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

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1 page 1.CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS A. General description of project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / crediting period D. Environmental impacts E. Stakeholders comments Annexes Annex 1: Contact information on participants in the project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring plan

2 page 2 SECTION A. General description of project activity A.1. Title of the project activity: Project title: Yunnan Baoshan Dengke Hydropower Project Version of PDD: 2.0 Date of document: 21/12/2011 Table A-1 Revision History Version Date Comments /04/2011 Initial version for GSP /12/2011 Revised according to validation protocol A.2. Description of the project activity: Yunnan Baoshan Dengke Hydropower Project (hereafter referred as the Project ) is located on the downstream of Long River, the boundary river of Longling County and Tengchong County. The Project is developed and operated by Yunnan Baoshan Power Co., Ltd. (hereafter referred as Project Owner ), by utilizing the water resources of Long River, the Project is expected to generate and deliver approximate 474GWh 1 electricity to Yunnan Provincial Power Grid, which is a part of China Southern Power Grid (CSPG) annually. The Project is a newly constructed dam and diversion type hydropower plant, with a total installation capacity of 120MW (40MW*3), estimated annual power deliver to the grid is 474,586MWh. The baseline scenario is the existing scenario prior to the implementation of the project activity, the equivalent amount of electricity generated by the Project activity is supplied by CSPG which is dominated by fossil fuel power plants. The development of the Project will provide renewable energy to CSPG and replace parts of the electricity generated by coal-fire, thus results in measureable and creditable Greenhouse Gas (GHG) emission reductions. The estimated annual GHG emission reduction 2 of the Project is 338,569t CO 2. The development of the hydropower plant is in compliance with China energy policy and strategy, as it would benefit sustainable development of local area in the following aspects: In accordance with national and provincial energy strategy, the Project activity would benefit local economic development and Financial Revenue by utilizing excellent-quality hydro power resources. Reduce the local use of firewood displacing by electricity, reduce the damage to the local vegetation. Improving transportation and communications of the local area. The Project activity would provide many career opportunities to local low-income people, the enhancement of income and quality of life of local people would benefit sustainable development of local region. In conclusion, the development of the proposed Project activity meets the common value of sustainable development; both the Project Owner and local people are supportive to the Project. 1 The net power delivered to the Grid is sourced from page1-1 and 14-4 of FSR. 2 See details on Section B of this text.

3 page 3 A.3. Project participants: Name of Party involved (*) ((host) indicates a host Party) Private and/or public entity(ies) project participants (*) (as applicable) Indicate if the Party involved wishes to be considered as a project participant (Yes/No) People s Republic of China Yunnan Baoshan No (host country) Power Co., Ltd. Switzerland Swiss Carbon Assets Ltd. No Please refer to Annex1 for detail contact information. A.4. Technical description of the project activity: A.4.1. Location of the project activity: A People s Republic of China. A Yunnan Province. Host Party(ies): Region/State/Province etc.: A City/Town/Community etc.: Longling and Tengchong County, Baoshan City. A Details of physical location, including information allowing the unique identification of this project activity (maximum one page): Dengke Hydropower station is located at the downstream of Long River, the boundary river of Longling County and Tengchong County, Baoshan City, Yunnan Province, PRC. The geography coordinate of the Project is N, E. Indicate of details of physical location of the Project

4 page 4 Figure A.1 Location of Yunnan Province Figure A.2 Location of Baoshan City Figure A.3 Location of the project A.4.2. Category(ies) of project activity: Sectoral scope 1: Energy industries (Renewable sources).

5 page 5 A.4.3. Technology to be employed by the project activity: The scenario existing prior to the start of the implementation of the project activity (the same as the baseline scenario): The electricity supplied to the grid by the project should have been supplied by the China Southern Power Grid, dominated by electricity generated by fossil fuel fired plants, prior to the start of the implementation of the project activity, which is the same as the baseline scenario. The China Southern Power Grid is dominated by electricity generated by fossil fuel fired plants, whose by-products are GHGs (main emission: CO 2 ). The project scenario: The proposed project is an after-dam hydropower station. The main structures of Dengke hydropower station include a 76.2m height gravity dam, after-dam power houses with 3 water turbine units (40MW each) and a penstock. The dam consists of non-overflow dam section, overflow dam section, bottom outlet dam section and water intake dam section. The generated electricity will be connected to Yunnan Provincial Power Grid; the most priority power supply region would be Baoshan City. The detail information of hydro turbines and generators are shown as below: Table A-2 Technical parameter of hydro turbines and generators Parameter Data Hydro Turbine Type HLA904a-LJ-340 Installed Number 3 Rated Speed (r/min) Rated Water Head (m) 47.5 Efficiency (%) 94.0 Rated Flow Rate (m 3 /s) 95.5 Annual Operational Hour (h) 4,502 Life Time (year) 25 Manufacture DEC Dongfeng Electric Machinery Generator Type SF40-36/6800 Installed Number 3 Installed Capacity per set (MW) 40 Rated Speed (r/min) Rated Power Factor 0.85 Efficiency 97.5%

6 page 6 Annual Operational Hour (h) 4502 Life time (year) 25 Manufacture DEC Dongfeng Electric Machinery Electric meter (M1) with accuracy level 0.2s will be installed at the substation and will be operated and maintained by local grid company for the measurement of electricity delivered to the grid (EG output,y ) and imported from the grid (EG input,,y ). The back-up meter (M2) is installed at the outlet of the power station which is operated and maintained by project entity. When the gateway meters are out of normal working condition, the reading from the backup meter will be used as reference. Detailed information regarding to monitoring system, please turn to section B.7.2. The Project does not involve in technology transfer from aboard. A.4.4. Estimated amount of emission reductions over the chosen crediting period: The Project will apply renewable crediting period (7*3 years), the estimation of annual and total GHG emission reduction for the first crediting period are present in Table A-3. The total emission reductions over the first crediting period are 2,369,983t CO 2 e. Table A-3 Estimated amount of GHG emission reductions over the first crediting period Years Estimated amount of GHG emission reductions (t CO 2 e) Year 1 338,569 Year 2 338,569 Year 3 338,569 Year 4 338,569 Year 5 338,569 Year 6 338,569 Year 7 338,569 Total 2,369,983 Total Crediting Years 7 Average 338,569 A.4.5. Public funding of the project activity: There is no public funding from Annex I parties for the Project activity.

7 page 7 SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: Applied approved baseline and monitoring methodology: ACM0002 (Version ), Consolidated baseline methodology for grid-connected electricity generation from renewable sources. The proposed Project activity is also referred to tools that listed below: Tool for the demonstration and assessment of additionality, (version EB65); Tool to calculate the emission factor for an electricity system, (version EB63). For more information regarding the methodology and tools, please refer to UNFCCC website at the link below: B.2. Justification of the choice of the methodology and why it is applicable to the project activity: The consolidated baseline methodology, ACM0002 is applied for identification of baseline scenario and calculation of GHG emission reduction for the Project activity. The Project is in compliance with the applicability of ACM0002 that shown as below: Requests in methodology The project activity is the installation, capacity addition, retrofit or replacement of a power plant/unit of one of the following types: hydro power plant/unit (either with a run-of-river reservoir or an accumulation reservoir), wind power plant/unit, geothermal power plant/unit, solar power plant/unit, wave power plant/unit or tidal power plant/unit; In the case of capacity additions, retrofits or replacements (except for wind, solar, wave or tidal power capacity addition projects which use Option 2: on page 11 to calculate the parameter EG output,y ): the existing plant started commercial operation prior to the start of a minimum historical reference period of five years, used for the calculation of baseline emissions and defined in the baseline emission section, and no capacity expansion or retrofit of the plant has been undertaken between the start of this minimum historical reference period and the implementation of the project activity; The project situation The project is to install a new hydro power plant and hence comply with the applicability criterion. The criterion is not relevant to a new hydro power plant like this project. Applicable? Yes/No In case of hydro power plants, one of the following The project activity Yes Yes Yes

8 page 8 conditions must apply: 1. The project activity is implemented in an existing reservoir, with no change in the volume of reservoir; or 2. The project activity is implemented in an existing reservoir, where the volume of reservoir is increased and the power density of the project activity, as per definitions given in the Project Emissions section, is greater than 4 W/m 2 ; or 3. The project activity results in new reservoirs and the power density of the power plant, as per definitions given in the Project Emissions section, is greater than 4 W/m 2. results in new reservoir and the power density of the power plant is greater than 4 W/m 2. Therefore, the consolidated baseline and monitoring methodology (ACM0002) is applicable to the Project activity. Data and information used for the proposed Project activity, in this PDD, is mainly quoted from the FSR and 2010 Baseline Emission Factors for Regional Power Grids in China which are public available on China DNA s website 3. B.3. Description of the sources and gases included in the project boundary: As per described in Section II, Baseline Methodology Procedure of ACM0002, the spatial extent of Project boundary includes the power plant and all power plants connected physically to the electricity system (which is referred to CSPG in the proposed Project activity). According to the 2010 Baseline Emission Factors for Regional Power Grids in China 4, CSPG is consists of four sub-grids: Yunnan Provincial Grid, Guangdong Provincial Grid, Guangxi Provincial Grid and Guizhou Provincial Grid, therefore the Project boundary is Dengke Hydropower Plant and all fossil fuel plants that connected to CSPG. The greenhouse gases and emission sources included and excluded from the Project boundary are shown as below: Baseline Project Activity Table B-2 Emission sources included and excluded from the Project boundary Source Gas Include? Justification/Explanation CO 2 emissions from electricity CO 2 Included Major emission source generation in fossil fuel fired CH 4 Excluded Minor emission source power plants that are displaced due to the project activity N 2 O Excluded Minor emission source For Dengke Hydropower Plant, emissions of CH4 from the CO 2 Excluded Minor emission source reservoir Refer to footnote 3 CH 4 Included The power density of the project is 53.64W/m 2 greater than 10W/m 2, according to

9 page 9 ACM0002, CH 4 emission are not considered N 2 O Excluded Minor emission source

10 page 10 The below flow diagram physically delineates the project boundary and its relevant information: Figure B.1 the Project boundary B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: In accordance with ACM0002, the baseline scenario for the proposed Project activity (a new gridconnected renewable power plant) is the following: Electricity delivered to the grid by the project activity would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources, as reflected in the combined margin (CM) calculations described in the Tool to calculate the emission factor for an electricity system. (version EB63) For the project, the electricity generated by the project will be finally connected to the China Southern Power Grid. Therefore, the baseline scenario of the project is: Electricity delivered to the grid by the project activity would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources on the China Southern Power Grid to meet electricity demand.

11 page 11 In accordance with the ACM0002 methodology, baseline emissions are equal to power delivered to the grid, multiplied by the baseline emission factor. The baseline emission factor is equal to the combined margin: a weighted average of the operating margin emission factor and the build margin emission factor. See Section B.6 for details. B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (assessment and demonstration of additionality): The impact of CDM on the project had been deliberately considered by the Project Owner at the early stage of the Project cycle. The timeline of major events are listed as below: Table B-3 Project Timeline Time Event Jan The EIA report of the proposed Project was designed by Yunnan Water Conservancy and Hydropower Investigating and Designing Institute. Jan.17 th 2008 Got to know CDM from a consultant firm, received proposal from the consultant Mar. 2 nd 2008 Signed the CDM Service Agreement Apr FSR finalized which the impact of CDM was taken into account May. 4 th 2008 EIA approved by Yunnan Provincial Environment Protection Bureau Document Reference: Yunhuanxuzhun (2008) 125 May. 15 th 2008 Board decision to implement the project with CDM assistance May. 25 th 2008 Signing construction contract of dam, defined as the starting date of the CDM project activity. Jun.23 rd 2008 FSR approved by Yunnan Provincial DRC Document Reference: Yunfagainengyuan (2008) 876 Jul. 10 th 2008 Signed main equipment contract. Sep. 15 th 2008 Held stakeholder consultation meeting to obtain opinions regarding CDM project. Apr. 27 th 2009 Received LOI from the first buyer. Jul. 19 th 2009 Signed Term sheet with the first buyer. Feb. 12 th 2010 The first buyer voluntary withdraw from the project Mar. 23 rd 2010 Signed ERPA with the second buyer. Jul. 6 th 2010 Confirmation letter of completion of due diligence received from the second buyer. Dec. 8 th 2010 NDRC request the PO to confirm the company name published in EIA approval while applying for host country LoA. Jun. 13 th 2011 Receive the announcement for the company name published in EIA approval issued by Yunnan Provincial Environment Protection Bureau Document Reference: Yunhuanhan (2011) 151

12 page 12 The latest version 5 of Tool for the demonstration and assessment of additionality is applied for the proposed Project activity. Step 1: Identification of alternatives to the project activity consistent with current laws and regulations Sub step 1a: Define alternatives to the project activity: (1) The proposed Project activity is to provide grid-connected electricity to CSPG by utilizing hydropower of Long River. It may realistic and creditable available for the Project Owner or similar project developer to provide output or services compare with the proposed Project activity at following alternatives: (a) The Project activity is implemented without registered as a CDM Project. (b) Construction of a thermal power plant provide equivalent amount of electricity annually. (c) Construction of a power plant provide equivalent amount of electricity annually by utilizing other renewable energy sources. (d) Provision of equivalent amount of electricity annually by the grid that the Project is about to connected with (CSPG). Wind 6, wave and tidal sources are insufficient in Yunnan Province; no biomass-fuelled power plant was built previously with the similar scale as the Project activity. Moreover, other renewable energy source plants such as geothermal 7 and solar PV 8 are suffered with high investment cost for commercial development currently in China. Therefore, alternative (c) is not available. Outcome of Step 1a: alternative (a), (b) and (d) are realistic and creditable. Sub step 1b: Consistency with mandatory laws and regulations: (2) A grid-connected thermal plant that may provide the equivalent amount of electricity annually as the Project activity would have a total installed capacity of approximate 133MW. However, according to the Chinese regulations for thermal plants, it is forbidden for the construction of thermal plants whose installed capacity is lower than 300MW within the area which is covered by Provincial grid 9 (for example, Yunnan Provincial Grid). The construction of a grid-connected thermal plant with total installed capacity of 133MW is not consistency with Chinese regulations and hereby considered as impracticable. Therefore, the alternative (b) should be eliminated from the alternatives. (3) The alternative (a) and (d) are consistency with mandatory laws and regulations. Outcome of Step 1b: alternative (a) and (d) are realistic and creditable alternatives that in compliance with mandatory laws and regulations taking into account the enforcement in country and EB decisions on national policies and regulations. 5 EB65, Annex21 Z2d244fDAt2QrZyEoU7Ie8gRZSr_MP 6 Please find the detail information for the distribution of wind source in China on 7 Source from: 8 Source from: 9 State Council Document Ref. [2007] No.2.

13 page 13 Step 2: Investment analysis Sub step 2a: Determine the appropriate analysis method On the basis of Tool for the demonstration and assessment of additionality, the Project may select one of the investment analysis methods below: Simple cost analysis. Investment comparison analysis. Benchmark analysis. Since the project can obtain the revenues from the sales of electricity and the fourth alternative does not involves investment, thus we conclude that only Benchmark analysis is appropriate for the analysis of the additionality of the project activity. Sub step 2b: Apply benchmark analysis According to Interim Rules on Economic Assessment of Electrical Engineering Retrofit Projects 10, the financial benchmark internal rate of return (after tax) for Chinese power industries is listed as 8%. This financial benchmark is applicable to hydro power projects. On the basis of this benchmark, the calculation and analysis of financial indicators are carried out in sub-step 2c. Sub step 2c: Calculation and comparison of financial indicators The parameters listed below are derived from FSR carried out by independent design institute in April 2008 and applied for the calculation of IRR. Table B-4-1 Parameter for calculation of financial indicators Parameters Data Unit Source Installed Capacity 120 MW FSR Net power supply to the Grid 474,586 MWh FSR Electricity Tariff (including VAT) CNY/KWh FSR Total Investment CNY FSR Loan Interest (During CNY FSR Construction Period) Annual O&M Cost (4-18years) CNY FSR Annual O&M Cost (19-28years) CNY Depreciation Rate 3.96 % FSR Income Tax 25 % Tax Law of China VAT 17 % Tax Law of China Urban Maintenance and Construction Tax 5 % Tax Law of China 10 State Power Corporation of China, Interim Rules on Economic Assessment of Electrical Engineering Retrofit Project. Beijing: China Electric Power Press, 2003.

14 page 14 Surtax for education 4 % Tax Law of China Crediting Period 7 Year Expected CERs Price 8 /t Project operational lifetime 25 years FSR As indicated before, the project with its IRR lower than the financial benchmark will be considered as not financial attractive. In order to determine whether CDM is necessary for the development of the Project, we calculated the Project IRR with and without CER at Table B-5. Table B-5 Comparison of Project IRR with the Financial benchmark Project IRR Without CERs Revenue 6.31% With CERs Revenue 9.74% Benchmark 8.00% The Table above indicate that IRR of the Project without CERs revenue is 6.31%, which is lower than the threshold set for Chinese Hydropower industry therefore the Project is not economic attractive. However, after the CERs revenue was taken into account, the IRR is higher than the benchmark, which means the Project has become financial attractive. Sub step 2d: Sensitive Analysis In accordance with Tool for the demonstration and assessment of addionality, the sensitive analysis is to show whether the conclusion regarding the economic attractive is robust to reasonable variations in the critical assumptions. The following parameters were considered as key factors and selected for sensitive analysis: Total investment Annual O&M costs Electricity tariff Net power supply to the Grid A variation of +10% 11 were selected for the critical assumptions. The results of sensitivity analysis were shown in the Table below: Table B-6 Sensitivity analysis for the key factors of the Project Variations Parameters -10% -5% 0 5% 10 Total investment 7.13% 6.70% 6.31% 5.96% 5.62% Annual O&M cost 6.52% 6.42% 6.31% 6.21% 6.10% Electricity tariff 5.31% 5.82% 6.31% 6.79% 7.26% Net power supply to the 5.31% 5.82% 6.31% 6.79% 7.26% 11 FSR and Interim Rules on Economic Assessment of Electrical Engineering Retrofit Project

15 page 15 Grid Figure B.1 IRR of total investment sensitivity to different financial parameters of the project The results indicated that the IRR of the Project without CERs revenue could not reach the threshold for Hydropower industry in case the variation of four key factors is limited in ±10%. To further demonstrate that the financial attractiveness of these scenarios are robust to reasonable variations in the critical assumptions (e.g. Total Investment, O&M Cost etc.), sensitivity analysis and critical point analysis is performed. Table B-7 Critical point analysis Parameters Total Investment Annual O&M Cost Electricity Tariff Net Power Supplied to the Grid Threshold value to reach the benchmark % % % % However, none of these conditions can be achieved due to the following reasons: 1) Regarding the fixed asset investment The parameters adopted from the FSR that finalized by Yunnan Water Conservancy and Hydropower Design & Research Institute, a qualified third party organization and approved by Yunnan Development and Reform Commission. The fixed assets investment estimated in the FSR is in line with national and local standards on engineering, construction and equipments. According to the China Statistical Yearbook published by the China State Statistics Bureau, the Price Indices for Investment in Fixed Assets in Yunnan Province shows that the price of investment in fixed assets was raise 1.8% in 2006, 4.2% in , and 7.4% in , the Purchasing Price Indices for Raw

16 page 16 Materials, Fuels and Power shows that in the national scope, the General Index of the Raw Materials was raise 6% in 2006, 4.4% in 2007, and 10.5% in The fixed assets cost shows an upward tendency. In conclusion, under an economic circumstance that the price of raw materials and labor keeping increase, the fixed assets investment is not likely to decrease as much as-18.58%. In fact, the actual volume of the main signed contract has already summed up to 93.6% of the fixed asset investment, and the construction is basically conforming to the estimations in FSR. 2) Regarding the annual O&M cost The IRR of the Project will reach the benchmark 8% if annual O&M cost reduced by 84.27%, however the annual O&M cost is estimated by the third party organization and in compliance with relevant regulations and practical experience. As indicate above the increasing price of raw materials and labor cost make it impossible for O&M cost to reduced by 84.27%. 3) Regarding the electricity tariff The value adopted in the financial analysis is applied by the Feasibility Study Report, and this tariff (0.215CNY/kWh) is also consistence with Information note on the highest tariffs applied by the executive board in its decisions on registration of projects in the People s Republic of China (version 01) approved at EB ) Regarding the net power supply to the grid The power supply estimation of the project is carried out by the Yunnan Water Conservancy and Hydropower Design & Research Institute, a qualified third party organization and approved by Yunnan Development and Reform Commission, on the basis of long-term hydrologic statistic and plenty of experience regarding hydropower projects, in which the flood and drought years were taken fully consideration as well. Although the power supply to the grid is likely to variety due to the different natural conditions, it is impossible for the average annual power supply to the grid increased by 17.86%. Outcome of Step 2: The proposed CDM Project activity is unlikely to be economically attractive; further steps shall be proceeding to. Step 3: Barrier Analysis This step is not adopted. Step 4: Common Practice Analysis As per Tool for the demonstration and Assessment of Additionality, projects are considered similar if they are in the same country/region and/or rely on a broadly similar technology, are of a similar scale, and take place in a comparable environment with respect to regulatory frame-work, investment climate, access to technology, access to financing, etc. According to the Guidelines On Common Practice (version 01), common practice analysis is presented through the following 4 steps

17 page 17 Sub Step a, calculate applicable output range as +/-50% of the design output or capacity of the proposed project activity. As a hydropower project, the installed capacity is chosen as an appropriate proxy for similar scale. The installed capacity of Dengke project is 120MW. Based on this indicator, hydropower projects with installed capacity between 60MW and 180MW are considered as similar size. Sub Step b, China is a very large country in which the economic development level, the industrial structure, the fundamental infrastructure, development strategy and the policy framework is different. As such a number of key economic factors vary from province to province. These include tariff rates of products, the cost of materials, the cost of electricity and other utilities such as water, the cost of labor and services and the types of loan that can be obtained. These factors all vary among provinces. Therefore, Yunnan Province is selected as the region for common practice. Projects located in Yunnan province with the installed capacity of 60MW to 180MW, have started commercial operation before the start date of the project, were selected for further analysis. With the above mentioned criteria, a number of waste incineration projects under construction or seeking CDM assistance are therefore not included in the table. The table below shows the projects with a similar scale that have already been commissioned. Table B.7 Similar hydropower project in Yunnan Province 16 Name Installed Capacity (MW) Commissioning date Gaoqiao Hydropower project Malutang Hydropower project Supahe Ajiutian Hydropower project Yayangshan Hydropower project Tukahe Hydropower project Chaishitan Hydropower project Hongshiyan hydropower project 80 before Yunguixiangshui hydropower project Lvshuihe hydropower project Husonghe hydropower project Lazhuang hydropower project 60 before Project name & installed capacity information are from Year Book of China Water Resources , other information are from follow links Installed capacity for china hydropower project Introduction of key construction of Husonghe Hydropower Project 22 Please refer to the footnote 23

18 page 18 From the above table, the parameter N all is 11. Sub Step c, identify the different technologies delivered the same output and differ by at least one of the following aspects: 1) Energy Source/fuel; 2) Feed stocks; 3) Size of installation (power capacity) a) Micro (as defined in paragraph 24 of Decision 2/CMP.5 and paragraph 39 of Decision 3/CMP.6) b) Small (as defined in paragraph 28 of Decision 1/CMP.2) c) Large 4) Investment climate in the date of investment decision, inter alia; a) Access to technology b) Subsidies or other financial flows; c) Promotional policies; d) Legal regulations; 5) Other features, inter alia: a) Unit cost of output (unit costs are considered different if they differ by at least 20%); Sup Step c-1 Discussion of investment climate in the date of investment decision China Central Government and State and State Council had carried out the Power Sector Reform Scheme 23 in 2002, which had diversified China State Power Corporation into five separated regional grids, consequently changed the tariffs and allowable amounts of electricity supplied to the grid, and the existing electricity tariff mechanisms were reformed as well, therefore make a significant different regulatory environment between hydropower plants that start operation after and before For the reasons above, Chaishitan hydropower project, Hongshiyan hydropower project, Yunguixiangshui hydropower project, Lvshuihe hydropower project, Husonghe hydropower project and Lazhuang hydropower project are indentified as different technologies with the proposed project due to the different promotional policies and legal regulations. Sub Step c-2 Discussion of other feature The analysis and discussion of unit costs for the rest hydropower project listed in Table B.7 are shown as below: 23 Power Sector Reform Scheme by Central Government and State Council, 2002, see details with the following link pendocument

19 page Gaoqiao Hydropower Project The technical indicator for Gaoqiao Hydropower Project is very excellent, the annual equivalent full load operation hour of Gaoqiao Project is 5066 hour, which is much higher than the project activity (4502hour). The total investment of the project is and the unit investment cost of output is CNY/kWh, which is 31% lower than the project activity (1.41 CNY/kWh). Then Gaoqiao Hydropower Project can be defined as different technology since it has different unit cost of output (more than 20% lower). 2. Malutang Hydropower Project Malutang Project is located at the best water resources project site in Wenshan Prefecture, the annual equivalent full load operation hour of Malutang Project is 6891hour, which is much higher than the project activity (4502 hour). The total investment of the project is and the unit investment cost of output is CNY/kWh, which is 54% lower than the project activity (1.41 CNY/kWh). Then Malutang Hydropower Project can be defined as different technology since it has different unit cost of output (more than 20% lower). 3. Ajiutian Hydropower Project Ajiutian Project is with the best financial indicators in Supahe River, the annual equivalent full load operation hour of Ajiutian Project is higher than project activity (4502 hour). The total investment of the project is and the unit investment cost of output is 0.793CNY/kW, which is 48% lower than the project activity (1.41 CNY/kWh). Then Ajiutian Hydropower Project can be defined as different technology since it has different unit cost of output (more than 20% lower). 4. Yayangshan Hydropower Project and Tukahe Hydropower Project There exists a significant distinction between the proposed Project and these two Hydropower projects. Yayangshan Hydropower Project and Tukahe Hydropower Project are developed by Lixianjiang River Basin Hydropower Development Company under Datang International Power Generation Co., Ltd, which is the listed company in China. According to the development plan of west-east electricity transmission projects in Yunnan Province, these two Hydropower Project is the representative project and in accordance with Document Fagaijiage [2008] No.1682, the bus-bar tariff for the electricity transmitted from Yunnan Province to Guangdong Province is 0.333Yuan RMB/kWh, which is much higher than the tariff of the proposed project of 0.215Yuan RMB/kWh. The proposed Project will reach benchmark as well in case the same tariff is applied. Therefore, Yayangshan and Tuka River Hydropower Project are defined as different technology since they faces favorable subsidy. Outcome of Step c: all the projects listed in Table B.7 applied different technologies with the proposed project, N diff is 11. Sub Step d: Calculate factor F = 1 - N all /N diff = 0, which is below 0.2 and the project is not common practice. 24 Data source comes from 25 Data source comes from 26 Data source comes from

20 page 20 In conclusion, the project is not feasible without CDM financing. Compared to the existing similar hydropower projects, the project faces unusual financial barrier, therefore it is not a common practice. CDM helps to overcome these barriers. If the project is not implemented, the power will be supplied by CSPG. Hence, the project activity is not a baseline scenario, but is additional. B.6. Emission reductions: B.6.1. Explanation of methodological choices: In compliance with the approved methodology (ACM0002 version 12.1), the procedures for estimation of emission reductions for the proposed Project including the calculation of Project emissions and Baseline emissions with the following steps: Project emissions The Project emissions shall be calculated with the following equations: PEy PEFF, y PEGP, y PEHP, y (1) Where: PE y : Project emissions in year y (tco 2 e/yr) PE EF, y : Project emissions from fossil fuel consumption in year y (tco 2 e) PE GP, y : Project emissions from the operation of geothermal power plant due to the release of non-condensable gases in year y (tco 2 e) PE HP, y : Project emissions from water reservoirs of hydro power plant in year y (tco 2 e) For Hydropower Plant Project, PE EF, y and PE GP, y is equal to 0, PE HY, y is calculated on the basis of the power density (PD) of the Project, and PD is calculated using the equation below: PD ( CAPPJ CAPBL)/( APJ ABL) (2) Where, PD: Power density of the Project activity (W/m 2 ) CAP PJ : Installed capacity of the hydropower plant after the implementation of the Project activity (W), for Dengke Hydropower Plant Project, Cap PJ = 120,000,000 CAP BL : Installed capacity of the hydropower plant before the implementation of the Project activity (W), for Dengke Hydropower Plant Project (new hydropower plant), Cap BL = 0 A PJ : Area of reservoir measured in the surface of the water, after the implementation of the Project activity, when the reservoir is full (m 2 ), for Dengke Hydropower Plant Project, A PJ = 2,237,000 A BL : Area of reservoir measured in the surface of the water, before the implantation of the Project activity, when the reservoir is full (m 2 ), for Dengke Hydropower Plant Project (new hydropower plant), A BL = 0 Therefore, the PD of the Project activity is W/m 2 methodology, PEHP, y 0 greater than 10 W/m 2, therefore as the (3)

21 page 21 Therefore, PE y = 0, and TEG y is not included in the calculation and monitoring. Baseline emissions Baseline emissions include only the CO 2 emissions from electricity generation in fossil fuel fire power plants that are displaced due to the Project activity. The methodology assumes that all project electricity generation above baseline level would have been generated by existing grid-connected power plants and the addition of new grid-connected power plants. The baseline emissions are to be calculated as follow: BEy EGPJ, y EFgrid, CM, y (4) Where, BE y : Baseline emissions in year y (tco 2 e) EG PJ, y : Quantity of net electricity generation that is produced and fed into the grid as a result of the implementation of the CDM project activity in year y (MWh/yr) EF grid, CM, y : Combined margin CO 2 emission factor for grid connected power generation in year y calculated using the latest version of the Tool to calculate the emission factor for an electricity system (tco 2 /MWh) Calculation for EG PJ, y Dengke Hydropower Plant Project is the installation of a greenfield grid-connected hydropower plant at a site where no renewable power plant was operated prior to the implementation of the Project activity, then EGPJ, y EGfacility, y (5) Where, EG PJ, y : Quantity of net electricity generation that is produced and fed into the grid as a result of the implementation of the CDM Project activity in year y (MWh/yr) EG facility, y : Quantity of net electricity generation supplied by the Project plant to the grid in year y (MWh/yr) Calculation for EF grid, CM, y According to the Tool to calculate the emission factor for an electricity system, Baseline emission of the project activity substitutes electricity generated by the power plants in an electricity system is calculated based on the combined margin (CM) of the electricity system, which is the result of a weighted average of two emission factors pertaining to the electricity system: the operating margin (OM) and build margin (BM). The tool provides procedures to determine the following parameters: Parameter EF grid, CM,y EF grid, BM,y EF grid, OM,y Description Combined margin CO 2 emission factor for grid connected power generation in year y (tco 2 /MWh); Building margin CO 2 emission factor for grid connected power generation in year y (tco 2 /MWh); Operation margin CO 2 emission factor for grid connected power generation in year y (tco 2 /MWh); The following steps are applied to calculate the emission factor for an electricity system:

22 page 22 Step 1. Identify the relevant electricity systems Step 2. Choose whether to include off-grid power plants in the project electricity system (optional) Step 3. Select a method to determine the operating margin (OM) Step 4. Calculate the operating margin emission factor according to the selected method Step 5. Calculate the build margin (BM) emission factor. Step 6. Calculate the combined margin (CM) emission factor. Step 1: Identify the relevant electricity systems The DNA of China has published a delineation 27 of the project electricity system and connected electricity systems, therefore these delineations are applied. The Project locates in Yunnan Province and the electricity generated will be delivered to Yunnan Provincial Grid, which according to the delineation published by Chinese DNA, is a part of CSPG. Therefore, the relevant electricity system is CSPG, which is consisted of Yunnan Provincial Grid, Guangdong Provincial Grid, Guangxi Provincial Grid and Guizhou Provincial Grid. Moreover, there exists a certain amount of net import electricity from Central China Power Grid (CCPG) to CSPG, therefore, CSPG and CCPG should be considered as the relevant electric power system. Step 2: Choose whether to include off-grid power plants in the project electricity system (optional) Off-grid plants are insignificant in China as electricity grids under government control are dominant power supplier. Therefore, off-grid power plants are excluded for the calculation of OM and BM. Step 3: Select a method to determine the operating margin (OM) The calculation of the operating margin emission factor (EF grid,om, y ) is based on one of the following methods: (a) Simple OM, or (b) Simple adjusted OM, or (c) Dispatch data analysis OM, or (d) Average OM. The simple OM method can only be used if low-cost/must-run resources 28 constitute less than 50% of total grid generation in: 1) average of the five most recent years, or 2) based on long-term averages for hydroelectricity production. From 2004 to 2008, the ratio of low-cost/must-run resources in the total generation of CSPG is as follows: Table B-9 Ratio of low-cost/must-run resources in the total generation of CSPG Fossil fuel-fired resources (MWh) Low-cost/must-run resources (MWh) ,574, ,187, ,884, ,500, ,000, ,703, ,551, ,381, ,800, ,600, See: 28 Usually refer to hydro, geothermal, wind, solar, low-cost biomass, nuclear energy. The coal power should be eliminated from the sheet in case it is obviously belong to must-run resource.

23 page 23 Total generation (MWh) 376,277, ,738, ,225, ,300, ,600,000 Ratio of low-cost/must-run 29.95% 30.42% 28.43% 29.28% 36.07% resources (%) It is obviously that the low-cost/must-run resources constitute less than 50% of total generation of CSPG from 2004 to Therefore, the simple OM can be used for the project. For simple OM, the emission factor can be calculated using either of the two following data vintages: Ex ante option: If the ex ante option is chosen, the emission factor is determined once at the validation stage, thus no monitoring and recalculation of the emissions factor during the crediting period is required. For grid power plants, use a 3-year generation weighted average, based on the most recent data available at the time of submission of the CDM-PDD to the DOE for validation. For off-grid power plants, use a single calendar year within the 5 most recent calendar years prior to the time of submission of the CDMPDD for validation. Ex post option: If the ex post option is chosen, the emission factor is determined for the year in which the project activity displaces grid electricity, requiring the emission factor to be updated annually during monitoring. If the data required to calculate the emission factor for year y is usually only available later than six months after the end of year y, alternatively the emission factor of the previous year (y-1) may be used. If the data is usually only available 18 months after the end of year y, the emission factor of the year proceeding the previous year (y-2) may be used. The same data vintage (y, y-1, y-2) should be used throughout all crediting periods. The ex-ante will be employed for OM calculation of the project, without requirement to monitor and recalculate the emissions factor during the crediting period. Step4. Calculate the operating margin emission factor according to the selected method The method (a) simple OM is selected. The simple OM emission factor is calculated as the generationweighted average CO2 emissions per unit net electricity generation (tco2/mwh) of all generating power plants serving the system, not including low-cost/must-run power/units. The simple OM may be calculated: Option A: Based on the net electricity generation and a CO2 emission factor of each power unit; or Option B: Based on the total net electricity generation of all power plants serving the system and the fuel types and total fuel consumption of the project electricity system. In China, the data of each power unit is not available. Therefore, option A cannot be used. And only nuclear and renewable power generation are considered as low-cost/must-run power sources and the quantity of electricity supplied to the grid by these sources is known. Therefore, operation B will be used. Under option B, the simple OM emission factor is calculated based on the net electricity supplied to the grid by all power plants serving the system, not including low-cost/must-run power plants/units, and based on the fuel types and total fuel consumption of the project electricity system, as follows: FC i, y*ncv i,y*efco2, i, y (G-1) i EFgrid, OMsimple, y EGy Where,

24 page 24 EF grid,omsimple, y: FC i, y : NCV i, y: EF CO2i, y: EG y: Simple operating margin CO2 emission factor in year y (tco2/mwh) Amount of fossil fuel type i consumed in the project electricity system in year y (mass or volume unit); Net calorific value (energy content) of fossil fuel type i in year y (GJ/mass or volume unit) CO2 emission factor of fossil fuel type i in year y (tco2/gj) Net electricity generated and delivered to the grid by all power sources serving the system, not including low-cost/must-run power plants/units, in year y (MWh) i: All fossil fuel types combusted in power sources in the project electricity system in year y y: Either the three most recent years for which data is available at the time of submission of the CDM-PDD to the DOE for validation (ex ante option) or the applicable year during monitoring (ex post option), following the guidance on data vintage in step 2; Electricity imports should be treated as one power plant m. Net electricity imports from a connected electricity system within the same host country, the operating margin emission factor (EF grid,import, y ) should use one of the following options: a) 0tCO2/MWh, or b) The weighted average operating margin (OM) emission rate of the exporting grid; or c) The simple operating margin emission rate of the exporting grid, if the conditions for this method, apply to the exporting grid; or d) The simple adjusted operating margin emission rate or of the exporting grid. There is electricity import from the Central China Power Grid to the CSPG. To determine operation margin emission factor for net electricity import from Central China Grid, the PDD will use option c). According to 2010 Baseline Emission Factors for Regional Power Grids in China published by Chinese DNA, the operating margin emission factor (EF grid,om, y ) of the CSPG is tCO 2 e/mwh. See details in Annex 3. Step 5. Calculate the build margin emission factor In terms of vintage of data, project participants can choose between one of the following two options: Option 1: For the first crediting period, calculate the build margin emission factor ex-ante based on the most recent information available on units already built for sample group m at the time of CDM-PDD submission to the DOE for validation. For the second crediting period, the build margin emission factor should be updated based on the most recent information available on units already built at the time of submission of the request for renewal of the crediting period to the DOE. For the third crediting period, the build margin emission factor calculated for the second crediting period should be used. This option does not require monitoring the emission factor during the crediting period. Option 2: For the first crediting period, the build margin emission factor shall be updated annually, expost, including those units built up to the year of registration of the project activity or, if

25 page 25 information up to the year of registration is not yet available, including those units built up to latest year for which information is available. For the second crediting period, the build margin emissions factor shall be calculated ex-ante, as described in option 1 above. For the third crediting period, the build margin emission factor calculated for the second crediting period should be used. The Option 1 is chosen to calculate without requirement to monitor and recalculate the emissions factor during the crediting period. The sample group of power units m used to calculate the build margin should be determined as per the following procedure, consistent with the data vintage selected above: (a) Identify the set of five power units, excluding power units registered as CDM project activities, that started to supply electricity to the grid most recently (SET 5-units ) and determine their annual electricity generation (AEG SET-5-units, in MWh); (b) Determine the annual electricity generation of the project electricity system, excluding power units registered as CDM project activities (AEG total, in MWh). Identify the set of power units, excluding power units registered as CDM project activities, that started to supply electricity to the grid most recently and that comprise 20% of AEG total (if 20% falls on part of the generation of a unit, the generation of that unit is fully included in the calculation) (SET 20% ) and determine their annual electricity generation (AEG SET- 20%, in MWh); (c) From SET 5-units and SET 20% select the set of power units that comprises the larger annual electricity generation (SET sample ); Identify the date when the power units in SET sample started to supply electricity to the grid. If none of the power units in SET sample started to supply electricity to the grid more than 10 years ago, then use SET sample to calculate the build margin. The build margin emissions factor is the generation-weighted average emission factor (tco 2 e/mwh) of all power units m during the most recent year y for which power generation data is available, calculated as follow: EF grid, BM, y Where, EF grid,bm, y : EG m, y : EF EL,m, y: m EG m, y EL, m, y m *EF EG m, y Build margin CO2 emission factor in year y (tco2/mwh) (G-2) Net quantity of electricity generated and delivered to the grid by power unit m in year y (MWh) CO2 emission factor of power unit m in year y (tco2/mwh) m: Power units included in the build margin y: Most recent historical year for which electricity generation data is available In China, EB accepts the following deviation 29 in methodology application: 29