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

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

2 page 2 SECTION A. General description of project activity A.1 Title of the project activity: 15 MW captive Power plant based on waste heat recovery from flue gases from Sponge iron plants at SAL Steel Ltd in the State of Gujarat, India Version: 02 Date: 31/03/2008 A.2. Description of the project activity: SAL Steel Ltd (SSL) is a group company of Ahmedabad based Shah Alloys Ltd. SSL is a newly installed integrated steel facility at Kutch in the state of Gujarat, India. The iron and steel facility consists of Sponge Iron Plant having a total installed capacity of 600 tonnes per day (TPD) of sponge iron (one no. 500TPD plant + one no. 100 TPD plant), Ferro Alloys Plant (FA plant) with an installed capacity of MTPA (having two furnaces of 24 MVA), a Rolling Mill (RM) and a captive power plant (CPP). The iron and steel facility was initially designed for MT per annum installed capacity which was then redesigned to MT per annum installed capacity. The project activity utilises the heat content of the flue gases (waste heat) emanating from the after burning chambers (ABC) of the sponge iron kilns in waste heat recovery boiler (WHRB) for steam generation. There are two waste heat recovery boilers, generating steam at 10.3 tonnes per hour (TPH) and 53.2 TPH from 100 TPD and 500 TPD Sponge Iron Plants, respectively. Steam generated from these two numbers of WHRB s is fed into the steam turbo generator (STG) through a common header of captive power plant (CPP) which also receives 110 TPH of steam from the lignite based Fluidized Bed Combustion boiler (FBCB). The superheated steam is produced at C temperature and 65 kg/cm 2 pressure. The total TPH of steam at C is fed into the STG for generating 40 MW of power. The total power generation of combined lignite and waste heat recovery is 40 MW with a predicted power generation of MWh from the two nos. WHRB s. The power generated from WHR boilers is used for in house consumption of SSL i.e. for Sponge Iron plant, FA plant and Rolling Mill plant. The electricity generated by the WHR boilers would in the absence of the CDM be generated by the baseline lignite fired captive power plant, a technology with higher carbon intensity. The project activity will thus reduce the amount of Greenhouse Gases (GHG) emission per unit of electricity generation in the region. SSL has put in place an electronic metering system connected to Distributed Control System (DCS) to calculate the actual power generated out of the CPP, the project activity WHRB electricity and hence helps in accurately estimating the reduction in CO 2 e emissions. Contribution of the project activity to sustainable development Ministry of Environment and Forests, Govt. of India has stipulated the social well being, economic well being, environmental well being and technological well being as the four indicators for sustainable

3 page 3 development in the host country approval eligibility criteria for Clean Development Mechanism (CDM) projects 1. Social well being The project has created direct and indirect employment opportunities. It has increased income security of vulnerable sections of the rural communities in the vicinity of the project site because of the economic activities associated with the project. Gujarat state is facing more than 30% peak power deficit 2 leading to power starvation and hence the project activity enables the state grid to partially bridge this gap by company not taking power from grid. This helps the grid to supply power to other consumers and meet its social obligation. Environmental well being It reduces the environmental load per unit of electricity generation by avoidance of lignite/coal for power generation. This project activity has resulted in reduction of greenhouse gases emissions (GHGs) into the atmosphere, which would have been generated from the equivalent amount of lignite/coal fired power plant. This project activity reduces average emission of SO x,, suspended particulate matter (SPM) and average solid waste generation. Economic well being This project will demonstrate the use of new financial mechanism (CDM) in raising finance for power generation from waste gases. This project has developed the local economy and creates employment opportunities, particularly in rural areas, which is a priority concern of the Government of India. Technological well being The project activity entails power generation through inception of an environment friendly technology. In addition to these the project will help reducing the ever widening gap between power demand and its availability by cleaner technology. A.3. Project participants: Name of the party involved ( ( Host) indicates Host party) Private and/or public entity(ies) project participants (as applicable) Kindly indicate if the Party involved wishes to be considered as project

4 page 4 India (host) SAL Steel Ltd.(SSL) participant( yes/no) No SSL will be the sole owner of the CERs generated. The contact details of the owner and the official contact for the CDM project activity are in Annex 1 A.4. Technical description of the project activity: A.4.1. Location of the project activity: India Gujarat A A Host Party(ies): Region/State/Province etc.: A City/Town/Community etc: Bharapar Village, Kutchh District. A Detail of physical location, including information allowing the unique identification of this project activity (maximum one page): The project site is located in Bharapar Village, Kutch district, Gujarat State, India. It is about 20 km from Gandhidham railway station. The site is 75 km away from the airport located in Bhuj district of Gujarat. The physical location of the project is N Latitude and E Longitude.

5 page 5 Gandhidham Project Activity

6 page 6 et A.4.2. Category(ies) of project activity: As per the scope of the project activity listed in the List of Sectoral scopes (Document CDM-ACCR-06 version 04), the project activity will principally fall in Scope Number 1, Sectoral scope energy industries renewable/ non-renewable sources) and Scope Number 4,Sectoral Scope Manufacturing industries. The CDM PDD is based on approved methodology ACM 0012 version 02 and sectoral scope 01 and 04, EB 35 Consolidated baseline methodology for GHG emission reductions for waste gas or waste heat or waste pressure based energy system A.4.3. Technology to be employed by the project activity: Sponge Iron is produced by reduction of Iron Ore. Coal and Carbon monoxide (CO) act as reducing agent. The flue gases generated during process contains CO. Air is blown in the ABC (After Burning Chamber), where the CO gets converted to CO 2. During this process temperature of the flue gas increases to around C. The volume of hot gases generated after ABC by 100 TPD and 500 TPD kiln is around 24,000 NM 3 /hr, and 1, 25,000 NM 3 / hr, respectively. When these hot gases are passed through water tube waste heat recovery boilers, they transfer the heat energy to water flowing in the boilers and hence

7 page 7 produce steam. The WHRB consists of Evaporators, Radiant chamber, Super heater, Economiser & flue gas ducting. Substantial quantity of Heat Energy from hot gases is transferred to water flowing in the tubes for generating steam. The residual heat of the gas is utilized to preheat the feed water of the boiler in the Economiser. Thus by optimizing the heat transfer the gases leave the waste heat recovery boilers at around C and enter the ESP (Electro Static Precipitator). ESP removes suspended dust particles from gases. ESP has sets of Emitting & Collecting Plates. Very high voltage is used to ionize the suspended dust particles that are collected on the collecting plates. The suspended particles collected from ESP are pneumatically conveyed to Ash handling hoppers, ensuring that environment and surroundings are clean. The Turbine has been supplied by Bharat Heavy Electrical Limited (BHEL). The superheated steam at C temperature and 66 kgf/cm 2 pressure is fed to the Turbine and makes it to revolve at 3000 rpm. The turbine is coupled to the Generator, which can generate 40 MW power. Speed of the Turbine is controlled by Governors. The exhaust steam from turbine is fully condensed in Water cooled condenser. The specifications of major equipments in the project activity are as shown below in Table 1 Table 1 : Design Specifications Name No. Technical Parameters Manufacturer Generator Type : TARI P Generator 1 Standard power: 40 MW Speed: 3000 RPM BHEL Voltage: 11KV + 10% Type : Double Extraction condensing type Output: 40 MW Steam Turbine 1 Speed: 3000RPM BHEL Pressure: 64 kgf/cm 2 Temperature: 480 +/- 5 o C Capacity: 10.3 TPH Working pressure: 66 kgf/cm 2 1 Working temperature: 485 +/- 5 C Cethar Vessels Pvt Ltd Fuel : Sponge Iron Kiln flue gas from 100 TPD Sponge iron rotary kiln Temp of flue gas 950 o C WHR Boilers flue gas flow NM3/hr Capacity: 53.2 TPH Working pressure: 66 kgf/cm 2 Working temperature: 485 +/- 5 C Cethar Vessels Pvt Ltd 1 Fuel : Sponge Iron Kiln exhaust gas from 500 TPD Sponge iron rotary kiln Temp of flue gas 950 o C flue gas flow NM3/hr Capacity: 110 TPH Type of firing : Fluidized bed combustion Lignite fired FBC Working pressure: 66 kgf/cm 2 Cethar Vessels Pvt Ltd 1 boiler Working temperature: 485 +/- 5 C Fuel : Imported coal/kutch Lignite

8 page 8 The water circuit consists of Pump house, cooling tower, Reverse Osmosis & De mineralised water plant piping s etc. Demineralised water is used for boiler feeding to ensure that there is no scaling in the water tubes. A.4.4 Estimated amount of emission reductions over the chosen crediting period: Total Chosen Crediting period Years Annual estimation reductions in tonnes of CO 2 e Total estimated reductions (tonnes of CO 2 e) Total number of crediting years 10 Annual average over the crediting period of estimated reductions (tonnes of CO 2 e) A.4.5. Public funding of the project activity: Public funding, such as grants from official development funds (ODA), is not involved in this project activity. SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: The approved methodology and the version of the methodology that is used: Title: Consolidated baseline methodology for GHG emission reductions for waste gas or waste heat or waste pressure based energy system Reference: Approved consolidated baseline methodology ACM0012 Version 02, Sectoral Scope: 01 and 04, EB 35.

9 page 9 Any methodologies or tools which the approved methodology draws upon and their version: Title: Tool for Demonstration and assessment of additionality Version 05 Title: Tool to calculate the emission factor for an electricity system, Version 01 B.2 Justification of the choice of the methodology and why it is applicable to the project activity: The consolidated methodology is for project activities that utilize waste gas and/or waste heat as an energy source for: Cogeneration; or Generation of electricity; or Direct use as process heat source; or For generation of heat in element process3 (e.g. steam, hot water, hot oil, hot air) In this project activity the sensible heat from the waste gas (after ABC) that is generated during the manufacturing process of sponge iron is utilized for power generation. The methodology is applicable under the following condition Applicability Condition If project activity is use of waste pressure to generate electricity, electricity generated using waste gas pressure should be measurable. Energy generated in the project activity may be used within the industrial facility or exported outside the industrial facility; The electricity generated in the project activity may be exported to the grid Energy in the project activity can be generated by the owner of the industrial facility producing the waste gas/heat or by a third party (e.g. ESCO) within the industrial facility. Regulations do not constrain the industrial facility generating waste gas from using the fossil fuels being used prior to the implementation of the project activity. The methodology covers both new and existing facilities. For existing facilities, the Justification In the project activity the sensible heat of the waste gas is recovered in the boilers. Hence the condition is not applicable. In the project activity the electricity generated is being used for the industrial facility itself The electricity generated is used for the consumption within the industrial facility. In the project activity the waste heat produced during the sponge iron manufacturing process of SSL is used for electricity generation by SSL in the same premises. There is no present regulation or any planned regulation that constrain SSL from using fossil fuels The project activity takes place at a completely newly installed facility.

10 page 10 methodology applies to existing capacity. If capacity expansion is planned, the added capacity must be treated as a new facility. The credits are claimed by the generator of energy using waste gas/heat/pressure. For those facilities and recipients, included in the project boundary, which prior to implementation of the project activity (current situation) generated energy on-site (sources of energy in the baseline), the credits can be claimed for minimum of the following time periods: The remaining lifetime of equipments currently being used; and Credit period. Waste gas/pressure that is released under abnormal operation (emergencies, shut down) of the plant shall not be accounted for. Cogeneration of energy is from combined heat and power and not combined cycle mode of electricity generation. The waste gas/pressure utilized in the project activity was flared or released into the atmosphere in the absence of the project activity at existing facility. This shall be proven by either one of the following: By direct measurements of energy content and amount of the waste gas for at least three years prior to the start of the project activity. Energy balance of relevant sections of the plant to prove that the waste gas/heat was not a source of energy before the implementation of the project activity. For the energy balance the representative The credits are being claimed by SSL. In the project activity SSL is the industrial facility as well as the recipient. The waste heat produced during the sponge iron manufacturing process of SSL is used for electricity generation by SSL in the same premises. The project activity is taking place at a completely newly installed sponge iron unit. Hence the credits are being claimed for the credit period as the life time of the equipments being used are more than the credit period. The waste gas released under abnormal condition will not be accounted. In the project activity only electricity is generated. Hence this condition is not applicable. The project activity is being done at a completely new installed sponge iron unit. Due to non availability of any historic data Process plant manufacturer s original specification/information, schemes and diagrams from the construction of the facility has been used as an estimate of quantity and energy content of waste gas/heat produced for rated plant capacity/per unit of product produced. As per manufacturer s information the volume of hot gases generated by 100TPD and 500 TPD sponge iron kiln after ABC is around 24,000 NM 3 /hr, and 1, 25,000 NM 3 / hr, respectively. The table below provides the detail of the TPH steam that is being fed in the Steam turbo generator.

11 page 11 process parameters are required. The energy balance must demonstrate that the waste gas/heat was not used and also provide conservative estimations of the energy content and amount of waste gas/heat released. Energy bills (electricity, fossil fuel) to demonstrate that all the energy required for the process (e.g. based on specific energy consumption specified by the manufacturer) has been procured commercially. Project participants are required to demonstrate through the financial documents (e.g. balance sheets, profit and loss statement) that no energy was generated by waste gas and sold to other facilities and/or the grid. The bills and financial statements should be audited by competent authorities. Process plant manufacturer s original specification/information, schemes and diagrams from the construction of the facility could be used as an estimate of quantity and energy content of waste gas/heat produced for rated plant capacity/per unit of product produced. Steam (TPH) Temp (deg C) Pressure (kg/cm2) WHRB 1 (100TPD Sponge Iron Plant) WHRB 2 (500TPD Sponge Iron Plant) Lignite based FBC boiler The above arguments justify that the project activity meets all applicability criteria of the selected approved consolidated methodology ACM0012 and hence is applicable to the project activity. B.3. Description of the sources and gases included in the project boundary As per ACM 0012, The geographical extent project boundary shall include the following: 1. The industrial facility where waste gas/heat/pressure is generated (generator of waste energy); 2. The facility where process heat in element process/steam/electricity are generated (generator of process heat/steam/electricity). Equipment providing auxiliary heat to the waste heat recovery process shall be included within the project boundary; and 3. The facility/s where the process heat in element process/steam/electricity is used (the recipient plant(s)) and/or grid where electricity is exported, if applicable.

12 page 12 The project activity is utilizing heat content of the flue gas for generation of steam for generating the electricity in STG of CPP. In line with methodology the project boundary comprises of the Waste Heat Recovery Boiler, Captive Power generating equipment, ABC, sponge iron kiln Auxiliary equipment, Power synchronizing system, steam flow piping, flue gas ducts and electricity consumers where project participant has full Control. In the base line scenario, if the WHRB steam is not available then the electricity would other wise have been generated by burning additional lignite in lignite based FBC boiler of captive power plant. Baseline Project Activity Source Gas Included/ Justification/Explanation Excluded Electricity CO 2 Included Main emission source generation, grid or captive CH 4 Excluded Excluded for simplification. This is conservative. source N 2 O Excluded Excluded for simplification. This is Supplemental fossil fuel consumption at the project plant conservative. CO 2 Excluded Main emission source CH 4 Excluded Excluded for simplification. N 2 O Excluded Excluded for simplification. Supplemental electricity consumption. CO 2 Included Main emission source CH 4 Excluded Excluded for simplification. This is conservative. N 2 O Excluded Excluded for simplification. This is conservative.

13 page 13 KILN 1 (100 TPD) KILN 2 (500 TPD) FBC Boiler (110 TPH) ABC ABC ESP Stack WHR Boiler 1 (10.3 TPH) WHR Boiler 2 (53.2 TPH) ESP Stack Common Steam Header 40 MW electricity 40 MW steam turbo generator Import of power from grid. Ferro Alloys Plant Sponge Iron plant Rolling Mill Project Boundary The location details and tag numbers of the meters are provided in Annex 4 of the PDD. In the case when there is low electricity demand from Ferro Alloys plant, Sponge Iron plant or Rolling Mill due to breakdowns /shutdowns the excess power generated, if any, will be exported to grid. B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario:

14 page 14 The basic assumption of the baseline methodology is that in the absence of the project activity the waste heat would have been released into the atmosphere and equivalent electricity would have been generated by operation of fossil fuel based captive power plant. The approved methodology ACM 0012 Version: 02, EB 35 is used to determine the baseline scenario. As per ACM 0012, The baseline scenario is identified as the most plausible baseline scenario among all realistic and credible alternative(s). Realistic and credible alternatives should be determined for: Waste gas/heat/pressure use in the absence of the project activity; and Power generation in the absence of the project activity; and Steam/heat generation in the absence of the project activity The project participant shall exclude baseline options that: Do not comply with legal and regulatory requirements; or Depend on fuels (used for generation of heat and/or power), that are not available at the project site Step 1: Define the most plausible baseline scenario for the generation of heat and electricity using the following baseline options and combinations. The baseline candidates should be considered for following facilities: For the industrial facility where the waste gas/heat/pressure is generated; and For the facility where the energy is produced; and For the facility where the energy is consumed. As the project activity involves only electricity generation from waste gas/heat, the plausible baseline scenarios are identified for The use of waste gas For power generation For the use of waste gas, the realistic and credible alternative(s) may include, inter alia: Alternative Description of Alternative Justification W1 Waste gas is directly vented to The waste gas cannot be vented out directly to the atmosphere without atmosphere without incineration as there are Central incineration Pollution Control Board (CPCB) regulations to be followed by sponge iron plants in India mainly : 1) Stack Emission Standards for Kiln 2) Fugitive Emission Standards Hence this is not a plausible alternative 3. W2 Waste gas is released to the atmosphere after incineration The normal practice in sponge iron plants in India is to release waste heat into the atmosphere. Hence this is a 3 Sponge Iron Industry Report March 2007 by Central pollution Control Board (CPCB),page no.107

15 page 15 W3 or waste heat is released to the atmosphere (waste pressure energy is not utilized) Waste gas/heat is sold as an energy source W4 Waste gas/heat/pressure is used for meeting energy demand. plausible baseline alternative 4. This is not a plausible alternative as there is no industry near SSL which can use the waste gas/heat as an energy source. The waste gas/heat can be used either for meeting the heat requirement of various processes in plant or for electricity generation. The manufacturing process followed at SSL does not have any such process requirement where the waste gas can be used. The option of generating electricity from the sensible heat of waste gas is also not a financially feasible alternative as explained in section B.5 In the baseline scenario this is not a plausible baseline alternative. Hence from the above it can be concluded that alternative W 2 - Waste gas is released to the atmosphere after incineration or waste heat is released to the atmosphere (waste pressure energy is not utilized) For power generation, the realistic and credible alternative(s) may include, inter alia Alternative Description Justification P1 Proposed project activity not undertaken as a CDM project activity The main purpose of the project activity is to generate electricity for in-house consumption. This alternative is in compliance with all applicable legal and regulatory requirements. However, it faces investment and technological barrier. (Please refer to section B.5 below for detailed analysis on these barriers) Hence this option P2 On-site or off-site existing/new fossil fuel fired cogeneration plant is not a part of the baseline scenario. The general scenario of releasing the flue gas in the atmosphere by the sponge iron units in India is because there is no other use of the flue gas in the plant. Hence an on-site fossil fuel based cogeneration plant is not a plausible option. The plausibility of off-site fossil fuel based cogeneration plant is ruled as there is no unit nearby SSL which can make use of the heat produced in the cogen plant. 4 Sponge Iron Industry Report March 2007 by Central pollution Control Board (CPCB). page no.21,22

16 page 16 P 3 P 4 P 5 P 6 P 7 P 8 On-site or off-site existing/new renewable energy based cogeneration plant On-site or off-site existing/new fossil fuel based existing captive or identified plant; On-site or off-site existing/new renewable energy based existing captive or identified plant; Sourced Grid-connected power plants. Captive Electricity generation from waste gas (if project activity is captive generation with waste gas, this scenario represents captive generation with lower efficiency than the project activity.) Cogeneration from waste gas (if project activity is cogeneration with waste gas, this scenario represents cogeneration with lower efficiency than the project activity). Putting up a new renewable energy based cogeneration plant in not possible as there is no unit nearby which can utilize the heat produced in the cogeneration plant. Hence this is not a plausible alternative. The following fossil fuel based new captive power plant can be considered as a plausible baseline alternative. 1) Lignite 2) HSD 3) Naptha Consideration of Natural gas based captive plant is not a plausible baseline alternative as there in no infrastructure available in the region for the transportation of natural gas. Wind based energy generation is the not a feasible alternative because of seasonal and infirm power. Also wind based energy generation is very capital intensive The Power could also be sourced from the grid to meet the requirements of the Industrial facility. And hence this can be included as a plausible alternative to the baseline scenario Lower efficiency will not be economically attractive option. Therefore it is not a plausible alternative option. Cogeneration from waste gas is not feasible option as there is no steam requirement at SSL plant nor there is any industry nearby SSL that can utilize the steam that will be produced. Hence this is not a plausible alternative Since heat generation is not a part of the project activity we have not considered weighing the plausible alternatives for this case. From the above discussion the following can be arrived to Table 2: Plausible Baseline scenarios

17 page 17 Scenario Baseline options Waste Gas/ Power Heat waste heat 1 W2 P4 NA 2 W2 P6 NA Description of situation Waste Gas is released to the Atmosphere after incineration and On-site or off-site existing/new fossil fuel based existing captive plant for Power Generation. Waste Gas is released to the Atmosphere after incineration and Electricity is sourced Gridconnected power plants STEP 2: Identify the fuel for the baseline choice of energy source taking into account the national and/or sectoral policies as applicable. As identified in step I the only plausible electricity generation baseline scenario is P 4 - On-site or off-site existing/new fossil fuel based existing captive or identified plant. As per ACM 0012 the identified baseline fuel should be available in abundance in the host country and there is no supply constraint. As India is mainly an oil importer country 5 there always is a chance of a supply constraint due to any national or international crisis. However HSD/Naphtha based power plant are prominent in the state of Gujarat. Large reserves of Lignite are located in Kutch district of Gujarat where the project activity also falls. Deposits of 200 million tones of lignite have been identified at different locations 6. The plant is also located near lignite mines and will be able to derive the advantage of availability of lignite in the region. STEP 3: Step 2 and/or step 3 of the latest approved version of the Tool for the demonstration and assessment of additionality shall be used to identify the most plausible baseline scenarios by eliminating non feasible options (e.g. alternatives where barriers are prohibitive or which are clearly economically unattractive). Sub-step 2a. Determine appropriate analysis method SSL proposes to use Option II Investment Comparison analysis as it derives economic benefits from the project activity by generation and use of electricity. Sub-step 2b. Option II. Apply investment comparison analysis 5 India imports 70% of the 104 million tonnes of crude oil being used. 6

18 page 18 Financial indicators like IRR/DSCR/NPV are not applicable as the objective of SSL is to procure power that is reliable to run its steel business i.e. the investment is to gain low cost access to reliable power to run its steel making operations and not to achieve higher return on investment into new power generation business. Hence the levelized cost of electricity generation (INR/kwh) is the most suitable financial indicator in selection of baseline scenario. Sub-step 2c. Calculation and comparison of financial indicators Further as per the methodology the alternatives are to be evaluated on the basis of financial attractiveness to find the appropriate baseline scenario. The broad parameters for the evaluation of sources of power are capital cost and unit cost of electricity purchased or produced.a financial analysis with the Cost of delivered energy (INR/KWh) as the financial indicator was undertaken to determine the economically attractive option among the three plausible options. Table 3: Comparative analysis Option Alternat ive Capital Cost of Power Plant (INR Million/MW) Cost of delivered energy (INR/ kwh) Comments Conclusion Waste Gas is released to the Atmosphere after incineration and On-site or offsite existing/new fossil fuel based existing captive plant for Power Generation.. Lignite based captive power plant Lower capital cost in comparison to Diesel/Naphtha based power plant. Lower variable cost due to lower fuel price. Lignite easily available in the nearby region. This option is an economically attractive option. Hence this alternative can be considered as a baseline scenario. Diesel based captive power plant Higher capital cost in comparison to lignite based power plant. High variable cost due to higher diesel price Price of crude oil (hence diesel) is This option is not economically attractive option. Hence this alternative cannot be considered as a plausible baseline scenario. 7 Please refer to section B.5 of the PDD (page 25 of PDD) 8 Please refer to section B.5 of the PDD (page 26 of PDD)

19 page 19 Waste Gas is released to the Atmosphere after incineration and Electricity is sourced Gridconnected power plants Naphtha based captive power plant Grid based power plant and release the waste gas after incinerati on in the atmosphe re very high and is in increasing trend Lower capital cost in comparison to diesel based power plant. High variable cost due to higher Naptha price Price of crude oil (hence naphtha) is very high and is in increasing trend Gujarat is a power deficit state. The average electricity purchase rate of approximately INR 5.84/kwh is high compared to captive based power generation cost Also the company has to face likely power cuts by grid resulting in production loss as Gujarat state is facing more than 30% peak power deficit 14. SSL has installed captive power plant to reduce the dependency on the grid and avoid production losses due to unreliable and poor quality power. This option is not economically attractive option. Hence this alternative cannot be considered as a plausible baseline scenario. Hence the option of considering import of electricity from grid is not a part of the baseline scenario due to high tariff, unreliable and poor quality power. Hence this option cannot be considered as a plausible baseline scenario. 9 Report of the expert committee on fuels for power generation (page 11) 10 Report of the expert committee on fuels for power generation (page 8) 11 Report of the expert committee on fuels for power generation (page 11) 12 Report of the expert committee on fuels for power generation (page 8)

20 page 20 Based on the above information it is evident that from all the identified alternatives Lignite based captive power generation is the only plausible baseline scenario. Thus the alternative of captive power generation on-site using lignite is the baseline scenario in this project activity. Sub-step 2d. Sensitivity analysis The sensitivity analysis of Lignite based captive power generation cost has been conducted to confirm the conclusion arrived in sub step 2c (Please refer section B.5 of the PDD). The petroleum fuel based power generation cost will not go below the value stated in Table 3 as the past trend of crude price reflects that the fuel price has been increasing steadily 15. Hence from the tables presented in section B.5 of the PDD it can be said that in any given scenario Lignite based captive power generation is the most financially attractive option. STEP 4: If more than one credible and plausible alternative scenario remain, the alternative with the lowest baseline emissions shall be considered as the most likely baseline scenario. From the above steps it can be seen that there is only one plausible and credible scenario remaining - Lignite based captive power generation. Thus it can be concluded that the alternative of captive power generation on-site using lignite is the baseline scenario in this project activity. This methodology is only applicable if the baseline scenario, for all the waste gas generator(s) and the recipient plant(s) identified, is the scenario described in Table 4 below. For Project Scenario: Generation of Electricity or Heat only Table 4: Combinations of baseline options and scenarios applicable to this methodology Scenario Baseline options Waste Power Gas 1 W2 P4 or P6 Heat NA Description of situation The electricity is obtained from an specific existing plant or from the grid and heat from a fossil fuel based steam boiler. Applicable Baseline Scenario for SSL Table 5: Combinations of baseline options and scenarios applicable to this project activity. Scenario Baseline Options Description of situation 13 Source : India Stat Impact of high oil prices on Indian economy by FICCI pg 24

21 page 21 Waste Power Heat Gas 1 W2 P4 NA Waste gas is released into the atmosphere after incineration and going for an onsite new lignite based captive power plant. Hence the applicable baseline scenario for this project activity is as per the baseline scenario applicability condition of ACM 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): It is required to describe how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of registered CDM activity. The proposed CDM project activity is designed to generate power from the Waste Heat only contained in the Flue Gases emitting out of an established industrial manufacturing process i.e. ABC of Sponge Iron Kiln. Only the waste heat in the flue gases will be utilized to generate power which replaces GHGs emission into the atmosphere. In the absence of the proposed project activity power requirement would have been met by generating captive electricity from lignite. Hence project activity achieves reduction in CO2 emission due to avoidance of use of lignite/coal for equivalent amount of power generation. As required by the approved methodology, the additionality of the project activity shall be demonstrated and assessed using the latest version of the Tool for the demonstration and assessment of additionality (Version 5) agreed by the CDM Executive Board, available at the United Nations Framework Convention on Climate Change (UNFCCC) CDM web site. Steps followed under the Tool for the demonstration and assessment of additionality are as follows: Step 1. Identification of alternatives to the project activity consistent with current laws and regulations Sub-Step 1a: Define alternatives to the project activity. 1. Identify realistic and credible alternative(s) available to the project participants or similar project Developers that provide outputs or services comparable with the proposed CDM project activity. These alternatives are to include: The proposed project activity undertaken without being registered as a CDM project activity; Other realistic and credible alternative scenario(s) to the proposed CDM project activity scenario that deliver outputs and on services (e.g. electricity, heat or cement) with comparable quality, properties and application areas, taking into account, where relevant, examples of scenarios identified in the underlying methodology; If applicable, continuation of the current situation (no project activity or other alternatives undertaken). If the proposed CDM project activity includes several different facilities, technologies, outputs or services, alternative scenarios for each of them should be identified separately. Realistic combinations of these should be considered as possible alternative scenarios to the proposed project activity.

22 page 22 The list of identified realistic and credible alternatives available to the project participant apart from the project activity is as below: 1. Waste Gas is released to the Atmosphere after incineration and On-site or off-site existing/new fossil fuel based existing captive plant for Power Generation. 2. Waste Gas is released to the Atmosphere after incineration and Electricity is sourced Gridconnected power plants These are discussed in section B.4 above Sub- Step 1b: Enforcement of applicable laws and regulations. 2. The alternative(s) shall be in compliance with all mandatory applicable legal and regulatory requirements, even if these laws and regulations have objectives other than GHG reductions, e.g. to mitigate local air pollution. (This sub-step does not consider national and local policies that do not have legally-binding status.). 3. If an alternative does not comply with all mandatory applicable legislation and regulations, then show that, based on an examination of current practice in the country or region in which the law or regulation applies, those applicable legal or regulatory requirements are systematically not enforced and that noncompliance with those requirements is widespread in the country. If this cannot be shown, then eliminate the alternative from further consideration; 4. If the proposed project activity is the only alternative amongst the ones considered by the project participants that is in compliance with mandatory regulations with which there is general compliance, then the proposed CDM project activity is not additional. The lists of alternatives described in sub step 1a are in compliance with all mandatory applicable legal and regulatory requirements. Hence the proposed project activity is not the only alternative that is in compliance with all mandatory applicable legal and regulatory requirements. The project activity has crossed sub-step 1 of additionality demonstration, and hence this assessment has moved to the next step 2 investment analysis or step 3 barrier analysis. Proceed to Step 2 (Investment analysis) or Step 3 (Barrier analysis). (Project participants may also select to complete both steps 2 and 3.) Before going for the investment analysis it is important to understand the scenario under which the SSL management took the decision for the project activity. Sr. No Date Decision taken 1 18 th Dec 2003 SSL decides to install 40 MW (25 Lignite based power generation and 15 MW WHR based power generation) for the following plant capacity Sponge Iron 180,000 MTPA Ferro Alloys MTPA Rolling Mill MTPA. The decision for 15 MW WHR based power generation was made only after considering the CDM revenue. 2 6 th January Purchase order released for boilers by SSL to Cethar Vessels th February Purchase Order released for 40 MW turbo-generator by SSL to

23 page BHEL. 3 8 th May 2004 SSL decides to increase the capacity of Ferro Alloys Plant from MTPA to MTPA leading to a substantial increase in power requirement ( from 225 million units to 310 million units) leading to regular dependency on grid for power in the case of 40MW configuration (25 MW Lignite based power generation and 15 MW WHR based power generation) SSL board discusses on change in configuration from 15 MW WHR to 15 MW lignite based power generation to reduce dependency on high tariff grid power. The SSL board decides to go ahead with the earlier decided configuration of 25MW Lignite based power generation and 15 MW WHR based power generation keeping CDM revenue in mind that will help SSL to compensate for the losses arising out of buying high tariff power from grid. Looking at the scenario as described above it is necessary to evaluate the different options available to SSL considering the fact that the 40 MW turbo generator was sufficient to fulfill SSL power requirement (even in increased FA plant capacity).hence the option available to SSL was to change the boiler configuration. The various options available to SSL were: Sr. No Scenario Justification 1 Keeping the boiler configuration unchanged and fulfilling the SSL plants additional requirement by procuring the power from grid. This is the project activity. 2 Installing an additional 40 TPH lignite fired SSL project had been appraised with an boiler along with the earlier decided assumption that the plant starts configuration of 25 MW lignite based power commercial operation before 31 st generation fired boiler and 15 MW WHR based December 2004 to avail the excise and power generation to reduce/remove the sales tax benefit under the Incentive dependency on grid. Scheme 2001 for Economic Development of Kutch District. Hence the option of order and installing another lignite fired boiler was not a plausible scenario as this would have delayed the commercial operation of plant and would have harmed SSL from availing the excise and sales tax benefit on the products produced at SSL. This would have been a major revenue loss 3 Changing the boiler configuration from 25 MW Lignite based power generation and 15 MW WHR based power generation to 40 MW (25 MW + 15 MW) Lignite based power generation so that SSL s the dependency on grid is negligible. for SSL. This would have been the most lucrative option as it would have reduced the capital cost of the power plant as lignite based boiler are cheaper as compared to WHR boiler and reduced the cost of generation of power.

24 page 24 Step 2. Investment analysis Sub-step 2a. Determine appropriate analysis method Option 1 as per Tool for the demonstration and assessment of additionality is Simple Cost Analysis. It is applicable when CDM project activity produces no economic benefits other than CDM related income. Option I, use of simple cost analysis, is not applicable as the project activity generates and uses the power generated for its own plant requirement and derives economic benefits. SSL proposes to use Option II Investment Comparison analysis as it derives economic benefits from the project activity by generation and use of electricity. Financial indicators like IRR/DSCR/NPV are not applicable as the objective of SSL is to procure power that is reliable to run its steel business i.e. the investment is to gain low cost access to reliable power to run its steel making operations and not to achieve higher return on investment into new power generation business. Hence the levelized cost of electricity generation (INR/kwh) is the most suitable financial indicator in this decision making context. Sub-step 2b - Option III. Apply benchmark analysis The Investment comparison analysis has been carried out by calculating the levelized cost of electricity generation (INR/kwh) for the alternatives: 40 MW Lignite based power generation. 40 MW combined lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) Table 5: Power requirement at SSL Specific Power Consumption (units/mt) Total Power Requirement at SSL Installed Capacity (in MTPA ) Capacity Utilization Million kwh Rolling Mill % Ferro Alloys % Sponge Iron % 7.56 Total Power requirement Sub-step 2c. Calculation and comparison of financial indicators 16 As per technical specification 17 As per technical specification 18 As per technical specification

25 page 25 Assumption for 40MW lignite based power generation Table 6: Assumption for 40MW lignite based power generation Sr. No Assumptions Units 1 Cost per MW INR(in millions) /MW Debt : Equity % 70:30 3 PLF % 81 4 Auxiliary Consumption % 10% 5 Rate of depreciation % O&M cost including insurance % of capital cost Heat Rate kcal/kwh Cost of Lignite 9 10 Discount factor for calculating levelized cost Cost of power purchased from grid INR/tonne of lignite % INR/kwh Assumption for combined 40MW lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) Table 7: Assumption for 40MW lignite and WHR based power generation Sr. No Assumptions Units 1 Cost per MW INR(in millions) /MW Debt : Equity % 70:30 3 PLF - lignite based power generation % 81 4 PLF WHR based power generation % % 5 Auxiliary Consumption % 10% 6 Rate of depreciation % O&M cost including insurance % of capital cost As per manufacturer s specifications 20 Report of Expert Committee on fuels for power generation Source : India Stat 23 Considering capacity utilization of Sponge iron plant conservatively at 70% (as per JPC report) and plant availability as 90%.The actual capacity utilization of SSL s sponge iron plant in the year 2007 was approximately 50%.

26 page 26 8 Heat Rate kcal/kwh Cost of Lignite Discount factor for calculating levelized cost Cost of power purchased from grid INR/tonne of lignite 800 % INR/kwh 5.84 The levelized unit cost of generation calculated based on above assumptions is Sr. Levelized Cost of Scenario No generation (INR/kwh) 1 40 MW Lignite based power generation MW combined lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) 2.87 The levelized unit cost of generation calculated considering the sales tax benefit available to CPP s in the region is Sr. Levelized Cost of Scenario No generation (INR/kwh) 1 40 MW Lignite based power generation MW combined lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) 2.62 Sub-step 2d. Sensitivity analysis A sensitivity analysis was carried out to confirm the results of case 2. The sensitivity analysis has been carried out considering the following parameters: 1. PLF 2. Heat Rate 3. Fuel Cost 4. Interest Rate Parameter Heat Rate (%) Levelised cost for 40 MW Lignite based power generation (INR/Kwh) Levelised cost for 40 MW combined lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) ( INR/ Kwh) 24 As per manufacturer s specifications 25

27 page 27-5% -5% % % PLF (% change) 0% 5% -5% % % % % % Parameter - 5% Fuel Cost (%) Levelised cost for 40 MW Lignite based power generation (INR/Kwh) Levelised cost for 40 MW combined lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) ( INR/ Kwh) -10% % % PLF (% change) 0% 5% -10% % % % % % Parameter Interest Rate (%) Levelised cost for 40 MW Lignite based power generation (INR/Kwh) Levelised cost for 40 MW combined lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) ( INR/ Kwh)

28 page 28-5% -2% % % PLF (% change) 0% 5% -2% % % % % % From the above sensitivity analysis it can be clearly seen that from all the plausible scenarios 40 MW Lignite based power generation is financially more lucrative option than 40 MW combined lignite and WHR based power generation (25MW lignite based power generation and 15MW WHR based power generation) But considering the CDM revenue in mind and its concern for environment, SSL decided to have a combined lignite and waste heat based power plant instead of a complete lignite based power plant.. Step 3. Barrier analysis Sub-step 3a. Identify barriers that would prevent the implementation of type of the proposed project activity: Operational Barrier- Waste flue gas quality and availability One of the major problems of waste heat based power generation is the dependence on quality (energy content) and quantity of the flue gases generated by the rotary kiln of sponge iron plant that will be used in the boiler. i. The quality (temperature and pressure) of waste heat is dependant on the process where waste heat is generated i.e. it is dependant on the operational performance of the sponge iron kilns from which the gases are released, as well as from changing quality and composition of the iron ore and coal used as feedstock in the kiln. As the core business of SSL is to generate sponge iron it is of utmost that the quality of sponge iron is maintained even with varying iron ore and coal quality. This greatly impacts the sponge iron production in the kiln leading to a large variation in the quality and quantity of flue gases generated in the kiln and hence significant fluctuations in the electricity output of the waste heat recovery based power generation system. Since the total power requirement of the integrated steel facility remains more or less constant even during periods of lower sponge iron production, the dependency of WHR technology on the sponge iron output makes the attractiveness of the project highly uncertain because of the