Guatemala: El Canada Hydroelectric Project

1. Guatemala: El Canada Hydroelectric Project Meth Panel decision on its proposed baseline methodologies May 2003

2. Contents • Recommendations by the Meth Panel on Baseline Methodology • Evaluation of the Proposed New Baseline Methodology by the Meth Panel

3. Recommendations on Baseline Methodology • “C” – Methodology Not Approved • May be resubmitted in accordance with the procedures for submission and consideration of proposed new methodologies of the Executive Board

4. Recommendations on Baseline Methodology • Reasons for Non Approval • The methodology shall explicitly demonstrate that the project activity is not the baseline • Cost calculations do not follow a specified methodology and are not applied conservatively • Ex post calculation of baseline emission rates is not justified

5. Recommendations on Baseline Methodology • Reasons for Non Approval • The elaboration of the baseline scenario must be specified by the baseline methodology and not left to the monitoring methodology • Discrepancy between the load characteristics of of the proxy plant used to demonstrate additionality and the marginal dispatch plants used to determine ex post baseline emission factors

6. Details of the Evaluation • The methodology shall explicitly demonstrate that the project activity is not the baseline • No reference should be made to “environmental additionality” and the methodology must explicitly demonstrate that the project activity is not the baseline • CDM M&P does not use this term. Additionality has been defined in the CDM M&P and clarified in the CDM-PDD glossary. What is required is a demonstration of how the proposed new methodology implements this decision. • If the costing formula were clearly specified, the methodology might be capable of a demonstration that the project activity is not the baseline. However, there are two methodological problems: • 1) Costing formula is not specified • 2) The comparison should be between the expansion of the grid with the project activity registered under the CDM and without such registration

7. Details of the Evaluation • 2. Cost calculations do not follow a specified methodology and are not applied conservatively • The project participants should select a specific costing approach in their methodology and document it fully. The EPRI TAG Method is only cited as an example. • The methodology should specify that conservative assumptions are used for cost calculation (long lifetime of the project activity, short lifetime of alternatives, low discount rates, realistic assessment of value of hydro generation) • The methodology should require to rigorously document the method and parameters used to generate the costs of the different options evaluated for the least cost analysis.

8. Details of the Evaluation • 3. Ex post calculation of baseline emission rates is not justified • In order to ensure that: a) the methodology yields a conservative result; b) is not rendered invalid should current dispatch data become invalid in the future; c) the precise algorithms are clear ex ante, the methodology should include a calculation of an ex ante baseline emission factor, consistent with the elements of a methodology identified by the EB. The baseline emission factors must be reported explicitly in the draft CDM-PDD.

9. Details of the Evaluation • 3. Ex post calculation of baseline emission rates is not justified (…Continuation) • Specifically, the ex post calculation of baseline emission rates methodology has the following problems: • The methodology seems to introduce unnecessary uncertainty – the emission factors for the baseline are known, as they must be estimated for the purpose of reporting the emissions reductions. The principle of transparency demands that such estimates be stated • Emission factors MUST be reported explicitly in the draft PDD as the proposed new methodology relies heavily on the argument that there will be emission reductions that will take place • The project developer MUST justify why the ex post monitoring of the grid in the “with the project” situation is a fair representation of what would have occurred in the absence of the project activity

10. Details of the Evaluation • 4. The elaboration of the baseline scenario must be specified by the baseline methodology and not left to the monitoring methodology • The reasonableness of the baseline scenario is open to methodological question: Taking only the highest cost/ last plants fired may be a workable estimation method, but is likely to err on the high (non-conservative) side where peaking units have a higher emission factor that other plants. • The baseline methodology should show how the least-cost methodology can be implemented in a consistent and a transparent manner. A thorough explanation is needed to explain why coal is considered as the most attractive scenario given the national expansion plans of Guatemala which does not mention coal as a significant player.

11. Details of the Evaluation • 4. Discrepancy between the load characteristics of of the proxy plant used to demonstrate additionality and the marginal dispatch plants used to determine ex post baseline emission factors • There is lack of clarity in distinguishing peak and base-load. This lack of clarity has implications on the cost. (Example: The coal plant used as proxy to demonstrate addtionality will most likely run at night and in lower demand season when avoided costs are low) If El Canada Project can store and release more during peak periods, then it can provide higher valued output.