New Mechanism Feasibility Study for Development of Best Grid Electricity Mix Focusing on Renewable Energy Sources In Sri Lanka

Transcription

1 New Mechanism Feasibility Study 2011 Final Report New Mechanism Feasibility Study for Development of Best Grid Electricity Mix Focusing on Renewable Energy Sources In Sri Lanka By EX Research Institute Ltd. FS Partner(s) Location of Project Activity Category of Project Activity Description of Project/Activit y Reference Scenario and Project/Activit y Boundary Monitoring Methods and Plan [Sri Lankan Partners] Sri Lankan Carbon Fund (SLCF) Ministry of Environment (MOE) Sri Lankan Sustainable Energy Authority (SLSEA) Ceylon Electricity Board (CEB) [Japanese Partners] Hokkaido Electric Power Co. Inc., (HEPCO) Fuji Engineering Consulting Sri Lanka Renewable Energy Through implementing the project activity aimed at promoting the introduction of renewable energies and realization of the best grid mix based on load equalization under the bilateral mechanism, it is intended to reduce emissions of greenhouse gases (GHG). Concerning the introduction and promotion of renewable energy, grid optimization technology will be introduced in order to accelerate and promote the introduction of renewable power derived from biomass, wind power, solar power and hydropower, etc. as well as the introduction and utilization of renewable energy technology being vigorously promoted by the Democratic Socialist Republic of Sri Lanka (Sri Lanka). Furthermore, technologies will be introduced concerning the load equalization of pumped-storage power generation and secondary batteries, etc. as storage equipment for limiting power losses at off-peak times and supplementing power supply at peak times. Also, Nationally Appropriate Mitigation Actions (NAMAs) for the power sector in the host country will be formulated and technical and financial support will be provided with a view to achieving them and thereby acquiring emission reductions as NAMA credits. Reference scenario is identified based on the "Long-term Generation Expansion Plan" which is basically annually updated. However, for the power generation plans that are clearly mentioned to be implemented utilizing carbon mechanism such as CDM or BCOM are excluded from reference scenario. <Renewable energy utilization technologies> 1) Reference emissions: Amount of electricity supplied to the national grid (MWh/y) 2) Project emissions: Amount of fossil fuel or electricity used by the project activities (t/y or MWh/y) <Load levelling technologies> 1) Reference emissions: Amount of electricity supplied to the national grid (MWh/y) 2) Project emissions: Amount of electricity used by applied load levelling technology (MWh/y) Amount of electricity generated by the renewable energy generation units that are operated as a set of load levelling technology (MWh/y) Efficiency of applied load levelling technology (%) Amount of fossil fuel used by the project activities (t/y) 3) Leakage emissions: Where pump-up storage power plants are installed at existing hydro power sites, the amount of electricity which would have been generated by these plants need to be 1

2 GHG Emissions and Reductions MRV System for GHG Reductions Analysis of Environmental, Socioeconomic and other Impacts (including Securement of Environmental Integrity) Financial Planning Introduction of Japanese Technology Co-benefits (i.e. Improvement of Local Environmental Problems) Contribution to Sustainable Development in Host Country counted as leakage emissions sources(mwh/y) Item Unit Hydro Wind Biomass Solar Load Leveling Remarks a) Introduction target by MW ,000 proposed NAMA by 2020 b) Emission reduction per tco2/y f)/a) MW c) Reference emissions ktco2/y 1,742 1, ,452 d) Project emissions ktco2/y Biomass(assumption): Reference emissions *10% e) Leakage emissions ktco2/y f) Emission reduction ktco2/y 1,742 1, ,452c)-d)-e) Total tco2/y 6,147 For renewable energy utilization technologies & load levelling technologies with facilities at generation side: Modified CDM AMS- I.D For load levelling with facilities at grid side (PSPP etc): A new MRV was developed <Beneficial impacts> Mitigation of air pollutants emissions due to reduction of fossil fuel consumption <Security measures for potential negative impacts> Potential negative impacts need to be averted by making sure the following security measures: Implementation of EIA Using biomass assessment guideline which was developed under this F/S to avoid competition with existing land and biomass resource uses As fundraising sources, in addition to conventional yen loans based on the framework of the BOCM, it is envisaged that grant and loan funding mechanisms associate with climate change countermeasures will be utilized. Technology introduction sheet of Japanese technologies was developed under this F/S and it may be applicable as project activities under the proposed BOCM. Replacement of the grid electricity by renewable energy sources will have co-benefits as follows: Mitigation of SOx and NOx emissions due to reduction of fossil fuel combustions GHG emission reductions 1) Contribution to reliable electricity supply (electricity supply will become more stable by load levelling technologies) 2) The following contribution through promotion of renewable energy: Energy security enhancement by increasing the proportion of indigenous energy sources Reduction of outflow of foreign currency due to reduction of imported fossil fuel Economy vitalization and job creation 3) Income generation of rural farmers by promotion of biomass cultivation 4) Mitigation of air pollutants emission reduction due to reduction of fossil fuel combustion 2

3 1. Background & Objective 1.1 Background of the Study In December 2011, extension of the Kyoto Protocol on climate change was decided at COP17/CMP7 held in Durban, South Africa. However, in addition to the United States (who did not participate in the first Kyoto Commitment period), Japan, Canada and Russia have announced that they will not participate in the Second Commitment period which is due to start in January Hence it appears likely that binding emission reduction targets under the Protocol framework will only target around 15% of total global emissions centering on countries of the EU, Norway and a few others. Accordingly, if Japan loses the right to trade Certified Emission Reductions (CERs) under the Kyoto Mechanism, it is expected that the carbon market will remain static or shrink. Under these circumstances, there is growing interest among Non-Annex I countries in New Mechanisms including the Bilateral Offset Credit Mechanism (BOCM) as means for promoting reduction activities. The Ministry of the Environment, Japan (MOEJ) and Global Environment Centre Foundation (GEC) have launched a Feasibility Study (F/S) Programme on New Mechanisms since 2010 in order to solicit GHG (Greenhouse Gas) mitigation projects/activities supposed to be implemented under New Mechanisms in the post-2012 framework. This study was conducted as one of the 29 studies conducted in FY 2011 under this Programme. 1.2 Situation in Sri Lanka According to Second National Communication of Sri Lanka, total GHG emissions of Sri Lanka amounts to approximately 18.8 million t-co2 (removals by land use change and forestry accounts for 6.3 million t-co2), of which 3.1 million t-co2 (16.5 percent) is emitted from the power sector. In future, since the national development policy contains plans to promote the construction of coal-fired thermal power plants in response to the growing demand for power, GHG emissions are expected to increase even more. Against such a background, from the viewpoint of the national development context of Sri Lanka, this study contributes to examine options for GHG emission reductions in this sector focusing on renewable energy resource development. This study also include biomass resource assessment as it has not been adequately addressed in Sri Lanka. Amidst growing need for the supply of cheap and high quality power in order to improve the standard of living and vitalize economic activities in Sri Lanka, a contradiction arises in that it is necessary to promote generally expensive renewable energies in order to enhance energy security, mitigate the exodus of foreign currency and resolve social and environmental issues. As one means of bridging this gap, Sri Lanka hopes to secure financial support from the international community based on the Green Fund including the Clean Development Mechanism (CDM) and emerging mechanisms such as BOCM. According to the Second National Communication on Climate Change that the Government of Sri Lanka has just published in February 2012, the following viewpoint is stated that International support including the CDM is essential for implementing reduction activities in Sri Lankan power sector. In these circumstances, it is deemed extremely significant for Sri Lanka to discuss and examine the feasibility of New Mechanisms via implementation of this project. 1.3 Objective of the Study Considering the situation of Sri Lankan power sector and new international trend on climate change, this study aims to fulfill the following objectives: 1) To promote the best grid mix focusing on renewable energy development and Nationally Appropriate Mitigation Activities (NAMAs) in Sri Lankan power sector including: 3

4 Implementation of a feasibility study on GHG emission reduction activities Selection of appropriate GHG emission reduction technology options applicable to the sector Development of MRV methodology of GHG emission reduction activities. 2) Introduction of Japanese technology options which can suit the situation of Sri Lankan power sector. Provision of matching opportunities between relevant entities of Sri Lanka and Japanese technology and product providers. Promote the recognition of these technologies and products. 3) Awareness raising on NAMAs and New Mechanism among Sri Lankan government officials and private sector. 2. Study Framework 2.1 Implementation Framework of the F/S This study was carried out under the framework described in the following figure in partnership with Sri Lankan and Japanese relevant entities. Sri Lankan Carbon Fund (SLCF) took the role of a focal point of Sri Lankan relevant entities as it is an entity specially launched to develop carbon related projects such as CDM or new mechanisms. Being a semi governmental-semi private entity, SLCF was considered to be the best entity to facilitate this Study from the viewpoint of obtaining cooperation from the private sector as well as the Government sector. While undertaking this study, efforts were made to involve and incorporate opinions from the Ceylon Electricity Board (CEB) and private sector enterprises such as Small Power Producers (SPPs) as far as possible. In cases where a project is implemented under bilateral mechanism, these entities are most likely to be the actual project operators. JICA: Japan International Cooperation Agency HEPCO: Hokkaido Electric Power Co., Inc. EXRI: EX Research Institute Ltd. MOE: Ministry of Environment SLSEA: Sri Lankan Sustainable Energy Authority CEB: Ceylon Electricity Board SPPs: Small Power Producers Fig 1 Study Implementation Framework 4

5 The roles of the relevant entities in the Study are as follows: <Japanese Side> EX Research Institute Ltd.(EXRI): Responsible entity for undertaking the Study. Investigation on Japanese technology options and development of MRV methodologies, and possible NAMAs in the Sri Lankan power sector. Hokkaido Electric Power Co., Inc.: Technical examination and feasibility study concerning hydropower and pumped-storage power generation, accompaniment accompanying field investigations, guidance of personnel invited to Japan Fujii Consultant Office: Technical examination and feasibility study on biomass power generation, wind power generation, solar power generation and optimum grid electricity mix, and accompanying field investigations External advisors: External advisors provided technical inputs to the Study especially in selection of technical options and methodologies in biomass resource assessment. <Sri Lanka Side> Sri Lankan Carbon Fund (SLCF): The main focal point of the study in Sri Lankan side which took the role in facilitating with Sri Lankan government and private relevant entities. Sri Lankan Sustainable Energy Authority (SLSEA): Responsible entity in conducting renewable energy potential assessment mainly biomass resources as well as providing the technical input and information regarding renewable energy development situations and policies in Sri Lanka for the Study. Ceylon Electricity Board (CEB): CEB provides information and knowledge of current situations of Sri Lankan power sector and provided technical input for the Study. Ministry of Environment (MOE): Climate Change Division (CCD) of MOE provides relevant information and technical inputs to the Study. Small Power Producers (SPPs): Small power producers for mini-hydro, wind, biomass and solar power contributed to the Study by participating in Technical Assessment Visit to Japan and workshops. 2.2 Activities of the F/S The following activities were conducted under the Study: Study on mitigation technology options in Sri Lankan power sector, Draft Measurement, Reporting and Verification (MRV) methodologies for those actions, Develop a draft Nationally Appropriate Mitigation Actions (NAMAs) in Sri Lankan power sector, Conduct Biomass Assessment and draft National Guideline for Biomass Assessment, Technical Assessment Visit to Japan by Sri Lankan Delegate, visiting site(s) where employing related product(s), technologies and implementing project(s), and Workshop for New Mechanisms for Private Sectors in the Field of Renewable Energy in Sri Lanka. 5

6 Literature study Discussions with Sri Lankan relevant agencies and specialists (Government agencies, CEB, SPPs etc) Literature study Interviews with 18 entities in the field of renewable energy, load leveling and smart grid etc. (1) Understanding Situations of Sri Lankan Power Sector (2) Survey on Potential Japanese Technology Options Leaflet of Japanese Technology Options Technical Assessment Tour in Japan (11 participants) Simplifying CDM methodologies Development of methodology for load leveling technology (3) Study on Potential Technology Options Applicable to Sri Lankan Power Sector (4) Development of MRV Methodologies and Draft NAMAs in Sri Lankan Power Sector Consultation workshops (Government sector: 2, Private sector: 1) Technical committees Biomass Assessment (National Guideline for Biomass Assessment) Fig 2 Steps of the Study 3. Study on Potential Technology Options Applicable to Sri Lankan Power Sector 3.1 Outline of the Proposed Project Activity The project activity aims at promoting the introduction of renewable energies and realization of the best grid mix based on load levelling under the BOCM hence contributing to the reduction of GHG emissions. Concerning the introduction and promotion of renewable energy, grid optimization technology will be introduced in order to accelerate and promote the introduction of renewable power derived from biomass, wind power, solar power and hydropower, etc. It will also involve the introduction and utilization of renewable energy technologies being vigorously promoted by Sri Lanka. Furthermore, technologies that will be introduced include technologies concerning load levelling of pumped-storage power generation and secondary batteries, etc. as storage equipment for limiting power losses at off-peak times and supplementing power supply at peak times. Further, possible NAMAs for Sri Lankan power sector will be formulated and technical and financial support will be provided with a view to achieving them and thereby acquiring emission reductions as NAMA credits. 6

7 Avoidance of construction of thermal power station Coal power plants I-3. System stabilization technology SVC SVR Grid Utilization of Excess supply of electricity Promotion of I-2. Output stabilization renewable energy development Thermal storage Fuel storage cells I-1. Renewable energy technologies Large scale Electric vehicle Wind power Photovoltaic Pumped Storage Power Plants I. Renewable Energy Utilization Technologies Fig 3 Diagram of the Proposed Project Activities II. Load Levelling Technologies 3.2 Situation of Sri Lankan Power Sector With a view to proposing draft NAMAs in Sri Lanka and identifying technology options for proposal in this study, the issues that hinder the introduction of renewable energy were gauged through statistical data and consultations with related officials, and effective technologies and methods for resolving the identified issues were examined. 3.3 Potential Japanese Technology Options 1) Examination of measures to address the identified issues Interviews were conducted to identify renewable energy technology options geared to compiling the project activities using Japanese technologies based on the BOCM. A list of Japanese technology options that can contribute to the countermeasures for addressing the issues in 3.2 was compiled, the technologies were evaluated and technologies suited to making concrete proposals were examined. Further, destinations for Sri Lankan delegation to visit as a part of the Technical Assessment Tour were identified and coordinated with the focus on technologies that are likely to be deployed to Sri Lanka. Moreover, Technology Sheets were prepared targeting the identified technology options and distributed to Sri Lankan delegation. MRV methodologies were examined in view of the BOCM. 7

8 (a) Selection of target technology options (b) Selection of technology areas with a high possibility of introduction in Sri Lanka (c) Identification of target technologies for detailed interviews (d) Request for interviews (e) Implementation of interviews Listing-up of renewable energy technologies stated in the NEDO Renewable Energy Technology White Paper and target technologies from the internet survey Selection of Solar power generation, Mini-hydropower generation, Wind power generation, Biomass energy power generation, Wave power and tidal power generation. From the list in (a), identification of technology options in the practical application stage as the target technologies for investigation Consignment of interviews on the target technology to suppliers and industry groups, etc. (approximately 25 entities) Implementation of interviews with enterprises that responded to the request (18entities) Fig 4 Flow for Selection of _Enterprises of Renewable Energy Technologies Interviewed 2) Selection of Japanese technologies In addition to holding discussions with engineers and sales persons of the relevant entities focusing on the technologies identified in 1), Sri Lankan officials and private sector personnel were invited to Japan. Opportunities for holding discussions with related officials and engineers were provided with a view to promote the introduction of technologies for assessment on whether they may be suitable to Sri Lanka by the Sri Lankan delegation. 3.4 Study on Potential Technology Options Applicable to Sri Lanka The technologies to be adopted in the project activities are broadly divided into Technologies for the effective utilization of grid-connected renewable energy and Grid power load levelling technologies. Field of Activity Table 1 Technologies to be Adopted in the Project Activity I. Technology for effective utilization of renewable energy I-1. Individual renewable energy technologies I-2. Output stabilization technology I-3. System stabilization technologies II. Load levelling technology II-1. Technology incidental to the system II-2. Technology incidental to generating equipment Technology to be Adopted in the Project Activity a) Technology fields that have limitations on system introduction [wind power/solar power] b) Technology fields that don t have limitations on system introduction [biomass/hydropower] c) New fields [geothermal/tidal power, etc.] d) Mixed combustion of biomass in existing thermal power generation Technologies incidental to the renewable energy technologies (output fluctuation technologies) applicable under I-1-a) [Power storage, thermal storage, fly wheel, etc.] Technologies introduced on the system side with the aim of boosting the potential introduction amount renewable energy technologies (output fluctuation technologies) applicable under I-1-a) [SVC (static var compensator, SVR (automatic voltage regulator)] [Pumped storage power generation plant, large capacity secondary cell] Equipped to renewable energy equipment [Storage cells and thermal storage equipment, etc] 8

9 Table 2 shows the advantages and disadvantages of Non-conventional Renewable Energies (NCRE). Table 2 Individual Renewable Energy Technologies (I-1) Type Advantage Disadvantage Biomass Enable to control output Continuous Raw material (biomass) Procurement is required Seasonal Fluctuation (depending on area) Geother mal Hydro Marine Current Solar Tide Wind Enable to control output Unlimited & free supply of power generating energy No cost for power generating energy Enable to control output from power plant Stable output Unlimited & free supply of power generating energy Unlimited & free supply of power Generating energy Unlimited & free supply of power Generating energy Unlimited & free supply of power Generating energy High cost for exploration & development Geological limitation on exploration & development (Volcanic Area) Geological limitation on exploration & development Seasonal & Fluctuation High cost for exploration & development Geological limitation on exploration & Development (Marine Current) High cost Unable to control output Daily & Seasonal output Fluctuation Geological limitation on exploration & development High Environmental Impact Geological limitation on exploration & development Unable to control output Daily & Seasonal output Fluctuation Table 3 Output Stabilization Technology (I-2) & System Stabilization Technologies (I-3) Categories Methodologies by Output Management Utilization Technology Innovation Output Stabilization (1) Increase Power Generation Efficiency (2) Increase Energy Utilization Ratio (3) Lower Cost (1) Employment of Energy Storage System (2) Interregional Balancing Grid Management Grid Stabilization (1) Increase total capacity of SVC & SVR * (2) Introduction of Auto Grid Control (AGC) System (3) Employment of Large Scale Energy Storage System (Secondary Cells, Pump up Stored Power Plant) Scaling up of National Grid Inter Grid Connection SVC = Static var Compensator / SVR = Step Voltage Regulator Power Plant Power Plant National Grid Management National Grid Management 9

10 4. Development of MRV Methodology 4.1 Eligibility under the New Mechanisms Among the technologies shown in the following table, apart from I-1, Sri Lanka has no prior experience of introduction of these technologies. Hence, it will be necessary to have overseas technical and financial support. Apart from pumped-storage power generation, since none of these technologies make no direct contribution to the reduction of GHG emissions, they could not be targeted in the conventional CDM. However, as these are essential technologies when considering the introduction of renewable energy in the future, it is deemed significant to develop MRV methodology in the new mechanism so that the new technologies are considered to be eligible under the new mechanism from the viewpoint that both technical and financial eligibility can be demonstrated. Furthermore, it has become extremely difficult to raise the upfront payment of funds equivalent to issued carbon credits in conventional CDM. If it becomes possible to arrange a special financing mechanisms for the projects implemented based on the consensus of both governments under the BOCM, then this option is worth examining as a means of raising funds for load levelling and system stabilization technologies that are generally deemed to be expensive. Concerning the I-1 technologies, eligibility differs according to the technology adopted in each project, the project conditions and project profitability. Therefore, positive list to identify the eligibility to the proposed MRV methodology. Moreover, since the utility is already implemented as Business as Usual (BaU), it has been decided to set the positive list shown in Table 4, which will be used as criteria to determine the eligibility for each individual project. Table 4 Positive List for Proposed Project Activities 1) [Project Type] Project should apply either of the technology(ies) applicable to the following conditions. a) Technology(ies) which supply electricity to a national or a regional grid. Renewable energy has to be in accordance with the national definitions. [Renewable energy technologies] b) Technology(ies) which level the load of grid electricity. The applied load levelling technology(ies) have to be implemented together with renewable electricity generation project that will generate the equivalent amount of electricity which is consumed by the applied load levelling technology(ies) directly to the load levelling technology(ies) or to the national grid. [Load levelling technologies] 2) [Eligibility] Project should satisfy one or more of the following conditions a)~e). a) Project applying technology(ies) that are not exist in the host country or apply Japanese technology(ies) [Technically eligible] b) Renewable energy generation project with grid load levelling technology(ies) and grid stabilization technology(ies)[economically/technically eligible] c) Project utilizing Japanese financing source (government, private) as a part(or all) of equity or project costs. [Financially eligible] d) Project with IRR(15 years) below average bank interest plus risk premium for renewable energy projects (5%) [Economically eligible] e) Co-benefits are expected 3)[ Environmental Integrity] Project should comply with environment regulations in the host country 10

11 4.2 Emission Reduction Mechanisms Based on Proposed Project Activities Emission reduction effect was examined assuming introduction of the following two types of technologies. 1) Technologies for utilization of renewable energy based on grid connection Renewable energy is referred to as carbon-neutral, which implies that, it does not cause GHG emissions when used to generate power. Hence the project activities utilizing renewable energy will make a contribution towards reducing the combusted amount of fossil fuels and hence emissions of GHGs through substituting fossil fuel-based power with power generated from renewable energy. 2) Grid power load levelling technologies In the long-term generation expansion plan (LGEP) (2009~2022) of the CEB, it is scheduled to adopt coal-fired thermal power in all additional power sources (after 2013) for responding to increasing power demand. However, since the expected coal-fired thermal power technology is founded on continuous operation and output adjustment can only be made up to a maximum of 50%, this means that the base load will be increase every time the level of dependence on coal-fired thermal power is raised. Meanwhile, the hourly demand for power in Sri Lanka shows a disparity of more than two times between off-peak times and peak times, and this is expected to grow even more in future. As a result of the study, in the case where the government target of supplying 10% of grid power with renewable energy by 2015 while continuing to increase coal-fired thermal power is realized, it was estimated that the off-peak demand will become almost saturated. In that case, unless the excess supply at off-peak times can be shifted to peak times by means of load levelling technology, it is forecasted that there will not be enough room to accept any more power derived from renewable energy onto the grid. Therefore, focusing on this excess supply power, in this study it is proposed that load levelling technology be introduced. Such technology may entail either utilizing the excess power to pump water for pumped-storage power generation and to generate power with the stored water at peak times, or to store power in large-capacity storage cells or thermal storage units so that power can be supplied at peak times. Using such techniques as an alternative to expensive load-follow-up diesel power generation, it will be possible to reduce consumption of diesel, avoid building new coal plants, promote renewable energy power generation projects and make a contribution to the reduction of GHG emissions. 4.3 Setting of the Reference Scenario & Boundary 1) Reference Scenario The reference scenario is identified based on the LGEP. This long-term business expansion plan is updated every year by the power transmission department and generating department of CEB. The base case is set in consideration of power demand forecasts, the situation regarding granting of licenses and national targets for introduction of renewable energy (the 2008 version is the newest version available as of 27th of February 2012). The targeted types of renewable energy are small and medium hydropower, wind power, biomass power, solar power and municipal waste power generation. The renewable energy introduction plan stated in this plan undercuts the national target amount. 11

12 Table 5 Outline of the Power Station Expansion and Decommissioning Plan *1: Puttalam coal power plantcommissioned in 2011 *2: Ceylon Electricity Company Actual Operation (2010) *3: Data other than *1, *2 are obtained by CEB LGEP(2009~2022) In the LGEP for the power sector, it is intended to develop only coal-fired thermal power sources up to Meanwhile, the Mahinda Chinthana (message of the president) stipulates a national target for supplying 20% of total grid power out of renewable energy. However, this target has no legal binding force, since the GHG emission reduction options in this plan and the Second National Communication stated that "most of these mitigation options would inevitably require an additional cost, the funding for which has to be realized through an international mechanism such as CDM or similar". Ever since the feed-in tariff (FIT) for power generated from renewable energy was introduced in 2009, numerous renewable energy projects have been launched by SPPs (10 MW or less). Considering that the FIT was introduced in 2009 and development has been implemented with priority on the most profitable projects, the development potential for the most profitable hydropower projects will become saturated from now on. Licenses for wind power generation projects, which are viewed to have the greatest potential, cannot be currently issued due to the upper limit imposed on the allowable grid capacity. Accordingly, it is hard to imagine renewable energy projects being smoothly launched from now on without some kind of additional support including in the shape of carbon credits. Therefore, the reference scenario for the project is deemed to be the long-term expansion plan that is the BaU. 2)Boundary The boundary will be the transmission and distribution network as well as the renewable energy and load levelling equipment and coal-fired thermal power plants to be introduced from now on. Specifically, the boundary will comprise of the following facilities. 12

13 Facilities Table 6 Facilities Included in the Boundary Emitting Facilities and Activities included in the Boundary Transmission and distribution network - Transmission lines are on the transmission line side of the point of responsibility separation from the power station. - Distribution lines are on the distribution line side of the point of responsibility separation from the power station. - In the case where the transmission and distribution network is enlarged, the expanded part is included. - Independent mini grids are not included. Coal-fired or other thermal power - Power generating facilities Biomass power generation - Biomass manufacturing facilities (methane fermentation facilities, chip manufacturing facilities, gasification facilities, carbonization furnaces) - Incinerators, power generating facilities - In the case of bio fuel, emission activities from the cultivation of raw materials to refining - Transportation of biomass between the above mentioned incineration facilities Small and medium hydropower Wind power generation Solar power generation Pumped-storage power plant Large-scale storage cells - Power generating facilities - Power generating facilities - Power generating facilities - Power generating facilities - Storage cell facilities and recharging equipment 4.4 MRV Methodologies 1)Overall The technologies targeted in the study are broadly classified as Technologies for the effective utilization of renewable energy and Grid power load levelling technologies. The former may be described as a field in which MRV methodologies have already been established in the CDM. As for the latter category, it is a new field in the carbon credit scheme and no dedicated methodology has been compiled in the CDM. The main points of the MRV methodology in this field are described below. Calculation method of project emissions from electricity consumption by grid load levelling technology(ies) equipped grid side As described in 1) b) in the positive list, grid load levelling technology(ies) equipped grid side applicable under the proposed project activities should be implemented together with renewable energy generation project activities which directly or virtually supply electricity to the load levelling technology(ies). Monitoring the amount of electricity consumed by load levelling technology(ies) and the amount of electricity generated by the renewable energy generation plants during the operating hours of load levelling technology(ies) and if the former is smaller than the latter, the gap between the two is considered as grid electricity consumption. In this case, this amount of electricity (gap between the two) should be multiplied by grid emission factor and needs to be counted as project emissions. If the latter is smaller than the former, all the electricity consumed by the load levelling technology(ies) is considered provided by renewable energy plants and project emissions is considered as 0(zero). Regarding the renewable energy generation plants which are implemented with load levelling 13

14 technology(ies) as a set, other than the amount of electricity considered consumed by the load levelling technology(ies), GHG emission reduction will be calculated based on the amount of generated electricity using grid emission factor similar to the other renewable energy generation projects. Method for calculating the build margin emission coefficient of alternative power Since a concise plan for LGEP already exists, the build margin emission coefficient of alternative power will be calculated based on this plan rather than data from the past five years. This is deemed to be appropriate as a calculation method suited to the conditions in the host country. Monitoring plan for biomass power generation In biomass power generation, monitoring of the biomass fuel (including component analysis) has become an extremely large burden for operators. In this MRV, in order to accurately gauge the amount of alternative energy, monitoring at the transmitting end has been adopted instead of monitoring of the amount of biomass, while less stringent monitoring of the amount of biomass fuel has been adopted to provide supplementary data for demonstrating the validity of monitoring results at the transmitting end. Creation of biomass assessment report In the conventional CDM methodology, as no guidelines on the method for conducting biomass assessment exist, individual operators conducted assessment based on their own ad-hoc methods. Since this led to a confusion among operators, it has been decided to compile biomass assessment method guidelines under the supervision of the SLSEA and to have these ready for use when conducting biomass assessment in biomass power generation projects. Consideration of the above mentioned four points will make it easier to more accurately gauge the GHG reduction effect in line with conditions in Sri Lanka and in that respect is at the level where international MRV guidelines can be adopted. In the study, MRV examination was conducted with respect to each proposed technology option. The following table shows the basis for MRV methodology development regarding each technology option and the methods proposed in this study. 14

15 Table 7 - MRV Compilation Policy Technologies MRV Remarks I. Technologies to promote renewable energy I-1 Renewable energy utilization technologies a) Limit in acceptance by grid Modify CDM [WindPV] AMS- I.D. b) No limit in acceptance by grid [BiomassHydro] c) New areas [GeothermalWave etc] d) Mix combustion of biomass with CDM ACM0006 coal or 0018 etc I-2 Output stabilization technology Modify CDM [Thermal storage, battery] AMS- I.D. I-3 Grid stabilization technology Modify CDM [SVCSVR] AMS- I.D. II. Load management technologies II-1 Grid side [PSPP, Thermal storage, battery] II-2 Generation plant side [Thermal storage, battery] New methodology is developed Modify CDM AMS- I.D. Biomass power generation Monitoring of amount of electricity supplied to the grid, not the amount of biomass fuels (simplified) National guideline of biomass assessment N/A in this study Although the technology itself does not contribute to emission reductions, it can contribute to increased capacity of accommodating renewable energy in the grid Considered as positive list in the MRV 2) Renewable Energy Projects [ Features of MRV methodology ] Basically MRV follows small scale CDM approved methodology: AMS-I.D. Grid connected renewable electricity generation Simplification of calculation method of build margin: Unlike the CDM methodological tool of grid emission factor calculation, average emission factor of the plants scheduled to be built up to 2020 in LGEP. Year Operating Margin Build Margin Combined Margin Average Simplification of monitoring methodology: Amount of electricity which displaces grid electricity is monitored by electricity meter and not by measuring the amount of biomass fuel used Guideline for biomass assessment to avoid competition of existing usage of biomass resources: National guideline of biomass assessment will be published. 15

16 3)Load Levelling [ Features of MRV methodology ] Basically MRV follows small scale CDM approved methodology: AMS-I.D. Grid connected renewable electricity generation Simplification of calculation method of build margin: Unlike the CDM methodological tool of grid emission factor calculation, average emission factor of the plants scheduled to be built up to 2020 in LGEP. Calculation method of emission factor of electricity to store energy: (1)Load management facility with renewable power generation sources: Considered as zero as the electricity is renewable origin (2) Load management facility with grid electricity: Considered as zero because, according to LGEP, coal power increase will result in less capacity of accepting renewable electricity in the grid. Thus, load management technology is a measure to increase electricity demand so that grid can absorb more renewable electricity Remarks: As described in 1) b) in the positive list, grid load levelling technology(ies) equipped grid side applicable under the proposed project activities should be implemented together with renewable energy generation project activities which directly or virtually supply electricity to the load levelling technology(ies). Monitoring the amount of electricity consumed by load levelling technology(ies) and the amount of electricity generated by the renewable energy generation plants during the operating hours of load levelling technology(ies) and if the former is smaller than the latter, the gap between the two is considered as grid electricity consumption. In this case, this amount of electricity (gap between the two) should be multiplied by grid emission factor and needs to be counted as project emissions. If the latter is smaller than the former, all the electricity consumed by the load levelling technology(ies) is considered provided by renewable energy plants and project emissions is considered as 0(zero).Regarding the renewable energy generation plants which are implemented with load levelling technology(ies) as a set, other than the amount of electricity considered consumed by the load levelling technology(ies), GHG emission reduction will be calculated based on the amount of generated electricity using grid emission factor similar to the other renewable energy generation projects. 16

17 4.5 Monitoring Methods & Plans In the project, GHG emissions will be reduced through substituting thermal power derived from coal, etc. with power from renewable energy and load levelling equipment. Accordingly, as the reference emissions, monitoring will be carried out on the amount of supplied power derived from renewable energy. In the case of biomass power generation, since the pretreatment and transportation processes are included, they will be monitored as project emissions. Renewable energy & load levelling 1) Biomass power generation 2) Other renewable energy (mini-hydro, wind, solar etc) 3) Pumped storage power generation Reference emissions Amount of electricity supplied to the national grid [Continuous by meter] Same as above Same as above 4) Large storage cell Same as above Table 9 List of Monitoring Targets Project emissions Amount of fossil fuel or electricity used by the project activities Same as above Amount of electricity used by applied load levelling technology (GWh/y) Amount of electricity generated by the renewable energy generation units that are operated as a set of load levelling technology (GWh/y) Efficiency of applied load levelling technology (%) Remarks Biomass pretreatment, manufacturing, post-treatment and transportation processes, and processes from cultivation up to manufacturing in case of bio fuel Where PSPP is installed using existing hydro power plants, the amount of electricity which would have been generated by these plants needs to be counted as leakage emissions (GWh/y) 5. Emission Reduction Calculations 5.1 Emission Reduction Estimation Table 11 shows the GHG reductions arising from attainment of the draft NAMAs target values for the following five technologies envisaged in the Study. 17

18 Table 11 GHG Emission Reductions Item Unit Hydro Wind Biomass Solar LL Remarks 1)Reference emissions ktco2/y 1,742 1, ,452 a)*b)*c)*d) a) Target MW ,000 NAMA(draft) Targets b) Plant factor % 42% 32% 80% 16% 25% CEB c) Grid emission tco2/ Based on MRV meth factor MWh d)efficiency % Assumption (Output/input) % 2) Project emissions ktco2/y Biomass(assumption): Reference emissions 0 *10% 3) Leakage emissions ktco2/y )Emission reduction ktco2/y )-2)-3) 5)Emission reduction ktco2/y 4)/a) per MW 1,742 1, ,452 Total 6,147 LL: Load levelling 5.2 Possible NAMAs in Power Sector Taking into account the description in the Sri Lankan Second National Communication on Climate Change (2011) "Most of these mitigation options would inevitably require an additional cost, the funding for which has to be realized through an international mechanism such as CDM or similar", LGEP is considered appropriate as reference scenario for the proposed project activities. Hence, reference scenario is also BaU. This study aims to propose possible NAMAs for Sri Lankan power sector and assumes to generate carbon credit by materializing the NAMAs with technical assistance from Japan. There are three types of NAMAs. NAMAs that will be achieved by domestic efforts of developing countries is referred as "Domestic NAMAs", NAMAs achieved by international support is referred as "Internationally supported NAMAs". A third type not yet agreed to by UNFCCC is NAMAs achieved by international support and generate carbon credit and is referred to as "Credited NAMAs". This study only proposes a general NAMAs for Sri Lankan power sector and does not categorize it into the three types of NAMAs as categorizing the NAMAs would require a substantial discussions between the relevant Sri Lankan agencies. As mentioned above, assuming LGEP as reference scenario and applying "Renewable energy generation technology(ies)" and "Grid electricity load levelling technology(ies)" as targeted technologies to achieve GHG emission reductions, possible NAMAs in Sri Lankan power sector can be the following targets. 1) Grid electricity introduction of upto 20% of the total electricity supply to the National Grid. 2) Mitigate the gap of the grid electricity supply of peak hours and off peak hours by as much as 1,000MW (by introduction of load levelling technologies such as hybrid renewable energy generation or pumped storage power plant). <Justification of determination of NAMAs> Regarding 1), it is a national policy target declared by "Mahinda Chinthana". In order to meet this target, international technical and financial assistance is expected to prove highly crucial. 18

19 Regarding 2), coal plant development policy which requires base load operation, is clearly mentioned in LGEP. Electricity demand gap between off-peak hour and peak hour is considered to be one of the most serious issues in Sri Lankan power sector that is limiting grid penetration capacity of renewable energy based electricity to the grid. In addition, load levelling technology(ies) such as pumped storage power plants can reduce dependency on high cost/high carbon intensive power generation sources in peak hours (diesel power generation). Therefore, from the viewpoint of aiming at best grid mix focusing on achieving the policy target of renewable energy development, mitigation of electricity demand gap between off peak and peak hours by introduction of load levelling technology(ies) are considered as possible NAMAs in Sri Lankan power sector. Million tco2/y Electricity generation NAMAs Scenario 500MW PSPP Reference Scenario (BaU) 25,000 20,000 15,000 10,000 5,000 Fig 5 Estimation of Emissions in Reference Scenario and NAMA Scenario 0 GWh/y As a result, through attaining the draft NAMAs configured in this project, it works out that GHG reduction of 29.8% can be achieved compared to the BaU scenario. Moreover, in the case where half of this amount is implemented through domestic reduction efforts and half is credited, it is estimated that a credit of 13.5 million tco2/y can be acquired by Securing of Environmental Integrity 6.1 Environmental Impact Assessment (EIA) According to official gazette No. 772/722, Annex III, the projects that require implementation of an EIA in Sri Lanka are stipulated according to, (a) project field and scale (Part I, II) and (b) project location conditions (Part III). The conditions under which it is possible that the project activities will be implemented are as follows: construction of a hydropower plant with generating capacity of 50 MW or more, new construction or expansion of an existing thermal power plant with generating 19

20 capacity of 25 MW or more, construction of a renewable energy power plant with generating capacity of 50 MW or more, installation of transmission lines with capacity of 50 kv or more for at least 10 km, and location of the project site in or near to an environmentally valuable location or an important location for security reasons. The beneficial impacts and negative impacts of the project activity, and the measures for reducing the negative impacts can be summarized as shown below. 6.2 Beneficial Impacts Through the introduction of technology for effective utilizing of renewable energy, use of fossil fuels can be reduced, thereby making a contribution towards limiting emissions of greenhouse houses and preventing global warming. This will also result in the restriction of the development of thermal power sources which will contribute to avert air pollution caused by exhaust gases. Through the introduction of load levelling technology, power losses will be reduced and the amount of fossil fuels used at peak times will be substituted and reduced. By doing this, emissions of greenhouse gases will be reduced and contribution will be made towards preventing global warming while also helping to avert air pollution caused by combustion of fossil fuels. 6.3 Potential Negative Impacts Potential negative impacts that may caused by implementing the proposed project activities are described as follows: Shift of land use and impacts on the ecosystem due to the development of project sites, and impacts of site land appropriation Water flow changes and impacts on aquatic ecosystems, etc. through the development of hydropower Impacts of bird strikes and low frequency noise due to installation of wind power Impact on utilization of pre-existing biomass resource utilization due to installation of biomass power generation Negative impacts in terms of water and soil pollution due to the improper treatment of wastes arising from biomass power generation Impacts on ecosystems and the local economy due to changes in groundwater brought about by geothermal power development <Measures for averting negative impacts> The following measures could help avert negative impacts: Conducting EIA in cases where the conditions for EIA exist. Advance evaluation of environmental impacts and measures for averting impacts in cases where such conditions don t exist Measures to avert competition with existing uses in order to prevent leakage arising from biomass power generation (Ample evaluation and guarantee for implementation of appropriate techniques aimed at managing waste from biomass power generation) 6.4 Other Indirect Impacts Each power generation method has its unique social, cultural and/or economic impacts. In the project activities here, latent problems such as competition with existing uses (water rights, biomass 20

21 resources) and landscape issues can expected to exist. However, these indirect impacts can be averted and/or alleviated through careful planning and forming consensus with stakeholders. Hence it will be necessary to give due consideration and implement measures aimed at preventing these impacts from arising when implementing the project. 6.5 Co-benefit Effects. In the project activity, since power derived from fossil fuels such as coal and diesel will be substituted with power from renewable energy, it is expected that atmospheric emissions of particulate substances, SOx and NOx in line with the combustion of fossil fuels will be reduced. Figure 6 and Figure 7 show the expected emissions of atmospheric pollutants over time in the case where electric power is expanded as planned. Therefore, implementation of the power options proposed in the project can be expected to have an effect in terms of addressing environmental pollution. CO2 (1,000 ton) 25, , , , , CO PS Figure 6 Forecast Emissions of CO2 and Particulates up to 2022 (1,000 ton) SONO (1,000ton) SO NO Figure 7 Forecast Emissions of SOx and NOx up to Implementation setup of the project activity 7.1 Implementation Framework Figure 8 shows the anticipated implementation setup. Based on the assumption that the Government of Sri Lanka will decide and implement policy concerning the new mechanism and that funding from international agencies, governments of developed countries and private enterprises will flow into Sri Lanka, the Sri Lanka Carbon Fund (SLCF), which is a semi-public semi-private enterprise established to comprehensively support environmental projects in Sri Lanka using the above mentioned funds, will be responsible for the centralized management, assess the business feasibility of individual projects and provide investment and loans to renewable energy operators in Sri Lanka. It is desirable that the Climate Change Department and SLSEA disseminate and promote projects by providing the necessary information. 21

22 International Agencies, Governments of Developed Companies & Private Companies Sri Lankan Government Agencies(National Policy Development & Implementation) Power Sector Climate Change Sector Ministry of Power & Energy SLSEA Ministry of Finance & Planning Ministry of Environment Climate Change Division SLCF CEB Sri Lanka Energy SPPs IPPs NPO Finance Carbon Credit Information (Awareness building, promotion) Figure 8 Implementation Framework 7.2 Fund plan Although initial investment required for implementation of project activities will be depending on technologies and some other conditions, an indication of The results of estimating the initial investment amount for each technology are summarized below. As fundraising sources, in addition to conventional yen loans based on the framework of the bilateral mechanism, it is envisaged that grant and loan funding mechanisms associated with climate change countermeasures will be utilized. It needs to be kept in mind that initial investment cost and operation cost for the proposed project will depend on factors like the project site, the technology used and other plant specific factors. Hence, the cost presented here is a reference cost analyzed by information collected from reference documents and interviews and does not factor in the project specific variations. Technology Type 1)Biomass power generation 2)Small and medium hydropower generation Table 12 Initial Cost by Project Type Additional Installation Capacity Target by 2020 Total Initial Cost (Billion JPY) Unit Credit Price (JPY/tCO2) 138MW , MW ,169 3)Wind power generation 710MW ,793 4) Solar power generation 49MW ,704 NCRE Total 1,210MW ) Pumped-storage power generation 500MW 1, ,014 22

23 8. Measures for Dissemination of Project Activities 8.1 Feasibility of Technology Dissemination In the country-based notification, Chapter 4, the following items are proposed as measures for reducing GHGs in the power generation department based on international support such as the CDM. Second National Communication on Climate Change, Chapter 4: GHG reduction measures in the power sector based on international support - Development of major hydropower stations - Improvement of management systems for maximizing the demand and capacity of power generated from wind energy - Encouragement of investment geared to development of domestic wind power potential based on presentation of competitive power purchasing prices - Encouragement of biomass power generation projects based on presentation of competitive power purchasing prices and abolition of the land compulsory acquisition clause targeting existing energy plantations - Application of tax exemption measures when importing solar panels, small-scale wind generation turbines, accessory instruments and other alternative energy-related instruments - Utilization of natural gas in base load power and power stations Except for Utilization of natural gas in base load power and power stations, all of the above items are related to the renewable energy and best grid mix measures proposed in this project. Moreover, in order to attain the national target for renewable energy introduction by 2020, since it will be necessary to introduce approximately 1,450 MW of renewable energy, the basis for introducing and disseminating the technology options proposed in the project based on the bilateral mechanism is already well established. Wind Farm High potential Area Colombo Potential sites for PSPP Figure 9 Potential Areas for Reduction Activities 23