Understanding CDM Methodologies - SuSanA

Investment
Comparison for all
Scenarios on Basis
of Levelized Costs
Sensitivity
Analysis required
Additionality
Test repeats
Investment
Analysis
Common Practice
Test
Impact of CDM
Scenario
Registration Test
Lowest of
three Emissions
Factors: BM, CM
or Emissions
Factor of Baseline
Formula for
Emissions Factor
of Baseline
Scenario
Once all scenarios have been identified, the economically most attractive
baseline scenario alternative is chosen using investment analysis. The levelized
cost of electricity production in $/kWh should be used as an indicator for
investment analysis 249 . Project participants shall include all relevant (i) costs
(including, for example, the investment cost, fuel costs and operation and
maintenance costs), (ii) revenues (including subsidies/fiscal incentives, ODA,
etc. where applicable), including non-market cost and benefits in the case of
public investors.
A sensitivity analysis shall be performed for all alternatives to confirm that the
conclusion regarding the financial and/or economical attractiveness is robust
to reasonable variations 250 in the critical assumptions (e.g. fuel prices and a
load factor). The investment analysis provides a valid argument only if the
sensitivity analysis consistently supports the conclusion. In case the sensitivity
analysis is not fully conclusive, select the baseline scenario alternative with
the lowest emission rate among the alternatives that are the most financially
and/or economically attractive. If the emission rate of the selected baseline
scenario is clearly below that of the project activity, 251 then the project activity
should not be considered to yield emission reductions, and this methodology
cannot be applied.
Upon establishment of the most plausible baseline scenario, additionality
of the project shall be demonstrated based on the following three steps: (i)
benchmark investment analysis, (ii) common practice analysis, and (iii) impact
of CDM registration.
Step 1 – Benchmark investment analysis: Demonstrate that that the
proposed CDM project activity is unlikely to be financially or economically
attractive by applying benchmark analysis, calculation and comparison of
financial indicators), and sensitivity analysis as specified in the latest version
of the additionality tool. With the current version of the additionality tool
(version 03), this is essentially the same procedure as step 2 of the baseline
scenario identification procedure described above.
Step 2 – Common practice analysis: Demonstrate that the project activity
is not common practice in the relevant country and sector
Step 3 – Impact of CDM registration: Describe the impact of the
registration of the project activity.
If all the three steps are satisfied, then the project is considered additional.
Baseline Emissions
The baseline emissions are calculated by multiplying the power generated by
the project plant by a baseline emission factor. The baseline emission factor is
estimated as the lowest emission factor among the following three options:
• Option 1: The BM emission factor, calculated according to ACM0002;
• Options 2: The CM emission factor, calculated according to ACM0002
with 50%/50% OM/BM weights; and
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In calculating the indicator, risks of the alternatives can be included through the cash flow pattern, subject to
project-specific expectations and assumptions (e.g. insurance premiums can be listed in the calculation to reflect
specific risk equivalents).
250
Typically, a range between -10% and +10% is applied.
251
E.g. the baseline scenario is hydro, nuclear or biomass power.
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