VALIDATION REPORT. Río Luis In Ecuador. Energyhdine C.A. Report No CCL0105/RLSHP/ Revision No 03, 12/11/2012

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1 Río Luis In Ecuador Energyhdine C.A Report No CCL0105/RLSHP/ Revision No 03, 12/11/2012 Carbon Check (Pty) Ltd Block-A, Ground Floor 374 Rivonia Boulevard, Rivonia Johannesburg 2128 Republic of South Africa

2 Technical Reviewer Financial Expert Technical Expert Team Member (Auditor) Local Expert Trainee Auditor Team Leader VALIDATION REPORT Project Title: Río Luis Host Country: Ecuador Estimated CERs (tco 2 e): 51,475 annual average Client: Client Contact: Byron Acosta Energyhdine C.A Energyhdine C.A Av. Coruña E25-58 y San Ignacio Edificio Altana Plaza 6º Piso Quito, Pichincha Report No: CCL0105/RLSHP/ Ecuador Revision No: 03 No distribution without permission from the client or responsible organisation unit: Limited distribution: Unrestricted distribution: DOE: Carbon Check (Pty) Ltd Approved by (Final Report): Adam Simcock Date of this report: 12/11/2012 Date of approval: 12/11/2012 Technical Review : Vikash Kumar Singh Methodology Number: Version: ACM Title: Consolidated baseline methodology for grid-connected electricity generation from renewable sources Date of approval: 12/11/2012 Scale: Large SS(s): 1 TA(s): 1.2 Summary Carbon Check (Pty) Ltd. (Carbon Check), commissioned by Energyhdine C.A, has performed the validation of the project activity Río Luis in Ecuador with regard to the relevant requirements for CDM activities. In the opinion of Carbon Check (Pty) Ltd. The PDD of dated 24/10/2012 meets all relevant UNFCCC requirements for the CDM and host country criteria, and correctly applies the baseline and monitoring methodology Grid connected renewable electricity generation from renewable sources, ACM0002 ver Hence, Carbon Check (Pty) Ltd. requests the registration of Rio Luis as a CDM project. Validation Team Validation Team Full Name Appointed for Sectoral scopes (Technical Areas) Role Ravi Shankar 1.2, 2.1, 2.2, 3.1, 13.1 X X Francisco Acuna 1.2, 13.2 X X X Carter Anubhav Dimri -- X Vikash Kumar 1.2, 3.1, 13.1 X Singh 1

3 Validation Phases and Validation Status: Desk Review Follow up interviews Resolution of outstanding issues Corrective Actions / Clarifications Requested Rejected Full Approval and Submission for Registration Executive Summary Validation Opinion The DOE (Carbon Check (Pty) Ltd.), here after called CCL, has been commissioned by Energyhdine C.A /36/ to perform the validation of their project Río Luis, in Ecuador. The validation was performed on the basis of UNFCCC criteria for the Clean Development Mechanism. The scope of the validation is defined as an independent and objective review of the project design document, the project s baseline study and monitoring plan and other relevant documents. The information in these documents is reviewed against CDM Validation and Verification Manual (Version 01.2) /B01/, Kyoto Protocol requirements and CDM Executive Board/UNFCCC rules. The report is based on the assessment of the project design document undertaken through Stakeholder consultations, application of standard auditing techniques including but not limited to document reviews, site visit, and stakeholder s interviews, review of the applicable methodology and its underlying formulae and calculations. Validation methodology and process The validation has been performed as described in the VVM version 01.2 /B01/ and constitutes the following steps: - Publication of the PDD /01/ on the UNFCCC website (28/02/2012 to 28/03/2012) - Desk review of the PDD /01/ and the relevant documents - On-site assessment (25/05/ /05/2012) - Issuance of Validation Report Validation criteria The following CDM requirements have been considered: - Article 12 of the Kyoto Protocol, - Modalities and procedures for CDM (Marrakesh Accords) - Subsequent decisions by the COP/MOP and CDM Executive Board - Host country criteria - Criteria given to provide for consistent project operations, monitoring and reporting. The host party is Ecuador and the party fulfils the participation criteria and have approved /05/ and authorized the project and the project participants Energyhdine C.A. The DNA of Ecuador confirms that the project assists in achieving sustainable development /05/. The project correctly applies the baseline and monitoring methodology ACM0002, version , Consolidated baseline methodology for grid-connected electricity generation from renewable sources /B04/. The project results in reductions of CO 2 emissions that are real, measurable and give long-term benefits to the mitigation of climate change. It is demonstrated that the project is not a likely baseline scenario. Emission reductions attributable to the project are hence additional to any that would occur in the absence of the project activity. The validation did not reveal any information that indicates that the project can be seen as a diversion of ODA funding towards Ecuador /12/. 2

4 The monitoring plan provides for the monitoring of the project s emission reductions. The monitoring arrangements described in the monitoring plan are feasible within the project design and it is CCL s opinion that the project participants are able to implement the monitoring plan. By installing the new grid connected hydro power plant, the project activity will result in reductions of greenhouse gas (GHG) emissions that are real, measurable and give long-term benefits to the mitigation of climate change. The total emission reductions from the project are estimated to be 514,751 tco2e over a 10 year renewable crediting period, averaging 51,475 tco 2 e annually. The emission reduction forecast /02/ /04/ has been checked and it is deemed likely that the stated amount is achieved given the underlying assumptions do not alter. The validation protocol describes a total of 17 findings which include: 09 Corrective Action Requests (CARs); 07 Clarification Requests (CLs); and all findings have been closed satisfactorily. 01 Forward Action Request (FAR) has been raised during course of validation. CCL concludes that the CDM Project Activity Río Luis in Ecuador, as described in the PDD /02/, meets all relevant requirements of the UNFCCC for CDM project activities including article 12 of the Kyoto Protocol, the modalities and procedures for CDM (Marrakesh Accords) and the subsequent decisions by the COP/MOP and CDM Executive Board. The selected baseline and monitoring methodologies (ACM0002 ver ) /B04/ are applicable to the project and correctly applied. The CCL therefore requests the registration of the project as a CDM project activity with UNFCCC. 3

5 Abbreviations BM BE CAR CC CCL CDM CDM M&P CER(s) CL CM CO 2 DNA DOE DR EB EIA ER FAR GHG(s) GWP I IPCC LoA MoC MoV MP MR NGO ODA PD PDD PE PLF PP(s) Ref. SD SS(s) UNFCCC VVM Build Margin Baseline Emissions Corrective Action Request Cross Check Carbon Check (Pty) Ltd Clean Development Mechanism Modalities and Procedures CDM Certified Emission Reduction(s) Clarification Request Combined Margin Carbon dioxide Designated National Authority Designated Operational Entity Document Review Executive Board Environmental Impact assessment Emission Reductions Forward Action Request Greenhouse gas(es) Global Warming Potential Interview or any follow up action Intergovernmental Panel on Climate Change Letter of Approval Modalities of Communication Means of Validation Monitoring Plan Monitoring Report Non-Governmental Organization Official Development Assistance Power Density Project Design Document Project Emission Plant Load Factor Project Participant(s) Document Reference Sustainable Development Sectoral Scope(s) United Nations Framework Convention on Climate Change Validation and Verification Manual 4

6 Table of Contents Page 1 Introduction Objective Scope 6 2 METHODOLOGY Document Review Follow-up actions Resolution of outstanding issues Internal quality control Validation team 13 3 VALIDATION FINDINGS Approval and Participation Project design document Project Design Application of selected baseline and monitoring methodology Project boundary and baseline identification Baseline identification Additionality Monitoring Plan Parameters determined ex-ante Parameters monitored ex-post Management system and quality assurance Sustainable Development Environmental Impacts Local Stakeholders Consultation Comments by Parties, Stakeholders and NGOs 47 Appendix A: Validation Protocol Appendix B: Certificate of Competence 5

7 1 INTRODUCTION The client Energyhdine C.A has commissioned /36/ Carbon Check (Pty) Ltd, herein after referred to as CCL, to carry out the validation of the project activity Río Luis in Ecuador. This report summarizes the findings of the validation of the project activity, performed on the basis of UNFCCC criteria for CDM, as well as criteria given to provide for consistent project operations, monitoring and reporting. The term UNFCCC criteria refers to Article 12 of the Kyoto Protocol, the CDM modalities and procedures or the simplified modalities and procedures for small scale CDM project activities (as applicable) and the subsequent decisions by the CDM Executive Board. 1.1 Objective The objective of the validation is to have an independent evaluation of a project activity by a Designated Operational Entity against the requirements of the CDM as set out in decision 3/CMP.1, its annex and relevant decisions of the COP/MOP, on the basis of the project design document. In particular, the project s baseline, monitoring plan, and the project s compliance with relevant UNFCCC requirements and Host Party criteria are validated in order to confirm that the project design, as documented, is sound and reasonable and meets the 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 activity and its intended generation of Certified Emission Reductions (CERs). 1.2 Scope The validation scope is defined as an independent and objective review of the PDD (Project Design Document against the UNFCCC criteria for CDM. UNFCCC criteria for CDM refer to Article 12 of the Kyoto Protocol, the CDM modalities and procedures and the subsequent decisions by the CDM Executive Board. The validation team has based on the recommendation in the Validation & Verification Manual employed (latest version), a rule based approach, focussing on the identification of significant risks for project implementation and the generation of CERs. The validation is not meant to provide any consultancy towards the project participant(s). However, stated requests for clarifications and/or corrective actions may have provided input for improvement of the project design. 2 METHODOLOGY Validation was conducted using CCL procedures in line with the requirements specified in the CDM modalities and procedures, the latest version of the CDM Validation and Verification Manual, and relevant decisions of the COP/MOP and the CDM EB and applying standard auditing techniques. The validation consisted of the following three phases: Desk review of the project design documents On site visit and follow up interviews with project stakeholders The resolution of outstanding issues and the issuance of the final validation report and opinion The following sections outline each step in more detail. 6

8 2.1 Document Review The following table outlined the documents reviewed during the validation: Reference Document Date of Document (DD/MM/YYY Y) In case irrelevant put /01/ PDD [for global stakeholder commenting] version /01/2012 /02/ PDD [final version], version /10/2012 /03/ CER and GEF calculation spread sheet corresponding to /01/ -- /04/ CER and GEF calculation spread sheet corresponding to /02/ -- /05/ Letter of Approval issued by DNA of Ecuador 02/08/2010 /06/ Modalities of Communication received through dated 09/10/ /10/2012 /07/ Investment Analysis: Spread Sheet corresponding /01/ -- /08/ Investment Analysis: Spread Sheet corresponding /02/ -- /09/ Notification for the prior consideration of CDM to UNFCCC 06/09/2011 secretariat /10/ Notification for the prior consideration of CDM to host DNA 15/07/2010 /11/ a. Local Stakeholder Consultation Procedure b. Local Stakeholder Comments c. Newspaper Advertisement d. Social Participation Rules (Executive Decree 1040) 15/01/ /12/ /12/ /05/2008 /12/ Declaration for no ODA funding for the project activity PP 09/10/2012 /13/ CONELEC (National Council of Electricity): Environmental 23/06/2009 Licence No 006/09 for the project Activity /14/ Environmental Impact Assessment 12/2008 Ingenieros Consultores Asociados: Executive Summary Rio Luis Hydroelectric Project /15/ National Council of Hydrological Resources: Water Rights 19/11/2007 issued on 19/11/2007 for the project Rio Luis /16/ National Regulation No. CONELEC-004/11 from the Board of 14/04/2011 the National Council of Electricity /17/ World Bank and UN: System of National Accounts, /18/ Ministerio del Ambiente: Procedure of the National Authority 11/2005 for Issuance of Letter Project Approval to CDM (CDM) /19/ National Council of Electricity Information on the Energy Generation sources of the Host country Grid Emission factor Calculation & Plant details (for common practice analysis): /20/ Grid Emission Factor statistics: a. Conelec: Electricity Sector Statistics Ecuador, 2008 b. Conelec: Electricity Sector Statistics Ecuador, 2009 c. Conelec: Statistical Bulletin Electricity Sector, Ecuador, / / /2011 /21/ NEON database, published by XM Compañía Experto en -- Mercados, S.A. ( ) /22/ CONELEC : CONELEC dataset to calculate EF Grid 06/10/2011 /23/ International Energy Agency: Density of Oil Products /11/2004 /24/ Unit for Energy and Mineral Planning(UPME): FECOC database on Emission Factor for Colombian Fuels ( ) -- 7

9 /25/ CO2 Spain : Power Unit Audit Trail 09/08/2012 Additionality /Investment Analysis: /26/ Ingenieros Consultores Asociados: Technical Report Cost 07/2009 and Schedule /27/ ENSILECTRIC S.A: Alternative Financing and / or 20/01/2012 participation, for hydroelectric project execution, Rio Luis /28/ Comparison and Explanation of Adjustments to Investment 07/2009 Cost Estimate /29/ Ingenieros Consultores Asociados: Power Generation 09/10 Ingenieros Consultores Asociados qualification details /30/ Screen shot of CONELEC s web page for statistical bulletins 09/10/2012 shows that the 2011 report has not been issued as of 09/10/2012 /31/ Ingenieros Consultores Asociados: Studies and final designs 07/2009 Rio Luis Hydroelectric Project - Executive Report Signed Copy of Studies and final designs Rio Luis Hydroelectric Project - Executive Report /32/ SRi: Production Code - Trade and Investment Supplement to 29/12/2010 Official Gazette No 351 /33/ Ministry of Labour and Employment: Labour Code Official 16/12/2005 Gazette Supplement 167 /34/ CONELEC: Master Plan for Electrification in Ecuador /11/ /35/ CONELEC: Information on the Reservoirs and Dams from the 28/12/2011 Board of the National Council of Electricity /36/ Carbon Check (Pty) Ltd : Contract between DOE and PP Addendum 11/01/ /11/2012 /37/ Energyhdine C.A. :Financial Model 16/12/2011 Signed Copy of Financial Model /38/ Executive Decree 1051 of /05/2008 /39/ a. Renewables First: Hydro and Wind Consultancy, -- Design & Installation 20/10/2012 b. Ceati International Inc: Hydro Turbine generator electrical overhaul guide. /40/ Prior Consideration letter 26/09/2008 /41/ First LoA request to Host DNA 01/12/2008 /42/ Response from host DNA on First LoA request 26/01/2009 /43/ Environment License response to host DNA 01/07/2009 /44/ Ecuador DNA: LoA Approval Procedure 22/03/2010 /45/ Second LoA request to Host DNA 15/07/2010 /46/ Holdingdine C.A. : Annual Report 2008 /47/ Holdingdine C.A. : Group restructuring 2012 /48/ EHD: Board Investment Decision 23/07/2012 /49/ CO2 Spain & Energyhdine C.A. : Consultant Contract 05/12/2011 /50/ Federal Reserve: Press release 25/01/2012 8

10 Background investigation and other referred documents/websites: Refer ence No. /B01/ /B02/ /B03/ Documents CDM Executive Board: EB 55 Annex 1 Clean Development Mechanism Validation and Verification Manual version 01.2 of 30/07/2010 CDM Executive Board: Clean Development Mechanism Design Document Form (CDM- DD) Version 03 of EB 25 Annex 15 of 28/07/2006 CDM Executive Board: Guidelines for completing the project design document (CDM-PDD) and the proposed new baseline and monitoring methodology (CDM- NM), version 07 of EB 41 Annex 12 of 02/08/2008 /B04/ CDM Executive Board: Approved baseline and monitoring methodology ACM0002 Version Consolidated baseline methodology for grid-connected electricity generation from renewable sources of 11/05/2012 /B05/ CDM Executive Board: Tool for the demonstration and assessment of additionality version of 13/09/2012 /B06/ CDM Executive Board: Tool to calculate the emission factor for an electricity system version of 29/09/2011 /B07/ CDM Executive Board: EB62 Annex 05 Guidelines on the assessment of investment analysis version 05 of 15/07/2011 /B08/ CDM Executive Board: EB 62 Annex 13 Guidelines for the demonstration and assessment of prior consideration of the CDM version 04 of 15/07/2011 /B09/ CDM Executive Board: EB 66 Annex 63 Glossary of terms version 06 of 02/03/2012 /B10/ CDM Executive Board: EB 69 Annex 8 Guidelines on Common Practice version 02 /B11/ /B12/ /B13/ /B14/ /B15/ of 13/09/2012 CDM Executive Board: EB 48 Annex 11 Guidelines for the reporting and validation of plant load factors version 01 of 17/07/2009 Websites referred: a. b. c. d. e. f. g. h. i. j. k. Website for EIA report: CONELEC website: of 09/10/2012 CDM projects under validation used to cross check the input parameters: a. ZFVAZ/view.html b. Z0NVN11/view.html c. 8MDKIR/view.html d. PT8O3Y2U/view.html e. H6FUF0P/view.html 9

11 /B16/ /B17/ /B18/ Host DNA website for LoA: CDM Executive Board: EB23 Annex 05 Thresholds and Criteria for the eligibility of Hydroelectric Power Plants with Reservoirs as CDM Project Activities Registered CDM project used as reference: Follow-up actions The project is a Greenfield project activity and a large scale project. During the desk review, the relevant documents including the Environmental License /13/ and EIA report /14/ as well as their approvals /B13/ and the same was verified at the website for CONELEC (National Council of Electricity)/B13/. CCL confirm the project design, and all baseline information from the documents mentioned above. The starting date of this project activity is expected to be on or about 15/12/2012, when the construction contract for the project is expected to be signed. This starting date is after the global stakeholder consultation. Since, the EPC contract has not been signed yet and only after signing the contract construction would start. A forward action request (FAR 1) has been raised and the starting date of project activity shall be verified during first verification. The construction of project had not started at the time when site visit was undertaken by the validation team on 25/05/ /05/2012. The interview was held by validation team in the office of Energyhdine C.A on 25/05/2012 with the project participants i.e. Energyhdine C.A. The site of the proposed project was visited on 26/05/2012 at El Oro. The key personnel interviewed and the main topics of the interviews are summarized in the table below: Date Name and Role Organization Topic /a/ 25/05/ /05/2012 /b/ 25/05/ /05/2012 /c/ 25/05/ /05/2012 Luis Lombeida Byron Acosta Larry Philp Energyhdine C.A. Technical Energyhdine C.A. Manager CO2 Spain CDM Advisor /d/ 26/05/2012 Sr. Ramiro Promoter Anazco Sanchez Social del Sitio, Lourdes /e/ 26/05/2012 Srto. Ruth Ambrosio Anazco school teacher Maldonado's Chorerra Site /f/ 26/05/2012 Sra Martha Promoter Maldonado Social del Sitio, Chorerra /g/ 26/05/2012 Sr. Franklin Calle Resident, Urguiles Chorerra /h/ 26/05/2012 Sr. Dalto Borja President of the Board of Parrquial, Morales Decision to undertake the project as CDM. Descriptions and history about Project Information on project status Development of hydro power projects in Ecuador, Starting date of project and crediting period. Decision to undertake the project as CDM Project design, Baseline identification, Monitoring and additionality. Sustainability criteria, Local Stakeholders meeting process. Local stakeholder consultation Local stakeholder consultation Local stakeholder consultation Local stakeholder consultation Local stakeholder consultation 10

12 /i/ 26/05/2012 Sr. Wilmer Tapia Espinosa /j/ 26/05/2012 Sra. Dilma Beltran Member of the Board of Parrquial, Morales School teacher, Portovelo Local stakeholder consultation Local stakeholder consultation 2.3 Resolution of outstanding issues The objective of this phase of the validation is to resolve any outstanding issues which need to be clarified for CCL s conclusion on the project design. To guarantee transparency a validation protocol has been customized for the project. The protocol shows in a transparent manner the requirements, means of verification and the results from validating the identified criteria. The validation protocol serves the following purposes: It organises, details and clarifies the requirements of 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 validation. The validation protocol consists of four tables; the different columns in these tables are described in the figure below (see Figure 1). The completed validation protocol is enclosed in Appendix A to this report. A corrective action request (CAR) is raised if one of the following occurs: The project participant(s) have made mistakes that will influence the ability of the project activity to achieve real, measurable additional emission reductions. The CDM requirements have not been met. There is a risk that the emission reductions cannot be monitored or calculated. A clarification request (CL) is raised if information is insufficient or not clear enough to determine whether the applicable CDM requirements have been met. A forward action request (FAR) is raised during validation to highlight issues related to project implementation that require review during the first verification of the project activity. FARs shall not relate to the CDM requirements for registration. CARs, CLs and FARs identified are included in the validation protocol in Appendix A of this report. Figure 1 Validation protocol tables Validation Protocol, Table 1 - Mandatory Requirement Requirement Reference The requirements the project must meet. Makes reference to the documents where the answer to the requirement is found. This is either acceptable based on evidence provided (), or a Corrective Action Request (CAR) is being raised in case of a requirement not being met. A Request for Clarification (CL) is used when the validation team has identified a need for further clarification and a Forward Action Request (FAR) is being raised to highlight issues which require review during the first verification of the project activity. 11

13 Table 2 is for the draft report; any updates in the final report are discussed in Table 3. Validation Protocol, Table 2 - Requirement Checklist Checklist Question Ref. MoV Comment s Draft Final The various Makes Explain how The is used is used requirements referenc conformance with discussion if the if the in Table 1 are e to the checklist on how information information linked to docume question has been the and and checklist nt(s) investigated. conclusion evidence evidence questions where Examples are has been provided is provided is which the the document review arrived at adequate to adequate to project should answer (DR), interview or and the demonstrate demonstrate meet. The to the any other follow-up conclusion compliance compliance checklist is checklist actions (I), cross on the with CDM with CDM organized in question checking (CC) with complianc requirement requirement five different or item available e with the s. For CAR, s. sections. is found. information relating checklist CL and FAR to projects or (N/A) question see the means not so far. definitions applicable. above. Validation Protocol, Table 3 - Resolution of Corrective Action Requests and Clarification Requests Corrective Action Reference to Table 2 Response by project Validation Request and/or participant(s) Clarification Request The CAR(s) Reference to the The responses given The validation and/or CL(s) checklist question by the project team s assessment raised in Table 2 number in Table 2 participant(s) to and final conclusion are repeated where the CAR or CL address the CAR(s) of the CAR(s) here. is explained. and/or CL(s). and/or CL(s). Validation Protocol, Table 4 - Forward Action Requests Forward Action Reference to Table 2 Response by project Request participant(s) The FAR(s) Reference to the Response by the raised in Table 2 checklist question project participant(s) is/are repeated number in Table 2 on how forward action here. where the FAR is request(s) will be explained. addressed prior to first verification. Validation If any 2.4 Internal quality control The final validation report underwent a technical review by a qualified independent technical reviewer in accordance with CCL s qualification procedure for CDM validation and verification that meets the criteria of EB guidelines for qualification. 12

14 Technical Reviewer Financial Expert input Reporting support Technical Expert input Report & protocol writing Site visit & Interview Desk review Supervision of work VALIDATION REPORT 2.5 Validation team The validation team and the technical reviewer(s) consist of the following personnel: Validation Team Full Name Appointed for Sectoral scopes (Technical Areas) Type of Involvement Ravi Shankar 1.2,2.1, 2.2, 3.1, 13.1 X X X X X X Francisco 1.2, 13.2 X X Acuna Carter Anubhav Dimri -- X X X Vikash Kumar 1.2, 3.1, 13.1 X Singh 3 VALIDATION FINDINGS The findings of the validation are stated in the following sections. The validation criteria (requirements) the means of validation and the results from validating the identified criteria are documented in more detail in the validation protocol in Appendix A. The final validation findings related to the project design as documented and described in the revised and resubmitted project design documentation. 3.1 Approval and Participation The project participant is Energyhdine C.A of Ecuador. Letter for approval from the host country /05/ has been provided in the list of documents. The letter of approval /05/ was found to be unconditional with respect to 45 (a) to (d) VVM, ver 01.2 /B01/. The letter of approval from host country confirms the contribution of the proposed project activity to the sustainable development of Ecuador. The project participants are correctly listed in table A.3 of the PDD and the information is consistent with the contact details provided in Annex 1 of the PDD /02/. Participation in the project activity of the PP has been authorized, as confirmed in the LoA issued by the DNA of the party concerned. Validation team considers that the submitted LoA is authentic and thus confirms to the requirement of 44 VVM, ver 01.2 /B01/. In line with the requirements of 47 and 48 of VVM, version 01.2/B01/, the following table summarize the details of the LoA: Project participant /05/ Energyhdine C.A Party involved /05/ Ecuador (Host Country) Project activity title /05/ Río Luis APPROVAL LoA received /05/ Yes Date of LoA /05/ 02/08/2010 LoA /05/ received from Validation of authenticity PP The LoA was received from the project participant. The Validation team does not doubt authenticity of LoA, however, the project was checked in the list of Projects 13

15 Validity of LoA Additional information PARTICIPATION Party is party to Kyoto Protocol Voluntary participation Yes stated in the LoA /05/. Project contribution to SD Yes stated in the LoA /05/. of Clean Development Mechanism of Ecuador at the host DNA website/b16/ and was confirmed hence validation team did not further cross verified the authenticity by means of communication with the DNA as required in 48 VVM, ver 01.2/B01/. Yes, validation team considers the LoA in accordance with 45 to 48 VVM, ver 01.2 /B01/ No, LoA does not contain any additional specification of the project activity like PDD version number etc. Yes. Ecuador has ratified the Kyoto Protocol on 20/12/1999 The validation of approval and participation has been done on the basis of and of VVM ver 01.2 /B01/ and validation team confirms that the proposed project activity meets the requirement of 44 and 51 of VVM ver 01.2 /B01/. Validation of ODA The validation team did not reveal any evidence that this Project activity can be seen as a diversion of ODA. It is also confirmed by the interview with PPs. The same has also been confirmed by the declaration /12/ provided by PP, stating that no official development assistance (ODA) has been or will be used for the Rio Luis project. Confirmation of MoC The Modalities of Communication (MoC) /06/, was received from the PP. Energyhdine C.A is the focal point for all communications to UNFCCC. As required in Procedures for Modalities of Communication between Project Participants and the Executive Board, the Validation Team has verified that for the PP, Energyhdine C.A, the name of Byron Acosta /06/ as primary authorised signatory and Luis Lombeida /06/ is the alternative authorised signatory for future communication related to the corresponding scope of authority with UNFCCC. The MOC has been checked as per the requirement of EB 45 annex 59 and found correct. The MoC adopted the latest template for the MoC available from the UNFCCC website at the time of the validation and it was filled out in compliance with the Procedures for Modalities of Communication between Project Participants and the Executive Board. The Validation Team confirms that the signatory and contact details on the MoC /06/ are authorized and credible. 3.2 Project Design Document The PDD /01/ for the project activity has been the basis for the validation process. Carbon Check confirms that the above mentioned PDD is based on the PDD template that was available on the UNFCCC-website and valid at the time of completion in accordance with the applicable guidance document /B02/. Guidelines for completing the Project Design Document (CDM-PDD) and the proposed new baseline and monitoring methodologies (CDM-NM) /B03/. 3.3 Project Design Starting date of project Expected project operational lifetime 15/12/2012 (expected date 25 years. This is based on of signing of construction the reports from independent Crediting period 10 years starting from 01/07/2015 or the effective 14

16 contract). This shall be confirmed at the time of verification and FAR 1 has been raised. reports from turbine manufacturers on the expected lifetime of the turbine and from a consultancy firm in hydro and wind power. /39/ date of registration, whichever is later. Herewith, the validation team summarizes major changes between webhosted PDD /01/ and final version of PDD /02/ for submission as follows: Subject Webhosted PDD Validated PDD /02/ Assessment /01/ PDD ( project title / Río Luis Río Luis No change participants involved/ project location /project technology etc) Parties Ecuador (Host Party) Ecuador (Host Party) No change Project participants Energyhdine C.A Energyhdine C.A No change Project location Cantons of Portovelo Cantons of Portovelo and No change and Zaruma, El Oro Zaruma, El Oro Scope Methodologies and tools applied ( scope and version numbers) CER calculations (formula applied/ amount of emission reduction) The Project is located on and near the river Río Luis in the Province of El Oro within the municipal territories of Portovelo and Zaruma. 1- Energy industries (renewable - / nonrenewable sources) ACM0002 Version ,517 tonnes of CO 2 e per annum. The Project is located on and near the river Río Luis in the Province of El Oro within the municipal territories of Portovelo and Zaruma. 1- Energy industries No change (renewable - / nonrenewable sources) ACM0002 Version PP has updated the version of methodology in the revised PDD /02/. CL 2 51,475 tonnes of CO 2 e per annum was raised. Method of calculation of OM has been updated from simple average to three years generation weighted average in revised PDD/02/. This result in lower grid emission 15

17 Additionality: (input values/analysis type/project start date/irr or NPV values/ benchmark etc.) Monitoring (parameters / frequency ) Crediting period ( type / start date) Additionality of the project has been done on the basis of investment analysis. Financial/economic indicator equity IRR in real terms is used and benchmark analysis is applied. The benchmark chosen is 17 %, taken from EB 62 Annex 5. Additionality of the project has been done on the basis of investment analysis. Financial/economic indicator equity IRR in real terms is used and benchmark analysis is applied. The benchmark chosen is 17 %, taken from EB 62 Annex 5. Net electricity 1. Net electricity generation by the generation by the project delivered to project delivered to the the grid in year y. grid in year y. (Continuous monitoring) (Continuous monitoring) 2. Installed capacity of the hydro power plant after the implementation of the project activity (yearly) 3. Area of the single or multiple reservoirs measured in the surface of the water, after the implementation of the project activity, when the reservoir is full (yearly) 10 Years (Fixed), 01/01/ Years (Fixed), 01/07/2015 factor and thus lower CER, checked by the validation team. CL 6 was raised and has been successfully closed. In the webhosted PDD/01/, the base IRR was determined as %. It was revised to % in the final validated PDD as more conservative approach was used to determine the IRR based on validation findings, checked by the validation team. CAR 7 was raised in this regard and has been successfully closed. Please refer to the CAR 7 and its closure in table 3. The start date of the crediting period has been changed 16

18 since the construction schedule and CDM starting date of the project has changed. Please refer to Appendix A of this report for details of each change between webhosted PDD and the final PDD for submission. The Validation Team has carried out the validation process based on the Webhosted PDD and raised CARs/CLs against the project by issuing the validation protocol. With the updated information and corrections done on final PDD, the PP has addressed all the CARs /CLs that were raised by the Validation Team. It is concluded that the Validation Team has reviewed the project in line with the VVM (version 01.2) /B01/ and all the evidence, corrections, justifications and updating done on the final PDD with respect to CARs /CLs raised are accepted and closed by the Validation Team, issuing the positive validation opinion for project registration. The verified capacity of the project activity is determined as MW. This is determined by the actual capacity of turbines being 7.98 MW and the generator efficiency being 97 %. The value determined is consistent with the rated capacity of generators being 7.98 MW and their power factor being 0.80 /31/. The verified technical details of the project activity as confirmed based on observation during on site visit and document review of the engineers report provided Executive Report - Studies and final designs Rio Luis Hydroelectric Project /31/ are summarised below: Parameter Value Turbine Type Pelton type with three injectors Number of turbines 2 Turbine rate capacity 7.74 MW each Generator 9.68 MVA Dam s geometric profile Wes type Design flow 6.10 m 3 / s Net nominal height m Turbine efficiency 0.90 Generator efficiency Scheduled downtimes 10 days per year, per group Factor to account for own consumption losses, wiring, transformer, transmission line and forced maintenance As per the PDD /02/, the project activity is located on and near the river Río Luis in the Province of El Oro within the municipal territories of Portovelo and Zaruma. The /02/ geographic coordinates of the project activity are as below, and have been verified at Google maps/b12-f/: The geographical co-ordinates of the site where water will be diverted to the project are: Latitude: Longitude: The geographical co-ordinates of the power house are: Latitude: Longitude: The proposed project activity is expected to generate 83,065 MWh/year of electricity. This is based on average electricity production per year provided in Executive Report - Studies and final 17

19 designs Rio Luis Hydroelectric Project /31/. Actual generation is expected to vary on a yearly basis due to rainfall variation, especially due to Niño and Niña conditions, as well as plant availability. A plant load factor has been calculated as 63 % based on the expected electricity generation from the plant 83,065 MWh/year/31/ and considers downtime of 10 days per year. This is based on engineers report/31/ and hence confirms to the requirement of 3(b) of EB48 Annex 11/B11/, checked and confirmed by the validation team. The GHG emission reductions are estimated to be average 51,475 tco2e per year /02/, /04/ and 514, 751 tco2e /02/, /04/ over the ten year fixed crediting period. This project activity will reduce greenhouse gas emissions by avoiding generation at other plants connected to the national grid (Ecuadorian national grid), especially those fired with fossil fuels. A fixed crediting period of ten (10) years has been chosen /02/ for the project, starting from 01/07/2015, or the effective date of registration, whichever is later. The project technology will not be replaced by any other technology within the crediting period. Energyhdine C.A is the PP (of host country) of the project activity and the same was confirmed with Letter of approval /05/ obtained from DNA of Ecuador (Ministerio del Ambiente Represented by Undersecretary of Climate Change of the Ministry of Environment). The project activity contributes to the sustainable development of Ecuador. The operational life time of the project has been determined as 25 years and 0 months, as applies in general for hydroelectric plants. This is based on the reports from independent reports from turbine manufacturers on the expected lifetime of the turbine and from a consultancy firm in hydro and wind power /39/, checked and confirmed by the validation team. Based on the information and declaration /12/ furnished by the project participants, no ODA contributes to the financing of the project. Geographical and temporal boundaries of the project are clearly defined. Carbon Check was able to verify all the documented evidence listed above during the validation process and can confirm that data and considerations are complete and accurate. Carbon Check confirms that the description of the proposed CDM project activity, as contained in the PDD sufficiently covers all relevant elements, is accurate and complete and that it provides the reader with a clear understanding of the nature of the proposed CDM project activity. The PDD complies with the relevant methodology, tools, forms and guidance at the time of PDD submission for registration. Nevertheless, CAR 01, CAR 02,CAR 03, CAR 04, CAR 05, CAR 06 CAR 07, CAR 08, CAR 09 and CL 1,CL 2, CL 3, CL 4, CL 5, CL 6, CL 7 were raised and closed during the course of validation (Ref. Annex: Validation Protocol- Table 2) 3.4 Application of selected baseline and monitoring methodology The project applies the Approved consolidated baseline and monitoring methodology ACM0002, version /B04/, which also uses the Tool to calculate the emission factor for electricity an electricity system version /B06/. The selected version of the methodology at the time of hosting of PDD /01/ was ACM0002, version , however PP has updated the version of the methodology to version in the revised PDD /02/. The applied version of methodology is the latest version of the methodology and is valid from 11/05/

20 Applicability criteria for the baseline methodology /B04/ are assessed by the validation team by means of document review and interview. It is agreed in the validation team s opinion that the project activity fully met the criteria as described below: Applicability criteria as per methodology /B04/ This methodology is applicable to grid-connected renewable power generation project activities that: (a) install a new power plant at a site where no renewable power plant was operated prior to the implementation of the project activity (greenfield plant); (b) involve a capacity addition; (c) involve a retrofit of (an) existing plant(s); or (d) involve a replacement of (an) existing plant(s). The project activity is the installation, capacity addition, retrofit or replacement of a power plant/unit of one of the following types: hydro power plant/unit (either with a run-of-river reservoir or an accumulation reservoir), wind power plant/unit, geothermal power plant/unit, solar power plant/unit, wave power plant/unit or tidal power plant/unit; In the case of capacity additions, retrofits or replacements (except for wind, solar, wave or tidal power capacity addition projects which use Option 2: on page 10 to calculate the parameter EG PJ,y ): the existing plant started commercial operation prior to the start of a minimum historical reference period of five years, used for the calculation of baseline emissions and defined in the baseline Means of Validation The project activity is a run-of-river hydroelectric greenfield plant where no renewable power plant was operating prior to the implementation of the project activity./31/ This was confirmed during the site visit undertaken on 25/05/ /05/2012. The project activity includes connection to Ecuadorian national grid at El Pache substation. This was verified during the site visit and from the document provided, regulation no. CONELEC 004/11 of The Board of the National Council of Electricity (CONELEC) /16/ it can be confirmed that for a hydroelectric project less than 50 MW establishes the requirements, prices, their duration, and method of delivery for electricity delivered to the national grid and grid systems for generators. Hence a power purchase agreement is not required for the project activity. Hence the validation team confirms based on document review /16/ and interviews during site visit /a//c/ that the project activity is a gridconnected renewable power generation project activity that involves installation of a greenfield plant. The project activity is a Greenfield power plant, with the installation of a new run of river hydro power plant. The same has been checked from the document review /02/ /31/ and from the site visit interviews /a//b//c/. The project activity is a Greenfield power plant, the same has been checked from the document review /02/ /31/ and from the onsite visit interviews,/a//b//c/ and hence this paragraph of methodology is not applicable for the subject project. 19

21 emission section, and no capacity expansion or retrofit of the plant has been undertaken between the start of this minimum historical reference period and the implementation of the project activity. In case of hydro power plants: One of the following conditions must apply: o The project activity is implemented in an existing single or multiple reservoirs, with no change in the volume of any of reservoirs; or o The project activity is implemented in an existing single or multiple reservoirs, where the volume of any of reservoirs is increased and the power density of each reservoir, as per the definitions given in the project emissions section, is greater than 4 W/m 2 ; or o o The project activity results in new single or multiple reservoirs and the power density of each reservoir, as per the definitions given in the project emissions section, is greater than 4 W/m 2. In case of hydro power plants using multiple reservoirs where the power density of any of the reservoirs is lower than 4 W/m2 all the following conditions must apply: The power density calculated for the entire project activity using equation 5 is greater than 4 W/m2; Multiple reservoirs and hydro power plants located at the same river and where are designed together to function as an integrated project that collectively constitute the generation capacity of the combined power plant; Water flow between multiple reservoirs is not used by any other hydropower unit which is not a part of the project activity; Total installed capacity of the power units, which are driven using water from the reservoirs with power density lower than 4 W/m2, is lower than 15 MW; Total installed capacity of the power units, which are driven using water from reservoirs with power density lower than 4 W/m2, is less than 10% of the total installed capacity of the project activity from multiple reservoirs. The methodology is not applicable to the following: Project activities that involve switching from fossil The CDM project activity is a hydro power plant and it includes single reservoir of power density 1000 W/m 2. The power density of the reservoir has been determined based on the dimensions of reservoir. Elevation of reservoir above sea level, i.e m it is based on the dam height of 10 m, height of water capture point 1085 meters above sea level and 2 meters of maximum operating height. The length of the reservoir is 474 meters and maximum width is upto 70 meters. /31/ Total surface area is 15,483 m 2. And power density calculated on the basis of surface area and capacity of MW is 1000 W/m 2 approx, checked and confirmed by the validation team. Power density of the plant is thus very high compared to the applicability threshold of 4 W/m 2. This has been confirmed by the interviews during the site visit, physical site inspection and the documents provided. /02/ /a//b//c/ The project activity involves only a single reservoir. /02/ /31//a//b//c/ Hence the condition is not applicable. The project activity involves is a hydro power plant that results in 20

22 fuels to renewable energy sources at the site of the project activity, since in this case the baseline may be the continued use of fossil fuels at the site; Biomass fired power plants; A hydro power plant that results in the creation of a new single reservoir or in the increase in an existing single reservoir where the power density of the power plant is less than 4 W/m 2. In the case of retrofits, replacements, or capacity additions, this methodology is only applicable if the most plausible baseline scenario, as a result of the identification of baseline scenario, is the continuation of the current situation, i.e. to use the power generation equipment that was already in use prior to the implementation of the project activity and undertaking business as usual maintenance. creation of a single reservoir with a power density of 1000 W/m 2. The power density of the reservoir has been determined based on the dimensions of reservoir. Elevation of reservoir above sea level, i.e m it is based on the dam height of 10 m, height of water capture point 1085 meters above sea level and 2 meters of maximum operating height. The length of the reservoir is 474 meters and maximum width is upto 70 meters. /31/ Total surface area is 15,483 m 2. And power density calculated on the basis of surface area and capacity of MW is 1000 W/m 2 approximately, checked and confirmed by the validation team. Power density of the plant is thus very high compared to the applicability threshold of 4 W/m 2. The project activity neither involves fuel switching from fossil fuels to renewable energy sources nor biomass-fired power plants. This has been verified by the documents provided and interviews during the site visit/02//a//b//c/. The CDM project activity is a greenfield activity. Hence, does not involve retrofits, replacements, or capacity additions. Condition is not applicable. /02/ /a//b//c/ The selected baseline and monitoring methodology is an approved methodology. Based on the above assessment, Carbon Check confirms that the project activity meets the applicability conditions of the methodology and concludes that the project activity correctly applies the approved baseline and monitoring methodology ACM0002, version /B04/. Carbon Check confirms the requirement outline in 66 to 69 of VVM version 01.2 /B01/. The above assessment also complies with the requirement of 65 of VVM version 01.2 /B01/. 3.5 Project boundary and baseline identification As per the methodology /B04/, the 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 is connected to. The spatial extent of the project boundary for the project activity encompasses the CDM project facility and the electricity system it is connected to i.e. Ecuadorian national grid. The defined project boundary is in line with ACM0002 (version ). The validation team was able to confirm that all the identified emission sources which are impacted by the project activity are addressed by the approved methodology /B04/ and can be seen in the Table below. Hence a clarification of revision to or deviation from the approved methodology /B04/ is not requested. 21

23 Spatial extent of project boundary encompasses: CDM project facility Grid CDM project facility is connected to, i.e. Ecuadorian national grid The sources of greenhouse gas identified in the PDD/02/ are deemed to be appropriate and assessed below: Emissions GHGs involved Justification / Explanation Baseline emissions Project emissions Leakage CO 2 NA NA Main emission source, CO 2 emissions from electricity generation in fossil fuel fired power plants that are displaced due to the project activity. This is emitted from the electricity generation by fossil fuel-fired power plants connected to the Ecuadorian national grid. Project emission is taken as zero as the project is a renewable energy (hydro power plant) project with power density greater than 10 W/m 2. As per the applied methodology /B04/, no leakage emissions are considered. The main emissions potentially giving rise to leakage in the context of electric sector projects are emissions arising due to activities such as power plant construction and upstream emissions from fossil fuel use (e.g. extraction, processing, transport). These emissions sources are neglected. In summary, the project boundary was correctly identified in accordance with the methodology ACM0002, version /B04/. All greenhouse gas emissions occurring within the proposed project activity boundary as a result of the implementation of the proposed CDM project activity have been appropriately addressed in the PDD /02/. The identified project boundary and selected sources of emissions are justified for the project activity. The validation of the project activity did not reveal other greenhouse gas emissions occurring within the proposed CDM project activity boundary as a result of the implementation of the proposed project activity which are expected to contribute more than 1% of the overall expected average annual emission reduction, with respect to the methodology applied. Based on the review of supporting documented evidence provided by the project participant, validation team can confirm that the project boundary and emission sources described in the PDD /02/ are accurate and complete, and also that the selected sources and gases are justified for the proposed project activity Baseline identification The identified baseline scenario (since the project activity is an installation of a new gridconnected renewable power plant):,in line with the methodology ACM0002, version /B04/, is the scenario where the electricity delivered to the grid by the project activity would have 22

24 otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources, as reflected in the combined margin (CM) calculations described in the Tool to calculate the emission factor for an electricity system, version /B06/. Equivalent electricity that would in absence of the project activity, have been generated by the operation of the grid-connected power plants belonging to the Ecuadorian National Grid. Validation team confirms that the identified baseline scenario in the PDD /02/ confirms to the requirement of applied meth /B04/. In the baseline scenario the electricity delivered from the project activity to the grid would have been generated by fossil fuels grid-connected power plants and by the addition of new generation sources. This is reflected in the combined margin (CM) the weighted average of the operating margin (OM) emission factor and the build margin (BM) emission factor. The weightings are set to be respectively 50% and 50%, which are the default values stipulated by Tool to calculate the emission factor for an electricity system, version for all projects other than wind and solar projects for the first crediting period. Carbon Check was able to verify all the documented evidence during the validation process and can confirm that: all the assumptions and data used by the project participants are listed in the PDD /02/, including their references and sources all documentation used referred to under section 2.1, is relevant for establishing the baseline scenario and correctly quoted and interpreted in the PDD /02/ assumptions and data used in the identification of the baseline scenario are justified appropriately, supported by evidence and can be deemed reasonable Carbon Check confirms that the approved baseline methodology /B04/ has been correctly applied to identify the most reasonable baseline scenario and the identified baseline scenario reasonably represents what would occur in the absence of the proposed CDM project activity GHG Emission Reductions: Determination of Baseline Emission The electricity baseline under the adopted methodology /B04/ include only CO 2 emissions from electricity generation in fossil fuel fired power plants that are displaced due to the project activity. The methodology assumes that all project electricity generation above baseline levels would have been generated by existing grid-connected power plants and the addition of new gridconnected power plants. The baseline emissions are to be calculated as follows: BE y EG PJ,y EF grid,cm,y Where: BE y EG PJ,y EF grid,cm,y = Baseline emissions in year y (tco 2 /yr) = Quantity of net electricity generation that is produced and fed into the grid as a result of the implementation of the CDM project activity in year y (MWh/yr) = Combined margin CO 2 emission factor for grid connected power generation in year y calculated using the latest version of the Tool to calculate the emission factor for an electricity system (tco 2 /MWh) 23

25 As per the methodology if the project activity is the installation of a new (greenfield) gridconnected renewable power plant/unit (which is the case of subject project) at a site where no renewable power plant was operated prior to the implementation of the project activity, then: EG EG PJ, y facility,y Where: EG PJ,y EG facility,y = Quantity of net electricity generation that is produced and fed into the grid as a result of the implementation of the CDM project activity in year y (MWh/yr) = Quantity of net electricity generation supplied by the project plant/unit to the grid in year y (MWh/yr) The above equations as provided by the applied methodology /B04/ have been transparently provided in the PDD /02/, checked by the validation team. A combined margin (CM), consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures prescribed in the Tool to calculate the Emission Factor for an electricity system, has been transparently provided in the PDD /02/, checked by the validation team. Validation team has checked the calculation of the combined margin grid emission factor and confirmed that the applied value of the emission factor follows the tool /B06/ and the values of parameters used to calculate OM and BM incorporated in the PDD /02/ is taken from yearly statistical bulletins published by CONELEC (National Council of Electricity). /20/ Nevertheless, following steps (step numbers correspond to tool to calculate emission factor of an electricity system, version ) /B06/ demonstrate the calculation of combine margin emission factor in accordance with tool to calculate emission factor of an electricity system, version /B06/ Step 1 - Electricity generated by the proposed project activity will be supplied to the Ecuadorian national grid. It is operated as a national grid, known as the SNI. Ecuadorian national grid is connected to neighbouring national grids (Peru and Columbia), however imports from these grids are less than 10 % of power demand. The national grid is not connected to the grids of any of the Annex-I countries. The connection to Peruvian grid has not been modified in past 5 years, hence not accounted in calculation of BM. A second circuit to Columbian grid was added, thus doubling the capacity. It is considered significant and has been accounted for in calculation of BM. A simple adjusted operating margin emission rate of the Colombian grid is calculated and used for 2010 and in the build margin. This calculation is shown in Annex 3 of PDD /02/. For other vintages of imports from the Colombian grid and for all vintages of imports from the Peruvian grid, this project activity assumes the conservative emission factor of 0 tco 2 /MWh. The relevant electricity systems have been correctly identified and are in line with the requirements specified in the tool /B02/ Step 2 - of the tool gives an option to include off-grid power plants in the project electricity system. PP has correctly /02/ considered only grid connected power plants for the calculation of grid emission factor and the same is in line with the tool /B04/ ; acceptable to the validation team. Step 3 - Simple adjusted OM method, out of the four methods provided in the tool /B04/ for calculating the operating margin (EF grid,om,y) is selected. The tool /B04/( Cp p 5 of 33 of the tool ) specifies that the simple OM method can only be used if the low-cost/must-run resources constitute less than 50% of total grid generation in :1) average of the five most recent years, or 2) based on long-term averages for hydroelectricity production. As the low-cost/must-run resources constitute more than 50% of total grid generation in Ecuador, simple OM method cannot be 24

26 used/20/. Hence, simple adjusted OM method has been opted by the PP /02/, which is as per the tool /B04/. Step 4 The simple adjusted OM emission factor (EF grid,om-adj,y ) is a variation of the simple OM, where the power plants/units (including imports) are separated in low-cost/must-run power sources (k) and other power sources (m). It is calculated based on the net electricity generation of each power unit and an emission factor for each power unit. PDD/02/ defines m and k units in a manner consistent with the tool and applies it consistently in the EF Grid sheet. PP has considered simple adjusted OM emission factor which is in line with the requirement of tool / B06/. Option A1 is chosen for net generation and emission factor for each power unit and is the preferred option. This is in line with the requirement of tool /B06/. The entire calculations and data are explained in Annex 3 of the PDD /02/ which is sourced from dataset from CONELEC /20/. The validation of appropriateness of the parameters has been done in of Validation Report. All the data used for simple adjusted OM calculation described in Annex. 3 of the PDD and also cross checked by Grid emission factor calculation spread sheet /04/ and found that PP has correctly calculated the generation weighted average value and this is in line with the tool /B06/ and arrived at following summary: Year EF OM [tco2/mwh] EG m [MWh] EG k [MWh] λ y % % % Three years generated weighted average OM(tCO2/MWh) The OM has been calculated on the basis of the data from 2008 to Data for 2011 is not available on the public domain yet and has been verified from the CONELEC website/b14//b12/. Thus it can be confirmed that the data used for the calculation of simple adjusted OM, i.e. for the year is the latest available data at the time of submission of PDD to DOE for validation. Based on above assessment, validation team confirms that the PP has correctly followed the guidelines of tool to calculate emission factor and by using database provided by CONELEC (National Council of Electricity) and the EF gridom for the Ecuadorian grid is calculated based on simple adjusted OM method of the step 4 of the Tool to calculate emission factor of an electricity system, version /B04/. Validation team further noted that PP has used the data of electricity Generation, fuel consumption from CONELEC, while net calorific values and carbon emission factors are based on reliable data published by CONELEC or, if not available taken form IPCC 2006 Guidelines/B12-b/, and the same is in line with the tool to calculate emission factor /B06/ and hence acceptable to the validation team. Step 5 PP has chosen option 1 and calculated build margin emission factor ex ante based on the most recent published data available at validation and information available on units already built for sample group m at the time of PDD submission to the DoE for validation. PP has considered option (a) the set of power capacity additions in the electricity system that comprise 5 most recent power units, excluding CDM (SET 5-units ) and calculated annual electricity generation for 5 most recent power units (AEG SET-5-units, in MWh) and that have been built most recently has been identified in the PDD /02/. 25

27 Validation team checked independently and confirm that the selection of the options is correct. The identification of BM plants follow (b) of STEP 5 of the tool to identify the set of power units, excluding power units registered as CDM project activities, that started to supply electricity to the grid most recently and that comprise 20% of AEG total (Total annual electricity generation) and determine their annual electricity generation (AEG SET 20%, in MWh). Validation team checked and confirm that the AEG SET 20% is correct. The set identified in step (a) and step (b) is compared and the set of power plants is selected that comprises the larger annual electricity generation (SET sample ). SET sample is identified as SET 20%. The earliest date in the set is December 2006, clearly less than 10 years ago. SET sample is thus used to calculate the build margin and steps (d), (e), (f) are ignored. The validated BM value for the year 2010 (latest data available at the time of start of validation) /B14/ /B12/ comes to tco2/mwh and found the same correct and in line with the tool. Step 6 of the tool /B06/ requires calculation of the combined margin emission factor as per option (a) Weighted average CM using the following equation: EF grid,cm, y = EF grid,om, y x w OM + EF grid,bm,y x w BM According to the tool /B06/ on selecting alternative weights, the default weights applicable for projects other than wind and solar are w OM = 0.5 and w BM = 0.5 for the first crediting period. The combined margin emission factor has been calculated as; EF y = tco2/mwh. The CM for the crediting period is fixed ex-ante. Hence the validation team confirms that the PP has correctly calculated the combined margin grid emission factor and is in line with the tool to calculate emission factor, version /B06/. Validation team further compared the arrived value of OM and BM with other CDM registered renewable energy project (though it for different data vintage, hydro project UNFCCC ref no 4654) /B18/ and found that the OM and BM values of the project activity is conservative as compare with other project. Assessment of assumptions used in Baseline Emissions Parameter Value Applied Unit Source of Information DOE BASELINE EMISSIONS Rated Capacity of the plant Plant Load Factor Combined margin MW Executive Report /31/ and EIA report /11/ approximately 63% tco 2 / MWh % Calculated based on the expected electricity generation from the project activity. /31/ GEF calculation spread sheet(please check above assessment) /04/ Cross checked with executive report on studies and final designs Rio Luis Hydroelectric Project /31/ and EIA report /11/ and found correct. The expected quantity of net electricity generation to be supplied by the project is cross checked by referring the third party report /31/. Validation team confirms that inline with the requirements of annex 11 of EB 48. Crosschecked with GEF calculation spread sheet (please check above assessment) /04/ and found. 26

28 EG facility,y is estimated as 83,065 MWh/y /02/, /04/. The GHG emissions reduction calculations are transparently documented and appropriate assumptions regarding the expected amount of electricity generated have been used to forecast emission reductions. The leakage is not applicable for the project as per the applied methodology /B04/. Project emission are zero, for hydro power plants with power densities (PD) greater than 10 W/m 2, the term PE HP,y is zero. The power density of this project activity is about 1,000 W/m 2 (based on the elevation of the top of the dam and the height), has been verified during site visit. The power density of the reservoir has been determined based on the dimensions of reservoir. Elevation of reservoir above sea level, i.e m it is based on the dam height of 10 m, height of water capture point 1085 meters above sea level and 2 meters of maximum operating height. The length of the reservoir is 474 meters and maximum width is upto 70 meters. /31/ Total surface area is 15,483 m 2. And power density calculated on the basis of surface area and capacity of MW is 1000 W/m 2 approximately checked and confirmed by the validation team. Hence, the baseline emissions are equal to the emission reductions due to the project activity. ER y = BE y PE y - L y ER y = Emission reductions in year y (tco2/y) BE y = Baseline emissions in year y (tco2/y) PE y = Project emissions in year y (tco2/y) L y = Leakage emissions in year y (tco2/y) Project emissions and leakage are zero, as described above. Hence, ER y = BE y = EG PJ,y * EF grid,cm ER y = 83,065 MWh * tco 2 e/mwh = 51,475 tco 2 e The emissions reductions due to the project activity were estimated ex-ante to be 51,475 tco 2 e average annual value in the PDD /02/ and calculated as follows: ER y = BE y = EG facility,y * EF grid,cm,y = 83,065 MWh * tco 2 e/mwh = 51,475 tco 2 e (rounded down value) In summary, the calculation of emission reductions was correctly demonstrated by the PP according to the methodology ACM0002 (version ) /B04/ and the referred tool Tool to calculate the emission factor for an electricity system (Version ) /B06/. The summary of GHG emission reduction is as follows: All assumptions made for estimating GHG are listed in the PDD All data used by project participants are listed in the PDD Their references and sources are also listed in the PDD Formulas, parameters, values are complete, accurate, transparent and conservative All the references and documents used are correctly quoted and conservatively Yes No Yes No Yes No Yes No Yes No As per PDD /02/ Section B.6 As per PDD /02/ Annex 3 Baseline Information and Section B.6 As per PDD /02/ Annex 3 Baseline Information and Section B.6 As per PDD /02/ Annex 3 Baseline Information and Section B.6 As per PDD /02/ Annex 3 Baseline Information and Section B.6 27

29 interpreted in the PDD Methodology has been applied correctly to calculate project emissions, baseline emissions, leakage emissions and emission reductions All the emissions of baseline emissions can be replicated using information provided in the PDD Yes No Yes No As per ACM0002, Version /B04/ and methodological tool, Tool to calculate the emission factor for an electricity system, version /B06/. As per ACM0002, Version /B04/ and methodological tool, Tool to calculate the emission factor for an electricity system/version /B06/. 3.6 Additionality The project is large scale project. Therefore, in accordance with ACM0002 /B04/, the additionality of the project has been demonstrated based on the valid version of the Tool for demonstration and assessment of additionality (version ) /B05/ and the Guidelines on the Assessment of Investment Analysis (version 05) / /B07/. For the above reasons, this approach has been assessed to be appropriate for the assessment of additionality for this project activity. The PP has chosen investment analysis (Benchmark analysis) to demonstrate the additionality of the equity IRR for the project in real terms based on the cost of equity as financial indicator. All the input parameters supporting financial indicator have been sourced from the Engineers Executive Report /31/ /37/. The benchmark selected is in conformity with guidance 12 of Annex 5, EB 62 /B07/ read with paragraph 112(a) of VVM (version 01.2) /B01/; input parameters used are appropriate, based on credible sources and conservative; the assumptions used are in conformity with various guidance issued by EB; the input parameters have been cross checked for their correctness and appropriateness by the validation team, and the input parameters were validated based on its sectoral and local expertise and independently collected informed available in public domain. In the above background, validation team concludes that the project is additional CDM consideration Project developer had stated the start date of the project activity as 01/07/2012, /01/ this date is after the Global Stakeholder Consultation process 09/03/ /04/2012. The estimated starting date was pushed back by PP during validation to /15/12/2012 /02/. A prior consideration is not required for project activity according to 2 of EB 62 Annex 13, Guidelines for the demonstration and assessment of prior consideration of the CDM, version 04. However, PP has notified its intention to seek CDM status through the prior consideration form /09/ /10/ on 6 September 2011 and has communicated said intention with the Ecuadorian DNA as evidenced through the Letter of Approval /05/ dated 2 August The holding company of the project participant, Holdingdine C. A. in its annual report of 2008/46/ planned to construct a hydroelectric project on Rio Luis river and seek CDM status for the project. The first intention to seek CDM status was made through a letter sent to UNFCCC on 26/09/2008 /40/. Subsequently request for LoA was made to host DNA on 01/12/2008 /41/ and local stakeholder consultation process was undertaken on 07/12/2008 /11/. An environmental license with request for LoA was sent to host DNA on 01/07/2009 /43/ and engineer s feasibility study report was prepared in 07/2009 /26/. As the procedure to obtain LoA was updated by host DNA on 22/03/2010 /44/ and second request for LoA was made in the updated procedure on 15/07/2010 /45/. LoA was issued by host DNA on 02/08/2010 /05/ and second prior consideration form was submitted to UNFCCC in the appropriate form. On 05/12/2011 a contract was signed with the CDM consultant, CO2 Spain/49/. 28

30 The final decision to start construction was taken on 23/07/2012 /48/ based on board meeting; this is after the date of global stakeholder consultation process. The construction activity has not started at the project site and a construction contract is expected to be signed on or after 15/12/2012 /02/. As, the start date of project activity is after start of validation process. Notification for prior consideration is not applicable as per 2 of EB62 Annex 13/B08/. Such notification is not necessary if a project design document (PDD) has been published for global stakeholder consultation or a new methodology proposed to the Executive Board for the specific project before the project activity start date. The milestones related to the project activity are provided in the table below, as verified by the validation team based on document review: Sl No Project Milestone Date 1 Annual Report of Holdingdine C.A., holding company of 2008 Energyhdine C.A.(PP) with first reference of Rio Luis project /46/ 2 Prior Consideration Letter sent to UNFCCC/40/ 26/09/ First request for LoA was made to host DNA /41/ 01/12/ Local stakeholder consultation process /11/ 07/12/ Environmental license with request for LoA was sent to host DNA 01/07/2009 /43/ 6 ICA: Engineer s Feasibility Status Report /31//26/ 07/ Procedure to obtain LoA was updated by host DNA/44/ 22/03/ Second request for LoA made in the updated procedure/45/ 15/07/ LoA issued by host DNA /05/ 02/08/ Contract signed with CDM consultant/49/ 05/12/ Prior consideration form submitted to UNFCCC in appropriate 06/09/2011 form 12 Energyhdine C.A.(PP) board meeting, decision to take investment 23/07/2012 decision based in engineer s feasibility report /48/ 13 Expected project start date 15/12/2012 CCL confirms its validation opinion that the proposed CDM project activity complies with the requirements of the latest version of the Guidance on prior consideration of CDM/B08/ based on the assessment of the above evidence Alternatives This is a hydro power project and is based on the Methodology ACM0002 Ver /B04/. The methodology states, If the project activity is the installation of a new grid-connected renewable power plant/unit, the baseline scenario is the following: 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, as reflected in the combined margin (CM) calculations described in the Tool to calculate the emission factor for an electricity system. Paragraph 105 of VVM /B01/ states that PDD is required to identify credible alternatives to the project activity in order to determine the most realistic baseline scenario, unless the approved methodology that is selected by the proposed CDM project activity prescribes the baseline scenario and no further analysis is required. Since the approved methodology ACM0002 /B04/ used by the project activity prescribes the baseline scenario, no further analysis of alternatives is required for the project activity. 29

31 Validation Team, therefore, concludes that the PDD and the validation report conforms to the guidance given by EB vide paragraph 105 of VVM (Ver.01.2) Investment Analysis PP has chosen part (b) of 22 of the tool used to demonstrate additionality /B05/, demonstrating that the project activity is not economically or financially feasible without CER revenue. The claim of the project developer, that the project scenario is not economically feasible without benefits from CER sales, has been assessed by the Validation Team through the following steps: Appropriateness of the financial indicator and investment analysis: PP had demonstrated that the financial returns of the proposed CDM project activity are insufficient to justify the required investment (conformity to Paragraph 108 (b) of VVM 01.2). For demonstrating the financial unattractiveness of the project activity, PP has chosen investment analysis and to demonstrate the unattractiveness of the project activity, had selected benchmark analysis. Validation team has assessed correctness of the chosen approach of investment analysis and noted that since there is revenue (from sale of electricity) other than benefits from CDM related income in the project, hence option I the simple cost analysis is not applicable and correctly not considered by the PP. Furthermore, since there is no other alternative other than project activity without CDM, hence option II investment comparison analysis is also not applicable for the subject project. Since in this instant case baseline is outside the direct control of the project developer (grid connected power) and hence, the choice of the project developer is restricted to invest or not to invest, the benchmark approach is most suited as per the latest version of 19 of Annex 5 of EB 62. In the above background, as subsequent paragraphs would reveal, Validation Team concludes that the additionality justification given by the PP is in accordance with the requirements derived from the approved CDM methodology and the methodological tools referred therein as well as the guidance given by EB vide paragraphs of VVM (01.2). The project developer has chosen equity IRR in real terms as financial indicator. Equity IRR has been chosen as financial indicator as the project takes investment decisions based on IRR and for the project decision was taken to put forth the equity portion and not the whole amount of investment, since the final decision on investment decision is based on having secured leverage for the project. Equity IRR calculation is used to determine the return available from the project against total investment. As per 10 of Annex 5 of EB 62 In the calculation of equity IRR only the portion of investment costs which is financed by equity should be considered as the net cash outflow, the portion of the investment costs which is financed by debt should not be considered a cash outflow. Hence selection of Equity IRR in real terms is justified. As per 29 of the additionality tool, the value of the benchmark should be standard in the market. This is deemed suitable for this project activity, since it could be developed by others through offering equity shares in the project or arranging equity finance through a BOT scheme. Appropriateness of benchmark: The value of the equity IRR benchmark is identified based on the cost of equity. According to Appendix A of the Guidelines on the Assessment of Investment Analysis version 05, the default value of the cost of equity for sectoral scope 1 (energy industries) projects in Ecuador is 17.0%. Additionality Tool and Guidance on Investment Analysis permit the use of equity IRR as one of the financial indicators for additionality demonstration. The financial indicator chosen is, therefore, appropriate for the project type and decision making context (conformity to paragraph 3 of Step 2 (b) of Additionality Tool). The project developer has chosen equity IRR in real terms to demonstrate the additionality of the project. The project has selected equity IRR in real terms instead of nominal terms to avoid distortion from price indexation and escalators. The benchmark selected is in real terms as per 1 of Appendix, EB 62 Annex 5. Also all the calculations that have been provided in investment analysis are in real terms. Guidance on the Assessment of Investment Analysis version 05 30

32 states, Required/expected returns on equity are appropriate benchmarks for equity IRR. Benchmarks supplied by relevant national authorities are also appropriate if the DOE can validate that they are applicable to the project activity and the type of IRR calculation presented. (Cp Annex 5 of EB 62, Guidelines on the Assessment of Investment analysis, item 12). /B07/ The value of the equity IRR benchmark is identified based on the cost of equity. According to Appendix A of the Guidelines on the Assessment of Investment Analysis version 05 /B07/, the default value of the cost of equity for sectoral scope 1 (energy industries) projects in Ecuador is 17.0%. Since the benchmark conforms to guidance 12 and 13 of Annex 5, EB 62, Validation team accepted the benchmark. The validation therefore concludes that the benchmark applied is suitable for the financial indicator selected and it is reasonable to assume that the investment would not have taken place at a return lower than the benchmark. Thus, the selected benchmark conforms to guidance 12 and 13 of Annex 5, EB 62 and paragraph 112 of VVM ver /B01/. In the above background, validation team concludes that the selected benchmark is appropriate, conservative and conforms to various EB guidelines. Parameters and assumptions used: The basis of cash flow analysis to determine the equity IRR for this project activity is: The project cost is based on engineers technical report/26/ and executive report/31/ [Feasibility Study Report (FSR)]. The profitability estimates of the project, which forms the basis for IRR calculation is based on Investment costs, VAT, Electricity generation, power sales price, project management cost, depreciation. Major input parameters used in the additionality demonstration, basis thereof and the appropriateness of the value used are given in the following table: 31

33 Parameter Unit Value Total Fixed Investment $ VAT % 12 Data source/justification and assessment by the validation team to check and cross check the input parameters Total fixed investment cost of equipment has been taken from Technical report Cost and Schedule /26/. Validation team checked the Technical report Cost and Schedule /26/ detailed engineering design executive report /31/ and found the value to be correct. The fixed investment cost is consistent with the value provided in investment sheet/08/ and PDD/02/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. The value of the cost was compared with other hydro projects in Ecuador with similar power generation capacity like White, Tambo and Susudel was compared and was found to be comparable. /B12-c/ Validation team confirms that the considered VAT i.e. 12% has been sourced from executive decree number 1051 of 2008 /38/. This has been provided by Regulations to the Organic Law on Internal Taxation and issued by the president of the republic. It was confirmed that VAT is not recoverable via power sales and therefore is depreciated along with the rest of the investment (since normally, VAT is simply an initial cash outlay that is then recovered through charging VAT to customers). Validation team has verified the same at the website of Court of National justice /B12-d/ and does not doubt the authenticity of the document. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. Project Management, QA/QC at 9% $ Since the source itself is from public domain document /govt. decree (inline with the requirement of para 111(b) of VVM version 01.2), no further cross checked is done by the validation team. As a conservative figure a lower value than the one from Technical report Cost and Schedule /26/ has been 32

34 Expected Generation Mwh/y taken. Validation team checked the Technical report Cost and Schedule /26/ detailed engineering design executive report /31/ and found the value to be correct. The fixed investment cost is consistent with the value provided in investment sheet/08/ and PDD/02/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. Expected Generation from the plant has been taken from Technical report Cost and Schedule /26/. Validation team checked the Technical report Cost and Schedule /26/ detailed engineering design executive report /31/ and found the value to be correct and the generation (tantamount to PLF) is in compliance with the requirement of annex 11 of EB 48. The expected generation is consistent with the value provided in investment sheet /08/ and PDD/02/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. Expected Generation capacity was compared and cross checked with other hydro projects in Ecuador with similar power generation capacity like White, Tambo and Susudel was compared and was found to be comparable /B12-c/. Based on above assessment validation team accepted expected electricity generation. Power Sales Price USD/MWh 68.8 Power sales price have been taken from National Regulation No. CONELEC-004/11 from the Board of the National Council of Electricity /16/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. Validation team checked and confirmed the signed copy of the regulation to verify the value provided in investment analysis sheet/08/.as this value is from a national regulation validation team does not doubt the authenticity of the value. 33

35 The power sales price for the project was compared and cross checked with other hydro-electric projects from Ecuador /B15/ under validation with UNFCCC. A value of is used in La Merced de Jondachi Hydroelectric Project,/B15-a/ in El Tigre Hydroelectric Project/B15-b/ and 51.6 in San Bartolo Hydroelectric Project (SBHP) /B15-c/. The value 68.8 used in the project activity is considered conservative and hence acceptable by the validation team. Based on above assessment validation team confirmed the assumed power sale price. Annual Operations and maintenance costs have been taken from the financial model presented by the project participant /37/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. Validation team checked and confirmed the signed copy of the financial model to verify the value provided in investment analysis sheet/08/. Annual O&M USD/year The value of cost for O&M expenditure was compared and cross checked with other CDM projects, as there are no other CDM registered hydro projects after 2008 from Ecuador. La Merced/B15-a/ has a comparable power generation capacity to Rio Luis and has annual expenses three times that of Rio Luis. For other projects like Quijos/B15-d/, La Merced/B15-a/, San Bartolo/B15-c/, El Tigre/B15-b/, Sabanilla /B15-e/, average expenses per year in $/MWh are 9.78 with a standard deviation of Rio Luis has average expenses of 6.54 $/MWh. Rio Luis is comparable within the limits of these projects /B12-a/. Based on above assessment validation team confirmed the assumed annual O & M cost. 34

36 Depreciation Period (Site preparation. civil works and buildings) Depreciation Period (Fixed Equipment and Installations) Depreciation Period (Intangibles) Years 20 Years 10 Years 5 Corporate Tax Rate % 33.7 The value for depreciation period has been taken from executive decree number 1051 of 2008 /38/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. This has been provided by Regulations to the Organic Law on Internal Taxation and issued by the president of the republic. Validation team has verified the same at the website of Court of National justice /B12-d/ and does not doubt the authenticity of the document. The value for depreciation period has been taken from executive decree number 1051 of 2008 /38/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. This has been provided by Regulations to the Organic Law on Internal Taxation and issued by the president of the republic. Validation team has verified the same at the website of Court of National justice /B12-d/ and does not doubt the authenticity of the document. The value for depreciation period has been taken from executive decree number 1051 of 2008 /38/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. This has been provided by Regulations to the Organic Law on Internal Taxation and issued by the president of the republic. Validation team has verified the same at the website of Court of National justice /B12-d/ and does not doubt the authenticity of the document. The value for corporate tax rate has been deduced from the production code/32/ and labour code/33/ for Ecuador provided by the government. The basic tax rate is 22 %/32/ for 2013 onwards. Article 97 of the labour code/33/ requires sharing 15% of (pretax) profits with the entire labour force. Effective corporate tax rate is calculated as 15% + 85% * 22% = 33.7%. This value has been cross checked at the source of production 35

37 Fraction Financed % 70 Loan Duration in years Years 10 Nominal Interest Rate % 10 Real Interest Rate % 7.84 code/b12-j/ and labour code/b12-k/. This value was found comparable with other hydro projects from Ecuador under validation process with UNFCCC like San Bartolo/B15-c/, Sabanilla/B15- e/. Based on above assessment validation team accepted assumed corporate tax rate. The value for fraction financed has been taken from Indicative finance offer /27/ for the project. A signed copy of the document is provided and states 70 % as the maximum indicative offer for finance. Validation team checked and confirmed the signed copy of the Indicative finance offer to verify the value provided in investment analysis sheet /08/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. The value for loan duration has been taken from Indicative finance offer /27/ for the project. A signed copy of the document is provided and states 10 years as the loan duration for finance. Validation team checked and confirmed the signed copy of the Indicative finance offer to verify the value provided in investment analysis sheet/08/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. The value for nominal interest rate has been taken as less than that from Indicative finance offer /27/ for the project. This figure is considered conservative. A signed copy of the document is provided and states 10% as the interest rate for finance. Validation team checked and confirmed the signed copy of the Indicative finance offer to verify the value provided in investment analysis sheet /08/. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. The value for real interest rate has been taken from nominal Interest rate, by accounting inflation in the nominal interest rate /50/. Validation team confirmed the rate of inflation as 2 % from the federal reserve bank press 36

38 Perpetuity Discount Rate % 17 release of 25/02/2012. This is a publically available data and has been confirmed from the federal reserve website/b12-i/. This value for inflation rate has been compared with national statistics institute website from Ecuador and is found comparable /B12-h/. For 2012, it averages 2.33 upto September. This also confirms to the requirement of guidance 6 of annex 5 of EB 62 and hence acceptable to the validation team. The value for perpetuity discount rate has been taken from default value provided for Ecuador of Group I projects (Energy Industries), in EB 62 Annex 5, Guidelines on Investment Analysis. Validation team checked and confirmed the value in investment analysis sheet /08/. As could be observed all the input values are based on detailed engineering design executive report /31/ and Technical report Cost and Schedule /26/. Engineering design executive report - Studies and final designs Rio Luis Hydroelectric Project and Technical report Cost and Schedule have been prepared by a third party, Ingenieros Consultores Asociados. FSR was prepared in July 2009 and the investment decision was made subsequently based on the FSR in July 2012 in the board meeting /48/. Prior consideration to host DNA was sent on 15/07/2010 /09-b/ and to the UNFCCC on 06/09/2011 /09-a/. Paragraph 113 of VVM (1.2) /B01/states, where the FSR has been the basis of the decision to proceed with the investment in the project, the period of time between the finalization of the FSR and the investment decision should be sufficiently short to confirm that it is unlikely in the context of the underlying project activity that the input values would have materially changed. Since the time elapsed between the FSR preparation date and the final board decision to take Rio Luis as a CDM project activity is more than a year, it was checked on the basis of the regulation from CONELEC/16/ that the power unit sales price is fixed for 15 years and hence revenue values would remain constant and the value for revenues would vary only on amount of electricity generated and that is independent of the timeframe of the FSR. The costs of the project would vary based on the rate of inflation, but they would increase as the historical rate of inflation is positive and have been validated from national statistics website of Ecuador/B12-h/ and CIA website/b12-g/. Validation team confirms that the input values would have marginally/materially changed but their effect would be conservative; in validation team s opinion this is justified. The Validation Team based on assessment above concludes that the input parameters used in the FSR were valid and applicable at the time of investment decision. The source for the input parameter, the method adopted to cross check the information/data and the appropriateness of the same are given along with the input parameters. As evident from the details given above, the validation had evaluated the parameters used in the financial calculations and the validation team confirms that the underlying assumptions are appropriate and the financial calculations are correct. Since the input parameters have been sourced from the FSR prepared by a reputed third party consultant, the gap between the FSR finalization date and the decision making date being less than a year, validation team concludes that the input parameters are reliable, credible and 37

39 appropriate for the project activity and conforms to Annex 5, EB 62. Thus, the Validation also conforms to the guidance given vide paragraph 111 and 113 of VVM (01.2)/B01/. Cross checking parameters: Investment cost, project management cost, expected generation of electricity have been cross checked with Technical report Cost and Schedule /26/ and detailed engineering design executive report /31/ furnished by the project developer, while the VAT and Depreciation Period are based on executive decree number 1051 of 2008 /38/. Power Sales Price has been taken from National Regulation No. CONELEC-004/11 from the Board of the National Council of Electricity /16/. Fraction Financed, Loan Duration in years, Interest Rate have been taken from Indicative finance offer for the project/27/. Perpetuity Discount Rate has been taken from EB 62 Annex 5, Guidelines on Investment Analysis. /B07/. The documents supporting the financial calculations, in the opinion of Validation Team, are therefore authentic and appropriate. The input parameters were also assessed based on sectoral scope expertise of the validation team and found to be appropriate. Thus, the guidance given by the EB vide paragraphs 111 of VVM (01.2) /B01/ has been taken care of in validation of the project. Assessment of correctness of computation: The assessment involved checking the data input extracted from Technical report Cost and Schedule /26/, engineering design executive report /31/ and other published documents (mainly Government), and arithmetical accuracy. Validation Team checked the Technical report, published Government documents and ensured that right input has been taken in the project cost and projections. The accounting principles adopted with respect to computation of depreciation was found to be in order. The arithmetical accuracy was also found to be correct. Thus, the validation has taken into consideration the guidance given by EB vide paragraphs 111 and 114 of the VVM (01.2). The equity IRR has been computed for a period of 10 years of operation, and meets the requirements of 3 of EB 62 Annex 5 and Annex 15 of EB 50. Since the project s operational lifetime is greater, a generous residual value is assigned at the end of the period of assessment. It has been calculated using perpetuity growth method (assuming zero growth) and meets the requirements of 4 of EB 62 Annex 5. A residual value for intangibles is assumed to be 0 after the depreciation period. This is a conservative value for a residual value. Validation team confirms the suitability of the period of assessment and residual values for the project. Based on the above, the equity IRR works out to % as compared to the benchmark of 17% Sensitivity analysis According to paragraph 20 of the Guidelines on the assessment of investment analysis (Version 05) only variables that constitute more than 20% of either total project costs or total project revenues should be included in the sensitivity analysis. In addition the sensitivity analysis should at least cover the range of +10% and -10%. The following variables were included in the sensitivity analysis: Investment cost; Operations and maintenance costs; Income from electricity sale (which is net electricity generation supplied by the hydro project to the grid). The results of the sensitivity analysis are shown in Table below: 38

40 Variable Variation -10% 0% +10% Income from electricity sale generation 10.57% 13.72% 16.62% Investment costs 16.63% 13.72% 11.15% Operations and maintenance costs 14.0% 13.72% 13.43% Since inflation rate is subject to considerable uncertainty, sensitivity analysis for inflation rate has been done for bigger range. Variation Variable -50% 0% +100% Inflation rate 14.7% 13.72% 13.2% It can be observed that in any of the cases the equity IRR is less than the benchmark. A further analysis of the projections reveals that the projects would become non-additional only in the following cases: Parameters Variation Assessment by validation team Investment cost comes down by 11.2% Investment analysis has been done based on a conservative assessment and values like Access roads, contingency and project management investment costs have been taken lower than the source value as conservative figures. Also, the cost of land is assumed to be 0 as a conservative figure. Hence, it could be safely assumed that investment costs are unlikely to come down by 11.2 % Operating costs NA A breakeven could not be achieved even in case come down by Revenues increased by Inflation rate increased by operating costs are reduced to % Source of revenue for the project other than CER sales is electricity generation. Since the power sales price/tariff is fixed for 15 years by government regulation. It is highly unlikely sales price would exceed. Also the probability of annual generation increasing in such a manner as to increase revenues by 11.4 % is remote as the electricity generation from hydro power project is dependent upon hydrological data and since the third party engineering company contracted by PP has estimated the PLF based on these hydrological data, higher generation on sustained basis for period of 20 years is not possible. 380 % This condition would result in a real interest rate of 0.32% for the project s leverage. Considering the different type of company, country and project risk, such a low interest rate is highly unlikely. The results of the sensitivity analysis demonstrate that an investment in the project activity, in the absence of CER revenues, is unattractive. Validation team has taken into consideration the guidance given by EB vide 111(e) of VVM, version 01.2/B01/. 39

41 Validation Team is in agreement with PP s submission regarding additionality. Having regard to the assessment of conformity of additionality demonstration and benchmark selection to the latest version of the Guidance issued by EB on the assessment of investment analysis, plausibility and appropriateness of parameters used and correctness of financial calculations, Validation Team concludes that the project scenario is not economically feasible and the project developer would not have ventured into this project without CDM benefits. One corrective action request CAR 4 and a clarification request CL 4 was raised to clarify the validity of the input values and assumptions of data available at the time of decision making as per version 5 of the investment analysis guidelines, /B07/ which was adequately addressed, resolved and closed in the revised PDD/02/ and revised financial sheet./08/ Common practice analysis Project developer has carried out a common practice analysis as a credibility check as required by the additionality Tool /B05/ and 119 of VVM (version 01.2). /B01/ Referring to 43 of additionality Tool (version , annex 20 of EB 69) /B05/, Validation team confirms that PP has rightly considered this paragraph to demonstrate common practice as it involves the measures (as listed in 6 of additionality tool). The subject project satisfies to measure 6 (b) i.e. (b) Switch of technology with or without change of energy source (including energy efficiency improvement as well as use of renewable energies). Therefore, the common practice analysis is carried out according to the four4step procedure within 47 of additionality tool./b05/ Step 1 of the identified paragraph refers to calculate applicable output range as +/-50% of the design output or capacity of the proposed project activity. Since the capacity of the project is MW. Hence, the range covers from 7.74 MW to MW. The same is checked and confirmed by the validation team. Step 2 of the identified paragraph refers identification of applicable geographical area and identification of all plants that deliver the same output or capacity, within the applicable output range calculated in Step 1, as the proposed project activity and that have started commercial operation before the start of Validation i.e. GSC which is earlier than the start date of the project (as the start date of the proposed project activity is not yet fixed). Validation team confirms that the chosen geographical area i.e. Ecuador (entire host country as a default) is in line with the requirement of additionality tool, checked by the validation team. Furthermore, PDD has transparently listed all plants inventoried from CONELEC /20/ /B12/ that deliver the same output or capacity, within the applicable output range calculated in Step 1, as the proposed project activity and have started commercial operation before the start of validation. Review of PDD /02/ as presented in section B.5 of the PDD, where the list of power plant servicing the grid and their capacity is presented reveals the fact that there are 26 power plants in Ecuador having the capacity range as identified in the step 1. Hence the N all = 26, checked and confirmed by the validation team. Step 3 of the identified paragraph identifies those power plants that apply technologies different than the technology applied in the proposed project activity. Of the 26 power plants in the group of N all, 21 are of other types as defined by CONELEC. The other types of power plants are based on internal combustion engine, gas turbine, and reservoir hydro. These are clearly different energy sources as defined by paragraph 9(a) of the Tool for the demonstration and assessment of additionality v6.1.0 /B05/. Of the 26 power plants in the group of N all, 25 are of other types or small scale as defined by CONELEC and glossary of CDM terms /B09/. Therefore the number of plants with different technologies, N diff, is equal to 25. Step 4 of the identified paragraph finds the value of factor F=1-N diff /N all, representing the share of plants using technology similar to the technology used in the proposed project activity in all plants that deliver the same output or capacity as the proposed project activity. 40

42 F, is calculated as 1-25/26 = According to the tool, the proposed project activity is a common practice within a sector in the applicable geographical area if both the following conditions are fulfilled: (a) the factor F is greater than 0.2, and (b)n all -N diff is greater than 3. The calculation is correct and in line with the additionality tool checked and confirmed by the validation team. Since, the value of F is lower than 0.2 and N all N diff is lower than 3, the proposed project activity is a not common practice within a sector in the applicable geographical area as per the additionality tool. Based on above assessment validation team confirms that subject project under consideration is not a common practice. Common practice analysis has also been presented in compliance of Guidance on common practice, EB 69 Annex 8, version 2 /B10/. The stepwise approach to demonstrate that project is not a common practice has been followed. Step 1 of the approach calculates applicable output range as +/-50% of the design output or capacity of the proposed project activity. Since the capacity of the project is MW. Hence, the range covers from 7.74 MW to MW. The same is checked and confirmed by the validation team. Step 2 of the approach identifies the projects (both CDM and non CDM) which fulfil all of the following conditions: (a) The projects are located in the applicable geographical area; (b) The projects apply the same measure as the proposed project activity; (c) The projects use the same energy source/fuel and feedstock as the proposed project activity, if a technology switch measure is implemented by the proposed project activity; (d) The plants in which the projects are implemented produce goods or services with comparable quality, properties and applications areas (e.g. clinker) as the proposed project plant; (e) The capacity or output of the projects is within the applicable capacity or output range calculated in Step 1; (f) The projects started commercial operation before the project design document (CDM-PDD) is published for global stakeholder consultation or before the start date of proposed project activity, whichever is earlier for the proposed project activity. Since non-cdm projects have already been identified in Step 2 of the above approach. The CDM projects are identified along with other projects that fulfill the above mentioned criteria. Only those projects are identified which use the same energy source/fuel. Step 3 of the approach identifies projects that are neither registered CDM project activities, project activities submitted for registration, nor project activities undergoing validation. Hence, the number of such projects is represented as, N all = 6. Step 4 of the approach identifies those that apply technologies that are different to the technology applied in the proposed project activity. The number of such projects is represented as, N diff = 5. Step 5 of the approach finds the value of factor F=1-N diff /N all, representing the share of plants using technology similar to the technology used in the proposed project activity in all plants that deliver the same output or capacity as the proposed project activity. F is calculated as, 1-5/6 =

43 According to the guidance, the proposed project activity is a common practice within a sector in the applicable geographical area if both the following conditions are fulfilled: (a) the factor F is greater than 0.2, and (b)n all -N diff is greater than 3. The calculation is correct and in line with the guidance for common practice analysis, checked and confirmed by the validation team. Since, the value of F is lower than 0.2 and N all N diff is lower than 3, the proposed project activity is not a common practice within a sector in the applicable geographical area as per the guidelines/b10/. Thus, the validation team had taken into consideration the directions given vide 119, 120and 121 of VVM (01.2). /B01/ Summary In the above background, Validation Team concludes that the project is not a business-as-usual scenario and is additional. 3.7 Monitoring Plan The approved baseline and monitoring methodology ACM0002 Consolidated baseline methodology for grid-connected electricity generation from renewable sources, version /B04/ has been applied. The monitoring plan is in accordance with the monitoring methodology; the monitoring plan will give opportunity for real measurement of achieved emission reductions. Carbon Check has verified all the parameters presented in the monitoring plan against the requirements of the methodology and concludes that no deviations relevant to the project activity have been found. Carbon Check confirms that the monitoring arrangements described in the monitoring plan are feasible within the project design, and the means of implementation of the monitoring plan are sufficient to ensure the emission reductions achieved by/resulting from the proposed CDM project activity can be reported ex post and verified. Carbon Check has verified all the parameters presented in the monitoring plan against the requirements of the methodology and concludes that no deviations relevant to the project activity have been found. Carbon Check confirms that the monitoring arrangements described in the monitoring plan are feasible within the project design, and the means of implementation of the monitoring plan are sufficient to ensure the emission reductions achieved by/resulting from the proposed CDM project activity can be reported ex post and verified Parameters determined ex-ante The combined margin emission factor is determined ex ante based on the most recent information available at the time of PDD was submitted for validation, the detailed calculations of the combined margin emission factor are described in the section 3.4. Following data and parameters used for the calculation of OM and BM are listed (along with values and source in 42

44 tabular form) in the section B.6.2 of the PDD /02/, checked and found correct and hence acceptable to the validation team. Ex-ante parameters used in the calculation of CERs, basis thereof and the appropriateness of the value used are given in the following table: Ex-Ante Parameter Amount of fossil fuel type i consumed by power plant/unit m or k in year y (FC i,m,y, FC i,k,y ) Net calorific value (energy content) of fossil fuel type i in year y (NCV i,y ) Density (or specific gravity) of fuel type i (ρ i ) CO 2 emission factor of fossil fuel type i in year y (EF CO2,i,y ) Net electricity generated by power plant m or k in year y (EG m,y EG k,y ) Data Sources and Reliability The data shown in Annexes 3.1 to 3.3 of the PDD for Ecuador have been checked against their original source, CONELEC, the power sector regulator /20/. The data have been converted to SI units correctly /B03/. The data shown in Annex 3.4 of the PDD for Colombia have been checked against their original source, NEON database published by the system operator XM /21/. These data sources are official, considered reliable, and have been selected in accordance with the requirements of the applicable CDM tool /B06/. NCV values for Ecuador are based on CONELEC values where available /22/ or IPCC default values at the lower limit of the uncertainty at a 95% confidence interval /B12- b/. The national values are official and considered reliable. NCV values for Colombia are based on national values in the NEON database /21/. The NEON database reports fuel consumption in net calorific energy units. The national values are official and considered reliable. The NCV values for liquid and gaseous fuel types in Ecuador are converted into volume basis by applying the fuel s density. Density values for Ecuador are based on CONELEC values where available /22/ or on standard values published by the International Energy Agency /23/. These data sources are official, considered reliable, and have been selected in accordance with the requirements of the applicable CDM tool /B06/. For thermal power units in Ecuador, the PDD uses IPCC default values at the lower limit of the uncertainty at a 95% confidence interval /B12-b/. For thermal power units in Colombia, the PDD uses the FECOC database (acronym from Spanish for Colombian Emission Factors for Fuels) /24/. Reservoir hydro is assigned the CDM default emission factor /B17/. These data sources are official, considered reliable, and have been selected in accordance with the requirements of the applicable CDM tool /B06/. The data shown in Annexes 3.1 to 3.3 of the PDD for Ecuador have been checked against their original source, CONELEC, the power sector regulator /20/. The data have been converted to SI units correctly /B03/. The data shown in Annex 3.4 of the PDD for Colombia have been checked against their original source, NEON 43

45 Factor expressing the percentage of time when low-cost/must-run power units are on the margin in year y (λ y ) Weighting of operating and build margin emission factors (w OM, w BM ) Operating margin emission factor in year y (EF grid.om,y ) Build margin emission factor for 2010 (EF grid,bm ) Combined margin emission factor (EF grid,cm ) database published by the system operator XM /21/. These data sources are official, considered reliable, and have been selected in accordance with the requirements of the applicable CDM tool /B06/. This factor is correctly calculated in the emission reduction spreadsheet attached to the PDD /04/ using the following data sources: For Ecuador, the vector of hourly system loads despatched by the system operator CENACE as provided by CONELEC /22/. For Colombia, the vector of hourly system loads despatched by the operator XM as provided in the NEON database /21/. These data sources are official, considered reliable, and have been selected in accordance with the requirements of the applicable CDM tool /B06/. Default values provided by the CDM tool /B06/. Calculated by the PP in the emission reduction spreadsheet attached to the PDD /04/ and confirmed as calculated correctly by the validation team. Calculated by the PP in the emission reduction spreadsheet attached to the PDD /04/ and confirmed as calculated correctly by the validation team. Calculated by the PP in the emission reduction spreadsheet attached to the PDD /04/ and confirmed as calculated correctly by the validation team. The verified (ex-ante fixed) value for OM, BM and CM are listed in below table: Data and Parameters Unit Ex ante Determined value Operating Margin of Ecuadorian national grid (OM) Build margin of Ecuadorian national grid (BM) Combined margin emission factor of Ecuadorian national grid (CM) tco 2 /MWh tco 2 /MWh tco 2 /MWh The Validation Team based on assessment above concludes that the input ex-ante parameters used in the calculation of CERs are appropriate and the calculations are correct. Thus, the validation team also conforms to the guidance given vide 92 of VVM (01.2)/B01/ Parameters monitored ex-post According to ACM0002, the net electricity generation by the project delivered to the grid in year y (Ecuadorian national grid) is the parameter monitored ex-post. The quantity of net electricity 44

46 generation supplied by the project plant EG PJ,y could be calculated from the electricity exported and imported to the grid ex-post. Electricity generation will be measured continuously and recorded every 15 minutes. This data will be cross checked against the receipts from power grid. The monitoring includes use of accredited meters by CENACE, for continuous monitoring of power supplied to the grid, accuracy of ±0.2%, off-site calibration every two years by an independent laboratory accredited by CENACE. The Chief control engineer of the project would be responsible for monitoring of the parameter. This is in line with the requirements of the applied methodology/b04/. The GHG indicators, parameters, monitoring methods, frequencies and the measurement equipment were considered to be reasonable and appropriate. The parameter, EG PJ,y, will allow the calculation of the baseline emissions in a proper manner as there are no project emissions and leakage in the proposed project activity. Other parameters that are to be monitored ex-post are: Installed capacity of the hydro power plant after the implementation of the project activity (Cap PJ ). Area of the single or multiple reservoirs measured in the surface of the water, after the implementation of the project activity, when the reservoir is full (A PJ ) Management system and quality assurance The project s monitoring plan includes is in line with the host country regulations /16/ and provide details on: - A description of the responsibilities and authorities for monitoring; - Training for CDM monitoring and quality control; - Technical specifications for all measurement equipment items - Data quality control including erroneous and missing data; - Data management system; - Calibration procedures; - Reporting and verification. Detailed procedures have been elaborated in the PDD. These will be maintained and implemented to enable subsequent verification of emission reductions. The application of the monitoring methodology is transparent and Carbon check considers the project participants able to implement the monitoring plan. The ability of the project participants to implement the monitoring plan is supported by the staffing plan provided in financial model/37/. In Carbon Check s opinion the project participant s ability to implement the monitoring plan is adequate in order to measure and demonstrate its compliance as per the applied methodology. 45

47 3.8 Sustainable Development The host party s DNA has confirmed the contribution of the project to the sustainable development in Ecuador according to the Letter of Approval for the Project /05/, which was checked by the validation team to be valid/b16/. The project activity is in compliance with all current applicable legislations. As the project activity does not lead to generation of liquid or gaseous effluents and will partly displace fossil fuel based electricity generation, there are only benefits derived out of the project and no adverse effects are envisaged. Moreover, the project creates jobs in a rural area during both the construction and operational phases. In conclusion, the Validation Team is of the opinion that the project activity is in full compliance with all applicable requirements for the CDM by leading to emission reductions additional to what would have otherwise occurred, providing for reliable and measurable emission reductions with sustainable development in Ecuador through improvement of environmental condition, and creating new economic activity in rural area. 3.9 Environmental Impacts The Environmental Impact Assessment (EIA) /14/ of the proposed project was carried out in accordance with the Ecuadorian regulations by Ingenieros Consultores Asociados. The EIA report is available publicly on CONELEC website /B13/. The Río Luis Project has also obtained an environmental licence according to Ecuadorian requirements/13/. The legal basis for issuing the environmental license is based on the following Ecuadorian Laws and Regulations provided in section D.2 of PDD /02/. A summary of the environmental impact assessment for the Río Luis project is published online by CONELEC for permanent public consultation. The potential environmental impacts on air, noise, water and solid waste, telecommunication, ecosystem, etc. have been sufficiently identified. No significant environmental impacts are expected from the project activity. The conclusion of the analysis has been described in the PDD /02/, and no significant environmental impacts are expected from the project activity Local Stakeholders Consultation A local stakeholder s consultation carried out in terms of CDM requirement based on the Kyoto protocol, for the proposed project activity. The activities undertaken to canvass public opinion regarding the proposed project activity are summarised in section E.1 of the PDD. Stakeholders were invited through newspaper advt. on 07/12/2008 /11//18/. The complete procedure of inviting stakeholder comments is also listed in the documentation provided by PP on Local stakeholder consultation process. /11//18/ Local consultation process has been conducted as per host country laws and regulations. /11-d//18/ Local stakeholders were invited to a public meeting on 10/12/2008 in Portovelo. The draft Environmental Impact Assessment was published via internet for local stakeholder consultation on December 3, 2008 and is available on CONELEC website. /B13/ Local stakeholders consultation process was prior to the publication of PDD on the UNFCCC website (09/03/2012 to 07/04/2012). The validation team noted that all the relevant stakeholders were identified are in line with the definition of stakeholders as per latest version of CDM Glossary of terms /B09/. A summary of the comments received and a note on how due account was taken of the concerns raised in the above public consultation are included in section E of the PDD. This also states that appropriate immediate responses were provided to them. Several local stakeholders, including some that had attended the public meeting, were interviewed by the validation team during the site visit /d//e//f//g//h/. Through these interviews as well as reviewing 46

48 the minutes of the meeting /11/, validation team was able to confirm the completeness of the comments contained in the PDD. Validation team reviewed all relevant information of local stakeholder consultation meeting /11//18/ and confirms that the LSC meeting meets the requirement of 128 of VVM, ver 01.2 /B01/. The validation team confirms that the process for conducting the local stakeholders meeting is adequate and credible Comments by Parties, Stakeholders and NGOs The PDD version 03, 30/01/2012 was made publicly available on the CDM UNFCCC website and Parties, stakeholders and NGOs have been invited through the CDM website ( to provide comments during a 30 days period from 09/03/ /04/2012. No public comments were received during the commenting period. 47

49 Appendix A CDM Validation Protocol Río Luis in Ecuador Report No. CCL0105/RLSHP/

50 TABLE 1 MANDATORY REQUIREMENTS Requirement Reference Cross Reference/ Comment 1. The project shall assist Parties included in Annex I in Kyoto Protocol Table 2, section B.6.3, B.6.4 achieving compliance with part of their emission Art.12.2 No Annex 1 party has yet been identified reductions commitment under Art The project shall assist non Annex I Parties contributing to the ultimate objective of the UNFCCC. 3. The project shall have the written approval of voluntary participation from the designated national authority of each Party involved. 4. The project shall assist non-annex I Parties in achieving sustainable development and shall have obtained confirmation by the Host Country thereof. 5. In case public funding from Parties included in Annex I is used for the project activity, these Parties shall provide an affirmation that such funding does not result in a diversion of official development assistance (ODA) and is separate from and is not counted towards the financial obligations of these Parties. 6. Parties participating in the CDM shall designate a national authority for the CDM. 7. The Host Party and the participating Annex I Party shall be a Party to the Kyoto Protocol. Kyoto Protocol Art.12.2 Kyoto Protocol Art.12.5a CDM Modalities and Procedures 40a Kyoto Protocol Art.12.2 CDM Modalities and Procedures 40 Decision 17/CP.7 CDM Modalities and Procedures Appendix B 2 CDM and 29 Modalities Procedures CDM Modalities and Procedures 30/31a CAR 1 CAR 1 Table 2, section A.4.3, B.6.3, B.6.4 Table 2, Section A.2.3 Host country Ecuador has provided Letter of approval for the CDM project activity confirming voluntary participation. Table 2, Section A.2.3 Host country Ecuador has provided Letter of approval for the CDM project activity confirming contribution to sustainable development Table 2, Section A.4.4 The PP has affirmed that No diversion of official development assistance will be used for this project. The Designated National Authority (DNA) of Ecuador is Ministry of Environment and is represented by Undersecretary of Climate Change of the Ministry of Environment. Yes, Ecuador ratified the Kyoto Protocol on 13/01/ /12/1999 and having established as DNA the Ministry of Environment as per the UNFCCC website. 8. The participating Annex I Party shall have in place a CDM Modalities No Annex-1 party has yet been identified 2

51 Requirement Reference Cross Reference/ Comment national system for estimating GHG emissions and a and Procedures national registry in accordance with Kyoto Protocol 31b Article 5 and Reduction in GHG emissions shall be additional to any Kyoto protocol Table 2, Section B.5 that would occur in the absence of the project activity, Art c, i.e. a CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are Simplified modalities and reduced below those that would have occurred in the procedures for absence of the registered CDM project activity. small scale CDM project activities 23 a 10. The emission reductions shall be real, measurable and Kyoto Protocol Table 2, Section B and B give long-term benefits related to the mitigation of Art.12.5b climate change. 11. The proposed project activity shall meet the eligibility Simplified Table 2, Section A.4.5 criteria for small scale CDM project activities set out in Modalities and 6(c) of the Marrakech Accords and shall not be a debundled Procedures for component of a larger project activity. Small Scale CDM Project Activities 12a,c 12. The proposed project activity shall confirm to one of the project categories defined for large scale CDM project activities and use the simplified baseline and monitoring methodology for that project category. 13. If required by the Host Country, an analysis of the environmental impacts of the project activity is carried out and documented. 14. Comments by local stakeholders shall be invited, a summary of these provided and how due account was taken of any comments received. Simplified Modalities and Procedures for Small Scale CDM Project Activities 22e Simplified Modalities and Procedures for Small Scale CDM Project Activities 22c CDM and 37b Modalities Procedures Table 2, Section B.2 CL 5 Table 2, Section D The Environmental Impact Assessment (EIA) of the proposed project was carried out in accordance with the Ecuador legislation and Environmental license issued to PP by CONELEC. Table 2, Section E PP has submitted evidence for the invitation attendance sheet and newspaper advertisement 3

52 Requirement Reference Cross Reference/ Comment where invitation for LSC was published. 15. Parties, stakeholders and UNFCCC accredited NGOs Marrakesh The PDD of 30/01/2012 was published for public shall have been invited to comment on the validation accord, comments in the period of 09/03/2012 requirements for a minimum of 30/45 days, and the CDM Modalities 07/04/2012 on website and project design document and comments have been and Procedures comments were invited. No comments were made publicly available. 40 received. 16. Baseline and monitoring methodology shall be CDM Modalities Table 2, Section B.2 previously approved by the CDM Methodology Panel. and Procedures 37e 17. The project design documents shall be in conformance Marrakesh PDD is in accordance with CDM-PDD (Version with the UNFCCC-CDM-PDD Accords, CDM 03 of 28/07/2006) M&P, Appendix B, EB decisions 18. Provisions for monitoring, verification and reporting CDM Modalities CL 4 Table 2, Section B.7 shall be in accordance with the modalities described in and Procedures In Sec. B.7.1 the description of monitoring the Marrakesh Accords, and relevant decisions of the COP/MOP. 37f verification and reporting provision for the parameter, EG PJ,y, net electricity generation by the project delivered to the grid in year y are in accordance with the modalities described in the Marrakesh Accords, and relevant decisions of the COP/MOP. 4

53 TABLE 2 REQUIREMENTS CHECKLIST Checklist Question Reference MoV 1 Comments A. DESCRIPTION OF PROJECT ACTIVITY A.1 Title of the project activity A.1.1 Title of the project activity, version number and date of PDD (section A.1). /01/, /05/ DR, CC The title of the project activity as indicated in section A.1 is Rio Luis, the version number is 03 from 30/01/2012. The title is compared and confirmed with the LoA, to be correct. Draft Final A.1.2 Does the project activity comply with the applicable requirements for completing PDDs? /01/, /B02/, /B03/ DR, CC The project activity comply with the applicable requirements for completing PDDs (EB 41 annex 12): Latest version of CDM- PDD is used. The CDM-PDD template has not been altered. International standard format and notations have been used. A.2 Description of the proposed project activity A.2.1 Does the PDD contain an accurate description of the project activity and provide the reader with a clear /01/ /29/ /26/ /31/ DR The project activity involves a MW run-of-river hydro power plant which includes a 1 MoV: DR document review, I interview, CC cross checking 5

54 Checklist Question Reference MoV 1 Comments understanding of the precise nature of the project activity and the technical aspects of its implementation? How was the design of the project assessed? reservoir in order to create hydraulic pressure. The project activity s goal is to generate electricity from renewable energy; with minimal social and environmental impacts. The technical description of the project activity is clear and contributes in sustainable development of the host country as evidenced in LoA provided. Draft Final A.2.2 Does the project activity involve alteration of existing installations? If yes, have the differences between pre-project and post-project activity been clearly described in the PDD? /01/ DR No, the project activity is a greenfield activity and does not involve any alteration of existing installations. A.3 Project participant(s) A.3.1 Have the Party (ies) and project participant(s), participating in the project activity, been listed in tabular form in Section A.3 of the PDD and are they consistent with the information detailed in its Annex 1? /01/ DR Yes, the information in section A.3 is consistent with annex 1. The project participant is the private company ENERGYHDINE C.A and Ecuador is the host country. A.3.2 Do all participating Parties fulfil the participation requirements as following: a) Party has ratified the Kyoto Protocol b) Party has a Designated National Authority c) assigned amount has been /01/ /B12- a/ DR Ecuador is the host country, and the participation requirements have been correctly fulfilled. It has ratified Kyoto Protocol and has a designated National Authority Ministry of Environment. Assigned amount has not been determined as no Annex-I party is 6

55 Checklist Question Reference MoV 1 Comments A.3.3 A.3.4 determined Has/have the Letter(s) of Approval (LoA) been issued? Do/does the Letter(s) of Approval meet the following requirements? a) the LoA confirms that the Party has ratified the Kyoto Protocol b) the LoA confirms that participation is voluntary c) the LoA confirms that the project contributes to the sustainable development of the Host Country d) the LoA refers to the precise project activity title in the PDD e) the LoA was received directly by the DNA(s) of the participating Parties involved with the project activity. /01/ /05/ DR Yes, the Letter of Approval has been issued by the Ministry of Environment on behalf of Energyhdine CA, dated 12/08/2010 /01/ /05/ DR Yes, the LoA meets the following /B12-a/ requirements: - LoA confirms that Ecuador ratified the Kyoto Protocol in 20/12/ LoA confirms that the participation of Energyhdine C.A. is voluntary - LoA confirms that the PP contributes to sustainable development of Ecuador - LoA has been issued for Rio Luis project - LoA was received by the Ministry of Environment, the Host part DNA Draft Final A.3.5 Have all private/public project participants been authorized by a Party to the Kyoto Protocol? A.4 Technical description of the project A.4.1 Has the project location been clearly defined? /01/ /05/ /B12-a/ CC, DR Energyhdine CA, the sole project participant, has been authorized by the Ministry of Environment which represents the Host Party. /01/ /B04/ DR CAR 1: PP has not presented the geographical coordinates of the project location according to CAR 1 7

56 Checklist Question Reference MoV 1 Comments international standard format as required by para 18 of EB 41, Annex 12. Draft Final A.4.2 Does the project design engineering reflect current good practices? Would the technology result in a significantly better performance than any commonly used technologies in the Host Country? Is any transfer of technology from any Annex I Party involved? /01/ /29/ /26/ /31/ DR The project activity involves a run-of-a-river hydropower plant which diverts a water flow of 6.1 m 3 /s from Rio Luis River. It includes a single reservoir dam that provides with hydraulic head to divert the water flow to the project, and two turbines with a rated capacity of 7.74 MW. Hence, the design does reflect current good practices, resulting in better performance than the utilization of fossil fuel power plants for electricity generation. CL 1 A.4.3 If public funding from Parties included in Annex I has been used for the project activity, have these Parties provided an affirmation that such funding does not result in a diversion of official development assistance (ODA) and that it is separate from and not counted towards the financial CL 1: There is no information on knowhow and technology transfer occurring from Annex 1 country (if there is any). /01/, /12/ DR This project activity does not involve public funding. The PP has explained that the PP and the parent holding company are considered private. Also a declaration has been provided that project does not involve any diversion of official development 8

57 Checklist Question Reference MoV 1 Comments obligations of these Parties? assistance (ODA). Draft Final B. APPLICATION OF A BASELINE AND MONITORING METHODOLOGY B.1 Methodology applied B.1.1 Does the project activity apply an approved methodology and the correct version thereof? /01/ /B04/ DR The applied methodology is ACM0002 Version CL 2 The PP has applied version of ACM0002, which is not the latest version available at the time of submitting the PDD for validation. B.2 Applicability criteria of the methodology/tools B.2.1 How has it been validated whether the project activity complies with the applicability criteria? /01/ /B04/ DR, CC In sec. B.2 of PDD the applicability criteria stated in the methodology ACM0002 have been validated by the PP. However: CL 2 CAR 2 CAR 2 For first applicability criteria in sec B.2, it is not confirmed if the project activity is a grid-connected renewable power generation project. B.2.2 Is the selected baseline one of the baseline(s) described in the methodology and this hence confirms the applicability of the methodology? /01/ /B04/ DR, CC Yes, the selected baseline is one of the baselines described in the methodology, applicable for the installation of a new grid connected renewable power plant/unit: 9

58 Checklist Question Reference MoV 1 Comments B.3 Project boundary B.3.1 Has the project boundary area been clearly defined and in accordance with the applied methodology? B.3.2 What are the system boundaries of the project activity (components and facilities used to mitigate GHGs)? 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, as reflected in the combined margin (CM) calculations described in the Tool to calculate the emission factor for an electricity system /01/ /B04/ DR, CC Yes, it has been clearly defined the project boundary according to the applied methodology; which includes the project power plant and all power plants connected physically to the electricity system that the CDM project power plant is connected to. /01/ /B04/ DR The system boundaries includes the project facilities: - Ecological stream flow - Water capture - Water pre-treatment - Low pressure piping and tunnel - High pressure piping MW turbine generators Draft Final B.3.3 Which sources have been identified for the project activity? And the Ecuadorian National Grid and All On-grid Generators /01/ /B04/ DR, CC There are no sources identified for 10

59 Checklist Question Reference MoV 1 Comments Does the identified project boundary cover all possible sources linked to the project activity? the project activity. CH 4 emissions from reservoir have been considered a minor emissions source, according to the applied methodology. Draft Final B.3.4 Does the project activity involve other sources of emissions not foreseen by the methodology (ies) and which may question the applicability of the applied methodology? Do these sources contribute by more than 1% to the estimated emission reductions of the project? B.4 Baseline scenario identification B.4.1 Which baseline scenario(s) have been identified? Is the list of identified baseline scenario(s) complete? B.4.2 How have the other baseline scenarios been eliminated in order to /01/ /B04/ DR, CC No, the project activity does not involve sources of emissions not foreseen by the methodology. /01/ /B04/ DR, CC According to sec B.4 of PDD, the only baseline scenario identified for new grid-connected renewable power plant 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, as reflected in the combined margin (CM) calculations described in the Tool to calculate the emission factor for an electricity system Hence, the list of identified baseline scenarios is complete. /01/ /B04/ DR,CC The identified baseline scenario is the only one applicable to the 11

60 Checklist Question Reference MoV 1 Comments determine the baseline? project activity. Draft Final B.4.3 B.4.4 What is the baseline scenario? Is the way in which the baseline scenario has been determined in accordance with the guidance in the applied methodology? Has the baseline scenario been determined using conservative assumptions? Does the baseline scenario sufficiently take into account relevant national and/or sectoral policies, macro-economic trends and political aspirations? /01/ /B04/ DR, CC Baseline scenario has been listed in B.4.1 above. According to the methodology, the identified baseline scenario is the only one applicable to the project activity. /01/ /B04/ DR, CC The identified baseline scenario is the only one applicable to the project activity and thus confirms with the requirements of the applied methodology. Letter of Approval has been provided by the host country, which confirms that project contributes to sustainable development and complies to host country regulations. B.5 Additionality determination B.5.1 What tool does the project activity use to assess additionality? Is this in line with the methodology? B.5.2 What is the project activity s additionality mainly based on? /01/ /B04/ /B05/ /01/ /B04/ /B05/ DR, CC DR CC To assess additionality, the project activity has used the Tool for the demonstration and assessment of additionality Version 6.0 as required in the additionality section of baseline and monitoring methodology ACM0002 ver This is in line with the requirements of the methodology. In section B.5 the PP has chosen to demonstrate additionality 12

61 Checklist Question Reference MoV 1 Comments B.5.3 Prior Consideration of CDM B What is the start date of the proposed project activity? /01/ /B04/ /B05/ DR through investment analysis. It is determined through benchmark analysis for equity IRR that the project activity is not economically or financially attractive, without the revenue from the sale of certified emission reductions (CERs) Draft The project is expected to start on or about 01/09/2012. Final B B What is the evidence for serious consideration of CDM prior to the time of decision to proceed with the project activity? What initiatives were taken by the project participant(s) from the start /01/ /09/ /10/ /B04/ /B05/ /01/ /B04/ /B05/ DR DR The PDD has been web hosted for global stakeholder consultation process prior to the start date of project activity. Also, PP received LoA (dated 02/08/2010) from the DNA much before the start date of project activity. However, CAR 3: Prior consideration forms to UNFCCC and DNA have not been provided for verification. It is not clear as, PP has made 2 intimations to UNFCCC first on 26 Sep 2008 (project name as Hydroelectric Project RIO LUIS and second on 08 Sep 2011(project named as RIO LUIS), the same needs to be explained. PP has stated start date of project activity to be 01/07/2012. The date CAR 3 CL 3 FAR 1 13

62 Checklist Question Reference MoV 1 Comments date of the project activity to the start of validation in parallel with the physical implementation of the project activity? for PDD is 30/01/2012. Project activity had not started at the time PDD was written and web hosted for global stakeholder consultation process. Draft Final B Does the timeline of the project activity confirm that continuous actions were taken by the project participant(s) in order to secure CDM status, in parallel with the implementation? B.5.4 Investment analysis B What is the analysis method used to determine whether the proposed project activity is not (a) the most economically or financially attractive; or (b) economically or financially feasible, without the revenue from the sale of certified emission reductions? /01/ /B04/ /B05/ /01/ /B04/ /B05/ /B07/ DR DR,CC CL 3 Current status for physical implementation of project activity is not available. FAR 1: As per the PDD, the start date of the project is not yet fixed. Project Implementation status needs to be verified during verification in line with the requirement of paragraph 37 of VVM version Yes, the timeline confirms that LoA and prior consideration for CDM was applied by PP for project activity. Benchmark analysis has been used to demonstrate that the proposed project activity is not economically or financially attractive, without the revenue from the sale of certified emission reductions. CAR 4 Simple cost analysis has not been used as the project involves 14

63 Checklist Question Reference MoV 1 Comments B Which financial indicator has been used? /01/ /B04/ /B05/ /B07/ DR CC revenue generation apart from the revenue from sale of carbon credits. Also, the alternative to the project activity is the supply of electricity from the grid which is not to be considered an investment and thus investment analysis is not used and rather Benchmark Analysis has been used for project activity. CAR 4: PDD fails to demonstrate the compliance of 6 of annex 5, EB 62. While doing so, PP is requested to demonstrate that the input values taken for the investment analysis were available at the time of investment decision. Relevant dates and document name shall be provided in the PDD. The financial indicator that has been used is equity IRR in real terms. Draft Final B Does the income tax calculation take depreciation into account? Is the depreciation year in accordance with the normal accounting practice in the Host Country? /01/ /B04/ /B05/ /B07/ DR CC Depreciation has been included to calculate taxes but not considered as a cash flow. CL 4: Depreciation period as provided in section B.5 could not be verified with the Executive Decree document referenced. B Is the time period of the investment /01/ /B04/ DR, CC Yes, the time period of the CL 4 15

64 Checklist Question Reference MoV 1 Comments analysis and operating time of the project activity realistic? Has salvage value been taken into account? Has the working capital been returned in the last year of the operation? B Cross-check of main parameters used in the financial analysis: electricity generation, electricity tariff, investment costs, operating and maintenance costs, taxes, other costs. /B05/ /B07/ /01/ /B04/ /B05/ /B07/ DR, CC CAR 5: investment analysis and operating time of the project activity is realistic. The values provided in the investment analysis sheet Investment Analysis Rio Luis vpdd3 do not provide clear references for the values used. Like, no reference is provided for the use of value.17 in CF workbook for Investment calculation of 10 th year (Q5). All the references need to be provided. Draft CAR 5 Final B Sensitivity analysis: have the key parameters, contributing to more than 20% of the revenue/costs during operating or implementation, been identified? /01/ /B04/ /B05/ /B07/ DR CC Investment, operating costs and Revenue from electricity Generation has been discussed in the sensitivity analysis. They are the key parameter contributing to more than 20 % of the revenue/costs. B Sensitivity analysis: is the range of variations in the project activity reasonable? /01/ /B04/ /B05/ /B07/ DR CC A 10 percent range of variations has been provided in the sensitivity analysis for the project activity. B Have the key parameters been varied /01/ /B04/ DR CC Key parameters have been varied 16

65 Checklist Question Reference MoV 1 Comments to reach the benchmark and has the likelihood of this happening been justified to be small? /B05/ /B07/ to reach the benchmark. Draft Final B.5.5 Barrier Analysis B Are the barriers, which have been identified, complimentary to a potential investment analysis? /01/ /B04/ /B05/ DR CC Investment analysis has been done for the project activity to demonstrate additionality. Barrier analysis has not been used for the project activity. B How has been determined whether the investment barriers are real? How does CDM alleviate the investment barriers? /01/ /B04/ /B05/ DR CC NA B B Is the project activity being prevented by the investment barriers? Is at least one of the possible alternatives to the project activity feasible under the same circumstances? How has been determined whether the technological barriers are real? How does CDM alleviate the technological barriers? /01/ /B04/ /B05/ /01/ /B04/ /B05/ DR CC NA DR CC NA B Is the project activity being prevented by the technological barriers and is at least one of the possible alternatives to the project activity is feasible under the same circumstances? /01/ /B04/ /B05/ DR CC NA 17

66 Checklist Question Reference MoV 1 Comments Draft Final B How have the barriers due to prevailing practise been assessed to be real? How does CDM alleviate the barriers due to prevailing practice? /01/ /B04/ /B05/ DR CC NA B Is the project activity being prevented by the barriers due to prevailing practice and is at least one of the possible alternatives to the project activity feasible under the same circumstances? /01/ /B04/ /B05/ DR CC NA B How have the other barriers been assessed to be real? How does CDM alleviate the other barriers? /01/ /B04/ /B05/ DR CC NA B Is the project activity being prevented by the other barriers and is at least one of the possible alternatives to the project activity is feasible under the same circumstances? /01/ /B04/ /B05/ DR, CC NA B.5.6 Common Practice Analysis B What are the geographical scopes and scope of technology of the common practice analysis? /01/ /B04/ /B05/ DR, CC Ecuador has been considered as the geographical boundary and all power units of a similar capacity (+/- 50 %) have been considered and evaluated in common practice analysis. B How many similar non-cdm-projects exist in the region within the scope? /01/ /B04/ /B05/ DR, CC 26 non-cdm-projects have been identified in the region. However, CL 5: Data provided for some power plants, like Miraflores could not be CL 5 18

67 Checklist Question Reference MoV 1 Comments B B How have possible essential distinctions between the project activity and similar activities been assessed? Which data sources have been used to assess the common practice analysis? /01/ /B04/ /B05/ /01/ /B04/ /B05/ verified with the referenced document. DR, CC Out of 26 non-cdm-projects, 21 have been distinguished on the basis of type of energy/fuel. And 4 more on the basis of size of installation. Depends on closure of CL 5 DR, CC BOLETÍN ESTADÍSTIC SECTOR ELÉCTRICO ECUATORIANO fn13 Power Stats 2010.pdf fn11 Reservoirs.pdf Draft Refer CL 5 Final B.5.7 on the Additionality Assessment B What is the conclusion with regard to the additionality of the project activity? /01/ /B04/ /B05/ B.6 Calculation of GHG Emission Reductions B.6.1 Baseline Emissions B Have the calculations been documented according to the approved methodology and in a complete and transparent manner? /01/ /04/ /B04/ DR, CC Depends on closure of CL 5. Refer CL 5. DR, CC In section B.6.1 of PDD Baseline emissions have been calculated using Tool to calculate the emission factor for an electricity system for emission factor and electricity generated due to greenfield activity according to the approved methodology. CL 6 CL 6: The source of data used in the 19

68 Checklist Question Reference MoV 1 Comments calculation of emission factor for the years 2008 and 2009 has not been provided for verification. Draft Final B Have conservative assumptions been used when calculating the baseline emissions and have the uncertainty estimates been properly addressed? /01/ /04/ /B04/ DR, CC Depends on closure of CL 6 CL 6 B.6.2 Project Emissions B Have the calculations been documented according to the approved methodology and in a complete and transparent manner? /01/ /04/ /B04/ DR, CC CAR 6: Sec B.6.1 of PDD states that for hydro power plants with power densities (PD) greater than 10 kw/m 2, the term PE HP,y is zero. This does not conform to the requirements of the applicable methodology. Also, it states that power density of this project activity is about 1,000 kw/m 2, which is not consistent with the information provided in sec. B.2 of PDD. Discuss the way in which the project emissions have been calculated. CAR 6 B Have conservative assumptions been used when calculating the project emissions and have the uncertainty estimates been properly addressed? /01/ /04/ /B04/ DR, CC Depends on closure of CAR 6 Refer CAR 6 B.6.3 Leakage B Have the calculations been /01/ /04/ DR, CC As per the applied methodology 20

69 Checklist Question Reference MoV 1 Comments documented according to the approved methodology and in a complete and transparent manner? B Have conservative assumptions been used when calculating the leakage and have the uncertainty estimates been properly addressed? B.6.4 Emission Reductions B Has the methodology been correctly applied to calculate the emission reductions and can this be replicated by the data provided in the PDD and supporting files to be submitted for registration? /B04/ /01/ /04/ /B04/ /01/ /04/ /B04/ no leakage emissions are to be considered. Draft DR, CC NA DR, CC Depends on closure of CAR 6 and CL 6. Refer CAR 6 and CL 6 Final B.6.5 Data and parameters that are available at validation and that are not monitored B How have the parameters, available at /01/ /04/ DR,CC The parameters available at validation, been verified? /B04/ validation includes parameters which could be fixed ex-ante according to the applied methodology and Tool to calculate the emission factor for an electricity system calculation for calculation of emission factor. B.7 Monitoring Plan B.7.1 Data and Parameters Monitored B B Does the monitoring plan described in the PDD comply with the requirements of the methodology? Does the monitoring plan contain all necessary parameters and have they /01/ /B04/ /01/ /B04/ DR,CC Yes, the monitoring plan described in section B.7.2 of the PDD complies with the requirements of the methodology ACM0002 version DR,CC In sec. B.7.1 of PDD only one parameter is monitored during the CAR 7 21

70 Checklist Question Reference MoV 1 Comments been clearly described? crediting period. EG PJ,Y CAR 7: As per the PDD, the project contains a reservoir. In line with the applied methodology(cp p8of 20 eq. 4 and eq. 5 and also p17 of 20 and p18 of 20) following parameters are missing in the section B.6.2: 1. Cap BL Draft Final 2. A BL B B Has the measurement equipment been described? Has the accuracy of the measurement equipment been addressed and been deemed appropriate? Have the requirements for maintenance and calibration of measurement equipment been described and been deemed appropriate? Is the monitoring frequency adequate for all monitoring parameters? Is it in line with the monitoring methodology? /01/ /B04/ /01/ /B04/ DR,CC In section B.7.1, the measurement equipment has been stated as "Meters accredited by the grid operator CENACE", accuracy as Precision of ±0.2% or better, and calibration would be done every 2 years by an independent laboratory. DR,CC In section B.7.1, monitoring frequency has been stated as continuous. This is in line with the monitoring methodology. B Is the recording frequency adequate for all monitoring parameters? Is it in line with the monitoring methodology? /01/ /B04/ DR,CC Recording frequency has been stated as average instantaneous values every 15 minutes. This is in line with applicable methodology ACM0002 Version , which requires recording to be done at 22

71 Checklist Question Reference MoV 1 Comments least monthly. B.7.2 Monitoring of sustainable development indicators/environmental impacts B Has the monitoring of sustainable /01/ DR, CC NA. LoA has been issued by host development indicators and/or /B04/ country, which confirms that environmental impacts been warranted by legislation in the Host Country? project contributes to sustainable development of country Draft Final B Does the monitoring plan provide for the collection and archiving of relevant data concerning environmental, social and economic impacts? /01/ /B04/ DR, CC NA B Are the sustainable development indicators in line with stated national priorities in the Host Country? /01/ /B04/ DR, CC NA B.7.3 Management, Quality Assurance and Quality Control B How has it been assessed whether the monitoring arrangements described in the monitoring plan are feasible within the project design? /01/ /B04/ DR, CC The monitoring arrangements have been done which should comply with CDM requirements as well as grid operator CENACE. Only one parameter is monitored and this is feasible as provided in section B.7.1 of PDD. B Have procedures been identified for day-to-day records handling (including what records to keep, storage area of records and how to process performance documentation)? /01/ /B04/ DR, CC As stated in section B.7.2 of PDD, day-to-day record handling would be done for the only parameter identified: EG PJ,Y B Are the data management and quality /01/ DR, CC The monitoring plan would be 23

72 Checklist Question Reference MoV 1 Comments assurance and quality control procedures sufficient to ensure that the emission reductions achieved by/resulting from the project activity can be reported ex post and verified? /B04/ supervised by Chief Control Engineer and specific responsibilities would be assigned to operators and maintenance personnel. Data archiving would be duplicated between project activity and grid operator. This is sufficient to ensure that the emission reductions achieved by/resulting from the project activity can be reported ex post and verified. Draft Final B Will all monitored data, required for verification and issuance, be kept for two years after the end of the crediting period or the last issuance of CERs, for this project activity, whichever occurs later? /01/ /B04/ DR, CC As stated in section B.7.2 of PDD data will be kept for a minimum of two years after the end of the crediting period or the last issuance of CERs for this project activity, whichever occurs later. C. Duration of the project activity and crediting period C.1 Start date of project activity C.1.1 What is the expected start date of the project activity and how has this been determined? /01/ /B04/ C.1.2 When was the first construction activity? What is the expected operational lifetime of the project activity? Is it reasonable? /01/ /B04/ DR DR The expected start date of the project activity is on or about 1 July 2012, this is when construction contract for the project activity is expected to be signed. Operational lifetime of the project activity is expected to be at least 25 years. This is estimated from the average lifetime of hydroelectric projects. 24

73 Checklist Question Reference MoV 1 Comments C.2 Start date of crediting period C.2.1 What is the expected start date of the crediting period? /01/ DR The expected start date of the crediting period is 01/01/2015. Draft CAR 8 Final Does the crediting period start eight weeks after the request for registration? This is much later than the start date of project activity. However, C.2.2 What is the length of the crediting period? Has it been clearly defined and reasonable? D. Environmental Impact D.1.1 Has an analysis of the environmental impacts of the project activity been undertaken? Has it been described sufficiently in the PDD and in a clear manner? CAR 8 It could not be confirmed if the start date of crediting period provided would be after the request for registration. /01/ DR The length of the fixed crediting period is 10 years. It is reasonable and is clearly defined. /01/ /13/ /14/ DR Yes, analysis of environmental impact of the project activity has been undertaken as provided in section D.1 of PDD and supported by EIA study provided. D.1.2 Will the project activity create any adverse environmental effects? Have transboundary environmental impacts been considered in the analysis? /01/ /13/ /14/ DR Only two environmental impacts have been considered significant: Visual impact during construction: This would be there in construction phase and would become minor impact in operational phase. Flora and Fauna impact on Rio Luis waterbed: It is mitigated through the CAR 9 25

74 Checklist Question Reference MoV 1 Comments ecological stream flow and the fish ladder at the small dam. It is also compensated through a reforestation program for the upper Río Luis river basin. Draft Final D.1.3 D.1.4 Is the analysis of the environmental impacts required by the legislation of the Host Country? If yes, has the EIA been approved by local Government? Does the approval contain any conditions that need monitoring? Is the project activity in line with the current environmental legislation in the Host Country? /01/ /13/ /14/ /01/ /13/ /14/ CAR 9: No transboundary environment impacts have been considered in the analysis. DR Yes, the analysis of the environmental impacts required by the legislation of the Host Country. As stated in section D.2 of PDD an environmental license is required following Ecuadorian laws and regulations. Yes, EIA has been approved by the government. DR Yes the project is in line with current environmental legislation. E. Local Stakeholder Consultation E.1.1 Have the local stakeholders been invited by the project participant(s) prior to the publication of the PDD on the UNFCCC website? E.1.2 Have the stakeholders been invited to comment on the proposed project activity /01/ /11/ DR Yes, the local stakeholders were invited by the project participant(s) on 10/12/2008, prior to the publication of the PDD on the UNFCCC website /01/ /11/ DR Local stakeholders were invited on 10/12/2008 in Portolevo. The 26

75 Checklist Question Reference MoV 1 Comments and have their comments been taken into consideration with regard to the proposed project activity? information centre was setup from 3/12/2008-9/12/2008. And further comments were received from 11/12/ /12/2008. A total of 14 comments were received. This is affirmed from the supporting document provided. Draft Final E.1.3 Has a complete summary of the stakeholders comments been received and provided in the PDD? /01/ /11/ DR Yes, a summary of the stakeholders comments has been received and provided in the PDD. E.1.4 E.1.5 Has due account been taken by the project participant(s) of any stakeholder comment(s) received? If a stakeholder consultation process is required by regulations/laws in the Host Country, has the stakeholder consultation process been carried out in accordance with such regulations/laws? /01/ /11/ DR Due account of stakeholder comments received has been taken by PP as stated in section E.2 of PDD. All comments and questions were fully resolved by ENERGYHDINE and CONELEC during the public meeting. No negative comments were received and hence, there was no need to take due account of the comments. /01/ /11/ DR CL 7 There is no confirmation available if the stakeholder consultation process has been carried out in accordance with host country regulations/laws. CL 7 27

76 TABLE 3: RESOLUTION OF CORRECTIVE ACTION REQUESTS AND CLARIFICATION REQUESTS Corrective Action and/or Clarification Requests CAR 1 PP has not presented the geographical coordinates of the project location according to international standard format as required by para 18 of EB 41, Annex 12. Reference to Table 2 Response by project participant(s) Validation A.4.1 Section A of PDD v3.1 includes the geo-coordinates in decimal format for both the water capture point and the power house. The convention applied complies with the international standard ISO 6709: Longitude comes after Latitude North latitude is positive East longitude is positive The ISO standard referred by PP specifies guidelines for representation of geographical coordinates. The same have not been referenced for presentation of geographical coordinates. Validation team confirms that they are according to international standard format. CAR closed CAR 2 For first applicability criteria in sec B.2, it is not confirmed if the project activity is a gridconnected renewable power generation project. B.2.1 The first applicability criteria in sec B.2 of PDD v3.1 explains and confirms the grid connection of the project activity. Section B.2 of PDD is modified to reflect that the project activity is connected to Ecuadorian national grid. Grid connectivity is regulated in Ecuador and neither PPA nor grid connection contractual agreement exists, since such terms are covered by regulation. /16/ CAR closed CAR 3 Prior consideration forms to UNFCCC and DNA have not been provided for verification. It is not clear as, PP has made 2 intimations to UNFCCC first on 26 Sep 2008 (project name as Hydroelectric Project RIO LUIS and second on 08 Sep 2011(project named as RIO LUIS), the same needs to be explained. B As per para 2 of EB62 An13, prior notification is not necessary since the project start date is after 2 Aug 2008 and the PDD was published for GSC prior to its start date. Nevertheless, the UNFCCC was informed previously via the prior consideration form (CAR3a PCF.pdf) and the DNA was informed previously The supporting evidence confirming prior consideration to UNFCCC and DNA have been provided to affirm that prior consideration of CDM was taken for the project activity./09//10/ Also as prior consideration form was only available after 17/07/2009 a prior consideration to UNFCCC was made in appropriate form as first intimation 28

77 Corrective Action and/or Clarification Requests Reference to Table 2 Response by project participant(s) Validation via the request for approval (CAR3b RfA.pdf) EHD has informed UNFCCC twice under prior consideration. The prior consideration form of 08 Sep 2011 has been submitted to the validation team. Attached is the communication of 26 Sep During 2011, EHD was advised that the previous communication did not use the appropriate CDM Form for Prior Communication, and they should thus resubmit it. EHD Prior Com Sep 08.pdf to UNFCCC/40/ was made prior to the availability of prior consideration form. CAR closed CAR 4: PDD fails to demonstrate the compliance of 6 of annex 5, EB 62. While doing so, PP is requested to demonstrate that the input values taken for the investment analysis were available at the time of investment decision. Relevant dates and document name shall be provided in the PDD. B PDD v3.2 provides the milestones for the investment decision. It references the board meeting on 23 July 2012 when the decision was taken. The communication of the Board s President about this decision is attached and analyzed. EHD Board vprivate and Confidential.pdf EHD Board vpublic.pdf Comments on EHD Board doc Milestones for the board decision have been provided along with the board decision to undertake project activity. Since the time elapsed between the FSR preparation date and the final board decision to take Rio Luis as a CDM project activity is more than a year, it was checked on the basis of the regulation from CONELEC/16/ that the power unit sales price is fixed for 15 years and hence revenue values would remain constant and the value for revenues would vary only on amount of electricity generated and that is independent of the timeframe of the FSR. The costs of the project would vary based on the rate of inflation, but they would increase as the historical 29

78 Corrective Action and/or Clarification Requests Reference to Table 2 Response by project participant(s) Validation rate of inflation is positive and have been validated from national statistics website of Ecuador/B12-h/ and CIA website/b12-g/. Validation team confirms that the input values would have marginally/materially changed but their effect would be conservative; in validation team s opinion this is justified. The Validation Team concludes that the input parameters used in the FSR were valid and applicable at the time of investment decision. CAR closed CAR 5 The values provided in the investment analysis sheet Investment Analysis Rio Luis vpdd3 do not provide clear references for the values used. Like, no reference is provided for the use of value.17 in CF workbook for Investment calculation of 10 th year (Q5). All the references need to be provided. B All input values are clearly referenced in the revised IRR sheet Investment Analysis Rio Luis vpdd3_1, including the 17% discount rate used to calculate the perpetuity for the residual value. Two new references are provided, since the other sources cited have been provided previously to the DOE (CAR4a Indicative Finance Offer.pdf and CAR4b Informe costos.pdf). The investment figure is revised downwards (conservative) to comply with CDM requirements. These adjustments are explained transparently in CAR4c Adjustments to Investment Cost Estimate.pdf. PDD v3.1 is revised with the final The values provided in the revised version of investment analysis sheet have been clearly referenced with the source of data used for the values. Validation team has verified the values provided from the relevant supporting documents and other background investigation from websites. CAR closed 30

79 Corrective Action and/or Clarification Requests Reference to Table 2 Response by project participant(s) Validation investment analysis figures. CAR 6 Sec B.6.1 of PDD states that for hydro power plants with power densities (PD) greater than 10 kw/m 2, the term PE HP,y is zero. This does not conform to the requirements of the applicable methodology. Also, it states that power density of this project activity is about 1,000 kw/m 2, which is not consistent with the information provided in sec. B.2 of PDD. Discuss the way in which the project emissions have been calculated. B B B Sec B.6.1 is updated in PDD v3.1 to be consistent with the methodology and with the project description in sec B.2. Project emissions are zero, since all terms for project emissions within the approved methodology are zero. Section B.6.1 of PDD has been modified to conform to the requirements of the applied methodology ACM0002 version 13. CAR closed CAR 7 As per the PDD, the project contains a reservoir. In line with the applied methodology(cp p8of 20 eq. 4 and eq. 5 and also p17 of 20 and p18 of 20) following parameters are missing in the section B.6.2: B Sections B.6.1, B.6.2 and B.7.1 are modified accordingly in PDD v3.2 The missing parameters not included in the webhosted version of PDD, have been included in the updated version of PDD. CAR closed 1. Cap BL 2. A BL CAR 8 It could not be confirmed if the start date of crediting period provided would be after the request for registration. C.2.1 The starting date of the crediting period is 01/01/2015 in PDD v3.1, coinciding with the expected start date of commercial operation. The request for registration is expected during Therefore, it is expected that the start date of the crediting period is after the request for registration. It has been stated by PP that the starting date of crediting period is 01/07/2015. The required correction has been done in the revised PDD. CAR closed 31

80 Corrective Action and/or Clarification Requests Reference to Table 2 Response by project participant(s) Validation As per the applicable guidelines for completing the PDD (EB41 An12), the date listed here is therefore an indicative starting date and it will be updated by the secretariat as the date of registration, if the listed date is prior to the date of registration. If the construction schedule deviates from the calendar, the PP would request a modification postregistration to the start date of the crediting period according to the applicable CDM procedures. CAR 9 No transboundary environment impacts have been considered in the analysis. D.1.2 Sec D.1 of PDD v3.1 is updated to reflect that no transboundary environmental impacts were identified during the EIA process. A confirmation has been provided by PP to confirm that no transboundary impacts were identified during the EIA process. This has been validated by the EIA approval provided by CONELEC. CAR closed CL 1 There is no information on know-how and technology transfer occurring from Annex 1 country (if there is any). A.4.2 The detailed engineering design for the project was performed by the local firm ICA Ingenieros Consultores Asociados Cía. Ltda. ICA s experience statement for power generation projects (CL1 ICA Quals.pdf) demonstrates previous experience for hydro generation projects in consortiums with European and North American firms. It has been stated in response to the clarification request that Engineering design has been performed by a local firm and also that the local firm i.e, ICA has experience in power generation projects in consortium with European and North American firms. Also an affirmation has been provided that no Annex-1 country is involved for technology transfer or the know-how of technology in section A.4 of PDD. 32

81 Corrective Action and/or Clarification Requests Reference to Table 2 Response by project participant(s) Validation CL closed CL 2 The PP has applied version of ACM0002, which is not the latest version available at the time of submitting the PDD for validation. B.1.1 PDD v3 is dated 30/01/2012. It was submitted to the DOE for validation on 07/02/2012. Version of ACM0002 was the latest version available on those dates. PDD v3.1 is updated to ACM0002 v The version of applied methodology ACM0002 has been revised to version 13, the latest available version of applied methodology at the time of validation. CL closed CL 3 Current status for physical implementation of project activity is not available. CL 4 Depreciation period as provided in section B.5 could not be verified with the Executive Decree document referenced. B Physical construction has not commenced. This was observed during the site visit May The construction contract is under negotiation as of the date of PDD v3.1. The expected start date of the project activity, to be established as the date of signing the EPC contract, is 1 September Sec C.1.1 of the PDD will be updated during validation if or when the EPC contract is signed to reflect the project s start date. An extract of the signed contract would be provided to the DOE as evidence of the start date. B Depreciation schedules for fixed assets in Executive Decree 1051 of 2008 are reported as percentages of original cost in subpart 6 of Article 25. These percentages have been converted into depreciation periods by the project participant (i.e. 5% It has been stated that the construction contract is still under review and expected to be signed on 15 December FAR 1 has been raised to check the Project implementation status at the time of verification. CL closed Depreciation period schedules provided in section B.5 were compared with the information provided in subpart 6 of Article 25 the supporting document fn8 ED 1051_08. Validation team confirms that the 33

82 Corrective Action and/or Clarification Requests Reference to Table 2 Response by project participant(s) Validation annually corresponds to 20 years, 10% annually to 10 years, and 20% annually to 5 years). The depreciation schedule for intangibles is stated as 5 years in subpart 7b of article 25. value of depreciation period is found to be correctly referenced. CL closed CL 5 Data provided for some power plants, like Miraflores could not be verified with the referenced document. B B B As stated in section B.6.2 of PDD v3.1, the source of net generation and fuel consumption by fuel type for each power unit in the Ecuadorian national grid is the dataset provided by the regulator, CONELEC to the project participant. The dataset provided by CONELEC is in the spreadsheet Información Conelec xls. The tab Datos contains the net generation and fuel consumption for all Ecuadorian power units, both on-grid and off-grid. The format of this data as provided by CONELEC is not user friendly. An explanation of the audit trail from the original data to the tables reproduced in Annex 3 of the PDD is provided in the attached file CL5 Power unit audit trail.pdf. This attached file uses the power plant Miraflores as an example to demonstrate the validity of the audit trail. The tables in Annex 3 have been updated to SI units in PDD v3.1. Data provided for Miraflores has been justified using Power unit audit trail /25/ and is verified with the data provided in fn13 Power Stats 2010 /20-c/. Validation team finds it to be consistent with the data provided in the emission reduction calculation spread sheet. CL closed CL 6 The source of data used in the calculation of B B The source data (net generation and fuel consumption by power unit) for The references for the data used in the calculation of emission factor have 34

83 Corrective Action and/or Clarification Requests emission factor for the years 2008 and 2009 has not been provided for verification. Reference to Table 2 Response by project participant(s) Validation B the Ecuadorian national grid are presented in PDD v3.1 Annexes 3.1 through 3.3 for the years , respectively. This dataset was provided to the project proponent by CONELEC, the electricity regulator (please see CL5). The dataset shows that the Ecuadorian grid receives electricity imports from two connected systems: the Peruvian grid and the Colombian grid. Step 1 of the Tool to calculate the emission factor for an electricity system (Version ) provides different options for the emission factor for net electricity imports. For all 3 vintages of imports from the Peruvian grid ( ) and the first two vintages from the Colombian grid (2008 and 2009), this project activity selects the conservative emission factor of 0 tco 2 /MWh; supporting documents are not indicated. The operating margin emission factor for the Colombian grid is calculated for vintage 2010 and shown transparently in Annex 3.4. The dataset provided by CONELEC should be consistent with their statistical bulletins (attached as files CL6a Power Sector 2008.pdf, CL6b Power Sector 2009.pdf, and CL6c Power Sector 2010.pdf ). In case of discrepancy, the project participant been validated from the supporting documents provided by PP for the years However, data from year 2011 has not been used for emission factor calculation. It is due to the fact that the latest available data in public domain is only upto 2010 and has been checked on 10/10/2012. /B14/ Due to adoption of generation weighted average the GEF is revised. Hence the estimated CERs have come down to 51,475 tco 2. CL closed 35

84 Corrective Action and/or Clarification Requests CL 7 There is no confirmation available if the stakeholder consultation process has been carried out in accordance with host country regulations/laws. Reference to Table 2 Response by project participant(s) Validation E.1.5 believes the digital dataset to be more reliable, since it was not subject to formatting or graphic design as were the statistical bulletins. GEF has been calculated as weighted average instead of simple average as per the applied tool. The newspaper advertisement (CL7 LSC Newspaper Ad.pdf) for the local stakeholder consultation indicates the host country regulations and laws for such a process: Article 18 of the Regulation for the Application of Mechanisms for Social Participation established in the Environmental Management Law, Executive Decree Number 1040, published in the Official Register Number 332, on 8 May Four mechanisms for consultation were set up: 1. Information Centre 2. Public Meeting 3. Centre for Reception of Comments 4. Web Page The environmental license (referenced in PDD sec D.2) certifies that the project has complied with all the applicable regulations. It has been affirmed through the supporting documents /11-d//18/ that the local stakeholder consultation process has been done as per host country regulations and laws. A confirmation has been provided in section E.1of PDD. CL closed 36

85 TABLE 4 FORWARD ACTION REQUEST Forward action request Reference to Table 2 Response by project participants Validation As per the PDD, the start date of the project is not yet fixed. Project Implementation status needs to be verified during verification in line with the requirement of paragraph 37 of VVM version B

86 Appendix B Certificate of Competence 38

87 39

88 40