financing structures and cdm project risks cairo, april 4 th –april 5 th, 2005 tims/eeaa...

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

Financing StructuresFinancing Structuresand and

CDM Project Risks CDM Project Risks

Amr Abdel-Aziz, Ph.D. Integral Consult

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

CDM Project CycleCDM Project Cycle Risk CER Price

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

Financing StructuresFinancing Structures

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

Direct Sale of CERs from a Host Country Direct Sale of CERs from a Host Country

Driven CDM ProjectDriven CDM Project CERs sold directly to an Annex I PurchaserNo further involvement of the purchaser in the projectSimple Emission Reduction Purchase Agreement (ERPA) to sell

the CERs through a direct sale transactionCER Purchaser is limited to paying for CERs once they have

been delivered (Less risk Higher Price)

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

Provision of Debt Finance in Return for Provision of Debt Finance in Return for Part Payment in CERsPart Payment in CERs

Annex I project participant can be involved as financier to the underlying project

Provides a portion of project finance in the form of a loanReceives CERs as part payment of a fixed proportion of

the interest for that loan

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

Equity Investment in Return for Revenue Equity Investment in Return for Revenue Stream from CERsStream from CERs

Annex I Investor offers equity investment in a project In return for equity in the project and a share of the CERs arising from

the project Project Participants and the investor may create a separate company

to hold the CERsAnnex I investor may take equity in the form of shares in this company

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

Technology Swap in Return for CERsTechnology Swap in Return for CERs

Investor provides or licenses technology to a project Cost of technology paid for partially with CERs from

the project

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

CDM Project RisksCDM Project Risks

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

POLITICAL RISKSPOLITICAL RISKS

Political stabilityBusiness environmentLegal infrastructureInvestment culture Changes in economic and energy related policiesFailure to obtain national approval for a CDM Project

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

TECHNICAL, COMMERCIAL AND TECHNICAL, COMMERCIAL AND BUSINESS RISKSBUSINESS RISKS

Technical Risk – Underperformance of projects Business Risk – Force-Majeure Commercial Risk - CER prices fluctuation Investment culture

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

CDM PROJECT SPECIFIC RISKSCDM PROJECT SPECIFIC RISKS

Possibility of rejection of the project by the CDM Executive Board (Additionality, Baseline)

Establishing legal title to the CERs Community or NGO opposition to a CDM project Inaccurate Monitoring or Verification of Emission

Reductions

Financing Structures and CDM Project Risks Cairo, April 4th –April 5th , 2005

TIMS/EEAA Fertilizers Workshop UNEP RISOE / APEX

Negotiations Issues with InvestorsNegotiations Issues with Investors

CER PriceDuration of Contract (first crediting period or project duration)Financing StructureSplit of CERs (% for each party)Investors entry point in project cycleSale of Verified Emissions Reductions (VERs) or Certified Emissions

Reductions (CERs)