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

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

2 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 2 SECTION A. General description of project activity A.1 Title of the project activity: Bagasse based Cogeneration Project at Pudukkottai Tamil Nadu, India Version 01 September A.2. Description of the project activity: Purpose of the project activity This project activity involves implementation of a bagasse based cogeneration plant ( project activity ), which commenced operation in March The primary objective in developing the project activity is to increase the efficiency of energy generation from sugar mill generated bagasse by replacing the existing low efficiency cogeneration system with a high efficiency system. The resulting incremental electricity generation is exported to the grid. EID Parry India Limited (EID Parry) belongs to the Murugappa Group, which has evolved into one of the biggest industrial houses in India. The company has been a pioneer in many fields, setting up of India's first Sugar plant at Nellikuppam (1842), fertiliser plant at Ennore and sanitary ware plant at Ranipet. EID Parry has now four sugar mills at Nellikuppam, Pugalur, Pudukkottai and Pettavaithallai. EID Parry has won the Green Tech Award on Safety in Sugar mills and has obtained ISO certification for its sugar plants in Pudukkottai & Nellikuppam. EID Parry is well known for conformance to environmental standards even before they become mandatory. EID Parry being progressive and to be competitive in the open market economy of India, has took initiatives in developing this project under the Clean Development Mechanism (CDM) of United Nations Framework Convention for Climate Change. The project activity is located at Kurumbur village-aranthangi Taluk, Pudukkottai district in the Indian subcontinent. The cogeneration plant is a part of the existing sugar mill at Pudukkottai. The average crushing capacity of the sugar factory is 4000 tonnes of cane per day (TCD). The co-generation plant includes a double extraction cum condensing turbo generator of MW capacity with a 100 ton per hour boiler (bi-drum, natural circulation water tube type) with outlet steam parameters, 86 kg/cm 2 and C. The cogeneration plant would operate for around 250 days during the crushing season and around 50 days in the off-season. The power export to the TNEB from this project would be around 11

3 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 3 MW in season period and 15 MW in the off-season. The project activity during the identified crediting period ( ), would result in an incremental electricity of approximately MU every year. Project s contribution to sustainable development: Conservation of natural resources and environment: The project activity reduces exploitation of natural resources (fossil fuels) for energy generation by supplementing the local electricity grid with a sizeable quantity ( MU/annum) of clean power. The project uses the most efficient and environment friendly technology and reduces 922,950 tonnes of carbon dioxide emissions over ten years. Further, the project reduces other negative environmental aspects of conventional power plants like emission of particulate matter, ash disposal etc. The project promotes the usage of renewable sources for power generation by successful demonstration of biomass based power generation. Contribution to Socio-economic development: The export of electricity to the grid aids to reduce power outages thereby improving industrial output resulting in economic development of the region. The improved power situation encourages new small and medium industries that improve the rural employment scenario. The project aids in socio-economic development even as it conserves natural resources and provides environmental benefits and thus it may be considered as contributing to sustainable development. A.3. Project participants: Name of Party involved Private and/or public entity(ies) (*) project participants (*) (host indicates a host (as applicable) Party) Kindly indicate if the Party involved wishes to be considered as project participant India (Host Country) EID Parry India Limited (Private Entity) No A.4. Technical description of the project activity: A.4.1. Location of the project activity: India A Host Party(ies):

4 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 4 Tamil Nadu A Region/State/Province etc.: A City/Town/Community etc: Kurumbur Village Aranthangi Taluk, Pudukkottai district A Detail of physical location, including information allowing the unique identification of this project activity (maximum one page): The project activity is located at Kurumbur Village-Aranthangai Taluk, Pudukkottai district in the Indian state of Tamil Nadu. The district lies around 78.25' and 79.15' East Longitude & 9.50' and 10.40' North Latitude. The project activity is located adjacent to the existing sugar plant. The area is sparsely populated with industries. The nearest railway station is Pudukkottai, which is approximately 20 kilometres away from the project site and Pudukkottai district has a coastline of 39 kilometres along Bay of Bengal. Power produced by the project activity will be stepped from 11 KV to 110KV to synchronise it with the grid and will be supplied to sub station at Alianilai, which is around 6 kilometres from Project site. Site conditions, availability of space, transport facility, fuel, water, convenience of interconnection with electrical grid for the power evacuation etc., were studied before implementation of the project.

5 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 5 Project activity

6 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 6 A.4.2. Category(ies) of project activity: The project activity may be classified as a renewable energy project since it uses renewable biomass to generate electricity and export to the grid. Therefore the project activity is categorized under Category 1: Energy industries (renewable - / non-renewable sources) as per the scope of the project activities enlisted in the latest List of Sectoral Scopes for accreditation of operational entities. A.4.3. Technology to be employed by the project activity: EID Parry has installed a high pressure Steam-Rankine cycle replacing the existing low pressure system. Steam-Rankine cycle is one of the commercial methods available for power generation in the MWs scale. The process involves circulation of working fluid (steam) around the cycle by creating high pressure steam in the boiler which drives an expander (TG) to generate power. When an alternator is connected to the TG s shaft, electricity is generated. EID Parry s new project plant and the low pressure system used earlier are both based on this cycle. The project activity constitutes a boiler of capacity 100TPH with outlet parameters of 86 kg/cm 2 & C using biomass as fuel, an MW extraction cum condensing turbo-generator and auxiliary equipments. The high-pressure configuration of the system is technologically advanced, modern and highly efficient. EID Parry is among the few sugar mills in the country in proposing this configuration. Moreover, the project has adopted an air-cooled steam condenser against conventional practice of water cooled condensers. This would conserve huge volumes of water required for evaporative cooling, which is replaced by circulation of atmospheric air. The accessories and auxiliary systems for the MW cogeneration scheme include: 1) Pneumatically controlled bagasse handling system 2) Air cooled condenser 3) Firing system with re-injection system to save unburnt fuel 4) Feed water system fitted with conductivity meter to ensure quality of feed water 5) All electric motors and fans fitted with Variable Frequency Drives 6) De-aerator and Reverse Osmosis systems for feed water supply 7) Electrostatic precipitator to keep stack emissions under permissible levels 8) Effluent treatment plant, Ash handling system to take care of waste water and ash respectively 9) Distributed Control System (DCS) 10) Fire Protection System 11) Air conditioning and ventilation system for control room

7 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 7 12) Compressed air system for instruments and control systems 13) Electrical systems & lightning protection system, for its successful operation 14) Switchyard and power evacuation facilities of higher standards The power generated would meet the captive electricity requirements of the sugar factory and extraction steam would meet the process steam requirements. The surplus electricity is exported to the TNEB grid. A.4.4 Estimated amount of emission reductions over the chosen crediting period: Year Annual estimation of emission reductions in tonnes of tco 2 e , , , , , , , , , ,295 Total estimated reductions (Tonnes of CO 2 e) 922,950 Total number of crediting years 10 Annual average over the crediting period of estimated reductions (tonnes of CO 2 e) 92,295 A.4.5. Public funding of the project activity: There is no public funding for the project activity.

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9 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 9 SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: Title: Consolidated baseline and monitoring methodology for grid-connected electricity generation from biomass residues (ACM0006) Reference: This consolidated baseline and monitoring methodology (ACM0006) is based on elements from the following methodologies: AM0004: Grid-connected Biomasss Power-Generation that avoids uncontrolled burning of biomass which is based on the A.T Biopower Rice Husk Power Project in Thailand. AM0015: Bagasse-based cogeneration connected to an electricity grid based on the proposal submitted by Vale do Rosario Bagasse Cogeneration, Brazil. NM0050: Ratchasima SPP Expansion Project in Thailand. NM0081: Trupan biomass cogeneration project in Chile. NM0098: Nobrecel fossil to biomass fuel switch project in Brazil This methodology also refers to the ACM0002 ( Consolidated baseline methodology for grid-connected electricity generation from renewable sources ) and the latest version of the Tool for the demonstration and assessment of additionality. B.2 Justification of the choice of the methodology and why it is applicable to the project activity: Among the methodologies approved by UNFCCC for biomass based CDM project activities, ACM0006 has been chosen as most suitable to this project activity. The project activity meets the applicability conditions of ACM0006, as demonstrated below:

10 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 10 Conditions of ACM0006 Applicable to grid connected and biomass residue fired electricity generation project activities Project activity may include the installation of a new biomass power generation plant at a site where currently no power generation occurs May be based on the operation of a power generation unit located in an agro-industrial plant generating the biomass residues Biomass residues are defined as biomass that is a byproduct, residue or waste stream from agriculture, forestry and related industries. This shall not include municipal waste or other wastes that contain fossilized and/or non-biodegradable material. No other biomass types than biomass residues, as defined above, are used in the project plant and these biomass residues are the predominant fuel used in the project plant (some fossil fuels may be co-fired). For projects that use biomass residues from a production process (e.g. production of sugar or wood panel boards), the implementation of the project shall not result in an increase of the processing capacity of raw input (e.g. sugar, rice, logs, etc.) or in other substantial changes (e.g. product change) in this process. The biomass used by the project facility should not be stored for more than one year. No significant energy quantities, except from transportation of the biomass, are required to prepare the biomass residues for fuel combustion Applicability to project activity Bagasse fired in the project activity is a biomass residue. The project activity is connected to the TNEB grid to which it exports surplus electricity Not relevant to the project activity Based on the efficiency improvement of a power generation unit located in a sugar plant Bagasse used in the project activity is a residue from agriculture related industry (sugar plant) Bagasse will be used as the predominant fuel, however, some amount of coal may be co-fired during drought or other emergency situations The project activity uses the residue (bagasse) from sugar manufacturing. The production process is independent of the project activity and shall not result in increase of the sugar plant crushing capacity. Bagasse is not stored on the site for more than one year. The preparation of bagasse doesn t involve significant energy consumption. Some quantity of energy may be used for biomass transportation from outside during unavailability of bagasse.

11 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version page 11 The methodology is only applicable for the 16 combinations of project activities and baseline scenarios identified in the methodology. Project activity fits in scenario 14.

12 - Version CDM Executive Board page 12 B.3. Description of the sources and gases included in the project boundary Figure B.3: Project Boundary CO 2 emissions CO 2 emissions sequestered by sugar cane growth EID Parry Sugar factory Captive energy demand Bagasse Temporary storage of bagasse Extraction Steam High Pressure Boiler Steam TG Set Electric Generator Low voltage power (440 V) Project Boundary State Electricity Grid High voltage power (132 kv)

13 CDM Executive Board Version 02 - page 13 The project participants have included in the project boundary, GHG emissions sources from the project activity and emission sources in the baseline, as prescribed by the methodology ACM0006. The project boundary includes the following emission sources: Source Gas Justification/Explanation CO 2 Included Main Emission source. Grid Electricity Generation CH 4 Excluded Excluded for simplification. This is conservative. N 2 O Excluded Excluded for simplification. This is conservative. Baseline Scenario Heat Generation in Onsite boilers Decay or uncontrolled burning of surplus biomass CO 2 Excluded Heat generation is using biomass as fuel. CH 4 Excluded Excluded for simplification. This is conservative. N 2 O Excluded Excluded for simplification. This is conservative. CO 2 Excluded No surplus biomass CH 4 Excluded No surplus biomass N 2 O Excluded No surplus biomass CO 2 Included Important emission source. Project Scenario Onsite fossil fuel combustion due to the project activity CH 4 Excluded N 2 O Excluded Offsite transportation of CO 2 Included Excluded for simplification. This quantity is very small. Excluded for simplification. This quantity is very small. An important emission source.

14 CDM Executive Board Version 02 - page 14 biomass CH 4 Excluded Excluded for simplification. This quantity is very small. N 2 O Excluded Excluded for simplification. This quantity is very small. Combustion of biomass for It is assumed that CO2 emissions from electricity and/or heat generation CO 2 Excluded surplus biomass residues do not lead to changes of carbon pools in the LULUCF sector. This emission source must be included only CH 4 Excluded if CH4 emissions from uncontrolled burning or decay of biomass in the baseline scenario are included. N 2 O Excluded Excluded for simplification. This quantity is very small. Biomass storage It is assumed that CO2 emissions from CO 2 Excluded surplus biomass residues do not lead to changes of carbon pools in the LULUCF sector. Excluded for simplification. Since biomass is CH 4 Excluded stored for not longer than one year, this emission source is assumed to be small. N 2 O Excluded Excluded for simplification. This quantity is very small. B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: As prescribed by ACM0006, project participants have determined the most plausible baseline scenario among all realistic and credible alternatives separately regarding: How power would be generated in the absence of the CDM project activity What would happen to the biomass in the absence of the project activity In case of cogeneration projects: how heat would be generated in the absence of the project activity

15 CDM Executive Board Version 02 - page 15 The following paragraphs illustrate the various potential alternatives, and the most plausible baseline scenario is determined using steps 3 (Barrier analysis) of the tool for the assessment and demonstration of additionality as prescribed by the methodology. Power generation: How power would have been generated in the absence of the project activity? Alternatives available for power generation: 1. Option P5: Continuation of power generation at the existing power plant fired with the same type of biomass as the project activity, and implementation of the project activity not undertaken as a CDM project activity, at the end of the lifetime of the existing plant 2. Option P1: Implementation of the project activity not undertaken as a CDM project activity 3. Option P4: Power generation in existing and/or new grid connected power plants Identification of most likely baseline power generation scenario using barrier analysis: In Option P5 scenario, the project proponent would use a lower efficient cogeneration plant compared to the project activity, which would result in consumption of the entire bagasse to generate steam and power for in-house utilization or captive consumption only. Though this alternative does not entail surplus power generation and export to an electricity grid, it is in compliance with all applicable legal and regulatory requirements and could be the baseline. In India, all the sugar mills have their own cogeneration units, most of them operating with low-pressure boiler configuration of below 45 kg/cm 2 (Maximum are in the range of 21 kg/cm 2 to 45 kg/cm 2 ) to cater to the in house steam and power requirements. This scenario (present situation of sugar mills) is considered as Business As Usual case for the Indian sugar industry, where in, bagasse is used at lower efficiency levels to meet the internal power requirements of sugar mills. Prior to the MW cogeneration plant, the sugar mill was equipped with two boilers, a 51.5 TPH and 29 TPH with parameters 17 kg/cm 2 and Centigrade and two turbines of capacities 2.0MW and 2.5MW were existent to meet the energy requirements of the sugar mill and would have continued operating till the end of the crediting period. Conventionally it is easier for sugar mills to opt for low efficiency cogeneration plant considering that they are less capital intensive. Cogeneration plants with outlet boiler pressure of lower pressure produce less power (as compared to EID Parry s 86 kg/cm 2 ) and are less capital intensive. EID Parry had an option to continue operating its low pressure cogeneration system as against selected configuration of 86 kg/cm 2 outlet boiler pressure, which would incur a high capital outlay. Moreover, the other investment barrier to the project activity was the uncertainty of the financial returns, which is sensitive to tariff change and climatic risks (cane availability). There are also

16 CDM Executive Board Version 02 - page 16 no legal and regulatory requirements for continuation of the low pressure system. However, they have implemented modern and energy efficient technology, which was available in the country at the time of implementation of the project activity. In cognizance of the investment barriers and other barriers, EID Parry opted for implementation of the high pressure system (Option P1) considering that the CDM incentive would improve the long term financial sustainability of the project activity. The existing generation mix of the southern regional grid is dominated by fossil fuel power plants and future capacity additions planned are largely from fossil fuel based power plants. Therefore, in the BAU scenario, the grid is likely to remain as a GHG emission intensive power source. Barriers Option P5 P1 P4 Investment No Yes No Technological No Yes No Common practice No Yes No Institutional No No No The most likely baseline power generation scenario would be a combination of Option P5 and Option P4. Heat (steam) generation: How heat would be generated in the absence of the project activity? Alternatives available for heat generation: 1. Option H5: Continuation of heat generation in the existing low pressure cogeneration plant (old boiler) fired with the same type of biomass (i.e. bagasse and biomass) as in the project activity and implementation of the project activity not undertaken as a CDM project activity, at the end of the lifetime of the existing plant. 2. Option H1: Implementation of the project activity not undertaken as a CDM project activity. Identification of most likely baseline heat generation scenario using barrier analysis: Since the project activity is a cogeneration activity, the alternatives for heat generation are similar and associated to the alternatives for power generation. Therefore, analysis of the power generation alternatives applies as well to heat generation. In the pre-project scenario, the process heat requirement of the sugar factory has been met by steam from the exhaust of the backpressure turbines of the old low pressure cogeneration system. In the absence of the project activity, the low pressure cogeneration system would have continued to operate without any problems till the end of the crediting period and the factory would have continued to meet its heat

17 CDM Executive Board Version 02 - page 17 requirement from the system. There is no policy or regulation enforcing the replacement of the low pressure system with the capital intensive high pressure system. EID Parry could have continued heat generation in the low pressure system. Barriers Option H5 H1 Investment No Yes Technological No Yes Common practice No Yes Institutional No No The most likely baseline heat generation scenario would be Option H5. Biomass: What would happen to the biomass in the absence of the project activity? Alternatives available for biomass: 1. Option B2: The biomass would have been used for heat and/ or electricity generation at the project site 2. Option B1: Left to decay without utilizing it for energy purposes or Option B3: Sold off and used for power generation at other sites: Identification of most likely baseline biomass scenario using barrier analysis: In the absence of the project activity bagasse would have been used to generate heat and power (required for captive consumption only) at the project site by the old boiler and turbine configuration. Refer to description of this under alternatives for power generation above. Prior to the implementation of the project activity, the bagasse generated in-house was used in the low pressure cogeneration system. Since the efficiency of low pressure system is very low, the entire bagasse generated would be used to meet only the captive energy requirements with no surplus bagasse. This would have continued to be the scenario in the absence of the CDM project activity. Therefore, the options B1 and B3 are not the likely alternatives in the absence of the project activity.

18 CDM Executive Board Version 02 - page 18 Barriers Option B2 B1, B3 Investment No Yes Technological No Yes Common practice No Yes Institutional No No The most likely baseline biomass scenario would be Option B2. Most plausible baseline scenario for the project activity: The above analysis shows that the most likely baseline scenario is a combination of: Option P4 and P5: Continuation of power generation at the existing power plant (old boiler with lower efficiency) fired with the same type of biomass as the project activity and partly in existing and/or new grid connected power plants. Option H5: Continuation of steam generation from bagasse Option B2: Use of biomass to generate heat and power at the project site Baseline scenario 14 of ACM0006 is the applicable baseline scenario for the project activity. B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (assessment and demonstration of additionality): In order to demonstrate that the CDM project activity reduces anthropogenic GHG emissions that would have occurred in the absence of the project activity, it is necessary to prove that: The implementation of the project activity is not the baseline scenario, (i.e., EID Parry not exporting power to the grid, there would be no increase in efficiency of biomass combustion in the project plant and thereby no change in the way heat is generated). ACM0006 prescribes the use of the Tool for the demonstration and assessment of additionality (Figure B5.1) for the above purpose, which is applied to the project activity as described further:

19 CDM Executive Board Version 02 - page 19 Fig B5.1 Flowchart for demonstrating additionality of the project

20 CDM Executive Board Version 02 - page 20 Step 0: Preliminary screening based on the starting date of the project activity During conceptualisation of the project activity, EID Parry was aware of the GHG emission reduction potential and the prospective carbon credits, and therefore decided to implement it as a CDM project activity. The proposal of the project activity was submitted to EID Parry s Management for approval on November 15, The proposal provided preliminary estimates of the financial incentives the project activity would receive over the crediting period from sale of Certified Emission Reductions (CER) under Clean Development Mechanism and would serve as proof for consideration of CDM. The various aspects of the proposal were discussed in the Board of Director s Meeting held subsequently in which EID Parry s management took a decision to go ahead with the project by securing the finance partially from HDFC & SDF, and partially through internal accruals so as to invest in the project activity. EID Parry considered the prospective CDM revenues as an additional source of income that could offset risks faced by the project activity. Step 1 - Identification of alternatives to the project activity consistent with current laws and regulations Project participants have determined the most plausible baseline scenario among all realistic and credible alternatives separately regarding: How power would be generated in the absence of the CDM project activity What would happen to the biomass in the absence of the project activity In case of cogeneration projects: how heat would be generated in the absence of the project activity The sub-steps include: Sub-step 1a. Define alternatives to the project activity Sub-step 1b. Enforcement of applicable laws and regulations In sub-step 1a and 1b, EID Parry is required to identify realistic and credible alternative(s) that were available to EID Parry or similar project developers that provide output or services comparable with the project activity. These alternatives are required to be in compliance with all applicable legal and regulatory requirements. EID Parry identified the different potential alternative(s) to project activity available to all other sugar-manufacturing units in India. The alternatives have been analysed using (step3: Barrier analysis of the Tool for demonstration of Additionality ) and the most plausible baseline scenario has been identified in Section B.4. Summary on alternatives

21 CDM Executive Board Version 02 - page 21 Considering the alternatives explained in section B.4 above, it can be inferred that for the project activity, the most likely alternatives consistent with current laws and regulations are 1. A combination of: Option P4 and P5: Continuation of power generation at the existing power plant (old boiler with lower efficiency) fired with the same type of biomass as the project activity and partly in existing and/or new grid connected power plants. Option H5: Continuation of steam generation from bagasse Option B2: Use of biomass to generate heat and power at the project site 2. The implementation of the project activity not undertaken as a CDM project activity. The next step for additionality justification as per the Fig B5.1 is either Step 2 - Investment analysis (OR) Step 3 - Barrier analysis As EID Parry has faced barriers and risks during the implementation of the project activity, it is discussed in greater detail in order to further elaborate on the reasons due to which, the alternative 2 cannot be the baseline. In view of overall project scenario, EID Parry proceeds to establish project additionality by conducting Barrier Analysis as under. Step 3: Barrier Analysis EID Parry is required to determine whether the project activity faces barriers that: Prevent the implementation of this type of project activity; and Do not prevent the implementation of at least one of the alternatives The above study has been done by means of the following sub-steps: Sub-step 3a: Identification of barriers that would prevent the implementation of the project activity The project activity had its associated barriers to successful implementation, which have been overcome by EID Parry to bring about additional green house gas reductions. Investment barrier In , EID Parry explored the opportunity to improve the operational margins of its Pudukkottai sugar factory by diversifying into surplus power generation and its export to the grid. A detailed study was conducted on the feasibility of surplus energy generation by adopting high pressure cogeneration system to improve the cogeneration efficiency. Though the study projected an acceptable rate of return

22 CDM Executive Board Version 02 - page 22 through energy sales to the grid, the huge investment requirements and the sensitivity/vulnerability to climatic and tariff policy changes were major barriers for EID Parry to undertake the project. Sensitivity to climatic risks and tariff policy risks: The revenues from the project are mainly dependent on the quantity of power exported, generation cost and the tariff at which the TNEB purchases it. The quantum of power exported is directly dependent on the cane availability since bagasse is used as the primary fuel. The annual sugarcane availability fluctuates 1 (Refer Figure B 5.2 below) based on rainfall and regional climatic conditions and is highly unpredictable in nature. In periods of drought, cane output may reduce as much as 50% below normal, leading to a corresponding deficiency in bagasse. This would demand EID Parry to either reduce the power available for export or purchase high cost outside biomass. Both of these options would result in lower returns for EID Parry since the former would reduce the energy sale revenues while the later would increase the generation cost. Figure B 5.2: Year-wise cane availability Lakh Tonnes Rated The project is also vulnerable to electricity policy changes as the power purchase tariff prevailing now and agreed by TNEB is always liable to revision. The purchase tariff offered by TNEB is fixed at Rs.3.15 per kwh as compared to MNES s recommended purchase tariff of Rs.3.66 per kwh for Presently TNEB is under pressure to reduce 2 its power purchase cost from IPPs so that it can afford to 1 Year-wise graphs for production and yield of sugarcane in TamilNadu and India are given in Annex and

23 CDM Executive Board Version 02 - page 23 lower power supply tariff to its consumers. Any downward revision of the purchase tariff will have serious negative impact on the project returns, as was the case with biomass power plants in the neighbouring Andhra Pradesh 3. High upfront cost: This project activity of high-pressure configuration entailed a high upfront cost as compared to the baseline scenario of continuing with the low-pressure configuration. Moreover, the investment required was significantly increased due to the installation of an air-cooled condenser (Refer Water availability barrier below) as against the conventional practice of water cooled condensers. EID Parry was sceptical about the huge capital outlay considering that the primary product (sugar) is cyclical in nature and hence seasonal income flows. EID Parry by investing in higher cost, high efficiency renewable energy project is taking additional investment risk to over come the investment barriers. As per EID Parry s computations the project s internal rate of return is expected to improve marginally if the CDM funding is available by 2007 after registration at UNFCCC. To summarise the above, EID Parry decided to invest in the energy efficiency project despite the huge capital outlay and apprehension about its returns which have significant uncertainties. The CDM revenues were considered to help offset financial losses that might arise out of realisation of the project risks in the long run. Technological Barrier The typical alternative to the project activity is to have continued with the low pressure (17 kg/cm 2 ) cogeneration configuration. The project activity has adopted a high-pressure co-generation technology (86 kg/cm 2 ), which has low market share and less penetration. Low penetrated technology is related to efficiencies of major equipment, trouble-free plant operation, availability of spares, availability of skilled manpower to operate the plant continuously etc. EID Parry is among the first few companies in Tamil Nadu to take up the risk in overcoming the technology barrier by adopting 86 kg/cm 2 pressure and STG of double extraction cum condensing type. 3 The power tariff applicable for Non-Conventional Energy Source power projects as per MNES guidelines is Rs.2.25 per kwh with base year with annual escalation of 5% for a period of 10 years. The tariff applicable for the year was Rs.3.48 per KWH. However, APERC revised the tariff effective from 1st April, 2004 to Rs.2.69/kWh. Moreover APERC limited the PLF of cogeneration projects to 55%. The energy exported in excess to 55% PLF will be paid at below cost tariff by APTRANSCO. The downward revision and the PLF limit imposed on biomass power plants by APTRANSCO, has affected their returns in a detrimental manner. It took a prolonged litigation by the biomass power promoters to bring a roll back of the tariff reductions in to effect.

24 CDM Executive Board Version 02 - page 24 The technological barriers become even more significant considering that EID Parry had to opt for an Aircooled condenser as against the common practice of water cooled condensers. The plant O&M personnel had to be specially trained to operate this system. Other Barriers Water availability barrier: The project activity is situated in a region where the availability of water is limited. The installation of an extraction cum condensing turbine requires plenty of cooling water for the condenser that is scarce in the region, posing as a significant barrier to the project. However, EID Parry, determined to facilitate the surplus power generation, surmounted the barrier by opting to install an air-cooled condenser in place of conventional water cooled condenser. Revenue from CDM is expected to compensate for the incremental capital investment (10% of total cost) and operational cost entailed. Managerial resources barrier: The sugar plant at Pudukkottai is in operation from March The region surrounding the plant is dominated by agriculture and there are no large industries nearby considering which, the trained manpower capable of handling a high-pressure configuration cogeneration system was not readily available to EID Parry. They therefore had to overcome this managerial resource barrier in order to implement the project activity. Organisational barrier: Traditionally the sugar-manufacturing sector belongs to agriculture sector with limited knowledge and exposure of complications associated with commercial production and sale of electricity. The bagasse based power projects is a steep diversification from the core rural economics to power sector economics, where the project proponents has to meet challenges of power policies, delivery/non-delivery of power, techno-commercial problems associated with electricity boards etc. EID Parry for long, been involved in business of sugar production and rural economics, had to transform (overcome barrier) and develop expertise to deal with the economics of electricity generation, distribution and dealing with power sector economics, bureaucracy etc. Institutional Barriers: EID Parry has signed Power Purchase Agreement (PPA) with TNEB. For their earnings, the project depends on the payment from TNEB against the sale of electricity to the grid. The PPAs are designed in favour of the state electricity authorities and enable them to dictate terms with respect to the quantity of

25 CDM Executive Board Version 02 - page 25 energy delivered, tariff payable etc. EID Parry had to take this risk and face this institutional barrier on which they have limited or no control. It is estimated that, of the total project proponents who get approval from central/state electricity authority to establish biomass based power projects in India, only a few are successful in commissioning of the plant due to some of the above mentioned barriers. EID Parry has overcome the above barriers and implemented the cogeneration energy efficiency project considering that the CDM funds would offset any financial losses from realisation of the project risks and hence the project activity may be considered additional. Additionality test for Regulatory/Legal requirements There is no legal or regulatory binding on EID Parry to implement the project activity. The above tests and analysis suggest that the project activity is additional and the anthropogenic emissions of GHG by sources will be reduced below those that would have occurred in the absence of the registered CDM project activity. Sub-step (3b). Show that the identified barriers would not prevent a wide spread implementation of at least one of the alternatives (except the proposed project activity already considered in step 3a): The following demonstrates that the most likely alternative to the project activity (i.e. continuation of the existing low pressure system) doesn t face any of the barriers faced by the project activity: Investment barrier: The existing system would not require significant funds for its continued operation. The climatic and tariff risks don t impact this alternative since it doesn t involve the export of power to grid. Technical barrier: The existing system is a low pressure system that is well established and commonly prevalent. Other Barriers: The existing system is in operation since the commissioning of the sugar plant and doesn t involve much of managerial resources for its optimal operation. Since the turbine is of backpressure type and doesn t involve steam condensing, it doesn t face the barrier of water availability. The other institutional barrier cited for the CDM project activity is not applicable to the existing system since there is no export of power involved in this scenario. The barriers associated with the CDM project activity do not exist for the alternative discussed above and thus do not prevent the wide spread implementation of these alternatives.

26 CDM Executive Board Version 02 - page 26 Step 4: Common Practice Analysis The implementation of the project activity without CDM benefits is not a common practice for the sugar manufacturing units in similar socio-economic environment of Tamil Nadu State, which is substantiated by the table B5 below. The baseline scenario (cogeneration unit to meet the plant s energy requirements with no surplus power generation) is the most common practice adopted by the sugar- manufacturing units. The project is not a common practice since, in the similar project sector, socio-economic environment, geographic conditions and technological circumstances, the project activity uses an efficient technology. Table B5: Common Practice Analysis for EID Parry project activity Total number of Sugar Mills in TN 38 Cooperative Sugar Mills 16 Sugar Mills under private sector 19 Sugar Mills under public sector 3 Sugar Mills with co-generation and export of power to grid 16 (Source: Tamil Nadu Cooperative Sugar Federation Limited (TCSFL), GoTN) As on January 2005 only five sugar mills in India from total of around 427 sugar mills, are operating with grid connected cogeneration unit of high pressure configuration of 86 kg/cm 2 (equivalent configuration as of the project activity). This shows a very low penetration of technology (less than 1% in India and 2.7% in Tamil Nadu). The project activity is not a common practice and occurs in less than 20 % of the similar cases, which determines that the project activity is additional. Step 5: Impact of CDM registration EID Parry has implemented the project activity despite the various risks (described in step 3) associated with the project activity; Technical problems related to the plant operation, bagasse availability etc may result in untimely shut downs of plant and its associated loss of production. In fact, the bagasse availability for , the first year of project operation, is expected to be only 70% of the rated capacity. Moreover, negative changes in purchase tariff or SERC s policy on co-generation to limit the plant load factor to low levels etc are significant risks. The realisation of any of these risks would impact the optimal operation of the co-generation plant and result in huge financial losses. The CDM Registration

27 CDM Executive Board Version 02 - page 27 will certainly improve the financial sustainability of the project activity by facilitating carbon revenues that would serve to overcome the project risks by offsetting part of the financial losses. Moreover, its financial viability would encourage FIs to readily fund similar ventures by other promoters. The successful operation of the project plant would demonstrate the viability of high efficiency grid connected power generation and encourage similar initiatives in other sugar industries in the country resulting in a significant quantum of anthropogenic greenhouse gas emissions reductions.

28 CDM Executive Board Version 02 - page 28 B.6. Emission reductions: B.6.1. Explanation of methodological choices: The emission reductions are mainly from the incremental energy generation using the same quantity of biomass that would been combusted in the baseline scenario (low pressure cogeneration plant). The incremental energy is exported to the grid and displaces equivalent CO 2 emission from grid connected power plants. Project Emissions: With reference to ACM0006, it is required to account CO 2 emissions from the combustion of fossil fuels used by the project activity (during unavailability of bagasse / drought / any other unforeseen circumstances) and that used for transportation of biomass from other sites to the project activity. Such emissions are calculated by using the below equations: Carbon dioxide emissions from transportation of biomass to the project site (PETy): BFi, y PET y = AVDy EFKm, CO2 TL y Where: BFi,y is the quantity of biomass type i, transported from other sites and used as fuel in the project plant during the year y in a volume or mass unit, TLy is the average truck load of the trucks used measured in tons of biomass, AVDy is the average return trip distance between the biomass fuel supply sites and the site of the project plant in kilometers (km), and EF Km,CO 2 is the average CO 2 emission factor for the trucks measured in tco 2 /km Carbon dioxide emissions from on-site consumption of fossil fuels (PEFFy): PEFF y = FF projectpla nt i, y x COEF co, i, 2 where, PEFF y is the project emission from fossil fuel co-firing during the year y in tons of CO 2, FF projectplanti,y y in a volume or mass unit, COEF CO2,i is the quantity of fuel type i combusted due to the project activity during the year is the CO 2 emission factor of the fossil fuel type i calculated as: COEF CO2,i = 96.1 x 0.98 x NCV i

29 CDM Executive Board Version 02 - page 29 Where, 96.1 is the IPCC default emission factor for coal in tco 2 /TJ, 0.98 is the oxidation factor and NCV i is the calorific value of the fossil fuel. Baseline Emissions: ACM0006 refers to calculation of baseline emission factor using ACM0002 ( Consolidated baseline methodology for grid connected electricity generation from renewable energy sources ) estimated as under: Baseline emissions due to displacement of electricity For the displacement of electricity, the baseline scenario is the electricity that would have been generated by the operation of grid-connected power plants and by the addition of new generation sources, in the absence of the project activity. Calculation of electricity baseline emission factor As the power generation capacity of the biomass power plant is more than 15 MW, EF electricity,y should be calculated as a combined margin (CM), following the guidance in the section Baselines in the Consolidated baseline methodology for grid-connected electricity generation from renewable sources (ACM0002). STEP 1. Calculate the Operating Margin emission factor(s) (EF OM,y ) Out of four methods mentioned in the ACM0002, Simple OM approach has been chosen for calculations since in the southern regional grid mix, the low-cost/must run resources constitute less than 50% of total grid generation. Simple OM factor is calculated as under., / EF OM Simple, y = Fi, j, y xcoefi, j GEN j, y i, j j where, Fi,j, y - Is the amount of fuel i (in a mass or volume unit) consumed by relevant power sources j in year(s) y j - Refers to the power sources delivering electricity to the grid, not including lowoperating cost and must-run power plants, and

30 CDM Executive Board Version 02 - page 30 including imports from the grid COEFi,j y - Is the CO 2 emission coefficient of fuel i (tco 2 / mass or volume unit of the fuel), taking into account the carbon content of the fuels used by relevant power sources j and the percent oxidation of the fuel in year(s) y, and GENj,y - Is the electricity (MWh) delivered to the grid by source j The CO 2 emission coefficient COEFi is obtained as COEF = NCV x EF i i, CO2 xoxidi For calculations, local values of NCVi and EFCO 2i have been used and a 3-year average based on the most recent statistics available at the time of PDD submission has been used for grid power generation data. STEP 2. Calculate the Build Margin emission factor (EF BM,y ) as the generation-weighted average emission factor (tco 2 /MWh) of a sample of power plants m of southern regional grid, as follows:, / EF BM y = Fi, m, y xcoefi, m GEN m, y i, m j where, Fi,m,y, COEFi,m and GENm,y - Are analogous to the variables described for the simple OM method above for plants m. Considered calculations for the Build Margin emission factor EF BM,y are ex ante based on the most recent information available on plants already built for sample group m of southern regional grid at the time of PDD submission. The sample group m consists of, The power plants capacity additions in the electricity system that comprise 20% of the system generation (in MWh) and that have been built most recently. Further, power plant capacity additions registered as CDM project activities have been excluded from the sample group m of southern regional grid mix.

31 CDM Executive Board Version 02 - page 31 STEP 3. Calculate the electricity baseline emission factor EFelectricity,y as the weighted average of the Operating Margin emission factor (EFOM,y) and the Build Margin emission factor (EFBM,y): EF y = w OM.EF OM, y + w BM.EF BM, y Where, the weights w OM and w BM, by default, are 50% (i.e., w OM = w BM = 0.5) Determination of EG y : Where scenario 14 applies, EGy is determined based on the net efficiency of electricity generation in the project plant prior to project implementation ε el,pre project and the net efficiency of electricity generation in the project plant after project implementation ε el,project plant,y, as follows: EG y = EG projectplant, y 1 el, preproject el, project plant, y Where: EG y - is the net quantity of increased electricity generation as a result of the project activity (incremental to baseline generation) during the year y in MWh, EG project plant,y ε el,pre project ε el,project plant,y - is the net quantity of electricity generated in the project plant during the year y in MWh, - is the net efficiency of electricity generation in the project plant prior to project implementation, expressed in MWhel/MWhbiomass -is average net energy efficiency of electricity generation in the project plant, expressed in MWhel/MWhbiomass. Leakage: ACM0006 states The main potential source of leakage for this project activity is an increase in emissions from fossil fuel combustion due to diversion of biomass from other uses to the project plant as a result of the project activity. Where the most likely baseline scenario is the use of the biomass for energy generation (scenarios 1, 4, 6, 8, 9, 11, 12, 13 and 14), the diversion of biomass to the project activity is already considered in the calculation of baseline reductions. In this case, leakage effects do not need to be addressed. The project activity falls under scenario 14 of ACM0006 and therefore does not require addressing leakage. There is no leakage of emission reductions. Emission Reductions: