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CER Procurement and CDM project development
Background to the Facility

 


Procurement conditions
Type of contracts
Denmark will buy at least part of the CERs resulting from each of the projects it supports. Denmark will offer market-based prices (check for example Point Carbon for reference prices for CERs in forward contracts), taking into account the risk distribution and delivery conditions. Denmark offers a standard ERPA, in which Denmark will buy a large share (say 75-80%) of the expected CER generation until 2012, with an option to buy more for the same price. Denmark may also provide other ERPA formats, provided these are acceptable to the Chinese authorities.

Third-party costs
Another important advantage of using the Danish facility is that it will pay for third-party costs: not only does the Facility provide support for the development of the PDD, it will also pay for validation, initial and periodic verification, and registration.

Transparency
Often a lot of time is lost in negotiating the legal documents relating to CDM. We will try to avoid that: we will publish our standard forms of legal documents (in English, but with an unofficial translation into Chinese), so that the Project Owner can review it before submitting a project to the facility. These standard forms will indicate certain parts that we will need to negotiate between square brackets. After reviewing, we will request the project owner submits together with the PIN comments on the standard legal documents, indicating with which articles and clause the project owner does not agree. That will help us to assess whether negotiations are likely to take a lot of time and costs, and if they do, we will avoid these projects, which is in the interest of both Denmark and the project owner.

If we select the project, negotiations will be based on the standard forms and the comments from the project owner. So if the project owner indicates, for example, that it considers a certain Article inappropriate, or that another Article should be added, we will address that in the later negotiations.
The facility's procedures

The procedures of the Facility are relatively simple, and illustrated in the figure on the right:

Step 1: The project owner reviews the procedures of the Facility and its conditions. If the project owner does not like the procedures and conditions, the project owner can take the project elsewhere, to another buyer with other conditions and procedures.
Step 2: If the project owner likes the Facility, it can submit an application..
Step 3: The Facility screens the projects it receives, and selects the ones it finds most promising. The Facility will do this in consultation with the Climate Change Office under NDRC.
Step 4: For the projects that the Facility has selected, the Facility negotiates an LOI (Letter of Intent) with the project owner. This letter of intent specifies that the Facility will support the development of the CDM project, and that it will buy part of the CERs from the project if it can be successfully registered and implemented. The LOI will also give a range for the CER price(s).
Step 5: After the signing of the LOI, the Facility hires the consultants to write the PDD. In some cases, this will not be necessary, because the project owner, or the project owner consultants, will write the PDD
Step 6,7,8 PDD development, approval by the Chinese government, ERPA negotiation, validation, registration, verification and certification: see above; this follows standard CDM procedures.