YUNNAN TENGZHONG NEW ENERGY TECHNOLOGY Co. Ltd. BIOMASS HEATING SYSTEM RETROFITTING AND BIOMASS COLLECTION STATION PROJECT

Transcription

1 YUNNAN TENGZHONG NEW ENERGY TECHNOLOGY Co. Ltd. BIOMASS HEATING SYSTEM RETROFITTING AND BIOMASS COLLECTION STATION PROJECT Document Prepared By Beijing Karbon Energy Consulting Co., Ltd. Project Title Yunnan Tengzhong New Energy Technology Co. Ltd. Biomass Heating System Retrofitting and Biomass Collection Station Project Version 1.2 Date of Issue Prepared By Contact Yunnan Tengzhong New Energy Technology Co. Ltd. Rm 603, No 658, Haiyuan North Road, National High and New Tech Industrial Development Zone, Kunming City, Yunnan Province, P.R. of China, Telephone:

2 Table of Contents 1 PROJECT DETAILS SUMMARY DESCRIPTION OF THE PROJECT SECTORAL SCOPE AND PROJECT TYPE PROJECT PROPONENT OTHER ENTITIES INVOLVED IN THE PROJECT PROJECT START DATE PROJECT CREDITING PERIOD PROJECT SCALE AND ESTIMATED GHG EMISSION REDUCTIONS OR REMOVALS DESCRIPTION OF THE PROJECT ACTIVITY PROJECT LOCATION CONDITIONS PRIOR TO PROJECT INITIATION COMPLIANCE WITH LAWS, STATUTES AND OTHER REGULATORY FRAMEWORKS OWNERSHIP AND OTHER PROGRAMS Right of Use Emissions Trading Programs and Other Binding Limits Other Forms of Environmental Credit Participation under Other GHG Programs Projects Rejected by Other GHG Programs ADDITIONAL INFORMATION RELEVANT TO THE PROJECT APPLICATION OF METHODOLOGY TITLE AND REFERENCE OF METHODOLOGY APPLICABILITY OF METHODOLOGY PROJECT BOUNDARY BASELINE SCENARIO ADDITIONALITY METHODOLOGY DEVIATIONS N/A QUANTIFICATION OF GHG EMISSION REDUCTIONS AND REMOVALS BASELINE EMISSIONS PROJECT EMISSIONS LEAKAGE NET GHG EMISSION REDUCTIONS AND REMOVALS MONITORING DATA AND PARAMETERS AVAILABLE AT VALIDATION DATA AND PARAMETERS MONITORED MONITORING PLAN Monitoring institution The data to be monitored The monitoring method and equipment installation

3 4.3.4 Calibration QA/QC Data management Monitoring report ENVIRONMENTAL IMPACT STAKEHOLDER COMMENTS BRIEF DESCRIPTION HOW COMMENTS BY LOCAL STAKEHOLDERS HAVE BEEN INVITED AND COMPILED: SUMMARY OF THE COMMENTS RECEIVED: REPORT ON HOW DUE ACCOUNT WAS TAKEN OF ANY COMMENTS RECEIVED:

4 1 PROJECT DETAILS 1.1 Summary Description of the Project Yunnan Tengzhong New Energy Technology Co. Ltd. Biomass Heating System Retrofitting and Biomass Collection Station Project (hereinafter referred to as the project) is a biomass utilization project developed by Yunnan Tengzhong New Energy Technology Co. Ltd. (hereinafter referred to as the project Owner) and is located in Kunming Dihon Pharmaceutical Co.Ltd. plant area, No.45 Keyi Road, Kunming New & High-Tech Industrial Development Zone, Yunnan, China At the beginning of 2012, the project owner planned to retrofit the two original 2t/h coal-fired boilers, adopting biomass direct combustion technology for thermal energy supply. The retrofitted heat generation system main consists of two biomass boilers for 2t/h. The project is to make use of biomass residue (rape straw) which will be supplied by farmers from local towns around 50kms to supply thermal energy for satisfying heat demand of Kunming Dihon Pharmaceutical Co. Ltd.. The total installed capacity of the project is 2.63MW 1 (2 2t/h biomass boiler). The project expected annually deliver 8,120 tons steam to Kunming Dihon Pharmaceutical Co. Ltd. plant area per year in order to satisfy the heat demand. The total biomass consumption 1,694 tonnes will be swallowed by the project per year and 1,678 tons emission reductions will be generated annually. Contract for supplying heat with coal-fired boilers was signed between Beijing Industrial Boiler Group and Yunnan Tengzhong New Energy Technology Co. Ltd. on 26/12/2008. The coal-fired boilers had been operated for three years. At the start of 2012, the retrofitting project for two coalfired boilers was taken into consideration. The construction for retrofitting started on 04/05/2012.The EIA approval of project was issued by Kunming Wuhua District Environmental Protection Bureau on 12/04/2012; (Kunwuhuanpingfu 2012 No.134). The biomass boilers started operation on 01/07/2012, which is determined as the start date. The project boundary encompasses the two boilers at the project site, the industrial equipment of Kunming Dihon Pharmaceutical Co. Ltd consuming heat generated by the system. Before the implementation of the project, the two 2t/h coal-fired boilers at the project site generated heat to satisfy the heat demand of Kunming Dihon Pharmaceutical Co. Ltd., which is as the same as baseline scenario. After retrofitting, the biomass boilers will consume biomass residues and the heat generated by the biomass boilers will displace equal amount of heat from previous coal-fired boilers and continue to guarantee the heat demand of Kunming Dihon Pharmaceutical Co. Ltd. Therefore, the plausible baseline scenario will be continued use of existing facilities involving expenses for operation and maintenance. 1 H:Enthalpy variation,which is determined as the difference of the enthalpy of the outlet steam supplied to process heat loads in the proposed project minus the enthalpy of the feed-water is KJ/Kg. For the two 2t/h biomass boiler, the capacity can be calculated as follows:cap=2367.9kj/kg 1000Kg/t 4t/h 1000/ =2.63MW. 4

5 During the operation period, the project will not only comprehensively utilize biomass resources, but also benefit the environment by avoiding GHG emission caused by fossil fuel combustion and air pollution related to the uncontrolled combustion of biomass. Beside these, the project will also contribute to sustainable development of the local community, host country by means of: Enhance the local economy. During the operation of the project, a large amount of rape straws will be needed, thus farmers will have extra revenues on biomass trade and local GDP will consequently be boosted. Offer job opportunities. The project will create some employment opportunities during the project construction. The project owner will provide professional training to workers, which will improve the skill of the local employees. Meet the demand of production and optimize energy structure. After the implementation of the project, heat generated by biomass residues will be delivered to the consumer and mitigate GHG emission. 1.2 Sectoral Scope and Project Type Sectoral scope: 1. Energy (renewable/non-renewable); Project type: Biomass heat production project; The project is not a grouped project. 1.3 Project Proponent Organization name Contact person Title Address Yunnan Tengzhong New Energy Technology Co. Ltd. JunWang Senior Manager Rm 603, No 658, Haiyuan North Road, National High-Tech Industrial Development Zone, Kunming City, Yunnan Province, P.R. of China, Telephone +86/ Xiaodi.cai@karbon.com.cn 1.4 Other Entities Involved in the Project Organization name Role in the project Contact person Title Address Citic Carbon Assets Management Ltd, a subsidiary company of the CITIC Group(China International Trust and Investment Corporation) VER Buyer ZhengWang Senior Manager Telephone Suite 608, Block A, Capital Mansion No.6 Xinyuannanlu, Beijing, China 5

6 1.5 Project Start Date 01/07/2012 (Start to generate Emission Reductions) 1.6 Project Crediting Period The Project was put into operation on 01/07/2012. Therefore, a crediting period of 7 years (renewable) is selected for the project activity. The starting date of the Crediting Period for the project is 01/07/2012 and the Crediting Period covers 7 years. During the first crediting period, estimation of emission reductions of the project is shown below. 1.7 Project Scale and Estimated GHG Emission Reductions or Removals Project Scale Project Large project - Year 01/07/ /12/ /01/ /12/2013 1,678 01/01/ /12/2014 1,678 01/01/ /12/2015 1,678 01/01/ /12/2016 1,678 01/01/ /12/2017 1,678 01/01/ /12/2018 1,678 01/01/ /06/ Total estimated ERs 11,746 Total number of crediting years 7 Average annual ERs 1, Description of the Project Activity Baseline Scenario (Existing Scenario) Estimated GHG emission reductions or removals (tco 2 e) Before the implementation of the project, the two 2t/h coal-fired boilers at the project site generated heat to satisfy the heat demand of Kunming Dihon Pharmaceutical Co. Ltd. The 6

7 baseline scenario, which is identified in Section 2.4, is the same as the Baseline scenario; please reference Section 2.4 for more detail information. Besides, the project owner will set up one collection station for rape straws collection and storage temporarily near the straws resource. The farmers sell rape straws to the project owner. Project Activity In this case, the project owner planned to retrofit two coal-fired boilers (2 2t/h) into biomass direct burning boilers without change for each capacity. After retrofitting, the heat generated by the project activity will displace equal amount of heat from coal-fired boilers and continue to guarantee the heat demand of Kunming Dihon Pharmaceutical Co. Ltd. The project will avoid the waste of biomass resources, and is an environmental friendly project. The project will use two 2t/h biomass direct burning boilers to combust biomass residues. The main parameters of boilers used in the project are listed in the following table: Table 1.1 Main parameters of equipment Name Number Technical Parameters Biomass direct burning boiler 2 Manufacturer: Beijing Industrial Boiler Group Type: DZL M Boiler Rated Evaporating Capacity :2 t/h Rated Steam Pressure :1.25MPa Outlet Steam Temperature : 193 Product Code: L1 & L2 The boilers will combust biomass residues without auxiliary fuel, e.g. coal, diesel or any other fossil fuel. According to the Feasibility Study Report, the biomass fuels fired in the project site are rape straw. The biomass residues utilized in the project activity are generated within a radius of 50 km from the project site. They are collected by biomass site and transported to the project plant by trucks with an average load of 15 tons. According to FSR, the project owner is responsible for collection biomass residues. After the biomass is transported to the project site, the plant will consume biomass. The steams generated will be supplied to Kunming Dihon Pharmaceutical Co. Ltd., while the ash generated will be cleaned by other entities for soil application. To ensure the efficiency of the boiler, high moisture content of the feedstock is not accepted, thus there is no washing process for biomass pre-treatment. Hence, no waste water will be generated during the project The detailed process flow diagram of the Project is shown below in Figure

8 Figure 1.1. The Flow-Process Diagram of the Project 1.9 Project Location The proposed project is located within Kunming Dihon Pharmaceutical Co. Ltd. plant area, No.45 Keyi Road, Kunming New & High-Tech Industrial Development Zone, Yunnan Province, where it has a geographical coordinates of 102º39'49'' east longitude and 25º03'21'' north latitude. The geography location of the Project is shown in Figure1.2 below. 8

9 Kunming City Yunnan Province The project site Figure1.2. Geographical Location of the Proposed Project 1.10 Conditions Prior to Project Initiation Prior to the start of implementation of the project activity, the biomass residues generated within local area will be left to decay or uncontrolled burnt. In absence of the project activity, thermal energy delivered to Kunming Dihon Pharmaceutical Co. Ltd. would have been generated by the coal combustion. 9

10 1.11 Compliance with Laws, Statutes and Other Regulatory Frameworks EIA approved by Kunming Wuhua District Environmental Protection Bureau on 12/04/2012; (Kunwuhuanpingfu 2012 No.134) 1.12 Ownership and Other Programs Right of Use TheTechnical renovation project registration and filing certification is provided by Economic and Trade Bureau of Wuhua District which demonstrates that the project name is Yunnan Tengzhong New Energy Technology Co. Ltd. Biomass Heating System Retrofitting and Biomass Collection Station Project and the PP is Yunnan Tengzhong New Energy Technology Co. Ltd. EIA approval issued by Kunming Wuhua District Environmental Protection Bureau is also provided Emissions Trading Programs and Other Binding Limits The project does not take part in any other emission trading programs and has not been registered as CDM Project. Therefore there is no double counting Other Forms of Environmental Credit The project neither has nor intends to generate any other form of GHG-related environmental credit for GHG emission reductions or removals claimed under the VCS Program, or that any such credit has been or will be cancelled from the relevant program Participation under Other GHG Programs Project has not been registered as CDM project and any other GHG programs Projects Rejected by Other GHG Programs N/A 1.13 Additional Information Relevant to the Project Eligibility Criteria The Project is not a grouped project. Leakage Management There is no significant leakage caused by the project. Especially, according to the AMS-I.C. (Version 19), there is sufficient biomass resource in sounding area, no leakage emissions caused due to biomass shortage. Commercially Sensitive Information 10

11 In this Project Description, there is no commercially sensitive information involved. Further Information There is no further information that may have a bearing on the eligibility of the project, the net GHG emission reductions or removals, or the quantification of the project s net emission reductions or removals. 2 APPLICATION OF METHODOLOGY 2.1 Title and Reference of Methodology All following approved baseline and monitoring methodologies and relevant tools are applied to the VCS project. AMS-I.C: Thermal energy production with or without electricity (Version 19.0) The methodology can be found at: Tool Combined tool to identify the baseline scenario and demonstrate additionality (Version.5.0.0) The tool can be found at: Tool to determine the baseline efficiency of thermal or electric energy generation systems (Version 01 ) The tool can be found at: Tool to calculate project or leakage CO 2 emissions from fossil fuel combustion (Version 02) The tool can be found at: Applicability of Methodology The approved baseline and monitoring methodology AMS-I.C Thermal energy production with or without electricity ( Version 19) comprises renewable energy technologies that supply users with thermal energy that displaces fossil fuel use. These units include technologies such as energy derived from renewable biomass. 11

12 The project meets all applicability conditions of AMS-I.C which are justified as follows: Table 2.1 Justification on the applicability of AMS-I.C to the project No Applicable conditions of AMS-I.C Justification on the applicability of AMS-I.C to the project 1 Biomass-based cogeneration systems are included in this category. For the purpose of this methodology cogeneration shall mean the simultaneous generation of thermal energy and electrical energy in one process. Project activities that produce heat and power in separate element processes (for example heat from a boiler and electricity from a biogas engine) do not fit under the definition of cogeneration project. 2 Emission reductions from a biomass cogeneration system can accrue from one of the following activities: (a) Electricity supply to a grid; (b) Electricity and/or thermal energy (steam or heat) production for on-site consumption or for consumption by other facilities; (c) Combination of (a) and (b). 3 The total installed/rated thermal energy generation capacity of the project equipment is equal to or less than 45 MW thermal 4 For co-fired systems, the total installed thermal energy generation capacity of the project equipment, when using both fossil and renewable fuel, shall not exceed 45 MW thermal 5 The following capacity limits apply for biomass cogeneration units: (a) If the project activity includes emission reductions from the thermal and electrical energy components, the total installed energy generation capacity (thermal and electrical) of the project equipment shall not exceed 45 MW thermal. For the purpose of calculating this capacity limit the conversion factor of 1:3 shall be used for converting electrical energy to thermal energy (i.e. for renewable energy project activities, the maximal limit of 15 MW(e) is equivalent to 45 MW thermal output of the equipment or the plant); (b) If the emission reductions of the cogeneration project activity are solely on account of thermal energy production (i.e. no emission reductions accrue from the electricity component), the total installed thermal energy production capacity of the project equipment of the cogeneration unit shall not exceed 45 MW thermal; (c) If the emission reductions of the cogeneration project activity are solely on account of electrical energy production (i.e. no emission reductions accrue from the thermal energy component), the total installed electrical Not related. The project includes 2 sets of heat-only boilers, there are no cogeneration systems. Applicable. The total rated heat capacity of the project is equal to 2.63 MW, which is less than 45 MW limit. Not related The project will not co-fire fossil fuels, and the rated heat capacity of 2.63 MW is less than 45 MW Not related. The project includes 2 sets of heat-only boilers, there are no cogeneration systems. 12

13 energy generation capacity of the project equipment of the cogeneration unit shall not exceed 15 MW. 6 The capacity limits specified in the above paragraphs apply to both new facilities and retrofit projects. In the case of project activities that involve the addition of renewable energy units at an existing renewable energy facility, the total capacity of the units added by the project should comply with capacity limits in paragraphs 4 to 6, and should be physically distinct from the existing units. 7 Project activities that seek to retrofit or modify an existing facility for renewable energy generation are included in this category. 8 New Facilities (Greenfield projects) and project activities involving capacity additions compared to the baseline scenario are only eligible if they comply with the related and relevant requirements in the General Guidelines to SSC CDM methodologies 9 If solid biomass fuel (e.g. briquette) is used, it shall be demonstrated that it has been produced using solely renewable biomass and all project or leakage emissions associated with it production shall be taken into account in the emissions reduction calculation. 10 Where the project participant is not the producer of the processed solid biomass fuel, the project participant and the producer are bound by a contract that shall enable the project participant to monitor the source of the renewable biomass to account for any emissions associated with solid biomass fuel production. Such a contract shall also ensure that there is no double-counting of emission reductions. 11 If electricity and/or steam/heat produced by the project activity is delivered to a third party i.e. another facility or facilities within the project boundary, a contract between the supplier and consumer(s) of the energy will have to be entered into that ensures there is no double-counting of emission reductions. 12 If the project activity recovers and utilizes biogas for power/heat production and applies this methodology on a Applicable. The project owner retrofits and converts the two existing coal fired boilers (2 2t/h) into biomass boiler. After retrofitting, no addition of capacity, the rated heat capacity is 2.63 MW less than 45 MW. Applicable. The project owner retrofits and converts the two existing coal fired boilers (2 2t/h) into biomass boilers. Not related. The project is a retrofitting project. The project uses biomass direct fired system, which will not use solid biomass fuel. Biomass residue fuel used in the project is provided by a contracted biomass supply company which is responsible for collection and transportation The biomass fuel is scattered within the radius of 50km from the project site. The whole producer don t involve with special processing. Contract between the PO and heat user is signed to guarantee heat produced by the project is delivered exclusively to the user, and the user abjure the application of reductions from the project under any GHG program. The project is no biogas recovers and utilization. 13

14 standalone basis i.e. without using a Type III component of a SSC methodology, any incremental emissions occurring due to the implementation of the project activity (e.g. physical leakage of the anaerobic digester, emissions due to inefficiency of the flaring), shall be taken into account either as project or leakage emissions. 13 Charcoal based biomass energy generation project activities are eligible to apply the methodology only if the charcoal is produced from renewable biomass sources provided: (a) Charcoal is produced in kilns equipped with methane recovery and destruction facility; or (b) If charcoal is produced in kilns not equipped with a methane recovery and destruction facility, methane emissions from the production of charcoal shall be considered. These emissions shall be calculated as per the procedures defined in the approved methodology AMS-III.K.7 Alternatively, conservative emission factor values from peer reviewed literature or from a registered CDM project activity can be used, provided that it can be demonstrated that the parameters from these are comparable e.g. source of biomass, characteristics of biomass such as moisture, carbon content, type of kiln, operating conditions such as ambient temperature. There is no other significant fuel consumption except biomass in the project. Based on the discussion above, the project can meet the applicability condition, so AMS-I.C is applicable to the project. 2.3 Project Boundary Table 2.2 Emission sources included or excluded from the project activity Source Gas Included? Justification/Explanation Baseline Project L e Heat Generation On-site fossil fuel and electricity consumption due to the project activity. CO 2 Included Main emission source CH 4 N 2 O Other CO 2 CH 4 N 2 O Excluded Excluded Excluded Excluded Excluded Excluded Excluded for simplification. This is conservative Excluded for simplification. This is conservative Excluded for simplification. This is conservative There is no fossil fuel and electricity consumption due to the project activity. Off-site CO 2 Excluded the biomass is transported on distances 14

15 Source Gas Included? Justification/Explanation transportation of biomass CH 4 Excluded within 50 kilometres Excluded for simplification. This emission source is assumed to be very small. N 2 O Excluded Excluded for simplification. This emission source is assumed to be very small. The spatial extent of the project boundary: The heat generator at the project site; The facilities nearby using steam supplied by the project; The fields where the biomass residues would have been collected; Biomass Collection Site The means for transportation of biomass to the project plant; The project boundary is illustrated in the figure 2.1 Figure 2.1 Simple Diagram of Project Boundary 15

16 2.4 Baseline Scenario The Combined tool to identify the baseline scenario and demonstrate additionality will be used to identify the baseline scenario and additionality. Step 1: Identify the Plausible Baseline scenario In applying Step 1 of the tool, realistic and credible alternatives should be separately The proposed project is not a cogeneration project because it will not generate electricity, thus alternatives of electricity generation will not be considered. The reasonable and feasible baseline scenarios of the proposed project are identified below. Sub-step 1a. Define alternatives to the project activity: According to AMS-I.C. (version 19), for renewable energy technologies that displace technologies using fossil fuels, the simplified baseline is the fuel consumption of the technologies that would have been used in the absence of the project activity times an emission factor for the fossil fuel displaced. Realistic and credible alternatives available to the project that provide outputs or services comparable to the proposed VCS project include: a) Proposed project activity undertaken without being registered as a VCS project activity. b) The continued use of an existing fossil fuel boiler involving expenses for operation and maintenance; c) Construction of a small cogeneration plant with equivalent heat supply. Sub-Step 1b: Consistency with mandatory applicable laws and regulations Alternative (a) is in accordance with Chinese laws and regulations. The Chinese government encourages to achieve renewable energy widespread used, though specific financial stimulus in biomass heating-only boiler replacement has not implemented yet. The alternative (a) is a plausible baseline scenario. According to the Chinese national and Yunnan provincial Laws and regulations, there is not mandatory order about removal of existing small-scale of 2t/h fossil fuel boiler. It is eligible that continued use of an existing fossil fuel boiler involving expenses for operation and maintenance. The alternative (b) is also a plausible baseline scenario. It's impossible to build a new cogeneration unit using fossil fuel with the similar output of the proposed project. The project activity and the ex-ante project are both heat-only generation system. The alternative (c) is not a realistic and credible alternative. Based on analysis above, the alternative(a) and (b) is eligible. Step 2: Barrier analysis N/A. Step 3: Investment analysis 16

17 This Step serves to determine whether the project is financially unattractive or not. Sub-step 3a: Determine appropriate analysis method There are 3 options to complete investment analysis, namely: simple cost analysis, investment comparison analysis and benchmark analysis. For the project has sale income on steam, simple analysis cannot be used. Furthermore, option III (benchmark analysis) is also excluded as an appropriate method due to retrofitting. The project applied a comparison analysis in calculating the net NPV of the retrofit project activity. That means the incremental investment and expense between the baseline and project scenario is considered as the inputs for the financial analysis. This approach is in compliance with applicable requirements for retrofitting and expansion projects in the Economic Evaluation Measurement and Parameters of Constructive Projects, version 03 which is commonly used for economic evaluation of the constructive projects in China. In conclusion, option II (investment comparison analysis) is chosen. Sub-step 3b: Calculation and comparison of financial indicators (1) Financial parameters for calculation of NPV The parameters used in the financial analysis are listed as follows: Table2.3. Parameters for calculation of NPV No Item Value Unit Data source 1 Total incremental investment 6.6 Million CNY FSR 2 Incremental fixed asset investment 6.4 Million CNY FSR 3 Fluid capital 0.2 Million CNY FSR 4 Residual value rate 5% FSR 5 Residual value at the end of analysis period 0.32 Million CNY 6 Depreciation period 15 year FSR 7 Period of financial analysis 22 year Remaining lifetime of existing boiler 8 Biomass Consumption 1,694 t FSR 9 Biomass Fuel Price 350 CNY/t FSR 10 Coal Consumption 1,005 t FSR 11 Coal price 470 CNY/t FSR 12 VER revenue 50,356 CNY/yr FSR (2) Calculate the NPV of total investment for the Project (without VER) The financial indicators of the project (with/ without VER revenues) are listed as follows: Table2.4. Financial indicators of the Project Without VER Revenue With VER revenue 17

18 NPV ( million CNY) Discount Rate 18.00% 18.00% As seen in Table 2.4., without VER revenues, the NPV of the Project is -6.73, thus the proposed project is not financially viable. However, with VER revenue, the NPV of the project can reach to 6.51, which greatly improved the financial return and made the project feasible. Sub-step 3c: Sensitivity analysis Based on the financial structure of the project, the following indicators are chosen for sensitivity analysis: 1) Biomass Price 2) Raw coal price 3) Incremental fixed Asset Investment 4) Steam Output Without VER revenue, the fluctuation on NPV of the project, while considering Biomass Price, Raw coal price, Incremental fixed Asset Investment, Steam Output is shown as follows: FigureB.2. NPV sensitivity to different financial parameters of the Project 18

19 Table2.5. NPV sensitivity to different financial parameters of the Project Item -10% -5% 0% 5% 10% Raw coal price Biomass fuel price Incremental fixed asset investment Steam Output In conclusion, based on analysis in step3: sensitivity analysis above, alternative (a) is less economically or financially attractive and even not financial viable without VER revenue. To sum up, According to the analysis above alternative (b): The continued use of an existing fossil fuel boiler involving expenses for operation and maintenance is the realistic and credible alternative. Step 4: Common practice analysis Step 4.1: Calculate applicable output range as +/-50% of the design output or capacity of the proposed project activity. According to methodology AMS-I.C (version 19) paragraph 6 : the conversion factor of 1:3 shall be used for converting electrical energy to thermal energy (i.e. for renewable energy project activities, the maximal limit of 15 MW is equivalent to 45 MW thermal output of the equipment or the plant), the designed capacity of the proposed project is 2.63MW, hence the applicable output range for common practice analysis is 1.32MW ~ 3.95MW. Step 4.2: In the applicable geographical area, identify all plants that deliver the same output or capacity, within the applicable output range calculated in Step 1, as the proposed project activity and have started commercial operation before the start date of the project. Note their number Nall. Registered CDM project activities and projects undergoing validation shall not be included in this step; The project uses domestic technologies, so the default applicable geographical area should be the entire host country. However, in China there are significant differences in terms of biomass resources, policies, regulations and economic conditions among different provinces. Therefore, biomass projects in different provinces face very different investment climate, and it is a common practice to set the applicable geographical area at provincial level for biomass projects in China. Moreover, with a population of 46 million people and area of 3.9 million km 2, Yunnan Province is 19

20 larger than many countries 2. Therefore, the applicable geographical area should be confined within Yunnan Province. By means of consulting relevant Statistics and the internet search engine ( no other biomass projects are found in Yunnan Province, namely, no projects has similar scale within the applicable output range calculated in Step 1. Therefore, N all = 0. Step 4.3: Within plants identified in Step 2, identify those that apply technologies different that the technology applied in the proposed project activity. Note their number N diff. N all = 0, hence, N diff = 0. Step 4.4: Calculate factor F = 1-N diff /N all representing the share of plants using technology similar to the technology used in the proposed project activity in all plants that deliver the same output or capacity as the proposed project activity. According to Step 2 and Step 3, N all = 0 and N diff = 0. So, F = 1-N diff /N all = 0 The calculation shows that F is smaller than 0.2, and N all - N diff = 0, smaller than 3. Hence, the proposed project activity is not a common practice within the applicable geographical area. 2.5 Additionality As per Combined tool to identify the baseline scenario and demonstrate additionality, based on the analysis in section 2.4, as the baseline scenario is identified, the additionality of the proposed project is demonstrated simultaneously. Moreover, the project owner has considered VCS revenue seriously before the implementation of the project; the detailed timeline is listed below. The VCS consideration and decision making process To overcome the investment barriers and improve the financial feasibility of the project, the project owner decided to register VCS revenue before the implementation of the project. After serious consideration of VCS, the project participant began to contact with VCS consultant. The time schedule of VCS consideration is listed as follows: Table 2.6 Timeline of Milestone Events in the Project Development Date Key Events 26/12/2008 Contract for supplying heat with coal-fired boilers 04/03/2012 Stakeholder meeting 12/04/2012 EIA approved. (Kunwuhuanpingfu 2012 No.134). 2 ObQP5OPzfgaWNAdChHuxxzYOW047lA4n4MiPsFKlI4MinHTRk3VM8vJhdEb40Ye1PBTjPAZvrivzVl3Tykny6nGNZ3lq 20

21 04/2012 FSR completed 24/04/2012 FSR approval 29/04/2012 Board meeting: determine to implement biomass boilers retrofitting after taking Emission reduction revenue into consideration 04/05/2012 To start construction for retrofitting 04/05/2012 EPC contract signed 01/07/2012 Project start operation 25/07/2012 Environmental protection acceptance letter received. Thus, as analysed above, the project is not feasible without VCS revenue, which can help to overcome the barriers the project faces. To implement the proposed project, the only feasible way is registering the project as VCS project activity. 2.6 Methodology Deviations 2.7 N/A 3 QUANTIFICATION OF GHG EMISSION REDUCTIONS AND REMOVALS 3.1 Baseline Emissions According to methodology AMS-I.C. baseline emissions under baseline scenario involve several kinds of situations as follows: 1) Baseline emissions for electricity production 2) Baseline emissions for heat production 3) Baseline emissions for power and heat production 4) Baseline emissions for co-fired systems 5) Baseline emissions for project activities involving new renewable energy units 6) Baseline emissions for retrofit project activities The proposed project is to retrofit an existing coal-fired boiler to a biomass boiler for renewable energy generation. The biomass fuels are transported from nearby areas. According to the AMS-I.C. (Version 19), for steam/heat produced using fossil fuels the baseline emissions are calculated as follows: 21

22 BE Where: EGthermal, y / BL,thermal EFFF, CO 2 (1) thermal, CO 2, y * BE, The baseline emissions from steam/heat displaced by the thermal, CO 2 y project activity during the year y (tco 2 ) EG thermal, y EF FF,CO 2 The net quantity of steam/heat supplied by the project activity during the year y (TJ) The CO 2 emission factor of the fossil fuel that would have been used in the baseline plant obtained from reliable local or national data if available, alternatively, IPCC default emission factors can be used (tco 2 /TJ) The efficiency of the plant using fossil fuel that would have been BL,thermal used in the absence of the project activity According to AMS-I.C, the total installed/rated thermal energy generation capacity of the project equipment is equal to or less than 45 MW thermal 3.However, referring to data materials from FSR the annual supply of steam is 2.63MW, which is less than 45MW. So the methodology AMS- I.C is applicable for the proposed project. The following relevant calculation will refer to this methodology. According to the "Tool to Determine the Baseline Efficiency of Thermal or Electric Energy Generation Systems", project participants may use one of the following options to estimate the efficiency of the energy generation system: (a) Use the manufacturer s load-efficiency function; (b) Establish a load-efficiency function based on measurements and a regression analysis; (c) Establish the efficiency based on historical data and a regression analysis; (d) Use the manufacturer s efficiency values; (e) Determine the efficiency based on measurements and use a conservative value; (f) Use a default value. 3 Thermal energy generation capacity shall be manufacturer.s rated thermal energy output, or if that rating is not available the capacity shall be determined by taking the difference between enthalpy of total output (for example steam or hot air in kcal/kg or kcal/m3) leaving the project equipment and the total enthalpy of input (for example feed water or air in kcal/kg or kcal/m3) entering the project equipment. For boilers, condensate return (if any) must be incorporated into enthalpy of the feed. 22

23 Options A to E are applicable only to energy generation systems that use a single fuel type1 4 Option A: Use the manufacturer s load-efficiency function This option cannot be applied to determine a constant efficiency. Option B: Establish a load-efficiency function based on measurements and a regression analysis All measurements shall be conducted immediately after scheduled preventive maintenance has been undertaken and under favorable operation conditions. During the measurement campaign, the load should be varied over the whole operational range or the rated capacity of the energy generation system. The efficiency of the system should then be determined at different steadystate conditions. Efficiency determination tests shall be conducted for the entire system as a whole including auxiliary equipment, such as the fuel conditioning system, preheating systems, etc. All energy inputs and outputs, such as the feed water supply or energy losses through blow down losses, shall be taken into consideration. Measurements shall be done for the complete system using calibrated equipment as required by the relevant national/international standards. Option C: Establish the efficiency function based on historical data and a regression analysis If the tool is used to establish a constant efficiency, the highest annual efficiency from the most recent three years should be chosen. The data pairs for load and efficiency should be used for the time interval at which they are available (one hour or, if available, for a shorter time interval). Project participants shall document the complete data set used to establish the efficiency function. Option D: Use the manufacturer s efficiency values The following conditions apply: If the manufacturer does not provide full load-efficiency functions or performance curves (if these functions are provided, Option A applies) but only the maximum efficiency at the optimal operating conditions; No retrofitting was done prior to implementation of the project that could have increased the efficiency of the energy system. 4 Options A to E are not applicable to systems that use multiple fuels or different qualities of fuel within the same fuel type. For example if the system uses coal of different grades (e.g., Grade A, B or I, II etc.) with significantly varying calorific values, these options cannot be used to determine the baseline efficiency, as different grades of coal may result in different efficiencies. However, a small quantity of auxiliary fuels may be used for start-ups, not exceeding 3% of the main fuel used in the equipment. 23

24 Option E: Determine the efficiency based on measurements and use a conservative value A minimum of 10 measurements shall be taken at different loads in the full operation range or rated capacity and among the measurements, the highest efficiency shall be considered as a conservative approach. Tests shall be conducted for the entire system including auxiliary equipment, such as the fuel conditioning system, preheating systems, etc. All energy inputs and outputs, such as the feed water supply or energy losses through blow down losses, shall be taken into consideration. Measurements shall be done using calibrated equipment as required by the relevant national/international standards. Project participants shall justify and document the chosen optimal operating conditions. Option F: Use a default value This option can be used to determine a constant efficiency. Project participants may use the default values for the applicable technology from Table 1 as constant efficiency Table 1: Default baseline efficiency for different technologies Technology of the energy generation system Default efficiency New natural gas fired boiler (w/o condenser) 92% New oil fired boiler 90% Old natural gas fired boiler (w/o condenser) 87% New coal fired boiler 85% Old oil fired boiler 85% Old coal fired boiler 80% The above default values are applicable for thermal energy generating equipment. For electricity generation technologies, default values as provided in the Annex I of the Tool to calculate the emission factor for an electricity system may be used. In the table, for the purposes of this tool, old refers to equipment with an individual age of at least 10 years. New refers to equipment with an individual age of less than 10 years. In situations where a specific technology is not included in the table, project participants may also choose to use a maximum default efficiency of 100%, as simple and very conservative approach. Based on the available statistics, in order to get a constant and a conservative efficiency, the option F has been used to determine a constant efficiency of applicable technology. The baseline scenario for heat generators is continued to operate existing coal fired boilers and the equipment with an individual age of less than 10 years, so the default value for heat generators is 85%, as conservative approach. However, according to the historical average value in the past three years, the boiler efficiency is higher than the default value. Based on the above, a maximum default efficiency of 100% is chosen to use, as simple and most conservative approach. 24

25 For project activities that seek to retrofit or modify an existing facility for renewable energy generation, the baseline emission is calculated as follows: EG BL, thermal,retrofit, y MAX ; Where: EG, BL thermal,retrofit y EG HY, thermal, retrofit, y EG estimated, thermal, y untildate Baseline Retrofit (2) Thermal energy production by an existing facility in the absence, of the project activity in year y EG, HY, thermal, retrofit y EG, estimated, thermal y Average of historical thermal energy levels delivered by the existing facility, spanning all data from the most recent available year (or month, week or other time period) to the time at which the facility was constructed, retrofitted, or modified in a manner that significantly affected output (i.e. by 5% or more) Estimated thermal energy that would have been produced by the existing units under the observed availability of renewable resources in year y DATE Re Date at which the existing generation facility is likely to be Baseline trofit replaced or retrofitted in the absence of the CDM project activity According to historical data, the average of enthalpy variation in the last three years, which is determined as the difference of the enthalpy of the process heat (steam) supplied to process heat loads in the proposed project minus the enthalpy of the feed-water is KJ/Kg. Average of the boiler rated evaporating capacity in the last three years is 2.8t/h and Average of operation time for the boiler is 2780h. As a result, the average of historical thermal energy levels delivered by the existing facility is 18TJ. EG 6 HY, thermal, retrofit, y CAPaver, his * Timeaver, his * H His / 10 (3) EG HY, thermal, retrofit, y 18TJ However, referring to information from FSR, the amount of vapor produced for the boiler is 8,120t per year and the enthalpy variation, which is determined as the difference of the enthalpy of the outlet steam supplied to process heat loads in the proposed project minus the enthalpy of the feed-water is KJ/Kg. By calculation, the estimated thermal energy that would have been produced by the existing units under the observed availability of renewable resources in year y is 19TJ. EG 6 estimated,thermal, y M vap, boiler H est / 10 (4) 25

26 EG estimated, thermal, y 19TJ Compared to the historical thermal energy and estimated thermal energy, so EG BL, thermal, retrofit, y 19TJ Based on the equation described above, the average baseline CO 2 emissions are 1,678tCO 2 e/year. 3.2 Project Emissions According to the methodology AMS-I.C. (version 19) the project emissions of the project includes: CO 2 emissions from on-site consumption of fossil fuels due to the project activity shall be calculated using the latest version of the.tool to calculate project or leakage CO 2 emissions from fossil fuel combustion.; CO 2 emissions from electricity consumption by the project activity using the latest version of the.tool to calculate baseline, project and/or leakage emissions from electricity consumption.; Any other significant emissions associated with project activity within the project boundary; For geothermal project activities, project participants shall account for the following emission sources, where applicable: fugitive emissions of carbon dioxide and methane due to release of non-condensable gases from produced steam; and carbon dioxide emissions resulting from combustion of fossil fuels related to the operation of the geothermal power plant. The proposed project is a heat-only generation project using biomass residues without involving on-site fossil fuels consumption. During the operation of the proposed project, there is no electricity consumption caused by the project activity. There is no other significant emissions associated with project activity within the project boundary and it is not a geothermal project as well. The project will adopt biomass direct combustion technology for thermal energy supply, without using any electricity facility, such as biomass molding equipment. Therefore, there is no additional project emission from power consumption equipment. In conclusion, the proposed project does not produce any project emission. Namely, the annual project emission (PE y) of the proposed project is Leakage According to AMS-I.C: 1)If the energy generating equipment currently being utilised is transferred from outside the boundary to the project activity, leakage is to be considered. 2)In cases where 26

27 the collection/processing/transportation of biomass residues is outside the project boundary CO 2 emissions from the collection/processing/transportation 5 of biomass. For the proposed project, all equipment utilized is within the boundary and the biomass is transported from local towns around 50kms, no more than 200 kilometers. Therefore, Leakage is treated as zero for the ex-ante calculation for as leakage emission. 3.4 Net GHG Emission Reductions and Removals Emission reductions are calculated as follows: ER y BE y PE y LE y Where: ER y BE y PE y LE y Emission reductions in year y (tco2e) Baseline emissions in year y (tco2e) Project emissions in year y (tco2) Leakage emissions in year y (tco2) The emission reduction ER y by the project activity during a given year is: ER y =BE y -PE y -LE y =1, =1,678 t CO 2 e. Year Estimated baseline emissions or removals (tco 2 e) Estimated project emissions or removals (tco 2 e) Estimated leakage emissions (tco 2 e) Estimated net GHG emission reductions or removals (tco 2 e) 01/07/ /12/ /01/ /12/2013 1, ,678 01/01/ /12/2014 1, ,678 01/01/ /12/2015 1, ,678 01/01/ /12/2016 1, ,678 01/01/ /12/2017 1, ,678 01/01/ /12/2018 1, ,678 5 If biomass residues are transported over a distance of more than 200 kilometres due to the implementation of the project activity then this leakage source attributed to transportation shall be considered, otherwise it can be neglected. 27

28 01/01/ /06/ Total 11, ,746 4 MONITORING 4.1 Data and Parameters Available at Validation Data / Parameter Data unit EF FF,CO 2 tco 2 e/tj Description The CO 2 emission factor of the fossil fuel that would have been used in the baseline plant obtained from reliable local or national data if available, alternatively, IPCC default emission factors can be used. Source of data IPCC 2006, Value applied: 87.3 Justification of choice of data or description of measurement methods and procedures applied Purpose of the data Comments - Use the IPCC default value of the coal identified as part of the baseline scenario selection procedure at the lower limit of the uncertainty at a 95% confidence interval as provided in table 1.4 of Chapter1 of Vol. 2 (Energy) of the 2006 IPCC Guidelines on National GHG Inventories Calculation of baseline emissions Data / Parameter BL,thermal Data unit % Description Source of data Value applied: 100% Justification of choice of data or description of measurement methods and procedures applied Purpose of the data Comments - The efficiency of the plant using fossil fuel that would have been used in the absence of the project activity Applied option F in the "Tool to Determine the Baseline Efficiency of Thermal or Electric Energy Generation Systems" and the historical average value. Applied option F in the "Tool to Determine the Baseline Efficiency of Thermal or Electric Energy Generation Systems". At the same time, referring to the historical average value, a maximum default efficiency of 100% is chosen to use, as simple and very conservative approach. Calculation of baseline emissions 28