CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) (Version 02 - in effect as of: 1 July 2004) CONTENTS

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1 CDM Executive Board page 1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) (Version 02 - in effect as of: 1 Jul 2004) CONTENTS A. General description of project activit B. Application of a baseline methodolog C. Duration of the project activit / Crediting period D. Application of a monitoring methodolog and plan E. Estimation of GHG emissions b sources F. Environmental impacts G. Stakeholders comments Annexes Annex 1: Contact information on participants in the project activit Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring plan

2 CDM Executive Board page 2 SECTION A. General description of project activit A.1 Title of the project activit: Maracaí Bagasse Cogeneration Project Version 1 09/03/2006 A.2. Description of the project activit: This project activit consists in increasing the amount of electricit generated b a new bagasse (a renewable fuel source, residual from sugarcane processing) cogeneration unit at Nova América S.A. Unidade Maracai (hereinafter MBCP), a Brazilian sugar mill. Through the implementation of this project, the mill sells electricit to the national grid and avoids the dispatch of an equal amount of energ produced b fossil-fuelled thermal plants to that grid. The initiative avoids CO 2 emissions, and contributes to the regional and national sustainable development. Nova América S.A. produces sugar and alcohol in its two sugar and alcohol mills (Tarumã and Maracaí), with an installed production capacit of more than 14 million sacks of sugar and 270 million liters of alcohol. Besides being present in the sugar and alcohol market for more than half a centur, its industrial units are ISO 9001: 2000 certified for the Qualit Management Sstem in the production of sugar, alcohol, refined liquid sugar and east, certified b SGS ICS. The MBCP sponsors are convinced that bagasse cogeneration is a sustainable source of energ that mitigates global warming and creates a sustainable competitive advantage for the agricultural production in the sugarcane industr in Brazil. Using the available natural resources, the MBCP helps to enhance the consumption of renewable energ. Furthermore, the project can demonstrate that electricit generation is et another revenue stream for the Brazilian sugar industr. It is worth to highlight that out of approximatel 320 sugar mills in Brazil, the great majorit produces energ for on-site use onl because of cogeneration equipment low-efficienc. Contribution to Sustainable Development Bagasse cogeneration also plas an important role in the context the countr s economic development, as Brazil s sugarcane-based industr provides for approximatel 1 million jobs and represents one of the major agribusiness products of the countr s trade balance. Brazilian heav industr has developed the technolog to suppl the sugarcane industr with equipments that support cogeneration expansion, thus creating more jobs and contributing to sustainable development. Bagasse cogeneration is important for the energ strateg of the countr. Cogeneration is an alternative that allows postponing the installation and/or dispatch of electricit produced b fossil-fuelled generation utilities. The sale of the Certified Emission Reductions (CERs) generated b the project will boost the attractiveness of bagasse cogeneration projects, helping to increase the production of this energ and decrease dependenc on fossil fuel.

3 CDM Executive Board page 3 Maracaí also believes that sustainable development will be achieved not onl through the implementation of a renewable energ production facilit, but also b carring out activities of social and environmental responsibilit, as described below: Social Contribution Searching continuous improvements in the productive performance, Nova América Group gives special attention to its human resources. To encourage its emploees to be deepl engaged with the results of the compan, Nova América S.A. Unidade Maracai has alwas developed human resources social services. The compan believes that the emploees contribution to increasing the qualit of the products is heavil dependent on their qualit of life. In order to achieve a top qualit human resource management, the compan focuses special attention on the work safet and health care. B developing a series of relevant social projects benefiting nearb communities, Nova América S.A. earned the recognition from institutions that supports the social contribution activities developed b Brazilian companies. Follow bellow some of the most important prizes conquered b Nova América S.A., all of them related with the development of social activities and programs: Friend of Children Compan (from the Portuguese: Empresa Amiga da Criança ): Title bestowed since 1996 b Fundação Abrinq ; Top Social ADVB: Prize bestowed in 1999 b Associação dos Dirigentes de Vendas do Brasil (ADVB) ; Prêmio ECO: Prize bestowed in 1998 b Câmara Americana de Comércio. Environmental Contribution MBCP is not the first attitude towards the environment Nova América S.A. establishes. The compan has considerabl improved the natural area and the landscape in the region where it actuates, planting native ciliate vegetation, from the seedlings developed within environmental education group in the Projeto Futuro, mentioned above. The compan also preserves local native vegetation areas, and works to repopulate native forests fragments and make them complete ecosstems, eliminating the problem of a same species concentration in a small forest area. Increasing the firm s annual revenues due to CERs commercialization adds substantial value to the direct emploees of the firm, its sugarcane providers, their families and the local communit.

4 CDM Executive Board page 4 A.3. Project participants: Name of Part involved (*) ((host) indicates a host Part) Brazil (host) Private and/or public entit(ies) project participants (*) (as applicable) Nova América S.A. Unidade Maracaí (Brazilian private entit) Econerg Brasil Ltda. (Brazilian private entit) Kindl indicate if the Part involved wishes to be considered as project participant (Yes/No) (*) In accordance with the CDM modalities and procedures, at the time of making the CDM-PDD public at the stage of validation, a Part involved ma or ma not have provided its approval. At the time of requesting registration, the approval b the Part(ies) involved is required. No A.4. Technical description of the project activit: A.4.1. Location of the project activit: A Host Part(ies): Brazil A Region/State/Province etc.: São Paulo A Cit/Town/Communit etc: Maracaí A Detail of phsical location, including information allowing the unique identification of this project activit (maximum one page): Nova América S.A. Unidade Maracaí (Maracaí), is located at Santa Amélia farm, without number, inside of Maracaí cit, in the western of São Paulo State, about 456 km awa from the state capital, São Paulo, as can be seen in Figure 1. Figure 1: Geographical position of Maracaí cit

5 CDM Executive Board page 5 A.4.2. Categor(ies) of project activit: Sectorial Scope: 1-Energ industries (renewable - / non-renewable sources) A.4.3. Technolog to be emploed b the project activit: The world-wide spread technolog for generating megawatt (MW) levels of electricit from biomass is the steam-rankine ccle. The ccle consists of direct combustion of biomass in a boiler to generate steam, which is then expanded through a turbine. Most steam ccle plants are located at industrial sites, where the waste heat from the steam turbine is recovered and used for meeting industrial process heat needs. Such combined heat and power (CHP), or cogeneration, sstems provide greater levels of energ services per unit of biomass consumed than sstems that generate electric power onl. The steam-rankine ccle involves heating pressurized water, with the resulting steam expanding to drive a turbine-generator, and then condensing back to water for partial or full reccling to the boiler. A heat exchanger is used in some cases to recover heat from flue gases to preheat combustion air, and a deaerator must be used to remove dissolved oxgen from water before it enters the boiler. Steam turbines are designed as either "backpressure" or "condensing" turbines. CHP applications tpicall emplo backpressure turbines, wherein steam expands to a pressure that is still substantiall above ambient pressure. It leaves the turbine still as a vapour and is sent to satisf industrial heating needs, where it condenses back to water. It is then partiall or full returned to the boiler. Alternativel, if process steam demands can be met using onl a portion of the available steam, a condensing-extraction steam turbine (CEST) might be used. This design includes the capabilit for some steam to be extracted at one or more points along the expansion path for meeting process needs (Figure 2). Steam that is not extracted continues to expand to sub-atmospheric pressures, thereb increasing the amount of electricit generated per unit of steam compared to the backpressure turbine. The non-extracted steam is converted back to liquid water in a condenser that utilizes ambient air and/or a cold water source as the coolant 1. 1 Williams & Larson, 1993 and Kartha & Larson, 2000, p.101

6 CDM Executive Board page 6 The steam-rankine ccle uses different boiler designs, depending on the scale of the facilit and the characteristics of the fuel being used. The initial pressure and temperature of the steam, together with the pressure to which it is expanded, determine the amount of electricit that can be generated per kilogram of steam. In general, the higher the peak pressure and temperature of the steam, the more efficient, sophisticated, and costl the ccle is. Figure 2: Schematic diagram of a biomass-fired steam-rankine ccle for cogeneration using a condensingextraction steam turbine Using steam-rankine ccle as the basic technolog of its cogeneration sstem, for achieving an increasing amount of surplus electricit to be generated, Maracaí began its efforts with the installation of a new cogeneration unit, which includes: one 15 MW backpressure turbo generator, one 25 MW condensing turbo generator and a new boiler of 65 bar. The existing biomass power generation unit is composed of one backpressure turbo generator of 11 MW, three boilers of 21 bar and one boiler of 42 bar. The total installed capacit of the all power plants is 51 MW. The Table 1 shows when and with which equipments MBCP took place.

7 CDM Executive Board page 7 Table 1. MBCP Technical Data Activated Deactivating Before the Expansion Plan One 11 MW backpressure turbo generator (Until 2005) Three 21 bar pressure boilers One 42 bar pressure boiler After the Expansion Plan One 15 MW backpressure turbo generator One 25 MW condensing turbo generator One 11 MW backpressure turbo generator (2006) One 65 bar pressure boiler One 21 bar pressure boiler One 42 bar pressure boiler Two 21 bar pressure boilers A.4.4. Brief explanation of how the anthropogenic emissions of anthropogenic greenhouse gas (GHGs) b sources are to be reduced b the proposed CDM project activit, including wh the emission reductions would not occur in the absence of the proposed project activit, taking into account national and/or sectoral policies and circumstances: B dispatching renewable electricit to the grid, electricit that would otherwise be produced using fossil fuel is displaced. This electricit displacement will occur at the sstem s margin, i.e. this CDM project will displace electricit that is produced b marginal sources (mainl fossil fueled thermal plants), which have higher electricit dispatching costs and are operated onl over the hours that baseload sources (lowcost or must-run sources) cannot suppl the grid (due to higher marginal dispatching costs or fuel storage constraints in case of hdro sources). Bagasse is a fibrous biomass b-product from sugarcane processing, which accounts for about 25 percent on weight of fresh cane and approximatel one third of the cane s energ content. In a tpical Brazilian sugarcane mill, burning bagasse for generation of process heat and power production is a practice alread established. It is estimated that over 700 MW of bagasse-based power capacit is currentl installed in the state of São Paulo onl 2. The energ produced from these facilities is almost all consumed for their own purposes. Because of constraints that limit the access of independent power producers to the electric utilities market, there is no incentive for sugarcane mills to operate in a more efficient wa. Low-pressure boilers, ver little concern with optimal use and control of steam, crushers mechanicall activated b steam, energ intensive distillation methods, are a few examples of inefficient methods applied to the sugar industr as normal routine. 2 São Paulo. Secretar of Energ, 2001.

8 CDM Executive Board page 8 The Brazilian electric sector legislation currentl recognizes the role of independent power producers, which has triggered interest in improving boiler efficienc and increasing electricit generation at mills, allowing the production of enough electricit not onl to satisf sugar mills needs but also a surplus amount for selling to the electricit market. Furthermore, the ever increasing electricit demand opens an opportunit for some bagasse cogeneration power plants in Brazil. Additionall, the feature of electricit generation from sugarcane coinciding with dr months of the ear, when hdroelectric generation sstem - the most important electricit source in the countr - is under stress, should provide a considerable complementar reliable energ and make bagasse cogeneration electricit attractive for an potential purchasers. Nevertheless, some barriers pose a challenge for implementation of this kind of projects. In most cases, the sponsors culture in the sugar industr is ver much influenced b commodities sugar and ethanol market. Therefore, the need an extra incentive to invest in electricit production due to the fact that it is a product that cannot be stored for price speculation. Power Purchase Agreements (PPA) require different negotiation skills, which are not core to the sugar industr. For instance, when signing a long-term electricit contract, the PPA, a given sugar mill has to be confident that it will produce sufficient biomass to suppl its cogeneration project. Although it seems eas to predict, the volatilit of sugarcane productivit ma range from 75 to 120 ton of sugarcane per hectare annuall depending on the rainfall. So, the revenue from GHG emission reductions and other benefits associated with CDM certification offer a worth financial comfort for sugar mills, such as Maracaí, that is investing to improve its installed capacit, in order to produce electricit for sale in a more efficient wa. A Estimated amount of emission reductions over the chosen crediting period: Years Annual estimation of emission reductions in tonnes of CO 2 e Total estimated reductions (tonnes of CO 2 e) Total Number of crediting ears 7 Annual average over the crediting period of estimated reductions (tonnes of CO 2 e) A.4.5. Public funding of the project activit: There is no Annex I public funding involved in the MBCP activit.

9 CDM Executive Board page 9 SECTION B. Application of a baseline methodolog B.1. Title and reference of the approved baseline methodolog applied to the project activit: Approved consolidated baseline methodolog ACM0006 / Version 02 Consolidated baseline methodolog for grid-connected electricit generation from biomass residues ; Approved consolidated baseline methodolog ACM0002 / Version 05 Consolidated baseline methodolog for zero-emissions grid-connected electricit generation from renewable sources to calculate the Operating Margin emission factor and the Build Margin emission factor. B.1.1. Justification of the choice of the methodolog and wh it is applicable to the project activit: ACM0006 is applicable to this project activit due to the following conditions: i) Bagasse, a biomass residual from the sugarcane industr, is the onl tpe of biomass used in the project plant; ii) The project activit will not result in an increase of bagasse production. Bagasse will onl increase due to the mill s natural expanding business and could not be attributed to the implementation of the cogeneration project; iii) The bagasse will not be stored for more than one ear; iv) The biomass residues will not require energ to be prepared for fuel combustion or to be transported because the bagasse is produced within project s boundar. B.2. Description of how the methodolog is applied in the context of the project activit: The identification of the baseline scenario will be made through the analsis of the following alternatives: how power would be generated in the absence of the CDM project activit; what would happen to the biomass in the absence of the project activit; and in case of cogeneration projects: how would the heat be generated in the absence of the project activit. The MBCP envisages the installation of a new cogeneration unit, operated next to the existing one. In the absence of the MBCP, power would continue to be produced at the existing cogeneration plant and fired with the same kind of biomass (bagasse). The power produced b the MBCP is fed into the grid, and if the project would not be implemented there would be no displacement of electricit generated from fossil fuel within the S-SE-CO grid. The bagasse would be used at boilers, to produce heat if the MBCP would not be implemented. This analsis applies for Scenario 12, according to the ACM0006 Version 02. The project activit follows the steps provided b ACM0002. For the calculation of the operating margin emission factor in STEP 1, the calculation method chosen was: (b) Simple Adjusted OM, since data are

10 CDM Executive Board page 10 not available for the application of the preferred method (c) Dispatch Data Analsis OM. For the calculation of the build margin emission factor in STEP 2 Option 1 was chosen. Table 2 presents the ke information and data used to determine the baseline scenario. Table 2: Summar of the data used to determine the baseline scenario Variable Data variable Value Data unit Methodolog Data Source Net quantit of Obtained electricit generated throughout Nova América - EG total, in all power units at MWh ACM 0006 project activit Maracaí the project site, lifetime. during the ear EG hstoric, 3 r EG project plant, EF EF OM, EF BM, λ Net quantit of electricit generated during the most recent three ears in all power plants Net quantit of electricit generated in the project plant, during the ear CO 2 emission factor of the grid CO 2 Operating Margin emission factor of the grid CO 2 Build Margin emission factor of the grid Fraction of time during which lowcost/ must-run sources are on the margin MWh ACM 0006 Obtained throughout project activit lifetime. MWh ACM ,2677 tco 2 e/mwh ACM ,4310 tco 2 e/mwh ACM ,1045 tco 2 e/mwh ACM 0002 λ 2002 = 0,5053 λ 2003 = 0,5312 λ 2004 = 0,5041 number ACM 0002 Calculated using data provided b Nova América - Maracaí Nova América - Maracaí Calculated as a weighted sum of the OM and BM emission factors Calculated using data from ONS Calculated using data from ONS Calculated using data from ONS B.3. Description of how the anthropogenic emissions of GHG b sources are reduced below those that would have occurred in the absence of the registered CDM project activit: Additionalit was determined using the Tool for the demonstration and assessment of additionalit (version 2), approved b the Executive Board (Annex 1, EB 16). The CDM consolidated tool to determine additionalit, includes the following steps: Application of the Tool for the demonstration and assessment of additionalit for MBCP. Step 0. Preliminar screening based on the starting date of the project activit

11 CDM Executive Board page 11 The crediting period of the MBCP will start after the date of registration. So Step 0 does not appl to this project activit. Step 1. Identification of alternatives to the project activit consistent with current laws and regulations Sub-step 1a: Define alternatives to the project activit There were onl two possibilities to implement this project activit: Continuation of the current situation of the sugar mill purel based on the production of sugar and alcohol and investments to enhance efficienc and expanding its core business; The project activit not undertaken as a CDM project activit, which is the investment made to increase steam efficienc and production for electricit sales purposes b acquiring high-efficienc boilers and turbo-generators. Sub-step 1b: Enforcement of applicable laws and regulations Both alternatives are in compliance with relevant legal and regulator requirements of Brazil. Step 3. Barrier analsis The proposal project activit faces barriers that prevent the implementation of this tpe of project activit and do not prevent the implementation of at least one of the alternatives. Sub-step 3a: Identif barriers that would prevent the implementation of tpe of the proposed project activit COELHO et alii (2002) 3 stand out that the potential energ surplus from the sugar and alcohol industr will onl become effectivel available in its totalit if adequate politics are implemented in the countr. Such politics should refer to the several barriers that limit the development of the sector, which are: Technological Barriers: According to COELHO (2004) 4, it can be considered that there are no significant technological barriers to the cogeneration of electricit in the Sugar & Alcohol Sector. The countr has technologies sufficientl efficient and commerciall available. It is worth to stand out, still, that the bagasse cogeneration in the countr usuall works with sstems of low thermodnamic efficienc, which generates few surpluses or even limits to the self-sufficienc. According to the world alliance for the decentralized energ, WADE (2004) 5, as, until recentl, the sale of surpluses was not a common practice in the sector, the industr developed units of low efficienc exclusivel to guarantee self-sufficienc of energ and steam and to deal with the problem of the bagasse accumulation and elimination. Moreover, at the time the sugar mills cogeneration facilities are replaced, 3 COELHO, S.T., VARKULYA JR, A., PALETTA, C.E.M., SILVA, O.C. A importância e o potencial brasileiro da cogeração de energia a partir da biomassa. CENBIO Centro Nacional de Referência em Biomassa. Instituto de Eletrotécnica da USP COELHO, S. T. Barreiras e Propostas de políticas para a implementação da cogeração no Brasil. In: Curso Internacional: Energia na Indústria de Açúcar e Álcool, Núcleo de Estudos em Termodinâmica WADE Bagasse Cogeneration Global Review and potential Disponível em

12 CDM Executive Board page 12 or when a new cogeneration unit is created, the equipments will have a lifetime of more than 20 ears. The decision to go for purchasing low efficienc equipments addresses that plant to not take advantage of its potential surpluses of electricit for sale. Therefore, the choice of the equipments is decisive in order the plant to make its electricit surplus potential available. (COELHO, 2004) The incentives to more efficient technologies are an important factor in that aspect. Still, even in the case of new facilities, the interest rates don't make it possible to make use of more efficient technological options. Institutional and Political Barriers: From the electric sector point of view, according to COELHO (2004), man utilities still don't demonstrate interest in purchasing electricit generated b self-producers, independent energ producers and cogenerators, especiall when it comes to long-term contracts. In the case bagasse cogeneration specificall, the electricit is generated onl during the crop season, which, in the utilities point of view, does not characterize an offer of firm energ. Therefore, the utilities see as a disadvantage what is one of the biggest advantages of the bagasse cogeneration: that the energ is produced during the drought, when the hdroelectric power stations face difficulties due to the low level of rain (COELHO, 1999) 6. "b not having a legal compulsor nature for the purchase of the electricit generated from renewable sources and/or cogenerators (as in other countries), the utilities can choose other options in the offer of energ". From the sugar mill's point of view, one can notice an "important change of mentalit in the sector s mills, which start to demonstrate a significant interest for the generation of electricit, which didn't happen until some time ago". Even though this change of mentalit is alread widespread, the reluctance in what regards the sale of spare electric power still persists. According to COELHO (2004), such reluctance can be explained b the "fear as for the involved risks and for the distrust regarding the maintenance, in the medium and long terms, of a solid politics of institutional incentive." The politics of the public section for renewable energ are not considered reliable enough for the executives of the private sector to give support to the expansion of the cogeneration in the sugar mills. This supposition is clearl demonstrated b the following list of rules and/or regulations in the energ sector that have been released in the last 10 ears: March 1993: Law sets a tariff regulation for electric energ; Februar 1995: Law establish public concession for energ; Jul 1995: Law regulates concession for electric energ sector; December 1996: Law creates National Energ Agenc (ANEEL); August 1997: Law sets the National Council for Energ Planning (CNPE); October 1997: Decree regulates the ANEEL task; December 1997: Implements ANEEL; 6 COELHO, Suani T. Mecanismos para implementação da cogeração de eletricidade a partir de biomassa: um modelo para o Estado de São Paulo. São Paulo: Programa interunidades de pós-graduação em energia, 1999

13 CDM Executive Board page 13 Ma 1998: Law establishes the Spot Market for Electric Energ (MAE) and the Operator National Sstem (ONS); Jul 1998: Decree regulates MAE and ONS tasks; Februar 2000: Decree regulates the Thermoelectricit Priorit Plan (PPT); April 2002: Law disciplines the Program for Incentive of Alternative Electric Energ (PROINFA). It states that contracts shall be signed within 24 months from its date and that there will be different economic values for the acquisition of 3.300MW of electricit capacit from renewable sources b the state owned Eletrobrás, for plants starting operations before December 30, 2006; August 2002: MP 64 is a presidential act to change the constitution in order to permit the energ sector regulation including the PROINFA; December 2002: Resolution from ANEEL regulates the implementation of PROINFA, stating that economic values would be defined within 90 das; March 2003: Decree postponed for 180 das, from its date, the economic value and operational guidelines announcement; June 2003: Decree indefinitel postponed the date for the economic value and operational guidelines announcement and revoked the above mentioned Decree November 2003: Law of 11 November/03 revised Law of 26 April 2002 institutes PROINFA. March 2004: Decree regulates the Law as of 26 April Therefore, the compan s decision to sign a long-term PPA with the local distributor (REDE) undoubtedl represented a significant risk that the mill was willing to take, partiall thanks to the expected CDM revenue. Still to be considered is the lack of a direct communication channel between the mills, ANEEL and BNDES, in order to facilitate the explanation of doubts, mainl in what refers to the implantation or expansion of electricit generation plants (COELHO, 2004). Even if UNICA and COGEN (2005) 7 mention the gradual removal process of some of those barriers, their consequences are still a known noticed in the whole Sugar and Alcohol sector. Economic and Investment Barriers: COELHO (2004) affirms that, in what concerns the financing process, the amount of warranties demanded b the financing entities consists in a barrier to the implantation of cogeneration projects. Besides, still according to COELHO (2004), "the interest rates do not make the more efficient technological options possible". 7 UNICA e COGEN-SP, Inserção da Bioeletricidade na Matriz Energética Agregando valor ao terceiro produto da agroindústria canavieira

14 CDM Executive Board page 14 Other barriers have more to do with the lack of adequate commercial contractual agreements from the energ buers (i.e. bankable long-term contracts and pament guarantee mechanisms for noncreditworth local public-sector and private customers) making it much more difficult to obtain long-term financing from a commercial bank and/or a development bank. Some other financing barriers occur simpl due to prohibitivel high transaction costs, which include the bureaucrac to secure the environmental license. In what concerns the energ commercialization, the main barriers are the lack of warrant of purchase from the utilities in long term Power Purchase Agreements; the price not competitive price offered b them; the pament of high transmission and distribution tariffs; and connection difficulties with the local transmission net. Currentl there's no mechanism that guarantees the purchase of the energ surplus produced b the cogenerator in long term contracts, which puts in risk the invested capital return warrant. Another difficult in this case is the sector's conservative positioning. In terms of the access to the transmission and distribution net, the viabilit of commercializing the energ surplus produced b the cogeneration units sees itself hindered b the high tariffs to be paid b the utilities. Furthermore, the high value of the tariffs is an important factor in what concerns the choice of the capacit to be installed in the cogeneration unit: autonomous producers with installed capacit over 30MWh do not have the right to the 50% discount in the distribution tariff, which leaves them much less competitive. Still according to UNICA (2004), the tax amount imposed to the cogeneration projects burdens the installation and operation costs, hindering the project s economical viabilit. Cultural Barrier: Due to the nature of the business in the sugar industr the marketing approach is narrowl focused on commodit (sugar and ethanol) tpe of transaction. Therefore, the electricit transaction based on longterm contract (Power Purchase Agreement) represents a significant breakthrough in their business model. In this case, the electricit transaction has to represent a secure investment opportunit from both economical and social-environmental perspective for convincing the sugar mills to invest in. Sub-step 3b: Show that the identified barriers would not prevent the implementation of at least one of the alternatives (except the proposed project activit). An alternative to this project activit was to maintain the current situation and focus strictl in its core business, which is the production of sugar and alcohol. Therefore, as the barriers mentioned above are directl related to entering into a new business (electricit sale), there is no impediment for sugar mills to maintain (or even invest in) its core business. Step 4. Common practice analsis Sub-step 4a: Analze other activities similar to the proposed project activit

15 CDM Executive Board page 15 The sugar sector, historicall, alwas exploited its biomass (bagasse) in an inefficient manner b making use of low-pressure boilers. Although the consume almost all of their bagasse for self-energ generation purposes, it is done in such a manner that no surplus electric energ is available for sale, and no sugar compan has ventured in the electricit market until recent ears. Similar project activities have been implemented b leading companies in this industr, Vale do Rosário project served as a sector benchmark. However, these are few examples in a universe of about 320 sugar mills. Currentl, similar project activities are under implementation, for example, Cia Energética Santa Elisa, Moema, Equipav, Vale do Rosário. Added together, similar projects in the sugar industr in Brazil account to approximatel 10% of the sugar industr. The additional 90% are still burning their bagasse for on-site use onl in the old-fashioned inefficient wa. That clearl shows that just a small part of this sector is willing to invest in cogeneration projects. Sub-step 4b: Discuss an similar options that are occurring This project activit tpe is not considered as a widel spread activit in Brazil, as onl a small portion of the existing sugar mills in the countr actuall produce electricit for sale purposes. Step 5. Impact of CDM registration The impact of registration of this MBCP will contribute to overcoming all the barriers described in this Tool: technological, institutional and political, economic and investment and cultural barriers. The registration will enhance the securit of the investment itself and will foster and support the project owners breakthrough decision to expand their business activities. Along these lines, the project activit is alread engaged in a deal to sell its expected CERs. Notwithstanding, the benefits and incentives mentioned in the text of the Tool for demonstration and assessment of additionalit, published b the CDM-EB, will be experienced b the project activities such as: the project will achieve the aim of anthropogenic GHG reductions; financial benefit of the revenue obtained b selling CERs will bring more robustness to the project s financial situation; and its likelihood to attract new plaers and new technolog (currentl there are companies developing new tpe of boilers extra-efficient and the purchase of such equipment is to be fostered b the CER sales revenue) and reducing the investor s risk. Registration will also have an impact on other sugarcane industr plaers, who will see the feasibilit of implementing renewable energ commercialization projects in their facilities with the CDM. Moreover, hard-currenc inflows are highl desirable in a fragile and volatile econom as is the Brazilian one. B.4. Description of how the definition of the project boundar related to the baseline methodolog selected is applied to the project activit: The definition of the project boundar related to the baseline methodolog is applied to the project activit in the following wa:

16 CDM Executive Board page 16 Baseline energ grid: For MBCP, the South-Southeast and Midwest subsstem of the Brazilian grid is considered as a boundar, since it is the sstem to which Maracaí is connected and therefore receives all the bagasse-based produced electricit. Bagasse cogeneration plant: the bagasse cogeneration plant considered as boundar comprises the whole site where the cogeneration facilit is located, excluding the sugar refiner. B.5. Details of baseline information, including the date of completion of the baseline stud and the name of person (s)/entit (ies) determining the baseline: 1. Date of completing the final draft of this baseline section: 09/03/ Name of person/entit determining the baseline ECONERGY BRASIL, which is a project participant (Contact information in Annex 1), is responsible for the technical services related to GHG emission reductions, and is therefore, in behalf of Nova América - Maracaí, the developer of this document, and all its contents. SECTION C. Duration of the project activit / Crediting period C.1 Duration of the project activit: 01/06/ m. 8 C.1.1. Starting date of the project activit: C.1.2. Expected operational lifetime of the project activit: C.2 Choice of the crediting period and related information: C.2.1. Renewable crediting period C Starting date of the first crediting period: 01/08/2006. C Length of the first crediting period: 7-0m 8 Specialists from the Brazilian National Agenc of Electric Power (ANEEL - Agência Nacional de Energia Elétrica) suggested using 25 ears of lifetime for steam turbines, combustion turbines, combined ccle turbines and nuclear power plants, according to Bos 2000, p. 29.

17 CDM Executive Board page 17 C.2.2. Fixed crediting period: C Starting date: Left blank on purpose. C Length: Left blank on purpose. SECTION D. Application of a monitoring methodolog and plan D.1. Name and reference of approved monitoring methodolog applied to the project activit: Approved consolidated monitoring methodolog ACM0006 Consolidated monitoring methodolog for grid-connected electricit generation from biomass residues ; Approved consolidated monitoring methodolog ACM0002 Consolidated monitoring methodolog for zero-emissions grid-connected electricit generation from renewable sources to calculate the EF OM and the EF BM. D.2. Justification of the choice of the methodolog and wh it is applicable to the project activit: The monitoring methodolog of MBCP was designed to be applied according to scenario 12 of ACM 0006, (power capacit expansion projects), which involves the installation of a new power unit which is operated next to an existing biomass power generation unit. The chosen monitoring methodolog is applicable to biomass-based cogeneration projects connected to the grid. The methodolog considers monitoring emission reductions generated from cogeneration projects using sugarcane bagasse which is exactl the case of MBCP, so the choice of methodolog is justified. Since the MBCP power generation capacit is more than 15 MW and it displaces electric energ from other grid-connected sources, the emission factor used corresponds to grid emission factor, and it is calculated as a combined margin (CM), following ACM 0002.

18 CDM Executive Board page 18 D Option 1: Monitoring of the emissions in the project scenario and the baseline scenario There is no project emission to be considered in this project activit. D Data to be collected in order to monitor emissions from the project activit, and how this data will be archived: ID number (Please use numbers to ease crossreferencing to table D.3) Data variable Source of data Data unit Measured (m), calculated (c) or estimated (e) Recording frequenc Proportion of data to be monitored How will the data be archived? (electronic/ paper) Comment Left blank on purpose. D Description of formulae used to estimate project emissions (for each gas, source, formulae/algorithm, emissions units of CO 2 equ.) Left blank on purpose. D Relevant data necessar for determining the baseline of anthropogenic emissions b sources of GHGs within the project boundar and how such data will be collected and archived : ID number (Please use numbers to ease crossreferencing to table D.3) Data variable Source of data Data unit Measured (m), calculated (c), estimated (e), Recording frequenc Proportion of data to be monitored How will the data be archived? (electronic/ paper) Comment

19 CDM Executive Board page EG total, 2. EG power plant, 3. EF 4. EF OM, 5. EF BM, Net quantit of electricit generated in all power units at the project site during the ear Net quantit of electricit generated in the project plant during the ear CO 2 emission factor of the grid. CO 2 Operating Margin emission factor of the grid. CO 2 Build Margin emission factor of the grid. Readings of the electricit meter, installed at the turbogenerators. Readings of the electricit meter, installed at the turbogenerators. MWh m Monthl 100% MWh m Monthl 100% Calculated tco 2 e/mwh c Factor calculated from ONS, the Brazilian electricit sstem manager. Factor calculated from ONS, the Brazilian electricit sstem manager. tco 2 e/mwh tco 2 e/mwh c c At the validation and earl after registration At the validation and earl after registration At the validation and earl after registration 0% 0% 0% Electronic and paper Electronic and paper Electronic and paper Electronic and paper Electronic and paper Archived according to internal procedures, until 2 ears after the end of the crediting period. Archived according to internal procedures, until 2 ears after the end of the crediting period. Archived according to internal procedures, until 2 ears after the end of the crediting period. Archived according to internal procedures, until 2 ears after the end of the crediting period. Archived according to internal procedures, until 2 ears after the end of the crediting period.

20 CDM Executive Board page λ Fraction of time during which lowcost/ must-run sources are on the margin. Factor calculated from ONS, the Brazilian electricit sstem manager. index c At the validation and earl after registration 0% Electronic and paper Archived according to internal procedures, until 2 ears after the end of the crediting period. equ.) D Description of formulae used to estimate baseline emissions (for each gas, source, formulae/algorithm, emissions units of CO 2 EG EGtotal, EG = MIN 3 EGnewpowerunit EF EF OM, simple _ adjusted, BM = m F m,. m GEN historic,3 r j F j, (MWh). COEF = ( 1 λ ) + λ (tco 2 e/gwh) GEN GEN COEF m, m j (tco 2 e/gwh) EFOM + EFBM EFelectricit = (tco 2 e/gwh) 2 BE electricit, = EF electricit. EG j, j k F k, k. COEF k, k EG is the net quantit of increased electricit generation as a result of the project activit (incremental to baseline generation) during the ear in MWh, EG total, is the net quantit of electricit generated in all power units fired with the same tpe of biomass at the project site, including the new power unit installed as part of the project activit and an previousl existing units, during the ear in MWh, EG historic, 3r is the net quantit of electricit generated during the most recent three ears in the existing power plant, in MWh, EG new power plant is the net quantit of electricit generated in the new power unit that is installed as part of the project activit, in MWh; F j(or m), Is the amount of fuel i (in a mass or volume unit) consumed b relevant power sources j in ear(s) j,m Refers to the power sources delivering electricit to the grid, not including low-operating cost and must-run power plants, and including imports4 from the grid COEF j(or m) Is the CO2 emission coefficient of fuel i (tco2 / mass or volume unit of the fuel), taking intoaccount the carbon content of the fuels used b relevant power sources j (or m) and the percent oxidation of the fuel in ear(s), a GEN j(or m), Is the electricit (MWh) delivered to the grid b source j (or m) BE electricit, Are the baseline emissions due to displacement of electricit

21 CDM Executive Board page 21 during the ear in tons of CO 2 and EF electricit, Is the CO 2 baseline emission factor for the electricit. D Option 2: Direct monitoring of emission reductions from the project activit (values should be consistent with those in section E). Left blank on purpose. D Data to be collected in order to monitor emissions from the project activit, and how this data will be archived: ID number (Please use numbers to ease crossreferencing to table D.3) Data variable Source of data Data unit Measured (m), calculated (c), estimated (e), Recording frequenc Proportion of data to be monitored How will the data be archived? (electronic/ paper) Comment Left blank on purpose. D Description of formulae used to calculate project emissions (for each gas, source, formulae/algorithm, emissions units of CO 2 equ.): Left blank on purpose.

22 CDM Executive Board page 22 D.2.3. Treatment of leakage in the monitoring plan activit ID number (Please use numbers to ease crossreferencin g to table D.3) D If applicable, please describe the data and information that will be collected in order to monitor leakage effects of the project Data variable Source of data Data unit Measured (m), calculated (c) or estimated (e) Recording frequenc Proportion of data to be monitored How will the data be archived? (electronic/ paper) Comment Left blank on purpose. Left blank on purpose. D Description of formulae used to estimate leakage (for each gas, source, formulae/algorithm, emissions units of CO 2 equ.) D.2.4. Description of formulae used to estimate emission reductions for the project activit (for each gas, source, formulae/algorithm, emissions units of CO 2 equ.) ER = ER heat, + ER electricit, + BE biomass, L - PE ER heatl, = 0 BE biomass, = 0 PE =0 L =0 ER electricit, = EF electricit. EG ER : are the emissions reductions of the project activit during the ear in tons of CO 2 BE biomass, are the baseline emissions due to natural deca or burning of anthropogenic sources of biomass during the ear in tons of CO 2, ER electricit, : Are the baseline emissions due to displacement of electricit during the ear in tons of CO 2 ER heat, : Are the baseline emissions due to displacement of thermal energ during the ear in tons of CO 2 PE : Are the project emissions during the ear in tons of CO 2. L : Are the leakage emissions during the ear in tons of CO 2.

23 CDM Executive Board page 23 D.3. Qualit control (QC) and qualit assurance (QA) procedures are being undertaken for data monitored Data (Indicate table and ID number e.g ; 3.2.) Uncertaint level of data (High/Medium/Low) Explain QA/QC procedures planned for these data, or wh such procedures are not necessar. 1. Low The consistenc of metered net electricit generation will be cross-checked with receipts from sales and the quantit of biomass fired. 2. Low The consistenc of metered net electricit generation will be cross-checked with receipts from sales and the quantit of biomass fired. 3. Low Default data. 4. Low Default data. 5. Low Default data. 6. Low Default data. D.4 Please describe the operational and management structure that the project operator will implement in order to monitor emission reductions and an leakage effects, generated b the project activit The structure for monitoring this project activit will basicall consist of registering the amount of energ produced b the turbo-generators, through the electricit meter installed at the software that controls the operation. D.5 Name of person/entit determining the monitoring methodolog: ECONERGY BRASIL (Contact information in Annex 1), which is a participant in this project, is responsible for the technical services related to GHG mission reductions, and is therefore, on behalf of Nova América Maracaí, the developer of this document, and all its contents.

24 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 SECTION E. Estimation of GHG emissions b sources E.1. Estimate of GHG emissions b sources: This project activit does not burn an additional quantit of fossil fuel due to the project implementation. Therefore, the variable PE, presented in the methodolog, does not need to be monitored. Thus, PE = 0 E.2. Estimated leakage: MBCP onl uses bagasse to produce electricit. Thus, L = 0 E.3. The sum of E.1 and E.2 representing the project activit emissions: L + PE = 0 E.4. Estimated anthropogenic emissions b sources of greenhouse gases of the baseline: The baseline methodolog considers the determination of the emissions factor for the grid to which the project activit is connected as the core data to be determined in the baseline scenario. Emission reductions from heat are simplified assumed as zero because additional heat is generated b biomass boilers fired with the same tpe of biomass and no fossil fuels are used for power or heat generation at the project site. In Brazil, there are two main grids, South-Southeast-Midwest and North-Northeast, therefore the South- Southeast-Midwest Grid is the relevant one for this project. The method that will be chosen to calculate the Operating Margin (OM) for the electricit baseline emission factor is the option (b) Simple Adjusted OM, since the preferable choice (c) Dispatch Data Analsis OM would face the barrier of data availabilit in Brazil. In order to calculate the Operating Margin, dail dispatch data from the Brazilian electricit sstem manager (ONS) needed to be gathered. ONS does not regularl provide such information, which implied in getting it through communicating directl with the entit. The provided information comprised ears 2002, 2003 and 2004, and is the most recent information available at this stage. Simple Adjusted Operating Margin Emission Factor Calculation According to the methodolog, the project is to determine the Simple Adjusted OM Emission Factor (EF OM, simple adjusted, ). Therefore, the following equation is to be solved:

25 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 EF OM, simple _ adjusted, j F j, = ( 1 λ ) + λ (tco 2 e/gwh) GEN GEN j. COEF j, j k F k, k. COEF k, k It is assumed here that all the low-cost/must-run plants produce zero net emissions. k F k, k. COEF GEN k, k = 0 (tco 2 e/gwh) Please refer to the methodolog text or the explanations on the variables mentioned above. The ONS data as well as the spreadsheet data with the calculation of emission factors have been provided to the validator (DOE). In the spreadsheet, the dispatch data is treated as to allow calculation of the emission factor for the most three recent ears with available information, which are 2002, 2003 and The Lambda factors were calculated in accordance with methodolog requests. More detailed information is provided in Annex 3. The table below presents such factors. Year Lambda , , ,5041 Electricit generation for each ear needs also to be taken into account. This information is provided in the table below. Year Electricit Load (MWh) Using therefore appropriate information for F j, and COEF j, OM emission factors for each ear can be determined, as follows. Fi, j,2002. COEFi, j j EFOM, simple _ adjusted,2002 = ( 1 λ2002 ) GEN EFOM, simple _ adjusted, 2002 = 0,4207 tco 2 /MWh j j,2002 Fi, j,2003. COEFi, j j EFOM, simple _ adjusted,2003 = ( 1 λ 2003 ) EFOM, simple _ adjusted, 2003 = 0,4397 tco 2 /MWh GEN j j,2003

26 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 Fi, j,2004. COEFi, j j EFOM, simple _ adjusted,2004 = ( 1 λ 2004 ) GEN EFOM, simple _ adjusted, 2004 = 0,4327 tco 2 /MWh j j,2004 Finall, to determine the baseline ex-ante, the mean average among the three ears is calculated, finall determining the EF OM,simple_adjusted. EFOM, simple _ adjusted = 2002 _ ,4310 tco 2 /MWh According to the methodolog used, a Build Margin emission factor also needs to be determined. EF BM, = m F m, m. COEF GEN m, m Electricit generation in this case means 20% of total generation in the most recent ear (2004), as the 5 most recent plants built generates less than such 20%. Calculating such factor one reaches: EFBM, 2004 = 0,1045 tco 2 /MWh Finall, the electricit baseline emission factor is calculated through a weighted-average formula, considering both the OM and the BM, being the weights 50% and 50% b default. That gives: EFelectricit, = 0,5*0, ,5*0,1045 = 0,2677 tco 2 /MWh It is important to note that adequate considerations on the above weights are currentl under stud b the Meth Panel, and there is a possibilit that such weighing changes in the methodolog applied here. The baseline emissions would be then proportional to the electricit delivered to the grid throughout the project s lifetime. Baseline emissions due to displacement of electricit are calculated b multipling the electricit baseline emissions factor (EF electricit, ) with the electricit generation of the project activit. BE electricit, = EF electricit, EG EG is determined as the low value between: - the total electricit produced b the new power unit; or - the difference between the total net electricit generation from firing the same tpe of biomass at the project site and the historic of the three previous ears of the implementation of the new power unit. EG EG = MIN EG total, EG powerplant,,3 r 3 (in MWh) historic

27 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 Therefore, for the first crediting period, the baseline emissions will be calculated as follows: BE electricit, = 0,2677 * EG MIN EG total, EG powerplant,,3 r 3 (in tco 2 e) historic E.5. Difference between E.4 and E.3 representing the emission reductions of the project activit: The emissions reductions of this project activit are: ER = ER heat, + ER electricit, + BE biomass, L - PE ER heatl, = 0 BE biomass, = 0 PE =0 L =0 EG ER electricit, = EF electricit * EGtotal, MIN 3 EGnewpowerunit Thus, EGhistoric,3 r ER = 0,2677 * EGtotal, MIN 3 EGnewpowerunit historic,3 r E.6. Table providing values obtained when appling formulae above: Year Estimation of project activit emission reductions (tonnes of CO 2 e) Estimation of the baseline emission reductions (tonnes of CO 2 e) Estimation of leakage (tonnes of CO 2 e) Estimation of emission reductions (tonnes of CO 2 e) Total (tonnes of CO 2 e)

28 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 SECTION F. Environmental impacts F.1. Documentation on the analsis of the environmental impacts, including transboundar impacts: The possible environmental impacts were analzed b the State Secretar of Environment (Secretaria de Estado do Meio Ambiente) through CETESB (Companhia de Tecnologia de Saneamento Ambiental) state of São Paulo environmental agenc. Maracaí is in compliance with the environmental legislation and has been issued an Installation License to proceed with installation facilities. Maracaí complied with all these requirements, either through direct measures or with planned activities. There will be no transboundar impacts resulting from MBCP. F.2. If environmental impacts are considered significant b the project participants or the host Part, please provide conclusions and all references to support documentation of an environmental impact assessment undertaken in accordance with the procedures as required b the host Part: Maracaí developed a Preliminar Environmental Report on Jul 30, 2003, to assess the impacts that MBCP could generate and promote mechanisms to mitigate possible environmental negative impacts. The official Environmental License (Installation Licence) was issued b CETESB on Jul 22, However, Maracaí must compl with some demands from the environmental agenc in order to proceed with the Operation Licence, being: Technical Demands: Notes: 1. Noise emissions from industrial process and equipments must be restricted to the compan boundaries, in order to prevent inconveniences to public well-being. 2. Dispose properl the industrial solid waste, avoiding environmental pollution, attending the article 51 of Law Regulation n 997/76, approved b Decree n 8.468/ To install, to operate and to maintain properl the local exhaustion sstem and pollution equipments control, based on the best available technolog practices, for the steam production from boiler operation, using bagasse as energetic fuel. 4. The industrial waste water must be treated in order to attend the articles 18 and 11 of State Law Regulation n 997/76, approved b Decree n 8.468/76, modified b Decree n /80, as well as the CONAMA Resolution n 20/ This licence refers to the productive capacit expansion in the cogeneration and electric energ sector, in accordance with information presented b Memorial de Caracterização do Empreendimento presented in the occasion of this licence requirement. 2. The technical requirement according to the Previous Environmental Licence n 00735, emitted b Environmental State Secretar, in 16 th June, 2004, must be full fulfilled, otherwise, the Operation Licence won t be issued b CETESB. The impacts from MBCP are not considered significant. The arise from activities (cane crushing and bagasse burning) that were alread in place before the project, though in different conditions and circumstances. It has been concluded that the project is feasible in legal and techno-environmental terms

29 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 and the MBCP can achieve its goal, established and developed according to the Brazilian Environmental Laws. SECTION G. Stakeholders comments G.1. Brief description of how comments b local stakeholders have been invited and compiled: Invitations for comments b local stakeholders are required b the Brazilian Designated National Authorit as part of the procedures for analzing CDM projects and issuing letters of approval. This procedure has been followed b Maracaí to take its GHG mitigation initiative to the public. Letters 9 were sent to the following recipients: - Prefeitura Municipal de Maracaí SP / Municipal Administration of Maracaí SP; - Câmara dos Vereadores de Maracaí SP / Municipalit Chamber of Maracaí SP; - Fórum Brasileiro de ONGs e Movimentos Sociais para o Meio Ambiente e Desenvolvimento / Brazilian NGO Forum; - Ministério Público de Maracaí SP / Public Ministr of Maracaí SP; - IBAMA / Federal Environmental Agenc; - Órgão Ambiental Estadual / Environmental Agenc of São Paulo State; - Associação de Bairros de Maracai / Communit Association of Maracai. G.2. Summar of the comments received: No comments were received for MBCP. G.3. Report on how due account was taken of an comments received: Since no comments were received, Nova América - Maracaí proceeded with the project as initiall planned. 9 The copies of these invitations are available in hold of Project participants.

30 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 Annex 1 CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT ACTIVITY Project Participant 1: Organization: Econerg Brasil Ltda. Street/P.O.Box: Rua Pará, 76 cj 41 Building: Higienópolis Office Center Cit: São Paulo State/Region: São Paulo Postfix/ZIP: Countr: Brazil Telephone: +55 (11) FAX: +55 (11) URL: Represented b: Title: Salutation: Mr. Last Name: Diniz Junqueira Middle Name: Schunn First Name: Marcelo Department: - Mobile: +55 (11) Direct FAX: +55 (11) Direct tel: +55 (11) ext 25 Personal junqueira@econerg.com.br

31 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 Project Participant 2: Organization: Nova América S.A. Alimentos Unidade Maracaí Street/P.O.Box: Fazenda Santa Amélia Zona Rural Building: Cit: Maracai State/Region: São Paulo Postfix/ZIP: Countr: Brasil Telephone: FAX: marcelo@novamerica.com.br URL: Represented b: Edvaldo Monteiro de Oliveira Title: Mr. Salutation: Last Name: De Oliveira Middle Name: Monteiro First Name: Edvaldo Department: Administrative Director Mobile: Direct FAX: Direct tel: Personal edvaldo@novamerica.com.br Annex 2 INFORMATION REGARDING PUBLIC FUNDING There is no Annex I public funding involved in MBCP project activit.

32 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 Annex 3 BASELINE INFORMATION The Brazilian electricit sstem has been historicall divided into two subsstems: the North-Northeast (N-NE) and the South-Southeast-Midwest (S-SE-CO). This is due mainl to the historical evolution of the phsical sstem, which was naturall developed nearb the biggest consuming centers of the countr. The natural evolution of both sstems continues to demonstrate that integration will happen in the future. In 1998, the Brazilian government announced the first leg of the interconnection line between S-SE-CO and N-NE. With investments of around US$700 million, the connection had the main purpose, in the government s view, at least, to help solve energ imbalances in the countr: the S-SE-CO region could suppl the N-NE in case it was necessar and vice-versa. Nevertheless, even after the interconnection was established, technical papers continue to divide the Brazilian sstem in two (Bos 2000) 10 : where the Brazilian Electricit Sstem is divided into three separate subsstems: (i) The South/Southeast/Midwest Interconnected Sstem; (ii) The North/Northeast Interconnected Sstem; and (iii) The Isolated Sstems (which represent 300 locations that are electricall isolated from the interconnected sstems) Moreover, Bosi (2000) gives a strong argumentation in favor of having so-called multi-project baselines: For large countries with different circumstances within their borders and different power grids based in these different regions, multi-project baselines in the electricit sector ma need to be disaggregated below the countr-level in order to provide a credible representation of what would have happened otherwise. Finall, one has to take into account that even though the sstems toda are connected, the energ flow between N-NE and S-SE-CO is heavil limited b the transmission lines capacit. Therefore, onl a fraction of the total energ generated in both subsstems is sent one wa or another. It is natural that this fraction ma change its direction and magnitude (up to the transmission line s capacit) depending on the hdrological patterns, climate and other uncontrolled factors. But it is not supposed to represent a significant amount of each subsstem s electricit demand. It should also be noted that onl in 2004 the interconnection between SE and NE was concluded, i.e., if project proponents are to be coherent with the generation database the have available as of the time of the PDD submission for validation, a situation where the electricit flow between the subsstems was even more restricted is to be considered. The Brazilian electricit sstem nowadas comprises of around 101,3 GW of installed capacit, in a total of electricit generation enterprises. From those, nearl 70% are hdropower plants, around 10% are natural gas-fired power plants, 4,5% are diesel and fuel oil plants, 3,2% are biomass sources (sugarcane bagasse, black liquor, wood, rice straw and biogas), 2% are nuclear plants, 1,4% are coal plants, and there are also 8,17 GW of installed capacit in neighboring countries (Argentina, Urugua, Venezuela and Paragua) that ma dispatch electricit to the Brazilian grid 11. This latter capacit is in 10 Bos M. An Initial View on Methodologies for Emission Baselines: Electricit Generation Case Stud. International Energ Agenc. Paris,

33 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 fact comprised b mainl 5,65 GW of the Paraguaan part of Itaipu Bi-national, a hdropower plant operated b both Brazil and Paragua, but whose energ almost entirel is sent to the Brazilian grid. The approved methodolog ACM0002 asks project proponents to account for all generating sources serving the sstem. In that wa, project proponents in Brazil should search for, and research, all power plants serving the Brazilian sstem. However, information on such generating sources is not publicl available in Brazil. The national dispatch center, ONS National Sstem Operator argues that dispatching information is strategic to the power agents and therefore cannot be made available. On the other hand, ANEEL, the electricit agenc, provides information on power capacit and other legal matters on the electricit sector, but no dispatch information can be got through this entit. In that regard, project proponents looked for a plausible solution in order to be able to calculate the emission factor in Brazil in the most accurate wa. Since real dispatch data is necessar after all, the ONS was specificall contacted and the reason for data collection was explained. After several months of talks, plants dail dispatch information was made available for ears 2002, 2003 and 2004 b ONS. Project proponents, discussing the feasibilit of using such data, concluded it was the most proper information to be considered when determining the emission factor for the Brazilian grid. According to ANEEL, in fact, ONS centralized dispatched plants accounted for MW of installed capacit b 31/12/2004, out of the total ,5 MW installed in Brazil b the same date 12, which includes capacit available in neighboring countries to export to Brazil and emergenc plants, that are dispatched onl during times of electricit constraints in the sstem. Such capacit in fact is constituted b plants with 30 MW installed capacit or above, connected to the sstem through 138kV power lines, or at higher voltages. Therefore, even though the emission factor calculation is carried out without considering all generating sources serving the sstem, about 76,4% of the installed capacit serving Brazil is taken into account, which is a fair amount if one looks at the difficult in getting dispatch information in Brazil. Moreover, the remaining 23,6% are plants that do not have their dispatch coordinated b ONS, since: either the operate based on power purchase agreements which are not under control of the dispatch authorit; or the are located in non-interconnected sstems to which ONS has no access. In that wa, this portion is not likel to be affected b the CDM projects, and this is another reason for not taking them into account when determining the emission factor. In an attempt to include all generating sources, project developers considered the option to research for available, but non-official data, to suppl the existing gap. The solution found was the International Energ Agenc database built when carring out the stud Road-Testing Baselines For Greenhouse Gas Mitigation Projects in the Electric Power Sector, published in October Merging ONS data with the IEA data in a spreadsheet, project proponents have been able to consider all generating sources connected to the relevant grids in order to determine the emission factor. The emission factor calculated was found more conservative when considering ONS data onl, as the table below shows the build margin in both cases. IEA/ONS Merged Data Build Margin (tco 2 /MWh) ONS Data Build Margin (tco 2 /MWh) 12

34 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 0,205 0,0937 Therefore, considering all the rationale explained, the project developers selected to use ONS information onl, as it was capable of properl addressing the issue of determining the emission factor and doing it in the most conservative wa. The fossil fueled plants efficiencies were also taken from the IEA paper. This was done considering the lack of more detailed information on such efficiencies from public, reliable and credible sources. From the mentioned reference: The fossil fuel conversion efficienc (%) for the thermal power plants was calculated based on the installed capacit of each plant and the electricit actuall produced. For most of the fossil fuel power plants under construction, a constant value of 30% was used as an estimate for their fossil fuel conversion efficiencies. This assumption was based on data available in the literature and based on the observation of the actual situation of those kinds of plants currentl in operation in Brazil. The onl 2 natural gas plants in combined ccle (totaling 648 MW) were assumed to have a higher efficienc rate, i.e. 45%.. Therefore onl data for plants under construction in 2002 (with operation start in 2002, 2003 and 2004) was estimated. All others efficiencies were calculated. To the best of our knowledge there was no retrofit/modernization of the older fossil-fuelled power plants in the analzed period (2001 to 2004). For that reason project participants find the application of such numbers to be not onl reasonable but the best available option. The aggregated hourl dispatch data received from ONS was used to determine the lambda factor for each of the ears with available data (2002, 2003 and 2004). The Low-cost/Must-run generation was determined as the total generation minus the generation from fossil-fuelled thermal plants generation, this one determined through dail dispatch data provided b ONS. All this information has been provided to the validators, and extensivel discussed with them, in order to make all points crstal clear. On the following pages, a summar of the analsis is provided. First, the Tables 3 and 4 with the 126 plants dispatched b ONS are provided. Then, a table with the summarized conclusions of the analsis of the emission factor calculation and the load duration curves for the S-SE-CO sub sstem are presented.

35 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 Table 3: ONS Dispatched Plants -1/2

36 CDM Executive Board PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 02 Table 4: ONS Dispatched Plants -2/2