty and its Regulations are being respected
by all participants. The CRIE as the regulator is

49
The Framework Treat of the Electric Market was undersigned by
6 countries on December 30, 1996
the highest authority of MER and shall exercise
its activities in close coordination with the
national regulators, who are its natural
counterparts in each one of the Central
American countries.
The Framework Treaty also establishes the
Regional Operating Entity (Entidad Operadora
Regional (EOR)), an organism created as part
of the regional integration process, in charge of
the technical operation and dispatch of the
interconnected system and the operation of the
regional market.
As of year 2006, the ongoing negotiations for
the construction of a regional transmission
network called the Electric Interconnection
System for Central America (Sistema de
Interconexin Elctrica para Amrica Central
SIEPAC-), consist in the development of the
first regional interconnected transmission
system with a capacity of 230 KV and a length
of 1,785 Km, to start up the wholesale electric
market of Central America.
50
.
Central American Integration System
Regarding the management of the Central
American electric system it is necessary to
mention the proactive role of the Secretary
General Central American Integration System
(Secretara General del Sistema de la
Integracin Centroamericana (SG/SICA)), in
the execution and coordination of the mandates
of the Central American Presidential Summits
and the decisions reached by the Foreign
Affairs Ministerial Councils.
SICA, has made a request to the various
regional organizations within the framework of
the Meso American Energy Integration
Program (Programa de Integracin Energtica
Mesoamericana PIEM) to develop a regional
strategy for this sector at the light of the
regional energy vulnerability, caused by the high
dependency of the countries on imported fossil
fuels. In this context, in February 2005, the
Ministers of the Environment met in San Pedro
Sula to issue the San Pedro Sula Declaration on

50
Ref.: http://www.eprsiepac.com

56
Renewable Energy and the Environment,
which set up the CCAD that in coordination
with the energy sector authorities supports the
Regional Energy Plan.
During the Declaration of the III Meeting of
Ministers of the Environment and Energy of
the Central American Integration System
(SICA) member countries, held on October 10,
2006 in Panama City, it was decided to create
the Energy Coordination Unit of the Region
and the Dominican Republic, attached to the
Secretary General of SICA, and task it with the
coordination of actions regarding sustainable
energy, highlighting on the investments made
on renewable energy sources for electric
generation projects.


57
4.2 BELIZE

Figure. 12 Political Map of Belize

4.2.1 DESCRIPTION OF THE
ENERGY SECTOR
General Information
Belize maintains its electric structure based on
the Electricity Law N13 of 1992. This law has
as its objective to regulate every aspect related
to the electrical service in Belize.
The Energy Sector in Belize is a private vertical
monopoly; the only enterprise with license to
generate, transmit and distribute electricity is
the Belize Electricity Limited BEL-. There is
a regulating entity of the power sector at the
state level, the Public Utilities Commission
PUC-.
Installed capacity: In 2006 the installed capacity
in Belize was approximately 82 MW, including
32 MW hydroelectric (Mollejon and the Chalillo
projects), 25 MW diesel generation; and 25 MW
purchased from Mexico.
The demand for energy in Belize grows at an
average rate of 9% annually. BEL estimates that
it will require an additional capacity to support
a peak demand of about 67 MW in 2006,
starting with a 18-MW hydro development at
Vaca on the Macal River that will be online by
2009, and a bagasse power cogeneration facility
wit a capacity of 13.5 MW expected to be
online by the end 2007.
Generation: Power generation in Belize for
2006 was composed of a total of 360.879 MWh
of which 88.243 MWh corresponded to public
generation by BEL with hydroelectric plants
and 46.491 MWh with thermal plants. A total
of 18.831 MWh where generated using
renewable energy sources, such as solar and
biomass. In addition about, 51% of the
generation (180.510 MWh) corresponded to
imports from Mexico.
Transmission: The transmission system is also
operated by BEL. There is an interconnection
to the electricity systems of Guatemala and
Mexico, which is extremely important for
Belize since it imported about 30% of its
energy by 2006.
Distribution: Due to the nature of the
monopolistic vertical integration of the
Belizean electric system, BEL is in charge of
the electric distribution, which in 2006 served
about 65,000 customers.
Legal framework focused on renewable
energy
The main legislation related to the Belizean
energy sector is the following:
Law of 1950: Creation of the Belize Electricity
Board (BEB). In 1950 the law of the electricity
act was revised to provide for the establishing
of the Belize Electricity Board. This
government institution was charged with the
responsibility to generate electric energy,
transmit, and distribute to the general public.
Law N13 of 1992: Establishment of the Belize
Electricity Limited (BEL). In 1992 the
electricity act was amended to provide for the
privatization of the electricity sector and BEB
became Belize Electricity Limited, a private
company owned by it shareholders with the
government retaining 51% of the voting stock.
In 1999 the Government of Belize further
divested itself of its holding in BEL and so
Fortis Inc. became BELs majority shareholder.

58
Law of 1999: Creation of the Public Utilities
Commission (PUC). The Public Utilities Act
was created in August of 1999 to provide for
the establishment of a Public Utilities
Commission whose main functions would be to
regulate the public utilities and protect the
interests of the customers at large.
The electricity market
The electricity market in Belize is guided under
an opportunity market where prices play an
important role. Currently, BEL sells and
distributes 100% of the electricity; however,
there are several private small entities that
generate electricity for its own consumption.

In Belize the purchase tariffs are proposed by
BEL since it is the only distributing entity with
license to sell to the public. This proposed tariff
has to be known and approved by the PUC
before entering into force.

4.2.2 NATIONAL CDM POLICY

Belize recently discovered some low production
oil reserves which are commercially exploited,
but it doesnt have proven gas or carbon
reserves. Up to now, the petroleum utilized to
generate electricity is imported.
Belize plans to satisfy future demand with:
A series of hydroelectric plants that are in
their initial phase, being of relevance the
Vaca and Hydro Maya developments.
Improvements to existing diesel plants.
Currently the country has no Climate Change
nor Clean Development Mechanism -CDM-
Office appropriately installed. This is managed
in the Ministry of Natural Resources, under the
coordination of the Department of
Environment.
4.2.3 RELEVANT ORGANISATIONS
Ministry of Natural Resources
More information with:
Ismael Fabro
Tel: +501 822-2816 / 2542
Fax: +501 822-2862
E-mail: envirodept@btl.net
Public Utilities Commission PUC- The
Public Utilities Commission is an autonomous
body, created in 1999, and is the government
agency in charged of regulating with the
responsibility to regulate all public utilities in
Belize. They issue licenses and set the retail
price for the sale of electricity to the general
public. The objective of the PUC is to regulate
everything related with the supply of the public
utilities in Belize, such as electricity, water, and
telecommunications.
Anna Rossington
Tel: +501 222-4938
E-mail: puc@btl.net
Office of Electricity Supply OES- This
Office had been responsible for all matters
related to electricity in Belize, prior to the
creation of the Public Utilities Commission in
1999. Presently it is in charge of rural
electrification and wireman licensing.
Herman Charlsworth
Tel: +501 022-4995
E-mail: oes@btl.net
Belize Electricity Limited -BEL- This utility
is the sole commercial, transmitter, and power
distributor current in Belize. BEL is a public
limited liability company, incorporated in 1992.

Ratification of the UNFCCC

Date signed: June 13, 1992

Ratification Date: October 31, 1994

Kyoto Protocolo

Adhesion date: September 26, 2003


59
Under the Electricity Law N13, the Ministry of
Energy and Communications gave an exclusive
license to BEL (initiating in 1993) to generate,
transmit and provide electricity in Belize. It is
majority owned by Fortis Inc. of Canada since
1999 and holds a license issued by the Public
Utilities Commission to operate in Belize. It has
offices in all the districts of Belize along with a
115kv national grid that is interconnected to
the Mexican national grid.
Michael Polonio
Tel: +501 227-0954
E-mail: mpolonio@bel.com.bz


60
4.3 COSTA RICA

Figure 13 Political Map of the Republic of Costa Rica.

4.3.1. DESCRIPTION OF THE ENERGY
SECTOR
General Information
Costa Rica has an electric marked characterized
by the presence of one state owned company
that dominates the market (ICE), and which is
vertically integrated, generating, transmitting
and distributing electric energy.
Notwithstanding, there are a total of 27 private
generating companies under operation that sell
to ICE the energy produced, together with the
CNFL, two city hall companies, 2 of the 4 rural
electrification cooperatives and one cooperative
consortium. The distribution system is
comprised of 8 companies, besides the ICE, 2
city hall companies, 4 rural electrification
cooperatives and a corporation whose shares
are mainly owned by ICE National Company
of Force and Light (CNFL)-. Likewise, in
accordance with the legislation in force,
generation by private investors to be sold to
ICE, cannot be higher than 15% of the total
installed capacity of the country, and an
additional 15% from private generation plants,
that will sell electricity to ICE, through a public
bid process under the sales price competition
regime, that at the end of the contracting
process will be transferred to ICE. There is
also an electric sector regulating body that
participates in the determination of rates and
tariffs and that also looks for the compliance of
quality, quantity, reliability, continuity,
opportunity and optimum performance of the
public utilities, such as electricity, water,
telecommunications, and fuel, among others,
called the Public Utilities Regulating Authority.
(ARESEP for its acronym in Spanish).
Installed capacity: In the year 2006 the installed
capacity of Costa Rica was 2,095.7 MW, which
included 1,411.5 MW from hydroelectric plants,
165.7 MW from geothermal, 68.6 MW from
wind and 422.27 MW from plants owned by
ICE. Private participation, other electric
companies and the rural electrification
cooperatives had 379.07 MW hydroelectric,
29.55 MW geothermal, 3.70 biomass generation
and 48.75 MW from wind parks.
Demand grows at an average of 5% a year. In
accordance with the National Plan for Electric
Generation Expansion for the period 2001-
2016, its required to add about 1,000 MW
generation capacity, of which 80 to 90% must
come from renewable sources and 10-20%
consist on the installation of complementary
fossil fuel plants.
Generation: There are several companies that
participate in generation
51
that as of the year
2006 generated 8,637.1 GWh. A total of 6,596.6
GWh corresponded to generation with
hydroelectric plants, 1,214.9 GWh with
geothermal plants and biomass, wind
generation 273.5 GWh and 545.4 GWh with
fossil fuel plants.
Transmission: The transmission system is
operated by the ICE. Currently it has 1,712 km
of connection lines (706 km at 138 Kw and
1,006 km at 230 Kw), through them a total of

51
These are the ICE, Compaa Nacional de Fuerza y
Luz-CNFL, the J unta Administrativa del Servicio
Elctrico de Cartago-J ASEC, the Empresa de
Servicios Pblicos de Heredia-ESPH, COOPELESCA,
the BOT Miravalles and 27 additional private
companies with ongoing projects.

61
1,279,372 customers were served as of
December 2006. Costa Rica is interconnected
with Panama and Nicaragua.
Distribution: Energy distribution in Costa Rica
is under the responsibility of 8 companies of
which 4 public companies are in charge of the
distribution in the Large Metropolitan Area,
where the majority of the customers live. In
addition, there are 4 rural electrification
cooperatives that distribute electricity in that
area. To this date, 98.13% of the population of
Costa Rica has access to electricity.
Legal Framework targeted at renewable
energy
The main laws in force in Costa Rica, related to
renewable energy are:
Law N449 dated April 8, 1949, Law for
the creation of the Electricity Institute of
Costa Rica (ICE for its acronym in
Spanish).
Law N7200 dated October 18, 1990:
participation in the private electric system
started with the passing of the 7200 Law
of 1990. This Law authorizes the
Autonomous or parallel Electric
Generation and declares the public
interest of the ICE to purchase from non
conventional energy sources and
cooperatives and private companies, in
which at least 35% of the capital stock is
owned by Costa Rican citizens who
establish electric plants with limited
capacity. This law authorizes to install up
to 15% of the total capacity of the
National Interconnected System (SNI for
its acronym is Spanish). With the support
of this law a total of 189.85 MW is
generated for the SNI, representing a
10.2% of the total installed capacity in
Costa Rica, grouped in a total of 32
plants.
Law 7200 was amended by the Law No.
7508 on May 31, 1995. It modifies the
percentage of the Costa Rican capital and
the concession terms. It adds a second
chapter on the competition regime for
projects with a maximum capacity of 50
MW; it also includes a section on
transitional disposition referring to the
undersigning of treats for electrical
interconnection with other national
companies on energy in Central America.
This Law also authorizes to install an
additional 15% to the one stipulated in
the Law 7200.
Under the protection of this Law a total of
29.55 MW of the Geothermal Plant Miravalles
III was installed, representing 1.4% of the
countrys installed capacity, as well as the
hydroelectric Project of La Joya with a capacity
of 51 MW.
Law N8345: Participation of the Rural
Electrification Cooperatives and the
Municipal Public Utilities for National
Development: This Law authorizes
MINAE to grant water concessions for
the production of hydroelectricity to
cooperatives, allowing a more active
participation of these companies in the
electric market.

Electric Market
The electric Market in Costa Rica is dominated
by the ICE, mainly because it enjoys full right
to use water concessions to generate
hydroelectricity in accordance with Law N449.
Electricity prices for generation and costumers
are established by the ARESEP. See Figure 14.
The National Plan for the Electric Generation
Expansion in Costa Rica (2001-2016), forecasts
a 5.4% increase for low demand and 5.7% for
high demand. This plan summarizes the electric
generation development strategies to satisfy
future demand, considering the various
technological options available. Of the
hydroelectric projects to be developed by ICE
for the Expansion Plan, there are 3
hydroelectric, plus 2 at the feasibility stage, that
could contribute with approximately, 1,330
MW in the next ten years. The expansion plan

62
Date of signing: June 13, 1992
Date of Ratification: June 13, 1994

Kyoto Protocol
Date of signing: April 27, 1998
Date of Ratification: August 9, 2002
also considers the contribution of the other
public generation companies to generate 252.9
MW through hydroelectric projects by the
National Company of Power and Light, the
Cartago Electric Service Board of Directors,
Conelctricas R.L. and CoopeGuanacaste R.L.

Regarding geothermal energy, the development
of Las Pailas Project is being studied. It has an
estimated capacity of 35 MW. A total of 120-
180 MW

Figure 14. Chart of the electric market in Costa Rica

fossil fuel energy plant would be generated by
the Project Garabito, which is expecting to star
operation by the year 2010. The alternatives
regarding fossil fuel energy include gas turbines
with diesel fuel, mid speed engine bunker and
combined cycle steam turbines.


Costa Rica has recognized, based on equity
and in accordance with their shared but
differentiated responsibilities, the need to
voluntarily contribute to the climate change
mitigation.

Costa Rica has a National Climate Change
Program, through which they perform
researches on inventories, vulnerability
studies, ozone layer and the national
communications are carried out, financed
by national resources and the contributions
of external entities.
63
To this date, Costa Rica does not have a
specific legislation on carbon
transactions. There is a Forestry Law,
which incorporates the concept of
Environmental Paid Services (PSA for its
acronym in Spanish) for private forest
owners and forest plantations, in
compensation for the preservation and
handling of forests or reforestation,
financed by a tax on hydrocarbons.
The Costa Rican Office for Joint
Implementation (Oficina Costarricense
de Implementacin Conjunta (OCIC))
that was established in 1995, today called
the Costa Rican Association for Joint
Implementation (ASOCIC)), is the
national authority that facilitates the
attraction of investments, provides
general guidelines, assesses projects and
sees to the follow up of projects, and
reports to the CMNUCC Secretary
representing the Government of Costa
Rica in the negotiations at the
Convention, and other multilateral and
bilateral organizations on Climate
Change.
Costa Rica has carried out 9 projects
approved by the UNFCCC Secretariat, 4
renewable energy projects (1
hydroelectric and 3 wind), 4 forestry
projects and one waste water treatment in
coffee processing plants. All generation
projects are operating and produce
approximately 6.4% of the energy
consumed in the country.
The OCIC (for its acronym in Spanish) is
the National Designated Authority of
Costa Rica.
More information at:
William Alpizar
Tel: +506 222-5616 Ext. 108
E-mail: walpizar@imn.ac.cr

4.3.3RELEVANT
ORGANIZATIONS
Ministry of the Environment and
Energy -MINAE- This Ministry is in
charge of drafting energy policies, as well
as of protecting the countrys natural
resources.
Roberto Dobles Mora, Minister
Tel: +506 257-1417 / 223-2124
Fax: +506 257-0697
www.minae.go.cr
Julio Cesar Matamoros Alfaro,
Viceminister of Energy
Tel: +506 233-4533 ext 159
Fax: +506 257-0232
www.minae.go.cr
Energy Sector Directorate DSE (for
its acronym in Spanish) - is a Technical
Secretariat for the Energy Sector
Planning, comprised of the entities part
of this secretariat. The DSE was
established with the purpose to make
efforts aimed at: a) developing,
implementing and consolidating the
drafting, execution and control of a
permanent energy planning system; b)
obtaining the necessary elements for an
accurate decision making at the
qualitative level regarding specific energy
options; c) developing a holistic energy
model plan; and d) investigating sources
that can replace non renewable energy. It
was created by an agreement entered into
force on February 15, 1984 between the
MINAE, ICE, the Costa Rican Oil
Refinery (RECOPE) and ARESEP.
Gloria Villa
Tel: +506 257-3662
Fax: +506 257-2434
E-mail: gvilla@dse.go.cr
www.dse.go.cr
Public Services Regulating Authority -
ARESEP- The Law that created the
ARESEP, transformed the former
National Electricity Service (Servicio
Nacional de Electricidad (SNE)), on its
functions and duties of the ARESEP, it
states that the Regulating Authority will
fix prices and rates; in addition, it will
take care of the compliance with quality,
64
quantity, reliability, continuity, timeliness
and best service. Among the defined
public services we can mention the
supply of electric energy in generation,
transmission, distribution, and
commercialization.
Fernando Herrero Acosta,
Regulator General

Adolfo Lobo,
Direction of Energy
Tel: +506 220-0102
Fax: +506 290-2010
www.aresep.go.cr
Costa Rican Institute for Electricity
(Instituto Costarricense de
Electricidad ICE)- The ICE, was
created by the Special Law N449 dated
April 8, 1949
52
as an autonomous
institution in charge of the development
of energy resources in the country. One
of the duties of ICE is to develop in
Costa Rica the energy producing sources,
particularly water resources, and in
stimulating the use of electricity for
industrial and population development.
Since 1963, ICE has undertaken the
responsibility for establishing and
operating the countrys
telecommunication services. The ICE
group is currently comprised of the
Compaa Nacional de Fuerza y Luz,
S.A. (CNFL), Radiogrfica
Costarricense, S.A. (RACSA), the ICE-
Electricidad and ICE-
Telecommunications. The ICE
participates in all the chain stages.
www.ice.go.cr
Tel: +506 220-62131

52
The Law To create ICE was amended by the
laws: N2749 of May 24, 1961; N3003 of J uly
11, 1962; N3154 of July 31, 1963 and N5507
of April 19, 1974.
National Company for Power and
Light (Compaa Nacional de Fuerza
y Luz, S.A.-CNFL)- It was founded on
April 8, 1941, as a corporation where the
ICE has the majority of shares. Its
mission is to contribute to the economic
and social development of the country by
supplying to the market a competitive
electric service. The CNFL has become
the dominant energy distribution and
commercialization company in the Costa
Rican market, although it only serves 2%
of the national territory, it covers a total
area of 903 km2 of the Large
Metropolitan Area, including the capital
city of San Jos. Besides buying from
ICE, the CNFL has an installed capacity
for power generation of 55.5 MW
through the operation of seven
hydroelectric plants.
Pablo Cob Saboro
General Manager
Tel: +506 295-5020257-8647
E-mail: gerentegeneral@cnfl.go.cr
www.cnfl.go.cr

Heredia Public Utility Service -ESPH-
The Law N767 dated October 25, 1949,
was enacted under the name of Municipal
Electric Service of Heredia. In the Law
N5889 dated April 1, 1976, it was
created the Company for Public Utility
Services of Heredia (ESPH). Law N
7789 dated April 30, 1998 transformed
this company so it could adapt itself to
the changes of the time. The ESPH has,
besides electric energy distribution in the
Province of Heredia, other three basic
services for the population: potable water
supply, public lighting, and sewage.
Allan Benavides Vlchez, General
Manager
Tel: +506 562-3787 o 562-3788
Fax: +506 237-6566E-mail:
abenavides@esph-sa.com
www.esph-sa.com
65
Electric Service Management Board
of Cartago (Junta Administrativa del
Servicio Elctrico de Cartago -
JASEC)- Created through the Law
N3300 dated July 23, 1964. In the Law
N 7799 dated April 30, 1998 they
transformed the company to adapt it to
the new times. The JASEC is a public
service company which supplies
electricity to five towns in the Province
of Cartago. Its main function is to
exclusively supply the electric company
of the municipality of Cartago with
electricity.
Oscar Meneses, General Manager
Tel: +506 592-2828
Fax: +506 551-4529
E-mail: omeneses@jasec.co.cr
jaseccr2@racsa.co.cr

Costa Rican Association of Energy
Producers (Asociacin Costarricense
de Productores de Energa ACOPE)-
ACOPE was created in 1989, and
currently represents more than 40
hydroelectric, wind and biomass private
producers who generate in the country
with a production capacity of 135 MW in
total. It is important to point out that
private generation has had an important
boom in Costa Rica, despite the fact that
the majority of the companies only
generate energy to sell to ICE or the
National Power and Light Company
(Compaa Nacional de Fuerza y Luz
(CNFL)). Private generation in Costa
Rica is supported by Laws N 7200 and
7508 that authorize the Autonomous or
parallel Electric Generation.
Mario Alvarado, Director Executive
Tel: +506 258-4141
Fax: +506 258-4136
E-mail: acope@acope.com

COOPESANTOS R.L. This
Cooperative was created in January 1965,
with the purpose of supplying electric
energy to the area of Santos and
Caraigres, covering the towns of Dota,
Tarraz, Len Corts, Acosta and part of
the South and West of the El Guarco,
Cartago, Desamparados, Aserr and Mora
towns. This cooperative covers a territory
of 1,500 km
2
, with 1,200 km in
distribution lines, serving a total of 125
communities with a population of
100,000 inhabitants who are directly
benefited.
Elas Caldern Monge, Manager
Tel: +506 546-2525
Fax: +506 546-6173
E-mail: claudiau@coopesantos.com
www.coopesantos.com

COOPEGUANACASTE R. L. It was
created in January 1965, aimed at
providing its target population with
electricity. This cooperative covers a
territory of 1,500-2,000 km
2
, with
approximately 2,000 km of distribution
lines, serving some of the towns located
at the North Zone and North Pacific of
the country, directly benefiting around
33,200 members associated. Currently it
is building the hydroelectric Canalete
project that will have a capacity of 17.5
MW.
Harry Gutirrez, General Manager
Tel: +506 680-2121
E-mail:
harry.gutierrez@coopeguanacaste.c
om www.coopeguanacaste.com

COOPEALFARORUIZ R.L. was
created in November 1972 to provide
electric service to society. The
Cooperative covers a territory of 250 km
with distribution lines, serving the Alfaro
Ruz, Naranjo, Valverde Vega and San
Ramn towns, directly benefitting around
5,000 persons.
66
Erick Rojas, General Manager
Tel/Fax: +506 463-3273
E-mail: coopalfa@racsa.co.cr
www.coopealfaroruiz.com

COOPELESCA R.L. Was created in
January 1965 with the purpose of
providing electric service to the town of
San Carlos and the north zone. This
cooperative covers 4,956 km
2
, with about
2,200 km of distribution lines, serving
some of the communities located in the
Sarapiqu, San Carlos, San Ramn,
Alajuela, los Chiles and Grecia towns,
directly benefiting a total of 32,500 direct
members. Coopelesca R.L. operates
around 47,000 meters. It is participating
in the generation stage with the
Chocosuela hydroelectric Project with 4
machines in cascade form that generate
25.5 MW.
Omar Miranda Murillo, General
Manager
Tel: +506 461-1550
Fax: +506-460-5755 E-mail:
omiranda@coopelesca.co.cr
www.coopelesca.co.cr

CONELCTRICAS R.L. On June 26,
1989 the four previously mentioned rural
electrification cooperatives in Costa Rica,
merged into one new cooperative called
the National Consortium of
Electrification Companies of Costa Rica
R.L., known as Conelctricas R.L. One
of the main purposes of this union is to
develop hydroelectric generation projects.
The four cooperatives together provide
electric service to a population of
500,0000 persons covering an area of
11,500 km
2
, which represents around
22% of the national territory.
Carlos Rodrguez, General Manager
Tel: +506 460-0044
Fax: +506-460-6363 E-mail:
conelect@racsa.co.cr

67
4.4 EL SALVADOR

Figure 15 Political Map of the Republic of El
Salvador

ENERGY SECTOR
General Information
El Salvador approved the General
Electricity Law in 1996, which promotes
free competition in power generation,
transmission and distribution, as well as
the restructure of the previous vertically
integrated national power company -
Executive Hydroelectric Commission of
the Lempa River (Comisin Ejecutiva
Hidroelctrica del Ro Lempa- CEL).
This Law led to the privatization of the
distribution system in 1998, to the sale of
276 MW generation plants in 1999 and to
the privatization of the transmission
system in the year 2000. Besides, this Act
also established a regulating entity, the
General Regulator of Electricity and
Telecommunications (Superintendencia
General de Electricidad y
Telecomunicaciones (SIGET)), a
Wholesale Market operator, and the
Transactions Unit (UT).

The Government of El Salvador decided
to restructure the electric sector by
establishing an attenuated vertical
disintegration model (separated
accounting per activity and neutrality of
the transmission system), free access to
the transmission and distribution network
by third parties, insuring freedom of
entrance on objective and non
discriminatory basis. The government
also created several generation
companies, and separated the generation
coordination, maintenance and expansion
of the transmission system. Besides, 4
electric distribution companies were
created, which currently operate in
specific regions of the country.

The National Energy Council (CNE) was
created in July 2006, as a private-public
entity, in order to contribute to modify
the pattern generation towards renewable
energy, among other things, subject to
the availability of the resources.

In May 2007, the Government of El
Salvador announced the Energy Policy,
aimed to insure a reliable, secure and
competitive energy supply, as a vital
element to guarantee the quality of life of
the population, the sustainable
development of society and the
competitiveness of the productive
sectors
53
.

Figure 16 presents a scheme of the
changes of the electric structure in El
Salvador.

Antes Ahora
Empresas Generadoras
Empresas Distribuidoras
Transmisin: ETESAL
Generacin
Transmisin
Distribucin
CEL CEL
Mercado Mercado
Mayorista Mayorista
(UT) (UT)
EEO DEUSEM
CAESS CLESA
DELSUR
SIGET
(EnteRegulador)
(Polticas y Planificacin)
DGEE
Antes Ahora
Empresas Generadoras
Empresas Distribuidoras
Transmisin: ETESAL
Generacin
Transmisin
Distribucin
CEL CEL
Mercado Mercado
Mayorista Mayorista
(UT) (UT)
EEO DEUSEM
CAESS CLESA
DELSUR
SIGET
(EnteRegulador)
(Polticas y Planificacin)
DGEE
Fuente: BUN-CA, 2003
Figure 16. Change in the Structure of the
Electric sector in El Salvador

Generation: As of 2006, El Salvador had
an installed capacity of 1,186.3 MW. The
distribution corresponds on 460.9 MW to
hydroelectric plant generation (39%),
151.2 MW to geothermal plants (13%),

53
Energy Policy. Government of El Salvador,
May, 2007.
68
and 574.8 MW to fossil fuel plants
(48%)
54
.

The annual energy demand growth in El
Salvador ranges between 6% and 7%,
which evidences the need to increase the
capacity of the system in at least 50 MW
per year, since production capacity has
not been increased in this same ratio, and
consequently, in order to satisfy the
internal demand it is necessary to import
energy.
55
.

Although it is true that El Salvador has
used the import mechanism due to its
commercial advantages, the country has
had the necessary installed capacity (with
its reserve) to cover the domestic
demand. Besides, a national policy for
capacity increment was implemented.
Proof of this has been the re-powering of
the hydroelectric plants (84 MW), owned
by the Comisin Ejecutiva
Hidroelctrica del Ro Lempa (CEL). In
addition, the 50 MW Thermal Plant of
Talnique was built, through the
incorporation of the company
Inversiones Energticas INE, property
of CEL), which started up in late 2006.
The 44 MW Unit 3 of the Geothermal
Plant in Berlin was built by LaGeo
between 2005 and 2006 and started
operations in April 2007. In mid 2007,
the production of the Geothermal Field
of Berlin was increased in 10 MW with a
Binary Cycle project.

As of 2006, the State owned electricity
company CEL, which is the main
hydroelectric company in El Salvador,
completed the rehabilitation and re-
powering process of its 4 hydroelectric
plants, and is also considering the
construction of new plants as a result of
the market growth perspective. CEL
already concluded the modernization
cycle of 10 of the units installed in its
four hydroelectric plants. This process

54
Ibid 30
55
Profound Energy Changes Requested, El
Salvador.com, August 15, 2003.
initiated in the year 2000, and increased
CELs generation system in 21%,
additional 84 MW. By the year 2007, CEL
will have an installed capacity of 472
MW. The total investment of this process
was USD 64 million.

operated under the responsibility of the
Electric Transmission Company of El
Salvador (Empresa de Transmisin
Elctrica de El Salvador (ETESAL)), and
CEL is the major shareholder. There is an
electric interconnection system with
Guatemala and Honduras (called Northern
Triangle), which is extremely important for
El Salvador, since it allows to import
energy.

Distribution: This is a totally privatized
sector in El Salvador, divided between 5
companies distributed in the urban and
rural areas, which serve 1,314,890
customers. These distributing companies
are CAESS (Compaa de Alumbrado
Elctrico de San Salvador), CLESA
(Compaa de Luz Elctrica de Santa
Ana), EEO (Empresa Elctrica de
Oriente) and DEUSEM (Distribuidora
Elctrica de Usulutn) owned by the US
Corporation AES which all together
serve approximately 75% of the market;
and the other distribution company
DELSUR (Distribuidora del Sur), -
owned by PPL Global- serves the
remaining 25 % of the users. In 2006, the
peak demand reached 872 MW
56
. Plant
generation injections amounted to 6,194
GWh in 2006, of which 38%
corresponded to hydroelectric plants,
20% to geothermal, 40% to fossil fuel
and 2% to biomass
57
.

Legal Framework targeted at
Renewable Energy
The main renewable energy legislation of
El Salvador includes:

56
Statistics Bulletin. Transactions Unit S.A.,
J anuary-December 2006
57
Ibid 30
69
Decree N 843, dated October 10,
1996, the general Electricity Act and
its Regulation (Ley General de
Electricidad y su Reglamento)
Agreement N70, dated July 25,
1997).
Decree N354 dated July 10, 1998,
National Electricity and
Telecommunications Investment
Fund Act (Ley del Fondo de
Inversin Nacional de Electricidad y
Telefona).
SIGET Agreement NE-13-99, dated
July 19, 1999, Regulation for the
Operation of the Transmission
System and the Wholesale Market
(Reglamento de Operacin del
Sistema de Transmisin y del
Mercado Mayorista).
Agreement N 27, dated January 11,
2001 of the Ministry of Economy, by
which the Electric Energy Directorate
was established.
SIGET Agreement N 59-E-2001 dated
August 14, 2001, Norm applicable to
the bidding process for the granting
of geothermal and hydraulic resource
concession for electric generation
purposes.
Decree N1216, dated April, 2003,
Reforms to the General Electricity
Act.

In June 2007, the Presidency of the
Republic, through the Ministry of
Economy, the Ministry of Environment
and Natural Resources and the Ministry
of Finances, submitted the Law proposal
Fiscal Incentives for the Promotion of
Renewable Energy to the Legislative
Assembly. (www.minec.gob.sv).

Electric Market

The wholesale Market of El Salvador, is
comprised of the Contracts Market (MC)
and the Market for System Regulation
(MRS), which is managed and operated
by the Transactions Unit (Unidad de
Transacciones S.A. de C. V. (UT)). The
UT operates the Market for System
Regulation and uses the Contract Market
for the scheduled dispatch. Generators,
distributors and traders, in addition to the
large consumers of more than 5 MW
capacity can participate in the UT. The
generation scheme is highly dependent
form the rainy season, because the
hydroelectric plants produce
approximately 40% of the total capacity
of the country.

The operation norms of the
Transmission System and the Wholesale
Market are set forth in the Operations
Regulation issued by the UT for this
effect.

Although the WM Operations Regulation
does not allow the direct participation of
producers with a capacity below 5 MW,
the Commercialization Regulation
approved in November, 2000
incorporates other mechanisms that
enable their participation in the WM as a
market indirect agent, which operates
through the distribution networks in their
respective zones.

One way to insure the participation of
small producers, within the current legal
and institutional framework, is through
the creation of marketing entities capable
of managing the risks inherent to this
activity.

Figure 17 shows the type of electric
market that operates in El Salvador

.

70
GENERACION DISTRIBUCION
TRANSMISIN:
ETESAL
MERCADO
MAYORISTA
(UT)
CONSUMIDORES
Generacin Generacin
Pblica Pblica
Generacin Generacin
Privada Privada
Importaciones Importaciones
Grandes Grandes
Consumidores Consumidores
Usuarios Usuarios
Finales Finales
Exportacin Exportacin
Mercado de Mercado de
Contratos Contratos
Mercado Mercado
Regulador Regulador del del
Sistema Sistema
Comercializadoras Comercializadoras
TRANSMISIN:
ETESAL
MERCADO
MAYORISTA
(UT)
CONSUMIDORES GENERACION DISTRIBUCION
TRANSMISIN:
ETESAL
MERCADO
MAYORISTA
(UT)
CONSUMIDORES
Generacin Generacin
Pblica Pblica
Generacin Generacin
Privada Privada
Generacin Generacin
Pblica Pblica
Generacin Generacin
Privada Privada
Generacin Generacin
Pblica Pblica
Generacin Generacin
Privada Privada
Generacin Generacin
Pblica Pblica
Generacin Generacin
Privada Privada
Grandes Grandes
Usuarios Usuarios
Finales Finales
Grandes Grandes
Usuarios Usuarios
Finales Finales
Contratos Contratos
Mercado Mercado
Sistema Sistema
Contratos Contratos
Mercado Mercado
Sistema Sistema

Figure 17.Chart of the Electric Market in El Salvador

4.4.2 CLEAN DEVELOPMENT
NATIONAL POLICY

El Salvador, upon subscribing and
ratifying the United Nations Framework
Convention on Climate Change
(UNFCCC) and the Kyoto Protocol, has
recognized that the human activities
affect the emission of greenhouse gases
(GHG), and therefore commits to follow
worldwide efforts to mitigate the climate
change.

The Ministry of the Environment
(MARN), with the support of the World
Bank Carbon Finance, developed the
Electric Sector Baseline Study of El
Salvador in 2003, which determined that
for small scale projects (with a capacity
equal to or lower than 15 MW), and new
energy efficiency projects (lower than or
equal to 15 GWh savings per year), the
emission factor was calculated based on
the Combined Margin methodology,
recommended by the Executive Board of
the CDM, obtaining an emission factor
for El Salvador of 0.609 tons of CO2 per
MWh
58
.

National Structure of the Clean
Development Mechanism in El
Salvador

The Ministry of the Environment and
Natural Resources (MARN for it Spanish
Acronym) was appointed by the
Secretariat of the Convention on Climate
Change as the Designated National
Authority for the Clean Development
Mechanism in El Salvador, with the
purpose of supporting and developing
activities aimed at implementing CDM in
the country.

The Management of Physical Resources
and Energy was created within the
organizational chart of the Ministry of the
Environment and Natural Resources
(MARN) in which the Clean
Development Unit operates. This Unit
has been entrusted with the
implementation of the activities related to
CDM in El Salvador, and works in
coordination with the Focal Point of the

58
MARN, Carbon Fund. Baseline Study for the
Electric Sector of El Salvador. Page. 1. San
Salvador, 2003. Updated 2006.
Date of Ratification: December 4, 1995

Kyoto Protocol
Date of Ratification: November 30, 1998
71
United Nations Framework Convention
on Climate Change.

Two Advisory Technical Committees
were set up by the government as part of
the national structure of the CDM in El
Salvador, which support the actions and
positions of the country regarding CDM,
specifically in the reduction of the Green
House Gas emissions and carbon
sequestration.

As a result of these efforts, El Salvador
negotiated a CDM project portfolio in
2006, which together shall reduce 563,232
tons of carbon dioxide per year.

4.4.3 RELEVANT ORGANIZATIONS

Natural Resources (MARN for its
Spanish acronym) - The MARN is the
Designated National Authority for
Climate Change and CDM in El Salvador.
This Ministry acknowledges the necessity
to coordinate efforts, aimed at executing
actions to protect the environment and
the sustainable management of the
countrys natural resources, reason why it
links its work with all the society sectors.


Ing. Rebeca Magaa
Tel: +503 2267 9334
rmagana@marn.gob.sv
www.marn.gob.sv

Direction of Electric Energy - (DEE
for its Spanish Acronym) - The DEE is
a special technical Administrative Unit
attached to the Ministry of Economy. It
was created through Agreement N27 of
January 11, 2001 with the purpose of
aiding this Ministry as the regulator entity
of the electric sector policies in El
Salvador.


Ing. Jorge Rovira, General Director
Tel: +503 2231 5843
E-mail: jrovira@minec.gob.sv

General Superintendence for
Electricity and Telecommunications -
SIGET- The SIGET was established in
1996 by the Law to Create the SIGET.
This is an autonomous institution whose
highest authority is the General
Superintendent appointed by the
President of the Republic. This institution
is responsible for insuring the compliance
with all the laws and regulations
applicable to electricity and
telecommunications in El Salvador. The
duties of SIGET include: seeking for the
quality of the services, approve the tariffs
established by the distributors within
their geographical areas of distribution,
enforce the electricity sector regulatory
requirements, sanction the incompliance
to its regulation, resolve conflicts
between operators and coordinate with
the environmental authorities.


Ing. Giovanni Hernndez
Electricity Manager
Tel: +503 2257 4438 y 79
E-mail:
giovanni.hernandez@siget.gob.sv

Transactions Unit- (UT for its
Spanish Acronym)- The General
Electricity Law assigns to the
Transactions Unit (UT) the responsibility
as Market Administrator and
Independent Operator of the
Transmission System, in which all
operators and final users participate. The
UT manages the power system of El
Salvador, and oversees the quality and
reliability of the electric service supply,
and of the commercial operation of the
markets established by the General
72
Electricity Law; for instance the
Contracts Market and the System
Regulator Market (MRS for its Spanish
acronym).


Ing. Luis Gonzlez, General Manager
Tel: +503 2247-7300
Fax: +503 2247-7301
E-mail: gerente@ut.com.sv

Ing. Benjamn Meja
E mail: bmejia@ut.com.sv
www.ut.com.sv

Hydroelectric Executive Commission
of the Lempa River -CEL- This entity
was created through the Executive
Decree for the Creation of CEL dated
October 3, 1945, Published in the
Official Gazette N139 dated October 8
of that same year. Since its creation CEL
was the single company in charge of all
the electric sector activities. In 1996,
with the approval of the General
Electricity Law, CEL split its main
activities in order to organize
independent companies within the
electric market, and promote the higher
possible competitiveness within the
sector. In 1998 the electricity distribution
was privatized, thus separating activities
and creating GESAL (Salvadoran
Geothermal, 1999 currently LaGeo)
and ETESAL (Salvadoran Transmission
Company, 1999). In 1999, the company
Duke Energy bought the fossil fuel
generation facilities. In accordance with
the provisions of the Law, CEL has
become an electric energy generation
company that uses and takes care of the
water resources of the country, and
competes in the market together with
other energy generators.

In 2004, CEL signed a Cooperation
Agreement on Wind Energy with the
UCA and MARN, reason why, since June
2006 the country has measures of the
wind energy power at the Cerro Verde
(San Isidro), Metapn (La Hachadura),
Ahuachapn and la Unin (Monteca).


Ing. Alvaro Ibarra
Director of the Wind Project
Tel. + 503 2211 6284
E mail: aibarra@cel.gob.sv
www.cel.gob.sv

Transmission Company of El
Salvador (Compaa de Transmisin
de El Salvador, S.A.) -ETESAL-
Initiated operations on October 1, 1999.
This company resulted from the
transformation of CELs Transmission
Division during the modernization
process of the system, initiated in 1996,
with the main responsibility to operate
the national electric transmission system.
ETESAL expansion plans respond to the
demand growth analysis, and to the
identified need to expand the
transmission system and the domestic
electric development policies
59
.


Ing. Jos Ernesto Glvez Orellana,
General Manager
Tel: +503 2211-6600
Fax. +503 2211-6663
E-mail: egalvez@etesal.com.sv

Geotrmica Salvadorea, S.A.-LaGeo-
(Salvadoran Geothermal) Started as an
independent generator as of November 1,
1999 with the start up of operations of
the geothermal plants in Ahuachapn
with 95 MW and in Berln with 56.2 MW,
as a product of the transformation
process of CELs Geothermal Division.

Regarding the renawable energies, LaGeo
is researching on solar, ocean tide energy,
biofuels, and hydrogen projects, among
others. In addition, it is working jointly

59
Review the reforms to the General Electricity
Act issued in 2003 at ww.siget.gob.sv

73
with the CCAD and HSBC in the
drafting of a Practical Guide for
Renewable Energy Project Developers.

Lic. Jos Antonio Rodrguez
General Manager
Tel. + 503 2211 6703
E mail jarodriguez@lageo.com.sv

Ing. Salvador Handal
Renewable Energy Project
Coordinator
E mail: shandal@lageo.com.sv
Tel. + 503 2211 6793

74
4.5 GUATEMALA

Figure 18. Political Map of the Republic of
Guatemala.

ELECTRIC SECTOR
General Information
Guatemala initiated the reform process of
the electric sub sector with the enactment
of the 1996 General Electricity Law (Ley
General de Electricidad (LGE)). This law
norms the development of the energy
generation, transportation, distribution
and commercialization activities,
according to principles and statements
applicable to all natural or legal persons,
with a private, private-public, or state
share, regardless of their level of
autonomy, or constitution regime.
Figure 19 shows the transition of the
electric market in Guatemala.

Figure 19. Change in the structure of the electric sector in Guatemala.
Generation: As of December 2006,
Guatemala had an installed capacity of
2,111.7 MW. Of this capacity 738 MW
corresponded to generation with
hydroelectric plants, 29 MW to
geothermal plants, 322 MW to sugar cane
bagasse generators, and 1,028 MW to
those that use oil derivates and coal.
In the year 2006, the generation was
7,916 GWh public sector with 2,335
GWh and 5,581 GWH by the private
sector - of which 93.94% corresponded
to the generation for the National
Interconnected System, 5.19% to self
producers, while the remaining 0.87%
was generated to cover the demand in
75
remote areas. As far as generation by type
of resource used, 52.61% corresponded
to the use of renewable energy sources
(hydro energy, geo energy and sugar cane
bagasse), while 47.38% was generated
from coal and oil derivatives.
Transportation: The transportation
system is divided into the main and the
secondary systems. The main system, shared
by all generators, is currently owned by
the INDE and operated by the Electric
Energy Transportation and Control
Company (Empresa de Transporte y
Control de Energa Elctrica (ETCEE));
the system also includes the Guatemala -
El Salvador Honduras interconnection.
The secondary system is comprised of
the electric infrastructure other than the
main system and the distribution
networks by exclusion. It is operated by
the Central American Electric
Transportation Company (Transportista
Elctrica Centro Americana S.A.
(TRELEC)).
Distribution: In 1998 the companies
Unin FENOSA and Iberdrola
acquired the distribution in Guatemala.
Iberdrola supplies the Central Zone of
Guatemala with electric energy (Empresa
Elctrica de Guatemala Sociedad
Annima, EEGSA); while the
Distribuidora de Electricidad de
Occidente, Sociedad Annima
(DEOCSA), supplies the western part of
the country and the Distribuidora de
Electricidad de Oriente, Sociedad
Annima (DEORSA) covers the eastern
part of the country, both owned by
Unin Fenosa. There are other
companies besides the ones mentioned
that distribute energy, like for example
the 13 municipalities electric companies
(EEM) and some other private
distribution companies in isolated
systems, adding up to a total of 16
distribution companies in the country.
The maximum demand reached 1,380
MW in 2006.
Commercialization: There are 7 electric
commercialization companies of which
COMEGSA (Comercializadora Elctrica
de Guatemala S.A.), is one. This company
was created by Empresa Elctrica de
Guatemala EEGSA. COMEGSA is not
committed by the Energy Purchase Sales
Contracts and they can buy at the
Wholesale Market at prices below than
the ones that EEGSA has to pay due to
the purchase contracts undersigned
before 1998, which were re negotiated to
adapt them to the General Electricity
Law. As a result of this, it has attracted
many of the large consumers that were
previously supplied by EEGSA.
Guatemala exchanges energy with El
Salvador, where the Guatemalan market
serves the electric system of El Salvador,
if there is not a deficit risk, which is
estimated as the mean demand of 25 MW
during the year.
Legal Framework targeted on
Renewable Energy
The Ministry of Energy and Mines
(MEM) policy is aimed at fostering the
development of renewable sources,
allowing in the mid and long term to
attract investors interested in the
renewable energy sector, consequently
improving the environmental quality of
the energy sector.
Among the most important renewable
energy legislation in Guatemala, it is
worthwhile mentioning:
Political Constitution of the Republic of
Guatemala
Decree N93-96, dated November 13,
1996, General Electricity Law
Government Agreement N256-97, dated
March 21, 1997, Regulation of the
General Electricity Law
Government Agreement N299-98, dated
May 25, 1998, Regulation of the
Wholesale Market Manager
Trade and Operational Coordination
Standards of the Wholesale Market
Manager
76
Decree N52-2003, dated October 28,
2003. Law of Incentives for the
development of renewable energy
projects
Government Agreement No. 63-2007,
Policy for the Preservation, Protection, and
Improvement of the Environment and
Natural Resources. March, 2007
Electric Market
The wholesale electric market of
Guatemala has a twofold structure: Power
and Energy markets.
The Power Market seeks to promote
private investments in Guatemala. This
market obliges large consumers to
contract the maximum net projected
power for at least one year, plus a reserve
charge of (3%), plus total losses of the
transmission system. (+ 4.5%).
The offer is based on 1 year history of
the generator, since they are not available
in 100% all year round. Hydroelectricity
generators without a reservoir have
problems since they cannot guarantee
energy during peak hours, (4 hours a
day), therefore this type of contract does
not have any minimum or maximum time
restrictions.
This market seeks the identification and
transparency among fixed costs (FC) and
variable costs (VC) and there are market
mechanisms, like the economic signals to
compensate both types of costs. Energy
and power products are identified, as well
as quality and reliability services, such as
the toll service. These products and
services are bought and sold among
agents and through specific markets.
The Energy Market seeks to guarantee
the energy demand and exchange among
participants. The costs per machine are
determined in 4 manners in this market:
Generation variable costs for oil
based companies (fuel and not fuels)
The price of water for hydro
companies: water prices are supplied
by the generator in accordance with
its own methodology which is
reviewed quarterly a year.
Energy contract prices are freely
agreed among the parties.
Energy import supply.
On the other hand, within the legal and
institutional framework of the Electric
sub sector of Guatemala it is important
to highlight the modalities of the electric
market and types of contracts, defined as:
o The opportunity or spot market:
for price based on the short term
marginal price.
o Bilateral Transactions: term
contracts (firm contracts freely
agreed among the parties)
o Power deviation market: Not firm
contracts with interruptible
demand and a price established
by the AMM on a monthly bases.
On the consumers side:
o Free market (large users with a
power demand over 100Kw) and
a regulated market (regulated
users with a power demand below
100 Kw).
Some of the main guidelines that define
the participation in the wholesale market,
as established by the Regulation for the
Wholesale Market Manager (article 5),
include:
Generators should have a maximum
power over 10 MW.
Distributors should have more than
20,000 users.
Transporters should have a firm
connected power over 10 MW.
Commercializers (including importers
and exporters) should buy or sell in
blocks over 10 MW.
Large users should have a demand
equal or over 100 kW.
Figure 20 shows the electric market share
in Guatemala
77

Figure 20.Chart of the electric market in Guatemala
78
4.5.2 NATIONAL ACTIVITIES IN
THE CLEAN DEVELOPMENT
MECHANISM (CDM)

The national activities within the CDM
represent opportunities to attract direct
foreign investment to significantly support
electric generation projects with renewable
sources, among other, that reduce or avoid
the emission of greenhouse gasses into the
atmosphere and thus contribute to the
sustainable development of the country.
In Guatemala the National Office for Clean
Development ONDL supports the
Resources for the projects analysis and its
contribution to the sustainable development
of the country. The Ministry of
Environment and Natural Resources due
the Governmental Agreement No. 388-2005
was legally constituted as the Designated
National Authority (DNA), responsible for
the Clean Development Mechanism.
More Information at:
Ral Castaeda Illescas
National Office on Clean Development
Natural Resources
E-mail: ondl@marn.gob.gt
TEL: (502) 242-30500
www.marn.gob.gt

Natural Resources (MARN for its
acronym in Spanish)
Is the governmental body in charge of the
formulation and execution of the policies
regarding the enforcement of the regime for
the preservation, protection, sustainability
and improvement of the environment and
the natural resources, as well as the human
right to a healthy and ecologically balanced
environment, preventing pollution, reducing
the depletion of the environment, and the
loss of our natural heritage. Regarding the
development of renewable energy, the
MARN is empowered to: Control
environmental quality, approve environmental
impact assessments EIA-, put them in practice in
the event of environmental hazards and seek for
their compliance as well as sanctioning their
incompliance
60

Carlos Abel Noriega
Direction of Enviromental Management
and Natural Resources
Resources
E-mail: canoriega@marn.gob.gt
Tel: (502)242-30500 www.marn.gob.gt

National Program on Climate Change
Natural Resources.
Upon ratifying the UNFCCC, Guatemala
carried out activities to comply with the
commitments undertaken as part of the
Convention. The first step was to sign and
ratify the Kyoto Protocol in July 1998 and
July 1999 respectively.

60
Law for the Creation of the Ministry of the
Environment and natural Resources, Art. 3


Ratification Date: March 28, 1995 through
Legislative Decree No. 15-95, the ratification
instrument was deposited at the United
Nations Secretariat on December 15, 1995.

Kyoto Protocol

Date of signing: July 10, 1998

Ratification Date: July 7, 1999,

Through Legislative Decree No.-23-99
79
It submitted the First National
Communication on Climate Change in
2001, and at the end of 2003 it created the
National Climate Change Program by means
of Agreement No. 134-2003 of the Ministry
of the Environment and Natural Resources.
The National Inventory on Greenhouse
Gasses was done through the National
Program on Climate Change, using 1990 as
the baseline year. To this date, they have
also worked on the preliminary assessment
on greenhouse gasses, based on the year
2000.
Other activities of the National Program for
Climate Change include studies and the
preparation of climate, social and economic
scenarios as part of the research on the
vulnerability and adaptation to climate
change.
Besides, regional and local strategies have
been promoted to identify, quantify and
reduce the negative impact of global
warming and the change and variance of the
climate. These activities are mainly aimed at
the energy sector, agriculture, and the
change in the use of land and forestry.
Carlos Enrique Mansilla M.
Coordinator of the National Program
on Climate Change
E-mail: eyamansi@concyt.gob.gt
cclimatico@marn.gob.gt
TEL: (502) 242-30500, ext. 2306
www.marn.gob.gt
Ministry of Energy and Mines -MEM- Is
the governmental institution in charge of
drafting and coordinate state policies, plans
and programs of the electric sub sector, and
the enforcement of the General Electricity
Law and its regulation.
61
It is also
responsible for granting the authorizations
to install the electric generating plants,
transportation services, and final

61
Ley General de Electricidad, Art. 3
distribution of electricity, and the
constitution of indefinite easements in
public and private property; prepare the
social and economic assessment reports in
order to grant the resources to fully or
partially pay electrification investment
projects and rural electrification for social
and public utility.

Jorge Alberto Asturias
Ministry of Energy and Mines
E-mail: asesor3@mem.gob.gt
TEL: (502) 24760680
www.mem.gob.gt
General Energy Directorate -DGE- Is the
dependency of the Ministry of Energy and
Mines aimed at drafting and coordinate the
State policies and plans as well as indicatives
plans, to promote the use of renewable
energy and the efficient use of energy
resources to enhance the quality of life of
the Guatemalan population. The Electricity
Department is in charge of providing the
terms of reference and gives the permissions
to allow the project developers to use the
public domain resources.
Victor Hugo Araujo
Director of Energy and Mines
E-mail: diredge@mem.gob.gt
TEL: (502) 477-0746 / 477-0747
www.mem.gob.gt/energia/index.htm
National Commission for Electric
Energy (Comisin Nacional de Energa
Elctrica CNEE) - Is the technical body
of the Ministry of Energy and Mines, which
operates independently to exercise its duties,
in charge of the following activities, among
other:
62

62
General Electricity Law, Art. 4
80
Comply with, and enforce the General
Electricity Law and its Regulation, and
impose sanctions to wrongdoers.
Seek for the compliance with the
obligations of the awarders and
concessionaires, protect the users rights
and prevent behaviors that attempt
against free competition as well as
abusive or discriminatory practices.
Define the transmission and distribution
rates, subject to regulations in
accordance with the General Electricity
Law, as well as the methodology to
calculate these.
Sergio O. Velsquez M.
National Commission on Electric
Energy, CNEE
E-mail: Sergio@cnee.gob.gt
TEL: (502) 2366-4202
www.cnee.gob.gt
Wholesale Market Manager -AMM- The
wholesale market was installed in 1998, as
the body in charge of the set of purchase
and sales operations of the energy and
potency blocks, which are carried out at the
short and long term among market agents.
Its operation is regulated by the General
Electricity Law, its Regulation and the
Regulation for the Wholesale Market
Manager (Governmental Agreement N299-
98). The management of the wholesale
market is in charge of a private non profit
entity, named the Wholesale Market
Manager (Administrador del Mercado
Mayorista AMM-). Among the main duties
of the AMM are: a) coordinate the
operations of generating plants, the
minimum cost for international
interconnections and transportation lines
for the set of operations of the wholesale
market, b) establish the short term market
prices for power and energy transfers
among generators, commercializes,
distributors, importers and exporters, when
they do not correspond to freely agreed long
term contracts, and c) guarantee the security
and supply of electric energy.
Yury Urbina
Tel: (502) 233-27901
E-mail: yury.urbina@amm.org.gt
www.amm.org.gt
National Electrification Institute
(Instituto Nacional de Electrificacin-
INDE-) was established in 1959, in
accordance with Decree N1287, as a semi
autonomous and decentralized entity of the
State. The INDE had the monopoly of the
electric service and operated as the sub
sector ruler. Currently, it participates in the
electric market as the transportation agent
through the Empresa de Transporte y
Control de Energa Elctrica -ETCEE-
providing service to all the agents of the
National Interconnected System (Sistema
Nacional Interconectado SNI-), and to the
exporters and importers. The Empresa de
Generacin de Energa Elctrica EGEE-,
is also part of the Grupo INDE. In 1994
the sub sector started its reforms with the
elimination of the monopoly and the ruling
role of INDE and in 1997 due the change in
the regulating framework of the sub sector,
INDE decided to restructure the company
carrying out processes to segregate
operations.
Julio Roberto Alvarez
National Institute of Electrification
INDE
Tel: (502) 242-21920
E-mail: jalvarez@inde.gob.gt
www.inde.gob.gt
Private Generators: As of 1992 the
Government allowed the private sector
participation in the electric generation,
several generating plants were built through
exclusive supply contracts with EEGSA and
INDE. The liberalization of the electric
81
market in 1996, opened the participation of
the private sector in the electric generation
sector, represented by the National
Generation Association (Asociacin
Nacional de Generaciones (ANG)), and
they also created the Association of
Renewable Energy Generators (Asociacin
de Generadores con Energa Renovable
(AGER)). As of 2006, the private generation
of electric energy represented around 70%
of the total energy produced in the
country
63
.
Karla Sobalvarro
National Generation Association, ANG
TEL: (502) 2333-4955
E-mail: ang@guate.net.gt
Cristhian Escobar
Association of Renewable Energy
Generators, AGER
Tel: (502) 2334-4848
E-mail: ager@ager.org.gt
www.ager.org.gt

63
Energy Statistics. Electric Sub sector, 2001-
2006, Ministry of Energy and Mines.
82
4.6 HONDURAS

Figure 21. Political Map of the Republic of
Honduras

ENERGY SECTOR
General Information

The development of the electric sub sector
in Honduras is grounded on the National
Energy Company (Empresa Nacional de
Energa Elctrica (ENEE)), the National
Energy Commission (la Comisin Nacional
de Energa (CNE)) and the Secretariat of
State for Natural Resources and the
Environment (Secretara de Estado de
Recursos Naturales y Ambiente (SERNA)),
through the Energy Directorate, which have
the specific duty to operate the system,
regulate and establish standards and
promote the electric sub sector respectively.

Currently, there is a State Commission for
Modernization, attached to the Presidency
of the Republic, that is currently analyzing
the new Regulatory Framework for the
Electric Sub Sector in Honduras, as a
continuation of the provisions set forth in
the Framework Law of the Energy Sub
sector, approved in 1994; by which it
maintained the segmentation of the ENEE
in generation, transmission, and distribution
and the promotion of the electric generation
with renewable sources, for which the
National Congress approved on June 1,
2007 the Law for the Promotion of Energy
from Renewable Sources, aimed at, among
other, fostering the investment and
development of energy projects, using
natural resources thus allowing to reduce the
dependency on imported fuels.

Generation: The electric generation installed
capacity of Honduras as of 2006 was 1,548
MW. From this total, 30% (464.4 MW) are
the ENEE hydroelectric plants, 8% (124,6
MW) ENEE fossil fuel plants, 3,9% (59,8
MW) biomass, 2,5% (38,5 MW) hydraulic
plants for the private sector and the
remaining 55,6% (860.7MW) there are
private sector fossil fuel plants. In the year
2007 the Interconnected National System
(Sistema Nacional Interconectado (SIN))
accounted a consumption of 2,515,043
gallons of diesel among the ENEE plants
and rentals, equivalent to 31% of the
consumption in hydrocarbons at the
national level. Figure 22 shows the
distribution of the generation according to
source.

Figure 22 Installed Capacity in Honduras by Source
(MW)
Trmica;
985.34
Biomasa;
59.8
Hidralica ;
502.7

Source: www.enee.hn

The current electric system of Honduras has
seven hydroelectric plants and seven fossil
fuel plants owned by the ENEE. It is
worthwhile highlight that the Hydroelectric
Plant in Francisco Morazn (El Cajn), with
an installed capacity of 300 MW represents
83
around 20% of the total generation capacity
of the country.

In addition to the ENEE plants, as of 2006
there were eight private hydraulic power
plants in Honduras (La Nieve, Zacapa, La
Esperanza, Babilonia, Yojoa, Ro Blanco,
Cececapa and Cuyamapa) with a capacity
between 480 KW and 12 MW, in addition to
four large private fossil fuel generation
companies
64
, which are: ELCOSA, EMCE,
LUFUSSA y ENERSA.

also operated by the ENEE. This system is
interconnected to the electric systems in
Guatemala and El Salvador, comprised of
the so called Tringulo del Norte (Northern
Triangle). Honduras is also interconnected
with Nicaragua, Costa Rica and Panama by a
transmission line of 230 KW.

The National Interconnected System
coordinates its operation through the
National Dispatch Center, attached to the
ENEE.

Distribution: the electric distribution is
under the responsibility of the ENEE due
to the vertical integration of the electric
sector in Honduras. As of today it covers
70.72% of the total Honduran population
(ENEE, May 2007).

Legal Framework Targeted on
Renewable Energy

Among the legislation to promote
renewable energy it is worthwhile
highlighting the 1994 Framework Law of
the Energy Sub Sector (Decree N158-94,
Published in the Official Gazette dated
November 26, 1994, Framework Law of the
Energy Sub Sector and its Regulation,
Agreement N934-97, published in the
Official Gazette dated April 4, 1998), which

64
http://www.enee.hn/sin1.htm
regulates electric energy generation,
transmission, distribution and
commercialization activities in Honduras.
This Law is deemed as a very important step
forward in the promotion of private
investment, since it allows the participation
of the private sector in both energy
generation and transmission. The following
amendments to this first effort in 1994 were
made by the Honduran National Congress
on a later date, to promote generation based
on renewable sources:

Decree N 85-98, dated April 1998, Law
for the Renewable Energy Incentives
published in the Official Gazette of
April 29, 1998

Decree N 131-98, published in the
Official Gazette dated May 20, 1998

Decree N 89-98, published in the Official
Gazette dated October 22, 1998

Decree N 267-98 published in the
Official Gazette dated December 5,
1998, containing a series of amendments
to the Incentives for Renewable Energy
Law.

Decree N 176-99, Published in the
Official Gazette dated February 23,
2000

Official Gazette dated July 4, 2000

Official Gazette dated May 21, 2001

Official Gazette dated October 14,
2003.

In order to continue with the promotion of
renewable energy, the National Congress
approved a new Law on June 1, 2007, Law
84
for the Promotion of Electric Energy
Generation with Renewable Resources
(Ley para la Promocin de la Generacin de
Energa Elctrica con Recursos Renovables)
which came to replace the Incentives Law
published in 1998. This new Law contains
fiscal incentives for energy projects
construction, production, and sales; in
addition the incentives are linked to the
kilowatt-hour prices. The incentives offered
in the 1998 Incentives Law remain in force
and longer terms and better guarantees are
offered for any new projects,
notwithstanding that the new Law has not
yet been passed and has not yet been
published in the Official Gazette.

Electric market

Honduras has been very proactive in the
promotion of its energy renewable sources
and offers one of the most attractive
incentive packages in all Central America,
with standardized long term power
purchase agreements, including tax
exemptions, an additional payment for the
energy generated by renewable energy and a
dispatch guarantee, thus expanding the
scope of incentives with this new
Promotion Law. According to the data
compiled by the BUN-CA, as of the year
2006, there were around 25 renewable
energy projects that have submitted requests
to formalize power purchase-sales
agreements for a new capacity between 150-
190 MW, distributed as follows: 90 MW
hydro, 10 MW biomass, 60 MW wind and
30 MW in geothermal.

The Honduran electric market is vertically
integrated. Every project interconnected to
the electric network must negotiate the sales
of energy with the ENEE, since it is the
only entity authorized by Law to buy energy
from private developers.

The baseline price paid by the power
purchase agreements could be a maximum
price equal to the Short Term Marginal Cost
(CMCP for its acronym in Spanish), which
remains unchanged as a reference for the
contract throughout the effective term of
the contract which can be up to 15 years,
with a 1.5% annual increase for a maximum
term of 11 years.

According to the Framework Law the
production of energy through the
construction or leasing of generating plants
or units or through any other means is
allowed. Likewise, the electric energy
generating companies private or mixed, that
use renewable and sustainable resources to
sell their production shall have the following
options:

Sell directly to a consumer or
distributing company in which case it
should build the lines needed to connect
to the national network owned by
ENEE, or pay the transmission toll
costs.

If the sale is at the initiative of a private
or public-private company, the ENEE
shall pay a maximum price equal to the
short term marginal cost, calculated by
the ENEE and approved by the
National Energy Commission (CNE for
its acronym is Spanish), plus a ten
percent incentive (10%). The dispatch
of this energy is a priority over the fossil
fuel or oil derivatives plants.

The Figure 23 shows the current electric
market of Honduras.
85
TRANSMISIN:
ENEE
COMPRADOR
NICO
(ENEE)
CONSUMIDORES
ENEE ENEE
Grandes Grandes
Usuarios Usuarios
Finales Finales
ENEE ENEE
Generacin Generacin
Privada Privada
TRANSMISIN:
ENEE
COMPRADOR
NICO
(ENEE)
CONSUMIDORES GENERACION DISTRIBUCION
TRANSMISIN:
ENEE
COMPRADOR
NICO
(ENEE)
CONSUMIDORES
ENEE ENEE
Grandes Grandes
Usuarios Usuarios
Finales Finales
Grandes Grandes
Usuarios Usuarios
Finales Finales
ENEE ENEE
Generacin Generacin
Privada Privada
ENEE ENEE
Generacin Generacin
Privada Privada
ENEE ENEE
Generacin Generacin
Privada Privada

Figure 23. Scheme of the electric market in Honduras

4.6.2 CLEAN DEVELOPMENT NATIONAL
POLICY

The CDM actions related with energy are in
charge of the Energy General Directorate
(DGE), which is part of the Secretariat of
State for Natural Resources and the
Environment (SERNA) in Honduras. The
DGE should identify the energy projects that
could be eligible for the Clean Development
Mechanism of the Kyoto Protocol.

The country has also developed a national
Greenhouse Inventory (GHI), based on the
year 1995 to calculate emission reductions.
The sectors included in the inventory are
energy, industrial processes, agriculture,
changes in the use of land and waste
management.

As of the year 2006, Honduras had 10 projects
listed in the Clean Development Mechanism,
9 hydroelectric power plants in different stages
of the projects cycle, with a total of 177,636
Tons of CO2 e/year, and 1 project for
methane sequestration with a reduction
potential of 23,023 tons of CO2e/year.

For 2007 a total of 6 projects have requested
to be recorded at the UNFCCC; 5 co-
generation with biomass projects (558,589
Tons of CO2 e/year), and 1 methane
sequestration project (13,034 Ton CO2
e/year
65
).


Secretariat of State for Natural Resources
and the Environment -SERNA- Was
created by means of the Decree N 218-96
dated December 17, 1996, published at the
Official Gazette N 28148 of December 30,
1996, with the following duties:

Formulation, coordination, execution and
assessment of the polices related to the
protection and use of the hydro resources,
the new and renewable sources of energy;
All activities related to the hydroelectric
and geothermal energy generation and
transmission, as well as the mining activity
and fossil fuel exploration and
exploitation;

65
SERNA, e-mail communication, J uly, 09,2007


Ratification Date: October 19, 1995.

Kyoto Protocol

Date of signing: February 25, 1999

Ratification Date: July 19, 2000
86
Coordination and assessment of the
policies related to the environment,
ecosystems, the national system of natural
protected areas, and national parks and the
protection of the plants and animal life; as
well as the research and control services
for every form of contamination.


Lawyer Tomas Eduardo Vaquero Morris,
Secretary of State Office
Tel: +504 235-7833
Fax: +504 232-6250
E-mail: sdespacho@serna.gob.hn

Marco Antonio Flores,
Energy General Director
Tel: +504 232 6227
E-mail: marcoaflores@yahoo.com

National Electric Energy Company
(Empresa Nacional de Energa Elctrica-
ENEE-) Created by the Decree N48 dated
February 20, 1957. It is a public autonomous
organization responsible for the electric
energy production, transmission, and
distribution in Honduras. At present the
ENEE manages the National Interconnected
System and is its main Generator, and the only
one in the fields of transmission and
distribution.


Glenda Castillo, Planning and
Development Department
Tel: +504 220-0470 / 220-0471
Fax: +504 220-0470

National Energy Commission-CNE-
Created by means of Decree N 131-98 of the
Law to Motivate Production, Competitiveness
and Support to Human Development, in
replacement of the National Energy
Commission (CNEE), and the National Public
Service Oversight Commission (CNSSP). Its
objective is to regulate electric energy
generation, transmission, distribution and
commercialization throughout the national
territory.


Isaas Aguilar, President
Tel: +504 232-6057
Fax: +504 232-4459
E-mail: isaias.aguilar@cne.gob.hn

Honduran Association of Small Producers
of Renewable Energy -AHPPER- Which is
a private, non for profit association,
incorporated in the year 2001, with the sole
purpose of promoting economic development
in the country by seeking social, economic and
environmentally effective solutions to the
various problems faced by the energy sector in
the country.


Evelyn Nuez, Executive Director
Tel/fax: +504 235-8533
www.ahpper.hn

E-mail: subdinve2@enee.hn

87
4.7 NICARAGUA

Figure 24. Political Map of Nicaragua

4.7.1 Description of the Electric Sector

General Information

The new authorities of Nicaragua enacted in
2007 the Law No. 612 Reform Law and
Addition to Law No. 290, Law for the
Organization, Competitiveness and
Procedures for the Executive Branch
(29/01/07) of the Ministry for Energy and
Mines (MEM for its acronym in Spanish).

The MEM, among other functions formulates,
proposes, coordinates and executes the
Strategic Plan and Public Policies of the
Energy Sector and Geological Resources; and
also approves standards, licenses, and
concessions. Its functions and attributions are
established in Law No. 612.

The National Electric Transmission Company
(ENATREL), the Nicaraguan Electricity
Company (ENEL) and the Nicaraguan Oil
Company (PETRONIC) are attached to the
Ministry of Energy and Mines. The
Nicaraguan Energy Institute (INE) is in
charge of supervising and regulating electric
energy industry.

Structure of the Nicaraguan Electric
Sector

The Law of the Electric Industry No. 272
(LIE, for its acronym is Spanish) contains the
General Legal Framework for the Electric
Industry. This law divides the electric sector
into three sectors: generation, transmission
and distribution.

Generation has private and public plants
especially for fossil fuels. Approximately 30%
of the oil imports and by-products are
earmarked to electric generation. Generators
can sell electricity among themselves, to
distributors, and directly to large consumers.

Nicaragua currently generates around 3,000
GWh a year, with an installed generation
capacity of 700 MW. Nevertheless, the
effective capacity in 2006 and 2007 dropped
to less than 500 MW, due to the lack of water
and failures of the generation plants.

Transmission is state owned, although
secondary transmission is not. Secondary
transmission is the one built by a market agent
to connect to the National Interconnected
System (SIN for its acronym in Spanish). The
National Electric Transmission Company
(ENATREL, for its acronym in Spanish) is the
State Company in charge of the energy
transportation through its high voltage lines of
69 KV and more, according to the toll
approved by the regulator (INE) and its
substations. The Nicaraguan transmission
network is connected to the one of Honduras
and Costa Rica through a 230 KV line. In
2009 a new 230 KV high voltage line, known
as the SIEPAC Project (Electric
Interconnected System for Central America)
will start operations.

The operation of the transmission network is
under the responsibility of the National Load
Dispatch Center (CNDC, for its acronym is
Spanish), as ENATRELs organizational
entity.
88
Distribution: is totally private, incorporating
all the lines and transformers under 69 KV
within the SIN. In the year 2000, it was
granted through a privatization process to
only one Spanish company controlled by
Union Fenosa, in association with minority
Nicaraguan shareholders.

The distribution company handles the
distribution system of the Pacific coast and
the center of the country through two
subsidiaries Disnorte and Dissur, which
together serve around 620,000 users
66
. The
Atlantic Coast is not part of the National
Interconnected Network, where private
companies can operate as electric energy
generators, transmitters and distributors.
ENEL, the state owned company, provides
most of the electric energy service in this area.

Legal framework targeted to renewable
energy

The electric sector of Nicaragua is governed
by a series of broad and itemized Laws,
Decrees and Regulations. Their texts can be
found in the Web sites of the Ministry of
Energy and Mines (www.mem.gob.ni), the
Nicaraguan Energy Institute (www.ine.gob.ni),
and at the National Assembly
(www.asamblea.gob.ni).

The Laws key to investing in the renewable
energy sector are the following: Law 217
General Environmental and Natural
Resources Law (1996), Law 261 Municipal
Law (1997), Law 272 Electric Industry Law
(1998), Law 443 Law for the Exploration and
Exploitation of Geothermal Resources (2002),
Law 467 Law for the Promotion of the
Hydroelectric sub sector (2003), Law 532 Law
for the Promotion of Electric Energy from
Renewable Sources (2005), and the
amendments to the LIE (Law 494), to the Law
for the Exploration and Exploitation of
Geothermal Resources (Law 594).

66
www.ine.gob.ni
Electric market

The LIE establishes the creation of a
Wholesale Electric Market with specific
standards which accomplishment corresponds
to all the economic agents participating in the
electric energy activities (Generation,
Transmission and Distribution), it is regulated
by the INE. This institution approves the
rates, including the distribution requests.

The CNDC functions as the intermediary
among the distributors and generators that
dispatches at the lowest marginal cost.

Each distributor has the obligation to contract
the purchase of electric energy with the
generators located within the national territory
or abroad, in order to cover a percentage of
their forecasted demand; the remaining can be
bought, or the excess can be sold at the spot
market or international markets. The
distribution companies can purchase or sell
electric energy through agreements or at the
spot market, and also can import it from
abroad. The current Law 554 for Energy
Stability, grants the INE the power to
temporarily regulate prices, also in the spot
market.

There are a total of 11 concessionaries of
electric generators, which supply the system
interconnected with Nicaragua (See Table 20).
Additionally, there are seven generation
licenses to supply isolated systems (See Table
21).

89

Table 20: Concessionary Electricity Generators for the interconnected system
Name Date of Licence
Duration
(years)
Type of generation
Power (MW)
Nicaragua Sugar Estates 21/8/98 15 Biomass-cogeneration 40
EEC 11/12/98 20 Bunker 70.5
Tipitapa Power 1998 20 Bunker 40
CENSA Dec. 1998 20 Bunker 63
GECSA 27/6/00 30 Bunker 123
GEOSA 27/6/00 30 Bunker 115
Hidrogesa 27/2/01 30 Hydroelectric 100
Monte Rosa 16/10/01 15 Biomass-cogeneration 56.5
GEMOSA 29/3/01 30 Geothermal 70
Polaris Energy 9/10/03 20 Geothermal 10
GESARSA 9/10/03 15 Bunker 6

Table 21: Licenses for Generation to Supply the Isolated Systems
Name Date of Licence
Duration (years) Type of generation
Power (MW)
EMEEA-Wiwili 17/10/9 30 Hydroelectric 1.3
ENEL (Corn Island) 4/11/9 30 D 1.2
ASOLPIC 27/3/0 30 Hydroelectric 0.03
APRODELBO (Bocay) 27/3/0 30 Hydroelectric 0.23
ATDER 27/3/0 30 Hydroelectric 0.9
Puerto Cabezas Power 16/10/0 20 B 4.5
Egomsa (Ometepe) 3/11/0 15 D 2.5

Main Actions regarding rural
electrification

The MEM is responsible for the electrification
development in rural areas, particularly in
small population communities where the
economic agents of the electric industry are
not interested in participate. Therefore, to
develop rural electrification, it is necessary to
allocate available resources through the
organisms with jurisdiction. Recent MEM data
indicate that in Nicaragua, approximately 60%
of the population has access to electric
services. In rural areas it is estimated that only
around 35 to 40% of the population have this
access.

Currently, the MEM is executing the National
Plan for Rural Electrification in Concessional
Areas (PLANERAC), through the Nicaraguan
Fund for the Electric Industry Development
(FODIEN), which has a short term
electrification program, with defined projects
in the area of concession for the private
distributing companies.

90
Likewise, the strategy for the electrification of
rural areas that do not have concessions,
PLANER-ANC, was developed with the
support of the Inter American Development
Bank (IADB), aimed at developing
electrification in isolated areas outside the
Disnorte-Dissur area of concession. This
strategy includes, among other, the
implementation of at least two rural
electrification projects using renewable energy
resources. This strategy includes the following
programs, among other: Rural Electrification
Program in Isolated Areas (PERZA) World
Bank, Hydroelectricity Development at Small
Scale for Productive Uses in Areas Outside
the Network (PCH) - UNDP.

4.7.2. National CDM Policy

As of 1990, the Government of Nicaragua
started an energy reform process to insure the
reliable and efficient energy supply, and
promote economic efficiency in the energy
sector to attract the necessary resources for
the expansion of the electric energy
infrastructure. This process ended in April
1998, with the approval of the Law N272
Electric Industry Law (Ley de Industria
Elctrica (LIE))
.
Nicaragua, upon the ratification of the Kyoto
Protocol and the United Nations Framework
Convention on Climate Change, agreed to
prepare a national inventory of Greenhouse
Effect Gases (GHE), to fulfill the following
purposes: identify the processes that release
and extract Greenhouse Effect Gases; identify
the actors that produce these emissions and
the amounts produced; prepare and submit
the basic reports demanded by the agreement
and learn and obtain complementary
information on climate change, economy,
metering methods, etc.

Nicaragua completed its first National GHE
Inventory with the support of the World
Environmental Fund (FMAM-GEF), through
the United Nations Development Program
(UNDP), using the established guidelines.
This instrument reflects the status of
emissions, as well as the capacity of GHE
absorption by the country, using 1994 as the
base line year. The outcome of the study
shows that the forestry sector and the change
in the use of land represent the greatest source
of carbon dioxide emissions and at the same
time the maximum GHE absorption of the
country; therefore it establishes that Nicaragua
is a carbon pool country mainly due to the
natural regeneration of the vegetation.

Clean and Renewable Energy Potential

Nicaragua has a high potential for renewable
and clean energy resources. Among these
resources we can find the following: Hydro
energy, geothermal, biomass, wind and solar
energy.

The hydroelectric potential of projects over
10MW is estimated at 3,212 MW in 60
identified sites.

The exploitable geothermal potential is
estimated at 5,000 MW, concentrated in the
fields along the volcanic area of the Pacific
Coastline.

With regard to wind resources, it is estimated
that around 800 MW, are located mainly in
Rivas and Chontales. Nevertheless, the
Atlantic Coast has great wind potential and
the IADB is supporting an assessment to
define this potential in Bluefields, Monkey
Point, Puerto Cabezas and Laguna de Perlas.

The biomass resource has been estimated at
200 MW, but limited to the Nicaraguan Pacific
area. A higher potential is found in the

UNFCCC Ratification
Signing date: June 13, 1992
Ratification Date: October 31, 1995

Kyoto Protocol
Signing date: July 7, 1998
Ratification date: November 18, 1999
91
Atlantic area, where the land can be used to
plant African Palms.

Solar energy is mainly produced in the Pacific
and Central area. A solar map of Nicaragua
was developed by the Central American
University (UCA) and the INE, which allows
optimizing this resource to apply solar
systems.

National Office for Clean Development
and Climate Change

Thanks to the support of the
UNDP/Nicaragua, the National Office for
Climate Change and Clean Development
(ONDL for its acronym in Spanish) was
created in 2002, as an entity attached to the
Ministry of the Environment and Natural
Resources (MARENA). This entity is
governed by a Board of Directors with the
participation of the public sector and civil
society. The office was accredited as the
National Designated Authority for the Clean
Development Mechanism in charge of the
governmental authorizations for CDM
projects.

One of the main priorities of this office is to
facilitate the entry of Nicaragua into the
carbon market. It currently offers technical
assistance to project developers and promotes
the creation of national capabilities to use this
new financial instrument on climate change
mitigation projects.

Nicaragua has undersigned Memorandums of
Understanding (MOU) to facilitate the
transaction of carbon certificates with the
Netherlands, Finland, Canada and Denmark.
In addition, it carried out a national firewood
survey aimed at characterizing firewood
production, commercialization and supply, to
assess its impact on the environment and the
forests.

The Office has developed a simple and quick
process to give the governmental
authorizations required by the CDM projects.
The process is detailed in the ONDL Web
site: http://www.ondl.gob.ni/

Besides, the National Climate Change
Council was set up as a multi-sector
organization with the participation of the
public sector, civil society and academic
institutions and organizations. The Council is
a consultation organism in this matter.

Examples of Renewable Energy Projects

The Ministry of Energy and Mines, with the
financial support of the Global Environment
Fund (GEF) through the UNDP, has
launched a national project called: Small Scale
Hydroelectric Development for Productive
Uses in Areas outside the Network. The
purpose of the project was to reduce the
emission of the Greenhouse Effect Gases
(GHE) caused by the use of fossil fuels in
electric generation for productive uses in the
rural areas not integrated into the National
Interconnection System (SIN for its acronym
in Spanish).

A total of 30 sites with sufficient potential
(9MW) to develop projects associated with
productive uses were pre selected out of the
potential sites identified within the country.

Relevant Organizations

Ministry of Energy and Mines, (Ministerio
de Energa y Minas (MEM))

Emilio Rapaccioli, Minister
Tel: +505 222-5576
Fax: +505 222-4629
www.mem.gob.ni

Lorena Lanzas, Vice Minister
Tel: +505 222-5576
Fax: + 505 222-4629
www.mem.gob.ni

Donald Espinosa, Executive Secretary
Tel: +505 222-5576
Fax: +505 222-4629
92
E-mail: donald.espinosa@mem.gob.ni
www.mem.gob.ni

National Electric Transmission Company
(Empresa Nacional de Transmisin
Elctrica S.A., ENATREL))

Salvador Mansell, General Manager
Tel: +505 277-4159

Nicaraguan Electricity Company
(Empresa Nicaragense de Electricidad,
ENEL)

Ernesto Martnez Tiffer, Executive President
Tel: +505 278-5830, 270-1044, 270-1066
Fax: +505 267-4377

Nicaraguan Energy Institute (Instituto
Nicaragense de Energa, INE)

David Castillo
Tel: +505 228-2057 / 228-2058
Fax: +505 222-7052
www.ine.gob.ni

Ministry of the Environment and Natural
Resources (Ministerio del Ambiente y
Recursos Naturales, MARENA)

Lic. Juana Argeal Sandoval, Minister and
Coordinator CDM and CC
Tel: +505 263-2596 / 233-1868
Fax: +505 263-2596
www.marena.gob.ni/cambioclimatico

In the Table 22 there is a list of contacts in
Nicaragua.
Table 22: List of contacts, consultants and providers
Name
Institution or
Company
Position or Specialiyt
Telephone
(505)
E-mail
Fernando
Snchez
Ministerio de Energa
y Minas
Polticas y Planificacin
222-5576
fernando.sanchez@mem.gob.ni
Rodolfo Lpez Centro Nacional de
Despacho
Director General 276-0533
276-0501
gerencia@cndc.org.ni
Leonardo
Mayorga
Prolea Desarrollo de Proyecto 249-0116
278-7252
prolena@sdnnic.org.ni
prolena.renovable@sdnnic.org.ni
Roberto Vargas Industria GEMINA,
SA
Desarrollo de Proyecto
249-1129
gemina@gemina.com.ni
Rebeca Leaf Atder-BL Desarrollo de Proyecto,
PCH
6122030
atder@ibw.com.ni
Maria Engracia
de Trinidad
Prolea Desarrollo de Proyectos,
polticas, financiamiento
278-7252
278-2257
prolena.renovable@sdnnin.org.ni
Csar Barahona Centro de Produccin
ms Limpia
Polticas Eficiencia
Energtica 279-3136
ceb@ibw.com.ni
cpmlnic@cpmlnic.org.ni
www.cpmlnic.org.ni
Bo Ekstrand EFICONTROL Desarrollo de Proyecto
eficiencia energtica
268-2413
266-0697
eficon@ibw.com.ni
Leonie Argello PNUD Desarrollo de Proyectos 266-1701 leonie.arguello@undp.org
Patricia
Rodrguez
Rivera
MULTICONSULT Consultores
278-2530
278-0639
multiconsult@ibw.com.ni
Susan Kinne Grupo FENIX, UNI Desarrollo de Proyectos
278-3133
fnix@fec.uni.edu.ni
www.grupofenix.org
Francisco Lpez PETRONIC Presidente Ejecutivo 267-2130 fcl@ibw.com.ni
Leopoldo Jos
de la Jara
SINTER Suplidor
278-0177

Vladimir
Delagneu
Tecnosol Suplidor 249-9871
Luis Lacayo
Lacayo
Ecami Suplidor 276-0925
276-0252
ecami@ibw.com.ni
Jurgen Kulke Altertec Suplidor 265-0693 altertec@ibw.com.ni
www.alcatel.com
93
4.8 PANAMA

Figure 25: Political Map of Panam

4.8.1. DESCRIPTION OF THE ENERGY
SECTOR

General Information
Law 6 dated February 3, 1997 enabled the de-
regularization and privatization of the Electric
Sector of Panama, and also dictated the
Regulatory and Institutional Framework to
Render Public Electricity, and it was created the
Energy Policy Commission (Comisin de Poltica
Energtica (COPE)) attached to the Ministry of
Economy and Finance, whose purpose is to draft
global policies and define the energy sector
strategy. The Law was amended in 1998, to
encompass an energy market driven by
commercial participants capable of generating,
selling, and buying energy by means of
agreements and in the spot market.

The State of Panama had four main goals in
mind while designing the market: 1) promote
competition and efficiency; 2) enhance energy
coverage, quality and service; 3) regulate the
distribution and transmission services, and 4)
improve environmental quality. Based on the
foregoing, and protected by the above mentioned
Law, the State of Panama sold 51% of the fossil
fuel generation company shares, 49% of the
shares of the hydraulic generation companies and
51% of the shares of the electric distribution
companies. As far as transmission concerns, the
State kept 100% of the shares of the electric
transmission company, in charge of the Electric
Energy National Dispatch Center (Centro
Nacional de Despacho(CND)).

Figure 26 describes the privatization process of
the former electric sector in Panama, which was
former a state owned company, and was divided
into three large blocks.

Generation: Panama has two types of generating
plants: hydroelectric and fossil fuel. The main
hydroelectric plants are: Fortuna, Est, La
Estrella and Los Valles (located in the provinces
of Chiriqu), and Bayano located in the Province
of Panama. The main fossil fuel electric plants
are Baha Las Minas, located in the province of
Coln; Pedregal Power, Pan Am and COPESA
located in the Province of Panama.

Generators located in Panama participate in
generation; as well as self-generators and co-
generators located in Panama that sell energy
surpluses; and the companies that trade
generation form other countries and sell it in
the Wholesale Market of Panama through
international interconnections.

Between the years 2000 and 2006, energy
consumption grew up to 4.7%. The total
installed capacity as of 2006 was 1,541 MW, of
which 87.6% (1,349.25 MW) corresponded to
public service plants, 11.7% (179.80 MW) to
self-generating plants connected to the National
Interconnected System (Sistema Interconectado
Nacional (SIN)) and 0.82% (12.6 MW) as part
94
of the isolated generation systems. Of this total,
55.33% (852.50 MW) corresponded to
hydroelectric plants, while 44.67 % (688.3 MW),
to fossil fuel plants.

Transmission: Panama is interconnected to Costa
Rica and consequently to Central America. The
transmission system is property of the State
owned public Electric Transmission Company
(Empresa de Transmisin Elctrica, S.A.
(ETESA)).

Total gross generation in 2006 was 5,989.4 MW,
a figure that includes total production of self
generators and generators in isolated areas. In
2006, the average electricity price was
$0.1619/KWh and the SINs peak demand was
971.34 MW.

Distribution: Electric distribution in Panama is
under the responsibility of three private
companies that emerged when the former
IRHE sold its assets: Empresa de Distribucin
Elctrica Metro-Oeste, S. A., Empresa de
Distribucin Elctrica Chiriqu, S.A., and
Empresa de Distribucin Elctrica Elektra
Noreste, S.A.

The electric sector of Panama is supported on
the National Dispatch Center (Centro Nacional
de Despacho (CND)), the National Authority
for Public Utilities (ASEP)), the Commission
for Energy Policies (Comisin de Poltica
Energtica (COPE)) and the Office for Rural
Electrification (Oficina de Electrificacin Rural
(OER)).

Actual Actual
MERCADO ELCTRICO
Ente Regulador Ente Regulador
( ER ) ( ER )
Comisin de Comisin de
Poltica Energtica Poltica Energtica
( COPE ) ( COPE )
EMPRESA DE TRANSMISIN ELCTRICA EMPRESA DE TRANSMISIN ELCTRICA
Y DESPACHO DE ENERGA Y DESPACHO DE ENERGA
EMPRESAS DE DISTRIBUCIN EMPRESAS DE DISTRIBUCIN
ELEKTRA
NORESTE
METRO-OESTE CHIRIQU
Antes Antes
EMPRESAS DE GENERACIN EMPRESAS DE GENERACIN
BAHA
LAS MINAS
HIDRO
BAYANO
HIDRO
CHIRIQU
HIDRO
FORTUNA
Otros
Generadores
Independientes
Generacin
G
G
T
T
Distribucin
D
D
Transmisin
I RHE I RHE
OER OER
Elect. Rural Elect. Rural
Actual Actual
MERCADO ELCTRICO MERCADO ELCTRICO
( ER ) ( ER )
( ER ) ( ER )
( COPE ) ( COPE )
( COPE ) ( COPE )
ELEKTRA
NORESTE
METRO-OESTE CHIRIQU
ELEKTRA
NORESTE
METRO-OESTE CHIRIQU METRO-OESTE METRO-OESTE CHIRIQU CHIRIQU
Antes Antes
BAHA
LAS MINAS
HIDRO
BAYANO
HIDRO
CHIRIQU
HIDRO
FORTUNA
Otros
Generadores
Independientes
BAHA
LAS MINAS
HIDRO
BAYANO
HIDRO
CHIRIQU
HIDRO
FORTUNA
Otros
Generadores
Independientes
Generacin
G
G
T
T
Distribucin
D
D
Transmisin
Generacin
G
G
T
T
Distribucin
D
D
Transmisin
I RHE I RHE
OER OER
Elect. Rural Elect. Rural

Fuente: Comisin de Poltica Energtica (COPE)

Figure 26. Change in the structure of the electric sector in Panama.

Legal Framework Targeted on Renewable
Energy.

The main electric sector legislation of Panama,
focused on renewable energy is:

Law N 26 dated January 29, that creates the
Public Utilities Regulator Entity, later re-
structured and renamed as the National
Authority for Public Utilities through Decree
Law 10 dated February 22, 2006.
Executive Decree N 279 dated November 14,
2006, by which the single text of Law 26,
dated January 29, 1996, was adopted, added
and amended by means of Decree Law dated
February 22, 2006.
Law 6 dated February 3, 1997, that states the
Regulatory and Institutional Framework for
the Rendering of Public Electricity (Marco
Regulatorio e Institucional para la Prestacin
del Servicio Pblico de Electricidad) creating
Autoridad Nacional de
los Servicios Pblicos
(ASEP)
95
the Commission for Energy Policies
(Comisin de Poltica Energtica (COPE)). In
Article 155 of this Law, it states that "It is the
Interest of the State to promote the use of
new and renewable energy sources, in order to
diversify the electric sources, mitigate the
negative environmental effects, and reduce the
dependency of the country on traditional
fuels..."
Decree N 29 dated August 27, 1998, by which
the Office for Rural Electrification was
created and its later move to the Social
Investment Fund (FIS) building, through
Executive Decree No.141 dated October 7, 1999.
Law N45 dated August 4, 2004, that establishes
an incentives regime to promote hydroelectric
and other new, renewable and clean
generation systems, besides other provisions.
Resolution N JD-760 dated June 5, 1998, by
which the Quality Standards for Electric
Consumption Metering were approved.
Decree N 22 dated June 19, 1998, by which Law
No. 6 dated February, 1997 was regulated.
Resolution N JD-101 dated August 27, 1997
and its Amendments, by which the Regulation
of the Rights and Duties of Public Utilities
Users was created.

Electric Market

The wholesale electricity market includes the
Agreements and Spot Markets, becoming the
mechanism for sell and buys energy and/or
power purchase sale among the producers
and consumer agents (distributors, large
customers and exports).

The basic model adopted establishes
competition in electric energy production at
the wholesale level. Distributors and large
consumers can make direct purchases from
producer agents, while distributors use the
captive final users market within their area of
concession. This structure entered into effect
in July 1998 and its management was
entrusted to the National Dispatch Center or
CND (for its acronym in Spanish)

The CND manages the Electric Wholesale
Market based on the Commercial Rules
approved by the former Regulator of Public
Utilities, now called National Authority for
Public Utilities (ASEP).

The contracts market establishes the contracts
agreed upon for the mid and long terms
among the Electricity Wholesale Market
Participants. There are two types of contracts
in this market: Energy and/or power purchase
sales contracts among Producer and
Consumer Participants. These contracts may
have the following variables: exclusively
power, exclusively energy, and power and
energy.


In Article 79 of Law N41, General
Environment Law, Panama acknowledges that
carbon sequestration is an environment service
provided by forests. Therefore, the country
establishes the mechanisms to obtain the
economic and financial gains promoted by the
flexible energy mechanisms contained in the
Kyoto Protocol.

UNFCCC Ratification
Signing date: March 18, 1993
Ratification Date: May 23, 1995

Kyoto Protocol
Signing date: June 8, 1998

atification date: March 5, 1999
96
Figure No. 27 presents the map of CDM projects in the Republic of Panama.
Elicos
Hidroelctricos
Captacin
Reforestacin
Biomasa
Transporte
Elicos
Hidroelctricos
Captacin
Reforestacin
Biomasa
Transporte
Elicos
Hidroelctricos
Captacin
Reforestacin
Biomasa
Transporte
Source: National Environmental Authority. www.anam.gob.pa (Wind, Hydroelectric, Tapping, Re-forestry, Biomass,
Transportation

The National Environment Authority is the
Climate Change Focal Point, and the
Designated National Authority (DNA) of
Panama at the CDM Executive Board, whose
responsibility falls on the figure of the Deputy
Manager:

Eduardo Reyes, Deputy Manager ANAM
E-mail: e.reyes@anam.gob.pa
Tel: (507) 500-0800 / 500-0867
Fax: 500-0800
http://www.anam.gob.pa

The National Environmental Authority
(ANAM, for its Acronym in Spanish), is not
only responsible for drafting, coordinating, and
overseeing the execution of the climate change
national policy, but also has created the
National Climate Change Program of the
ANAM, in accordance with Resolution NAG-
00402001, dated February 14, 2001, with the
functions to assist in the execution of the
activities and commitments undertaken by the
Republic of Panama through the ratification of
the United Nations Framework Convention on
Climate Change and the Kyoto Protocol. As of
2006 the ANAM has the Climate Change and
Desertification Unit (UCCD for its acronym in
Spanish) within the Operational Structure of
the ANAM.

One of the duties of the UCCD is to continue
with the implementation of the National
Climate Change Program of Panama, which
encompasses the National Inventories and
Mitigation of the Greenhouse Gasses effect.
This component has the national inventory of
Greenhouse Effect Gasses, and is also in
charge of keeping a record of the national
activities of mitigation projects, endorsed and
periodically certified; these have to be
submitted by the ANAM to the International
Institutional Regime by the ANAM, through
National Communications.

Figure 27. Map of the CDM Projects in the Republic of Panama.
97
This sub program was the beginning and
design of and implementation of the countrys
CDM strategy, by including a promotion
component for projects that are qualified to
participate in the international carbon market.
In the Table 23, shows the total of 107 CDM
projects:

Table 23. CDM Projects in Panama
Type Amount CERs/year
Hydroelectric 82 6537991.84
Solid Wastes
Management
7 1763819.00
Transportation 2 25680600.00
Biomass 3 483750.00
Wind 11 1886160.00
Energy Efficiency 2 26528.00
Total 107 36,378848.84
Source: ANAM 2007
Panama already has 5 projects registered at the CDM Executive Board, these appear in Table 24:
Table 24. CDM Registered Projects in Panama
Project Capacity
MW
CERs/year
Los Algarrobos
Hydroelectric Plant
9.73 42,660
Dolega
Hydroelectric Plant
3.12 13,679
Concepcin
Hydroelectric Plant
10 10,522
Macho de Monte
Hydroelectric Plant
2.4 43,844
Paso Ancho
Hydroelectric Plant
5 19,000
Total 30.25 129,705
Source: ANAM 2007
Three projects are in the pipeline to be registered at the CDM Executive Board, please see Table 25:
Table 25. Projects to be registered at the CDM
Project Capacity,
MW
CERs/year
Est Hydroelectric Plant
111.50 326,496
Bayano Hydroelectric Plant
86.00 31,635
Fortuna Hydroelectric Plant
9.00 13,709
Total 206.50 371,840
Source: ANAM 2007
98
It is important to mention that the promoters of
the projects that have qualified as CDM, have
voluntarily committed themselves to carry out
development projects for the communities in
their projects for amounts around 20% and
30% of the income earned from the CERs
annual sales. Consequently, CDM projects
represent a great contribution for the
sustainable development of the country. It is
worthwhile highlighting that this has become a
key factor for society to accept these projects,
because once included the citizen participation
component, the near communities have a
greater opportunity to receive more expedite
contributions that will improve their sustainable
development and their quality of life.
Local Registry Process:
Panama has a local CDM Project registry
process, with the following steps (see Table 26):

Table 26. Process for the Registry of CDM Projects in Panama
Acti vity Responsible
1. Project Initial Idea.
Promoter
2. Proceedings with the corresponding authorities to fulfill legal requirements to
operate program activities (E.g.: licenses, permits, concessions, etc.)
Promoter
3. Submit the following requirements before the ANAM. (Forms available at the
ANAM Web page: www.anam.gob.pa)
3.1 PIN-Project Idea Note (World Bank version)
3.2 Community Benefits Questionnaire (Community Development Carbon Fund
version)
3.3 Registry of Project Impact Assessment or the Environmental Audit. and its
PAMA.
Promoter
4. Issuance of the Letter of Non Objection once it enters the EIA or the
respective PAMA (15 days)

ANAM AND
5. Issuance of the Letter of Complacency once the Environmental Impact
Assesment or the respective PAMA is approved (5 days)

ANAM AND
6. Submission of the Project Design Document (PDD) together with the
approved EIA or PAMA resolution and the Report of Validation.
Promoter
DOE
7. Issuance of the Letter of Approval (15 days)
(Letter of Approval)
ANAM - AND
Source: ANAM 2007


Energy Policy Commission -COPE- Was
created by the Law N6 dated February 3,
1997, and this establishes the Regulatory and
Institutional Framework for the Rendering of
Public Electricity, which is an entity attached
to the Ministry of Economy and Finance,
with the aim of drafting global policies and
define the energy sector strategy in Panama;
its main objective is to foster the supply of
reliable, diversified energy at the lowest cost
by promoting the efficient use and
development of renewable energy resources
in an environmentally sustainable manner,
increasing coverage and respecting the legal
security of investments.

More information at http://www.mef.gob.pa/cope/

National Environmental Authority -
ANAM- Created by means of Law N41
dated July 1, 1998, as the State autonomous
entity that rules natural resources and the
environment to insure the compliance and
enforcement of the laws, regulations and
99
national environment policies. It is under the
Presidency or the Republic through the
Ministry of Planning and Economic Policy.

More information at: http://www..anam.gob.pa

National Public Utility Authority -ASEP-
Former Regulator of Public Utilities and
current National Authority of Public Utilities
as a State autonomous organization, in charge
of controlling and overseeing water and
sewage, sanitation, electricity,
telecommunications, radio and television
utilities, as well as the transmission and
distribution of natural gas, subject to the
provisions of the Law and the respective
public utilities standards in force.

More information at: http://www.ersp.gob.pa/electric

Rural Electrification Office OER- Is a
State entity that operated linked to the Social
Investment Fund (FIS), attached to the
Ministry of the Presidency. The OER has the
mission to promote electrification in the rural
non profitable, isolated, and without a
concession areas; assess the options for the
rendering of the service in the respective area,
through market mechanisms, according to
their possibilities, understanding that the best
option is the one that requires the lowest
initial investment subsidy by the State.

More information at: http://www.fis.gob.pa

100
5 I NTERNATI ONAL CARBON MARKET
This Chapter explains briefly the current state and likely future trends of the international carbon market. Emphasis is
given to the project-based transactions, especially to Certified Emission Reductions (CERs).
5.1 Background
Because of existing or expected regulations or
for voluntary reasons, many governments and
companies have started to implement measures
to reduce greenhouse gas emissions.
Greenhouse gases are not local pollutants; they
mix up high in the atmosphere affecting the
thermal balance of the earth. Therefore for the
global climate change the impact of one tonne
of CO
2
emitted in Finland is equal to one tonne
emitted in Central America. This phenomenon
is the basis for the development of the so-
called international carbon market, where either
emission allowances or emission reductions
(such as Certified Emission Reductions) are
traded.
The carbon market can be divided at least in
two ways. As to the tradable commodities, they
can be either:
Emission allowances under a cap-and-trade
scheme; or
Emission reductions based on specific
projects.
Assigned Amount Units (AAUs) allocated to
Annex I countries under the Kyoto Protocol
and the European Emission Allowances
(EUAs) allocated to European companies
under the European Union Emissions Trading
Scheme (EU ETS) are examples of emission
allowances. In both cases, a cap is given for
emissions and an amount of allowances
corresponding to that cap is allocated. In the
case of the Kyoto Protocol, the Annex I
countries have a defined Assigned Amount,
which is the cap of the greenhouse gas
emissions for a country; in the case of the EU
ETS, the companies included in the scheme
have an established cap based on the national
allocation plan. In a cap-and-trade system a
participant, whose emissions are below its
allocated amount, can sell the excess allowances
to a participant whose emissions exceed its
allocated amount. In the end of a budget period
a participant must always surrender allowances
corresponding to its actual emissions.
Emission reductions are tradable commodities
that are based on a hypothetical baseline, i.e.
what would have happened in the absence of
an emissions reduction project that was
implemented. Joint Implementation (JI) and
Clean Development Mechanism (CDM) in the
Kyoto Protocol are examples of project-based
emission reduction mechanisms.
Another way to divide the carbon market is
based on the regime where the carbon
commodities are used. In this way, the tradable
commodities can be divided for example in
Kyoto-compliant and non-Kyoto-compliant
instruments. Non-Kyoto-compliant tradable
instruments include for instance verified
emission reductions (VERs) used voluntarily by
some companies for marketing purposes, for
demonstrating good corporate citizenship, or
for developing special climate-neutral
products or brands. Also regulations in
countries not intending to ratify the Kyoto
Protocol (notably some States in the USA and
Australia) create markets for non-Kyoto-
compliant carbon commodities.
Another environmental commodity which has
a lot in common with emission allowances and
emission reductions is the green electricity
certificate or guarantee of origin. This market is
based on certificates or guarantees which are
given to electricity producers using renewable
sources for power generation. Often one
certificate is given for each megawatt-hour of
electricity generated from renewable source.
These certificates are then traded both in
voluntary and in regulatory markets. More
information on renewable certificates can be
found at www.recs.org.

101
In the following, the carbon market is analysed
with a special emphasis on the market for
Certified Emission Reductions (CERs)
generated by CDM projects.
5.2 Volume of the Carbon
Market
After first known carbon transactions occurred
in 1995 global, carbon market has grown year
after year. Figure 28 illustrates the development
of global carbon market in terms of volume of
CO2e traded since 2000.
Figure 28. Development of the volume of the carbon
transactions in terms of volume of CO2e traded.
Figures in million of tonnes. Contracted volumes 2004-
2006 (Q1-Q3),. Source: World Bank. State and Trends
of the Carbon Market 2006.
0
200
400
600
800
1000
1200
2004 2005 2006 (Q1-Q3)
M
t
O
2
e
CDM
JI
UK-ETS
CCX
NSW
EU ETS

In 2006, financial value of the market was EUR
some 26 billion. This is almost seven times over
the value in 2004. In 2006, the share of the
CDM projects was about EUR about thee
billion.
In 2005, launching of the European Emissions
Trading Scheme (EU ETS) increased especially
the financial value of the global carbon market
on completely new level. During the year, the
EU ETS market volume exceeded EUR 5.4
billion. In 2006 the EU ETS market continued
to grow and its value was some 23 billion
euros. One reason for the financial value of EU
ETS being so high, was relatively high prices of
allowances in 2005 and early 2006 (see also
section 5.3.1). In terms of CO2 traded, the
volume of EU ETS market was over 260
million tonnes in 2005 and over 800 million in
2006.
Establishment of the EU ETS also increased
demand for project based emission reductions.
The future development of the global carbon
market depends naturally on the supply and the
demand in the market.
Years of speculation as to whether or not the
Kyoto Protocol would enter into force ended,
when Russia announced that it would ratify the
Protocol in October 2004. When the Protocol
entered into force on 16 February 2005, the
Annex I countries was set legally binding
emission targets for Annex I countries for the
period 2008-2012. It has been estimated that
Annex I countries have to reduce their
emissions or purchase emission reductions (or
allowances) about 3800-5000 MtCO2e in the
period 2008-2012 to meet their Kyoto
obligations. From this demand about 1500-
2100 MtCO2e is estimated to come from EU
15 countries and the rest from the other Annex
I countries.
It has been estimated that the potential supply
on the carbon market will be 5300-11000
MtCO2e in period 2008-2012. The estimated
supply contain emissions reductions potentially
supplied trough clean development mechanism
(1750-3150 MtCO2e), joint implementation
(250-750 MtCO2e) and international emissions
trading (4200-7000 MtCO2e). The largest CDM
countries will potentially be China, India,
Brasilia, Mexico and South Korea.
Nevertheless, estimates on the global supply
and demand are uncertain and there are several
factors affecting the supply and the demand.

5.3 Byers and Sellers in the
Carbon Market
As said earlier, the shift in the projects has been
towards Kyoto compliance projects, which
means that the majority of the projects is today
implemented either in the developing or the
transition countries.
Figure29 shows the location of the projects in
volume terms. It can bee seen that the leading
areas are Asia and Latin America. Largest

102
individual country is India, which currently
accounts nearly third of the volume.
The largest buyer by far is EU and the second
largest is Japan (Figure30). These two areas
accounted together over 80 % of volume
purchased during January 2004 April 2005.
During the period, private firms purchased
two-thirds of the total volume. Governments
purchased the rest. Governments demand for
emissions reductions is estimated to grow
rabidly, because of countries obligations to
fulfil their Kyoto targets.

Figure 29. Location of emission reduction projects (share of volume of ERs supplied). Source: the World Bank.
State and Trends of the Carbon Market 2006. (www.carbonfinance.org).

Figure 30. Market buyers (share of volume of ERs purchased). Source: the World Bank. State and Trends of the
Carbon Market 2006. (www.carbonfinance.org)
January 2005 - March 2006
January 2004 - December 2004 January 2005 - March 2006
January 2004 - December 2004

103
CERs in the EU Emissions Trading
Scheme
EU ETS is the worlds largest carbon market.
The Scheme drives the European private firms
demand for emissions reductions, because the
linking directive links CERs from CDM
projects and ERUs from JI projects into the
Scheme.
The scheme was launched in the beginning of
2005. It covers about 11,500 installations in
energy, cement, metal, pulp and paper and
other industries. Within the scheme some 2.2
billion EU emission allowances (EUAs) are
allocated annually during the first trading
period 2005-2007.
Figure31 shows the price development of
EUAs. Trading with forward contracts of
EUAs started well before 2005. During 2003-
2004 the price was under 10 most of the time.
In February 2005, few weeks after the scheme
was launched, the price started rising. After few
months of trading the price achieved 20. At
highest emission allowances were traded at
31. The publication of the verified emission in
May 2006 showed that there is significant
surplus of allowances in the phase 1 (2005
2007) lead to collapse of the carbon prices. The
decline has continued and in the February 2007
emission allowances are traded between 12.

The Price development of emission allowances (forward)
0.00
5.00
10.00
15.00
20.00
25.00
30.00
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Week
E
u
r
o
s
/
t
o
n
n
e

C
O
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
T
h
o
u
s
a
n
d

t
o
n
n
e
s

C
OTC Volume 2005 OTC Volume 2006 OTC Volume 2006
2005 2004 2003
2006 2007

Figure 31. Price development and trading volume for the EU Allowances (EUAs). Source: GreenStream Network
Ltd.
The ETS directive recognizes the need to link
project-based emission reductions, such as
CDM and JI, into the EU ETS. The exact rules
are set out in the so-called linking directive,
which amends the EU ETS directive. The
linking directive was formally approved on 13
September 2004 and official published in 13
November 2004 by the Council of European
Union. After the publication, the EU member
states had 12 months to implement the changes
required by the linking directive. Nevertheless,
many member states have not implemented the
directive still in the beginning of 2007. That is
partly caused by the fact that implementing of
the directive have certain links in the member
states allocation plans for EUAs for the period
2007-2012, which are still under preparation.
The principal features of the linking directive
are:

104
EU member states may allow companies to
use CERs for compliance starting from
2005 and ERUs starting from 2008. CERs
and ERUs are converted into EUAs in the
national registry and the resulting EUAs are
immediately redeemed for compliance
purposes;
CERs from nuclear projects are excluded,
as well as tCERs and lCERs from sinks
projects for the time being;

Hydroprojects exceeding 20 MW must
fulfil the guidelines of the World
Commission on Dams;
Each member state must establish a
maximum amount of CERs and ERUs
which may be used as a percentage of the
initial allocation for each installation during
the period 2008-2012.
5.4 Technologies in the Projects

Figure32 shows historical the distribution of emission reduction projects contracted among different
technologies.
Figure33 shows forecast of the distribution
until 2012.
It can bee seen that HFC (Hydrofluorocarbons)
projects had the largest share followed by
animal waste, hydropower and biomass related
projects. Animal waste related projects have
increased most of their share from the previous
period. The renewables based projects are
estimated play more and more significant role.
The share of HFC-23 related projects is not
estimated to grow beyond 2008, because there
is limited number of targets for those projects.
The large share of HFC projects is mainly due
to the enormous Global Warming Potential
(GWP) of these greenhouse gases. For example
HFC23 (has a GWP of 11,700 (each tonne of
HFC23 corresponds to 11,700 tCO2e, most of
the HFC-projects base on decomposition of
HFC23).

Figure 32. Technology share of emission reduction projects (in percent of total volume contracted). Source: the
World Bank. State and Trends of the Carbon Market 2004. (www.carbonfinance.org). LFG = Landfill Gas, HFC =
Hydrofluorocarbons, LULUCF = Land-use, Land-use Change and Forestry.

January 2004 - December 2004
January 2005 - March 2006

105
Figure 33. Total forecasted volume of issued credit by 2012 from different CDM & JI project types, in Mt CO2e
Source: Point Carbon. Carbon Market Analyst. 16 December 2005.

5.5 Current situation of the
projects
In every week there is drawn up several PDDs.
Until the end of the 2005, those documents
had been drawn up already concerning well
over 800 CDM and JI projects. These projects
are to produce emissions reduction of over
1100 MtCO2e by the end of the 2012,
Nevertheless, it have been estimated that 40 %
of volume illustrated in PDDs is not going to
realize.
For now, only a little share of those potential
projects has been registered. CDM executive
board registered the first CDM project in 18
November 2004. Before July 2005, only 10
projects were registered. Since the registration
of projects seems to gotten more speed; until
the beginning of February 2006, the board had
registered 86 CDM projects. The projects
registered already are to produce 30,4 million
tonnes of emissions reductions annually.

5.6 Non-Kyoto Regimes
Besides of the Kyoto Protocol (and EU ETS
which is legally independent of Kyoto but
closely tied to it), there are some other markets
for verified emission reductions. Generally, the
prices paid in these markets are lower than the
prices for CERs (except maybe for some
segments of the retail market). On the other
hand, the rules and regulations for the
verification of the emission reductions may also
be easier to fulfil. The largest non-Kyoto
carbon market is the NSW Greenhouse Gas
Abatement Scheme in Australia with an
estimated volume EUR 23.2 million in the first
half of 2005. Another example of such non-
Kyoto systems we can mention Chicago
Climate Exchange, The Climate Trust and the
retail market. All non-Kyoto markets are still
relatively small.
The New South Wales (NSW) GHG
Abatement Scheme in Australia imposes
mandatory greenhouse gas benchmarks on all
NSW electricity retailers and other parties.
Participants are required to reduce their GHG
emissions by offsetting their excess emissions
through the surrender of so-called abatement
certificates. These certificates are created by
accredited abatement certificate providers and
can be traded. The penalty level is AUD 10.50.
In late 2005 and in the beginning of 2006 the
spot prices were between AUD 13.70-13.90.

106
More information can be found at
www.greenhousegas.nsw.gov.au.

The Chicago Climate Exchange (CCX) is a
pilot GHG cap-and-trade system in which a
group of North American companies have
voluntarily agreed to limit their GHG
emissions. These companies can comply
through internal reductions, purchase of
allowances from other companies facing
emission limitations, or purchase of credits
from ER projects that meet specific criteria. In
the December 2005 prices were between USD
1.50-2.00 per tonne. More information on CCX
can be found at www.chicagoclimatex.com.

The Climate Trust in Oregon, USA
(www.climatetrust.org) is a non-profit
organisation established in 1997 as Oregon
Climate Trust. The Trust plays a key role in
implementing Oregon's carbon dioxide
standard, which requires new power plants to
offset approximately 17% of their carbon
dioxide emissions. A plant developer may
choose to meet part or all of its reduction target
by paying funds to the Climate Trust, which
uses the funds to buy emission reductions.
The Retail Market refers to individuals,
corporations and events that purchase small
volumes of emission reductions from projects
that have consumer appeal. These ERs are not
usually intended for compliance, although they
may have been generated in compliance with
CDM or JI procedures. Instead, their purpose
is to demonstrate concern about climate change
and to take some responsibility for the impact
of corporations and businesses on climate in a
transparent and responsible way. The retail
market is growing rapidly and often pays a
premium for ERs that will be achieved within a
year or so of purchase. Prices for reductions
from small projects with a strong sustainable
development contribution command premiums
in the marketplace, with prices ranging from
US$0.512/tCO2e.


107
ANNEX I ARTI CLE 12 OF THE KYOTO
PROTOCOL
1. A clean development mechanism is hereby defined.
2. The purpose of the clean development mechanism shall be to assist Parties not included in Annex I
in achieving sustainable development and in contributing to the ultimate objective of the
Convention, and to assist Parties included in Annex I in achieving compliance with their quantified
emission limitation and reduction commitments under Article 3.
3. Under the clean development mechanism:
a. Parties not included in Annex I will benefit from project activities resulting in certified
emission reductions; and
b. Parties included in Annex I may use the certified emission reductions accruing from such
project activities to contribute to compliance with part of their quantified emission
limitation and reduction commitments under Article 3, as determined by the Conference of
the Parties serving as the meeting of the Parties to this Protocol.
4. The clean development mechanism shall be subject to the authority and guidance of the Conference
of the Parties serving as the meeting of the Parties to this Protocol and be supervised by an
executive board of the clean development mechanism.
5. Emission reductions resulting from each project activity shall be certified by operational entities to
be designated by the Conference of the Parties serving as the meeting of the Parties to this Protocol,
on the basis of:
a. Voluntary participation approved by each Party involved;
b. Real, measurable, and long-term benefits related to the mitigation of climate change; and
c. Reductions in emissions that are additional to any that would occur in the absence of the
certified project activity.
6. The clean development mechanism shall assist in arranging funding of certified project activities as
necessary.
7. The Conference of the Parties serving as the meeting of the Parties to this Protocol shall, at its first
session, elaborate modalities and procedures with the objective of ensuring transparency, efficiency
and accountability through independent auditing and verification of project activities.
8. The Conference of the Parties serving as the meeting of the Parties to this Protocol shall ensure that
a share of the proceeds from certified project activities is used to cover administrative expenses as
well as to assist developing country Parties that are particularly vulnerable to the adverse effects of
climate change to meet the costs of adaptation.
9. Participation under the clean development mechanism, including in activities mentioned in
paragraph 3(a) above and in the acquisition of certified emission reductions, may involve private
and/or public entities, and is to be subject to whatever guidance may be provided by the executive
board of the clean development mechanism.
10. Certified emission reductions obtained during the period from the year 2000 up to the beginning of
the first commitment period can be used to assist in achieving compliance in the first commitment
period.

108
ANNEX I I SMALL-SCALE CDM PROJ ECT
DESI GN DOCUMENT

CLEAN DEVELOPMENT MECHANISM
PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD)
Version 03 - in effect as of: 22 December 2006

Contents

A. General description of the small scale project activity

B. Application of a baseline and monitoring methodology

C. Duration of the project activity / crediting period

D. Environmental impacts

E. Stakeholders comments

Annexes

Annex 1: Contact information on participants in the proposed small scale
project activity

Annex 2: Information regarding public funding

Annex 3: Baseline information

Annex 4: Monitoring Information


109
Revision history of this document

Version
Number
Date Description and reason of revision
01 21 J anuary
2003
Initial adoption
02 8 J uly 2005 The Board agreed to revise the CDM SSC PDD to reflect
guidance and clarifications provided by the Board since
version 01 of this document.
As a consequence, the guidelines for completing CDM
SSC PDD have been revised accordingly to version 2.
The latest version can be found at
<http://cdm.unfccc.int/Reference/Documents>.
03 22 December
2006
The Board agreed to revise the CDM project design
document for small-scale activities (CDM-SSC-PDD),
taking into account CDM-PDD and CDM-NM.

110

SECTION A. General description of small-scale project activity

A.1 Title of the small-scale project activity:
>>

A.2. Description of the small-scale project activity:
>>

A.3. Project participants:
>>

A.4. Technical description of the small-scale project activity:

A.4.1. Location of the small-scale project activity:
>>

A.4.1.1. Host Party(ies):
>>

A.4.1.2. Region/State/Province etc.:
>>

A.4.1.3. City/Town/Community etc:
>>

A.4.1.4. Details of physical location, including
information allowing the unique identification of this small-scale project activity :
>>

A.4.2. Type and category(ies) and technology/measure of the small-scale
project activity:
>>

A.4.3 Estimated amount of emission reductions over the chosen crediting
period:
>>

A.4.4. Public funding of the small-scale project activity:
>>
A.4.5. Confirmation that the small-scale project activity is not a debundled
component of a large scale project activity:


111
SECTION B. Application of a baseline and monitoring methodology

B.1. Title and reference of the approved baseline and monitoring methodology
applied to the small-scale project activity:
>>

B.2 Justification of the choice of the project category:
>>

B.3. Description of the project boundary:
>>

B.4. Description of baseline and its development:

>>

B.5. Description of how the anthropogenic emissions of GHG by sources are
reduced below those that would have occurred in the absence of the registered
small-scale CDM project activity:

B.6. Emission reductions:

B.6.1. Explanation of methodological choices:
>>

B.6.2. Data and parameters that are available at validation:
(Copy this table for each data and parameter)
Data / Parameter:
Data unit:
Description:
Source of data used:
Value applied:
J ustification of the
choice of data or
description of
measurement
methods and
procedures actually
applied :

Any comment:

B.6.3 Ex-ante calculation of emission reductions:
>>

B.6.4 Summary of the ex-ante estimation of emission reductions:
>>


112
B.7 Application of a monitoring methodology and description of the monitoring
plan:

B.7.1 Data and parameters monitored:
(Copy this table for each data and parameter)

Data / Parameter:
Data unit:
Description:
Source of data to be
used:

Value of data
Description of
measurement
methods and
procedures to be
applied:

QA/QC procedures
to be applied:

Any comment:

B.7.2 Description of the monitoring plan:
>>

B.8 Date of completion of the application of the baseline and monitoring
methodology and the name of the responsible person(s)/entity(ies)
>>

SECTION C. Duration of the project activity / crediting period

C.1 Duration of the project activity:

C.1.1. Starting date of the project activity:
>>

C.1.2. Expected operational lifetime of the project activity:
>>

C.2 Choice of the crediting period and related information:

C.2.1. Renewable crediting period

C.2.1.1. Starting date of the first crediting period:
>>

C.2.1.2. Length of the first crediting period:
>>

113

C.2.2. Fixed crediting period:

C.2.2.1. Starting date:
>>

C.2.2.2. Length:
>>

SECTION D. Environmental impacts
>>

D.1. If required by the host Party, documentation on the analysis of the
environmental impacts of the project activity:
>>

D.2. If environmental impacts are considered significant by the project participants or
the host Party, please provide conclusions and all references to support documentation of
an environmental impact assessment undertaken in accordance with the procedures as
required by the host Party:
>>

SECTION E. Stakeholders comments
>>

E.1. Brief description how comments by local stakeholders have been invited
and compiled:
>>

E.2. Summary of the comments received:
>>

E.3. Report on how due account was taken of any comments received:
>>

114
Annex 1

CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT
ACTIVITY

Organization:
Street/P.O.Box:
Building:
City:
State/Region:
Postfix/ZIP:
Country:
Telephone:
FAX:
E-Mail:
URL:
Represented by:
Title:
Salutation:
Last Name:
Middle Name:
First Name:
Department:
Mobile:
Direct FAX:
Direct tel:
Personal E-Mail:


115
Annex 2

INFORMATION REGARDING PUBLIC FUNDING


116
Annex 3

BASELINE INFORMATION

Annex 4

MONITORING INFORMATION

- - - - -


117
ANNEX I I I SELECTED TECHNI CAL
ASSI STANCE FUNDI NG FOR PROJ ECT
DEVELOPMENT
Institution Technical
assistance
Main criteria for achieving finance Link to guidelines /
contact details
Central
American
Bank for
Economic
Integration
(CABEI)
Project
Preparation
Facility of USD 5
million

Eligible countries: Costa Rica, El Salvador,
Guatemala, Honduras, Nicaragua

The facility is tied to the global lines of credits
for each country. CABEI has offices in Costa
Rica, El Salvador, Guatemala, Honduras and
Nicaragua.
www.bcie.org

Caribbean
Development
Bank (CDB)
Pre-investment
and pre-feasibility
studies can be
financed by the
Basic Needs Trust
Fund (BNTF)

Eligible country: Belize

Community Groups, Non-Government
Organisations, Government Organisations and
Agencies and Community-Based Organisations
may apply by using the BNTF Request Form
available at the website.

www.caribank.org
Caribbean
Development Bank
P.O. Box 408
Wildey, St. Michael
Barbados, W.I.
Tel. +246-431 1600
Fax +246-426 7269
info@caribank.org

Belize office:
BNTF Office
c/o Social Investment
Fund
Constitution Drive
P.O. Box 459
Belmopan
Cayo District, Belize
Tel: 501-822-
0239/0508
Fax: 501-822-0279
World Bank
Trust Funds
Various types of
technical
assistance in the
pre-investment
stage
Several funds with different specific targets and
criteria which may be obtained by contacting
each fund.

http://www.worldban
k.org/rmc/tf/
Energy Sector
Management
and Assistant
Program
(ESMAP)
Technical
assistance, specific
studies
ESMAP is a trust fund under the World Bank.
It is a global technical assistance program which
provides policy advice on sustainable energy
development to governments of developing
countries. ESMAP also contributes to the
transfer of technology and knowledge in energy
sector management and the delivery of modern
energy services to the poor.
www.esmap.org
Inter-
American
Development
Bank (IADB)
Technical Co-
operation
Program
Special priority for project development within
environment and small scale finance.
www.iadb.org
Multilateral
Investment
Fund (MIF)
Technical
assistance grants
MIF is part of the IDB Group. Support for
small-scale interventions and pilot projects

www.iadb.org/mif
Nordic
Project Fund
(NOPEF)
Interest free loans
and grants for
project
For projects outside Europe. Requires strong
Nordic interest, applicants must be companies
that operate in the Nordic region.
www.nopef.com

118
Institution Technical
assistance
Main criteria for achieving finance Link to guidelines /
contact details
development Loans may cover up to 40% of approved
development expenses
Covers: feasibility studies, evaluation of
potential business partners, financial analysis
and documentation preparation, legal assistance,
contract negotiations
Ministry for
Foreign
Affairs of
Finland: EIT
Appropriation
Technical
assistance for
feasibility studies,
training,
acquisition of
expert services
and planning
costs
Eligible applicants: Finnish companies for
economic, industrial and technological projects
in developing countries.

May cover up to 50% of the project
development, and the applicant must normally
cover the remaining costs.
www.formin.fi


119
ANNEX I V EQUI TY, GRANTS AND LOANS
Institution Financial
instruments
Main terms and criteria for
achieving finance
Link to guidelines /
contact details
Central
American Bank
for Economic
Integrations
(CABEI)
Direct loans
Co-financing
Guarantees
Micro-finance through
intermediaries
Special facility for
sustainable
development
Elegible countries: Costa Rica, El
Salvador, Guatemala, Honduras,
Nicaragua.

www.bcie.org
CABEI has offices in
Guatemala, El Salvador,
Honduras and Nicaragua.
Caribbean
Development
Bank (CDB)
Direct loans
Co-finance
Eligible country: Belize

www.caribank.org
Caribbean Development
Bank
P.O. Box 408
Wildey, St. Michael
Barbados, W.I.
Tel. +246-431 1600
Fax +246-426 7269
info@caribank.org

Belize office:
BNTF Office
c/o Social Investment Fund
Constitution Drive
P.O. Box 459
Belmopan
Cayo District, Belize
Tel: 501-822-0239/0508
Fax: 501-822-0279
Corporacin
Andina de
Fomento (CAF)
Loans
Project structuring and
financing
Co-financing
Guarantees
Equity investments
Elegible country: Panama www.caf.com
Inter-American
Development
Bank (IADB)
Loans
Guarantees
Grants
IDB supports economic and social
development and regional integration
in Latin America and the Caribbean. It
does so mainly through lending to
public institutions, but it also funds
some private projects, typically in
infrastructure and capital markets
development.
www.iadb.org
IDB has headquarters in
Washington D.C. It has an
office in each of the Central
American Countries.
Inter-American
Investment
Corporation
(IIC)
Direct loans
Direct equity or quasi-
equity investments
Credit to local
financial
intermediaries
Guarantees for and
investments in capital
markets offerings

ICC is part of the IDB Group. IICs
mission is to promote and support the
development of the private sector and
the capital markets in its Latin
American and Caribbean member
countries as the institution charged
with fostering the development of
small and medium-size enterprises to
further sustainable economic
development. All Central American
countries are IICs members.

www.iic.int
Central American Regional
Office
Mr. Gustavo Romero
Edificio Centro Coln, Piso
12, Paseo Coln, entre calles
38 y 40
Apartado postal 1142-1007
San Jos, Costa Rica
Tel: (506) 233-2543
Fax: (506) 257-0083
Multilateral
Investment
Fund (MIF)
Grants
Loans
Equity
MIF is also part of the IDB Group.
Its mandate is to support innovative
private sector development and
www.iadb.org/mif
MIF has offices in each of
the Central American

120
instruments
achieving finance
contact details
Quasi-equity

improve economic prospects for those
less equipped to benefit from market
reforms. MIF can provide resources to
both public and private sector
organizations. Private sector agencies
can include non-governmental
organizations, industry associations,
chambers of commerce, etc. but must
be non-profit. Organisations from all
the Central American countries are
eligible.
Countries.
International
Finance
Corporation
(IFC)

Loans, equity finance,
syndicated loans, risk
management
products,
intermediary finance
The International Finance
Corporation (IFC) is a member of the
World Bank Group. It promotes
sustainable private sector investment
in developing countries as a way to
reduce poverty and improve peoples
lives. IFCs Project Criteria includes:
The project must be located in a
developing country that is a
member of IFC (all Central
American countries);
It must be in the private sector;
It must be technically sound;
It must have good prospects of
being profitable;
It must benefit the local economy;
and
It must be environmentally and
socially sound, satisfying IFC
environmental and social standards
as well as those of the host
country.
www.ifc.org

Nordic
Development
Fund (NDF)
Long-term
concessional loans to
public sector
Financial support for
private sector
activities:
-Subordinated loans
-Credit lines via local
financing institutions
-Equity
Partner countries Honduras and
Nicaragua. NDFs activities to support
private sector development are not
limited to partner countries.
www.ndf.fi
NORDIC
DEVELOPMENT FUND
P.O. Box 185,
FIN-00171 Helsinki
Finland
Finnish Fund for
Industrial
Cooperation
(Finnfund)
Equity financing
Investment loans
Mezzanine financing
Guarantees (in
exceptional cases)
Co-financing
Finnfund is a Finnish development
finance company that provides long-
term risk capital for private projects in
developing countries. Apart from co-
investing with Finnish companies
Finnfund finances ventures that use
Finnish technology, cooperate with
Finnish partners on a long-term basis
or generate major environmental or
social benefits.
www.finnfund.fi
P.O. Box 391
FIN-00121 Helsinki
Finland
tel. +358 9 348 434
fax +358 9 3484 3346
E+Co. Debt
Equity
E+Co provides early stage seed capital
between USD 25,000 250,000 for
sustainable energy ventures.
www.energyhouse.com
E+Co Latin America
and Caribbean (LAC)
Regional Office
Fernando Alvarado,

121
instruments
achieving finance
contact details
LAC Regional Manager
P.O. Box 13443-1000
San Jos, Costa Rica
Tel: 506 296 3532
Fax: 506 296 4810
Email: eycolac@amnet.co.cr


122
ANNEX V CARBON FI NANCE
Technical assistance related to carbon finance, examples
Institution Description Website
UNCTAD UNCTAD/Earth Council Institute Carbon
Market Programme contains useful information
on carbon markets and CDM, including a self-
learning course on CDM.
www.unctad.org/ghg
UNDP UNDPs Energy for Sustainable Development
website has many resources, including the UNDP
CDM Users Guide
www.undp.org/energy/climate.htm
UNEP Capacity Development for the CDM (CD4CDM)
is UNEPs CDM capacity building programme.
http://cd4cdm.org/unepcdm.htm
UNIDO UNIDOs Sustainable Energy and Climate Change
Programme has various CDM-related capacity
building activities
http://www.unido.org/doc/18258
World Bank World Banks Carbon Finance Unit has several
facilities that provide technical assistance related to
carbon finance:
- BioCFPlus
- PCFPlus
- CDCFPlus

123
ANNEX VI REGI ONAL CONTACTS
Contacts in Belize
Name Institution
Telephone
(501)
E-mail
Ismael Fabro Ministerio de Recursos Naturales y
Ambiente
822-2444 / 2630 iefabro@gmail.com
Gilbert Canton Comisin de Servicios Pblicos 227-1185 puc@btl.net
Michael Polonio Belize Electricity Limited 227-0954 mpolonio@bel.com.bz
Robert Tillett Belize Sugar Industry 322-2150 bsielec@btl.net
Ademek Klaus Tropicales Limited 882-0078 tropicales@btl.net
Ambrose Tillett Consultor de Energa Renovable 274-555 bsnmail@btl.net
Dylan Vernon PNUD 822 2688 dylan.vernon@undp.org
Jos Garca TUNICH NAH Consultants 225 2036 tnce2036@yahoo.com
Kevin Denny Kelosha Corporation Belize Ltd 422 3666 mamanoots@btl.net
Luis Ak Consultor Energa Renovable 225-2084 lrake@btl.net Belize@bun-ca.org
Lennox L. Neal Belize Sugar Industry 322 2150 lennoxneal@hotmail.com
Joseph Sukhnandan Belize Electricity Limited (BEL) 222 7054 jsukhnandan@bel.com.bz
Henry Anderson University of Belize 822 3680 handerson@ub.edu.bz
Contacts in Costa Rica
Name Institution
Telephone
(506)
E-mail
Gloria Villa MINAE 257-3662 gvilla@dse.go.cr
Giovanni Castillo MINAE 257-3662 gcastillo@dse.go.cr
Francine Solera MINAE 257-3662 fsolera@dse.go.cr
Misael Mora ICE 220-6955 mmora@ice.go.cr www.ice.go.cr
Henry Sols Compaa Nacional de Fuerza y Luz 295-1261 hsolis@cnfl.go.cr
Dennis Mora Compaa Nacional de Fuerza y Luz, S.A. 296 4608 dmora@cnfl.go.cr www.cnfl.go.cr
Pablo Manso Oficina Costarricense de Implementacin Conjunta 222-5616 crocic@racsa.co.cr
Lucio Pedroni CATIE 558 2334 lpedroni@catie.ac.cr
Oscar Coto Consultor 271-3210 ocoto@amnet.co.cr
Fernando Alvarado E+CO 296-3532 eycolac@amnet.co.cr
Gustavo Romero Corporacin Interamericana de Inversiones / BID 257-1418 gustavorc@iadb.org
Leyda Mercado PNUD 296-1544 leyda.mercado@undp.org
Ana Mara Majano INCAE 433-9908 Ana.majano@incae.edu
Enrique Morales Grupo SARET 443-0001 emorales@gruposaret.com
Leonel Umaa Mesoamerica Energy 209-7956 lumana@mesoamericaenergy.com
Contacts in El Salvador
Name Institution
Telephone
(503)
E-mail
Rebeca Magaa Ministerio del Ambiente y Recursos Naturales 2267 9334 rmagana@marn.gob.sv
Jorge Rovira Direccin de Energa, MINEC 2281-1122 jrovira@minec.gob.sv
Salvador Rivas Direccin de Energa, MINEC 2231-5616 srivas9@minec.gob.sv
Giovanni Hernndez SIGET 2288-0066 ghernandez@siget.gob.sv
Miguel Domnguez CEL 2211-6138 mdominguez@cel.gob.sv
Ernesto Hayem Ministerio de Agricultura y Ganadera 2228-7061 ehayem@mag.gob.sv
Luis Boigues SABES 2275 9864 sabes.agua@integra.com.sv
Arturo Solano Tecnosolar 2260 2448 tecnosolar@integra.com.sv
Jos Antonio Rodrguez LaGeo 2211-6700 ventas@lageo.com.sv
Mauricio Arvalo Central Hidroelctrica Sensunapn 2453 0168 iemsa@sal.net
Ernesto Cano Generadora Mirazalcos 2264 0562 gecano@esal.net
Hermes Landaverde INGENDEHSA, S.A. de C.V. 2273 6243 hlandaverde@navegante.com.sv
Axel Sderberg Dematheu & Cia 2210-6995 iemsa@sal.net
Jos Mara Vides Generadora Cucumacayn 2451 7140 vides@navegante.com.sv
Alberto Valdivieso Eco Carbn Chaparral 2289-5654 ecochaparral@telemovil.net
Levy Portillo Planta Piloto de Biodiesel 2631-1723
Csar Villalta UCA 2210-6662 cvillalt@ing.uca.edu.sv
Carolina Dreikorn PNUD 2263-0066 carolina.dreikorn@undp.org
Yolanda Salazar Centro de Produccin ms Limpia 2264-4622 ysalazar.cnpml@camagro.com
Ana Graciela Cortez DIMMA Consultores S.A de C.V 2274-9050 dimmasal@navegante.com.sv
Roberto Bonilla SEESA de C.V. 2270-9518 info@seesa.com.sv
Contacts in Guatemala
Name Institution
Telephone
(502)
E-mail

124
Name Institution
Telephone
(502)
E-mail
Carlos Mansilla Ministerio de Medio Ambiente 2423 0500 eyamansi@concyt.gob.gt
Ral Castaeda Ministerio de Medio Ambiente 2423 0500 ondl@marn.gob.gt
Vctor H. Araujo Ministerio de Energa y Minas 2476-1892 diredge@mem.gob.gt
Yuri Urbina Administrador del Mercado Mayorista AMM 2332-7901 yuri.urbina@amm.org.gt
Julio Roberto Alvarez Instituto Nacional de Electrificacin - INDE 2422-1920 j.alvarez@inde.gob.gt
Lorena Crdova Instituto Nacional de Bosques INAB 2473-5215 serviciosambientales@inab.gob.gt
Rodolfo Cardona PNUD 2384-3100 Rodolfo.cardona@undp.org
Roberto Arimany DINTERSA 2332-3807 dintersa@microq.com.gt
Lou Ingram LUEX 2220-3133 luex@infovia.com.gt
Juan Pablo Dary Solar Pblica 2333-7346 jpdary@solarpublica.com
Germn Jurez COMEGSA 2420-4200 gjuarez@comegsa.net
Ricardo Asturias OCTAGON 2367-6324 rasturias@ufm.edu.gt
Cristhian Escobar AGER 2334-4848 ager@ager.org.gt
Hugo Arriaza Morales NRECA International Ltd 2368-1169 harriaza@intelnet.net.gt
Luis Arturo Mrida Agroindrustrias La Laguna 2331-7999 cymings@intelnet.net.gt
Alaide Garca Energa y Ambiente 2473-3409 alaidegl@intelgua.com
Mara Amalia Porta Centro Guatemalteco de P+L 2334-4848 cgpl@cgpl.org.gt
Guillermo Garca Pilones de Antigua 9783-1050 pilones@intelnet.net.gt
Carlos Ral Montes Alimentos Campestres S.A. 2258-5609 info@alimentoscampestres.com
Contacts in Honduras
Name Institution
Telephone
(504)
E-mail
Olga Alemn Secretara de Recursos Naturales y Ambiente 2326227 ogaleman@yahoo.com
Jorge Rivera AHPPER 235-7395 ahpper@multivisionhn.net
Elsia Paz Proyecto Hidroelctrico La Esperanza 985-4037 elsiapaz@direcway.com
Loyda Alonso SOLUZ 557-5127 soluzdir@netsys.hn
Manuel Ma-Tay Proyecto Hidroelctrico Hidro Yojoa 224-0703 mmatay@edured.net
Sonia de Rivera CENIT S.A. de C.V. 227-0982 cenit@multivisionhn.net
Mauro del Oro Proyecto Hidroelctrico La Nieve 566-0430 lanieve@123.hn
Jorge Meja EcoAldeas de Honduras 226-5484 jmejia@ecoaldeashonduras.com
Roberto Nez EMCE 236-8788 rnunez@terra.hn
Oscar Aguilar Servicios y Mantenimientos Tecnolgicos 239-2157 oaguilar@cybertelh.hn
Glenda Castillo ENEE 220-0470 www.enee.hn
Juan R. Medrano ADESOL 239-5691 adesol@sdnhon.org.hn
Julio Crcamo PNUD 220-1100 julio.carcamo@undp.org
Jorge Bueso CENOSA 669-1403 jbueso@cenosa.hn
Ignacio Osorto AHDESA 246-1610 ahdesa_hn@yahoo.com
Contacts in Nicaragua
Name Institution
Telephone
(505)
E-mail
Mayra Antonia Salinas Ministerio de Ambiente 233 1684 jaguilar@marena.gob.ni
Luis Molina Ministerio de Energa y Minas 222-5576 luismolina@mem.gob.ni
Violeta Barberena Ministerio de Energa y Minas 222-5576 violeta.barberena@mem.gob.ni
David Castillo Instituto Nicaragense de Energa 228-2057 dcastillo@ine.gob.ni www.ine.gob.ni
Ernesto Martnez Tiffer Empresa Nicaragense de Electricidad 278-5830 ocastillo@entresa.com.ni
Rodolfo Lpez Centro Nacional de Despacho 276-0533 gerencia@cndc.org.ni
Sergio Narvez Instituto de Desarrollo Rural 270-3412 direjecutivo@idr.gob.ni
Roberto Vargas Industria GEMINA, S.A 249-1129 gemina@gemina.com.ni
Rebeca Leaf ATDER-BL 612-2030 atder@ibw.com.ni
Vctor Salazar Pereira Funproteca 311-2090 funprot@ibw.com.ni
Mara Engracia Trinidad Prolea 278-7252 prolena.renovable@sdnnic.org.ni
Csar Barahona Centro de Produccin Ms Limpia 278-3136 ceb@ibw.com.ni www.cpmlnic.org.ni
Leoni Argello PNUD 266-1701 leonie.arguello@undp.org
Susan Kinne Grupo FNIX, UNI 278-3133 fenix@fec.uni.edu.ni
Fernandolino Narvez ANPPER 244-4288 anpper@hotmail.com
Pedro Silva Ingenio San Antonio 343-2546 psilva@nicaraguasugar.com.ni
Francisco Zamora Atlantic, S.A. 278-1477 fzamora@ecomtrading.com
Mathias Craig BlueEnergy 202 744-5840 mjcraig@blueenergy.org
Contacts in Panam
Name Institution
Telephone
(507)
E-mail
Eduardo Reyes Autoridad Nacional del Ambiente 500-0823 e.reyes@anam.gob.pa www.anam.gob.pa
Darysbeth Martnez Autoridad Nacional del Ambiente 500-0800 d.martinez@anam.gob.pa
Francisco Carrizo Autoridad Nacional del Ambiente 998-4271 francisco.carrizo@anam.gob.pa
Anastasio Gonzlez Autoridad Nacional del Ambiente (Regional
de Herrera)
996-7675 anastasio.gonzalez@anam.gob.pa

125
Name Institution
Telephone
(507)
E-mail
Michael Mihalitsianos Autoridad Nacional de los Servicios Pblicos 508-4501 mmihalitsianos@asep.gob.pa
Wolfram Gonzlez Ministerio de Comercio e Industria 560-0600 /700 wgonzalez@mici.gob.pa
Rafael De Gracia Autoridad Nacional de los Servicios Pblicos 508-4602 rdegracia@asep.gob.pa
Heine Aven Luz Buena 232-7690 heine.aven@luzbuena.com
Eusebio Girau Unin Europea 265- 3235 eusebio.girau@optynex.net
Roberto Moreno Proyecto Elico Santa Fe 6614-6052 ramt@pananet.com
Vctor Prez PROLACSA 987-8249 vmpb@prolacsa.com
Manuel Gonzlez Proyecto SOLEDUSA 998-6046 Soledusa5@cwpanama.net
Elas Dawson Hidroelctrica ENEL La Fortuna 206-1855 elias.dawson@fortuna.com.pa
Contacts in Dominican Republic
Name Institution
Telephone
(1 809)
E-mail
Luis Geraldo Matos Secretara de Medio Ambiente y Recursos
Naturales
472 1144 energia@medioambiente.gov.do
Pasi Kapanen Vice Cnsul Finlandia, Repblica Dominicana 563 5625 pasi@kapanen.info
Rosendo Alvarez Cmara Escandinava Bltica de Comercio de
la Repblica Dominicana
333-3330 ralvarez@innov-e.net
Cirilo Marte COAPI 858 4433 cirilomarte@yahoo.com
Contacts in Finland
Name Institution
Telephone
(358)
E-mail
Markku Nurmi Ministerio de Ambiente 204907013 markku.nurmi@ymparisto.fi
Veikko Soralahti Ministerio de Relaciones Exteriores 91605 6362 veikko.soralahti@formin.fi
Hannu Eerola Ministerio de Relaciones Exteriores 91605 6109 hannu.eerola@formin.fi
Mikael Udd ABB Oy 503341951 mikael.udd@fi.abb.com www.abb.com
Bengt Tammelin Finnish Meteorological Institute (FMI) 91929 4160 bengt.tammelin@fmi.fi www.fmi.fi
Aleksi Lumijarvi GreenStream Network 40529 1315 Aleksi.lumijarvi@greenstream.net
Jyrki Leppnen NAPS Systems Oy 207545 653 jyrki.leppanen@napssystems.com
Jukka Pietikinen FINNFUND 93484 3307 Jukka.pieikainen@finnfund.fi
Juha Huotari Wrtsil Biopower 10709 5454 juha.huotari@wartsila.com
Arjo Heinsola Universidad de Jyvskyl 14260 2212 heinsola@cc.jyu.fi
Veli-Pekka Heiskanen VTT Processes 14672 533 veli-pekka.heiskanen@vtt.fi
Markku Patajoki Neste Oil 104584225 markku.patajoki@nesteoil.com
Matti Lilja Pyry Energy 10 3324 957 matti.lilja@poyry.com
Contacts in Austria
Name Institution

Telephone
E-mail
Robert Zeiner Agencia Austraca para el Desarrollo 431 9039 9500 robert.zeiner@ada.gv.at
Martin Lugmayr Agencia Austraca para el Desarrollo 431 9039 9544 martin.lugmayr@ada.gv.at
Gottfried Traxler Agencia Austraca para el Desarrollo 431 9039 9544 gottfried.traxler@ada.gv.at
Rudolf Huepfl Adviser on Energy for Development 431 7263 391 huepfl@chello.at

Regional Contacts
Name Institution Telephone E-mail
Anbal Quinez SG-SICA (503) 2248-8800 info.sica@sica.int
Carlos Roberto Prez SG-SICA (503) 2248-8821 cperez@sica.int
Marco A. Gonzlez CCAD (503) 2248-8800 magonzalez@sica.int
Leyla Zelaya CCAD (503) 2248-8849 lzelaya@sica.int
Ricardo Aguilar CCAD (503) 2248-8902 raguilar@sica.int
Rafael Guilln CCAD (503) 2248-8850 rguillen@sica.int
Otto Garca AEA (503) 2248-8854 ogarcia@sica.int
Mara Eugenia Salaverra AEA (503) 2248-8855 msalaverria@sica.int
Mauricio Ayala AEA (503) 2248-8854 mayala@sica.int
Yanira Pascasio de Ayala AEA (503) 2248-8920 ypascasio@sica.int
Ismael Snchez AEA (503) 2210-6662 isanchez@ing.uca.edu.sv
Harry Brautigam BCIE (504) 240-2243 www.bcie.org
Kathya Fajardo BCIE (504) 240-2243 kathyaf@bcie.org
Marja Luoto Embajada de Finlandia CA (505) 278 1216
/18
marja.luoto@formin.fi
Elina Sana Embajada de Finlandia CA (505) 278 1216
/18
elina.sana@formin.fi
Salvador Tapia Embajada de Finlandia CA (505) 278 1216
/18
salvador.tapia@formin.fi
Hubert Neuwirth Cooperacin Austraca para el
Desarrollo
(505) 266 3316 managua@@ada.gv.at

126
Helga Schomoigl Cooperacin Austraca para el
Desarrollo
(52) 55 52544418 mexico@austriantrade.org
Armando Guzmn Banco Mundial, Washington (202) 522 0338 aguzman3@worldbank.org
Robert Kaplan BID, Washington (202) 623-1304 bobk@iadb.org
Fernando Cuevas CEPAL, Mxico (525) 55263-9600 fernando.cuevas@cepal.org
Catalina Santamara UNFF, Nueva York (212) 963-4703 santamaria@un.org
Eduardo Rodas Plan Puebla Panam - Energa (502) 2422-1858 erodas@pfyf.net
Jos Mara Blanco BUN-CA (506) 283-8835 jblanco@bun-ca.org www.bun-ca.org


127

ANNEX VI I CDM PROJ ECT ACTI VI TI ES FROM
CENTRAL AMERI CA REGI STERED BY THE CDM
EXECUTI VE BOARD

This section is intended to present general information of each Central American
country activities on CDM more representative projects, registered by the CDM
Executive Board up to December 31, 2006. A brief summary of the Project Design
Document (PDD) for each selected project is presented. Emphasis has been put on the
methodology applied, the project description, how the project contributes to sustainable
development of the country and the estimate of CO2 Emission Reduction. The complete
information for each project can be downloaded from the web site:
http://cdm.unfccc.int/Projects/registered.html

The following Table indicates for each project the host country, other parties,
registration date, methodology, CO2 emission reductions and the reference number used
to be registered by the CDM Executive Board.


128
CDM PROJECT ACTIVITIES FROM CENTRAL AMERICA REGISTERED BY THE CDM EXECUTIVE BOARD
Registered Title Host Parties Other Parties Methodology* Reductions** Ref
13-oct-05
Rio Azul landfill gas and utilization project in Costa
Rica
Costa Rica Netherlands AM0011 ver. 1 156084 37
03-mar-06 Cote small-scale hydropower plant Costa Rica Finland AMS-I.D. ver. 7 6431 251
12-mar-06
Landfill Gas to Energy Facility at the Nejapa
Landfill Site, El Salvador
El Salvador
Canada
Luxembourg
ACM0001 ver. 2 183725 167
25-may-06
LaGeo, S. A. de C. V., Berlin Geothermal Project,
Phase Two
El Salvador Netherlands ACM0002 ver. 4 176543 297
17 Dec 05 "Las Vacas" Hydroelectric project Guatemala Spain AM0005 90363 73
21 Jan 06 Matanzas Hydroelectric Plant Guatemala AMS-I.D. ver. 6 38493 172
23 Jan 06 San Isidro Hydroelectric Plant Guatemala AMS-I.D. ver. 6 13389 174
09-nov-06 Candelaria Hydroelectric Project Guatemala AMS-I.D. ver. 8 18922 604
02 Dec 06 El Canad Hydroelectric Project Guatemala
Canada
Netherlands
ACM0002 ver. 6 118527 606
11 Jan 05 RIO BLANCO Small Hydroelectric Project Honduras Finland AMS-I.D. ver. 4 17800 28
23 Apr 05 Cuyamapa Hydroelectric Project Honduras AMS-I.D. ver. 5 35660 45
03-jun-05 Cortecito and San Carlos Hydroelectric Project Honduras AMS-I.D. ver. 5 37466 51
19 Aug 05 La Esperanza Hydroelectric Project Honduras Italy AMS-I.D. ver. 4 37032 9
26-nov-05 Cuyamel Hydroelectric Project Honduras
United Kingdom of Great Britain
and Northern Ireland
AMS-I.D. ver. 6 25353 83
09 Jan 06 LA GLORIA Hydroelectric Project Honduras
AMS-I.D. ver. 6 20464 154
02-mar-06 CECECAPA Small Hydroelectric Project Honduras Finland AMS-I.D. ver. 6 1877 156
02-mar-06 Yojoa Small Hydropower Project Honduras Finland AMS-I.D. ver. 6 1069 157
02-mar-06 Zacapa Mini Hydro Station Project Honduras Finland AMS-I.D. ver. 7 915 235
02-sep-06
Eecopalsa biogas recovery and electricity generation
from Palm Oil Mill Effluent ponds, Honduras
Honduras
AMS-I.D. ver. 8
AMS-III.H. ver. 2
27615 492
08 Apr 06 San Jacinto Tizate geothermal project Nicaragua
ACM0002 ver. 4 280703 198
22-jun-06
Monte Rosa Bagasse Cogeneration Project
(MRBCP)
Nicaragua Brazil AM0015 56020 191

129
CDM PROJECT ACTIVITIES FROM CENTRAL AMERICA REGISTERED BY THE CDM EXECUTIVE BOARD
Registered Title Host Parties Other Parties Methodology* Reductions** Ref
01-oct-05
LOS ALGARROBOS HYDROELECTRIC
PROJECT (PANAMA)
Panama Spain AMS-I.D. ver. 5 37213 81
24 Dec 05
PROJECT FOR THE REFURBISHMENT
AND UPGRADING OF DOLEGA
HYDROPOWER PLANT (PANAMA).
24 Dec 05
PROJECT FOR THE REFURBISHMENT
AND UPGRADING OF MACHO DE
MONTE HYDROPOWER PLANT
(PANAMA).
21-oct-06 Concepcin Hydroelectric Project Panama AMS-I.D. ver. 8 36126 597

* AM - Large scale, ACM - Consolidated Methodologies, AMS - Small scale
** Estimated emission reductions in metric tonnes of CO2 equivalent per annum (as stated by the project participants)
Background:
In accordance with the modalities and procedures for a CDM (Annex decision 17/CP.7) :
"41. The registration by the Executive Board shall be deemed final eight weeks after the date of receipt by the Executive Board of the request for registration, unless a Party involved in the
project activity or at least three members of the Executive Board request a review of the proposed CDM project activity. The review by the Executive Board shall be made in accordance with
the following provisions
(a) It shall be related to issues associated with the validation requirements;
(b) It shall be finalized no later than at the second meeting following the request for review, with the decision and the reasons for it being communicated to the project participants and
the public."


130
1) Costa Rica
The republic of Costa Rica has a
population of 4,321,717 people, the
Spanish is the official language and the
currency is the Colon. Official website of
the country is: www.casapres.go.cr

Rio Azul landfill gas and
utilization project in Costa
Rica
Methodology Applied
AM: 0011: Landfill Gas recovery with
Electricity Generation and no Capture or
Destruction of Methane in the Baseline
Scenario

Reference
0037

Project Description
The project activity consists in
constructing and operating a landfill gas
recovery system, flaring equipment and a
3.7 MW electricity generation plant. The
internal combustion engines will burn the
collected methane at the site to generate
electricity to the national interconnected
grid

The project will use the landfill gas
generated from the Rio Azul municipal
landfill site in the city of San Jos, Costa
Rica. The site is owned by the Ministry of
Health and has been in operation since
the early 70s, but it was not until the
1990s that it became a landfill. In 1995, a
concession was given to the National
Power and Light Company (CNFL), a
local utility to use the landfill gas to
generate electricity. On January 2001, the
public bid No. 13-2000 promoted by
CNFL, awarded the project to the
Corporate Group SARET.

Since this is the first landfill gas energy
project to be developed in the Central
American and Caribbean region, SARET
will use the expertise of the British firm
Combined Landfill Projects (CLP).
The construction of the project started
on November 2003 and commercial
operation started on August 2004.

Sustainable development
contributions
From Costa Rica perspective, the project
will contribute to:

Meet the growing demand for
electricity based on alternative and
locally available sources, instead of
relying on imported fuel oil.
Demonstrate that global and local
environmental benefits can be
generated through an integrated and
mainstreamed approach to support
national sustainable development
priorities.
Prove that landfill gas technology for
energy conversion is environmentally,
institutionally and technically feasible
despite the related barriers and
associated risks
Improve the deteriorated sanitary
conditions of the local communities
by reducing toxic and odorous gases
emissions
Decrease the risk of landslides by
accelerating the settlement process of
the deposited solid waste

CO
2
Emission Reduction
Using the projected emissions given by
the First Order Decay (FOD) model and
the quantity of methane used to generate
electricity since August 18, 2004, it is
estimated that 1,560,836 ton of CO2
equivalent will be avoided during the 10-
year crediting period.

According with the operation schedule
there is not intention to flare any
methane; however, this situation will
happen when the power plant equipment
is on maintenance.


131
2) El Salvador
The Republic of El Salvador has a
6,874,926 population, the capital city is
San Salvador and the official language is
Spanish. The official website of the
government is www.casapres.gob.sv

LaGeo, S. A. de C. V,
Berlin Geothermal
Project, Phase Two, El
Salvador

Methodology Applied
Consolidated baseline methodology for
grid-connected electricity generation
from renewable sources (ACM0002,
2004).

Reference
0297

Project Description
Commercial use of the Berlin
Geothermal field started in 1992 with 10
MW installed power and backpressure
turbines. At present the Berlin
Geothermal Power Plant has installed 2
condensing units (flash power plants) of
31.5 MW each; these units started
operation in late 1999. The power plant is
fed by 8 producer geothermal wells
supplying a two-phase fluid (steam +
liquid) at around 100 kg of steam per
second, 10 bar (absolute) pressure and
180 C Extracted fluid is a 3-1 ratio
water-steam mixture. After being fed into
the turbine to generate electricity the
steam is partly evaporated (80%), and
partly re-injected (20%), along with the
separated fluid.
The geothermal fluid transportation
system includes a two-phase flow
pipeline, which will connect production
wells to steam separators, steam pipelines
from separators to the plant area and
geothermal water pipelines to the re-
injection wells

The project will increase the exiting
power generation capacity through the
drilling of up to ten producers and three
re-injection geothermal wells and the
installation of a new condensation power
unit with maximum gross output to the
generator of 44 MW (maximum net
output to the grid of 42 MW). The Berlin
Geothermal Field is characterized by a
depth between 1,000 and 1,500 m in the
range of 280-300 C, 115 bar pressure,
and good rock permeability. Reservoir
dimensions and characteristics are
enough to sustain a 44 MW power plant
for the entire life of the project, with an
expected field depletion of about 1% per
year
The expected plant lifetime is of at least
30 years

e main contributions to El Salvadors
sustainable development for this project
are:

a) The efficient use geothermal
resources, while minimizing impact on
the environment.
b) The use of an indigenous and
cleaner source will reduce the
already high dependency on
imported fossil fuel for electricity
generation
c) Reduction of greenhouse gases
(GHG) emissions - which would
be generated in the absence of the
project.
d) The Berlin Geothermal Power
Plant has a community
engagement program aimed to
create a balanced and constructive
environment with neighboring
municipalities of Berlin City. The
fundamental elements of the
program, used to maximize
benefits to the community, are
the generation of local
employment opportunities, social
investment activities,
development of sustainable small

132
businesses, and protection of the
local environment.
e) Construction and maintenance of
road infrastructure that ensures
communication and commercial
activities in the surroundings of
the project site.
f) LaGeo Project includes a
biodiversity inventory research
project to be done by Universidad
de El Salvador and a conservation
and reforestation program in
areas around the geothermal
power plant.

CO
2
Emission Reduction
The Berlin Geothermal Power Plant is
interconnected to the El Salvadoran grid
and is expected to avoid emissions of 176
543 tCO2 yearly, i.e. total emission
reductions of 1 235 798 tCO2 over the
first 7-year crediting period.

.

133
3) Guatemala
The Republic of Guatemala has a population
of 12,951,547 people; the capital is the City of
Guatemala, the Quetzal is their currency and
Spanish is the official language. The official
website is: www.guatemala.gob.gt

Project GT1 Las Vacas
Hydroelectric Project.
Methodology Applied
AM0005: Baseline methodology (barrier
analysis, baseline scenario development and
baseline emission rate, using combined
margin) for small grid-connected zero-
emissions renewable electricity generation.
Monitoring methodology for small grid-
connected zero-emissions renewable electricity
generation.

Reference
0073

Project Description
The project activity consists of a hydroelectric
plant using wastewater as a main source with a
installed capacity of 45 MW located at an
reservoir on the Las Vacas river 18 kilometers
northeast of Guatemala City. Construction of
the first phase was finished on May 2002 with
20 MW, second and third phase of the Project
to total 45 MW were available on May 2003.

Las Vacas hydroelectric plant (Hidroelctrica
Ro Las Vacas HRLV) generates an average
of 120 GWh of electricity per year that is sold
to COMEGSA, Guatemalas largest power
purchaser, under a Power Purchase
Agreement (PPA). The project is connected to
Guatemalas national electric system, thus
displacing electricity on the national grid that
is primarily generated by fossil fuel. Electricity
produced by Las Vacas plant is transmitted to
the national grid via a 18 km transmission line
that connects the plant to the Ciudad Quetzal
substation. Because of the plants proximity to
Guatemala City, the major demand centre, the
project improves voltage levels and reduces
transmission losses by an estimated 0.86 MW.
The hydroelectric plant is designed as a
Peaking Plant in which water is stored in a
reservoir in order to produce electricity during
the peak demand hours.

Sustainable development contributions
Las Vacas project contributes to the
sustainable development of the region in
different ways:

by creating new jobs in the region and
thus improving local income levels and
living standards;
injecting new investment in the region that
helps improve local infrastructure, assists
local businesses, and creates indirect jobs
to support the project;.
reducing dependence on imported fossil
fuel;
reducing local air contaminants generated
burning fossil fuels, eg. CO, NOx, SO2,
particulates;
improving availability, reliability and
voltage levels of electricity in the region
and reducing transmission losses;
improving water quality in the Las Vacas
river by oxygenating the water, collecting
and recycling plastics that gather at the
dam, and by dredging and sorting
sediments in the river for use in the
construction industry;
improving tree cover and reducing soil
degradation in the area by initiating a
number of reforestation programs;
increasing local awareness of
environmental issues by initiating an
environmental program in the local
schools.

Three important local environmental
initiatives are being carried out as part of Las
Vacas project that contribute to the

134
sustainable development of the region. The
objectives of these initiatives are to improve
water quality in the Las Vacas river basin,
recycle waste products that collect in the river,
reduce soil degradation and increase forest
cover in the local area.
The main initiatives are:
a plastics recycling plant;
a sludge storage area; and
reforestation program

CO
2
Emission Reduction
Using the combined margin method and an
import and export adjustment, an Emission
Factor of 0.753 tCO
2
/MWh has been
estimated. Based on this factor and an average
annual generation of 120 GWh an annual
emission reduction of 90,363 tCO
2
is
calculated. For a chosen crediting period of 3
crediting periods of 7 years, it is estimated that
the project will reduce emissions by 1,897,623
tCO
2
.

4) Honduras
The Republic of Honduras has a 7,346,532
people population, the capital city is
Tegucigalpa, official language is Spanish and
the currency is Lempira. The governmental
website is: www.casapresidencial.hn

Rio Blanco Small
Hydroelectric Project
Methodology Applied:
Type 1: Renewable Energy Projects
Category I.D.: Renewable Electricity
Generation for a Grid of the simplified M&P
for small-scale CDM project activities

Reference:
0028

Project Description:
The project activity contemplates the
production of clean hydroelectric power that
will contribute ti reduce the Honduran
imported petroleum bill and reduce CO2
emissions, which would had occurred
otherwise, in the absence of this project. The
Main Objective is to generate clean energy
while operating and maintaining the facility,
selling the power to ENEE (National Power
Utility) through a PPA with duration of 15
years, that can be extended to the convenience
of both parties to sell power to a big
consumer, or the regional energy market while
contributing to the sustainable development
of its area of influence and the country.

The project is a run-off-river renewable
hydroelectric generating plant which is
composed by Tyrol type dimension dam, a
233m tunnel, a forebay that will be used to
remove any sediment carried by the incoming
flow of water, a 1,500.00 m penstock, and a
powerhouse with its discharge channel and
access road.

The hydrology in the area is satisfactory, the
nominal capacity of generation is of 5,000.00
kW, the transmission line has approximately a
length of 1.5 kilometers. The production of
firm annual energy will be 22,000.00
kWh/year, and 17,800.00 tonnes/year of
CO2e will be avoided. The net head is of
125.50 meters. No population displacement is
required.

Honduras is at present at crossroads:
extremely vulnerable to worl oil prices and
victim of climate changes phenomena such as
El Nio and La Nia. Having its own water
reserves for hydroelectricity production
affected and habing come down to low levels
for two years in the road, it has prevented the
largest hydroelectric central Francisco
Morazn (commomly known as El Cajn,
300WM), to operate al full capacity, forcing
the country to increase its dependency on
fossil fuels by generating more than 50% of
the countries needs of electric energy and to

135
import energy from countries such Costa Rica
to cover energy deficits.

Sustainable development contributions:

Lacking a clear National energy Policy that
would foster expansion of the generation
system through renewable energy sources, the
country has compromised its sustainable
development paying a heavy burden on badly
needed hard currency to pay for its fossil fuels.
This situation hampers the well being of the
vast poor majority that lives in rural areas and
marginal ruban areas, specially the most
vulnerable groups such as women, children
and elders. On the other hand, 40% of final
use of energy for cooking purposes is still
done by non sustainable extraction of
firewood that in conjunction with peasants
pressure over the fragile forest vocation soils
(more than 70% of the country) are depleting
our forest thus affecting river basins. Situation
that has to be reverted, and this is the subject
of this projects small contributions to
sustainable development at local, municipal
and at national level.

The Ro Blanco Hydroelectric Project will
contribute to sustainable development though
the following ways:

1. Generation of improved quality electricity
for the San Francisco de Yojoa
Municipality, which will foster the
produclive use of electricity in
communities that still don't have it, as well
than in the rest of the country;
2. Help the country to reduce the imported
oil bill, which will strengthen our energy
autarchy;
3. Reduction of Green House Gases
emissions, specifically CO
2
;
4. Strengthening of the country 's rural
electrification coverage;
5. Serve as a small demonstrative project for
clean renewable energy generation in the
country;
6. Preservation of the RIO BLANCO River
basin;
7. Reforestation of project's area of
influence;
8. Permanent and temporary Job generation
at the Central through the project's
implementation;
9. Production of indirect employment in the
area;
10. Improvement of hand quality labor in the
area by training in different technical areas
and
11. Contribution to local community by
payment of taxes.

CO
2
Emission Reduction:
The firm energy derived from this project is
assumed to be constant during each year of
the crediting period and will replace an
equivalent amount of capacity from thermal
plants. The plant is scheduled to start
operating on mid year 2004.


136

RIO BLANCO HYDROELECTRIC
PROJECT
Year
CO
2
eq
tonnes abated
Cumulative
(tonnes)
2004 7,416.67 7,416.67
2005 17,800 25,216.67
2006 17,800 43,016.67
2007 17,800 60,816.67
2008 17,800 78,616.67
2009 17,800 96,416.67
2010 17,800 114,216.67
2011 17,800 132,016.67
2012 17,800 149,816.67
2013 17,800 167,616.67
2014 10,383.33 178,000
Total 178,000

5) Nicaragua

The Republic of Nicaragua has a population
of 5,773,456 people, the capital city is
Managua and the currency is the Cordoba.
Spanish is the official language, and the
governmental website is:
www.presidencia.gob.ni

Monte Monte Rosa Bagasse
Cogeneration Project (MRBCP)

AM0015: Bagasse-based cogeneration
connected to an electricity grid.

Reference:
0191


Monte Rosa Bagasse Cogeneration Project
(MRBCP) activity aims to increase its energy
efficiency and cogeneration capacity in order
to supply electricity to the grid, therefore
adding value to the bagasse produced by the
company.

Currently, the total installed electric power
capacity is 26 MW, but only 18 MW are
actually used, leaving 8 MW as standby.
Through phased installation of substantially
more capacity, improved energy efficiency in
its processes, and generation of sufficient
bagasse around the harvest season, Monte
Rosa has generated surplus electricity of about
94.000 MWh during the 2001 2003 period,
and will generate surplus electricity of
approximately 93.000 MWh in 2004,
increasing to 120.000 MWh in 2008. These
sales of electricity to the grid allow it to

137
participate in the emissions reduction market.
Monte Rosa does not have a power purchase
agreement. Instead, it opted to commercialize
its surplus electricity in the spot market,
known in Nicaragua as mercado de ocasin.

There are 2 phases for this project. The first
expansion (1
st
phase) was in cane season 2001-
2002 with the installation of an extraction
turbogenerator of 15 MW. At that time,
Monte Rosa started to sell energy to the grid.
The second expansion (2
nd
phase) consists of
the phased addition of steam turbogenerators
and a 900 psi (62 bar) high-pressure boiler
which will burn the sugar cane residue
produced in the mill to generate steam. The
steam will be directed to the turbogenerators,
generating electricity at a voltage of 13.800
volts. The steam leaving the turbines is
condensed in a cooling tower, and the
condensate is recycled and redirected to the
boilers (a simple steam cycle). The electricity
voltage is increased to 69.000 volts at an on-
site substation. It is then transmitted to
another sub-station 15 km away, located in the
city of El Viejo, Nicaragua.

The main investments of this 2nd phase
project will be:
Installation of a new 900-psi (62 bar) high-
pressure boiler,
Installation of three new turbogenerators.
(1 condensing type of 15 MW, and 2
extraction type of 20 MW each)
Installation of a new cooling tower.
Installation of 2 new transformers and
other equipment at the sub-station.

These new investments will be staged over a
five-year period. As the new turbogenerators
are installed, old turbogenerators will be
retired.
The Monte Rosa is concerned that bagasse
cogeneration is a sustainable source of energy
that brings not only advantages for mitigating
global warming, but also creates a sustainable
competitive advantage for the agricultural
production in the sugarcane industry in
Nicaragua. Monte Rosa also believes that
bagasse cogeneration is very important for the
energy strategy of the country in that
cogeneration is an alternative to postpone the
installation and/or dispatch of thermal energy
generation utilities. It is expected that the sale
of the CER generated by the project will boost
the attractiveness of bagasse cogeneration
projects, helping to increase the production of
this energy and decrease dependency on fossil
fuel
The project participant also considers the
following as benefits of the project:

1. The creation of 35 direct jobs at the
industrial area, and also indirect jobs.

2. Increasing biomass use will diminish the
need to import fossil fuel and thus
improve Nicaraguas balance of payments.
In other words, the 98.200 MWh annually
that the Monte Rosa expansion project
will provide to the grid (average over 14
years) will reduce Nicaraguan imports of
approximately 119.800 barrels/yr of fuel
oil #6 (bunker), thus saving about US$3,5
million per year in imported fuel costs.

3. Technological development due to use of
bagasse cogeneration as a source of
renewable energy. Monte Rosa could also
serve as an example for encouraging other
bagasse cogeneration projects, by starting
to consider CERs revenue to reach their
financial feasibility.

Environmental Contribution
Besides reducing the GHG emissions by
implementing its expansion projects, Monte
Rosa has implemented, in August of 2004, an
Environmental Management System. Its name
is Plan de Gestin Ambiental (Environmental

138
Management Plan). The system controls the
following environmental aspects of the plant:
Residual water
Gas emissions
Solid Waste
Noise
Dust
Air quality


Increasing biomass use at MRBCP will
diminish the need to import fossil fuel and
also improve Nicaraguas balance of
payments. In other words, the 98.200 MWh
annually that the Monte Rosa expansion
project will provide to the grid (average over
14 years) will reduce Nicaraguan imports of
approximately 119.800 barrels/yr of fuel oil
#6 (bunker) and also save about US$3,5
million per year in imported fuel costs.
Because of the high cost of fossil fuel,
Nicaragua has planned for some time to
increase its base load capacity from
renewables. The Nicaraguan government,
through the National Energy Commission
(CNE), is formulating a new energy policy that
has as main objectives: increase the confidence
of foreign and domestic investors; increase
rural electrification (Nicaragua has the lowest
electrification index in Latin America, 50%);
and finally permanently promote the use of
renewable and clean sources.

CO
2
Emission Reduction:

Years
Annual Estimation of
Emission Reductions
in Tonnes Of CO
2e

2002 15.876
2003 26.006
2004 30.673
2005 69.955
2006 76.549
2007 83.775
2008* 89.305
Total Estimated Reductions
(Tonnes Of Co
2
e)
392.139
Total Number of Crediting Years 7
Annual Average Over The Crediting
Period of Estimated Reductions
(Tonnes Of Co
2
e)
56.020
*Its admitted that the Projects 1
st
Crediting Period will be considered from March 1
st
, 2002 to March
1
st
, 2009. However, the table above doesnt consider the year 2009 due to uncertainties about the
beginning of its harvest season, when the electricity generated by the cogeneration system become
operational.


139
6) Panama

The Republic of Panama has 3,228,186 people population; the capital is Panama City and the
Spanish is the official language. Governmental website: www.presidencia.gob.pa

Concepcin Hydroelectric
Project


Project TYPE I Renewable Energy Projects
Category 1.D. Grid connected renewable
electricity generation (version 8).

Reference:
597


This PDD presents the Concepcin
Hydroelectric Project, a proposed small-scale,
run-of-river development in Western Panama.
The electric energy-generating Concepcin
Project is designed for an installed capacity of
10.0 MW and is expected to generate in
average 67 GWh/yr. Concepcin will be
connected to EDECHIs distribution line in
the El Porvenir substation (EDECCHI
stands for the Electric Distribution Company
of the Province of Chiriqu). Via EDECHI,
the Project will sell the energy production to
various energy-based generators connected to
the grid based on an economic dispatch. By so
doing, the generation at Concepcin will
displace parts of certain expensive, polluting
generation sources currently connected to
National Interconnected System (SIN, a
system that integrates all generating plants in
the country, as well as all transmission and
distribution networks). During year 2004,
about 30% of the country generation was
based on fuel oil or diesel and, despite the
high cost associated with this type of
generation, Panama has plans in place to
expand the thermal generation within the next
few years. Small-Scale developments like
Concepcin are not factored into the
electricity supply-demand planning and
consequently, operation of this Project will
result in an effective displacement of
electricity produced by the expensive, marginal
thermal power stations.

The objectives of the Project in the medium-
and long-term are:

Inject additional clean, safe and reliable
capacity to the Panamanian Electric
System.
Contribute to the decrease of emissions of
Greenhouse Gases (GHG) in Panama,
resulting is a cleaner environment
Reduce the dependence of imported fuels.

The results of Project implementation will be:
Electricity Generation of 67 GWh/yr
Generation of short- and long-term
employment in the project area (about 200
jobs will be created for local people in
Boqueron during the construction phase)
Direct physical and financial contributions
to community infrastructure projects
adjacent to the project site (roads, river
crossings, etc.)
Generation of Business to major
Panamanian Contractors
Contribution in the reduction of the price
of energy to the end consumers

The run-of-river development is located on
the Piedra River, downstream the Macho de
Monte Hydroelectric Plant, about 26 Km far
from the City of David, Province of Chiriqu.

140
The project uses the flows of the Macho de
Monte, Bregue y Piedra Rivers. The project
consists of a daily regulation dam, a
conveyance system and one surface
powerhouse. Concepcin is a run-of-river
development with the intake on the Piedra
River, discharging in the same. In detail, the
works include a low-height combined concrete
and rockfill diversion dam, an intake structure
incorporated in the concrete part of the dam,
a desander, a fibreglass-reinforced polyester
resin pipe conveyance, a surge tank, a steel
bifurcation, a surface powerhouse with two
horizontal-axis Francis turbine-generators, a
tailrace canal and an electric substation. The
power works are located on the left bank of
the river. The gross head of this plant is 65.0
m and with losses at design discharge of some
6 m, the net head amounts to 59.0 m. The
design discharge of the powerhouse is 20.0
m3/s, resulting in a 10-MW plant installed
capacity.


The entering in operation of the Concepcin
Project will increase the amount of renewable
energy connected to the grid. Currently (2004),
the Panamanian National Electric Generation
System is formed both by hydro and thermal
generating sources (34.4% thermal and 65.6%
hydro, on the year 2004- generation basis).
The regulatory framework establishes the
operation of generation plants and units on a
merit-order dispatch basis, according to the
generation cost. The fact that hydroelectric
plants have a low cost for energy production
and can be managed to optimise the use of
water confers them a higher dispatch priority
than thermal generators (Concepcin is
basically a run-of-river development with zero
production costs)

Thus, the increase of low-cost hydro energy
available - such as Concepcin becoming
available will reduce the use of higher-cost
energy produced by fossil fuel fired power
plants. Without the Concepcin Project, an
increase in demand under the business as
usual scenario would result in low cost
Hydroelectric units coming on line first and
then, residual fuel oil and then, diesel
generators. During its operation, the
Concepcin Project will offset these more
expensive residual fuel oil and diesel units and
this will happen because the dispatch system
will seek keeping the electricity price low and
therefore, will prioritise low cost production
over more expensive units (in the case of
thermal units, the major component of the
production costs are the variable costs, mainly
determined by fuel costs).

At present, there are limited resources and/or
possibilities in the country to upgrade older
existing power plants, alternative that might
sometimes be cheaper than new Hydroelectric
plants. Further, since the sector has been
deregulated, there is no legislation in place or
planning whatsoever to upgrade such facilities,
if any. Consequently, it is likely that any non-
hydro new capacity will use the lowest-cost
technology available such as combustion
turbines, internal combustion engines, or
combined-cycle technology.

CO
2
Emission Reduction:

Calculations based on the simplified
methodology allowed for small-scale projects
indicate that Concepcin will result in an
annual emissions avoidance of 36,153 tons of
CO2 equivalent per year (tCO2e/year).
Calculation was based on evaluating the
approximate operating and the build
margins based on the electrical system
operating as of December 2004 according to
data published by the Energy Policy
Committee (COPE), the Economy and
Finance Ministry (MEF) of the Republic of
Panama.

141

Years
Annual estimation of
emission reductions
in Tonnes of CO2 e
Year 1 (2007) 35,590
Year 2 (2008) 36,153
Year 3 (2009) 36,153
Year 4 (2010) 36,153
Year 5 (2011) 36,153
Year 6 (2012) 36,153
Year 7 (2013) 36,153
Year 8 (2014) 36,153
Year 9 (2015) 36,153
Year 10 (2016) 36,153
Year 11 (2017) 36,153
Year 12 (2018) 36,153
Year 13 (2019) 36,153
Year 14 (2020) 36,153
Year 15 (2021) 36,153
Year 16 (2022) 36,153
Year 17 (2023) 36,153
Year 18 (2024) 36,153
Year 19 (2025) 36,153
Year 20 (2026) 36,153
Year 21 (2027) 36,153
Total estimated reductions
(tonnes of CO2 e)
758,650
Total number of
crediting years
21
Annual average over the
crediting
period of estimated
reductions
(tonnes of CO
2
e)
36,126

142

ANNEX VI I I REFERENCES

IETA. CDM Emission Reductions Purchase Agreement v.2.0. 2004. www.ieta.org
Ministry for Foreign Affairs in Finland. Financing Business Opportunities in Latin America
and the Caribbean. Helsinki, Finland 2003. http://www.finpro.fi/
Ministry for Foreign Affairs, Finland. Clean Development Mechanism (CDM) and Joint
Implementation (JI) Pilot Programme Operational Guidelines. Helsinki, Finland 2003.
http://global.finland.fi/english/projects/cdm/
Point Carbon. The Carbon Market Analyst: Outlook for 2004: An update. Oslo, Norway
2004. www.pointcarbon.com
Rodrguez, Jorge 2004. Gua Metodolgica: Cmo desarrollar proyectos exitosos dentro de
la iniciativa de cambio climtico. La Habana, Cuba, 2004.
UNDP. The Clean Development Mechanism: A Users Guide. New York, USA, 2003.
http://www.undp.org/energy/climate.htm#cdm
UNFCCC. Simplified modalities and procedures for small-scale CDM project activities.
New Delhi, India, 2002. http://cdm.unfccc.int/Reference/Documents
UNFCCC. Simplified project design document for small-scale CDM project activities.
Bonn, Germany, 2003. http://cdm.unfccc.int/Reference/Documents
UNIDO. Guidelines for Infrastructure Development through Build-Operate-Transfer
(BOT) Projects. Vienna, Austria, 1996. www.unido.org
UNIDO. Manual for the Preparation of Industrial Feasibility Studies. Newly revised and
expanded edition. Vienna, Austria, 1991. www.unido.org
World Bank. State and Trends of the Carbon Market 2004. Washington, D.C. 2004.
World Bank. Small Scale CDM Projects: An Overview. Washington, D.C. 2003.
www.carbonfinance.org/cdcf/

143

Oficina Regional para Centro Amrica
Biomass Users Newt ork
www.bun-ca.org
bun-ca@bun-ca.org
Tel: 506+ 283-8835
Fax: 506+ 283-8845

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