Report No: QT-CDM /11

Transcription

1 VALIDATION REPORT ZHONGFANG COUNTY PAILOU HYDRO PROJECT, CHINA Report No: QT-CDM /11 TÜV NORD CERT GmbH JI/CDM Certification Program Langemarckstrasse Essen, Germany Phone: Fax: Date: April-17

2 Date of first issue: Project No.: QT-CDM /11 Approved by: Organisational unit: Mr. Eric Krupp Client: Kommunalkredit Public Consulting GmbH Summary/Opinion: Client ref.: Ms. Christine Schaumann (Project Manager) The Kommunalkredit Public Consulting GmbH (KPC) has commissioned the to validate the project: Zhongfang County Pailou Hydro Project, China, with regard to the relevant requirements of the UNFCCC for CDM project activities, as well as criteria for consistent project operations, monitoring and reporting. UNFCCC criteria include article 12 of the Kyoto Protocol, the modalities and procedures for CDM (Marrakech Accords), and the relevant decisions by COP/MOP and CDM Executive Board. The purpose of this project activity is to generate renewable electricity using hydro power available from the water flowing over Wushui river and export it to the connected Central China Power Grid, thereby displacing the grid generated electricity. A risk-based approach has been followed to perform this validation. In the course of the draft validation 15 Corrective Action Requests (CARs) and 10 Clarification Requests (CRs) were raised and successfully closed. The review of the project design documentation and additional documents related to baseline and monitoring methodology; the subsequent background investigation, follow-up interviews and review of comments by parties, stakeholders and NGOs have provided TÜV NORD JI/CDM CP with sufficient evidence to validate the fulfilment of the stated criteria. In detail the conclusions can be summarised as follows: - The project is in line with all relevant host country criteria (China) and all relevant UNFCCC requirements for CDM. Project activity approvals have been obtained from National CDM Authority as DNA of China (Letter of Approval (HCA)) on 20 July 2007 and Austrian DNA (LOA) on 24. September The project additionality is sufficiently justified in the final PDD. - The monitoring plan is transparent and adequate. - The calculation of the project emission reductions is carried out in a transparent and conservative manner, so that the calculated emission reduction of 501,242 tco 2e is most likely to be achieved within the first renewable crediting period (7 years). The conclusions of this report show, that the project, as it was described in the project documentation, is in line with all criteria applicable for the validation. Report No.: Subject Group: QT-CDM /11 Environment Report title: Zhongfang County Pailou Hydro Project, China Work carried out by: Mr. Rainer Winter Mr. Martin Saalmann Mr. LI Yong Jun Indexing terms Climate change CDM Validation Kyoto Protocol No distribution without permission from the Client or responsible organisational unit Work verified by: Mr. Eric Krupp Date of this revision: Rev. No.: Number of pages: Limited distribution Unrestricted distribution Page 2 of 75

3 Abbreviations BAU Business as usual CA Corrective Action / Clarification Action CAR Corrective Action Request CCPG Central China Power Grid CDM Clean Development Mechanism CER Certified Emission Reduction CO 2 Carbon dioxide CO 2e Carbon dioxide equivalent CP Certification Program CR Clarification Request D Document Review DNA Designated National Authority DRC Development and Reform Committee EB CDM Executive Board EIA Environmental Impact Assessment ERPA Emission Reduction Purchasing Agreement GHG Greenhouse gas(es) GWh Giga Watt Hour HCA Host Country Approval I Interview IPCC Intergovernmental Panel on Climate Change LOA Letter of approval issued by Austria DNA LOI Letter of Intent MW Megawatt MWh Megawatt hour ODA Official Development Assistance PDD Project Design Document PHZF Pailou Hydropower of Zhongfang County Co., Ltd. PIN Project Idea Note QC/QA Quality control/quality assurance UNFCCC United Nations Framework Convention on Climate Change Page 3 of 75

4 Table of Contents Page 1 INTRODUCTION Objective Scope GHG Project Description Project Scope Project Parties Project Entities Project location Technical project description 8 2 VALIDATION TEAM METHODOLOGY Validation Protocol Review of Documents Follow-up Interviews Resolution of Clarification and Corrective Action Requests Public Stakeholder Comments Finalising the report 15 4 VALIDATION FINDINGS Participation Requirements Project design Baseline and Additionality Crediting Period Monitoring Plan Calculation of GHG Emissions Environmental Impacts Comments by Local Stakeholders 26 5 COMMENTS BY PARTIES, STAKEHOLDERS AND NGOS VALIDATION OPINION REFERENCES...29 ANNEX : VALIDATION PROTOCOL...34 CERTIFICATES...74 Page 4 of 75

5 1 INTRODUCTION The Kommunalkredit Public Consulting GmbH, Austria has commissioned the JI/CDM Certification Program (CP) of TÜV NORD CERT GmbH to validate the project: Zhongfang County Pailou Hydro Project, China With regard to the relevant requirements for CDM project activities. 1.1 Objective The purpose of this validation is to have an independent third party assess the project design. In particular the project's baseline, the monitoring plan (MP), and the project s compliance with - the requirements of Article 12 of the Kyoto Protocol /KP/ ; - the CDM modalities and procedures as agreed in the Marrakech Accords under decision 17/CP.7 /MA/ ; the annex to the decision; - subsequent decisions made by COP/MOP & CDM Executive Board; - other relevant rules, including the host country (China) legislation and sustainability criteria are validated in order to confirm that the project design as documented is sound and reasonable and meets the stated requirements and identified criteria. Validation is seen as necessary to provide assurance to stakeholders on the quality of the project and its intended generation of certified emission reductions (CERs). 1.2 Scope The validation scope is given as an independent and objective review of the project design, the project s baseline study and monitoring plan (based on ACM0002, Version 06: Consolidated baseline methodology for grid-connected electricity generation from renewable sources ), which are included in the PDD /PDD2/ and other relevant supporting documents. The items covered in the validation are described below: UNFCCC & Host Country Criteria - UNFCCC/Kyoto Protocol requirements, in particular, o the requirements of the CDM as set out in decision 17/CP.7 (Marrakech Accords) /MA/, o the present annex, and o relevant decisions by COP/MOP & CDM Executive Board - Host country requirements / criteria Page 5 of 75

6 CDM Project Description - Project design - Project boundaries - Predicted CDM project GHG emissions Project Baseline - Baseline methodology - Baseline GHG emissions - Additionality Project Additionality Monitoring Plan - Monitoring methodology - Indicators/data to be monitored and reported - Responsibilities Background investigation and follow up interviews Global Stakeholder consultation - Publishing the PDD /PDD1/ on TUV NORD website - Review of comments Draft validation reporting with CARs & CRs, if any Final validation reporting. The information included in the PDD /PDD1/, PDD2/ and the supporting documents were reviewed against the requirements and criteria mentioned above. The TÜV NORD CERT GmbH JI/CDM CP has, based on the recommendations in the Validation and Verification Manual /VVM/, employed a risk-based approach in the validation, focusing on the identification of significant risks for project implementation and the generation of CERs. The validation is based on the information made available to TÜV NORD JI/CDM CP and on the contract conditions. The validation is not meant to provide any consulting to the project participant. However, stated requests for clarifications and/or corrective actions may provide input for improvement of the project design. 1.3 GHG Project Description Project Scope The considered GHG project can be classified as a CDM project in the sector given in Table 1-1 (according to List of Sectoral Scopes of UNFCCC). Page 6 of 75

7 Table 1-1: Project Scope No. Project Scope 1 Energy Industries (renewable - / non-renewable sources) Project Parties China as a non Annex-I party is involved in the project activity. Austria as Annex-I party is involved in the project activity Project Entities The following entities are involved in the developing of the project: Project Participant: Pailou Hydropower of Zhongfang County Co., Ltd. 4th Floor of Huaihua Electric Power Mansion, Zhongfang County, Huaihua City Hunan Province ZIP , People s Republic of China. Contact person: Mr. Wei Zeng (project manager) Zenwei268@163.com Project Participant: Contact person: Kommunalkredit Public Consulting GmbH (KPC) Türkenstrasse Vienna Austria Ms. Christine Schaumann (project manager) c.schaumann@kommunalkredit.at Project Consultant: Contact Person: Hunan CDM Project Service Center 59 Bayi Road, Changsha, Hunan, People s Republic of China Mr. Hengzhi Xu cdmxhz@163.com Page 7 of 75

8 1.3.4 Project location The project site is located at Pailoujie Village, Zhongfang County, Huaihua City, Hunan Province, P.R.China. Table 1-2: Project Location No. Host Country Region: Project location address: Latitude: Longitude: Project Scope China Hunan Province Pailoujie Village, Zhongfang County, Huaihua City, Hunan Province, P.R.China N E Technical project description The proposed project activity is a new-build hydroelectric power plant; the installed capacity is 18.9 MW, served by 3* 6.3 MW turbines. The main construction of the project includes reservoir, overflow cofferdam, powerhouse, switch station. The expected annual net supplied electricity is 75,818.5 MWh and will be exported to the Central China Power Grid (CCPG), which includes Henan Province, Hubei Province, Hunan Province, Jiangxi Province, Sichuan Province and Chongqing Municipality. There is no electricity imported from the other regional grids in China to CCPG. As the new-build hydropower project is a renewable energy project, it is intended to reduce CO 2 emissions through displacing the electricity generated by mostly fossil fuel based power plants connected to the CCPG. The surface area of increased flooded area at the full reservoir level of the project is 0.91 km 2 /MSA/ and the power density of the project is calculated to be 21 W/m 2 (more than10 W/m 2 ). The estimated amount of emission reductions over the chosen 7-year renewal crediting period is 517,482 tco 2e (acc. to the final PDD submitted on 01/04/2008) during 01/10/2008 to 30/09/2015. Page 8 of 75

9 2 VALIDATION TEAM The Validation team was led by: - Rainer Winter. Mr. Winter works at TÜV NORD CERT GmbH as ISO 9001/ Auditor and environmental verifier for EMAS. He is also an approved emission verifier within the European Emission Trading Scheme. Mr. Winter is an authorized JI/CDM assessor and is in charge of the TÜV NORD JI/CDM Certification Program. For this validation he was assisted by: - Yong Jun Li, TUV NORD Shanghai, China. Mr. Li, Dipl. in Environment Technology, is a TÜV-CERT Lead auditor for ISO 9001/14001 and OHSAS Currently he is In-charge-CDM Services for TÜV NORD China operation. He is an appointed assessor for JI/CDM certification program of TÜV NORD CERT GmbH and participated already in several CDM project (pre-) validations. - Martin Saalmann, TÜV NORD CERT GmbH, is an appointed JI/CDM Expert in the JI/CDM Certification Program of TÜV NORD. The validation report is verified by: - Eric Krupp. He is an expert in the field of environmental approval procedures as well as national and international Emission Trading. He worked in different projects in the framework of the German allocation procedure and the verification of the annual CO2 emission reports. Mr. Krupp is an appointed JI/CDM assessor and the deputy of TÜV NORD JI/CDM certification program. Page 9 of 75

10 3 METHODOLOGY The validation of the project was carried from Jan. 07 to July. 08. It was divided into two phases: the pre-validation and the validation phase. The pre-validation consisted of the following three phases: A desk review of the PDD /PDD1//PDD2/ (incl. annexes) and supporting documents with the use of a customised validation protocol /CPM/ according to the Validation and Verification Manual /VVM/ ; Back ground investigation and follow-up interviews with personnel of the project proponent, the consultant, legal authorities and other stakeholders; Reporting of validation findings taking into account the public comments received on TUV NORD website. The validation report includes Corrective action and Clarification Requests (CAR and CR) identified in the course of this validation. A Corrective Action Request is established if mistakes have been made in assumptions or the project documentation which directly will influence the project results, the requirements deemed relevant for validation of the project with certain characteristics have not been met or there is a risk that the project would not be registered by the UNFCCC or that emission reductions cannot be verified and certified. A Clarification Request is issued where information is insufficient, unclear or not transparent enough to establish whether a requirement is met. The final validation started after issuance of proposed corrective action (CA) of these CAR and CR by the project proponent. The validator has assessed the proposed CA with a positive result and after the closure of these CAR and CR the project proponent has issued the final version of the PDD /PDD2/. On the basis of this the final validation report and opinion were issued. 3.1 Validation Protocol In order to ensure consideration of all relevant assessment criteria, a validation protocol was used. The protocol shows, in a transparent manner, criteria and requirements, means of validation and the results from pre-validating the identified criteria. The validation protocol serves the following purposes: - It organises, details and clarifies the requirements that a CDM project is expected to meet; Page 10 of 75

11 - It ensures a transparent validation process where the independent entity will document how a particular requirement has been validated and the result of the determination. The validation protocol consists of three tables: Table 1 (Mandatory Requirements); Table 2 (Requirement Checklist); and Table 3 (Resolution of Corrective Action and Clarification Request) as described in Figure 1. The completed validation protocol is enclosed in Annex I to this report identifying 15 Corrective Action Requests and 10 Clarification Requests. Page 11 of 75

12 Validation Protocol Table 1: Mandatory Requirements Requirement Reference Conclusion Cross reference The requirements the project must meet. Gives reference to the legislation or agreement where the requirement is found. This is either acceptable based on evidence provided (), or a Corrective Action Request (CAR) of risk or non-compliance with stated requirements. The corrective action requests are numbered and presented to the client in the Validation report. Used to refer to the relevant checklist questions in Table 2 to show how the specific requirement is validated. This is to ensure a transparent Validation process. Validation Protocol Table 2: Requirement checklist Checklist Question Reference Means of verification (MoV) Comment Draft and/or Final Conclusion The various requirements in Table 1 are linked to checklist questions the project should meet. The checklist is organised in seven different sections. Each section is then further sub-divided. The lowest level constitutes a checklist question. Gives reference to documents where the answer to the checklist question or item is found. Explains how conformance with the checklist question is investigated. Examples of means of verification are document review (DR) or interview (I). N/A means not applicable. The section is used to elaborate and discuss the checklist question and/or the conformance to the question. It is further used to explain the conclusions reached. This is either acceptable based on evidence provided (), or a Corrective Action Request (CAR) due to non-compliance with the checklist question (See below). Clarification is used when the validation team has identified a need for further clarification. Validation Protocol Table 3: Resolution of Corrective Action and Clarification Requests Draft report clarifications and corrective action requests Ref. to checklist question in table 2 Summary of project owner response Validation conclusion If the conclusions from the draft Validation are either a Corrective Action Request or a Clarification Request, these should be listed in this section. Reference to the checklist question number in Table 2 where the Corrective Action Request or Clarification Request is explained. The responses given by the Client or other project participants during the communications with the validation team should be summarised in this section. This section should summarise the validation team s responses and final conclusions. The conclusions should also be included in Table 2, under Final Conclusion. Figure 1: Validation protocol tables Page 12 of 75

13 3.2 Review of Documents The draft PDD /PDD1/ and final PDD /PDD2/ submitted by project consulter (Hunan CDM Project Service Center) in Jan and in April 2008 and supporting background documents related to the project design and baseline were reviewed. Furthermore, the validation team used additional documentation by third parties like host party legislation, technical reports referring to the project design or to the basic conditions and technical data. The documents that were considered during the validation process are given in chapter 7 of this report. They are listed as follows: Documents provided by the project proponent (Table 7-1) Background investigation and assessment documents (Table 7-2) Websites used (Table 7-3). In order to ensure the transparency of the decision making process, the reference codes listed in tables 7-1 to 7-3 are used in the validation protocol and as far applicable in the report itself. 3.3 Follow-up Interviews On 12 th March 2007, the TÜV NORD JI/CDM CP performed the on-site interview with the project proponent, project developer and plant operating personnel to confirm selected information and to resolve issues identified in the document review. The key interviewee and main topics of the interviews are summarised in Table 3-1. Table 3-1 Interviewed persons and interview topics Interviewed Persons / Entities Project proponent representatives /IM01/ Interview topics - Chronological description of Project with documents of key steps - Technical details of the project realisation- project feasibility, designing, engineering, operational life time - Host Country Approval - Likely involvement of Annex-I Party - Approval procedures and status - Quality and environmental management system - Monitoring and measurement equipment - Financial aspects - Government Incentives for hydro projects based projects - Crediting period and its starting date - Project activity starting date. - Power Purchase Agreement Page 13 of 75

14 Interviewed Persons / Entities Interview topics - Sustainable development issues - Hydro geological survey - Analysis of local stake holder consultation process - Roles & responsibilities of the staff members w.r.t project management, monitoring and reporting - Technical specification data: capacity of turbines, power evacuation and transmission, expected PLF, energy generation - QC testing and calibration procedures and facility Local stakeholder /IM02/ Consultant (Hunan CDM Project Service Center) /IM03/ - Sustainable issues - Project related legal requirements and policies - Editorial aspects of PDD /PDD1/ - Methodology selection aspects - Base line study, project emissions, leakage and additionality - Details of emission reduction calculation A detailed list including the functions or designations of the interviewed persons is given in chapter 7 (see Table 7-4). This table also includes reference codes to be used in the validation protocol. 3.4 Resolution of Clarification and Corrective Action Requests In order to remedy any mistakes, problems or any other outstanding issues which needed to be clarified for positive conclusion on the project design, CARs and CRs were raised. In this validation report 15 CARs and 10 CRs are raised. The CARs / CRs are documented in the Annex and addressed in section Public Stakeholder Comments The PDD was made publicly available through TÜV NORD JI/CDM CP web site Comments on the PDD /PDD1/ were invited within 30 days, i.e Jan-13 to 2007-Feb-12. No comments were received. In case comments would have been received, they would have also been made publicly available on this web site. Page 14 of 75

15 3.6 Finalising the report The draft validation report containing a set of CARs & CRs was submitted to the project proponent. The project design document was revised addressing the CARs & CRs issued by TÜV NORD JI/CDM CP. After reviewing the revised and resubmitted project documentation /PDD2/ ; resolving the CRs & CARs rose and outstanding concerns, TÜV NORD JI/CDM CP issues this final validation report and opinion. In the course of this validation the most recent version of the CDM-PDD template, i.e. Ver. 03.1; the valid version (Ver. 06) of the applied methodology ACM0002 are used and form the basis of the validation opinion. Page 15 of 75

16 4 VALIDATION FINDINGS In the following paragraphs the findings from the desk review of the draft PDD /PDD1/, visits, interviews and supporting documents are summarised. This also includes the corresponding corrective action taken by the client and its final assessment. The results are shown in table 4-1: Table 4-1: Summary of CAR and CR issued Validation topic 1) No. of CAR No. of CR General description of project activity (A) - Project boundaries - Participation requirements - Technology to be employed - Contribution to sustainable development Project baseline (B) - Baseline Methodology - Baseline scenario determination - Additionality determination - Calculation of GHG emission reductions Project emissions Baseline emissions Leakage - Emission reductions - Monitoring Methodology - Monitoring of Project emissions Baseline emissions Leakage Sustainable development indicators / environmental impacts - Project management planning Duration of the Project / Crediting Period (C) 2 - Environmental impacts (D) - - Stakeholder Comments (E) 1 - SUM ) The letters in brackets refer to the validation protocol For an in depth evaluation of all validation items it should be referred to the validation protocol (Annex). The Annex also includes all CARs and CRs (Table 3). Page 16 of 75

17 4.1 Participation Requirements The project participants are Pailou Hydropower of Zhongfang County Co., Ltd. from P.R. China and Kommunalkredit Public Consulting GmbH Austria, (KPC). In the first version PDD /PDD-1/ China Carbon Advisory network Consulting GmbH (CCAN) from Austria was indicated. However, they voluntary withdrawn as project participant is indicated in the corresponding document of voluntary withdrawn /VWL/. P.R. of China as a non Annex I party meets all relevant participation requirements. The Letter of Approval /HCA/ dt. 20/07/2007 was issued by the Chinese DNA, National Development and Reform Committee. Austria as the Annex 1 party meets all the relevant participation requirements. In the Letter of Approval /LOA/ dated 24/09/2007, Austrian Federal Ministry of Agriculture, Forestry, Environment and Water Management confirmed the voluntary participation of Kommunalkredit Public Consulting GmbH in this CDM project activity according to Kyoto Protocol, and further states that public funding was not used for purchase of the CERs. 4.2 Project design The project activity is a new-build hydroelectric power plant and intended to reduce CO 2 emissions through displacing the electricity generated by mostly fossil fuel based power plants connected to the CCPG. The installed capacity is 18.9 MW, served by 3* 6.3 MW turbines. The main construction of the project includes reservoir, overflow cofferdam, powerhouse, switch station. There is no electricity imported from other regional grids in China to CCPG. The implemented technology e.g. turbines and generators are available in China. The project activity does not involve any transfer of technology. The technology being used is environmentally safe and sound. According to sustainable development various social, economic and environmental benefits are achieved. The project activity would result in greenhouse gas emission reductions, while also enhances the employment of the local people during the construction and operation period of this hydro plant. Based on the financial information provided by the project participants, no ODA contributes to the financing of the project. The geographical scope (Pailoujie Village, Zhongfang County, Huaihua City, Hunan Province, P.R.China) and the renewable crediting period (01/10/ /09/2015), as well as the operational lifetime (30 years) are clearly defined. Nevertheless, CAR A1-A2, CR A1-A2 had to be raised in the course of the validation and were successfully closed (ref Annex: Validation Protocol - Table 3). Page 17 of 75

18 4.3 Baseline and Additionality The selected baseline methodology is the approved baseline methodology Consolidated baseline methodology for grid-connected electricity generation from renewable sources (ACM0002 Ver.06). The ER y of the project activity during the crediting period is the difference between the baseline emission (BE y ), project emission (PE y ) and leakage (L y ). Baseline emission: BE y is calculated by multiplying the electricity baseline emission factor or grid emission factor (EF y ) and the electricity exported to the CCPG (EG y ). The grid emission factor (EF y ) is determined ex-ante and estimated as a combined margin (CM), consisting of the weighted average of operating margin (EF OM ) and build margin (EF BM ) factors. The calculation method of the OM and BM is derived from the guidance of OM and BM calculation issued by Chinese DNA on 15 th Dec EF OM,y calculation: Due to the fact that low-cost must run resources constituting less than 50% of the total grid generation and that data for Dispatch Data Analysis is not available, the simple OM emission factor (EF OM,y ) calculation method is chosen. The OM factor is calculated as generation-weighted average emissions per electricity unit (tco 2 /MWh) of all generating sources serving the system (not including the low-cost and must-run power plants) of three years average data ( ). The EF OM,y is calculated to be tco 2e /MWh. EF BM,y calculation: Due to the data unavailability at the power plant level in China and in accordance to the clarification on use of approved methodology AM0005 for several projects in China from EB, the build margin is calculated as following: 1. The capacity additions from the years is chosen and exceed 20% (30.2 %) of the total installed capacity. 2. The BM is calculated as: tco 2e /MWh. In accordance with ACM0002 weight factors of w OM = w BM = 0.5 have been used and the resultant grid emission factor (EF y ) works out as tco 2e /MWh. The calculation of EF y is currently and publicly available and published by the Chinese DNA on its web-site /BGC/. The validation team is convinced of the result of the emission coefficient calculation. It is deemed to be adequate and transparent. Project emission: The proposed project is a new hydropower station, the power density (21 W/m 2 ) is calculated based the monitoring records of newly increased submerged area /MSA/ and installed capacity 18.9 MW. According to baseline methodology ACM0002, the project emissions can be ignored. Leakage: In compliance with ACM0002 leakage must not be considered. The annual net generated electricity is estimated to be 75,818.5 MWh. Altogether the project activity reduces emissions of tco 2e /yr. Nevertheless, CAR B1-B2, CAR B6-B9 and CR B6 had to be raised and were successfully closed (ref Annex: Validation Protocol - Table 3). Page 18 of 75

19 Additionality In accordance with ACM0002 additionality was demonstrated acc. to the valid version (Ver. 4) of the Tool for demonstration and assessment of additionality. The arguments to justify the additionality were summarised in table 4-2. This table also includes the assessment of the validation team Table 4-2: Additionality assessment Step 1) Argument PP Assessment of the validation team 1a 1b Possible alternatives for the project activity are: 1. The project activity not undertaken as a CDM project; 2. Construction of a fossil fuel-fired power plant with equivalent annual electricity; 3. Construction of a power plant using other renewable energy to supply equivalent annual electricity generation; 4. Equivalent annual electricity supplied by CCPG (continuation of current practice). The alternatives 1, 3 and 4 mentioned above are in compliance with the applicable legal and regulatory requirements. The alternative 4 is assessed as a realistic and credible alternative. The other alternatives given in step 1a cannot be considered as realistic alternatives because: Alternative 1 faces several barriers as given in step 2. The alternative 2 is not in compliance with Chinese laws. The alternative 3 was excluded due to non availability of renewable resources (e.g. photovoltaics, tidal/wave, hydro, geothermal and renewable biomass etc) at the project site. In conclusion only alternative 4 remains as a plausible and credible alternative. Alternatives 1, 3 & 4 are in line with the national regulations. step passed step not passed not applicable 2a Option III: bench mark analysis is selected for the investment analysis. In accordance with the Additionality Tool, the option III is selected and deemed to be appropriate. 2b The benchmark of 10 % expected Internal Rate Return (IRR) after tax of total investment as defined in the Economic Evaluation Code for Small Hydropower Projects (SL16-95) approved by Water Resources Ministry of P. R. The document was assessed to be appropriate as source for benchmark. According to Chinese legislation all hydro power stations below 50 MW capacity are defined to be small and thus apply the benchmark of 10 %. Also hydro projects registered under CDM step passed step not passed not applicable (step 2 or 3 has to be passed) Page 19 of 75

20 Step 1) Argument PP Assessment of the validation team China, has been identified as financial indicator for benchmark analysis. applying this benchmark. 2c The project IRR (without CDM revenue) is 7.54 % which is less than the identified benchmark of 10 %. The project IRR is one of the accepted financial indicators for assessing Additionality. PP has calculated IRR for the project activity on after-tax basis and compared the same with the IRR of 10 % defined in the Economic Evaluation Code for Small Hydropower Projects (SL16-95), which is the benchmark. The interest rate (5.76 %) on the loan contracted by the PP was considered in the tax calculation. The static investment was used for IRR calculation. The IRR calculation was reproduced by the validation team. The parameters used for the IRR calculation were derived from the Projects Preliminary Design Report /PDR/ and evaluated to be credible and were proved by documented evidence. 2d Sensitivity Analysis by varying of four critical parameters (electricity tariff, total investment and, net electricity generation annual O&M cost) confirms that the proposed project activity is unlikely to be financially attractive. The sensitivity analysis concludes that the project activity is unlikely to be financially attractive. The sensitivity analysis was reproduced by the validation team and evaluated to be correct. Page 20 of 75

21 Step 1) Argument PP Assessment of the validation team 4 a, b The officially published statistics in China Water Resource Yearbook 2006 and the results of Investigation report of hydropower Plants with installed capacity above 15MW operation since 2002 in Hunan province which compiled by Hunan Hydro & Power design Institute (3 rd party), were used for the common practice analysis, 6 hydropower plants with capacity MW and operated after 2002 were identified for the analysis. The analysis shows that most of identified projects were developed by state companies and supported by the government fund, the average unit costs were between 1.21~ 1.96 RMB /kwh. The statistics presented above clearly indicates that the proposed project is not a common practice in this region (Hunan province) at the time of PDD preparation. Argument not justified Argument not convincing Argument justified but not decisive Argument justified / significant The data source presented was checked by the validation team. The information used is evaluated to be credible. The underlying statistics show that the proposed project is not common practice in this region at the time of PDD submission. step passed step not passed not applicable Assessment of the validation team project is additional project is not additional 1) acc. to Additionality Tool The additionality of the project has been demonstrated by the Investment Analysis routes. The PP calculated the project IRR of the proposed activity and compared it to a benchmark. The parameters used for the IRR calculation were derived from the Preliminary Design Report /PDR/, the increased budget for land compensation issued by Local Resettlement Bureau /BLC/, the Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. /FAR/, the power purchasing agreement /PPA/ and the purchasing contract of turbine and generators /PTG/. A detailed evaluation of the basic parameter for IRR calculation is provided in table 4 attached in the Annex of this report. In addition a sensitivity analysis was conducted to check the robustness of the calculated IRR. Following parameters were taken into account: Electricity tariff Net electricity generation Total investment Annual O&M cost Page 21 of 75

22 The benchmark analysis along with sensitivity analysis confirms that the project activity (w/o CDM benefits) is unlikely to be financially attractive. The officially published statistics in China Water Resource Yearbook 2006 and the results of Investigation report of hydropower Plants with installed capacity above 15MW operation since 2002 in Hunan province which compiled by Hunan Hydro & Power design Institute (3rd party), were used for the common practice analysis, 6 hydropower plants with capacity MW and operated after 2002 were identified for the analysis. Most of identified projects were developed by the state companies and supported by the government fund or tariff policy, the average unit costs were between 1.21~ 1.96 RMB/kWh). The official statistics presented under steps 4a) and 4b) of the PDD clearly indicates that carrying out a project similar to the proposed project as a private entity is not a common practice at the time of the PDD preparation. The validation team arrived at the opinion that the project activity can be assessed to be additional and is not a BAU case. Nevertheless, CAR B3-B6, CR B1-B5 had to be raised and were successfully closed (ref Annex: Validation Protocol Table 3). Assessment of the increased investment costs, regarding the land compensation from March 2004 As mentioned in the timeline of CDM development in this report, the project PDR was approved in Sep After the approval of PDR and during the practice investigation of land occupation which was conducted by local authority in March 2004 /BLC/ the cost estimation for land compensation in PDR was found out to be inaccurate, due to the following facts: 1. Land function change: some lands which were clarified as dry lands in PDR were planted by local farmer and were also paid for agricultural tax. So according to relevant land compensation standard, the budget was increased accordingly. Namely Million RMB /BLC/. 2. Missing items during the PDR: in particular on submerged area and recovery engineering, 3.71 million RMB was raised /BLC/. The detailed statistics and calculations were submitted to the validation team and assessed to the correct and credible. 3. Increase of the price for land compensation: the price of land compensation was regulated in the relevant national and province documents with discussible tolerance. Since the price estimated in PDR was relative lower. Therefore additional 7.9 million RMB was adjusted in the compensation budget of land requisition of Pailou hydropower project /BLC/ The data source of increased cost for land compensation, namely the document of Compensation Budget of Land Requisition of Pailou Hydropower Project /BLC/ was finalized by local authority in consultation with local common practice and was assessed by the validation team during the validation and evaluated to the credible. Page 22 of 75

23 Also, according to the Examination and Acceptance Report of Land Requisition and Resettlement Engineering of Pailou Hydropower Plant which was issued by Land Requisition and Resettlement Bureau of Zhongfang County in March 2007 based on the actual costs indicated in receipts and contracts, the cost for land compensation was million RMB, which is higher than the value (47.29 million RMB ) used for IRR calculation. Furthermore, to test the influence caused by the increased cost on IRR calculation, a separate IRR without the increased land compensation cost was made by PP, it figured out that, even without the consideration of increased cost (11.98 million RMB ), the IRR (8.27%) is still below than the benchmark rate 10%. In conclusion, based on specific local and sectoral expertise after careful and detailed assessment of this parameter used in the PDD, the validation team was convinced and come to the opinion that the input values of increased land compensation cost was valid and applicable at the time of the investment decision. The requirements of EB 38 paragraph 54(c) guidance are fully met. CDM prior consideration and the actions taken to secure the CDM status in parallel with the project s implementation As the project preliminary design report was finalized in August 2003, the project IRR was calculated as 10.27% /PDR/. After the practical investigation of land occupation and compensation, the budget for land compensation increased to ten thousand RMB /BLC/. Furthermore the confirmed tariff (0.25 RMB/kWh) which was defined in the power purchasing agreement /PPA/ was lower than the tariff estimated in the PDR (0.3 RMB/kWh); so the project was facing investment barrier. In March 2004, PHZF commissioned a certified accountant agent to assess the project financial situation, considering the increased land compensation cost and actual low electricity tariff. The IRR was calculated as 7.54 % /FAR/ and the project was evaluated as financial unattractive/ MMD-1/. In May 2004 the PHZF was informed about the possibilities of CDM and recognized that the revenue from CDM could help to overcome the investment barrier /MCDMI/. At the directors meeting on 8 th June, 2004, the PHZF decided to develop the project as a CDM activity /MMD-2/. The CDM development agreement (in form of letter of intent) was signed /CDMDA/ and on 18 th July 2004 the application letter of CDM development was also confirmed by the local DRC /CLCDM/. Subsequently,, the construction permission was issued by the local authority on 1 st August 2004 /SD/. On 31 st Aug. 2004, the bank loan was approved by China Construction Bank (Huaihua Branch) in which CDM was defined as a prerequisite condition. Short after that, on 03 rd Sep. 2004, the turbine and generator purchasing contract was signed, and project construction was started on 28 th Sep Six months later, on 16 th March 2005, a formal CDM contract was signed, at the meantime, to efficiently Page 23 of 75

24 process the CDM development, a CDM team was established by PP, and the relevant training and project information collection and on-site investigation were conducted in the following 9 months. On 24 th Dec. 2005, the PIN was finalized and submitted to Ministry of Science and Technology of the People s Republic of China and Tsinghua University for assessment and buyer search. On 23 rd June 2006, the LOI of CERs Purchase was signed with Austrian buyer (CCAN), less than 1 month, the stakeholder consultation was conducted and the ERPA was signed on 06 th Sep with CCAN. 2 months later, on 10 th Nov. 2006, the PDD was finalized and the proposed project was submitted to China DNA for participation approval. The validation was started on 13 th Jan (date of global stakeholder consultation). Finally, the project was commencing in May On 20 th June 2007, the former CERs buyer was voluntary withdrawn from the participation and 2 nd ERPA was signed by KPC and PP. The LOAs from the host country (China) and annex 1 country (Austria) were received on 20 th July 2007 and 24 th Sep The submitted evidences/references provided by PP were checked and verified by the validation team and assessed to be reliable. It is the opinion of validation team, that CDM was seriously considered before the project activity started and continuous and real actions were taken to secure the CDM status for the project activity in parallel with its implementation following the guideline from paragraph 5b Annex 46, EB Crediting Period The intended crediting period of the project is 7 years; the first crediting period is from 01/10/2008 to 30/09/2015. The starting date of the crediting period is 01/10/2008 or a date not earlier than the date of registration in accordance with 12 of CDM modalities and procedures. The starting date of the project activity as mentioned in the PDD under Section C.1 and verified by the validation team, is 01/08/2004 which is indicated in the project construction permission issued by Huaihua Water Resources Bureau. The project life time (30 years) indicated in the Section C.1.2 of the PDD was verified by the validation team. In the context of starting date of the project activity and the crediting period CAR C1 and CAR C2 were raised and successfully closed (ref Annex: Validation Protocol Table 3). 4.5 Monitoring Plan The project applies the monitoring methodology ACM0002 for grid-connected electricity generation from renewable sources. The project methodology consists of Page 24 of 75

25 1. Metering the electricity supplied by the project activity to the grid (EGy-ex), the electricity imported from the grid (EGy-im) and the net electricity supply (EGy) which will be calculated by subtracting the electricity imports from the electricity exports. EGy-im and EGy-ex will be measured continuously and recorded monthly, 2. Metering the increased submerged area. The surface of the submerged area before and after water storing will be monitored by a 3 rd party before the project operation. The power density is calculated as the project capacity divided by the increased submerged area. The OM and BM are calculated as fixed factors for the renewable crediting period by choosing data based on ex-ante data published by Chinese DNA. The procedure for calibration, accuracy and maintenance of monitoring equipment are clearly mentioned as per QA/QC procedure in the PDD. Nevertheless, according to the applied monitoring methodology ACM0002 ver.06, the EG y, supplied, (Electricity supplied to the grid by the project) should be listed and monitored. However, for the purpose of conservativeness, the PP was requested to change the EG y,supllied to EG y, net, which is calculated as the difference of EG y,supplied and EG y, imported. Therefore the CAR B9 was raised. CAR B9-10, CR B6 had to be raised and were successfully closed (ref Annex: Validation Protocol Table 3). 4.6 Calculation of GHG Emissions Methodologies for calculating emission reductions are documented. Emissions from the project activity mustn t be considered as the power density (21 W/m²) is greater than 10 W/m². As per ACM0002 project participants do not need to consider emissions from leakage. Thus emission reductions are derived from the emission coefficient of the CCPG multiplied with the net electricity generation. The calculations are documented transparently in section B.6.3 and in Annex 3 of the PDD. The calculations of the baseline emission and emission reduction are documented in section B.6.3 and in Annex 3 of PDD. For assessment please refer to section 4.3 of this report. Acc. to the final PDD the project is expected to reduce emissions of 501,242 tco 2e in the first crediting period. Page 25 of 75

26 4.7 Environmental Impacts An environmental impact assessment was conducted and approved by Environmental Protection Bureau. /EIA/ Environmental impacts of the project activity have been sufficiently addressed. No adverse environmental impacts as well as transboundary impacts have been envisaged from this project activity. 4.8 Comments by Local Stakeholders Stakeholders (including local residents, government officials and migrants) have been directly asked to comment on the project through a questionnaire from July 2006 /SHCQ/. A summary of the comments received and a note on how these concerns are addressed are included in the PDD. Nevertheless, CAR E1 had to be raised and was successfully closed (ref Annex: Validation Protocol Table 3). Page 26 of 75

27 5 COMMENTS BY PARTIES, STAKEHOLDERS AND NGOS According to the modalities for the validation of CDM projects, TÜV NORD JI/CDM CP published the draft PDD /PDD1/ on its website on Jan-13 and invited comments within 30 days, until to 2007-Feb-12 from parties, stakeholders and UNFCCC accredited non-governmental organisations. No comment was received. Page 27 of 75

28 6 VALIDATION OPINION The Kommunalkredit Public Consulting GmbH (KPC) has commissioned the TÜV NORD JI/CDM Certification Program to validate the project: Zhongfang County Pailou Hydro Project, China, with regard to the relevant requirements of the UNFCCC for CDM project activities, as well as criteria for consistent project operations, monitoring and reporting. UNFCCC criteria include article 12 of the Kyoto Protocol, the modalities and procedures for CDM (Marrakech Accords), and the relevant decisions by COP/MOP and CDM Executive Board. The purpose of this project activity is to generate renewable electricity using hydro power available from the water flowing over Wushui river and export it to the connected Central China Power Grid, thereby displacing the grid generated electricity. A risk-based approach has been followed to perform this validation. In the course of the draft validation 15 Corrective Action Requests (CARs) and 10 Clarification Requests (CRs) were raised and successfully closed. The review of the project design documentation and additional documents related to baseline and monitoring methodology; the subsequent background investigation, follow-up interviews and review of comments by parties, stakeholders and NGOs have provided TÜV NORD JI/CDM CP with sufficient evidence to validate the fulfilment of the stated criteria. In detail the conclusions can be summarised as follows: - The project is in line with all relevant host country criteria (China) and all relevant UNFCCC requirements for CDM. Project activity approvals have been obtained from National CDM Authority as DNA of China (Letter of Approval (HCA)) on 20 July 2007 and Austrian DNA (LOA) on 24. September The project additionality is sufficiently justified in the final PDD. - The monitoring plan is transparent and adequate. - The calculation of the project emission reductions is carried out in a transparent and conservative manner, so that the calculated emission reduction of 501,242 tco 2e is most likely to be achieved within the first renewable crediting period (7 years). The conclusions of this report show, that the project, as it was described in the project documentation, is in line with all criteria applicable for the validation. Essen, Essen, Rainer Winter Eric Krupp Validation Team Leader Senior Assessor Page 28 of 75

29 7 REFERENCES Table 7-1: Documents provided by the project proponent Reference Document /AEIA/ Assessment Report of EIA No (dated 28. July 2003) /APDR/ Approval Report of Preliminary Design (No , dated 05. Sep. 2003) /AWSM/ Approval Report of Water and Soil Maintenance Report No , on 13. Nov /BLA/ /BLC/ Bank Loan Approval from the China Construction Bank Huaihua Branch (dated 31. May 2005) Increased budget for land compensation issued by Local Resettlement Bureau (third party document (dated 18.Mar. 2004)) /CDMDA/ CDM development agreement (dated 19. July 2004) /CERE/ Certificate of employees /CLCDM/ Confirmation of CDM application issued by local DRC (dated 18. July 2004) /DTHP/ /EDF/ Hunan Price Bureau Document for tariff of Hydropower Project No. Xiangjiazhong [2004] No. 114 dated 04. Aug.2004 Evidence of damage caused by flood (third party document) /EIA/ Environment impact assessment in July 2003 /FAR/ Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar.2004 ) /HCA/ Host country approval of project activity (dated ) /IRR/ IRR calculation /LOA/ Letter of Approval form Austrian DNA (date ) /MCDMI/ Memo of CDM investigation for proposed project (dated 16.May 2004) /MMD/ 1. Minutes of director meeting on 01. April Minutes of director meeting on 08. June 2004 /MMM/ Monitoring and Project Management Manual Page 29 of 75

30 Reference /MSA/ /PDD1/ /PDD2/ Monitoring records of submerged area Document Draft PDD (dt. 28. August 2006): Zhongfang County Pailou Hydro Project, China Final PDD (dt ): Zhongfang County Pailou Hydro Project, China /PDR/ Preliminary Design Report (dated Aug. 2003) /PHT/ Photographs of progress of construction activity at the project site /PPA/ Power purchasing agreement (dated 03. July 2003) /PTG/ /SD/ /SHCQ/ Purchasing contract of turbine and generators Project construction permission issued by local authority (construction permitted on 01. August 2004) Questionnaire of stakeholder consulting /TPR/ /VWL/ Training Plan and Records for Monitoring Operator Letter of voluntary withdraw from Project Participating announced by CCAN Table7-2: Reference /ACM0002/ /BGC/ /CES/ Background investigation and assessment documents Document Consolidated baseline methodology for grid-connected electricity generation from renewable sources (Version 06: 19 May 2006) Baseline Guidelines from Chinese DNA China Energy Statistics Yearbook /CEY/ China Electric Power Yearbook 2005 /CL/ /CPM/ On-site interview checklist (TUV-NORD China) TÜV NORD JI / CDM CP Manual (incl. CP procedures and forms) /GCP/ UNFCCC: Guidelines for completing CDM-PDD and CDM-NM (Version 06) Page 30 of 75

31 Reference /IPCC-GP/ /IPPC-RM/ Document IPCC Good Practice Guidance & Uncertainty Management in National Greenhouse Gas Inventories, 2000 Revised 2006 IPCC Guidelines for National Greenhouse Gas Inventories: Reference Manual /KP/ Kyoto Protocol (1997) /MA/ /NREL/ Decision 17/CP. 7 (Marrakesh Accords & Annex to decision 17/CP.7) Chinese National Renewable Energy laws /TA/ Tool for the demonstration and assessment of additionality (Ver. 4). /VVM/ IETA, PCF Validation and Verification Manual (V. 4) Table 7-3: Websites used Reference Link Organisation /DNA/ National Development and Reform Commission (DNA of China) /GSEP/ Environment protection bureau Hunan province /HCSC/ Memorabilia.asp Hunan CDM Project Service Center /HVDC/ National power monitoring commission /IPCC/ IPCC publications /UNFCCC/ UNFCCC Table 7-4: List of interviewed persons Reference MoI 1 Name Organisation / Function /IM01/ V Mr. Ms /IM01/ V Mr. Ms WU Mingwen ZENG Lifang Page 31 of 75 Pailou hydroelectric Co. Ltd. / Vice GM Pailou hydroelectric Co. Ltd. / manager

32 Reference MoI 1 Name Organisation / Function of engineering dept. /IM02/ V Mr. Ms /IM02/ V Mr. Ms XIANG Yingxiong Huaihua development and reform committe. / Vice director ZHAO Xianguang Huaihua secience and technology bureau / Vice director /IM02/ V Mr. Ms XU Xianbi Pailou Town / major /IM02/ V Mr. Ms YANG Longsun Zhongfang County. / former major /IM02/ V Mr. Ms Pan Chunfu Luo huan village/ representative of resettled farmer /IM02/ V Mr. Ms WU Hongbo Pailou hydroelectric Co. Ltd. / accountant /IM02/ V Mr. Ms /IM03/ V Mr. Ms. YANG Pingxiang XU Hengzhi Huaihua resettlement bureau / director CDM office of Hunan Province / CDM Specialist 1) Means of Interview: (Telephone, , Visit) Page 32 of 75

33 ANNEX Validation Protocol Page 33 of 75

34 ANNEX : VALIDATION PROTOCOL Table 1: Parties Mandatory Requirements for (CDM) Project Activities Requirement The project shall assist Parties included in Annex I in achieving compliance with part of their emission reduction commitment under Art. 3. The project shall assist non-annex I Parties in contributing to the ultimate objective of the UNFCCC. Reference Draft Conclusion Final Conculsi on Kyoto Protocol Art CAR A1 Kyoto Protocol Art CAR A1 The project shall have the written approval of voluntary participation from the designated national authority of each Party involved. The project shall assist non-annex I Parties in achieving sustainable development and shall have obtained confirmation by the host country thereof. In case public funding from Parties included in Annex I is used for the project activity, these Parties shall provide an affirmation that such funding does not result in a diversion of official development assistance and is separate from and is not counted towards the financial obligations of these Parties. Parties participating in the CDM shall designate a national authority for the CDM. Kyoto Protocol Art. 12.5a, CDM Modalities and Procedures 40a Kyoto Protocol Art. 12.2, CDM Modalities and Procedures 40a Decision 17/CP.7, CDM Modalities and Procedures Appendix B, 2 CAR A1 CAR A1 (no public funding involved) CDM Modalities and Procedures 29 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-34

35 Requirement The host Party and the participating Annex I Party shall be a Party to the Kyoto Protocol. The participating Annex I Party s assigned amount shall have been calculated and recorded. The participating Annex I Party shall have in place a national system for estimating GHG emissions and a national registry in accordance with Kyoto Protocol Article 5 and 7. Additionality Reduction in GHG emissions shall be additional to any that would occur in the absence of the project activity, i.e. a CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity. Forecast emission reductions and environmental impacts The emission reductions shall be real, measurable and give long-term benefits related to the mitigation of climate change. Environmental impacts (only for large scale projects) Documentation on the analysis of the environmental impacts of the project activity, including transboundary impacts, shall be submitted, and, if those impacts are considered significant by the project participants or the Host Party, an environmental impact assessment in accordance with procedures as required by the Host Party shall be carried out. Reference Draft Conclusion CDM Modalities 30/31a CDM Modalities and Procedures 31b CDM Modalities and Procedures 31b Kyoto Protocol Art. 12.5c, CDM Modalities and Procedures 43 CAR B3,B4, B5, Final Conculsi on Kyoto Protocol Art. 12.5b CAR B6, B7 CDM Modalities and Procedures 37c, the EIA is submitted and approved by Huaihua environment protection bureau on 28. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-35

36 Requirement Reference Draft Conclusion July Final Conculsi on Stakeholder involvement Comments by local stakeholders shall be invited, a summary of these provided and how due account was taken of any comments received. CDM Modalities and Procedures 37b Yes, the stakeholder consulting process of EIA and CDM project activity were undertaken. Parties, stakeholders and UNFCCC accredited NGOs shall have been invited to comment on the validation requirements for minimum 30 days, and the project design document and comments have been made publicly available. CDM Modalities and Procedures 40, the PDD was made available for public commenting on from to No comment has been received. Other The baseline and monitoring methodology shall be previously approved by the CDM Executive Board. CDM Modalities and Procedures 37e, approved methodology ACM0002 Ver.06 is used. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-36

37 Requirement A baseline shall be established on a project-specific basis, in a transparent manner and taking into account relevant national and/or sectoral policies and circumstances. The baseline methodology shall exclude to earn CERs for decreases in activity levels outside the project activity or due to force majeure. The project design document shall be in conformance with the UNFCCC CDM-PDD format. Provisions for monitoring, verification and reporting shall be in accordance with the modalities described in the Marrakech Accords and relevant decisions of the COP/MOP. Requirements for small-scale projects only The proposed project activity shall meet the eligibility criteria for small scale CDM project activities set out in 6 (c) of the Marrakech Accords and shall not be a debundled component of a larger project activity. The proposed project activity shall confirm to one of the project categories defined for small scale CDM project activities and use the simplified baseline and monitoring methodology for that project category. If required by the host country, an analysis of the environmental impacts of the project activity is carried out and documented. Reference CDM Modalities and Procedures 45c,d Draft Conclusion CAR B1 CDM Modalities and Procedures 47 CDM Modalities and Procedures Appendix B, EB Decision CDM Modalities and Procedures 37f Simplified Modalities and Procedures for Small Scale CDM Project Activities 12a,c Simplified Modalities and Procedures for Small Scale CDM Project Activities 22e Simplified Modalities and Procedures for Small Scale CDM, the PDD is filled in with version 03 (28. July 2006) of the CDM-PDD Yes Not applicable Not applicable Not applicable Final Conculsi on * MoV = Means of Verification, DR= Document Review, I= Interview Page A-37

38 Requirement Reference Project Activities 22c Draft Conclusion Final Conculsi on Table 2: Requirements Checklist CHECKLIST QUESTION Ref. MoV * COMMENTS Draft Final A. General Description of Project Activity The project design is assessed. A.1. Project Boundaries Project Boundaries are the limits and borders defining the GHG emission reduction project. A.1.1. Are the project s spatial boundaries (geographical) clearly defined? /PHT/ /PDR/ DR I The project activity is located at the Yuanshui River in Zhongfang County of Pailou town, Hunan Province, China. North latitude , east longitude of Please detail the unique identification of the project activity in geographical seconds or provide the full adress (if possible). CAR A2 A.1.2. Are the project s system boundaries (components and facilities used to mitigate GHGs) clearly defined? /BGC/ DR, I The system boundaries of the project are clearly defined. All operations, activities, physical sites and facilities involved in net displacement of grid electricity are included in the project boundary. The spatial extent of the project boundary * MoV = Means of Verification, DR= Document Review, I= Interview Page A-38

39 CHECKLIST QUESTION Ref. MoV * COMMENTS includes the project site and all power plants connected physically to the electricity system, the Central China Power Grid of China. Draft Final A.2. Participation Requirements Referring to Part A, Annex 1 and 2 of the PDD as well as the CDM glossary with respect to the terms Party, Letter of Approval, Authorization and Project Participant. A.2.1. Which Parties and project participants are participating in the project? /VWL/ DR I Two parties: China and Austria The project participants: Zhongfang Pailou Hydroelectric Co., Ltd. (China) and Kommunalkredit Public Consulting GmbH Austria, (KPC). The former project participant (buyer) CCAN China Carbon Advisory network Consulting GmbH (Austria) has voluntarily withdrawn from the project participating on 27. Aug In table A.3 the Austrian project participant is referenced as Austrian JI/CDM;. Clarification is requested if this is the correct name of the entity. CR A2 A.2.2. Have all involved Parties provided a valid and complete letter of approval and have all private/public project participants been authorized by an involved Party? /LOA/ /HCA/ DR, I The HCA from the Chinese DNA and LOA from the Austrian DNA are not available during the pre-validation. A.2.3. Do all participating Parties fulfil the DR China (host) and Austria have ratified the Kyoto CAR A1 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-39

40 A.2.4. CHECKLIST QUESTION participation requirements as follows: Ratification of the Kyoto Protocol Voluntary participation Designated a National Authority Potential public funding for the project from Parties in Annex I shall not be a diversion of official development assistance. A.3. Technology to be employed Validation of project technology focuses on the project engineering, choice of technology and competence/ maintenance needs. The validator should ensure that environmentally safe and sound technology and know-how is used. A.3.1. Does the project design engineering reflect current good practices? Ref. /LOA/ /HCA/ /IM01/ (A.4.3.) /IM01/ /PDR/ MoV * I DR, I COMMENTS Protocol. Both are parties of the Kyoto Protocol. The DNA in China is the National Development and Reform Commission. Austrian DNA is the Federal Ministry of Agriculture, Forestry, Environment and Water Management No public funding from parties in Annex I is included in project financing. Yes, the hydropower project intends to incorporate the latest/state-of-the-art technologies. E.g. bulb turbine with rated water head 7.8 m, 3 generators with rated power 6.3 MW. The designed operation lifetime is 30 years. Project preliminary design report on appropriateness of the employed technology and hydro geological study has been undertaken before project design stage. The project design reflects current good practice. A.3.2. Does the project use state of the art DR The project using state of the art technology. Draft Final * MoV = Means of Verification, DR= Document Review, I= Interview Page A-40

41 A.3.3. CHECKLIST QUESTION technology or would the technology result in a significantly better performance than any commonly used technologies in the host country? Does the project make provisions for meeting training and maintenance needs? A.4. Contribution to Sustainable Development The project s contribution to sustainable development is assessed. A.4.1. Has the host country confirmed that the project assists it in achieving sustainable development? A.4.2. Will the project create other environmental or social benefits than GHG emission reductions? Small scale project activity Is it assessed whether the project qualifies as small-scale CDM project activity A.4.3. Does the project qualify as a small scale CDM project activity as defined in paragraph 6 (c) of decision 17/CP.7 on Ref. (A.4.3.) /IM01/ /PDR/ (B.7.2.) /IM01/ /TPR/ MoV * I DR, I COMMENTS Refer to comment above. Yes, training and maintenance needs are provided by the project proponents. /LOA/ The HCA from the Chinese DNA is not available, in which the achieving of sustainable development is indicated. /IM02/ The proposed project will promote the local economic through inter alia job opportunities and tax payment. The description of sustainability in PDD section A.2. is not sufficient. Further information on the contributions of local economy and social sustainable development should be described. Draft CAR A1 CR A1 Not applicable N/A Final * MoV = Means of Verification, DR= Document Review, I= Interview Page A-41

42 A.4.4. CHECKLIST QUESTION the modalities and procedures for the CDM? Is the small scale project activity not a debundled component of a larger project activity? Ref. MoV * COMMENTS Draft Not applicable N/A Final A.5. General Topics A.5.1. Has the PDD been duly filled? Page 9: The description of the parameter GEN j,y in B.4. under step 1 should be shifted from formula 2 to formula 1. The value for the annual average emission reductions in table 2, PDD section A.4.4. is wrong. Correction is necessary. Section B.6.2 should be filled according to the guidelines for completing PDD. Please refer to the guidelines and identify the relevant parameters in table form. CR A3 CR A4 CAR B2 A.5.2. Has all necessary information been made available to the validator? The summary of estimated leakage and project emission in the table B.6.4 is not correct. Revision is necessary. No, further information should be submitted, please refer to the table B.7.1 CAR B8 Not yet * MoV = Means of Verification, DR= Document Review, I= Interview Page A-42

43 CHECKLIST QUESTION Ref. MoV * COMMENTS Draft Final B. Project Baseline The validation of the project baseline establishes whether the selected baseline methodology is appropriate and whether the selected baseline represents a likely baseline scenario. B.1. Baseline Methodology It is assessed whether the project applies an appropriate baseline methodology. B.1.1. Does the project apply an approved methodology and the correct version thereof? B.1.2. Are the applicability criteria in the baseline methodology all fulfilled? (B.1., B.4.) /BGC/ /ACM0002/ (B.2.) /ACM0002/ DR DR Yes, the project applies baseline methodology ACM0002 Ver. 06: Consolidated baseline methodology for grid-connected electricity generation from renewable sources. Yes, the justification is as following: 1. The proposed project is new built hydro power project and the power density is greater than 4 W/m². 2. The project geographic and system boundaries can be clearly identified and the characteristics of the grid are available. 3. The proposed project activity is a gridconnected electricity generation facility from renewable energy source. It does not involve switching of fossil fuels to renewable energy at the site of the project activity. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-43

44 CHECKLIST QUESTION Ref. MoV * COMMENTS Draft Final B.2. Baseline Scenario Determination The choice of the baseline scenario will be validated with focus on whether the baseline is a likely scenario, and whether the methodology to define the baseline scenario has been followed in a complete and transparent manner. B.2.1. What is the baseline scenario? (B.4.) /BGC/ B.2.2. What other alternative scenarios have been considered and why is the selected scenario the most likely one? (B.4.) DR The baseline scenario is established considering the specific circumstances of this project and the selection of grid boundary of the project electricity system is also appropriate, i.e., the Central China Power Grid (CCPG). DR No other alternatives were considered as ACM0002 refers to only one baseline scenario: Electricity delivered to the grid by the project activity ( ) and by addition of new generation sources ( ). The selected baseline is Equivalent capacity or electricity service provided by the CCPG. The baseline is in line with methodology ACM0002. The selected combined margin approach is appropriate. B.2.3. Has the baseline scenario been determined according to the methodology? (B.4.) /BGC/ /ACM0002/ DR Please explain and justify all the key assumptions and rationales used to determine the baseline emissions (variables, parameters, data sources etc) preferably in a tabular form. In addition, the description of the application of baseline methodology provided under B.4 should be shifted to B.6.1. CAR B1 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-44

45 CHECKLIST QUESTION Ref. MoV * COMMENTS Draft Final B.2.4. Has the baseline scenario been determined using conservative assumptions where possible? B.2.5. B.2.6. B.2.7. Does the baseline scenario sufficiently take into account relevant national and/or sectoral policies, macro-economic trends and political aspirations? Is the baseline scenario determination compatible with the available data and are all literature and sources clearly referenced? Have the major risks to the baseline been identified? (B.4.) /BGC/ (B.4.) /IM02/ (B.4.) (B.4.) DR DR DR Corrections were made and now the baseline scenario is determined as Equivalent capacity or electricity service provided by the CCPG according to ACM0002. CAR B1 was closed out and corrections were made. The baseline scenario is determined according to the published documents by Chinese DNA on 09. Aug. 2007, the public data in China electricity yearbook, and China Energy Statistic yearbook ( ) were used. Yes, the renewable energy laws, sectoral and industry policies and tendencies have been taken into account. Yes, the latest data in the PDD is derived from China Electricity Power Yearbook and China Energy Statistic Yearbook in year CAR B1 DR No major risks to the baseline are expected. B.3. Additionality Determination The assessment of additionality will be validated with focus on whether the project itself is not a likely baseline scenario. B.3.1. Is the project additionality assessed according to the methodology? (B.5.), DR The project additionality is demonstrated by applying the Tool for the demonstration and * MoV = Means of Verification, DR= Document Review, I= Interview Page A-45

46 CHECKLIST QUESTION Ref. /IM01/ /BLA/ /BLC/ /CDMDA/ /CLCDM/ /FAR/ /IRR/ /MCDMI/ /MMD/ MoV * COMMENTS assessment of additionality (Ver.04). Step 1 identification of the alternatives to the project activity consistent with the current laws and regulations. After exclusion of the identified project alternatives 1. project without CDM, fossil fuel fired power plant and usage of other renewable sources, the identified alternative is electricity provided by the Central China Power Grid (CCPG). Draft Final Step 2 Investment analysis Project IRR of 10 %, defined in Economic Evaluation Code for Small Hydropower Projects (SL16-95) approved by Water Resources Ministry of P. R. China, has been identified as a financial indicator for benchmark analysis. This benchmark is appropriate however several CARs and CRs were raised: Total investment, O&M cost and Tariff were analyzed in the sensitivity analysis 1) The values of total investment (146 million RMB) and net annual supplied electricity (7620 MWh/year) in IRR calculation are not * MoV = Means of Verification, DR= Document Review, I= Interview Page A-46

47 CHECKLIST QUESTION Ref. MoV * COMMENTS consistent with the values indicated in the Preliminary Design Report and the information received during the on-site interview. Revision is necessary. 2) The water resource fee identified in the cash flow is not convincing. Clarification and evidence is required. 3) Please correct the wrong data as given in the IRR calculation (e.g. electricity tariff, revenue tax, starting date of first crediting period etc.) recalculation of the IRR is necessary. 4) The increased investment indicated in the IRR calculation is not convincing. Evidence from the independent party is required. 5) The justification of the identified barriers in PDD page 15 (e.g. flood damage, geological culvert, increased immigrants resettlement fund etc) are not convincing; more detailed transparent evidences should be submitted. Draft CAR B3 Final Page 13, Sub-step 2c (2): It is appointed that the NPV is shown in table 5. This is not correct, revision is necessary. Furthermore a benchmark rate of 8 % is demonstrated. This doesn t match with the benchmark (10 %) provided before. Clarification is necessary. CR B1 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-47

48 CHECKLIST QUESTION Ref. MoV * COMMENTS Regarding the description to table 6 on page 14 the range of -10 % and 10 % should be revised since the table provides a range of -20 % and 20 %. Draft CR B2 Final The sensitivity analysis of the CER prices needs clarification. It is pointed out that the analysis is based on a range of -10 % to 10%:, But The table 7 doesn t provide values with a range of -10 % to 10 %. CR B3 Step 4 common practice analysis B.3.2. Are all assumptions stated in a transparent and conservative manner? B.3.3. B.3.4. Is sufficient evidence provided to support the relevance of the arguments made? If the starting date of the project activity is before the date of validation, has sufficient evidence been provided that the incentive from the CDM was seriously (B.5.) (B.5.) (B.5.) /MD/ The description of the analysis of other similar projects and the justification of similar options occurring in common practice in PDD section CAR B4 B.5. step 4 are not sufficient, revision is requested. DR Please refer to B.3.1. Several CAR, CRs DR Please refer to B.3.1. Several CAR, CRs DR The starting date of the project activity is before the date of the validation. To justify the seriously consideration of CDM, more and detailed information on CDM CAR B5 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-48

49 CHECKLIST QUESTION considered in the decision to proceed with the project activity? Ref. MoV * COMMENTS management decision should be submitted. Draft Final B.4. Calculation of GHG Emission Reductions Project emissions It is assessed whether the project emissions are stated according to the methodology and whether the argumentation for the choice of default factors and values where applicable is justified. B.4.1. Are the calculations documented according to the approved methodology and in a complete and transparent manner? (B.6.) /MSA/ DR Yes, the power density of the proposed project is 21 W/m 2 which above the reference value of 10 W/m 2 according to ACM0002. Thus project emissions can be neglected. However during draft validation the following CAR was raised: B.4.2. B.4.3. Have conservative assumptions been used when calculating the project emissions Are uncertainties in the project emission estimates properly addressed? (B.6.) (B.6.) The indicated PE y as 0 in PDD section B.6.1 is in contradiction to the defined power density (5.32 W/m 2 ). Clarification and revision is necessary. DR N/A DR N/A CAR B7 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-49

50 CHECKLIST QUESTION Ref. MoV * COMMENTS Draft Final B.5. Calculation of GHG Emission Reductions Baseline emissions It is assessed whether the baseline emissions are stated according to the methodology and whether the argumentation for the choice of default factors and values where applicable is justified. B.5.1. Are the calculations documented according to the approved methodology and in a complete and transparent manner? (B.6.) /ACM0002/ /BGC/ DR The baseline emissions are calculated as the net electricity supplied times the CCPG emission factor. The CCPG emission factor is calculated as a combined margin (CM) in accordance with the methodology ACM0002. The CM is a combination of the operating margin (OM) and the build margin (BM). The weights ω OM (50%) and ω BM (50%) are selected. However the following CAR was raised during draft validation: Please explain and justify all the key assumptions and rationales used to determine the baseline emissions (variables, parameters, data sources etc) preferably in a tabular form. In addition, the description of the application of baseline methodology provided under B.4 should be shifted to B.6.1. CAR B1 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-50

51 B.5.2. CHECKLIST QUESTION Have conservative assumptions been used when calculating the baseline emissions Ref. (B.6.) /BGC/ /ACM0002/ MoV * DR /BG C/ COMMENTS 1) The recent data (e.g. default values in IPCC 2006, data in Chinese energy yearbook 2006) for the calculation of the OM and BM should be used, and the used approach (ex-ante or ex-post) should be indicated clearly. 2) The annual net supplied electricity is not consistent with the Preliminary Design Report. The baseline emission should be recalculated accordingly. Draft CAR B6 Final B.5.3. Are uncertainties in the baseline emission estimates properly addressed? B.6. Calculation of GHG Emission Reductions Leakage It is assessed whether leakage emissions are stated according to the methodology and whether the argumentation for the choice of default factors and values where applicable is justified. B.6.1. B.6.2. Are the leakage calculations documented according to the approved methodology and in a complete and transparent manner? Have conservative assumptions been used when calculating the leakage emissions? (B.6.) /BGC/ /ACM0002/ (B.6.) (B.6.) DR DR No uncertainties are expected in the estimation of baseline emissions. According to the methodology leakage must not be considered. N/A DR N/A N/A * MoV = Means of Verification, DR= Document Review, I= Interview Page A-51

52 B.6.3. CHECKLIST QUESTION Are uncertainties in the leakage emission estimates properly addressed? Ref. (B.6.) MoV Draft COMMENTS * DR N/A N/A Final B.7. Emission Reductions The emission reductions shall be real, measurable and give long-term benefits related to the mitigation of climate change. B.7.1. Are the emission reductions real, measurable and give long-term benefits related to the mitigation of climate change. (B.6.) DR Please refer to CAR B6, B7. CAR B6, B7 B.8. Monitoring Methodology It is assessed whether the project applies an appropriate baseline methodology. B.8.1. Is the monitoring plan documented according to the approved methodology and in a complete and transparent manner? (B.7.) DR Yes, the monitoring plan is in accordance with the approved methodology. The parameter to be monitored is the net electricity generation. The emission factor is fixed over the first crediting period as it was determined ex-ante. However the following CAR were raised during draft validation: The surface area at full reservoir level and the annual imported electricity from the grid should be defined as monitoring parameters and included in table B.7.1. CAR B9 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-52

53 B.8.2. CHECKLIST QUESTION Will all monitored data required for verification and issuance be kept for two years after the end of the crediting period or the last issuance of CERs, for this project activity, whichever occurs later? B.9. Monitoring of Project Emissions It is established whether the monitoring plan provides for reliable and complete project emission data over time. B.9.1. Does the monitoring plan provide for the collection and archiving of all relevant data necessary for estimation or measuring the greenhouse gas emissions within the project boundary during the crediting period? B.9.2. Are the choices of project GHG indicators reasonable and conservative? B.9.3. Is the measurement method clearly stated for each GHG value to be monitored and deemed appropriate? B.9.4. Is the measurement equipment described and deemed appropriate? Ref. (B.7.) (B.7.) /MSA/ (B.7.) (B.7.) MoV * DR COMMENTS The description of the monitoring plan in PDD section B.7.2. is not sufficient, more detailed information e.g. meters location, calibration and accuracy, data management and QA procedures should be provided. The monitored data will be kept for two years after the end of the crediting period. DR According to the methodology project emissions are not to be considered as the power density is above 10 W/m². However clarification is necessary how the submerged area was metered. Draft CAR B10 CR B6 DR N/A N/A DR N/A N/A DR N/A N/A (B.7.) B.9.5. Is the measurement accuracy addressed DR N/A N/A Final * MoV = Means of Verification, DR= Document Review, I= Interview Page A-53

54 CHECKLIST QUESTION and deemed appropriate? Are procedures in place on how to deal with erroneous measurements? B.9.6. Is the measurement interval identified and deemed appropriate? B.9.7. Is the registration, monitoring, measurement and reporting procedure defined? B.9.8. Are procedures identified for maintenance of monitoring equipment and installations? Are the calibration intervals being observed? B.9.9. Are procedures identified for day-to-day records handling (including what records to keep, storage area of records and how to process performance documentation) B.10. Monitoring of Baseline Emissions It is established whether the monitoring plan provides for reliable and complete baseline emission data over time. B Does the monitoring plan provide for the collection and archiving of all relevant data necessary for determining baseline emissions during the crediting period? B Are the choices of baseline GHG indicators reasonable and conservative? Ref. (B.7.) (B.7.) (B.7.) /IM01/ (B.7.) (B.7.) (B.7.) (B.7.) /ACM0002/ MoV * COMMENTS Draft DR N/A N/A DR I N/A N/A DR N/A N/A DR N/A N/A DR DR Please refer to CAR B9, B10 CAR B9, B10 The GHG considered for baseline estimation is CO 2. This is reasonable and conservative. B Is the measurement method clearly DR Please refer to CAR B10 CAR Final * MoV = Means of Verification, DR= Document Review, I= Interview Page A-54

55 CHECKLIST QUESTION stated for each baseline indicator to be monitored and also deemed appropriate? B Is the measurement equipment described and deemed appropriate? B Is the measurement accuracy addressed and deemed appropriate? Are procedures in place on how to deal with erroneous measurements? MoV Draft Final Ref. COMMENTS * (B.7.) B10 (B.7.) (B.7.) /MMM/ DR Please refer to CAR B10 CAR B10 DR Yes, the amount of electricity supplied to the CCPG will be monitored and checked via the electricity invoice and metering system. The procedures of control erroneous measurement were defined.. B Is the measurement interval for baseline data identified and deemed appropriate? B Is the registration, monitoring, measurement and reporting procedure defined? B Are procedures identified for maintenance of monitoring equipment and installations? Are the calibration intervals being observed? (B.7.) (B.7.) (B.7.) DR DR DR Yes, the electricity supplied to the CCPG will be measured continuously and will be recorded on a monthly basis. The registration, monitoring, measurement and reporting procedure was defined. The maintenance of monitoring equipment and installations procedure was defined. However more information should be provided as indicated in CAR B10. CAR B10 B Are procedures identified for day-to-day records handling (including what records to keep, storage area of records and how to process performance documentation) (B.7.) DR The day-to-day records handling procedure was defined. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-55

56 CHECKLIST QUESTION Ref. MoV * COMMENTS Draft Final B.11. Monitoring of Leakage It is assessed whether the monitoring plan provides for reliable and complete leakage data over time. B Does the monitoring plan provide for the collection and archiving of all relevant data necessary for determining leakage? B Are the choices of project leakage indicators reasonable and conservative? B Is the measurement method clearly stated for each leakage value to be monitored and deemed appropriate? (B.7.) (B.7.) (B.7.) DR N/A N/A DR N/A N/A DR N/A N/A B.12. Monitoring of Sustainable Development Indicators/ Environmental Impacts It is assessed whether choices of indicators are reasonable and complete to monitor sustainable performance over time. B Is the monitoring of sustainable development indicators/ environmental impacts warranted by legislation in the host country? B Does the monitoring plan provide for the collection and archiving of relevant data concerning environmental, social and economic impacts? B Are the sustainable development indicators in line with stated national (B.7.) (B.7.) (B.7.) DR DR The monitoring of the sustainable development indicators is not required by the Chinese DNA. The environmental impacts will be monitored by the local environmental authority. The environmental impacts will be monitored by the local environmental authority. DR Yes, this is clearly indicated in the letter of approval of Chinese DNA. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-56

57 CHECKLIST QUESTION priorities in the Host Country? Ref. /HCA/ MoV * COMMENTS Draft Final B.13. Project Management Planning It is checked that project implementation is properly prepared for and that critical arrangements are addressed. B Is the authority and responsibility of overall project management clearly described? B Are procedures identified for training of monitoring personnel? B Are procedures identified for emergency preparedness for cases where emergencies can cause unintended emissions? B Are procedures identified for review of reported results/data? B Are procedures identified for corrective actions in order to provide for more accurate future monitoring and reporting? C. Duration of the Project/ Crediting Period It is assessed whether the temporary boundaries of the project are clearly defined. (B.7.) /MMM/ (B.7.) /MMM/ (B.7.) /MMM/ (B.7.) (B.7.) DR Yes, project will be implemented by Pailou Hydroelectric Co. Ltd. Responsibility of project management is briefly described in PDD. DR The procedure for training of monitoring personnel was identified. DR The procedure for emergency preparedness for cases where emergencies can cause unintended emissions was identified. DR The procedure for review of reported results/data was identified. DR The procedure for corrective actions in order to provide for more accurate future monitoring and reporting was identified. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-57

58 C.1. C.2. CHECKLIST QUESTION Are the project s starting date and operational lifetime clearly defined and evidenced? Is the start of the crediting period clearly defined and reasonable? D. Environmental Impacts Documentation on the analysis of the environmental impacts will be assessed, and if deemed significant, an EIA should be provided to the validator. Ref. (C.1.) /SD/ (C.2.) MoV COMMENTS * DR The project starting date (24/10/2003) is not matching with the information received during the on-site visiting. Revision is necessary and evidences should be submitted. The project lifetime was defined 30 years. DR The starting date of the crediting period (01/03/2007) is not reasonable, revision of the section C is necessary. Draft CAR C2 CAR C1 Final * MoV = Means of Verification, DR= Document Review, I= Interview Page A-58

59 D.1. D.2. D.3. D.4. D.5. CHECKLIST QUESTION Has an analysis of the environmental impacts of the project activity been sufficiently described? Are there any Host Party requirements for an Environmental Impact Assessment (EIA), and if yes, is an EIA approved? Will the project create any adverse environmental effects? Are transboundary environmental impacts considered in the analysis? Have identified environmental impacts been addressed in the project design? D.6. Does the project comply with environmental legislation in the host country? For Small-scale projects Ref. (D.1.) (D.1.) /EIA/ (D.1.) /EIA/ /IM02/ (D.1.) (D.2.) (D.1.) MoV * DR DR I DR COMMENTS Yes, the analysis of the environmental impacts of the project activity was sufficiently described according to EIA. Yes, EIA was required by Chinese DNA, the EIA was approved by local environment authority on 28. July According to the EIA, it deemed that the project will not create any significant adverse effects. Draft DR According to the EIA, there is no transboundary environment impact created by the project activity. DR Yes. DR Yes. Final * MoV = Means of Verification, DR= Document Review, I= Interview Page A-59

60 D.7. D.8. D.9. CHECKLIST QUESTION Does host country legislation require an analysis of the environmental impacts of the project activity? Does the project comply with environmental legislation in the host country? Will the project create any adverse environmental effects? D.10. Have environmental impacts been identified and addressed in the PDD? E. Stakeholder Comments The validator should ensure that stakeholder comments have been invited with appropriate media and that due account has been taken of any comments received. Ref. MoV * Draft COMMENTS N/A N/A N/A N/A N/A N/A N/A N/A Final E.1. E.2. E.3. Have relevant stakeholders been consulted? Have appropriate media been used to invite comments by local stakeholders? If a stakeholder consultation process is (E.1.) /SHCQ/ (E.1.) /SHCQ/ DR DR The CDM stakeholder consulting process was undertaken. The description of the stakeholder consulting in PDD section E.1. is not sufficient. More detailed information regarding the questions, summary of the comments, how due account was taken of the comments etc. are required. The local stakeholders, e.g. farmer, local authority, etc. were invited for the commenting in form of questionnaires. The stakeholder consulting process is not required by the regulations in China. CAR E1 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-60

61 E.4. E.5. CHECKLIST QUESTION required by regulations/laws in the host country, has the stakeholder consultation process been carried out in accordance with such regulations/laws? Is a summary of the stakeholder comments received provided? Has due account been taken of any stakeholder comments received? Ref. (E.2.) (E.3.) MoV * COMMENTS Draft Final DR Please refer to CAR E1 CAR E1 Please refer to CAR E1 CAR E1 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-61

62 Table 3: Resolution of Corrective Action and Clarification Requests Draft report clarification requests and corrective action requests by validation team CAR A1 The HCA from the Chinese DNA and LOA from the Austrian DNA are not available during the pre-validation. CAR A2 Please detail the unique identification of the project activity in geographical seconds or provide the full adress (if possible). CAR B1 Please explain and justify all the key assumptions and rationales used to determine the baseline emissions (variables, parameters, data sources etc) preferably in a tabular form. In addition, the description of the application of baseline methodology provided under B.4 should be shifted to B.6.1. CAR B2 Section B.6.2 should be filled according to the guidelines for completing PDD. Please refer to the guidelines and identify the relevant parameters in table form. CAR B3 1) The values of total investment (146 million RMB) and net annual supplied electricity (7620 MWh/year) in IRR calculation are not consistent with the values indicated in the Preliminary Design Report and the information received during the on-site interview. Revision is necessary. 2) The water resource fee identified in the cash flow is not convincing. Clarification and evidence is required. Ref. To checklist question in table 2 A.2.2. A.1.1. Summary of project owner response The Chinese HCA and Austrian LOA are issued and submitted together with the revised PDD. The geographical coordinates of project ( E and N) were defined in the final submitted PDD. Validation team conclusion The HCA from Chinese DNA and LOA from Austrian DNA were submitted. CAR is closed. The correction made in the revised PDD is adequate. Thus CAR is closed. B.2.3. It is corrected in revised PDD. The correction made in the revised PDD is adequate. Key parameters, e.g. OM, BM etc. were listed in PDD section B.4. thus CAR is closed. A.5.1. B.3.1 The mistakes in this section are corrected in the revised PDD. The correct data used for IRR calculation are specified in the revised PDD. The IRR calculation excel file is submitted together with the revised PDD. All the parameters used for IRR calculation are sourced from Preliminary Design Report and official/public document. The correction made in the revised PDD is adequate. The correction made in the revised PDD is adequate. Evidences provided were cross checked by validation team and evaluated to be credible. The CAR is closed. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-62

63 Draft report clarification requests and corrective action requests by validation team 3) Please correct the wrong data as given in the IRR calculation (e.g. electricity tariff, revenue tax, starting date of first crediting period etc.) recalculation of the IRR is necessary. 4) The increased investment indicated in the IRR calculation is not convincing. Evidence from the independent party is required. 5) The justification of the identified barriers in PDD page 15 (e.g. flood damage, geological culvert, increased immigrants resettlement fund etc) are not convincing; more detailed transparent evidences should be submitted. CAR B4 The description of the analysis of other similar projects and the justification of similar options occurring in common practice in PDD section B.5. step 4 are not sufficient, revision is requested. CAR B5 To justify the seriously consideration of CDM, more and detailed information on CDM management decision should be submitted. CAR B6 1) The recent data (e.g. default values in IPCC 2006, data in Chinese energy yearbook 2006) for the calculation of the OM and BM should be used, and the used approach (ex-ante or ex-post) should be indicated clearly. 2) The annual net supplied electricity is not consistent with the Preliminary Design Report. The baseline emission should be recalculated accordingly. Ref. To checklist question in table 2 B.3.1. B.3.4. B.5.2. Summary of project owner response It is corrected in revised PDD. The data are derived from China Water Resources Yearbook 2006 and authoritative design institute. The related documents have been provided to validation team. The OM and BM calculations are updated in the revised PDD by using the latest data. The project owner chooses the ex-ante approach to calculate the power grid emission factor. These are specified in the Section B.6 and Annex 3 of the revised PDD. Validation team conclusion The correction made in the revised PDD is adequate. The documents of the management decision were reviewed and considered to be convincing. The justification in the revised PDD is sufficient and revision was made. The CAR is closed. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-63

64 Draft report clarification requests and corrective action requests by validation team CAR B7 The indicated PE y as 0 in PDD section B.6.1, is in contradiction to the defined power density (5.32 W/m 2 ). Clarification and revision is necessary. CAR B8 The summary of estimated leakage and project emission in the table B.6.4 is not correct. Revision is necessary. CAR B9 The surface area at full reservoir level and the annual imported electricity from the grid should be defined as monitoring parameters and included in table B.7.1. CAR B10 The description of the monitoring plan in PDD section B.7.2. is not sufficient, more detailed information e.g. meters location, calibration and accuracy, data management and QA procedures should be provided. Ref. To checklist question in table 2 Summary of project owner response B.4.1. The leakage is zero and the calculation of project emissions are corrected according to the monitoring record of submerged area. Validation team conclusion The submitted monitoring records of submerged area was reviewed by the validation team, the power density is corrected to be 21W/M 2 the correction in the revised PDD is sufficient. CAR is closed. A.5.1 It is corrected in revised PDD. The correction made in the revised PDD is adequate. B.8.1. The surface area at full reservoir level is included in Section B.7. The data is measured by Huaihua Water Resources & Power Reconnaissance Institute in May, B.8.1. The PDD was revised, more information was provided. The CAR B9 was closed due to the facts that the EG y,supplied was changed to EG y, net. in final submitted PDD, and the relevant requirements of imported electricity monitoring were also defined in the description of measurement methods and procedures to be applied for EG y, net. The correction made in the revised PDD is adequate. The correction made in the revised PDD is adequate. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-64

65 Draft report clarification requests and corrective action requests by validation team CAR C1 The starting date of the crediting period (01/03/2007) is not reasonable, revision of the section C is necessary. CAR C2 The project starting date (24/10/2003) is not matching with the information received during the on-site visiting. Revision is necessary and evidences should be submitted. CAR E1 The description of the stakeholder consulting in PDD section E.1. is not sufficient. More detailed information regarding the questions, summary of the comments, how due account was taken of the comments etc. are required. CR A1 The description of sustainability in PDD section A.2. is not sufficient. Further information on the contributions of local economy and social sustainable development should be described. CR A2 In table A.3 the Austrian project participant is referenced as Ref. To checklist question in table 2 C.2. Summary of project owner response The starting date was revised, namely 01 October 2008 or registration date whichever is later was defined as the starting date of the crediting period. It is corrected in the revised PDD. It is corrected in revised PDD. The evidences is provided to DOE. Validation team conclusion The correction made in the revised PDD is adequate. C.2. The evidences of project construction permission issued by local authority (on 1 st Aug. 2004) and the construction start notice issued by project surveillance company on 28 th September 2004 were reviewed; the correction made in the revised PDD is adequate. E.1 It is corrected in revised PDD. The correction made in the revised PDD is adequate. A.4.2. It is corrected in revised PDD. The correction made in the revised PDD is adequate. A.2.1. The name of the Austrian project participant is KPC GmbH. It is The PDD was corrected accordingly and shows * MoV = Means of Verification, DR= Document Review, I= Interview Page A-65

66 Draft report clarification requests and corrective action requests by validation team Austrian JI/CDM;. Clarification is requested if this is the correct name of the entity. CR A3 Page 9: The description of the parameter GEN j,y in B.4. under step 1 should be shifted from formula 2 to formula 1. CR A4 The value for the annual average emission reductions in table 2, PDD section A.4.4. is wrong. Correction is necessary. CR B1 Page 13, Sub-step 2c (2): It is appointed that the NPV is shown in table 5. This is not correct, revision is necessary. Furthermore a benchmark rate of 8 % is demonstrated. This doesn t match with the benchmark (10 %) provided before. Clarification is necessary. CR B2 Regarding the description to table 6 on page 14 the range of -10 % and 10 % should be revised since the table provides a range of -20 % and 20 %. CR B3 The sensitivity analysis of the CER prices needs clarification. It is pointed out that the analysis is based on a range of -10 % to 10%:, But The table 7 doesn t provide values with a range of -10 % to 10 %. Ref. To checklist question in table 2 Summary of project owner response corrected in the revised PDD. The voluntary withdraw letter from the former buyer (CCAN) is provided to the DOE. A.5.1. All the contents involving the emission reductions calculation are shifted and specified in the Section B.6 and Annex 3 of the revised PDD. A.5.1. B.3.1. B.3.1. B.3.1. The emission reductions result is corrected in the revised PDD. The benchmark of 10% is used in the revised PDD in accordance with Chinese government policy. The project owner chooses range of -10% and 10% to conduct sensitivity analysis. The sensitivity analysis of CERs prices is deleted in the revised PDD. However, the project IRR with CERs revenue is stated to prove the CDM impact on the project in the revised Validation team conclusion now the PPs which are referenced in the MOC, HCA and LOA. Revision was conducted. CR is closed. The correction made in the revised PDD is adequate. CR closed. The benchmark approach could be clarified. Evidences and clarifications were presented. The approach is convincing as discussed in previous section. Necessary correction were made, thus CR is closed. The range of -10 % and 10 % is appropriate. Thus CR is closed. The validator is convinced that a sensitivity analysis considering CER benefits is not necessary. Hence the revision of the PDD * MoV = Means of Verification, DR= Document Review, I= Interview Page A-66

67 Draft report clarification requests and corrective action requests by validation team CR B4 Under sub-step 3 b it is pointed out that three barriers were identified. Subsequently and even under step 1 two (2) alternatives were identified. Clarification is requested. CR B5 Under step 5 it is told that CDM would help to remove the technology barrier. Such a barrier was not identified under the barrier analysis. This statement needs clarification. CR B6 Clarification is necessary how the submerged area was metered. Ref. To checklist question in table 2 B.3.1. B.3.1. B.9.1. Summary of project owner response PDD. The expected CERs price 8 /tco 2 is used. The step 3 was excluded in the revised PDD. The Step 5 is deleted in the revised PDD since the updated additionality tool version 03. The submerged area was measured by the professional design institute in May, Validation team conclusion and exclusion of the CER prices is. The correction made in the revised PDD is adequate. Sub-step 5 is excluded due to revision of additionality tool. Hence changes in the PDD are correct. The submerged area was monitored according to the clarification for Meth. ACM0002 from the EB. The Clarification and evidences provided are reviewed, the CR is closed. Table 4: Assessment of Financial Parameters Parameter Net electricity supplied to Grid Value applied Unit MWh Source of Information (please indicate document and page) Preliminary report/ page 268 design Reference Correctness of value applied /PDR/ Appropriateness of information source DOE ASSESSMENT Comment The value is calculated based on the statistic information of water resource availability and project technical/equipment information. As indicated in the PDR, the annual operation * MoV = Means of Verification, DR= Document Review, I= Interview Page A-67

68 Parameter Value applied Total Investment Static investment total Unit 10 4 RMB 10 4 RMB Source of Information (please indicate document and page) Preliminary report/ page 268 design Increased budget for land compensation issued by Local Resettlement Bureau (dated 18. Mar. 2004) Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar. 2004) Preliminary report/ page 268 design Reference Correctness of value applied /PDR/ /BLC/ /FAR/ /PDR/ Appropriateness of information source DOE ASSESSMENT Comment time of project is estimated to be 4242 hours and the annual net electricity supplied is estimated as 75,818.5 MWh. The total investment consists of static total investment, interest during the construction period (743.36*10 4 RMB) and floating capital (18.9*10 4 RMB)) and the increased budget for land compensation (1198*10 4 RMB). The unit cost of the proposed project is 8393 RMB/kW, which is higher than the average unit cost 7127 RMB/kW of hydropower project in China in as indicated in the <Review and Prediction of Small Hydropower project s investment> The estimation of the investment is based on the data in year 2003 and in year 2004 for land compensation, also considering the increase of material/equipment price in China, the value is valid and conservative. The total investment consists of static total investment, interests during the construction period and floating capital. The unit cost of the proposed project is 8393 RMB/kW, which is high than the average unit cost 7127 RMB/kW of hydropower project in China in as indicated in the <Review and Prediction of Small Hydropower project s investment> * MoV = Means of Verification, DR= Document Review, I= Interview Page A-68

69 Parameter Electricity tariff (VAT incl.) Value applied 0.25 Annual O&M costs Unit RMB/k Wh 10 4 RMB Source of Information (please indicate document and page) Power agreement Preliminary report/ page 268 purchasing design Increased budget for land compensation issued by Local Resettlement Bureau (dated 18.Mar. 2004) Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar.2004) Reference Correctness of value applied /PPA/ /DTHP/ /PDR/ /BLC/ /FAR/ Appropriateness of information source DOE ASSESSMENT Comment 04/ html, the project is not the most financial attractive project for PP. The estimation of the investment is based on the data in year 2003, also considering the increase of material/equipment price in China, the value is valid and conservative. The tariff is derived from power purchasing agreement on 03. July 2003, comparing with the average tariff in the region (0.18), the applied tariff in IRR is conservative and reasonable. The O&M consists of salary, employee welfare, repair cost, water resource fee, other expenses and reservoir maintenance cost. The salary and total welfare is 65.52* 10 4 RMB/yr, calculated as the number of employee (26) multiplied by the average annual salary (18,000 RMB/person) plus the welfare (40% of the salary). The values are from Feasibility Study Report/ page 269. The average annual salary 18,000 RMB/Employer is higher than 16,442 RBM/person, average annual salary of inposition employee in Hunan Province in 2004 ( htm). The total welfare is calculated as 40% of total value of salary, consists of the housing fund, hospitalization insurance, insurance and welfare. The applied rates are from Preliminary design * MoV = Means of Verification, DR= Document Review, I= Interview Page A-69

70 Parameter Value applied Unit Source of Information (please indicate document and page) Reference Correctness of value applied Appropriateness of information source DOE ASSESSMENT report/ page 269. Comment The cost of overhaul is *10 4 RMB/yr, calculated as the original value of fixed assets multiplied by rate of overhaul (1%). The original value of fixed assets is from Preliminary design report/ page 268 and document of Increased budget for land compensation issued by Local Resettlement Bureau. The rate 1 % is from Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. The water resource fee is 7.58*10 4 RMB/yr, calculated as electricity supply multiplied by rate of water resource fee 0.001RMB/KWh. The water resource fee rate RMB/KWh is defined in the local government document in 25. July ( htm ) The reservoir maintenance cost is 7.58*10 4 RMB/yr calculated as electricity supply multiplied by rate of reservoir maintenance fee 0.001RMB/KWh. The reservoir maintenance fee rate RMB/KWh is defined in the national government document in year and document issued by Hunan government in July * MoV = Means of Verification, DR= Document Review, I= Interview Page A-70

71 Parameter Value applied Unit Source of Information (please indicate document and page) Reference Correctness of value applied Appropriateness of information source DOE ASSESSMENT Comment htm Other expenses are 22.68*10 4 RMB/yr, calculated as the installed capacity multiplied by rate of other expenses 12 RMB/KW. The rate 12 RMB/KW is from Preliminary design report/ page 269 The above calculations are in compliance with the requirements defined in the Economic Evaluation Code for Small Hydropower Projects (SL16-95) published by the Chinese government. In conclusion the O&M costs are in average less than 2 % of total investment. This can be considered as conservative. Value added tax (VAT) City maintenance & construction tax 6 % 1 % Preliminary report/ page 268 design Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar.2004) Preliminary design /PDR/ /FAR/ /PDR/ /FAR/ The value is derived from the document No.[1994]004, issued by the National Financial Ministry and National Revenue Ministry, which was also confirmed in document [1998]843 and [2006]47 issued by National Revenue Ministry. 1 % of VAT, the value is derived from the document Economic Evaluation Code for Small * MoV = Means of Verification, DR= Document Review, I= Interview Page A-71

72 Parameter Value applied Unit Source of Information (please indicate document and page) report/ page 268 Reference Correctness of value applied Appropriateness of information source DOE ASSESSMENT Comment Hydropower Projects (SL16-95) Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar.2004)0 Preliminary report/ page 268 design Surtax for education expenses 3 % Income tax 33 % Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar.2004) Preliminary design report/ page 268 Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar.2004) /PDR/ /FAR/ /PDR/ /FAR/ 3 % of VAT, the value is derived from the document Economic Evaluation Code for Small Hydropower Projects (SL16-95). The value is derived from Corporate Income tax Temporary Terms of People s Republic of China published on 23/12/1993 which is valid until year According to the encouraging policy for development of the small hydro power project which was published by national government, the income tax was 100% exempted in the first 2 operational years and 50% exempted in the subsequent 3 operational years. * MoV = Means of Verification, DR= Document Review, I= Interview Page A-72

73 Parameter Value applied Unit Depreciation rate 3.17 % Installed capacity 18.9 MW Project lifetime operational 30 year Loan interest rate 5.76 % Source of Information (please indicate document and page) Project Finance Evaluation & IRR Calculation by Hunan Fangxing Certified Public Accountancies Office Ltd. (dated 30. Mar.2004) Preliminary design report/ page 268 Preliminary design report/ page 270 Preliminary design report/ page 268 Reference Correctness of value applied /FAR/ Appropriateness of information source DOE ASSESSMENT Comment The depreciation rate is calculated as (1- Residual rate of fixed assets investment 5%)/operational life time. /PDR/ The capacity is approved by local authority. /PDR/ /PTG/ The value is proofed by/in equipment purchasing contract /PTG/ /PDR/ The value is derived from Bank policy in * MoV = Means of Verification, DR= Document Review, I= Interview Page A-73

74 CERTIFICATES * MoV = Means of Verification, DR= Document Review, I= Interview Page A-74

75 * MoV = Means of Verification, DR= Document Review, I= Interview Page A-75