Feature stories Water 46230 ISSUE 15 | October 2008 Reducing Emissions and Helping Balance Environmental Flows with Support from the Prototype Carbon Fund: Chile's Chacabuquito Small Hydropower Project BackgrounD Project DescriPtion Hydropower is a renewable low carbon source of The Chacabuquito project is located on the Acon- electricity and an important component in reducing cagua River, 100 km north of Santiago. For the greenhouse gas emissions from energy production. past 40 years, human settlements, mining activities The Prototype Carbon Fund (PCF) established by and hydroelectric projects have been established the World Bank in 1999 funds projects--including in the project area. The river flows through a steep hydropower projects--that produce high qual- canyon and then drops into a valley 190 km long, ity greenhouse gas emission reductions that can before discharging into the Atlantic Ocean. The be registered with the United Nations Framework project uses well-proven technologies for run-of- Convention on Climate Change (UNFCCC) for the-river power generation. With support of PCF, the Kyoto Protocol and its Clean Development the project aims to substitute energy from coal Mechanism. Emission reductions are calculated by plants with a renewable source of energy at a offsetting grid electricity, which in most countries is lower cost. Chacabuquito's 26 megawatt plant generated by thermal fossil fuel-fired plants, and is scheduled to deliver one million tons of emis- replacing it with a zero-emission source of power. sions reductions to PCF participants. In return, To increase the likelihood that the reductions will the project developer, a power company called be recognized by the parties of the UNFCCC, Hidroelectrica Guardia Vieja S.A., will receive independent experts provide baseline validation US$ 3.5 million. Carbon finance was instrumental and verification procedures for emission reduc- in the developer's decision to proceed with the tions. The Chacabuquito Small Hydropower Project project, even though carbon funds only cover a made history as the first PCF project to become small part of the project's cost. Concurrently with operational in 2002. the PCF, Mitsubishi Corporation has independently The Chacabuquito Project, currently under contracted to purchase another 100,000 tons of implementation, is a run-of-the-river hydropower emission reductions. project. Run-of-the-river projects differ from con- Since the project required improved access ventional hydropower projects in that they require to the Aconcagua River, two new bridges were no water storage and are less likely to alter en- constructed, existing roads will be upgraded, and vironmental flows. Run-of-river projects can be new roads built. To determine the potential envi- developed on appropriate sites with little, if any, ronmental and social impacts of the Project, an negative impact on either aquatic or terrestrial Environmental Impact Assessment was prepared. habitat. The assessment included an in-depth hydrological PERU BOLIVIA Chile at a glanCe MORe inFORMatiOn Chile Chacabuquito Small Hydro. Carbon Finance BRAZIL PARAGUAY Population: 16.4 million ­ 88% urban, 12% rural; Chacabuquito Hydroelectric Power Project. Project Unit Website, World Bank. CHILE 0.8% annual growth rate Information Document. World Bank, 2002. Hornitos Hydropower Project. Project Appraisal Document. World Bank, 2004. Santiago ARGENTINA URUGUAY Surface area: 756,630 km2 Delivering More than Electricity: Chile Kicks Off the Global Carbon Market. Website Feature Story, LAC P a c i f i c Life expectancy: 78.3 years Region. World Bank, 2003. O c e a n Atlantic GNI per capita: US$ 7,050 Ocean Chacabuquito. Project Design Document. UNFCCC Human Development Index Ranking: Clean Development Mechanism Website. 2004. 40 out of 177 countries % below the basic needs poverty line: 17% (1998) FEATURE SToRiES analysis to establish the minimum flow of 2m3/s as · Establish Monitoring Verification Protocol Algo- the appropriate ecological flow for the river system. rithms. Verification algorithms typically form the The water intake needed for the project will not basis for initial project savings estimates. Those affect water flows and water levels if hydropower presented in the Monitoring Verification Proto- plant operations adhere to water resource manage- col for the Chacabuquito project, as well as the ment regulations. The project actively engaged lo- supporting information, were well grounded. cal stakeholders. The project's Monitoring Verification Protocol should be a benchmark for future protocols in Project outcomes the same sector. · Calculate emissions reductions. To be more The Project is still being implemented, but some ex- accurate in calculating the amount of green- pected outcomes include: house gas emission reductions, the specific emission factors for the type of fuel used in · Cleaner energy for Chile. The project is con- marginal plants should be used instead of nected to a regional subsystem within the generalized country values found in the na- central system that accounts for about three- tional inventory guidelines of the Intergovern- quarters of Chile's power generation. It will help mental Panel on Climate Change. replace the coal that currently provides 25 per- cent of the region's power. · Environmental and socio-economic benefits. scaLing uP The environmental and socio-economic benefits are expected to include: reforestation of 18 The Chacabuquito project is a model that shows hectares with native trees; employment of local how carbon finance can open new possibilities people at the Chacabuquito plant; new access to implement renewable energy projects. As a to small villages in the area as a result of the follow-up project, the Hornitos Hydropower Project roads and bridges built to service the plant; (Chacabuquito II) with a 55 megawatt hydroelec- and demonstration of environmentally friendly tric power plant is currently under implementation. power production techniques. The project is Besides generating additional hydropower, the Hor- also expected to raise broader environmental nitos project is expected to further strengthen gov- awareness and create interest in low carbon en- ernment and private sector understanding of how to ergy technologies. achieve and sell high-quality emissions reductions. Both projects are expected to have significant posi- tive influences on Chile's power sector, and gen- Lessons LearneD erate incentives for the implementation of similar projects in the future to contribute to the reduction A report prepared by the World Bank Carbon Fi- of greenhouse gas emissions. nance Unit assessed the design of the project. Rec- ommendations for future carbon finance projects include the following: · Ensure transparency in baseline study. The as- sumptions made when developing the possible reLeVant Projects project scenarios should be identified and ar- Chacabuquito Small hornitos hydropower Project ticulated in a transparent manner in the base- hydropower Project line study; in particular, the specific assumptions Project ID: P074619 Project ID: P081743 underlying the selected scenario should be pro- Start Date: July 2002 Time Frame: 2005­2013 Project Cost: US$ 34 million Project Cost: US$ 62.8 million vided. Water Feature Stories are published by the Water Sector Board of the World Bank. They are available online at www.worldbank.org/water and in hardcopy from whelpdesk@worldbank.org. 2