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

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1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD) Version 03 - in effect as of: 22 December 2006 CONTENTS A. General description of the small scale project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / crediting period D. Environmental impacts E. Stakeholders comments Annexes Annex 1: Contact information on participants in the proposed small scale project activity Annex 2: Information regarding public funding Annex 3: Project Timeline Annex 4: Grid Emission Factor Information Annex 5: Monitoring Information Annex 6: Philippines National CDM Criteria for Sustainable Development Annex 7: Stakeholders Consultation Meeting Attendance Sheet 1

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

3 SECTION A. General description of small-scale project activity A.1 Title of the small-scale project activity: >> Bataan MW Power Rice Hull Cogeneration Project Version 6 17/12/2010 A.2. Description of the small-scale project activity: >> The Bataan 2020 Inc MW Rice Hull Power Cogeneration Project (hereafter, the Project ) developed by Bataan 2020 Inc. (hereinafter referred to as Project Developer ) is a cogeneration project for a paper mill located in Barangay Gugo, Municipality of Samal in the province of Bataan, Philippines thereafter referred to as the Host Country. Bataan 2020, Inc. is a leading manufacturer of newsprint, printing and writing paper and tissue in Philippines. The paper mill uses electricity supplied from the grid for its plant operation. The process steam requirement in the baseline would have been met by existing two (2) units of 15 tonnes per hour rice hull-fuelled boilers at the paper manufacturing facility. The paper unit also has three (3) fuel oil fired boilers with a total capacity of 26 tonnes per hour as backup for the baseline rice hulls fired low-pressure boilers. The purpose of the project activity is to generate steam and electricity using rice hulls as fuel in the 12.5 MW cogeneration plant. The project activity involves Atmospheric Fluidized Bed Combustion (AFBC) technology for steam generation coupled with an extraction cum condensing steam turbine system for electricity generation. The cogeneration plant will be fuelled with rice hulls and will directly reduce greenhouse gas (GHG) emissions with the displacement of fossil fuel based grid electricity that otherwise would have been imported from the grid, in absence of the project activity. Emission reductions are not accounted for baseline emissions from the generation of steam. The project will help the Philippines fulfil its goals of promoting sustainable development in terms of economic, environmental and social benefits by generating renewable energy and reducing GHG emissions as detailed under Annex 6. The following summarises the project s sustainable benefits: Generates employment and other economic opportunities and benefits to the local community during the project construction period; Creates job to rice hull suppliers and transporters and additional income to farmers; Diversifies the sources of electricity generation; Uses clean and efficient technologies to improve local environmental quality and promotes sustainable use of natural resources; Acts as a clean technology demonstration project; Optimises the use of natural resources, whereby uncontrolled waste management is avoided; Improves the overall management of landfills; Builds the capabilities of stakeholders through education and training; and Promotes local participation in the project. 3

4 A.3. >> Project participants: 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) Philippines (host) Bataan 2020, Inc. No United Kingdom of Great Britain and Northern Ireland EcoSecurities International Limited No (*) In accordance with the CDM modalities and procedures, at the time of making the CDM-PDD public at the stage of validation, a Party involved may or may not have provided its approval. At the time requesting registration, the approval by the Party(ies) involved is required. A.4. Technical description of the small-scale project activity A.4.1. Location of the small-scale project activity: Philippines A Host Party(ies): A Province of Bataan Region/State/Province etc.: A City/Town/Community etc Barangay Gugo, Municipality of Samal A Details of physical location, including information allowing the unique identification of this small-scale project activity : >> The project is located in a rural town of Samal, in the province of Bataan in Region III (Central Luzon) in the Philippines. The project site address is: Bataan 2020, Roman Superhighway, Samal, Bataan ZIP The GPS coordinates are: N , E

5 A.4.2. Type and category(ies) and technology/measure of the small-scale project activity: >> According to Appendix B of the UNFCCC s published simplified procedures for small scale activities the proposed project falls under Type I: Renewable Energy Projects Category C: Thermal Energy Production with or without Electricity, Version 16, Sectoral Scope 01, EB 51. Technology In the project activity, rice hulls is combusted in boiler to generate heat (steam) which runs a steam turbine to provide thermal and electrical energy to the paper mill. The project is a rice hulls based cogeneration technology. The rice hulls will be sourced from rice millers within Bataan and in nearby provinces. From the covered rice hulls storage, rice hulls will be fed to the belt conveyor going to the rice hulls silo, then to the boiler by a booster fan or primary air fan. The boiler applies an atmospheric fluidised bed combustion (AFBC) technology and the biomass fuel is fed via an overbed feeding system. The boiler produces 78 tonnes per hour (66 kg/cm 2, 490ºC) of high-pressure steam, which is directly fed to the steam turbine. The turbine is a single unit controlled extraction sum condensing steam turbine that provides process steam at 30 tonnes per hour (9.5 kg/cm 2 ) and generates 12.5 MW of electricity (gross output) for use by the whole paper mill. The auxiliary power requirements are approximately 1.75MW, resulting in a nett electricity generation of approximately 10.75MW. Based on a 3-year historical electricity billing 5

6 records, the power requirements for the Bataan 2020 manufacturing facility is approximately 10.4 MW. Excess electricity, if any, may be exported to the grid. The equipment and technology is supplied and commissioned by Thermax Limited. The project will be equipped with appropriate mechanical and electrical auxiliaries, an electrostatic precipitator and a dense phase handling system to handle emissions. Specifically, an ash handling system will deal with both bed and fly ashes. The project activity will displace three (3) units of residual fuel oil fired backup boilers with a total steam generation capacity of 26 tonnes per hour at 9.5 bar, and two (2) low-pressure rice hull fired boilers a steam generation capacity 15 tonnes per hour at 9.5 bar, each, with a total capacity of 30 tonnes per hour. The process steam requirements are approximately 30 tonnes per hour. The design efficiency at optimal operating conditions of the rice hull low-pressure boilers is 80%, as specified by the manufacturer. The baseline rice hull boilers were commissioned in March 2006 while the fuel oil boilers serves as standby units to the baseline low pressure rice hull boilers during maintenance or shutdowns. The baseline rice husk boilers have sufficient technical lifetime remaining that extends beyond the crediting period. In the project activity, the existing rice hulls fired low pressure boilers will be used as standby boilers, while the fuel oil boilers will be kept as backup and gradually scrapped subject to the performance of the cogeneration system and security of biomass supplies. Small amounts of coal might be used for boiler start-ups and during the rainy season due to wetting of rice hulls. The use of coal as a co-fired fuel is not envisaged in the project activity. In the event coal is used, it will be monitored, and accounted for as project emissions. The proposed project is environmentally safe, as this will employ a new, modern and sound boiler technology that would ensure complete combustion of carbon and volatile matters. To ensure its compliance with national government s environmental standards, mitigation and enhancement measures will be undertaken at the power plant. These measures are summarized under Section D, Environmental Impacts. A.4.3 Estimated amount of emission reductions over the chosen crediting period: >> Years Annual estimation of emission reductions over the chosen crediting period , , , , , , ,652 Total estimated reductions (tonnes of CO2) 270,564 Total number of crediting years 7 Annual average over the crediting period of estimated reductions (tonnes of CO2) 38,652 6

7 A.4.4. Public funding of the small-scale project activity: >> The project will not receive any public funding from Parties included in Annex I of the UNFCCC. A.4.5. Confirmation that the small-scale project activity is not a debundled component of a large scale project activity: >> Based on the information provided in Appendix C of the Simplified Modalities and Procedures for Small- Scale CDM project activities 1, the Project is not a part of any large-scale project or program and is not a debundled component of a large project activity. The project participants have not registered or are not applying to register any other small-scale CDM project activity With the same project participants; In the same project category and technology/measure; and Registered within the previous 2 years; and Whose project boundary is within 1 km of the project boundary of the Project at the closest point

8 SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the small-scale project activity: >> According to Appendix B of the UNFCCC s published simplified procedures for small-scale activities, the project applies the following methodology: Approved small scale methodology AMS.I.C. Thermal energy production with or without electricity, Version 16, EB 51. The methodology also refers to the following: Tool to calculate project or leakage CO2 emissions from fossil fuel combustion version 2, EB 41. Tool to calculate the emission factor for an electricity system, version 2, EB 50. AMS I.D. Grid connected renewable electricity generation, version 15, EB 50. B.2 Justification of the choice of the project category: >> The project activity meets the following measures of AMS I.C. Version 16 : 2. Biomass-based co-generating systems that produce heat and electricity are included in this category. For, purpose of this methodology cogeneration shall mean the simultaneous generation of thermal and electrical and/or mechanical energy in one process. Cogeneration system may supply one of the following: a) Electricity to a grid b) Electricity and/or thermal (steam of heat) for on-site consumption of for consumption by other facilities. c) Combination of a) and b) The project activity is a renewable biomass based cogeneration system. The cogeneration system in the project activity supplies electricity and steam to the paper mill to meets its captive thermal and power requirements. Excess electricity, if any, may possibly be supplied to the grid. 3. The following capacity limits apply for biomass cogeneration units: c) If the emission reduction of the cogeneration project activity are solely on account of electrical energy production (i.e. no emission reduction from thermal energy component), the total installed electrical energy generation capacity of the project equipment of the cogeneration unit shall not exceed 15 MW. The project activity includes emission reductions solely for electrical energy production. Emission reductions from the thermal energy component are not accounted in the project activity. The total installed electrical generation capacity of the project equipment is 12.5 MW, which is less than the stipulated limit of 15 MW. 4. In case electricity and/or steam/heat produced by the project activity is delivered to another facility or facilities within the project boundary, a contract between the supplier and the consumer(s) of the energy will have to be entered into specifying that only the facility generating the energy can claim emission reductions from the energy displaced. 8

9 The electricity and steam/heat produced by the project activity will be used by the paper mill itself to meet its captive thermal and electricity requirements. A contract between supplier and consumer, therefore, is not applicable. In case of export of electricity by the grid, it will be governed by a power purchase agreement between the supplier and the receiver. 5. The capacity limits specified in the above paragraphs apply to both new facilities and retrofit projects. In the case of project activities that involve the addition of renewable energy units at an existing renewable energy facility, the total capacity of the units added by the project should comply with the capacity limits in paragraphs 2 to 4 and should be physically distinct from the existing units. The project activity does not involve addition of renewable energy generating units at an existing renewable energy facility. The project activity replaces the existing rice hulls based boilers, which would be kept as standby in the project activity. All other measures in the methodology are not relevant to the project activity. The project activity, therefore, meets all the conditions above and is therefore applicable to the project category. B.3. Description of the project boundary: >> According to AMS I.C. version 16, the physical geographical boundary site of the project equipment producing the renewable energy delineates project boundary. The boundary also extends to the industrial, commercial or residential facility, or facilities consuming energy generated by the system and the processes or equipment that is affected by the project activity. In this case, the project boundary is the cogeneration plant consisting of the rice hulls storage area and cogeneration unit. 9

10 12.5 MW Rice Hull based Cogeneration Plant (Project Activity) Rice Hulls Storage Area Rice Hull fired Boiler 12.5 MW Cogeneration unit Project Boundary 30 TPH Steam Electricity Paper Mill Electricity Common Steam Header Grid Oil fired Rice Hulls 3 units - Total of 26 TPH, 9.5 bar 2 units - Total of 30 TPH, 9.5 bar Low-Pressure Boilers (standby) Baseline Units Figure 1: Baseline and Project boundary B.4. >> Description of baseline and its development: In the absence of the project activity, electricity is imported from the electricity grid, which is served by fossil fuel sources. The thermal energy or steam requirements for the paper mill is met by low-pressure rice hulls fired boilers and supplemented by residual fuel oil fired boilers. 34 The baseline scenario defined in paragraph 12 (e) of the methodology is applicable to the project activity. 12. Projects activities producing both heat and electricity including cogeneration shall use one of the following baseline scenarios: (e) Electricity is imported from the grid and/or produced in an on-site captive power plant (with a possibility of export to the grid); steam/heat is produced from biomass. Baseline emissions are determined according to paragraph 14, 16 and 20 of the methodology that state: 14. Baseline emissions for supply of electricity to and/or displacement of electricity from a grid shall be calculated as per the procedures detailed in AMS I.D For case 12 (e) baseline emissions from the production of electricity shall be calculated as per paragraph 16. Emission reductions from heat generation are not eligible. 10

11 16. For project activities that do not displace captive electricity generated by existing plant but displace grid electricity import and/or supply electricity to grid, the emission factor of the grid shall be calculated as per procedures detailed in AMS I.D. This refers to paragraph 10 and 11 of AMS I.D. version 15, which state: 10. For all other systems, the baseline emissions are the product of electrical energy baseline EG BL, y expressed in kwh of electricity produced by the renewable generating unit multiplied by an emission factor. BE EG * EF y BL, y CO2 11. The Emission Factor can be calculated in a transparent and conservative manner as follows (a) A combined margin (CM), consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures prescribed in the Tool to calculate the emission factor for an electricity system. OR (b) The weighted average emissions (in kg CO 2 e/kwh) of the current generation mix. The data of the year in which project generation occurs must be used. Option (a) is selected in the project activity for determination of grid emission factor for electricity imported from and/or supplied to the grid. 11

12 B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered small-scale CDM project activity: CDM CONSIDERATION Bataan 2020, Inc and EcoSecurities Group Plc entered into an Emission Reduction Purchase Agreement (ERPA) on 10 August This is before the date of Bataan 2020 signed a contract with Thermax on 04 September 2007 to implement the project activity. Subsequently, the first Purchase Order was issued to Thermax on 08 September 2007, of which this date is considered the start date of the project activity. The ERPA demonstrates that CDM was seriously considered prior to the project start date. Please refer to Annex 3 for a full project timeline that shows continuous real actions taken to secure CDM status. OVERVIEW OF PHILIPPINE RICE & RICE HULL PRODUCTION The Philippines is largely an agricultural country with the agriculture contributing about 18 percent of the GDP (2007) 2. The total land area is about 0.30 million square km and approximately 32% is devoted to agricultural production. Rice, corn and coconut are the most abundant crops planted with contribution of rice being the highest at 34% of the total gross value added by crops in year Areas planted to rice totalled about million hectares 4. The Filipinos are among the world s biggest rice consumers. Rice consumption is increasing at an average of two percent per year. With the population of the Philippines already about to reach the 90 million-mark 5, rice will continue to be grown and should match production with corresponding increase in population. Rice production increased from 6.38 million tonnes in to million tonnes in Rice hulls are processed by-products of rice milling and account for about 20 to 22 8 percent of the rice production. The country has about 9,577 rice mills. Besides large mills, it includes many small mills, 2 Facts and Figures on the Philippine Agricultural Economy, 2007, CountryStat, Bureau of Agricultural Statistics, refer page 2 3 Facts and Figures on the Philippine Agricultural Economy, 2007, CountryStat, Bureau of Agricultural Statistics, refer page 1 and 2 4 Selected Statistics on Agriculture 2008, CountryStat, Bureau of Agricultural Statistics, refer page 19 5 Philippines in Figures, National Statistics Office, Cororaton, Caesar B., Rice Reform and Poverty in the Philippines: A CGE Analysis, ADB Institute Research Paper Series, June 2004, refer page 15 7 Selected Statistics on Agriculture 2008, CountryStat, Bureau of Agricultural Statistics, refer page

13 home mills and medium capacity mills spread throughout the country 9. Rice hulls are normally considered waste, and left to decay or burned in open dumpsites. The common practice for rice hulls disposals are dumping and open burning as stated in agricultural literatures 10. A study conducted by the Philippine Rice Research Institute elaborates the common practice of rice millers is the disposal of rice hulls 11. Also, rice hulls are used as soil conditioners by vegetable farmers in the provinces. They are also used to burn wood to make charcoals, which is a form of livelihood in the rural areas 12. Avoidance of methane emissions from decay of biomass or uncontrolled combustion of biomass is not included as part of the project activity. ADDITIONALITY According to Attachment A to Appendix B of the simplified modalities and procedures for CDM smallscale project activities, evidence as to why the proposed project is additional is offered under the following categories of barriers (a) investment barrier (b) technological barrier, (c) barriers due to prevailing practice and (d) other barriers. The project activity faces barriers in the technological and prevailing practice aspects, which would have prohibited the implementation of the project activity. Barriers due to Prevailing Practice ( First of its kind ) Prevailing Practice in terms of Technology Power generation from biomass residues is not the common practice in Philippines. As per the statistics by Philippines Department of Energy (DOE), the total installed generating capacity of the grid-connected power plants as of December 2007 was 15,937 MW. Coal-fired power plants accounted the largest share in terms of installed capacity, contributing 4,213 MW or percent of the mix. The majority of these coal plants are located in Luzon grid. Oil-based power plants accounted for 3,616 MW or percent of the total capacity. Hydroelectric power plants, which is the main source of electricity in Mindanao grid accounted for 3,289 MW or percent. Natural gas fired power plants in Luzon grid amounted to 2,834 MW or percent; geothermal power plants, which are mostly located in Visayas grid, accounted for 1,958 MW or percent to the total installed capacity. Other renewable energy such as wind and solar accounted for only 0.16 percent of the capacity mix. (See figure below) 13 9 Licensed/Registered Grains Businessmen... National Food Authority,, Burning of Agricultural Wastes more Hazardous than Vehicle Emissions. UMAsenso, Department of Agriculture RFU 5, Vol. 6 No. 1, 1Qtr 2007, Philippine Rice Research Institute, Rice Technology Bulletin 2004 No.49, Integrated Farm and Household Waste Management, page

14 The Department of Energy is mandated by RA 7638 (Department of Energy Act of 1992) to prepare, integrate, coordinate, supervise and control all plans, programs, projects and activities of the Government relative to energy exploration, development, utilization, distribution and conservation. It has several Divisions and Bureaus catering to different sectors, regions etc. spanning multiple functions, roles and responsibilities. Besides many, the major divisions of the Department of Energy 14 are as follows: 1. Investment Promotion Office - Implements the policies, plans and programs relative to promotion of investments in the energy resource exploration, technology and infrastructure. 2. Energy Resource Development Bureau Formulates and implements Government Policies, programs and regulations relating to exploration, development and production of indigenous petroleum, coal and geothermal, energy resources and related products and markets thereof. 3. Energy Utilization and Management Bureau Formulates and implements policies, plans, programs and regulations on new Energy Technologies, alternate fuels and the efficient, economical transformation, distribution of conventional and renewable energy resources and ensures efficient and judicious utilization of conventional and renewable energy resources. A Department of Energy Certificate of Endorsement (CoE) is a requirement under the Amended Guidelines for the issuance of Certificate of Compliance (COC) by Energy Regulatory Commission (ERC) promulgated on March 7, 2003 for grid-connected power plants. It specifies that No person may engage in the Generation of Electricity as a new Generation Company unless such person has received a COC from the ERC to operate facilities used in the Generation of Electricity. 15 The Department of Energy provides a list of all grid-connected power generating entities that have been issued with a COE for generation of power. As per the most recent list currently made available on public domain by DOE (till 31 st March 2008), there were no grid connected rice hull based power generating unit in the region and in the pulp and paper industry. 16 The government of Philippines through DOE provides certain fiscal and non-fiscal incentives to the enterprises investing in preferred areas of investments enumerated in the Investment Priorities Plan (IPP). This plan is issued annually by the Board of Investments (BOI) and contains the list of areas of List of Generating Companies Issued with Certificate of Endorsement (CoE) as of March 31,

15 investments eligible for government incentives. Only after registration with BOI, a qualified enterprise is entitled to the allowable fiscal and non-fiscal incentives. 17 As per the IPP pertaining to the energy sector, power generation using renewable and other energy sources using environmentally-friendly technologies (Those utilizing indigenous and renewable energy such as biomass, waste to energy, conversion, solar, wind, hydro and tidal; ) may qualify for registration with BOI. 18 Thus, the preliminary step for any biomass-based project is to register with BOI to get the government incentives. Prior to the start date of the project activity, there was only one rice husk based cogeneration project registered with BOI, which is the La Suerte 1MW Rice Husk Cogeneration Project in Isabela, Philippines. This project was the first full scale demonstration project under the "EC-ASEAN COGEN 3" programme in the Philippines, and a CDM project activity in validation. 19 Essential distinctions can be made as the project is of a much smaller scale of 1MW, was the first full scale demonstration project in the region, and the activity exists in different industry; the rice milling industry where biomass is available internally. As this project is a CDM project, it is excluded for further analysis. Based on the database of projects registered with the BOI, there are only three rice hulls based cogeneration units that registered with BOI from These projects are being implemented taking into consideration the revenues from CDM. 21 The Investment Promotion Office, Department of Energy, (IPO) which is concerned with the promotion of energy infrastructure, issues an annual investment portfolio that identifies business opportunities geared towards the Department's goal of attaining energy independence. The portfolio is prepared annually and forms part of the Philippine Energy Plan. The portfolio is designed specifically to provide potential investors in the energy sector a list of energy investment opportunities in the country. Areas with investment prospects are segregated geographically according to resource with the corresponding estimated cost requirements for easy reference. 22 As per the IPO, for the period , there are only four (4) rice hulls based cogeneration projects planned in the project region. 23 It can be noted that these are prospected for investment only in the period of 2007 to 2014 and were not implemented /operational at the time of the start of the project activity. Earlier attempts of similar nature have also been not so successful. Biomass power projects such as the 1,920-kW Southern Philippines Grains Complex Power Plant, the 2.1-MW NFA Rice Hull Fired Steam Power Plant in Iloilo, and PNOC s 22-kW Pilot Power Plant, have not been successful. 24 This further substantiates that the project activity is not the common practice in the region and faces prevailing practice barrier List of BOI Registered Energy Projects for the period March 2000 to July 2009, submitted to DOE in hardcopy. 21 CDM: La Suerte 1MW Rice Husk Cogeneration Project CDM: Family Choice & Golden Season 2MW Rice Husk Projects (2 project activities bundled) refer Region III 24 Philippines Climate Change Mitigation Program, Terminal Report - Technical Assistance to DOE for Enhancing Private Sector Participation in New and Renewable Energy Investments for Off-Grid Rural Electrification (TASK 6 Collection, Analysis and Packaging of Critical Investment Information), section

16 Prevailing Practice in the Industry The Philippine pulp and paper industry consists of 34 paper mills and one integrated pulp and paper mill 25. The largest of these are UPCC, TIPCO, CCP, Bataan 2020 and PICOP. These mills contribute towards 65% of the total paper production capacity of the paper industry in Philippines. For their electricity requirements, the large paper mills operate coal-fired power plants, or source electricity from the grid. TIPCO and UPPC, two of the largest paper manufacturers have installed a 50 MW and 30 MW coal fired power plants, respectively. Another paper mill, CCP has a coal-fired steam boiler with a capacity of 15 tonnes/hour for process steam. PICOP has coal and bark-fuelled boilers 26. The rest of the paper mills are comparatively much smaller as compared to Bataan 2020 and are not comparable to the project activity. Thus, the project activity is not a common practice in the industry and faces barriers due to prevailing practice. The utilisation of rice hulls as fuel in cogeneration power plant represents a deviation from the prevailing business practices. The common practice of paper mills is to use electricity from the grid or use boilers that fuels either bunker/fuel oil or coal. This technology is a simpler alternative and does not face barriers in the continuation of practice. In the absence of CDM revenues, the project proponent would not have installed the project activity keeping in view the historical failures of rice hulls based power projects and the requirement for funding for these projects as taken by various other rice hulls based power plant as described in the table above. Thus, prior to the start of the project activity, it can be substantiated that there were no rice hulls based power generation units in paper industry of Philippines, and the project activity can be considered the first of its kind in the region and in the pulp and paper industry. Technological Barriers The predominant technology to generate heat and steam in pulp and paper industries is the use of fossil fuels based boilers. As described in the barriers due to prevailing practice above, there are no paper mills in the region that use rice hull in cogeneration power plants other than those that have been implemented with CDM. The incineration of rice hulls as fuel demonstrates a new source of fuel with a technology that is primarily unexplored in the region. The project activity faces following technological barriers. The technology application of a biomass steam boiler with a steam generation capacity of 78 tonnes per hour at 66 bar and 450 deg C, combined with a 12.MW turbine is not readily available in the Philippines; hence, the technology and equipment for the project activity are imported from the Indian manufacturer (Thermax). There is a risk associated with the new technology given that this is the first paper mill in the Philippines to construct a rice hull-fired cogeneration power plant. The project activity therefore carries a risk of under performance by adopting this technology and it may not be able to sustain its output or perform as well as designed. No such problems would have been encountered in case of electricity import from the grid. As the technology is not prevalent, there is lack of skilled and certified workers in the region to operate and maintain the plant. The cogeneration operation are much more complex and have higher levels of automation than low pressure boilers therefore, will require adequate training and skilled building exercise, which is more specialised than a conventional power plant operation. In the Host 25 Pulp and Paper Industry: an Overview. 28 th Federation of ASEAN Pulp & Paper Industry Conference, Nov Pulp and Paper Industry: an Overview. 28 th Federation of ASEAN Pulp & Paper Industry Conference, Nov

17 Country, Philippines, 63% of local businesses cited the lack of skilled employees as a major barrier. 27 To ensure knowledge transfer for capacity building and security of operations due to a lack of local specialists, Bataan 2020 signed a two-year contract with Thermax on 31 st March 2009, after CDM initiatives had started, to provide expatriate engineers to supervise, manage and assist operations and maintenance (O&M) of the cogeneration plant, as well as to provide training to local personnel. Nevertheless, this training does not confer professional qualifications or expertise to the local staff, but assists in providing a reasonable level of experience in O&M. After the two-year training period, the local personnel s capability to operate and maintain the cogeneration plant will be assessed. The contract does not define performance guarantees or liabilities in case of failures within the two-year period, while the training does not mitigate the risk of unavailability of local skilled manpower with certainty over project lifetime of 25 years The use of biomass in high-pressure based power generation carries certain risks. Rice hulls ash contains a high silica content approximately 91 percent 28 which leads to abrasion of the boiler tubes 29. Furthermore, for a biomass system there is a higher level of slagging and fouling in the super heater and economizer coils. This will also lead to import and high inventory of spares, which are not readily available locally. Lack of equipment in case of emergency failures could lead to unacceptably high risk of equipment disrepair and malfunctioning or underperformance, due to unavailability of parts and time taken for import such equipment. Foreign technical specialists or consultants may also be required at site to address some failures. Furthermore, during rainy season that is significantly long 30 in Philippines, there would be problems of wetting of rice hulls as the hulls are stored in a large open area. The use of rice hulls with high moisture content in project boiler causes fluctuations in pressure and temperature, which affects a cogeneration system significantly. This also results in a risk of underperformance, operational problems related to incomplete combustion of husks, high ash formation and high slagging. The above risks cannot be reflected in monetary terms with reasonable certainty over the entire 25 years of lifetime of the project activity, but is related to technological failure, which can lead to negative effects on financial performance. The project activity therefore faces technological barriers that would not have been encountered in the baseline. The import of electricity from the regional grid would not have posed abovementioned problems, however it would have led to equivalent GHG emissions due to fossil fuel based electricity generation. Summary In the absence of project activity, Bataan 2020 will continue to operate its existing two (2) units of lowpressure rice hull fired boilers / three (3) oil fired boilers and purchase electricity from the grid. These practices do not present any particular obstacle as these have been used effectively in the past with good results, and the continued operation of existing facilities and actual practices presents no real barriers. 27 Grant Thornton, Focus on: Philippines in International Business Report 2009 Country Focus Series, page D. Njie, Energy generation from rice residues a review of technological options, opportunities and challenges International Riced Commission Newsletter Vol. 56, 2007, FAO-UN, ge_header=ephmon&lang=eng 29 Commercial Rice Milling Systems: By-products & their Utilization, International Rice Research Institute, 30 Republic of the Philippines: General Information. 17

18 There are no technical/technological issues as this simply represents a continuation of current practices and does not involve any new technology or innovation. Moreover, the rice hull fired boilers were operational in March 2006, are very new and are in excellent condition. The installation of a new rice hull cogeneration system, for the purpose of captive electricity generation, does not become attractive unless it is undertaken with CDM due to the barriers involved, in addition to the significant investment required. In conclusion, the barriers substantiate the project additionality. Despite the project activity not being a common practice and precedence of technical failure of similar nature of projects, Bataan 2020 Inc has gone ahead with the implementation of the project activity to reduce GHG emissions that would have occurred due to import of electricity from the grid in absence of the project activity. The impact of the project activity with CDM would also raise the profile of manufacturing industries as socially and environmentally responsible entities among the residents surrounding the project activity area, and provide invaluable recognition to the project activity. The project activity also helps promote sustainability, and therefore is eligible under the CDM. This is based on full consideration of CDM from an early stage in project planning. Bataan 2020 is the first manufacturing industry and first paper manufacturer to install a rice hull-fired cogeneration power plant in the Philippines. B.6 Emission reductions: B.6.1. Explanation of methodological choices: >> The methodology AMS I.C is applicable to the proposed project activity, as it is applicable to measure the GHG emissions from electricity imported from the grid. The proposed project activity involves displacement of electricity from, and supply of electricity to the grid with a cogeneration power plant that uses rice hulls to produce steam and electricity. Since steam/heat is also produced from renewable biomass in the baseline, and since the baseline heat generation includes biomass and occasionally fossil fuel (fuel oil), no emission reduction has been accounted for heat generation. Therefore, emission reductions from the displacement of heat/steam are not being claimed. Baseline Emissions The baseline is the MWh of net electricity generated by the project plant multiplied by the emission factor of the grid. The grid emission factor (measured in kg CO 2 e/kwh) is calculated ex-ante as combined margin (CM) as per procedures detailed in AMS I.D. The contribution of low cost must run resources constitute less than 50% of the total generation. Further, an ex ante approach has been selected for computation of the emission factor. The CM is the average of the operating margin (OM) and the build margin (BM) as calculated and described under Annex 4. 18

19 BE y = EG BL,y * EF CO2 Where: BE y Baseline emissions in year y (tco 2 ) EG BL,y Electrical energy baseline, of electricity produced by renewable generating unit in year y (MWh) CO 2 emission factor of the grid (tco 2 / MWh) EF CO2 Project Emissions The project emissions attributable to the project activity are CO2 emissions from on-site consumption of fossil fuels calculated according to the Tool to calculate project or leakage CO2 emissions from fossil fuel combustion. CO 2 emissions from electricity consumption by the project activity are excluded as the net amount of renewable energy generated, excluding auxiliary power, is measured. Project Emissions from on-site use of fossil fuels CO 2 emissions from on-site consumption of fossil fuels due to the project activity is the amount of coal consumed multiplied by the carbon emission factor of the coal. Coal may be used in the project activity for start-ups of boiler, or during rainy season, due to wetting of rice hulls. The project emissions due to use of coal in the project activity is calculated according to Tool to calculate project or leakage CO2 emissions from fossil fuel combustion and Option 2 of the tool is applied for the CO 2 emission coefficient of coal. PE FC,j,y = FC coal,j,y * COEF i,y ; Where: PE FC,j,y FC coal,j,y COEF coal,y NCV coal,y EF CO2,coal,y COEF coal,y = NCV coal,y * EF CO2,coal,y CO 2 emissions from fossil fuel combustion in process j during the year y (tco 2 /yr); Quantity of coal consumed in process j during the year y (mass or volume unit/yr); CO 2 emission coefficient of coal in year y (tco 2 /mass or volume unit); Net calorific value of coal in year y (GJ/mass or volume unit); CO 2 emission factor of coal in the year y (tco 2 /GJ) Leakage For biomass residues, leakage from competing use of biomass is considered. The Leakage guidelines in Attachment C to Appendix B - Indicative simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories is applied. CO 2 emissions from transportation of biomass residues to the project site are considered as a leakage source as transportation of biomass residues is outside the project boundary. 19

20 Leakage due to competing use of biomass residues The Central Luzon where the Bataan province is part of is the largest rice-producing region in the Philippines, with a production of 2,942,113 metric tonnes of harvested rice in the year Based on estimated rice hulls composition of 20 percent, there is 588,427 tonnes of rice hulls available per year. Rice hulls are commonly used as charcoal bricks, stove fuels and soil conditioners but are insignificant as there is no substantial use of rice hulls in the region. There are also no competing uses for rice hulls. A published study on abandoned biomass resources statistics in the Philippines reported that there were 368,531 tonnes of available rice hulls in the Central Luzon Region in The Bataan 2020 project will consume a maximum of tonnes per hour or 146,377 tonnes per year of rice hulls. Using the published study as reference and deducting Bataan 2020 s estimated consumption from the tonnes of available rice hulls, the excess quantity available is 152 percent, which still constitute a significant surplus. Since the availability of biomass is more than 25 percent the quantity utilised, leakage emission due to competent use of biomass residues can be neglected. Parameter Value Unit Source/Comment Quantity of Rice Hulls Used 146,377 tonnes/yr Estimated consumption by the Power Plant (QPP) Quantity of Abandoned Rice 368,831 tonnes/yr Published Literature Hulls in the Region(QR) Surplus Rice hulls in the region 152% tonnes/yr Calculated Leakage due to transportation of biomass residues to the project site CO 2 emissions from transportation of biomass residues to the project site are considered if the biomass is transported over a distance of more than 200km. CO 2 emissions from transport of rice hulls to the project site is calculated based on the distance and the number of truck trips made and average emissions per unit run: LE transp,y = Σ BFPJ y / TL y * AVD y * EF CO2,transp Where: LE transp,y CO 2 emissions during the year y due to transport of the rice hulls to the project plant (tco2/yr); BFPJ y Incremental quantity of rice hulls as a result of project activity during the year y, cogeneration consumption against baseline biomass boiler ; AVD y Average round trip distance (km); TL y Average truck load/capacity of the trucks used (tons or liters) during the year y; EF CO2,transp Average CO 2 emission factor per unit run of transportation (tco 2 / km) Since rice hulls have been used in the baseline, the incremental quantity of rice hulls transported will be considered in the calculation of leakage. 31 Bureau of Agricultural Statistics, Department of Agriculture Philippines, xweb/database/main/details/a_production/a%20crops/&lang=1 32 Baconguis, Santiago R., Abandoned Biomass Resource Statistics in the Philippines, October 2007, table

21 BFPJ y = BF y - Q project plant, y / ( ε boiler * GCV ) Where: BF y Quantity of rice hulls consumed in the project plant during the year y; Q project plant, y Net quantity of heat generated in the cogeneration project plant from firing rice hulls (GJ); ε boiler Energy efficiency of the boiler that would be used in the absence of project activity; GCV Calorific value of the rice hulls Emission reductions The greenhouse gas emission reductions achieved by the project activity during a given year y (ERy) is the difference between the net baseline emission and the sum of project activity emission and leakage. ER y = BE y PE FC,j,y LE transp,y Where: ER y The project emission reduction in the year y (tco 2 e); BE y The baseline emissions in the year y (tco 2 e); PE FC,j,y The project activity emissions in the year y due to combustion of fossil fuels (tco 2 e); LE transp,y The leakage in the year y due to transportation of biomass (tco 2 e) 21

22 B.6.2. Data and parameters that are available at validation: Data / Parameter: EF CO2 Data unit: tco 2 e/mwh Description: Grid Emission Factor for the Luzon-Visayas Grid Source of data used: Philippines Department of Energy Value applied: Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: The data is calculated based on latest energy generation data available from the Philippines Department of Energy. Please refer to Annex 4 for details. The Grid emission factor has been determined ex-ante is fixed for entire crediting period. Data / Parameter: SEC RH Data unit: GJ/MWh Description: Specific Energy Consumption of rice hulls in the project activity Source of data used: Heat and Mass Balance Diagram Value applied: Justification of the Specific energy consumption or Plant Heat Rate: choice of data or kcal/kwh x J/cal = GJ/MWh description of Specific fuel consumption: measurement methods Plant Heat Rate divided by GCV of fuel (rice hulls) and procedures actually kcal/kwh / 3100 kcal/kg = ton/mwh. applied : Any comment: Data / Parameter: SEC Coal Data unit: GJ/MWh Description: Specific Energy Consumption of coal in the project activity Source of data used: Heat and Mass Balance Diagram Value applied: Justification of the Specific energy consumption or Plant Heat Rate: choice of data or kcal/kwh x J/cal = GJ/MWh description of Specific fuel consumption: measurement methods Plant Heat Rate divided by NCV of fuel (coal) and procedures actually kcal/kwh / (30.5 TJ/Gg / ) kcal/kg = ton/mwh. applied : Any comment: 22

23 Data / Parameter: EF CO2 transp Data unit: tco 2 /km Description: Average CO 2 emission factor per unit run of transportation Source of data used: IPCC 1996 Value applied: Justification of the IPCC 1996 default CO 2 Emission Factors for US Heavy Duty Diesel choice of data or Vehicles, with moderate emissions controlled technology, as provided in Table description of 1-32, Chaper 1 (Energy) of the 1996 IPCC Guidelines on National GHG measurement methods Inventories. and procedures actually applied : Any comment: IPCC 1996 values are applied as IPCC 2006 values are unavailable. Data / Parameter: ε boiler Data unit: % Description: Thermal efficiency of the baseline rice hull boilers Source of data used: Manufacturers specifications Value applied: 80 Justification of the Efficiency is retrieved from different manufacturers boiler specifications for choice of data or similar units using baseline fuel (rice hulls). description of The values are: 80%, 75%, 78%, 78% measurement methods Highest thermal efficiency value of 80% on GCV is used to be conservative. and procedures actually applied : Any comment: Based on guidelines in Option (b) of methodology. 23