Comments on Las Vacas Large Hydro Project (Guatemala)

Current Status: Registered on 17 December 2005

Comments on the CDM Project Design Document for the Las Vacas Hydro Project

Submitted to Asociación Española de Normalización y Certificación (AENOR)

Project Overview:
* Status: completed May 2003
* Location: Las Vacas river, nr. Guatemala City
* Type: 45MW peaking hydropower
* Project Participants: Cementos Progreso, Fabrigas, Comegsa, Iberdrola, Spain
* Estimated generation: 120 GWh/y
* Claimed emission reductions: 92,573 tCO2/year (1,994,033 tCO2 over 21 years)

1. Introduction
Las Vacas is a non–additional project which was completed in May 2003. Its validation and registration as a CDM project activity will have no bearing on its completion and operation. Las Vacas should not be validated for CDM credits.

2. Lack of additionality
The PDD for Las Vacas makes several arguments as to why the project should be considered additional. These arguments are not credible.

2.1 Technological Barriers
The PDD claims that the 30% share of Guatemala’s installed capacity from hydropower is not "substantial" (p.16) and that "hydroelectric generation is not the norm in this country" (p.10). Yet the fact that hydro makes up almost a third of Guatemala’s installed capacity shows that hydro is indeed substantial and normal. The fact that Las Vacas has already been completed – and a similarly sized hydro plant (El Canadá) was completed in the country in late 2003 – clearly shows there are no substantial technological barriers to hydropower in Guatemala. Yet the approved methodology used (AM0005) states that the proposed activity (i.e. hydropower) should not be "common practice". Hydropower is common practice in the Guatemalan energy sector.

The PDD claims that Las Vacas faced a technological barrier on the grounds of the 4.5km long penstock tunnel. Yet Guatemalan engineers are no strangers to long penstock tunnels – that on the Chixoy dam, completed in 1985 – is 26km long. Another Guatemalan dam, Aguamapa, completed in 1981, also has a long penstock tunnel (McCully, P. Silenced Rivers, Zed Books, London, 1996, p.103).

The PDD claims that "real prohibitive barriers" to private development of a project Las Vacas are also shown by the fact that only 4 hydropower plants were developed in the 10 years prior to "implementation" of Las Vacas in 2002 and that these projects had a combined installed capacity almost the same as that of Las Vacas (Table 7). However as shown by Table 3, a further three hydros were completed in 2002 and 2003, one of them with an installed capacity only 2 MW smaller than Las Vacas.

2.2 Investment Barriers
The PDD states that the financing for the project "would have been difficult to obtain without the inclusion of the CERs as an annual revenue stream" (emphasis added). Yet methodology AM0005 states that barriers to the project must be "prohibitive" not just difficult to overcome. That the investment barriers were not prohibitive is shown by the fact that the project received financing despite the very speculative nature of any future revenue stream from CERs.

The PDD states that the business plans given to the Banco Agrícola include revenues from CERs as part of the projected cash flows. If true (the letters are not provided so there is no way of verifying the statement) it proves only that the developers hoped for extra income from CERs, not that CERs were necessary to overcome otherwise insurmountable barriers.

The PDD states that the PPA for Las Vacas was modified in 2001 to include an article that specifically refers to the allocation of CERs. If true, this proves only that the developers were intending to apply for CERs, not that registration as a CDM activity was essential to project viability. In any case construction had already started on the project before the PPA was modified. This raises the disturbing possibility that the PPA was modified in order to increase the project’s apparent eligibility for CERs (both seller and buyer parties to the PPA are listed as project Participants).

The approved methodology used for Las Vacas (AM0005) states that "If the proposed project were able to overcome the identified barriers without registration as a CDM project, then the barriers would be surmountable, and they would not be sufficient proof of additionality." The fact that Las Vacas has been completed without registration, and without any certainty that it would ever receive registration, shows that the barriers were indeed surmountable.

3. Non-credible estimates of baseline emissions
The PDD claims that grid imports in 2003 were "insignificant" at only 30 GWh and therefore do not need to be included in the calculation of baseline emissions. However Guatemala’s interconnections with its neighbours are currently undergoing major upgrades.

The InterAmerican Development Bank (IDB) approved financing of $240m for interconnections among the six countries in the Central American grid known as SIEPAC in September 2002. This loan including $41.4m to Guatemala’s Instituto Nacional de Electrificación (INDE). The SIEPAC lines would allow reliable transmission of 300 MW (3000 GWh in 2007 rising to 4000 GWh in 2009). In August 2003 the IDB approved a $37.5m loan to finance an interconnection with Mexico which would allow Guatemala to import 200 MW (c. 1400 GWh) from Mexico from 2007 onwards.

By 2007 Guatemala would be able to import up to 4300 GWh, equivalent to almost two-thirds of total production in 2003 – clearly not insignificant. The impact of these likely imports clearly must be included in the baseline.

Other concerns:
The PDD claims that "Since the project is a small hydro project it does not generate any direct GHG emissions." This statement is erroneous on two counts. First, Las Vacas is not a small hydro project: it does not fit the Marrakesh Accord definition of a small project (<15MW) or the usual international definition used for small hydro (<10MW). Second, small hydro projects with reservoirs are likely to generate GHG emissions.

Patrick McCully
International Rivers Network
April 5, 2005