EWEA Activities, BB200710
New EWEA study: can CDM foster wind energy investments in developing countries?
The European Wind Energy Association recently carried out a study on the usefulness of the Clean Development Mechanism (CDM) - a project-based mechanism through which industralised countries can reach part of their Kyoto targets by investing in greenhouse gas reductions in developing countries - and the Joint Implementation (JI) in driving wind energy investments in developing countries. At December’s UN Climate Change Conference in Bali, world policy leaders will discuss the future of the Kyoto Protocol for the period after 2012. At the same time, the European Commission is preparing a new climate package which will look, amongst other issues, at the EU Emissions Trading Scheme Directive and its links to the Kyoto flexible mechanisms (CDM and JI).
In this study, to be published during the coming months, EWEA looks at the effectiveness of CDM in triggering wind projects and technology transfer in developing countries. As a first step, the Association reviewed the wind projects that have been registered so far by the United Nations. The study is then complemented by the results of a questionnaire and personal interviews with those wind developers that have carried out projects in the eligible areas.
The review of the database shows that there is a strong correlation between the number of registered projects and the political framework of the CDM projects’ host countries. The major recipients of CDM investments are also the countries that appear to be the most attractive for wind energy investments (China, India, Brazil and Mexico), according to the “attractiveness indicators” published by market analysts. While recognising the important role of CDM, interviewees identify the favourable policy framework as the main driver behind the deployment of wind energy projects.
Indeed, the prices of Certified Emission Reductions (CER) – emission credits released by CDM projects - are too low and uncertain to make renewable electricity projects attractive for investors. Furthermore, there are important administrative and methodological problems that hinder the development of wind energy projects in emerging countries. Administrative procedures, such as registration and validation, are time consuming, bureaucratic and costly. It can take 1 to 2 years from the project identification to the project registration. The methodology applied for the calculation of the CO2 reduction also puts wind energy projects at a disadvantage in comparison with other options, as the system awards more credits to projects that reduce CH4, N2O and CFCs whose global warming potential is greater. Yet it is important to underline that the contribution that the different initiatives make to the sustainable development of the recipient countries (in terms of supplying a basic commodity such as electricity, or of creating local employment and industrial base) is not the same. The experts interviewed agreed that a methodological amendment is necessary in order to take this positive factor into account.
In addition, with the same level of investment, project developers can obtain a different number of credits depending on the baseline scenario of the country in which they install the wind farm. Countries where the electricity mix mainly relies on hydro will provide fewer credits than countries whose electricity mix relies on coal and lignite, regardless of the contribution that the new installation makes to the electricity needs of the country. The impact in terms of revenue is shocking: for a CER price of €20/ton, a wind farm in India can get €0.02/kWh and only €0.01/kWh in Colombia.
The European Wind Energy Association concludes that CDM project-based schemes do play a role in the development of wind energy projects in emerging countries, even though they are not the decisive element for a company that is considering investing there: it is the local institutional framework and the stability of the CER prices that matter the most. The impact of the project-based schemes on wind energy investments could increase if the administrative and methodological barriers were removed.