SOPRONKÖVESD WIND FARM

Transcription

1 SOPRONKÖVESD WIND FARM July , Vertis Environmental Finance

2 TABLE OF CONTENTS 1 PROJECT INFORMATION Supplier data Technical consultant Project partner, Germania Windpark GmbH Organisational relationship Project abstract Background and justification Results and activities of the project Financial highlights CURRENT SITUATION Energy sector in Hungary Renewable energy in Hungary Hungarian power sector between GREENHOUSE GAS SOURCES AND PROJECT BOUNDARIES Direct and indirect emissions Project boundaries KEY FACTORS INFLUENCING THE BASELINE SCENARIO External (off-site) key-factors Project specific (on-site) key factors ADDITIONALITY IDENTIFICATION OF MOST LIKELY BASELINE SCENARIO PROJECT LINE and EMISSIONS REDUCTIONS MONITORING AND REPORTING PLAN Methodology and collection of data Organization of Monitoring and Calculations of ERUs Monitoring of environmental impacts Quality and self-checking of monitoring process Monitoring responsibilities Monitoring and reporting sheets STAKEHOLDER COMMENTS ENVIRONMENTAL IMPACT ASSESSMENT...34 I. Appendix Location of wind turbines...36 II Appendix Renewable electricity, III. Appendix - Management of Hungarowind Kft IV. Appendix Operational cash-flow...39 V. Appendix - Cash-flow from carbon proceeds...40 VI. Appendix Bibliography , Vertis Environmental Finance

3 List of tables Table 1 Shareholder structure of Hungarowind...5 Table 2 Renewable electricity production and capacity in Table 3 Electricity production by fuel use in Hungary, Table 4 Technical specification of wind turbines...10 Table 5 Project milestones...11 Table 6 Permits and approvals...11 Table 12 Portfolio of Hungarian electricity distribution companies...15 Table 13 Electricity production in Hungary, Table 14 Production of electricity in Hungary by fuel use in GWh, Table 15 Electricity production and capacity in Hungary, Table 16 Renewable electricity production in Hungary, Table 17 Use of primary renewable energy sources in Hungary, Table 18 Balance of energy sources in Hungary, Table 19 Forecast of production and electrical capacity in Hungary, Table 20 GDP and energy demand in Hungary, Table 22 Calculations of baseline emissions...26 Table 23 Calculations of ERUs, Table 24 Monitoring responsibilities...31 Table 25 Requirements for monitoring of electricity production...32 Table 26 Quality control and quality assurance procedures...32 Table 27 Calculation of ERUs...32 Table 28 Stakeholders...33 Table 29 Location and permitting status per turbine...36 Table 30 Forecast of renewable electricity production in Hungary, List of figures Figure 1 Project location...6 Figure 2 Model of Hungarian Electricity Market...14 Figure 3 Hungarian electricity sector...14 Figure 4 Project boundaries , Vertis Environmental Finance

4 1 PROJECT INFORMATION 1.1 Supplier data Company Name: Hungarowind Kft. Visiting address, zip code + city, country: Szépvölgyi út 32, H 1025 Budapest, Hungary Postal address, zip code + city, country: Szépvölgyi út 32, H 1025 Budapest, Hungary Website URL No. of employees: 3 Registration number: Professional or Trade Register + City: Budapest, Hungary Date of registration: 7 February 2002 Bank account number: Bank name: Commerzbank Budapest Rt. Company s core business: Wind energy developments Contact person Name: Tibor Szabó Job title: Managing Director Telephone number: Fax number: hungarowind@hungarowind.hu 1.2 Technical consultant Company Name: Vertis Environmental Finance Visiting address, zip code + city, country: Alkotás utca 39/c, 1123 Budapest, Hungary Postal address, zip code + city, country: Alkotás utca 39/c, 1123 Budapest, Hungary Website URL Contact person Name: Barna Barath Job title: Partner Telephone number: Fax number: barna.barath@vertisfinance.com Vertis Environmental Finance

5 1.3 Project partner, Germania Windpark GmbH Company Name: Germania Windpark GmbH & Co. KG Visiting address, zip code + city, country: Poststrasse 19-21, D Rheine, Germany Postal address, zip code + city, country: Poststrasse 19-21, D Rheine, Germany Website URL No. of employees: 17 Registration number: HRA 3603 Professional or Trade Register + City: Steinfurth, Germany Date of registration: 1993 Bank account number: Bank name: Commerzbank Company s core business: Wind energy developments Contact person Name: Markus Tacke Job title: Managing Director Telephone number: Fax number: info@gwp-wind.de 1.4 Organisational relationship The shareholders of Hungarowind Kft. are: Table 1 Shareholder structure of Hungarowind Parent organisation Country of incorporation Percentage of shares Germania Windpark GmbH Germany 65% Winvest Finanzierungsservice GmbH Germany 10% Szabó Tibor Hungarian individual 25% Germania Windpark GmbH and Winvest Finanzierungsservice GmbH are both owned by private German individuals and work in partnership to implement wind farms in Europe. Vertis Environmental Finance

6 1.5 Project abstract Project title: Host country: Location of project: Sopronkövesd Wind Farm Hungary The wind farm will be located near villages of Sopronkövesd and Nagylózs, North-Transdanubia, Hungary The exact location of the wind farm is shown on the map below: Figure 1 Project location The project is a greenfield investment and consists of the construction of a wind farm near the villages of Sopronkövesd and Nagylózs in Hungary. The supplier of ERUs will be Hungarowind Kft., while a project company (owned entirely by Hungarowind Kft.) will be established to implement the project. Hungarowind Kft. is a subsidiary of Germania Windpark GmbH, a company with an excellent track record in constructing and operating wind farms throughout Europe. The wind farm will have installed capacity of 45MWel and will consist of 30 turbines of 1.5MWel each. General Electric Wind Energy GmbH (Salzbergen, Germany) will act as turbine supplier and ensure the maintenance of the wind farm under a twelveyear contract. The wind farm will produce 118GWh of electricity per year. The investment cost is estimated at 67.3 million while the annual revenues from electricity sales will reach 10.7 million. The permitting process has been completed, and the project is ready for construction. Financing is to be completed by the end of September 2005 in a structure of 30% equity and 70% commercial bank loan. Advanced discussions are underway with private investors and commercial banks. Date of go/no-go decision of project expected: September 2005 Construction starting date: October 2005 Expected completion date: June 2006 Period of generation of Claims on ERUs: Estimated total of Claims on ERUs to be delivered: 415,000 Estimated price per Claim on ERUs/AAUs offered: To be negotiated Vertis Environmental Finance

7 1.6 Background and justification Project history In 2002 Germania Windpark established its Hungarian subsidiary, Hungarowind Kft., with a mandate to construct the first commercial wind farm in Hungary. The wind farm will be located in the north-western part of Hungary (very close to the Austrian border) in an area known for its excellent wind conditions. According to wind measurements completed by Hungarowind Kft., the average wind speed at the project site is 7 m/s. Wind measurements Hungarowind Kft. began to measure wind conditions at the project location two years ago. Two wind masts of 30 meters and 80 meters measure wind speed and transmit data via GPS system to the German engineering headquarters where they are analyzed daily. A specialized German engineering company, Deutsche WindGuard Consulting GmbH, analyzed the data series submitted by Germania Windpark for both masts and estimated the annual energy yield of the wind farm. Extrapolation of the wind measurement data from the test mast positions to the exact position and hub heights of the proposed wind turbines (in order to calculate annual yields) was executed following the procedure in the European Wind Atlas with the help of the Wind Atlas Analysis and Application Program (WASP, version 8.1) of the Riso National Laboratory, Roskilde, Denmark. As required by Hungarian law, Hungarowind Kft. has also acquired wind data from the meteorological station closest to the project site. Data from the Hungarian Meteorological Institute confirm the measurements collected by Hungarowind Kft. At the time the document was completed, no wind atlas of Hungary was available. Results for measurements of wind conditions at the project site are available for review upon request. The project is in an advanced phase of preparation and all necessary permits have been obtained from the Hungarian authorities. An Environmental Impact Assessment (see Section 10) was conducted and states that the project will have no negative impact on the environment. Need for the project In 2003, the share of renewables in the total primary energy supply of Hungary was 3.3%. According to Governmental Decree 1107/1999 on the Strategy of Energy Conservation and Improving Energy Efficiency, this share should be at least 5% by By 2010, the share of electricity production from renewable sources in gross electricity consumption should reach 3.6%. In 2003 this number was only 0.63%, with supply coming mainly from hydro sources which produced 64% of Hungary s renewable electricity. In order to reach the 3.6% target which Hungary has to fulfil as an EU member state, renewable electricity production capacity should reach MW by 2010 as shown in the table below from the Hungarian Energy Agency: Vertis Environmental Finance

8 Table 2 Renewable electricity production and capacity in 2010 Type Installed capacity Production Load MW GWh h/a Biomass Hydro Wind Waste Total According to preliminary data from the Hungarian Energy Agency, the share of renewables in domestic electricity consumption was 2.17% in More information about renewable energy sources in Hungary is available in Section 2.2. Electricity production 1 by fuel use is shown in the table below: Table 3 Electricity production by fuel use in Hungary, Electricity production From: GWh % GWh % GWh % Brown coal Lignite Other types of black coal Total production from coal Oil Natural gas Total production from oil and gas Total production from fossil sources Wind Hydro Waste Nuclear Total electricity production Electricity production from wind comes from a total of six wind turbines (one wind turbine in Kulcs, one in Inota, two in Mosonszolnok and two in Mosonmagyarovar) with a total installed capacity of 3.4MWel. However, this is dispersed capacity, and therefore the efficiency level is low. The project proposed by Hungarowind is to be one of the first commercial wind parks in Hungary. Its implementation will help Hungary achieve its renewable energy target and will have an important demonstration effect for future projects. The main advantages of the project are summarized below: Increased wind power capacity in Hungary Technical capacity building: connection to the national electricity grid, technology, operations and maintenance 1 Source: MAVIR, 2003 Vertis Environmental Finance

9 Commercial demonstration effect: showing that the financing structure works, and that wind power is financially viable Building the track record of carbon financing in different sectors Promoting the sustainable development agenda in Hungary. Parties to the project Germania Windpark GmbH is a German EPC (engineering, procurement, contracting) company with long experience in building and operating wind farms. The history of the company dates back to 1886 and its involvement in wind energy projects started twelve years ago. Since then the company has been responsible for the installation and operation of 208MWel wind capacity in Germany and Spain. Around 100 wind projects with 1,636MWel capacity to be implemented by Germania Windpark are in different stages of development in Hungary, Italy, Turkey and the United Kingdom. Winvest Finanzierungsservice GmbH was established in 1995 with the aim of ensuring financing and marketing activities for projects developed by Germania Windpark GmbH. Hungarowind Kft. was established in 2002 as a subsidiary of Germania Windpark GmbH and Winvest Finanzierungsservice with the aim of developing the first commercial wind farm in Hungary. During the preparation phase of the project ( ) the company employed three experienced individuals in project management and engineering. The CV of Mr Szabó Tibor, CEO of Hungarowind Kft., is available for review in Appendix III. GE Energy is one of the world s leading wind energy companies and wind turbine suppliers. With over 7,000 worldwide wind turbine installations comprising more than 5,600 MW of capacity, the knowledge and expertise of the company spans more than two decades. GE Energy currently design and produce wind turbines ranging from 1.5 to 3.6 megawatts in Germany, Spain and the United States. GE Wind Energy GmbH is a subsidiary of GE Energy. ETV-Erőterv Rt. is an experienced technical consultant in Hungary in the field of electricity planning. Hungarowind Kft. cooperates with ETV-Erőterv Rt. in establishing the grid connection of the wind farm. ETV-Erőterv Rt. focuses its activities on both nuclear and conventional engineering. The company provides expertise in the field of energy services, ranging from power generation, power transmission, and distribution to power system control and telecommunication. Government Endorsement and Approval The Hungarian Ministry of Environment and Water Management is supportive of the project and issued a Letter of Endorsement in The completed PDD, together with the validation report, will be submitted to the Ministry in order to obtain a Letter of Approval. Based on our previous experience with JI projects, this will be a six-week process. Vertis Environmental Finance

10 1.7 Results and activities of the project The goal of the project is to establish the first commercial-scale, grid-connected wind power plant in Hungary. The project will lead to reductions of GHG emissions because it will displace fossil fuelled power capacity elsewhere in the national grid and will support the Hungarian Government s policy objective of meeting its EU renewable energy target. It is expected that the wind farm will supply electricity to approximately 47,500 families in the countryside. With an installed capacity of 45MWel, the wind farm will produce 118GWh of electricity annually, assuming 2,380 full load hours. The lifetime of the wind farm is estimated at twenty years. The technical parameters of the turbines to be used are shown in the table below: Table 4 Technical specification of wind turbines Operating data Capacity per turbine 1,500 kw Cut-in wind speed 3.5 m/s Rated wind speed 12 m/s Rotor Number of blades 3 Rotor diameter 77 m Swept area 4,657 m2 Rotor speed rpm Tower Hub heights 100 m Power control Control system Generator Active blade pitch control Remote control and monitoring Doubly fed three-phase Construction of the wind farm will involve the following elements: Road access Connection to the national electrical grid Construction of foundations Turbine erection Establishing internal electrical connections Hungarowind Kft. will control the wind farm remotely. Data about wind conditions and electricity supplied to the Hungarian electrical grid will be sent to both Hungarowind Kft. and Germania Windpark GmbH. There will always be available personnel within a reasonable distance to attend to on-site emergencies. The components of the wind farm will be checked quarterly while the turbine supplier, GE Wind Energy GmbH, will carry out the maintenance as per the contract signed with Hungarowind Kft. Connection to the electrical grid The plan for connecting the wind farm to the Hungarian electricity grid was completed by ETV-Erőterv Rt. in cooperation with ABA Elektrotechnik GmbH&Co Vertis Environmental Finance

11 KG (D-Kamen). A grid connection permit was subsequently obtained from local electricity distribution company E.ON-EDASZ. A 120/20KV transformer will be built on site (property of Hungarowind Kft.) and will be connected to the Sopronkövesd transformer of 120/35/20 KV (owned by E.ON-EDASZ). Long-term service agreement (LTCSA) This section is not available for the public. Insurance This section is not available for the public. Technical Operation This section is not available for the public. Implementation plan The key milestones in project implementation are shown below: Table 5 Project milestones Milestone Deadline Financial closure September 2005 Signing the wind turbines purchase agreement October 2005 Construction starts: infrastructure (roads, foundations) October 2005 Erection of wind turbines February 2006 Connection to the electricity grid April 2006 Trial run May 2006 Start of commercial operation June 2006 Training GE Wind Energy is responsible for operational maintenance of the wind farm. In addition, experienced personnel of GE Wind Energy will be present on-site during the construction phase. GE will organize training for responsible maintenance staff. Permits and approvals Key permits and approvals are shown below: Table 6 Permits and approvals Permits, approvals Environmental permit Grid connection approval by grid operator Approval from electricity distribution company Technical building permit Status Completed. Approval was obtained from North Transdanubian Environmental Inspectorate on 1 October The permit has no validity date. Completed. Approval was obtained from MAVIR, Hungarian Power System Operator, on 15 December Completed. Approval was obtained from E.ON-EDASZ on 3 December In order to connect to the national electricity grid, the wind farm will have to use equipment indicated by E.ON-EDASZ. The permit is valid until 30 September Completed. Approval was obtained from both local city halls on 10 November The permit is valid until 10 November 2006 in case of Sopronkovesd and by 13 December 2006 in case of Nagylozs. Vertis Environmental Finance

12 1.8 Financial highlights This section is not available for the public. Vertis Environmental Finance

13 2 CURRENT SITUATION 2.1 Energy sector in Hungary Organisational issues The reform of the electricity industry began in with the privatisation of power plants and electricity distribution companies. As a result, the majority of power stations and 100% of electricity suppliers (today called network and service provider companies) are now privately owned. The main players on the Hungarian electricity market are the power stations, the network company (MVM Rt., which operates the transmission network), electricity suppliers, the systems controller (MAVIR Rt.), electricity traders and consumers. The power plants produce electricity and feed it into the transmission or distribution network. At present, there are eighteen licensed producers in the electricity sector. Power stations with a built-in capacity of at least 50 MW require licensing. Small power plants operating in the Hungarian energy sector with capacity less than 50MW number around 185. The distribution companies are responsible for the transmission and distribution of electricity from producers to consumers. These market players are obliged to provide free access to the networks without discrimination. MVM Rt. is the public utility wholesaler, which means that it purchases electricity from the power plants and sells it to the electricity supply companies in sufficient amount to meet actual consumer demand. MVM is responsible both for the transmission of electricity, which is performed on its own high voltage network (750, 400, 220 kv), and for international power trading. The systems controller, MAVIR, plans and controls the operations of the electricity system. It is independent of producers, traders and consumers. Its tasks comprise system level operative control, resource planning, preparation for network operations, settlement of electricity and provision of system-level services. The model and the structure of the Hungarian electricity market are shown in the following figures 2 : 2 Source: Hungarian Energy Agency Vertis Environmental Finance

14 Figure 2 Model of Hungarian Electricity Market Figure 3 Hungarian electricity sector Vertis Environmental Finance

15 Major facts in As a EU member state, Hungary must implement Directive 96/92 on common rules for internal electricity markets. The liberalization process started in 2003 and will be finalized in 2007 when all electricity consumers, including households, will be able to choose their electricity supplier. Beginning in 2004, all electricity consumers except households have been able to choose their supplier. Industrial consumers of electricity were the first to take advantage of the liberalized market by deciding to buy electricity from the free market or from import sources. The main changes in the portfolios of Hungarian electricity distributors for the period are shown in the table 3 below: Table 7 Portfolio of Hungarian electricity distribution companies Electricity distribution company Change 2004* Change GWh GWh % GWh % E.ON Dél-dunántúli Áramszolgáltató Rt DÉMÁSZ Rt ELMÜ Rt E.ON Észak-dunántúli Áramszolgáltató Rt ÉMÁSZ Rt E.ON Tiszántúli Áramszolgáltató Rt Total n.a. n.a. Legend: *- estimated data The liberalized market has shown that electricity prices originating from long-term PPAs are higher than market prices. It has become clear that a new set of regulations is necessary for the newly liberalized market. The Energy Law went under debate in the Hungarian Parliament with the aim of revising the legislative framework for the liberalized market. The new regulations will enter into force in September Electricity imports are growing, especially from Slovakia. Exports are mainly aimed at Croatia, where fluctuating hydro capacities result in increased demand for Hungarian electricity. The electricity production of Paks Nuclear Power Plant was down by 25% in both 2003 and 2004 due to some malfunctions at the second reactor. From 2005 it is expected that Paks Power Plant will operate again at full capacity while electricity imports are expected to remain high. Data regarding Hungarian electricity production in 2004 are shown in the next table. The source is the Hungarian Energy Agency, using preliminary data available at the time of writing. 3 Source: Hungarian Energy Agency Vertis Environmental Finance

16 Table 8 Electricity production in Hungary, 2004 Type GWh % Coal fueled power plants 9,112 29% Oil and gas fueled power plants 10,586 33% Nuclear 11,915 38% Total electricity production 31, % Production of electricity by fuel type for is shown in the table below: Table 9 Production of electricity in Hungary by fuel use in GWh, Year Coal Oil Natural gas Nuclear Hydro Waste and Total renewables Key statistics 4 about the Hungarian electricity sector for are shown below: Table 10 Electricity production and capacity in Hungary, Year Gross electricity production Importexport balance Installed ready for operation capacity Gross electricity consumption CO2 emissions from electricity production GWh GWh MW GWh Tons Renewable energy in Hungary Production of electricity from renewables must reach 3.6% to meet the obligations of EU membership. The increase from 0.63% in 2003 to 2.17% in 2004 is due to fuel switches to biomass that have occurred at some power plants (several of them receiving carbon finance). In 2004, biomass-fuelled blocks of a total capacity of 225MWel-installed capacity became operational. The biomass resources of Hungary are limited; import of biomass will be necessary if more power plants want to use firewood as fuel. In order to reach the 3.6% target, Hungary will have to develop its renewable capacities through other sources. The best potential is seen in geothermal and wind, as Hungary is rather a flat country with limited possibilities for run-of-river hydropower plants. There are plans to construct a high-capacity dam on the river Danube, but environmental concerns and high financial costs have delayed the project until now and made its realization rather unlikely. 4 Source: Hungarian Energy Agency, Electricity Statistical Yearbook, 2003 Vertis Environmental Finance

17 Electricity production 5 from renewables is shown in the table below in GWh: Table 11 Renewable electricity production in Hungary, Type * Hydro Biogas Wind Biomass and other waste Total RES Total electricity consumption RES share 0.49% 0.51% 0.66% 2.17% Legend: * - estimate The use of primary renewable energy sources in 2003 is displayed below: Table 12 Use of primary renewable energy sources in Hungary, 2003 Item Primary renewable energy Estimated primary sources as per IEA standard use of renewables Total Share PJ PJ PJ % Hydro Geothermal Biomass Other solid waste Solar Biogas Wind Total The use of primary energy sources in 2003 represents 3.3% in the total primary energy sources in of Hungary. The data were supplied by MAVIR, the Hungarian electricity system controller. The third column of Table 17 represents estimated data, as statistics were not available for all small power plants in Hungary. Electricity production from renewables originates mostly from small facilities which do not have an obligation to report their capacity and production at the end of the year. 2.3 Hungarian power sector between Hungary s use of electricity fell significantly at the beginning of the 1990s due to the change in its industrial structure. However, this process was reversed in the mid- to late-1990s. According to current estimates, Hungary s annual electricity demand will grow by % on average in the medium term. In 2003 electricity consumption increased by 1.63% compared to the previous year. The balance of primary energy sources in is shown below: 5 Source: Hungarian Energy Agency 6 Source: Hungarian Electricity Statistical Book, 2003, MAVIR Vertis Environmental Finance

18 Table 13 Balance of energy sources in Hungary, Item GWh PJ GWh PJ Production Coal Oil Gasoline Natural gas Mine gas Hydro Nuclear Wind Biomass Other RES Import Coal Briquette Coke Gasoline Gasoline derivatives Natural gas Net import of electricity Total sources Less: changes in inventory Total national consumption Out of which electricity consumption Forecasted electricity and capacity demand through 2020 is shown in the table below: Table 14 Forecast of production and electrical capacity in Hungary, Year Electricity demand Capacity demand, peak Load TWh % MW % h/a % , % 5, % 6, % , % 5, % 6, % , % 5, % 6, % , % 6, % 6, % , % 6, % 6, % , % 6, % 6, % , % 6, % 6, % , % 6, % 6, % , % 7, % 6, % , % 8, % 6, % The source of data is the study Medium and short term capacity planning of Hungarian electricity sector by MAVIR Rt., published in November The study will have to be reviewed in 2005 but no significant changes are expected so the data available at the time of writing this document are considered accurate. Vertis Environmental Finance

19 The main changes in the electricity sector are expected to take place in the fuel mix of fossil fuel power plants and in the addition of new renewable capacities. Nuclear capacity will remain unchanged, but a fossil fuelled power plant of 300MWel for reserve capacity is planned to be built by 2020 to smooth fluctuations in electrical grid as the share of renewables increases. Old black coal-powered facilities are planned to be phased out while new modern coal-fuelled facilities (fulfilling the necessary environmental standards) of 1,000 MWel capacity are planned. Lignite fuelled power plants will remain roughly at the same capacity. CCGT power plants operated in condensate or cogeneration mode will increase their share in total Hungarian electricity capacity. According to the MAVIR study, the share of renewables in electricity consumption will reach 4.51% by 2020, with an overall capacity of 700MWel. In Annex II there is a detailed description of future renewable electricity capacities in Hungary by that date. The main drivers of these changes are as follows: Economic growth and electricity demand will increase steadily in Hungary in the coming decades Plants fuelled by coal are reaching the end of their technical lifecycles and need refurbishment or replacement Hungary s energy policy is supportive of new and modern technologies with lower environmental impact, e.g. combined heat and power (CHP) The share of renewables in overall consumption of electricity is expected to increase for both supply- and demand-side reasons Nuclear remains the cheapest source of electricity, so Hungary will not shut down its one nuclear power station. Import of electricity has started to grow since the beginning of liberalization of the electricity market in This is due mainly to the fact that electricity produced in Hungary is expensive compared to its neighbours, given the fuel mix available. This trend is expected to continue in the coming years as the electricity market will be fully liberalized and more grid connections are planned to be built to neighbouring countries such as Romania. Vertis Environmental Finance

20 3 GREENHOUSE GAS SOURCES AND PROJECT BOUNDARIES 3.1 Direct and indirect emissions Direct on-site emissions There are no GHG emissions associated with the operation of the wind turbines. However, GHG and dust emissions will occur during the construction period. According to the completed Environmental Impact Assessment, these emissions are estimated to be insignificant and will not be included within the project boundary. There will be a small amount of electricity used on site when the wind turbines are not operational, and this is taken into account in the electricity generation figures we use, which are net of losses and on-site use. In other words, the total annual electricity figure represents the net amount of electricity that the wind farm will supply into the local network. Direct off-site emissions The direct off-site GHG emissions are related to the transport of the construction materials to the site and to electricity displaced in the national electricity grid. Emissions from the transport of construction materials will only take place during the construction period. These emissions are not under the control of the project developer and hence are exclusive of the project boundary. The project will displace fossil fuel combustion in the national electricity grid. This will have a positive effect on the environment, resulting in emissions reductions of 415,000 tco2e during the first Kyoto commitment period. Indirect on-site emissions The project will not lead to changes in demand for services on-site; hence there are no material indirect on-site emissions to be considered. Indirect off-site emissions Manufacturing of the wind turbines and other equipment will require energy that entails GHG emissions in other locations. However, we consider that the project influence on these emissions is negligible and outside the control of project developer, so they are not taken into consideration. 3.2 Project boundaries According to the Consolidated baseline methodology for grid-connected electricity generation from renewable sources (ACM0002) approved by the CDM-Executive Board, the project boundary should include the following: 1. Emission sources from project activity Vertis Environmental Finance

21 2. The spatial extent of the project boundary, including the project site and all power plants connected physically to the electricity system to which the project power plant is connected. The picture below depicts the project boundary of Sopronkövesd Wind Farm, following the provisions of the above-mentioned methodology. GHG emissions of the wind farm are zero. In estimating the 118GWh of electricity production yearly, losses up to the grid connection were included. Figure 4 Project boundaries Wind energy Wind farm Electricity to the grid End user Infrastructure and turbine erection Transport of equipment to site Building of project equipment Vertis Environmental Finance

22 4 KEY FACTORS INFLUENCING THE BASELINE SCENARIO 4.1 External (off-site) key-factors Legal factors The Hungarian regulations influencing the baseline scenario is the Hungarian Electricity Law (2001/CX) modified by Law LXXIX of Under the Hungarian Electricity Law (2001/CX), which entered into force on January 1, 2003, local electricity companies have the obligation to purchase electricity supplied from renewables. The mandatory off-take is in place up to 2010 when a green certificate system is to be implemented. As mentioned earlier, a new legal framework has been recently approved by the Hungarian Parliament, increasing the feed-in tariffs but postponing a decision on implementing the green certificate system to a future governmental decree. The Hungarian Energy Agency is to decide the quantity of renewable electricity to be bought from producers. Macro-economic factors The expected energy demand of the Hungarian economy may be projected through 2020 based on estimated economic growth. This data is summarised in the table below along with the estimated change of GDP and energy intensity. 8 Table 15 GDP and energy demand in Hungary, Total energy demand (PJ) 1,060 1,121 1,179 1,251 Gross electricity demand (TWh) Fuel demand of electricity sector (PJ) Yearly change (%) GDP Total energy demand Gross electricity demand Fuel demand of electricity sector Energy intensity (PJ/GDP) Energy intensity (TWh/GDP) Price factors The major factor affecting the baseline and the project line is the off-take price of electricity. This is explained in Section 1.8. Capital availability The construction of a wind farm has high capital need and is usually perceived as risky by both equity investors and commercial banks since very few successfully 7 Hungarian Official Journal 93, 6 July Source: GKI Energiakutató és Tanácsadó Kft.: Az új energiakoncepció alapkérdései, 2003 Vertis Environmental Finance

23 implemented projects are available for review. In Hungary there is no large-scale wind farm in operation. The proposed project is to be the first wind farm in Hungary operated on commercial basis. The need for substantial up front capital with long payback times and modest equity returns are substantial hurdles for project implementation. Available local technology, skills and knowledge As already mentioned, there is little local experience for constructing and operating wind turbines. However, Hungarowind Kft. will have the advantage of being a subsidiary of a German company with substantial experience in this area throughout Europe. Rate of return of similar projects There is no data available for Hungary. 4.2 Project specific (on-site) key factors Main on-site factors influencing the baseline scenario are summarized below. Realization of the project within time and budget The team involved in implementing this project has a relevant and successful track record in operating wind farms. Germania Windpark GmbH will act as EPC contractor and is responsible for planning and realization of the project. The turbine supplier will be GE Wind Energy, the world leader in manufacturing turbines for power plants. Because the project roles have already been clearly defined, permits are in place, and only financing remains to be finalized, it is expected that the deadlines will be met without difficulties. Technical performance Wind conditions on site have been analyzed as explained in Section 1.6, and the technology most appropriate to local conditions has been chosen. In selecting a turbine type, both technical and environmental aspects were taken into consideration: the maximum energy yield of the wind park, noise level, and wind conditions. GE Wind Energy is both the manufacturer of the turbines and the party responsible for their maintenance. Financing For a detailed analysis of project s financial plans including financing status, see Section 1.8. Hungarowind Kft. is in advanced discussions with equity investors and commercial banks in securing the financing of the project. It is expected that with additional proceeds from Joint Implementation, the project will become more attractive to potential investors. Vertis Environmental Finance

24 5 ADDITIONALITY The additionality of the project is proven according to the Guidelines for Joint Implementation projects regarding additionality and baseline emissions for projects in the energy sector, issued by the Hungarian Ministry of Environment in June Step 1. Identification of alternatives to the project activity under current laws and regulations The most likely scenario is that the current situation will continue, meaning that no project or other alternatives will be undertaken at the site. This is due to the following factors: 1. There is no commercial wind farm operating in Hungary, so financially this is not a proven model. 2. The feed-in tariff system will be in place until 2010 when it is planned to be replaced by a green certificate system. This may lead commercial banks to consider the revenue stream of the project as risky. A governmental decree will decide upon implementation of this system. 3. Hungary s energy sector went through a period of restructuring due to liberalization of the electricity market and enforcement of several EU directives regarding environmental pollution. Large coal-fired power plants were shut down and there are some additional capacities to be closed by Due to anticipated economic growth and therefore increased energy demand, Hungary will need larger heat and electricity producing capacities. However, this is likely to lead to an increase in gas-fired CHP and modern coal fired power plants rather than renewable power plants. Step 2. Investment analysis This section is not available for the public. Step 3. Barrier analysis This section is not available for the public. Step 4. Common practice analysis As noted earlier, the wind capacity of Hungary amounts to only six turbines which operate independently, with a total capacity of 3.4MWel. A number of initiatives to construct wind farms in Hungary are in various stages of development. However, due to various hurdles to be overcome by project developers, none of these projects have materialized to date. 9 Guidelines for Joint Implementation projects regarding additionality and baseline emissions for projects in the energy sector by the Hungarian Ministry of Environment, June 2005: Vertis Environmental Finance

25 Step 5. Impact of JI registration The preparation of this project started in 2002 and its risks and expenses of 1.6 million were borne exclusively by Germania Windpark. The JI proceeds will support project financing by reducing the equity portion and by improving the overall returns of the investment. The project will become more attractive for commercial banks and give more confidence to investors. Vertis Environmental Finance

26 6 IDENTIFICATION OF MOST LIKELY BASELINE SCENARIO The wind farm will displace fossil fuel powered generation capacity in the Hungarian electricity grid. In calculating the baseline emissions, we take into consideration Guidelines for Joint Implementation projects regarding additionality and baseline emissions for projects in the energy sector issued by the Hungarian Ministry of Environment in June The results are shown in the table below: Table 16 Calculations of baseline emissions Baseline emissions Hungarian national grid mix Electricity production GWh/year Hungarian grid mix tco2/gwh Total CO2 emissions from the baseline tco 2 /year 83,339 83,704 84,081 82,914 81,748 In determining the emissions factors for the Hungarian power sector, the Medium and short term capacity planning of Hungarian electricity sector study developed by MAVIR Rt. was used. Grid mix calculations took into consideration electricity producers delivering to the national grid minus those capacities that fall under mandatory off-take (nuclear power, renewables). More information is available at: Vertis Environmental Finance

27 7 PROJECT LINE AND EMISSIONS REDUCTIONS As there are no emissions from operations of the wind farm and no leakage potential has been identified, the ERUs are calculated as follows: Table 17 Calculations of ERUs, Hungarian grid mix* tco2/gwh *Source: Hungarian Ministry of Environment, Guildelines for Joint Implementation projects, June 2005 Project emissions First commitment period Wind turbines, 45 MWel capacity Electricity production GWh/year CO2e emissions factor for wind tco 2 /year Total CO2 emissions from the project tco 2 /year Baseline emissions Hungarian national grid mix Electricity production GWh/year Hungarian grid mix tco2/gwh Total CO2 emissions from the baseline tco 2 /year 83,339 83,704 84,081 82,914 81,748 Emissions reductions Baseline emissions tco 2 /year 83,339 83,704 84,081 82,914 81,748 Project emissions tco 2 /year Emission reductions tco 2 /year 83,339 83,704 84,081 82,914 81,748 ERUs, ,786 Vertis Environmental Finance

28 8 MONITORING AND REPORTING PLAN The aim of the monitoring plan is to provide a practical framework for the collection and processing of data through which the GHG emissions reductions generated by the project can be monitored and verified during Methodology and collection of data The Monitoring and reporting plan is prepared according to the Consolidated monitoring methodology for zero-emissions grid-connected electricity generation from renewable sources by the CDM Executive Board (approved methodology ACM0002). The entity determining the monitoring methodology is Vertis Environmental Finance (see section 1.2). Contact information is as follows: Company Vertis Environmental Finance Contact person Corina Pintér Address H-1123 Budapest, Alkotás utca 39/c, Hungary Phone Fax corina.pinter@vertisfinance.com Web page Monitoring methodology The ACM0002 methodology applies to new wind-based electricity generation capacity in a situation where the geographic and system boundaries for the relevant electricity grid can be clearly identified and information on the characteristics of the grid is available. The methodology requires monitoring of electricity production and of any other data used in calculating the emissions factors of the baseline scenario. In Table 25 are shown the monitoring requirements for the project line. The emissions of the baseline scenario (essentially, the future mix) were calculated according to the Guidelines issued by the Hungarian Ministry of Environment, hence there is no need to monitor actual baseline emission levels. Measurements of electricity production Measurements of electricity production will be made according to the following principles: The measuring devices used by Hungarowind Kft. will be compliant with both Hungarian legislation and the contract signed with E.ON-EDASZ regarding connection to the electricity grid The measuring devices will be placed in locations where they are easily accessible to both Hungarowind Kft. and E.ON-EDASZ staff The measuring devices will include both a primary and back-up measurer The measuring devices should allow remote access to the collected data Vertis Environmental Finance

29 At the measurement point the devices will comprise the following elements: Electricity and tension transformer Cables Measuring clamp Measuring devices with storage capacity Modem Phone line / ISDN line As per the Hungarian law, the measuring devices will lie within the following categories of accuracy: Transformer Measurer, watts Measurer, reactive 0.5 category 1 category 2 category Collection of data Data regarding electricity production can be collected both manually and automatically and will be governed by the contract signed between Hungarowind Kft. and E.ON-EDASZ. For a given month, electricity production is measured between 00:00 of the first day of the month and 24:00 of the last day of the month. Manual collection of data must be completed no more than three days after the end of the month. The collected data will be stored in both physical and electronic format. In the event that the measuring devices are misplaced or miscalibrated, corrections will be applied according to the rules in Governmental Decree 56 of E.ON-EDASZ is responsible for collection of data remotely. Hungarowind Kft. will collect data manually at the end of every month. A controlling engineer of ETV-Erőterv Rt. will complete the activity (ETV-Erőterv Rt. is the company responsible for connecting the wind farm to the electricity grid). Loss of data and errors in measuring Missing data in the event of loss or errors in measuring the electricity production during a given timeframe will be replaced as follows: From data resulting from verifications of original measurements From data provided by the back-up measurement device From average data of previous and subsequent periods taking into consideration seasonality From the data series of a similar time period Vertis Environmental Finance

30 8.2 Organization of Monitoring and Calculations of ERUs Project emissions No emissions resulting from operations of wind farm were identified. However, data about electricity production will be collected as per Table 26. Baseline emissions The actual level of the baseline will not be monitored. Project boundary According to the ACM0002 methodology approved by the CDM Executive Board, the project boundary includes the project site and all power plants connected physically to the electricity system to which the project is connected. Project boundaries are explained in Section 3. No leakage risk concerning the project has been identified. Calculation of ERUs ERUs are calculated by deducting the level of project and leakage emissions from the baseline emissions. In the case of Sopronkövesd Wind Farm, emissions from the project activity and leakage are zero. Monitoring training programme As professional engineers with considerable experience will collect the data on electricity production, no monitoring programme will have to be conducted. However, to make sure that the requirements of ACM0002 are met and that the calculation of ERUs is correct, a one-day workshop will be organised by Vertis Environmental Finance for the Hungarowind Kft. personnel. 8.3 Monitoring of environmental impacts As per Hungarian law, there are no monitoring requirements for environmental impacts during construction and operation of the wind farm. However, Hungarowind Kft. will have to ensure that the local inspectorate for environment has site access to check construction activities and to perform the necessary noise level measurements during wind farm operations. 8.4 Quality and self-checking of monitoring process To ensure the quality of on-site electricity production data, the results of the measurements will be double-checked against commercial data. The quality control and quality assurance measures planned for the project are outlined in Table 26. Vertis Environmental Finance