GS VALIDATION REPORT. VALIDATION OF THE PROJECT: Cururos Wind Farm Project EPM CHILE S.A. (CHILE) REPORT N GSVA SEPTEMBER, 2015

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1 VALIDATION OF THE PROJECT: Cururos Wind Farm Project EPM CHILE S.A. (CHILE) REPORT N GSVA SEPTEMBER, 2015 Page 1 of 81

2 Date of first issue: 05/06/2015 Project N N/A Audit team: Version N : Francy Ramírez Lead Auditor and Technical Expert (Sector 1.2) Jacobo Carrizales Technical Expert in Sustainability Issues Organizational unit: 02 Last version date: 14/09/2015 Client: MGM Innova Client Reference: GSVA Instituto Colombiano de Normas Técnicas y Certificación- ICONTEC Cra 37 # Bogotá-Colombia Summary: ICONTEC performed the validation of the project Cururos Wind Farm Project in Chile on the basis of UNFCCC criteria for the CDM, Gold Standard as well as criteria given to provide for consistent project operations, monitoring and reporting. UNFCCC criteria refer to Article 12 of the Kyoto Protocol, the CDM modalities and procedures and the subsequent decisions by the CDM Executive Board. This validation report summarizes the findings of the validation. The proposed project activity under the validation process is based on approved consolidated methodology ACM0002 Grid-connected electricity generation from renewable sources, version The project involves the implementation of two wind farms connected to the Chilean National Interconnected System located in Ovalle Commune, Limari Province, Coquimbo Region. The wind farms are: (1) El Pacifico which has 36 wind turbine generators with a total installed capacity of 68.2 MW and (2) La Cebada which has 21 wind turbines generators with a total installed capacity of 41.4 MW. The 57 wind turbine generators allow an installed capacity of MW and annual supply of electricity to the grid of GWh. The expected impact on emission reductions from the project is 197,424 tco 2 e per year The validation process consisted of the following three phases: i) a desk review of the project design documents, ii) follow up interviews with project stakeholders and iii) the resolution of outstanding issues and the issuance of the final validation report. In summary, it is ICONTEC s opinion that the Cururos Wind Farm Project, as described in the version 03.0 of the project design document, meets all relevant UNFCCC requirements for the CDM, Gold Standard and all relevant host country criteria and correctly applies the baseline and monitoring approved consolidated methodology ACM0002 Grid-connected electricity generation from renewable sources, version Hence, ICONTEC requests the registration of the project as GS-VER project activity. Page 2 of 81

3 Work verified by: Technical review date: Erika Urrego GS Technical Reviewer Fernando Gomez Technical Expert (Sector 1.2) Ana Isabel Aubad Technical Expert Reviewer in Sustainability Issues 07/07/2015 No distribution without permission from the client or responsible organizational unit Limited distribution Unrestricted distribution Number of pages: 72 Page 3 of 81

4 Abbreviations CAR CDM ERs CERs CL CO 2 E DNA DOE GHG GS ICONTEC LSC MoC PDD UNFCCC VVS PP IPCC PS PCP Corrective Action Request Clean Development Mechanism Emission Reductions Certified emission reductions Clarification Request Carbon dioxide equivalent Designated National Authority Designated Operational Entity Greenhouse Gases Gold Standard Colombian Institute of Technical Standards and Certification (Instituto Colombiano de Normas Técnicas y Certificación) Local Stakeholder Consultation Modalities of Communication Project Design Document United Nations Framework Convention for Climate Change CDM Validation and Verification Standard Project Participant Intergovernmental Panel on Climate Change CDM Project Standard CDM Project Cycle Procedure Page 4 of 81

5 Table of Contents 1. INTRODUCTION Objective Scope Validation Team Methodology Internal Quality Control Follow Up Interviews Resolution of CLs, CARs and FARs PRE FEASIBILITY ASSESSMENT PROJECT ELEGIBILITY PROJECT DESIGN DOCUMENT DESCRIPTION OF PROJECT ACTIVITY APPLICATION OF SELECTED BASELINE AND MONITORING METHODOLOGY AND SELECTED STANDARDIZED BASELINE Applicability of Selected Baseline and Monitoring Methodology and Selected Standardized Baseline to the Project Activity Project Boundary Baseline Scenario Identification and Description Algorithms and/or Formulae Used to Determine Emission Reductions Additionality of a Project Activity Identification of Alternatives Investment Analysis Barrier Analysis Common Practice Analysis Monitoring Plan Sustainable Monitoring Plan Page 5 of 81

6 Sustainable Development Matrix Sustainable Development Monitoring Plan Do no Harm Assessment Environmental Impacts Local Stakeholder Consultation VALIDATION OPINION RESOLUTION OF CORRECTIVE ACTION, FORWARD ACTION AND CLARIFICATION REQUEST REFERENCES EXPERIENCE AND KNOWLEDGE OF AUDIT TEAM AND REVIEWER TEAM Page 6 of 81

7 1. INTRODUCTION MGM Innova commissioned ICONTEC to perform the Validation of Cururos Wind Farm Project (hereafter called the project ). This report summarizes the findings in the validation of the project, which was performed on the basis of UNFCCC criteria, Gold Standard criteria as well as criteria given to provide for consistent project operations, monitoring and reporting Objective The purpose of the validation process is to secure the opinion of an independent third party in order to assess the establishment of the baseline, monitoring plan and compliance with relevant UNFCCC rules, GS v.2.2 and requirements of a proposed GS-VER project activity. In addition, host party criteria are validated in order to confirm that the project design, as documented, is sound and reasonable and meets the identified criteria. Validation is a requirement for all GS-VER projects and is seen as necessary to provide assurance to stakeholders of the quality of the project and its intended generation of voluntary emission reductions (VERs) Scope The validation scope involves an independent and objective review to determine that the project design meets the following criteria: - UNFCCC criteria: The Kyoto Protocol Article 12 criteria, modalities and procedures for CDM (Marrakech Accords) and the relevant decisions by the CDM Executive Board, - Host Party criteria: National CDM requirements, including sustainable development priorities and potential specific requirements contained in, for example, the preliminary approval by the Designated National Authority or project agreements between involved parties, and - Requirements of paragraph 37 of the CDM M&Ps, the applicability conditions of the selected methodology, and, where applicable, the selected standardized baseline, and guidance issued by the Board. - Gold Standard Toolkit Version 2.2 June 2012 ICONTEC carries out audits according to its ethics code and internal procedures for carrying out validation, verification and certification audits of GS-VER project activities, which, in turn, are based on the Validation and Verification Standard Page 7 of 81

8 (VVS) and GS Toolkit v2.2. Likewise, ICONTEC focuses on the identification of significant risks for VER generation, and verification of the mitigation during its audits. The validation does not intend to provide any consulting for the PP. However, stated requests for clarifications and/or corrective actions that may have provided input for improvement of the project design Validation Team The validation team consists of the following personnel: Table 1. Validation Team ROLE/QUALIFICATION LAST NAME FIRST NAME COUNTRY Lead Auditor and Technical Expert (Sector 1.2) Technical Expert in Sustainability Issues Ramirez Francy Colombia Carrizales Jacobo Colombia GS Technical Reviewer Urrego Erika Colombia GS Technical Expert (Sector 1.2) Technical Expert Reviewer in Sustainability Issues Gomez Fernando Colombia Aubad Ana Isabel Colombia 1.4. Methodology The validation consists of the following three phases: - A desk review of the project design documents - Follow up interviews with project stakeholders - Resolution of outstanding issues and the issuance of a final validation report and opinion. ICONTEC, based on its ethics code and internal procedures, carries out validation, verification and certification audits of CDM project activities, focused on the identification of significant risks for CER generation and the verification of the contribution to climate change mitigation. Page 8 of 81

9 All documentation reviewed during the validation process was included in chapter 9 (REFERENCES). The findings could take the form of a Corrective Action Request (CAR), Forward Action Request (FAR) or a Clarifications Request (CL). Corrective action requests (CAR) are issued where: - The PP made mistakes which directly influenced the ability of the project activity to achieve real, measurable and additional emission reductions; - The CDM or GS requirements have not been met; or - There is a risk that emission reductions cannot be monitored or calculated A Forward Action Request is raised to highlight issues related to project implementation that will require review during the next verification of the project activity. A Clarification Request is raised when information is insufficient or not clear enough to establish whether a requirement was met. According to the latest version of the VVS, ICONTEC shall resolve or close out CARs and CLs only if the PP modify the project design, rectify the PDD or provide additional explanations or evidence that satisfies the DOE s concerns. In addition, this validation report explains findings raised during the validation process as well as responses provided by the PP, means of validation of such responses and references to any resulting changes in the PDD or supporting annexes Internal Quality Control This report includes the validation findings that underwent a technical review before being submitted to GS. The technical review and the quality control process was performed by an internal technical reviewer team in accordance with the ICONTEC s internal procedures for carrying out validation, verification and certification audits of CDM project activities. The technical reviewers are qualified in accordance with the ICONTEC s professional qualification scheme for CDM validation and verification Follow Up Interviews Page 9 of 81

10 ICONTEC performed interviews with project stakeholders to confirm the selected information and to resolve issues identified during the desk review. The main topics of the interview are summarized in Table 1. Table 2. Follow up Interviews DATE INTERVIEW ORGANIZATION INTERVIEW TOPICS Cristian Egaña Oscar Fernandez April 21 st /2015 to April 24 th /2015 Development and Innovation Professional Alejandra Rodriguez Environment Professional Javier XXXX PLC Operations Manager EPM Chile S.A Participation, Project Description, Baseline and Monitoring Methodology, Additionality, Monitoring Plan, Sustainable Development, Local Stakeholder Consultation, Environmental Impacts Ana María Zapata MGM Innova Project Consultant 1.7. Resolution of CLs, CARs and FARs CARs, CLs and FARs raised by ICONTEC were presented to the PP and resolved through communication and meetings between MGM Innova, EPM Chile and ICONTEC. To guarantee the transparency of the validation process, the concerns raised and the responses provided by the PP are documented inside this validation report. 2. PRE FEASIBILITY ASSESSMENT Since Cururos Wind Farm Project is already operational at the time of first submission to The Gold Standard, a pre-feasibility assessment of the project activity by Gold Standard is required. Page 10 of 81

11 The Project Participant uploaded to the Registry the documentation related in Table 2.7 of the Gold Standard Toolkit version 2.2. The Gold Standard conducted a pre-feasibility assessment /1/ on whether the project complies with The Gold Standard criteria. In the pre-feasibility assessment The Gold Standard Foundation has the opinion that the project can be registered to the Gold Standard if points described in that pre-feasibility assessment are addressed in a satisfactory way. In the following table are listed the Comments or request raised by GS in the pre-feasibility assessment and also it is described the section on this report where the comment or request has been treated by the audit team. Comment /Request Issue Section on this report where the comment/request was treated by the audit team 1 Version of the CDM PDD template Section 8. Resolution of Corrective Action, Forward Action and Clarification Request. CL 1 2 Additionality 3 Stakeholder consultation 4 Do No Harm Assessment 5 SD Matrix Section 6.5 Additionality of a Project Activity CAR 4, CAR 5 Section 6.9. Local Stakeholder Consultation CAR 7, CAR 10 Section 6.7. Do no Harm Assessment CAR 8 Section 6.6. Sustainable Monitoring Plan CAR 9, CAR 11 Page 11 of 81

12 3. PROJECT ELEGIBILITY In accordance with the provision stated in Annex C of the Gold Standard, Cururos Wind Farm Project is elegible under Gold Standard as long as it belongs to the Renewble energy supply category, since this project activity involves the generation and delivery of electricity from non- fossil and non- depletable energy source (wind), as ICONTEC verified by means of the onsite visit.. Since Cururos Wind Farm Project began operations before the first submission to Gold Standard, it was necessary to go through a pre feasibility assessment (PFA), The project activity was eligible since the outcome of the PFA was positive as it was explained in section 2 of this report. On the other hand it is worth to mention that Cururos Wind Farm Project is allowed under The Gold Standard since it was not previously announced to be going ahead without the revenues from carbon credits. 4. PROJECT DESIGN DOCUMENT ICONTEC during the desk review verified that the PDD version 01 was completed using the version 04.1 of the CDM-PDD FORM, hence the audit team raised CL 1. The PP provided to audit team an updated version of PDD /1/, which was completed using the latest form of the CDM-PDD FORM appropriate to the type of project activity undertaken. Also was verified the compliance of the reported information with the instructions for filling out the PDD for CDM and GS project activities, hence the finding was closed. 5. DESCRIPTION OF PROJECT ACTIVITY ICONTEC verified the following description during the onsite visit to Cururos Wind Farm Project: Table 3. Project Description Project Parties: Title of project activity: Project Entity : Location of the project EPM Chile S.A. Cururos Wind Farm Project EPM Chile S.A. The project will be located in Ovalle Commune, Limari Page 12 of 81

13 activity: Province, Coquimbo Region in Chile. Coordinates: The project activity is located at the following UTM coordinates: Methodology : Project s crediting period: Estimated amount of emission reductions over the chosen crediting period: Latitude: East Longitude: North Approved consolidated methodology ACM0002 Gridconnected electricity generation from renewable sources, version years renewable 1,381,968 tco 2 e The proposed project activity consists in the implementation of two wind farms connected to the Chilean National Interconnected System: (1) El Pacifico which has 36 wind turbine generators with a total installed capacity of 68.2 MW and (2) La Cebada which has 21 wind turbines generators with a total installed capacity of 41.4 MW. The 57 wind turbine generators allow an installed capacity of MW and annual supply of electricity to the grid of GWh. The project activity is connected to Chilean electrical interconnected system at he 2x220 kv transmission line Los Vilos Pan de Azúcar, owned by the Central Interconnected System (Sistema Interconectado Central, SIC). The expected impact on emission reductions from the project is 197,424 tco 2 e per year. The description of the technology to be applied provides transparent information to evaluate its impact on the greenhouse gas balance. The credibility of this information was validated by ICONTEC during onsite visit through the reviewing of wind resources assessment for Pacifico and La Cebada wind farms /3/, /4/ and /5/. Page 13 of 81

14 6. APPLICATION OF SELECTED BASELINE AND MONITORING METHODOLOGY AND SELECTED STANDARDIZED BASELINE 6.1. Applicability of Selected Baseline and Monitoring Methodology and Selected Standardized Baseline to the Project Activity The proposed project activity was developed using the approved consolidated methodology ACM0002 Grid-connected electricity generation from renewable sources, version 16.0 /UN1/ The project complies with the applicability criteria of the methodology as was verified by ICONTEC, as follows: Table 4. Applicability Conditions Applicability Condition This methodology is applicable to gridconnected renewable power generation project activities that: (a) Install a Greenfield power plant; (b) Involve a capacity addition to (an) existing plant(s); (c) Involve a retrofit of (an) existing operating plants/units; (d) Involve a rehabilitation of (an) existing plant(s)/unit(s); or (e) Involve a replacement of (an) existing plant(s)/unit(s). Means of Validation Cururos Wind Farm Project is the installation of two new wind farms (La Cebada and Pacifico) at a site where no renewable power plant was operated prior to the implementation of the project activity (Greenfield plant). ICONTEC verified this statement by means of: - On site visit - Documental Review of : Wind resources assessment for Pacifico and La Cebada wind farms. /3/ Report about Chilean installed capacity for electricity generation /8/ Page 14 of 81

15 Applicability Condition The methodology is applicable under the following conditions: (a) The project activity may include renewable energy power plant/unit of one of the following types: hydro power plant/unit with or without reservoir, wind power plant/unit, geothermal power plant/unit, solar power plant/unit, wave power plant/unit or tidal power plant/unit; (b) In the case of capacity additions, retrofits, rehabilitations or replacements (except for wind, solar, wave or tidal power capacity addition projects the existing plant/unit started commercial operation prior to the start of a minimum historical reference period of five years, used for the calculation of baseline emissions and defined in the baseline emission section, and no capacity expansion, retrofit, or rehabilitation of the plant/unit has been undertaken between the start of this minimum historical reference period and the implementation of the project activity. Means of Validation Cururos Wind Farm Project is the installation of two new wind farms (La Cebada and Pacifico) at a site where no renewable power plant was operated prior to the implementation of the project activity (Greenfield plant). ICONTEC verified this statement by means of: - On site visit - Documental Review of : Wind resources assessment for Pacifico and La Cebada wind farms. /3/ Page 15 of 81

16 Applicability Condition In case of hydro power plants one of the following conditions must apply: (a) The project activity is implemented in existing single or multiple reservoirs, with no change in the volume of any of the reservoirs; or (b) The project activity is implemented in existing single or multiple reservoirs, where the volume of the reservoir(s) is increased and the power density calculated using equation (3), is greater than 4 W/m 2 ; or Means of Validation Cururos Wind Farm Project is not a hydro power plant, hence this condition is not applicable to this project activity. ICONTEC verified this statement by means of : Documental review of : - On site visit - Documental Review of : Wind resources assessment for Pacifico and La Cebada wind farms. /3/ (c) The project activity results in new single or multiple reservoirs and the power density, calculated using equation (3), is greater than 4 W/m 2 ; or (d) The project activity is an integrated hydro power project involving multiple reservoirs, where the power density for any of the reservoirs, calculated using equation (3), is lower than or equal to 4 W/m 2, all of the following conditions shall apply: (i) The power density calculated using the total installed capacity of the integrated project, as per equation (4), is greater than 4 W/m 2 ; (ii) Water flow between reservoirs is not used by any other hydropower unit which is not a part of the project activity; Page 16 of 81

17 Applicability Condition In the case of integrated hydro power projects, project proponent shall: (a) Demonstrate that water flow from upstream power plants/units spill directly to the downstream reservoir and that collectively constitute to the generation capacity of the integrated hydro power project; or (b) Provide an analysis of the water balance covering the water fed to power units, with all possible combinations of reservoirs and without the construction of reservoirs. The purpose of water balance is to demonstrate the requirement of specific combination of reservoirs constructed under CDM project activity for the optimization of power output. This demonstration has to be carried out in the specific scenario of water availability in different seasons to optimize the water flow at the inlet of power units. Therefore this water balance will take into account seasonal flows from river, tributaries (if any), and rainfall for minimum five years prior to implementation of CDM project activity. Means of Validation Cururos Wind Farm Project is not a hydro power plant, hence this condition is not applicable to this project activity. ICONTEC verified this statement by means of : Documental review of : - On site visit - Documental Review of : Wind resources assessment for Pacifico and La Cebada wind farms. /3/ Page 17 of 81

18 Applicability Condition The methodology is not applicable to: Project activities that involve switching from fossil fuels to renewable energy sources at the site of the project activity, since in this case the baseline may be the continued use of fossil fuels at the site; Biomass fired power plants. In the case of retrofits, rehabilitations, replacements, or capacity additions, this methodology is only applicable if the most plausible baseline scenario, as a result of the identification of baseline scenario, is the continuation of the current situation, that is to use the power generation equipment that was already in use prior to the implementation of the project activity and undertaking business as usual maintenance. Means of Validation Cururos Wind Farm Project is a Greenfield project, does not involve switching from fossil fuels to renewable energy sources at the site of the project activity or Biomass fired power plants, hence this condition is not applicable to this project activity. ICONTEC verified this statement by means of : Documental review of : - On site visit - Documental Review of : Wind resources assessment for Pacifico and La Cebada wind farms. /3/ According to the nature of the project (greenfield project), this condition is not applicable to Cururos Wind Farm Project The applicability conditions of this project activity regarding to tool to calculate the emission factor for an electricity system /UN2/ will be discussed on Sections 7.3, and 7.4 on this report. As well as for tool for the demonstration and assessment of additionality /UN3/, the applicability conditions will be discussed on Section 7.5 on this report. The lead auditor raised CL 2 since in the PDD version 01 (dated on January 29 th /2015) section B.2 the applicability condition of the methodology ACM 0002 version 15 was not coherent with the applicability conditions stated in the that version of the methodology (ACM 0002) approved by the CDM Executive Board. The PP Page 18 of 81

19 updated the PDD and it worked on the version 16.0 of the applied methodology, hence the finding was closed. In summary, ICONTEC assessed the proposed project activity and agrees with the application of the approved consolidated methodology ACM0002 Grid-connected electricity generation from renewable sources, version 16.0, since PP correctly addressed the determination of the applicability conditions used to determine the ERs. Hence it is ICONTEC s opinion that the proposed project activity is in compliance with the rules and requirements set out for the CDM and GS project activities Project Boundary In accordance with the applied methodology /UN1/, the project boundary is The spatial extent of the project boundary includes the project power plant/unit and all power plants/units connected physically to the electricity system that the CDM project power plant is connected to. This statement was verified by ICONTEC by means of documental review of technical description /3/, the Assesment of Wind potential in Chile performed by the Chilean Ministry of Energy /6/ which states La Cebada and Pacifico wind farms as a future generation projects to be connected to Chilean National Interconnected System; and the report about Chilean installed capacity for electricity generation /8/. In accordance to the consulted documentation during the desk review and the onsite visit, ICONTEC deems that the PP correctly followed the selected methodology and the reported emission sources were properly described in the in the PDD version 03.0, in compliance with the instructions for filling out the PDD for GS-VER project activities. The greenhouse gas emissions occurring within the project boundary as a result of its implementation are all addressed by the applied methodology, therefore there are not greenhouse gas emissions within the project boundary caused by the implementation of the project activity which contribute to more than 1% of the expected annual emission reductions and which are not addressed in by the applied methodology. This was verified by ICONTEC by means of the documental review related to the project s works and its nature /3/, /4/ and /5/ Baseline Scenario Identification and Description Page 19 of 81

20 Cururos Wind Farm Project comprises the installation of two new grid-connected renewable power plants: La Cebada and Pacifico. Consequently, according to the applied methodology/un1/, the baseline scenario is: electricity delivered to the grid by the project activity would have otherwise been generated by the operation of grid-connected power plants and by the addition of new generation sources, as reflected in the combined margin (CM) calculations described in the Tool to calculate the emission factor for an electricity system. The PDD version 03.0 correctly identifies the baseline scenario as presented above. The relevant grid is the Chilean Central National Interconnected Electricity System /6/. As methodology ACM0002 (version 16.0) prescribes the baseline scenario and no further analysis is required, there is no need to take steps to identify the baseline scenarios. For the desk review carried out by the audit team before the onsite visit the PP was not delivered the calculation for the emissions reductions for the project activity hence CAR 2 was raised. Once the PP delivered to audit team the spreadsheet used for this calculation /7/ the finding was closed. For the determination of the baseline, the following information, assumptions and data were used by the PP: As stated in the approved consolidated baseline methodology ACM0002 version 16.0 /UN1/, the baseline emissions are the product of the baseline emission factor times the electricity supplied by the project activity to the grid. The baseline emission factor (EF grid,cm,y ) was calculated by PP /7/ using the Tool to calculate the emission factor for an electricity system /UN2/ as a combined margin (CM), consisting of the combination of operating margin (OM) and build margin (BM) factors. For this calculation a 3-year generation-weighted average (2011, 2012 and 2013) was used. The lead auditor had the opportunity to review the spreadsheet used for the calculation of CO 2 emission factor for the Chilean Electrical Interconnected System /7/ in order to assess the proper use of the tool /UN2/. The following was the conclusion of the lead auditor: Step 1. Identify the relevant electricity systems: Page 20 of 81

21 For Cururos Wind Farm Project, the PP used the Chilean transmission system as the project electricity system, which is operated and maintained by the Center for Economic Load Dispatch of the Central Interconnected System 1 (CDEC SIC its abbreviation in Spanish language). ICONTEC agreed taking into account that Cururos Wind Farm Project is connected to this system, this fact was confirmed by the audit team by means of the onsite visit and documental review /8/. Step 2. Choose whether to include off-grid power plants in the project electricity system (optional). The PP chose option I, only grid power plants are included in the calculation. Step 3. Select a method to determine the operating margin (OM). Simple adjusted OM was chosen by the PP to calculate the operating margin emission factor, using ex-ante data vintage taking into account that in the Chilean electric system, the low-cost/must-run resources constitute more than 50% of total grid generation, hence the Simple OM method cannot be used as it was verified by ICONTEC by means of reviewing the generation average of the five most recent years 2, This reviewing allowed to audit team to verify that low-cost/must-run resources constitute more than 50 per cent of total grid generation. ICONTEC validated this choice. Step 4. Calculate the operating margin emission factor according to the selected method. Calculations of OM emission factor (step 4) were made as illustrated in the PDD version 03.0, section B.6.1, which is according to the tool specifications/un2/. Plant emission factors EF EL,m,y, were calculated under option A1 since data on fuel consumption and energy generation fro connected plants are available. ICONTEC validated the values comparing the values presented for the PP in the Emissions reduction file /7/, against the values downloaded from the CDEC-SIC website /9/ (ICONTEC made a random sampling of 4 plants) Page 21 of 81

22 Regarding to the values used for NCV i and EF CO2,i,y, the audit team verified the truthfulness of the sources used by the PP in the Emissions reduction file /7/ (see Sheet: Conversion), and it was concluded the information used is traceable, verifiable and credible. Regarding to the calculation of y, the audit team verified, as described above, only grid power units were considered /9/ in the Emissions reduction file /7/ (see Sheets: Lambda 2011, Lambda 2012 and Lambda 2013). The audit team verified that the provisions stated in clause 56 of the tool /UN2/ was followed in a proper way by the PP in the y calculation After the comparison, ICONTEC deemed reliable and appropriate the values used. The OM calculated was tco 2 /MWh, hence ICONTEC deemed the obtained value as reliable and credible Step 5. Calculate the build margin (BM) emission factor. In order to calculate the BM emission factor (step 5) option 1 (ex-ante) for the first crediting period was adopted, the build margin emission factor is calculated based on the most recent information available on units already built for sample group m at the time of CDM-PDD submission to the DOE for validation. The PP took the information from the latest official CDEC-SIC statistics /9/. ICONTEC agreed with the data collection used for the PP to calculate the BM, hence the BM is confirmed as reliable and credible. The BM calculated was tco 2 /MWh, hence ICONTEC deemed the obtained value as reliable and credible Step 6. Calculate the combined margin (CM) emission factor. Finally, combined margin was correctly calculated by weighted average method, as it is explained below: Where: EF grid,om,y = tco 2 /MWh EF grid,bm,y = tco 2 /MWh W OM =0.75 W BM =0.25 Page 22 of 81

23 Obtaining a result for the EFgrid,CM,y = tco 2 /MWh After analyzing and studying this mentioned information, ICONTEC confirms that the grid emission factor has been evaluated as tco 2 /MWh. This value will be taken as fixed during the crediting period. To estimate the baseline emissions prior to validation, the PP employed the grid emission factor just described ( tco 2 /MWh), and the electrical energy baseline EG BL has been validly estimated as GWh/year /3/, the expected annual average generation, as presented in the project description document /2/. The lead auditor raised CAR 1 in order to ask the PP the documental evidence to support the annual electricity generation for the project activity. The PP delivered to audit team the Wind resources assessment for Pacifico and La Cebada wind farms which stated that the estimated electricity generation is GWh per year for Cururos Wind Farm Project, hence the finding was closed. Once it was identified emission factor of the Chilean electrical interconnected grid ( tco 2 /MWh) and the Cururos Wind Farm electricity generation ( GWh), Thus, the estimated baseline emissions are 197,424 tco 2 /year. ICONTEC found that all information, assumptions and data used in the identification of the baseline scenario are relevant, properly justified, correctly quoted and interpreted, supported by reasonable and verifiable evidence. ICONTEC found that the project participant correctly applied the selected methodology /UN1/ with respect to the baseline identification. The scenario selected reasonably represents the anthropogenic emissions by sources of GHGs that would occur in the absence of the proposed CDM project activity. All estimates of the baseline emissions can be replicated using the data and parameter values provided in the latest version of the PDD. Additionally, ICONTEC verified by means of documental review of the Wind resources assessment for Pacifico and La Cebada wind farms /3/ that the project is not expected to result in emissions other than those allowed by the methodology. The total emissions in absence of the project are 1,381,968 tco 2 e during the 7 years of crediting period. In summary, ICONTEC verified how the selected ACM0002, version 16.0 is applicable to the project activity at the time of submission of the proposed project activity for registration. Page 23 of 81

24 6.4. Algorithms and/or Formulae Used to Determine Emission Reductions In accordance with equation 13 of the methodology ACM0002 version 16.0, emission reductions are to be calculated as: ER y = BE y PE y Where: ER y = Emission reductions in year y (t CO 2 e/year) BE y = Baseline emissions in year y (t CO 2 e/ year) PE y = Project emissions in year y (t CO 2 e/year) Baseline emissions are to be calculated as validated by the audit team in the section 7.3 of this report. In accordance with clause 35 of the applied methodology /UN1/, project emissions accounted by this activity project are: PE y = 0 So that, ER y = BE y The respective formulation as presented in the PDD is deemed equivalent by ICONTEC. According to this, the total GHG emissions avoided by the activity project for the first 7-year crediting period is 197,424 tco 2 e, annual average. ICONTEC verified by means of the review of the file EF_2011_2013 and ER los Curuos.xls that the project activity reduces emissions of 197,424 tco 2 e annually in average over the crediting period (7 years). The values were confirmed by following assumptions that are considered appropriate and reproducing calculations. In accordance with the validation process described above, ICONTEC verified that: - All assumptions and data used by the project participants were listed in the latest version of the PDD version 03.0, including their references and sources. - All documentation used by project participants as the basis for assumptions and source of data was correctly quoted and interpreted in the PDD version Page 24 of 81

25 - All values used in the PDD version 03.0 were considered reasonable in the context of the proposed project activity. - The baseline methodology ACM0002, version 16.0 and the applicable tool /UN2/ were applied correctly to calculate project emissions, baseline emissions, and emission reductions. All estimates of the baseline emissions can be replicated using the data and parameter values provided in the CDM-PDD version Additionality of a Project Activity Identification of Alternatives To demonstrate the additionality of the Project, the PDD has correctly applied the Tool for the demonstration and assessment of additionality /UN3/. PP used an investment analysis to determine that the project is additional. No Barrier Analysis was presented. The details of ICONTEC s assessment on the project additionality are described below: Step 0: Demonstration whether the proposed project activity is the first-of-its-kind Since in the Tool for the demonstration and assessment of additionality /UN3/ clause 14 states that this step is optional and the PP did not used this analysis, hence it is considered that the proposed project activity is not the first-of-its-kind. Step 1: Identification of alternatives to the project activity consistent with current laws and regulations In the Tool for the demonstration and assessment of additionality /UN3/ clause 8 states that for project activities that apply this tool in context of approved consolidated methodology ACM0002, only need to identify that there is at least one credible and feasible alternative that would be more attractive than the proposed project activity; the PP has presented in the PDD version 03.0 the following alternatives: Alternatives Table 5. Identification of Alternatives Assessment Means of Validation of Alternatives 1. The project In accordance with the All the alternatives The Conclusion Page 25 of 81

26 activity not implemented as a CDM project activity 2. Continuation of the current situation of the electricity supply. tool for demonstration and assessment of additionality /UN3/ clause 20 (a) It corresponds to current situation, that is, the electricity will continue to be generated by the existing generation mix operating in the grid and by the addition of new generating sources. Besides, this alternative is the baseline prescribed in the applied methodology /UN1/ comply with all applicable and enforced Chilean legislation 3. Besides that, ICONTEC could confirmed by means of the lead auditor s knowledge of the sector and documental review of the Chilean regulatory framework 3 that alternatives are credible and realistic in the Chilean scenario Identification of alternatives is realistic and credible. The alternatives are consistent with mandatory laws and regulations From the means of validation in table 5, ICONTEC can conclude: - The Identification of alternatives is realistic and credible. - The alternatives are consistent with mandatory laws and regulations - The list of alternatives was considered by ICONTEC as complete Investment Analysis The additionality was demonstrated according to Tool for the demonstration and assessment of additionality /UN3/ and the Methodological tool on the assessment of investment analysis /UN4/. In section B.5 of the latest version of the PDD /2/, PP addressed steps proposed by additionality tool version 07.0 as it was carefully assessed, verified and crosschecked by the audit team and as is described as follows: 3 and Page 26 of 81

27 For this project activity, benchmark analysis (Option III) was selected for the investment analysis. In accordance with the type of this project activity it is expected that incomes other than CDM inputs will be generated, regarding energy sales to the market, so ICONTEC agreed that simple cost analysis is not suitable. On the other hand, taking into account that EPM Chile has no intention in building a power station, different to a wind farm in the area of the project activity as demonstrated in the PDD and related documentation /2/, an investment comparison analysis is not appropriate and a benchmark analysis was used to determine the profitability of the investment. The benchmark was chosen in accordance with the Appendix in the Methodological tool on the assessment of investment analysis /UN4/ which provides default values for the expected return on equity for different project activities, the relevant benchmark for energy projects in Chile (Group 1 as given in the Methodological tool /UN4/) is 8.7%, for values expressed in real terms, as it was developed by the PP in the investment analysis, however these values are expressed in real terms, since the investment analysis carried out by the PP was performed in nominal terms, the addition of the Chilean inflation rate forecasted was used to convert the real term value (8.7%) to nominal term. ICONTEC reviewed the Chilean Central Bank s Website 4 and did not find neither inflation forecast nor target inflation rate for the duration of the crediting period, hence the PP correctly chose the average forecasted inflation rate for the next five years published by the IMF (International Monetary Fund World Economic Outlook), in accordance with the requirement stated in the Methodological tool /UN4/ clause 7. This average forecasted inflation is 3.0% 5. Therefore the benchmark chosen by the PP was 11.7% (8.7% + 3.0%) as Nominal Return on equity in order to be compared with the financial indicator most suitable for the project type and decision context, in this particular case is IRR. ICONTEC agrees with all the data used in benchmark determination and points out that they were clearly presented, available to consult and correct =country&ds=.&br=1&c=228&s=pcpipch%2cpcpiepch&grp=0&a= Page 27 of 81

28 ICONTEC reviewed the file Equity IRR Wind Farm Cururos (11Agost15).xls /10/ and confirmed that it included the relevant cost and revenues. The period of assessment was 27 years, the operation stage will take 26 years /19/ and the construction stage (12 months) /19/, the audit team deemed appropriate to undertake the investment analysis for 27 years. The depreciation for the equipment is 10 years and for the civil works is 20 years, hence no fair value of the project activity assets was included at the end of the assessment period. The input values used in all investment analysis have been consistently applied at the time of the investment decision (November 14 th, 2012) and in all calculations. The depreciation has been added back to the net profits, this item has been made in accordance with Chilean accounting standards and they are aligned with Methodological tool on the assessment of investment analysis /UN4/ (see line 48, sheet Equity IRR Wind Farm Cururos (11Agost15).xls), in addition, taking into account the Guidelines on the assessment of investment analysis /UN4/ clause 26, the PP has assumed as a default a 50% debt / 50% equity finance structure, the debt terms assumptions as: grace period (24 months = construction period), term (10 years), interest rate (10.10%) 6 and annual principal (USD$ 10,012,500 = Total Debt/Debt Term) are based on parameters that are standard in the Chilean market. The following table shows how ICONTEC assessed the main parameters used in the cash flow: Table 6. Investment Parameters Analysis Parameter Value Source Validation Analysis 6 The audit team verified the value of the lending rate reviewing the data on the World Bank webpage: The value of the lending rate at decision making moment is 10.1%, hence the audit team consider the lending rate used by the PP as credible and reliable. Page 28 of 81

29 Parameter Value Source Validation Analysis Net energy generation GWh/year Final report "Recurso eólico el pacifico y la cebada.pdf" Barlovento April 2012 /4/ In assessing whether the energy generation has been defined correctly, ICONTEC used the Guidelines for the reporting and validation of plant load factors /UN5/, and verified that the third-party generation study /3/ described by the PP as the documental source of this value, was provided by Barlovento Recursos Naturales S.L. 7. The Plant Load factor for El pacific is 30.17% and for La Cebada is 30.41% In accordance with the clause 3 (a) of the mentioned Guidelines /UN5/, ICONTEC deemed this value as credible and reliable. Capacity Price See sheet Energy tariff column H Spreadshe et used for financial analysis /10/ Energy capacity price projections of the CNE available at the moment of decision making 8 Link In order to assess the reliability of these values, ICONTEC reviewed the technical reportr for Node Price Fixing /22/. Also the audit team verified the compliance with the Supreme Decret 62/ therefore this value used by the PP in its cash flow assumption were considered by ICONTEC as credible and reliable. Energy Price Renewable energy certificates See sheet Energy tariff column G Spreadshe et used for financial analysis /10/ USD$ 14/MWh Energy price projections of the CNE available at the moment of decision making Law /2008 In order to assess the reliability of these values, ICONTEC reviewed the technical report for connection points 10 available at the investment decision time October This report states that the energy price for electricity generation purposes was USD$ 56,254 for October 2011, USD$ 55,674 for April 2012 and USD$ 54,484 for October The average of these values is USD$ This value was increased year by year using the inflation rate. Therefore this value used by the PP in its cash flow assumption were considered by ICONTEC as credible and reliable. The value of these certificates is based on the rules established in the Law /2008. As audit team verified by means of documental review of the following link: Page 29 of 81

30 Parameter Value Source Validation Analysis The truthfulness of the information provided by the PP was checked. ICONTEC reviewed the Project Rights signed with Eolic Partners/12/ and the EPC contract in order to verify the investment costs reported in the cash flow file /10/. The EPC contract includes costs like:, equipment, civil works and connection to commercial point (delivery point) Total Investment (including EPC contract and project rights) USD$ 200,250, Project Rights signed Eolic Partners - EPC Contract with The price per kw installed is US$ 1, This unit cost was cross checked by ICONTEC with the one reported in Renewable Power Generation Costs in 2012, An Overview /11/, issued by IRENA, page 33, Figure 4.3 where is described The Total Installed Costs and Weighted Averages of Commissioned and Proposed Large Wind Farms in non-oecd Countries and Regions (>5MW), , for Latin America the typically range is from a low of USD 1,500/kW to around USD 2,500/kW, hence the Investment cost reported for Cururos Wind Farm Project is inside the recognized worldwide range of investment costs reported by IRENA, therefore ICONTEC deems that estimations of investment in the power electricity plants are suitable, reliable and conservative. O&M costs USD$ 3,965,768 per year USD$ 830,000 per year - Contract Signed with Siemens. - Contract Signed with Vestas -Insurance Icontec verified the contracts signed with Siemens /13/ and Vestas /14/, and the usufruct contract signed between Eolic Partners and La Cebada Community /15/ with the aim to trace the data used by the PP in the investment analysis. The audit team confirmed that information used in the spreadsheet used for financial analysis/10/ is credible and verifiable. In order to carry out the crosscheck, ICONTEC deems that as a common practice, O&M costs are usually given as a percentage of investment cost, so this ratio is: 3,5% of income Land Cost ICONTEC could verify that the O&M costs reported by PP (2.39 % of the Investments Costs) are inside the range reported in Renewable Power Generation Costs in 2012, An Overview /17/, issued by IRENA, Page 30 of 81

31 Parameter Value Source Validation Analysis page 46 ICONTEC deems the value used as credible and reliable The audit team verified this value in the EPC contact and it confirmed tha this value y credible and traceable. Equipment cost 10 (for depreciation only) USD$ 54,814,200 Income tax 20% Annual depreciation Civil Works + Infrastructure Annual depreciation equipment 20 years 10 years EPC Contract First CategoryTax (Profit Tax) In accordance with Chilean accounting standards The value provided by the PP was cross checked by the audit team with the figure reported in Renewable Power Generation Costs in 2012, An Overview /11/, issued by IRENA, page 35, which stated: The largest cost component for offshore wind farms is still the wind turbine, but it accounts for less than half of the total capital costs, hence this value reported for Cururos Wind Farm Project (30% of the EPC contract) is inside the recognized worldwide range of electro-mechanical equipment cost reported by IRENA, therefore ICONTEC deems that estimation of equipment cost is suitable, reliable and conservative. With the aim to assess the value described by the PP, ICONTEC verified the following link: uesto_primera.htm The truthfulness of the information provided by the PP was checked. The depreciation costs are based on the rules established in the Resolution 43/2002 /16/. As audit team verified by means of documental review of the following link: 43.htm The truthfulness of the information provided by the PP was checked. ICONTEC could confirm that the assumptions used are appropriate and the financial calculations made in the file Equity IRR Wind Farm Cururos (11Agost15).xls are correct. With a benchmark of 13.30%, the financial analysis for this project activity states that the Equity IRR of the project without VCS revenues is 9.24%. 10 This cost is included in the Investment Cost Page 31 of 81