FINAL VALIDATON REPORT CHOROKHI HYDRO POWER PLANT PROJECT RINA SERVICES S.P.A.

Transcription

1 FINAL VALIDATON REPORT CHORHI HYDRO POWER PLANT PROJECT RINA SERVICES S.P.A. Project Title Version Report ID Chorokhi Hydro Power Plant Project 1.3 Aa 2015-TQ-01-MD Report Title Client Final Validation Report Chorokhi Hydro Power Plant Project Achar Energy 2007 Ltd. Co. Pages 53 Date of Issue 05/10/2015 Prepared By RINA Services S.p.A. Contact Address : Via Corsica, Genoa, ITALY Telephone : ghg.services@ rina.org web site : Approved By Laura SEVERINO Work Carried Out By Isil TIMUROGLU; VCS Team Leader, Technical Expert Tugce KIRATLI; VCS Validator, Technical Expert v3.3 1

2 Viktor MILKOV; Financial Expert Summary: RINA Services S.p.A. (RINA), commissioned by Achar Energy 2007 Ltd. Co., has performed the validation of the project activity Chorokhi Hydro Power Plant Project in Georgia, with regard to the relevant requirements for CDM and VCS activities. The objective of the validation is to have an independent evaluation of a project activity by a designated operational entity against the requirements of the VCS Version 3 and GHG program applied, on the basis of the project design document. The validation scope is to review the VCS PD against the UNFCCC criteria for CDM and VCS Version 3 Requirements. Validation was conducted using RINA procedures in line with the requirements specified in the CDM M&P, the latest version of the CDM Validation and Verification Standard, and relevant decisions of the COP/MOP and the CDM EB and applying standard auditing techniques. The validation consisted of desk review, on-site assessment and the resolution of outstanding issues and the issuance of the final validation report. The verification shall ensure that reported emission reductions are complete and accurate in accordance with applicable VCS Version 3 requirements, which refer to CDM rules, in order to be certified. During validation process, 2 Corrective Action Requests (CARs) and 2 Clarification Requests (CRs) are identified for the proposed VCS project activity in relation to all relevant UNFCCC requirements for the VCS and all relevant host Party criteria and the applied baseline and monitoring methodology; RINA thus requested the resolution of these CARs and CRs prior to proceeding with the validation process. The project participants were invited to respond to the RINA requests and include their response in Table 2 of the validation protocol in Appendix A. All raised CARs and CRs were closed. In conclusion, it is RINA s opinion that the project activity Chorokhi Hydro Power Plant Project, in Georgia, as described in the VCS PD version 04 of 01/10/2015, meets all relevant requirements for VCS activities and all relevant host Party criteria and correctly applies the baseline and monitoring methodology ACM0002, Grid-connected electricity generation from renewable sources, version 16.0 of 28/11/2014. v3.3 2

3 Table of Contents 1 Introduction Objective Scope and Criteria Level of assurance Summary Description of the Project Validation Process Method and Criteria Document Review Interviews Site Inspections Resolution of Findings Forward Action Requests Validation Findings Project Details Application of Methodology Title and Reference Applicability Project Boundary Baseline Scenario Additionality Quantification of GHG Emission Reductions and Removals Methodology Deviations Monitoring Plan Non-Permanence Risk Analysis Environmental Impact Comments by Stakeholders Validation conclusion Appendix A: VCS Validation Protocol v3.3 3

4 1 INTRODUCTION Achar Energy 2007 Ltd. Co. has commissioned RINA to carry out the validation of the project Chorokhi Hydro Power Plant Project project in Georgia. This report summarizes the findings of the validation of the project, performed on the basis of VCS Requirements and UNFCCC criteria for CDM, as well as criteria given to provide for consistent project operations, monitoring and reporting. 1.1 Objective The objective of the validation is to have an independent evaluation of a project activity by a designated operational entity against the requirements of the VCS Version 3 and GHG program applied, on the basis of the project design document. In particular, the project's baseline, monitoring plan, and the project s compliance with relevant VCS Version 3 requirements, GHG program requirements and host Party criteria are validated in order to confirm that the project design, as documented, is sound and reasonable and meets the identified criteria. Validation is a requirement for all VCS projects and is seen as necessary to provide assurance to stakeholders of the quality of the project and its intended generation of Voluntary Carbon Units (VCUs). 1.2 Scope and Criteria The validation scope is to review the VCS PD against the UNFCCC criteria for CDM and VCS Version 3 Requirements. UNFCCC criteria for CDM refer to Article 12 of the Kyoto Protocol, the CDM modalities and procedures, the procedures for registration of program of activity as a single CDM and the subsequent decisions by the CDM Executive Board. Validation is not meant to provide any consultancy towards the project participants. However, stated requests for clarifications and/or corrective actions may have provided input for improvement of the project design. 1.3 Level of assurance All the revisions of the validation report before being submitted to the client were subjected to an independent internal technical review to confirm that all validation activities had been completed according to the pertinent RINA instructions. The validation has been realized with a reasonable level of assurance since all data are based on acceptable references as given on section 2.2 of this report. The technical review was performed by a technical reviewer(s) qualified in accordance with RINA s qualification scheme VCS VER validation and verification. The validation team and the technical reviewers consist of the following personnel: Role/Qualification Last Name First Name Country VCS Team Leader, VCS Validator, VCS Technical Expert VCS Validator, VCS Technical Expert Timuroglu Isil Turkey Kiratli Tugce Turkey Financial Expert Milkov Viktor Bulgaria Technical Reviewer Alfieri Felice Italy v3.3 4

5 1.4 Summary Description of the Project VALIDATION REPORT: VCS Version 3 The project activity is a Greenfield hydro power project and located on Chorokhi River, in Batumi city of Georgia. Total installed capacity of Chorokhi HPP is planned to be around MWe and expected annual electricity generation amount is GWh. Generated electricity will be fed into Georgian grid and a portion of the electricity will be exported to Turkey. Estimated annual emission reduction amounts by project activity for Georgia is 225,312 tco 2 e and for Turkey is 197,933 tco 2 e. Chorokhi HPP consists of 2 weirs and 2 power units in cascade system on same river. These are Kırnati Weir and HPP and Khelvachauri I Weir and HPP. 2 VALIDATION PROCESS 2.1 Method and Criteria Validation was conducted using RINA procedures in line with the VCS Version 3 requirements and the requirements specified in the CDM M&P, the latest version of the CDM Validation and Verification Standard, and relevant decisions of the COP/MOP and the CDM EB and applying standard auditing techniques. The validation consisted of the following three phases: Document review; On-site assessment; The resolution of outstanding issues and the issuance of the final validation report and certification. 2.2 Document Review The VCS PD version 04 of 01/10/2015 /1/, in particular the applicability of the methodology, the baseline determination, the additionality of the project activity, the starting date of the project, the monitoring plan, the emission reduction calculations provided in the form of a spreadsheet CM (for Georgia)_Chorokhi HPP_v1_ and CM (for Turkey)_Chorokhi HPP_v1_ submitted on 16/02/2015 /2/, financial analysis spreadsheet IRR_Chorokhi HPP_v2_ xls submitted on 26/03/2015 /3/ were assessed as part of the validation. The following table lists the documentation that was reviewed during the validation: /1/ /2/ /3/ Lifenerji: VCS PD for Chorokhi Hydro Power Plant Project in Georgia version 04, submitted on 01/10/2015 Lifenerji: VCS PD for Chorokhi Hydro Power Plant Project in Georgia version 03, submitted on 15/06/2015 Lifenerji: VCS PD for Chorokhi Hydro Power Plant Project in Georgia version 02, submitted on 26/03/2015 Lifenerji: VCS PD for Chorokhi Hydro Power Plant Project in Georgia, version 01, submitted on 10/02/2015 Lifenerji: Emission Reduction Calculation Spreadsheet CM (for Georgia)_Chorokhi HPP_v1_ and CM (for Turkey)_Chorokhi HPP_v1_ submitted on 16/02/2015 Lifenerji: Financial Analysis Spreadsheet IRR_Chorokhi HPP_v2_ xls submitted on 26/03/2015 Lifenerji: Financial Analysis Spreadsheet IRR_Chorokhi HPP_v1_ submitted on 16/02/2015 v3.3 5

6 /4/ VCS Verified Carbon Standard: VCS Program Guide, VCS Version 3.5 of 08/10/2013 /5/ VCS Verified Carbon Standard: VCS Standard, VCS Version 3.4 of 08/10/2013 /6/ /7/ /8/ /9/ /10/ /11/ /12/ /13/ /14/ /15/ /16/ /17/ /18/ /19/ /20/ /21/ /22/ VCS Verified Carbon Standard: VCS Validation Report Template VCS Version 3.3 of 08/10/2013 VCS Verified Carbon Standard: VCS Project Description Template VCS Version 3.2 of 08/10/2013 VCS Verified Carbon Standard: VCS Validation and Verification Manual VCS Version 3.1 of 08/10/2013 CDM Executive Board: Baseline and monitoring methodology ACM0002, Gridconnected electricity generation from renewable sources, version 13.0 of 11/05/2012 CDM Executive Board: Baseline and monitoring methodology ACM0002, Gridconnected electricity generation from renewable sources, version 16.0 of 28/11/2014 Fichtner GmbH & Co, Khelvachauri 1 HEPP (Stage 2) in Georgia, Feasibility Study Update, Final Report, July 2013 Fichtner GmbH & Co, Kirnati HEPP (Stage 2) in Georgia, Feasibility Study Update, Final Report, January 2014 Fichtner GmbH & Co, Downstream Chorokhi HEPP in Georgia, Updated Feasibility Study, Final Report, October 2011 Gamma Consulting Ltd.: Environmental and Social Impact Assessment (ESIA) Report of CDM Executive Board: Methodological Tool Tool for the Demonstration and assessment of Additionality, version of 23/11/2012 CDM Executive Board: Guidelines on the Assessment of Investment Analysis, version 05 of 15/07/2011 (EB 62 Annex 5) CDM Executive Board- Tool to determine remaining lifetime of equipment, version 01 of 16/10/2009 Ministry of Environment Protection and Natural Resources of Georgia: Baseline Emission Factor for the Electricity System of Georgia, dated 2008 Website: (Language: English) Intergovernmental Panel on Climate Change (IPCC): 2006 IPCC Guideline for National Greenhouse Gas (GHG) Inventory, Volume 2: Energy, dated April 2006 CDM Executive Board: Guidelines for the Reporting and Validation of Plant Load Factors (PLF) version 01, of 17/07/2009 (EB 48 Annex 11) Ministry of Environment Protection of Georgia: ESIA Report Approval for Chorokhi HPPs Project, of 05/01/2012 Autonomous Republic of Adjara Financial and Economic Department: Construction permit for Khelvachauri I HPP, permit n. 05 issued on 06/02/2012. Autonomous Republic of Adjara Financial and Economic Department: Construction permit for Kirnati I HPP, permit n. 04 issued on 06/02/2012. /23/ Memorandum of Understanding between The Government of Georgia and Achar Energy 2007 Ltd Co. and the Electricity System Commercial Operator Ltd, of 01/07/2011 /24/ /25/ Memorandum of Understanding between The Government of Georgia and Achar Energy 2007 Ltd Co., of 28/02/2008 (document amended by the MoU signed on 08/06/2009). Achar Energy 2007 Ltd Co.: Letter to Ministry of Energy and Natural Resources of Georgia for submission and amendment of the FSR, of 27/09/2011. v3.3 6

7 /26/ /27/ Ficthner GmbH & Co Measurement of the reservoir area before the implementation of the project activity, 09/2011. Zhejlang Fuchunjiang Hydropower Equipment Co. Ltd and Achar Energy 2007 Ltd., Contract document for supply of Turbine-generator unit, dated 16/03/2012 /28/ PWC Georgia: Georgia Pocket Tax Book 2011, of February 2011 /29/ /30/ Zhejlang Fuchunjiang Hydropower Equipment Co. Ltd and Achar Energy 2007 Ltd., Maintenance, Service and Availability Agreement, dated 16/03/2012 Minister of Environment Protection of Georgia: Letter of Approval for Chorokhi Hydro Power Plant Project, of 05/01/2012. /31/ Government of Georgia: Georgian law on electricity and natural gas, of 27/06/1997. /32/ /33/ /34/ /35/ /36/ /37/ /38/ Georgian National Energy and Water Regulatory Commission: Resolution 23 of 18/09/2008 approving Rules of Activity Control in Electricity, Natural Gas and Water Sector and Licensing Rules. International Energy Agency: Renewable Energy Essentials Hydropower Website English language accessed on 20/04/2015 Website: Argument: Invest in Georgia - Tax legislation and rates in Georgia Language: English, retrieved on 25/03/2015 Website: Argument: Alarko HEPP project Language: English, retrieved on 25/03/2015 Website: page% %c3%a7i%c3%a7ek%20kitap/uretim%20tuketim(22-45)/33(84-10).xls Argument: TEIAS (Turkish energy authority) transmission loss factor: Language: English, retrieved on 25/03/2015 Website: Argument: Georgia tax facts Language: English, retrieved on 25/03/2015 System usage costs: Energy Market Regulatory Authority (Turkey): Decision No of 09/12/2010 Turkey Electricity Transmission Company: Tariffs calculation system user and system operation method statement, of 01/01/2011 Turkey Electricity Transmission Company: Connection fees calculation method statement, of 01/01/2011 /39/ CDM Executive Board: Guidelines on Common Practice, version 02.0 of 13/09/2012 /40/ Website: Argument: Lat/Lot and UTM Conversion Network Program Language: English, Retrieved on: 20/04/2015 /41/ Energy Market Regulatory Authority: Environmental Law No: 2872 of 09/08/1983 /42/ /43/ Lifenerji: Common Practice Spreadsheet Common Practice_Chorokhi HPP_v1_ xlsx submitted on 26/03/2015 Website: Argument: Capacity Projection Report of the year 2012 v3.3 7

8 /44/ /45/ /46/ /47/ /48/ /49/ /50/ /51/ Language: Turkish, Retrieved on: 21/04/2015 VALIDATION REPORT: VCS Version 3 CDM Executive Board: Methodological Tool Tool to calculate the emission factor for an electricity system, version 04.0 of 04/10/2013 Turkish Energy Market Regulatory Authority: Electricity Market Licensing Regulation of 04/08/2002 Turkish Energy Market Regulatory Authority: Communiqué for Measurement Devices used in the Electricity Market of 22/03/2003 Website: Markit,GoldStandard Argument: Markit Project Database Language: English CDM Executive Board: CDM Validation and Verification Standard, version 09.0 of 20/02/2015 Correspondance Regarding VCS Application of a Rejected CDM Project, between PP and VCS Board, submitted on 26/03/2015 CDM: Request for registration for Chorokhi Hydro Power Plant Project, version 01.0 of 16/05/2014 The Ministry of Trade and Industry: Regulation of Metering and Testing of Metering Systems of 24/07/1994 /52/ The Ministry of Environment protection of Georgia: Letter of Endorsement of 25/11/ Interviews On 28-29/03/2014, RINA visited Khelvachauri town, Kirnati village in Batumi Province, to resolve questions and issues identified during the document review and to perform interviews with relevant stakeholders in the host country. All the documents submitted by the project proponent were available in English or in Turkish language. The key personnel interviewed and the main topics of the interviews are summarized in the table below. Date Name and Role Organization Topic /a/ 28-29/03/2015 /b/ 28-29/03/2015 /c/ 28/03/2015 /d/ 28/03/2015 /e/ 28/03/2015 /f/ 28/03/2015 /g/ 28/03/2015 Ramazan Aslan Consultant Fariz Tasdan Consultant Juguli Akhvlediani ESIA Consultant Zurab Merabishvili ESIA Consultant Giorgi Nakashidze Plant Operator Yılmaz Hocaoğlu Accountant Sofia Varshalomidze Assistant of Project Manager Lifenerji Lifenerji Gamma Consulting Gamma Consulting Achar Energy Achar Energy Achar Energy Description of the project activity Baseline and Additionality Eligibility Criteria Emission reductions calculations Monitoring plan and monitoring arrangements Investment Analysis Implementation of the project Methodology applicability Crediting period Environmental Assessment Impact v3.3 8

9 /h/ 28/03/2015 /i/ 28/03/2015 /j/ 28/03/2015 Leon Tecloraclze Stakeholder Vaja Tavdozoridze Stakeholder Badri Istindzagze Stakeholder Municipality Khelvachauri Municipality Khelvachauri Municipality Khelvachauri Implementation of the project activity Stakeholder consultation process 2.4 Site Inspections On 28/03/2012 and 29/03/2012, RINA visited Khelvachauri town, Kirnati village in Batumi Province, to resolve questions and issues identified during the document review and to perform interviews with relevant stakeholders in the host country. All the documents submitted by the project proponent were available in English or in Turkish language. Representatives of project owner (Achar Energy 2007 Ltd. Co.) and carbon consultant (Lifenerji) were interviewed about the description of the project activity, baseline and additionality, eligibility criteria, emission reductions calculations, monitoring plan and monitoring arrangements, investment analysis, implementation of the project, methodology applicability and crediting period of the project activity. The quality control and quality assurance procedures were confirmed through the onsite observation and interviews with the project employee. Representatives of Gamma Consulting who prepared the Environmental and Social Impact Assessment (ESIA) Report of the project activity were interviewed about the environmental and social impact of the project activity. 2.5 Resolution of Findings The objective of this phase of the validation is to resolve any outstanding issues, which need to be clarified for RINA's positive conclusion on the project design. To guarantee transparency a validation protocol has been customized for the project. The protocol shows in a transparent manner the requirements, means of validation and the results from validating the identified criteria. The validation protocol consists of three tables; the different columns in these tables are described in the figure below (see Figure 1). The completed validation protocol is enclosed in Appendix A to this report. A corrective action request (CAR) is raised if one of the following occurs: The project participants have made mistakes that will influence the ability of the project activity to achieve real, measurable additional emission reductions. The VCS Version 3 requirements have not been met. There is a risk that the emission reductions cannot be monitored or calculated. A clarification request (CR) is raised if information is insufficient or not clear enough to determine whether the applicable VCS Version 3 requirements have been met. 2.6 Forward Action Requests No FAR is raised during the validation. v3.3 9

10 Figure 1 VCS Validation Protocol Tables Validation Protocol, Table 1 - Requirement checklist Checklist Question The various requirements in Table 1 are linked to checklist questions the project should meet. The checklist is organized in five different sections. VALIDATION REPORT: VCS Version 3 Ref. MoV Comments Conclusion Makes reference to documents where the answer to the checklist question or item is found. Explain how conformance with the checklist question is investigated. Examples are document review (DR), interview or any other follow-up actions (I), cross checking (CC) with available information relating to projects, (N/A) means not applicable. The discussion on how the conclusion is arrived at and the conclusion on the compliance with checklist question so far. For CAR, CR and FAR see the definitions above. is used if the information and evidence provided is adequate to demonstrate compliance with CDM/VCS requirements. Validation Protocol, Table 2 - Resolution of Corrective Action Requests and Clarification Corrective action requests and/or clarification requests The CAR and/or CLs raised in table 1 are repeated here. Reference to Table 1 Response by project participants Reference to the checklist question number in Table 1 where the CAR or CR is explained. The responses given by the project participants to address the CARs and/or CRs. Validation Conclusion The validation team s assessment and final conclusion of the CARs and/or CRs. Validation Protocol, Table 3 - Forward Action Requests (if no FAR the table 3 is deleted) Forward request action The FAR raised in table 1 is repeated here. Reference to Table 1 Reference to the checklist question number in Table 1 where the FAR is explained. Response by project participants Validation Conclusion Response by the project participants on how forward action request will be addressed prior to first verification. v3.3 10

11 3 VALIDATION FINDINGS 3.1 Project Details The project is large-scale hydro power plant, which has a total installed capacity of MWm/ MWe according to the Feasibility Reports /10/ /11/. The scope of the Chorokhi Hydro Power Plant Project was outlined in Section 1.2 of this report as Type I, Renewable Energy Projects and Category: Grid-connected electricity generation from renewable sources. The purpose of the project activity is to construct a greenfield hydro power plant (HPP) by utilizing the water resources at Chorokhi River in Georgia. The project consists of 2 weirs and 2 power units, namely, Khelvachauri I weir (47.48 MW) and Kirnati weir ( MW), in a cascade system. The total installed capacity is 98,731 MW as confirmed through the Feasibility Reports /10/ /11/. It is expected that the project activity will generate GWh of electricity per year and delivered to the Georgian National grid. The MoU signed on 01/07/2011 between the PP and the Georgia Government for utilization of the energy potential of Chorokhi River in the borders of Georgia establishes that 40% of the energy produced will be used for internal consumption of the Country /28/ and the remaining 60% should be exported to Turkey. As confirmed by the PP there is no guarantee price for selling the remaining 60% of the electricity produced. For the electricity, which is planned to be exported to Turkey, there is neither the guarantee for export nor guarantee for selling price. According the Electricity Market Licensing Regulation /45/ issued by the Turkish Government the electricity can be only exported to Turkey via wholesale or retail companies having license from the Energy Market Regulatory Authority and electricity purchase agreement between this company and the project owner depends on bilateral negotiations. Project proponent The project proponents and their responsibility are clearly defined under Section 1.3 of the VCS PD version 02 /1/. Achar Energy 2007 Ltd. Co. is the project owner and Lifenerji is project developer. Project start date The estimated starting date of project activity is 01/02/2017 and it is in line with the VCS Standard /5/. As per the VCS Standard /5/, the project start date is the date on which the project began generating GHG emission reductions or removals. The defined starting date is also in line with the ACM0002 /9/. Project crediting period A renewable crediting period of 10 years has been chosen for the project activity. The first crediting period starts from 01/02/2017 to 31/01/2027. Project scale and estimated GHG emission reductions or removals The estimated average annual emission reductions from the project are estimated to be on the average 197,933 tco 2 e for Turkey and 225,312 tco 2 e for Georgia per year over the selected 10 year crediting period. v3.3 11

12 Projects are categorized by size according to their estimated average annual emission reductions or removals according to VCS Standard /5/. Since the estimated annual emission reductions resulting from the project is less than 300,000 tco 2 e, the category of the project is defined as Project as per the VCS Standard /5/. Project location The project is within boundaries of Batum Province of Georgia, located at Khelvachauri town, Kirnati village. The project area coordinates are listed below and confirmed through the Feasibility Reports /10/ /11/ and the converter program /40/. Power Units Latitude (N) Longitude (E) Kırnati Weir and Power House 41 30' 57" 41 42' 55 " Khelvachauri-I Weir and Power House 41 33' 2" 41 41' 51" Project compliance with applicable laws, statutes and other regulatory frameworks The relevant applicable local laws and regulations related to the project are given below: Electricity and Natural Gas Law /31/ Rules of Licensing and Activity Control in the Electricity, Natural Gas and Water Sector /32/ Environmental Law /41/ Regulation on permits. The project complies with the given laws. Chorokhi HEPP does not have any relevant environmental impact as per the Feasibility Reports /10/ /11/. Ownership and other programs Right of use: The ownership of the emission reductions will belong to Achar Energy 2007 Ltd. Co. as confirmed through the Memorandum of Understanding /23/. Emissions trading programs and other binding limits: Net GHG emission reductions or removals generated by the project will not be used for compliance with an emissions trading program or for meeting binding limits on GHG emissions. Participation under other GHG programs: The project has not been registered or seeking registration under other GHG programs as confirmed through the Markit project database /47/. Other forms of environmental credit sought or received: The project has not created another form of Environmental Credit. Rejection by other GHG programs: Chorokhi HPP ( is rejected by CDM EB due to partially exporting generated electricity to Turkey, which is an Annex-I country. ( /Reg_rule43.pdf). v3.3 12

13 Additional information relevant to the project Eligibility criteria for grouped projects: The project is not a grouped project. Commercially sensitive information: The financial analysis of the project investment as a whole and the values that have been discussed are considered as commercially sensitive information. In addition, the variables and their explanations that are used for the benchmark calculations in investment analysis that are subject to extensive research and efforts, which are classified as commercially sensitive information for the project developer Achar Energy 2007 Ltd. Baseline Information is confidential as well. The information suggested above has been excluded from the public version of the project document. Any further information: Not applicable. 3.2 Application of Methodology Title and Reference The CDM approved baseline and monitoring methodology ACM0002 version 16.0 Gridconnected electricity generation from renewable sources /9/ is correctly applied for the project activity Applicability The proposed project activity meets the criteria defined in the baseline methodology as it ensures that: - The project activity involves the installation of a new Greenfield run-of-river hydroelectric power plant at the Chorokhi of Batumi Province in Georgia. At this site no renewable power plant was operated prior to the implementation of the project activity. - The project involves the construction of a regulation pond with a surface of 1.445,546 m 2 /26/. And the apparent powers of the turbines are 97,808,000 W, as confirmed through the calculation given in the VCS PD as per the Feasibility Reports /10/ /11/. The resulting power density is therefore W/m 2. The power density is higher than 4 W/m 2 as required by the methodology. - The project does not include any retrofit, capacity addition or replacement of an existing power plant. - The project activity does not involve any change from fossil fuel use to renewable or biomass power plant. The project activity applies the following methodological tools: Methodological Tool Tool for demonstration and assessment of additionality, version of 23/11/2012 /14/ Methodological Tool Tool to calculate the emission factor for an electricity system, version of 04/10/2013 /44/ and meets the defined criteria as it ensures that: v3.3 13

14 - Baseline tool is applicable to the project activity since the project activity supplies electricity to the national grid. RINA hereby confirms that the selected baseline and monitoring methodology has been previously approved by the CDM Executive Board, and is applicable to the Project, which complies with all the applicability conditions therein Project Boundary The project boundary clearly defined in accordance with the applied methodology, According to the approved baseline and monitoring methodology ACM0002 /9/, Grid-connected electricity generation from renewable sources, version 16.0 of 28/11/2014 the project boundary includes the project power plant and all power plants connected physically to the electricity system that the project is connected to. Emissions sources included in the project boundary are shown in the table below: Baseline emissions Project emissions GHGs involved CO 2 CH 4 N 2 O CO 2 CH 4 N 2 O Description According to ACM0002, only CO 2 emissions from electricity generation should be accounted for. Excluded according to methodology of ACM0002. Excluded according to methodology of ACM0002. Emissions from back-up generators are negligible according to methodology of ACM0002. Excluded according to methodology of ACM0002. Excluded according to methodology of ACM0002. By checking the information by the physical site, RINA can confirm that all the emission sources, gases have been included in the project boundary, and the description in the VCS PD is accurate and complete, and also that the selected sources and gases are justified for the proposed project activity. The project does not involve other emission sources not foreseen by the methodology /9/, which contribute by more than 1% Baseline Scenario According to the approved baseline methodology ACM0002 /9/, the baseline scenario is Electricity delivered to the grid by the project would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources into the grid. Since the baseline is defined by the approved methodology, no further analysis is required as per the paragraph 124 of the VVS /48/. The approved baseline methodology Grid connected renewable electricity generation has been correctly applied to identify the most reasonable baseline scenario and the identified baseline scenario reasonably represents what would occur in the absence of the proposed VCS project activity. v3.3 14

15 3.2.5 Additionality Choice of approach The project uses approved methodologies ACM0002 /9/, Grid-connected electricity generation from renewable sources, version 16.0 of 28/11/2014. According to the methodology, additionality needs to be established in accordance with the latest version of Tool for the Demonstration and Assessment of Additionality, which is version at the time of documents submission /14/. The latest version of Guidelines on the assessment of investment analysis /4/ shall be taken into account when applying investment analysis as per the additionality tool /14/. According additionality tool /14/, the investment analysis can be carried out through (1) simple cost analysis, (2) investment comparison analysis or (3) benchmark analysis. The project participants have correctly applied the benchmark analysis as the appropriate analysis method and justified their choice in the PDD /1/, noting that there are non-carbon revenues so that the simple cost analysis cannot be used, and that there is no alternative investment, so that the investment comparison analysis cannot be used. Benchmark selection The type of the investment analysis method is defined following the requirements of the Tool for the Demonstration and Assessment of Additionality ver /14/ and the Guidelines for the Investment Analysis, ver.05 /15/. The project generates economic benefits other from selling carbon credits so Simple Cost Analysis is not applicable. It is stated in the VCS PD that investment comparison analysis is applicable to projects where alternatives should be similar investment projects in terms of generation capacity so the only applicable method is benchmark analysis. The investment analysis method used by the Project Proponent is a benchmark derived according to the requirements of the Tool for the Demonstration and Assessment of Additionality ver , Sub-step 2b: Option III. Apply benchmark analysis /14/. The benchmark used is defined in line with the default values for equity IRR recommended by the Guidelines for the Investment Analysis, ver.05 /15/. The benchmark is set at 12.9% which is the value given for Georgia. Choice of financial indicators The PP has identified the equity IRR after taxes as the most suitable financial indicator for the project and corresponding to the type of the benchmark applied. The equity IRR of 3.93% is calculated based on the input parameters that have been valid at the time of investment decision taking on 16/03/2012, which is the date of the Agreement with the electro-mechanical equipment supplier /27/. The equity IRR is calculated after taxes, which is in line with the type of the benchmark. The audit team checked the relevant data and parameters and confirmed their correctness and justification. v3.3 15

16 Input parameters The main input parameters for the calculation of the IRR are as follows: Parameter Value Unit Installed Power MW Annual Electricity Generation GWh/yr Transmission Loss Factor 1.44% N/A Average Electricity Selling Price USD/MWh Total Project Cost Kırnati HPP Khelvachuri-I HPP 193,288, ,324,199 89,964,138 Inv. Analysis period length 20 yrs Annual Operating Cost O&M Cost System Usage Cost USD 1,421,145 1,421,145 USD/yr USD/TL Exchange Rate N/A VAT Rate 18.0 % Corporate Tax Rate 15.0 % Financing Conditions Equity/Debt ratio Grace Period Debt Payment Period Interest Rate Depreciation rate Equipment Construction 40/ % yrs yrs %/y % % 1. Installed power total of MWe. The Installed power was checked by studying the FSR, prepared by company Fichtner, dated July 2013 for subproject Khelvachauri 1 HEPP /10/ and for subproject Kirnati HEPP /11/ (dated January 2014) as well as the Feasibility Report prepared by Fichtner for the whole Choroki cascade in its initial version with 3 stages /12/. The stated installed capacity is correct. 2. Annual Electricity Generation of GWh/y. The annual generation was checked by studying the FSR, prepared by company Fichtner, dated July 2013 for subproject Khelvachauri 1 HEPP /10/ and for subproject Kirnati HEPP /11/ (dated January 2014) as well as the Feasibility Report prepared by Fichtner for the whole Choroki cascade in its initial version with 3 stages /12/. 3. Transmission loss factor of 1.44% (average of ). The DOE confirmed the correctness of that parameter by visiting the site of TEIAS (Turkish energy authority) /36/. The value is applicable because the major part of the generated electricity (~60%) will be exported to Turkey as per the MoU between the Government of Georgia and the project owner /23/. 4. Average electricity selling price of 48 US$/MWh. The price of the electric energy for Georgia is firm and is defined in the MoU between the Government of Georgia and the project owner /23/. The price is confirmed. v3.3 16

17 5. Total Project Cost of 193,288,338 US$. The costs of both subprojects were checked by studying the FSR, prepared by company Fichtner, dated July 2013 for subproject Khelvachauri 1 HEPP /10/ and for subproject Kirnati HEPP /11/ (dated January 2014) as well as the Feasibility Report prepared by Fichtner for the whole Choroki cascade in its initial version with 3 stages /12/. The audit team also checked the delivery price of the electromechanical equipment by studying the Contract document for supply of Turbine-generator unit, dated 16 March 2012 /27/. The value stated was confirmed. 6. Investment Analysis period length of 20 years. The duration of the investment analysis is in line with the requirements of the Guidelines on the Investment Analysis, ver.05 /15/. 7. Annual Operating Cost, System usage cost of 1,421,145 US$ total. The costs of both subprojects were checked by studying the FSR, prepared by Fichtner, dated July 2013 for subproject Khelvachauri 1 HEPP /10/ and for subproject Kirnati HEPP /11/ (dated January 2014) as well as the Feasibility Report prepared by Fichtner for the whole Choroki cascade in its initial version with 3 stages /12/. The audit team also checked the Maintenance, Service and Availability Agreement; dated 16 March 2012 /29/. The value stated was confirmed. The value stated was confirmed. 8. USD/TL Exchange Rate of 1.8. This value has been used by the FSR /10/, /11/ and has been valid at the time of its preparation. The exchange rate is verified by the DOE. 9. VAT rate of 18% and Corporate Tax Rate of 15% in Georgia. The stated values were confirmed by the DOE by visiting the web-sites Invest in Georgia /34/. 10. Financing Conditions: Debt / Investment Cost Ratio of 60/40; Grace Period of 3 years; Debt Payment Period of 7 years and Interest Rate of 7%. The PP has referred to a similar project in Turkey which had the same loan parameters quoted. The DOE studied the presented document for Alarko HEPP /35/ and confirmed the values. The reference is acceptable due to the fact that the contractor is a Turkish company, the loan market is greatly international and there is a possibility to provide the loan facility from Turkey as client for ~60% of the electric energy generated by the project. 11. Depreciation rates of 8.0% for equipment and 5.0% for constructions: In order to crosscheck the stated rates the audit team visited the web-page Georgia Tax Facts, /37/. The values of the depreciation rates were confirmed. All relevant data and parameters listed above were checked and their correctness was confirmed. Sensitivity analysis The sensitivity analysis is performed as per the Tool for the demonstration and assessment of additionality, (Version ) /14/ and includes key parameters contributing to more than 20% of the revenue/costs during operating or implementation. Sensitivity analysis has been carried out according to the basic conditions when the investment decision is taken for GWh/year generation and US$/MWh firm price as per the MoU /23/. Sensitivity analysis has been carried out for four main parameters identified; Electricity Price, Investment Cost, Energy Yield Amount and Operating Cost. v3.3 17

18 The variations have been made with +/-10% variance which is in line with the Guidelines on the Assessment of Investment Analysis, ver.05 /15/ and for that type of projects. Parameters -10% 0% +10% Electricity price 2.57% 3.93% 5.21% Investment cost 4.55% 3.93% 3.36% Energy yield 2.57% 3.93% 5.21% Operating cost 4.08% 3.93% 3.78% The PP has thoroughly analyzed the possible variations +/- of the chosen parameters and has demonstrated that these variations are in fact terminal and there will be no chance to go beyond the chosen limits. The key parameters have been varied to reach the benchmark and the likelihood of this happening has been justified to be small. The financial expert therefore approves the abovementioned sensitivity analysis as well as the analysis of the possibilities of realization of all assessed scenarios. Common Practice According to the methodological tool for the demonstration and assessment of additionality /14/, the common practice analysis shall be conducted applying the following steps: Step 1: The applicable output range is calculated as +/-50%of the capacity of the project activity in line with the tool. The project comprises an installed capacity of 97.8 MWe; therefore, the applicable output range is 48.9 MW to MW. Step 2: The applicable geographical area for the proposed project covers the entire host country (Turkey) as the default area specified in the guideline. All plants that deliver the same output, within the applicable output range calculated in Step 1, as the proposed project activity and have started commercial operation before the start date of the project are defined as N all. The total number of N all is calculated as 29 in the Common Practice_Chorokhi HPP_v1_ xlsx common practice calculation spreadsheet /42/, which could be confirmed through the Capacity Projection Report /43/. Step 3: The power plants apply technologies different that the technology applied in the proposed project activity are identified as N diff. EÜAŞ (state), İHD (transfer of operational rights), and YİD (built operate transfer) are seem as different financial flow types. All projects under these categories are considered as different technologies. Thus, N diff is 25. Step 4: Factor F = (1 - N diff ) / N all representing the share of plants using technology similar to the technology used in the proposed project activity in all plants that deliver the same output or capacity as the proposed project activity. The N all -N dif is calculated as 4, and F is calculated as which are not greater than Therefore, the project is not common practice. v3.3 18

19 3.2.6 Quantification of GHG Emission Reductions and Removals The emission reduction ER y by the proposed project activity during the crediting period is the difference between baseline emissions (BE y ), project emission (PE y ). Baseline Emissions The baseline emissions (BE y in tco 2 e) are the product of the baseline emission factor (EF grid,cm,y in tco 2 e) times the net electricity supplied by the project activity to the grid (EG facility,y in MWh). The baseline emission factor for the project activity is determined ex-ante as a combined margin (CM) consisting of the combination of operating margin (OM) and build margin (BM) according the methodological Tool to calculate the emission factor for an electricity system. The relevant electric power system is identified in accordance with the tool /44/. A portion of electricity can be sold to Turkey. Baseline emissions are calculated for two scenarios: 100 % is sold to Georgia and the other is 100 % is sold to Turkey. Georgia The OM is calculated to be tco 2 e/mwh and the BM is calculated to be tco 2 e/mwh for Georgia grid. The combined grid emission factor of the grid is determined ex-ante for the ten years crediting period and it has been calculated as weighted average (w OM = 0.5 and w BM = 0.5) of the operating margin emission factor and the build margin emission factor. The combined margin emission factor is calculated as tco 2 e/mwh, and the net electricity supplied by the project activity to the grid is estimated to be 410,800 MWh/year. The annual baseline emissions generated by the project activity, in case of all generated electricity is fed to Georgia grid, is calculated to be 225,312 tco 2 e/year. Turkey The OM is calculated to be tco 2 e/mwh and the BM is calculated to be tco 2 e/mwh for Turkey grid. The combined grid emission factor of the grid is determined ex-ante for the ten years crediting period and it has been calculated as weighted average (w OM = 0.5 and w BM = 0.5) of the operating margin emission factor and the build margin emission factor. The combined margin emission factor is calculated as tco 2 e/mwh, and the net electricity supplied by the project activity to the grid is estimated to be 410,800 MWh/year. The annual baseline emissions generated by the project activity, in case of all generated electricity is fed to Georgia grid, is calculated to be 197,933 tco 2 e/year. Project Emissions The project activity is a newly built hydropower project activity with a reservoir. The emission of the reservoir area is calculated as given below: PD = Power density of the project activity (W/m 2 ) Cap PJ = Installed capacity of the hydro power plant after the implementation of the project activity (W) v3.3 19

20 Cap BL = Installed capacity of the hydro power plant before the implementation of the project activity (W). For new hydro power plants, this value is zero A PJ = Area of the reservoir measured in the surface of the water, after the implementation of the project activity, when the reservoir is full (m 2 ) A BL = Area of the reservoir measured in the surface of the water, before the implementation of the project activity, when the reservoir is full (m 2 ). For new reservoirs, this value is zero. A pj = 1.445,546 m 2 A bl = 0 m 2 Cap pj = 97,808,000 W Cap bl = 0 W Therefore the Power Density of the project activity is: 97,808,000 / 1.445,546 = W/m 2 The project activity has a power density of W/m 2, which is larger than 10W/m 2. As per the applied methodology ACM0002 version 16.0 /9/, the project emissions are Zero. Leakage No leakage emissions are considered. The emissions potentially arising due to activities such as power plant construction and upstream emissions from fossil fuel use (e.g. extraction, processing, transport etc.) are neglected. Emission Reductions The emission reductions (ERy) are calculated as the following formula: ER y ER y = BE y PE y - LE y = BE y Estimated emission reductions are calculated for two scenarios: 100 % is sold to Georgia and the other is 100 % is sold to Turkey. The annual emission reductions generated by the project activity is calculated to be 225,312 tco 2 e/year over the selected 10 years renewable crediting period in case of all generated electricity is fed to Georgian grid. The annual emission reductions generated by the project activity is calculated to be 197,933 tco 2 e/year over the selected 10 years renewable crediting period in case of all generated electricity is fed to Turkey grid. During the verification period, portion sold to Turkey can be verified and this part of the emission reduction can be calculated by using emission factor of Turkey grid. Remaining part of the emission reductions can be calculated by using emission factor of Georgian grid. The estimation of the emission reductions can be replicated using the data and parameter values provided in the VCS PD /1/ and supporting file /2/. The data sources mentioned have been verified by RINA and confirms that the GHG emissions reduction calculation is complete and transparent, and the data accuracy has been verified. v3.3 20

21 3.2.7 Methodology Deviations There are no deviations about the methodology of the project activity Monitoring Plan The approved baseline and monitoring methodology ACM0002, Grid-connected electricity generation from renewable sources, version 16.0 of 28/11/2014 /9/ has been applied. The monitoring plan is in accordance with the monitoring methodology; the monitoring plan will give opportunity for real measurement of achieved emission reductions. RINA has checked all the parameters presented in the monitoring plan against the requirements of the methodology; no deviations relevant to the project activity have been found in the plan. RINA confirms that the monitoring arrangements described in the monitoring plan are feasible within the project design, and the means of implementation of the monitoring plan are sufficient to ensure the emission reductions achieved by/resulting from the proposed VCS project activity can be reported ex post and verified. Parameters Determined Ex-ante The ex-ante parameters that are mentioned in the methodology are included in the VCS PD and are provided in compliance with the methodology: Data / Parameter /1/ Operating Margin of Georgia National Grid (OM) /2/ Build Margin of Georgia National Grid (BM) /3/ Combined Margin of Georgia National Grid (CM) Unit tco 2 e/ MWh tco 2 e/ MWh tco 2 e/ MWh Value applied Assessment The operating margin is sourced from the Baseline Emission Factor for the electricity system of Georgia made available by the Ministry of Environment Protection and Natural Resources /17/ The build margin is sourced from the Baseline Emission Factor for the electricity system of Georgia made available by the Ministry of Environment Protection and Natura Resources /17/ The combined margin is calculated using the OM and the BM sourced from the Baseline Emission Factor for the electricity system of Georgia made available by the Ministry of Environment Protection and Natural Resources /17/. Parameters Monitored Ex-post The ex-post parameters that are mentioned in the methodology are included in the VCS PD and are provided in compliance with the methodology, and they will be monitored during the crediting period: v3.3 21

22 Parameter /1/ EG facility,y,georgia (MWh/yr) /2/ EG facility,y,turkey (MWh/yr) Description/Assessment Quantity of net electricity generation supplied by the project plant to the Georgian grid in year y. Electricity imported to the Georgian grid will be calculated by subtracting data monitored at the HV substation (total electricity generation) from data monitored at the Batumi TM (electricity sold to Turkey). The quantity of electricity supplied by the project to the grid and the quantity of electricity delivered to the project from the grid is measured in continuous hourly and recorded at least monthly. Quantity of net electricity generation supplied by the project plant to the Turkish grid in year y. Electricity, which will be sold to Turkey, will be transferred via Akhatlsikhe back-to-back converter station to the Batumi TM. A meter will be installed for the monitoring of electricity sold to Turkey at the Batumi TM. Net electricity sold to Turkey will be calculated after the deduction of transmission losses. The quantity of electricity supplied by the project to the grid and the quantity of electricity delivered to the project from the grid is measured in continuous hourly and recorded at least monthly. /3/ CAP PJ (W) Installed capacity of the hydro power plant after the implementation of the project activity. The determination of the installed capacity is yearly and based on nameplates supplied by the manufacturer. /4/ A PJ (m 2 ) Area of the single or multiple reservoirs measured in the surface of the water after the implementation of the project activity, when the reservoir is full. Measured yearly from topographical maps. Management System and Quality Assurance The electricity generated from the project activity will be exported to the Georgian National Grid through a 154 kv substation near Kirnati HPP; both HPPs are connected directly to the HV substation in Kirnati HPP as confirmed by the FSR. Two electricity meters will be installed at the HV substation (one main and one back-up) which will be sealed by the grid national company. The quality assurance of the electricity meters is ensured by the mandatory annual calibration process performed by the State Electric System and the Commercial Operator. The meters to be employed will be from 0.5s classes ensuring the error level of the metering will not exceed 0.5%. All the data of electricity exported and imported from the Georgian national grid will be recorded and aggregated on a monthly basis and will be cross checked against the electricity sales receipt. All the data and monitoring records will be archived and will be kept at least two years after the end of the last crediting period. As indicated in the VCS PD /1/, the monitored data will be kept for two years after the end of the crediting period or the last issuance of VERs in line with the methodology /9/. 3.3 Non-Permanence Risk Analysis There is not any risk for the project activity. v3.3 22