Project Design Document PDD

Transcription

1 Project Design Document PDD for CMM Utilization Schlaegel & Eisen 3/4/7 Operator: Minegas GmbH Issued: August 2004, revised December 2005 Prepared by: Carbon-TF B.V.

2 The template for the document is: Guidelines for the evaluation of JI and CDM projects from the point of view of climate protection policy Tables to Volume II: Project Design Document DIW Berlin in cooperation with KPMG Deutsche Treuhand-Gesellschaft Wirtschaftspruefungsgesellschaft AG, Colonge Version 1.0 of January 2003 Page 2 of 68

3 Contents A.1 PROJECT TITLE... 5 A.2 DESCRIPTION OF THE PROJECT... 6 A.3 INFORMATION ON THE PARTIES INVOLVED... 7 A.3.1 Information on the Applicant / Project Developer / Investor A.3.2 Information on the parties involved in the host country A.3.3 Information on the involved authorities in the host country A.4 TECHNICAL DESCRIPTION OF THE PROJECT A.4.1 Location A.4.2 Category of the project activity A.4.3 Project technology A.4.4 Emissions reduction by the project activity A.4.5 Additionality of the financing (CDM only) A.5 CLASSIFICATION OF THE HOST COUNTRY A.6 CLASSIFICATION INTO ORDINARY AND SIMPLIFIED PROCEDURES B ENVIRONMENTAL IMPACTS C SUSTAINABILITY D CREDITING PERIOD E DIRECT EMISSIONS SOURCES OF THE PROJECT F INDIRECT EMISSIONS SOURCES (LEAKAGE) G SYSTEM BOUNDARIES OF THE PROJECT H PROJECT INFLUENCING FACTORS H.1 List of influencing factors H.2 Influencing factors saparately Factor A H.3 Influencing factors saparately Factor B H.4 Influencing factors saparately Factor C I EXPECTED ACTIVITY LEVEL I.1 Technical data of the plant I.2 Data on marketing / disposition I.3 Expected activity level AePt for the project lifetime J DETERMINATION OF THE SPECIFIC EMISSIONS FACTOR EF EP K CALCULATION OF THE ANNUAL PROJECT EMISSIONS (E EPTOTAL ) T K.1 Annual project emissions (EeP total)t L BASELINE SCENARIOS Page 3 of 68

4 L.1 Baseline methodology (CDM only) L.2 Identification of possible baseline scenarios and their assessment L.3 Selection of the baseline scenario L.4 Baseline study M BASELINE EMISSIONS SOURCES M.1 Direct baseline emissions sources M.2 Indirect baseline emissions (leakage) N CALCULATION OF THE ANNUAL BASELINE EMISSIONS (EEBL TOTAL)T O EXPECTED EMISSIONS REDUCTION BY THE PROJECT IN THE IDENTIFIED CREDITING PERIOD P COMPONENTS OF THE MONITORING SYSTEM Responsibilities Organisation chart Process organisation and procedures ANNEX 1 ADDITIONALITY TEST ANNEX 2 SECTORAL APPROACH CMM SITUATION CMM UTILIZATION STATE FRAMEWORK CMM AS BUSINESS AS USUAL PROSPECTS OF SUCCESS CMM PROJECTS CONCLUSION ANNEX 3 SOURCES OF INFORMATION REFERENCES OF THE PROJECT DEVELOPER...67 Page 4 of 68

5 A. 1 Project title (Item A 1 in EB-PDD) CMM Utilization: Schlaegel & Eisen 3/4/7 Page 5 of 68

6 A. 2 Description of the project (Item A. 2 in EB-PDD) Aim of the project DEGASSING OF THE COAL MINE GAS (CMM) IS AN UNAVOIDABLE SIDE EFFECT OF HARD COAL MINING. ALONG WITH THE ACTIVE COAL MINES THERE IS ALSO A NUMBER OF ABANDONED MINES, WHICH STILL EMIT CMM. SINCE CMM INCLUDES LARGE CONCENTRATIONS OF THE GREENHOUSE GAS METHANE, ITS UTILIZATION BECOMES MORE AND MORE IMPORTANT WITH REGARD TO THE WORLD WIDE ATTENTION TO THE REDUCTION OF GREEN HOUSE GAS EMISSIONS. IF THE CONCENTRATION OF METHANE IN CMM IS MORE THAN 30%, THE CAPTURED CMM CAN BE UTILIZED DIRECTLY FOR HEAT AND POWER GENERATION IN COGENERATION UNITS EQUIPPED WITH GAS ENGINES. THIS KIND OF ENERGY GENERATION HAS BEEN DEMON- STRATED IN DIFFERENT PROJECTS IN RUHR REGION ALREADY IN THE END OF 90IES. IN THIS PROJECT THE CMM THAT IS DIFFUSELY ESCAPING FROM THE ABANDONED COAL MINE SCHLAEGEL & EISEN SHALL BE UTIL- IZED FOR THE GENERATION OF ENERGY IN 3 COGENERATION UNITS OF THE TOTAL ELECTRIC CAPACITY MW. THE POWER PRO- DUCED SHALL BE FED INTO THE PUBLIC POWER GRID. BY THIS THE CONVENTIONALLY PRODUCED POWER SHALL BE ADDITIONALLY DIS- PLACED. THE HEAT PRODUCED SHALL NOT BE COLLECTED IN THIS CASE. STATUS OF THE PROJECT: THE CLOSED PARTS OF THE COAL MINE ARE ACCESSIBLE FROM THE SURFACE THROUGH DEGASSING PIPELINES INSTALLED IN THE FOR- MER SHAFTS WHEN CLOSING UP. BEFORE THE PROJECT START THE CMM EASILY ESCAPED TO THE ATMOSPHERE THROUGH THE BACK- FIRING ARRESTERS INSTALLED AT THE END OF THE DEGASSING PIPELINE. (THE SO CALLED COLD FLARING). THE UNIT WAS SET UP IN SEPTEMBER 2002 COMPRISING 3 MOD- ULES OF THE TOTAL CAPACITY MW. SINCE ITS INSTALLATION ON SEPTEMBER 01, 2002 THE PROJECT SCHLAEGEL & EISEN 3/4/7 IS OPERATED UNINTERRUPTED WITH ALMOST CONSTANT GAS FLOW RATES. Page 6 of 68

7 A. 3 Information on the parties involved (Item A. 3 in EB-PDD) The parties involved include direct project participants (project developer, partner in the host country), but also other partners as investors and equipment suppliers. Thus table A 3.2 shall be copied and filled in with the information on other partners. As for the host country, the information on authorities and institutions shall be given, which shall be involved in the project implementation on site. A. 3.1 Information on the Applicant / Project developer / Investor (the information is the same as in the short description; exceptions are highlighted gray) (copy the table if necessary) Company name Core business / company activities Project role (Applicant, Project developer, Investor) Carbon-TF B.V. Emissions trade, purchase and sale of ERUs, development and financing of projects, consultation services on the emissions trade Applicant, Consultant and Investor Carbon-TF B.V. is a Dutch company registered in Venlo. TF in the company name is short for Trade and Finance. Carbon-TF B.V. develops JI and CDM projects, especially in the sphere of CMM. The share holders of Carbon-TF have long-term experience in the technical development of CMM projects and have significantly participated in the technical planning of this project. Moreover, the share holders of Carbon-TF being leadership and share holders of Emissions- Trader ET GmbH have already prepared more than 40 PDDs for CMM projects, hereunder there were acquired letters of approval from the Federal Ministry of Environment for the projects HER- TEUTO and WAN-THAL by Stadtwerke Herne and a letter of approval for the Ukrainian project Luhansk by the Ukrainian Coal Mining Company Pervomayskugol. The investor country in this Joint Implementation project is the Netherlands. The calculation of profitability in Annex 1 (Additionality test) shows that the applied CMM project is economically not viable without its approval as a Joint Implementation project and without profit from the generated ERUs, though it is assumed here that technically the project can be operated for 10 years. But according to the experience of many sites this cannot be guaranteed. In difference to the state tenders Carbon-TF B.V. offers project operators a possibility to supply their ERUs in time and volume generated without any quantity obligation. This is especially risky with CMM projects, because it can never be 100% forecasted, whether the project will be still operated in the period The forward selling of ERUs shall be considered as a sham sale of a forward delivery transaction, whereas today the aimed prices are significantly lower than the spot rates of EU allowances. If the project does not work technically, such a transaction can lead not only to the loss of income from power generation, but also, when the prices develop respectively, even to the insolvency of the operator. This is also a reason why state purchase programs have tough demands to the solvency of companies. Therefore, small companies Page 7 of 68

8 have no possibility to take part in such tenders. For example eight projects of the nine, which have got a letter of endorsement from the Federal Ministry of Environment, were denied because the operator was unable to fulfill the respective high solvency demands. Carbon-TF B.V. offers the possibility to take part in the emissions trade also to the companies, which don't want to bear the respective sham sale risks or don't correspond to the solvency demands of state purchase programs, and consults such companies on the planning of the CMM extraction equipment and the optimum production technology with respect to the aimed emissions reduction. Carbon-TF B.V. has concluded a purchase agreement for the ERUs of this project with the project developer Minegas GmbH. Partial financing of the project by Carbon-TF B.V. shall be realized through the resale of ERUs to third parties, whereas Carbon-TF B.V. can exercise a risk-minimized portfolio management through a large pool at German and East-European emissions reduction projects and already has trade partners and investors who can provide partial project financing through respective hedging instruments. Carbon-TF B.V. has contact to the Dutch Ministry of Economy, which has a large interest to our company; it shall help to introduce more liquidity to the market, especially in the sphere JI/CDM. Now some questions are still open, because Carbon-TF B.V. is the first company of this kind and is actually a direct competitor for the Dutch state agency SenterNovem, the difference is that Carbon-TF B.V. is not a state buyer, and on the contrary buys ERUs for private companies. Carbon-TF B.V. can open an account at the Dutch emissions trade authority and also sell ERUs to the companies outside the Netherlands. Now it has to be found out, whether a "letter of endorsement" is first needed to approve the project in the Netherlands or whether it is possible to hand in at once the "letter of approval" for alike project types, which would speed up the procedure and reduce the expenses. Page 8 of 68

9 Company name Carbon-TF B.V. Street Hertog Eduartstraat 4 Zip-code, city Country 5913 EX Venlo Netherlands Telephone +49 (0) Fax +49 (0) Contact person (name and position) Bank details Type of business, trade register entry no. info@carbon-tf.com Dr.-Ing. Jürgen Meyer, Managing Director Dipl.-Ing. Clemens Backhaus, Managing Director Rabobank Venlo, IBAN: NL53rabo BIC: RABONNL2U B.V. (LLC), Amtsgericht Limburg-Noord, no Number of employees 3 Attached as Annex (if appropriate) Page 9 of 68

10 A. 3.2 Information on the parties involved in the host country (the information is the same as in the short description; exceptions are highlighted gray) (copy the table if necessary) Company name Core business / company activities Project role (local business partner, plant operator,...) Minegas GmbH Power supply out of the CMM from abandoned coal mines Project developer and operator of the CMM utilization plant Street Ruettenscheiderstr. 1-3 Zip-code, city Country D Essen Germany Telephone +49 (0) or +49 (0) Fax +49 (0) Contact person (name and position) Type of business, trade register entry no. michael.kaminski@minegas.com Mr. Michael Kaminski GmbH (LLC) Number of employees 3 Attached as Annex (if appropriate) Copy of annual accounts (if necessary, please require directly from the Operator) Page 10 of 68

11 A. 3.3 Information on the involved authorities in the host country (the information is the same as in the short description; exceptions are highlighted gray) (copy the table if necessary) Authority name Core business / company activities Federal Ministry of Environment, Nature Protection and Reactor Safety Environment and nature protection, coordination of JI procedures Street Alexanderplatz 6 Zip-code, city Country Berlin Germany Telephone Fax Contact person (name and position) Forth.thomas@bmu.de Thomas Forth Page 11 of 68

12 A. 4 Technical description of the project (item A 4 in EB-PDD) A. 4.1 Location Short description of the project location (Country/City/Region, Address, layout plan, with photo if appropriate); The project is located in the Ruhr region, the city of Herten. Address: Westerholter Strasse, Herten Community: Herten Allotment 31, plots: 225 Status of the preparation works (please mark the matches, add if necessary) Negotiations with investors / Host country are in progress / finished Contract is being prepared/ is concluded Other: the project is in operation since Timing The earliest time of setting into operation / implementation of measures on site: [September 2002] Expected time need for the coordination with authorities, negotiations etc. up to setting into operation / measures implementation: planned project lifetime: 30 years Fig.1 Flow chart of the plant Page 12 of 68

13 A. 4.2 Category of the project activity Project activity: (more than one selection possible) Utilization of renewable energy Project > 15 MW capacity Small project < 15 MW capacity Improvement of the energy efficiency Project > 15 GWh annual saving Small project < 15 GWh annual saving Fuel switch project Cogeneration of power and heat Avoidance/Reduction of methane emissions (e.g. from landfills) Transport Agriculture Lowland afforestation project Lowland reforestation project Others: other project > 15,000 t CO2 reduction annually other small project < 15,000 t CO2 reduction annually Project kind (more than one selection possible) Modernisation of existing structures ["Retrofit"] Extension of existing constructions ["Brownfield"] Construction ["Greenfield"] Others: Page 13 of 68

14 Project type Unilateral project Bilateral project Multilateral project A. 4.3 Project technology Project background and planned project activities Project scope / capacity (installed capacity, number of plants) Technology transfer (Is the technology already successfully implemented at other sites? How will the know-how be transferred to the host country?) If more than one extension stages please state the values to which the calculations in Part 6 refer 1.) Utilization of CMM with energy of approx. 26,481 MWh el /a 2.) Methane avoidance of 5,158 t/a The project developer receives consultations from the big experience of the employees of Carbon-TF in the spheres of technical equipment and operation. The calculations refer to the capacity of MW electricity, which corresponds to the net power output. The project developer shall install an additional power meter by the start of the emissions trade period and register the methane avoidance out of the actually produced power amount, which consists of the net output amount plus own consumption of the plant (now is not recorded). The own consumption constitutes approx. 5-10% of the output amount. Description of expected positive environmental impacts Methane emission to the neighboring residential areas shall be long term avoided. Page 14 of 68

15 A. 4.4 Emissions reduction by the project activity Short description of the expected emissions reduction in t CO 2 equivalent and justification of the additionality. It has to be proceeded from the total annual emissions reduction of approx. 94,132 t CO 2 equivalent. The emissions reduction is additional, because, if not extracted, the methane would otherwise escape to the atmosphere through the overburden damaged by mining acitivities. Furthermore, the conventionally produced power is displaced. But the resulting CO 2 avoidance is not taken into account here, because the power is already being reimbursed according to EEG (German Erneubare Energien Gesetz - Renewable Energy Law) and claiming additionally produced ERUs would mean a double reimbursement. A. 4.5 Additionality of the financing (CDM only) It shall be stated, which institutions provide ODA means for the project, how big this share is in the total financing and how big the share of other financial sources in the total financing is. If the project uses ODA means, a respective Explanation shall be attached to the PDD that the financing does not lead to the "Redirection" of the means of the development assistance (so called ODA). Page 15 of 68

16 A. 5 Classification of the host country (the information is the same as in short description; exceptions are highlighted gray) The projects can be adopted as CDM and JI, only if the host country of the project has ratified the Kyoto Protocol. Project classification as a CDM or a JI project is made on the basis of country lists in Annex I to UNFCCC / Annex B to Kyoto Protocol. The List of the Least Developed Countries (LDC) can be downloaded under Host country Germany Did the host country ratify the Kyoto Protocol? convkp.html /index.html Yes, ratified No, ratification expected by: Is the host country listed in Annex B of the Kyoto Protocol? Yes No The demands to JI shall be observed The demands to CDM shall be observed Does the host country belong to the Least Developed Countries? The document stating the recognition of the CDM project by the host country shall be submitted. Yes No No discount in the amount of 2% for the CERs to the LDC support fund. Page 16 of 68

17 A. 6 Classification into ordinary and simplified procedures Simplification for JI: Does the host country fulfill the conditions of Track 1 JI?* Yes Only the recognition procedures of the participating countries shall be applied. No The demands of Track 2 procedures by the Supervisory Committee shall be observed. Simplification for CDM: Does the project match one of the following categories? these projects shall undergo the simplified modalities.* Renewable energy projects with capacity up to 15 MW Energy efficiency projects with energy saving (on the side of producer and consumer) up to 15 Gigawatthours annually Other project types, which simultaneously reduce the anthropogenic GHG-Emissions and emit less than 15 kt carbon dioxide equivalents annually * Notes: JI: Even if the host country fulfills criteria for the JI Track 1, on the decision of the project developer the procedures according to the Track 2 can be chosen. CDM: Simplifications for small projects by the CDM Executive Board are available only in draft (status: December 2002). Notes can be found under: Page 17 of 68

18 B Environmental impacts (item F in EB-PDD) Yes No Are the procedures for the analysis and the evaluation of environmental impacts included into the bilateral agreement with the host country (Memorandum of Understanding)? Have the national demands of the host country been formulated? CDM: Designated National Authorities JI: National focal points Do the national criteria of the host country clearly lie under the demands of the internationally accepted standards? Internationally accepted standards shall be applied Page 18 of 68

19 Describe shortly the expected environmental impacts of your project (max. 1 page, regional and transboundary impacts inside and outside the system project boundaries) The used cogeneration units represent facilities produced in series, where all the necessary equipment is completely installed in a container. This technology provides quick and easy complete removal of the equipment after the end of operation. The installation place is situated at the territory of the former coal mine. The cogeneration unit does not use natural resources: water, ground, landscape and causes no negative effect. The unit does not produce any waste; the used engine oil is recycled. No sewage and no condensate are created. High safety standards applied guarantee very low accident risk. The territory influenced by the equipment does not include any nature, landscape, water or bird protection areas, national parks, biosphere reserves, legally protected habitats, construction monuments, etc. Transboundary impacts shall be excluded. An approval according to the Federal Immission Protection Law shall be acquired for the equipment. The unit corresponds to the German technical instruction "Air" ( TA-Luft ). Considerable harmful emissions are nitrogen oxide NOx and carbon monoxide CO, formaldehyde HCHO can also be traced. Emissions limits are far from reach, which is secured by the modern flaring equipment used. All emissions mass flows are much lower than negligible mass flows acc. TA- Luft. The equipment is operated according to the requirements of the German technical instruction "Noise" ( TA-Lärm ), the maximum immission factors in the set immission points (IP) are never exceeded. The unit has no negative impacts on the environment. The operation of the unit using the earlier not utilized CMM shall create only positive environmental effects, because the power generated out of CMM shall displace the power produced using fossil fuel. The reduction of the methane amount blown to the atmosphere shall provide a big benefit to the climate protection. Furthermore, the operation of the CMM utilization plant shall prevent the uncontrollable migration of methane to the surface in the surrounding area. Qualitative evaluation of the expected environmental impacts of the project A considerable impacts B negligible impacts C no impacts (justification of the evaluation; description of categories in volume III, chapter 3) Page 19 of 68

20 Is the environmental compatibility test (ECT) necessary? Information on the ECT regulations of the host country are given by the Designated National Authorities or the National Focal Points of host countries, notes in volume III, chapter 9.2. If yes, the ECT fulfilled by. by order of. (Attach the documentation and receipts) Only previous inquiry necessary The equipment run a preliminary ECT test on site acc. to 3c of the ECT Law under the control of the responsible body (State environmental agency). On the basis of small size and no expected considerable negative environmental impacts the equipment was classified as not ECT-binding. Page 20 of 68

21 C Sustainability (item A 2.2 in EB-PDD) Yes No Are the sustainability criteria included into the bilateral agreement with the host country (Memorandum of Understanding)? Have the national demands of the host country been formulated? CDM: Designated National Authorities not relevant JI: national focal points If applicable: National development plans, National environmental and energy strategies, National Strategies for Sustainable Development or Poverty Reduction Strategies Page 21 of 68

22 Please use one page to express your opinion on the contribution of your project to the sustainable development of the host country from the point of view of i) environment, ii) economy iii) and society Provide the connection with the national demands of the host country. i) In the absence of the project the CMM from the abandoned parts of the coal mine would escape unused to the atmosphere and cause big harm to the climate as its GWP (Global Warming Potential) of 21 is very high. Moreover, the conventionally generated power and heat are displaced, so the natural resources are saved. ii) iii) The project creates additional highly qualified working places in the region influenced by the structural change. Each MW of the installed electric capacity creates one to two long term working places. The growing use of CMM from the abandoned coal mines in Ruhr region attracts more and more international attention; requests considering this technology have come recently in large amounts, especially from the East European countries. There is a good chance to export this technology to the East European countries under consolidating framework conditions. The potential of these countries is huge and it shall attract large investments for project developers and equipment manufacturers. Additional CO 2 emissions allowances acquired by the country this way have also an important meaning for the industry. Slow migration of CMM to the surface leads to a hazard for the inhabitants, as CMM can gather in explosive mixtures in sewers and basements. The sucking of CMM from old workings prevents the gas migration for a long time. Please provide a qualitative evaluation of the expected environmental, economic and social effects of the project on the basis of the above opinion. environmental economic social A considerable impacts B negligible impacts C no impacts (justification of the evaluation; description of categories in volume III, chapter 3) Page 22 of 68

23 Only for CDM: Has the host country acknowledged the sustainability of the project in writing? Letter of approval - form in volume III, chapter 3.1 Yes No D Crediting period (item C in EB-PDD) Start of the project* 2002 Life time of the project Up to 30 years Chosen crediting period (year 08 to 29) Verification! (for JI projects) 7 years with two prolongment possibilities, starting: 10 years, starting: 2008 *) Start of the project means according to the recommendations of the CDM methodic panel the moment of time, when implementation/construction/real action of project activity takes place. This shall be specified for the project (e.g. the planned setting into operation). Page 23 of 68

24 E Direct emissions sources of the project Based on the flow chart fixed and mobile emissions sources as well as the kind of emissions shall be identified and filled in to the following table. Designation of the emissions source Kind of emissions (CO 2, CH 4 etc.) Direct emissions on site Direct emissions outside the site Source 1: cogeneration unit Source 2: cogeneration unit... Source 1: none Source 2: none CO 2 CH 4 No direct project emissions, because "renewable energy project" Justification of direct emissions sources The used CMM is almost completely burned in gas engines. A considerable direct emissions source is exhaust gases (CO 2 ) from combustion chambers of cogeneration units. The used engine equipment causes unavoidable emission of unburned methane, the so called methane escape. According to the data of the manufacturer it comprises less than 0.5 % of the used methane amount and corresponds to the figure stated in the Reference Manual of IPCC Guidelines 1996 for the unburned carbon in natural gas processes (Energy - Chpt Unoxidized Carbon, Page 1.32) [IPCC]. The methane amount burned in engines comprises consequently more than 99.5 %. The methane escape from the engine is not taken into account in the following calculations, because the emissions reductions are calculated from the electric capacity of gas engines, i.e. only from the burned part. (See also P.2). The unburned escape part of CH 4 is passing through the plant with neutral emissions. Therefore this part is included neither in the baseline nor in the project emissions. In case of an engine failure the quick-lock valve in the CMM feed line to the cogeneration unit secures the immediate locking of the gas feed, so there are no undesired CH 4 emissions to the environment in case of failures. The share of CO 2 in the CMM comprises 6-14% and it passes through the plant with neutral emissions as well as the methane escape. Therefore this part of CO 2 is included neither in the baseline nor in the project emissions. See also L.2. Page 24 of 68

25 F Indirect emissions sources (leakage) (item E 2 in EB-PDD) Designation of the emissions source type of leakage Kind of emissions (CO 2, CH 4 etc.) Indirect emissions on site Source 1: none Source 2: none... Indirect emissions outside the site Source 1: none Source 2: none... No leakage determination necessary, because CDM small project Justification of the indirect emissions sources Indirect emissions do not take place on site. The only indirect emissions source outside the site is the emissions of CO 2, which arise when the technical inspection personnel comes and goes. These are far under the emissions reductions created by the combustion of CH 4, so they are not taken into account. The produced power (minus own consumption of the plant) is delivered to the public grid and reimbursed according to EEG. Thus the conventionally produced power is displaced and the influence on the grid exercised. Whereas a positive influence on direct and indirect emissions sources towards emissions reduction takes place. But as CO 2 emissions reductions from the displacement of the conventionally generated power lie outside the system boundaries and are not claimed (because of the double reimbursement), neither direct nor indirect emissions nor leakage effects at the conventional power generation are taken into account. Page 25 of 68

26 G System boundaries of the project Site CMM (methane) generation of electricity public power grid active coal mine public power station output Justification of the system boundaries The CMM is used to generate electricity and displaces the conventionally generated power. But the resulting avoidance of CO 2 lies outside the system boundaries and cannot be claimed here. In the absence of the project the CMM would escape unused to the atmosphere. Page 26 of 68

27 H Project influencing factors Table H.1 shall be filled in for all mentioned categories. The relevance shall be shortly justified. Table H.2 must be copied and filled in necessary times (categories / influencing factors). H. 1 List of influencing factors Technical factors Factor A: Methane degassing from the coal mine Factor B: Annual operation hours Factor C: Electrical efficiency not relevant Economic factors Sociodemographic factors not relevant Environmental factors not relevant Legal factors not relevant Page 27 of 68

28 H. 2 Influencing factors separately Factor A Justification of the relevance to the project Designation / Explanation Methane degassing from the coal mine. Total CMM turned into power in MW cogeneration units would otherwise escape to the surface and hence to the atmosphere through the overburden hardly challenged by mining activities. Explanation on the choice and meaning of the factor: The unavoidable degassing from the coal mine takes place unchanged 24h/day during the whole year (365 days/year) Possible range (values): +/- 0 h Chosen value: 8,760 h degassing time Source of data: [DMT-1], [DMT-2] and [DMT-3] H. 3 Influencing factors separately Factor B Justification of the relevance to the project Designation / Explanation Annual operation hours Explanation on the choice and meaning of the factor: The annual operation hours of the cogeneration unit are directly proportional to the CO 2 reduction. The operation hours are evaluated conservatively. Possible range (values): +/- 200 h Chosen value: 6,500 h power production Source of data: (1) Experience of the previous CMM projects Page 28 of 68

29 H. 4 Influencing factors separately Factor C Justification of the relevance to the project Designation / Explanation Electrical efficiency Explanation on the choice and meaning of the factor: As the avoided methane emissions are provided by the electrical capacity of gas engines, the efficiency is one of the considerable calculation values. The efficiency of CMM-fuelled engines is lower than that of natural gas fuelled; because CMM contains a high amount of 10-70% incombustible ballast gases as N 2, CO 2 and H 2 O. CO 2 and H 2 O are widely known as extinguishing agents and so they worsen additionally the efficiency. As the CO 2 reduction is calculated conservatively, the highest efficiency possible is used in the calculations (corresponds to the smallest methane amount). The stated fluctuation range is based on the previous experience of CMM projects. Possible range (values): % Chosen value: 37 % Source of data: (1) Experience of the previous CMM projects Page 29 of 68

30 I Expected activity level The activity level represents the actual annual output of the project depending on the project relevant influencing factors. It must be clearly derived in correspondence to the project type; at that the project relevant influencing factors shall be taken into account. As example the procedure for heat and power producing projects is shown. If the tables do not match to the project, the project developer can create own tables. I.1 Technical data of the plant Description of the plant: Manufacturer Fuel Installed capacity heat (MW) Installed capacity power production (MW) Efficiency, plant disposability... in % range / the most probable value Additional heat producers as peak-load boiler (Efficiency, energy amount (TJ/a)) Attached as Annex (if appropriate) Technical description of the relating transportation network (for power, gas, heat) Losses in the transportation network in % range / the most probable value Cogeneration unit for power generation using CMM. The respective heat is not collected. G.A.S. Energietechnologie GmbH CMM MW (net power output without own consumption of the cogeneration unit) Electrical efficiency of the plant: 37 % none Technical drawings / Schematic image of the plant. See fig. 1, item A.4 page 12. The power is supplied directly to the public grid. Not relevant, the power supply is reimbursed according to EEG and the emissions reductions from the displacement of the conventionally generated power are not claimed. Page 30 of 68

31 I. 2 Data on marketing / disposition Application e.g. premises heating, hot water production, power generation, light Conventional unit e.g. m² heated living area, m 3 hot water... Activity level Expected annual energy sale (MWh) Technical properties of the output Temperature, steam/heat pressure, high/low tension Marketing development e.g. expected fluctuations of the demand; attach the figure if appropriate Power generation MW MW * 6,500 h = 26,481 MWh power 400 V electric, 90 C for cool water The produced power is completely delivered to the public grid. I. 3 Expected activity level AePt for the project lifetime Data of 1 plant MU 1 st year 2 nd year 3 d -10 th year Total for the project lifetime Data accuracy* Activity level methane utilization t/a 5,158 5,158 5,158 51,580 H 26,481 26,481 26, ,810 Activity level power sale TJ/a MWh/a = MWh/a = MWh/a = MWh/a = 95.3 TJ/a95.3 TJ/a95.3 TJ/a 953 TJ/a H Activity level heat sale TJ/a H *) possible entries: H = high (5 % deviation), M = middle (up to 15 % deviation), L = low (up to 25 % deviation or standard deviation). Page 31 of 68

32 J Determination of the specific emissions factor EF ep (item E in EB-PDD) See excel table in the Annex to PDD MU 1 st year 2 nd year 3 d -10 th year Total for the project lifetime Data accuracy* Fuel x a x Amount TJ/a ,577 H (Methane from CMM) b x Emissions factor* t CO 2 /T J 55* 55* 55* H c x Share in input c x =(a x /d) % H Fuel y a y Amount TJ/a b y Emissions factor t CO 2 /T J c y Share in input c y = (a y /d) % d Total fuel input (d= a x +a y ) TJ/a ,577 H e Weighed emissions factor of the fuel input (e= b*c) t CO 2 /TJ H f Efficiency (value between 0 and 1) H and / or g Losses in the heat/power network Given as efficiency of division (value between 0 and 1): 1 - (loss in % of the collected heat) H and / or other influencing factors h Specific energy-depending, output-relevant emissions factor h = e / (f * g) i Specific process-depending, output- relevant emissions factor j Total EF ep = = h + i t CO 2 / TJ el H t CO 2 / output H t CO 2 / TJ el H Page 32 of 68

33 * Source of the Emissions factor of methane: IPCC 1996 Revised Guidelines for National Greenhouse Gas Inventories. Graphic presentation of the relation between emissions factor and activity level EFePt (t CO2 / TJel) AePt (TJ/a) There is a proportional relation between the emissions factor and the activity level at the input side and in the avoided emissions. At the output side (electricity) small fluctuations resulting from the deviations of efficiency at different operation modes can be observed. But the relevant emissions reductions from the displacement of the conventional power can be recorded by measuring the power output. *) possible entries: H = high (5 % deviation), M = middle (up to 15 % deviation), L = low (up to 25 % deviation or standard deviation). Page 33 of 68

34 K Calculation of the annual project emissions (E ep total ) t K.1 Annual project emissions (EeP total)t MU 1 st year 2 nd year 3 d -10 th year Total for the project lifetime Data accuracy* Direct annual project emissions (E ep direct ) t = EF ept * A ept Leakage effects (Leakage ep ) t t CO 2 /a 14,184 14,184 14, ,840 H t CO 2 /a H Total annual project emissions (E ep total ) t = (E ep direct ) t +/- (Leakage t CO 2 ep) t /a 14,184 14,184 14, ,840 H Calculation equation At the conversion of CH 4 to CO 2, 1 Mol CO 2 for each 1 Mol CH 4 is created. In correspondence to the molecular weight of CH 4 = 16 g/mol and CO 2 = 44 g/mol the conversion factor of 44/16=2.75 arises 1 t CH 4 -> 2.75 t CO 2 *) possible entries: H = high (5 % deviation), M = middle (up to 15 % deviation), L = low (up to 25 % deviation or standard deviation). L Baseline scenarios (item B in EB-PDD) L. 1 Baseline methodology (only CDM) Justification of the method selection Page 34 of 68

35 L. 2 Identification of possible baseline scenarios and their assessment Baseline scenario 1 with assessment Due to the active mining at the coal mine Schlaegel & Eisen 3/4/7 the overburden is strongly cracked. The methane resting in workings and unmined beds comes to the surface through the loose coal strata and diffusely escapes to the atmosphere. So it harms not only the environment, but also threatens the citizens. In many places in the Ruhr region CMM egresses to the surface happen, especially there, where the shafts have been filled up without degassing pipelines. Bore tests in old galleries of other project sites have proved that the galleries show atmospheric pressure. If the overburden was tight, the gas pressure would grow in the galleries. Thus it can be doubtless stated as baseline that total CMM which is sucked would otherwise escape to the atmosphere. (Additionality) The used engine equipment leads to the unavoidable escape of the unburned methane, which passes through the plant with neutral emissions (see E). Thus this methane part is included neither in the baseline nor in the project emissions. The same is relevant for the CO 2 contained in CMM, which also passes through the plant with neutral emissions and is included neither in the baseline nor in the project emissions. The conventional power from the German power station output is displaced. But the power displacement lies outside the project boundaries and is not claimed. L. 3 Selection of the baseline scenario Justification of the scenario selection Baseline scenario 1 is selected, no alternatives to scenario 1 identified. L. 4 Baseline study Date of completion May 2004 Name of the specialist in charge The choice of the baseline is referenced to Meiners, H; Marzlinger, A.: Total emissions in the German hard coal mining, Glückauf 138, 2002 [DMT-1] and a study by Deutsche Montan Technologie GmbH [DMT-2]. Page 35 of 68

36 M Baseline emissions sources M. 1 Direct baseline emissions sources Designation of the emissions source Kind of emissions (CO 2, CH 4 etc.) Direct emissions on site Direct emissions outside the site Source 1: Methane from CMM CH 4 Source 2:... none M. 2 Indirect baseline emissions (leakage) Determination of leakages or justification of reasons, why there are no indirect emissions. The methane-containing CMM flows uncontrollably by the natural driving forces and without any technical means to the surface. The uncontrollable outflow of CMM means that apart from direct methane emissions included in the baseline no indirect emissions happen. There are no leakages and no indirect emissions. Page 36 of 68

37 N Calculation of the annual baseline emissions (E ebl total ) t MU 1 st year 2 nd year 3 d -10 th year Total for the project lifetime Data accuracy* Direct annual baseline emissions t CO 2 /a 5,158 t CH 4 /a * 21 t CO 2 eq/tch 4 = 108,316 t CO 2 eq/a 108,316 t/a 108,316 t/a 1,083,160 t/a H Leakage effects (Leakage ebl ) t t CO 2 /a Total annual baseline emissions 108,316 t/a 108,316 t/a 1,083,160 t/a (E ebl total ) t = (E ebl direct) t +/ (Leakage ebl ) t t CO 2 /a 108,316 t CO 2 eq/a H *) possible entries: H = high (5 % deviation), M = middle (up to 15 % deviation), L = low (up to 25 % deviation or standard deviation). O Expected emissions reduction by the project in the determined crediting period MU 1 st year 2 nd year 3 d -10 th year Last year Total a Expected baseline emissions b Expected project emissions c = a-b Expected emissions reductions t CO 2 - equivalent t CO 2 - equivalent t CO 2 - equivalent 108, , , ,316 1,083,160 14,184 14,184 14,184 14, ,840 94,132 94,132 94,132 94, ,320 Page 37 of 68

38 Baseline emissions, project emissions and emissions reductions in the determined crediting period t CO2 equivalent baseline emissions emissions reduction project emissions Year Diagram O.1 Baseline emissions, project emissions and emissions reduction in the determined crediting period Page 38 of 68

39 P Components of the monitoring system (item D in EB-PDD) On the basis of the following items a monitoring plan shall be developed and attached to the PDD as Annex. Deviations must be justified. 1. Responsibilities Organization chart List of responsibilities: 1.1 Operational phase of the project. Refers to the operating company Minegas GmbH 1.2 Technical and economic matters of the project. Refer to the operating company Minegas GmbH 1.3 Data record on site. Refers to the operating company Minegas GmbH 1.4 Calculation of the generated emissions reductions. Operating company in cooperation with Carbon-TF B.V. 1.5 Monitoring check and control. Operating company in cooperation with Carbon-TF B.V. 2. Process organization and procedures 2.1 Data recording procedures (including measures of assurance of the necessary data quality) including the used measuring equipment Measured values are the extracted CMM amount, its methane concentration, pressure, temperature, as well as the produced and the delivered power amount. From the difference between the produced W el and the delivered W a power amount the own consumption W e of the cogeneration unit is calculated. Measuring devices and measuring methods used are widely known and provide high accuracy. The known efficiency of gas engines can be regularly checked on the basis of this data. 2.2 Data transfer The data is recorded on site and stored in a centralized way. After that the data is transferred online to the Internet and continuously controlled by the project developer. 2.3 Data check for consistency, completeness and correctness The check is fulfilled continuously by the project developer and Carbon-TF B.V. The delivered data is checked by calculations. The relation input gas to output power gives the total efficiency of the plant. If this value deviates from the set one, it means that the data is inconsistent. It must be taken into account that the gas volume flow is stated in the instruction to the used rotary compressor and has accuracy of approx. 10 %. This deviation must be accounted for in the regular check of the efficiency. The conservative electric efficiency of 37 % is used. The annual check shall assure that this efficiency is actually not higher and not less methane is avoided as claimed. Page 39 of 68

40 2.4 Calculation of emissions reduction The emissions reduction is calculated by subtracting project emissions from the baseline emissions of the avoided methane: E red [t CO 2eq ] = E meth [t CO 2eq ]-E CO2 [t CO 2eq ] (2.4.1) The baseline emissions for the avoided methane are determined from the actually produced electric capacity of cogeneration units (delivered power + own consumption): E meth [t CO 2eq ] = W el / Eff / Hu * Rho CH4 * GWP (2.4.2) where W el generated electric work of cogeneration units in [MWh] Eff electric efficiency of cogeneration units = 0.37 H u calorific value of methane = [MWh/m 3 ] Rho CH4 methane density = [t/m 3 ] GWP global warming potential of methane =21 [t CO 2eq / t CH 4 ] Or, when the constants are summed up: E meth [t CO 2eq ] = W el * 4.09 (2.4.3) The project emissions of CO 2 are determined from the converted methane amount. At the conversion of CH 4 to CO 2 1 Mol CO 2 is produced for each 1 Mol CH 4. In correspondence with the molecular weight of CH 4 = 16 g/mol and CO 2 = 44 g/mol the conversion factor of 44/16=2.75 arises. 1 t CH4 <=> 2.75 t CO 2 (2.4.4) The methane amount is calculated from the baseline emissions and the GWP value of methane: M CH4 [t] = E meth [t CO 2eq ] / 21 [GWP] (2.4.5) The project emissions consequently comprise: E CO2 [t CO 2eq ] = E meth [t CO 2eq ] / 21 [GWP] * 2.75 = * E meth [t CO 2eq ] (2.4.6) If the equations (2.4.3) and (2.4.6) are inserted into the equation (2.4.1), the simplified calculation formula is received: E red [t CO 2eq ] = W el * (2.4.7) The methane emission is checked once annually by measurement of the CMM amount with a calibrated external comparative volume flow measuring device: E meth [t CO 2eq ] = V gas [Nm 3 ] * C meth [vol. %]* [t/nm 3 ] * 21 [GWP] (2.4.8) Page 40 of 68

41 But this determination method is less accurate than the previous, because the determination of gas amount is connected with many mistakes (the CMM composition strongly fluctuates and the measuring equipment is not sophisticated enough yet.) 2.5 Implementation of correction measures for discovered mistakes and missing data Recurrent calibration of measuring devices. 2.6 Selection, qualification and training of the personnel engaged in monitoring The personnel in charge for monitoring and the whole operation process shall be intensely trained at similar plants before setting the equipment into operation. Page 41 of 68

42 3. Necessary records 3.1 Arrangement and description of records that shall be fulfilled on site (technical and commercial data, operation journal, qualifying certificates) in a table (measuring units, measuring methods, measuring frequency, source of data, responsible for collection) Technical data MU Measuring method Measuring frequency Source of data Formula acc. 2.4 Responsible on site CMM extraction m 3 measurement of gas amount constant measurement plant manager con- Methane centration (C meth ) Pressure of the extracted CMM (P) Temperature of the extracted CMM (T) Extraction pure methane Vol. % gas analysis (infrared measurement) mbar pressure meter C temperature meter constant measurement plant manager constant measurement plant manager constant measurement plant manager Nm 3 calculation constant measurement plant manager Produced electricity (W el ) Delivered electricity (W a ) Own consumption electricity (W e ) kwh kwh electricity meter electricity meter constant measurement plant manager constant measurement plant manager kwh calculation monthly measurement W e = W el - W a Plant efficiency % calculation annually external Commercial data: Sold electricity (W a ) measurement EUR settlement monthly compare with measurement See 2.1 plant manager plant manager plant manager Page 42 of 68

43 An operation journal shall be filled in additionally where measured data and special events are put down in writing. 3.2 Arrangement and description of records that shall be fulfilled for the calculation of emissions reductions See item 3.1. From these records the annual emissions reductions can be calculated. 3.3 Description of records in respect to the fulfilled control and implemented correction measures Meter calibration protocols are issued in relation to the device activity and stored during the whole operation time and further five years. The online data transfer secures the upto-date tracing of the project. The data is continuously checked for plausibility, so that immediate corrections could be made in case of deviations. Monthly reports are issued about the operation data and the reductions of CO 2 are calculated. Device Gas analyzer Volume flow Electricity meter Other devices (pressure, temperature) Recurrent calibration Every six weeks Once annually According to the demands of the grid operator Single function test at setting into operation or device substitution 3.4 Notes to maintenance, storage and distribution of records The plant manager on site is responsible for the data maintenance. All operational data is collected daily and stored electronically. Apart from that a printed variant of this data is archived in paper. This data is stored during the whole operation time and further five years. The plant manager is in charge for the preparation of a standard weekly report, which shall be handed in electronically. Moreover, he has to prepare summarizing monthly and annual reports. 4. Internal audit and reporting 4.1 Methods of the internal audit of monitoring results before the submission to the external verifier Already described in full in items The applicant checks continuously the received monitoring data and fulfills a detailed plausibility check at least monthly. 4.2 Methods and structure of the annual report on monitoring On the basis of the applicant's actions explained in 4.1 a respective annual report with explicit documentation is issued and then submitted to an external verifier. Page 43 of 68

44 ANNEX 1 ADDITIONALITY TEST According to the letter of the Federal Ministry of Environment dated (AG Z III ) it has to be proved in a JI project that it is economically additional. To exclude the load purchase it has to be proved that the project is not business as usual and is implemented neither under the means of public financing nor based on the state requirements. In the above mentioned letter it was offered to prove the Wan-Thal project by Stadtwerke Herne AG in the framework of ERUPT-5 tender first, as this was the pilot project for all CMM projects. Meanwhile Wan-Thal and Her-Teuto projects were granted the final letter of approval. The emissions reductions from the project Her-Teuto were ultimately sold to the Netherlands under the ERUPT-4 tender. In this project the economic additionality is proved by analogy with already approved projects. Furthermore, the Tool for the demonstration of assessment of additionality, Annex 1, by CDM Executive Board of UNFCCC [CDM-EB] is applied accordingly. The additionality test takes place in 5 steps. To prove the additionality one should pass Step 0, 1, 4 and 5 as well as 2 or 3. The detailed profitability calculation is given in the item 1.3. Page 44 of 68

45 1.1 Additionality test according to UNFCCC Step Demonstration of crossing barriers Conclusion Step 0: preliminary screening based on the starting date of the project activity Has the installation of the project already started? If yes, can it be proved that emissions trade was seriously considered already at the start of the project? Yes. The project developer had accounted for the additional income from the emissions trade already when planning the project. Already when CMM was included into EEG, it was briefly mentioned in involved crises that the additional revenues from the emissions trade can be taken into account starting from The project complies with the requirements of Step 0. It is continued with Step 1. Step 1: Identification of alternatives to the project activity consistent with current laws and regulation Step 1(a): Define possible alternatives to the project. In the absence of the project the CMM would escape unused to the atmosphere. There are three possible alternatives: 1. Collection of CMM to pipelines and feeding it to the existing natural gas grids. So far not realizable because of high infrastructure expenses and the impossibility of the feed-in ideas by natural gas grid operators (calorific value of CMM too low, share of inert gases too high). 2. Complete destruction of methane through the combustion of CMM in flares. 3. CMM combustion for heat generation in boilers. The project complies with the requirements of Step 1(a). It is continued with Step 1(b). Step 1(b): State the legal guidance and requirements. There are no legal requirements for the collection and the utilization of the methane containing CMM. The collection and the utilization occur only voluntarily by private companies. Power suppliers are bound to take over the power produced out of CMM, which is governed by EEG. The purchasing of the power produced out of CMM takes place at prices stated by EEG. A cogeneration unit at CMM shall be approved according to the Federal Immission Protection Law. A CMM extraction plant shall be approved The project complies with the requirements of Step 1(b). It is continued with Step 2(a). Page 45 of 68

46 according to the Federal Mining Law. Step 2: Investment Analysis: Determine Financial attractiveness of the project activity excluding consideration of revenue from sale of ERU Step 2(a) State the used profitability analysis method. Step 2(b) Sub-Step 2(c) Calculation and comparison of financial ratios. Sub-Step 2(d) Sensitivity analysis Step 3: Barrier Analysis Step 3(a) Identify the possible preventing barriers. Option III determination of financial ratios (IRR and NPV) including sensitivity analysis shall be used. The detailed calculation and comparison of financial ratios is given in the profitability calculation, see item 1.3. Without revenues from the emissions trade the project brings an internal rate of return of 7.83 %. With revenues from the emissions trade the project reaches the internal rate of return of %, the ERU price used here is EUR. Thus the project is economically attractive only with revenues from the emissions trade. The sensitivity analysis shows that without income from emissions trade the IRR of 10% is reached only in favorable conditions. The IRR of the baseline situation without emissions trade is approx. 6 percent lower than that of the situation including revenues from the emissions trade. CMM utilization projects are new and in spite of the first experiences connected with high CMM specific risks. The identified preventing barriers are: investment barriers technological barriers risks specific to CMM Investment barriers CMM utilization projects are new and associated with the high technological risk because the corresponding operation experience is lacking, must be collected and technical To prove the additionality the project can comply either with Step 2 or Step 3 It is continued with Step 2(b). It is continued with Sub-Steps 2(c) and 2(d). The project complies with the requirements of Step 2(c). It is continued with Step 2(d). The project complies with the requirements of Step 2(d). It can be continued with Step 4. Step 3 is also considered additionally. The project complies with the requirements of Step 3(a). It is continued with Step 3(b). Page 46 of 68

47 components must be adjusted first. Therefore banks are not ready to provide credits for financing. Even if a risky capitalist is found, the credit interest is so high that the project becomes uneconomic. Thus CMM projects can be financed only from the own capital or from the cash flow of the companies. The investments of Minegas GmbH are financed by a credit of the mother company RAG, whereby the operational costs are paid from the cash flow. Technological barriers Considerable technological barriers are the quality of the CMM, the share of foreign substances, the productiveness of the gas field. a) CMM quality and amount Although quality and amount of the gas available underground can be evaluated before the project start on the basis of the operational data of the previous mining activity, there is still high risk that the plan figures cannot be really achieved. The methane concentration can fluctuate with time and drop under the minimum level necessary for the combustion in gas engines. The extracted CMM amount can fluctuate and drop under the minimum level necessary for the operation of a gas engine. b) Foreign substances in CMM The CMM can include foreign substances, which can negatively influence the operation of gas engines. c) Productiveness of the gas field Although the gas amount subject to extraction was estimated before the project start, in connection with the lacking operational experience there is a risk that the productiveness shall not correspond to the expectations. Risks specific to CMM CMM projects are new and connected with unknown risks as all new technologies. The following factors can considerably influence the project: Quality and amount of CMM can change with time. The gas amount possible to extract can drop Page 47 of 68

48 with time, so that the equipment can be operated only with reduced capacity. The CMM can include foreign substances, which can cause faults in the operation of gas engines. Step 3(b) Show the influence of barriers stated under 3(a) on the project alternatives. Step 4: Common practice analysis Step 4(a) Name other projects similar to the claimed one Step 4(b) Compare other projects with this project Step 5: Impact of JI-Registration All CMM projects, including alternatives named in the Step 1(a), fight against the similar investment barriers and risks specific to CMM. The technological barriers are much lower for the alternatives (2) and (3) because of considerably simpler technology. Alternative (1) is unrealizable nowadays. The barriers named in the Step 3(a) do not prevent from the implementation of the alternatives named in the Step 1(a). Along with this project more than 60 other similar projects are implemented in the Ruhr region. Alternative (1) named in the Step 1(a) is excluded because of too high necessary infrastructure expenses and impossible-toobserve feed-in conditions of the grid operator. Alternative (2) is possible only with revenues from the emissions trade. Alternative (3) has been already used for a long time at some coal mines for heat production. 50 CMM projects from those named in the Step 4(a) are claimed as emissions reduction projects. In case of the rest it is obvious even now that they will have to be closed before the start of the emissions trade in Alternative (2) is unprofitable now, because the only revenues can come from the emissions trade. Alternative (3) is possible only at sites with the considerable heat demand. More detailed data see Sectoral Approach in Annex 2. The project complies with the requirements of Step 3(b). It is continued with Step 4. The project complies with the requirements of Step 4(a). It is continued with Step 4(b). The project complies with the requirements of Step 4(b). It is continued with Step 5. Page 48 of 68

49 Step 5 State the influence of emissions trade on this project The conversion of methane into CO 2 generates CO 2 equivalents and additionally displaces the conventionally produced power. The project implementation is economically attractive only with revenues from the emissions trade. The revenues from the emissions trade make even those projects financially attractive, which require CMM drilling. The more CMM projects will be successfully implemented, the sooner the banks will start to grant low price credits. Then there will not be necessity to invest the project from the cash flow of the project developer. Abroad there is also a high potential for CMM projects. Motivated by the development in Germany first projects in Kazakhstan, Russia and Ukraine are implemented meanwhile. The project is additional! The conducted additionality test obviously shows that the project is not "business as usual" and is additional to the baseline scenario. Page 49 of 68

50 1.2 Official financing CMM projects generally do not receive official financing. This is also valid for the project claimed here. All the investments are made by the credits of the mother company RAG. Operational expenses are financed from the cash flow of Minegas GmbH. The fed-in power is marketed according to EEG. Emission Reduction Units (ERUs) are not claimed for the reduction of CO 2, which arises from the displacement of the conventionally produced power. ERUs are claimed in this project only for the reduction of methane emissions. The reimbursement according to EEG is by definition not a subvention and also not an official support, because it must be paid by the end consumer and technically means only displacement of CO 2 from the conventionally produced power. The power produced out of CMM has the lowest reimbursement of all kinds of energy production methods stipulated in EEG. CMM producers agreed from the very beginning with relatively low fees, as they since the start of the commercial use underlined the environmental advantage and took into account the additional income from the future emissions trade. This was especially proved by the already received approval of the Federal Ministry of Environment for two similar projects. 1.3 Calculation of profitability The following profitability calculations show that from the economic point of view the project cannot be implemented without revenues from the emissions trade. Without revenues from the emissions trade the project would reach the IRR of 7.8 %, whereas the return of investment lasts for approx. 7 years. These values are insufficient for such a risky investment as CMM utilization plants and do not correspond to the investment guidelines of Minegas GmbH. With revenues from the emissions trade the internal rate of return increases in the basic case up to 14 %, whereas the price of EUR per ERU is presumed. The return of investment still comprises 7 years, which is caused by the plant reaching the zero level in the beginning of 2009, whereas the income from the emissions trade becomes effective only after that. This value also does not reach the necessary level for an investment decision. Taking the investment decision Minegas GmbH proceeded from the conclusion that if similar CMM projects were approved by the Federal Ministry of Environment, this CMM project shall also be approved as an emissions reduction project in the framework of the joint implementation mechanism. The following table shows input parameters used in the calculations of profitability. The used values of the investment cost (capex power), the credit interest (interest) and the operational cost (opex power) are given by the project developer. The power sales price (power revenue) is taken from the EEG. The price of one ERU was estimated by Carbon TF B.V. on the basis of the actual price tendency. Page 50 of 68

51 The project is calculated for the period of 10 years. Table 1: Used input parameters Page 51 of 68

52 Further the cash flow of the project is shown without revenues from the emissions trade: Table 2: Cash flow of the project without revenues from the emissions trade The following cumulative cash flow is got if summarized: Table 3: Cumulative cash flow of the project without revenues from the emissions trade The following financial ratios result from the above cash flows, whereas IRR is the internal rate of return of the invested capital and NPV is the net present value of the project capital. NPV (0%) represents the future cash flow discounted at null percent or the investment cost in the inflation free climate. NPV (10 %) means that the future cash flow is discounted at 10 %. This is a generally used value, which accounts for the future inflation and the average capital cost. But this value does not comply with the minimum capital discount specific for the project. Extra payments are necessary to cover the risks of the project. Page 52 of 68

53 Economic Parameters without ERUs Schlaegel & Eisen 3/4/7 - Minegas GmbH IRR 7.83 % NPV (0 %) 2,026,683 EUR NPV (10 %) -348,300 EUR Table 4: Financial ratios of the project without ERUs With regard to the revenues from the emissions trade the following cash flow results. It is obvious that at the lowered price of Euro/ERU (now approx Euro for EU allowances) the annual income from the emissions trade makes up near 39 % of the total project income. Table 5: Cash flow of the project with revenues from the emissions trade In the following table the cash inflow and outflow are summarized. It is obvious that the cumulative cash flow irrespective of the revenues from the emissions trade turns positive only in The expected payback arrives only after approx. 7 years. This value is definitely too high for such a risky project. Page 53 of 68

54 Table 6: Cumulative cash flow of the project with revenues from the emissions trade In the table 7 the financial ratios of the project are shown. Including the revenues from the emissions trade the project reaches the IRR of almost 14 percent. Taking into account the risk this value should be not lower than 20 %. Economic Parameters incl. ERUs Schlaegel & Eisen 3/4/7 Minegas GmbH IRR % NPV (0 %) 5,132,700 EUR NPV (10 %) 860,110 EUR Table 7: Financial ratios of the project with ERUs The following diagram, fig. 8, shows the sensitivity of the project. The main influencing factors: production, investment and operational cost were changed within the range of +/- 20 % in steps of 5 percent; the corresponding internal rate of return was also calculated. The lower part of the diagram shows the project profitability without revenues from the emissions trade. The upper part of the diagram includes the revenues from the emissions trade. It is obvious that without revenues from the emissions trade the IRR of 10 % is achieved only in favorable cases. The IRR of the basic case without emissions trade is approx. 6 percent lower than that including revenues from the emissions trade. Page 54 of 68