Friday, August 5, 2011

Buyers shun carbon credits from Sinohydro's Ecuador dam

Buyers shun Ecuador's megadam carbon credits
4 August 2011

The Ecuadorian government is hoping to sell 13.5 million certified
emission reductions (CERs) from its controversial Coca Codo giant hydro
project, but attempts to find buyers have fizzled out.

The hydropower project on the Coca River would have a maximum capacity
of 1.5GW and cost $2.6 billion to build, according to state-owned
developer Coca Sinclair. The site is 19 kilometres upriver from San
Rafael Falls, the country's biggest waterfall, at 480 feet, in the
Unesco Sumaco Biosphere Reserve.

Chinese developer Sinohydro Corporation has won a government contract to
build the dam; the contractor's previous projects include the
controversial Three Gorges Dam.

The Export-Import Bank of China is providing 85% of the financing, but
Coca Sinclair also hopes to tap the carbon market for additional
funding. The project was submitted for 'prior consideration' for the
Clean Development Mechanism (CDM) on 9 July, meaning it has many hurdles
to pass before being registered and generating carbon credits.

According to Coca Sinclair's website, the developer is currently seeking
a consultant to help write the project design document and guide it
through the registration process. The developer could not be reached for
comment before press time.

But early signals suggest the carbon market may have little appetite for
the credits. Brokerage TFS Green started offering carbon credits from
the project on 21 July, but withdrew from marketing the CERs after
potential investors raised concerns about the sustainability of the
project, Carbon Finance has learned. No bids were received for the 13.5
million CERs that developer Coca Sinclair expects to be generated by the

TFS "started marketing it and then we changed our minds", said Luca
Bertali, global manager of the brokerage's CDM and Joint Implementation
business, adding that many of its clients responded with concerns over
the environmental sustainability of the project.

Meanwhile, carbon project investors speculated to Carbon Finance that
the project is unlikely to qualify for the CDM, in part because of
questions of the additionality of any emission reductions.

The term sheet for the Emissions Reduction Purchase Agreement, seen by
Carbon Finance, estimates the project would lead to reductions of 4.8
million tonnes of carbon dioxide equivalent a year, by displacing
coal-fired power plants that would have met growing demand.

It promotes the eco-tourism benefits of the project and promises "the
strict conservation of the ecological flow of the river and restitution
of the water to the same river (Coca) after its use for electricity
generation, guarantees the return of the water to the flow of the river".

However, local activists are concerned that the project could endanger
San Rafael Falls, because it will be built to harness 222 cubic meters
of water a second, but these levels are seen infrequently, and only
during high precipitation and flooding.

Instead, rates of around 80-100 cubic meters a second are common now,
according to Matt Terry, executive director of the Ecuadorian Rivers
Institute in Quito, with some recordings of 40-50 cubic meters a second.
The company's hydrological data is out of date, Terry maintains, and a
1.5GW project will leave the waterfall dry. Coca Sinclair says that even
in dry conditions the project will leave at least 22 cubic meters a
second of water flowing in the river.

Terry said that another concern is that roads and transmission lines
built to provide access to the project and connect it to the national
grid – not included in the scope of the Coca Codo project but essential
to its completion – will also offer access to nearby parts of the Unesco
reserve, which have up to now remained untouched.

Jess McCabe

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