Download build margin

El Gallo Hydroelectricity Project
PDD Analysis
Project Description
Objectives of the
project
Project
description and
proposed
activities
Technologies to
be employed
Generate renewable electricity using hydroelectric
sources
 Stimulate commercialisation of renewable energy
 Broaden private sector experience in development
and operation of hydroelectric schemes
 Meet increasing energy demand for economic growth
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30 MW power plant at existing irrigation dam
Sale of electricity to industrial users and municipalities
30 MW, 47 m head, 77 m3/s flow, 86% efficiency
Francis type hydraulic turbines
12 km transmission line
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Project Description
Project Developer
Impulsora Nacional de Electricidad (INELEC)
Project Sponsors
Prototype Carbon Fund (PCF); Scudder Latin
American Power Fund
Greenhouse gases
targeted
CO2
Location of the
projects
Mexico, State of Guerrero, Cutzamala River
Expected Schedule
Project start date 2005
Project lifetime
25 years
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Social and Environmental Benefits
Estimate of
Greenhouse Gases
abated (tons of
CO2 equivalent)
Baseline scenario
Annual: 70 kT CO2e
 Over crediting period: 1480 kT CO2e over 21 years
 Calculation based on:
120 GWh annual electric output of project
0.584 t CO2e/MWh grid emission rate (replaced by
project)
(120x1000) MWh x 0.584 t CO2e/MWh = 70 kT CO2e
 Replacement of mix of coal (58%), fuel oil and gas
power generation

Dam built in 1978 for irrigation and electricity
production; electricity component never implemented
for lack of funds
 Potential electricity consumers include municipalities
with low creditworthiness
 Difficulties in securing financing
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Social and Environmental Benefits
Specific global & local
environmental benefits
Socio-economic aspects
greenhouse gas emission reductions
 no new dam construction, insignificant
negative environmental impacts (the
construction of the reservoir had already
depleted fish stocks)
 clearing of vegetation for line construction
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payment for right of way for construction of
transmission lines to landowners
 impact on irrigation of downstream farmers
limited by maximum water usage agreement
by the dam
 the dam will ensure a minimum water flow
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Finance
Total project cost estimates
US$ 45 million
Sources of financing
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No public funding
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Baseline Methodology
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Prohibitive barriers to securing financing:
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high interest rates of Mexican financial markets
perceived technology risk (El Gallo is a small hydro by a private
developer)
transaction and development costs of small project
Registration as a CDM project with World Bank backing would
overcome those barriers (credibility and creditworthiness)
Sale of CO2 is more secured than that of electricity to
customers with low creditworthiness (US$ 270,000 per year out
of US $7.7 million per year)
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Baseline Emission Rates
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Displacement of electricity that would otherwise be
provided by the expansion of the grid
Emissions from a technology that represents an
economically attractive course of action, taking into
account investment barriers
Baseline emissions are the average of the
approximate operating margin and the build margin
(as in the methodology defined for small-scale
projects)
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Baseline Emission Rates

Baseline emissions are the average of the approximate
operating margin and the build margin (as in the methodology
defined for small-scale projects)
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operating margin is the weighted average emissions of all
generating sources serving the system, excluding hydro,
geothermal, wind, low-cost biomass, nuclear and solar
build margin is the weighted average emissions of recent
capacity additions to the system, defined as the lower of
most recent 20% of plants built or the 5 most recent plants.
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Project Boundary and Leakage
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Geographic and system boundary of electric grid:
power projects that feed into the Mexican grid can be
established almost anywhere in the country.
Potential leakages mainly related to plant
construction, fuel handling and land inundation are
not considered by the baseline methodology.
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Expert Reviewers Comments
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The methodology is valid as the project is a relatively minor
addition to the grid.
The PDD should consider undertaking an analysis showing that
the project is not a least cost option and therefore not part of
the baseline scenario.
Some barriers identified in the PDD are debatable:
 perceived technology risk: risk is low as the technology is
widely known in Latin America.
Meth Panel Recommendation: approval with minor changes
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Public Comments
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The PDD uses the small-scale baseline methodology,
yet its capacity exceeds 15MW.
Most developing countries face similar difficulties in
securing financing for their hydropower projects.
Approving the PDD would make any kind of
hydropower project, including large ones in China
and India, eligible for CDM.
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