VERIFICATION REPORT OF THE LUGOUHE HYDROPOWER PROJECT IN SICHUAN PROVINCE, CHINA

VCS Verification Report VERIFICATION REPORT OF THE LUGOUHE HYDROPOWER PROJECT IN SICHUAN PROVINCE, CHINA Voluntary Carbon Standard 2007.1 Report No: VCS 009-06, rev. 03 Germanischer Lloyd Certification GmbH Steinhöft 9 20459 Hamburg Germany Handelsregister Hamburg, Abt. B., Nr. 52078

Date of first issue: Project No.: 2010-02-23 VCS 009-06 Approved by: Markus Weber Client: South Pole Carbon Asset Management Ltd. Organizational unit: Greenhouse Gas Services Client ref. Jane Duan Summary: Germanischer Lloyd Certification GmbH (GLC) has performed the third verification of the project: Lugouhe Hydropower Station Project, with regard to the relevant requirements for VCS project activities. By generating renewable grid connected electricity the project reduces GHG emissions by displacing the equivalent of electricity that would otherwise have been generated by existing fossil fuel based grid-connected power plants and by the addition of new generating sources. This verification covers the period from 2008-05-26 to 2009-09-25. The project activity has already been validated and verified under VCS Version 01 by TÜV Nord. The second verification of the project was conducted under the VCS 2007 by TÜV Nord. The starting date of the crediting period of the project activity is 2005-10-26. The emission reductions are claimed as Voluntary Carbon Units (VCU) under the Voluntary Carbon Standard 2007.1 (VCS 2007.1). It is GLC s opinion that the GHG emission reductions for the Lugouhe Hydropower Station Project as reported in the Monitoring Report Version 2.0 issued on 2009-12-09 are calculated without material misstatements in a conservative and appropriate manner. The GHG emission reductions were correctly calculated on the basis of the approved UNFCCC CDM monitoring methodology AMS-I.D. version 10 and ACM0002, ver.6, applicable VCS requirements and the monitoring plan contained in the validated VCS Project Description Document (VCS PD) for the project activity. Germanischer Lloyd Certification GmbH herewith confirms that the project has achieved emission reductions in the above mentioned reporting period as follows: Emission Reductions in 2008 11,472 t CO2e Emission Reductions in 2009 8,660 t CO2e Emission Reductions in total: 20,132 t CO2e GLC does not assume any responsibility towards the issuance and utilization of VCUs hereby verified and certified. Request for issuance of VCUs shall be made by the project proponent to an approved VCS Program Registry based on the requirements set out under the most recent version of the VCS Program Guidelines clause on VCS Registration. The verification of reported emission reductions is based on the information made available to GLC and the engagement conditions detailed in this report. Hence, GLC cannot be held liable by any party for decisions made or not made based on this report. Report No.: Subject Group: VCS 009-06 VCS Indexing terms Report title: Verification Report of the Lugouhe Hydropower Project in Sichuan Province, China Work carried out by: Yanwei Chen Juliane Mundt No distribution without permission from the Client or responsible organizational unit Work verified by: Anu Chaudhary Limited distribution Date of this revision: Rev. No.: Number of pages: 2009-03-16 03 26 Unrestricted distribution Page 2 of 26 2

Abbreviations CA CAR CCPG CDM CER CL CO2 CO2eq CR DOE EF EGy ER ETN FAR GHG MP MR PD PP Corrective Action / Clarification Action Corrective Action Request Central China Power Grid Clean Development Mechanism Certified Emission Reduction Clarification Request Carbon dioxide Carbon dioxide equivalent Clarification Request Designated Operational Entity Emission Factor Electricity Generation in year y Emission Reduction Electricity Transaction Notes Forward Action Request Greenhouse gas(es) Monitoring Plan Monitoring Report Project Description Project Proponent QA/QC Quality Assurance / Quality Control UNFCCC United Nations Framework Convention on Climate Change VCS Voluntary Carbon Standard VCSA VCS Association VCS 2007.1 Voluntary Carbon Standard - Version 2007.1 XLS Emission Reduction Calculation Spread Sheet Page 3 of 26 3

Table of Contents Page Abbreviations...3 Introduction...5 1.1. Objective...5 1.2. Scope and Criteria...5 1.2.1. Scope of the verification...5 1.2.2. Verification Criteria...6 1.3. VCS Project Description: Lugouhe Hydropower Station Project...6 1.3.1. Project Characteristics...6 1.3.2. Project Background...7 1.3.3. Level of Assurance...7 2. Methodology...8 2.1. Verification Process Summary...8 2.2. Verification Team...8 2.3. Review of Documentation...9 2.4. On-site assessment...9 2.5. Reporting of Findings and Resolution of Outstanding Issues...10 2.6. Technical Review...11 3. Verification findings...12 3.1. Remaining issues, FARs from previous validation or verification...12 3.2. Project implementation in accordance with the previously validated VCS PD...12 3.2.1. Eligible GHGs...13 3.2.2. Project Starting Date and Emission Reduction Start Date...14 3.2.3. Public Funds and Grants...14 3.2.4. Project Boundary / GHG Assessment Boundary...14 3.2.5. Baseline Determination...14 3.2.6. Project Additionality...15 3.2.7. GHG Emission...15 3.2.8. Secondary Effects...15 3.2.9. Impacts on Sustainable Development...15 3.3. Completeness of monitoring...15 3.4. Accuracy of GHG emission reduction calculations...18 3.5. Quality of evidence to determine emission reductions...18 3.6. Management and quality assurance...19 4. Verification Statement...21 5. References...22 ANNEX...24 Page 4 of 26 4

INTRODUCTION South Pole Carbon Asset Management Ltd. (South Pole) has commissioned the Germanischer Lloyd Certification GmbH (GLC) to carry out the periodic verification of the emission reductions reported for the VCS project activity Lugouhe Hydropower Project with regard to the relevant requirements for VCS program as per the Voluntary Carbon Standard 2007.1 (VCS 2007.1). This verification report summarizes: (i) (ii) The findings from the VCS verification; and VCU certification statement for the emission reductions. 1.1. Objective VCS Verification is the periodic independent review and ex post determination by a Verification Entity or Designated Operational Entity (DOE) (which is approved/registered as a verifier by VCSA) of the monitored reductions in GHG emissions that have occurred as a result of the registered VCS project activity during a defined verification period. VCS Certification is the written assurance by a Certification Entity (which is approved/ registered as a certifier by VCSA) that, during a specific period in time, a project activity achieved the emission reductions as verified. The objective of this verification was to verify and certify emission reductions reported for the Lugouhe Hydropower Project for the monitoring period covering 2008-05-26 to 2009-09-25. 1.2. Scope and Criteria 1.2.1. Scope of the verification The scope of the verification is: - To ensure that the project activity has been implemented and operated as per the latest version of the VCS PD and that all physical features (technology, project equipment, and monitoring and metering equipment) of the project are in place. - To verify that actual monitoring systems and procedures are in compliance with the monitoring systems and procedures described in the monitoring plan as per the latest version of the VCS PD. - To evaluate the GHG emission reduction data and express a conclusion with a reasonable level of assurance about whether the reported GHG emission reduction data is free from material misstatement. - To verify that the reported GHG emission data is sufficiently supported by evidence. The verification shall ensure that reported emission reductions are complete and accurate in order to be certified. The project design, its eligibility as project activity under VCS Version 01 and the correct application of the approved CDM baseline and monitoring methodology AMS-I.D., Version 10: Grid connected renewable electricity generation /12/ and ACM0002, ver.6, Consolidated baseline methodology for grid-connected electricity generation from renewable sources have been already validated by the DOE TÜV Nord in a combined Validation and Verification Report (Report no.: 8000349492-07/90-V01, Verification Report - Lugouhe Hydropower, Revision Nº 0, issued on 2007-06-30). As stated in this Report the validation opinion Page 5 of 26 5

of TÜV Nord is that the Project as described in the VCS PD of 2007-06-25 /2/ meets all VCS Program requirements as set out in the VCSA Rules (Voluntary Carbon Standard Version 1) and correctly applies the CDM approved baseline and monitoring methodology AMS-I.D, ver.10 and ACM0002, ver.6. /11,12/ 1.2.2. Verification Criteria The verification team has focused on the identification of significant reporting risks and verifying the mitigation measures for these risks based on the recommendations in the Validation and Verification Manual /1/, ISEA3000 (Revised) Assurance Engagements other than Audits or Reviews of Historical Financial Information /8/ and/or ISO/FDIS 14064-3 Greenhouse gases Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions and employed a risk-based approach /7/. According to the requirements and guidance of VCS 2007.1, the criteria of this verification include the relevant applicable rules and steps for CER verification under the CDM excluding the following: The public availability of the VER/VCS Monitoring Report; Confirmation of contribution of the project activity towards sustainable development in the country where the project is located The public availability of the Verification Report and VCU Certification Statement. 1.3. VCS Project Description: Lugouhe Hydropower Station Project 1.3.1. Project Characteristics Table 1: Project Characteristics Item Title of the project activity Project Location (specific Address, Country) Project proponent Project Entity Applied Methodology Sectoral Scope Project crediting period Data Lugouhe Hydropower Station Project The project is located at the Lugou River, within the territory of Wudu Town, Ebian Yi Minority Autonomous County, Leshan City, Sichuan Province, China. The exact location is E 103 30'20" N 29 14'58" Sichuan Ebian Lugouhe Hydroelectricity Co., Ltd. (Project Owner) South Pole Carbon Asset Management Ltd. (Consultant) Sichuan Ebian Lugouhe Hydroelectricity Co., Ltd. No. 25, Buxing Street, Shaping Township, Ebian Yi Autonomous County, Leshan City, Sichuan Province, 614300 Represented by Mr. Li Wei CDM methodology AMS-I.D., Version 10: Grid connected renewable electricity generation /11/ and ACM0002, ver.6, Consolidated baseline methodology for grid-connected electricity generation from renewable sources /12/. (1) Energy Industries (renewable - / non-renewable sources) Renewable Crediting Period (max. 10 y according to VCS 2007.1) Project start date: 2005-10-26 Page 6 of 26 6

Period verified in this verification 2008-05-26 to 2009-09-25 1.3.2. Project Background Lugouhe Hydropower Station is a diversion type hydropower station with an installed capacity of 4 MW. The project consists of one site located in Wudu Township, Ebian Yi Autonomous County, Leshan City in Sichuan, China with the exact location of E 103 30'20" N 29 14'58". The project consists of two 2 MW turbine generator sets is expected to generate 20 550 MWh per year, out of which 20 041 MWh shall be exported to the grid. The estimated operating hours are 5145 h/a. To avoid transmission losses the invoice meter of the Lugouhe hydropower project is installed at the Gongzui 35kV substation, which is located at a distance of 3 km from the powerhouse of the hydropower station. The key parameters for the project are given in table 2: Table 2: Technical data of the plant Parameter Unit Value Installed capacity (unit 1 and 2) MW 2 x 2 Height of dam m 5.5 Length of dam m 28 Reservoir capacity m 3 2.35 Mio. Water surface area m 2 0.6 Mio. Flow rate m 3 /s 2.2 Water Head m 239 The generated electricity is supplied to the Central China Power Grid (CCPG) and therefore displacing the same amount of electricity which partially is produced by fossil fuelled thermal power plants. 1.3.3. Level of Assurance As the VCS 2007.1 only recognizes verified emission reductions, GLC has focused on providing a reasonable level of assurance that the emission reduction calculation methodology used is appropriate and correctly applied, and that emission reductions have been accurately monitored. In accordance with the recommendation in the Validation and Verification Manual /1/, GLC may discount verified emission reductions or request a discount of these by using conservative assumptions for uncertainties in emission reduction calculations that cannot be fully quantified or that cannot give a desired level of assurance. For verifying/certifying VCUs, the desired level of assurance was based on the combined quantitative assessment of the accuracy of monitoring project performance and the identification of material risks. For this verification, GLC is able to give a reasonable level of assurance. Page 7 of 26 7

2. METHODOLOGY 2.1. Verification Process Summary The verification process is based on the guidelines described in the Validation and Verification Manual /1/. In addition to that standard auditing techniques have been applied. The verification team performs first a desk review, followed by an on-site visit to review the project realization. The verification process is based on assessment of the validated VCS Project Description document (VCS PD) /2/, the monitoring report /3/, emission reduction calculation spreadsheet /4/, supporting documents made available to the verifier and information collected through performing interviews and during the on-site assessment. Furthermore publicly available information was considered as far as available and required. The verification is carried out on the basis of the following requirements, applicable for this project activity: requirements and guidance of VCS 2007.1 applicable CDM guidelines and requirements, including applicable relevant methodological decisions made by the CDM Executive Board. other relevant rules, including the host country legislation, CDM Validation and Verification Manual /1/, monitoring plan as given in the registered VCS PD /2/, Approved CDM Methodology AMS-I.D, ver.10 /11/ and ACM0002, ver.6 /12/. 2.2. Verification Team A competent team with relevant knowledge and experience in the specific scopes and sectors is appointed. The verification team consists of the following members: Table 3: Verification Team Name Location Function 1) Scope Specific Knowledge Sector Specific Knowledge Host Country Knowledge Mr. Ms. Yanwei Chen GLC China Shanghai office ATL Y Y Y Mr. Ms. Juliane Mundt GLC Hamburg A Y Y - Mr. Ms. Anu Chaudhary GL India TR Y Y - 1) ATL: Assessment Team Leader; A: Auditor, E: Expert. Page 8 of 26 8

Duration of the verification Preparations: 2009-10-19 to 2009-11-12 On-site verification: 2009-11-19 Reporting/QA: 2010-01-04 to 2010-03-10 2.3. Review of Documentation During the desk review all documents initially provided by the client and publicly available documents relevant for the verification were reviewed. The main documents are listed below: The validated VCS PD, including the monitoring plan and the corresponding validation report; Previous verification reports, if any; The applied monitoring methodology; Requirements and guidance of VCS 2007.1 as well as applicable methodological relevant decisions, clarifications and guidance from the CDM Executive Board; Any other information and references relevant to the project activity s resulting emission reductions (e.g., IPCC reports, data on electricity generation in the national grid or laboratory analysis and national regulations). addressing of FARs identified during validation, if any. 2.4. On-site assessment On 2009-11-19 GLC carried out an on-site visit to the project site of the Lugouhe Hydropower Station Project located at the Lugou River, within the territory of Wudu Town, Ebian Yi Minority Autonomous County in the Sichuan Province of China, as well as to the office of the project owner Sichuan Ebian Lugouhe Hydroelectricity Co., Ltd. During the visit, GLC verified that the actual implementation of the project was as described in the VCS PD. The on-site inspection included review of data and records, interviews with assistant plant manager, operations and maintenance personnel, confirming all data sources and constants used in the Monitoring Report. The main tasks covered during the on-site visit included, but were not limited to: Confirmation that the project is operated as per the monitoring plan in the VCS PD. The operating staff was interviewed and observed in order to check the risks of inappropriate operation and data collection procedures. Information processes for generating, aggregating and reporting the selected monitored parameters were reviewed. Calibration records of all metering equipment were checked. The monitoring processes, routines and documentations were audited. The monitored data was checked completely. The data aggregation trails were checked via spot sample down to the level of the meter recordings. Page 9 of 26 9

Representatives of Sichuan Ebian Lugouhe Hydroelectricity Co., Ltd. (project owner) and South Pole (consultant) were interviewed to confirm selected information and to resolve issues identified in the document review. The main topics of the interviews are summarized in Table 4. Table 4: Interviewed persons and main topics Interview Topic - General aspects of the project - Technical equipment and operation - Changes since validation - Monitoring and measurement equipment - Calibration procedures - Quality management system - Involved personnel and responsibilities - Training and practice of the operational personnel - Implementation of the monitoring plan - Monitoring data management - Data uncertainty and residual risks - GHG calculation - Procedural aspects of the verification - Maintenance - Environmental aspects Interviewed persons and source of information - Mr. Li Wei, Dongsen Group, Sichuan Ebian Lugouhe Hydroelectricity Co., Ltd. - Mr. Liu Hong, Dongsen Group, Sichuan Ebian Lugouhe Hydroelectricity Co., Ltd. - Ms. Duan Zhijie, South Pole Carbon Asset Management Ltd. - Mr. Yu Miao, Eco Chain (Beijing) Science & Technology Co. Ltd. - Mr. Xie Liming, Eco Chain (Beijing) Science & Technology Co. Ltd 2.5. Reporting of Findings and Resolution of Outstanding Issues On the basis of the desk review, the on-site visit, follow-up interviews and further background investigation the verification report is completed. Findings established during the verification may be that: i) the verification is not able to obtain sufficient evidence for the reported emission reductions or part of the reported emission reductions. In this case these emission reductions shall not be verified and certified; ii) the verification has identified material misstatements in the reported emission reductions. A detailed list of verification findings form the draft verification report, which is sent to the client for resolution of raised CARs, CLs and FARs. Nonconformities raised during the verification can either be seen as a non-fulfillment of criteria ensuring the proper implementation of a project or where a risk to deliver high quality emission reductions is identified. Corrective Action Requests (CARs) are issued, if: the project participants have made mistakes that will influence the ability of the project activity to achieve real, measurable additional emission reductions; the CDM requirements have not been met; Page 10 of 26 10

there is a risk that emission reductions cannot be monitored or calculated. Forward Action Requests (FAR) indicate essential risks for further periodic verifications. Forward Action Requests are issued, if: the actual status requires a special focus on this item for the next consecutive verification, or an adjustment of the monitoring plan is recommended. The verification team uses the term Clarification Request (CL), which is issued if: if information is insufficient or not clear enough to determine whether the applicable CDM requirements have been met. For a detailed list of all CARs, CLs and FARs raised in the course of the verification please refer to chapter 3. 2.6. Technical Review Before submission of the final report a technical review of the verification report is carried out. The technical reviewer is a competent GHG auditor appointed for the scope the project activity falls under. As a result of the internal review process the verification opinion and the topic specific assessments as prepared by the verification team leader may be confirmed or revised. Furthermore reporting improvements might be achieved. Page 11 of 26 11

3. VERIFICATION FINDINGS 3.1. Remaining issues, FARs from previous validation or verification Based on the validation report of TÜV Nord, issued on 2007-06-30 with report No.: 8000349492-07/90-V01 /9/, as well as the previous verification report issued by TÜV Nord with report no.: 8000361520-08/190 V2, dated 2009-05-11 /10/ the verification team identified no missing steps, open issues or material discrepancy. There were no pending issues from any previous verification. 3.2. Project implementation in accordance with the previously validated VCS PD During the verification an onsite visit was carried out. On the basis of this on-site visit and the reviewed project documentation, the verification team confirms that the project was implemented as described in the VCS PD. The Lugouhe Hydropower Station generates electricity from renewable sources. The total installed capacity of the two generators amount to 4 MW. The project is fully implemented and operating. The only parameter to be monitored is EGy, which is net electricity, measured in MWh, produced by the hydro power plant and supplied to the Central China Power Grid (CCPG) in year y. The generated Electricity of each unit is measured continuously by a kilowatt meter and recorded monthly by monitoring personnel. During the monitoring period covering 2008-05-26 to 2009-09-25 the project generated 21,324 MWh of net electricity, which displaced part of power supplied formerly from Central China Power Grid (CCPG). According to the monitoring plan, the data of electricity generation are verified against electricity sale receipts. During the site visit some inconsistencies regarding the invoice meter and the metering equipment installed at the powerhouse were identified. For sake of transparency CAR 1 to 3 were raised and project proponents were requested to clarify the situation of the installed equipment and provide the calibration records accordingly. The three CARs could be closed successfully. The installed monitoring equipment at the powerhouse of Lugouhe Hydropower Station consists of one kilowatt meter for each generator. Moreover a current transformator (CT), LABN6-35, is installed, which continuously measure the electricity supplied to and consumed from the grid. The CT is installed on the high pressure side of the main transformer at the power house and serves as back up meter for the project proponent. It is maintained and calibrated in accordance with the national standards. The calibration certificate indicates an accuracy of 0.2 and its validity is from 2005-09-19 to 2010-09-18. /5/ The switch station of the hydropower station is located at a distance of 3 km from the hydropower station. The invoice meter no.: 203350059 which measures the electricity exported to the grid as well as imported from the grid, is located at the switch station to avoid transmission losses. The invoice meter of the project activity is controlled and calibrated regularly. The agency responsible for the calibration of monitoring equipment is the Sichuan Electric Power Company. The calibration certificate, valid from 2008-01-08 until 2009-12-09, has been provided to GLC by the project proponents /5/. Page 12 of 26 12

The meter details are provided in the table in sec. 3.3. The governing performance standard for kilowatt meters is the Technical Administrative Code of Electric Energy Metering DL/T448-2000. The net electricity measured by the invoice meter is read on the 25 th of every month. The procedures for Quality assurance and quality control are in place and in accordance with the monitoring plan. The electricity exported to the grid is measured by a kilowatt meter which is controlled by both the hydropower plant operator and by the power grid company. During the site visit it could be confirmed that the meters are in place, that they are functioning and calibrated according to the requirements. The staff is trained and qualified for operating and monitoring. During the site visit training material, as well as exams taken by the staff were available. Data measured by meters are crosschecked by electricity sales receipts. As part of the verification, GLC has also assessed that all eligibility criteria of the project under VCS (previously assessed by DOE TÜV Nord (Report No.: 8000349492-07/90-V01, Verification Report Lugouhe Hydropower Project, Revision Nº 0, issued on 2007-06-30) are valid throughout the monitoring period from 2008-05-26 to 2009-09-25: the project activity has not created or attempted to create another form of environmental or carbon credit. CDM is a GHG Program approved by the VCS Board and currently there are no time or geography limitations in the application of the CDM baseline and monitoring methodology AMS-I.D, ver.10 and ACM0002, ver.6. under VCS. The project has not been presented nor rejected to/by any other GHG program. 3.2.1. Eligible GHGs Emission sources and gases included in the project boundary are: Table 5: Emission sources and gases GHGs involved Description Baseline emissions CO 2 CO 2 emissions from electricity generation by fossil fuels power plants connected to the national grid that is displaced due to the Project Activity. Project emissions (Emissions due to the destruction process) The Project is a hydropower project without reservoir. According to the applied methodology AMS-I. D, ver.10 project emissions can be regarded as zero. Leakage The generating equipment of this project has not been transferred from another project. Therefore and in accordance with the applied methodology AMS-I. D, ver.10 leakage emissions can be regarded as zero. Page 13 of 26 13

3.2.2. Project Starting Date and Emission Reduction Start Date According to the VCS Program the project start date is the date the project activity began reducing or removing GHG emissions. The project start date was 2005-10-26. 3.2.3. Public Funds and Grants The validation of the project under VCS Version 01 did not reveal any information that indicated that the project received any public funding. 3.2.4. Project Boundary / GHG Assessment Boundary The project boundary is clearly defined as the site of the project activity Lugouhe Hydropower Station and the system boundary is defined as the Central China Power Grid (CCPG). For emission sources and gases included in the project boundary, see Section 3.2.1. 3.2.5. Baseline Determination While the baseline determination for the project activity was previously assessed by DOE TÜV Nord as part of the validation of the project under VCS Version 01, it is confirmed that: i) The project correctly applies the approved baseline and monitoring methodology AMS-I.D, ver.10 and ACM0002, ver.6. ii) The baseline and monitoring methodology has been correctly applied and the assumptions made for the selected baseline scenario are sound. The baseline scenario is that the amount of electricity delivered from the project activity to the grid otherwise would have been generated by fossil fuels grid-connected power plants and by the addition of new generation sources. This is reflected in the combined margin (CM) - the weighted average of the operating Margin (OM) emission factor and the build margin (BM) emission factor. Baseline emissions are equal to the product of the ex-ante determined grid emission factor times the electricity supplied by the project activity to the grid. The baseline emission factor (EFy) of the project activity is based on an ex-ante calculation using the Combined Margin approach. EFy is the emission factor of the CCPG, which is an equally weighted average of the operating margin emission factor (OM) and the build margin emission factor (BM). EFy is calculated as 0.94445 t CO2e/ MWh. The emission factor remains fixed throughout the crediting period. Detailed information regarding baseline determination for project activity is available at: iii) VCS PD of 2007-06-25 /2/ ; iv) Validation report /9/. Page 14 of 26 14

3.2.6. Project Additionality As the project design document was previously assessed by the DOE TÜV Nord as part of the validation of the project under VCS Version 01, in terms of the project s baseline and additionality, it is thus confirmed that the project is not a likely baseline scenario and that emission reductions resulting from the project are additional. Detailed information regarding project additionality is available at: v) VCS PD of 2007-06.25 /2/ ; vi) Validation report /9/. 3.2.7. GHG Emission As the project design document was previously assessed by the DOE TÜV Nord as part of the validation of the project under VCS Version 01, it is thus confirmed that the approach for determining project and baseline emissions are appropriate and in accordance with the selected baseline and monitoring methodologies. The grid emission factor is calculated ex-ante and defined as 0.94445 t CO2e/MWh. It remains fixed throughout the crediting period. 3.2.8. Secondary Effects No sources of leakage were identified, given that the project equipment is not transferred from any other activity. According to the applied small scale methodology AMS-I.D this is the only source of leakage for this project type. 3.2.9. Impacts on Sustainable Development As project environmental impacts were previously assessed by the DOE TÜV Nord as part of the project validation, GLC understands that the project s social and environmental impacts have been sufficiently addressed. 3.3. Completeness of monitoring As the project design was previously assessed by the DOE TÜV Nord as part of the project validation, it is GLC s contention that the application of the monitoring methodology is transparent. The latest version of the submitted Monitoring Report which forms the basis of the verification was prepared by summarizing consolidated data over the whole monitoring period as required by the monitoring plan of the registered VCS PD. All indicators stated in the validated monitoring plan based on the UNFCCC CDM monitoring methodology AMS-I.D Grid connected renewable electricity generation, ver.10, are monitored and reported. According to the applied methodology the monitoring consists of metering the electricity generated by the renewable technology. The calculation of emission reductions in the monitoring report shall be based on the measured electricity meter (invoice meter) values as main data source. Recording of invoice meter value is done jointly by the project owner and the grid company. These measured electricity values are provided by the grid company to the project owner in Electricity Transaction Notes (ETN), which works as the basis for issuance of sales invoices after project owner s confirmation. The electricity sale receipts are issued by the grid company jointly for all power plant of the project owner. Therefore the ETN serves as basis for emission reduction calculation. Page 15 of 26 15

During the site visit the sale receipts have been cross checked by GLC and it could be verified that the values in the ETN correspond to the sale receipts. The electricity generated by the project activity as well as all other electrical and mechanical data of the operation of the plant (kv, A, kw, Hz) are recorded on an hourly basis in a daily log book. The operation of the plant is organised in 3 shifts consisting of 3 employees, of which one is in charge of the correct operation of the plant. The gross electricity generated is recorded on every 8 hours, which is 3 times per day: 8AM, 16AM, 24AM. Aggregated monthly data are recorded in a monthly summary log book. Therefore the daily log book as well as the accumulated monthy summaries also serves as a cross checking instrument for the proper operation of all devices. Furthermore the monthly summaries serve as cross check for invoicing. The emission reduction calculation is based on the Emission Transaction Notes issued by the grid company. Until June 2008 the invoice meter of the Lugouhe Hydropower project was shared with two other hydropower projects, Qingshangou and Dacun. Therefore CAR 1 was raised and project proponents were requested to deduct the electricity generated by Qingshangou and Dacun from the electricity generated by the Lugouhe Project. CAR 1 was successfully closed after project proponents deducted the electricity generated by the two hydropower projects in the emission reduction calculation spreadsheet. The monitoring procedures are in accordance with the methodology and are implemented. The monitoring indicator EGy, has been monitored with calibrated kilowatt meters as described in the monitoring plan of the registered VCS PD /2/ and the monitoring plan /3/. The data in the monitoring report have been verified by the monthly summaries as well as by the plant log book and the Emission Transaction notes which are sent by the grid company for invoicing. Moreover the figures have been cross checked with the sale receipts issued by the grid company. The monitoring mechanism is effective and reliable. The monitoring plan requires the monitoring of the data given in Table 6. Table 6: Data to be monitored Data / Parameter: (as in monitoring plan of the VCS PD): Measuring frequency: Reporting frequency: Is measuring and reporting frequency in accordance with the monitoring plan and monitoring methodology? (Yes / No) Type of monitoring equipment: Assessment/ Observation Net electricity supplied to the grid in year y (EG y) Continuously (measured in MWh) Monthly Yes. Monthly official electricity transaction notes are issued by the grid company officers and controlled by the project proponent. The ETN serves as basis for the electricity sales receipts. The calculation of emission reductions in the monitoring protocols is correctly based on the net electricity fed to the grid which is calculated by subtracting the net electricity imports and transmission losses from exports of electricity. As a conclusion monthly values of net electricity exports based on measurements conducted by the distribution company has been taken as basis for the emission calculations. The installed monitoring equipment at the powerhouse of the Lugouhe Hydropower Station consists of a current Page 16 of 26 16

Is accuracy of the monitoring equipment as stated in the VCS PD? If the VCS PD does not specify the accuracy of the monitoring equipment, does the monitoring equipment represent good monitoring practice? Calibration frequency /interval: Is the calibration interval in line with the monitoring plan of the VCS PD? If the VCS PD does not specify the frequency of calibration, does the selected frequency represent good monitoring practice? Company performing the calibration: Did calibration confirm proper functioning of monitoring equipment? (Yes / No): Is (are) calibration(s) valid for the whole reporting period? If applicable, has the reported data been crosschecked with other available data? How were the values in the monitoring report verified? Does the data management (from monitoring equipment to emission reduction calculation) ensure correct transfer of data and reporting of emission reductions and are necessary QA/QC processes in place? transformator (CT), LABN6-35, which continuously measures the electricity supplied to grid and consumed from the grid. The CT is installed on the high pressure side of the main transformer at the power house and serves as back up meter for the project proponent. The invoice meter no.: 203350059 is installed at the switch station at a distance of 3 km from the hydropower station. Accuracy values of the electricity meters are not specified in the VCS PD. The accuracy of the invoice meter is 0.5 which represents good monitoring practice and is in accordance with the governing performance standard for kilowatt meters, which is the Technical Administrative Code of Electric Energy Metering DL/T448-2000. /15/ The meters are calibrated according to national standards as defined in the Verification Regulation for Electronic Electric Energy Meter, JJG 596-1999 /16/ It is stated in the VCS PD that meter calibration will be conducted according to national standards. The calibration intervals are in line with the national regulation JJG 596-1999, which requires a calibration every five years, and therefore represents good monitoring practice. Sichuan Electric Power Company Yes, according to the calibration certificates the invoice meter is properly functioning. Yes, the calibration certificate of the invoice meter no.: 203350059 is issued by the Sichuan Electric Power Company, and indicates a validity from 2008-01-08 to 2009-12-09. /5/ The electricity generation data is provided in the monthly electricity transaction notes issued by the grid company. These data have been cross checked with the data recorded in the plant log books as well as the sales receipts issued by the grid company to the project owner. Please see 3.5 and 3.6 Please see 3.5 and 3.6 Page 17 of 26 17

3.4. Accuracy of GHG emission reduction calculations GHG emissions reductions are equal to baseline emissions and were correctly calculated. CO2 emission reductions were correctly calculated in the monitoring report ver.2.0 of 2009-12-09 for the period of 2008-05-26 to 2009-09-25. For emission reduction calculation the net electricity exported by the project to the CCPG is multiplied with the validated grid emission factor of the CCPG 0.94445 t CO2e/MWh. The emission factor is calculated ex-ante by using the Combined Margin Approach, according to the baseline methodology AMS-I.D, ver.10 and ACM 0002 ver.6. The reported emission reductions resulting from the displacement of grid electricity is 20,132 tco2e for the reporting period. Electricity exports data records were found to be of adequate quality. The verification team has cross checked the monthly electricity transaction notes with the plant log book and the electricity sale receipts issued by the grid company. The readings were found with in the limit. Thus the verification team is convinced that the net electricity supplied to the grid and the meter readings are of adequate quality. It was verified in the course of this verification that the above mentioned methodology has been correctly and accurately applied in calculating the total emission reductions and the emission reduction calculation is accurate and conservative. 3.5. Quality of evidence to determine emission reductions The power plant has a manually maintained log book where operation data, including the amount of total electricity generation, electricity consumed by the project and the net electricity supplied to the grid is monitored. Several documents were submitted by the project proponent as evidence to determine emission reductions. The net electricity generated was cross checked with gross generation recorded in the plant log book and the energy measurements observed at the outgoing points are found matching after deducting electricity imports and the normally observed transmission losses. Furthermore competent employees are recruited, who are found knowledgeable and trained not only about the plant operations but also ensuring the quality of the data and recording and maintaining. The verification team concludes that the evidence and the data are provided for the reported results and that the reported emissions are in line with the validated VCS PD. Section 3.3 includes detailed description of procedures for data collection and reporting, QA/QC, calibration and other aspects related to quality of monitoring procedures used for determining the emission reductions for the monitoring period of monitoring period from 2008-05-26 to 2009-09-25. For ex-ante selected parameters, see the VCS PD /2/ and VCS Validation Report for the Lugouhe Hydropower Project. Page 18 of 26 18

3.6. Management and quality assurance GLC was able to verify that authorities and responsibilities for monitoring and reporting of all data related to the emission reductions were clearly defined for the monitoring period from 2008-05-26 to 2009-09-25. Moreover, all project related equipments were confirmed to be operated by qualified and trained staff. The frequency of monitoring measurement, as well as applicable calibrations and reporting details were conducted as outlined in the monitoring plan available in the latest version of the VCS PD /2/. Page 19 of 26 19

3.7. Project Scorecard Completeness Accuracy Consistency Risk Areas Source coverage/ boundary definition Physical Measurement and Analysis Baseline Emissions Conclusions Project Emissio ns Calculated Emission Reductions Good - Good Good - Good Data calculations Good - Good Data management & reporting Changes in the project Reasonable - Reasonable Summary of findings and comments The source coverage was complete as per the registered VCS PD and validation report. The physical measurement / recording of data were found to be accurate. Formulae and calculation of CERs and relevant data were found to be accurate. The relevant GHG data was achieved. Nevertheless partly three hydropower plants have been measured jointly by the invoice meter and corrections in the reported data were requested. Good - Good No changes in the project. Error/Discounted Uncertainty Tons No error was found No error was found No error was found No error was found No error was found Page 20 of 26 20

4. VERIFICATION STATEMENT Germanischer Lloyd Certification GmbH (GLC) has performed the third periodic verification of the project: Lugouhe Hydropower Project, with regard to the applicable relevant requirements for VCS project activity. The project reduces GHG emissions through electricity production from hydropower using the water flows of the Lugou River in Ebian Yi Autonomous County. This verification covers the period from 2008-05-26 to 2009-09-25 (including both days). South Pole Carbon Asset Management Ltd. is responsible for the collection of data in accordance with the validated monitoring plan and the reporting of GHG emissions reductions from the project. It is GLC s responsibility to express an independent verification statement on the reported GHG emission reductions from the project. GLC does not express any opinion on the selected baseline scenario or on the validated and registered VCS PD. GLC conducted the verification on the basis of the monitoring methodology AMS-I.D., Version 10: Grid connected renewable electricity generation, the monitoring plan included in the VCS PD of the project and the monitoring report version 2.0, of 2009-12-09. GLC s verification approach draws on an understanding of the risks associated with reporting of GHG emission data and the controls in place to mitigate these. GLC planned and performed the verification by obtaining evidence and other information and explanations that GLC considers necessary to give reasonable assurance that reported GHG emission reductions are fairly stated. In GLC s opinion, the GHG emissions reduction for the Lugouhe Hydropower Project as reported in the monitoring report version 2.0, issued on 2009-12-09 are calculated without material misstatements in a conservative and appropriate manner. The GHG emission reductions were correctly calculated on the basis of the approved monitoring methodology of AMS-I.D., Version 10: Grid connected renewable electricity generation /11/ and ACM0002, ver.6, Consolidated baseline methodology for grid-connected electricity generation from renewable sources /12/ and the monitoring plan contained in the validated Project Design Document for the project. Germanischer Lloyd Certification GmbH herewith confirms that the project has achieved emission reductions in the above mentioned reporting period as follows: Emission reductions in 2008: 11,472 t CO2e Emission reductions in 2009: 8,660 t CO2e Emission reductions in total: 20,132 t CO2e Hamburg, 2010-03-10 Grace Chen Verification Team Leader Page 21 of 26

5. REFERENCES Please add further documents like clearances, licences or background information to the reference list, if appropriate Reference Document /1/ CDM-EB: Clean Development Mechanism Validation and Verification Manual (Version 1.1 as per EB 51) /2/ South Pole Carbon Asset Management Ltd.: Project Description Document for project Lugouhe Hydropower Station Project, Version no.2.1, 2007-06-25 /3/ South Pole Carbon Asset Management Ltd: Monitoring Report of Lugouhe Hydropower Project, Version no. 2.0, 2009-12-09. /4/ South Pole Carbon Asset Management Ltd: Emission reduction calculation spreadsheet 2009-12-09 /5/ Sichuan Electric Power Company: Calibration Certificate for meter no.: 203350059; Validity: 2008-01-08 to 2009-12-09; Calibration Certificate for LABN6-35, Validity: 2005-09-19 to 2010-09-18. /6/ Leshan Electric Power Bureau: Sales Receipts, Date 2008-5-26 to 2009-09-25 /7/ ISO 14064-3:2006; Greenhouse gases -- Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions; http://www.iso.org/iso/iso_catalogue/catalogue_tc/catalogue_detail.htm?csnumber=38 700; (2009-09-25) /8/ ISEA3000 (Revised) Assurance Engagements other than Audits or Reviews of Historical Financial Information. Available online: http://www.ifac.org/iaasb/projecthistory.php?projid=0008; (2009-09-25) /9/ TÜV Nord, Verification Report Lugouhe Hydropower Project, No.: 8000349492-07/90-V01, Version 0, 2007-06-30 /10/ TÜV Nord, Lugouhe Hydropower Verification Report, report no.: 8000361520 08/190 V2, 2009-05-11 /11/ CDM-EB: Approved CDM Methodology AMS-I. D, ver.10, Grid connected renewable electricity generation Page 22 of 26

Reference Document /12/ CDM-EB: Approved CDM Methodology ACM0002, ver.6, Consolidated baseline methodology for grid-connected electricity generation from renewable sources /13/ GLC GmbH: Germanischer Lloyd CDM Procedures /14/ IPCC: 1996 IPCC Guidelines for National Greenhouse Gas Inventories: work book IPCC: 2006 IPCC Guidelines for National Greenhouse Gas Inventories: work book /15/ Henan Province Electrical Industry Bureau: National Standard of Electrical Industry - Technical Administrative Code of Electric Energy Metering DL/T448-2000, 2000 /16/ National Standardization Management Committee: Verification regulation of electronic electric energy meter JJG 596-1999, 1999 Page 23 of 26

ANNEX List of CLs, CARs, FARs Page 24 of 26

REPORT NO: VCS 009-06, rev.01 Validation report clarification requests and corrective action requests by validation team CAR 1 While the previous verification report states that the Meters LABN6-35 and JSXNF6-35 which are installed on the high pressure side of main transformer (35kV bus line) with accuracy of 0.2S, measure both the electricity supplied to grid and consumed from the grid by Lugouhe, Dacun and Qingshangou project. The meters were verified by local authority and the latest verification was on 18/09/2005 and will be valid until 18/09/2008". During the on-site visit it could be verified that the meter used for invoicing (meter no.: 203350059) is different from the above mentioned meters. Furthermore it was found during the site visit that the calibration report of current transformer indicates LABN6-35 as the CT. Project proponents are therefore requested to provide a clarification from the grid company which meter serves as invoice meter and which as CT and PT for Lugouhe. Furthermore project proponents are requested to clarify and provide documented evidence on which power plants are metered jointly with the Lugouhe project activity or dating any replacement of the metering equipment Date Summary of project owner response Date Validation team conclusion 02/12/2009 The equipment with model numbers of LABN6-35 and JSXNF6-35 are separately current transformator (CT) and pressure transformator (PT) for Lugouhe project activity, other than the meters measuring the electricity supplied to grid and consumed from the grid by Lugouhe project. The calibration records of these two equipment have been provided to DOE as evidences indicating LABN6-35 as the CT and JSXNF6-35 as the PT. The meter with the meter no. of 203350059 is the invoice meter for Lugouhe project activity. The calibration record of this invoice meter has been provided to DOE as evidence. A document evidence issued by Leshan Electric Power Bureau on December 7th, 2009 has been provided to DOE as evidence to proof that no power plants have been metered jointly with the Lugouhe project activity since July 3rd, 2008, the previous Qingshangou and Dacun hydropower stations have no joint invoice meters with Lugouhe hydropower station any more, and the meter installed at the Gongzui 35kV transformer substation, with the serial number of 203350059, is the invoice meter only for Lugouhe project activity. 15/01/2010 O.K. The document issued by Leshan Electric Power Bureau on December 7th, 2009 is correctly translated and explains the situation. The calibration record for the invoice meter has been provided. It is valid from 2008-01-08 to 2009-12-09 and therefore covers the whole monitoring period. Electricity data of Qingshangou and Dacun have been deducted from calculation correctly. CAR 1 is closed. Page 25 of 26

REPORT NO: VCS 009-06, rev.01 Validation report clarification requests and corrective action requests by validation team CAR 2 Furthermore project proponents are requested to provide the calibration records for the invoice meter covering the whole monitoring period. CAR 3 Moreover project proponents are requested to include a statement explaining the constellation of the metering equipment in the monitoring report. CAR 4 As agreed during the site visit the monitoring period should be extended up to September 2009. Project proponents are therefore requested to add the data for September in the emission reduction calculation and the spreadsheet and update the monitoring report. Date Summary of project owner response Date Validation team conclusion Therefore, the electricity data of Qingshangou and Dacun during the period from May 26th, 2008 to July 3rd, 2008 have been deducted from the emission reductions calculations of Lugouhe hydropower station. The electricity data of Qingshangou and Dacun have been provided to DOE. 02/12/2009 The calibration record for the invoice meter covering the period from January 8th, 2008 to December 9th, 2009, which already cover the whole monitoring period, have been provided to DOE. 02/12/2009 The statement explaining the constellation of the metering equipment has been provided in the revised monitoring report. 02/12/2009 The monitoring period has been extended up to September. The data for September have been added in the emission reduction calculation spreadsheet and the monitoring report has been updated accordingly. 15/01/2010 O.K. 15/01/2010 O.K. 15/01/2010 O.K. CAR 2 is closed CAR 3 is closed CAR 4 is closed Page 26 of 26