VALIDATION REPORT FRAY BENTOS BIOMASS POWER GENERATION PROJECT (FBBP PROJECT) IN URUGUAY REPORT NO REVISION NO. 01 DET NORSKE VERITAS

Transcription

1 VALIDATION REPORT FRAY BENTOS BIOMASS POWER GENERATION PROJECT (FBBP PROJECT) IN URUGUAY REPORT NO REVISION NO. 01 DET NORSKE VERITAS

2 VALIDATION REPORT Date of first issue: Project No.: Approved by: Organisational unit: Mari Grooss Viddal Head of Section, Norway Client: Botnia S.A. International Climate Change Services Client ref.: Ronald Martin Beare DET NORSKE VERITAS CERTIFICATION AS Veritasvegen 1 N-1322 Høvik Norway Tel: Fax: Summary: Det Norske Veritas Certification AS (DNV) has performed a validation of the Fray Bentos Biomass Power Generation Project (FBBP Project) in Uruguay on the basis of UNFCCC criteria for the CDM, as well as criteria given to provide for consistent project operations, monitoring and reporting. UNFCCC criteria refer to Article 12 of the Kyoto Protocol, the CDM modalities and procedures and the subsequent decisions by the CDM Executive Board. This validation report summarizes the findings of the validation. The validation consisted of the following three phases: i) a desk review of the project design documents, ii) follow-up interviews with project stakeholders and iii) the resolution of outstanding issues and the issuance of the final validation report and opinion. In summary, it is DNV s opinion that the Fray Bentos Biomass Power Generation Project (FBBP Project), as described in the project design document version 5 of 28 September 2007, meets all relevant UNFCCC requirements for the CDM and correctly applies the approved baseline and monitoring methodology ACM0006 (version 4 of 2 November 2006). Hence, DNV requests the registration of the as a CDM project activity. Report No.: Subject Group: Environment Indexing terms Report title: Key words Service Area Fray Bentos Biomass Power Generation Project Climate Change Verification (FBBP Project) in Uruguay Kyoto Protocol Validation Market Sector Clean Development Process Industry Mechanism Work carried out by: Marco A. Ratton, Felipe Lacerda Antunes, Einar Telnes No distribution without permission from the client or responsible organisational unit Work verified by: Hendrik Brinks (applicant), Michael Lehmann Date of this revision: Rev. No.: Number of pages: free distribution within DNV after 3 years Strictly confidential Unrestricted distribution 2002 Det Norske Veritas AS All rights reserved. This publication or parts thereof may not be reproduced or transmitted in any form or by any means, including photocopying or recording, without the prior written consent of Det Norske Veritas AS. Head Office: Veritasvn. 1, N-1322 HØVIK, Norway

3 Report No: , rev. 01 VALIDATION REPORT Table of Content Page 1 INTRODUCTION Validation Objective Scope Description of Proposed CDM Project 1 2 METHODOLOGY Review of Documents Follow-up Interviews Resolution of Clarification and Corrective Action Requests Internal Quality Control 6 3 VALIDATION FINDINGS Participation Requirements Project Design Baseline Determination Additionality Monitoring Plan Calculation of GHG Emissions Environmental Impacts Comments by Local Stakeholders 15 4 COMMENTS BY PARTIES, STAKEHOLDERS AND NGOS VALIDATION OPINION REFERENCES Appendix A Validation Protocol Appendix B Certificates of Competence Page i

4 Report No: , rev. 01 VALIDATION REPORT Abbreviations BAU Business as usual BAT BM Build Margin BREF Best Available Technology Reference Documents by IPCC CAR Corrective Action Request CDM Clean Development Mechanism CEF Carbon Emission Factor CER Certified Emission Reduction CL Clarification request CO 2 Carbon dioxide CO 2 e Carbon dioxide equivalent DINAMA Dirección Nacional de Medio Ambiente del Ministerio de Vivienda Ordenamiento Territorial y Medio Ambiente DNV Det Norske Veritas DNA Designated National Authority EIA Environmental Impact Assessment FBBP Fray Bentos Biomass Power Generation Project GHG Greenhouse gas(es) GWP Global Warming Potential IPCC Intergovernmental Panel on Climate Change LoA Letter of Approval MP Monitoring Plan NCV Net Calorific Value NGO Non-governmental Organisation ODA Official Development Assistance OM Operating Margin PDD Project Design Document UNFCCC United Nations Framework Convention on Climate Change UTE Administración Nacional de Usinas y Transmisiones Eléctricas, Uruguay Page ii

5 Report No: , rev. 01 VALIDATION REPORT 1 INTRODUCTION Botnia S.A. has commissioned Det Norske Veritas Certification AS (DNV) to perform a validation of the in Uruguay (hereafter called the project ). This report summarizes the findings of the validation of the project, performed on the basis of UNFCCC and host Party criteria for CDM projects, as well as criteria given to provide for consistent project operations, monitoring and reporting. The validation team consists of the following personnel: Mr. Marco A. Ratton DNV Rio de Janeiro, Brazil GHG auditor, project manager Mr Felipe Lacerda Antunes DNV Rio de Janeiro, Brazil CDM validator Mr Einar Telnes DNV Oslo, Norway Energy sector expert Mr Hendrik Brinks DNV Olso, Norway Technical reviewer (applicant) Mr Michael Lehmann DNV Oslo, Norway Technical reviewer 1.1 Validation Objective The purpose of a validation is to have an independent third party assess the project design. In particular, the project's baseline, the monitoring plan, and the project s compliance with relevant UNFCCC and host Party criteria are validated in order to confirm that the project design as documented is sound and reasonable and meets the identified criteria. Validation is a requirement for all CDM projects and is seen as necessary to provide assurance to stakeholders of the quality of the project and its intended generation of certified emission reductions (CERs). 1.2 Scope The validation scope is defined as an independent and objective review of the project design document (PDD). The PDD is reviewed against the criteria stated in Article 12 of the Kyoto Protocol, the CDM modalities and procedures as agreed in the Marrakech Accords and the relevant decisions by the CDM Executive Board, including the approved baseline and monitoring methodology ACM0006 (version 4 of 2 November 2006) /14/. The validation team has, based on the recommendations in the Validation and Verification Manual /13/, employed a risk-based approach, focusing on the identification of significant risks for project implementation and the generation of CERs. The validation is not meant to provide any consulting towards the project participants. However, stated requests for clarifications and/or corrective actions may have provided input for improvement of the project design. 1.3 Description of Proposed CDM Project The is expected to have 32 MW of surplus electricity generation capacity for supply of electricity to both the Uruguayan grid and to a chemical plant. The power plant consists of two 70 MW turbo generators and the project is implemented as part of Botnia s new integrated pulp mill under construction in Fray Bentos, Uruguay. Page 1

6 Report No: , rev. 01 VALIDATION REPORT Electricity and steam will be generated by the installation of a high efficiency biomass residue power plant that will use black liquor coming from the pulping process as fuel (concentrated up to 80% dry solids in a recovery boiler). Black liquor is an organic by-product of the pulp production Kraft cycle. The Fray Bentos pulp mill differs from a business-as-usual (BAU) pulp mill due to the fact that the mill was specially designed to generate surplus electricity to be supplied the grid, which implies design modifications and technology improvements compared to a conventional mill. While modern conventional eucalyptus/hardwood pulp mills currently are designed to utilize black liquor for the co-generation of heat and electricity in order to be basically self-sufficient in terms of steam and electricity needs, the proposed project is expected to have 32 MW of surplus capacity which will allow the power plant to export electricity to the national grid and to the Kemira s chemical plant. Kemira has built a chemical plant in the site of Botnia's pulp mill in Fray Bentos. Part of the 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. 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. The national grid is the only one in Uruguay and it is owned by a public utility named Administración Nacional de Usinas y Transmisiones Eléctricas (UTE).The 30 kv line connects the 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. The power plant is located at Botnia s pulp mill plant in the municipality of Fray Bentos, Department of Río Negro in Uruguay. 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). The GPS coordinates are 33 06'60"S, 58 15'32"W. Emission reductions are generated by partially displacing fossil-fuel generated electricity in the electricity grid. The estimated GHG emission reductions are tonnes CO 2 equivalent (tco 2 e) during the 7 years crediting period, which results in estimated annual average emission reductions of tco2e. Actual emission reductions will depend on actual amounts of electricity supplied to the grid and the baseline grid emission factor to be monitored ex-post based on data to be provided by UTE. Page 2

7 Report No: , rev. 01 VALIDATION REPORT 2 METHODOLOGY The validation consisted of the following three phases: I a desk review of the project design documents; II follow-up interviews with project stakeholders; III the resolution of outstanding issues and the issuance of the final validation report and opinion. In order to ensure transparency, a validation protocol was customized for the project, according to the Validation and Verification Manual /13/. The protocol shows in a transparent manner criteria (requirements), means of verification and the results from validating the identified criteria. The validation protocol serves the following purposes: It organizes, details and clarifies the requirements a CDM project is expected to meet; It ensures a transparent validation process where the validator will document how a particular requirement has been validated and the result of the validation. The validation protocol consists of three tables. The different columns in these tables are described in Figure 1. The completed validation protocol for the Fray Bentos Biomass Power Generation Project (FBBP Project) is enclosed in Appendix A to this report. Findings established during the validation can either be seen as a non-fulfillment of validation protocol criteria or where a risk to the fulfillment of project objectives is identified. Corrective action requests (CAR) are issued, where: i) mistakes have been made with a direct influence on project results; ii) iii) validation protocol requirements have not been met; or there is a risk that the project would not be accepted as a CDM project or that emission reductions will not be certified. The term clarification may be used where additional information is needed to fully clarify an issue Page 3

8 Report No: , rev. 01 VALIDATION REPORT Validation Protocol Table 1: Mandatory Requirements for CDM Project Activities Requirement Reference usion Cross reference The requirements the project must meet. Gives reference to the legislation or agreement where the requirement is found. Validation Protocol Table 2: Requirement Checklist This is either acceptable based on evidence provided (), a Corrective Action Request (CAR) of risk or noncompliance with stated requirements or a request for Clarification (CL) where further clarifications are needed. Used to refer to the relevant checklist questions in Table 2 to show how the specific requirement is validated. This is to ensure a transparent Validation process. Checklist Question Reference Means of verification (MoV) The various requirements in Table 1 are linked to checklist questions the project should meet. The checklist is organised in seven different sections. Each section is then further sub-divided. The lowest level constitutes a checklist question. Gives reference to documents where the answer to the checklist question or item is found. Explains how conformance with the checklist question is investigated. Examples of means of verification are document review (DR) or interview (I). N/A means not applicable. Comment The section is used to elaborate and discuss the checklist question and/or the conformance to the question. It is further used to explain the conclusions reached. Draft and/or Final usion This is either acceptable based on evidence provided (), or a Corrective Action Request (CAR) due to noncompliance with the checklist question (See below).a request for Clarification (CL) is used when the validation team has identified a need for further clarification. Validation Protocol Table 3: Resolution of Corrective Action Requests and Requests for Clarification Draft report corrective action requests and requests for clarifications Ref. to Table 2 Summary of project participants response Final conclusion If the conclusions from the draft Validation are either a Corrective Action Request or a Clarification Request, these should be listed in this section. Reference to the checklist question number in Table 2 where the Corrective Action Request or Clarification Request is explained. The responses given by the project participants during the communications with the validation team should be summarised in this section. This section should summarise the validation team s responses and final conclusions. The conclusions should also be included in Table 2, under Final usion. Figure 1: Validation protocol tables Page 4

9 Report No: , rev. 01 VALIDATION REPORT 2.1 Review of Documents The PDD (version 5 of 28 September 2007) /1/ submitted by Pöyry Energy Oy, previous versions of the PDD /2//3//4/, as well as other supporting documents submitted by the project developer were assessed by DNV as a part of the validation. Supporting documents include a spreadsheet with grid emission factor related calculations, evidence that the CDM was considered during the project design phase, Letter of Approval (LoA) issued by DNA of Uruguay and other relevant information. 2.2 Follow-up Interviews During the period from November 2006 to September 2007, DNV performed interviews with project stakeholders to confirm selected information and to resolve issues identified in the document review. Representatives of Pöyry Energy Oy and Botnia S.A. were interviewed /17/ /17/ /18/. The main topics of the interview are summarized in Table 1. Table 1 Interview topics Interviewed organisation Interview topics Pöyry Energy Oy Information of project construction Project management Emission reduction monitoring plan Botnia S.A. Investment risks and barriers Baseline determination of the project Applicability of selected methodology ACM0006 Issues related to the additionality Common practice analysis Emission reductions calculation Emission reduction monitoring plan and project management 2.3 Resolution of Clarification and Corrective Action Requests The objective of this phase of the validation was to resolve any outstanding issues which needed to be clarified for DNV's positive conclusion on the project design. The initial validation of the project identified some corrective action requests and requests for clarification. The project participant s response to DNV s draft validation report findings and the PDD final version 5 of 28 September 2007 addressed these requests to DNV s satisfaction. The main differences between the PDD version 01 of 27 July 2006 and the final version submitted for registration are: - Indication of project starting date was corrected. - Further details about the project design, baseline determination and monitoring plan were included. - Net quantity of increased electricity generation and GHG emission reductions as a result of the project activity was recalculated in accordance with ACM Additionality discussion was revised. Page 5

10 Report No: , rev. 01 VALIDATION REPORT To guarantee the transparency of the validation process, the concerns raised and the response provided by the project participants are documented in more detail in the validation protocol in Appendix A. 2.4 Internal Quality Control The draft validation report including the initial validation findings underwent a technical review before being submitted to the project participants. The final validation report underwent another technical review before requesting registration of the project activity. The technical review was performed by a technical reviewer qualified in accordance with DNV s qualification scheme for CDM validation and verification. 3 VALIDATION FINDINGS The findings of the validation are stated in the following sections. The validation criteria (requirements), the means of verification and the results from validating the identified criteria are documented in more detail in the validation protocol in Appendix A. 3.1 Participation Requirements The project participant is Botnia S.A.. The host Party Uruguay meets all relevant participation requirements. No participating Annex I Party has yet been identified. The DNA of Uruguay has issued a Letter of Approval (LoA) on 11 December 2006 authorizing Botnia S.A. as project participant and confirming that the project contributes to sustainable development /7/. No public funding from an Annex I Party is involved in the project, and the validation did not reveal any information that indicates that the project can be seen as a diversion of ODA funding towards Uruguay. 3.2 Project Design The is a biomass cogeneration power generation project which generates electricity and thermal energy for the Botnia pulp mill and has 32 MW of surplus electricity generation capacity. This electricity generation surplus capacity will allow the power plant to export electricity to the national grid and to Kemira s chemical plant. The project activity is designed to use black liquor (biomass) for steam and electric power generation in a cogeneration power plant located inside a new bleached pulp mill site. The installed capacity for electricity generation is 70 MW (gross generation capacity), of which 32 MW will be destined to generate surplus power to the grid and to the Kemira plant. The project claims emission reductions associated with the displacement of grid electricity with the surplus electricity generated by the project. The project involves the installation of a high-pressure boiler and a steam turbine, employing the Steam-Rankine cycle technology for generating electricity. The applied technology essentially comprises direct combustion of biomass in a boiler to generate steam, which is subsequently expanded through a turbine to generate electricity. The technology is being successfully used since many years for steam turbines. Page 6

11 Report No: , rev. 01 VALIDATION REPORT The Fray Bentos pulp mill differs from a 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 a conventional mill. The mill has selected a recovery boiler technology among the most advanced and mature ones described in IPCC s Best Available Technology Reference Documents (BREF) /6/. This technology allows higher solid content of black liquor (80%), the use of higher temperature (490 C) and higher pressure 94 bar(a) when compared to live steam parameters for conventional pulp mills (typically 75 % solids content of black liquor and live steam temperature and pressure of 460 C and 63 bar respectively). Apart of the use of high solid content of black liquor, high temperature and high pressure in the recovery boiler as well as other process improvements, the surplus electricity generation of the fray Bentos mill is also optimized by the adoption of extractionback-pressure turbo-generator with condensing tail and sliding extractions from the turbines, maximises the surplus electricity production. The adopted technology also represents improved evaporation, incineration of concentrated and dilute malodorous gases in the recovery boiler. 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. By promoting the use of renewable energy, the project contributes to sustainable development in Uruguay. This has been confirmed by the DNA of Uruguay in its LoA issued on 11 December 2006 /7/. The construction phase of the mill of which the proposed project is part was initiated in September A 7 years renewable crediting period is selected, starting on 01 March 2008 or on the date of registration of the CDM project activity, whichever is later. The starting date of the project activity is 18 May 2005, corresponding to the date when the main process equipment was ordered from the supplier. The expected operational lifetime of the project exceeds 25 years. 3.3 Baseline Determination The project applies the approved baseline methodology ACM0006 (version 4 of 2 November 2006) - Consolidated methodology for grid-connected electricity generation from biomass residues. Its applicability has been justified as the project meets the methodology applicability conditions as follows: i) The project activity includes the installation of a new power generation plant at a site ii) iii) iv) where currently no power generation occurs (greenfield power project). The biomass residues used in the project activity is back liquor which is a by-product from the pulp making process. This is in accordance to the biomass residues definition of ACM0006: biomass that is a by-product, residue or waste stream from agriculture, forestry and related industries (e.g. forest industry). 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. Since the amount of biomass available is determined by the production capacity of the pulp mill, the implementation of the project does not increase the biomass production in the facility. The production capacity of the pulp mill will not change due to the implementation of the project activity. Page 7

12 Report No: , rev. 01 VALIDATION REPORT v) Since black liquor is usually burned immediately in the recovery boiler to recover and recycle the pulping chemicals used in the pulping process, there is no storage of biomass in the facility. Thus the condition that the biomass stored at the project facility should not be stored for more than one year is fulfilled. vi) 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. The project is in accordance with scenario 4 of ACM0006, i.e. the project activity involves the installation of a new power plant at a site where currently no power generation occurs. In the absence of the project activity, a new biomass power plant (in the following referred to as the reference plant ) would be installed instead of the project activity at the same site and with the same thermal firing capacity but with a lower electric efficiency as the project plant (e.g. by using a low-pressure boiler instead of a high-pressure boiler). The reference plant represents a conventional pulp mill without surplus electricity production to the grid. This kind of mill represents conventional technology. The chosen baseline is a combination of the following baseline scenarios given in ACM0006: For power generation: The proposed project activity (installation of a power plant), fired with the same type of biomass but with a lower electrical energy efficiency (e.g. an efficiency that is common practice in the relevant industry sector) (P2) and the generation of power in existing and/or new grid-connected power plants (P4); For heat generation: For biomass use: The proposed project activity (installation of a cogeneration power plant), fired with the same type of biomass but with a different thermal energy efficiency (e.g. an efficiency that is common practice in the relevant industry sector) (H2); The biomass is used for heat and/or electricity generation at the project site (B2). The selected baseline scenario is the construction of a conventional business as usual power plant utilizing black liquor which will co-generate heat and electricity to meet the pulp mill s energy demand without surplus electricity generation. This reference plant would utilise the same amount of black liquor as the more efficient project plant, but would only be capable to meet its own electricity demand (baseline scenario). The reference plant was characterized based on the estimated net electricity generation of MW for a conventional pulp mill with the production of 3000 ADt/d. No design study for this alternative power plant design was presented, but the efficiency of the reference plant was determined based on information in IPCC s Reference Document on Best Available Techniques in the Pulp and Paper Industry /6/ which suggest an electricity consumption of 0.65 MWh/ADt for a modern non-integrated pulp mills which is self-sufficient in terms of power generation. The electricity generation efficiency is calculated as as 13.5% for the reference plant while the efficiency of the project plant is expected to be 19.3%. There is only little guidance in ACM0006 for determining the average net efficiency of electricity generation in the reference plant. ACM0006 only states to Use the efficiency of Page 8

13 Report No: , rev. 01 VALIDATION REPORT electricity or heat generation in commonly installed new biomass residue fired power plants that are common practice for new plants in the respective industry sector in the country or region. Choose the efficiency in a conservative manner, i.e. choose a higher value efficiency within a plausible range of efficiencies that are reached by new plants in the relevant sector, document relevant sources of information (relevant studies, measurements and/or expert judgments) in the CDM-PDD and justify the choice. Based on experience with other similar projects, DNV acknowledges that determining the exact efficiency of the reference plant is a task with high level of uncertainties. Among other factors, such efficiency is a function of the load factor of the plant. In order to be fair in the context of a project being implemented in an integrated pulp making plant, it would be necessary to know or properly model the behaviour of the efficiencies as a function of the load factors for both project plant and reference plant in order to properly calculate the net increase of electricity production. Since the project participant can not manage this information (not even for the project plant), it is more appropriate to adopt a conservative approach and simply assume a flat and higher efficiency for the reference plant (i.e. a plant that would always be self sufficient in electric power generation) and do the calculations accordingly. In DNV s opinion, determining the efficiency of the reference plant based on information in IPCC s Reference Document on Best Available Techniques in the Pulp and Paper Industry /6/ is appropriate and conservative. As stipulated by ACM0006 for scenario 4, the net quantity of increased electricity generation is calculated where EG h is determined as the difference between the electricity generation in the project plant and the quantity of electricity that would be generated by reference plant using the same quantity of biomass residues that is fired in the project plant. In accordance with ACM0006, an electricity baseline emission factor is calculated in accordance with ACM0002 as a combined margin emission coefficient, consisting of the combination of operating margin (OM) emission coefficient derived through a Dispatch Data Analysis and a build margin (BM) emission coefficient (see section 3.6). Both, the OM and BM emission coefficient will be updated based on ex-post monitoring. The electricity system selected to determine the combined margin emission coefficient is the national power grid of Uruguay. The project boundary of the project is clearly defined as the site of the project activity and the system boundary for the electricity grid is the Uruguayan national power grid to which the project plant will be connected by a transmission line. The baseline scenario is that an equivalent amount of electricity would, in the absence of the project activity, be generated by other plants connected to the national power grid of Uruguay, which would represent additional electricity generation by the operation of grid-connected fossil fuel thermal power plants and by the addition of new generation sources. The baseline scenario emission factor of the displaced electricity has been estimated on the basis of version 6 of ACM0002: Consolidated Methodology for Grid-connected Electricity Generation from Renewable Sources. 3.4 Additionality According to documented evidences provided by the project participant /8/, CDM benefits were seriously considered in the decision to proceed with the project activity in November 2004 during the pre-engineering stage, while the investment decision to adopt the advanced technology that allows the generation of surplus electricity was made in March As a result of the investment decision, the main process equipment was ordered from the supplier in May Page 9

14 Report No: , rev. 01 VALIDATION REPORT 2005, while the construction of the mill was started in September In pre-engineering stage, before the investment decision, the project alternative without surplus electricity production was also considered. The additionality of the, as required by ACM0006, is demonstrated by applying the Tool for demonstration and assessment of additionality (version 3) /15/ as follows: Step 1 Identification of alternatives to project activity consistent with current laws and regulation: The alternatives to the project activity consistent with current laws and regulation were identified as: a) The proposed project activity undertaken without being registered as a CDM project activity; b) The construction of a conventional self-sufficient pulp mill without surplus power generation capacity (BAU pulp mill). This kind of mill would be self-sufficient 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 the adoption of conventional technology currently used in several countries. Both alternatives are consistent with current laws and regulation. In the context of the proposed project activity, there are no other realistic and credible alternatives that deliver outputs and on services with comparable quality and properties. Step 2 Investment analysis: Not selected. Step 3 Barrier analysis: Investment barrier: No investment barrier was indicated in the final version of the PDD. The investment barriers earlier included by project participants in the previous PDD versions were removed as a response to DNV s request for clarification CL7. Technological barriers: DNV was able to confirm that the decision to build a pulp mill which exports surplus electricity to the grid and to Kemira chemical plant implies certain modifications and technology improvements compared to the implementation of a conventional mill without surplus electricity generation. Apart of additional engineering expertise that is required, it is important to note that such engineering has to be subcontracted abroad as the needed knowledge and technology are not readily available in Uruguay. The generation of surplus electricity will lead to the increased nominal and short circuit currents. Increased currents will effect the selection of electrical equipment such as generator and other circuit breakers, disconnections, switchgears etc. DNV also verified that Botnia S.A. is investing in technology for reducing the concentration of non-process elements in eucalyptus based black liquor to achieve a high rate of surplus electricity generation. 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 an electricity supplier 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 is difficult to find trained Page 10

15 Report No: , rev. 01 VALIDATION REPORT personnel for running such a plant and, therefore, training of personnel or hiring experts from abroad increases costs and risks when compared to a plant not producing surplus electricity. Barriers due to prevailing practice: DNV was able to confirm that large scale surplus electric power generation is not a normal practice in the pulp mill 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. Barriers to become an independent power producer: Electricity generation in Uruguay was under a legal State monopoly until a few years ago, and an 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. That does represent risks to Botnia S.A. The risks and barriers related to the undeveloped electricity markets are considerable higher compared to the conventional recovery boiler without additional electricity supply to the grid. It is DNV opinion that all the factors above presented as barriers do represent barriers to the implementation of the project that are alleviated by CDM benefits. Step 4 Common practice analysis: DNV was able to confirm that although cogeneration is widely applied in the pulp industry, it is limited to electricity generation for internal use only. DNV was also able to confirm that 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, the FBBP project will have surplus capacity for electricity production, making Botnia S.A. the first (current situation) industrial power producer supplying surplus electricity. 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. Although the technology adopted for the proposed project represents best available technology (BAT) only few similar boilers have been installed in the world and pulp making technology using conventional recovery boilers without additional electricity production are still being adopted for new pulp making plants under construction. DNV was also able to confirm that the majority of pulp mills in Latin America were designed to use much lower live steam parameters than the Fray Bentos mill, and therefore not being capable to produce surplus electricity to the grid. Some few similar projects with surplus electricity export within the pulp an paper industry in Latin America were built or are being build with the consideration of CDM benefits. In conclusion, all arguments presented above are deemed sufficient to demonstrate that the project is not a likely baseline scenario, and that emission reductions resulting from the project are additional. 3.5 Monitoring Plan The project applies approved consolidated monitoring methodology ACM0006 Consolidated baseline methodology for grid-connected electricity generation from biomass residues /14/. The Page 11

16 Report No: , rev. 01 VALIDATION REPORT monitoring plan provides for the collection and archiving of all relevant data necessary for determining the emissions reductions of the project. The use of fossil fuels in the biomass power plant will be monitored in order to determine project CO2 emissions. In order to determine baseline emissions, the net quantity of increased electricity generation is determined by monitoring the the net quantity of electricity generated in the project plant, the quantity of biomass combusted in the project plant and the NCV of the biomass. Moreover, the CO2 emission factor of the grid (OM and BM emission coefficient) will be monitored ex-post. Detailed responsibilities and authorities for project management, monitoring procedures and QA/QC procedures will be implemented by the time project becomes operational as checked during follow up interviews and site visit. Botnia s on-site personnel (at the project activity site) will be in charge of gathering and registering all the required information included in the monitoring plan. Monitoring will be part of mill s quality system (ISO ) and all the tasks included in the monitoring of CER amounts as well as quality assurance and internal audits will be defined in the quality system. The personnel will be trained and get familiarized with the everyday monitoring duties to ensure high quality of monitoring. The training will be organised by a consultant in co-operation with Botnia and the equipment manufacturers. As part of engineers training there will be included special topics regarding CDM monitoring plan. The net electricity by the project plant will be measured and recorded on a regular basis using calibrated electricity meters. All metering equipment used to monitoring will be appropriately applied, maintained, calibrated, and checked with regular intervals. Monitoring of sustainable development indicators is not required by ACM0006, or by the Uruguayan DNA. The environmental impacts of the proposed CDM project activity are considered minor and will be monitored by the local environmental authority during the project lifetime. 3.6 Calculation of GHG Emissions 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 EG y EF electricity,y is the emission reductions due to displacement of electricity during the year y in tons of CO 2, 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. Page 12

17 Report No: , rev. 01 VALIDATION REPORT 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. In case of baseline scenario 4 in ACM0006, the project activity displaces electricity from other grid-connected 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). 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 NCV 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 el,otherplant k BF k,y NCV k in the 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) The electricity generation efficiency of the reference plant has been calculated based on information in IPCC s Reference Document on Best Available Techniques in the Pulp and Paper Industry /6/, which suggest an electricity consumption of 0.65 MWh/ADt for a modern nonintegrated pulp mills which is self-sufficient in terms of power generation, and considering a production level of 3000 ADt/day. In accordance with ACM0006, CO 2 emissions from occasional fossil fuel use are accounted as project emissions. This is conservative, since a fraction of the fossil fuel consumed might actually be required to supply internal power needs of the pulp mill and represents thus no additional fossil fuel use. CO 2 emissions from fossil fuel use are only accounted when the power plant is generating surplus electricity. When no surplus electricity is generated, the project scenario is identical with the baseline scenario and fossil fuel use will occur to the same extent in the project and the baseline scenario. Since the same amount of black liquor will be combusted in an almost identical manner in the project and the baseline scenario, CH 4 emissions from the combustion of black liquor are the same in the baseline and the project scenario and CH 4 emissions are thus not quantified. This is a conservative assumption because part of the fossil fuel is actually used for internal heat and Page 13

18 Report No: , rev. 01 VALIDATION REPORT electricity demand. When the plant is not producing any surplus electricity, the fossil fuel use is calculated as zero. For the displacement of grid electricity, the combined margin emission coefficient for the national grid of Uruguay will be determined ex-post in accordance with the dispatch analysis approach and BM approach described in ACM0002. For the ex-ante forecast of the dispatch analysis OM emission coefficient dispatch data for the first crediting period ( ) was estimated based on data for the year 2005, assuming a 3% annual growth in electricity demand for the subsequent years in the crediting period It is assumed that 3% annual growth in electricity demand reflects in 3% of generation increase in each plant (regardless their installed capacity). It is DNV s opinion that this simplification can be regarded as immaterial and thus acceptable for the mere estimation of dispatch OM emission coefficient for the years The generation of new power plants was estimated according to Uruguay s official projection made by DNE. For 2008, the dispatch OM emission coefficient was estimated to be tco2e/mwh and the BM emission coefficient tco2e/mwh, resulting in an estimated combined margin emission coefficient of tco2e/mwh (weighted average of the build and operating margin). The weights ωom and ωbm are selected as 0.50 and 0.50 respectively. The ex-ante OM and BM emission coefficient forecasts are calculated in accordance with ACM0002 with some minor deviations: - dispacth data of plants at the top of the stack, whose combined generation comprises 10 % of the total generation from all plants during that hour, was not considered in a hour to hour basis for the determination of the set of power plants in the top 10% of grid system dispatch order. Instead of the hour to hour basis, a general dispatch order (summer + winter) data was considered. - Negative electricity generation values were adopted for non-operating plants. Such negative values are also available in official dispatch data downloaded from UTE; - It is not demonstrated how COEF was calculated. COEF's for the given "n" plants are to be calculated based on fuel consumption data for relevant plants (which is not available). Neither fuel EF, oxidation factor and NCV were included in the provided calculation spreadsheet /12/. Emission factors data in tco 2 /MWhe were directly received from UTE by the project participant. Since the OM and BM emission coefficients will be updated ex-post on an annual basis with date provided by DNE for each year in which the project generates electricity, it DNV opinion that the above described deviations in the calculation of OM and BM emission coefficients are not relevant as the ex-ante OM and BM emission coefficient is only used for the ex-ante estimation of the project s emission reductions. In summary, the emission reduction forecast calculations are reasonable, transparent and the calculation accuracy has been verified. 3.7 Environmental Impacts Both environmental and social impacts of the construction and operation of Botnia pulp mill in Fray Bentos have been addressed and were identified in the Environmental Impact Assessment Page 14

19 Report No: , rev. 01 VALIDATION REPORT (EIA) and in the cumulative environmental and social impact study (CIS). As part of the emission permit procedure, an environmental impact assessment was conducted (based on the regulation for evaluation of environmental impacts, l 435/994 and decree ). The EIA included also the study of socioeconomic impact. The project proponent with the other company ENCE, which were also planning a pulp mill project in Uruguay near to Botnia site, have also commissioned an outside expert to make a cumulative impact study of both mills. The main identified impacts include mainly generation of effluents and wastes, air emissions, noise, traffic and alteration of scenery. The construction and operation of the whole pulp mill complies with the Uruguayan legislation which states that all major projects require an advance environmental permit. There are several stages in applying such a permit, one of which is the public hearing of the inhabitants in the area. Botnia received the environmental authorization to build the pulp mill in February Botnia has been working together with DINAMA (Uruguay s environmental authority) for the mitigation compensation plans required in the environmental permit. The plan has to be ready before the start up of the mill. Botnia has met all regulatory requirements but was not yet authorized for production. When the focus is the biomass residue power plant instead of the whole integrated pulp making plant, while comparing the construction and operation of the proposed CDM project activity (biomass residue power plant) with the less efficient reference plant that would be built in the absence of the CDM project, the project plant has only positive environmental impacts. As part of the project plant operation, emissions from the project plant are reduced due to burning the concentrated odorous gases and biosludge, while the amount of fuel used is the same. It must be noted that there is conflict between Argentina and Uruguay regarding Botnia s Fray Bentos pulp mill. The mill is located on the left bank of the Uruguay river, which is shared by Argentina and Uruguay and is protected by a Treaty, which requires both parties to inform the other of any project that might affect the river. Since 2005, Argentina has raised concerns about pollution by the Botnia plant in the Uruguay river and has taken the litigation to the International Court of Justice. Besides the issue of pollution, Argentina claimed that the Uruguayan government had not asked for permission to build the plants. Uruguayan authorities responded that the Treaty signed in 1975 does not require that permission be obtained, but merely that the other part be appropriately informed, and that conversations had indeed been held and filed, without objections on the Argentinean part. Botnia argues the plant will in fact have a positive impact on the river's waters as the factory's state of the art waste cleansing equipment is going to be used for local sewage treatment as well. Based on information recently released by the international press, there is still no final decision regarding the conflict described above. In this context it must be noted that the conflict relates to the Botnia pulp mill and not the proposed CDM project activity itself (also in the absence of the CDM project a pulp mill would have been built). 3.8 Comments by Local Stakeholders Botnia S.A. has organised several public hearings and used many other information channels to inform the public about the pulp mill project. Starting from the end of 2003, about 10 public hearing events were arranged, most of them in Fray Bentos. Botnia S.A. has presented the project for different groups of stakeholders and given presentations in many seminars. The Page 15