Validation Report. Xe Namnoy 2 - Xe Katam 1 Hydropower Project. Client: Swiss Carbon Assets Limited. 24 Mar, Report No.

Transcription

1 Validation Report Client: Swiss Carbon Assets Limited Xe Namnoy 2 - Xe Katam 1 Hydropower Project 24 Mar, 2014 JACO CDM Co., LTD.

2 Date of first issue: 24 Mar, 2014 Approved by: Michio HIRUTA CEO, President of JACO CDM Client: Swiss Carbon Assets Limited Project No.: Client ref.: Mr. Renat Heuberger Summary: JACO CDM Ltd. has been ordered by Swiss Carbon Assets Limited to perform validation of the Xe Namnoy 2 - Xe Katam 1 Hydropower Project (hereinafter the Project). The purpose of the Project is to construct total installed capacity of 15MW Hydropower Station, consisting of two units of 7,500kW turbine-generators in Pakse City, Champasak Province, Lao PDR. The emission reduction from the Project has been conservatively estimated to be 46,438 tco 2 per year during the first crediting period. The validation is the independent third party assessment of the project design, and is the requirement for all CDM projects. The project s compliance with the relevant UNFCCC and host country criteria are validated in order to confirm that the project design is sound and reasonable and meet the stated and identified criteria. This validation report summarizes the findings of the validation. The validation consisted of the following three steps: i) desk review of the project design, the baseline and the monitoring plan etc., ii) follow-up interviews with project stakeholders and iii) the resolution of outstanding issues and issuance of the final validation report and the opinion. The responses to JACO CDM s Corrective Action Request and Clarifications Request to the original PDD Version 01.0 (16 Oct, 2013) were satisfactorily provided by the project participants and the original PDD was revised. In summary, it is JACO CDM s opinion that the Project as are described in the revised PDD Ver (14 Mar, 2014) meets all relevant UNFCCC requirements for the CDM and host country criteria, and correctly applies the baseline and monitoring methodology AMS I.D. Version Hence, JACO CDM requests the registration of the Xe Namnoy 2 - Xe Katam 1 Hydropower Project. Report No.: GR13W0010D Report title: Validation Report, Xe Namnoy 2 - Xe Katam 1 Hydropower Project Work carried out by: Akihide MADENOJI Takahiro YUGUCHI Work verified by: Yukio TAKANO Date of this revision: Version No.: Number of pages: No distribution without permission from the Client or responsible organizational unit Limited distribution 24 Mar, Unrestricted distribution

3 Abbreviations BM CAR CDM CERs CL CM DEDE DNA DOE EDC EDL EGAT EIA EPB ERs FSR GHG IEE IPCC IPP JACO CDM KP LoA MP OM PDD PLF PO PP PPA TGO VVS WREA Build margin Corrective Action Request Clean Development Mechanism Certified Emission Reductions Clarification Request Combined Margin Department of Alternative Energy Development and Efficiency Designated National Authority Designated Operational Entity Electricite du Cambodge Electric du Lao Electricity Generating Authority of Thailand Environmental Impact Assessment Environmental Protection Bureau Emission Reductions Feasibility Study Report Green House Gas(es) Initial Environmental Examination Intergovernmental Panel on Climate Change Independent Power Producer JACO CDM Ltd. Kyoto Protocol Letter of Approval Monitoring Plan Operating Margin Project Design Document Plant Load Factor Project Owner Project Participant Power Purchase Agreement Thailand Greenhouse Gas Management Organization Validation and Verification Standard Water Resources & Environment Administration Page i

4 Table of Contents Page 1 Introduction Objective Scope GHG Project Description 2 2 Methodology Review of Documents Follow-up Interviews Resolution of Clarification and Corrective Action Requests Internal Quality Control and Assurance 5 3 Validation Findings Approval, Participation and Sustainable Development Project Design Document Project Description Application of Baseline and Monitoring Methodology Additionality of the Project Activity Monitoring Plan Environmental Impact Comments by local Stakeholders 21 4 Comments by Parties, Stakeholders and NGOs 22 5 Validation Opinion 23 6 References 24 Appendix A: Validation Protocol A - 1 ~ A - 42 Page ii

5 1. INTRODUCTION 1.1. Objective Swiss Carbon Assets Limited commissioned to JACO CDM to validate the Xe Namnoy 2 - Xe Katam 1 Hydropower Project. The validation serves as design verification and is a requirement for all CDM projects. The purpose of a validation is to have an independent third party assess the project design. In particular, the project s baseline, the monitoring plan (MP), and the project s compliance with relevant UNFCCC and host country criteria are validated in order to confirm that the project design as documented is sound and reasonable and meets the stated requirements and identified criteria. Validation is a requirement for all CDM projects and is seen as necessary to provide assurance to stakeholders of the quality of the project and its intended generation of certified emission reductions (CERs). UNFCCC criteria refer to the Kyoto Protocol criteria and the CDM rules and modalities as agreed in the Bonn Agreement and the Marrakech Accords Scope The validation scope is defined as an independent and objective review of the project design document (PDD), the project s baseline study and monitoring plan and other relevant documents. The information in these documents is reviewed against Kyoto Protocol requirements, UNFCCC rules and associated interpretations. JACO CDM has, based on the recommendations in the CDM Validation and Verification Standard (the VVS ) Version 05.0 employed a risk-based approach in the validation, focusing on the identification of significant risks for project implementation and the generation of CERs. The validation is not meant to provide any consulting towards the Client. However, stated requests for clarifications and/or corrective actions may provide input for improvement of the project design. The validation was conducted by the following validation team through the assessment of the PDD Ver.01.0 (16 Oct, 2013) /1/ to Ver.02.0 (14 Mar, 2014) /2/, additional documents listed in the Chapter 6 References, and also by the interviews with persons listed in the same Chapter. The validation team consists of a validation team leader and validation team member(s) and following tasks have been assigned for the leader and the member(s): Team leader Team member (a) To plan and make effective use of human resources during the function; (b) To represent the validation team in communications with CDM PPs and organize and direct team members; (c) To understand the validation functions and lead the team to reach conclusions on various aspects of validation process; and (d) To Prevent and resolve conflicts, if any, prepare and complete the validation report and handle all the possible follow-up actions, as appropriate. (a) To plan and organize the work effectively and conduct the work within the agreed time schedule, to prioritize and focus on matters of significance; (b) To collect information through effective interviewing, listening, observing and reviewing documents, records and data; (c) To verify accuracy of collected information and confirm the sufficiency and appropriateness of gathered evidence to support audit findings and conclusions and prepare audit reports; and (d) To communicate effectively, either through personal knowledge of the language or through help of an interpreter. The members of the validation team are indicated below. The result of validation team activity was reviewed by the internal verifiers. Validation Team Akihide MADENOJI Takahiro YUGUCHI JACO CDM validation team leader (SS1 TA1.2 qualified) JACO CDM validation team member (SS1 TA1.2 qualified) Page 1

6 Internal Verifiers Yukio TAKANO JACO CDM Lead Auditor (SS1 TA1.2 qualified) 1.3. GHG Project Description Xe Namnoy 2 - Xe Katam 1 Hydropower Project (hereinafter the Project ) which is developed by SV Group Co., Ltd. (hereinafter the PO ) is located in the Pakse City, Champasak Provence, Lao PDR (hereinafter referred to as the "Host Country"). The purpose of the Project is to utilize the renewable water resources to generate electricity, which will be delivered to Lao Power Grid and Thailand Power Grid that are connected each other, without CO 2 emissions. The Project activity will achieve greenhouse gas (GHG) emission reductions by dispatching equivalent electricity supplied by the Power Grids, which is dominated by thermal power plants. According to the Feasibility Study Report (hereinafter simplified as the "FSR") /3/, the Project is a total installed capacity of 15MW, consisting with two units of 7,500 kw turbine-generators. It is described in the FSR /3/ that the estimated average annual electricity supplied to the grid will be 83GWh. The electricity currently generated by grid is relatively carbon intensive, with an combined margin emission factor of tco 2 /MWh. The estimated annual emission reductions of the Project will be 46,438 tco 2 e. Besides generating renewable energy electric power, the Project activity will contribute positive effects for the local sustainable development through the following aspects: More job opportunities to local residents which give them more revenue, Improve infrastructures such as water supply, transportation and electricity system, Reduce the damage to the local vegetation by reducing firewood displacing by electricity, 2. METHODOLOGY The validation may consist of the following three phases: i) A desk review of the project design documentation ii) Follow-up interviews with project stakeholders iii) The resolution of outstanding issues and the issuance of the final validation report and opinion. In order to ensure transparency, a validation protocol was customized for the project, according to the Validation and Verification Standard (hereinafter VVS) Version The protocol shows, in a transparent manner, criteria (requirements), means of verification and the results from validating the identified criteria. The validation protocol serves the following purposes: It organizes, details and clarifies the requirements a CDM project is expected to meet; It ensures a transparent validation process where the validator will document how a particular requirement has been validated and the result of the validation. The validation protocol consists of three tables. The different columns in these tables are described in Table 1. The Validation protocol is enclosed in Appendix A to this report. Findings established during the validation can either be seen as a non-fulfillment of validation protocol criteria or where a risk to the fulfillment of project objectives is identified. Corrective Action Request (CAR) is issued, where: i) The project participants have made mistakes that will influence the ability of the project activity to achieve real, measurable additional emission reductions; ii) The CDM requirements have not been met; or iii) There is a risk that emission reductions cannot be monitored or calculated. The validation team may also use the term Clarification Request (CL), which would be where: Page 2

7 iv) Information is insufficient or not clear enough to determine whether the applicable CDM requirements have been met. Table 1: Validation protocol tables Validation Protocol Table 1: Mandatory Requirements Requirement Reference Conclusion Cross reference The requirements the project must meet. Gives reference to the legislation or agreement where the requirement is found. This is either acceptable based on evidence provided (), or a Corrective Action Request (CAR) of risk or non-compliance with stated requirements. The corrective action requests are numbered and presented to the client in the Validation report. Used to refer to the relevant checklist questions in Table 2 to show how the specific requirement is validated. This is to ensure a transparent Validation process. Validation Protocol Table 2: Requirement checklist Checklist Question Reference Means of Validation (MoV) The various requirements in Table 1 are linked to checklist questions the project should meet. The checklist is organized in seven different sections. Each section is then further sub-divided. The lowest level constitutes a checklist question. Gives reference to documents where the answer to the checklist question or item is found. Explains how conformance with the checklist question is investigated. Examples of means of verification are document review (DR) or interview (I). N/A means not applicable. Comment The section is used to elaborate and discuss the checklist question and/or the conformance to the question. It is further used to explain the conclusions reached. Draft and/or Final Conclusion This is either acceptable based on evidence provided (), or a Corrective Action Request (CAR) due to noncompliance with the checklist question (See below). Clarification Request (CL) is used when the validation team has identified a need for further clarification. Validation Protocol Table 3: Resolution of Corrective Action and Clarification Requests Draft report clarifications and corrective action requests Ref. to checklist question in table 2 Summary of project owner response Validation conclusion If the conclusions from the draft Validation are either a Corrective Action Request or a Clarification Request, these should be listed in this section. Reference to the checklist question number in Table 2 where the Corrective Action Request or Clarification Request is explained. The responses given by the Client or other project participants during the communications with the validation team should be summarized in this section. This section should summarize the validation team s responses and final conclusions. The conclusions should also be included in Table 2, under Final Conclusion Review of Documents Page 3

8 Page 4 The Project Design Document submitted by the PO and additional background documents related to the project design and baseline were reviewed. Documents reviewed are listed in Chapter 6 References. The validation findings stated hereinafter are based on the PDD version 01.0 (16 Oct, 2013) /1/ Follow-up Interviews From 29th to 31st of September 2013, JACO CDM verification team; Akihide Madenokoji and Takahiro Yuguchi visited the project site and performed interviews with project stakeholders to confirm selected information and to resolve issues identified in the document review. Meetings were held with the PO /51/-/54/, the PP (buyer) /55/, the construction company /56/ and Beijing Karbon Energy Consulting. (hereinafter Consult Co.) /57//58/. Interviews to Champasak Province Department of Energy and Mines /59/, Champasak Province Department of Natural Resource and Environment /60/, the EDL Grid Company /61/, independent environment consultant /62/ and local residents from Tayikseu villages near the project site /63/-/65/ were conducted. The project site was visited. The main topics of the interviews are summarized in Table 2. Table 2: Interview topics Interviewed organization /personnel PO /51//52//53//54/, PP (buyer) /55/, Construction Company /56/, Consult Co. /57//58/ Dpt of Energy and Mines /59/ Dpt of Natural Resource and Environment /60/ Independent Environment Consultant /62/ Grid Company; Electricite Du Laos /61/ Local resident from Tayikseu Village /63//64//65/ Project Site Interview topics Company overview Project overview Construction progress and schedule Roles and Responsibility Project design issues Baseline methodology; additionality and serious consideration of CDM Monitoring plan Management system Environmental impacts Stakeholder comments Approval by the host country The development policy of Lao The situation of electricity supply Contribution of the Project to the Country Approval procedure and condition Environmental issues related to the Project Monitoring of the environmental issues Approval procedure Conditions of IEE approval Specifications of the transmission line and calculation of its loss Specifications and certifications of the meters Electricity monitoring procedure General situation of the electricity supply Power Purchase Agreement and Tariff Initial communication about the project Impacts of the project for the local residents Compensation and jobs Contribution to the local society Location of the Project Construction status and schedule Environmental issue Impact to house and firm 2.3. Resolution of Clarification and Corrective Action Requests The objective of this phase of the validation is to resolve the requests for corrective actions and clarification and any other outstanding issues which needed to be clarified for JACO CDM s

9 positive conclusion on the project design. The Corrective Action Requests and Clarification Requests raised by JACO CDM are resolved during communications between the Client and JACO CDM. To guarantee the transparency of the validation process, the concerns raised and responses given are summarized in chapter 3 below and documented in more detail in the validation protocol in Appendix A. Since modifications to the Project Design Document were necessary to resolve JACO CDM s concerns, the client decided to revise the documentation. The revised PDD Ver.02.0 /2/ was submitted. Based on this, JACO CDM issues the final validation report and opinion Internal Quality Control and Assurance The final validation report including the initial validation findings underwent a technical review before submitted to the project participants. The final validation report underwent the assessment by JACO CDM s Certification Determination Committee to ensure independence, impartiality, transparency, credibility and indiscrimination of assessments. Two-third of the committee members are selected from outside of JACO CDM. 3. VALIDATION FINDINGS In the following sections the findings of the validation are stated. The validation findings for each validation subject are presented as follows: 1) The findings from the desk review of the original project design document and the findings from interviews during the follow up visit are summarized. A more detailed record of these findings can be found in the Validation Protocol in Appendix A. 2) Where JACO CDM had identified issues that needed clarification or that represented a risk to the fulfillment of the project objectives, a Clarification or Corrective Action Request, respectively, have been issued. The Clarification and Corrective Action Requests are stated, where applicable, in the following sections and are further documented in the Validation Protocol in Appendix A. 3) Where Clarification or Corrective Action Requests have been issued, the exchanges between the Client and JACO CDM to resolve these Clarification or Corrective Action Requests are summarized. 4) The conclusions for each validation subject are presented. The validation findings relate to the project design as documented and described in the original project design documentation Approval, Participation, and Sustainable Development Discussion The name of the project is Xe Namnoy 2 - Xe Katam 1 Hydropower Project and the project participant is SV Group Co., Ltd. Lao PDR; the host Party, is the Non-Annex I Parties to the Kyoto Protocol. LoA of the project by respective DNA were issued and provided to DOE by the Project Participants. The Letter of Approval from Lao PDR /4/ was issued by Lao DNA; Ministry of Natural Resources and Environment on 30 Dec, Authenticity of the approval was ensured by direct communication by with the Lao DNA; Department of Disaster Management and Climate Change, Ministry of Natural Resources and Environment. The LoA of Switzerland /5/ was provided. Authenticity of the approval was ensured by the web-site of Switzerland DNA; Federal Office for the Environment. < > There was no special condition given for approval in the both LoAs. And version number of PDD or Validation Report was not described as a reference in both LoAs. Page 5

10 Page 6 Following points are confirmed from the declarations on the LoA from Lao PDR and Switzerland: - Both parties are Parties to the Kyoto Protocol, - Their participation is voluntary, - As for Lao PDR, as the host Party, the Project activity contributes to the sustainable development of the country, and - Precise name of the Project is indicated. - Company name of the Project Participant is indicated. The letter of Modality of communication /6/ was also provided Findings Clarification Request 1 LoA of Lao and Switzerland are to be provided. Completeness of the LoA is to be confirmed in terms of following points (1) Voluntary participation (2) Contribution to sustainable development (3) Reference to precise title of the PDD and PP (4) Approval condition. Response: The Lao LoA was approved by Lao DNA; Ministry of Natural Resources and Environment on 30 Dec, And the LoA of Switzerland was issued by Switzerland DNA; Federal Office for the Environment on 21 Feb, LoAs of Lao and Switzerland were provided. Conclusion: LoA of Lao /4/ and LoA of Switzerland /5/ were provided by the PP. Both of LoAs included approval of the voluntary participation in the project activity and confirmation that the project activity assists in achieving sustainable development and that the Party ratified the Kyoto Protocol, and authorization of the project participants. CL.1 was clarified Conclusion CL.1 was clarified. It was validated by provided documents that the project was approved as a CDM project by the parties involved, and the information such as the project name, name of project participants and other information on the LoA, MoC and PDD are consistent. The Project complies with the requirement Project Design Document Discussion The PDD shall use the latest PDD form and the form must be filled in general according to the requirements of related guidance Findings The original PDD /1/ and the revised PDD /2/ use the PDD form Version 04.1 effect as of 11 Apr, The form is filled in accordance with the requirements of Guidelines for completing CDM- PDD (Ver. 01.0, EB 66, Annex 08) Conclusion The original PDD /1/ and the revised PDD /2/ comply with relevant form and guidance. 3.3 Project Description Discussion (1) Description of the project activity The Project is a newly constructed run-of-river hydropower plant located in Pakse City, Champasak Province, Lao PDR. It has a total installation capacity of 15MW (7,500kW 2

11 Page 7 units). The project is expected to supply an annual average electricity of 8.3GWh to the Lao Power Grid and Thailand Power Grid. (2) Boundary According to the applied methodology AMS I.D. /21/, spatial extent of the project boundary includes the project power plant and all power plants connected physically to the electricity system that the CDM project power plant is connected to. The power generated will be delivered to the Lao Power Grid by transmission line, and the Lao Power Grid is connected with the Thai Power Grid. Geographical boundaries of the Project includes fixed weir, a sand flush, intake, headrace channel, head tank, penstock, powerhouse with 2 units of turbines (2*7,500 kw), and a tailrace. The geographical location of the project was confirmed by GPS measurement during the on-site assessment by the validation team. (3) Technology The project is newly installed run-of river hydropower plant with total capacity of 15MW generating capacity which consists of two 7,500kW turbine generator units. The equipments will be provided by Chinese company. Main business of the project owner; SV Group Co., Ltd. is energy, mine and trading. The PO is developing two micro scale hydropower project beside the proposed project. (4) Power density and project emission It was confirmed by the provided FSR /3/ and on-site assessment that the project does not involve any reservoir Therefore, it is concluded that the project emission can be ignored in accordance with the AMS-I.D. (Version 17) /21/. (5) Contribution to sustainable development The Project is expected to improve domestic economic, which will bring an opportunity of future development. Expected benefits by the project are stipulated in PDD A.1 /1/. Furthermore, the LoA of Lao PDR /4/ also describes the local contribution of the Project, hence it is confirmed that the Project contributes to the sustainable development of local area. (6) Public funding PDD A.5 states that there is no public funding involved in the project activity. This was confirmed by interview with the PO /51/ during on-site assessment. (7) Not debundled component It was validated by interview to the PO /51/ and Head of Business Energy Sector, Department Energy and Mine of Champasak Province /59/ that the project is not a debundled component of a large scale project activity as described on the PDD A.6 /1/ Findings Clarification Request 2 Geographical coordinates of the project site are to be confirmed during the site-visit. Response: The geographical coordinate information on the PDD A.2.4 was based on the actual measurement result which is consistent with the information on the FSR. Conclusion: It was verified by the GPS measurement by the assessment team during the on-site assessment that the geographical coordinate of the project location is accurate. CL.2 was clarified. Clarification Request 3 (1) Record of technical training of the operation staff is to be provided. (2) Record of CDM monitoring operation training is to be clarified. Response: Training is planning to conduct before starting the operation for all operation staff, which includes technical, safety and CDM monitoring. Conclusion:

12 It was validated by interview to the PO /51/ during the on-site visit that the training is planning to be conducted to the operation staff and the CDM training will be in accordance with the monitoring plan of the PDD. CL.3 was clarified Conclusion CL.2 and CL.3 were clarified. The Project complies with the requirements Application of Baseline and monitoring methodology Discussion (1) General requirement AMS I.D. Grid connected renewable electricity generation /21/, Tool for the demonstration and assessment of additionally (Ver07.0.0) /22/ and Tool to calculate the emission factor for an electricity system (Ver ) /23/ are referred. Version number of methodology and tool was the latest version at the time of PDD /1/ publication. (2) Applicability of the selected methodology The methodology is applicable to the Project since, The project is a renewable electricity generation by water resource which is connected to the regional grid consisting of Thailand Power Grid and the Lao Power Grid. The project will install new power plant at the site where there was no renewable energy power plant operating prior to the implementation of the project activity (Greenfield plant). The project involves no reservoir. The total installed capacity of the project is 15 MW which is a small-scale CDM project. The other criteria stated in the AMS I.D are not applicable to the project. The geographical and system boundary for the relevant electricity grid is the Thailand Power Grid and Lao Power Grid, which can be identified, whose information can be available from Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ published by Lao DNA Ministry of Natural Resource and Environment, The Study of emission factor for an electricity system in Thailand 2010 /24/ issued by Thailand Greenhouse Gas Management Organization (TGO), Annual Report 2010 /25/ issued by Electric du Lao (EDL), Annual Report 2010 /26/ issued by Electricity Generating Authority of Thailand (EGAT) and Electric Power in Thailand 2010 /27/ issued by Department of Alternative Energy Development and Efficiency (DEDE). The validation team confirmed that Calculation for the emission factor for electricity generation in Lao PDR /46/ is the latest available official data, therefore it s rational to adopt the parameters in 2010 as it is the latest year with completed data sources. (3) Project Boundary The boundary of the project is defined as the project power plant and all power plants connected physically to the electricity system that the CDM project power plant is connected to, according to AMS I.D. The project electricity system is identified as regional grid consisting of the Lao Power Grid and the Thailand Power Grid as described in the PDD B.3. The project will be connected to the Lao Power Grid which is connected to Thailand Power Grid according to the Existing Power System Diagram in Year 2012 as of 9 Jan, 2013 on the EDL Annual Repot 2012 /28/. The Lao Power Grid is also connected to China, Vietnam and Cambodia power grid. None of country whose grid is connected to the Lao Power Grid is Annex I countries. Therefore the emission factor of the connected electricity system is not zero, according to the tool /23/. According to the Tool to calculate the emission factor for an electricity system, If the DNA of the host country has published a delineation of the project electricity system and connected electricity systems, these delineations should be used. According to the Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ published by the Ministry of Natural Resources and Environment, the Authorized Representative of the Designated National Authority for the Lao PDR, Page 8

13 Page 9 the project electricity system is identified as a regional grid consisting of Thailand Power Grid and the Lao Power Grid. (4) Emission sources and gases included in the Project Boundary Sources and gases in the project boundary are described in PDD.B.3, which are consistent with the applied methodology. It was validated by provided FSR /3/ and interview with the PO /51/ that there is no GHG emission sources within the proposed CDM Project activity boundary as a result of the implementation of the project activity which are expected to contribute more than 1% of the overall expected average annual emissions reductions. (5) Baseline scenario determination PDD B.4 asserts the baseline scenario of the project is The electricity delivered to the grid by the project activity would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources into the grid which is consistent with that stipulated by the applied methodology. Furthermore, PDD B.5 lists credible alternatives as below. Alternative a): The project activity not undertaken as a CDM project activity; Alternative b): Construction of a thermal power plant with equivalent installed capacity or annual electricity generation; Alternative c): Construction of a power plant using other sources of renewable energy with equivalent amount of annual electricity generation; Alternative d): Provision of an equivalent amount of annual power output by the grid into which the project is connected. Alternative a) is excluded by Investment analysis conducted in Step 2 of additionality discussion. Alternative (b) is excluded based on the mid-term plan /29/ by Ministry of Energy and Mines of Lao. There is no thermal plant with similar capacity to the project around the project area since there is no coal mine there. If coal need to be transferred from other region, cost of transport material give significant negative impact to the operation cost. Alternative (c) is excluded. It was validated by the Country Paper Rural Energy Development and Utilization /35/ and interview to the Department of Energy and Mine /59/ during onsite assessment that the renewable energy such as wind, solar PV, geothermal, and biomass, other than hydropower, are not ready to introduce due to lack of technology in Lao PDR, and lack of financial attractive to construct power plants with the similar power generation capacity with the proposed project. Thus, Alternative d) is concluded to be the baseline scenario, and which is validated. (6) Emission reductions (a) Project emission The Project emissions shall be calculated with the following equations: PE = PE + PE + PE y FF, y GP, y HP, y Where: PE y = Project emissions in year y (tco 2 e/yr) PE EF, y = Project emissions from fossil fuel consumption in year y (tco 2 e) PE GP, y = Project emissions from the operation of geothermal power plant due to the release of non-condensable gases in year y (tco 2 e) PE HP, y = Project emissions from water reservoirs of hydro power plant in year y (tco 2 e) For Hydropower Project, PE EF, y and PE GP, y is equal to 0, PE HY, y is calculated on the basis of the power density (PD) of the Project, and PD is calculated using the equation below: PD = ( CAPPJ - CAPBL) / ( APJ - ABL) Where,

14 PD = Power density of the Project activity (W/m 2 ) CAP PJ = Installed capacity of the hydropower plant after the implementation of the Project activity (W), for the proposed project, Cap PJ = 15,000,000 W CAP BL = Installed capacity of the hydropower plant before the implementation of the Project activity (W), for the proposed project (new hydropower plant), Cap BL = 0 W A PJ = Area of reservoir measured in the surface of the water, after the implementation of the Project activity, when the reservoir is full (m 2 ). A BL = Area of reservoir measured in the surface of the water, before the implantation of the Project activity, when the reservoir is full (m 2 ), for the proposed project (new hydropower plant), A BL = 0 m 2 The project emission (PE HP,y ) does not need to be taken account since there is no reservoir involved according to the methodology AMS I.D. /21/. Backup power system which consumes fossil fuel is not installed. This was confirmed by on-site assessment. Therefore project emission does not need to be accounted. (b) Leakage No leakage needs to be taken account according to the methodology. (c) Baseline emission Calculation process and data sources are clearly indicated in PDD B.6 and Annex.3. According to the PDD B.6.1 Step 2, Option I; only grid power plants are included in the calculation, which is in line with the Tool to calculate the emission factor for an electricity system /23/. Baseline emission factor calculation follows the procedure prescribed in the tool /23/ with slight deviation approved by EB. As for OM method, (d) average OM was selected, a 3-year generation-weighted average in 2010, 2009, 2008, without requirement to monitor and recalculate the emissions factor during the crediting period. Since net electricity generation and a CO 2 emission factor of each power unit is not available, Option B was selected on the Step 4 which is in line with the tool. OM is determined as following which is in line with the methodology. EF grid, OM - ave, y Where, = (,, 2,, å FCi y NCVi y EFCO i y) i EG y EF grid,om-ave, y = Average operating margin CO 2 emission factor in year y (tco 2 /MWh) FC i, y = Amount of fossil fuel type i consumed in the project electricity system in year y (mass or volume unit), data confirmed by Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ NCV i, y = Net calorific value (energy content) of fossil fuel type i in year y (GJ/mass or volume unit), data confirmed by Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ EF CO2i, = CO 2 emission factor of fossil fuel type i in year y (tco 2 /GJ), data confirmed by 2006 IPCC Guidelines for National Greenhouse Gas Inventories /36/ EG y = Net electricity generated and delivered to the grid by all power sources serving the system, including low-cost/must-run power plants/units, in year y (MWh), data confirmed by Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ i = All fossil fuel types combusted in power sources in the project electricity system in year y y = The data available in the most recent 3 years; 2008, 2009 and 2010 All data and calculation of Baseline Information on PDD B.6 and Annex 3 were verified by data in Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/, the EDL Annual Report 2010 /26/, the EGAT Annual report 2010 /25/, the Electric Power in Thailand 2010 Page 10

15 /27/, 2006 IPCC Guidelines for National Greenhouse Gas Inventories /36/, AMS I.D. /21/ and the Tool to calculate the emission factor for an electricity system /23/. OM for the project is tCO 2 /MWh. In order to calculate the build margin (BM) emission factor, the data for determine the sample group of power units m about the most recently units in the electricity system is required, but since the project boundary is international, it s difficult to obtain the information for all the units in both Lao and Thailand (power generation data, commissioning date, and the fuel consumption). The data requirements for the application for calculate the build margin (BM) emission factor cannot be met. Therefore simplified CM is selected. It is comply with the requirement of tool since the host country; Lao PDR is one of Least Developed Country (LDC), the data required to determine the BM is not available and the operating margin emission factor (EF grid,om-ave,y ) is calculated using the average OM. EF = w EF + w EF grid, CM, y OM grid, OM, y BM grid, BM, y Where: w OM = Weighting of operating margin emission factor (%); w BM = Weighting of build margin emission factor (%). The weighs w OM and w BM, for simplified CM by default, are w OM =1 and w BM = 0. Therefore combined margin (CM) emission factor (EF grid,cm,y ) for the project is tco 2 /MWh. Combined Emission Factor; EF grid,cm,y is calculated by simplified CM in the PDD. w OM =1, w BM =0 is used as weighting for the first crediting period which is in line with the tool. It was validated by validation team that the determination of the emission factor OM, BM and CM are accurate and it is in compliance with the Tool to calculate the emission factor for an electricity system /23/ and Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/. The baseline emission is determined as following, which is in line with AMS I.D. /21/. BE y = EG pj,y x EF grid,cm,y Where, BE y = Baseline Emissions in year y (tco 2 /yr) EG pj,y = Quantity of net electricity supplied to the grid as a result of the implementation of the CDM project activity in year y (MWh/yr) EF grid,cm,y = Combined margin CO 2 emission factor for grid connected power generation in year y (7) Emission reduction The emission reduction is calculated as following, which is in line with AMS I.D. /21/. ER y = BE y PE y Where ER y = Emission reduction in year y (t CO 2 e/yr) BE y = Baseline Emissions in year y (tco 2 /yr) PE y = Project emission in year y (t CO 2 e/yr) Findings Clarification Request 4 The PDD Table B.2 indicates CH4 from the reservoir is included in the boundary which is not consistent with the other part of PDD. It is to be clarified if there is no reservoir implemented by the project activity. Response: Page 11

16 The project implemented no reservoir. According to the methodology, the project emission from the reservoir is not included in the project boundary since reservoir is not involved in the project activity. The description of the PDD was revised. Conclusion: It was validated by provided FSR /3/ and interview to the PO /51/ during on-site assessment that the project was not involved any reservoir. The CH4 from the reservoir is not included in the project boundary. The description of the PDD was revised and which is confirmed accurate. CL.4 was clarified. Clarification Request 7 It to be clarified why there is no Lao plant listed for calculation of Build Margin emission factor. Response: It was discovered that the EDL Annual Report does not cover some information of Independent Power Producer (IPP). For example, there is discrepancy of value of electricity exported to Thailand from Lao between EGAT Annual Report and EDL Annual Report, because some IPP in Lao export electricity directory to Thailand, but not through EDL. Since some of data of IPP are not publicity available in Lao, Simplified CM is used as following Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ publicized by the Ministry of Natural Resource and Environment, Lao PDR (DNA of Lao). Due to this change, related part of PDD and CER calculation spreadsheet was revised. Conclusion: It was validated by relevant documents that the information regarding power plants established by private investment on the EDL Annual Reports are not complete, and some of data for BM calculation such as generation and fuel consumption by individual plant are no available in Lao. Therefore using simplified CM is reasonable since Lao is one of LDCs and the data requirements for the application of BM determination are not available. It is further observed that the Lao DNA has published the Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ in Jan. 2014, using simplified CM method with average OM calculation option, then the PO revised the OM calculation to average OM including the low-cost/must-run power plants in all equations which is in accordance with the calculation by Lao DNA. As result of the change, ex-ante estimates of emission reductions by the proposed project are revised. The Calculation for the emission factor for electricity generation in Lao PDR, 2010 /46/ published by Lao DNA was verified by cross checking with data from The Study of emission factor for an electricity system in Thailand 2010 /24/, the EDL Annual Report 2009 /30/, 2010 /26/, the EGAT Annual report 2010 /25/, the Electric Power in Thailand 2008, 2009, 2010 /27/, and 2006 IPCC Guidelines for National Greenhouse Gas Inventories /36/ then it is confirmed that the determination and calculation of CM emission factor and ex-ante estimation of emission reduction by the project is accurate and it is in line with the applied methodology AMS I.D. /21/ and the Tool to calculate the emission factor for an electricity system /23/. CL.7 was clarified. Clarification Request 8 Data source of Bituminous fuel consumption for the calculation of BM on the ER calculation is to be clarified. The note of the table says The information of the Thailand plants source from The Study of emission factor for an electricity system in Thailand 2010, Table 7, but the data is not indicated there. Response: Since the emission factor calculation was revised in accordance with the Lao DNA published calculation and simplified CM was applied, thus data table and calculation regarding BM emission factor is eliminated from the PDD. Conclusion: Since BM emission factor calculation was revised, the CL. 8 was closed. Clarification Request 9 Page 12

17 Annual electricity generation of the set of five power units AEG SET-5-units ; 3,935,900 MWh and units more than 20% AEG SET->20% ; 41,174,140 MWh on the PDD B.6.1 Step 5 is not consistent with the information on the ER calculation Spreadsheet. Data source of the AEG SET-5-units and AEG SET->20% is to be clarified. And description regarding the sampling the BM is calculated based on the SET 5- units is not consistent with the calculation on the ER calculation spreadsheet. Response: As demonstrated above, the emission factor calculation was revised in accordance with the Lao DNA published calculation using simplified CM due to availability of data, all the data table and calculation regarding BM emission factor is eliminated from the PDD. Conclusion: Since BM emission factor calculation was revised, the CL. 9 was closed Conclusion The selected baseline and monitoring methodology is applicable and correctly applied without any deviation. The selected methodology applies correctly to project boundary, baseline identification, algorithms, and formulae to determine ERs. It was validated that the data and calculation on the provided ER Calculation Spreadsheet /7/ is accurate, and which is consistence with the PDD. Data and parameters monitored on implementation and hence become available only after validation of the project activity were all sourced from the FSR /3/ and confirmed by the validation team. The Project complies with the requirements Additionality of the Project Activity Discussion (1) Starting date of the Project and prior consideration of CDM Timeline of the project is described in PDD B.5. Starting date of the project was 14 Oct, 2013 when the Construction Contract /8/ was signed, which is in accordance with the starting date definition of the Glossary of CDM Terms /38/: the earliest date at which either the implementation or construction or real action of a CDM project activity. The date was confirmed by the document of contract provided by the PO. The PO submitted the prior consideration form to both the Lao DNA and UNFCCC on 13 Aug, 2013, since the starting date of the project was after 2 Aug, 2008 it was required to submit a prior consideration, according to the CDM Project Standard (Ver. 03.0) /39/. It was validated by provided the prior consideration application form to Lao DNA /9/ and UNFCCC CDM web page < that the prior consideration was submitted before the starting date of the project and which complies with the requirement. The validation team also confirmed that the PDD was published for global stakeholder consultation on 25 Oct, 2013 that was within two years after the submission of the prior consideration to the Lao DNA and UNFCCC. (2) Identification of alternatives This step was assessed in (5) of this report above. The validation team considers that the listed alternatives are credible and complete. (3) Investment analysis The additionality is demonstrated following procedure prescribed in the latest version of Tool for the demonstration and assessment of additionality (Ver ) /22/ referred by the applied methodology. Investment analysis approach was selected and Barrier analysis was skipped. Benchmark analysis Benchmark analysis was selected as the analysis method. Project IRR was selected as the indicator, and benchmark was set to 15.62% (post-tax) based on the maturity rate of the 3-month US Treasury bill plus the Risk premium on lending in Lao PDR. Page 13

18 The average value of the 3-Month US Treasury Constant Maturity Rate /40/ for 20 years from 14/10/1993 to 14/10/2013 (the project starting date) was selected as a risk free rate which is 2.94%. The data Risk premium on lending (prime rate minus Treasury bill rate; %) /41/ provided by World Bank for 5 years from 2006 to 2010 was selected as a national risk premium of Lao, which is 12.68%. Therefore the benchmark was calculated the sum of these two indicator as 15.62%, which is in line with the Tool for the Demonstration and Assessment of Additionality (Version 7.0.0) /22/ para.38 (a) and Guidelines on the assessment of investment analysis /42/ (EB62 Annex 5) para.15. As per the government bond, the validation team inspected the Laos bond market, noticed that the first government bond of Lao was issued in May 2013, whose currency used is THB, with 4.5% Maturity Rate ( ). There is no long time bond records in kips (or in USD) available for benchmark calculation. Since US dollar is the world s reserve currency, average short term (3-month) U.S. Treasury Constant Maturity Rate from 1991 to 2011 (20 years before project start date) is chosen as the Government bond rates (risk free rate) to be used in benchmark calculation. Compare with the long term bonds, the short term treasury rate is usefully be chosen as the risk-free rate ( ). The validation team compared the US treasury rate in different maturity period: Table 3 Treasury Constant Maturity Rate comparison Maturity period 3 Month 1 Year 10 Year 20 Year Data period 14/10/1993 ~ 14/10/ /10/1993 ~ 14/10/ /10/1993 ~ 14/10/ /10/1993 ~ 14/10/2013 Treasury rate % Thus validated that the short term rate is lower compare with the long term rate, the choice is conservative. The 20 years average value is more convincible and reduces the short term uncertainty and violation of the market. The Treasury Constant Maturity Rate data are sourced from Board of Governors of the Federal Reserve System (publicly available on internet). The validation team downloaded data set of 1993 to 2013 and reproduced the calculation. It is confirmed that 2.94% indicated in the PDD is the correct average 3-Month Treasury Constant Maturity Rate in this period. Compare with the Lao s THB bond s 4.5% Maturity Rate, the 2.94% for average 3-Month Treasury Constant Maturity Rate in US dollar is more representative and conservative. As per the risk premium, according to the World Bank website for Risk premium on lending (prime rate minus treasury bill rate, %), Risk premium on lending is the interest rate charged by banks on loans to prime private sector customers minus the risk free treasury bill interest rate at which short) term government securities are issued or traded in the market, and that of LAO PDR from 2006 to 2010 are 11.70%, 10.10%, 11.70%, 15.30% and 14.60% respectively. As a conclusion, it is assessed appropriate to apply the average of the recent years which make the value more convincible and reduces the short term uncertainty and violation of the market % as a suitable risk premium to reflect private investment and/or the project type, as substantiated by an independent (financial) expert or documented by official publicly available financial data added upon Government bond rates. The validation team compared the benchmark with the other hydropower projects in Lao PDR. The Power System Development Plan for Lao PDR /43/, prepared for LAO PDR Ministry of Industry & Handicrafts, Department of Electricity and World Bank by Maunsell Limited in association with Lahmeyer GmbH in 2004, provided IRR estimation of 6 hydropower projects under planning. Table 4 IRR of the Lao Hydropower projects Project name Project IRR (25 years) Nam Mo 15.80% Nam Theun % Page 14