GUATEMALA: EL CANADA HYDROELECTRIC PROJECT

Transcription

1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT (CDM-PDD) PROTOTYPE CARBON FUND GUATEMALA: EL CANADA HYDROELECTRIC PROJECT April 8, 2003

2 CONTENTS A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions by sources F. Environmental impacts G. Stakeholders comments Annexes Annex 1: Information on participants in the project activity Annex 2: Information regarding public funding Annex 3: New baseline methodology Annex 4: New monitoring methodology Annex 5: Table: Baseline data 2

3 A. General description of project activity A.1 Title of the project activity: El Canadá Hydroelectric Project. A.2. Description of the project activity: (Please include in the description - the purpose of the project activity - the view of the project participants of the contribution of the project activity to sustainable development) The Project consists of a 43 MW peaking run-of-river hydroelectric plant located on the Samala River on the west coast of Guatemala, near the town of Santa Maria de Jesus. The western Guatemala region has 350 MW of demand and 31 MW of installed capacity. Construction began in February 2002, and when completed in December 2003, the plant will produce an average of 178 GWh/year. The Project will sell its electricity to Guatemala s largest commercial distributor, COMEGSA, under a 10-year Power Purchase Agreement (PPA). The Project will contribute to sustainable development of Guatemala in various ways. First, it will increase the power supply to the local grid, improving stability and helping reduce losses in the distribution system. Second, it will reduce greenhouse gas emissions as well as emissions of local pollutants from power generation by using a cleaner energy source than what typically would have been used. Third, it is one of the first renewable energy projects to be developed after the approval of Guatemala s new General Electricity Law. Its development will provide important knowledge and experience for other project developers that are striving to participate in the competitive national and regional market. Fourth, through the agreements the Project Company has entered into with the neighboring municipalities, the Project will conserve sub-surface water, re-forest certain land on which the Project is being constructed, and make annual payments to improve the conditions of the local communities. Finally, it will create approximately 250 jobs, injecting at least US$ 30 million into the Guatemalan economy over the course of the construction period. A.3. Project participants: (Please list Party(ies) and private and/or public entities involved in the project activity and provide contact information in Annex 1) (Please indicate at least one of the above as the contact for the CDM project activity) Generadora de Occidente Ltda., special purpose company based in Guatemala, is the Project Company. An affiliate of Generadora de Occidente Ltda. will operate the Project. It is owned by Energía Global International, LLC, which is the Project s equity partner, and a subsidiary of Italy s Enel GreenPower S.p.A. Debt financing is being provided by the International Finance Corporation (IFC), and the greenhouse gas emission reductions will be purchased by the Prototype Carbon Fund (PCF) on behalf of its Participants. 3

4 PCF is the contact for the CDM Project activity. (Please see Annex 1 for detailed contact information). A.4. Technical description of the project activity: A.4.1. Location of the project activity: A A A Quetzaltenango Host country Party(ies): Guatemala Region/State/Province etc.: Western Guatemala City/Town/Community etc: 12 miles south of Municipality. A Detail on physical location, including information allowing the unique identification of this project activity: The Project is located on the Samalá River, 12 kilometers south of the Quetzaltenango Municipality and 198 kilometers due west from Guatemala City. Quetzaltenango is Guatemala s second largest city and is responsible for a large portion of the 350 MW maximum demand of the western region. The Samalá River is nearly 130 kilometers in length, and has relatively high flows, due to intense rainstorms over the western slopes of the volcanic mountain ranges that act as the river s basin. The slopes around the Project are very steep, with small plateaus. The Project is located immediately downstream from the existing Santa María hydro powerhouse owned by the national utility, Instituto Nacional de Electrificación (INDE), and will take advantage of the existing infrastructure. A.4.2. Category(ies) of project activity: (Using the list of categories of project activities and of registered CDM project activities by category available on the UNFCCC CDM web site, please specify the category(ies) of project activities into which this project activity falls. If no suitable category(ies) of project activities can be identified, please suggest a new category(ies) descriptor and its definition, being guided by relevant information on the UNFCCC CDM web site) As of the date of this PDD, a list of categories of project activities is not available on the UNFCCC CDM website. The PCF proposes the category for the El Canada Project as Mitigation and subcategory, as Renewable Energy, Run-of-river capacity addition. A.4.3. Technology to be employed by the project activity: (This section should include a description on how environmentally safe and sound technology and know-how to be used is transferred to the host Party, if any). All equipment to be utilized in the Project is proven technology that has been successfully applied in similar projects, including projects already constructed and in operation in Guatemala. Nameplate plant capacity will be 43 MW at 365 m net head, with an associated maximum hydraulic capacity of 13.4 m 3 /sec. The Project will collect power flows from the tailrace of the existing Santa Maria power plant 4

5 that is owned by INDE and also collects spillages from the Santa Maria dam and local inflow from the area between the Santa Maria dam and the Project diversion dam. All power flows will flow through a desander, located immediately downstream of the diversion dam, and are subsequently diverted through a tunnel, three meters in diameter and approximately 1200 m long, to a regulating pond. The regulating pond is designed to collect water inflows for daily peaking operation, totaling 5 hours. The live storage volume is 184,000 m 3, using an 8-meter pond fluctuation. The normal operating level of the reservoir will be meters above sea level (masl) and the minimum operating level will be 1409 masl. An intake structure on the regulating reservoir will be equipped with trash racks and a hydraulically operated gate. The gate will be equipped to close during emergency conditions in the event of penstock rupture. The penstock will be approximately 2400 m long and will convey the power flows from the regulating reservoir to the powerhouse. The penstock will be comprised of a low- and a highpressure section 1590 and 800 m long, respectively. The penstock is bifurcated into two 1.45-m diameter penstock pipes, approximately 46 m from the powerhouse. The penstock pipe will be buried over its total length. The low-pressure penstock diameter will be 2.10 m, and the high-pressure section diameter 1.85 m. The El Canada powerhouse will contain two 21.5-MW units. Each generating unit will have a Pelton turbine and synchronous generator. The powerhouse crane will have a capacity at least equal to the heaviest lift during equipment installation of 65 tons. The control room will be air conditioned and separate from the equipment area of the powerhouse. The output from the El Canada facility will be stepped up from 13.8 kv to 69 kv, before it is transmitted to Santa Maria substation about 3.6 km away for delivery to the INDE utility grid. The transmission line poles will be steel and the guard and the power cables will be 636 MCM ACSR. Each pole of the transmission line will be grounded to provide a resistance of not more than 10 ohms. A.4.4. Brief explanation of how the anthropogenic emissions of anthropogenic greenhouse gas (GHGs) by sources are to be reduced by the proposed CDM project activity, including why the emission reductions would not occur in the absence of the proposed project activity, taking into account national and/or sectoral policies and circumstances: (Please explain briefly how anthropogenic greenhouse gas (GHG) emission reductions are to be achieved (detail to be provided in section B) and provide the total estimate of anticipated reductions in tonnes of CO2 equivalent as determined in section E below). (a) Reductions of emissions: The Project employs a non-ghg emitting technology (run-of-river hydropower). In the absence of the El Canada Project, the same level of demand for electricity would be met by fossil fuel thermal power generation with associated GHG emissions. Due to their high fuel and operating costs, thermal plants, especially older less efficient ones, are generally dispatched as marginal producers of electricity in the Guatemalan system. Their output will therefore be partly replaced by the Project activity. The average estimated total of emission reductions to be achieved by the Project is 144,180 tons of CO2/year. (b) National and sectoral circumstances: The 1996 General Electricity Law provided for decentralization of the Guatemalan electricity sector, and stipulated that all new electricity generation would be undertaken by private investors. As a consequence, no national power expansion plan exists, and, as such, the Baseline Study only refers to a list of prospective power projects. Dispatch in the Guatemalan National Interconnected System (NIS) is by strict economic order, considering the need to 5

6 supply demand, the opportunity cost of water, and the operational cost of the thermal units. This results in older plants with higher fuel and operating costs usually being dispatched last as peaking plants. (c) Baseline scenario : Emissions in the absence of the Project activity are those that result from the most likely baseline scenario. The Baseline Study (attached) determines that the baseline scenario consists of the current plants in the Guatemalan NIS (including electricity exports and imports) plus capacity expansion, but not the proposed Project. The Baseline Study shows that fossil fuel thermal power generation options, specifically a mid-sized coal-fired steam plant, are currently available to private investors in Guatemala at lower kwh costs (referred to as total generation costs in Section V of the Baseline Study) than the proposed Project activity (cost calculations are reported in Annex 5). The Baseline Study therefore concludes that the Project is an unlikely candidate for system expansion investment. Whether the Project at some future point in time should be considered included in the baseline scenario (and would then be non-additional) will be reviewed at the seven year credit period renewal intervals in line with the CDM modalities for this purpose and based on instructions in and data collected under the Monitoring Plan. (d) Additionality: The Project meets the requirement of environmental additionality, because its existence and operation will have the effect of reducing GHG emissions below the level that would have occurred in the baseline scenario. A.4.5. Public funding of the project activity: (In case public funding from Parties included in Annex I is involved, please provide in Annex 2 information on sources of public funding for the project activity, including an affirmation that such funding does not result in a diversion of official development assistance and is separate from and is not counted towards the financial obligations of those Parties.) No public funding is provided for this Project. B. Baseline methodology B.1 Title and reference of the methodology applied to the project activity: (Please refer to the UNFCCC CDM web site for the title and reference list as well as the details of approved methodologies. If a new baseline methodology is proposed, please fill out Annex 3. Please note that the table Baseline data contained in Annex 5 is to be prepared parallel to completing the remainder of this section.) There is no methodology choice available on the UNFCCC website yet. The baseline approach adopted for this Project is option (b) of Paragraph 48: The baseline is the scenario that represents emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment. Approach 48 (b) cannot readily be applied as baseline methodology and must be interpreted and made operational in view of the project circumstances. The approach is based on the notion that the selection 6

7 of the most likely future scenario is determined by economically rational behavior. Therefore, an investment analysis appears to be an appropriate interpretation of this approach. Annex 3 of this PDD proposes a baseline methodology that uses an investment analysis for power sector projects and suggests the following name for this methodology: Least cost analysis of power capacity expansion An explanation of this new methodology, the condition under which it can be applied, and the steps to follow are provided in Annex 3. A justification of the methodology s appropriateness, given the project circumstances, is provided below. B.2. Justification of the choice of the methodology and why it is applicable to the project activity Baseline approach 48 (b) refers to the baseline scenario as an economically attractive course of action. This appears to be an appropriate and justifiable approach to baseline determination for investment projects for the following reasons: The proposed Project involves a considerable private sector investment in power generation capacity expansion. The attractiveness of this investment can best be analyzed be comparing it with other power generation options, notably fossil fuel based thermal capacity additions. It is furthermore reasonable to assume that the decision between alternative capacity investments is made on the basis of an investment calculus that determines the economically most attractive course of action. A least cost analysis of power capacity expansion, as described in Annex 3, appears to be an appropriate baseline methodology for the following reasons. (a) A least cost analysis is usually the method of choice in national power planning, because it minimizes the overall economic costs of satisfying the national demand for power. (b) The private sector invests in power capacity expansion in order to maximize return on investment. Everything else being equal, projects and technologies with the lowest costs per unit of electricity output (kwh) are likely to yield the highest returns. It therefore appears justified to use the total generation costs of capacity expansions (US$ per kwh) as an indicator of the most economically attractive course of action and, consequently, to identify the existing system plus the least costs capacity expansion as the baseline scenario. B.3. Description of how the methodology is applied in the context of the project activity: The methodology presented in Annex 3 is applied in the following way: All conditions for use of the methodology are met: A. The geographic and system boundaries of Guatemala s NIS can be clearly identified (cf. No. B.5). B. The Guatemalan power sector does not feature centralized expansion planning, but an open market in which private power producers compete. 7

8 C. The selected monitoring methodology includes the collection of data reflecting the relevant system expansions and the day-to-day operation of the Guatemalan power system. This allows use of the methodology with a minimum of assumptions. The baseline methodology is applied to the Project in the analytical steps prescribed for the methodology in Annex 3. Further details are contained in the Baseline Study, which is attached as background information to this PDD. 1. The necessary conditions for application of the methodology are fulfilled. 2. The geographic and system boundaries for the application of the methodology were determined. They are described in B.5 below as the boundaries of the country and its interconnected system. 3. Only two alternative baseline scenarios are plausible, namely the NIS and its eventual expansion (a) with the proposed Project, and (b) without the proposed Project. 4. As a run-of-river hydropower project, the Project is likely to operate in the base or intermediate load range based on economic dispatch. The Baseline Study identifies a mid-sized (150 MW) coalfired steam plant as a readily available system expansion option for private investors in Guatemala The total net generation cost for a mid-sized coal-fired steam plant (150 MW) was conservatively calculated at US$ 38.7/MWh using the EPRI TAG calculation method described in Annex 3. The total net generation cost for the proposed Project was conservatively calc ulated at US$ 48/MWh using the same calculation method. (Cf. the Baseline Study and PDD Annex 5 for details of the cost calculations.) 6. As per 5, the proposed Project is not the least cost expansion option. The scenario without the proposed Project (scenario b of #3 above) is therefore more economically attractive than the alternative scenario (a) with the Project. This makes the former the most likely baseline scenario. 7. The baseline scenario, as determined above, is Guatemala s NIS and its expansion, development and operation (including imports and exports) over time, but excluding the proposed Project (and other future CDM projects). The system currently relies on fossil fuel fired thermal plants and diesel engines to satisfy peak load demand and for general power dispatch at the margin. The current operational characteristics are expected to continue for the foreseeable future (at least for the first 7-year crediting period) with or without the proposed Project. It is likely that, in the baseline scenario as well as in the absence of further CDM project new thermal base load capacity will be added to the system in this decade. The difference in generation costs between the Project and the low cost alternative (a coal-fired steam plant) of ca. US$ 10 per MWh (ca. 20 %) is large enough to make it unreasonable to anticipate that the Project would become the least cost expansion option for at least the first 7-year crediting period. There is some, though currently not very significant, border trade in electricity. Border trade is expected to increase significantly upon Guatemala s connection to the Central American Interconnected System (SIEPAC), but the date of its implementation is currently unknown and highly uncertain. A more detailed description of the 1 The Baseline Study examines several plausible low cost system expansion options that private investors would choose on the basis of demand projections, spot market prices, investment costs and expected prices of fuels. Given the cautious approach private investors are taking (due to high country risks, some state intervention, the prospect of SIEPAC), a medium size coal-fired steam power generation plant appears to be a plausible low cost capacity addition to the Guatemalan NIS. 8

9 Guatemalan power system and its likely expansion and operation is contained in the Baseline Study. The relevant characteristics of the Guatemalan NIS will be monitored as per the attached Monitoring Plan (cf. Section D of this PDD). B.4. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (i.e. explanation of how and why this project is additional and therefore not the baseline scenario) The determination of the baseline scenario is explained above in steps 1-7 of the application of the baseline methodology. The proposed Project is environmentally additional, because it reduces emissions relative to the projected emission level in the baseline scenario. The reply to question B.4 is provided as step 8 of the application of the baseline methodology: 8. Since the Project will significantly reduce the reliance of the Guatemalan NIS on fossil fuels for power generation and is not associated with any significant leakage, it will reduce emissions as compared with the baseline scenario (determined above). The implementation of the Project will therefore result in emission reductions. The Project is thus environmentally additional and meets the CDM requirement of additionality. A projection of baseline emissions and emission reductions is contained in the attached Baseline Study and reported in Section E of this PDD. The projection follows the methodology for the ex post calculation of emission reductions as outlined in the Monitoring Plan. B.5. Description of how the definition of the project boundary related to the baseline methodology is applied to the project activity: The boundary that is relevant for the application of the baseline methodology defines where alternatives to the proposed Project are likely to be found. The baseline methodology determines the baseline scenario for the Project within the following boundaries: - Geographic boundary: Power projects that feed into the NIS can be established almost anywhere in the country, but not outside of Guatemala, because to date no significant transmission capacities and related institutions between Guatemala and its neighbors exist. The geographic boundaries are therefore Guatemala s national borders. - System boundary: Guatemala has an interconnected power system, which covers most of the country. Guatemala is also small enough so that the Project may have an effect on power generated anywhere else in Guatemala. The system boundaries are therefore the Guatemalan NIS. - Time boundary: The planning and construction of new power plants involves multi-year projections. The baseline methodology therefore permits the determination of a valid baseline scenario for a number of years, beginning with the time of the Project s preparation. With appropriate provisions for monitoring of relevant developments and updating of the baseline scenario in connection with the renewal of the crediting period as provided for in the Monitoring Plan for this Project the time boundary, and thus the validity of the baseline scenario, extends to the end of the 21 year crediting period. 9

10 B.6. Details of baseline development B.6.1 Date of completing the final draft of this baseline section (DD/MM/YYYY): April 2003 B.6.2 Name of person/entity determining the baseline: (Please provide contact information and indicate if the person/entity is also a project participant listed in Annex 1.) 1. Mr. Hernan Garcia, Independent Power Sector Consultant, [email protected], San Pio X 2460, Of 1203, Providencia, Santiago, Chile, Tel: Mr. Garcia is not a Project participant. 2. Prototype Carbon Fund, World Bank, 1818 H Street, Washington DC (contact: Ms. Odil Tunali-Payton, [email protected]). The PCF is a Project participant. 3. Energía Global International, LLC. (EGI), c/o CHI Energy, Inc., Andover Business Park, 200 Bulfinch Drive, Andover, MA (contact: Ms. Julie Smith-Galvin, [email protected]). EGI is a Project participant. C. Duration of the project activity / Crediting period C.1 Duration of the project activity: C.1.1. Starting date of the project activity: (For a definition by the Executive Board of the term starting date, please refer to UNFCCC CDM web site. Any such guidance shall be incorporated in subsequent versions of the CDM-PDD. Pending guidance, please indicate how the starting date has been defined and applied in the context of this project activity.) The Project is expected to start operating and generating emission reductions in December C.1.2. Expected operational lifetime of the project activity: (in years and months, e.g. two years and four months would be shown as: 2y-4m) 50 years: The operational lifetime of the Project is estimated as 50 years, as is common for hydroelectric plants. C.2 Choice of the crediting period and related information: (Please underline the appropriate option (C.2.1 or C.2.2.) and fill accordingly) 10

11 (Note that the crediting period may only start after the date of registration of the proposed activity as a CDM project activity. In exceptional cases, the starting date of the crediting period can be prior to the date of registration of the project activity as provided for in paras. 12 and 13 of decision 17/CP.7 and through any guidance by the Executive Board, available on the UNFCCC CDM web site) C.2.1. Renewable crediting period (at most seven (7) years per period) C Starting date of the first crediting period (DD/MM/YYYY): The first crediting period will start with the generation and monitoring of the first emission reductions. The expected start date is: 1 January C Length of the first crediting period (in years and months, e.g. two years and four months would be shown as: 2y-4m): 7 years. C.2.2. Fixed crediting period (at most ten (10) years): not applicable C Starting date: not applicable C Length (max 10 years): not applicable 11

12 D. Monitoring methodology and plan (The monitoring plan needs to provide detailed information related to the collection and archiving of all relevant data needed to - estimate or measure emissions occurring within the project boundary; - determine the baseline; and; - identify increased emissions outside the project boundary. The monitoring plan should reflect good monitoring practice appropriate to the type of project activity. Project participants shall implement the registered monitoring plan and provide data, in accordance with the plan, through their monitoring report. Operational entities will verify that the monitoring methodology and plan have been implemented correctly and check the information in accordance with the provisions on verification. This section shall provide a detailed description of the monitoring plan, including an identification of the data and its quality with regard to accuracy, comparability, completeness and validity, taking into consideration any guidance contained in the methodology. Please note that data monitored and required for verification and issuance are to be kept for two years after the end of the crediting period or the last issuance of CERs for this project activity, whatever occurs later.) D.1. Name and reference of approved methodology applied to the project activity: (Please refer to the UNFCCC CDM web site for the name and reference as well as details of approved methodologies. If a new methodology is proposed, please fill out Annex 4.) (If a national or international monitoring standard has to be applied to monitor certain aspects of the project activity, please identify this standard and provide a reference to the source where a detailed description of the standard can be found.) The Project uses the following monitoring methodology, which is included in Annex 3 of this PDD as a new methodology for submission to and approval by the CDM Executive Board: Marginal dispatch analysis in integrated electric power systems D.2. Justification of the choice of the methodology and why it is applicable to the project activity: The Project generates emission reductions by displacing power that would otherwise have been produced and dispatched by other plants in the NIS or imported. As a run-of-river hydropower project with low operating costs, the Project is likely to be operated as base or intermediate load. Whenever the Project is dispatched, it moves other dispatchable power plants up in the dispatch order and thus 12

13 displaces power generation that would otherwise have been dispatched from one or more plants at the dispatch margin. The Guatemalan power sector is organized by the wholesale market which establishes clear criteria for merit order of dispatch, and thus of injection into the NIS. Under these conditions, the marginal dispatch methodology is an accurate measurement of emission reductions. As opposed to other methodologies based on counterfactual scenarios, the dispatch methodology uses real data from actual operating projects, thus being a credible and verifiable methodology that assures the environmental integrity of the Project. The monitoring methodology closely tracks the actual dispatch operation in real time, thus increasing transparency and avoiding predictions of what would have happened otherwise. The above monitoring methodology is chosen because it will enable detailed tracking of the changes that will occur in the NIS due to the implementation and operation of the Project. More specifically, the use of the methodology is appropriate and justifiable because: the methodology results in an accurate yet conservative calculation of emission reductions, this methodology was developed especially for projects such as the proposed Project; and the proposed Project and the system circumstances meet the conditions set out for the application of the methodology. The conditions for use of the methodology (Annex 4, No. 4) are met in the following ways: 1. The methodology requires the monitoring of all aspects that are relevant to determine baseline emissions and which are not already determined in the formulation of the baseline scenario. The monitoring methodology therefore ties seamlessly in with the baseline methodology and the formulation of the baseline scenario such that no gaps or overlaps occur between the baseline description and monitoring results. 2. The Project is a relatively minor addition to the Guatemalan electricity system. As a run-of-river project with low operating costs, it will presumably be dispatched in the base or medium load area before fossil fuel plants with higher operating costs. The Project is therefore expected to displace power that would otherwise be dispatched by plants operating at the margin of the system. 3. The Guatemalan electricity sector is deregulated and is generally able to meet market demand for power. Although the system will come under stress without additions of new capacity over the next decade, it is currently unreasonable to anticipate that private investors will fail to construct and commission new capacity at the rate required and that serious supply shortages may develop. 4. The Project Operator expects to be able to monitor and/or obtain the necessary data on system operation and dispatch as required by the methodology. The Project Operator will calculate actual emission reductions of the Project by monitoring the hourly system operations and observing the actual power station(s) dispatched at the margin. The monitoring methodology measures the impact of the Project on power provision in Guatemala by identifying the marginal producers using systematically collected dispatch data and the Project s electricity output. The Project Operator may develop and propose a sampling methodology for monitoring, if he shows that the proposed sampling yields equally accurate results. In this case, the Project Operator will use a simplified version of the monitoring methodology described in Annex 4. 13

14 The concept for the calculation of emission reductions and the monitoring instructions for the Project are explained and implemented in the attached Monitoring Plan. The data needed to calculate emission reductions are recorded in the Project s electronic workbooks. Project boundary related to monitoring of emission reductions: Geographic boundaries: The Project s geographic boundaries comprise the Project site and any installations required to connect the Project with the grid. System boundaries: The system boundaries comprise the existing electricity generation and transmission system in Guatemala (the NIS), including imports and exports, and the corresponding expansion of the NIS. The Project boundary may eventually expand if and when the planned Central American Integrated Power System (SIEPAC) is implemented, at which time it could include the existing electricity generation and transmission systems of El Salvador and possibly Honduras. 2 The Baseline Study and Monitoring Plan make provisions for this case. Time boundaries: Monitoring will begin with the first regular dispatch of the Project s power to the Guatemalan grid and is expected to continue through the planned 21 year crediting period. D.3. Data to be collected in order to monitor emissions from the project activity, and how this data will be archived: Being a hydropower project, no emissions from the Project activity were identified. The table is therefore left uncompleted. ID number (Please use numbers to ease cross-referencing to table D.6) Data type Data variable Data unit Measured (m), calculated (c) or estimated (e) Recordin g frequenc y Proportion of data to be monitored How will the data be archived? (electronic/ paper) For how long is archived data to be kept? Commen t D.4. Potential sources of emissions which are significant and reasonably attributable to the project activity, but which are not included in the project boundary, and identification if and how data will be collected and archived on these emission sources. No such sources of emissions were identified, and therefore no data will be collected and archived (see summary discussion below). The table is therefore not completed. Please refer to B.5. and E.2. and to the Baseline Study and Monitoring Plan for more information. ID number (Please use numbers to ease cross-referencing to table D.6) Data type Data variable Data unit Measured (m), calculated (c) or estimated (e) Recordin g frequenc y Proportion of data to be monitored How will the data be archived? (electronic/ paper) For how long is archived data to be kept? Commen t 2 Although the SIEPAC project includes the whole Central America region, transmission from Guatemala towards countries beyond Honduras would not be economic due to the transmission fees to be paid to the SIEPAC operator based on distance. 14

15 Indirect emissions can result from project construction, transportation of materials and fuel and other up-stream activities. In the case of the proposed Project, these emissions are thought to be negligible, because similar or higher life cycle emissions would result from the eventual construction and operation of alternative capacity. The life-cycle emissions of alternative power generation plants, in particular of fossil fuel power plants, are typically higher than from hydro power plants when including emissions due to the mining, refining and transportation of fossil fuel. The Project does not claim emission reductions from these activities. Therefore, no significant net leakage from the above activities was identified. Project emissions in the form of methane can also result from the construction and operation of a water reservoir if biomass is permanently submerged in this process. The Project is a run-of-river hydropower plant with a storage capacity of only five (5) hours. The permanent submersion of biomass and its eventual conversion to methane is therefore not part of the Project s design and related methane emissions will not occur. The Project targets only CO2 emissions and will not claim the reductions of other GHGs included in Annex A of the Kyoto Protocol. The Project has also not been identified as a source of emissions of any of these GHGs. D.5. Relevant data necessary for determining the baseline of anthropogenic emissions by sources of GHG within the project boundary and identification if and how such data will be collected and archived. (Depending on the methodology used to determine the baseline this table may need to be filled. Please add rows to the table below, as needed.) The following data are used to determine the baseline of emissions within the Project boundaries. Please note that the methodology does not require the determination of all system emissions, but only those that are affected by the Project (cf. Note 1 in Annex 4 No. 2). The names of the data variables (column three) are those of the Monitoring Plan and the associated spreadsheets. ID number (Please use numbers to ease crossreferencing to table D.6) 1 Data type Electricity generation of the Project Data variable Data unit Measured (m), calculated (c) or estimated (e) Recording frequency Proportio n of data to be monitored EC MWh m hourly ditto How will the data be archived? (electronic/ paper) electronic and paper For how long is archived data to be kept? crediting period plus 3 years Comment Capacity of each plant in the NIS Dispatch of electricity from each power plant in the NIS C i (CM, CN, ) E i (EM, EN ) MW AMM report once ditto Ditto ditto - MWh AMM report hourly ditto Ditto ditto - 15

16 Dispatch order based on economic merit order for each power plant in the NIS Actual efficiency of likely marginal plants Actual carbon intensity factors of likely marginal plants Efficiency of reference plants Carbon intensity factor of reference plants E i CIF i E p CIF p Name of marginal plant and rank in dispatch order tco2e/ MWh tco2e/ MWh tco2e/ MWh tco2e/ MWh AMM report weekly ditto Ditto ditto - MEM report, if publicly available, or manufacturer data or IPCC default values calculated as: CIF p * (E p /E i ) IPCC technical parameter IPCC technical parameter annually ditto Ditto ditto - annually ditto Ditto ditto - once (recorded in MP) once (recorded in MP) ditto ditto ditto - ditto ditto ditto - Note: The NIS operations are coordinated by a Wholesale Power Market Administrator (AMM), which is responsible for programming and carrying out the NIS dispatch. The AMM programs the dispatch of generators by strict economic order, considering the need to supply demand, the opportunity cost of water, and the operational cost of the thermal units. The outcome is the hourly generation program for each power unit and the hourly marginal cost for the NIS (the cost of producing an additional kwh of energy in the system equals the highest operational cost of units in operations at a particular time). On the basis of weekly and daily scheduling, the AMM then coordinates in real time the dispatch of power units. The AMM prepares daily and monthly reports of the actual operation of the NIS with the hourly generation for each power unit and the marginal cost for each hour. The information required for fulfilling the MP is thus made available by AMM to all market agents, including the Project developer, GDO, through daily s. Additionally, summarized information on the NIS operations is available publicly through the AMM website. The evolution of the baseline scenario is itself subject to monitoring. During each crediting period the Monitoring Plan requires the collection of the data that will be used to reconfirm the continued validity of the baseline or facilitate the updating of the baseline scenario at the end of each crediting period as set out in the Monitoring Plan and in line with the CDM requirements for the renewal of the crediting period. The following data is used to show that the total generation cost of the Project, if it were to be implemented in years 7 or 14, would still remain higher than the total generation cost of an alternative low cost capacity addition (specifically a coal-fired steam plant) at that time, and that therefore the Project does not become part of the baseline scenario. ID number (Please use numbers to ease cross-referencing to table D.6) Data type Will data be collected Data variable Data unit on this item? (If no, explain). How is data archived? (electronic/paper) For how long is data archived to be kept? 9 Cost of power $/MWh No. Paper & electronic: Crediting Comment 16

17 10 generation for the Project (total generation cost) Cost of alternative low cost power generation options in host country (total generation cost) $/MWh Data reported in Baseline Study to be updated in year 7 and 14 by applying inflation rate. Yes. New cost data to be collected in year 7 and 14. Reported in Baseline Study, and in monitoring and verification reports. Paper & electronic: Reported in monitoring and verification reports. period plus 3 years Crediting period plus 3 years D.6. Quality control (QC) and quality assurance (QA) procedures are being undertaken for data monitored. (data items in tables contained in section D.3., D.4. and D.5 above, as applicable) All monitored and collected data is subject to auditing and verification. Data (Indicate table and ID number e.g. D.4-1; D.4-2.) D D.5.-2 D.5.-3 D.5.-4 D.5.-5 D.5.-6 D.5.-7 D.5.-8 Data type Electric output Capacity of plants Dispatched electricity Plant names and dispatch order Actual plant efficiencies Actual plant carbon intensity factors Efficiency of reference plants Carbon intensity of reference plants Uncertainty level of data (High / Medium / Low) Low Are QA/QC procedures planned for these data? Yes Outline explanation why QA/QC procedures are or are not being planned. To ensure accuracy, electronic commercial metering will be placed at the generation bus. The metering system will comply with technical specifications issued by the AMM for commercial metering (Norma de Coordinacion Comercial No: 14 of October 30, 2000). This technical specification details the precision of metering transformers and meters, and all the parameters to be metered and recorded, as well as the frequency with which they should be recorded. Low Unknown Data is received from AMM. Low Low Unknown Unknown For every hour of the monitoring period, the actual dispatch of the NIS is communicated daily to all operators by AMM via . For every week, the AMM produces a list of weekly dispatch order of power generation facilities (priority list) based on economic merit order. The list is made available to all operators via . Low Unknown Annually reported by MEM, or manufacturer or IPCC data. Low Yes The Project Operator will calculate the CIFs of each plant in AMM s Dispatch Priority List using reference values for types of plants provided by the Intergovernmental Panel on Climate Change (IPCC) Technology Inventory and reported in the Monitoring Plan. The CIFs are to be recalculated/verified by an Operational Entity. Unknown No Technical parameter; reported in Monitoring Plan (based on IPCC). Unknown No Technical parameter; reported in Monitoring Plan (based on IPCC). 17

18 Data (Indicate table and ID number e.g. D.4-1; D.4-2.) D.5.-9 D Data type Generation cost for the Project Cost of alternative low cost power Uncertainty level of data (High / Medium / Low) Are QA/QC procedures planned for these data? Outline explanation why QA/QC procedures are or are not being planned. Low No Reported in Monitoring Plan (based on IPCC) and (to be) validated. Low No Reported in Monitoring Plan and (to be) validated/verified. D.7 Name of person / entity determining the monitoring methodology: (Please provide contact information and indicate if the person/entity is also a project participant listed in Annex 1 of this document.) 1. Mr. Hernan Garcia, Independent Power Sector Consultant, [email protected], San Pio X 2460, Of 1203, Providencia, Santiago, Chile, Tel: Mr. Garcia is not a Project participant. 2. Prototype Carbon Fund, World Bank, 1818 H Street, Washington DC (contact: Ms. Odil Tunali-Payton, [email protected]). The PCF is a Project participant. 3. Energía Global International, LLC. (EGI), c/o CHI Energy, Andover Business Park, 200 Bullfinch Drive, Andover, MA (contact: Ms. Julie Smith-Galvin, [email protected]). EGI is a Project participant. 18

19 E. Calculation of GHG emissions by sources E.1 Description of formulae used to estimate anthropogenic emissions by sources of greenhouse gases of the project activity within the project boundary: (for each gas, source, formulae/algorithm, emissions in units of CO 2 equivalent) The Project is a run-of-river hydropower project; it does not give rise to direct GHG emissions. Therefore, no formula is provided here. E.2 Description of formulae used to estimate leakage, defined as: the net change of anthropogenic emissions by sources of greenhouse gases which occurs outside the project boundary, and that is measurable and attributable to the project activity: (for each gas, source, formulae/algorithm, emissions in units of CO2 equivalent) No leakages were identified. Therefore, no formula is provided here. E.3 The sum of E.1 and E.2 representing the project activity emissions: The sum is zero. E.4 Description of formulae used to estimate the anthropogenic emissions by sources of greenhouse gases of the baseline: (for each gas, source, formulae/algorithm, emissions in units of CO 2 equivalent) Baseline emissions are calculated by the following formula: The sum over all hours of: (the project s hourly electricity dispatched to the grid) times (the carbon intensity factors of the identified marginal thermal plants) The outline of the method to calculate the ERs is as follows: 3 Hourly net generatio n output from the Project (MWh) Determination of additional thermal energy that would have been dispatched if the Project were not generating Determination of Carbon Intensity Factor(s) (CIF) for the involved Marginal Plant(s) 3 More details of the formulas and excel worksheet templates with explanations of their use are contained in the Monitoring Plan. 19

20 (tco 2 /MWh) Calculation of hourly ERs generated by the Project (tco 2 ) Net daily, monthly and annual CO 2 emissions avoided by integration of hourly data (tco 2 ) The following table explains the calculations: The incremental generation is the capacity that the marginal plant and, if necessary, the next plant(s) in line can provide if the Project were not generating. The incremental generation is calculated as the residual capacity as shown below. The Table calculates hourly ERs, which the Project Operator sums up to produce and report the numbers for daily, weekly and monthly ERs that the Project has achieved. The notation is as follows: EC = generation El Canada, CIFM = individual carbon intensity factor of the marginal plant. CM = capacity of the marginal plant, EM = generation of the marginal plant, and equivalent for the next marginal plant (CIFN, CN, EN). 1El Canadá Calculation of ERs 2Marginal Plant 3Capacity (MW) 4Generation (MWh) 5Incremental Generation (MWh) 6Next in Line Marginal Plant 7Capacity (MW) EC CM EM IF (CM-EM)>=EC, THEN =EC ELSE CM-EM CN B C D Every Hour CIFi ER (CO2t/MWh) (CO2t) CIFM CIFN =B5*C2 8Generation (MWh) EN 9Incremental Generation (MWh) IF (CM-EM)<=EC, THEN EC - (CM -EM) =B9*C6 ELSE=0 Total Hourly ER =D5+D9 NOTE: As calculations are done in MWh and Capacity expressed in MW, numbers coincide. E.5 Difference between E.4 and E.3 representing the emission reductions of the project activity: Since Project emissions and leakage are zero, the emission reductions are those calculated in E.4 E.6 Table providing values obtained when applying formulae above: 20

21 The projection of ERs relies on the following assumptions about the future system configuration and dispatch of electric power in the Guatemalan NIS. These assumptions are not guaranteed by the Baseline Study or the Monitoring Plan; the future operation of the NIS, which will be monitored to calculate ERs, may turn out to be significantly different. - Due to the investment and sector conditions, no large-scale thermal or hydroelectric projects are expected to be implemented in Guatemala in the foreseeable future. Hydroelectric resources are expensive due to less than favorable geological conditions and are not likely to attract private investors. - The rapid growth in demand and the scarcity of new projects practically ensures that all existing generation capacity must be kept in service for the foreseeable future. - Existing thermal units in the NIS include a large number of plants of various sizes, and some of these are extremely old, with low efficiencies. These plants are likely to continue in operation for the foreseeable future. - Any new plants that can be implemented must compete with existing generation. As new plants will be more efficient than most of the existing plants, they will operate either as baseload or in the medium range. - It can therefore be assumed that the Project will displace energy from the less efficient group of plants. These older plants employ various technologies, use different fuels, and have different efficiencies. They also have different useful lives remaining. Based on the above assumptions regarding NIS expansion and operation and taking the annual average generation of El Canada (178 GWh/y) and the average of CIF values of plants assumed to be displaced by the Project s generation, 4 the CO2 emissions avoided by the Project are estimated at 144,180 tco2/year (178,000 MWh * 0.81 CO2/MWh). During a crediting period of 21 years, the Project would avoid a total of 3.03 million tons of CO2. The following table shows the projected emissions of the Project, leakage, baseline emissions and emission reductions per annum and for the crediting period. Emissions (tco2/year) Project emissions (E.1) 0 Leakage (E.2) 0 Sum (E.3) 0 Baseline emissions (associated with replaced generation) (E.4) 144,180 Emission reductions per annum (E.5) 144,180 Emission reductions for 7 years 1,009,260 Emission reductions for 14 years 2,018,520 Emission reductions for 21 years 3,027,780 4 The Baseline Study identifies which are the most likely plants whose power would be displaced by the Project. The potentially marginal plants were selected from those that are subject to optimisation and will always be dispatched by merit order. Using the generation patterns of these plants, the Baseline Study projects the marginal group of plants that is likely to be the target for substitution by the Project s power output, and uses their carbon intensity factors to calculate the expected emission reductions. 21

22 F. Environmental impacts F.1. Documentation on the analysis of the environmental impacts, including transboundary impacts (Please attach the documentation to the CDM-PDD.) The International Finance Corporation (IFC) is the lead financier of the Project and in that capacity, has conducted an analysis of the environmental impacts of the Project. A summary of their findings is attached (excerpted from the IFC Investment Review Memorandum). F.2. If impacts are considered significant by the project participants or the host Party: please provide conclusions and all references to support documentation of an environmental impact assessment that has been undertaken in accordance with the procedures as required by the host Party. The environmental impacts of the Project are considered insignificant. G. Stakeholders comments G.1. Brief description of the process on how comments by local stakeholders have been invited and compiled: IFC carried out and prepared the Project Environmental and Social Review, which was published on the IFC web site and in the local press. This review was also available for public discussion in the El Palmar and Zunil municipalities. G.2. Summary of the comments received: No concerns about the Project were voiced by the local stakeholders during the process described above. G.3. Report on how due account was taken of any comments received: Not applicable. 22

23 Annex 1 CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT ACTIVITY (Please copy and paste table as needed) Organization: Generadora de Occidente, Ltda. Street/P.O.Box: Diagonal Zona 10, Centro Gerencial Las Margaritas Building: Torre 1, Nivel 8, Oficina 801 City: Guatemala City State/Region: Postfix/ZIP: Country: Guatemala Telephone: FAX: URL: Represented by: Title: Project Director Salutation: Last Name: Mendez Middle Name: First Name: Juan Carlos Department: Mobile: Direct FAX: Direct tel: Personal [email protected] Organization: Energía Global International, LLC (EGI) Street/P.O.Box: C/o CHI Energy, Inc. Andover Business Park, 200 Bulfinch Drive Building: City: Andover State/Region: MA Postfix/ZIP: Country: USA Telephone: ext FAX: URL: Represented by: Title: Project Director 23

24 Salutation: Last Name: Middle Name: First Name: Department: Mobile: Direct FAX: Direct tel: Personal Organization: Street/P.O.Box: Building: City: State/Region: Postfix/ZIP: Country: Telephone: FAX: URL: Represented by: Title: Salutation: Last Name: Middle Name: First Name: Department: Mobile: Direct FAX: Direct tel: Personal Smith-Galvin Julie International Finance Corporation (IFC) Washington DC USA Investment Officer Eckrich Richard Organization: Prototype Carbon Fund Street/P.O.Box: The World Bank, 1818 H St., NW Building: City: Washington State/Region: DC Postfix/ZIP: Country: USA Telephone: FAX: 24

25 URL: Represented by: Title: Salutation: Last Name: Middle Name: First Name: Department: Mobile: Direct FAX: Direct tel: Personal Project Manager Tunali Payton Odil 25

26 Annex 2 INFORMATION REGARDING PUBLIC FUNDING There is no public funding in the El Canada Project. 26

27 Annex 3 NEW BASELINE METHODOLOGY (The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases that would occur in the absence of the proposed project activity. A baseline shall cover emissions from all gases, sectors and source categories listed in Annex A of the Kyoto Protocol within the project boundary. The general characteristics of a baseline are contained in para. 45 of the CDM M&P. For guidance on aspects to be covered in the description of a new methodology, please refer to the UNFCCC CDM web site. Please note that the table Baseline data contained in Annex 5 is to be prepared parallel to completing the remainder of this section.) 1. Title of the proposed methodology: Least cost analysis of power capacity expansion 2. Description of the methodology: 2.1. General approach (Please check the appropriate option(s))? Existing actual or historical emissions, as applicable;? X Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment;? The average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category Overall description (other characteristics of the approach): The proposed methodology suggests that a cost analysis is adequate to identify an economically attractive course of action, as indicated in 48(b). The methodology uses a cost indicator as a proxy to simulate an investment decision and predict its likely outcome. The methodology emulates the investment conditions in the national power sector; it can be applied to projects, where independent power producers (IPPs) and/or national/regional power companies decide to invest in new power generation capacity. Although the power sector is often dominated or regulated by national governments with the objective of providing low-cost electricity to consumer, power sector investments are increasingly decided and made by independent power producers (IPPs), who compete with each other on costs. Everything else being equal, projects and technologies with the lowest total 27

28 costs per unit of electricity output (US$/kWh) are likely to maximize profitability and would therefore represent an attractive course of action. This provides the rational for the proposed methodology. The methodology can be used to determine which of two alternative scenarios is the most likely baseline: the least-cost expansion of the existing electric system in the relevant country or region (a) with the proposed project or (b) without the proposed project. If the project is not a least or low cost power generation option, then scenario (b) is the relevant baseline scenario. If the project proponent fails to show that lower cost generation options are readily available in the country, then the project itself is likely to be such a least cost option and thus part of the baseline scenario (i.e., alternative (a)). In this latter case, the baseline and project scenarios are identical and the project will not reduce GHG emissions. Consequently, the project would not satisfy the CDM requirement of environmental additionality and, being non-additional, would not be an eligible CDM activity. The proposed baseline methodology can be used if the following conditions apply cumulatively: A. The geographic and system boundaries for the relevant electricity system can be clearly identified and information on the characteristics of the system is available (cf. No. 4 below). B. Power producers compete in supplying the market through system expansion investments and electricity sales to a central grid and/or directly to end-users. C. The baseline and monitoring methodology are complimentary in the sense that monitoring identifies relevant elements of the baseline scenario that are not (fully) determined ex ante and described for the baseline scenario, such as the system s future operation and expansion. The proposed baseline methodology is applied following these steps : 1. Confirm that the above conditions are fulfilled. 2. Determine the geographic and system boundaries. 3. Confirm that there are only two plausible baseline scenarios, namely the relevant interconnected system (power plants, grid, power ex- and imports) and the system s expansion over time a. with the proposed project, and b. without the proposed project 4. Define the generation characteristics of the proposed project (e.g., base or peak load) and identify alternative options for power capacity expansion that are readily available within the baseline method boundaries (usually the county or region). 5. Calculate a conservative figure showing the a. total net generation costs of an alternative low (or least) cost power expansion option with the same generation and operational characteristics. b. expected total net generation costs of the project. 6. Comparing the project s expected kwh costs with the least (or low) cost alternative and conclude that the project is either: a. economically not attractive and thus unlikely to be implemented as part of the baseline scenario (project costs higher than alternative costs). This confirms that the 28

29 interconnected system without the project is the most likely future development and therefore the relevant baseline scenario. Or, b. economically at least as attractive as its alternatives and hence can be expected to be implemented as part of the baseline scenario (project costs equal to or lower than alternative costs). In this case, the baseline and the project scenarios are identical: the project would not yield emission reductions and is therefore not environmentally additional. 7. Describe the baseline scenario and its expected development over time, identifying key baseline aspects that need to be monitored as per condition C above, such as: a. the operation of the interconnected system and its expansion for the purpose of calculating emission reductions. b. costs of alternative generation options for the purpose of renewal of the baseline: if project costs are significantly higher than least cost, the project would presumably not be implemented as part of the baseline scenario for a number of years. In this case, a reassessment of the baseline situation is only needed after the first and, if the situation persists, after the second crediting period. 8. Determine that, in comparison with baseline scenario, the project scenario will have lower emissions and that, therefore, the project is environmentally additional (cf. No. 6 below). Note on cost calculation: The net cost figures for the project and its alternatives should be calculated on a per kwh (or MWh) basis and include all construction, operating and maintenance costs as well as income due to the project, with the exception of income from sales of power and emission reductions. 5 A standard power planning cost formula should be used. 6 The same cost formula or general calculation method for the project and its alternatives must be used to ensure that cost figures are comparable and consistent. Calculations must be conservative, i.e., necessary assumptions must be made in such a way that an 5 Costs should be adjusted for income if this is necessary to obtain cost figures that are comparable between power options. Income may, for instance, include revenues from the sale of co- or by-products (e.g., sugar in sugar mills that produce power from bagasse). In line with condition B in No. 2.2 above ( Power producers compete ), the least cost method is not proposed here for situations where subsidies and other government interventions promote a particular project or technology and this effect is not neutralized in the calculation of costs. 6 An example of cost calculation is the Electric Power Research Institute (EPRI) TAG method: CRF * I + O & M COE = E Where: COE: Levelized Cost of Energy CRF: Capital Recovery Factor for (risk-adjusted) Discount Rate i and Number of Years n (equivalent to the useful life of the plant): CRF n i *(1 + i) (1 + i) 1 = n I: Plant total investment accumulated by commissioning date O&M: Annual Operation and Maintenance Costs of the Plant E: Average Annual Energy 29

30 underestimation of emission reductions is more likely than an overestimation; or, in the context of baseline determination, that it more likely that the project is part of the baseline scenario than that it is not. Note on standardization and variations of the methodology: The above methodology lends itself to some standardization and simplification: least cost comparables for power projects can be established for countries (or regions) as benchmarks, which are simple to use for project developers. Some variants of the methodology can be de fined using other then the above cost indicators, such as the long run marginal costs for power system capacity expansions, standard costs for technologies, spot market prices or power tariffs, etc. Some variants may be more applicable in situations that do not conform with the above conditions. For instance, in the case of power generation for a firm s own consumption, a comparison of the firm s generation costs with relevant power tariffs may be part of a baseline methodology. More research and experience is needed with most of these variants. They are not included herewith, but may be submitted for approval at a later stage and as supplements to the above baseline methodology. 3. Key parameters / assumptions (including emission factors and activity levels), and data sources considered and used: The above baseline methodology requires at least the following information, the correctness of which is to be confirmed by a Designated Operational Entity. Information on the power sector conditions, in particular capacity investment conditions, system operation, and reliable dispatching information. Data source: Project proponent, government agencies, specialized international organizations, commercial organizations Conservative cost calculation for the proposed project (as explained above). Data source: Project proponent, feasibility study and other relevant project planning information. Conservative cost information for alternative low cost system expansion options and technologies available to the country. Data source: National utility or sector planning authority, information from technology suppliers, independent experts, planned power projects in the country etc. The baseline methodology does not require information on other than the above mentioned aspects, in particular information on emissions factors and activity levels is not needed because it will be monitored in real time or calculated ex post during the project s operation. However, a projection of the expected ERs requires making appropriate assumptions about this and other information. 4. Definition of the project boundary related to the baseline methodology: (Please describe and justify the project boundary bearing in mind that it shall encompass all anthropogenic emissions by sources of greenhouse gases under the control of the project participants that are significant and reasonably attributable to the project activity. Please describe and justify which gases and sources included in Annex A of the Kyoto Protocol are included in the boundary and outside the boundary.) 30

31 CDM (and JI) projects have two different boundaries: one for the determination of the baseline scenario, and another for monitoring and the calculation of ERs. These boundaries do not have to coincide. The determination of the project boundaries depends on the project circumstances under which a baseline methodology is used. The baseline determination boundaries most often used for electric power capacity expansion projects define where possible alternatives to the proposed project are likely to be found: - Geographic boundary: The country s (or region s) territory (for transnational system possibly also the relevant territory of neighboring countries), where power expansion facilities could be located and would compete with the proposed project. - System boundary: The country s (or region s) interconnected power system (for transnational system possibly also the relevant system in neighboring countries), into which the proposed project would feed power and where it would displace the power generation of other sources. - Time boundary: Current situation and planning cycle for a reasonable number of years (e.g. 7 or 10 year and up to 21 years in line with the CDM crediting periods). 5. Assessment of uncertainties: (Please indicate uncertainty factors and how those uncertainties are to be addressed) The proposed methodology can lead to an erroneous baseline scenario if: Any of the three conditions set out in No. 2.2 above is not met. The careful assessment of the project circumstances and confirmation by a designated operational entity of the validity of the discussion and the conclusions drawn is imperative to mitigate risks and ensure credibility of the result. Any of the key assumptions/parameters listed under 3. above are not correct or complete, in particular the generation costs for the project and the low cost alternative are not calculated correctly or conservatively. The designated operational entity must carefully check all assumptions used to ensure a conservative result. 6. Description of how the baseline methodology addresses the calculation of baseline emissions and the determination of project additionality: (Formulae and algorithms used in section E) The methodology for the calculation of baseline emissions and proje ct emissions is contained in the monitoring plan, which, combined with reasonable assumptions about data to be monitored, can be used to estimate emission reductions. Condition C of 2.2 for the proposed baseline methodology requires the use of a monitoring concept and methodology that is consistent with the baseline methodology in that it monitors those aspects of the baseline that are necessary for the calculation of ERs, but are not already (fully) specified in the description of the baseline scenario (an example of such a monitoring methodology is provided in Annex 4). Project additionality requires a demonstration of environmental additionality (i.e., the project reduces GHG emissions). Environmental additionality can often be confirmed without a systematic projection of expected ERs, since any reduction in emissions below the baseline is sufficient to show that the project reduces emissions. That a power project reduces emissions is often obvious after the baseline scenario 31

32 has been determined and information on the power system and technology and fuel use in baseline and project scenarios has been considered. Typically, the addition of renewable energy to an interconnected electrical system will result in lower system wide emissions than in the baseline scenario. However, there are some exceptions (see footnote), which become apparent when applying an appropriate monitoring methodology. 7 A more accurate projection of expected ERs would rely on the monitoring concept and apply the calculation tools in the monitoring plan using assumptions and forecasts regarding the values of variables that will later be monitored. Depending on the monitoring concept and the desired level of accuracy, the projection of ERs may require forecasting future project and baseline conditions, such as the operation of the interconnected electric system, or it may be satisfactory to forecast an emissions factor and the project s output. To increase transparency and consistency of ER projections with ex post calculation, it is advisable to separate the forecasting of conditions and values for monitorable variables and the projection of ERs from the ex ante determination and description of the baseline scenario. 7. Description of how the baseline methodology addresses any potential leakage of the project activity: (Please note: Leakage is defined as the net change of anthropogenic emissions by sources of greenhouse gases which occurs outside the project boundary and which is measurable and attributable to the CDM project activity.) (Formulae and algorithms used in section E.5) Leakage is addressed by defining the monitoring boundary (see above) and identifying relevant sources of emissions outside of these boundaries. Leakage can only be accounted for by including an appropriate method in the monitoring plan, which corrects the ERs for any difference in baseline and project emissions that occur outside of the monitoring boundaries and which are measurable and attributable to the project. 8. Criteria used in developing the proposed baseline methodology, including an explanation of how the baseline methodology was developed in a transparent and conservative manner: The proposed baseline methodology is a simplified application of investment analysis. Investment analysis produces a ranking of plausible investment options to identify the baseline scenario as the most economically attractive course of action (cf. Art. 48b) using some measure of attractiveness such as 7 A project may, for instance, replace other renewable power that is dispatched at the margin. Or the project s reductions may be wiped out by leakage. A project may also simply increase capacity without replacing generation from other actual or hypothetical sources. In the case of supply shortages, existing sources may continue to operate unaffected by the project s power generation and no hypothetical capacity may have been constructed in the absence of the project. If environmental additionality is in doubt, the definite answer as to whether a project would generate ERs depends on a model run of the monitoring and ER calculation system using appropriate assumptions. 32

33 the internal rate of return or the costs of the various options. The methodology compares investment options directly with each other without recourse to some outside measure of economic attractiveness such as an acceptable rate of return for the country and sector. The proposed methodology differs from the investment analysis method in as much as the project alternatives (alternative capacity additions) are not necessarily under the control of a single investor. Therefore, and because ERs can come from replacement of power generation anywhere in the interconnected system, the proposed methodology uses a system-wide approach and determines whether the interconnected system with or without the project would be the more attractive course of action. The following criteria were used in developing this methodology: (a) Realistic simulation of power sector development: The objective of power sector planning and/or regulation is usually to ensure power supply at lowest economic costs, and private competition is encouraged to lower production costs. The proposed methodology recognizes this objective by assuming that the power sector baseline is represented by the least cost system expansion. (b) Availability of information: The methodology permits the determination of a baseline scenario in cases where concrete cost information is only ava ilable for the proposed project. Generalized cost information can be used to represent low or least cost alternatives. Project costs are usually available through the feasibility study, while cost for alternatives can often use market data. (c) Reduction of project preparation costs: A demonstration that the project s total generation costs are higher than other plausible generation option is sufficient. (d) Potential for replication and standardization: The methodology has the potential to be replicated for similar projects or bundles of projects in the same country. (e) Increased accuracy: The proposed baseline methodology minimizes reliance on projections of future developments. The methodology leads to a more accurate calculation of ERs, because it refrains from the ex ante determination of aspects of the baseline scenario that can be monitored ex post. The proposed baseline methodology is transparent and conservative, because: It can be applied in a transparent manner, because it relies on conventional cost analysis, which Designated Operational Entities can check to ensure completeness, correctness, plausibility and conservative assumptions and for which input data can be audited. It can be applied in a conservative manner provided the above conditions for its use are met and the costs comparison relies on conservatively calculated cost indicators. 9. Assessment of strengths and weaknesses of the baseline methodology: Strengths: See No. 8 above, in particular: simulation of power sector development, simplicity, low project preparation cost, replicability. The proposed methodology does not require availability of official capacity expansion planning data. 33

34 Weaknesses: The methodology does not consider non-cost related motives of investing in any particular power sector expansion project. While this may in some cases lead to a less than complete picture regarding the components of the baseline scenario, this simplification appears appropriate in that disregards idiosyncratic motives, which cannot be validated, from the methodology. The baseline methodology may lead to a somewhat more complex monitoring concept and methodology, which monitors and calculates baseline emissions in real time (as opposed to the determination and fixing of a baseline emission factor at the project preparation stage). However, project owner may wish to invest more in monitoring activities to reduce the need for conservative assumptions and increase the yield of emission reductions. 10. Other considerations, such as a description of how national and/or sectoral policies and circumstances have been taken into account: The proposed baseline methodology automatically takes the effect of current and expected future conditions in the power sectoral of the host country into account, since it compares the project with plausible low cost capacity expansion options that are realistically available to the host country. The baseline methodology requires a monitoring methodology that automatically detects the impact of national and/or sectoral policies and circumstances on system operation and expansion. 34

35 Annex 4 NEW MONITORING METHODOLOGY Proposed new monitoring methodology (Please provide a detailed description of the monitoring plan, including the identification of data and its quality with regard to accuracy, comparability, completeness and validity) Proposed name of new monitoring methodology: Marginal dispatch analysis in integrated electric power systems This monitoring methodology is highly compatible with the baseline methodology termed Least cost analysis of power capacity expansion and possibly other baseline methodologies, such as variations of the Least cost analysis of power capacity expansion. A monitoring methodology must be compatible with the baseline methodology used and with the formulation of the baseline scenario for a project candidate. A variety of conceptionally quite different monitoring methodologies may be equally appropriate and justifiable for any particular project type. Hence, the choice of methodology is often made on the basis of project and system circumstances and trade-offs between monitoring costs and conservatively calculated emission reductions. Note on monitoring methodologies: A monitoring methodology builds on the description of the proposed project and the related baseline scenario. The baseline scenario can be more or less detailed. A more detailed baseline scenario entails less monitoring of baseline aspects because more aspects of the baseline have been predetermined, and vice versa. In some cases, aspects of the baseline scenario that are difficult to predict e.g., future growth rates or investment decisions that impact on the baseline can be monitored later (ex post). In such cases it is unnecessary to predict these aspects beforehand, a fact which makes the baseline scenario less uncertain. It therefore must be stressed that: there is some flexibility when deciding the level of concreteness of the predetermined baseline scenario vis-à-vis the range of baseline indicators to be monitored, the baseline scenario and monitoring methodology for a project must match perfectly to avoid gaps or overlaps of pre-determined and monitored baseline information. Monitoring methodologies typically consist of two components, which both can be presented in the monitoring plan: 1. A concept for the calculation of emission reductions, comprising all relevant aspects that are involved in the calculation of emission reductions such as: monitoring boundaries, sources of emissions in baseline and project scenarios, leakage (if any), indicators for shifts in the baseline scenario (if anticipated), conservative assumptions, technical parameters and (emission) factors, monitorable indicators (variables), manipulation/preparation of data, and mathematical formulae for calculation of emission reductions (often implemented as self-calculating spreadsheets). The calculation concept builds on the baseline scenario as formulated in the PDD and/or baseline study. The calculation concept should target and track emission reductions (directly or as difference between baseline and project emissions) as closely to the source and as accurately as possible. If 35

36 concepts, assumptions, proxy indicators, and parameters are used that are more removed from emission sources, they should be handled, and/or their values should be chosen, relatively more conservatively, which tends to result in less calculated emission reductions. 2. Monitoring instructions, consisting of concrete rules and technical provisions for: measuring of data (through metering or other techniques), data handling, record keeping and archiving, quality assurance, preparation of calculations, reporting, management of monitoring systems (incl. training, management responsibilities etc.), verification and other related obligations. The monitoring instructions are predicated on, and execute, the above emission reduction calculation concept. They formulate the key obligations that project operators have to fulfill. 1. Brief description of new methodology (Please outline the main points and give a reference to a detailed description of the monitoring methodology). The details of the monitoring methodology are contained in the monitoring plan that applies the proposed methodology (cf. No. 7). The proposed monitoring concept builds on the observation that the capacity expansion project replaces energy dispatched to the interconnected power system at the dispatch margin. The dispatch margin describes the last power plant in the dispatch order that is dispatched to satisfy demand at any given moment in time. The dispatch order normally reflects the operating costs of available capacity, with the most expensive power being dispatched last. New capacity additions, in particular renewable energy such as hydropower, usually have lower operating costs than older plants and therefore occupy a more favorable, lower position in the dispatch order, such that the capacity with higher positions in the dispatch order are shifted upwards, causing marginal plants to operate less often. The monitoring method uses observable data on the dispatch of plants and identifies those plants that would be at the marginal at any time assuming that the project did not operate. The methodology monitors (a) the power dispatched by the project and any emissions associated with its operation, and (b) the characteristics of the plants that dispatch power to the system at the dispatch margin. This information, in conjunction with emission factors for the replaced capacity, is sufficient to calculate the emission reductions attributable to the CDM project. Where necessary, the monitoring plan may also require the collection of data and specify its use in order to determine, at certain intervals during the project s life, whether or not the project becomes part of the baseline scenario. This can be done using relevant data (e.g. cost developments) in a simplified baseline test. The proposed methodology appears justified for renewable energy projects, because it accurately reflects the actual displacement by the project of electricity generation in the system. Notes: 1. The methodology fully meets the requirement that the monitoring method must build on the described baseline scenario (the interconnected system without the project). A complete analysis would involve the monitoring of total system emissions with the project in place and the determination through modeling of total system emissions without the project. The proposed 36

37 methodology restricts this analysis to those parts of the interconnected system that are actually impacted by the project, namely the system s operating margin. The methodology does not consider base load emissions in the baseline and project scenarios, because base load operations, and therefore its associated emissions, do not change as a result of the operation of the project and because including base load emissions would introduce an unnecessary source of error. If base load operations were included in the calculation, the impact on net emissions would be zero because these plats operate in the same way in the baseline and project scenarios. 2. The methodology is best applied in situations where small (relative to overall system capacity) and/or few CDM projects generate electricity that is injected into the same grid but which have little if any effect on overall capacity expansion. 3. The monitoring methodology cannot be applied to projects that involve direct replacement or modification of capacity but do not affect the dispatch pattern and sequence (e.g. efficiency upgrades, technology or fuel conversion). 4. If two or more CDM projects dispatch power to the same grid, the methodology identifies the marginal plants and associated emission factors, assuming that the CDM projects do not operate. The methodology can either treat several CDM projects en block (calculating average reductions) or as a specific sequence of plants (to calculate individual reductions). 5. If no reserve capacity can be identified that would dispatch power in lieu of the project (or all CDM projects), the methodology uses information on expected capacity additions assuming one of the following as instructed by the monitoring plan: a. The next planned system expansion, at least equal to the aggregated capacity of all CDM projects, would (have been) implemented ahead of time (to meet system demand in the absence of the proposed project). b. A base load capacity equivalent to the aggregated capacity of all CDM projects would (have been) implemented moving the dispatched order upwards by that capacity. c. A conservative default plant (with low emissions) is assumed to meet marginal demand in the absence of the CDM project. The proposed monitoring methodology can be used if the following conditions are met cumulatively : Please refer to assumptions and conditions in No. 4. The proposed monitoring methodology is implemented in the monitoring plan in these steps: 1. Confirm that the proposed monitoring concept is appropriate for the project and that the above conditions are fulfilled. 2. Determine monitoring boundaries, sources of emissions in baseline and project scenarios and sources of leakage (if any). Note: The monitoring boundary defines where and for which operations monitoring data are to be collected and which emission sources are inside and outside of the boundaries (and hence what counts as leakage). For grid connected renewable power projects that use the above monitoring methodology, the monitoring boundaries are usually as follows: - Geographic boundary: The project site relevant for the project s construction and operation. - System boundary: The country s (or region s) interconnected system including power exports and imports (in transnational systems also the relevant systems of neighboring countries). 37

38 Time boundaries: The planned monitoring and crediting period. 3. Make conservative assumptions and provide conservative technical parameters and emission factors as necessary. 4. Determine all variables to be monitored in accordance with the monitoring concept, including indicator(s) for developments in the baseline scenario, if anticipated. 5. Provide instructions for manipulation of data and formulae (e.g. spread sheets) for calculation of emissions in baseline and project cases and / or emission reductions. The proposed monitoring methodology is applied as instructed in the monitoring plan, typically following these steps: 1. Monitoring of project data: a. power dispatched to the grid by the project. Electricity dispatched to the grid is ideally recorded hourly to allow to capture permanently changing load conditions in the grid over the daily cycle. b. Monitoring of variables indicating project emissions and leakage. 2. Monitoring of baseline data: a. power plants dispatched at the margin and dispatch order. b. emission factors of marginal plants. Can be directly obtained from reliable sources or by calculation using information on plant fuel type, fuel emission factor, fuel input and power output (plant efficiency). Boiler plate or IPCC (or other) default data can also be used as conservative technical parameters, because actual operating conditions are usually associated with lower efficiencies and higher emissions. 3. Based on the data above, determine the marginal plant or plants, ideally on an hourly basis, and of the power they would dispatch in the absence of the project. 4. Calculations of: a. baseline emissions using data on the power dispatched by the project and emission factors for the marginal plants, ideally for each hour. b. project emissions and leakage, if any. c. emission reductions as the difference between baseline emission and project emission and leakage. 5. At appropriate intervals, such as at the time of renewal of the crediting period, collection of appropriate information (as instructed by the monitoring plan) and confirmation that the project does not become part of the baseline scenario at that time. Simplification and variations of the methodology: Depending on system characteristics, project proponents may be able to show that simplified monitoring methods can produce an equally accurate or a sufficiently conservative data base for the calculation of emissions and reductions. Simplified monitoring techniques, which would have to be included in the monitoring plan, may include a statistically significant sampling techniques or the collection of aggregate or average data (e.g. for days, weeks, seasons etc.). 38

39 Variations of the methodology can be developed that use data that is only available ex post, and possibly in aggregated form, for instance in situation where regular cooperation with the dispatcher for monitoring purposes cannot be assured. The methodology lends itself to standardization, e.g. through the determination of emission factors for a collection of CDM projects, either by fixing an ex ante emissions factor (no monitoring of dispatch margin) or through centralized monitoring and publication of an ex post emissions factor for all or a group of CDM projects. Simplifications and variations may lead to fewer claimable emission reductions, because the higher data uncertainty will lead to a relative higher error margin and thus a more conservative assessment of claimable emission reductions. 2. Data to be collected or used in order to monitor emissions from the project activity, and how this data will be archived (Please add rows to the table below, as needed) Which data to collect or to use in order to monitor emissions from the project activity depends to a large extent on the project type and the project circumstances. For example, there is usually no need to monitor project emissions from run-of-river hydro power projects as their operation does not result in emissions. If the project uses fossil fuels, fuel consumption may be monitored. The table is left blank, because it cannot be completed without reference to the characteristics of a concrete project. ID number (Please use numbers to ease cross-referencing to table 5) Data type Data variable Data unit Measured (m), calculated (c) or estimated (e) Recording Frequenc y Proportion of data to be monitored How will the data be archived? (electronic/ paper) For how long is archived data kept? Com men t 3. Potential sources of emissions which are significant and reasonably attributable to the project activity, but which are not included in the project boundary, and identification if and how data will be collected and archived on these emission sources (Please add rows to the table below, as needed.) The monitoring boundaries often do not include the construction phase of the project and associated emissions (outside of temporal or geographic boundary) or any life cycle emissions or emissions from transportation, in which case these emissions may be classified as leakage. For run-of-river hydro power projects, emissions outside of the project boundaries are usually not significant and/or reasonably attributable to the project activity, and where they are, e.g. in the case of emissions from construction or transportation, similar emissions would occur in the baseline scenario in the absence of the project, e.g. from mining and transportation of fossil fuel or construction of alternative capacity, and from which emission reductions are usually not claimed, so that the net effect is zero or often negative. Which data are monitored to determine leakage typically depends on project type and circumstances and the table below is therefore not filled in for this monitoring methodology. 39

40 ID number (Please use numbers to ease cross-referencing to table 5) Data type Data variable Data unit Measured (m), calculated (c) or estimated (e) Recordin g frequency Proportion of data to be monitored How will the data be archived? (electronic/ paper) For how long is archived data kept? Comment 4. Assumptions used in elaborating the new methodology: (Please list information used in the calculation of emissions which is not measured or calculated, e.g. use of any default emission factors) The proposed monitoring methodology builds on the following assumptions, which must be satisfied as conditions before the proposed methodology can be applied. 1. The monitoring methodology and its application is compatible with the baseline methodology and the description of the baseline scenario for the project. 2. The project is a relatively minor addition to a system s electric generation capacity (compared to overall system capacity), which replaces power that would otherwise be dispatched by other power plants that operate at the dispatch margin. 3. Market demand for power is fully met by national or regional utilities and/or by independent power producers, and there is no reason to assume that new capacity sufficient to meet new demand would not be constructed. 4. Sufficient data on the dispatch of power to the grid and emission factors of marginal plants is publicly available or can be obtained by the project operator, e.g. through cooperation with the system dispatcher and possibly with other plant operators. There are no other specific assumptions used in elaborating the monitoring methodology. However the application of this monitoring methodology in concrete project cases or in simplified form may involve specific assumptions such as specific technical parameters, including emission factors. 5. Please indicate whether quality control (QC) and quality assurance (QA) procedures are being undertaken for the items monitored. (see tables in sections 2 and 3 above) This table can only be completed for concrete projects. Please see the table in Section D.6. for a sample list of quality control measures. Data (Indicate table and ID number e.g. 3.-1; 3.-2.) Uncertainty level of data (High/Medium/Low) Are QA/QC procedures planned for these data? Outline explanation why QA/QC procedures are or are not being planned. 6. What are the potential strengths and weaknesses of this methodology? (please outline how the accuracy and completeness of the new methodology compares to that of approved methodologies). Strengths: The methodology - simplifies baseline assessment, since aspects of the baseline scenario are monitored in real time. - ensures accurate yet conservative calculation of maximum claimable emission reductions. 40

41 - allows for standardization and cost reduction, as the necessary monitoring, calculation of the applicable carbon intensity factors, data archiving and reporting can be done centrally at the sector level. - can reduce monitoring on the project level to a reading of power meters and, if necessary, collection of data on project emissions and leakage. - reduces the calculation of emission reductions to a simple multiplication of (hourly) power output with the appropriate emission factor. Weaknesses: The methodology - requires coordination between CDM projects connected to the same power grid in order to avoid double counting of power displaced at the margin and associated ERs. - cannot be used if dispatch data and information on characteristics of marginal plants (emission rate, generation, etc.) cannot be obtained. - may involve handling of a large volume of data, where monitoring is done on an hourly, or even smaller time intervals, basis and no automated data handling and calculation systems are used. 7. Has the methodology been applied successfully elsewhere and, if so, in which circumstances? The methodology has been proposed and validated for PCF projects. The Chacabuquito hydropower project in Chile, which uses the methodology to monitor and calculate emission reductions, has passed initial verification. Other PCF projects where the methodology is used include the El Canada hydroelectric project in Guatemala and the Jepirachi wind power project in Colombia. After completing above, please continue filling sub-sections D.2. and following. 41

42 Annex 5 TABLE: BASELINE DATA (Please provide a table containing the key elements used to determine the baseline (variables, parameters, data sources etc.). For approved methodologies you may find a draft table on the UNFCCC CDM web site. For new methodologies, no predefined table structure is provided.) The baseline scenario was determined on the basis of a comparison of costs of alternative generation options. The table shows the assumptions made in the calculation of costs for the project and for three low-cost thermal alternatives. Costs were calculated using the EPRI TAG method as outlined in Annex 3, No More information on key parameters, assumptions and data sources is contained in the attached Baseline Study. Calculation of Generation Costs for El Canada and Thermal Options Units El Canadá Coal-fired Gas Diesel (Hydro) Steam Turbine Motor Capacity MW Cost US$/kW Investment US$ million Global Efficiency % 40% 32% 41% Cost of fuels US$/MBTU Annual Costs Capital US$ million O&M Fix US$ million Plant factor Production GWh/yr Heat Consumption b. BTU/yr Cost of fuels US$ million Total costs US$ million Generation Cost US$/MWH Assumptions: Economic Parameters: Discount Rate: 12% p.a., Useful life of Plants: 30 years Investment costs of equipment: Costs in US$/kW are net, without financial charges Efficiency and plant factor of equipment: According to state-of-the-art of the equipment and reasonable utilization Price and heat rate of fuels: Coal: US$ 40/t; heat rate 6500 kcal/kg; Heat cost: US$ 6.15 million Kcal= US$ 1.55 million BTU. Fuel Oil: US$ 134/t; heat rate: 9700 kcal/kg, US$ 13.8/mKcal; US$ 3.46/MBTU. Diesel Oil: US$ 206/t; heat rate kcal/kg; US$ 20.2 mkcal, US$ 5.07/mBTU Source: Consultant s estimates. The generation cost for each plant is calculated following the EPRI TAG method: n CRF * I + O & M i * (1+ i) COE =, with: CRF = n E (1 + i) 1 COE: Levelized Cost of Energy; CRF: Capital Recovery Factor for (risk-adjusted) Discount Rate i and Number of Years n (equivalent to the useful life of the plant); I: Plant total investment accumulated by commissioning date; O&M: Annual Operation and Maintenance Costs of the Plant; E: Average Annual Energy. 42