CERTIFICATION AND FINANCING PROPOSAL

Transcription

1 CERTIFICATION AND FINANCING PROPOSAL BAJA CALIFORNIA III CCPP PROJECT IN Published: November 13, 2013

2 CERTIFICATION AND FINANCING PROPOSAL BAJA CALIFORNIA III CCPP PROJECT IN INDEX EXECUTIVE SUMMARY 2 1. ELIGIBILITY 3 2. CERTIFICATION CRITERIA 2.1 Technical Criteria Project Description Technical Feasibility Land Acquisition and Right of way Requirements Management and Operations Environmental Criteria Compliance with Applicable Environmental Laws and Regulations Environmental Effects/Impacts Financial Criteria 3. PUBLIC ACCESS TO INFORMATION 3.1 Public Consultation Outreach Activities 24 1

3 EXECUTIVE SUMMARY BAJA CALIFORNIA III CCPP PROJECT IN Project: The project consists of the construction and operation of a 294 megawatt (MW) natural gas (NG) combined cycle power plant (CCPP) that includes a power station, transmission system, water supply system and fuel supply system located in Ensenada, Baja California, Mexico (The Project ). The electricity generated will be purchased by Mexico s Federal Electricity Commission (CFE) pursuant to 25 year capacity and generation power purchase agreement (C&G PPA). 1 Project Objective: Expected Project Outcomes: Sponsor: Borrower: Loan Amount: The Project will provide a clean and efficient source of energy to meet current and future electricity demands. The Project will address demand on energy production by providing additional supply and displacing the demand on less efficient, more expensive power generation facilities that generate greater harmful emissions. The anticipated environmental and human health outcomes resulting from the installation of 294 MW CCPP capacity energy generation facility are: a) Estimated to be up 2,202 GWh of electricity during the first year of operation, b) A displacement of approximately 16,825 metric tons/year of carbon dioxide, 26 metric tons/year of sulfur dioxide and 488 metric tons/year of nitrogen oxides, 2 and c) Emission factors of less than 742 kg/mwh of carbon dioxide and less than 0.21 kg/mwh of nitrogen oxides. 3 Pending Release Special purpose company to be created (SPV). Up to US$95 million. 1 CFE published on August 27, 2013 a bid No. LO 018TOQ054 T for the execution of a Contract of Commitment on Electric Power Generation Capacity and Purchase of Associated Electric Power, Contrato de Compromiso de Capacidad de Generación de Energía Eléctrica y Compraventa de Energía Eléctrica Asociada. 2 Calculations based on an energy production of 70.6 GWh from the new Combined Cycle Plant equivalent to the displacement on energy generation from diesel plants currently operating in the region and expected to be decommissioned in the same time period of the Project s implementation and start up. 3 Target based on emission factors related to NG power generation referenced from IPCC for CO2 and EPA AP42 for NOx, used by INECC/SEMARNAT for emission inventories in Mexico. 2

4 CERTIFICATION AND FINANCING PROPOSAL BAJA CALIFORNIA III CCPP PROJECT IN Project Type 1. ELIGIBILITY The Project falls in the category of clean and efficient energy. Project Location The Project will be located within the Municipality of Ensenada, Baja California, Mexico, approximately 65 kilometer (40 miles) south of the U.S. Mexico Border. Project Sponsor and Legal Authority The private sector Project sponsor will be provided the authority to design, construct, and operate the new combined cycle power plant (CCPP) under a 25 year capacity and generation power purchase agreement (C&G PPA), as awarded by the Federal Electricity Commission (CFE). CFE is a decentralized government agency, duly incorporated which controls its own assets and is in charge of planning the national electrical system. The Project sponsor is seeking an award of the anticipated contract, which will be selected through an international public procurement process, currently underway. 2.1 TECHNICAL CRITERIA Project Description Geographic Location 2. CERTIFICATION CRITERIA The Project will be located within the municipality of Ensenada, Baja California, Mexico, in an area known as La Jovita, approximately 13 miles northwest of the city of Ensenada and 31 miles south of Tijuana. The Project will be developed in a property of approximately 23 hectares (57 acres). Figure 1, below, shows the approximate geographical location of the Project. 3

5 Figure 1 PROJECT VICINITY MAP La Jovita CCPP General Community Profile The Project is expected to directly benefit the municipalities of Ensenada, Tijuana and Playas de Rosarito in the state of Baja California by generating electricity equivalent to the annual consumption of 196,700 households. 4 The Project will also benefit Ensenada by creating employment opportunities and additional taxes through the construction of the Project. According to the 2010 Mexican census, the municipalities of Ensenada, Tijuana and Rosarito have a combined population of 2,117,165 which represents 67% of the state s population. Between 2005 and 2010, Baja California experienced an average annual growth rate of 2.22%, higher than the country average (1.8%). 5 4 Estimate based on the annual energy consumption per capita from the Baja California Energy Profile

6 According to the latest economic census, the median household income (MHI) reported for Ensenada was approximately MX$42,600 pesos. Its main work force activities are manufacturing with 26.24% of its working population, commerce sector which represents 32.02% of Ensenada s work force and temporary lodging, food and beverage services contribute with 10% of total employment. The current unemployment rate in Ensenada is 5.8%, which is higher than the national average of 4.99%. Local Energy Profile CFE is a company created and owned by the Mexican government. It generates and distributes electric power to more than 35 million accounts or nearly 100 million people. According to CFE s Investment Program Strategies for the Energy Sector for (POISE), the installed capacity in Mexico, in 2010, was approximately 52,947 MW. To manage its power supply, CFE operates an electric grid with more than 766,500 km of transmission and distribution lines. The electrical grid is defined by nine zones, seven of which are interconnected and form the National Interconnected System (SIN). The remaining two areas are independent supply networks serving the areas of Baja California and Baja California South, as shown in the following figure. FIGURE 2 MEXICO ELECTRICITY AREAS Source: POISE CFE generates electric power using various technologies and energy sources. To better support an opportunity to increase and diversify the energy portfolio, in 1992, the Power Sector Law in Mexico was amended to allow private capitals participation in energy generation activities under the following schemes: a) Cogeneration or small power production, b) Self supply, c) Independent Power Production d) Exports, e) Imports for self consumption. 5

7 Additionally, in 1995, the Energy Regulatory Commission, Comisión Reguladora de Energía (CRE) was created to regulate activities related to the participation of private investment in the power and NG sector. The CRE is responsible for issuing the permits for electricity generation and NG transportation to private parties. The current energy portfolio includes thermoelectric, hydroelectric, coal fired, geothermal and wind powered plants and facilities, as well as one nuclear power plant. Although the use of solar, wind, and biomass resources has a large potential, geothermal energy is the only renewable source (excluding hydropower) with a significant contribution to the energy mix (2% of total generation capacity). Figure 3 shows the technologies used for electricity generation in Mexico. Figure 3 MEXICO ENERGY PORTFOLIO OF TECHNOLOGIES Source: POISE CFE strongly promotes the construction of NG combined cycle plants as a cleaner energy and more efficient generation process to replace other technologies based on coal and diesel use. Currently, 34% of Mexico s energy generation capacity comes from CCPPs. In 2010, Mexico s energy demand was approximately 38,000 MW for public services and CFE has calculated an average growth rate of 4% in demand for energy generation over the next 15 years. In order to address future demand, CFE s strategies consider an increase of 44,532 MW of additional capacity of electricity generation anticipated from the following sources: 27,015 MW of NG CCPP, 8,531 MW of renewable energy, 7,000 MW of new clean technologies and 1,448 MW of turbogas. Given this strategy, the portfolio evolution for Mexico is expected to achieve the following changes in the mix of power generation sources. 6

8 Figure 4 MEXICO ENERGY MIX DEVELOPMENT According to CFE, in 2010, the installed capacity for electricity generation specific to the state of Baja California was reported to include 2,601 MW. Similar to the national trend, the use of NG CCPPs for the energy supply has increased over the last 10 years, which has diversified energy generation based on this highly efficient technology, accounting for 52.33% of the state s energy mix in 2010 compared to 0% in The primary energy plants currently serving the region include: Presidente Juárez (Thermoelectric/Combined Cycle) 1,303 MW Mexicali (Combined cycle) 489 MW Cerro Prieto (Geothermoelectric) 720 MW As previously described, Baja California s electrical grid is independent of the SIN grid. 7 However, to offset demands unmet by existing infrastructure as well as to improve service reliability, the Baja California grid has interconnection points with the grid managed by the Western Electricity Coordinating Council (WECC) in the Unites States. According to the POISE, in 2010, 221 GWh of generated power was imported to the Baja California area and for 2011, 261 GWh were imported. 8 To address a lack of infrastructure and the constrained power supply, CFE s POISE proposes the construction of new CCPPs and renewable energy infrastructure as well as to decommission less efficient and higher emission generation facilities within the same region. Within the next 10 years, CFE has plans to decommission the following power plants: Mexicali U1 Diesel (26MW) FY14 Mexicali U2/U3 Diesel (36MW) FY14 Tijuana I & II U1 Turbogas (60 MW) FY18 Cerro Prieto I U5 Geothermoelectric (30 MW) FY21 Presidente Juarez U5/U6 Thermoelectric (320 MW) FY21 6 Source: Baja California Energy Profile For 2018 CFE plans to interconnect the Baja California grid systems with the SIN. 8 SENER, electric sector outlook

9 As a complement to the decommission plan, in the next 15 years, new infrastructure investment will provide additional capacity using technologies, such as turbogas (123 MW); NG CCPPs (2,280 MW); Wind (300 MW); and Geothermoelectric (100 MW). Additionally, CFE has an investment plan related to transmission infrastructure to support the efficient use of the proposed new energy supply. The Project described for this Certification is part of the new infrastructure investments considered by CFE. Project Scope and Design The scope of the Project is to design, build, and operate a 294 MW CCPP that includes the power station, transmission system, water and fuel (NG) supply systems and access roads, as well as the equipment and auxiliary systems and facilities for a safe and efficient operation. The Project will be located in an area of approximately 23 hectares (57 acres) and will be connected to the CFE grid to supply power to Ensenada, Playas de Rosarito and Tijuana. The NG supply may be obtained from the Rosarito NG Pipeline or from Energía Costa Azul facilities, located about 800 meters (0.5 mi) from the proposed Project site. For cooling and electric generation purposes, CCPP will use sea water. Figure 5 shows the general Project Layout. Figure 5 PROJECT LAYOUT Source: Environmental Impact Assessment (MIA) The proposed Project will be executed under a 25 year C&G PPA between the Project sponsor and CFE, for the purchase of electricity generated during the contract period as well as for installed capacity. In accordance with the procurement documents, the Project sponsor will be required to complete the Project design and any other additional studies required to comply 8

10 with applicable laws and regulations as well as to obtain a series of authorizations for the start of Project prior to construction scheduled for second quarter of Because these activities will be the responsibility of the selected Project sponsor, and certification and financing approval is required to execute the CFE contract, Project milestones have been evaluated in two groups. A list and status of key tasks for Project implementation, as described in CFE s procurement documents, are provided in Tables 1 and 2 organized as Pre Certification Project Milestones and Post Certification Project Milestones. Key Milestones Land acquisition by CFE Table 1 PRE CERTIFICATION PROJECT MILESTONES Status Completed MIA Resolution issued by SEMARNAT CCPP construction Completed (March 2011) CFE Bid Award Pending (January 2014) Key Milestones (responsible party) Table 2 POST CERTIFICATION PROJECT MILESTONES Anticipated Date C&G PPA contract to be signed (CFE and Sponsor) January 2014 SEMARNAT (State) Forested Land Use Change (CFE and Sponsor) Pre construction SEMARNAT Authorization (MIA Resolution) Fuel supply system and access road (CFE and Sponsor) SEMARNAT Environmental License and Registry for Project Operation (Sponsor) CONAGUA permits water rights, quality certificate and discharge permits (Sponsor) CRE Permits for gas transportation for delivery to the power plant (CFE) CRE s permit for energy generation (Sponsor) Municipal (Ensenada) Land Use Authorization (CFE) Municipal construction permits (Sponsor) Pre construction Before operation Pre construction Pre construction Pre construction Pre construction Pre construction Anticipated construction initiation April 2014 Commercial Operation Date (COD) October 2016 Pending permits and authorizations will be obtained prior to or during the construction process in accordance with the CFE contract. As with other projects, completion of necessary milestones will be a precedent condition for disbursements related to specific works in the loan contract. Additionally NADB's procurement policies require that private sector borrowers use appropriate procurement methods to ensure a sound selection of goods, works and services at fair market prices and that their capital investments are made in a cost effective manner. As part of its due diligence process, NADB will review compliance with this policy. 9

11 Technical Feasibility Selected Technology CCPPs provide several economic, environmental and operational benefits compared to other power generation facilities. Due to their reliability and operational flexibility, CCPPs are suited to provide a reliable energy supply, making them adequate for intermediate to base load power generation. CCPPs can start very quickly and provide grid stabilization when renewable power generation sources wane. These characteristics make CCPPs an ideal contributor to the energy portfolio, allowing the integration of intermittent sources of energy such as wind and solar, while permitting power companies to comply with the requirements placed by their energy markets. CCPPs utilize an electricity generating technology in which electricity is produced from otherwise lost heat waste exiting from one or more gas (combustion) turbines. For maximum efficiency, the exiting heat will be routed to a heat recovery steam generator (HRSG) to generate steam for utilization by a steam turbine in the production of additional electricity. This dual track process increases the efficiency of the electric generating unit. 9 Figure 6 CCPP PROCESS Source: Calpine Gas turbines are among the cleanest fossil fueled power generation equipment commercially available. Because of their relatively high efficiency and reliance on natural gas as the primary fuel source, gas turbines emit substantially less carbon dioxide (CO2) per kilowatt hour (kwh) generated than any other fossil technology in general commercial use. 10 While the electrical 9 Source: U.S. Energy Information Administration. 10 Source: Technology Characterization: Gas Turbines, EPA

12 efficiency of a simple cycle power plant without waste heat utilization typically ranges between 25% and 40%, a CCPP can achieve electrical efficiencies of 60% and more. More recently, as natural gas prices have fallen, CCPPs have been more widely adopted for base load power generation. 11 Considering the CCPP as the best available technology to supplement its energy supply for the cities of Ensenada, Tijuana and the coastal corridor between these two cities, CFE began a site selection process for the new facility. Site selection was developed in 3 phases: identification of protected areas, determination of potential sites, and a comparative evaluation of the identified sites, taking into consideration economic, social and environmental details of each. The La Jovita site was eventually selected as the ideal location for the electricity generation facility, based on the availability of the NG supply, the proximity to the Costa Azul NG plant, and the opportunity for using non potable water sources for construction and operational purposes including use within the facility s cooling systems. CFE bidding requirements establish that all facilities and equipment must be based on an approved design with at least one year of operation in a similar CCPP. Additionally, the design and construction must comply with Mexican standards according to the Federal Law on Metrology and Standardization Ley Federal sobre Metrología y Normalización and/or applicable international standards (International Organization for Standardization or the International Electro technical Commission (ISO/IEC)). According to the CFE procurement documents and the Environmental Impact Assessment (Manifestación de Impacto Ambiental Modalidad Particular, MIA) for the proposed Project, the CCPP will include the following major components: Power Station Bid specifications require that the power station operating range must be from 25% to 100% load and shall achieve, at least, 45% efficiency under summer design conditions. The power station will include: Gas and Steam Turbo generators: The primary energy generation process will be integrated by one natural gas turbine generator, with low emissions of CO2 and NOx, and a specially designed steam turbine generator to comply with local weather conditions and CFE s power requirements. Both turbines will have a speed regulation system which provides efficiency and flexibility to operate according to the electricity generation demand. Heat Recovery Steam Generator: the HRSG must be designed in compliance with codes and standards of the American Society of Mechanical Engineers (ASME) appropriate to the size and operation expectations of the CCPP. 11 Source: utilities/power/processes/combinedcycle.htm?stc=wwecc

13 Monitoring and control system: The plant will be equipped with a computer control system to monitor and control operating conditions such as turbine speeds, air and water temperatures, and electrical voltage. The control system will be in continuous operation to ensure that all the equipment is operating efficiently and safely. The CCPP will be connected to a central CFE Supervisory Control and Data Acquisition (SCADA) system that will allow remote monitoring CCPP. Electric Substation: The power station s substation will be interconnected with CFE s nearby substation (Point of Interconnection). The Sponsor must construct a fully equipped switchyard as well as the necessary infrastructure from the power station s switchyard to the interconnection point. Cooling water system: The main cooling system will be designed to dissipate the thermal load of the steam turbine s exhaust for all operating conditions. For this purpose, and recognizing that the Baja California aquifers are restricted, the Project considers the use of sea water for cooling that will be discharged back into the ocean after use and treatment. Sea water intake and water discharge infrastructure will be installed to manage a flow capacity for up to 4,000 liters per second (91 MGD). Natural gas supply pipeline The Project sponsor shall design, supply, install and put in service the equipment that is necessary to receive and meter the NG fuel supply. The station will have a separator for condensate, filters, safety valves, and measuring equipment for pressure, temperature, gas composition and flow. The expected natural gas consumption of the Project is 1.3 Mm3/d (271 MGD). Roads The Project will include the construction of approximately 2.5 kilometers (1.6 miles) of permanent roads, including compacted native material and some areas with asphalt, to allow vehicle access within the Project site Land Acquisition and Right of way Requirements Under the bidding guidelines, the Project site, described as the Optional Site, encompasses a total area of approximately 23 hectares (57.5 acres) and it is located in a coastal area. The land considered for the construction of the Project is owned by CFE 12 and consists of two parcels located in the Costa Azul Development. One of the land parcels is reserved for future CFE use. An adjacent property to the Optional site includes the Costa Azul NG plant operated by Sempra. CFE has already obtained the MIA Authorization for this Optional Site, 13 and will also be responsible for obtaining the pertinent easements. However, CFE has also indicated, in the 12 Source: CFE procurement documents 13 CFE named the MIA as: 36 CC Baja California III (Site: La Jovita), Modality: External Power Producer (PEE), 36 CC Baja California III (Sitio: La Jovita), Modalidad: Productor Externo de Energia (PEE) 12

14 bidding requirements, that bidders can choose another site, in which case, the bidder shall be responsible for carrying out all the studies and obtaining all the necessary permits for the construction and operation at the new site. The CFE site does require a land use authorization from the Municipality of Ensenada and CFE will be responsible for obtaining it before construction. Additionally, the site requires an authorization from SEMARNAT for the change in use of land currently classified as forestry. The required studies have been already been conducted by CFE as part of the MIA Studies. The Project sponsor will thus be responsible for presenting and obtaining this authorization prior to construction. 14 The Project sponsor will also be responsible for obtaining the construction permit from the Municipality. Other authorizations and permits related to rights of way and use of property for infrastructure in Mexico include the right of way for the natural gas supply system, access roads and power transmission, for which CFE is responsible for obtaining and providing these to the winning bidder prior to construction work Management and Operations Operation of the CCPP will be conducted in accordance with the Mexico s National Electrical Systems Operation Code, Reglamento de Despacho y Operación del Sistema Eléctrico Nacional, which establishes standards to achieve adequate operation and reliability. SEMARNAT will also issue an Environmental License and Registry for the Project s operation that will be completed once specific information on Project operation is available. Additionally, the MIA resolution established certain reporting requirements for the operation of the power plant including necessary reports for emissions control and air quality monitoring. 2.2 ENVIRONMENTAL CRITERIA Compliance with Applicable Environmental Laws and Regulations The Project is subject to a federal environmental clearance authorization in Mexico. Below is a list of the general laws and regulations applicable to the Project, as provided in the Environmental Impact Assessment (Manifestación de Impacto Ambiental, Modalidad Particular, MIA): General Law of Ecological Balance and Environmental Protection (LGEEPA), which establishes the environmental regulatory framework, expands the strategic vision, and conveys specific powers and duties to the states and municipalities, so that the environmental problems can be addressed directly. General Law for Waste Prevention and Comprehensive Waste Management (LGPGIRS), which seeks to identify the criteria that should be considered by various levels of 14 Source: Document DGPP.411.OIF of the procurement documents. 13

15 government in the generation and comprehensive management of solid waste, in order to prevent and control environmental pollution and ensure the protection of human health. General Wildlife Law, which establishes the concurrence of the federal, state and local governments regarding the conservation and sustainable use of wildlife and their habitats in Mexico. General Law for Sustainable Forest Development, which regulates and promotes the conservation, protection, restoration, production, zoning, cultivation, management and use of the country's forest ecosystems and their resources. National Water Law, which establishes the regulations for water use, distribution and control. Baja California Environmental Protection Law, which establishes the framework for environmental protection in Baja California. Environmental Impact Assessment Regulation, which establishes the requirements for a Federal Environmental Impact Assessment. Emissions and Pollutants Transfer Regulation, which indicates the requirements for the prevention of air pollution and pollutants transfer. Atmospheric Pollution Regulation, which indicates the requirement for the prevention of air pollution. NOM 001 SEMARNAT 1996, which establishes the maximum permissible limits of contaminants in the discharges of wastewaters into national waters and resources. NOM 041 SEMARNAT 2006, which establishes the maximum permissible emission of pollutants from the exhaust gases of vehicles in circulation that use gasoline as fuel. NOM 045 SEMARNAT 2006, which establishes the maximum permissible levels of smoke opacity from the exhaust of vehicles in circulation that use diesel or mixtures including diesel as a fuel. NOM 052 SEMARNAT 2005, which establishes the characteristics of hazardous waste, the classification and identification procedure and its list. NOM 059 SEMARNAT 2010, which identifies the species or endangered wildlife in Mexico by preparing the corresponding lists and establishing the criteria for inclusion, exclusion or change in risk status for different species, using a method for assessing the risk of extinction. 14

16 NOM 080 SEMARNAT 1994, which establishes the maximum levels of noise emissions from motor vehicles, motorcycles, and 3 wheel motor vehicles, as well as noise measuring methods. NOM 081 SEMARNAT 1994, which establishes the maximum levels of noise from stationary sources and noise measuring methods. NOM 138 SEMARNAT/SS 2012, which establishes the maximum permissible limits of hydrocarbons in soils and the specifications for their characterization and remediation. NOM 021 SSA1 1993, which establishes criteria for evaluating ambient air quality with respect to carbon monoxide (CO) and the permissible value for CO concentrations in ambient air, as a public health protection measure, with a permissible limit of ppm or what is equivalent to 12,595 µg/m3 averaged over eight hours, once a year. NOM 022 SSA1 2010, which establishes criteria for evaluating ambient air quality with respect to sulfur dioxide (SO 2 ) and the regulated value for SO2 in ambient air, as a public health protection measure, with a permissible limit of ppm or 341 µg/m3 averaged over 24 hours, once a year. NOM 023 SSA1 1993, which establishes criteria for evaluating ambient air quality with respect to nitrogen dioxide (NO 2 ) and the regulated value for NO 2 concentrations in ambient air, as a public health protection measure, with a permissible limit of 0.21 ppm or what is equivalent to 395 µg/m3. Baja California Urban Development Plan 2010, which describes State Government development plans and projects. Baja California Ecological Balance Plan 2005, which describes the policies of the state related to economic growth and urban development and environmental balance Regional Plan for Urban and Tourism Development in Tijuana Rosarito Ensenada 2011, which indicates the environmental and political feasibility for land uses in the region. Environmental Studies and Compliance Activities In accordance with the Environmental Impact Regulations established by the LGEEPA, the CFE developed and submitted the MIA, on July 19, 2010, for the Construction of a Combined Cycle Power Plant in Ensenada, Baja California. The MIA identified, described and evaluated the potential environmental effects associated with the proposed Project and included a Risk Analysis as part of the requirements for this type of project. The evaluated elements included soil, geology, hydrology, flora and fauna, seismology, socioeconomics, weather conditions and ocean conditions. Based on the findings of the MIA, and after a thorough analysis of the potential impacts, the study concluded that the execution of the total Project would not significantly affect the environment. The following studies and plans were included in the MIA: 15

17 Study of dispersion of emissions into the atmosphere. The study consisted of modeling the impacts on air quality caused by the CCPP operation through the different weather conditions in one year. The atmospheric dispersion model Industrial Source Complex (ISCST3) was used to assess pollutant concentrations associated with this type of project. The results of the study indicated that air quality at the site will be in compliance with NOM 023 SSA assuming the conditions at full operation of the CCPP and the city of Ensenada will not experience major impacts on air quality. Protection and Rescue of wildlife and forest plan for species included in NOM 059 SEMARNAT The plan included methods for the recovery of affected organisms as well as methods to improve protective measures for wildlife and forest. The plan also concluded that forest vegetation outside the authorized area will not be affected by the construction works and operations related to the Project. Free Chlorine Dispersion modeling for wastewater discharge in the ocean. The study included modeling and analysis to estimate the coverage area for chlorine dispersion in the ocean and proposed the implementation and evaluation of mitigation measures which are described below. No major impacts were identified as a result of the modeling. Hydrodynamic modeling and thermal dispersion. The study included modeling and analysis to estimate conditions associated with a worst case scenario for thermal dispersion in the ocean as a result of cooling water discharges at the anticipated impacted area, in order to implement or evaluate mitigation measures. The model considered variables such as ocean currents, tides, weather conditions and turbulence. The study proposed the necessary infrastructure to prevent or mitigate the impact in the marine life as described in Mitigation of Risks section. Bioassay report. The study identified the possible effects on aquatic life, considering lethal levels of pollutants on different species and the effect caused by the discharge of water used for cooling purposes considering the increase of energy (elevated temperature) as well as free chlorine. The study concluded that aquatic life will not been affected as a result of the Project. The information presented in the evaluation of potential impacts was reviewed by SEMARNAT and a resolution was issued on March 22, 2011 via document SGPA/DGIRA.DG , authorizing the construction of the Project subject to the development of additional activities and the delivery of information related to environmental impacts and mitigation measures to be performed before and during the construction process and operation (see Mitigation of Risks section). CFE Bidding documentation indicates that the Project sponsor will be responsible for the compliance of all activities and studies established in the Environmental Authorization as required by SEMARNAT. 16

18 Pending Environmental Tasks and Authorizations According to procurement document DGPP.411.OIF , the following authorization and permits shall be obtained by the successful bidder before construction: Forestry land use change authorization by SEMARNAT (State) SEMARNAT Environmental authorization for fuel system supply system and access road SEMARNAT Environmental License and Registry for Project Operation CONAGUA permits (water rights, quality certificate and discharge permits) Compliance Documentation The Environmental Authorization was granted by SEMARNAT to CFE via the MIA Resolution with document number S.G.P.A./DGIRA.D.G , dated March 22, Environmental Effects/Impacts The use of NG for electricity production reduces impacts to the environment in comparison to electricity generated from other fossil fuels by significantly reducing CO 2 and NOx emissions per kwh of electricity produced. NG energy generation facilities also provide a reliable base load with flexibility to efficiently integrate renewable energy sources into the grid s energy supply portfolio. Additionally, unlike coal fired power plants, a NG combined cycle system does not produce significant solid waste streams. Although power plants are regulated by federal and state laws to protect human health and the environment, there is a wide variation of environmental impacts associated with power generation; therefore, it is important to consider the best available technologies to minimize these impacts. The burning of NG produces nitrogen oxides and carbon dioxide, but in significantly lower quantities than burning coal or oil. There are some risks for Methane emissions as the result of leaks and losses during transportation. As an important advantage of NG CCPPs, emissions of sulfur dioxide and mercury compounds from burning natural gas are negligible. 15 According to the US EPA egrid 2000 data, the average emissions rates in the United States from natural gas fired generation are: 1135 lbs/mwh of carbon dioxide, 0.1 lbs/mwh of sulfur dioxide, and 1.7 lbs/mwh of nitrogen oxides. Compared to the average air emissions from coalfired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and one percent as much sulfur oxides. Other recent studies report lower emissions from the use of natural gas, indicating that NG fired electricity has 47% lower life cycle GHG emissions per unit of electricity than coal fired electricity and you/affect/natural gas.html 16 research/investment_research_2376.jsp 17

19 The environmental consequences of a power generation facility depend not only on the emissions from the plant, but also those that result from upstream operations such as fuel production and transportation. 17 Additionally, combined cycle systems require water for cooling purposes, and according to some manufacturer s data the process consumes 30% less water than a coal fired plant. 18 CCPPs can also have an effect on aquatic life when water is removed from water bodies such as the ocean, rivers or lakes or when process water is discharged into these water bodies. Combustion turbines do not produce any water discharges, however, pollutants and heat build up in the water used in natural gas boilers and combined cycle systems may need to be discharged when these pollutants and heat reach certain levels. This discharge usually requires a permit and is monitored. 19 The Environmental Authorization granted for the Project, already considers specific compliance requirements to minimize potential impacts resulting from water discharges into the ocean. Existing Conditions and Project Impact Environment The energy sector in Mexico represents almost 8% of the GDP, 20 and it is the largest source of GHG emission with a 44% contribution and a GHG emissions average annual growth rate of 2.3%. The energy sector includes GHG emissions originated by: petroleum and gas, electric generation and fugitive emissions. 21 Mexico has set a goal of 30% emission reduction by the year 2020, based on the baseline for mitigation potential. The baseline indicates that two thirds of this potential can be found within the energy production sector. However, emission reductions are challenging due to current trends of energy demand in Mexico. According to the National Energy Strategy released by the Mexico s Secretariat of Energy (SENER), in the last ten years, the growth in demand for electricity has surpassed the growth rate in population, which is used to project current investments, this condition places greater pressure on existing energy generation capacity and the need to find more efficient and cleaner technologies. The scenario at the state level is similar, according to Baja California Emission Inventory, 22 in 2010, CO 2 e emissions generated from the electricity production sector represented 33.3% of the total emissions. This represented an increase of almost 10% since In 2010, the state of Baja California had an electricity generation of about 9,800 GWh and emitted 6.19 million metric tons of CO 2. See figure Source: Life Cycle Assessment of a Natural Gas Combined Cycle Power Generation Systems, National Renewable Energy Laboratory. 18 GE Energy, Integrated Gasification Combined Cycle Power Plant and you/affect/natural gas.html 20 National Energy Strategy , Mexico s Secretariat of Energy (SENER) 21 NCCS 2013, Mexico National Climate Change Strategy, Vision 22 Source: BECC 2010, Baja California Emission Inventory 18

20 FIGURE 7 GHG EMISSIONS IN BAJA CALIFORNIA Currently the generation of electricity in the state of Baja California is based on a mixture of energy production technologies including combined cycle (53.31%), geothermal (40.25%) and fuel oil based power plants (6.44%) as shown in table 3. Table 3 ELECTRICITY GENERATION IN BAJA CALIFORNIA 2010 Energy Source Electricity generation in 2010 (GWh) 1 Combined Cycle 5,224 Geothermal 3,944 Oil 632 Source: Baja California Energy Profile NG is currently one of the most cost effective and cleaner fuels for reliable energy generation. NG is a complement to renewable energy rather than a competitor and can rapidly ramp up to address mismatched demand and supply from renewable energy sources. Energy generation from this source emits significantly less CO 2 and NOx than oil and diesel energy generation and emissions of SO 2 are nearly 100% eliminated, as show in Table 4 TABLE 4 POLLUTANTS EMISSION IN ENERGY GENERATION CO 2 Intergovernmental Panel on Climate Change SO 2, NOx, PM10, VOC USEPA AP 42 Compilation of Air Pollutant Emission Factors 19

21 The Project will help displace harmful emissions related to fossil fuel electricity, since NG burns cleaner than any other fossil fuels available due to its lower carbon content. The anticipated environmental outcomes include the installation of new cleaner and more efficient energy generation capacity of 294 MW or up to 2,202GWh in Year 1. Based on energy generation from diesel plants currently operating in the region and expected to be decommissioned in the same time period of the Project s implementation and start up and considering the equivalent energy generation from fuel oil and the emission factors above, it can be estimated that the new clean and efficient source will displace 16,825 metric tons/year of carbon dioxide, 26 metric tons/year of sulfur dioxide and 488 metric tons/year of nitrogen oxides. Additionally, environmental benefits of the Project may be measured by reviewing the achievement of better than standard emission factors during operation as referenced for carbon dioxide and nitrogen oxides in Table 4, above. According to the MIA, the Project activities are not expected to result in major adverse health and safety, air quality, noise, socioeconomic, or other impacts on local communities, as long as the Project complies with applicable laws and regulations and the implementation of the established mitigation measures. Mitigation of Risks The anticipated impacts associated with the construction, operation, and maintenance of the Project are fully disclosed and analyzed in the environmental impact studies conducted for this Project. Adverse impacts associated with implementation of the Project can be avoided or substantially reduced based on compliance with applicable laws, ordinances, regulations and standards. The MIA resolution issued by SEMARNAT requires the implementation of mitigation measures proposed by CFE for the Project as well as monitoring programs intended to reduce, mitigate and control the environmental effects resulting from the Project. As established in the Environmental Authorization, periodic reporting as well as annual reports must be submitted to ensure that mitigation measures are implemented properly and in a timely manner. Mitigation measures established in the Environmental Authorizations for the Project, including monitoring programs are summarized below. 1. Implementation of a Training Program which shall contain the following topics: a. Applicable environmental laws and standards b. Plans for solid waste, hazardous waste and wastewater management c. Protection of wildlife 2. Implementation of a plan for protection and rescue of wildlife for species included in NOM 059 SEMARNAT 2010, as well as for endemic species of plants identified in the MIA. 3. Implementation of continuous emissions monitoring and installation of controls to adjust equipment operations. 20

22 4. Implementation of an air quality monitoring network to verify compliance with air quality standards. 5. Monitoring of aquatic life in the in the vicinity of the intake and discharge. 6. Compliance with the Restoration Program described in the MIA, including compensatory measures and mitigation activities. 7. Compliance with all recommendations derived from the results of the thermal diffusion modeling for the marine zone, such as: The seawater intake and discharge structures must have the necessary equipment to reduce the number of affected marine species. The discharge structure shall have an arrangement of three diffusers to ensure that the dispersion of the heat and chlorine would not exceed the result in the modeling study. Additionally, during the implementation and operation of the Project, measures will be taken to mitigate the temporary effects of construction, as well as to minimize negative impacts during operation based on best management practices such as control of noise levels and emissions for vehicle operation according to norms, as well as proper handling, storage, transport and disposal of hazardous and not hazardous waste. Natural Resource Conservation The Project will support natural resource conservation contributing to the reduction of air pollution by displacing the atmospheric emissions generated by the use of fossil fuel with high hydrocarbons content and less efficient technologies. According with the MIA, the Project will not be constructed in areas with sensitive natural resources and a set of compensation and restoration measures included in the MIA will be implemented for minimization of negative impacts to wildlife, forest, and aquatic life. According to the MIA, the Project will not affect aquatic life as a result of thermal water discharges resulting from the cooling process. The Project considers the opportunity for using non potable water sources such as sea water for construction and operational purposes including use within the facility s cooling systems recognizing that water supply in the Ensenada area is limited and that the Baja California aquifers are restricted. No Action Alternative The no action alternative to the use of NG for energy generation would result in greater demand for less efficient sources for energy production, such as diesel with an elevated carbon content, which would continue the high carbon footprint for purposes of meeting an ever growing demand for energy. 21

23 Additionally, the Project will help meet decommissioning plans for fossil fuel based energy plants, off setting the loss of energy supply with a new source of electricity generation. The Project will help to address the existing deficit and increasing demand for electricity in the region with a more efficient energy with proven technologies such as combined cycle systems, which also allows increased flexibility for the integration of renewable energy sources. Existing Conditions and Project Impact Health Epidemiological research has shown that both chronic and acute exposure to harmful emissions associated with high hydrocarbon content fossil fuel based energy production can lead to serious respiratory problems. It is estimated that, at the very least, prolonged exposure to excessive levels of pollutants can deteriorate the respiratory capacity of humans and greatly contribute to the increased incidence of cardiopulmonary diseases, such as asthma, heart ailments and lung cancer. By using cleaner resources and more efficient technologies instead of conventional fuel oil, coal or diesel sources in electrical power generation, the Project will positively impact the region by reducing pollutants and thus helping to contain the severity of respiratory and other diseases aggravated or caused by air pollution. In addition, the reduction of GHG emissions is expected to mitigate climate effects that create more vulnerable conditions for human health. Transboundary Effects No significant transboundary impacts or effects have been identified nor are these anticipated as a result of the development of the Project. On the contrary, a beneficial effect is anticipated related to the air quality due to the decreased demand on conventional high hydrocarbon content fossil fuel fired electrical plants in the region. The Project will also aid in addressing more regional environmental concerns related to greenhouse gases global warming. Furthermore this CCPP will increase electricity generation in Baja California and contribute to a reduced dependence on the import of electricity from the US. Other Local Project Benefits During construction and operations, the Project is expected to generate direct and temporary jobs. Employment of construction personnel would provide a temporary beneficial impact on local businesses and the regional economy through increased expenditure of wages for goods and services. Personnel for construction would be drawn from local populations. A limited number of construction personnel may require temporary housing, likely in local hotels, and would purchase food, beverages, and other commodities, which would provide temporary benefits to the local economy FINANCIAL CRITERIA The Project sponsor has requested a loan from the North American Development Bank (NADB) to complete the financing of the Project. The payment mechanism proposed in the bidding documents provides for a secure source of repayment of the NADB loan. The source of 22

24 repayment will be the revenue generated by the Project in accordance with the conditions established in the proposed C&G PPA throughout its 25 year term to be signed with the CFE. The proposed C&G PPA will be contracted through the Independent Power Producer ( IPP ) scheme. This structure is widely used by CFE to purchase electricity from private and public entities, especially for combined cycle plants. The NADB loan will have no recourse beyond the Special Purpose Vehicle (SPV) created for the Project. NADB performed a financial analysis of the source of payment, CFE; the proposed payment structure; and the Projects cash flow projections over the 25 year term of the C&G PPA. CFE maintains a positive outlook from ratings agencies because of its status as a state owned natural monopoly. CFE is presently rated mxaaa by S&P Ratings, AAA (mex) by Fitch Ratings, and Aaa.mx by Moody s under the local long term national category, and has global ratings of BBB, BBB+ and Baa1, respectively, which indicates a strong credit quality. The Project s expected revenues from the sale of capacity and electricity is estimated to be sufficient to: a) cover scheduled O&M expenses; b) fund any debt service reserve, if required; c) pay the debt service on the senior loan; and d) comply with debt service coverage requirements. In addition, NADB s analysis verified that the SPV that will be created will have the legal authority to contract financing and pledge its revenues for the payment of its financial obligations. The SPV will also have the legal and financial capacity to operate and maintain the Project, and will have a long term service agreement with providers that have ample experience and expertise in these types of projects. Considering the Project s characteristics and based on the financial and risk analyses performed, the proposed Project is considered to be financially feasible and presents an acceptable level of risk. Therefore, NADB proposes providing a market rate loan for up to US$95 million to whomever CFE selects as the winner of the bid, for the construction of the Project described herein. 23

25 3.1. PUBLIC CONSULTATION 3. PUBLIC ACCESS TO INFORMATION BECC released the Draft Project Certification and Financing Proposal for a 30 day public comment period beginning November 13, The following available Project documentation is available upon request: Procurement process documents Contrato de Compromiso de Capacidad de Generación de Energía Eléctrica y Compraventa de Energía Eléctrica Asociada. Environmental Impact Assessment Manifestación de Impacto Ambiental, Modalidad Particular prepared by Tamaulipas Autonomous University Universidad Autónoma de Tamaulipas. July 19, MIA resolution for 36 CC Baja California III (Site: La Jovita), Modality: External Power Producer (PEE), 36 CC Baja California III (Sitio: La Jovita), Modalidad: Productor Externo de Energia (PEE) issued by SEMARNAT Document S.G.P.A./DGIRA.DG March 22, OUTREACH ACTIVITIES Outreach activities to provide access to Project information as well as to invite public comments on the Project were conducted by SEMARNAT through the Ecological Gazette number DGIRA/043/10, dated on July 22, In accordance with Article 40 of Mexico Environmental Impact Assessment Regulation, a 10 day period to request a formal public consultation for the Project was granted and no comments were received and no additional information was requested during this period which ended on August 05, CFE made extensive efforts to provide public access to information related to their plans and activities. Information about the Project is available for public review through the POISE document as well through the Baja California Energy Profile. Both documents make several references to the La Jovita CCPP project. In addition, procurement information can be found at the CFE website. Additionally, BECC conducted a media search to identify public opinion about the Project. Numerous references to the Project were found in articles on several Internet sites, including: Internet news el mexicano, GRAN DIARIO INTERNACIONAL, (January 5, 2010): Pelayo traded La Jovita s authorization, describes details about CFE support to the community by providing 40 million pesos to city s infrastructure. mexicano.com.mx/informacion/noticias/1/8985/negocio pelayopermiso para la jovita.aspx 24