Tres Valles Cogeneration Project. Frederik Staun, UNEP Risoe Centre, Carbon finance Belize City August, 2010

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1 Tres Valles Cogeneration Project Frederik Staun, UNEP Risoe Centre, Carbon finance Belize City August, 2010

2 Description of the project Tres Valles Cogeneration Project consists of the installation, in 2004, of more efficient equipment for the better use of the bagasse generated in the production of sugar. Tres Valles also uses sawdust from nearby wood factories, located at some 30 km of the facility, in order to complement their energy demands due to the expansion of sugar production, which was planned already in 2002, and also to address shortage of Bagasse due to excess rain and unforeseen mechanical problems.

3 Description of the project The cogeneration project will generate enough energy not only for powering the sugar mill (thus eliminating the consumption of energy from the grid for the ever expanding capacity of the facility), but also for delivering surplus energy to the national grid. This electricity given to the grid will displace energy that the Government would have provided with a strong use of fossil fuels. This displacement of energy thus creates a reduction of emission of Greenhouse gases. This project also creates social and economical benefits that constitute a real contribution to Honduras sustainable development The Honduran government has done efforts to reduce the country s dependency on fossil fuels. Nevertheless, those initiatives have proved to be very modest in promoting the development of projects in renewable energies different than hydro. The Tres Valles Cogeneration Project thus comes to prove that with the commercialization of CERs, it is viable to develop a generation project in Honduras. This will have a positive effect for the country beyond the evident reductions in GHG. 3

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5 Technology Biomass power conversion technologies for power production can be classified into one of the three following categories: direct combustion technologies, gasification technologies, and pyrolysis. Direct combustion technologies, such as the used in Tres Valles, are probably the most widely known option for simultaneous power and heat generation from biomass. It involves the oxidation of biomass with excess air in a process that yields hot gases that are used to produce steam in boilers. The steam is used to produce electricity in a Rankine cycle turbine. At full capacity, Tres Valles is expected to generate 43,537 MWh per crop that will displace energy from the grid by both avoiding the consumption of power from the grid in the project and by delivering clean energy to the grid. Tres Valles has already signed a Power Purchase Agreement with national energy company ENEE for the purchase of the power delivered to the grid. The biomass based high pressure power generation technology is known in Honduras, although it has been used for commercial purposes in very few cases.

6 Emission reduction The chosen crediting period for this project is the renewable crediting period. For the first crediting period, the project is expected to reduce 115,351 tco2e: Years Annual estimation of emission reductions in tonnes of CO2: Total estimated reductions (tonnes of CO2) 115, : 5, : 14, : 15, : 16, : 19, : 21, : 21,934 Total number of crediting years: 7 Annual average over the crediting period of estimated reductions (tonnes of CO2) 16,479

7 Baseline additionality The project is valid because the old and less efficient equipment is replaced by the new and more efficient one. This change would have occurred without the incentives of the CDM at the end of the lifetime of the old equipment. For Tres Valles Cogeneration Project, it was estimated that the replaced equipment at the time of the replacement still had over 30 years of life. This corresponds to typical average technical lifetime of this type of equipment in this industry in Honduras According to the manufacturers, this kind of equipment has a technical lifetime of over 30 years, and common practice in Honduras shows that sugar mill equipment can be used, with good maintenance, for over 60 years.

8 Additionality Honduras has tried to reduce its dependency on fossil fuels but the efforts implemented until now have proved not very useful. The registration of the CDM project activity will contribute to solve this situation, giving incentives to clean energy generation. The revenues from the sale of the CERs would increase the project s Internal Rate of Return, thus making it possible for the project owner to be righteously compensated for the additional risk undertaken. The sale of the emission reductions will help diversify the income of Tres Valles, a company with debts in dollars and business mainly in Lempiras. This hard currency revenue would help Tres Valles hedge against depreciation/ exchange rate risk.