CONTENTS. B. Application of a baseline and monitoring methodology. C. Duration of the project activity / crediting period. Annexes

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1 page 1 Based on the 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 Plan Annex 5: Generation License Annex 6: Turkish Grid Emission Factor/PA Project Emission Calculations Annex 7: Turkey Historic Spreads.xls Annex 8: Beta Calculation_v01.xls Annex 9: Detailed Financial Analysis Annex 10: Letter from EÜAŞ Annex 11: Share Purchase Agreement Annex 12: Plant Operation Organization Chart

2 page 2 SECTION A. General description of project activity A.1. Title of the project activity: Kumköy Hydroelectric Power Plant, Samsun Province, Turkey. Version 08 Date of Document: February 15 th, 2012 Version Number Date of Document Version 01 April 14 th, 2008 Version 02 May 28 th, 2008 Version 03 June 10 th, 2008 Version 04 March 6 th, 2009 Version 05 August 18 th, 2009 Version 06 March 19 th, 2010 Version 07 March 14 th, 2011 A.2. Description of the project activity: The proposed project activity is the construction of Kumköy hydroelectric power plant (the Project Activity ) with an installed capacity of 17.5 megawatts. The Project Activity, located on the Yeşilırmak River in the Black Sea region of Turkey, will generate and supply hydroelectricity to the Turkish National Electricity Interconnected System and will displace electricity produced by fossil fuels. The Project Activity is being developed by Kumköy Enerji Üretim A.Ş. (the Project Owner") who holds the generation license (As per EMRA Board Decision dated no , the generation license of the Project Activity has been transferred from the previous owner, AES-IC İçtaş Enerji Üretim ve Tic. A.Ş., to Kumköy Enerji Üretim A.Ş., the relevant Board Decision, Trade Registry Gazette and Generation License are given in Annex-5). The Project Owner is a joint venture between IC İbrahim Çeçen Yatırım Holding A.Ş., a Turkish private company, and The AES Enerji Limited Şirketi, an American corporation with global activities in the energy sector. The Kumköy project includes a weir and a reservoir that has been constructed by the General Directorate of State Hydraulic Works (DSI), which is the main governmental organization responsible for waterrelated issues in Turkey. The weir will serve two purposes: one is to provide water for irrigation and the other is energy generation. The construction of the weir was started by DSI already in 1997, but

3 page 3 construction has taken longer to complete than planned due to DSI budgetary problems. The construction of the weir has been completed but the irrigation component is still in the development phase. The Kumköy project is planned to irrigate hectares of land in the Çarşamba plain downstream of the project. Two water intake structures have been constructed on the right and left hand sides of the Kumköy weir. The overall annual of water for irrigation purposes will be released through these structures. The hydroelectric powerhouse and the energy facilities will be located next to the weir; meaning the Project Activity is a river type (run-of-river without a water conveyance system composed of a canal or tunnel) hydropower project. Water released from the weir will be used for power generation exclusively until the irrigation project infrastructure is created in the Çarşamba Plain. After the implementation of the irrigation projects, the Kumköy weir and reservoir will be utilized for both purposes. The irrigation project will receive preference for the water and only the remaining water amount will be utilized to generate electricity. While most of the Kumköy project infrastructure will be completed by DSI, the energy facilities including the electromechanical equipment and transmission line have been constructed by the Project Owner. The Project Activity has been started to operation on February 23, The Kumköy project is part of the Yeşilırmak River Master Plan, which also includes two large-scale energy production projects, the Hasan Uğurlu and Suat Uğurlu dams which are upstream to the Project Activity (see inset in the bottom map of figure 2). The Hasan Uğurlu and Suat Uğurlu dams have been operational for more than 20 years. Kumköy weir is located 2.6 km downstream from Suat Uğurlu dam. Hasan Uğurlu dam is the main regulating structure in the basin. The water potential of the Yeşilırmak river which is one of the largest rivers in Turkey will be turbined once more in the Project Activity after it has been released from these two dams before reaching the Black Sea. The available gross head at the project site is 9.76 m and the design discharge is 210 m 3 /s. These features necessitate typical Bulb type turbines to be installed within the scope of the Project Activity. With a total installed capacity of 17.5 MW, the Project Activity is estimated to supply MWh of electricity to the grid and reduce emissions of tco 2 e annually. The Çarşamba plain that will be irrigated by the Kumköy weir is partially under the implementation program of DSI. Some other upstream irrigation projects are planned in the upper catchment area of the Hasan Uğurlu dam. At the moment, there is no definite national implementation plan for these irrigation projects that would impact the generation capabilities of the proposed Project Activity. A very comprehensive hydrological analysis has been performed on the basis of the overall basin in order to calculate the amount of water available for the weir site. The impact of the development of irrigation

4 page 4 projects on the Project Activity has been considered with a rather conservative projection of water amounts available for the power plant after the implementation of irrigation projects as shown below: Operation Period Mean Annual Flow (hm 3 /year) Gross Generation (GWh/year) Net Gen.(Gross x 12% losses) (GWh/year) The implementation of irrigation projects is expected to reduce the water amount available to the Project Activity only during the second and third project s crediting periods (after March-2019). Emission reductions will also be reduced during the second and third crediting periods as the electricity generation of the Project Activity declines. It is foreseen that the irrigation projects will not be developed within the first crediting period due to the current delays in weir construction and the present conditions of the Çarşamba plain irrigation project. The projection given in the table was considered in the final feasibility report as well as in the evaluation and justification of the Project Activity. The final feasibility report of the Project Activity has been officially approved by DSI. Kumköy project does not have a significant water regulation capacity. The maximum and minimum operating levels of the reservoir (the elevations of the water in the reservoir according to sea level) are planned for 30 m and 28 m, respectively. A 2 m depth of reservoir corresponds to 1.18 hm 3 active volume, which is a low value that is negligible and will only be sufficient to regulate a low amount of the water on an hourly basis. Therefore, the Project Activity is not capable of regulating water on a monthly, seasonally and yearly basis that can only be attributed to a storage-type HEPP. Consequently, the Project Activity is a river type HEPP that is dependent on meteorological conditions, hydrological conditions and water being released from upstream dams. The average estimated flow of the Project Activity is 167 m 3 /s and the turbine design capacity is 3 x 70 = 210 m 3 /s. This water capacity will be used to generate clean renewable energy that displaces energy created by grid-connected power plants that burn imported fossil fuels.

5 page 5 Fig 1: General layout plan of Kumköy HEPP. Our Win - Win - Win model: Applying for Verified Emission Reductions (VERs) is part of the Project Owner s strategy to help Turkey increase foreign investments and support the practice of social responsibility and corporate citizenship. Some of the benefits of the Project Activity include: 1. Improving the local and regional economic development by: (a) providing electricity to meet increased demand, (b) alleviating poverty by creating job opportunities (an average of 40 people were employed during construction, and about 15 people will be employed for operation, maintenance, repair and control), and (c) contributing to the local investment environment. 2. Diversifying the sources of electricity generation and producing clean energy that otherwise would have been produced by fossil fuels. 3. Utilizing indigenous renewable energy potential, and by doing so, contributing to reducing Turkey's dependency on imported fossil fuels. 4. Reducing air pollution and greenhouse gas emissions by generating clean energy that would have otherwise been generated by fossil fuels. 5. Establishing a dialogue with stakeholders as a common practice in Turkey. 6. Transferring technology and knowledge of bulb-type turbines to Turkey. This proven technology is widespread worldwide, but in Turkey bulb turbine technology is not the

6 page 6 common practice since only a few local projects are currently using this technology. Local training on the installation, maintenance, safety and operational issues of bulb turbines may result in future implementation of the technology in the Turkish energy market. A.3. Project participants: Name of party involved (host) indicates a host Party Turkey (Host) Private and/or public entities project participants (as applicable) Private entity (Project Owner): Kumköy Enerji Üretim A.Ş. Kindly indicate if the Party involved wishes to be considered as project participant (Yes/No) No Further contact information for project participants is provided in Annex 1. A.4. Technical description of the project activity: A.4.1. Location of the project activity: A Host Party(ies): The Republic of Turkey A Region/State/Province etc.: Black Sea Region of Turkey, province of Samsun. A City/Town/Community etc: Province of Samsun, town of Çarşamba. A Detail of physical location, including information allowing the unique identification of this project activity (maximum one page): The Project Activity is located between 41º05'40"- 41º05'50" north and between 36º41'10"-36º41'25" east on the Yeşilırmak river in Samsun Province at the Black Sea Region northern part of Turkey (Fig. 2). The Project Activity is approximately 50 km from the city of Samsun and about 10 km from the town of

7 page 7 Çarsamba (see left inset map). The nearest residential areas are the villages of Kumköy, Kurtahmetli and Kemer. Fig 2: The location of Kumköy HEPP. A.4.2. Category(ies) of project activity: According to Annex A of the Kyoto Protocol, this Project Activity fits into Category 1, "Energy Industries (renewable / non renewable)".

8 page 8 A.4.3. Technology to be employed by the project activity: The Project Activity is a river type (run-of-river project without water conveyance system) hydropower project with a total installed capacity of 17.5 MW and a reservoir total surface area is m 2. The estimated annual stream flow in the Project Activity is million m 3. The design discharge flow of the project is 210 m 3 /s. (These numbers have been approved by DSI). The project discharge flow would run through a 9.41 m Net head (Gross head 9.76 m) to generate annually GWh of firm energy and GWh of secondary energy with a total gross annual estimated energy of GWh. Following local generation losses, the total net electricity that would be supplied by the Project Activity to the grid would be GWh. Related with the electromechanical equipment of the Project Activity, a contract, The Supply and Installation of Electro-Mechanical Equipment for Kumköy Hydro-Electric Power Plant has been signed with Harbin Electric (HE) Corporation. Harbin Electric, headquartered in Harbin, China, which is one of the well known international company about developing and manufacturing a wide array of electric motors. The Bulb type turbines which are the most efficient type for the project s specific characteristics have been designed and produced by this company according to the aforementioned supply agreement. In this context, technology transfer has been provided from China within the scope of Project Activity. Since the scope of Kumköy reservoir is expected to provide irrigation water from the Yeşilırmak River to the nearby Çarşamba plain (downstream from the project), the future annual average flow of the Project Activity is predicted to decline once the irrigation projects are developed. Net energy generation of the Project Activity is expected to drop to GWh/year for the in-process irrigation plan (2020) and to GWh/year with the complete development of the irrigation facilities (2030). The following numbers were taken from the final feasibility report which was approved by DSI: Current situation Annual average flow (hm 3 ) Firm energy (GWh/year) Secondary energy (GWh/year) Total gross energy (GWh/year) Total net energy (GWh/year) According to these figures, since no irrigation project implementation is considered no energy reduction is foreseened during the first crediting period ( ). The only exceptional cases would be at the time of river over flooding. In these specific events, surplus water would be diverted to dedicated accumulation reservoirs or would be released downstream through special flood control gates.

9 page 9 The Project Activity will be environmentally safe since it simply uses the water instead of any fossil fuel to produce electricity and it does not contaminate the water and environment. Furthermore there is no conveyance canal/tunnel to divert water for energy purpose in this Project Activity. The scope of the Project Activity is also composed of mainly installation of electromechanical equipment by using the existing structure. This is why; the Project Activity will not cause any negative impact to the environment. The Kumköy project would be comprised of the following main parts: A weir with 135 m crest length, 14 m height (constructed by DSI) Spillway equipped with 12 radial gates for flood control (constructed by DSI) 2 water intake structures dedicated for irrigation water diversion purpose (under construction by DSI) Dedicated radial gates to the HEPP in order to allow water inlet to the power house (constructed by DSI). Powerhouse a 35 x 20 x 25 m dedicated construction where the turbines and generators will be placed (constructed by DSI). Two specially designed fish ladders in order to allow the fish to swim upstream and over the dam (constructed by DSI). 3 Bulb turbines. For a 9.41 m of net head (Gross head 9.76 m) these turbines are considered as the state of the art technology. Each turbine will have 70 m 3 /s of design discharge (installed by the Project Owner). 3 Generators each with 6.55 MVA powers that would be placed on the top of each turbine. (installed by the Project Owner) Transmission line- power will be transmitted to the national grid by approx. 1,2 km 1x477 MCM, 31,5 kv transmission lines to the Çarşamba Transformer Substation (constructed by the Project Owner). The Project Activity s main technical characteristics obtained from the Project s final feasibility report are provided below: Thalweg elevation of the weir :18 m Crest elevation of the weir :32 m Weir height :14 m Spillway capacity :1 710 m 3 /s Max. operation level :30 m Min. operation level :28 m

10 page 10. Project design capacity :210 m 3 /s Max. flow :685 m 3 /s Minimum flow :22 m 3 /s Average flow :167 m 3 /s Gross head :9.76 m Net-head :9.41 m Turbine type :Bulb Installed capacity : MW e Number of units :3 Capacity of each unit :70 m 3 /s Max. power capacity of each unit : MW Total max. turbine capacity : MW Power factor of Generator : 0.90 Power of Generator : MVA A.4.4. Estimated amount of emission reductions over the chosen crediting period: The Project Activity will displace electricity from the grid with a calculated combined margin baseline emission factor of tco 2 /MWh. It is expected to displace MWh of electricity per year produced from burning fossil fuels and, by doing so, reduce emissions by tco 2 e per year. Total emission reductions will be tco 2 e during the first seven years operation of the Project Activity, according to the calculations shown in Table 1. Years Annual estimation of emission reductions in tonnes of CO 2 e 2012 (starting from 1 st of March) (January and February) Total estimated reductions (tonnes of CO 2 e) Total number of crediting years 7

11 page 11 Annual average over the crediting period of estimated reductions (tonnes of CO 2 e) Table 1: Expected Annual Emission Reductions over the first 7 years The anticipated starting date of the Project Activity s crediting period is March, 1 st, The end of the Project Activity s first crediting period is February 28 st, 2019 (full seven calendar years). A.4.5. Public funding of the project activity: The Project Activity will not receive any public funding from parties included in Annex I of the UNFCCC.

12 page 12 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: The baseline and monitoring methodology: ACM0002: Consolidated baseline methodology for gridconnected electricity generation from renewable sources version Related Tools: The tool to calculate the emission factor for an electricity system: version The tool for demonstration and assessment of additionality: version Combined tool to identify the baseline scenario and demonstrate additionality: version Tool to calculate project or leakage CO 2 emissions from fossil fuel combustion: version 02 B.2. activity: Justification of the choice of the methodology and why it is applicable to the project The methodology ACM0002 (version ) is applicable because the Project Activity meets the following conditions: ACM0002 (version ) Applicability Conditions 1 The project activity is the installation, capacity addition, retrofit or replacement of a power plant/unit of one of the following types: hydro power plant/unit (either with a run-of-river reservoir or an accumulation reservoir). The project activity results in new reservoir and the power density of the reservoir, as per definitions given in the Project Emissions section, is greater than 4 W/m 2. Project Description The Project Activity is an installation of new hydroelectric power plant. The Project Activity is a grid-connected renewable power generation project activity that installs a new power plant at a site where no renewable power plant was operated prior to the implementation of the project activity. The predicted power density of the Project Activity is 27.2 W/m 2 (see section B.6.3). 1 ACM0002: Consolidated baseline methodology for grid-connected electricity generation from renewable source version

13 page 13 The geographic and system boundaries for the relevant electricity grid can be clearly identified and information on the characteristics of the grid is available. 5 years of historical data (or 3 years in the case of non hydro project activities) have to be available for those project activities where modification/retrofit measures are implemented in an existing power plant. The methodology is not applicable to project activities that involve switching from fossil fuels to renewable energy sources at the site of the project activity. The Project Activity is a grid-connected hydroelectric power plant which will be connected to the Turkish Power Grid which is clearly identified. The Project Activity does not involve an existing facility. The Project Activity is not an activity that involves switching from fossil fuels to renewable energy at the site of the project activity. B.3. Description of the sources and gases included in the project boundary Source gas Included Justification/Explanation CO 2 emissions from electricity CO 2 yes According to the baseline methodology Baseline generation in fossil fuel fired power CH 4 no only CO 2 emissions from electricity plants that are displaced due to the N 2 O no generation in fossil fuel fired power plants project activity that are displaced due to the project activity should be accounted for. Project For hydropower plants, emissions of CO 2 no There is a small reservoir in the Project Activity CH 4 from the reservoir CH 4 no Activity but the power density (PD) of the N 2 O no project activity is much greater than 10 W/m 2 (27.2 W/m 2 ), Related with the subject further explanations are detailed in section B.6.1 Project Boundary 2 Fig 3: Project Boundary: The Project Activity is composed of installation of power plant and transmission line. The Project Boundary is the public grid of Turkey. 2 ACM002 Version page 5 defines the project boundary for the project activity : The spatial extent of the project boundary includes the project power plant and all power plants connected physically to the electricity system that the CDM project power plant is connected to.

14 page 14 B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: According to the baseline methodology, ACM0002/version , the baseline scenario identification should be in complete accordance with the methodology Section II - BASELINE METHODOLOGY PROCEDURE/ Identification of the baseline scenario. If the project activity is the installation of a new grid-connected renewable power plant/unit, the baseline scenario is the following: Electricity delivered to the grid by the project activity would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources, as reflected in the combined margin (CM) calculations described in the Tool to calculate the emission factor for an electricity system. The Project Activity is the installation of new hydroelectric power plant that will generate electricity supplied into the Turkish national grid. Thus, in this instance, 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. For this reason, and according to the baseline methodology guidelines, the baseline scenario was identified according to the version of the Tool to calculate the emission factor for an electricity system applicable at the time of ACM0002, version The tool to calculate the emission factor for an electricity system (version ) includes several steps which must be followed: Step 1. Identify the relevant electricity systems Step 2. Choose whether to include off-grid power plants in the project electricity system (optional) Step 3. Select a method to determine the operating margin (OM) Step 4. Calculate the operating margin emission factor according to the selected method Step 5. Calculate the build margin (BM) emission factor Step 6. Calculate the combined margin (CM) emissions factor Step 1: Identify the relevant electricity systems Since Turkey ratified the Kyoto protocol very recently, there has been no delineation by the DNA of the 'project electricity system' and 'connected electricity systems' details regarding the system characteristics

15 page 15 could not be obtained from the local grid operators. Thus, in accordance with the calculation tool, the Turkish national electricity grid was chosen by default as the 'project electricity system'. Step 2: Choose whether to include off-grid power plants in the project electricity system (optional) In Turkey off-grid generation has almost no share in total electricity production. Therefore according to the methodology Option I is selected for the calculations. STEP 3 Select a method to determine the operating margin (OM): According to the calculation tool, four alternatives could be used to calculate the operating margin (OM). The Project Activity applied method a, the calculation of the Simple Operating Margin (Simple OM), for the following reasons: 1. Fuel consumption and dispatch data for individual power plants is not publicly available and thus option b, c and d were not chosen. 2. The Simple OM approach can be used where low cost/must run resources constitute less than 50% of total grid generation on average for the five most recent years. The following table demonstrates that this condition is fulfilled: Share of low cost must run electricity generation Gross generation (GWh) Hydro generation (GWh) Additional low cost resources generation (GWh) % of low cost generation out of total generation 26.06% 31.39% 24.82% 25.34% 19.09% Average % of 5 recent years 25.34% * Coal power plants in Turkey are not considered as must run recourses. ** Additional low cost resources generations are: Geothermal, wind, solar, liquid sulfur, wood wastes etc. *** The data was taken from the Turkey's statistical yearbook and the 2007 data was taken directly from the updated 2007 TEIAS data Table 2: Share of low cost/must run power generation in Turkey based on the average of the five recent years 3,

16 page 16 STEP 4 Calculate the operating margin emission factor according to the selected method The simple OM emission factor is calculated as the generation-weighted average emissions per electricity unit (tco 2 e/mwh) of all generating sources serving the system (not including low-cost/must-run power plants/units), for the last three years for which data is available (ex-ante option). According to the baseline calculation tool, the typical low operating cost and must-run resource generations include: hydro, geothermal, wind, low-cost biomass, nuclear and solar generation. Consequently, all of these generation sources were excluded from the OM calculations. One of the two options for calculating the simple OM, option B was chosen because credible data on the fuel consumption, net electricity generation and the average efficiency of each power plant/unit could not be obtained. In addition, option B could be chosen since no nuclear energy is generated in Turkey and all renewable power generations in Turkey are considered as low cost sources. For these reasons, the baseline OM is based on data of the total net electricity generation of all power plants serving the system, the fuel type and total fuel consumption of the project electricity system published by Turkish Electricity Transmission Corporation (TEIAS) on their website 5. Option B Calculation based on total fuel consumption and electricity generation of the system According to the simple OM option B the following formula was applied: Where: EF grid, OMsimple,y = i (FC i,y x NCV i,y x EF CO2,i,y )/ EG y (1) EF grid, OMsinple,y = Simple operating margin CO 2 emission factor in year y (tco 2 /MWh). FC i,y = Amount of fossil fuel type i consumed in the project electricity system in year y (mass). NCV i,y = Net Calorific Value (energy content) of fossil fuel type i in year y (GJ / mass unit). EF CO2,i,y = CO 2 emission factor of fossil fuel type i in year y (tco 2 /GJ). EG y =Net electricity generated and delivered to the grid by all power sources serving the system, not including low cost/must run power plant/units, in year y (MWh). i = All fossil fuel types combusted in power sources in the project electricity system in year y y = The relevant year as per the data vintage chosen in Step

17 page 17 For the calculation of the OM, the consumption data of the fuels used is taken from the TEIAS data base 6, which holds data on annual fuel consumption by fuel type as well as on electricity generation by sources and electricity imports. The data needed for the calculation, including the emission factors (EF) and net calorific values (NCV), was taken from the updated 2006IPCC guidelines 7 (Tables: 1.2,1.3 and 1.4). At first, the overall CO 2 emissions associated with local electricity generation were calculated: CO 2e emissions from electricity generation CO 2 e emissions (tco 2 e) Table 3: Annual CO 2 e emissions from electricity generation. All the data and calculations used for Table 3 are demonstrated in details in Annex 3 (Tables 14-16). For the calculation of the electricity generated and delivered to the grid, several initial calculations were required. Table 4 presents the gross electricity generation data by all the relevant energy sources. Lowcost/must run resources like hydro, wind, geothermic and biomass were not considered according to the Simple OM guidance. Gross Thermal electricity generation by energy source (GWh) Coal Lignite Fuel oil Diesel oil LPG Naphtha Natural gas Gross electricity generation originated from fossil fuels Table 4: Turkey s annual gross electricity generation by energy source ( )

18 page 18 In the above described calculation tool formula (1), the EG y factor means electricity delivered to the grid, i.e. net generation, which is why the gross electricity generation data is not sufficient. Since the data regarding only thermal net electricity generation could not be obtained by TEIAS, the following Table 5 helps derive the net data by calculating the net/gross proportion on the basis of the overall gross and net production numbers. Gross/Net electricity generation ratio (GWh) Gross generation Net Generation Ratio (%) 95.99% 96.17% 95.71% Table 5: Turkey s annual gross/net electricity generation 9. Multiplying these overall gross/net percentages by the fossil fuels electricity generation is a conservative assumptions since the fossil power plants auxiliary electricity consumption is higher than those of the plants that are excluded from the baseline calculations. Ascribing only to these higher auxiliary electricity consumptions may lead to lower net electricity generation numbers, and therefore may result in a higher OM emission factor. Table 6 demonstrates the resulting data for the net fossil fuel electricity generation as well as the addition of Turkey s electricity imports. Net Thermal electricity generation + electricity imports (GWh) Net electricity generation Electricity import Total electricity supplied to the grid by the relevant sources Table 6: Total annual net electricity supplied to the grid by the relevant sources ( ) 10. Electricity imports were added to the domestic supply in order to fulfill the Baseline Methodology requirements. Imports from connected electricity systems located in other countries are weighted, according to the calculation tool, with an emission factor of 0 tco 2 /MWh. The last step in the OM calculation is to calculate the ratio of the annual CO 2 e emissions and the net electricity generation

19 page 19 Operating Margin emission Factor OM emission factor (tco 2 /MWh) Weighted average OM emission factor (tco 2 /MWh) Table 7: Turkeys weighted average operating margin (OM) emission factor ( ) The baseline calculation tool allows two data vintages for the calculation of the OM emission factor: Ex ante: A 3-year average, based on the most recent statistics available at the time of PDD submission. Ex post: The year, in which project generation occurs, if the OM emission factor is updated based on ex post monitoring. As the necessary data to show a 3-year average OM emission factor is available, the ex ante approach was chosen for the Project Activity. This is again a conservative approach, as the share of fossil fuels in the Turkish electricity generation mix is expected to rise in the future, as shown in chapter B.5. Since data related the Turkish electricity market could not be obtained by any official source later than 2007, the data was used in the calculations. Consequently, the OM mean value of the figures as shown in Table 7 was applied, and the calculated Turkish grid OM mean value is tco 2 /MWh. STEP 5 - Calculate the build margin (BM) emission factor: The sample of power units used to calculate the Build Margin should be determined as per the following procedure: (a) Identify the set of five power units, excluding power units registered as CDM project activities, that started to supply electricity to the grid most recently (SET 5-units ) and determine their annual electricity generation (AEG SET-5units, in MWh); (b) Determine the annual electricity generation of the project electricity system, excluding power units registered as CDM project activities (AEG total in MWh). Identify the set of power units, excluding power units registered as CDM project activities, that started to supply electricity to the grid most recently and that comprise 20% of AEG total (if 20% falls on part of the generation of a unit, the generation of that unit is fully included in the calculation)(set 20% ) and determine their annual electricity generation (AEG SET- 20% in MWh); (c) From SET 5-units and SET 20%, select the set of the power units that comprises the larger annual electricity generation (SET sample );

20 page 20 Identify the date when the power units in SET sample started to supply electricity to the grid. If none of the power units in SET sample started to supply electricity to the grid more than 10 years ago, then use SET sample to calculate the build margin. For the project activity at hand, a list of the recently built power plants between the years was made available by the state-owned Turkish Electricity Transmission Company (TEIAS), naming their capacity, type of utility (e.g. IPP, auto producer, BOT), fuel type and date of commissioning (Table 18). The list does not contain data about the power units annual electricity generation, fuel consumption or even efficiency rates which would be necessary to calculate the Build Margin emission factor according to the above stated model. Starting in 2006, TEIAS ceased publishing a list of new constructed power plants. Consequently, for the years 2006 and 2007, the Project Owner did an independent and comprehensive survey of all Turkish recently built power plants. More detailed data from further official sources for all the relevant years ( ) and especially for the last two years ( ) was absolutely impossible to obtain. Furthermore, the characteristics of recent capacity additions pose some challenges: The five most recently built power plants add up to a capacity of 92.4 MW and represent approximately 0.23 % of the overall Turkish annual generation, which in 2007 amounted to (gross production) GWh 11, and thus do not reach the 20% threshold. Alternatively the Build Margin can be calculated by using the latest capacity additions comprising 20% of the system generation. Due to the lack of generation data for each of the recently built power units, this is only possible by use of an approximation. 20 % of GWh amount to GWh. Assuming an average amount of full load hours for each fuel type (based on the 2007 electricity generation and installed capacity data- Annex 3/Table 17) for all the relevant recently built power units. The latest 154 recently built power units (4 VER projects were not included) add up to % GWh (Annex 3/Table 18). In view of the fact that the second alternative presents by far larger annual generation data, this option was chosen for the BM calculations. According to the Baseline Methodology the Build Margin emission factor (BM) is calculated as the generation-weighted average emission factor of a sample of power plant units m for a specific year, as follows: EF grid, BM,y = m EG m,y x EF EL,m,y / m EG m,y (2) 11

21 page 21 Where: EF grid, BM,y = Build margin CO 2 emission factor in the year y (tco 2 /MWh). EG m,y EF EL,m,y m y = Net quantity of electricity generated and delivered to the grid by power unit m in the year y (MWh). = CO 2 emission factor of power unit m in the year y (tco 2 /MWh). = Power units included in the build margin. = Most recent historical year for which power generation data is available. As a preliminary step for the Build Margin emission factor calculation, a CO 2 emission factor of the recently built power units (EF EL,m,y ) was calculated. In view of the fact that the consumed fuel amount, annual electricity generation and efficiency rates of all the recently-built electricity generation units could not be obtained, a conservative alternative was used for the EF EL,m,y calculations. Following the BM calculation guidance the emission factors for each energy source (fuel type) were determined according to the Simple OM baseline calculation tool [step 4 (a)]. Out of the three A options, A2 was chosen for the calculations since this specific sub-step requires less detailed data about the power units. Table 8 presents the fuel-specific emission factors calculated from the carbon dioxide emission factor of the fuel 12 and the technology-specific average efficiency. Energy source Fuel Specific Emission Factor (tco 2 /MWh) Carbon content (tc/tj) Fuel Emission Factor (tco 2 /TJ) Fuel Emission Factor (tco 2 /MWh) Electric Efficiency Fuel Specific Emission Factor (tco 2 /MWh) Natural Gas % Lignite % Coal/ Anthracite % Residual Fuel Oil/Fuel Oil 40% Diesel/Motor Oil % Naphtha % *Since no LPG derived electricity was generated during 2007, LPG emission factor wasn t calculated. Table 8: Emission factor by energy source (fuel type). 12

22 page 22 Electric efficiency rates In view of the fact that no power units specific efficiency data is available in Turkey, average efficiency rates from Turkish fuel consumption and electricity generation statistics were calculated for each energy source (fuel type) and rounded up in order to be conservative. These rates were checked for plausibility by comparing them with values from the European Commission s "Integrated Pollution Prevention and Control (IPPC) Reference Document on Best Available Techniques for Large Combustion Plants" (July 2006). Two main assumptions were made in order to evaluate conservative efficiency rates: Assumption 1: Applied electrical efficiency rates are conservative because not all recently built power plants in Turkey may apply Best Available Techniques. Assumption 2: Applied electrical efficiency rates are conservative because they apply to power plants with a capacity higher than 300 MW and only 5 of the latest 154 recently built power plants in Turkey fall under this category. Fuel specific electric efficiency rates: Lignite - 28% 13, value for capacities from MWth. The average capacity for all considered lignite fired thermal power plants (total number of 7) is 253.5MW. Coal - 41%, this category is mainly dominated by the 1,320 MW Iskenderun (Isken) Gr I-II coal-fired power station with a high electrical efficiency rate of %. Fuel Oil/Diesel/Naphtha - 40% 14, according to the Reference Document Best Available Techniques for Large Combustion Plants, liquid oil-fired power plants have an electrical efficiency rate below 40%. Natural Gas 50%, in order to define an emission factor for natural gas power plants, official electrical efficiency benchmark data from the German Federal Environmental Agency (UBA) has been used 15. As the data refer to Best Available Technique standards in Germany, calculations based on these figures are considered to be conservative. 13 European Commission (June 2006): Integrated Pollution Prevention and Control (IPPC) - Reference Document on IPPC; Best Available Techniques for Large Combustion, p European Commission (June 2006): Integrated Pollution Prevention and Control (IPPC) - Reference Document on IPPC; Best Available Techniques for Large Combustion, p Source: German Federal Environmental Agency (UBA)/DEHSt (22/06/2005): "Benchmarks. Definition und Bewertung von Emissionswerten für Strom, Warmwasser und Prozessdampf entsprechend der besten verfügbaren Techniken (BVT) im Zuteilungsverfahren für Handelsperiode ", p. 9.

23 page 23 Equivalent electricity generation In order to complete the BM calculation, the equivalent gross electricity generation (EquivEG BM,i ) for each fuel type i of the most recently built electricity generation units was calculated as follows: Equiv[EG BM,i] (MWh) = CAP add, 23/11/ (MW) x FLH av 2007,i (h) (3) Where: CAP add, 23/11/ are the relevant capacity additions between 23/11/2003 and FLH av 2007,i is the annual average full load hours per fuel type i in The FLH av 2007 data was calculated by the TEIAS installed capacity and electricity generated updated 2007 data 16,17 (Annex 3/Table 17). The final step previous to the BM calculations was to calculate the net electricity generated by the applied units. This was done by multiplying the units gross electricity generation data by the overall gross/net 2007 relation percentages as calculated in the previous OM calculations (Table 5). Eventually, the BM was calculated. Table 9 presents the BM calculations of the most recently built electricity generation units (20.39%). For all the following calculations the baseline calculation tool BM formula (2) was used following the updated data

24 page 24 Energy Type 2007 Fuel Specific Full load hours (h) Capacity additions 23/11/ (MW) Equivalent recently built units' 2007 gross electricity generation (MWh) Equivalent recently built units' 2007 net electricity generation (MWh) Fuel Specific Emission Factor (tco 2 /MWh) Natural Gas * The wind farms: Bares, Anemon, Karakurt and Mare are not included in the Build Margin calculations, as they are registered as VER projects Lignite Coal Residual Fuel Oil/Fuel Oil Diesel/Motor Oil Naphtha Hydro Geo +Wind Other BM Emission Factor (tco 2 /MWh) Table 9: Build Margin (BM) emission factor calculations. The applied data result in a weighted Build Margin (BM) emission factor of tco 2 /MWh. STEP 6 - Calculate the combined margin (CM) emissions factor: The Combined Margin emission factor is the weighted average of the Operating Margin emission factor and the Build Margin emission factor. According to the baseline calculation tool the default weight values for hydro power projects are 50% for OM and 50% for BM in the first crediting period, 25% for OM and 75% for BM for the second and third crediting period. This data leads to following formula for the first crediting period: EF grid,cm,y = EF grid,om,y x w OM + EF grid,bm,y x w BM (4) Therefore the resulting Combined Margin (CM) emission factor, meaning Turkey s grid baseline emission factor, for the first crediting period is (Annex 6: Turkish Grid Emission Factor/PA Project Emission Calculations): EF grid,cm,y = x x 0.5 = tco 2 /MWh.

25 page 25 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 VER project activity (assessment and demonstration of additionality): There are 15 HEPPs within the portfolio of the Project Owner. VER studies of these hydropower projects were initiated in August As a first step the proposals including comprehensive analysis on situation of VER in Turkey and estimated revenues were received from Energy & Commodity Services Gmbh in Having received this study, the Project Owner considered the revenue of VER in the financial evaluation process of the hydro projects and therefore took the decision to include VER benefit for the Project Activity. The following additionality analyses are all based on the updated "Tool for the demonstration and assessment of additionality(version ). The additionality assessment of the Project Activity is based on the following basic steps: Step 1: Identification of alternatives to the project activity consistent with current laws and regulations. Define realistic and credible alternatives to the project activity through the following sub-steps: Sub-step 1a: Identified alternatives to the project activity Alternative 1: The proposed project activity without the consideration of VERs Alternative 2: Continuation of the current situation; electricity would continue to be generated by the existing generation mix of the local Turkish grid. Sub-step 1b: Alternatives consistency with mandatory laws and regulations Not prohibited by any laws or regulations Not prohibited by any laws or regulations Additional alternatives examination for other prohibitive barriers Prohibitive barriers were not found Prohibitive barriers were not found

26 page 26 Alternative 3: Installation of power plant with similar capacity as the proposed Project Activity using other renewable energies than hydro Not prohibited by any laws or regulations Table 10: The project activity additionality tool Step 1 analysis. The area where the Project Activity is located does not have a good potential to develop wind power plant projects ( SAMSUN-REPA.pdf). Wind farm investments are not very evident in the region. Furthermore there are no geothermal resources in the region where the Project Activity is located. The geothermal energy sources exist in the west site of the country.( Also there is no solar energy potential where the Project Activity is located. ( MyCalculator/Default.aspx). Therefore any wind, geothermal or solar projects are not found to be a realistic and credible alternative to the Project Activity. Outcome of Step 1: In conclusion, according to step one of the additionality tool, the only credible alternatives to the Project Activity are: 1. The proposed Project Activity without the consideration of VERs (Alternative 1). 2. The continuation of the current situation; electricity would continue to be generated by the existing generation mix of the local Turkish grid (Alternative 2). Step 2: Investment analysis Step two of the additionality tool requires determining whether the proposed project activity is not: A) The most economically or financially attractive; or B) Economically or financially feasible, without revenue from the sale of voluntary emission reduction (VERs). The following additionality section will demonstrate that the Project Activity is not economically feasible without VER revenues (choice B). Sub-step 2a: Determine appropriate analysis method Project Activity generates financial and economic benefits by means of the sales of electricity other than VER related income. For this reason Option I (Simple Cost Analysis) cannot be used in accordance with the Methodological Tool. As it has been explained in Table 10, any project is not found to be a realistic and credible alternative to the Project Activity. Therefore Option II (Investment Comparison Analysis) cannot be used in accordance with the Methodological Tool.

27 page 27 As a result of aforementioned analysis, Option III (Benchmark Analysis) has been selected as the appropriate analysis method. Sub-step 2b: Option III Apply benchmark analysis: The benchmark used in the project evaluation process corresponds to the required equity return of Project Owner. It was calculated taking into account the risk free rate, market premium, equity beta coefficient and debt to equity structure at the moment of calculation. The risk free rate corresponds to the return of 30Y US T-bills and the risk premium for Turkey was based on country bond spread. In total, the benchmark is calculated to be close to 11%. This value was used as a discount rate to calculate the equity return of the hydro projects in the Project Owner s portfolio and in the estimation of the contract cost of hydro projects under EPCs (Engineering Procurement Contract). The method to use for calculating the expected cost of equity, benchmark or discount rate is the CAPM (Capital Asset Pricing Model). The formula to calculate the cost of equity is as follows: R e = r f + β E x MRP + Country Risk premium (5) Where: R e r f = Expected cost of equity or benchmark return, = Risk free rate, yield of 30-year US treasury MRP = Market risk premium, or expected spread between average equity market returns and U.S. treasuries β E = Calculated equity beta, which corresponds to the unlevered (asset) beta adjusted for the specific project s leverage. Country Risk Premium = Estimated as the spread between the dollar denominated sovereign debt of the project country and the corresponding US Treasury Bond. Adjusting Beta for leverage: β E = β u x (1+ (1-Tax) x (D/E)) (6) Where: β U D = Unlevered (asset) beta for companies that are comparable to the business = Debt value