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

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1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD) Version 03 - in effect as of: 22 December 2006 CONTENTS A. General description of the small scale project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / crediting period D. Environmental impacts E. Stakeholders comments Annexes Annex 1: Contact information on participants in the proposed small scale project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring Information 1

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

3 SECTION A. General description of small-scale project activity A.1 Title of the small-scale project activity: Methane Recovery and Utilisation at PT Pinago Utama Sugihwaras Palm Oil Mill, Sumatera, Indonesia. Version: 01 Completed on: 22 December 2008 A.2. Description of the small-scale project activity: PT Pinago Utama Palm Oil Mill is located at Babat Toma, Banyuasin, Sumatra Selatan of Indonesia. The mill is currently processing 400,000 t-ffb (Fresh Fruit Bunch) per annum and this is expected to increase to 680,000 t-ffb per annum from 2010 onwards. The corresponding palm oil mill effluent (POME) generated from the processing of FFB is approximately 200,000 m 3 currently and this is expected to increase to 340,000 m 3 per annum. The wastewater is treated through the conventional open ponding system comprising a series of cooling, acidification, anaerobic, facultative and aerobic lagoons. Biogas generated from the open anaerobic and facultative lagoons, constituting mainly of methane (CH 4 ) and carbon dioxide (CO 2 ), and traces of hydrogen sulphide (H 2 S) is emitted to the atmosphere. The proposed project activity involves the installation of a closed continuous-flow stirred tank reactor (CSTR) contact process anaerobic digester system to replace the existing open anaerobic and facultative lagoons for the treatment of the POME generated before discharging to the river. The effluent after sludge removal will be channelled to the existing aerobic lagoons for further treatment. Biogas generated will be captured in the enclosed anaerobic digester tanks. Methane recovered will be used mainly: (i) for thermal energy generation to displace diesel usage for drying crumb rubber in the adjacent rubber factory at the project site; (ii) to generate thermal energy for the drying of compost products at the project site, and (iii) to generate thermal energy for the drying of rubber smoke sheets at the adjacent rubber factory. Any balance amount of biogas will be flared in an enclosed flare system. Methane recovery and utilisation or destruction through the implementation of the project activity would contribute to significant greenhouse gases (GHGs) emission reductions. In addition to GHG emission reductions, the project activity will also contribute toward sustainable development, in line with the National Energy Policy (NEP) 1 and Green Energy Policy (GEP) 2 of Indonesia. The contributions towards sustainable development and other benefits of the proposed project activity include the followings 3 : 1 NEP seeks to improve primary energy mix by 2025 by reducing the share of oil to 20% or less and increasing the contribution of biofuels, geothermal energy and other new and renewable energy. 2 GEP s goal is to build a system of sustainable energy supply and utilisation to support achieving national sustainable development through increased utilisation of renewable energy, the use of energy efficient technologies and energy conservation. 3 Based on the Sustainable Development approval criteria and indicators of the National Commission for Clean Development Mechanism. 3

4 Environmental sustainability Upon implementation of the project activity, the localised air quality would be improved by the removal of hydrogen sulphide, a toxic and foul odour residual gas via the capture of the biogas generated by the POME treatment in open ponds; The tank digester system will help to improve the efficiency of the effluent treatment. The existing lagoon treatment system efficiency is often affected by sludge built-up in the lagoons. Economy sustainability The project activity would create work opportunities both short term (during construction period) and long term (more workers are required to run the biogas plant); Local economic would be improved in view of the need of local supplies and frequent visit of consultants during project construction, implementation and for monitoring purposes; By using the methane captured (renewable sources) for energy generation, it helps to reduce the country dependency on fossil fuel import and hence strengthen the economic growth of the country. Social sustainability The project, which is located within PT Pinago Utama industrial complex, would not have any significant adverse impacts on the social environment of the surrounding. In view of its positive environmental and economy contributions, the project would ensure social harmony with the local society. Stakeholders consultation meeting has been held on 15 October The responses of the local community to the project were highly positive. Due considerations to the viewpoints expressed by the stakeholders during the dialogue will be incorporated during implementation of the project. Technology transfer The technology used in the project activity is a well proven technology for POME treatment developed in Malaysia, where key features are based on world-wide experience and advancement in CSTR technology and principles from Annex I countries. Advanced equipment and instruments required for the project will be sourced from Annex I countries; Workers will be trained by the technology supplier of this advanced technology, as well as the know-how of the process. The results of this capacity building will contribute towards the development of biogas as a significant renewable energy source in Indonesia. A.3. Project participants: Please list project participants and Party(ies) involved and provide contact information in Annex I. Information shall be in indicated using the following tabular format. Name of Party involved (*) ((host) indicates a host Party) Private and/or public entity(ies) project participants (*) (as applicable) Kindly indicate if the Party involved wishes to be considered as project participant (Yes/No) Indonesia (Host) PT Pinago Utama No Denmark Nordjysk Elhandel No 4

5 (*) In accordance with the CDM modalities and procedures, at the time of making the CDM-PDD public at the stage of validation, a Party involved may or may not have provided its approval. At the time of requesting registration, the approval by the Party(ies) involved is required. Indonesia ratified the Kyoto Protocol on 3 December A.4. Technical description of the small-scale project activity: A.4.1. Location of the small-scale project activity: PT Pinago Utama, Sugih Waras Palm Oil Mill Indonesia Sumatra Selatan A A A Musi Banyuasin, Babat Toman Host Party(ies): Region/State/Province etc.: City/Town/Community etc: A Details of physical location, including information allowing the unique identification of this small-scale project activity : The proposed project activity will be implemented at Sugihwaras Palm Oil Mill owned by P.T. Pinago Utama. The mill is located at Babat Toman, Musi Banyuasin, Sumatra Selatan, Indonesia, as shown in the following maps. The geographic coordinate of the project location is at: S and E. 5

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7 A.4.2. Type and category(ies) and technology/measure of the small-scale project activity: In accordance with Appendix B of the Simplified Modalities and Procedures for Small Scale CDM Project Activities, this project involves the following types and categories of Small Scale CDM project activities: (1) Recovery of methane in wastewater treatment: Sectoral scope: 13 Waste handling and disposal Type III: Other project activities Category H: Methane recovery in wastewater treatment (2) Displacement of diesel with methane recovered for thermal energy generation Sectoral scope: 1 Energy industries (renewable -/ non-renewable sources) Type I: Renewable energy projects Category C: Thermal energy for the user with or without electricity Technology/measure of the project activity: The technology/measure of the proposed project activity is in accordance with the approved methodology AMS-III.H, which comprises measure that recovers methane from biogenic organic matter in wastewater by means of the following option: (vi) Introduction of a sequential stage of wastewater treatment with methane recovery and combustion, with or without sludge treatment, to an existing wastewater treatment system without methane recovery (e.g. introduction of treatment in an anaerobic reactor with methane recovery as a sequential treatment step for the wastewater that is presently being treated in an anaerobic lagoon without methane recovery). The existing palm oil mill effluent (POME) treatment system at PT Pinago Utama Sugih Waras Palm Oil Mill is based on the open lagoon approach. The technology of the proposed project activity for methane recovery involves the application of the Continuous Flow-Stirred Tank Reactor (CSTR) Contact Process anaerobic digester design for POME treatment. The recovered biogas from the above measure will be used mainly for thermal energy generation directly with the remainder sent for flaring. The recovered biogas will be used as a renewable energy source to: (i) replace the current fossil fuel-based thermal energy generation system used at the adjacent crumb rubber factory; (ii) generate thermal energy for drying of the compost products at the project site; and (iii) generate thermal energy for drying of Rubber Smoke Sheet at the adjacent rubber factory. Anaerobic Digester with Methane Recovery Under the project activity, the raw effluent from the mill will be subject to the same process of cooling and acidification in the existing cooling/acidification pond as in the baseline. After this process, instead of going to the open anaerobic and facultative lagoons, the effluent will be pumped to the closed tank 7

8 CSTR-Contact process anaerobic digester treatment system for methane recovery. The technology employed will be providing closed tanks with adequate hydraulic retention time of ~18 days for the anaerobic digestion. For the present project, four fixed-roof tanks with capacity of 3,700 m 3 and two floating-roof tanks with capacity of 3,000 m 3 have been designed for a total palm oil mill effluent (POME) flow of 1,200 m 3 /d. A dual function mixing system, consisting of two effluent circulation pumps and a gas-lifting mixing system will be incorporated in each digester tank. The digester tanks with floating roof with liquid (the effluent) seal will provide a certain level of buffer-storage and pressure regulation for the biogas generated. The complete-mixed enclosed digester tank system will facilitate long term continuous operations without needs of any interruption for sludge removal. The treated effluent with the residual sludge from the anaerobic digester tanks will be led to a holding tank with aeration in order to terminate the anaerobic process. The subsequent treatment step involves a sludge separation and dewatering system. The dewatered sludge will be subject to aerobic composting with EFB at the project site. The effluent will be directed to the existing aerobic ponds, before discharging to the watercourse. The final effluent after these treatment steps is expected to comply with the effluent discharge standards under the MenLH Decree 51/10/1995, Attachment IVB (Palm Industry) on Effluent Discharge Standard for Palm Industry of Indonesia before discharging to the watercourse. The CSTR digester system is capable of achieving 85% treatment efficiency or better in terms of anaerobic conversion and removal of COD input to the system. The balanced 15% of COD remaining in the effluent from the bio-digester are mostly in the form of wasted anaerobic bacteria sludge and nondigestible fibres. The sludge separation and sludge dewatering step applied to the aerated effluent from the anaerobic digester will further reduce the COD to about 5% of the total COD input before discharging to the aerobic lagoons for aerobic treatment. The biogas production rate in the closed tank anaerobic digester is expected to be approximately 28 m 3 /m 3 POME. The closed-tank CSTR digester system allows for complete recovery of methane produced. The normal range of the biogas composition is, 60 65% CH 4, 39 34% CO 2, 1,500 2,500 ppm H 2 S and the balance mainly of water vapour. The design and construction of the anaerobic digester plant will comply with the local Technical Specifications and Standards. Precautions are specially taken to ensure that the anaerobic digester tanks and biogas pipeline will be free from any leakages. The followings are measures to be undertaken: 1) The fabrication and installation of the digester tanks, of both the fixed-roof and floating-roof types, will follow strictly the Technical Specifications and Standards where defect-free welding will be ensured. The completed tanks, with the pressure gauges installed, shall be subject to hydrostatic test and gas-leakage test before commissioning. For the gas-leakage test, both fixed-roof and floatingroof tanks with the liquid seal will be tested at an expected maximum internal gas pressure of up to 300 mm water column (approximately 3.0 kpa). Any welding defects shall be immediately rectified. Test reports in accordance with the standard procedures will be obtained. During operation, the normal pressure of the biogas in the digester tank is expected to be in the range of mm water column. Due to the relatively low positive pressure of the biogas in the digester tanks, the engineering design and fabrication will ensure a leak-free system for the containment and collection of the biogas generated during operation. 2) The piping system and biogas pipeline will be fabricated and installed following strictly the required Technical Specifications and Standards similarly. After fabrication and installation, including the necessary pressure gauges, the pipeline will be pressure tested and check for leaks along the pipeline 8

9 as per the standard procedures for the test. Any connection or welding defects shall be rectified immediately. A test report in accordance with the standard procedures will be obtained from the testers. The specific closed-tank CSTR technology applied for the anaerobic digestion of POME incorporated advanced features of world-wide experience and development in CSTR technology and principles. The present technology design has been well proven with the successful implementation of a few similar systems in Indonesia and Malaysia. The technology applied represents significant improvements over the common practice adopted by the industry in POME treatment in terms of: the CSTR technology offers an advanced automated mechanical engineering system to replace the conventional stagnant treatment approach of effluent in open lagoons; efficient recovery of methane generated in the anaerobic digestion of POME will result in significant reduction of methane emissions; odour and air pollution due to the emissions of traces of hydrogen sulphide is avoided; utilisation of biogas for thermal energy generation in this case will promote the development of harnessing biogas as a renewable energy source. The contractor for the Plant shall provide necessary on the job training for the plant personnel on the operation and maintenance of the plant. The personnel for the training shall include engineers, technicians and operators assigned to the operation and maintenance of the plant. The training shall cover all aspects of the operational principles, procedures, service and maintenance techniques and schedule. Training on the monitoring requirements will be elaborated in the section of the PDD on monitoring plan. The contract services and on-job-training provided by the contractor will ensure the performance of the bio-digester will be able to meet the specifications set in terms of methane recovery from POME treatment. Methane Combustion Biogas (methane) recovered will be utilised for the following applications, or to be flared: (i) Displacement of diesel used for thermal energy generation in the adjacent rubber factory for crumb rubber drying. The current diesel-based burner generating heat for crumb rubber drying will be replaced with two units of biogas burner to enable combustion of methane gas. The Table below shows the equipment employed under the existing/baseline scenario and those to be employed upon project implementation: Equipment under Existing/Baseline Scenario Diesel Burners Equipment under Project Activity Thermal energy generation for Biogas Burners crumb rubber drying Manufacturer/Supplier/Model Golstar MechMar Fuel consumption 159 L diesel/hour Installed Date Rated at 2,400 kw and 800 kw 9

10 (ii) Thermal energy generation for the drying of the compost generated at the project site. A Biogas Burner rated at 534 kw thermal energy output will be used for this purpose. (iii) Thermal energy generation for the drying of rubber smoke sheets at the adjacent rubber factory, supplementing the current steam thermal energy from the biomass boiler at the mill. A package steam boiler with installed capacity of 5.4 t/hr of steam would be installed for this purpose. (iv) Excess biogas, if occurs, will be flared in an enclosed flare system. A.4.3 Estimated amount of emission reductions over the chosen crediting period: The estimated amount of emission reductions over the first of the 3 x 7 years crediting period is summarised in the table below: Years Estimation of annual emission reductions (tco 2 -e) 2009 (Apr Dec) 29, , , , , , , (Jan Mar) 14,743 Total estimated reductions 368,087 Total number of crediting years in the first crediting period Annual average over the crediting period of estimated reductions 7 years 52,584 A.4.4. Public funding of the small-scale project activity: No public funding is provided to the project activity. A.4.5. Confirmation that the small-scale project activity is not a debundled component of a large scale project activity: The project activity is not a debundled component of a larger project as the project entity confirms that it has no other registered small-scale CDM project and will not applied to register another small scale CDM project activity that is a) with the same project participants; b) in the same project category and technology/measure; c) registered within the previous 2 years; and 10

11 d) whose project boundary is within 1 km of the project boundary of the proposed small-scale activity at the closest point of a larger project activity. SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the small-scale project activity: The following approved baseline and monitoring methodologies are applicable to the small scale project activity: (1) Title: Methane Recovery in Wastewater Treatment Reference: Methane recovery in wastewater treatment as in: Indicative simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories, AMS-III.H, Version 10 (EB 42). (2) Title: Thermal energy for the user with or without electricity Reference: Thermal energy for the user with or without electricity as in: Indicative simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories, AMS-I.C, Version 13 (EB38). B.2 Justification of the choice of the project category: The justification of the choice of the project category AMS-III.H for the small scale project activity of methane recovery in wastewater treatment is outlined as follows: 1) The project activity involves the recovery of methane from biogenic organic matter in palm oil mill effluent (POME). 2) The anaerobic and facultative lagoons are deeper than 2 meters without aeration. The monthly ambient temperature is at the range between C. Volumetric loading rate of COD is > 0.1 kg COD m -3 d -1 ; and the residence time of the non-soluble part of the organic matter anaerobic lagoon is more than 30 days. 3) The measure for the methane recovery is by means of the installation of a sequential stage of POME treatment which includes a closed continuous-flow stirred tank reactor (CSTR) anaerobic digester plant and sludge removal step to replace the existing open anaerobic lagoon system without methane recovery. 4) The methane recovered is combusted for direct thermal energy generation. 5) The measure is estimated to contribute to emission reductions of less than 60 kt CO 2 -e annually from Type III component of the project activity. 11

12 The justification of the choice of the project activity category AMS-I.C for the small scale project activity of thermal energy for the user is as follows: 1) The thermal energy generated with recovered methane is used on-site by the user, to displace the thermal generated by the diesel fuelled burners. 2) The thermal energy generation capacity implemented by the project activity is less than 45 MW th. B.3. Description of the project boundary: The project boundary is the physical, geographical site where the wastewater and sludge treatment takes place. The measures of methane recovery and combustion of the project activity included in the Project Boundary are shown in the figure below. Project Boundary Drying of crumb rubber Drying of compost Drying of RSS Biogas Burner Biogas Burner Package steam boiler Enclosed flare system Biogas Cooling & acidification pond POME Closed tank - Anaerobic Digester Sludge Separation system Aerobic ponds Final effluent to river POME Sludge use for cocomposting with EFB Baseline Anaerobic ponds (2) Facultative ponds (2) POME flow under project activity POME flow under baseline scenario Biogas flow under project activity 12

13 B.4. Description of baseline and its development: Methane emissions in wastewater treatment The baseline of the project activity is the continuation of the palm oil mill effluent (POME) treatment in a series of open lagoons. The existing open lagoons system at the Sugihwaras Palm Oil Mill consists of: a) Two (2) anaerobic lagoons with total combined capacity of 123,120 m 3 ; depth of each lagoon is 6 m; b) Two (2) facultative lagoons with total combined capacity of 98,820 m 3 ; depth of each lagoon is 6 m; c) Three (3) aerobic lagoons with total combined capacity of 151,380 m 3 ; depth of each lagoon is 6 m; which is illustrated in the following schematic diagram: POME from mill Anaerobic Pond (2a) Acidification/ Cooling Ponds Anaerobic Pond (2b) Facultative Pond (3) Facultative Pond (4) Aerobic Pond (5) Aerobic Pond (6) Aerobic Pond (7) Final Discharge During the anaerobic treatment of the effluent in the open lagoons, methane is released to the atmosphere. The open lagoon treatment is the common approach for POME treatment which is permitted under existing Indonesian environmental laws and regulations. There are no regulations to control the release of methane to the atmosphere. The treated effluent from the existing lagoon treatment system at PT Pinago Utama Sugihwaras Palm Oil Mill has been in compliance with the effluent discharge standard set 4 by the Governor of Sumatra Selatan, Indonesia for effluent discharged to open watercourse. Emissions due to utilisation of diesel for thermal energy generation At present, thermal energy required for drying of crumb rubber at the adjacent rubber factory is generated using diesel fired burners consuming 159 L/hour of diesel fuel. Under the project activity, biogas will be utilised to displace diesel for thermal energy generation for this purpose. 4 Peraturan Guberner Sumatera Selatan 18/

14 B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered small-scale CDM project activity: The project would not have occurred without the additional financial support expected from the CDM project activity. The project proponent has considered CDM support available to the project financing at the early stage of project planning. The following is a summary of the efforts undertaken by the project developer for the CDM project activity development: Date Event 16 October 2006 Review proposal from technology provider on the development of POME Biogas Recovery and Utilisation project as a CDM project. 21 May 2007 Review Letter of Intent for CDM Projects from AES AgriVerde, Indonesia. 26 October 2007 Board of Director s decided to proceed with the development of the POME Biogas Recovery and Utilisation Project provided that CDM Support can be achieved. 20 November 2007 Review biogas CDM Project Development Proposal from EcoSecurities, Indonesia 8 January 2008 Proposal on the POME Biogas Recovery and Utilisation project was received from technology provider for evaluation. 18 January 2008 Project Idea Note (PIN) was prepared and sent to potential Annex I entities to participate in the proposed project activity. Several offers were received. 19 February 2008 Nordjysk Elhandel A/S arranged by the Royal Danish Embassy at Kuala Lumpur was short-listed. General terms and conditions of offer for the participation by Nordjysk Elhandel has been agreed upon. 31 March 2008 The project developer signed the contract for the project on implementation of the Anaerobic Digester Plant with Aquarius Systems Sdn Bhd. 9 June 2008 Letter of Intent (LoI) was signed with Nordjysk Elhandel A/S 19 July 2008 Contract with CDM Consultant was signed. The proposed project activity will reduce GHG emissions by switching the wastewater treatment approach from the existing open anaerobic lagoons to a closed-tank anaerobic digester system where methane generated will be recovered and combusted. Additional reduction of GHG emissions is also achieved in the proposed project activity via the utilisation of the biogas recovered to displace the diesel fuel used for thermal energy generation at the project site. There are various barriers faced by the project proponent to implement the proposed project activity by applying the closed-tank anaerobic digester system for methane recovery to replace their existing open lagoon approach and also in the use of biogas to displace the common diesel fuel for thermal energy 14

15 generation. Guidance provided under Attachment A to Appendix B of the simplified modalities and procedures for small-scale CDM project activities is applied in analysing these barriers and to demonstrate that the proposed project activity is additional. The main types of barriers to implementation of the project activity can be classified as: Technological barrier; Barrier due to prevailing practice; and Investment barrier. 1) Technological barriers The open lagoon wastewater treatment system is applied extensively in palm oil mills in Indonesia. This is the technology of choice as it offers an effective low-tech solution that can meets the effluent discharge standards applicable to the palm oil mills. The technology is low risk of nonfunctioning and it is well suited for palm oil mills in remote locations. As the palm oil mills are generally having excess in directly available and usable biomass energy sources, recovery of methane does not serve any purpose. Wastewater treatment technology involving the recovery of methane, such as the membrane-covered lagoon and the closed-tank anaerobic digester system are considered as new technologies demanding additional trained and skilled workers. The technological barrier is further associated with requirements of much higher capital investment and operation and maintenance costs. 2) Barrier due to prevailing practice There are around 470 palm oil mills in Indonesia in accordance with information from the Indonesian Oil Palm Research Institute (IOPRI). The common practice for POME treatment in Indonesian oil palm industry is the open lagoon system, whereby methane from the anaerobic and facultative lagoons is emitted to the atmosphere. The open lagoon systems are the longest and best established approach for POME treatment widely adopted by the palm oil mills because of the following factors: (i) (ii) The system is simple in design, construction, installation and operation and maintenance. It is of low technology demand. This system involved relatively low capital cost outlay and the operation and maintenance costs are also relatively small. The level of expenditure by the open pond approach would not be a significant constraint in terms of financial costs to palm oil mill operations. (iii) By employing this prevailing practice, the mills are confident of meeting the requirements in the environmental regulations set by the Ministry of Environment of Indonesia for the control of discharges from POME treatment. 3) Investment Barrier The above discussion has shown that the baseline is the existing open lagoon for POME treatment. The project will not occur in the absence of the project activity. For the proposed project activity, the main return on investment is the saved cost due to the utilisation of the biogas for the displacement of fossil fuel used for thermal energy generation at the project site. 15

16 A benchmark analysis 5 involving the calculation of the project internal rate of return (Project IRR) is deemed appropriate and selected for the assessment of this specific source of return to investment, and so to demonstrate the additionality of the project activity. The Tool for the demonstration and assessment of additionality, version 05 (EB 39) is referred in the financial analysis based on IRR calculation. The benchmark adopted by the company in the financial analysis is 15%. This is in accordance with the average Investment Loan Rate of 15.0% from year as published by the Bank of Indonesia 6. Financial analysis has been conducted for the proposed project which has included the various variables and input data for the capital investment, operating & maintenance cost and estimated saving or revenue, as shown in the following table: Table 1: Input data in financial analysis Parameter Capital cost inclusive of: Engineering, procurement, construction, installation and biogas piping system of anaerobic digester plant, biogas burners, dual fuel package boiler and enclosed flaring system. Capital cost for CDM Monitoring Equipment Annual Salary cost Annual Operation & maintenance cost inclusive of monitoring, testing & calibration, parts & repairs and consumables for: 1. Biogas Plant 2. Biogas thermal energy generation systems (biogas burners and package boiler) 3. CDM monitoring equipment Insurance Value ( 000 USD) 3, Annual CDM Monitoring Consultancy fees and expenses 29 Revenue diesel saving 430 CER price ( ) 12 5 In accordance with the Guidance on the Assessment of Investment Analysis version 02 (EB41), the benchmark approach is suited to circumstances where the baseline does not require investment. This condition matches the situation of the project activity whereby the continuation of the present treatment system (baseline) does not required additional investment. 6 Bank of Indonesia, 2006 Economic Report on Indonesia, page 4. 16

17 The Project IRR without CDM revenue calculated is -3.2%, indicating that investment in the project would not be viable without the CDM income. The Project IRR value for the case of the project activity with the contribution of additional revenue from the sale of the CER estimated is 21.2%. The income from CDM is therefore essential to bring the IRR above the benchmark of 15% for the proposed project. The project activity is therefore considered as additional. A sensitivity analysis on the Project IRR calculated has been carried out to show the robustness of the financial analysis with respect to a few key variables. The variables used in the sensitivity analysis include: (i) O&M costs; and (ii) revenue from diesel saving. The sensitivity range covered is as follows: -20%, -10%, +10% and +20%. The analysis results as presented in the following table show that the resultant Project IRRs without CDM revenue for the sensitivity range tested are all negative or with no significant return. The overall results consistently support the conclusion that the project activity is financially unattractive without CDM financing. Table 2: Sensitivity Test on the Project IRRs for Various Ranges of Key Variables Sensitivity Test Range No. Variables -20% -10% 0% +10% +20% Without CERs Project IRR, % 1. O&M Costs n.r Diesel saving n.r. n.r n.r. denotes no significant returns Conclusion Based on the above analysis, it has been shown that the proposed project activity is additional. Without financial assistance from CDM, the project proponent would not consider implementing this project due to its high cost involved and associated technological barriers. B.6. Emission reductions: B.6.1. Explanation of methodological choices: Emission reductions which may be achieved via the project activity are contributed by the following two sources: (A) Methane recovery in wastewater treatment (B) Utilisation of methane recovered for thermal energy generation on-site The calculation of the baseline emissions, project emissions, leakage emissions and emission reductions for both sources are presented below. 17

18 (A) Methane recovery in wastewater treatment The approved baseline methodology for small-scale CDM project, AMS-III.H is applied for the calculation of the baseline emissions, project emissions, leakage and emission reductions for the proposed project activity as described below: Baseline Emissions, BE y In Accordance with AMS-III.H baseline methodology, the baseline emissions for the systems affected by the project activity may consist of: (i) BE power,y Emissions on account of electricity or fossil fuel used (ii) BE ww,treatment,y Methane emissions from baseline wastewater treatment systems (iii) BE s,treatment,y Methane emissions from baseline sludge treatment systems (iv) BE ww,discharge,y Methane emissions on account of inefficiencies in the baseline wastewater treatment system and presence of degradable organic carbon in the treated wastewater discharged into river/lake/sea (v) BE s,final,y Methane emissions from the decay of the final sludge generated by the baseline treatment systems For the proposed project activity, the baseline emissions are from sources (i), (ii) and (iv) as stated above. Hence, baseline emissions in year y for the proposed project activity are calculated as follows: Equation 1: BE y = BE power,y + BE ww,treatment,y + BE ww,discharge,y Where BE power,y, BE ww,treatment,y and BE ww,discharge,y can be calculated as follows: i) BE power,y Electricity consumed by the baseline wastewater treatment system is supplied from the Biomass Power Plant of the mill, which is a renewable resource. No baseline emissions from energy consumption are taken into account for this case. ii) BE ww,treatment,y In accordance with AMS-III.H, the ex-ante methane emissions from the baseline wastewater treatment systems affected by the project activity are determined by using the methane generation potential of the wastewater treatment systems as follows: BEww, treatment, y = Qww, i, y CODremoved, i, y MCFww, treatment, BL, i Bo, ww UFBL GWPCH 4 Where: i 18

19 CDM Executive Board Q ww,i,y = Volume of wastewater treated in baseline wastewater treatment system i in year y (m 3 ) COD removed,i,y = COD removed by the baseline treatment system i in year y (tonnes/m 3 ), measured as the difference between inflow COD and the outflow COD of system i MCF ww,treatment,i = Note: In accordance with AMS-III.H, in case of one year historical data is not available; this should be determined by a measurement campaign of at least 10 days. Average values shall be used and multiplied by 0.89 to account for the uncertainty range associated with this approach. Methane correction factor for baseline wastewater treatment system i (0.8 for Anaerobic deep lagoon of depth more than 2 m as per table III.H.1 of AMS-III.H) i = index for baseline wastewater treatment system B o,ww = Methane producing capacity of the wastewater (IPCC lower value for domestic wastewater of 0.21 kg CH 4 /kg COD in accordance with AMS- III.H) UF BL = Model correction factor to account for model uncertainties (0.94 in accordance with AMS-III.H) GWP CH4 = Global warming potential for methane (21 in accordance with AMS- III.H) Since the baseline treatment system is different from the treatment system in the project scenario, the ex-post COD ww,removed,i,y would be calculated as follows: COD ww,removed,i,y = COD ww,untreated,k,y x RE BL,i Where: COD ww,untreated,k,y = COD of the wastewater entering the wastewater treatment system k under the project activity in year y (tonnes/m 3 ) RE BL,i = Removal efficiency of the baseline wastewater treatment system i. The removal efficiency of the baseline treatment system i will be determined by carrying out a 10 days measurement campaign on the COD of the wastewater entering the baseline treatment system i and the COD of the treated wastewater from the baseline treatment system i. An uncertainty value of 0.89 is applied to the average result from the measurement campaign to account for the uncertainty range associated with this approach as compared to one year historical data. iii) BE ww,discharge,y In accordance with AMS-III.H, the ex-ante methane emissions from degradable organic carbon in treated wastewater discharged to river, sea or lake in the baseline are determined as follows: BE ww, disch arg e, y = Qww, y GWPCH 4 Bo, ww UFBL CODww, disch arg e, BL, y Where: MCF ww, BL, disch arg e 19

20 CDM Executive Board Q ww,y = Volume of treated wastewater discharged in year y (m 3 ) UF BL = Model correction factor to account for model uncertainties (0.94 in accordance with AMS-III.H) COD ww,discharge,bl,y = COD of the treated wastewater discharged into sea, river or lake in the baseline situation in year y (tonnes/m 3 ) MCF ww,bl,discharge = Methane correction factor based on discharge pathway in the baseline scenario i.e. sea, river or lake, of the wastewater (0.1 in accordance with Table III.H.1 of AMS-III.H) Since the baseline treatment system is different from the treatment system in the project scenario, the ex-post COD ww,discharge,bl,y would be calculated as follows: COD ww,discharge,bl,y = COD ww,untreated,y x (1 RE BL,i ) Where: COD ww,untreated,y RE BL,i = COD of the wastewater entering the wastewater treatment system under the project scenario in year y (tonnes/m 3 ) = Removal efficiency of the baseline wastewater treatment system i. The removal efficiency of the baseline treatment system will be determined by carrying out a 10 days measurement campaign on the COD of the wastewater entering the baseline treatment system and the COD of the wastewater discharged into sea, river or lake. An uncertainty value of 0.89 is applied to the average result from the measurement campaign to account for the uncertainty range associated with this approach as compared to one year historical data. Project Activity Emissions, PE y In accordance with AMS-III.H methodology, project activity emissions (PE y ) from the systems affected by the project activity are: (i) PE power,y = CO 2 emissions on account of power and fuel used by the project activity facilities; (ii) PE ww,treatment,y = Methane emissions from wastewater treatment systems affected by the project activity and not equipped with biogas recovery in the project situation; (iii) PE s,treatment,y = Methane emissions from sludge treatment systems affected by the project activity and not equipped with biogas recovery in the project situation; (iv) PE ww,discharge,y = Methane emissions on account of inefficiency of the project activity wastewater treatment system and presence of degradable organic carbon in treated wastewater; (v) PE s,final,y = Methane emissions from the decay of the final sludge generated by the project activity treatment systems; (vi) PE fugitive,y = Methane fugitive emissions on account of inefficiencies in capture systems; 20

21 CDM Executive Board (vii) PE flaring,y = Methane emissions due to incomplete flaring; (viii) PE biomass,y = Methane emissions from biomass stored under anaerobic conditions which does not take place in the baseline emissions The proposed project activity includes wastewater treatment system with biogas recovery and combustion, and aerobic composting for the final sludge generated from the treatment system. The project emissions are calculated by applying the following equations: Equation 2: PE y = PE power,y + PE ww,discharge,y + PE s,final,y + PE fugitive,y + PE flaring,y The project activity emissions of the various sources are calculated as follows: i) PE power,y Electricity consumed by the project activity will be supplied from the Biomass Power Plant of the mill, which is a renewable resource. ii) PE ww,discharge,y Methane emissions on account of inefficiencies of the wastewater treatment implemented under the project activity are calculated from the presence of degradable organic carbon in treated water and the methane correction factor of the discharge pathway as follows: PE where: iii) PE s,final,y ww, disch arg e, y = Qww, y GWPCH 4 Bo, ww UFPJ CODww, disch arg e, PJ, y Q y,ww = volume of treated wastewater in year y (m 3 ) MCF ww, PJ, disch arg e GWP CH4 = Global warming potential for methane (value of 21 in accordance with AMS-III.H) B o,ww = Methane producing capacity of the wastewater, 0.21 kg CH 4 /kg COD UF PJ = model uncertainty factor of 1.06 COD ww,discharge,pj,y = chemical oxygen demand of the final treated wastewater discharged into sea, river or lake in year y (tonnes/m 3 ) MCF ww, PJ,discharge = methane correction factor based on discharge pathway in the project situation (0.1 for discharged into sea/river/lake in accordance with Table III.H.1 of AMS-III.H) The final sludge generated from the wastewater treatment implemented under the project activity would be sent for aerobic composting at the project site. The methane emissions arising from aerobic composting of the final sludge would be calculated in accordance with AMS-III.H as follows: 21

22 PE s,final,y = S final,pj,y x EF comp x GWP CH4 where: iv) PE fugitive,y S final,pj,y = Amount of dry matter in final sludge generated by the project wastewater system in year y (tonnes) EF comp = Emission factor for composting of organic waste (IPCC default value of t CH 4 /t waste treated on dry basis is used) GWP CH4 = Global warming potential for methane (value of 21 in accordance with AMS-III.H) Methane emissions from biogas release in capture system are calculated as follows: PE fugitive,y = PE fugitive,ww,y + PE fugitive,s,y Where: PE fugitive,ww,y = Fugitive emissions through capture inefficiencies in the anaerobic wastewater treatment system in year y (t CO 2 ) PE fugitive,s,y = Fugitive emissions through capture inefficiencies in the anaerobic sludge treatment system in year y (t CO 2 ) Since the project activity involves anaerobic wastewater treatment only, the fugitive emissions through capture inefficiencies in the anaerobic sludge treatment is thus not applicable for the project activity, i.e. PE fugitive,s,y = 0. Project emissions through capture inefficiencies in the anaerobic wastewater treatment system (PE fugitive,ww,y ) can be calculated as follows: PE fugitive,ww,y = (1 - CFE ww ) x MEP ww,treatment,y x GWP CH4 where: CFE ww = capture efficiency of the biogas recovery equipment in the wastewater systems (a default value of 0.9 is used in accordance with AMS-III.H) MEP ww,treatment,y = MEP Where: ww, treatment, y methane emission potential of wastewater treatment system equipped with biogas recovery system in year y; which can be calculated as follows: = Q y, ww B o, ww UF PJ COD k removed, PJ, k, y MCF ww, treatment, PJ, k COD removed,pj,k,y = The COD removed by the treatment system k of the project activity equipped with biogas recovery in year y (tonnes/m 3 ) MCF ww,treatment,y = Methane correction factor for the project wastewater treatment system equipped with biogas recovery system (0.8 for anaerobic reactor is used in accordance with Table III.H.1 of AMS-III.H) 22

23 UF PJ = Model correction factor of 1.06 in accordance with AMS-III.H GWP CH4 = Global warming potential for methane (value of 21 is used) v) PE flaring,y Methane emissions due to incomplete flaring in year y are calculated as per the Tool to determine project emissions from flaring gases containing methane as follows: 8760 GWP PE flaring, y = TM RG, h (1 η flare, h ) 1000 h= 1 CH 4 where: TM RG,h = Mass flow rate of methane in the biogas in the hour h η flare,h = Flare efficiency in the hour h (default value for enclosed flare in accordance with the Tool to determine project emissions from flaring gases containing methane is used) GWP CH4 = Global warming potential of methane (value of 21 in accordance with AMS- III.H) Leakage, LE y No leakage is to be considered here as there is no equipment transferred from or to another activity for the technology used. Emission Reductions, ER y Ex-ante emission reductions, ER y,ex ante In accordance with AMS-III.H, ex-ante emission reductions should be calculated from baseline, project and leakage emissions as shown above as follows: Equation 3: ER y,ex_ante = BE y,ex_ante (PE y,ex_ante + LE y,ex_ante ) Where: BE y,ex_ante = PE y,ex_ante = LE y,ex_ante = Ex ante baseline emissions in year y as per Equation 1 (t CO 2 -e); Ex ante project emissions in year y as per Equation 2 (t CO 2 -e); Ex ante leakage emissions in year y (t CO 2 -e) 23

24 Ex-post emission reductions, ER y,ex post In accordance with AMS-III.H, it is possible that the project activity involves wastewater treatment systems with higher methane conversion factor (MCF) or with higher efficiency than the treatment systems used in the baseline situation. Therefore, the emission reductions achieved by the project activity is limited to the ex-post calculated baseline emissions minus project emissions using the actual monitored data for the project activity. The emission reductions achieved in any year shall be based on the lowest value of the followings: Equation 4: ER y,ex_post = min((be y,ex_post PE y,ex_post LE y,ex_post ),(MD y PE power,y PE biomass,y LE y,ex_post )) Where: BE y,ex_post = PE y,ex_post = LE y,ex_post = Baseline emissions calculated as per Equation 1 using ex post monitored values (t CO 2 -e); Project emissions calculated as per Equation 2 using ex-post monitored values (t CO 2 -e); Ex-post Leakage emissions in year y (t CO 2 -e); MD y = Methane captured and destroyed/gainfully used by the project activity in year y (t CO 2 -e). In the case of flaring/fuelling it shall be measured using the conditions of the flaring process as follows: MD y = BG w D FE GWP burnt, y CH 4, y CH 4 CH 4 Where: BG burnt,y = Biogas flared/combusted in year y (m 3 ) w CH4,y D CH4 FE = Methane content in the biogas in year y (mass fraction) = Density of methane at temperature and pressure of the biogas in year y (tonnes/m 3 ) = Flare efficiency in year y (fraction) (B) Utilisation of methane recovered for thermal energy generation on-site The recovered biogas from the wastewater treatment system implemented will be utilised to displace the usage of diesel fuel for thermal energy generation for crumb rubber drying at the project site. In accordance with AMS-III.H, the corresponding methodology under Type I, i.e. AMS-I.C would be applied for baseline estimation for the displacement of fossil fuel by methane recovered under the project activity. Ex-ante baseline emissions, BE y,ex_ante In accordance with paragraph 6 of AMS-I.C, for renewable energy technologies the displacing technologies using fossil fuels, the simplified baseline is the fuel consumption of the technologies 24

25 that would have been used in the absence of the project activity times an emission coefficient for the fossil fuel displaced (IPCC default values for emission coefficients may be used) as follows: Equation 5: BE y,ex_ante = FC diesel x EF diesel Where: FC diesel EF diesel = Diesel consumed by the technologies that would have been used in the absence of the project activity (tonnes) = Emission coefficient of the diesel fuel used (3.19 t CO 2 /t diesel, calculated from IPCC default values is used) Ex-post baseline emissions, BE y,ex_post In accordance with AMS-I.C, baseline emissions for heat produced using fossil fuel (BE y,ex_post ) are calculated ex post as follows: Equation 6: BE y, ex _ post = HG y EF η th CO2 Where: EF CO2 = CO 2 emission factor per unit of energy of the fuel that would have been used in the baseline plant in (IPCC default emission of 74.1 t CO 2 /TJ is used) η th HG y = Efficiency of the plant using fossil fuel that would have been used in the absence of the project activity (maximum efficiency of 100% is used, in accordance with AMS-I.C option (c) for efficiency of the baseline units) = Net quantity of thermal energy supplied by the project activity during year y (TJ); which is calculated as follows: HG y = NCV methane (MJ/Nm 3 ) x FV heat,y (Nm 3 ) x fv CH4 Where: NCV methane = MJ/Nm 3 FV heat,y fv CH4 = Amount of biogas used for thermal energy generation in year y (Nm 3 ) = Volumetric fraction of CH 4 in the biogas 25