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

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1 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 plan

2 page 2 SECTION A. General description of project activity A.1 Title of the project activity: F Fray Bentos Biomass Power Generation Project (FBBP Project) Version 05 Date of completion September 28 th A.2. Description of the project activity: The proposed project activity consists of the 35 MW biomass-based surplus electricity generation in the industrial cogeneration plant that is a part of a pulp mill construction project and will be situated in the pulp mill site. Botnia mill site is located near the city of Fray Bentos, Department of Río Negro, Uruguay. The project activity is designed to use black liquor from the pulping process for steam and electricity generation in the recovery boiler. The project activity reduces CO 2 emissions by replacing fossil fuel based electricity. Unlike the businessas-usual (BAU) eucalyptus/hard wood pulp mills, that are self-sufficient in energy, the Fray Bentos pulp mill has been designed to generate a considerable amount of surplus electricity. The excess electricity production capacity is around 35 MW. This electricity can be supplied from Botnia mill site partly to the grid and partly straight to the chemical mill site of Kemira in the neighbourhood. The proposed project activity will assist Uruguay s sustainable development by providing electricity to the other power consumers through power generation based on black liquor, which is a clean and renewable energy source. The project activity participants believe that biomass power generation constitutes a sustainable source of power generation that brings clear advantages to mitigate global warming. In addition, Uruguay may face electricity shortages in the near future if investments are not made. UTE (The Administración Nacional de Usinas y Transmisiones Eléctricas), the national utility company, which operates the dispatch center, has already been interested in buying electricity from Botnia while there has been lack of electricity recently and the high cost back up power plants have been in operation. In the past, the increasing electricity demand was met by investments in hydro generation, but now large scale hydro capacity is mostly exploited, and any future increase in demand will have to be met by either imported electricity from neighbouring countries, or by new investments in thermal generation, based on imported fossil fuels, or by new investments in renewable electricity. Actually, there are plans (according to Uruguay s energy agency Dirección Nacional de Energía (DNE), see Annex 3) to fulfil the growing electricity demand with thermal power using fossil fuels and with electricity import. A.3. Project participants:

3 page 3 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) Uruguay (host) Botnia S.A. No (*) In accordance with the CDM modalities and procedures, at the time of making the CDMPDD 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. A.4. Technical description of the project activity: The project activity differs from baseline situation due to the fact that the Fray Bentos mill is specially designed to generate surplus electricity, which implies modifications and technology improvements compared to conventional eucalyptus/hard wood mill. The mill has selected a recovery boiler technology among the most advanced and mature ones described in BREF (Best available technique reference document) 1. For example, the mill will be able to burn the concentrated odorous gases and the biosludge in the recovery boiler. The former helps to reduce the odorous gas emissions and the latter helps to avoid sending organic residues to the landfill. The main arguments also considered when selecting the recovery boiler are its low sulphur, nitrogen oxides, and particle emissions to the atmosphere. An electrostatic precipitator is used in the process. The assumed boiler efficiency is high, about 73.0 %. The recovery boiler plant consists of the recovery boiler with auxiliaries, an electrostatic precipitator, thermal feed water treatment system, mill condensate treatment and chemical afterdosing systems. The technical parameters of the recovery boiler are: steam pressure 94 bar(a) and steam temperature 490 o C. The black liquor coming from the pulping process is concentrated up to 80% dry solids and burned in a recovery boiler to produce energy while chemicals are recycled to be reused in the cooking process. The higher heating value (HHV) of the black liquor is 14 GJ/t DS and the lower heating value (LHV) 12.1 GJ/t DS. 1 European IPPC Bureau Integrated Pollution Prevention and Control (IPPC), Reference Document on Best Available Techniques in the Pulp and Paper Industry. Seville, Spain. pp

4 page 4 Picture 1 Energy in the pulp mill The electric power is generated by two 70 MW steam turbine turbogenerators of which one is an extraction-back-pressure turbogenerator and the other an extraction-back-pressure turbogenerator with condensing tail. The power generation is based on the 32/12/4 bar(a) nominal steam pressure levels extracted from the turbine. Decreasing the pressure of medium-pressure steam from 12 bar(a) to 9 bar(a) would generate about 1.5 MW more electric power (in average) at ADt/a annual production. The target is to extract steam at 10 bar(a). The mill will be connected to the national electrical grid by means of a 150 kv and a 30 kv lines with transmission capacity of 48 and 8 MW, respectively. This grid is the only one in Uruguay and it is owned by a public utility named The Administración Nacional de Usinas y Transmisiones Eléctricas (UTE).The 30 kv line connects UTE 30 kv local grid with the medium voltage switchyard of the mill. This line will be used for backup purposes when the 150 kv line or equipment is out of service for maintenance. Since a 150 kv high voltage line exists two kilometres from the mill site, it will be possible to make a connection to the mill through a direct line from this high voltage line. A transformer sub station will be installed within the mill area to distribute the medium voltage to the mill. Botnia has signed a contract with integration of chemical plants of Kemira at the next site for selling them part of the surplus electricity produced in the Fray Bentos. Botnia and Kemira will be connected through 33 kv transmission line. Electricity dispatched to Kemira is considered as electricity dispatched to the grid, because Kemira is an independent chemical producer and without this would by electricity from the grid. Kemira is a chemicals group that is made up of four business areas: pulp and paper chemicals, water treatment chemicals, performance chemicals and paints. Kemira will build an integration of chemical plants in connection to Botnia pulp mill in Fray Bentos. The integration consists of Sodium Chlorate, Hydrogen Peroxide and Chlorine Dioxide plants. Also into this combination belongs an air separation

5 page 5 unit built and operated by Praxair S.A. In addition to these production units, Kemira purchases other chemicals needed in pulp production and transits them to Botnia. Some of them like sulphuric acid and sodium hydroxide are large volume chemicals, which are delivered to the site by boat. The other chemicals are bulk chemicals mostly transported by a truck and the chemical are packed in big bags. In addition there are chemicals packed in sacks or in case of liquids delivery may take place in small containers (IBC). Part of chemicals produced by Kemira in Fray Bentos are delivered to the Botnia site and used in pulp-making process (bleaching chemicals ClO 2 and O 2 ). However, other chemicals produced at the chemical factory can be sold for other customers of Kemira. Production of bleaching chemicals of pulp-making (ClO 2 and O 2 ) is considered to be part of pulp-making process of the BAU pulp mill. This means that the reference mill, which is self-sufficient in energy, produces mill s own electricity consumption including production of the bleaching chemicals (see table 2 in Section A.4.3). No electricity is delivered to the grid. Bleaching chemicals have to be produced close to the pulp mill so they are either produced at the mill site in mill's own chemical factory or they are bought from separate chemical factory next to pulp mill. In both cases the electricity consumed for bleaching chemicals is considered as mill s own consumption and thus part of the baseline consumption. A.4.1. Location of the project activity: A Host Party(ies): Uruguay A Region/State/Province etc.: Department of Río Negro A City/Town/Community etc: The city of Fray Bentos A Detail of physical location, including information allowing the unique identification of this project activity (maximum one page):

6 page 6 Figure 1 Uruguay s location The mill will be located on the left bank of the Uruguay River, 5.2 km directly to the east of the eastern border of the urban zone of Fray Bentos and 1.1 km from the access to the "Libertador General José de San Martín" international bridge, joining Fray Bentos (Uruguay) with Puerto Unzué (Argentina). Address of the mill is following: Ruta Puente Puerto km 311, Fray Bentos, Uruguay. The GPS coordinates are 33 06'60"S, 58 15'32"W. The mill site near the city of Fray Bentos in western Uruguay was selected among four pre-selected alternatives because, among other things, of the logistic conditions: the site is reasonably close to the forest plantations, and it offers access to the sea along Uruguay River, road connections to the ports in Nueva Palmira and Montevideo, and a road connection to Argentina across the San Martín international bridge. The selected site was also the most suitable from the environmental and infrastructure (electrical grid and transportation connections) points of view. The studied aspects were for example 2 : the river has a large flow and the assumed discharges are relatively so low that the pulp mill discharge should not be practically measurable after mixing with the river flow in terms of BOD, COD, nitrogen and phosphorus no ecologically sensitive areas were not identified close by the main wood supply areas are relatively close, to mitigate the transportation impacts the river can be used for transportation. In addition, the Fray Bentos area suffers a chronic unemployment problem, and the industrial activity may have a positive impact to the area. The site is partly on the river bank and partly in a hill area. The site is partly covered by vegetation and bushes. The elevation of the area varies from +1 to 26 m. The elevations of the departments have been selected to minimise excavation work. 2 Environmental Impact Assessment, summary. 2004/14001/1/

7 page 7 Figure 2 The mill marked with green A.4.2. Category(ies) of project activity: Fray Bentos Biomass Power Generation Project (FBBP Project) is a renewable energy supply-side, gridconnected project activity, which corresponds to sectoral scope Nº1 of the CDM sectoral scope list for project activities. It involves reduction of emission sources from fuel combustion in energy industries, according to the list of sector/source categories indicated in Annex A of the Kyoto Protocol. A.4.3. Technology to be employed by the project activity: Fray Bentos pulp mill differs from the business-as-usual (BAU) pulp mill due to the fact that the mill was specially designed to generate surplus electricity in the grid, which implies modifications and technology improvements compared to conventional mill. Major part of engineering required to build this kind of energy-efficient mill has to be subcontracted abroad, which is clearly in line with the CDM postulates in regards to promoting sustainable development in, and transferring technology and know-how to, developing countries. The mill has selected a recovery boiler technology among the most advanced and mature ones described in BREF (Best available technique reference document) 3. For example, the mill will be able to burn the 3 European IPPC Bureau Integrated Pollution Prevention and Control (IPPC), Reference Document on Best Available Techniques in the Pulp and Paper Industry. Seville, Spain. pp

8 CDM Executive Board page 8 concentrated odorous gases and the biosludge in the recovery boiler. The former helps to reduce the odorous gas emissions and the latter helps to avoid sending organic residues to the landfill. The main arguments also considered when selecting the recovery boiler are its low sulphur, nitrogen oxides, and particle emissions to the atmosphere. An electrostatic precipitator is used in the process. The assumed boiler efficiency is high, about 73.0 %. The BREF document lists a number of measures for low consumption and high generation of electric power, such as condensing turbine for power production from excess steam and high boiler (live steam) pressure, used in Fray Bentos mill. By improving the live steam parameters a higher power-to-heat ratio can be achieved and therefore more electricity can be generated from the Kraft recovery boiler. The table below shows that the live steam parameters of Fray Bentos mill are the most advanced (together with Veracel mill in Brazil) compared to the other recently commissioned pulp mills in South America. Table 1 The live steam parameters of the most recent pulp mills in South America Customer Country MFG Year of Delivery Dry Solid Capacity (t/d) Steam Temperature ( C) Steam Pressure (kg/cm 2 g) Botnia Orion, Fray Bentos Uruguay Andritz Suzano Papel e Celulosa Mucuri, Bahia Sul Brazil Kvaerner Cenibra Brazil Mitsubishi CMPC, Santa Fe Nacimiento Chile Andritz Celulosa Arauco y Constitución Nueva Aldea (Itata) Chile Kvaerner Orsa Brazil Mitsubishi Veracel Eunapolis, Bahia Brazil Kvaerner Celulosa Arauco y Constitución Valdivia Chile Kvaerner Lwracel Celulose e Papel Brazil Mitsubishi Ripasa Celulose e Papel Brazil Mitsubishi Aracruz, Guaiba (Riocell) Gauiba Brazil Babcock&Wilcox VCP Jacareí Mill Jacareí Brazil Mitsubishi Nobrecel Brazil Stein Rigesa Tres barres Brazil Andritz Igaras Papéis e Embalagens Igaraz Lajes Brazil Mitsubishi CMPC Celulosa Santa Fe Chile Mitsubishi CMPC Celulosa Laja Chile Kvaerner Aracruz C Aracruz Brazil Andritz In addition to high live steam parameters, other process improvements, such as extraction-back-pressure turbogenerator with condensing tail and sliding extractions from the turbines, maximises the surplus electricity production of the fray Bentos mill. The power balance of the Fray Bentos pulp mill compared to reference mill with the daily pulp production of 3000 Adt/d is presented in the table below. Part of the power generated (3.15 MW) is used in the chemical mill site of Kemira for producing bleaching chemicals of pulp-making (ClO 2 and O 2 ) used by the Fray Bentos pulp mill. Typically these chemicals are produced in the own chemical plant of the pulp mill and therefore electricity consumed for producing these chemicals is included in internal consumption of the reference pulp mill.

9 page 9 Table 2 Power balance of the Fray Bentos mill compared to reference mill with the production of 3000 Adt/d Fray Bentos Reference Plant MW MWh/Adt MW MWh/Adt Power Consumption - Pulp mill Pulp making chemicals, ClO Pulp making chemicals, O Total pulp making *) Net power generation**) Surplus electricity production compared to reference plant Black liquor input t DS/day LHV, GJ/ t DS MW Net electricity efficiency, ε 19.3 % 13.5 % *) Including bleach chemical preparation, but not power consumption of recovery plant and power plant **) Turbine generators (own consumption of power plant subtracted) In the table 2.46 of the BREF document 4 it is reported that electricity consumption associated with the use of BAT is MWh/ADt in non-integrated bleached Kraft pulp mill. In the same table, it is said that modern non-integrated pulp mills are power self-sufficient. The table 2.27 of the BREF document 5 states that both specific electricity generation and specific electricity consumption (including bleach chemical preparation) of non-integrated bleached Kraft Pulp mill is 650 kwh/adt. The power consumption of Fray Bentos pulp mill is around the lower limit of the BAT specification. Because the modifications made for maximising the power production, Fray Bentos pulp mill generates a considerable amount of surplus electricity that can be delivered to the grid. Therefore, the net electricity efficiency of Fray Bentos mill is 5.8 percentage points higher than in the reference mill. The main equipments being related with the proposed project activity are the recovery boiler with high live steam parameters of 94 bar(a) and 490 C, additional evaporation, incineration of concentrated and dilute malodorous gases in the recovery boiler, extraction-back-pressure turbogenerator with condensing tail and sliding extractions from the turbines. Table below (Table 3) shows the differences between the project activity and BAU (business-as-usual) mill. 4 European IPPC Bureau Integrated Pollution Prevention and Control (IPPC), Reference Document on Best Available Techniques in the Pulp and Paper Industry. Seville, Spain. p European IPPC Bureau Integrated Pollution Prevention and Control (IPPC), Reference Document on Best Available Techniques in the Pulp and Paper Industry. Seville, Spain. p

10 page 10 Table 3 Project activity compared to BAU pulp mill Boiler technology Conventional eucalyptus/hardwood pulp mill Botnia s Fray Bentos Biomass Power Generation Project Live steam pressure and temperature 63 bar and Live steam pressure and temperature 94 bar and 490 C 460 C Solids content of black liquor 75 % 80 % Turbogenerators Back-pressure turbogenerators Another of two turbo-generators is extraction-backpressure turbo-generator with condensing tail Extractions from turbines Fixed pressure Sliding A.4.4 Estimated amount of emission reductions over the chosen crediting period: Years emissions reductions Total estimated reductions (tonnes of CO 2e ) Total number of crediting years 7 Annual average over the crediting period of estimated reductions (tonnes of CO 2e ) Project activity is expected to start operation in September October The crediting period is assumed to begin in March 2008 and accordingly the seven years crediting period lasts until the end of February A.4.5. Public funding of the project activity: The FBBP Project does not include public funding.

11 page 11 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 proposed for the FBBP Project is Consolidated baseline methodology for grid-connected electricity generation from biomass residues, ACM0006 (Version 04, 2 November 2006). This methodology also refers to the latest approved version of ACM0002 ( Consolidated baseline methodology for grid-connected electricity generation from renewable sources, Version 06, 19 May 2006) and to the latest approved version of the Tool for the demonstration and assessment of additionality (Version 03, February 2007). (ACM0006 refers also to the latest approved version of Tool to determine methane emissions avoided from dumping waste at a solid waste disposal site, but this tool is not applicable with the FBBP Project.) B.2 Justification of the choice of the methodology and why it is applicable to the project activity: The FBBP Project is a biomass cogeneration power plant which generates electricity and thermal energy from renewable energy sources. Paragraph 48 of the Marrakesh Accords stipulates that: In choosing a baseline methodology for a project activity, project participants shall select from among the following approaches the one deemed most appropriate for the project activity taking into account any guidance by the Executive Board, and justify the appropriateness of their choice: a) Existing actual or historical emissions, as applicable; or, b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment. Since the project activity will reduce emissions from existing emission sources and biomass is not normally used to generate surplus electric energy, approach a) is the applicable option in selecting the baseline scenario for the proposed project activity. (See description in A.4.3) According to the chosen baseline methodology, the FBBP Project fully complies with the applicability criteria (see section Applicability in the ACM0006): The proposed project activity includes the installation of a new power generation plant at a site where currently no power generation occurs (greenfield power project). Further requirements are also fulfilled by the proposed project activity: Biomass residues in the ACM0006 are defined as biomass that is a by-product, residue or waste stream from agriculture, forestry and related industries. The biomass used in the project activity is a by-product (or waste stream) from a pulp mill, i.e. from forest industry.

12 page 12 No other biomass types than biomass residues are used in the project plant and these biomass residues are the predominant fuel used in the project plant: 100 % of the biomass requirement of the project activity will be sourced from the Fray Bentos pulp mill. The project plant will occasionally use small amounts of fossil fuels, but biomass will be the predominant fuel. The implementation of the project shall not increase the biomass production in the facility: The amount of biomass available is determined by the production capacity of the pulp mill, which has been defined earlier. The production capacity of the pulp mill will not change due to the implementation of the project activity. The biomass stored at the project facility should not be stored for more than one year: The biomass used in the project activity is black liquor from the pulp mill. Black liquor is usually burned immediately in the recovery boiler to recover and recycle the pulping chemicals used in the pulping process. Therefore there is no storage of biomass in the facility. No significant energy quantities, except for transportation for the biomass, are required to prepare the biomass residues for fuel combustion: The biomass does not need to be prepared before the combustion. The boiler is tightly integrated in the pulping process and black liquor is fed into the boiler directly from the pulping process. Therefore no significant energy quantities are needed to prepare the biomass residues for fuel combustion. B.3. Description of the sources and gases included in the project boundary Baseline includes only grid electricity generation while project reduces greenhouse gas emissions only by replacing grid-connected electricity with biomass-based electricity.

13 page 13 Baseline Source Gas Justification/Explanation Grid CO 2 Included Main emission source electricity CH 4 Excluded Excluded for simplification. This is conservative generation N 2 O Excluded Excluded for simplification. This is conservative. CO 2 Included In the FBBP Project fossil fuel (fuel oil) is used On-site fossil as a start-up fuel in the recovery boiler. The use fuel of fossil fuel is not significant but is still included consumption in the project boundary at the time when the plant due to the is producing the surplus electricity to the grid or project activity to the Kemira plant. See B.7.1 (On-site fossil fuel (fuel oil use in consumption) for detailed description. the recovery CH 4 Excluded boiler) N 2 O Excluded The project activity will not produce any N 2 O emissions. Project Activity Off-site transportation of biomass residues Combustion of biomass residues for electricity generation Storage of biomass residues CO 2 CH 4 N 2 O Excluded Excluded Excluded There is no off-site transportation of biomass residues. The biomass used in the project activity is black liquor from the pulp mill. Black liquor is usually burned immediately in the recovery boiler to recover and recycle the pulping chemicals used in the pulping process. CO 2 Excluded It is assumed that combustion of biomass do not lead to changes of carbon pools in the LULUCF sector. CH 4 Excluded Excluded also from baseline scenario. N 2 O Excluded Excluded for simplification. This emission source is assumed to be very small. CO 2 Excluded The biomass used in the project activity is black liquor from the pulp mill. Black liquor is usually burned immediately in the recovery boiler to CH 4 Excluded recover and recycle the pulping chemicals used in the pulping process. Therefore there is no storage N 2 O Excluded of biomass residues in the facility. B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: The baseline situation is to construct a conventional pulp mill without surplus electricity production to the grid. This kind of mill represents conventional technology. The consolidated baseline methodology for grid-connected electricity generation from biomass residues (ACM0006) provides several alternative baseline scenarios to be used. Project participants shall identify

14 page 14 the most plausible baseline scenario among all realistic and credible alternatives. Steps 2 and 3 of the latest approved version of the tool for the determination and assessment of additionality should be used to assess which of these alternatives should be excluded from further consideration (e.g. alternatives where barriers are prohibitive or which are clearly economically unattractive). Realistic and credible alternatives should be separately determined regarding: how power would be generated in the absence of the CDM project activity; what would happen to the biomass in the absence of the project activity; and in case of cogeneration projects: how the heat would be generated in the absence of the project activity. As a result of application of the tool for the determination and assessment of additionality, the most plausible scenario in the FBBP Project is scenario 4 in the ACM0006. The chosen baseline is a combination of the following baseline scenarios given in ACM0006: For power generation P2: The proposed project activity, fired with the same type of biomass residues but with lower efficiency of electrical generation (efficiency that is common practice in the relevant industry sector); For biomass residues use B4: The biomass residues are used for heat and/or electricity generation at the project site. The scenario 4 includes methodologies to calculate the emission reductions resulting from: the displacement of electricity; and the displacement of heat. As described above, the project activity does not result in displacement of heat Therefore, the only source of emission reductions in the FBBP Project activity is the displacement of fossil fuel-based gridconnected electricity production. 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): The chosen baseline methodology requires the application of Tool for the demonstration and assessment of additionality (version 03) that is used for testing whether the project is additional or not. The tool provides for a step-wise approach to demonstrate and assess additionality. These steps include: - Identification of alternatives to the project activity; - Investment analysis to determine that the proposed project activity is not the most economically or financially attractive; - Barriers analysis; and - Common practice analysis. The registration of the project by the CDM Executive Board would boost efficient utilisation of byproducts of pulp and paper industry and enable the supply of biomass-based electricity to national grid replacing fossil-fuel based electricity in the Uruguayan power system. Therefore, due to the FBBP

15 page 15 Project anthropogenic emissions of greenhouse gases in Uruguay are reduced below those that would have occurred in the absence of the registered CDM project activity. The investment for maximising the electricity production is higher as compared to conventional recovery boiler with lower steam values and therefore the financial benefit of the revenue obtained by selling CERs makes the investment in recovery boiler with high steam temperature and pressure more attractive. The investment will bring several benefits for Uruguay. As a result of the project activity, a new plant will be connected to the power grid, reducing transmission losses in the grid. In addition, the investment will contribute to the security of supply in Uruguay by reducing the dependence on imported energy. The investment also creates new employment (the CDM project activity would create 10 direct jobs) and technological know-how. The surplus electricity generation needs additional engineering and trading expertise compared to business-as-usual pulp mill. Also grid operators have certain criteria for grid connected power plants which feed electricity to their networks. These criteria usually include requirements for distantly controlled relay systems and special characteristics of automation and control systems that needs special expertise. For these reasons there will jobs related to electricity supply to the grid, grid connection issues, electricity trading and additional maintain of high parameter boiler and electricity production. All these jobs are created because of surplus electricity production (CDM project activity) and they would not be created in the baseline. The investment also increases economic growth and enhances the trade balance of the country. Thus the project is in line with the principles of Clean Development Mechanism. As the step-wise analysis in the following paragraphs will show, without additional incentives from the CDM the FBBP Project would not be feasible taking into account the technological barriers, barriers due to the prevailing practice and to become an independent power producer in Uruguay. Step 1. Identification of alternatives to the project activity consistent with current laws and regulations 1(a) Alternatives to the project activity Without being registered as a CDM project activity, the alternative for FB is to construct conventional pulp mill without surplus electricity production (BAU pulp mill). This kind of mill would be selfsufficient in energy production (including electricity consumption of ClO 2 and O 2 preparation for the pulp mill purposes that is around 3 MW). This alternative represents conventional technology currently used in several countries. In this alternative, electricity production structure in Uruguay would be similar to the current situation. In pre-engineering stage also project alternative without surplus electricity production was considered that was before the investment decision was made. Botnia s worldwide policy is to use environmental friendlier technologies covering waste water treatment, emissions to the atmosphere, waste disposal etc. From environmental point of view also BAU mill represents the best available technology (BAT). As BREF document states modern non-integrated pulp mills are power self-sufficient. However, Fray Bentos pulp mill is not only self-sufficient but produces surplus electricity.

16 page 16 The functional differences between the project activity and the corresponding part of BAU pulp mill are related to some technical parameters of the recovery boiler and turbines. The main difference is that CDM project activity produces surplus electricity and therefore reduces the greenhouse gases by replacing fossil fuel based electricity with biomass based electricity in the grid. 1(b) Consistency with mandatory laws and regulations The proposed alternative scenario is in compliance with all mandatory applicable legal and regulatory requirements. Step 2: Investment analysis Not chosen. Step 3: Barrier analysis Fray Bentos Biomass Power Generation Project activity faces 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. Barrier analysis is presented below. 3(a) Barriers that prevent the implementation of this type of proposed project activity Technological barriers Fray Bentos pulp mill differs from the BAU pulp mill due to the fact that the mill was specially designed to generate surplus electricity in the grid, which implies certain modifications and technology improvements compared to conventional mill. The surplus electricity generation needs additional engineering expertise compared to business-as-usual pulp mill. The needed knowledge and technology are not readily available in Uruguay, and thus major part of engineering required to build this kind of energy-efficient mill has to be purchased from abroad. The lack of skilled and properly trained labour leads to an unacceptably high risk of equipment disrepair and malfunctioning. The possibility to produce surplus electricity is mainly based on the modern recovery boiler with high live steam parameters. Fray Bentos pulp mill uses eucalyptus wood as a raw material for pulp making. Due to the high content of non-process elements in eucalyptus black liquor, reaching high live steam parameters is not possible with conventional pulp mill technology. Therefore, Botnia S.A. is investing in technology for reducing the concentration of non-process elements in black liquor to achieve a high rate of surplus electricity generation. The registration of the proposed project activity as a CDM project would have a positive impact on barriers related to surplus electricity generation. The following selections for achieving high power generation rate and minimal GHG emissions have been made: - Recovery boiler with high live steam parameters of 94 bar(a) and 490 C - High solids content of black liquor (80 %) - Incineration of concentrated and dilute malodorous gases in the recovery boiler

17 page 17 - Another of the two turbogenerators is extraction-back-pressure turbogenerator with condensing tail - Sliding extractions from the turbines If additional power (compared to the power generated only for the requirements of pulp and paper factory) is generated, it will lead to the increased nominal and short circuit currents. Increased currents will effect to the selection of electrical equipment such as generator and other circuit breakers, disconnections, switchgears etc. Also grid operators have certain criteria for grid connected power plants which feed electricity to their networks. These criteria usually include requirements for distantly controlled relay systems and special characteristics of automation and control systems that need special expertise. Typical live steam parameters for recovery boiler are 85 bar(a) and 480 C. However, a desire to avoid corrosion of the superheater section limits the upper steam temperature in black liquor recovery boilers. It has thus been difficult to increase the steam temperature of the black liquor boiler above the range C and still reasonably avoid corrosion of the superheater 6. Especially, in a recovery boiler using black liquor with high potassium and chlorine levels, that is the case in the Fray Bentos mill, it is challenging to avoid superheater corrosion with high live steam temperature. By improving the live steam parameters, higher power-to-heat ratio can be achieved and thus the surplus electricity generation can be maximised. The efficiency and power-to-heat ratio of Fray Bentos power plant are high compared to the typical Scandinavian mill (Finland and Sweden) which are well known for their high energy efficiency. However, higher live steam parameters results in a higher investment cost and higher maintenance costs. Therefore, carbon finance has a central role in making the investment in this kind of recovery boiler with maximal surplus electricity generation feasible. The plant consists of two 70 MW steam turbine turbogenerators. One is an extraction-back-pressure turbogenerator and the other an extraction-back-pressure turbogenerator with condensing tail in which steam not extracted continues to expand to lower pressure, thereby increasing the amount of electricity generated. Each of the two generators will be capable of supplying the mill s average power demand at the rated pulp production capacity. The surplus energy in normal operation (two generators) will be sold to the national grid. One of the most important criteria for selecting the turbogenerator plant s design concept was the maximisation of the power generation by sliding extraction. Malodorous gases, both Diluted Non-condensable Gases (HVLC) and Concentrated Non-condensable Gases (LVHC) are incinerated in the recovery boiler, which reduce heavy fuel oil consumption in distinct odorous gas incinerator. The odorous gas incinerator serves as a spare and then heavy fuel oil is needed for supporting firing. The operation of large-scale biomass CHP power plant requires additional personnel, who must be familiar with electricity demand of the mill and at the same time capable of working as a power purchaser to the grid. Additional training is needed compared to baseline case (BAU pulp mill), such as knowledge on automation and control systems, electricity markets, prices, agreements etc. In Uruguay, it 6 Fredrik Bruno Thermochemical aspects on chloride corrosion in Kraft recovery boilers. Corrosion Paper No

18 page 18 is difficult to find trained personnel for running such a plant and, therefore, training of personnel or hiring experts from abroad increases costs as compared to a plant not producing surplus electricity. Barriers due to the prevailing practice Large-scale surplus electricity generation in a pulp mill is not the normal practice in the eucalyptus/hard wood pulp industry. There are no other pulp mills in Uruguay supplying electricity to the grid and so the FBBP Project is the first of its kind. While Botnia S.A. is a forest industry company producing pulp, the generation and commercialization of electricity is not their core business. In Chile, one comparable pulp mill (Nueva Aldea) is under construction boosted by CDM financing. Barriers to become an independent power producer When considering different project alternatives before investment decision, one important issue was the electricity market situation in Uruguay. Electricity generation in Uruguay was under a legal State monopoly until a few years ago, and the electricity market has not been implemented yet. Botnia s project would be the first pulp mill and the first private electricity producer (current situation) selling energy to the grid to UTE. There is not much experience in the country with private generators and the main buyer (almost exclusive buyer) is UTE. Therefore, the possibilities to come to an agreement with proper selling price and terms of supplied electricity are limited. At the early stage of the project, the PPAs with UTE were based on a price of USD/MWh. (As an evidence letter from UTE to Botnia about electricity prices and electricity market situation is provided for the validator.) At the moment the energy situation in Uruguay has become difficult and UTE has offered new producers price of 30 USD/MWh. The price is however very uncertain and because Botnia S.A. s electricity generations will fluctuate the price will be lower for them. For these reasons, it became clear that if Botnia invested on surplus electricity production, the CDM financing would be essential for them and at that point they decided to work on that. In 2004 Botnia hired a Finnish CDM consultant Green Stream Network ( to study the CDM possibilities in Uruguay. GSN provided Botnia issues that would be needed to do a PDD and to get the information Botnia hired a CDM consultant from Uruguay, Carbosur ( to collect the available data concerning for example the baseline study of Uruguay grid. As an evidence Botnia has provided the following documents as an evidence for the validator: questions from GSN List of questions concerning the CDM potential of Metsä-Botnia s project in Uruguay ) and answers from Carbosur Answer to questions from GreenStream regarding baseline study for Metsa-Botnia s co-generation project in Uruguay. The risks related to undeveloped electricity markets are considerable higher compared to conventional recovery boiler without additional electricity supply to the grid. Due to those risks the carbon finance is needed to make feasible to build surplus electricity generation capacity. In addition, it is obvious that the approval of the Fray Bentos Biomass Power Generation Project as a CDM activity would attract new power producers to invest in electricity production capacity and act as IPP supplying electricity to the national grid of Uruguay. 3(b) Barriers do not prevent the implementation of at least one of the alternatives The proposed alternative scenario, to construct a conventional pulp mill without surplus electricity production to the grid, represents conventional technology with a lot of operational experience and is

19 page 19 therefore prevailing practice without any technological barriers. The Fray Bentos mill will be the first pulp mill in Uruguay, but as Table 1 in Section A.4.3 shows there are number of pulp mills recently commissioned in South America using much lower live steam parameters than the Fray Bentos mill, and therefore not capable to produce surplus electricity to the grid. In addition, there are no barriers related to becoming an independent power producer, because no surplus electricity would be generated in the alternative. Therefore, the barriers discussed above do not prevent the implementation of the proposed alternative to the FBBP Project. Step 4. Common practice analysis Based on the energy information provided by the World Energy Council for Uruguay, biomass-based electricity production was around 23 GWh in 2001 representing less than 0,5 % of gross electricity generation in Uruguay. The proposed project will increase Uruguay s biomass-based electricity production tenfold and so promotes clearly sustainable development in the country. In addition, the project increases domestic energy production in Uruguay and thus decreases dependence of imported electricity. There are no similar project activities implemented previously in Uruguay without considering the benefits of the CDM. Due to high live steam pressure and temperature, FBBP Project will be over selfsufficient in electricity production, making Botnia S.A. the first (current situation) industrial power producer supplying surplus electricity outside the plant in Uruguay. Although Uruguay changed its electricity laws to permit independent producers (IPP) to generate power already in 1997, Botnia S.A. will be one of the first IPPs in the electricity markets of Uruguay. These differences make the proposed project activity particular and unique in its type. In addition, because of the pulp mill s fluctuating electricity generation the best way for Botnia S.A. to sell electricity would be the spot market but at the moment there is no such market functioning in Uruguay. The recovery boiler of the FBBP Project represents best available technology (BAT) as shown in the Section A.4.3, and a few similar boilers have been installed in the world lately. However, there are several conventional recovery boilers without additional electricity production still under construction. B.6. Emission reductions: B.6.1. Explanation of methodological choices: According to the ACM0006 the emission reductions due to the displacement of electricity are calculated by multiplying the net quantity of increased electricity generated with biomass as a result of the project activity (EG y ) with the CO 2 baseline emission factor for the electricity displaced due to the project (EF electricity,y ), as follows: ER electricity,y = EG y EF electricity,y where: ER electricity,y is the emission reductions due to displacement of electricity during the year y in tons of CO 2,

20 page 20 EG y EF electricity,y is the net quantity of increased electricity generation as a result of the project activity (incremental to baseline generation) during the year y in MWh, is the CO 2 emission factor for the electricity displaced due to the project activity during the year y in tons CO 2 /MWh. The proposed project activity includes the use of the same amount of biomass that would have been used in the baseline scenario. For this reason, the project proponent does not foresee any potential leakage related to the proposed project activity. Step 1: Determination of EF electricity,y In case of baseline scenario 4 in ACM0006, the project activity displaces electricity from other gridconnected sources. Therefore, the ACM0006 states that the emission factor (EF electricity,y ) shall correspond to the grid emission factor. The ACM0006 states further, that if the power generation capacity of the biomass power plant is of more than 15 MW, the grid emission factor should be calculated as a combined margin (CM), following the guidance in the section Baseline in the Consolidated baseline methodology for grid-connected electricity generation from renewable sources (ACM0002). Step 2: Determination of EG y For the scenario 4, EG y is determined as the difference between the electricity generation in the project plant and the quantity of electricity that would be generated by other power plant using the same quantity of biomass residues that is fired in the project plant, as follows: 1 EG y = EG projectplant, y ε el, otherplant BFk, y NCVk (b.1a) 3.6 k where: EG y = Net quantity of increased electricity generation as a result of the project activity (incremental to baseline generation) during the year y (MWh) EG project plant,y = Net quantity of electricity generated in the project plant during the year y (MWh) ε = Average net energy efficiency of electricity generation in the other power plant in the el,otherplant BF k,y NCV k absence of project activity (MWh el /MWh biomass ) = Quantity of biomass residue type k combusted in the project plant during the year y (tds) = Net calorific value of the biomass residue type k (GJ/tDS) In FBBP Project the operating margin is calculated using dispatch data analysis (see STEP 1 below). For that EG h is needed and the formula above b.1a is calculated as follows: 1 EG h = EG projectplant, h ε el, otherplant BFk, h NCVk (b.1b) 3.6 k

21 page 21 The following values are used for estimation of emission reductions for the PDD. EG h is here estimated to be equal during every hour when the project is in operation. The actual emission reductions and thus EG project plant,h, BF k,y, and NCV k are monitored and calculated ex-post. EG project plant,h = MWh / 8000 h = 116 MWh per hour (h) ε el,otherplant = 13.5 % as presented in the table 2 of this document BF k,h NCV k = 4302 tonnes/day / (24 h/day) = 179 tonnes/h = 12.1 (GJ/tDS) Net quantity of increased electricity generation as a result of the project activity (incremental to baseline generation) during one hour h EG h = 116 MWh 0,135 1/ t/h 12.1 GJ/t = 35 MWh per hour. The annual net quantity of increased electricity generation as a result of the project activity (incremental to baseline generation) during the year y is then 35 MWh/h * 8000 h = MWh. Efficiency for reference plant has been calculated based on publicly available (BREF-document) specific electricity production of 650 kwh/adt and the expected production level of 3000 t/day. - Net power generation: 3000 Adt/day *0.650 MWh/Adt / 24 h/day = MW - Based on pulp mill design documents pulp mill produces (with 3000 Adt/day production level) 4302 t DSt/day of black liquor with HHV of 14 GJ/t, which means 12.1 GJ/t as NCV. So, the fuel input is (4302 t DS/day * 12.1 GJ/tDS * 1000 MJ/GJ) /(24 h/day *3600s/h)= MW - The net electricity efficiency is net power generation divided by fuel input as follows: MW/ MW =13.48 % -> 13.5 %. Baseline is calculated based on the combined margin (CM), consisting of operating margin (OM) and build margin (BM) as defined in ACM0002. In the following the calculation of OM, BM and CM in the FBBP Project is described. More detailed numeric calculation is showed for the year 2008 as an example of the method. Resulting from the above, the emission reductions of the FBBP Project can be calculated solely by applying the ACM0002, the application of which within the project activity is described in the following. Since the project activity is a greenfield power project, and not a modification or retrofitting of an existing electricity generation facility, the baseline scenario is the following: electricity delivered to the grid by the project would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources. STEP 1. Calculate the Operating Margin (OM) emission factor(s) (EF OM,y ) based on one of the four following methods: (a) Simple OM, or (b) Simple adjusted OM, or (c) Dispatch Data Analysis OM, or