Conservation Strategy Fund Comments on Changuinola 1 (Chan 75) Large Hydro Project (Panama)

Friday, August 8, 2008

Comments on Changuinola 1 (Chan 75) Large Hydro Project (Panama)

Submitted to Manja Welzel, TÜV SÜD Industrie Service GmbH, by John Reid, President of Conservation Strategy Fund

To Whom It May Concern:

The purpose of this letter is to comment on the Clean Development Mechanism Project Design Document submitted June 11, 2008, by AES-Changuinola S.A. for the Changuinol I hydroelectric project (also known as Chan 75). The project appears to be financially viable without income from carbon credits, and would therefore result in an overall increase in regulated emissions from parties to the Kyoto Protocol.

In 2006, a group of researchers from Conservation Strategy Fund, the INCAE Central American Business School, the Alianza para la Conservación y Desarrollo, and the Asociación ANAI conducted a study on economic aspects of three hydroelectric dams on the Changuinola River and one on the Teribe River, located in the same watershed. The study found that the collection of projects would produce an after-tax financial net present value of US$ 86 million on an investment of US$ 446 million. These figures do not include revenues from carbon credits. The study is available at

While the four dams were studied in the aggregate, there is reason to believe that, individually, Chan 75 is at least as profitable as the other projects. First, the US$1 million per MW installed capacity estimated for Chan 75 by Planeta Consultores in 2005 was the lowest cost among the four dams included in the analysis. Second, it is unlikely that the project developer would undertake the least profitable of the projects first.

The project participant's assertion that the hydropower is and will remain un-competitive with thermal sources in Panama over the period during which credits are received is questionable. The Estí Dam suggests otherwise. It was built with no assurance that carbon credits would provide a revenue stream, and when fuels for thermal sources were considerably less expensive than they have now become. The un-quantified mention of "low return on equity" provides no basis on which to judge Estí's ex-post feasibility. In fact, if returns fail to meet investor expectations, one might expect AES to sell the Estí asset and invest the proceeds in more attractive projects.

Our economic findings were presented in a forum hosted by The Nature Conservancy and Panama Chamber of Commerce in October 2006. Representatives from AES-Panama presented the Changuinola projects at this session. They did not question our calculations at the time or in any subsequent communication. The eligibility of Chan 75 under the
CDM rests on an assertion of financial additionality that is at odds with our findings and impossible to independently assess with the information provided in the Project Design Document.

Thank you very much for the opportunity to submit this comment.


John Reid, President
Conservation Strategy Fund

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