CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD) Version 03 - in effect as of: 22 December 2006 CONTENTS

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1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD) Version 03 - in effect as of: 22 December 2006 CONTENTS A. General description of the small scale project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / crediting period D. Environmental impacts E. Stakeholders comments Annexes Annex 1: Contact information on participants in the proposed small scale project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring Information 1

2 Revision history of this document Version Date Description and reason of revision Number January 2003 Initial adoption 02 8 July 2005 The Board agreed to revise the CDM SSC PDD to reflect guidance and clarifications provided by the Board since version 01 of this document. As a consequence, the guidelines for completing CDM SSC PDD have been revised accordingly to version 2. The latest version can be found at < December 2006 The Board agreed to revise the CDM project design document for small-scale activities (CDM-SSC-PDD), taking into account CDM-PDD and CDM-NM. 2

3 SECTION A. General description of small-scale project activity A.1. Title of the small-scale project activity: Project Title: Nam Khoa 1&2 Hydropower Project Version: Version 5.0: PDD for validation Draft complete: 04/09/2012 A.2. Description of the small-scale project activity: Project Entity and Purpose of the Project Activity The proposed project is being developed by Linh Linh Joint Stock Company, and its purpose is to construct and operate a small scale run-of-river hydropower project comprising two cascades: Nam Khoa 1 with capacity of 2 MW and Nam Khoa 2 with capacity of 6 MW. The proposed project is located in Nam Xe commune, Van Ban district, Lao Cai province in the north of Viet Nam and is hereafter referred to as the project activity. Van Ban district is one of the poorest areas in Viet Nam 1. The project utilises two small run-of-river reservoirs and thus is a particularly environmentally friendly solution to growing energy demand in Viet Nam but the limited water storage means that project s profitability is limited as electricity generation will be diminished during certain times of the year (i.e. the dry season). The project will export approximately 21,207 MWh of electricity to the grid during the first year and 27,940 MWh of power during the next six years to the grid by using generator sets and turbines, leading to emission reductions of 12,224 tco 2 for the first year and 16,105 tco 2 per annum during the first crediting period. This will offset the combustion of thousands of tonnes of fossil fuels and, in doing so; will help preserve non-renewable resources by promoting the exploitation and use of renewable resources and technologies. Contribution to Sustainable Development The sustainable development contribution of this project may be summarised as follows: - Environmentally: Lowering greenhouse gas emissions by saving fossil fuel use. - Socially: Improving quality of life by meeting electricity demand and creating jobs. - Technologically: Transfer of technology and skills through import of key items of plant. - Economically: Contributing to local tax system, promoting economic development, alleviating poverty, contributing to energy security of the country. 1 Lao Cai, Van Ban district is classified under Geographical areas with socio-economic difficulties as defined in Decree No.124/2008/ND-CP dated December 11,

4 A.3. Project participants: Name of Party Involved(*) ((host) indicates a host Party) Socialist Republic of Viet Nam (host) Private and/or public entity(ies) Project participants(*) applicable) (as Private Entity: Linh Linh Joint Stock Company Kindly indicate if the Party involved wishes to be considered as project participant (Yes/No) No Switzerland Private Entity: Vitol S.A. No (*) In accordance with the CDM modalities and procedures, at the time of making the CDM-PDD public at the stage of validation, a Party involved may or may not have provided its approval. At the time of requesting registration, the approval by the Party (ies) involved is required. Linh Linh Joint Stock Company : A private company in Viet Nam set up to develop the Nam Khoa 3 and Nam Khoa 1&2 Hydropower Projects, which has its headquarters in Ha Noi, Viet Nam. Vitol S.A.: is one of the largest traders in the world s energy marketplace. They are a major supplier of petroleum to Viet Nam s state-owned Petrovietnam. A.4. Technical description of the small-scale project activity: A.4.1. Location of the small-scale project activity: A Socialist Republic of Viet Nam A Lao Cai Province A Host Party (ies): Region/State/Province etc.: City/Town/Community etc: Nam Xe Commune, Van Ban District A Details of physical location, including information allowing the unique identification of this small-scale project activity: Nam Khoa 1 and Nam Khoa 2 are situated on the Nam Khoa stream, which is the first tributary of Ngoi Nhu river and the second tributary of Thao river. The closest city is Lao Cai, which is approximately 70 km away by road. The coordinates for the project: Cascade Dam Power plant Nam Khoa o E 22 o N 103 o E 22 o N Nam Khoa o E 22 o N 103 o E 22 o N 4

5 Figure A1. Project Location Project location on Viet Nam map 5

6 Figure A2. Detailed Project Location Project location on Lao Cai map A.4.2. Type and category (ies) and technology/measure of the small-scale project activity: Type I: Renewable energy projects Category I.D.: Grid connected renewable electricity generation (hereafter referred as AMS I.D.) As the project's total installed capacity is 8 MW (below the 15 MW CDM large scale project threshold) and employs a renewable source of energy (hydropower) to be exported to a national grid system, the proposed project should be considered under the small scale methodology AMS I.D, Version 17. Technology Description Figure A3 provides a schematic representation of the proposed project activity. The total installed capacity of the project is 8 MW with total expected annual net generation of 27,940 MWh of electricity. The project will deliver electricity to the national grid system via a 22kV transmission line which runs initially 0.4 km from the Nam Khoa 1 substation to the substation of Nam Khoa 2, then from Nam Khoa 2 it runs a further 4 km to the substation of Nam Khoa 3. The substation of Nam Khoa 3 is connected to the National grid via a 110 kv line. The main construction structures of each cascade in the project include an intake point with a reservoir, gate, tunnel, penstock, transformer station and powerhouse containing turbines, generators, etc. The specific technical data are listed in Table A1. 6

7 Figure A3. Schematic representation of the proposed project activity nam khoa 1,2 hydr opower pr oj ect schemet ic view Nam Khoa spr ing, br anch 1 Reservoir 2 Nam Khoa spr ing, br anch 2 Weir, s t ep 1 Weir, st ep 2 Reservoir 1 Power pl ant 2 Power pl ant 1 Tr ansmission l ine (0.4km) Nam Kho a spr ing Tr ansmission l ine to nam khoa 3 then to the grid (4km) The technologies used in the project are detailed in Table A1, along with the governors, valves, exciters and associated installation and commissioning services will be imported. The technology transfer contributes to the sustainable development aspect of the project Table A1.a Key technologies to be utilised for the project activity Nam Khoa 1 Key Technology Parameter Value TURBINE GENERATOR Model Francis Turbine-Horizontal shaft Quantity 3 Model 3 phase synchronization horizontal shaft Quantity 3 Capacity 0.67 MW 7

8 Table A1.b. Key technologies to be utilised for the project activity Nam Khoa 2 Key Technology Parameter Value TURBINE GENERATOR Model Pelton Turbine-Horizontal shaft Quantity 3 Model 3 phase synchronization horizontal shaft Quantity 3 Capacity 2 MW The technology employed is considered to be relatively environmentally safe as the plant is a run-of-river project with run-of-river reservoirs. The plant can therefore be constructed and operated in a manner which does not involve significant land clearing or development, as in the case of accumulation reservoir types of project. This is in addition to the fact that power is generated by a renewable resource and resulting in very small emissions. A.4.3. Estimated amount of emission reductions over the chosen crediting period: The annual emission reductions of the proposed project are estimated to be 16,105 tco 2 e. The project will employ a renewable crediting period and the total emission reductions are estimated to be 108,854 tco 2 e for the first seven year crediting period. Annual estimated emission reductions are shown in Table A2. Table A2. Annual estimated emission reductions for the first crediting period Year Estimation of annual emission reductions in tonnes of CO 2 e Year 1 12,224 Year 2 16,105 Year 3 16,105 Year 4 16,105 Year 5 16,105 Year 6 16,105 Year 7 16,105 Total estimated reductions (tonnes of CO 2 e) 108,854 Total number of crediting years 7 Annual average of the estimated reductions over 15,551 the crediting period (tco 2 e) 8

9 A.4.4. Public funding of the small-scale project activity: There is no public funding for the proposed project. A.4.5. Confirmation that the small-scale project activity is not a debundled component of a large scale project activity: The project participants can confirm that there is no registered small scale project activity or an application to register another small scale CDM project activity: With the same project participants; In the same project category and technology / measure; and Registered within the previous 2 years; and Whose project boundary is within 1km of the project boundary of the proposed small-scale activity at the closest point Given the above, and confirmation that the project is not part of a larger project activity, the project satisfies the requirements of Appendix C of the Simplified Modalities and Procedures for Small Scale CDM project activities and is not considered a debundled component of a large scale project activity. 9

10 SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the small-scale project activity: Title of the approved baseline and monitoring methodology: AMS-I.D. Grid connected renewable electricity generation (Version 17, EB54). 2 B.2. Justification of the choice of the project category: The proposed project conforms to the applicable requirements of AMS-I.D, as per Table B1. Table B1. Applicability of small scale methodology AMS-I.D Applicability Criteria 1 This methodology comprises renewable energy generation units, such as photovoltaic, hydro, tidal/wave, wind, geothermal and renewable biomass: (a) Supplying electricity to a national or a regional grid; or (b) Supplying electricity to an identified consumer facility via national/regional grid through a contractual arrangement such as wheeling. Project Activity The project is based on hydropower, a renewable energy generation technology. It supplies electricity to the Vietnamese national grid. 2 Illustration of respective situations under which each of the methodology (i.e. AMS-I.D, AMS- I.F and AMS-I.A2) applies is included in Table 2 of AMS-I.D. The proposed project activity supplies electricity to a national/regional grid, and thus conforms to project type 1 as per table 2 in the methodology. Therefore the methodology AMS-I.D is applicable. 3 This methodology is applicable to project activities that (a) install a new power plant at a site where there was no renewable energy power plant operating prior to the implementation of the project activity (Greenfield plant); (b) involve a capacity addition; (c) involve a retrofit of (an) The proposed project installs a new power plant at a site where there was no renewable energy power plant operating prior to the implementation of the project activity (Greenfield plant). Hence the project activity conforms to category (a). 2 Appendix B of the simplified modalities and procedures for small scale CDM project activities 10

11 existing plant(s); or (d) involve a replacement of (an) existing plant(s). 4 Hydro power plants with reservoirs that satisfy at least one of the following conditions are eligible to apply this methodology: The project activity is implemented in an existing reservoir with no change in the volume of reservoir; The project activity is implemented in an existing reservoir, where the volume of reservoir is increased and the power density of the project activity, as per definitions given in the Project Emissions section, is greater than 4 W/m 2 ; The project activity results in new reservoirs and the power density of the power plant, as per definitions given in the Project Emissions section, is greater than 4W/m 2. 5 If the new unit has both renewable and nonrenewable components (e.g., a wind/diesel unit), the eligibility limit of 15 MW for a smallscale CDM project activity applies only to the Renewable component. If the new unit co-fires fossil fuel, the capacity of the entire unit shall not exceed the limit of 15 MW. The proposed project activity is applicable as per the paragraph (c) since it consists in the construction of 2 new run-of-river reservoirs. Hence, the power density of the new reservoirs associated with this project is as below 3 : - Nam Khoa 1: 200 W/m 2 - Nam Khoa 2: 600 W/m 2 The overall power density of the proposed project activity (Nam Khoa 1& 2) has been calculated to: 400 W/m 2 Hence it can be concluded that all the power densities related to the project are greater than 4 W/m 2. So the proposed project activity is applicable to this criterion The project does not incorporate a mix of renewable and non-renewable components. This criterion is therefore not applicable. However, the total capacity of the project is below the 15 MW limit. 6 Combined heat and power (co-generation) systems are not eligible under this category. There is no combined heat and power component in the project activity. This criterion is therefore not applicable. 3 Please refer to section B.6.3 for the calculation of power density. 11

12 7 In the case of project activities that involve the addition of renewable energy generation Units at an existing renewable power generation facility, the added capacity of the units added by the project should be lower than 15 MW and should be physically distinct from the existing units. The project activity does not involve the addition of renewable energy generation units at an existing facility. This criterion is therefore not applicable. 8 In the case of retrofit or replacement, to qualify as a small-scale project, the total output of the retrofitted or replacement unit shall not exceed the limit of 15 MW. The project activity does not seek to retrofit or modify an existing facility. This criterion is therefore not applicable. B.3. Description of the project boundary: AMS-I.D version 17 describes the project boundary as: the project power plant and all power plants connected physically to the electricity system that the CDM project power plant is connected to. This is represented below in Figure B1. Figure B.1.Project Boundary Nam Khoa River Construction activities (inc. access road etc) Nam Khoa 1&2 Hydropower Project including reservoir Viet Nam National Grid Transmission and distribution of power End users Transport activities (equipment, etc.) Project Boundary 12

13 B.4. Description of baseline and its development: As stated in Methodology AMS.I.D, Version 17, paragraph 10: The baseline scenario is that the electricity delivered to the grid by the project activity would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources into the grid. The proposed project activity is the installation of a new grid-connect hydro power plant. Therefore, the baseline scenario is the continued generation of electricity from the Vietnamese national grid system which is partly composed of greenhouse gas intensive fossil fuel based power stations. In the following paragraphs, a brief discussion with respect to the national grid system is provided, and then a description of how the project's baseline emissions have been derived is included. The state-owned company Electricity of Viet Nam (EVN) dominates power production, transmission, and sales in Viet Nam. One of the key assumptions made in determining the baseline is to treat the whole grid system as one entity. The grid system is not divided into provincial sub-groups (as in China for example), the only distinctions made by the EVN as to categorising power stations are by type (coal, gas, hydropower etc.) and ownership (state, independent power producer, build-operate-transfer ). Over the period , total capacity in power sources has increased from 6,192 MW in the year 2000, to 11,298 MW in 2005 and the greatest contributor to the total amount of electricity generated is fossil fuel fired plants. 4 This project is particularly important in Viet Nam where the share of hydropower and renewable energy has fallen year on year for the most recent five years for which data is available (please see table B6). Currently, due to shortfalls in the amount of electricity available, Viet Nam imports electricity from China 5, where the grid emission factor is higher than that of Viet Nam. Baseline emissions are defined in methodology AMS-I.D as the MWh produced by the renewable generating unit multiplied by an emission coefficient (measured in tco2e/mwh) calculated in a transparent and conservative manner. They are calculated as a combined margin (CM), consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures prescribed in the version 1.1 of the Tool to calculate the emission factor for an electricity system. Version 1.1 of the Tool was the only version of the available at the time the DNA made the baseline emission calculation. Data Used to Determine Baseline Emissions The baseline emission factor used in this project for the grid was based on the report published by the Vietnamese DNA - Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change 6. The data is: The latest source of data which is also publically available; Its results are published in a transparent manner; and 4 Source: Electricity of Viet Nam 5 (Retrieved last on 26/06/2011) 6 (last accessed on 26/06/2011) 13

14 The calculations are carried out in a conservative manner Table B.2 shows the parameters required to calculate the emissions of the power plants that serve the national grid system. Table B.2: Data used to determine baseline emissions for both the operating and build margins. Parameters for the OPERATING margin EF grid,om,y EG m,y EF CO2,i,y m y FC i,m,y NCV i,y EF CO2,i,y Detail Operating margin CO2 emission factor for grid connected power generation in year y. Net quantity of electricity generated and delivered to the grid by power unit m in year y (MWh) CO 2 emission factor of fossil fuel type i in year y (tco 2 /GJ) All power units serving the grid in year y except low-cost / must-run power units The three most recent years for which data is available at the time of submission of the CDM-PDD to the DOE for validation (ex ante option) Amount of fossil fuel type i consumed by power unit m in year y (Mass or volume unit) Net calorific value (energy content) of fossil fuel type i in year y (GJ / mass or volume unit) CO 2 emission factor of fossil fuel type i in year y (tco 2 /GJ) Source Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change 14

15 Parameters for the BUILD margin EF grid,bm,y EG m,y EF EL,m,y m y Detail Build margin CO2 emission factor for grid connected power generation in year y. Net quantity of electricity generated and delivered to the grid by power unit m in year y (MWh) CO 2 emission factor of power unit m in year y (tco 2 /MWh) Power units included in the build margin Most recent historical year for which power generation data is available Source Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change Study, Definition of Viet Nam Grid Emission Factor prepared by the Department of Meteorology, Hydrology and Climate Change In the report referenced, the operating margin is derived through a combination of using Simple OM methodology, as it is demonstrated that low cost / must run power stations contribute less than 50% of total power generation between 2004 and For build margin, option 1 is employed whereby build margin is defined as the generation weighted average of the most recently built power plants which contribute 20% of total power generation. This is detailed in section B.6 and annex 3. Following the end of the first crediting period, it is anticipated at this stage that a new ex-ante calculation of emission factor will be performed based on the latest data available from the Vietnamese DNA. Discussion of National and Sectoral Policies The two major policy documents have been identified which are relevant to national power infrastructure development in Viet Nam, they are: a) The Electricity Law which was approved by the National Assembly of Viet Nam in November 2004 and took effect in July It is the primary legislation that regulates the production of electricity in the country. b) Power Developments Plans (PDPs) are the main strategic planning tool for the power sector. A PDP includes an Electricity Demand Forecast to predict the capacity (MW) and energy (GWh) demand in the future, a Transmission Expansion Plan to transmit the generated electricity to the costumers, a Fuel Supply Assessment to determine the national energy resources (coal, gas, oil) that would be available for energy generation, etc. 15

16 As per the guidelines from EB 22 Annex 3 regarding E- policies, National and/or sectorial policies or regulations under paragraph 6 (b) that have been implemented since the adoption of the COP of the CDM M&P (decision 17/CP.7, 11 November 2001) need not be taken into account in developing a baseline scenario. Based on this, both the above policies could be disregarded. However, in the interest of conservatism, it was decided to consider any preferential policies in the development of the investment analysis. B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered small-scale CDM project activity: With the implementation of the project activity, the emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity. The project activity is additional and would not have occurred anyway due to the following barriers 7 : According to Attachment A to Appendix B of the simplified modalities and procedures for CDM smallscale project activities, the project participants shall provide an explanation to show that the project activity would not have occurred anyway due to at least one of the following barriers: a) Investment barrier: a financially more viable alternative to the project activity would have led to higher emissions; b) Technological barrier: a less technologically advanced alternative to the project activity involves lower risks due to the performance uncertainty or low market share of the new technology adopted for the project activity and so would have led to higher emissions; c) Barrier due to prevailing practice: prevailing practice or existing regulatory or policy requirements would have led to the implementation of a technology with higher emissions; d) Other barriers: without the project activity, for another specific reason identified by the project participant, such as institutional barriers or limited information, managerial resources, organizational capacity, financial resources, or capacity to absorb new technologies, emissions would have been higher. The proposed project is subject to the investment barrier which CDM revenue will allow it to overcome. Without such assistance from CDM, the project would not proceed. The identified barrier is described below in detail. 1) Investment Barrier: According to Non-binding best practice examples to demonstrate additionality for SSC project activities, published in the Annex 34 of the EB 35 meeting report: Best practice examples include but are not limited to, the application of investment comparison analysis using a relevant financial indicator, application of a benchmark analysis or a simple cost analysis (where CDM is the only revenue stream such as end-use energy efficiency). 7 According to the Attachment A to Appendix B of the simplified modalities and procedures for small-scale CDM project 16

17 Following the above guidelines, benchmark analysis has been chosen to assess the investment barrier for the project activity. Further the guidance from the latest version of the Guidelines on the assessment of the investment analysis, version 05, EB 62 has been followed in the choice of the applied benchmark for the project activity. Paragraph 12 of the latest version of the Guidelines on the assessment of the investment analysis, stipulates the following: Local commercial lending rates or weighted average costs of capital (WACC) are appropriate benchmarks for a project IRR. Further paragraph 13 of the latest version of the Guidelines on the assessment of the investment analysis, states the following: In the cases of projects which could be developed by an entity other than the project participant the benchmark should be based on parameters that are standard in the market. Following the above guidelines, local commercial lending rates were chosen as the appropriate benchmark for the project activity since the project activity can be developed by another entity than the project owner, in addition, commercial lending rates are not decided at the discretion of the project owner and are standard in the market. Keeping the above in view, the project developer has selected the commercial lending rate offered by commercial banks in Viet Nam at the time the decision making. The averaged official government lending rates considered for three years in the run up to the decision and the legally mandated mark up applied to arrive at the commercial lending rate 8 of 13.42%. The legally mandated mark-up is 50% on top of the base rate and the use of this mark-up is as per Civil Law Code No.33/2005/QH11 (which limits the amount of interest commercial banks can charge). The value of the benchmark is conservative as in reality banks were actually charging beyond their permitted rates (as reported in Vietnamese financial press). The project developer has compared the return obtained from the project activity with this benchmark to prove the project is financially unattractive. The parameters used to calculate the return from the project activity are shown in Table B3. 8 State bank of Viet Nam and Viet Nam civil codes 17

18 Table B.3.Basic parameters of the financial analysis for the project. Parameters Value Basis Installed capacity (MW) 8 Feasibility Study Plant load factor (percent) Computed based on Feasibility Study Annual power supplied to the grid 27,940 Computed (MWh) Auxiliary consumption (percent) 2 General norm due to internal consumption, transmission and distribution losses Total Investment 10 3 Dong) 162,631,589 Feasibility Study Equity : Loan Ratio 30:70 Feasibility Study Interest rate (percent) on term loan Lending rates offered by banks at the time of decision. Loan repayment period (years) 10 Feasibility Study Initial moratorium period (years) 2 Feasibility Study Power tariff (UScent / kwh) Feasibility Study Nam Khoa 1 Nam Khoa Depreciation Equipment (percent) 10 Present practice in Viet Nam, Decision 203/2009/TT-BTC - Construction (percent) 5 Present practice in Viet Nam, Decision 203/2009/TT-BTC Natural resource tax (as percentage 2 Ordinance on Natural Resource Tax of revenue) Enterprise income tax (percent) 0-25 Decree No. 124/2008/ND-CP, dated Operation and maintenance costs (percent of project cost per annum) 11/12/ Decision of Ministry of Industry number 2014QD-BCN Investment in the construction of electric power plants falls under List A domains and lines of business and hence was eligible for investment preferences as per Decree No. 124/2008/NĐ-CP, dated 11 st December Moreover, the project activity is located in List of geographical area with economic difficulties and hence is eligible for investment preferences by the said Law and Decree. The line of activity and the location of the project, therefore entitles it to certain tax concessions, which have been duly accounted for in computation of tax. Moreover, it has been ensured that all the expenditures are allowable as charge on the profit and loss account as per the Decree. Even with such allowances and strictly adhering to the Decree in accounting for expenditures, the project is unable to generate a return commensurate with the benchmark. The income statement of the project and the project IRR has been computed based on the above input parameters. In computing the project IRR, profit after tax, depreciation and interest on term loan have been taken as cash inflow and the entire project cost as cash outflow as suggested by the Guidelines on the Assessment of Investment Analysis. As the IRR has been computed for a period of 30 years and the entire assets are fully depreciated, the question of salvage value does not arise. Based on the above, the project IRR for the project works out to % as against the benchmark return of 13.42%. 18

19 Table B.4.Comparison of IRR with the benchmark rate of return Project IRR Benchmark Values % % In the computation of IRR, the tariff price and the O&M costs are locked. The project s feasibility study is based on a fixed price PPA as at the time of taking the investment decision, only fixed price PPAs with an option to enter the spot market, once established, were offered by the State run electricity company, EVN. The date of establishment of the spot market is however still not confirmed (anticipated to be 2014) and the prices to be expected once established (if the Project Owner decided to enter) are impossible to predict. Further, the decision by the Prime Minister with respect to the spot market 9 states, The Independent Power Plants (IPPs) which are not owned by EVN will keep selling to EVN following the signed long term power purchase agreement (PPA) Even when the competitive spot market starts, and from Freshfields Bruckhaus Deringer the establishment of and adjustments to the electricity tariff will be based on various factors: the pricing policy mentioned above, the country s socioeconomic conditions and the people s income in each period, the relation between electricity supply and demand, the cost of electricity production and trading, the right of electricity entities to a reasonable profit and the level of development of the electricity market 10 - this shows the complexity of how price will be derived if there ever is a spot market. Considering the above factors as well as the socialistic pattern of society prevailing in Viet Nam, the tariff is unlikely to be allowed to rise beyond the tariff already contracted by the Project Proponent with EVN. It is for this reason that tariff was kept constant. The robustness of the conclusion drawn above has been tested by subjecting critical assumptions to reasonable variations. Guidelines on the Assessment of Investment Analysis defines critical assumptions as those which constitute more than 20% of total project costs or total project revenue and reasonable variation has been defined as a range of +10% and - 10% (paragraph No 20 and 21 of the Guidance). Four factors have been identified as sensitive, viz., construction cost, equipment cost, PLF, O&M cost and tariff. Though O&M cost does not account for 20% of total cost, it is the largest component of operating cost and so is included, even though a 10% decrease in O&M costs raises the IRR by only 16 basis points. Interest on term loan and depreciation are not subject to variations as they are determined by project cost and loan documentation. The impact of a reasonable variation in these four parameters on the project IRR have been worked out and the results are as follows: 9 Decision: Approval of the Roadmap, the Conditions to Establish and Develop the levels of the Power Market in Viet Nam Prime Minister, Article

20 Table B.5: Sensitivity Analysis Project IRR -10% 0% 10% PLF 9.69% 11.17% 12.61% Construction cost 11.75% 11.17% 10.63% O&M cost 11.33% 11.17% 11.02% Tariff 9.69% 11.17% 12.61% Equipment Cost 11.80% 11.17% 10.59% Benchmark 13.42% As can be seen from the table above, the project IRR does not crosses the benchmark value when most sensitive parameters are varied by ± 10%. The increase in tariff is ruled out, since it will be fixed for the entire duration of the project s lifetime and hence it is unlikely that the project IRR would cross the benchmark due to a rise in electricity tariff. The PLF is based on the hydrological study which uses 45 years-worth ( ) of data and the most optimistic scenario is often considered while preparing the income statement (this is evidenced by the fact that many registered projects which are now undergoing monitoring in Viet Nam have reported lower PLFs than have been calculated ex-ante). Thus it can be concluded, that a higher PLF is a very remote possibility. In summary: * PLF is based on 44 year hydrological study so is not likely to increase; * Project costs are only bound to rise due to high inflation; * Change in O&M cost has very little affect on IRR; and * Tariff is fixed as per FSR and tariffs offered by the off-taker at time of decision The project, therefore is not a business-as-usual scenario and hence additional. The CDM benefits will enable the project to improve its return and become viable, as evident from the fact that with CDM benefits, the project will earn a return of 13.74%. It is in the above background, the CDM registration is requested. Prior Consideration of the CDM The project activity is deemed to have started when the project proponent committed to expenditure related to the project activity with signing of the first civil construction contract on 20/07/2010. As per the guidance of EB Meeting Report 49 Annex 22, the project proponent notified the UNFCCC and the host country DNA of the intent to implement the project as a CDM project activity within six months of the project s start date and this notification was accordingly acknowledged. The notification to the 20

21 UNFCCC was sent on 21/10/2009 and has been published on the UNFCCC website with this date of receipt. The notification to the host country DNA was received on 15/10/2009 and is available at the DNA website for verification. B.6. Emission reductions: B.6.1. Explanation of methodological choices: In order to calculate the baseline, project and leakage emissions and hence emission reductions, methodology AMS-I.D is used in conjunction with the Tool to calculate the emission factor for an electricity system (Version 1.1). Version 1.1 of the tool was the only version of the tool available at the time the DNA made the baseline emission calculation. The calculation of baseline emissions includes the following steps: 1. Calculation of baseline emissions; 2. Calculation of project emissions; 3. Calculating leakage emissions; 4. Calculating emission reductions. Below is a description of how the three types of emission (baseline, project and leakage) are calculated, along with key assumptions and rationale for methodological choices. Baseline Emissions The baseline emissions are given by: BE y = EG BL,y * EF CO2,grid,y (1) Where: BE y Baseline Emissions in year y (tco 2 ) EG BL,y Quantity of net electricity supplied to the grid as a result of the implementation of the CDM project activity in year y (MWh) EF CO2,grid,y CO 2 emission factor of the grid in year y (tco 2 /MWh) The following steps are as per the Study, Definition of the Grid Emission of Viet Nam prepared by the Department of Meteorology, Hydrology and Climate Change, 11 referenced previously in Section B4 (source of baseline data). Step 1: Identify the Relevant Electric Power System 11 (last accessed on 12/08/2011) 21

22 As per section B.4., the identified business as usual scenario is the continued generation of power by the Vietnamese national grid system, and baseline emissions are those produced as a result of this. Therefore, the Viet Nam national grid is identified as the relevant electric power system. Step 2: Select an Operating Margin (OM) Method In this case, the Simple Operating Margin has been calculated. In order to use the Operating Margin, assumption has been made with respect to low cost and must run resources. These are defined as as power plants with low marginal generation costs or power plants that are dispatched independently of the daily or seasonal load of the grid. They typically include hydro, geothermal, wind, low-cost biomass, nuclear and solar generation. If coal is obviously used as must-run, it should also be included in this list, i.e. excluded from the set of plants. As per the study the contribution of low cost and must run sources to overall power generation in Viet Nam is well below 50% (please refer to table B.6). Therefore the "Simple Operating Margin" (Option a) can be calculated for the purpose of deriving the grid emission factor as per Step 3 of the tool to calculate emission factor from an electricity system. Table B.6. Contribution of low cost and must run sources to overall power generation in Viet Nam 12 Year Average Percentage share of low cost and must run power stations (%) The Ex ante option has been chosen for this project. The emission factor using the Simple Operating method has been calculated using a three year generation-weighted average, based on the most recent data available at the time of submission of the CDM-PDD to the DOE for validation, without requirement to monitor and recalculate the emissions factor during the crediting period. Thus the ex-ante option has been used for this project. The years used are inclusive. Step 3: Calculate the Operating Margin Emission Factor According to the Selected Method As per the study Option A under Step 3 of the tool to calculate grid emissions is employed. Here the Simple OM emission factor is calculated based on the electricity generation of each power unit and an emission factor for each power unit, as follows: EF EL, m, y i FC i, m, y NCV EG m, y i, y EF CO2, i, y (2) 12 Source: GEF from the Department of Meteorology, Hydrology and Climate Change (table 2) 22

23 Where: EF EL,m,y FC i,m,y NCV i,y EF CO2,i,y EG m,y m i y = Simple operating margin CO 2 emission factor of power unit m in year y (tco 2 /MWh) = Amount of fossil fuel type i consumed by power unit m in year y (Mass or volume unit) = Net calorific value (energy content) of fossil fuel type i in year y (GJ / mass or volume unit) = CO 2 emission factor of fossil fuel type i in year y (tco 2 /GJ) = Net quantity of electricity generated and delivered to the grid by power unit m in year y (MWh) = All power units serving the grid in year y except low-cost / must-run power units = All fossil fuel types combusted in power unit m in year y = The three most recent years for which data is available at the time of submission of the CDM-PDD to the DOE for validation (ex ante option) or the applicable year during monitoring (ex post option), following the guidance on data vintage in step 3 Step 4. Identify the group of power units to be in the build margin It was found that the most recent set of power plants which generate 20% of the country s electricity generated more power (MWh) in 2008 than the five most recently built power stations. As such, the weighted carbon emissions from the former were used to calculate the build margin. Option (b) is chosen in the first step. For the first crediting period, the build margin emission factor will be calculated ex-ante based on the most recent information available on units already built for sample group m at the time of CDM-PDD submission to the DOE for validation (Option 1). Step 5. Calculate the Build Margin Emission Factor The build margin emissions factor is the generation-weighted average emission factor (tco 2 /MWh) of all power units m during the most recent year y for which power generation data is available, calculated as follows: EF grid, BM, y m EG m, y m EF EG m, y EL, m, y (3) 23

24 Where: EF grid,bm,y EG m,y EF EL,m,y m y = Build margin CO 2 emission factor in year y (tco 2 /MWh) = Net quantity of electricity generated and delivered to the grid by power unit m in year y (MWh) = CO 2 emission factor of power unit m in year y (tco 2 /MWh) = Power units included in the build margin = Most recent historical year for which power generation data is available The CO 2 emission factor of each power unit m (EF EL,m,y ) is determined as per the guidance in step 3 (a) for the simple OM, using options B1, B2 and B3, using for y the most recent historical year for which power generation data is available, and using for m the power units included in the build margin. Step 6. Calculate the Combined Margin Emissions Factor The combined margin emissions factor is calculated as follows: Where: EF CO2, grid, y EFgrid, OM, y wom EFgrid, BM, y wbm (4) EF grid,bm,y = Build margin CO 2 emission factor in year y (tco 2 /MWh) EF grid,om,y = Operating margin CO 2 emission factor in year y (tco 2 /MWh) w OM = Weighting of operating margin emissions factor (%) w BM = Weighting of build margin emissions factor (%) The weightings used are as follows: w OM = 0.5 and w BM = 0.5 for the first crediting period, and w OM = 0.25 and w BM = 0.75 for the second and third crediting period. As this project is neither a wind nor a solar project, these weights are clearly mandated by the Tool to calculate the emission factor for an electricity system. Project Emissions The latest version of applicable methodology AMS I.D requires the project emission to be accounted according to the large scale methodology ACM0002. According to ACM0002 version , for hydro power project that requires construction of new reservoir need to account for project emission for CH 4 and CO 2 emissions from the reservoir. The proposed hydropower project will install a run-of-river reservoir. Hence project emission is applicable for this project activity. As per the methodology the project emission will be calculated using the following formulas. PE HP, y EFRe s TEGy (5)

25 Where: PE HP,y = Project emissions from water reservoirs (t CO 2 e/yr) EF Res = Default emission factor for emission from reservoirs of hydropower plants in year y TEG y = Total electricity produced by the project activity, including the electricity supplied to the grid an the electricity supplied to internal loads, in year y (MWh) According to the methodology the project activity emission is to be calculated if the power density for the project activity is between 4 W/m 2 and 10 W/m 2 Besides, this version of ACM0002 states that, since the proposed project activity results in new multiple reservoirs, the power density of each reservoir should be greater than 4 W/m 2 after the implementation of the project activity. Following formula is given in the methodology for the calculation of power density. Where: (6) PD = Power density of the project activity, in W/m 2 Cap PJ = Installed capacity of the hydropower plant after the implementation of the project activity (W). Cap BL = Installed capacity of the hydropower plant before the implementation of the project activity (W). For new hydropower plants, this value is zero A PJ = Area of the reservoir measured in the surface of the water, after the implementation of the project activity, when the reservoir is full (m 2 ) A BL = Area of the reservoir measured in the surface of the water, before the implementation of the project activity, when the reservoir is full (m 2 ). For the new reservoir, this value is zero Besides, the latest version of applicable methodology AMS I.D requires CO2 emissions from on-site consumption of fossil fuels due to the project activity shall be calculated using the latest version of the Tool to calculate project or leakage CO2 emissions from fossil fuel combustion. CO 2 emissions from fossil fuel combustion in process j are calculated based on the quantity of fuels combusted and the CO 2 emission coefficient of those fuels, as follows: (7) Where: PE FC,j,y = Are the CO 2 emissions from fossil fuel combustion in process j during the year y (tco 2 /yr) FC i,j,y = Is the quantity of fuel type i combusted in process j during the year y (mass or volume unit/yr); COEF i,y = Is the CO2 emission coefficient of fuel type I in year y (tco 2 /mass or volume unit) i = are the fuel types combusted in process j during the year y 25

26 Leakage As per methodology AMS I.D, version 17, the Project Proponent does not need consider leakage as: No equipment is transferred from another activity Biomass residues are not required by the project to generate electricity. Therefore: LE y = 0 (8) Emission Reductions Emission reductions are therefore, in the absence of leakage and project emissions, equal to the electricity generation of the grid in year y multiplied by the emission factor derived from the calculation Where: ER y = BE y - PE y - LE y (8) ER y BE y PE y ER y = Emission reductions in year y (tco 2 e/yr) = Baseline emissions in year y (tco 2 e/yr) = Project emissions in year y (tco 2 e/yr) = Emission reductions realised in year y (tco 2 /MWh) B.6.2. Data and parameters that are available at validation: Data / Parameter: EF grid,cm,y Data unit: tco2/mwh Description: Combined margin CO2 emission factor for grid connected power generation as calculated in DNA issued Study, Definition of Viet Nam Grid Emission Factor, The report was completed in 2009 and made available in Source of data used: Study, Definition of Viet Nam Grid Emission Factor, 2009, issued by DNA of Viet Nam. The report was completed in 2009 and made available in Value applied: tco 2 /MWh Justification of the As per the Tool to calculate the emission factor for an electricity system. choice of data or description of measurement methods and procedures actually applied : Any comment: - 13 Study, Definition of Viet Nam Grid Emission Factor, 2009 by the Department of Meteorology, Hydrology and Climate 26

27 Data / Parameter: EF Res Data unit: KgCO2e/MWh Description: Default emission factor for emissions from reservoirs Source of data used: Decision by EB 23 Value applied: 90 Kg CO 2 e/mwh Justification of the As per the guidance of the ACM0002, version choice of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: Cap BL1 Data unit: W Description: Installed capacity of Nam Khoa 1 cascade before the implementation of the project activity. For new hydro power plants, this value is zero Source of data used: Project site Value applied: 0 Justification of the The project activity is the installation of a new power plant choice of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: Cap BL2 Data unit: W Description: Installed capacity of Nam Khoa 2 cascade before the implementation of the project activity. For new hydro power plants, this value is zero Source of data used: Project site Value applied: 0 Justification of the The project activity is the installation of a new power plant choice of data or description of measurement methods and procedures actually applied : Any comment: - 27

28 Data / Parameter: A BL1 Data unit: m 2 Description: Area of the reservoir of Nam Khoa 1 cascade measured in the surface of the water, before the implementation of the project activity, when the reservoir is full (m 2 ). For new reservoirs, this value is zero Source of data used: Project site Value applied: 0 Justification of the The project activity will install a new reservoir choice of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: A BL1 Data unit: m 2 Description: Area of the reservoir of Nam Khoa 2 cascade measured in the surface of the water, before the implementation of the project activity, when the reservoir is full (m 2 ). For new reservoirs, this value is zero Source of data used: Project site Value applied: 0 Justification of the The project activity will install a new reservoir choice of data or description of measurement methods and procedures actually applied : Any comment: - B.6.3 Ex-ante calculation of emission reductions: Baseline emissions: Baseline emissions are calculates as per the formula (1) as elaborated in section B.6.1. Based on the proposed project s feasibility study, during the first year of operation of the project, cascade 1 of the proposed project-nam Khoa 1- is expected to start commercial operation 12 months after cascade 2- Nam Khoa 2 and from the 2 nd year onwards, both cascades have parallel operation. 28

29 Consequently, the annual electricity generated and supplied to the grid is provided as follows: Operation Year Gross Electricity Generation Nam Khoa Nam Khoa 2 Total 1 Auxiliary consumption Total Net Generation to the Grid EG BL,y kwh kwh kwh % kwh 1 st year 0 21,640 21,640 2% 21,207 2 nd year 6,870 21,640 28,510 2% 27,940 onwards With the grid emission factor is tco 2 /MWh, the baseline emission is the following: BE y = EG BL,y * EF CO2,grid,y (1) 1st year = 27,207 x = 12,224 tco 2 e 2 nd year onwards = 27,940 x = 16,105 tco 2 e Project emissions : As explained in section B.6.1, the project emission is to be calculated if the power density of the reservoir to be installed in the project activity is between 4W/m 2 and 10 W/m 2. The power density is calculated as per the formula (6) described in section B.6.1. The same is presented below. (6) The Nam Khoa 1,2 hydropower project and its cascades have the following installed capacities and reservoir areas: Capacity (W) Reservoir area (m2) Cascade Value Parameter Value Parameter Nam Khoa 1 2,000,000 Cap PJ,1 10,000 A PJ,1 Nam Khoa 2 6,000,000 Cap PJ,2 10,000 A PJ,2 Project Activity Value Parameter Value Parameter Nam Khoa 1, 2 Hydropower Project 8,000,000 Cap PJ= Cap PJ,1+ Cap PJ,2 20,000 A PJ = A PJ,1+ A PJ,2 To calculate the power density, the above formula is used. The power densities for each reservoir of the Nam Khoa 1, 2 hydropower plant and the global power density of the plant are therefore: 29

30 - Nam Khoa 1: PD 1 = Cap PJ,1 / A PJ,1 = 200 W/m 2 - Nam Khoa 2: PD 2 = Cap PJ,2 / A PJ,2 = 600 W/m 2 - Nam Khoa 1 & 2: PD = Cap PJ / A PJ = 400 W/m 2 Because the power densities related to the proposed project activity are greater than 10 W/m 2, thus the project emissions from reservoirs of Nam Khoa 1, 2 Hydropower Project are zero. Also explained in section B.6.1, the CO2 emissions from on-site consumption of fossil fuels due to the project activity shall be calculated using fumula (7) as follows: Since the project activity does not apply on-site consumption of fossil fuels, the FC i,j,y is considered to be zero, thus the CO 2 emissions from fossil fuel combustion PE FC,j,y is zero. Hence considering both sources of project emissions relevant for the project activity results in zero emission. The project activity emission from this project is zero. (7) Hence, PEy = 0 Emission Reduction: Based on the proposed project s feasibility study, 21,207 MWh of the electricity will be supplied to the grid during the forst year and 27,940 MWh of the generated electricity will be supplied the other years during the crediting period. Therefore, according to formula (8), the annual emission reductions in the first crediting period can be calculated as follows: For first year: For next years: ER y = (21,207 x ) 0 0 = 12,224 tco 2 e ER y = (27,940 x ) 0 0 = 16,105 tco 2 e 30

31 B.6.4 Summary of the ex-ante estimation of emission reductions: Year Estimation of project activity emissions (tonnes of CO 2 e) Estimation of baseline Emissions (tonnes of CO 2 e) Estimation of leakage (tonnes of CO 2 e) Estimation of overall emission reductions (tonnes of CO 2 e) Year , ,224 Year , ,105 Year , ,105 Year , ,105 Year , ,105 Year , ,105 Year , ,105 Total (tonnes of CO 2 e) 0 108, ,854 B.7 Application of a monitoring methodology and description of the monitoring plan: B.7.1 Data and parameters monitored: Data / Parameter: EG BL,y Data unit: MWh/year Description: Quantity of net electricity supplied to the grid in the year y. Source of data to be Measurements are undertaken using energy meters. used: Value of data: 21,207 ( first year of the crediting period) 27,940 ( from the second year to the end of the crediting period) Description of measurement methods and procedures to be applied: QA/QC procedures to be applied: Any comment: - Continuous monitoring and monthly recording. Meters will be placed at the connection point to the national grid. The net electricity export/supplied to a grid is the difference between the measured quantities of the grid electricity export and import. Measurement results shall be cross checked with records for sold/purchased electricity (e.g.: invoices/receipts) Data are achieved up to 2 years after the end of the crediting period Calibration as per manufacturer s recommendationand at least once every three years 31

32 Data / Parameter: Cap PJ1 Data unit: W Description: Installed capacity of the Nam Khoa 1 cascade after the implementation of the project activity Source of data: Project site Value of data: 2,000,000 Description of measurement methods and procedures to be applied: QA/QC procedures to - be applied: Any comment: - Determine the installed capacity based on recognized standards Yearly monitoring Data / Parameter: Cap PJ2 Data unit: W Description: Installed capacity of the Nam Khoa 2 cascade after the implementation of the project activity Source of data: Project site Value of data: 6,000,000 Description of measurement methods and procedures to be applied: QA/QC procedures to - be applied: Any comment: - Determine the installed capacity based on recognized standards Yearly monitoring Data / Parameter: A PJ1 Data unit: m 2 Description: Area of the reservoir of Nam Khoa 1 cascade measured in the surface of the water, after the implementation of the project activity, when the reservoir is full Source of data: Project site Value of data: 10,000 Description of measurement methods and procedures to be applied: QA/QC procedures to be applied: Measured from topographical surveys, maps, satellite pictures, etc Yearly monitoring 32

33 Any comment: Data / Parameter: A PJ2 Data unit: m 2 Description: Area of the reservoir of Nam Khoa 2 cascade measured in the surface of the water, after the implementation of the project activity, when the reservoir is full Source of data: Project site Value of data: 10,000 Description of measurement methods and procedures to be applied: QA/QC procedures to be applied: Any comment: Measured from topographical surveys, maps, satellite pictures, etc Yearly monitoring B.7.2 Description of the monitoring plan: A final monitoring plan will be prepared prior to the start crediting date based on the as-built project activity. The following indicative plan is provided in the meantime. It will address the following aspects: 1. The CDM monitoring team and allocation of responsibility to ensure compliance with the monitoring requirement of the methodology is given here below: Position Responsibilities Operational staff Ensure meter readings are captured in standard format Site Supervisor Ensuring monitoring takes place Initial check for anomalies (e.g. Significant changes against previous readings or expected values) Site record management Communication of meter readings to Project Director Attendance at annual verification Project Director Collation of metered data from the project site Collation of confirmation records from EVN (see Annex 4) Monthly cross-check of confirmation records against metered data 33

34 Tasks description Operator Supervisor Monitoring activity 1 Recording of monitored data Quality Assurance & Quality Control 2 Verification of data monitored (consistency and completeness) 3 Ensuring adequate training of staff Ensuring adequate maintenance 4 Ensuring calibration of monitoring instruments Data archiving: ensuring adequate storage 5 of data monitored (integrity and backup): 2 years after the end of the crediting period Identification of non-conformance and 6. corrective/preventive actions and monitoring plan improvement 7 Emergency procedures Project director CDM Consultant 8 External audit Calculation of GHG emission reductions and reporting Processing of data and calculation of 9 emission reductions Monitoring report: management review of 10 monitoring report (internal audit) 2. Monitoring point Net electricity generation of the project will be measured and monitored through the use of onsite metering equipments at the outgoing feeders of Nam Khoa 1&2 hydropower plant. There are two systems, one main and the other one is the backup system which is located near the main system. Additional information is available in Annex 4. 34

35 B.8 Date of completion of the application of the baseline and monitoring methodology and the name of the responsible person(s)/entity(ies) The application of the methodology to the project activity was completed on 25/10/2011. The entity responsible is: Kyoto Energy Pte. Ltd. 80 Raffles Place UOB Plaza 1, Level Singapore Tel.: Fax: Kyoto Energy Pte Ltd is not a project participant as described in Annex 1 of this document. 35

36 SECTION C. Duration of the project activity / crediting period C.1 Duration of the project activity: C.1.1. Starting date of the project activity: As per the definition of the start date provided in Glossary of CDM terms (version 05), the start date shall be considered to be the date on which the project participant has committed to expenditures related to the implementation or related to the construction of the project activity. For this project, this date was 20/07/2010 on which signing of a construction contract for the project was done. C.1.2. Expected operational lifetime of the project activity: 30 years, 0 month C.2 Choice of the crediting period and related information: C.2.1. Renewable crediting period C Starting date of the first crediting period: 01/09/2013 or registration date, whichever is later C Length of the first crediting period: 7 years 0 months C.2.2. Fixed crediting period: C Starting date: NA C Length: NA 36

37 SECTION D. Environmental impacts D.1. If required by the host Party, documentation on the analysis of the environmental impacts of the project activity: Under Vietnamese law, the hydropower plants need to have their environmental impacts assessed through an Environmental Impacts Assessment (EIA), or an Environmental Protection Commitment (EPC). The applicable form of assessment is based on size of a project. The Nam Khoa 1& 2 project has undertaken the process to develop an Environmental Protection Commitment (EPC). This EPC was approved by the relevant local authority, the People s committee of Van Ban district on 22/08/2008. The environmental impacts of both construction and operation period of the project are as follows. Environmental Impacts during Construction period and Operation period Impact on Atmosphere (including Noise) During construction, emissions including dust, exhaust gases and noise are generated from activities such as excavating, leveling, drilling, mine blast, equipment and machine operation, and material transportation. Because the amount of the construction is considered relatively small, and the project is located 10km far from the residential area and in the highly mountainous zone, so the exhaust gases do not have negative effects on the local people. Impacts to water quality Domestic wastewater: domestic wastewater is removed from daily activities of workers, resulting in a high SS, BOD 5, oil, and grease. With the number of 200 staff, the amount of wastewater is significant. So if wastewater is not collected and treated by the adequate facility, it will cause water pollution and affect adversely to human s health and creature living in water Production wastewater: Production wastewater is removed from equipment repairing facility, cement-mixing station, sand washing station, crushing and screening station truck and road washing activities. So it contains suspended solid, oil, metal and organic material. They can cause settlement to rivers, reduction of surface water quality, effects on aquatic ecosystem. Run-off water: Run-off water flows over the project site, sweeping a lot of contaminant such as scattered oil, grease and rock. Impact of solid wastes The solid wastes generated from construction phase mainly include construction waste such as rock, soil, concrete, the dropped steel and iron, wood, bamboo. Additionally, the amount of domestic waste discharged daily from staff onsite is quite significant, consisting of various components range from organic substances such as vegetables and fruit to paper, food or plastic cans. If these kinds of waste are not treated in a timely manner, it will be the cause of bad odor and attract insects, flies, mosquitoes, having negative effects on environmental quality and human s heath. 37

38 Impacts to Land During the construction period, terrain surface will be excavated by following activities: land clearance, construction of houses for staff, road construction, construction of transformer and power line, construction of drainage system, cleaning of storages area for equipments, construction of accessory building. These activities can cause negative effects such as: The change of natural landscape of the region. The change in drainage line of surface water may form erosion as the huge rain occurs. Because of the construction of slopes, the potential of landslide may increase. Impact on ecosystem The project will have negative effects on the flora in the project site because it occupies the area of agriculture and forest land. The project creates small reservoirs, thereby reducing the flooded area. After preventing the water to build the dam, the water flow on the length of 1.5 km of stream segment behind dam to the power station may be decreased during the dry season, affecting to the aqua system. Measure to take for negative impact to Environment Mitigation of Affects to Air Using modern equipments and machines to reduce noise and exhaust gases. Regularly spray water on hot and dry days at project site to reduce dust. Apply technical measure to decrease dust concentration, noise and waste gas Implement regulation of labor safety and environmental sanitation Mitigation of Affects to water quality Secure the side slope at geologically unstable land. Develop the wastewater collection and treatment system at the auxiliary facilities and tent. Machinery oil will be collected and discharged far from the water source. Plant trees at the bare land in order to protect the water source. Mitigation of Solid Waste Affects Dumpsite will be arranged at the hollow area that has the vegetation to prevent erosion during raining. Prohibit discharging soil, rock into the stream. Domestic waste will be collected and buried at the landfill. Impact mitigation to ecosystem Develop a plan for watershed protection, forest fires prevention. Strictly manage the staff and cooperate with the local authority to prevent people from illegally destroying the forest and hunting animals. 38

39 Develop the plan on planting trees to create the nice landscape prevent erosion and landslides as far as possible. Chose the location of the project in order to minimize the negative effects on environment, the area of occupied land and resettlement. Satisfactory compensation, relocation and stabilization for local people are necessary and are governed by strict laws. Creation of favorable conditions for the employees at project site should be undertaken. D.2. If environmental impacts are considered significant by the project participants or the host Party, please provide conclusions and all references to support documentation of an environmental impact assessment undertaken in accordance with the procedures as required by the host Party: The environmental impacts of the project were not considered significant by the Vietnamese authorities. Hence, the Environmental Protection Commitment was approved by the People s Committee of Van Ban District, Lao Cai province on 22/08/

40 SECTION E. Stakeholders comments E.1. Brief description how comments by local stakeholders have been invited and compiled: The stakeholder s meeting was held at the administration office of the Nam Khoa 1 & 2 Hydropower Project at Nam Xe Commune, Van Ban District, Lao Cai Province, Viet Nam on 28/01/2010. Personal invitations were sent to community leaders, local People's Committee representatives and placed in the media. Public notices of the planned consultations were placed in Lao Cai Newspaper on 20/01/2010 which is widely published and read in the province. Across the consultation, presentations were made by the project owner and consultant who outlined the planned project activity in a non-technical manner (including environmental, social and technological considerations), climate change, the role of the Clean Development Mechanism and annual emission reductions potential. In addition, questionnaires were circulated and filled in by the attendees. In all, there were 20 participants attending the meeting and 16 questionnaires were collected. Figure E.1 Picture of the stakeholder s meeting at the administration office of the Nam Khoa 1 & 2 Hydropower Project at Nam Xe Commune, 28/01/2010 E.2. Summary of the comments received: During the consultation meeting, the stakeholders have not identified any major negative impact on the project. Local stakeholders appreciate that the project will have many positive aspects. However, some of them also showed that the project has some given impacts on the environment and their life. But they also clearly state that the scale of these impacts is very small or the sum of positive impacts is much bigger than that of negative impacts as follows: 40