CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS

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1 CDM Executive Board page 1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS A. General description of 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 project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring information

2 CDM Executive Board page 2 SECTION A. General description of project activity A.1. Title of the project activity: Waste Heat Recovery and Utilisation for Power Generation Project of Xingye Conch Cement Company Limited Version 03 4 th July, 2007 A.2. Description of the project activity: The Project Activity is a waste heat recovery and utilization for power generation project located at the cement plant of Xingye Conch Cement Company Limited in Xingye County of Yulin City of Guangxi Zhuang Autonomous Region. Xingye Conch Cement Company Limited is subordinate to Anhui Conch Cement Group Company Limited. The main objectives of the Project Activity are to develop the auxiliary waste heat power generation project of two 4500t/d clinker production lines that have been built to meet the electrical supply needs of Xingye Conch Cement Company Limited and to reduce greenhouse gas emissions through the recovery and use of waste heat from the rotating kiln of the clinker production lines. The scale of construction of the project is 18MW and the project proposes to build four heat recovery boilers with one set of mixedpressure admission condensing turbine-generator unit. The facilities established by the project activity will be commissioned in July, The annual design power generation of the set of turbine-generator unit above amounts to 138,000 MWh and yearly power supply to cement production facilities is 128,500 MWh. The designed annual operation time of the facilities is about 7,680 hours. The Project Activity supports the circular economy ideas as outlined most recently at a conference organized by the Chinese government, 1 and increases energy supply from clean energy sources and improves energy security at a time of energy shortage in the eastern provinces of China, 2 and will meet China s sustainable development needs. The Project Activity will reduce greenhouse gas emissions (CO 2 ) versus the baseline scenario, which is the continued supply from the regional power grid to meet the demand for power of the cement. Additionally the Project Activity will: significantly reduce harmful emissions (including SOx, NOx and floating particles), and thus improve the local environment lead to a reduction in the temperature of the vented hot air from about 380 C to 90 C and also reduce the volume of water that is consumed by the humidifying pump in the cooling towers and thereby save water resources in this area. lead to an increase in local staff employed by about 21 persons. 1 Source: China Daily Front Page, September 29 th 2004, where Minister Ma Kai, head of NDRC, is quoted. 2 There have been many articles on energy shortage in China including this latest one in the China Daily outlining how the supply - demand balance is expected to be reached again by 2006 after massive build out of predominantly coal fired power stations -

3 CDM Executive Board page 3 A.3. Project participants: Please list project participants and Party(ies) involved and provide contact information in Annex 1. Information shall be in indicated using the following tabular format. Name of Party involved (*) ((host) indicates a host Party) Private and/or public entity(ies) project participants (*) (as applicable) Kindly indicate if the Party involved wishes to be considered as project participant (Yes/No) Host Country: People s Xingye Conch Cement Republic of China (host) Company Limited No United Kingdom of Great Britain and Northern Ireland CAMCO International Limited 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. Note: When the PDD is filled in support of a proposed new methodology (form CDM-NM), at least the host Party(ies) and any known project participant (e.g. those proposing a new methodology) shall be identified. A.4. Technical description of the project activity: A.4.1. Location of the project activity: A Host Party(ies): The Host country is the People s Republic of China. A Region/State/Province etc.: The Project Activity is located in Guangxi Zhuang Autonomous Region. A City/Town/Community etc: The cement plant is located in Xingye County of Yulin City of Guangxi Zhuang Autonomous Region. A Detail of physical location, including information allowing the unique identification of this project activity (maximum one page): The Project Activity is located at the cement plant of Xingye Conch Cement Company Limited in Xingye County of Yulin City of Guangxi Zhuang Autonomous Region. The project s exact geographical coordinates are east longitude and north latitude is Figure 1 shows the location of Guangxi Zhuang Autonomous Region.

4 CDM Executive Board page 4 Figure 2 shows the location of Xingye Conch Cement Company Limited in Guangxi Zhuang Autonomous Region. Figure 1. Map of Guangxi Zhuang Autonomous Region. Figure 2. Map of Guangxi Zhuang Autonomous Region Showing Project Location Xingye Conch Cement Co. Ltd.

5 CDM Executive Board page 5 A.4.2. Category(ies) of project activity: The project activity is relevant to sectoral scope 1 Energy. A.4.3. Technology to be employed by the project activity: The Project Activity makes use of advanced Kawasaki heat recovery technology and the power generation of clinker per ton amounts to 37.9kWh, which comes up to the advanced international standard with the clear superiority of high efficiency of heat recovery and good effect of energy conservation. The project will not impact on the existing production process of cement. The main process of the Project Activity can be seen in Figure 3. Figure 3 The major process of the Project Activity Preheater outlet (existing) Dust gas PH boiler1 (newly added) Kiln-tail electro static precipitator Kiln-tail fan (existing) Steam Steam turbine 3 Generator 4 Main step-down substation (existing) Hot water Steam Hot water Working Condenser (newly added) water treatment plant (newly added) Feedwat er Low-pressure flash Tank (newly added) Cooling tower (newly Used for boiler feedwater circulation Grate cooler outlet (existing) Dust gas AQC boiler2 (newly added) Kiln-head electro static precipitator On the basis of existing clinker production lines, the project will utilize feedwater to recover the heat energy of low-temperature waste heat exhausted by cement clinker production lines. Through their own PH heat recovery boilers and AQC heat recovery boilers the feedwater will be converted into superheated steam. This steam will be fed into a steam turbine through a steam pipe. The heat energy will be converted into kinetic energy in the steam turbine by rotating the turbine s rotor at high speed,. This rotation will cause the energy to be converted into mechanical energy which will cause the generator to rotate. The rotating generator will produce electricity. The condensed exhaust steam from the steam turbine s condenser will be fed into the AQC boiler through boosting the pressure by the pump and then will be recirculated into the system. The waste gas that has participated in the heat exchange will enter the electro static precipitator of the existing waste gas treatment system separately through the kiln-head and

6 CDM Executive Board page 6 kiln-tail fans of the existing clinker production lines, which will then be vented into the atmosphere after the dust has been removed. The model numbers and performance characteristics of the main equipment relating to the project can be seen in the table below (Table 1). Table 1. Major Equipment Employed by the Project Activity Name of major equipment (Phase I) PH boiler AQC boiler Model, specification and performance Model: forced circulation boiler Model: Natural circulation boiler Quantity (set) Steam turbine Model: mixed-pressure admission condensing 1 3 and auxiliaries Generator Model: totally-enclosed self-cooling 3-phase AC synchronous generator 1 4 Point on Figure 3 Manufacturer KAWASAKI and Conch Joint Venture Hai- Chuan Company KAWASAKI and Conch Joint Venture Hai- Chuan Company Nan Jing Steam Turbine Co. Ltd. Nan Jing Steam Turbine Co. Ltd. A.4.4. Estimated amount of emission reductions over the chosen crediting period: The chosen crediting period for the Project Activity is 10 years. The starting date of the crediting period for the project is July 1st, During the crediting period, estimation of emission reductions by the project are shown in the table below. Table 2 Estimation of emission reductions of the project Please indicate the chosen crediting period and provide the total estimation of emission reductions as well as annual estimates for the chosen crediting period. Information on the emission reductions shall be indicated using the following tabular format. Years 2008 (July Dec.) 50, , , , , , , , ,024 Annual estimation of emission reductions in tonnes of CO 2 e

7 CDM Executive Board page , (Jan.- Jun.) 50,012 Total estimated reductions 1,000,240 (tonnes of CO 2 e) Total number of crediting years 10 Annual average over the crediting period of estimated reductions (tonnes of CO 2 e) 100,024 A.4.5. Public funding of the project activity: There is no public funding of the Project Activity.

8 CDM Executive Board page 8 SECTION B. Application of a baseline and monitoring methodology: B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: This Project Activity uses the approved consolidated baseline methodology ACM0004 (Version 2) titled Consolidated baseline methodology for waste gas and /or heat and/or pressure for power generation. This methodology also refers to ACM0002 (Version 6) Consolidated baseline methodology for gridconnected electricity generation from renewable sources and the latest version of EB (Version 2) Tool for the demonstration and assessment of additionality. More information can be found at: B.2. Justification of the choice of the methodology and why it is applicable to the project activity: The methodology ACM0004 applies to this Project Activity and the reasons are shown below: 1. This Project Activity is a waste heat power generation project of the cement plant of Xingye Conch Cement Company Limited through the recovery and use of waste heat from the rotating kiln of the cement clinker production line. 2. Electricity generated from the Project Activity with heat recovery directly displaces power imported from the SCPN (South China Power Network) with fossil fuels. No fuel switch is done in the process, where the waste heat is produced, after the implementation of project activity. 3. Clinker production requires a predetermined blend of raw materials (limestone and coal) to produce a tonne of clinker, the balance of these raw materials cannot be adjusted and therefore the coal requirement per tonne of clinker produced does not change. That means the quantity of coal used to produce clinker will not increase after the implementation of the project activity. B.3. Description of how the sources and gases included in the project boundary: The grid that the project joins up with is the SCPN. Therefore the Project Boundary is defined as the rotating kiln generating the waste heat of the project, heat recovery boilers (PH boiler and AQC boiler), waste heat generator unit and its auxiliary facilities and all power plants which join up with the SCPN. Table 3 The emission sources and gases included in the project boundary

9 CDM Executive Board page 9 Baseline Project Activity Source Gas Included or Justification /Explanation not? Grid electricity CO 2 Yes Main emission source generation CH 4 No According to the methodology, excluded for the simplification of calculation in accordance with conservative principle. N 2 O No According to the methodology, excluded for the simplification of calculation in accordance with conservative principle. On-site fossil fuel CO 2 No Not applicable. The project consumption due activity will not use auxiliary fuels to the project and there are no project emission activity resulting from this project. CH 4 No Excluded for the simplification of calculation. N 2 O No Excluded for the simplification of calculation. B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: According to the methodology ACM0004, for the Project Activity the possible baseline scenario alternatives would be as follows: 1. The proposed project activity undertaken without being registered as a CDM project activity; 2. Import of equivalent electricity from the SCPN; 3. Equivalent power supply from the existing or new captive plant on-site; 4. Other uses of the waste heat; 5. Equivalent power from captive plant and the grid; As for option 4, there are no other potential demands for additional waste heat. The cement plant at which the project activity is located is far from the nearest city, and it is not technically and economically feasible to supply the waste heat to that city. Therefore the waste heat could not be used for civil use and other industrial uses except for power generation. Therefore option 4 is not an acceptable baseline scenario alternative. As for option 1, the additionality analysis in B.5. will show specifically that the project will face many barriers if the project is not undertaken as a CDM project, so option 1 cannot be the baseline scenario. As for options 3 and 5, without existing captive power plant on-site, the cement plant requires the installation of a new coal fired power plant onsite to meet its demand. This would require the installation of an 18.5MW boiler. Coal fired power plants of less than 50MW cannot be constructed under Chinese

10 CDM Executive Board page 10 national regulations. 3 Therefore, small scale generation for the cement plant cannot be considered as an option for the Anhui Conch Group. The Chinese government provides the preferential policy to encourage the adoption of captive power plants that use other energy sources (such as diesel, natural gas, hydro, wind etc.) other than coal. There are no local resources available for captive power plants, and so options 3 and 5 are not feasible baseline scenario alternatives. Therefore, without the Project Activity, the power supplied by the project would certainly be supplied by the SCPN and newly added power plants in the future. So option 2 is considered to be the baseline scenario of the Project Activity. 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 CDM project activity (assessment and demonstration of additionality): According to the methodology ACM0004, the Tool for the demonstration and assessment of additionality is applied to demonstrate the additionality of the project activity versus the baseline scenario. Step 1. Identification of alternatives to the project activity consistent with current laws and regulations. Sub-step 1a Define alternatives to the project activity: The methodology ACM 0004 lists the possible baseline scenario alternatives: 1) The proposed project activity undertaken without being registered as a CDM project activity; 2) The continuation of the current situation, namely, the continuation of waste heat emitted and the relevant power supplied by the SCPN; 3) The construction of a coal fired captive power plant with equivalent capacitance, and under this situation, the surplus heat energy emitted into atmosphere; 4) Other uses of waste heat; 5) A mix of 2) and 3). For the project, option 4 is not a feasible alternative because the cement plant at which the project is located is far away from the nearest city and the project is not possible to be used for civil uses and other industrial uses. Therefore, option 4 is excluded as a possible baseline scenario alternative. Therefore, options 1, 2, 3 and 5 are considered to be the baseline scenario alternatives of the project activity. Sub-step 1b Consistency with Mandatory laws and regulations: Scenario 1) The proposed project activity is undertaken without being registered as a CDM project activity This scenario is consistent with prevailing laws and regulations. In addition, according to the state s industrial policies, the enterprises by utilization of waste heat, waste pressure, and urban landfill for power generation and heat generation as well as low calorie fuel, and with installed a unit capacity below 3 The notice of National Development and Reform Committee Office on closures of small scale thermal power generation units transmitted by State Council Office, issued by State Council Office in 1999 with issued No.44.

11 CDM Executive Board page kw can be connected to the grid if it meets the proper connection requirements (The notice on further development of multipurpose use of resource issued by the State Council in 1996 issue No.36). In addition, power generation plants with a unit capacity of 12MW or below that make comprehensive use of resources are not used in peak load regulation (The Notice on preparing important and big projects as well as leading example projects for power-saving, water-saving of and comprehensive use of resources as well as existing power plant with desulphurization equipment issued by the National Development and Reform Commission <No >). The Government emphasizes it s support toward the improvement in technology for power-saving in high consumption sectors such as the steel sector, the nonferrous metal sector, the petrochemical sector, the chemical sector, the material production sector etc. Utilization of waste heat for power generation in cement plants is listed among sectors mentioned above, which is highly supported and encouraged by state polices and regulations. Scenario 2) The continuation of waste heat emitted and the relevant power supplied by the SCPN; The SCPN is one of the six regional grids in China and according to the regulations and policies of the power market in China; the SCPN has to guarantee power to meet the demand of the growing industrial and commercial sectors of the region. Meanwhile, hot air emission is the common practice employed by the cement enterprises currently, which is not against the statutes of the current laws and regulations of China. Options 3 and 5) The development of a coal fired captive power plant to supply whole or part of the required power with the continuation of the emission of waste heat. Coal fired power plants of less than 50MW cannot be constructed under the national regulations of China 8. Indeed power plants of less than 200MW will not generally gain approval by governmental authorities. Moreover the Nation has an official programme of closures of small scale thermal power generation units and the announcement of the National Development and Reform Committee (No ) points out the first list of closures of small scale thermal power generation units. Therefore, small scale generation for the cement plant cannot be considered as an option for the Anhui Conch Group,which hopes to contribute to the improvement of the district environment through some encouragement measures on environmental protect including the CDM projects and their own devotion. Therefore, options 3 and 5 are excluded as baseline scenario alternatives. In conclusion, only options 1 and 2 are the feasible baseline scenario alternatives applicable to the project activity. Step 2. Investment Analysis Sub-step 2a. Determine appropriate analysis method This project will use sub-step 2b of the additionality tool; application of investment analysis for the project. The Tool for the Demonstration and Assessment of Additionality recommends three analysis methods including simple cost analysis (Option I), investment comparison analysis (Option II) and benchmark analysis (Option III).

12 CDM Executive Board page 12 The proposed project activity generates financial and economic benefits through the sale of electricity as well as the revenues from the CDM and therefore a simple cost analysis is not appropriate. The investment comparison analysis (Option II) is chosen when other comparative investment options are available, which for Conch is an investment in new production capacity. These comparisons are easily available through the comparison of project Feasibility Reports and approvals and therefore this option has been selected. The benchmark analysis (Option III) is not possible since there are no applicable sectoral benchmarks available and it is generally not possible in China to get the necessary information in order to calculate the weighted average cost of capital for comparison to an equity IRR. This is the case for the Conch Group. Sub-step 2b. Option II. Apply investment comparison analysis Scenario 1) Scenario 2) In scenario 1 Conch would continue to purchase power from the SCPN and would use their free capital to invest in their core business and invest in additional production capacity. The anticipated IRR for a new investment to increase production in the cement sector is used for this scenario. For the Conch Group the IRR of a new investment is typically 20% 4. This benchmark is higher than might be expected in the power sector, but this reflects the fact that the power output is driven by the demand for cement and not power. As such investments in the cement sector require higher returns and shorter pay back periods due to much larger uncertainty in future demand. Additionally, investment in the unfamiliar power technology poses additional risk to the company and for these investments to be viable they must at least be able to compete with investment in cement production. The investment returns of this scenario have been calculated on the basis of money saved on not purchasing the power from the grid. This analysis can also serve as a comparison between Scenario 1 and Scenario 2. The IRR is 10.65% and this is taken from the Feasibility Study Report of Xingye Cement waste heat recovery and utilization project. This is lower than the expected return for the Conch Group and therefore without the support of the CDM Conch would not have invested in this project. Sub-step 2c. Calculation and comparison of the financial indicator From the feasibility study report of the project, the basic parameters for the investment analysis are shown below 5 : Installed capacity: 18MW Annual output: 128,500 MWh Project lifetime: 20 years Total investment: RMB million Tariff: RMB 0.33/KWh Crediting period: 10years 4 P94. The Typical Investment IRR of 4000t/d Clinker Production Line of Beiliu Conch Cement Plant is 20.28%. Oct P55. The Investment IRR of t/d Clinker Production Line of Xuan Cheng Conch Cement Plant is 18.18%. Aug P55. The Feasibility Study Report of Waste Heat Recovery and Utilisation for Power Generation Project of Xingye Conch Cement Company Limited

13 CDM Executive Board page 13 Construction investment: The project IRR is 10.65% after taxes. It is therefore clear that the project activity cannot provide the same level of return as investment in its core business; clinker production. This is significantly lower than the 20% or higher expected from these investments and as such this is not attractive to the Conch Group. Moreover, the project has inherent technology risks that arise due to lack of experience in China and on the project site. Sub-step 2d. Sensitivity analysis The sensitivity analysis is used to show that the financial attractiveness is robust to reasonable variations in the critical assumptions. For a waste heat power project the critical factor is the money saved from not purchasing grid electricity. This factor is dependent upon the tariff and the power generation capabilities of the plant. Sensitivities have been tested from -20% to +20% and the results are presented below in Table 4 below. Table 4 Sensitivity analysis table of the project IRR Variable -20% -10% 0 +10% +20% Power Generation Construction Investment It can be seen from Table 4 that the project is most sensitive to power generation. The analysis also shows that within a 20% sensitivity the project will not achieve the financial returns comparable to an investment in clinker production. The power generation has the most direct impact on the economic evaluation indictors (IRR etc.) as the product price of the project activity. When the tariff decreases 20%, the IRR goes down 50.80% and is 5.24%, which is obviously lower than that in Scenario 1. However, the power generation of the project will be influenced directly by the clinker output and equipment operating hours. The calculation of the IRR above is on the basis of the ideal situation (equipment operating without fault yearly, operating staff working skilfully and cement production normally). Meanwhile, because the project relies on the cement production as stated above and it is impossible for the project to increase coal input in order to increase power output, power generation will only be determined by the clinker production. Should demand for cement fall or even stop increasing in the way that it has been in recent years then the overcapacity in the sector will become evident and the competition will have a major impact on the profitability of the clinker production and even more so on the economics of the Project Activity.

14 CDM Executive Board page 14 This analysis shows that without further incentivisation, in this case from the CDM, Conch Group would not to invest in the project and would continue to purchase power from the SCPN and would use their free capital to invest in their core business, namely, cement production. Step 3. Barrier analysis According to Tool for the demonstration and assessment of additionality, in step3, a barrier analysis is employed to determine whether the proposed project activity faces the barriers that: (a) Prevent the implementation of this type of proposed project activity; and (b) Do not prevent the implementation of at least one of the alternatives. Sub-step 3a. Identify barriers that would prevent the implementation of the proposed project activity: Many barriers exist toward the implementation of the project activity, including: (1) Technology barriers a) Maintenance of compatible local equipment and parts supply facilities Figure 2. Kawasaki Heavy Industries. Although at present there are the similar waste heat recovery projects in China using either foreign technology or domestic technology, this will be the first of a set of projects undertaken by the Conch group that utilises foreign technology manufactured domestically. The technology comes from a joint venture between Kawasaki Heavy Industries and Anhui Conch Cement Group, Hai- Chuan Company, and will be the first time that the Kawasaki technology is manufactured in China.

15 CDM Executive Board page 15 To date there have been a few projects that have utilised foreign technology and all of these have either been grant financed or financed through the CDM. This will be the first deployment of foreign design through Chinese manufacture and as such serves as a demonstration for the sector. The key equipment of this project, PH (Pre-Heater) heat recovery boiler and AQC (Air Quenching Cooler) heat recovery boiler will be manufactured by Hai-Chuan Company. And specifically: (i)the PH heat recovery boiler utilises the design and key components from Kawasaki Heavy Industries, while the rest of the units are and operating spare parts are manufactured in China. (ii)the AQC heat recovery boiler only utilises the technology design from Kawasaki Heavy Industries and is manufactured domestically. For the PH boiler the operating spare parts are manufactured and purchased in China and there is therefore a risk that they do not reach the design requirement of the Kawasaki technology. Thus it could greatly reduce the operating efficiency of the PH heat recovery boiler For the AQC heat recovery boiler, all spare parts are manufactured and installed domestically. The AQC heat recovery boiler is a special case and there are no domestic precedents in its manufacture. Additionally, China s mechanical manufacturing ability is low compared with other countries such as Japan and therefore the integral heat-exchange performance and long-term operating reliability of the equipment will face large barriers in the demonstration of this new technology. b) The risk in connection with utilising advance heat recovery technology In order to increase the heat utilisation efficiency of the waste heat recovery without influencing the operation of the existing cement production lines, the project activity will implement new technology design at two key points. (1) The waste heat recovery from the Clinker cooler is improved. The heat is not only used for preheating the coal powder entering the kiln in the new waste heat scenario the remaining waste heat is also utilised in the AQC boiler for production of steam used in the Rankine steam cycle. (2) The exhaust gas from then end of the kiln is utilised in heat recovery boiler as part of the Rankine steam cycle. The inner heating surface of the PH boiler is based in the advanced snake-shaped fluorescent tube in order to increase heat-exchange efficiency. The advanced heat recovery system and equipment is not common practice and there is a risk in the design itself. In addition, the domestic manufacturing and installation of the advanced equipment will also bring risks to the project. c) Equipment operation barriers In many Chinese high temperature heat recovery projects it is often seen that erosion courses major problems and concerns. Heat recovery boilers are easy to be worn out by the dust in the high temperature exhaust gas which subsequently causes decreased efficiency of the equipment and consequently loss of temperature and power in Rankine steam cycle.

16 CDM Executive Board page 16 In the Project Activity, the dust content of the preheated exhaust gas in the heat recovery boiler is g/ Nm 3 When exposed to high temperature, the dust in the exhaust gas becomes concentrated on the surface of the heat exchanger in the heat recovery boiler (Fouling). As the dust accumulates on the surface of the heat exchanger, the heat transfer will decrease and there is a risk of wearing down the surface. The efficiency of heat transfer is therefore impaired and ultimately, this issue will impact the power generation efficiency of the project. It is therefore of high importance that the operation of the kiln and the heat recovery units are closely monitored and that sufficient maintenance is applied when necessary. Secondly, the power generation equipment will have a great impact on the power generation efficiency of the project. Compared with advanced foreign equipment, the domestic power generation equipment is technologically immature which causes it to have a low utilization of heat efficiency. For example, compared with the domestic natural circulation system, the advanced foreign design for the PH boiler is the horizontal forced circulation system which can increase heat exchange and heat efficiency. The foreign design and control of the water pump is highly advanced. The flow capacity of the water pumps inlet as well as the pressure control of the water pump will not have effect on the water pressure on the outlet of the water pump, thus it is possible to keep the water pressure at the outlet constant. The power generation equipment chosen for the project is manufactured domestically, and the project owners will have to face the technological barriers that will arise by installing this equipment. Finally, the specific project owner has no experience in operation of a heat recovery system used for power generation, which makes the operation of the project become more difficult. d) Lack of skilled and/or properly trained labour to operate and maintain the technology Because there is no precedent for applying the foreign design and domestic manufacture in this industry, finding skilled and/or properly trained labour to operate and maintain the technology will not be possible. The extensive requirement for staff training has meant an increase both to the cost of the project as well as a serious effect on the implementation time and the efficiency of the project at its early period, which cause the economic benefits decreased greatly at the early period of the project. The Conch Group has to consider this kind of risk. The Conch Group will adopt the following methods to reduce the technology risk. (1) Establish a waste heat power recovery technology training centre to train operators on a regular basis and to provide the technology support needed to insure proper project operation, (2) Cooperate with KAWASAKI Heavy Industries and set up the parts service centre specifically for the repair of waste heat recovery equipment. (2) Investment barriers Additional costs are not included or foreseen in the feasibility study. After additional costs are added to the total project costs, the investment costs are set out in the table below. Table 4 Additional costs of the project

17 CDM Executive Board page 17 Total Investment Costs (million RMB): Additional Costs (million RMB): 1. Duty VAT Freight Connection to boiler Electrical upgrade Safety & Security Inspection Cooling water pipeline After sales service Non-standard equipment 0.41 Total Additional Costs (million RMB) Revised Total Investment Costs(million RMB) It can be seen in the table above that the total investment for the project is more than 160 million RMB, which is an enormous investment for the Conch Group. To date, the company s portfolio of investments has been in the field of cement and has not been focused on the procurement of technology to generate power. It is difficult for Conch Group to raise the 160 million RMB needed for the project. Also, as stated above, the project will face a series of existing technology barriers and risks which will make it hard for the project to obtain loans. Meanwhile, additional costs for the project amount to million RMB, accounting for 16.93% of the total investment of the project. This additional cost will increase the cost of the project greatly. This higher cost makes it even harder for the project to obtain bank loans. In addition, without the international financial market involved in the project, the project can not obtain international financing. Without the bank loans and the international financing, the project will not be able to be implemented through the use of the equity financing of the project owners alone. The project financing comes mainly in the form of debt from Chinese banks and the Conch Group will be responsible for the remaining equity and any funding gaps in the project finance. This means that the project is guaranteed by the Conch Group Company who will ensure that any financing barriers or gaps are overcome and that the project operates smoothly. Without the support of international capital, the project activity would be postponed or abandoned due to the problem of raising funds, but the CDM can help the Conch Group to obtain additional benefits and develop financing channels and will help counteract the high early investment of the project and decrease the economic pressure of the operation of power plants obviously in the crediting period and then increase the rate of return and improve the economic indictor of the project and thereby enhance the ability of the project against the risks and make the Conch Group have more possibility to obtain financing on loan. Sub-step3b. Show that the identified barriers would not prevent the implementation of at least one of the alternatives (except the proposed project activity): Sub-step 3a shows that the smooth implementation of the project faces many prohibitive barriers. The barriers mentioned above will not impact on the continuation of current practice of Scenario 2 (continuation of the procurement of the equivalent power from the SCPN). The project owner (the Conch

18 CDM Executive Board page 18 Group) undertakes many risks in the process of the project, but CDM can help make up these risks through the project revenue. This step is applicable. Step 4. Common Practice Analysis Sub-step 4a. Analyze other activities similar to the proposed Project Activity In China, there are some 4,700 cement plants in operation. From research and discussions with technical experts 6 (including designers, manufacturers and the EPC companies) heat recovery boilers and turbines fitted to large cement works of similar size to the Project Activity have been identified and are listed in Table 5 together with any facilitating circumstances. The first two projects in the list were undertaken and were granted financial assistance by the Japanese Government with Japanese technology. The Ningguo project in the list belongs to the Conch Group. Table 5. Other similar projects at similar sized cement plants and facilitating circumstances in China No. Project Name Public Source / reference Facilitating circumstances 1 Anhui Ningguo Cement Plant (4000 t/d) 2 Guangxi YuFeng Cement Plant (5.7MW) 3 Zhejiang Sanshi Cement Works (23.5MW) 4 Zhejiang Hongshi Cement Works (30MW) 5 Shanghai Wan an Cement Plant (1500t/d) 6 Sanshi Zhejiang Changxing Cement Plant (5000t/d) 7 Sanshi Zhejiang Changxing Cement Plant (2500t/d) 8 Zhejiang Changxing Mei Shan Zong Sheng Cement Plant (5000t/d) /LY31/ htm /article/200308/ xml Japanese NEDO granted Equipment Japanese NEDO granted Equipment - Applying CDM project Applying CDM project Used domestic design and equipment. Used domestic design and equipment. Used domestic design and equipment. Used domestic design and equipment. 6 The investigation was undertaken for the heat recovery project for power generation of Taishan Cement Plant, which is now registered.

19 CDM Executive Board page 19 9 Zhejiang Changxing Xiao Pu Zong Sheng Cement Plant (2500t/d) 10 Hainan Changjiang Cement Plant (5000t/d) 11 Zhejiang Tongxiang Shenhe Cement Plant (2500t/d) 12 Zhejiang Longyou Qing Longshan Cement Plant (2500t/d) 13 Zhejiang Huzhou Zhonglida Cement Plant (2500t/d) Used domestic design and equipment. Used domestic design and equipment. Used domestic design and equipment. Used domestic design and equipment. Used domestic design and equipment. Sub-step 4b. Discuss any similar options that are occurring: From Table. 5, it can be shown that the No.1 and No.2 projects were undertaken at the Anhui Ningguo and Guangxi YuFeng sites entirely with Japanese technology (these projects were grant financed by the Japanese Government). The No. 3 and No.4 projects in the list are also applying CDM projects. The 9 other projects used domestic designs and equipment. The list above represents only a small fraction of the possible plants that could make use of the waste heat recovery system that is being proposed by the six cement factories in China. In addition, the equipment was donated from abroad or designed and manufactured domestically in most projects throughout China. Most of the time, equipment manufactured and procured domestically with technology introduced from abroad does not turn up in the projects implemented in China. B.6. Emission reductions: B.6.1. Explanation of methodological choices: Calculate the emissions reductions of the Project Activity versus the baseline as per the Approved Consolidated Baseline Methodology ACM0004. Step 1: Project Emissions, PEy Project Emissions are applicable only if auxiliary fuels are utilized during generation startup, in the case of an emergency, or to provide additional heat gain before entering the Waste Heat Recovery Boiler. Project Emissions are given as: 44 PE OXID where: y = Qi NCVi EFi i 12 i (1) PEy : Project emissions in year y (tco 2 ) Qi : Mass or volume unit of fuel i consumed (t or m 3 ) NCVi : Net calorific value per mass or volume unit of fuel i (TJ/t or m 3 )

20 CDM Executive Board page 20 EFi : Emission factor for the project emission estimation. (tc/tj) OXIDi : Oxidation factor of the fuel i (%) According to the feasibility study, this project activity will not need auxiliary fuels to provide additional heat. Therefore, project emissions (PEy) are zero. Step 2: Baseline Emissions, BEy Baseline emissions are given as: BE electricity, y = EGy EFelectricity, y (2) Where: EGy Net quantity of electricity supplied to the manufacturing facility by the project during the year y in MWh, and EFy CO 2 baseline emission factor for the electricity displaced due to the project activity during the year y (tco 2 /MWh). The baseline Scenario of this project activity is import of electricity from the grid (the option 2 calculating baseline emission factors in the methodology), and with the requirements of the methodology, the emission factor for displaced electricity is calculated according to the ACM0002 methodology. Determination of Operating Margin and Build Margin (OM & BM 13 ) EF (tco 2 /MWh) = (EF OM + EF BM ) / 2 (3) According to the approved consolidated baseline methodology ACM0002, Simple OM method is used for calculating Operating Margin emission factor (EF OM,y ). Equation is given as follows: EF OM Fi, j i, j, y COEFi, j, simple, y = GEN (4) j j, y Where: F i,j, y is the amount of fuel i (in a mass or volume unit) consumed by province j in year(s) y, COEF i,j y is the CO 2 emission coefficient of fuel i (tco 2 / mass or volume unit of the fuel), taking into account the carbon content of the fuels used by province j and the oxidation percent of the fuel in year(s) y, and GEN j,y is the electricity (MWh) delivered to the grid by province j. The CO 2 emission coefficient COEF i is obtained as 13 Source: the Result of China Grid Baseline Emission Factor Calculation issued by the NDRC on October 16 th, 2006,

21 CDM Executive Board page 21 COEF i = NCVi EFCO2, i OXID i where: NCV i is the net calorific value (energy content) per mass or volume unit of a fuel i and is specifically given by the country. OXID i is the oxidation factor of the fuel (IPCC default values), and EF CO2,i is the CO 2 emission factor per unit of energy of the fuel i (IPCC default values). In addition, in the case that grid gains net import and the specific power plant(s) is known, emission factor of the imported power from the specific power plant(s) should be used. In the case of unknown specific power plant(s), average emission factor of exporting grid should be used. According to the approved consolidated baseline methodology ACM0002, the Build Margin emission factor (EF BM,y ) is calculated as the generation-weighted average emission factor (tco 2 /MWh) of a sample of power plants m, as follows: EF BM Fi, m, y COEFi, m, y i, m, y = (5) GEN m m, y Where: F i,j, y is the amount of fuel i (tce, tonnes of standard coal) consumed by power plants m in year(s) y, COEF i,j y is the CO 2 emission coefficient of fuel i (tco 2 /tce), taking into account the carbon content of the fuels used by power plants m and the oxidation percent of the fuel in year(s) y, and GEN j,y is the electricity (MWh) delivered to the grid by power plants m. The Methodology has two options for calculating BM: 1) Calculate the Build Margin emission factor EF BM,y ex-ante based on the recent 3 years available data at the time of PDD submission. 2) For the first crediting period, the Build Margin emission factor EF BM,y must be updated annually ex-post for the year in which actual project generation and associated emissions reductions occur. For subsequent crediting periods, EF BM,y should be calculated ex-ante, as described in option 1 above. The result of EF BM,y is based on ex-ante calculated according to option 1, and no ex-post monitoring and updating is needed. On account of the data availability, the following calculation adapted alternative approved by EB. According to the alternative, newly-built capacity and its composition of power generation technologies is calculated first, then the weights of newly-built capacity for those technologies, and finally the emission factors are calculated using commercially optimal efficiencies of the technologies. Because capacities of technologies using coal, oil and gas cannot be separated from the total thermal power generation from available statistics, the following method is used for the calculation: first, use the recent one year available energy balance data and calculate percentages of CO2 emission of power generation using solid, liquid and gas fuel in total CO2 emission. Second, calculate grid thermal power emission factors, using the percentages (as weights) and emission factors of technologies corresponding to commercially optimal efficiencies. Last, thermal power emission factor is multiplied by the percentage of thermal power in 20% newly built capacity in the grid, and the result is the Build Margin emission factor of the grid. Steps and equations are as follows:

22 CDM Executive Board page 22 StepA: calculate percentages of CO2 emission of power generation using solid, liquid and gas fuel in total CO2 emission. i, j, y i = COAL, j COEF λ Coal (6) F COEF i, j F i, j, y i, j, y i = OIL, j COEF i, j i, j λ Oil (7) F COEF i, j F i, j, y i, j, y i = GAS, j i, j i, j COEF λ Gas (8) F COEF i, j F i, j, y i, j i, j Where: F i,j, y is the amount of fuel i (tce) consumed by province j in year(s) y, COEF i,j y is the CO 2 emission coefficient of fuel i (tco 2 /tce), taking into account the carbon content of the fuels used by province j and the oxidation percent of the fuel in year(s) y, COAL,OIL and GAS refer to coal fuel, oil fuel and gas fuel in the subscript set. StepB: calculate thermal emission factor. EF Thermal = Coal EFCoal, Adv + λoil EFOil, Adv + λgas EFGas, Adv λ (9) Where: EF Coal,Adv,EF Oil,Adv and EF Gas,Adv are emission factors corresponding to commercially optimal efficient power generation technology using coal, oil and gas 14. StepC: calculate grid Build Margin emission factor. CAP EF = EF Thermal BM, y Thermal (10) CAPTotal Where: CAP Total is the total newly built capacity, CAP Thermal is the newly built thermal power capacity. Emission factor value provided by Office of National Coordination Committee on Climate Change of National Development and Reform Commission The specific parameters and calculation process can be seen in the Calculation Process of China s Gird Build Margin Emission Factor issued by the NDRC on October 16 th, 2006, 15 The source of data of power generation and efficiency of power of the cement plant required to calculate OM and BM is China Electric Power Yearbook, The source of data to calculate fuel consumption for power generation and low calorific value is China Energy Statistic Yearbook The source of the potential emission factors of different fuels and oxidation percent of the carbon is Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories: Workbook, Chapter 1, Table 1-2, P16 and Table 1-4, P18

23 CDM Executive Board page 23 OM(tCO 2 /MWh) BM(tCO 2 /MWh) CM(tCO 2 /MWh) the SCPN Step 3: Leakage According to the methodology leakage will not be considered. Step 4: Emission Reduction Since the project s emissions and leakages are both zero, the emission reduction for the Project Activity is the baseline emission of the project. ER y = BE electricity,y B.6.2. Data and parameters that are available at validation: Data / Parameter: Combined Margin Emission Factor (EF CM ) Data unit: tco 2 / MWh Description: Calculated ex ante as a weighted sum of emission factors of Operating Margin and Build Margin. The emission factor is fixed throughout the crediting period. Source of data used: NDRC Value applied: tco 2 / MWh Justification of the choice Emission factor calculated according to the methodology presented in of data or description of ACM0002: Consolidated baseline methodology for grid-connected measurement methods and electricity generation from renewable sources (ACM0002/ Version 06, procedures actually Sectoral Scope: 1, 19 May 2006) 7. applied : Any comment: - Data / Parameter: Operating Margin Emission Factor (EF OM ) Data unit: tco2/ MWh Description: Calculated ex ante as the average emission factor, over 3 years, of the grid excluding must run, low cost sources. Source of data used: NDRC Value applied: tco2/ MWh Justification of the choice Emission factor calculated according to the methodology presented in of data or description of ACM0002: Consolidated baseline methodology for grid-connected measurement methods electricity generation from renewable sources (ACM0002/ Version 06, and procedures actually Sectoral Scope: 1, 19 May 2006) applied : Any comment: - Data / Parameter: Build Margin Emission Factor (EF BM ) Data unit: tco2/ MWh Description: Calculated ex ante as weighted average emission factor of the 20% most 7

24 CDM Executive Board page 24 recent power plants built Source of data used: NDRC Value applied: tco2/ MWh Justification of the choice Emission factor calculated according to the methodology presented in of data or description of ACM0002: Consolidated baseline methodology for grid-connected measurement methods electricity generation from renewable sources (ACM0002/ Version 06, and procedures actually Sectoral Scope: 1, 19 May 2006) applied : Any comment: - F i, j, y Data unit: in mass or volume unit Description: total amount of fuel i consumed for power generation in province j year y Source of data used: China Energy Statistical Yearbook Value applied: See calculation spreadsheet. Justification of the choice The data obtained from the China Energy Statistical Yearbook is reliable. of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: GEN i, j, y Data unit: MWh Description: Electricity supplied to the grid by plants burning fuel i (not including low cost and must run sources) in province j Source of data used: China Electric Power Yearbook Value applied: See calculation spreadsheet. Justification of the choice The data obtained from the China Electric Power Yearbook is reliable. of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: OXID i Data unit: % Description: oxidation factor of the fuel i Source of data used: IPCC Guideline for National Greenhouse Gas Inventories Value applied: Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: for gas fuel, 0.99 for liquid fuel and 0.98 for solid fuel According to the methodology, IPCC default values can be used

25 CDM Executive Board page 25 Data / Parameter: NCV i Data unit: TJ per mass or volume unit of fuel i Description: Net caloric value of fuel i Source of data used: P365 of China Energy Statistical Yearbook 2005 Edition Value applied: See calculation spreadsheet. Justification of the choice According to the methodology, national data should be used, if available. of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: EF CO 2, i Data unit: tc/tj Description: CO 2 emission factor per unit of energy of the fuel i Source of data used: IPCC Guideline for National Greenhouse Gas Inventories Value applied: See calculation spreadsheet. Justification of the choice According to the methodology, IPCC default values can be used of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: CAP i, j, y Data unit: MW Description: Total capacity of plants in province j burning fuel i in year y. Source of data used: China Electric Power Yearbook Value applied: See calculation spreadsheet. Justification of the choice The data obtained from the China Electric Power Yearbook is reliable. of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: Eff i Data unit: % Description: Optimal efficiency of commercially available technology of fuel i Source of data used: NDRC Value applied: Justification of the choice of data or description of measurement methods and procedures actually applied : See calculation spreadsheet. The data obtained from the website of China s DNA is reliable.

26 CDM Executive Board page 26 Any comment: - B.6.3. Ex-ante calculation of emission reductions: According to B.6.1, the emission reduction of the Project Activity is the baseline emission of the project, namely: ER y = BE electricity,y =EG y *EF electricity,y The Baseline emission factor EF y is determined in advance which is tco 2 /MWh. The yearly net power supply of the project amounts to 128,500 MWh according to the feasibility report of the project. Therefore the yearly emission reductions of the project is estimated to be 100,024 tco 2 e. 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) 2008 (July Dec.) 0 50, , , , , , , , , , , , , , , , , , , , (Jan.- June) 0 50, ,012 Total (tonnes of CO 2 e) 0 1,000, ,000,240 B.7. Application of the monitoring methodology and description of the monitoring plan:

27 CDM Executive Board page 27 B.7.1. Data and parameters monitored: Data / Parameter: Data unit: Description: Source of data to be used: Value of data applied for the purpose of calculating expected emission reductions in section B.5 Description of measurement methods and procedures to be applied: QA/QC procedures to be applied: Any comment: Data / Parameter: Data unit: Description: Source of data to be used: Value of data applied for the purpose of calculating expected emission reductions in section B.5 Description of measurement methods and procedures to be applied: QA/QC procedures to be applied: Any comment: EG GEN MWh/yr overall generation on-line monitoring 138,000 Total power generation will be monitored continuously by the digital control system of the power plant and will be collected and archived by the CDM monitoring working group every month Measuring instrument will be installed and adjusted according to the requirement of the power company and the technical supervision department EG AUX MWh/yr Auxiliary power On-line monitoring 9,500 Power consumption of the project activity will be monitored continuously by the digital control system of the power plant and will be collected and archived by the CDM monitoring working group every month Measuring instrument will be installed and adjusted according to the requirement of the power company and the technical supervision department B.7.2. Description of the monitoring plan: The figure below outlines the operational and management structure that the project operator will implement for the CDM Project Activity. It will be used to monitor emissions reductions and any leakage effects, generated by the project activity. Figure 4. Operational and Management Structure for Monitoring the Project Activity

28 CDM Executive Board page 28 Monitoring Management Quality responsibility Technical responsibility Commercial responsibility Responsibility for quality supervision Responsibility for data collection There are three key types of information that must be monitored according to the new proposed monitoring methodology Consolidated monitoring methodology for waste gas and/or heat and/or pressure for power generation : 1) Measurable/calculated information that is collected prior to the validation of the Project Design Document 2) Various types of documented evidence that are collected prior to the validation of the Project Design Document 3) Information that must be monitored ex-post, notably: i. The total generation output from the Project ActivityEG GEN ; the electricity consumed in power plant EG AUX ;and the electricity supplied to the cement plants from the project activity EG y. ii. NCVi is net calorific value per mass or volume unit of fuel i, and EFi is carbon emissions factor per unit of energy of the fuel i, therefore, the project emissions, PEy can be calculated based on this data. For items 1 and 2 above, copies of these values/documents will be included in the Project s Monitoring and Verification Plan, which the validator and verifier can check annually. For item 3 above, an outline of the specific ex-post monitoring plan for the project is available. Monitoring EG GEN,EG AUX,EG y The internal meters are maintained and recorded on a monthly basis by the cement plant. The meter readings can be checked against electrical sales records from the cement plant. The meters are calibrated according to the related internal procedures and by qualified staff from the local power grid company. Meter inspections are carried out with all parties present in order to verify the meter reading. The net meters are the property of the South China Power Network and are maintained by them according to national calibration and maintenance procedures according to DL/T version. The accuracy of all power meters will be 0.5S. Quality assurance and quality control