CENTRAL AMERICAN CARBON FINANCE GUIDE Author: GreenStream Network Oy, BUN-CA Ministry Foreign Affairs FINLAND www.artspdf.com This PDF has been modified using a demo version of ARTS PDF software Central American Carbon Finance Guide Energy and Environment Partnership with Central America Central American Carbon Finance Guide © Copyright 2004, GreenStream Network Ltd. and BUN-CA 1st Edition, September 2004 Cover designed by : Carlos Gómez / Photo:Gandhi Montoya Because the Ministries of Environment of the Central American countries are aware 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, permiting 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 González Secretary Executive Central American Commission on Environment and Development Contacts: [email protected] [email protected] [email protected] This Guide may be freely quoted for non-commercial purposes, provided that this Guide is acknowledged as the source and authors’ copyright is recognised. www.artspdf.com This PDF has been modified using a demo version of ARTS PDF software Central American Carbon Finance Guide Foreword Renewable energy resources are receiving a great deal of attention lately because their use can contribute to solving some of the world's energy and environment challenges. The Bonn Renewables 2004 Conference is one example of this development. Our Energy and Environment Partnership with Central America, launched during the 2002 United Nations World Summit in Johannesburg, helps to make it possible for these energy resources to play a major role in satisfying the energy needs of the Central American region. This, in turn, would advance sustainable development in the region, reduce greenhouse gas emissions and aid in mitigating 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). It is actively working in the seven Central American countries—Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama—with the main aim of implementing sustainable demonstration projects on the appropriate use of renewable energy sources, that is, bioenergy, hydroelectric, solar, wind and geothermal technologies. Most of the Partnership’s projects will help to reduce 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 to aid 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 project 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, and BUN-CA, a Central American renewable energy and energy efficiency expert network, prepared this document. A participatory process was used which included valuable comments and suggestions from local and international experts, to whom we are most grateful for their help. 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.sgsica.org/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 2 www.artspdf.com This PDF has been modified using a demo version of ARTS PDF software Central American Carbon Finance Guide 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 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, Mr. Hannu Eerola from the Finnish Ministry for Foreign Affairs, Mr. Otto Leonel García Mansilla, Ms. María Eugenia Salaverría and Mr. Ismael Antonio Sánchez from the Regional Coordination Office, as well as all the members of the Steering Committee representing all the Central American countries. Among the people who provided comments for the Guide we would like to thank Mr. Mauricio Ayala from the Ministry of Environment of El Salvador, Mr. Leonardo José Matute Valladares from the Honduran Secretary of Natural Resources and Environment, Mr. Giovanni Castillo from the Ministry of Energy and Environment of Costa Rica, Mr. Román José Román-Gutiérrez, Technical Coordinator of Energy Projects in the Nicaraguan National Office for Clean Development, Mr. Jari Väyrynen and Ms. Veronique Bishop from the World Bank’s Carbon Finance Unit, Mr. Jari Poikola from Pohjolan Voima Oy and Mr. Kari Hämekoski from the Finnish CDM/JI Pilot Programme. 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. Chapters 2, 3 and 5 were mainly written by GreenStream Network Ltd. and the extensive country information in Chapter 4 was recompiled by BUN-CA. Principal authors of the guide are Mr. Tommi Tynjälä and Ms. Inger-Anne Blindheim from GreenStream Network Ltd. and Mr. Leonel Umaña and José María Blanco from BUN- CA. External financing for this guide was provided by the Energy and Environment Partnership with Central America and Pohjolan Voima Oy. Both GreenStream Network Ltd. and BUN-CA also contributed considerable resources of their own for the elaboration of the guide. Tommi Tynjälä José María Blanco GreenStream Network Ltd. BUN-CA 3 www.artspdf.com This PDF has been modified using a demo version of ARTS PDF software Central American Carbon Finance Guide Abbreviations AA Assigned Amount AAU Assigned Amount Unit AHPPER Honduran Association of Small Renewable Energy Producers AMM Wholesale Market Administrator, Guatemala ANAM Nacional Environmental Authority of Panama ARESEP Public Services Regulating Authority BUN-CA Biomass Users Network – Central America BEL Belize Electricity Limited CABEI Central American Bank for Economic Integration CAF Corporación Andina de Fomento CCAD Central American Commission on Environment and Development CDB Caribbean Development Bank CDCF Community Development Carbon Fund CDM Clean Development Mechanism CDM EB CDM Executive Board CEL Rio Lempa Hydroelectrica Executive Commission, El Salvador CER Certified Emission Reduction CHP Combined Heat and Power UNFCCC United Nations Framework Convention on Climate Change CNDC National Load Dispatch Center, Nicaragua CNE National Energy Commission, Nicaragua and Honduras CNEE National Electric Energy Commission, Guatemala COP Conference of the Parties to the UNFCCC COPE Energy Politicy Commission, Panamá CRIE Regional Commission on Electric Interconection DEE Electric Energy Direction, El Salvador DGE Energy General Direction, Honduras and Guatemala DNA Designated National Authority DOE Designated Operational Entity DSE Energy Sectorial Direction, Costa Rica EIB European Investment Bank ENEE National Electric Energy Enterprise, Honduras ENEL Electricity Enterpise of Nicaragua ENTRESA Nicaraguan Transmission Enterpise, S.A. EPR Grid Owner Enterpise ERPA Emission Reduction Purchase Agreement ERSP Public Services Regulating Entity, Panamá ESMAP Energy Sector Management and Assistance Program ET Emissions Trading ETESA Electric Transmission Enterpise, S.A., Panamá ETESAL Electric Transmission Enterpise of 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 Funding for Renewable Energy Enterprise in Central America FIDIC International Federation of Consultant Engineers FOCER Strengthening of the Renewable Energy Capacity GESAL Geothrmal