Information for CER sellers
CDM Project Cycle: When should I start looking for Buyers?
In the chart below, the possible stages when the Project Owner may like to start thinking about contracting the CERs are identified, and the benefits of doing so at each stage listed. For example, for early-stage projects, an advantage of contracting at the beginning of the process may be the provision by a Buyer of upfront financing to assist with project costs, or assistance with the identification of an investor partner who can also help with the right technology implementation.
How do I find a Buyer?
Once a Seller has decided to contract the CERs to a Buyer, there are several ways to find a suitable counterparty. Buyers sometimes approach the projects directly, or Sellers may be put in touch with Buyers during trade fairs, or through the resources of the local DNA.
However, this only opens up a small part of the global market for CERs to the Seller – there are many companies interested in purchasing good-quality CERs for compliance or speculative reasons, but who are unfamiliar with the local project owners, have too many options available and may not be able to chose between them, or simply prefer the convenience of negotiating via a CER broker. Project Sellers may also prefer the advantages of working with a broker – accessing a wider circle of Buyers creates competition between Buyers, and allows for price discovery, giving Seller's more certainty that they are getting a fair market price. In addition, the broker should be able to guide both parties through the complexities of the contracting process, advising on market standards for clauses, and ensuring both sides have flexibility to negotiate the terms of the contract, with assurance that terms are reasonable and fair within market expectations.
The chart below shows how TFS works with Project Owners to identify the best bids in the market.
Who are the Buyers?
There are many different buyers looking to purchase CERs, for compliance with EU ETS or Kyoto targets, or to speculate on the market. TFS, through strong relationships established since 1985 within Europe, Japan and the United States, has a broad network of clients who are Buyers in public and private sectors, including the power utilities, industrial manufacturers, oil and gas conglomerates, banks, and funds. TFS also works with Government Buyers, aggregators, and technology partners in the CDM market.
It is important to understand the preferences of Buyers, to better understand how to achieve the best value for projects. While there is a clear relationship between risk and price, certain Buyers are also constrained by other requirements.
For example, European buyers purchasing CERs for use in the European Union Emissions Trading Scheme (EU ETS) have to obey the Linking Directive. The Linking Directive controls how European companies may use CERs in the EU Emissions Trading Scheme, and it has very strict rules for the types of hydropower projects allowed. Usually, Buyers prefer smaller hydropower projects below 20MW. This is because hydropower projects above this threshold have to conform to the high standards of the World Commission on Dams, thus requiring substantial environmental due diligence.
The last EUA compliance target also ends in April 2013, so Sellers targeting European Buyers should structure their delivery date for 2013 to be around March, scaling CER generation to match.