WWW.WATERPOWERMAGAZINE.COM JUNE 2010 13
INSIGHT
investor condence;
r The industry has signicant economies of
scale; and
r Hydro projects tend to have a high
energy density, therefore it can off-set
higher amounts of CO2 per unit of cost.
“Hydropower’s prominent position is due
to the comparatively favourable low-car-
bon characteristics of the technology, but
the multiple benets that it provides aside
from just climate change mitigation are
also becoming increasingly important” said
Richard Taylor, IHA Executive Director.
“For example, hydropower’s energy stor-
age and operational flexibility means it’s
enabling the greater use of other renewable
energy technologies, enhancing mitigation
efforts. Also, in the near term, hydropower’s
water management capabilities will become
even more valuable in the context of climate
change adaptation.”
CDM hydropower projects that gain regis-
tration have to demonstrate a high level of
sustainability. Registered hydropower CDM
projects comply with the sustainability laws
and regulations of the project-host countries
they take place in. In addition, a signicant
proportion of registered hydropower CDM
projects also voluntarily impose upon them-
selves international sustainability assessment
frameworks such as IHA’s Sustainability
Assessment Protocol (2006).
The EU Emissions Trading System (ETS) is
presently the largest emissions trading scheme
in the world. Hydropower CDM projects
over 20MW that wish their CERS to partici-
pate in the EU ETS must comply with the EU
Harmonised Guidelines and Template for
Hydropower CDM projects (2009), a regional
sustainability assessment framework. Indeed,
leading CDM project developers and auditors
utilise IHA and EU sustainability assessment
frameworks as standard practice.
With the cross sectoral review of IHA’s
Sustainability Assessment Protocol (2006),
being conducted by the Hydropower
Sustainability Assessment Forum, likely to
produce a revised Sustainability Assessment
Protocol in late 2010, the already high sus-
tainability performance of hydropower CDM
projects that gain registration will continue to
improve.
All of these sustainability efforts reect the
substantial progress, over the past two dec-
ades, that hydropower has made in striking
the balance between environmental, social
and economic parameters.
Status of hydro in the CDM
Due to uncertainty regarding the net green-
house (GHG) emissions status of reservoirs,
‘power density criteria’ have been applied to
hydropower projects. The effect of this is that
reservoir hydropower projects of more than
15MW, subject to a few limited exceptions,
may not participate in the CDM.
More than minor GHG emissions from
reservoirs have been detected at a few res-
ervoir sites. However, the actual net GHG
emissions of most of the world’s reservoirs
are likely to be low, especially when com-
pared against other energy technologies.
IHA and the International Hydrological
Programme (IHP) of UNESCO commenced
an international research effort on the GHG
emissions status of reservoirs, in 2008.
As a result of this research reservoir hydro-
power projects could be admitted to the
CDM in the near future, as denitive infor-
mation becomes available on their net GHG
emissions. Until this occurs, IHA says that
signicant opportunities are being missed,
which include:
r Further CO
2
avoidance and reduction;
r Tapping into the unique ‘energy-side’ char-
acteristics of reservoir hydropower, known
in energy policy as ‘ancillary services’,
which provide support to other variable
and base-load low-carbon power generat-
ing technologies; and
r Tapping into the unique ‘water-side’ char-
acteristics of hydropower, known in cli-
mate change policy as ‘co-benets’ which
increase hydropower’s role in climate
change adaptation at the intersection of
water and energy.
Regions represented
Currently, the Asia Pacic (78%) and Latin
America (18%) regions lead in hydropower
CDM deployment. Only eight countries
(Bhutan, Cambodia, Lao PDR, Madagascar,
Mali, Nepal, Tanzania, and Uganda) among
those categorised as Least Developed
Countries (LDCs) by the UN have so far
initiated a hydro CDM process – consisting
of only 13 hydro projects, less than 0.9% of
the total hydro projects in the CDM pipeline.
Among those projects, only three are regis-
tered, representing 0.4% of that total. Those
projects are:
r (i) E7 Bhutan 70kW micro hydropower
project in Bhutan;
r (ii) Dagachhu 114MW hydropower project
in Bhutan; and
r (iii) West Nile Electrification Project
(WNEP) in Uganda.
Interestingly, the Dagachhu 114MW hydro-
power project – developed to enable Bhutan
to export clean energy to India – has been
registered as the rst ever cross-border initia-
tive under the CDM.
Part of the Asian Development Bank’s
(ADB) Green Power Development Project for
Bhutan, Dagachhu is expected to reduce CO
2
emissions by about 500,000 tonnes per year,
especially through exports to India, which
relies heavily on coal-red power plants for
electricity generation. The project will help
mitigate carbon emissions in India while
generating additional revenue from CDM to
make the project viable in Bhutan.
A further notable feature of the Dagachhu
project is participation by multiple
Bhutanese and international stakeholders,
marking it as the rst public-private partner-
ship in infrastructure investment in Bhutan.
The special company established to manage
the project is led by Bhutan’s state-owned
utility, Druk Green Power Corporation
(DGPC) and India’s leading energy com-
pany, Tata Power Company.
The total cost of the project is around
$200M. ADB has committed an $80M loan
to the project, of which $51M from ADB’s
Ordinary Capital Resources is nanced for
debt while the balance of $29M is used
for DGPC’s equity. Co-financing is being
provided by the National Pension and
Provident Fund of Bhutan and the Raiffeisen
Zentralbank Österreich AG (RZB) of Austria
through export credit of Österreichische
Kontrollbank AG (OeKB).
The Austrian government, through the
Austrian Development Agency, has pro-
vided engineering support toward the
project while ADB is providing assistance
with overall capacity development to help
strengthen policy and institutions of the
Bhutan power sector.
“This project will deliver economic and
social benets on wider fronts. The project’s
royalties will contribute to low-cost electric-
ity supply to rural domestic customers in
Bhutan and at the same time provide the gov-
ernment of Bhutan with a long-term revenue
stream to support its development programs
for poverty alleviation,” said Kaoru Ogino,
Senior Energy Specialist of ADB’s South Asia
Department.
The project structuring was promoted
with support from the Japan Special Fund,
established by the government of Japan and
administered by ADB. It has also received
assistance from ADB’s Technical Support
Facility under its Carbon Market Initiative
during the process of the CDM registration.
Developing potential
There are undoubtedly many more projects
like Bhutan’s Dagachhu that would benet
from the CDM. However, LDCs with hydro
potential need extra help to access and better
use carbon nance to catalyse their develop-
ment. These challenges are being highlighted
in the work of IHA’s Markets and Investment
Working Group, but, as IHA points out –
at the moment the CDM remains the main
global, environmental investment and credit
scheme currently in place to directly mobi-
lise private sector capital for clean develop-
ment. For this reason, the Association has
called on the world’s governments to raise
the importance of the CDM in their agen-
das. It is concerned that with no legally
binding international treaty arising from
Copenhagen (2009), the long-term future of
the CDM is uncertain.
For further details please contact: Lau
Saili, Policy Analyst, IHA.
Email: ls@hydropower.org.
www.hydropower.org.
IWP& DC