VALIDATION REPORT

for the CDM Project Activity

7.5 MW Lubuk Gadang Small

Hydropower Plant at West
Sumatera, Indonesia
In
Indonesia
Report No. 01 997 9105065323
Version No. 02, 2012-12-27
Designated Operational Entity (DOE)
TV Rheinland (China) Ltd
Unit 707, AVIC Building, No. 10B, Central Road, East 3rd Ring Road,
Chaoyang District, Beijing 100022,
Peoples Republic of China.
Tel.: +86 10 65 66 66 60 (ext.169)
FAX: +86 1065 66 66 67
E-mail: [email protected]

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01 997 9105065323

I. Project description:
Project title:

7.5 MW Lubuk Gadang Small Hydropower

Plant at West Sumatera, Indonesia

Report No.: 01 997 9105065323

Host Country:

Indonesia

Current revision No.: 02

AMS-I.D. version 17
Methodology:

Date of current revision: 2012-1227

Large Scale
Small Scale

Date of first issue: 2011-09-23

Annual average emission reductions (estimate):
32,806 tCO2e/yr
GHG reducing
The GHG emission reduction would happen by displacing the fossil fuel
measure/technology:
dominated grid electricity equivalent to the net renewable electricity supplied by
the hydro power project.

Party

Project Participants

Indonesia (Host)

PT. Selo Kencana Energi

Party considered a project

participant
No

Switzerland

Swiss Carbon Assets Ltd.

No

Contract party

II. Validation:
Validation Team

1.1, 1.2, 3.1,

5.1, 11.1, 12.1

India

1.2, 2.1, 2.2, 3.1

India

Indonesia

----

Indonesia

----

Mr. Kanal M. P

India

X
X

X
X

1.2, 3.1, 3.2, 6.1,

13.1,13.2, 15.1

Validation Phases:
Desk Review
Follow up interviews
Resolution of outstanding issues
Validation Status:
Corrective Actions / Clarifications Requested
Full Approval and Submission for Registration
Rejected

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Trainee TR

India

Expert to TR

Technical Reviewer

1.2, 3.1, 13.1

Trainee Auditor

India

Acting Tech. Expert

Mr. Shivraj Sharma (Till

2012-10-23)
Mr.
Sanjay
Kumar
Agarwalla
(Till
12/07/2012)
Mr. Raj Kumar Deka
(From 2012-10-24)
Mr. Chetan Swaroop
Sharma (From 2012-1024)
Mr.
Ramaiyer
Ramachandran
Ms. Rahmawati Noor

Team Member
(Auditor)
Technical Expert

Appointed for
Sectoral Scopes

Full name

Local Expert

Affiliation
TV Rheinland

Team leader

Acting Team Leader

Role

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01 997 9105065323

III. Validation Report:

Final Approval

Released

By: Mr. Praveen Urs

Date: 2012-12-27

Version No.:01

Distribution
No distribution without permission from the
Client or responsible organizational unit
Unrestricted distribution

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Executive Summary Validation Opinion

The validation team assigned by the DOE (TV Rheinland (China) Ltd.) here after called TRC, is been
assigned by Swiss Carbon Assets Ltd. to perform the validation of their project 7.5 MW Lubuk
Gadang Small Hydropower Plant at West Sumatera, Indonesia in Indonesia, as described in the PDD
(version 5, 27/12/2012). The validation was performed on the basis of UNFCCC criteria for the Clean
Development Mechanism. The scope of the validation is defined as an independent and objective
review of the project design document, the projects baseline study and monitoring plan and other
relevant documents. The information in these documents is reviewed against CDM Validation and
Verification Manual (Version 01.2), Kyoto Protocol requirements, CDM Executive Board/UNFCCC rules.
The report is based on the assessment of the project design document undertaken through stakeholder
consultations, application of standard auditing techniques including but not limited to document
reviews, site visit, stakeholder interviews, review of the applicable methodology and its underlying
formulae and calculations.
Validation methodology and process
The validation has been performed as described in the VVM version 01.2 and constitutes the following
steps:
-

Publication of the PDD on the UNFCCC website (13/07/2011 11/08/2011)

Desk review of the PDD and the relevant documents

On-site assessment (19/08/2011)

Issuance of Validation Report

Validation criteria
The following CDM requirements have been considered:
- Article 12 of the Kyoto Protocol,
- Modalities and procedures for CDM (Marrakech Accords)
- Subsequent decisions by the COP/MOP and CDM Executive Board
- Host country criteria
- Criteria given to provide for consistent project operations, monitoring and reporting.
The host part is Indonesia and the Annex I country is Switzerland. Both parties fulfill the participation
criteria and have approved and authorized the project and the project participants. The DNA from
country name confirms that the project assists in achieving sustainable development.
The project correctly applies the baseline and monitoring methodology AMS-I.D., version 17, Grid
connected renewable electricity generation.
The project results in reductions of CO2 emissions that are real, measurable and give long-term benefits
to the mitigation of climate change. It is demonstrated that the project is not a likely baseline scenario.
Emission reductions attributable to the project are hence additional to any that would occur in the
absence of the project activity.
This validation did not reveal any information that indicates that the project can be seen as a diversion
of ODA funding towards Indonesia.

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The monitoring plan provides for the monitoring of the projects emission reductions. The monitoring
arrangements described in the monitoring plan are feasible within the project design and it is TRCs
opinion that the project participants are able to implement the monitoring plan.
By generating renewable electricity which will displace fossil fuel based grid electricity, the project
results in the reductions of CO2 emissions that are real, measurable and give long term benefits to the
mitigation of climate change.
The total emission reductions from the project are estimated to be 229,642 t of CO2e over a 7 year
crediting period, averaging 32,806 t of CO2e annually. The emission reduction forecast has been
checked and it is deemed likely that the stated amount is achieved given the underlying assumptions
do not alter.
The validation protocol describes total of (17) findings which include:
Nine (9) Corrective Action Requests (CARs);
Eight (8) Clarification Requests (CLs);
No Forward Action Requests (FAR) was raised during this validation; and all findings have been closed
satisfactorily.
TRC concludes that the CDM Project Activity 7.5 MW Lubuk Gadang Small Hydropower Plant at West
Sumatera, Indonesia, as described in the PDD version 05 dated 27/12/2012 meets all the relevant
UNFCCC for CDM project activities including article 12 of the Kyoto Protocol, the modalities and
procedures for CDM (Marrakesh Accords) and the subsequent decisions by the COP/MOP and CDM
Executive Board.
The selected baseline and monitoring methodologies (AMS-I.D., Version 17) are applicable to the
project and correctly applied. The TRC therefore requests the registration of the project as a CDM
project activity with UNFCCC.
Mr. Raj Kumar Deka (Team Leader)

Mr. Praveen Nagaraje Urs (DOE Manager)

TV Rheinland (India) Pvt. Ltd.

Bangalore, 2012-12-27

TV Rheinland (China) Ltd.

Beijing, 2012-12-27

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Abbreviation:
BE

Baseline Emissions

BM

Build Margin

CA

Corrective Action / Clarification Action

CAR

Corrective Action Request

CDM

Clean Development Mechanism

CERs

Certified Emission Reductions

CL

Clarification Request

CM

Combined Margin

CO2

Carbon dioxide

CO2e

Carbon dioxide equivalent

DNA

Designated National Authority

DOE

Designated Operational Entity

EB

CDM Executive Board

EIA

Environmental Impact Assessment

ER

Emission Reductions

FAR

Forward Action Request

FSR

Feasibility Study Report

GHG

Greenhouse gas(es)

GSC

Global stakeholders comments

IDR

Indonesian Rupiah

IPCC

Intergovernmental Panel on Climate Change

kWh

Kilowatt hour

Leakage

LoA

Letter of Approval

MHPP

Mini hydro Power Plant

MoV

Means of Verification

MP

Monitoring Plan

MWe

Megawatt electrical

MWh

Megawatt hour

N/A

Not Applicable

O&M

Operation and Maintenance

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ODA

Official Development Assistance

OM

Operating Margin

PDD

Project Design Document

PLF

Plant load factor

PP

Project Participant

PPA

Power Purchase Agreement

QC/QA

Quality Control/Quality Assurance

SCAL

Swiss Carbon Assets Ltd.

SD

Sustainable Development

SSC PA

Small Scale Project Activity

UKL

Upaya Pengelolaan Lingkungan

UNEP

United Nations Environment Programme

UNFCCC

United Nations Framework Convention On Climate Change

UPL

Upaya Pemantauan Lingkungan

VVM

Validation and Verification Manual

WACC

Weighted Average Cost of Capital

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TABLE OF CONTENTS
1
1.1
1.2

INTRODUCTION .........................................................................................................................9
Objective
9
Scope
9

2
2.1
2.2
2.3
2.4
2.5

METHODOLOGY ..................................................................................................................... 10
Desk Review of the Project Design Documentation
10
Follow-up Interviews with Project Stakeholders
12
Resolution of Outstanding Issues
14
Internal Quality Control
16
Validation Team
16

3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10

VALIDATION FINDINGS........................................................................................................... 16
Approval and Participation
16
Project Design Document
18
Project Description
18
Baseline and Monitoring Methodology
20
Additionality
36
Monitoring
47
Sustainable Development
50
Environmental Impacts
50
Local Stakeholder Consultation
51
Comments by Parties, Stakeholders and NGOs
51

Appendix A: Validation Protocol

Appendix B: Certificates of Competence

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1 INTRODUCTION
The organization Swiss Carbon Assets Ltd has commissioned the DOE
TV Rheinland (China) Ltd. to perform a validation of the CDM Project Activity 7.5 MW Lubuk
Gadang Small Hydropower Plant at West Sumatera, Indonesia in Indonesia (hereafter called
the project). This report summarizes the findings of the validation of the project, performed
on the basis of UNFCCC criteria for the CDM, as well as criteria given to provide for consistent
project operations, monitoring and reporting. The term UNFCCC criteria refers to Article 12
of the Kyoto Protocol, the CDM modalities and procedures or the simplified modalities and
procedures for small-scale CDM project activities (as applicable) and the subsequent decisions
by the CDM Executive Board.

1.1 Objective
The purpose of a validation is to have an independent third party assess the project design. In
particular, the project's baseline, monitoring plan, and the projects compliance with relevant
UNFCCC and host Party criteria are validated in order to confirm that the project design, as
documented, is sound and reasonable and meets the identified criteria. Validation is a
requirement for all CDM projects and is seen as necessary to provide assurance to
stakeholders of the quality of the project and its intended generation of certified emission
reductions (CERs).

1.2 Scope
The validation scope is defined as an independent and objective review of the project design
document (PDD). The PDD is reviewed against the relevant criteria (see above) and decisions
by the CDM Executive Board, including the approved baseline and monitoring methodology.
The validation team has, based on the recommendations in the Validation and Verification
Manual employed a rule-based approach, focusing on the identification of significant risks for
project implementation and the generation of CERs.
The validation is not meant to provide any consulting towards the project participants.
However, stated requests for clarifications and/or corrective actions may have provided input
for improvement of the project design.

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2 METHODOLOGY
The validation consists of the following three phases:
I. A desk review of the project design documents
II.
On-site visit and follow-up interviews with project stakeholders
III.
The resolution of outstanding issues and the issuance of the final validation report and
opinion.
The following sections outline each step in more detail.

2.1 Desk Review of the Project Design Documentation

The following table outlines the documentation reviewed during the validation:

Reference

Reference Document

/P01/

PDD [for global stakeholder commenting] version 01 dated 05/07/2011.

/P02/

PDD [final version], version 05 dated 27/12/2012.

/P03/

1. Letter of Approval issued by DNA of Indonesia dated 19/12/2011.

2. Letter of Approval issued by DNA of Switzerland dated 24/10/2011.

/P04/

Modalities of Communication dated 12/09/2011.

/P05/

Validation contract in between TUV Rheinland (China) Ltd. and Swiss Carbon
Assets Ltd. dated 11/07/2011.

/P06/

Spread sheets for emission reduction calculations and Grid Emission Factor.

/P07/

Spread sheets for investment analysis including sensitivity analysis.

/P08/

Board resolution on serious consideration of CDM benefits dated 05/04/2011.

/P09/

Proof of prior consideration of CDM copies of notifications to DNA of

Indonesia and UNFCCC secretariat, in conformity to Annex 13 of EB 62 dated
06/01/2011.

/P10/

Self-declaration for non-diversion of ODA fund in the financing of the project

activity dated 29/07/2011.

/P11/

1. Copy of proof of start date of the project activity, 2011-12-01 (Project

starting date (civil work)
2. Implementation plan mentioning the commissioning date.

/P12/

Documents related to financial additionality:

1.

Version No.:01

Notes on Review of Hydrology (hereinafter refer as re-Feasibility Study

Report/re-FSR) , dated 01/03/2011

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2.

Loan application (dated 18/02/2011) and loan sanction letter (dated

20/04/2011)

3.

Operating life of the project in conformity with Annex 15, EB 50

4.

Plant Load Factor estimation in conformity with Annex 11, EB 48

5.

Computation supporting auxiliary consumption and losses

6.

Power Purchase Agreement in between PT. SKE (seller) and PT. PLN
(Persero) Wilayah Sumatera Utara.

7.

Indonesian Decree No 36 Year 2008 or the exact website address

8.

Offers received from machinery suppliers (Andritz and Brantas)

9.

Investment Project Budget Planning, dated 01/04/2011

10.

Architects estimation of civil works

11.

Civil contract signed

12.

Details of preliminary expenses

13.

Computation of interest during construction

14.

Government notification, on the O&M cost for hydropower projects

15.

Basis for overhaul charges

16.

Data which forms the basis for debt equity ratio for benchmark
calculation- Value taken from Feasibility Study

17.

The duration, return interval used and the period to which the beta given
in the worksheet 529-Raw data Bloomberg pertains to

18.

Annual Report of PT Selo Kencana Energi for the year 2010

/P13/

Relevant proofs of local stakeholder consultation process, in particular the

following:
a) Copies of invitation letters for local stake holder meeting.
b) Copy of Minutes of Meeting of the local stakeholders consultation
meeting dated 26/05/2011
c) Copy of Attendance sheet of the meeting of the local stakeholders
consultation
d) Photographs of the Local stakeholder consultation meeting.

/P14/

Operational and management structure for implementation, operation and

monitoring of project activity.

/P15/

Training Plan.

/P16/

Copy of certificate of incorporation of PT. Selo Kencana Energi as per Host

party laws dated 13/11/2008.

/P17/

Site lay out drawing provided by the project participant.

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/P18/

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Statutory clearances issued by Government of Indonesia:

1. Consent to establish dated 03/03/2010.
2. Environmental Clearance dated 30/12/2010.
3. Land clearance dated 10/05/2011.

/P19/

Footnote references as described in the PDD in soft copy.

/P20/

Single line diagram for electricity generation, auxiliary consumption and export
/import to/from the grid drawing

/P21/

Technical specifications of the turbine provided by the manufacturer as

contained in PDD.

/P22/

Photographs of the site showing the project implementation.

/P23/

Specifications of electricity meters

/P24/

UKL/UPL report and its approval letter dated August 2009

/P25/

Decree of the Minister of the Environment No. 17, in 02/10/2006 (MENLH

No.11/2006) and approval of EMMP by Head of District of Humbang
Hasundutan on August 2009.

/P26/

Letters from DNA of Indonesia regarding the published value of grid emission
factor:
1) B-277/Dep.III/LH/01/2009, dated 19/01/2009
2) 494/21/650.1/2009, dated 13/02/2009

Background investigation and other referred documents/websites:

Reference

Document

/B01/

CDM Validation and Verification Manual (Version 01.2)

Approved Baseline & Monitoring Methodology: AMS-I.D version 17 Grid
connected renewable electricity generation

/B02/

/B03/

Version No.:01

Determination of project emission: ACM 0002, Version 13 Consolidated

baseline methodology for grid-connected electricity generation from
renewable sources
Relevant CDM requirements (CDM M & P; Simplified CDM M&P and decisions
by the CMP and documents released by CDM EB) published on the UNFCCC
CDM website in particular the followings:
a) Guidelines for Completing the Project Design Document (CDM-SSC-PDD)
and the template for the CDM-SSC-PDD.
b) General guidelines for SSC-CDM methodologies, version 17.

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c) Glossary of CDM Terms, version 07

d) Guidelines on the demonstration of additionality of small-scale project
activities, Version 09.0
e) Non-binding best practice examples to demonstrate additionality for SSC
project activities - Annex 34 of EB 35
f) Guidelines on the Demonstration and Assessment of Prior consideration of
the CDM Annex 5 of EB 62
g) National and/or Sectoral policies and circumstances in baseline scenarios
(Annex 3 of EB 22)
h) Guidelines on assessment of Investment Analysis - Annex 13 of EB 62
i) Annex 11 of EB 48, PLF guidelines
j) Tool to calculate the emission factor for an electricity system Version
02.2.1
k) Tool to calculate the project or leakage CO2 emission from fossil fuel
combustion ver.02
Websites referred
http://cdm.unfccc.int/index.html
http://www.itouchmap.com/latlong.html
http://www.ipcc.ch/
http://pasarkarbon.dnpi.go.id/web/index.php/dnacdm/cat/6/otherinformation.html
http://pasarkarbon.dnpi.go.id/web/index.php/komnasmpb/cat/4/data
base/3/2.html
http://cdmpipeline.org
Ministry of Energy & Mineral resources Decree no.37, year 2008

/B04/

/B05/

2.2 Follow-up Interviews with Project Stakeholders

In order to reach a Validation Opinion an interview was planned for 16/08/2011. During the
visit number of identified stakeholders was interviewed. Prior to the interview salient points to
be discussed were planned. Date of interview, interviewee and points discussed are given in
the following table.
Sr.No

Date

Organization

Topic

Mr. Enda M.
Rangkuti

General
Manager, PT
Selo Kencana
Energi

Seriousness of CDM consideration,

Additionality,
Project
features,
statutory clearances, sustainability
criteria, Baseline determination, Local
stakeholders
meeting
process,
Implementation of project activity,
QA/QC management

Ms. Ikke Martha

Swiss Carbon

Implementation of monitoring plan,

16/08/2011

/I-01/

Name

/I-02/

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Ms. Ratna
Nawang Sari

01 997 9105065323

Assets Ltd.

data
archiving
and
reduction calculations

emission

Head of
Secretariat DNA,
Republic of
Indonesia

Emission factor calculation approach and

Letter of approval procedure

Mr. Arrie Tjahyo

Setiawan
/I-03/

19/08 Mr. Dicky Edwin

/2011 Hindarto

2.3 Resolution of Outstanding Issues

The objective of this phase of the validation is to resolve any outstanding issues which need be
clarified prior to TV Rheinlands positive conclusion on the project design. In order to ensure
transparency a validation protocol is customised for the project. The protocol shows in
transparent manner criteria (requirements), means of verification and the results from
validating the identified criteria. The validation protocol serves the following purposes:

It organises, details and clarifies the requirements a CDM project is expected to meet;

It ensures a transparent validation process where the validator will document how a
particular requirement has been validated and the result of the validation.

The validation protocol consists of three tables. The different columns in these tables are
described in the figure below. The completed validation protocol for this project is enclosed in
Appendix A to this report.
Findings established during the validation can either be seen as a non-fulfilment of CDM
criteria or where a risk to the fulfilment of project objectives is identified. Corrective action
requests (CAR) are issued, where:
i)

mistakes have been made with a direct influence on project results;

ii)

CDM and/or methodology specific requirements have not been met; or

iii)

there is a risk that the project would not be accepted as a CDM project or that emission
reductions will not be certified.

A request for clarification (CL) may be used where additional information is needed to fully
clarify an issue.
Validation Protocol Table 1: Validation requirements
Checklist Question

Version No.:01

Reference

Means of
verification (MoV)

Comment

Draft and/or Final

Conclusion

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The various UNFCCC

requirements
as
specified in the VVM are
linked
to
checklist
questions the project
should
meet.
The
checklist is organised in
different
sections,
following the logic of the
VVM.

01 997 9105065323

Gives
reference to
documents
where the
answer
to
the checklist
question or
item
is
found.

Explains
how
conformance with
the
checklist
question
is
investigated.
Examples of means
of verification are
document review
(DR) or interview
(I). N/A means not
applicable.

The section is
used to elaborate
and discuss the
checklist question
and/or
the
conformance to
the question. It is
further used to
explain
the
conclusions
reached.

This is either acceptable

based
on
evidence
provided (OK), or a
corrective action request
(CAR) due to noncompliance
with
the
checklist question (See
below). A request for
clarification (CL) is used
when the validation team
has identified a need for
further clarification.

Validation Protocol Table 2: List of Requests for Corrective Action (CAR) and Clarification (CL)
Draft report clarifications
and corrective action
requests

Ref. to checklist
question in table 2

Summary of project
owner response

Validation conclusion

If the conclusions from

the draft Validation are
either a CAR or a CL, these
should be listed in this
section.

Reference
to
the
checklist
question
number in Table 2
where the CAR or CL is
explained.

The responses given by

the project participants
during
the
communications
with
the validation team
should be summarised in
this section.

This
section
should
summarise the validation
teams responses and final
conclusions. The conclusions
should also be included in
Table
2,
under
Final
Conclusion.

Summary of project
owner response

Validation team conclusion

The responses given by

the project participants
during
the
communications
with
the validation team
should be summarised in
this section.

This
section
should
summarise the validation
teams responses and final
conclusions. The conclusions
should also be included in
Table
2,
under
Final
Conclusion.

Table 3: List of forward action requests (FARs)

FAR number

Reference

Forward action request

(FAR) to be raised during
validation to highlight
issues related
to project implementation
that require review during
the first verification of the
project activity. FARs
shall not relate to the
CDM requirements for
registration.

Reference
to
the
checklist
question
number in Table 2
where the CAR or CL is
explained.

Figure 1, Validation protocol tables

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2.4 Internal Quality Control

The final validation report underwent another technical review before requesting registration
of the project activity. The technical review was performed by a technical reviewer qualified in
accordance with TV Rheinlands qualification scheme for CDM validation and verification.

2.5 Validation Team

Validation Team

Type of Involvement

Mr. Raj Kumar Deka

(From 2012-10-24)
Mr. Chetan Swaroop
Sharma
(From
20120-10-24)
Mr. Shivraj Sharma
(Till 2012-10-23)
Mr. Sanjay Kumar
Agarwalla
(Till
12/07/2012)

India

1.2, 2.1, 2.2, 3.1

India

India

1.2, 3.1, 13.1

India

1.1, 3.1, 5.1, 11.1,

12.1

Mr. Ramaiyer
Ramachandran

Indonesia

----

Mr. Rahmawati
Noor

Indonesia

----

Mr. Kanal M. P.

India

1.2, 3.1, 6.1, 13.1,

13.2, 15.1

X
X

Technical
Reviewer

Reporting
Support

Technical
Expert Input

Report and
protocol
Writing

Site Visit +
Interview

TV
Rheinland

Appointed for
Sectoral Scopes

Desk review

Full Name

Supervising
the work

Affiliation

X
X

3 VALIDATION FINDINGS
The findings of the validation are stated in the following sections. The validation criteria
(requirements), the means of verification and the results from validating the identified criteria
are documented in more detail in the validation protocol in Appendix A.
The final validation findings relate to the project design as documented and described in the
revised and resubmitted project design documentation.

3.1 Approval and Participation

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The below table summarizes the project participants and parties involved. The letters of
approval /P03/ were found to be unconditional with respect to 45 (a) to (d) VVM, ver. 01.2
/B01/. The copy of the LoAs /P03/ were verified against the original LoA issued by the host
country DNA. The contents of the LoA and the signature of the authorized issuer were also
compared with those of other approval cases issued by the host country DNA. Also from the
interview with representative of DNA of Indonesia /I03/ confirm the authenticity of DNA
letter. Thus, validation team considers that the given one is authentic and thus confirms to the
requirement of 47 VVM, ver 01.2 /B01/. In line with the requirements of 49 and 50 of
VVM, ver 01.2 /B01/.
The below table summarizes the project participants and parties involved. The authenticity of
the letters of approval has been validated by TV Rheinland validation team. These LoA(s) are
therefore regarded as valid and meeting the requirements.

Project participants
Parties involved

1. PT. Selo Kencana

Energi

2. Swiss Carbon Assets

Ltd.

Indonesia (host)

Switzerland

LoA received

Yes

Yes

Date of LoA

19/12/2011

24/10/2011

B053/KNMPB/12/201
1

G514-3487

PP

PP

Validation
of
authenticity of the
LoA has been done
against the original
LoA issued by the host
country DNA /P03/.

Validation
of
authenticity of the LoA
has been done against
the original LoA issued
by the Annex-I country
DNA /P03/.

Valid

Valid

Party is party to Kyoto

Protocol

Yes

Yes

Voluntary participation

Yes

Yes

Diversion
of
official
development aid towards
host country

No

No

Project contribution to SD

Yes

Yes

APPROVAL

Reference to document
LoA received from
Validation of authenticity

Validity of LoA
PARTICIPATION

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Validation of ODA
The validation team did not reveal any evidence that this project activity can be seen as a
diversion of ODA. It is also confirmed by the interview with representative of PP during site
visit interview and declaration submitted by PP /P10/ dated 29/07/2011.
Confirmation of MoC
The Modalities of Communication (MoC) /P04/, signed on 12/09/2011, was received from the
PP. As required in Procedures for Modalities of Communication between Project Participants
and the Executive Board, the validation team has verified that the name of the authorized
signatories for future communication related to the corresponding scope of authority with
UNFCCC has been clearly mentioned in the MoC. The MoC has been checked as per the latest
MoC form as per VVM, version 01.2 and found correct. The validation team confirms that the
signatory and contact details on the MoC /P04/ are authorized and credible.

3.2 Project Design Document

The Project Design Document is based on the currently valid PDD template and is completed in
accordance with the applicable guidance document /B-03(a)/.

3.3 Project Description

The project activity is a Green field project in the Teluk Air Putih Sub-Village, East Lubuk
Gadang Village, Sangir Sub-District, South Solok District West Sumatera Province in Indonesia.
The project involves installation and operation of two numbers of horizontal Francis type
hydro turbine generators each of 3,750 kW (aggregating to 7.5 MW capacity) supplied by
Andritz Hydro /P12-08/, /P21/. The project is run-of-river type located on the Batang Sangir
river and the purpose of the project activity is to harness the renewable resources of hydro
power and thereby enable displacement of non-renewable natural resources. At the time of
site visit, the project was at the advanced stage of construction and turbo generators were
being installed. The commissioning date is not yet determined hence the technical features of
the project cannot be checked for consistency with the physical locations as mentioned in the
PDD /P01/.
The exact geographical locations of the project site as mentioned in the PDD was cross
checked on the itouchmap.com website /B04/ and found authentic.
The net annual exportable power generation by the project activity is estimated as 44,154
MWh per year. The generated electricity will be sold to Solok PLN grid (under PPA conditions
/P12-6/) which is interconnected to Sumatera grid of Indonesia. The project activity will thus
reduce Greenhouse gas (GHG) emissions associated with the Sumatera grid, which is
connected with predominantly fossil fuel based power plants. Plant load factor of 68.39 %

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/P12-4/ is considered for the estimation of gross generation by the project activity which is in
compliance with para 3(a) of EB 48, Annex 11. The total emission reductions due to the project
activity works out to be 32,806 tCO2e per year based on the net annual exportable power
generation. This net annual exportable power generation is ex-ante estimated by deducting
1.73% auxiliary consumption and transmission losses from the gross electricity generation
figures.
PT. Selo Kencana Energi and Swiss Carbon Assets Ltd. are the host and Annex 1 PPs
respectively for the given project activity and the same confirmed by letter of approvals /P03/
from DNAs of Indonesia and Switzerland respectively.
The technology used in the project is indigenously available in Indonesia and no transfer of
technology is envisaged. The technology applied is deemed current good practice and is not
expected to be replaced within the crediting period. The project activity contributes to the
sustainable development criteria of the host country in terms of social, economical,
technological and environmental benefits achieved due to the project activity.
The operational lifetime of the project has been determined as 20 years which is the
manufacturer specification /P12-3/. The operation and maintenance will be carried out by the
PP. The project participant has opted for a renewable crediting period of 21 years and the first
crediting period is for 7 years. The start date of the crediting period is mentioned as
01/01/2013 or the project registration date, whichever is later. The start date of operation
of the project activity is not yet fixed. This is a Greenfield project and also the energy
generating equipment is not being transferred from another activity, which is complying 50
of EB 44 along with the methodology compliance, hence no leakage have to be considered.
Based on the information furnished by the project participants, no diversion of ODA
contributes to the financing of the project /P10/. Geographical and temporal boundaries of the
project are clearly defined.
The starting date of project activity, project duration and crediting time are presented in the
table below.
Starting date of project

Expected project operational

lifetime

Crediting period

01/12/2011 (date of work

order released by PP for civil
work)

20 years 0 months /P12-3/

7 years (renewable)

Herewith, the Validation Team summarizes major changes between webhosted PDD and final
version of PDD for submission as follows:

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Topic

Webhosted PDD

Project title

7.5 MW Lubuk Gadang Small Hydropower

Plant at West Sumatera, Indonesia
1. Indonesia
2. Switzerland
1.PT. Selo Kencana Energi
2.Swiss Carbon Assets Ltd.
Type I: Renewable Energy Project
Category I.D: Grid connected renewable
electricity generation
AMS I.D, Version 17/ Small scale project
activity
31,180 tCO2e

Parties
Project
participants
Scope

Methodology and
activity scale
Amount of
emission
reductions (tCO2)
Additionality
Project starting
date

IRR
01/08/2011

Correction to webhosted PDD in

the final PDD submission for
registration with DOE
assessment and reason of
acceptance.
N/A
N/A
N/A
N/A

N/A
32,806 tCO2e

No change
The start date of the project
activity is 01/12/2011 /P11-1/

In summary, according to 64 of VVM /B01/, by means of document review and on-site

interviews with stakeholders, the validation team considers the project description in PDD,
version 04 accurate and complete.
TV Rheinland validation team considers the project description of the project contained in
the PDD to be complete and accurate. The PDD complies with the relevant methodology,
tools, forms and guidance at the time of PDD submission for registration.

3.4 Baseline and Monitoring Methodology

3.4.1 Applicability of the selected methodology to the project activity
The project applies the approved simplified baseline methodology for selected small-scale
CDM project activity categories, category I.D- Grid connected renewable electricity
generation (AMS-I.D.) version 17 /B02/, which also uses the Tool to calculate the emission
factor for electricity an electricity system version 02.2.1 /B03-j/.
The selected version of the methodology at the time of hosting of PDD /P01/ is AMS-I.D.,
version 17. The project activity is a renewable energy generation project and hence is a Type I
project. The installed capacity of the project activity is 7.5 MW which is within the limit of 15
MW, thus confirming to the requirement of 3 (iii) of General Guidelines to SSC CDM
methodologies, Version 17 /B03-b/.

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Applicability criteria for the baseline methodology /B02/ are assessed by the validation team
by means of document review and interview. It is agreed in the validation teams opinion that
the project activity fully met the criteria as described below:
Applicability
Criteria fulfilled
criteria as per
methodology
AMS-I.D. ver.17
/B02/

1
of
methodology.

2
of
methodology.

3
of
methodology.

4
of
methodology.

Version No.:01

Yes
No

Yes
No

Yes
No

Yes
No

Means of Validation

The project activity generates electricity from

hydropower source to supply the generated electricity
to regional grid, i.e. Sumatera grid and the same has
been checked from the document review mainly /P121/, /P12-6/. Therefore the project activity fulfills the
applicability of this paragraph of the methodology.
It has been noted by the validation team that since the
project activity does not displace electricity from an
electricity distribution system that is or would have
been supplied by at least one fossil fuel fired generating
unit. Similarly the generated electricity is not supplied
to household users located off grid areas. Hence
methodology AMS-I.A or AMS-I.F. are not applicable for
the present case.
Bullet no. (a) of the paragraph 3 of the applied
methodology is applicable for the present case as
project activity install a new power plant at a site
where there was no renewable energy power plant
operating prior to the implementation of the project
activity i.e. a Greenfield plant, the same has been
checked from the document review /P02/ /P12/ /P13/
/P18/ /P21/ /P24/ and from the onsite visit /I-01/ /I02/.
The proposed project activity is run-of-river type hydro
power plant, which does not result construction of
reservoirs or dam; Therefore the project activity fulfills
the applicability of this paragraph of the methodology.

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5
of
methodology.

6
of
methodology.

7
of
methodology.

01 997 9105065323

Yes
No

Yes
No

Yes
No

Installed capacity of the project activity is 7.5 MW,

which less than 15 MW. The same was checked from
the document review /P02/ /P12/ /P13/ /P18/ /P21/
/P24/ and from the onsite visit /I-01/.
The project activity is not a combined heat and power
(co-generation) project but run-of-river type hydro
power plant; hence paragraph is not applicable for the
project.
The project activity is a Greenfield project being
implemented at a site where no hydro power plant
exists and this is not a capacity addition project and
verified from documents /P02/ /P12/ /P13/ /P18/ /P21/
/P24/ and from the onsite visit /I-01/. Hence this
paragraph is not applicable to the project.
Furthermore, the capacity of the Greenfield project is
below 15 MW and falls under small scale project
activity.

8
of
methodology.

Yes
No

As stated above the project is a green field project and

hence this paragraph is not applicable. The capacity of
the Greenfield project is below 15 MW and falls under
small scale project activity.

The assessment of the projects compliance with the applicability criteria of the methodology
AMS-I.D. (version 17) as documented in the PDD part B and annex 3, which are evaluated in
detail under the validation protocol in Appendix A to this report based from the webhosted
PDD.
There is no registered small-scale project activity under the CDM or an application to register
another small-scale CDM project activity by the project participant within the previous two
years with the same project category and technology within 1 km of the project boundary of
the proposed project. This is confirmed by the validation team during the on-site interview
with the representative of PP /I-01/. In addition, the validation team has checked up with the
UNFCCC website/CDM Pipeline published by UNEP RISO Centre1 /B04/ and not identified other
small-scale project being developed by the project participant. Therefore, the proposed
project is not deemed to be a de-bundled component of a large project activity. In accordance

http://cdmpipeline.org/

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with Annex 13 of EB 54 the assessment of the de-bundling is presented in the adopted

flowchart as below:

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Not Applicable (NA)

Are the registered SSC PA and

proposed SSC PA, type I
activities providing energy to the
same user? (as per EB30,
paragraph 37)

NA

Is there a registered SSC PA with PT.

Selo Kencana Energi with as the
proposed SSC PA?

Is there a registered SSC PA in the

same
project
category
and
technology/ measure as the proposed
SSC PA?

No

NA

NA
NA
Are the registered SSC PA and
the proposed SSC PA in
transport
sector
involving
boundaries /sources that are
mobile? (as per EB 35,
paragraph 58 & 59 )

NA

Is the boundary of the registered SSC

PA within 1 km of the boundary of the
proposed SSC PA at the closest
point?

NA

NA

NA

Is the registered SSC PA registered

within the previous 2 years?

NA

NA
Do SSC PAs comprise of independent
subsystems / measures =<1% of
applicable SSC threshold implemented in
multiple locations (see para 7)?

NA

NA
NA

Does the total size of the proposed

SSC PA combined with the registered
SSC PA exceed the limits for SSC
PAs?
NA

The proposed SSC PA is

deemed to be a debundled
component of a large project
activity and is not eligible to use
the simplified modalities and
procedures for SSC PAs.

Version No.:01

The proposed SSC PA is

deemed to be a debundled
component of a large project
activity but can qualify to use
simplified
modalities and
procedures for SSC PAs.

The proposed SSC PA is

not deemed to be a
debundled component
of a large project
activity, therefore is
eligible to use the
simplified
modalities
and procedures for
SSC PAs.

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Thus the validation team considers that the project participant has correctly applied the
approved methodology for the project activity.

3.4.2 Project Boundary

The proposed project activity is a construction and operation of Greenfield project activity,
run-of-river hydropower plant on the Batang Sangir River in East Lubuk Gadang Village, Sangir
Sub-district, South Solok District, West Sumatera, Indonesia with the total installed capacity
7.5 MW. The project will only generate electricity by utilizing hydro resources and will supply
to the grid, i.e. Sumatera.
Project activity boundary is delineated as physical and geographical boundary of the hydro
power plants and is adequately described in the PDD /P02/ in Section B.3. The projects system
boundary includes diversion weirs, river diversion tunnels, power station, metering points etc
/P17/ /P20/.
The validation team was able to confirm that all the identified emission sources which are
impacted by the project activity are addressed by the approved methodology /B02/ and can
be seen in the Table below. Hence a clarification of revision to or deviation from the approved
methodology /B02/ is not requested.
The geographical and physical project boundary of the project activity was determined by the
validation team during the on-site assessment /P22/. The coordinates were correctly
documented in the PDD. The sources and sinks of greenhouse gas identified in the PDD are
deemed to be appropriate. The coordinates were confirmed by the validation team through
/B04/.

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Emission

GHGs
involved

Baseline emissions

CO2

Project emissions

Leakage

CO2

Description
Major emission source, which is emitted from the
electricity generation by fossil fuel-fired power
plants connected to the Sumatera grid.
Only during the emergencies and for start-ups
fossil fuel may be consumed which will be
accounted as project emissions.

N/A

As per the applied methodology /B02/, leakage is

to be considered in case of transfer of energy
generating equipment from another activity. As
this project activity is a green field project (as
described in section 3.4.1 above) and there is no
transfer of equipment from another activity (as the
equipments used in the project activity is newly
purchased /P12-3/ /P12-10/), leakage is not
considered for this project activity as per the
methodology.

In summary, the project boundary was correctly identified in accordance with the
methodology AMS-I.D. (version 17). All greenhouse gas emissions occurring within the
proposed project activity boundary as a result of the implementation of the proposed CDM
project activity have been appropriately addressed in the PDD.
The identified project boundary and selected sources of emissions are justified for the project
activity. The validation of the project activity did not reveal other greenhouse gas emissions
occurring within the proposed CDM project activity boundary as a result of the
implementation of the proposed project activity which are expected to contribute more than
1% of the overall expected average annual emission reduction, with respect to the
methodology applied.

3.4.3 Baseline Identification

The project activity is the installation of a new grid-connected hydropower plant, which
delivers generated electricity to the connected grid (Sumatera) as verified form the PPA /P126/. The continuation of the current situation, with the electricity generated by the operation of
grid connected power plants and by the addition of new generation sources in the regional
grid (SUMATERA) is considered as a realistic baseline scenario for the project activity.

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The identified baseline scenario is in line with the methodology AMS-I.D version 17 /B02/, is
the equivalent electricity that would in absence of the project activity, have been generated by
the operation of the grid-connected power plants connected to the Sumatera.
As per the applied methodology AMS-I.D. (version 17), The baseline scenario is that the
electricity delivered to the grid by the project activity would have otherwise been generated
by the operation of grid connected power plants and by the addition of new generation
sources into the grid.
The validation team confirms that the proposed project activity meets the above requirement.
Therefore, the baseline scenario as prescribed in the AMS-I.D. (version 17) is applicable to the
proposed project activity. The validation took cognizance of 105 of VVM (version 01.2).
The approved baseline
applicable to the project

methodology

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.
Please refer Section 3.4.1 for details.

PDD includes all assumptions and data

used by project participants

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.
Please refer Section 3.4.1 for details.

All the references and documents used are

relevant for establishing the baseline
scenario

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.
Please refer Section 3.4.1 for details.

All the references and documents used are

correctly quoted and conservatively
interpreted in the PDD

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.
Please refer Section 3.4.1 for details.

All relevant policies / regulations

considered are listed in the PDD

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.
Please refer Section 3.4.1 for details.

Identified potential baseline scenarios

reasonably represent what would/could
occur in the absence of the proposed

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.

explicit criteria

implicit
criteria
(e.g.
available
scenarios, applicability of formulas for
BE/PE/LE calculations)

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project activity

Please refer Section 3.4.1 for details.

The baseline scenario selection is

appropriate and determined according to
the methodology

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.
Please refer Section 3.4.1 for details.

The approved methodology used is

applicable to the identified baseline
scenario

Yes
No

As per clause 10, 11 and 12 of the

AMS-I.D. Version 17 /B02/, the
simplified baseline is prescribed.
Please refer Section 3.4.1 for details.

The approved baseline methodology has been correctly applied to identify realistic and
credible baseline scenarios, and the identified baseline scenario most reasonably represents
what would occur in the absence of the proposed CDM project activity.
All the assumption and data used by the project participants are listed in the PDD and
supporting documents. All documentation relevant for establishing the baseline scenario are
correctly quoted and interpreted in the PDD. Assumptions and data used in the identification
of the baseline scenario are justified appropriately, supported by evidence and can be deemed
reasonable. Relevant national and/or Sectoral policies and circumstances are considered and
listed in the PDD.

3.4.4 GHG Emission Reductions

The GHG emissions reduction calculations are transparently documented and appropriate
assumptions regarding the expected amount of electricity generated have been used to
forecast emission reductions.
According to the applied formulae in the PDD, the emission reductions (ER y) by the project
activity during the crediting period is the difference between the baseline emissions (BE y),
project emissions (PEy) and emissions arising from leakage (Ly), which is expressed as follows:
ERy = BEy PEy Ly
While the project emissions and leakage are zero (refer previous sections of this report), the
baseline emissions are equal to the emission reductions due to the project activity. According
to the applied meth, the baseline emissions are demonstrated in Section B.6.1 of PDD and are
calculated as follows:
BEy = EGBL, y * EFCO2, grid, y
Where:
BEy

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= Baseline emissions in year y (tCO2/yr);

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EGBL, y

01 997 9105065323

= Quantity of net electricity output fed into the grid as a result of

the implementation of the CDM project activity in year y (MWh);

EFCO2, grid, y

= CO2 emissions factor for grid connected power generation in year y.

EGBL, y is estimated as 44,154 MWh.

The project is located in South Solok District, South Sumatera Province, Indonesia. The location
is covered in Sumatera Grid, according to the PT PLN (Persero). Thus, the relevant electric
power system is Sumatera Power Grid. The grid emissions factors (EFgrid,OM,y and EFgrid,BM,y) for
the calculating EFgrid,CM,y of Sumatera grid are fixed ex-ante for the first crediting period.
According to AMS-I.D., Ver.17 and the linked tool, Tool to calculate the emission factor for an
electricity system version 02.2.1, the default weights are 50% for OM and 50% for BM for the
first crediting period. The detailed validation for the calculation of EFgrid,CM,y as per Tool to
calculate the emission factor for an electricity system is provided as below:
The stepwise (step 1 to step 6) approach for calculating the simple OM and BM in line with
Tool to calculate the emission factor for an electricity system Version 02.2.1 are detailed in
the section B.6.1 and Annex-3 of the PDD with supporting spread sheets /P06/. The input data
(latest at the time of publishing the PDD /P01/ for GSC) for OM and BM calculations are
sourced
from
DNA
Republic
of
Indonesia
published
(in
web:
http://pasarkarbon.dnpi.go.id/web/index.php/dnacdm/cat/6/other-information.html /B04/)
on their website dated 19/01/2009 /P26-2/. The same was confirmed by the DNA of Indonesia
during the site visit /I-03/.
The data vintage used for simple OM is 2005, 2006, 2007 and for BM is 2007. The credibility
and authenticity of the data source and supporting reports referred in the PDD were checked
from
DNA
Republic
of
Indonesia
published
in
web:
(http://pasarkarbon.dnpi.go.id/web/index.php/komnasmpb/read/14/faktor-emisi-jaringanlistrik-sumatera-dan-jamali-2008.html)
The compliance of page 17 of Tool to calculate the emission factor for an electricity system
Ver. 02.2.1 is demonstrated as follows:
For each grid connected power plant/unit the following information:
Information to clearly identify
the plant ;

Version No.:01

It is derived from data provided and approved

Yes
by the Directorate General of Electricity and
No
Energy Utilization (DJLPE)

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The date of commissioning;

Yes
Same as above
No

The capacity (MW);

Yes
Same as above
No

The fuel type(s) used;

Yes
Same as above
No

The quantity of net electricity

generation in the relevant
year(s);

Yes Same as above

No

If
applicable:
the
fuel
consumption of each fuel type
in the relevant year(s);

Yes Same as above

No

In case where simple OM or

the simple adjusted operating
margin is used: information
whether the plant / unit is a
low-cost / must-run / unit;

Yes Simple OM has sbeen considered for this

No
project activity. The value is derived from
data provided and approved by the
Directorate General of Electricity and Energy
Utilization (DJLPE)

Net calorific values used

Yes IPCC default values at the lower limit of the

No
uncertainty at a 95% confidence interval as
provided in IPCC 2006, volume 2 chapter 1,
table 1.2 is used.

CO2 emission factor used

Yes 2006
IPCC Guidelines
No
Greenhouse Gas Inventories

Plant efficiencies used

Yes Not Applicable.

No

Identification of the plants

included in the build margin
and the operating margin
during the relevant time
year(s)

Yes It is derived from data provided by the Badan

No
Pengkajian dan Penerapan Teknologi (BPPT),
which was approved by the Directorate
General of Electricity and Energy Utilization
(DJLPE)

In case the simple adjusted

operating margin used: load
data (typically in MW) for each
hour of the year y

Yes Not Applicable.

No

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for

National

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Any off-grid power plants

included

Yes
Not Applicable.
No

In case the dispatch data

operating margin used:

Yes
Not Applicable.
No

The project/grid electricity system is rightly considered as Sumatera grid (Cp Step 1 of the
tool).
Step 2 of the tool provides an option to include off-grid power plants in the project electricity
system. Only grid connected power plants for the EF calculation as per the option I under the
step 2.
For the calculation of OM emissions factor, the simple OM emission factor calculation method
is rightly chosen because the low cost must run power plants (only hydroelectric power plants)
constitute less than 50% of the total grid generation during 2005 -2007. As power plants
registered as CDM project activities in Indonesia are only hydro power projects (which are
LCMR power plants), these are excluded in calculating simple OM.
Simple OM is rightly calculated by preferred option B {=equation (6) of tool} as plant specific
fuel consumption data; plant specific net electricity delivered to grid, NCV of the fossil fuel
types, fossil fuel emission factors are made available through data provided and approved by
the Directorate General of Electricity and Energy Utilization (DJLPE). Furthermore generation
weighted average for three years (2005, 2006, 2007) has been considered and stated in the
Annex3 of the PDD /P02/ for the computation of Simple OM, which is reproduced as below:
EFgridOM= (10,640,244+10,580,383+11,536,438)/ (11,514,809+11,751,548+12,911,406) = 0.906
tCO2/MWh
Where,
Simple OM EF of Sumatera Grid for year 2005 = 10,640,244 tCO2
Simple OM EF of Sumatera Grid for year 2006 = 10,580,383 tCO2
Simple OM EF of Sumatera Grid for year 2007 = 11,536,438 tCO2
Net Electricity Generated for year 2005 = 11,514,899 MWh
Net Electricity Generated for year 2006 = 11,751,548 MWh
Net Electricity Generated for year 2007 = 12,911,406 MWh
The identification of BM plants follows option (b) of Step 5 of the tool. BM is rightly computed
using equation number (12) and adopted equation number (2) of the tool. Power plant
registered as project activities are excluded in the sample group that is used to calculate the
BM. The data source and process of calculation OM and BM are based on the data that is
available at the time of submission of the CDM-PDD to the DOE for validation.

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The simple OM emissions factor was calculated as 0.906 tCO2e/MWh and the BM emissions
factor as 0.581 tCO2e/MWh.
EFgrid,OM,y and EFgrid,BM,y are calculated as 0.906tCO2e/MWh and 0.581tCO2e/MWh
respectively. In accordance with ACM0002 that weight factors of wOM = wBM = 0.5 have been
used to calculate the combined grid emission factor as follows (Equation 13 of the tool):
EFgrid,CM,y = ( EFgrid,OM,y x wOM ) + ( EFgrid,BM, y x wBM )
= (0.906 X 0.5) + (0.581 X 0.5)
EFgrid,CM,y = 0.743 tCO2e/MWh
As it can be verified, the emission factor (EFgrid,CM,y) is calculated by using the latest version of
the "Tool to calculate the emission factor for an electricity system". It is determined ex-ante
and consists of the weighted average factors of operating margin (EFgrid,OM,y ) and build margin
(EFgrid,BM,y).
The grid emission factor calculation used in the PDD is the calculation issued by DJLPE, the unit
within the Ministry of Energy and Mineral Resources /P26-1/ which is responsible in electricity
and energy utilization policies, regulations and programs. The net calorific value (NCV),
electricity generation (EG) and fuel consumption (FC) information are all based on the data
provided by IPCC 2006 Guidelines for GHG Inventories /B04/ which are representable and
appropriate to use.
The data sources were considered official and validation team confirmed that those data were
appropriately applied to the calculation. The final value of CM been cross checked with
published value on IGES web site (http://www.iges.or.jp/en/cdm/report_grid.html).
The GHG emissions reduction calculations are transparently documented and appropriate
assumptions regarding the expected amount of electricity generated have been used to
forecast emission reductions. All the assumptions made for the estimation of annual emission
reduction are verified by the validation team from the approved FSR /P12-1/, operating life of
the project activity /P12-3/, plant load factor estimation as per the re-feasibility study report
/P12-1/.
According to the applied formulae in the PDD /P02/, the emission reductions (ERy) by the
project activity during the crediting period is the difference between the baseline emissions
(BEy) and sum of emissions arising from leakage (LEy) and project (PE y), which is expressed as
follows:
ERy = BEy - PEy - LEy
The leakage (refer section 3.4.2 of this report) and ex-ante calculation of project emission are
zero. Leakage is not applicable as the transfer of equipment does not apply to this green-field

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project activity utilizing new purchased equipment (Cp 22 of AMS I.D, version 17/B02/ and
50 of EB 44).
According to the applied methodology the baseline emissions are demonstrated in section
B.6.3 of PDD and are calculated as follows:
BEy = EGBL,y * EFCO2,grid,y
Where:
BEy

Baseline Emissions in year y; tCO2

EGBL,y

Quantity of net electricity supplied to the grid as a result of the

implementation of the CDM project activity in year y (MWh)

EFCO2,grid,y

CO2 Emission Factor in year y; tCO2/ MWh

EGBL,y = EGexport,y EGimport,y

= [((Installed Capacity x CF x Operating hour) x (1 transformer losses)) 02]
= ((7.5 MW x 68.39% x 8760 hr/year) x (1 1.732%))
= 44,154 MWh/y
EF CO2,grid,y in this case is taken as Combined margin CO2 emissions factor for grid connected
power generation as calculated above.
Calculation of the project emission will be done as per the equation mentioned below:
PEy = PEFC,y + PEGP,y + PEHP,y ............................ .(2)
Where:
PEy

= Project emissions in year y (tCO2e/yr)

PEFC,y

= Project emissions from fossil fuel consumption in year y (tCO2/yr)

PEGP,y = Project emissions from the operation of geothermal power plants

due to the release of non-condensable gases in year y (tCO2e/yr)
PEHP,y = Project emissions from water reservoirs of hydro power plants in year y
(tCO2e/yr)

For the calculation purpose in the validation the import of electricity has been considered zero.

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The Project activity is run-off river therefore, the project emissions from reservoir and project
emissions from operation of geothermal power plants are zero.
PEGP,y = PEHP,y = 0 tCO2e
Hence , PEy = PEFC,y
The project emission from fossil fuel combustion will be determined as per Tool to calculate
the project or leakage CO2 emission from fossil fuel combustion version 02:

Where:
PEFC,j,y

the CO2 emission from fossil fuel combustion in process j during the year y
(tCO2e/yr)

FCi,j,y

the quantity of fuel type i combusted in process j during the year y (mass or
volume unit/yr)

COEFi,y

i,y is the CO2 emission coefficient of fuel type i in year y (tCO2/mass or

volume unit).

is the fuel types combusted in process j during the year y.

COEFi,y

the CO2 emission coefficient of fuel type i in year y (tCO2/mass or volume

unit)

NCVi,y

the weighted average net calorific value of the fuel type i in year y (GJ/mass
or volume unit)

EFCO2,i,y

the weighted average CO2 emission factor of fuel type i in year y (tCO2/GJ)

the fuel types combusted in process j during the year y

Where:

The emissions reductions due to the project activity were estimated ex-ante to be 32,806
tCO2e per year in the PDD /P02/ /P06/ and calculated as follows:
ERy

= BEy PEy LEy

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= 32,806 tCO2/yr. - 0 tCO2/yr. - 0 tCO2/yr.

= 32, 806 tCO2/yr.
In summary, the calculation of emission reductions was correctly demonstrated by the PP
according to the methodology AMS-I.D. (version 17) and its tool Tool to calculate the
emission factor for an electricity system version 02.2.1. The table below summaries validation
teams determination of emission reduction:
All assumptions made for estimating
GHG are listed in the PDD
All data used by project participants
are listed in the PDD
Their references and sources are also
listed in the PDD
Formulas, parameters, values are
complete, accurate, transparent and
conservative

Yes
No
Yes
No
Yes
No
Yes
No

All the references and documents

used are correctly quoted and
conservatively interpreted in the PDD
Methodology has been applied
correctly
to
calculate
project
emissions, baseline emissions, leakage
emissions and emission reductions

Yes
No

All the emissions of baseline

emissions can be replicated using
information provided in the PDD

Yes
No

Yes
No

As per PDD /P02/ Section B.6

As per PDD /P02/
Annex 3 Baseline
Information & Section B.6
As per PDD /P02/
Annex 3 Baseline
Information & Section B.6
As per AMS I.D, Version 17 /B02/ and
methodological tool, Tool to calculate the
emission factor for an electricity
system/Version 02.2.1 /B03-j/ , PDD /P02/
Annex 3 Baseline Information & Section B.6
As per PDD /P02/
Annex 3 Baseline
Information & Section B.6
As per AMS I.D, Version 17 /B02/, ACM0002,
version 12.1.0 /B02/ and methodological
tool, Tool to calculate the emission factor
for
an
electricity
system/Version
02.2.1/B03-j/.
As per AMS I.D, Version 17 /B02/ and
methodological tool, Tool to calculate the
emission factor for an electricity
system/Version 02.2.1/B03-j/.

Based on the calculations and results presented in the sections above the implementation of
the project activity will result in an average ex-ante estimation of emission reduction
conservatively calculated to be 32,806 tCO2e per year for the selected crediting period.
All assumptions and data used by the project participants are listed in the PDD and/or
supporting documents, including their references and sources. All documentation used by the
project participants as the basis for assumptions and source of data is correctly quoted and
interpreted in the PDD. All values used in the PDD are considered reasonable and conservative
in the context of the proposed CDM project activity. The baseline methodology has been
applied correctly to calculate project emissions, baseline emissions, leakage and emission
reductions. All estimates of the baseline, project and leakage emissions can be replicated using
the data and parameter values provided in the PDD.

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3.5 Additionality
The project is a small scale project activity. Therefore, in accordance with 28 of the simplified
modalities and procedures for small-scale CDM project activities, Project Participant (PP) has
demonstrated the additionality of the project activity using Guidelines on the demonstration
of additionality of small-scale project activities (Version 09.0) and Guidance given vide Annex
5 of EB 62. The project developer has chosen investment analysis (Benchmark analysis) to
demonstrate the additionality of the project using post tax project IRR as financial indicator
and weighted average costs of capital (WACC) as benchmark. All the input parameters
supporting financial indicator have been sourced from the re-Feasibility Study Report (FSR),
which has been prepared by the project participant which was submitted to the bank. The
benchmark selected is in conformity with guidance 12 of Annex 5, EB 62 read with 112 of
VVM (ver.1.2); input parameters used are appropriate, based on credible sources and
conservative; the assumptions used are in conformity with various guidance issued by EB; the
input parameters have been cross checked for their correctness and appropriateness by the
validation team based on its sectoral and local expertise and information; and in the above
background, validation team concludes that the project is additional.

3.5.1 CDM consideration

Project developer has submitted a copy of Contract agreement between PT. Selo Kencana
Energi and PT. Amarta Karya (Persero) on 01/12/2011 for civil work as evidence /P12-11/. The
project developer has not undertaken any construction or any real action on the
implementation of the project activity prior to this date and a declaration has been given by
the project developer to this effect /P11-2/.
Since the start date of the project activity is after 02/08/2008, the project activity falls under
the category of new project activity as per 100 of VVM (ver.1.2).
The PDD was web-hosted for public comments on 13/07/2011, i.e., before the start date of
the project activity. Since the start date of the project activity was after 02/08/2008, according
to the requirement of para 2 of annex 13 of EB 62, the project participant is required to inform
the Host Party DNA and UNFCCC within 180 days from the start date. However as the project
activity PDD was hosted for global public consultation before the start date of project activity,
such notification is not required. Furthermore the project developer had informed UNFCCC
and DNA on 06/01/2011 about their intention to seek CDM status /P09/. Copies of
correspondence with UNFCCC and DNA have been submitted to validation team. Besides,
validation team also checked the UNFCCC website to verify the claim of the PP for such
notification and found correct.
The validation team checked the board resolution dated 05/04/2011 /P08/ and observed that
the PP had decided hydropower project as project activity and the resolution reveals that the
CDM benefits were seriously considered in the decision to implement the hydropower
projects.

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In the above background, the project fulfills the condition stipulated vide paragraphs (2) of
Annex 13 of EB 62 read with 100 and 101 of VVM (01.2). Therefore, Validation Team
concludes that there was a prior consideration of CDM and CDM was seriously considered in
the decision to implement the project activity.

3.5.2 Alternatives
This is a hydro power project and is based on the Methodology AMS-I.D., Ver. 17. The
methodology states, If the project activity is the installation of a new grid-connected
renewable power plant/unit, the baseline scenario is the electricity delivered to the grid by the
project activity that otherwise would have been generated by the operation of grid-connected
power plants and by the addition of new generation sources.
Paragraph 105 of VVM, (ver. 01.2) states that PDD is required to identify credible alternatives
to the project activity in order to determine the most realistic baseline scenario, unless the
approved methodology that is selected by the proposed CDM project activity prescribes the
baseline scenario and no further analysis is required. Since the approved methodology AMSI.D., (ver. 17) on which the project activity is based on, prescribes the baseline scenario, no
further analysis of alternatives is required for the project activity.
Validation Team, therefore, concludes that the PDD and the validation report conforms to the
guidance given by EB vide paragraph 105 of VVM (Ver.01.2).

3.5.3 Investment analysis

PDD demonstrates that the project would not be economically or financially feasible, without
the revenue from the sale of certified emission reductions (CERs). The claim of the project
developer, that the project scenario is not economically feasible without benefits from CER
sales, has been assessed by the validation team through the following steps:
Appropriateness of the financial indicator and investment analysis:
Project developer had demonstrated that the financial returns of the proposed CDM project
activity would be insufficient to justify the required investment (conformity to 109 (b) of
VVM 01.2). For demonstrating the financial unattractiveness of the project activity, project
developer had chosen investment barrier and to demonstrate the investment barrier had
selected benchmark analysis Since in this instant case, as subsequent section would reveal,
baseline is outside the direct control of the project developer (grid connected power) and
hence, the choice of the project developer is restricted to invest or not to invest, the
benchmark approach is most suited as per the latest version of Guidance 19 of Annex 05 of EB
62.

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In the above background, as subsequent paragraphs would reveal, Validation Team concludes
that the additionality justification given by the project developer is in accordance with the
requirements derived from the approved CDM methodology and the methodological tools
referred therein as well as the guidance given by EB vide paragraphs 108-110 of VVM (01.2).
The project developer has chosen post tax project IRR as financial indicator. Having regard to
the fact that the project is funded by debt and equity and that it is in private sector, post tax
project IRR is considered as an appropriate financial indicator to demonstrate the additionality
as it takes into account the return on both debt and equity. Additionality Tool and Guidance
on Investment Analysis permit the use of project IRR as one of the financial indicators for
additionality demonstration. Moreover, project IRR is invariably used by the banks and
investors alike to gauge the investment-worthiness of the project. The financial indicator
chosen is, therefore, appropriate for the project type and decision making context (conformity
to paragraph 3 of Step 2 (b) of Additionality Tool).
Therefore, the validation team concludes that the investment analysis and the financial
indicator selected are appropriate for the project activity. Since the financial indicator of
project activity breaches the benchmark only with CDM benefits, it is reasonable to assume
that the investment would not have taken place without CDM benefits (conformity to
paragraph 112 (c) of VVM - 01.2) and therefore, Validation Team concludes that CDM benefits
were decisive factor in the investment decision.
Appropriateness of benchmark:
The project developer has chosen project IRR to demonstrate the additionality of the project.
Guidance on the Assessment of Investment Analysis (Ver. 05) states, Local commercial
lending rates or weighted average costs of capital (WACC) are appropriate benchmarks for a
project IRR3.
The WACC has been chosen as benchmark for the project activity by the PP. It is based on
average debt and equity from project planned financial structure at 80% of capital cost by loan
and 20% of equity. The applied beta for this project is adjusted based on the unlevered total
beta values for power industry, published data. The Indonesian long-term government bond
rate is considered as risk free rate. Thus, the applicable benchmark conforms to guidance 12
and 13 of Annex 5, EB 62. The PP has assumed WACC rate at 16.01% which is calculated using
the commercial lending rate published by Bank Indonesia for investment purpose by private
national banks in Republic of Indonesia (http://www.bi.go.id/NR/rdonlyres/365FA82B-A53E40C6-A609-436E8D5BB2AF/22921/Appendices1.zip) and the beta calculation.
WACC and Beta calculation for the benchmark: The equation by which the WACC calculation is
done is mentioned below:
3

Annex 05of EB 62, Guidelines on the Assessment of Investment analysis, , item 12

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WACC = E/V * Re + D/V * Rd * (1- Tc)

And for the Re,

Re = Rf + a * Rm Where,
WACC

: Weighted Average of Capital Cost (%)

E/V

: Percentage of financing that is equity (%)

D/V

: Percentage of financing that is debt (%)

Re

: Cost of equity (%)

Rd

: Cost of debt (%)

Tc

: Corporate tax rate (%)

Rf

: Risk free rate (%)

: Beta of industry

Rm

: Market risk premium (%)

Rate
D
Rb

Value
80%
12.18%

Tc
E
Rf

25%
20%
9.50%

Rm

5.00%

1.70%

WACC

16.01%

Source /P12/
Debt proportion based on re-FSR financial modeling
http://www.bi.go.id/web/en/Statistik/Statistik+Ekonomi+dan+Keuang
an+Indonesia/Versi+HTML/Sektor+Moneter/#
Government regulation No.36 year 2008
Equity proportion based on re-FSR financial modeling
Based on Indonesian government bonds rate. Bond rate is taken from
the Central bank of Indonesia previous to investment decision and for
a duration equal to the technical lifetime of the project activity
Market risk premium4 from Damodaran.
http://www.stern.nyu.edu/~adamodar/pc/archives/ctryprem10.xls
Total beta (unlevered) from Damodaran.
http://www.stern.nyu.edu/~adamodar/pc/archives/totalbeta10.xls
Calculation

In the webhosted PDD, project developer had considered 20.27 % as the benchmark based on
weighted average costs of capital (WACC). However, during the discussions, validation team
pointed out that the interest rate prevailing at the time of decision making as evidenced by an
international publication are all lower. Project developer therefore, selected the lowest of the
interest rates 16.01% - as the benchmark. Please refer Table 2 of validation protocol for
closure of all CAR/CL. Since it is conservative and conforms to guidance 12 and 13 of Annex 05,
EB 62, Validation team accepted the benchmark.
The validation therefore concludes that the benchmark applied is suitable for the financial
indicator selected and it is reasonable to assume that the investment would not have taken
place at a return lower than the benchmark (in as much as the financial indicator breaches the
4

The Market Risk Premium equals Total Risk Premium subtracted by Country Risk Premium

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benchmark only with CDM benefits). Thus, the selected benchmark conforms to guidance 12
and 13 of Annex 58, EB 51 as well as Annex 5, EB 62 and paragraph 112 of VVM (01.25). In the
above background, validation team concludes that the selected benchmark is appropriate,
conservative and conforms to various EB guidelines.
Parameters and assumptions used:
The project involves installation of 7.5 (=2 X 3.75) MW turbines at Lubuk Gadang generating
44,150 MWh of power and selling to PT. PLN (Persero) (state utility body) at an estimated tariff
of IDR 787.00/kWh for (y1-y20). The three important parameters, which determine the project
IRR of the project, are project cost, financing pattern and profitability estimates.
The project cost includes civil cost, equipment cost, electro mechanical work cost, engineering
cost and contingencies. All these costs are based on Notes on Review of Hydrology (re-FSR)
/P12-1/, which is the basis for investment analysis.
The project is envisaged to be financed 80% through debt and 20% by equity. The debt equity
ratio is essentially dependent on the banks assessment of risk profile of the project and is
generally a negotiating factor. Therefore, the leverage adopted is in conformity with the
normal financing structure of infrastructure projects in Indonesia.
The profitability estimates of the project, which forms the basis for IRR calculation is based on
installed capacity, PLF, power tariff, O&M cost, interest, depreciation, taxation. Major input
parameters used in the additionality demonstration, basis thereof and the appropriateness of
the value used are given in the following table:

Parameter

Project life (Years)

Installed Capacity
(MW)
Lubuk Gadang

Value
applied

Sources of Information and comments thereon

20

The project life is based on Annex 15 of EB 50. The value

considered by PP is correct and appropriate for the
project.

2X3.75
=7.5

Project cost (IDR in

millions)
144,709

The value is based on the re-FSR /P12-1/, /P12-4-5-6/.

The installed capacity has been arrived at based on a
detailed hydrological study. Hence, the value is correct
and appropriate for the project. Validation team checked
the re-FSR and found the value to be correct.
The value is based on the re-FSR /P12-1/, Loan sanction
letter /P12-2/, Financial parameter statement /P12-4-5/.
Validation team had checked the data and found the
value to be correct and appropriate. The project cost
works out to IDR 144,709 million.

2010 Economic Report on Indonesia, Appendices, table 22. Interest Rate on Rupiah Credits by Group of Banks
(http://www.bi.go.id/web/en/Publikasi/Laporan+Tahunan/Laporan+Perekonomian+Indonesia/lpi_2010.htm)

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Hence, this Validation team is convinced that the project

cost is reliable and appropriate.

Domestic Currency
Loan from SMI (IDR
in million)

Interest rate on
Loan Issued by
Central Bank of
Indonesia

115,767

12.18%

The loan amount is based on Loan Sanction Letter /P122/. Project developer has submitted a copy of the loan
sanction letter and validation team observed that the
amount was considered in the financial indicator
calculation is in conformity with loan sanction letter.
Guidance 11 of Annex 5, EB 62 states, In cases where a
post-tax benchmark is applied the DOE shall ensure that
actual interest payable is taken into account in the
calculation of income tax. Therefore, consideration of
loan amount is in conformity with guidance 11 of Annex
5, EB 62. Validation team checked the sanction letter
/P12-2/ and found the value to be correct and
appropriate.
The interest rate is based on the loan sanction letter
issued by the Central Bank of Indonesia /P12-2/. Since
Guidance 11 of Annex 5, EB 62 requires that actual
interest payable should be taken into account in the
calculation of income tax where a post-tax benchmark is
applied, consideration of interest rate based on the loan
sanction letter /P12-2/ conforms to Annex 5, EB 62.
Validation team checked the sanction letter /P12-2/ and
found the value to be correct and appropriate.
http://www.bi.go.id/web/en/Statistik/Statistik+Ekonomi+
dan+Keuangan+Indonesia/Versi+HTML/Sektor+Moneter/
#

Repayment
(quarters)
24

Moratorium
(quarters)

Version No.:01

The repayment is based on loan sanction letter /P12-2/.

Since Guidance 11 of Annex 5, EB 62 requires that actual
interest payable should be taken into account in the
calculation of income tax where a post-tax benchmark is
applied, consideration of interest rate based on the loan
sanction letter /P12-2/ conforms to Annex 5, EB 62.
Validation team checked the sanction letter /P12-2/ and
found the value to be correct and appropriate.
The moratorium is based on the loan sanction letter /P122/. The grace period is 8 quarters. Accordingly, the
repayment should start from 22/09/2011, which has been
taken correctly in the interest calculation. The
moratorium period is based on the approved RE-FSR
/P12-1/. Since Guidance 11 of Annex 5, EB 62 requires
that actual interest payable should be taken into account

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in the calculation of income tax where a post-tax

benchmark is applied, consideration of interest rate
based on the loan sanction letter /P12-2/ conforms to
Annex 5, EB 62. Validation team checked the loan
sanction letter /P12-2/ and found the value to be correct
and appropriate.

Generation (MWh)

O&M cost in
(2.5% of capital cost)
IDR million per year

Power tariff
(IDR/kWh)

44,150

Generation is based on re-FSR /P12-1/, Loan sanction

letter /P12-2/, Financial parameter statement /P12-4-5-6/
which is based on detailed hydrological study. Since PLF
has been submitted in the loan application and loan
sanction letter, it conforms to Annex 11 of EB 48. The PLF
depends on the water flow in the river and hence
validation team considered appropriate. Since the PLF
estimated is in conformity with Annex 11, EB 48,
validation team concludes that the PLF assumed is correct
and appropriate

O&M cost is based on re-FSR /P12-1/, Loan sanction letter

/P12-2/, Financial parameter statement /P12-4-5-11-1213/. Validation team checked the re-FSR /P12-1/ and
Government notification /P12-14/ which was found to be
3,617.73
correct. The O&M cost assumed by the candidate project
is therefore well within the range. Therefore, validation
team considers the O&M cost of 2.5% as conservative,
correct and appropriate.

787

Power tariff is based on PPA /P12-6/, re-FSR /P12-1/. The

tariff represents the tariff given to project activity at that
point of time when signing the PPA. The PPA was signed
in 10/08/2010. The appropriateness of the tariff and the
conformity of the tariff to the concern expressed by EB
vide 48, EB 49 is discussed in the section that follows
this table.

Water retribution

This rate is determined by the Government of Indonesia

in the signed PPA /P12-06/ The input parameter is
10
therefore considered appropriate and correct. Therefore,
IDR/kWh the water retribution of 10 IDR/kWh as correct and
appropriate.

Depreciation (years)

Depreciation of 5 % will be considered for 20 years as per

5 % for 20 the Tax regulation no: 36 published in the year 2008 by
years
the government /P12-7/.

Income Tax (%)

Version No.:01

25

The income tax is based on Indonesian Decree No.36 in

2008 /P12-7/ issued by the Government of Republic of

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Indonesia. Tax computation conforms to accepted

practice and issued by the national government hence
accepted.

Salvage Value
(10 % of Project
Cost)
(IDR Million)

Validation team confirms the salvage value of 10% to be

appropriate for this project activity, while 100% of the
depreciable assets would have been depreciated as per
Tool to determine the remaining lifetime of equipment,
version 01, Annex 15, EB 50. The amount that would have
been spent to perform the major hauling would have
been higher than 10% of the project cost. The PP has
already considered the project lifetime of 20 years which
is 46.0% higher than the mentioned operation lifetime of
the hydro turbines in the tool. Hence considering not only
15,917.99
depreciable asset but the total project cost for salvage
value is conservative since it increases the project IRR.
It is a standard practice for calculating the book
depreciation for power projects. Hence, 10% of the
depreciable assets are added back as residual value of the
project, which is in accordance to guidance 4 of
Guidelines on the Assessment of Investment Analysis,
Version 02. Therefore, this value was valid and applicable
at the time of investment decision. Validation team
confirms the suitability of residual value from its local and
Sectoral expertise.

As could be observed all the input values are based on Notes on Review of Hydrology (re-FSR)
/P12-1/, PPA /P12-6/, Loan sanction letter /P12-2/. Re-FSR was prepared in 01/03/2011/12-1/
and the investment decision was made in 05/04/2011/P08/ based on the re-FSR. Paragraph
113 of VVM (01.2) states, where the re-FSR has been the basis of the decision to proceed with
the investment in the project, the period of time between the finalization of the re-FSR and
the investment decision should be sufficiently short to confirm that it is unlikely in the context
of the underlying project activity that the input values would have materially changed. Since
the time elapsed between the re-FSR preparation date and the Board Meeting date (In which
serious consideration of CDM benefits was made), is less than six months, the validation team
concludes that the input parameters used in the re-FSR were valid and applicable at the time
of investment decision. The source for input parameters, the method adopted to cross check
the information/data and the appropriateness of the same are given along with the input
parameters.

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As evident from the details given above, the validation team had evaluated the parameters
used in the financial calculations and confirms that the underlying assumptions are
appropriate and the financial calculations are correct.
Since the input parameters have been sourced from the re-FSR, the gap between the re-FSR
finalization date and the decision making date being less than 6 months, validation team
concludes that the input parameters are reliable, credible and appropriate for the project
activity and conforms to Annex 13, EB 61. Thus, the Validation also conforms to the guidance
given vide 111,112 and 114 of VVM (Ver. 1.2) /B01/.
In this context one issue that assumes importance is the power tariff considered in
additionality demonstration. Electricity tariff has been assumed at IDR 787.00/kWh for (y1y20), which was signed prior to the board consideration when the PPA was signed. Please refer
to the Table 2 of the validation protocol for closure of CAR/CL. Therefore, validation team
concludes that the tariff assumed for the project activity is appropriate and correct.
In the light of the above, validation team is convinced that the concern expressed by EB vide
48 of the minutes of the 49th Meeting and 69 of the 51st Meeting has been duly addressed
by the PP and the tariff considered in additionality determination is appropriate to the project
activity.
Cross checking parameters: Investment cost, financing pattern, terms of loan, O&M cost,
interest, depreciation and tax rate have been cross checked with loan application letter /P1202/, Income Tax Act /P12-7/ and various decrees along with decisions governing depreciation
and taxes. The documents supporting the financial calculations, in the opinion of validation
team, are therefore authentic and appropriate. The input parameters were found to be
appropriate.
Thus, the guidance given by the EB vide 87, 95 and 111 of VVM (Ver. 01.2) /B01/ have been
taken care of in validation of the project.
Assessment of correctness of computation: The assessment involved checking the data input
extracted from re-FSR and other published documents (mainly Government), adoption of
correct accounting principle and arithmetical accuracy. Validation team checked the re-FSR,
published government documents and ensured that right input has been taken in the project
cost and projections. The accounting principles adopted with respect to computation of
interest, block of assets and tax computation were found to be in order. The arithmetical
accuracy was also found to be correct. Thus, the validation has taken into consideration the
guidance given by EB vide 109 and 110 of the VVM (01.2).
The project IRR has been computed for a period of 20 years of operation /P12-3/, which is the
life time of the project and is in conformity with the Annex 5 of EB 62 and Annex 15 of EB 50.
As required by Annex 5 of EB 62, the expected realisation on the sale of assets at the end of
the operating life has been taken as salvage value in the terminal year. Since the assets have

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been fully depreciated, the salvage value represents only the profit expected to be realised by
disposal of assets at the end of the operating life of the project (guidance 4 of Annex 5, EB 62).
In computing the IRR, the project developer has taken into account, profit after tax,
depreciation and interest on term loan and salvage value (in the terminal year). The principle
adopted conforms to the accepted accounting and taxation principles.
The financial analysis is in accordance with the Tool for demonstration and assessment of
additionality version 06 and the Guidelines on the assessment of investment analysis
version 04. All input parameters used in the IRR calculation were valid at the time of
investment decision making. The validation team confirms that the project IRR post tax
without any CDM revenue works out to be 13.89% which is below benchmark of 16.01%. It is
clearly demonstrated that the proposed project activity without CER revenues is financially
unattractive. The validation took cognizance of 97, 112 and 113 of VVM (version 01.2).
3.5.3.1. Sensitivity analysis
The guidance on assessment of investment analysis /B03-h/ requires the robustness of the
conclusion arrived at to be proved through a sensitivity analysis. Guidance 20 of Annex 5, EB
62 states, only variables, including the initial investment cost, that constitute more than 20%
of either total project costs or total project revenues should be subjected to reasonable
variation. Guidance 21 states, as a general point of departure variations in the sensitivity
analysis should at least cover a range of +10% and -10%. The project developer has identified
investment cost, O&M cost, electricity generation and tariff as the most critical assumptions.
There are no other expenses or costs which could be subjected to variation as all of them have
been considered either directly or indirectly in the sensitivity analysis. Though O&M cost does
not constitute more than 20% of project revenue, validation team considered appropriate to
subject it to sensitivity analysis, which is in conformity with Guidance 20 of Annex 5, EB 62. All
the four variables have been subjected to 10% variation. The sensitivity analysis reveals that
even under more favourable conditions, the IRR would not cross the benchmark return as
given in the following table:
Input Values
Total investment
Power Generation
O&M Cost
Benchmark

-10%
15.59%
12.28%
14.05%

Baseline
13.89%
13.89%
13.89%
16.01%

+10%
12.43%
15.42%
13.72%

Variation by 10% was considered appropriate for the project because, the inflation rate in
Indonesia is 6.59%. As evident, the project remains additional even under such conditions. A
further analysis of the projections reveals that the projects would become non- additional only
in the following cases:

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Parameters

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Variation

Validation teams opinion

Power
generation goes
up by

13.90%

As regards generation PP has submitted that such an

increase in the generation by as much as 13.90% is
impossible as the generation is based on the study of
hydrology data and that the FSR has taken into account
many optimisation aspects like guaranteed output,
guaranteed flux, utilisation rate of water resources etc.
before deciding on the electricity generation. However
since the water flow in the river is dependent upon
climatic conditions, there may be a short period of
higher generation then the average annual generation
due to increase in rain fall however continuous higher
generation is very unlikely situation as the hydrological
data used to calculate the generation potential is of
many years.

Tariff goes up by

13.75%

The tariff assumed is as per the signed PPA /P12-6/,

there is no possibility of increase in tariff. Moreover, as
evident even with a 10% increase in tariff, the project
remains additional. It is hypothetical to assume that the
project would be given a tariff of more than 13.75% of
the existing price. Hence, such a situation, PP has
pointed out is ruled out.

O&M cost
comes down by

-131.50%

As evident, the project is not sensitive to O&M cost at

all as even a 100% reduction in O&M cost (which is
highly hypothetical) does not render the project nonadditional.

Investment cost
comes down by

-12.20%

Likewise, a reduction in project cost by ~10% or 12.20%

is also equally highly unlikely as the country is already
experiencing inflation of 6.59% /P12/. In the above
background, the possibility of any reduction in project
cost is highly unlikely. PP has submitted that the costs
associated with the project, in fact, have risen
significantly since the feasibility study.

In the above background, the most plausible scenario is only an increase in the project cost
and not the other way round. Such an occurrence will undoubtedly worsen the projects IRR

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further rendering the CDM benefits imperative for survival. Moreover, the PP has also pointed
out that the project cost does not include interest during construction, which also forms the
cost of the project. If this were to be included, the project IRR would go down further.
Validation team is in agreement with PPs submission. Having regard to the assessment of
conformity of additionality demonstration and benchmark selection to the latest version of the
Guidance issued by EB on the assessment of investment analysis, plausibility and
appropriateness of parameters used and correctness of financial calculations, validation team
concludes that the project scenario is not economically feasible without benefits from CER
sales in as much as the project IRR reaches 13.89 % without CDM benefits.
3.5.4. Barrier analysis
PP has not used barrier analysis to demonstrate additionality. Since the additionality of the
project has been demonstrated using investment analysis, barrier analysis is not mandatory
and this is in conformity with the Additionality Tool.
3.5.5. Common Practice Analysis
Since it is a small scale project activity, PP is not required to demonstrate common practice
analysis.

3.5.4 Conclusion of assessment of Additionality

In the above background, validation team concludes that the project is not a business-as-usual
scenario and is additional. The CDM benefits would enable the project to alleviate the financial
barrier in as much as the overall project IRR with CDM benefits (as mentioned above IRR of
this project activity reaches 13.89% without CDM benefits) and hence CDM benefits would
enable the project developer to overcome the barrier. Please ref Annex: Validation Protocol Table 2 for details on closure of CAR/CL.

3.6 Monitoring
The monitoring plan is included in Section B.7 of the PDD /P02/ based on the approved
monitoring methodology AMS-I.D. Version 17 /B02/ titled Grid connected renewable
electricity generation and is correctly applied to the CDM project activity. This methodology
/B02/ stipulates that monitoring shall consist of monitoring of Quantity of net electricity
supplied to the grid in year y. This confirms the requirement of 122 of VVM ver. 01.2 /B01/.
The validation team also confirms with representative of PP during onsite visit /I-01/, whether
the monitoring plan can be implemented in the context of the project activity and was
satisfied with the implementation plan of the monitoring plan.

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3.6.1 Parameters determined ex-ante

The project adopts the ex-ante calculation of emission factor of the grid. The OM and BM are
calculated as fixed factors for the crediting period by choosing data vintage based on ex-ante
data published by DNA, Republic of Indonesia /P26-1/ and confirmed by Head of secretariat,
DNA Republic of Indonesia during the site visit /I-03/.
The parameters for determining the GHG emissions reductions have been clearly
demonstrated in section B.6.2.of the PDD /P02/. The combined margin emission factor for the
Sumatera regional grid has been calculated to be 0.743 tCO2 /MWh.
The validation team has verified the value used against the sources and conclude that all
relevant parameters to calculate the GHG emissions reductions of the project have been
sufficiently considered and the value of the parameters are real, measureable and
conservative.

3.6.2 Parameters monitored ex-post

The data required to be monitored ex-post include:
Sr.No.

Parameters

Description

1.

EGBL,y

Quantity of net electricity supplied to the grid by the proposed

project in year y (MWh )

2.

FCi,j,y

The quantity of diesel combusted in process j during the year y

(Liters/yr )

3.

NCVdiesel,y

The weighted average net calorific value of the diesel in year y

(TJ/ton)

4.

diesel,y

weighted average density of the diesel in year y (kg/m3)

5.

EFCO2,diesel,y

Is the weighted average CO2 emission factor of diesel in year y

(tCO2/TJ)

The monitoring plan consists of monitoring of five parameters representing electricity

metering at one point (evacuation point to the grid). The total electricity exported and
imported will be directly measured by metering equipment. The electricity (export, import)
will be measured (monitored) continuously by meters. It will be recorded daily and aggregated
monthly.
The energy meters to measure the electricity export and import (be of the accuracy class of
0.2 kWh meters), which forms the basis for emission reduction calculation will comply with the

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Technical Specification of Energy Metering as per the Metering Code stipulated by Minister of
Energy and Mineral Resources, Republic of Indonesia. Please ref Annex: Validation Protocol Table 2 for details on closure of CAR/CL.
The validation team considers that the monitoring plan has complied with the requirements in
the approved methodology hence confirms compliance of 123(b) of VVM ver. 01.2 /B01/.

3.6.3 Management system and quality assurance

Steps undertaken to assess the monitoring plan
Compliance of the monitoring plan with the approved methodology
According to the PDD /P02/, the projects monitoring plan outlines the followings:

Monitoring parameters: the monitoring parameters of the project include quantity of net
electricity supplied to the grid including amount of diesel fuel used in the project activity,
weighted average of NCV for the diesel, weighted average density of diesel used in the
project activity and weighted average CO2 emission factor for diesel.
Operational and management structure: management structure is illustrated for the CDM
project monitoring;
Monitoring Equipment and Relative Location: metering equipment to monitor electricity
export and import electricity (located at commercial metering point);
Quality Control and Data Archive: arrangement of meter calibration; procedures for
corrective actions agreed upon by both parties when meter malfunctions; safekeeping of
the data collected during monitoring; and collection of monitored data and report
preparation.

Quantity of net electricity supplied to the grid in year y is monitored as per the requirement of
24 bullet (5) of the monitoring methodology /B02/ applied for the project activity hence
confirms compliance of 123(a) of VVM ver. 01.2 /B01/. Net electricity supplied to the grid is
calculated as the difference of electricity exported and electricity imported by the project
activity and the same is used for the calculation of emission reduction. For ex-ante calculation
of emission reduction, the import electricity has been considered as zero.
Implementation of the plan
According to document review and on-site interviews with the representatives of the PP /I01/, detailed monitoring procedures, monitoring structure, monitoring items and functions are
clearly demonstrated in the PDD /P02/ which will enable subsequent verification of the
projects emission reductions in line with the applied methodology. The validation team
confirms that as per 24 of EB 23, the specific uncertainty levels, methods and associated

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accuracy level of measurement instruments and calibration procedures used for various
parameters and variables are identified in the PDD /P02/ along with detailed quality assurance
and quality control procedures. The accuracy class and the method and frequency of
calibration of the electricity meters confirm to the national standards /B06/. This also complies
with 17of the general guidelines of the small scale project activities EB 61, annex 21. All the
monitored data will be archived until 2 years after the crediting period or the last issuance of
CERs whichever occurs later to facilitate cross-checking during the crediting period. Please ref
Annex: Validation Protocol - Table 2 for details on closure of CAR/CL.
Hence the validation team considers that the PP is capable to implement the monitoring plan
and satisfies the requirement of 123(a) of VVM, Ver. 01.2 /B01/.

3.7 Sustainable Development

The host partys DNA has confirmed the contribution of the project to the sustainable
development in Indonesia according to the Letter of Approval (LoA) for the Project /P03-1/,
which was checked by the validation team for its authenticity.
In conclusion, the validation team is of the opinion that the 7.5 MW Lubuk Gadang Small
Hydropower Plant at West Sumatera, Indonesia is in full compliance with all applicable
requirements for the CDM by leading to emission reductions additional to what would have
otherwise occurred, providing for reliable and measurable emission reductions with
sustainable development in Indonesia through improvement of environmental condition,
reduction of air pollutants. Hence confirms compliance of 125 of VVM ver. 01.2 /B01/.

3.8 Environmental Impacts

The PP has provided a comprehensive description of environmental impacts in section D of the
PDD /P02/. The description covers the project activitys impact on soil, air, water, noise and
ecological impacts. The validation team reviewed and concluded that the description is
sufficient. The validation team checked the description for its appropriateness and confirms
that the project is not likely to create any adverse environmental effects.
As per the Decree of the Minister of the Environment (MENLH No.11/2006) /P25/ of the
Republic of Indonesia, a small hydroelectric power project with a capacity less than 50 MW is
not necessary to prepare an EIA (=UKL/UPL) report. However, the PP had conducted
Environmental Impact Assessment (EIA) for Lubuk Gadang Project and submitted a copy of the
Environmental Impact Assessment (EIA) report /P24/ to the validation team in accordance
with paragraph 37(c) of the CDM modalities and procedures and 131 of VVM, version 01.2,
which include potential environmental impacts by the proposed project to the neighbouring
area and how to minimize the identified impacts. The validation team using Sectoral and local
expertise confirms that the EIA report meets the requirement of Ministry of Environment. The

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validation team noted that the EIA report /P24/ had been approved by the ministry, which
further confirms that the EIA report meets the requirement of the national law of Indonesia.

3.9 Local Stakeholder Consultation

The comments were invited from local stakeholders like representatives of local community,
representative of local policy makers and representative of local authorities, representative of
DNA and representative of local NGO, attended the meeting to informed about this CDM
project activity including the GHG emission reduction and to express their comments and
concerns about the project on 26/05/2011 i.e. prior to the publication of the PDD on the
UNFCCC website, which is explained under section E.1 of PDD /P02/. The summary of
comments and report on how due account was taken of any comments received are provided
in Section E.2 and E.3 of the PDD.
The validation team noted that all the relevant stakeholders were identified are in line with
the definition of stakeholders as per latest version of CDM Glossary of terms /B03-c)/. The PP
has utilized appropriate media like email, faxes & letters to invite these stakeholders. The PP
had invited the stakeholders through invitation letter /P13-a/.
In accordance with the 129 of VVM ver. 01.2 /B01/, the validation team has verified the
related documents /P13-b/ /P13-c/ /P13-d/ and concludes that the project participant has
explained about the project activity on 26/05/2011, in unbiased manner and project has not
received any adverse or significant comments as verified form the minutes of the meeting
/P13-b/.
The validation team can confirm that the process for conducting the local stakeholders
meeting is adequate and credible. Hence confirms compliance of 128 of VVM ver. 01.2
/B01/.

3.10 Comments by Parties, Stakeholders and NGOs

The PDD version 1 of dated 05/07/2011 was made publicly available on
(http://cdm.unfccc.int/UserManagement/FileStorage/DC1TK09AJP7OXG6BHM4FIUQRELNY83)
from 13/07/2011 to 11/08/2011 in order to invite comments from public stakeholders.
No comments was received during that period.

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Appendix A
CDM VALIDATION PROTOCOL
7.5 MW Lubuk Gadang Small Hydropower Plant at West Sumatera, Indonesia
in
Indonesia
Report No. 01 997 9105065323

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Table 1: Validation requirements

(based on 37 of the CDM Modalities and Procedures and on CDM Validation and Verification Manual)
Findings, comments,
Checklist question
Ref.
MoV6
references, data sources
1.
Approval
1.1

Have Letters of Approval have been provided

from all involved Parties?
If yes, indicate:
when and by which Party the LoA has been
issued, with a clear reference to the LoA
itself and any supporting documentation;
whether the LoA was provided to the DOE by
the project participants or directly by the
DNA;
the means of validation employed to assess
the authenticity of the document; and
by a clear statement, that the DOE considers
the LoA to be valid.

UNFCCC CDM
rules
/I-01/
/P01/
/P03/

1.2

UNFCCC CDM
rules
/I-01/
/P03/

Are all Parties, who issued the LoA, Parties

to the Kyoto Protocol and is this stated in the
LoA?

DR, I

DR, I

Draft
conclusion

Final
conclusion

CAR 01

OK

CAR 01

OK

The Letter of Approval from the host

party and annex-1 party has been
obtained.

Subjected to closure of CAR 01

MoV = Means of Verification, DR = Document Review, I = Interview, www = internet search.

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1.3

1.4

1.5

1.6

1.7

01 997 9105065323

Is every LoA from the Parties involved issued

by an organisation listed as Designated
National Authority (DNA) on the UNFCCC
web site?

UNFCCC CDM
rules
/I-01/
/P03/

DR, I

Is the participation in the CDM project

activity voluntary and is this stated in all
LoAs?

UNFCCC CDM
rules
/I-01/
/P03/

DR, I

Is the LoA unconditional with respect to 1.2

to 1.4?

UNFCCC CDM
rules
/I-01/
/P03/

DR, I

Is the title of the CDM project activity as

given in the PDD identical with the title given
in all LoAs and Modalities of
Communication?
Provide Yes/No answer, and include details
into Tables 2, 3 and 4 accordingly.

UNFCCC CDM
rules
/I-01/
/P01/
/P03/
/P04/

DR, I

If any of provided LoAs contains additional

specification of the CDM project activity
(PDD version number, validation report
version number, amount of ER, etc.) are
those specifications valid and consistent with
other documents?

UNFCCC CDM
rules
/I-01/
/P03/

DR, I

Version No.:01

Subjected to closure of CAR 01

CAR 01

OK

CAR 01

OK

CAR 01

OK

CAR 01

OK

CAR 01

OK

Subjected to closure of CAR 01

Subjected to closure of CAR 01

Subjected to closure of CAR 01

Subjected to closure of CAR 01

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1.8

Does the project activity involve any public

funding from Annex I Parties? If yes, has
Annex I Party provided a written
confirmation that the use of such funding
does not lead to the diversion of the official
development assistance.

01 997 9105065323

UNFCCC CDM
rules
/I-01/
/P01/

DR, I

DR

2.

Participation (VVM E.2)

2.1

Are the Parties and project participants (PP)

listed in the section A.3 of the PDD correctly
and is this information consistent with the
contact details provided in Annex 1 of the
PDD?

PDD
(A.3, Annex 1)
/P01/,/P03/

Has every Party involved approved the

participation of each corresponding PP,
either by means of a LoA or by a separate
written document?
Indicate Yes / No answer and describe all
inconsistencies in the Tables 2, 3 and 4
accordingly.

/P01/
/P03/
/I-01/

DR, I

/P01/
/B05/
/B06/

DR

2.2

3.

Project Design Document (VVM E.3)

3.1

Is the PDD presented for validation based on

the latest template available at the UNFCCC
website?
Indicate Yes / No answer and describe all
inconsistencies in the Tables 2, 3 and 4
accordingly.

3.2

Has the PDD been established in accordance

with the CDM requirements for completing
PDDs issued by the CDM EB?

Version No.:01

/P01/,/B05-a/

DR

There is no public funding from annex-1

party.

The name of Party mentioned in section

A.3 of the PDD is found correct.
Subjected to closure of CAR 01

OK

OK

CAR 01

OK

CAR 01

OK

OK

OK

CAR 02

OK

Subjected to closure of CAR 01

Yes, the PDD is presented based on the

latest template available at the UNFCCC
website i.e., CDM-SSC-PDD Version 03

The PDD has been established in

accordance with the CDM requirements
for completing PDD, issued by the CDM
EB.

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Project Description (VVM E.4)

4.1 Does the PDD contain a description, which

provides the reader with a clear
understanding of the precise nature of the
project activity and the technical aspects of its
implementation?

/P01/
/P11/
/P16/
/P17/
/P21/
/P25/
/I-01/

DR, I

4.2

/P01/
/P11/
/P16/
/P17/
/P18/
/I-01/

DR, I

4.3

In the case of greenfield project activity, is

the project design described sufficiently by
means of specifications, drawings and
manuals?

Does the project activity reflects current

good practices, uses state of the art
technology or would the technology result in
a significantly better performance, than any
commonly used technologies in the host
country?
Provide the description of how validation has
been carried out and what comparisons have
been made.

Version No.:01

PDD (A.4.2)
/P01/
/P11/
/P16/
/I-01/

DR, I

The PDD contain a description of the

project activity and its technical aspects
of its implementation. However CL 02, CL
03, CL 04 & CL 09 were raised regarding
insufficient / inconsistent project
description
and
technical
details
mentioned on section A.2 and A.4.2 of
the PDD.

The project activity is a green field

project and the PP has given
specifications of the key equipments and
design parameters of the project in the
PDD. The technical specifications of key
equipment could be assessed through
the equipment contract agreement /P16/
and feasibility study report prepared for
the project activity/P12-1/.Hence CL 05 is
closed.

CL 02
CL 03
CL 04
CL 09

OK

CL 05

OK

OK

OK

The project technology is imported from

Indonesia and is environmentally safe
and sound.

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4.4

In cases where the project activity involves

the alteration of an existing installation or
process, does the PDD provide a clear
description of the differences between the
project and the pre-project scenario?
Please, provide Yes/Now answer and update
Tables 2, 3 and 4 accordingly, if there is
anything unclear in the provided description.

5.

Baseline and Monitoring methodology

5.1

General requirements

5.1.1 Is the methodology used in the project

activity approved by the CDM EB and is the
selected version still valid?

01 997 9105065323

/P01/
/P11/
/I-01/

DR, I

UNFCCC website,
PDD
/B02/

DR

5.2.1 Does the project activity qualify under the

criteria for small-scale CDM project activities
set out in 6 (c) of decision 17/CP.7 and
Annex II of the Modalities and Procedures for
the CDM?

UNFCCC website,
PDD (B.2)
/P01/,/B05/,/I-01/

DR, I

5.2.1.1 If yes, does the PDD extensively

demonstrates and confirms that the smallscale project activity is not a debundled
component of a larger project?
Please indicate Yes/No answer. In case of
positive conclusion provide details of the
validation measures taken and data found
during the procedure. Otherwise amend the
Tables 2, 3 and 4 accordingly.

PDD(A.4.5)
/P01/
/B06/
/I-01/

DR, I

No, the project is a greenfield project

activity. Hence it does not involve any
alteration of an existing installation.

The project activity applies the

methodology AMS I.D version 17. The
selected version at the time of hosting of
PDD was the latest version and is still
valid.

OK

OK

OK

OK

OK

OK

CL 06

OK

5.2 Applicability of the selected methodology

Version No.:01

Yes. The project activity qualify under the

criteria for small scale CDM project
activity set out in 28 of Decision
1/CMP.2.

Yes. According to the requirement of

Guidelines on assessment of debundling for SSC project activities,
version 03, section A.4.5 of the PDD
demonstrates and confirms that the
small-scale project activity is not a
debundled component of a larger project

.Subject to closure CL 09.

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5.2.2 Are all applicability conditions of the selected

baseline and monitoring methodology and all
tools involved satisfied by the project
activity?
Please indicate Yes/No answer. In case of
positive conclusion provide details of the
validation measures. Otherwise amend the
Tables 2, 3 and 4 accordingly.

UNFCCC website,
/P01/
/B02/
/I-01/

5.2.3 Is the selection of the applied baseline and

monitoring methodology justified?

UNFCCC website,
/P01/
/B02/

DR

5.2.4 Is the selected methodology correctly quoted

in all related documents?

UNFCCC website,
/P01/

DR

5.2.5 Does the PDD sufficiently describe all the

GHG emission sources or sinks occurring as a
result of project activity, which have not
been accounted for under the selected
methodology and are expected to contribute
more than 1% of the overall expected
average annual emission reductions?
Provide Yes/No answer. Indicate the sources
or sinks of GHG, which were proved to be
negligible. Otherwise amend the Tables 2, 3
and 4 accordingly.

PDD(B.3)/P01/,
Meth(/B02/)
/I-01/

DR,I

5.3

DR, I

Yes, all applicability conditions of the

selected baseline and monitoring
methodology and all tools involved
satisfied by the project activity and is
transparently mentioned in the PDD.

Same as above.
Subject to closure CL 07.
Yes, the selected methodology has been
correctly quoted in all related
documents.

OK

OK

CL 07

OK

OK

OK

OK

OK

The GHG emissions which are not

accounted by the applied methodology
within project boundary of the project
activity are not foreseen.

Project boundary

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5.3.1 Does the PDD correctly describe the project

boundary?
Provide Yes/No answer. And amend the
Tables 2, 3 and 4, if needed.

01 997 9105065323

/P01/
/B.3/
/B02/

5.3.2 Does the PDD correctly indicate and describe

the emission sources and sinks of GHG gases
that are included in the project boundary?

DR

5.3.3 In cases where the methodology allows

project participants to choose whether a
source or gas is to be included in the project
boundary, is the choice explained and
justified by PPs?

The project boundary includes the

project site and the geographical
boundary of Indonesia national Grid
(SUMATERA) used for baseline emission
factor calculation. However CL 01 was
raised.

CL 01

OK

This section is not applicable for smallscale project as per PDD filling guidelines
and the applied methodology.

This section is not applicable for smallscale project as per PDD filling guidelines
and the applied methodology.

OK

OK

OK

OK

OK

OK

5.4 Baseline identification

5.4.1 Has the procedure contained in the selected
methodology to identify the most reasonable
baseline scenario been applied correctly and
documented in the PDD?

PDD (B.4)
/P01//B02/

DR

5.4.1.1 Is the identified baseline scenario

plausible?

PDD
(B.4, B.5)
/P01/ /B02/

DR

/P01/
/B02/

DR

5.4.1.2 Are all assumptions stated in a

transparent and conservative manner?

Version No.:01

The selection of most plausible baseline

scenario is in accordance to para 10 of
the applied methodology. And is
transparently mentioned in the PDD.
Yes. The identified baseline scenario
plausible
and
confirms
to
the
requirement of the applied Meth.

Same as above.

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Validation Report

5.4.2 Does the selected methodology require the

use of tools and does PDD reflects that
correctly?

01 997 9105065323

DR

Yes. The methodology requires the use of

Tool to calculate the emission factor for
an electricity system version 02.2.1. The
same have been applied correctly.

OK

OK

DR

Yes the applicable tool is applied

correctly.

OK

OK

UNFCCC website,
/P01//B02/

DR

This is not applicable as per the

requirement of para 10 of the applied
methodology as this is a green field
project. .

5.4.3.1 Has the choice of the baseline scenario

been done using conservative assumptions?

PDD (B.4)
/P01//B02/

DR

Same as above

5.4.4 Is the identified baseline scenario reasonable

according to the assumptions, calculations
and rationales used in the PDD and other
reference sources?

PDD (B.4)
/P01/ /B02/

DR

Yes, the identified baseline scenario is

correct and reasonable. Subject to
closure CL- 07.

5.4.6 Does the PDD describe how the national and

sectoral policies relevant to the baseline
scenario have been identified and considered
in the PDD?

PDD (B.5)
/P01/ /B05/

DR

National and Sectoral policies have been

taken into account.

OK

OK

PDD (B.4)
/P01/ /B02/

DR

Refer question No 5.4.4

OK

OK

5.4.2.1 Were all the tools applied correctly?

5.4.3 In case the methodology requires several
alternative scenarios to be considered in the
identification of the most reasonable
baseline scenario, have all scenarios been
considered and have no reasonable
alternative scenario been excluded?

5.4.7 Does the PDD provide a verifiable description

of the identified baseline scenario, including
a description of the technology that would
be employed and/or the activities that would
take place in the absence of the project
activity?

5.5

UNFCCC website,
/P01//B02/
UNFCCC website,
/P01/

CL-07

OK

Algorithm and/or formulae used to determine emission reductions

Version No.:01

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01 997 9105065323

5.5.1a) Are all calculations applied and

documented according to the selected
methodology and in a complete and transparent
manner?
5.5.1b) Are correct units applied and consistency
between parameter dimensions and parameter
value ensured?

PDD
(B.6.1,B.6.3)
/P01/
/B02/

5.5.2 In case the methodology allows a selection

between different options for equations or
parameters, has adequate justification been
given and have the correct equations and
parameters been used, in accordance with
the methodology selected?

PDD
(B.6.1, B.6.3)
/P01/
/B02/

5.5.3 In case some data and parameters will not be

monitored throughout the crediting period,
but have already been determined and fixed,
are all data sources, assumptions and
calculations correct, applicable to the
proposed CDM project activity and
conservative?

PDD
(B.6.2,Annex 3)
/P01/

5.5.4 In case data and parameters will be

monitored on implementation and hence
become available only after validation of the
project activity, are the estimates provided in
the PDD for these data and parameters
reasonable?
5.5.5 Have the major risks and uncertainties, which
can influence the emission reduction
estimates, been identified and addressed in
the PDD?

5.6

PDD
(B.6.3,B.7.1)
/P01/

PDD
(B.6.3,B.7.1)
/P01/
/B03/

DR

The calculations have been provided in

the PDD. However CAR-05 and CAR-06
were raised the ensure conservativeness,
transparency and incorrect referencing.

CAR06
OK
CAR05

DR

The PDD has described and adequately

justified the selection between different
for equations and parameters. CAR 04
was raised to ensure the same.

CAR04

OK

DR

Yes there are some data and parameters

which will not be monitored throughout
the crediting period, but have already
been determined and fixed.

OK

OK

DR

The calculations have been provided in

the PDD.

OK

OK

DR

No major risks and uncertainties which

can influence the emission reduction
estimates are not foreseen.

OK

OK

Leakage

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5.6.1 Has the leakage been identified and

calculated according to the approved
methodology?

01 997 9105065323

/P01/
/B02/

DR

This is a green field project and as per the

requirement of the meth If the energy
generating equipment is transferred from
another activity, leakage is to be
considered.

OK

OK

5.6.2 Have the leakage been addressed in

complete, conservative and substantiated
manner?

/P01/
/B02/

DR

Same as above

OK

OK

5.6.3 Are uncertainties in the leakage emission

estimates properly addressed?

/P01/
/B02/

DR

Same as above

OK

OK

O.K.

O.K.

OK

OK

6.

Methodology-related issues for afforestation or reforestation CDM project activities

Add specific A/R requirements if applicable!

Not applicable for this CDM project

activity

7.

Additionality

7.1

Prior consideration of the CDM (VVM E.6.III.a)

7.1.1 Is there documented evidence provided by

the project participants on how and when
the decision to proceed with the project
activity was taken?

/P01/
/P07/
/I-01/

7.1.2 Is the starting date of the project activity,

reported in the PDD, in accordance with the
Glossary of CDM terms and CDM VVM
(97)?

/P01/
/P06/
/B05/
/I-01/

DR, I

Same as above.

OK

OK

7.1.3 Is the date stated in the provided evidence

consistent with other available evidence (e.g.
dates of construction, purchase orders for
equipment)?

/P01/
/P06/
/B05/
/I-01/

DR, I

Same as above.

OK

OK

Version No.:01

DR, I

Yes, sufficient evidence provided on

decision to proceed with project activity.

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7.1.4 If the project was not published and the

starting date is on or after 2nd August 2008,
was it possible to receive from UNFCCC
secretariat and/or DNA a written
confirmation that PPs previously informed
the above entities on commencement of the
project activity and of their intention to seek
CDM status?

01 997 9105065323

/P01/
/P06/
/P07/
/P11/
/B05/

DR

/I-01/

7.1.5 For the project activities with a starting date

before 2nd August 2008 and before the actual
publication, was there enough evidence
presented to prove that PPs were previously
aware of CDM?

7.1.6 For the project activities with a starting date

before 2nd August 2008 and before the actual
publication, was there enough evidence
presented to prove that CDM benefits have
been a decisive factor in the decision to
proceed with the project activity?

7.1.7 Does the individual or body that took the

decision to proceed with the project activity
have/had the authority to do so?

Version No.:01

/P01/
/I-02/

Yes, the project was published for GSC

prior to start date of the project activity
and since the starting date of the project
activity is after 2nd August 2008, the
implementation of the project activity as
per EB 49 annex 22 and the same is also
reflecting on the CDM EB website and
Validation team has cross checked the
same by referring to CDM EB website.

OK

OK

DR, I

Not applicable for the present case since

the SD of the project activity is after 2nd
August 2008.

OK

OK

DR, I

Not applicable for the present case since

the SD of the project activity is after 2nd
August 2008.

OK

OK

Project participant has informed that the

decision was taken by the Board. Since it
is a limited company, all the powers are
vested with the Board and the Board has
the authority to take investment decision

OK

OK

DR, I

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01 997 9105065323

7.1.8 For the project activities with a starting date

before 2nd August 2008 and before the actual
publication, was there enough evidence
presented to prove that PPs were taking
continuing and real actions to secure CDM
status for the project in parallel with its
implementation?

7.1.7 In case there is a significant gap between the

start date of the project activity and the
commencement of validation, how was it
possible for the project participant to commit
funds to the project in advance of receiving a
positive validation opinion?

7.2

DR, I

Not applicable for the present case since

the SD of the project activity is after 2nd
August 2008.

OK

OK

DR, I

Not applicable for the present case since

the SD of the project activity is after 2nd
August 2008.

OK

OK

Identification of alternatives

7.2.1 Does the PDD identify and list credible

alternatives to the CDM project activity in
order to determine the most realistic
baseline scenario, unless selected approved
methodology prescribes/identifies the
baseline scenario and no further analysis is
required?

This section is not applicable for smallscale project as per PDD filling guidelines
and the applied methodology.

OK

OK

7.2.2 Does the list of alternatives include as one of

the options that the project activity is
undertaken without being registered as a
CDM project activity?

This section is not applicable for smallscale project as per PDD filling guidelines
and the applied methodology.

OK

OK

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01 997 9105065323

7.2.3 Does the list contain all realistic/credible

alternatives that the DOE, on the basis of its
local and sectoral knowledge, considers to be
viable means of supplying the outputs or
services that are to be supplied by the
project activity?
Note: All alternatives listed in the selected
methodology should be included, as well as
those not covered by the methodology.

This section is not applicable for smallscale project as per PDD filling guidelines
and the applied methodology.

OK

OK

7.2.4 Is the exclusion of the alternatives for legal

reasons justified?
Note: Some alternatives might be illegal,
according to the local regulations, but still
widely practiced due to lack of enforcement.
It should be verified.

This section is not applicable for smallscale project as per PDD filling guidelines
and the applied methodology.

OK

OK

CL 08a)
CL 08c)
CL 08d)
CL 08g)
CAR 03(a,o)

OK

7.3

Investment Analysis

7.3.1 Are all sources of revenues (including

savings) have been considered in the PDD
and all calculations?

7.3.2 Is the type of investment analysis selected

correctly in the PDD?

7.3.3 Is the selected financial indicator chosen and

applied correctly?

Version No.:01

PDD(B.5)/P01/
/P09/
/P11/

PDD(B.5)/P01/
/P09/
/P11/
PDD(B.5)/P01/
/P09/
/P11/

DR

Refer to section 7.1.1.

DR

Refer to section 7.1.1.

DR

Refer to section 7.1.1.

CAR 03c)

CL 08h)

OK

OK

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7.3.4 Is the guidance on IRR calculation and

assessment correctly applied?
Note: Means of validation should be
recorded.
7.3.5 In case project participants use values from
Feasibility Study Reports (FSR) is it possible
to verify that the period between the FSR
date and investment decision was reasonably
short and FSR values did not change
materially?

01 997 9105065323

PDD(B.5)/P01/
/P09/
/P11/

PDD(B.5)/P01/,
/P09/,
/P11/

7.3.6 Are all the values consistent between FSR

and PDD and are inconsistencies properly
justified?

PDD(B.5)/P01/,
/P09/,
/P11/

7.3.7 Were all the values from FSR applicable and

valid at the time of the investment decision?

PDD(B.5)/P01/,
/P09/,
/P11/

7.3.8 Is it reasonable to assume that no

investment would be made at a rate of
return lower than the benchmark by, for
example, assessing previous investment
decisions by the project participants or some
verifiable circumstances that have lead to a
change in the benchmark?
7.3.9 Is the Investment Analysis prepared in
compliance with the latest version of the
Guidance on the Assessment of Investment
Analysis as provided by the CDM EB?

Version No.:01

PDD(B.5)/P01/,
/P09/,
/P11/

PDD(B.5)
/P01/,
/P09/,
/P11/

DR

Refer to section 7.1.1.

DR

Refer to section 7.1.1.

DR

Refer to section 7.1.1.

DR

DR

Refer to section 7.1.1.

Refer to section 7.1.1.

CAR03(j,k)

CL 08e)
CAR 03i)

OK

OK

CL 08f)
CAR 03h)

OK

CL08b)

OK

CL 08i)
CAR 03(b,d
e,g,p)

OK

CAR 03(f,I,m,n)

OK

DR
Refer to section 7.1.1.

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7.4

01 997 9105065323

Barrier analysis

7.4.1 Are there any issues addressed in the barrier

analysis that have a clear impact on the
financial viability of the project activity and
that shall be assessed by an investment
analysis?

PP did not select barrier analysis route

under the provision of additionality tool.

7.4.2 Do the listed barriers exist and is their

existence substantiated?
Note:
(a) by independent sources of data such as
relevant national legislation, surveys of local
conditions and national or international
statistics and/or
(b) by interviews with relevant individuals:
including members of industry associations,
government officials or local experts if
necessary?

PP did not select barrier analysis route

under the provision of additionality tool.

7.4.3 Would any of the identified barriers prevent

the implementation of the project activity
but not equally prevent the implementation
of the possible alternatives, in particular the
implementation of the identified baseline
scenario?

Same as above

7.5

Common practice analysis

7.5.1 If the PPs claim in the PDD that CDM project

activity is the first of its kind, is it justified?

Since this is a small scale project activity

common practice analysis is not
applicable for the present case.

7.5.2 Are the geographical boundaries of the

project activity identified correctly?

Since this is a small scale project activity

common practice analysis is not
applicable for the present case.

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01 997 9105065323

7.5.3 Does the PDD provide an explanation why

this region was selected and deemed more
appropriate and is this explanation traceable
and reliable?

7.5.4 Are there similar operational project

activities, other than CDM activities, widely
observed and commonly carried out in the
defined region?
Note: Use official sources and local and
industry expertise.
7.5.5 In case there are similar commercially
operated project activities, other than CDM
activities, already widely observed and
commonly carried out in the defined region,
are there essential distinctions between the
CDM project activity and the other similar
activities?

8.

Monitoring plan

8.1

Are all parameters required by the selected

approved methodology or tool identified and
listed in the PDD?

/P01/
/B02/

Is the measurement method clearly stated

for each value to be monitored and deemed
appropriate?

/P01/
/B02/

8.2

Version No.:01

Since this is a small scale project activity

common practice analysis is not
applicable for the present case.

Since this is a small scale project activity

common practice analysis is not
applicable for the present case.

Since this is a small scale project activity

common practice analysis is not
applicable for the present case.

Yes, all parameters required by the

selected approved methodology or tool
identified and listed in the PDD.
However in this context CAR 08 was
raised to ensure the same.

CAR08

OK

OK

OK

DR

DR

Yes the measurement method clearly

stated for each value to be monitored
and deemed appropriate.

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8.3

8.4

Are values of the ex-ante parameters /

monitoring parameters selected correctly
and conservative in accordance to
methodology or tools?

01 997 9105065323

/P01/
/B02/

8.6

8.7

8.8

8.9

See the response of question 5.5.4

above.

CAR07

OK

DR

The measurement equipment for each

parameter is described in B.7.1 of the
PDD and is deemed appropriate.

OK

OK

DR

Yes
the
measurement
accuracy
addressed and deemed appropriate as it
complies the requirement of national
law.

OK

OK

DR

The procedure for cross-checking or

dealing with erroneous measurements is
incorporated in the PDD as per meth.

OK

OK

DR

Yes the frequency of measurement

identified in section B.7.1 and is deemed
appropriate

OK

OK

Is the measurement equipment for each

parameter described and deemed
appropriate?
Are the locations of all measurement
/P01/
equipment clearly identified and consistently
/B02/
described, incl. process flow-charts contained
in the PDD?

8.5

DR

Is the measurement accuracy addressed and

deemed appropriate?

/P01/
/B02/

Are procedures in place on how to deal with

erroneous measurements and are the
corrective actions identified?

/P01/
/B02/

Is the frequency of measurement identified

and deemed appropriate?

/P01/
/B02/

Is the monitoring plan documented

according to the approved methodology and
in a complete and transparent manner?

PDD(B.7.1)/P01/,
/B02/
/B05/

DR

The monitoring plan is documented

according to applied methodology.

OK

OK

/P01/

DR

See the response of the question 8.2 of

this table.

OK

OK

Are the sampling, measurement methods

and procedures defined?

Version No.:01

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8.10 Are procedures identified for maintenance of

monitoring equipment and installations?
8.11 Are the equipment calibration intervals
identified and justified?
8.12 Are procedures identified for day-to-day
records handling (including what records to
keep, storage area of records and how to
process performance documentation)?

01 997 9105065323

/P01/

PDD (B.7.1)/P01/
/P01/
/I-01/

8.13 Are the monitoring arrangements described

in the monitoring plan feasible within the
project design?
8.14 Are the means of implementation of the
monitoring plan, including the data
management and quality assurance and
quality control procedures, sufficient to
ensure that the emission reductions achieved
by / resulting from the project activity can be
reported ex post and verified?

/P01/

PDD (7.1, 7.2 and

B.7.1)/P01/,
/B02/

8.15 Do the PPs make provisions for personnel

training needs?

PDD(B.7.2)/P01/,
/P19/

8.16 Is the authority and responsibility of overall

project management clearly described?

/P01/
/B05/

DR

Yes the procedures are identified for the

maintenance of the meters.

OK

OK

DR

The equipment calibration intervals are

identified and justified.

OK

OK

DR, I

The PP has provided the national law

reference for the calibration of the
meters.

OK

OK

DR

Monitoring arrangements are described

in the monitoring plan feasible within the
project design.

OK

OK

DR

Same as above

OK

OK

DR

The provision of for personnel training

needs is addressed in section B.7.2 of the
PDD

OK

OK

DR

The authority and responsibility of overall

project management clearly described in
section B.7.2 of the PDD.

OK

OK

DR

No emergency is foreseen for the

unintended emission can happen within
project boundary.

OK

OK

/I-01/
8.17 Are procedures identified for emergency
preparedness for cases where emergencies
can cause unintended emissions?

Version No.:01

/P01/

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8.18 Are procedures identified for review of

reported results/data?
PDD (B.7.2)/P01/

8.19 Is the data archiving period for this project

activity stated in the PDD and appropriate?
Note: All archived monitoring data, required
for verification and issuance, should be kept
for at least two years after the end of the
crediting period or the last issuance of CER.

/P01/,
/B02/,

DR

The monitoring plan has a procedure for

verification of the recorded data and
internal audit for implementation of the
monitoring plan.

OK

OK

DR

The data archiving period for this project

activity is stated in the PDD.

OK

OK

DR

Refer explanation of question 5.6.1 of

this protocol

OK

OK

8.2.2 Is the choice of project leakage indicators

made according to selected methodology in a /P01/,
reasonable and conservative manner?
/B02/
Note: local knowledge and sectoral expertise
/B05/
shall also be considered.

DR

Refer explanation of question 5.6.1 of

this protocol

OK

OK

8.2.3 Is the measurement method clearly stated

and deemed appropriate for each leakage
value?

DR

Refer explanation of question 5.6.1 of

this protocol

OK

OK

DR

Subjected to closure of CAR 01

OK

OK

8.2

/B05/

Monitoring of the leakage

8.2.1 Does the monitoring plan provide for the

collection and archiving of all relevant data
necessary for determining leakage?

9.

Sustainable development

9.1

Does the LoA from the Host country DNA

contain the confirmation that the proposed
CDM project activity contributes to the
sustainable development of the host Party?

Version No.:01

/P01/,
/B02/
/B05/

/P01/,
/B02/
/B05/

/P03/

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9.2

If PDD indicates any additional

environmental benefits of the project, other
than GHG emission reductions, were those
benefits properly substantiated?

01 997 9105065323

PDD(A.2)/P01/

DR

In section A.2 of the PDD, the PP has

explained the environmental benefits.

OK

OK

10.1 Were the stakeholders identified in

appropriate and complete manner?

/P01/
/P12/
/I-01/

DR I

The identification of stakeholders was in

appropriate and complete manner.

OK

OK

10.2 Are the identified stakeholders plausible?

/P01/
/P12/
/I-01/

DR, I

Yes, the identified stakeholders are

plausible.

OK

OK

OK

OK

10.

Stakeholders consultation and comments

12.3 Does PDD describe the means being used to

invite local stakeholders comments?

/P01/
/P12/
/I-01/

DR, I

Yes. the PDD describe the means being

used to invite local stakeholders
comments

12.4 Were those means appropriate?

/P01/
/P12/
/I-01/

DR, I

Yes. Those means are appropriate which

were also verified during site visit.

OK

OK

/P01/
/P12/
/I-01/

DR, I

Yes. The project presented to the

stakeholders in unbiased manner.

OK

OK

12.5 Was the project presented to the

stakeholders in unbiased manner?

Version No.:01

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01 997 9105065323

12.6 If a stakeholder consultation process is

required by regulations/laws in the host
country, has the stakeholder consultation
process been carried out in accordance with
such regulations/laws?

12.7 Is a summary of the stakeholder comments

provided in the PDD?

12.8 Has due account of any stakeholder

comments been taken by PPs and reflected
in the PDD?

11.

/P01/
/P12/
/I-01/

PDD (E.2)
/P01/

PDD(E.3)/P01/

DR

DR

DR

The stakeholder consultation process

related to the GHG emission reduction is
not required by regulations/laws in the
host country for this type of project
activity. However, this type of hydro
power project needs to undergo the
clearance by the people committee at
district and province level before getting
the investment license. The given project
has obtained the required investment
license.

OK

OK

OK

OK

No negative comments were received

during the stakeholder meeting for the
project activity. All the queries of the
stakeholders answered satisfactorily and
the same has been reproduced in the
section E.3 of the PDD.

OK

OK

The documentation of the EIA provided

by the PP. The same is verified during site
visit and found OK.

OK

OK

According to the regulations of the Law

on Environmental protection of Indonesia
the project entity has to analyse the
environmental impacts of project
activities. The project activity meets the
relevant requirements as per the national
law. The validation of the same was

OK

OK

Yes. The summary of the stakeholder

comments is provided in the PDD.

Environmental impacts

11.1 Is the documentation supplied by the PPs

regarding environmental impacts relevant
and accurately reflected in the PDD?

/P01/

11.2 Is an environmental impact assessment (EIA)

required for the CDM project activity?
Note: determine by using a review of relevant
legislation and local expertise.

/P01/

Version No.:01

DR
/P14/
DR
/P14/

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01 997 9105065323

carried with the appointed local expert.

8.19 In case an EIA is required, has the EIA has been
approved by local authorities and is the
outcome accurately reflected in the PDD?

/P01/

11.4 Does the PDD include a brief description of

the environmental effects of the project,
including transboundary?

/P01/

DR
/P14/

DR
/P14/

11.5 Are those effects properly addressed in the

design of the project activity?

/P01/

11.6 Does the project comply with environmental

legislation in the host country?

/P01/

DR

The EIA has been approved by Head of

Forestry and Environment Department,
Humbang Hasundutan Regency is the
outcome accurately reflected in the PDD.

OK

OK

Yes. PDD include a brief description of

the environmental effects of the project.
The impact such as water pollution, air
pollution, noise pollution, solid waste,
biodiversity, ecosystem erosion etc. were
taken into account during the project
design Environmental Clearance FSR
approval stage. Hence, no significant
trans-boundary impact is foreseen.

OK

OK

OK

OK

OK

OK

Refer to section 11.4 above.

/P14/
/P14/

DR

Refer to section 11.3 above.

12.

Specific validation requirements for SSC-CDM project activities (VVM F.2 of Validation)

12.1.

Whether the project activity qualifies as a

small-scale project activity?

Refer question No. 5.2 of this Table.

12.2 Whether the project activity conforms to one
of the approved small-scale categories and applies
the relevant tool or methodology?
Refer question No. 5.2 of this Table.

Version No.:01

/P01/
/B02/
/B05/

DR

Refer question No 5.2.1 of this table.

OK

OK

/P01/
/B02/
/B05/

DR

Refer question No 5.2.1 of this table.

OK

OK

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12.3 Whether the small-scale methodologies are

applied in conjunction with the general guidance to
the methodologies?
Refer the general guidance to the
Methodologies.
12.4 Is the project activity a debundled component
of a large scale project as defined in Appendix
C of the complified modialities and procedures
for small scale CDM project activities?

01 997 9105065323

/P01/
/B02/
/B05/

DR

Yes, the small-scale methodologies are

applied in conjunction with the general
guidance to the methodologies.

OK

OK

/P01/
/B02/
/B05/

DR

Refer question No 5.2.1.1 of this table.

OK

OK

/P01/
/P14/
/B06/

DR

Refer question No 11.3 of this table.

OK

OK

DR

Additionality of the project has been

demonstrated by investment barrier,
technological barrier, barrier due to
prevailing practice and other barriers. CL 03 (a to i ),
However, there were many discrepancies
in the application and demonstration of CAR 08 (a to p)
these barriers. Hence in this context, CL
03 (a to i), CAR 08 (a to p) have been
raised.

Refer question No. 5.2 of this Table

12.5 Whether the host country requires the
environmental impact assessment study to be
conducted for the project activity and if so
whether it has been done?
Refer question No. 11 of this Table
12.6 Whether the additionality of the project
activity been demonstrated by one of the four
barriers, viz., investment barrier, technological
barrier, prevailing practices barrier and other
barriers, listed in Attachment A to Appendix B
of simplified modalities and procedure and
Annex 34 of EB 35?
Refer question No. 5.2 of this Table

Version No.:01

PDD (B.5)/P01/
/B02/
/B05/

OK

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01 997 9105065323

12.6.1 Is the project facing investment barrier and

whether the methodology adopted in
demonstration acceptable?
/P01/

DR

Refer para (a) of Attachment A to Appendix B and

Non-binding best practice for SSC project
activities
12.6.2 Whether the project faces access to
finance barrier and if so whether
credible and reliable documents have
been provided to substantiate the
claim?

PDD (B.5) /P01/,

/I-01/

DR
I

Subject to closure of CARs and CLs raised CL 03 (a to i),

in the above question CL 03 (a to i), CAR
CAR 08 (a to p)
08 (a to p).

OK

No, the additionality section of the PDD

and the onsite interview confirm that the
proposed project activity does not face
access to finance barrier.

OK

OK

Refer para (b) of Non-binding best practice for SSC

project activities
12.6.3 Is the project facing technological barrier
and whether documentary evidence
submitted to justify the same are
acceptable? Whether the barrier can be
quantified and estimated?

/P01/

DR

NA

/P01/
/B02/

DR

NA

Refer para (b) of Attachment A to Appendix B and

Non-binding best practice for SSC project
activities
12.6.4

Is the prevailing practices barrier

justified, significant to prevent the
implementation of the project? Are the
evidences submitted credible and
reliable?

Refer para (c) of Attachment A to Appendix B and

Non-binding best practice for SSC project
activities

Version No.:01

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12.6.5

Are other barriers justified and assessed

as significant preventing the
implementation of the project activity?
Are the evidences submitted credible
and reliable?

01 997 9105065323

/P01/
/B02/

DR

NA

Refer para (d) of Attachment A to Appendix B and

Non-binding best practice for SSC project
activities

Version No.:01

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Table 2:
List of Requests for Corrective Action (CAR) and Clarification (CL)
Validation / Verification Manual
(35) The DOE shall raise a corrective action request (CAR) if one of the following occurs:
(a) The project participants have made mistakes that will influence the ability of the project activity to achieve real, measurable additional
emission reductions;
(b) The CDM requirements have not been met;
(c) There is a risk that emission reductions cannot be monitored or calculated.
(36) The DOE shall raise a clarification request (CL) if information is insufficient or not clear enough to determine whether the applicable CDM
requirements have been met.
The wording of CAR/CL shall clearly address nonconformity or seek clarification, and avoid instructive / consultative language in order to prevent actual or perceived
consultancy.

No.

1.

CAR/CL

Observation (CAR/CL)

CL-01

PP needs to clarify the

inconsistency in the electricity
supply
figure
as
42,705
MWh/year on p 3 and 41,965
MWh/year on p 5 of the PDD.

Version No.:01

Reference
(Table1)

5.3.1

Revised
section(s
)/
Summary of project owner response
Annex(s)
of the
PDD
The value of 42,705 MWh/year is the A.4.1.4
electricity generated per year before
the deduction of transmission loss.
The value of 41,965 MWh/year is the
net electricity supplied to the Grid
after deduction of transmission loss.
In the PDD Ver.2 the net electricity
generation and supplied is revised as
per the data from third party (PT SMI
as the loan debtor). The revised net
electricity supply to grid is 39,420
MWh. The difference is occurred
because PT SMI is using Capacity
Factor of 60% on their calculation.

Validation team conclusion

Corrected GPS co-ordinates are

provided for the power house
and the intake.
Also the distance is corrected in
the sections A.4.1.4 in the revised
PDD.
This CL is closed.
The stated electricity figure is the
net supply to the grid and the
same has been clarified in the
revised PDD and also the precise
value of 39,420 MWh has been
stated in the PDD now. Hence the
CL is closed.
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2.

CL 02

01 997 9105065323

Editorial mistakes:
1) First sentence in section A.2.
2) On p 5 of the PDD, title of
the Type of the project
activity is incorrect.
3) All figures / values/ units
need to be as per the
UNFCCC requirements.
4) The statement The project
will ..... line respectively. on
p 3.
5) Footnotes of the meth are
repeated and also numbers
are not in line with the
meth. in section B.2
6) Full form of AMDAL on p 30
of the PDD.
7) Symbols
of
all
the
parameters should be in line
with the applied meth, tool
(like LEy, etc.).

4.1

1) First sentence in PDD section PDD

4.2 is revised.
2) PDD, Title of the Type of the
project activity is revised.
3) All figures / values / units are
revised as per the UNFCCC
requirements.
4) The statement in PDD is
revised.
5) Section B.2 Table 4 is revised.
The footnote applicability row
is deleted from the table.
6) The full form AMDAL is now
described on the Section D.1,
2nd paragraph, last sentence.
Additional answer for point 7:
7) Symbols of all the parameters
have been revised to be in
line
with
the
applied
methodology and tool.
All revisions are available in the PDD
Version 2.
2nd response:
1)
2)
3)
4)
5) Footnotes of the meth has
been moved into the table 3

Version No.:01

1) Title of the type of project

activity is found correct.
2) Units, values and the figures
corrected to meet the UNFCCC
requirement.

3) The same has been corrected

in the revised PDD.

4) Symbols are corrected for

understanding in line with meth
and tool.
Hence CL-02 is closed.
1) OK.
2) OK.
3) OK

4) OK
5) It seems the CL has not been
understood by the PP. The
footnotes are to be kept in the
applicability criteria table but
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01 997 9105065323

of section B.2 in the revised

PDD
6)

to be deleted from the

footnotes (because it is
repetition). CL is open.
6) OK
7) OK
2nd Assessment:
5) Footnotes have been moved
into the Table 3 of B.2 of the
revised PDD. Hence CL 02 is
closed.

3.

CL 03

4.

CL 04

5.

CL 05

6.

CL-06a

Version No.:01

PP needs to confirm the data

sources as mentioned in Table 2
on p 5/6 of the PDD.

The confirmation received via formal

email from third party (PT SMI as loan
provider).
The
copy
of
the
confirmation email is attached.

A.4.2

The same has been provided in

the revised PDD and found OK.
CL-03 is closed.

PP needs to give complete

reference of the debundling
guideline on p 7 of the PDD.

The complete de-bundling guideline

reference is added in the PDD Ver. 2,
section A.4.5 p 7.

A.4.5

The
complete
de-bundling
guideline reference is added in
the revised PDD. This CL is closed.

B.4

As per the SSC CDM PDD

completing guideline, PP needs
to specify the baseline for the
proposed project activity based
with reference to the chosen
project category in section B.4
of the PDD.

The baseline scenario now specify in

the PDD Ver. 2, section B.4 p 12.
2nd response:
The baseline scenario on the section
B.4 has been revised (see PDD Ver 3
section B.4 Based on methodology
AMS-I.D version 17, 16 June 2011
paragraph 10, the baseline scenario is
the electricity delivered to the grid)

It seems the CL is not clearly

understood. Please refer to the
raised CL and then provide the
response. This CL is open.
2nd Assessment:
The baseline scenario has been
revised in the PDD section B.4 as
per the guidance of meth hence
this CL is closed.

PDD states, In this situation,

the
prevailing
commercial
interest rate of 9.5% issued by

PDD section B.5 has been revised :

.and the estimation of loan
payment period at 8 years, with 2

B.5

The sentence has been modified

in the revised PDD. CL is closed

4.1

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Central Bank of Indonesia and

the debt of 60.85% of
estimation 8 years loan period is
taken to estimate the income
tax calculation in the IRR project
cash flow (p.14). The last part
of the sentence (underlined
portion) appears to require
some revision

01 997 9105065323

years grace period) in the calculation

of IRR spreadsheet.

Sensitivity analysis section has

been modified in the revised
PDD. CL is closed

CL-06b

Clarify the reasons for not

subjecting tariff to sensitivity
analysis. The explanation should
form part of the sensitivity
analysis section of PDD.

The electricity tariff is taken based on

the Power Purchase Agreement. As
per article 10 of PPA, the electricity
price has been determined of 787
IDR/kWh for 15 year. It remains valid
during period of sales and purchase of
electricity. In addition, the adjustment
of purchase price of electricity can
only be made if it contains the
amendment of laws and regulation.
Therefore, the electricity tariff is not
subjected to sensitivity analysis.
The above explanation has been
accommodated in the section B.5 part
sensitivity analysis of PDD version 02
111202, It remains valid during
period of sales and purchase of
electricity, no escalation rate applied
Therefore, the electricity tariff is not
subjected to sensitivity analysis.

CL-06c

In this context, clarify whether

the tariff is not subject to
escalation. A few components in
the tariff seem to be subject to
escalation at the same rate as

No, the tariff is not subject to

escalation. As per article 10 of PPA,
the electricity tariff has been
determined and remains valid during
the period of agreement, which is IDR

PPA does not contain any such

escalation. Hence, the response
is accepted. CL is closed

7.

8.

Version No.:01

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O&M cost, based on the sectoral

and local expertise of DOE
9.

CL-06d

Version No.:01

It is observed that PPA was

signed on 10/08/2010. The
investment decision is reported
to have been taken on
05/04/2011 as per the copy of
the Board resolution submitted.
Clarify whether it is normal in
Indonesia for the PP to sign PPA
before
taking
investment
decision, particularly when
signing
of
PPA
involves
furnishing of bank guarantee
and failure to implement the
project would not only involve
forfeiting the bank guarantee
but also payment of penalty. In
the above background clarify
whether
any
prudent
entrepreneur sign the PPA
without assessing the viability of
the
project
and
taking
investment decision.

01 997 9105065323

787 per kWh for 15 years. This value in

PPA includes all components to
become single price, fixed value.
It is common in Indonesia for the
implementation of hydropower plant,
the project developer have a PPA
agreement with the PLN/State owned
electricity company, sole electricity
buyer. The certainty of electricity price
bought by PLN as stated in the PPA
then is used for the investment
project evaluation by the project
developer to go ahead for the project
or not or either they would like to go
with their own equity or partially with
other source of funding, which would
be decided at later stage.
There is no penalty if PP decided no to
go ahead with the project. The PPA
might be cancelled If there is no
financial closure or progress is
negative (while bank guarantee value
is less than 0.5% of total investment
amount, not to be considered as
project start indication).
2nd response:
PPA article 19 governs termination
terms (construction start failed),
hence article 4 explains guarantee
terms and amount. PP may request
amendment / period extension,
transfer the PPA etc., and it is possible
that the guarantee amount may be

Explanation appears logical and

hence accepted. However, the
second part of the response
relating to penalty is not correct,
as Article 19 (7) read with clause
4(h) of PPA states that the PP has
to issue a bank guarantee for IDR
44.2 bn. valid till COD. Failure to
implement the project will result
in forfeiture of the bank
guarantee. PP may kindly go
through the PPA once again and
state whether there is any
penalty or not. CL is open
3rd Assessment:
The performance bond amount
may be considered minor
expense as per the CDM glossary
hence this explanation is
accepted and this CL is closed.

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01 997 9105065323

lost / penalty if all negotiation fails.

The performance bond amount up to
883 million IDR (less than 0.5% of total
investment for stage 1), or 2.5 billion
IDR (about 1% of total investment for
stage 2).
According to Glossary CDM term,
version 05, Minor pre-project
expenses, e.g. the contracting of
services /payment of fees for
feasibility studies or preliminary
surveys, should not be considered in
the determination of the start date
(for example, costs for FS study or
preliminary survey amount can be
significantly higher than such amount
for the performance bond, yet it is
considered minor expenses).
Therefore
the
minor
expense
(performance bond) for this project is
not considered as an event, which
shall mark start of the project activity.

10.

CL-06e

Version No.:01

It is observed that as per Article

4.2 (h) of PPA, the PP is required
to furnish bank guarantee for a
total of IDR 3 billion at the
minimum
for
the
due
implementation of the project.
Failure to implement the project
as per schedule seems to entitle

As per Glossary of CDM term version

5, the start date of a CDM project
activity shall be considered to be the
date on which the project participant
has committed to expenditures
related to the implementation or
related to the construction of the
project activity. This can be the date

Since it represents only about 1%

of the project cost, the response
is accepted. CL is closed

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PLN to encash the bank

guarantee and also impose
penalties. Clarify the reasons for
not considering the date of
execution of PPA / date of
issuance of bank guarantee to
PLN as the start date in as much
as it seems to represent an
irretrievable step.

11.

CL-06f

Version No.:01

Water retribution cost has been

taken at 20% of IDR 50/kWh
based on the Decree No. 12 of
2002. Clarify whether this is
correct and in conformity with
the decree as the English
translation is not quite clear.
Considering the calculation is
correct, clarify whether the
water is treated as underground
water or surface water as the
tax retribution cost leviable
seems to be only 10%.
Moreover,
the
relevant
paragraph also uses the word
surface water.

01 997 9105065323

on which contracts have been signed

for
equipment
or
construction/operation
services
required for the project activity. Minor
pre-project expenses Based on
above definition, the date of PPA is
not considered as the start date of the
project activity moreover the project
may not be implemented even though
the PPA has been signed (such costs
for bank guarantee represents minor
pre-project expenses, comparable to
costs for FS report, preliminary study
etc.). Thus, the date contract with
equipment supplier will be taken as a
start date of the project activity.
South Solok Regency is an expansion
from Solok Regency. There is no
regulation has been set-up for Water
Tax until the board decision time in
April 2011, and no information
whether the water tax from Lubuk
Gadang SHPP is classified as ground or
surface water.
From PPA Article 10 sub-article 2, the
price as mentioned in paragraph (1) is
including water retribution .imposed
by local government (PEMDA).
Therefore we used IDR 10/kWh for
water tax (water retribution) as per
the water retribution allocation from
PLN.

Explanation is accepted as the

PPA specifically mentions IDR
10/kWh. CL is closed

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Explanation is accepted. CL is
closed

Inflation rate has been assumed

at 7% and Data from third party
(PT SMI as loan debtor) is cited
as the basis. It is not clear to
which period the inflation
pertains to and why. Besides the
fact that the document does not
form part of the documents now
submitted, clarify what is the
role of PT SMI Loan debtor in
providing inflation rate.

Inflation rate and other key financial

parameters
for
IRR
calculation/computation were given
as supporting data for re-FS Report
data. SMI as the loan debtor/financier
is considered third party and their
statement letter could be used as
supporting document for the key
financial parameter indicated on the
IRR calculation.
On the IRR worksheet version 1
(during GSP), the inflation rate is
6.96% refer to Inflation Rate in
December 2010 or the annual inflation
rate for year 2010. For PT SMI internal
calculation, they are using 7% (round
up from 6.96%) as the inflation rate.
Now we refer back to inflation rate of
6.96% for our revised IRR calculation.
(Detail on P07_Lubuk Gadang
SHPP_IRR_and_ER_Version
2_111202.xls)

CL-06h

Clarify the reasons for not

providing tax in a few years in
between

For the previous IRR worksheet, a few

years were not provided with taxes
because on that particular year the
companys margin before tax is minus.
Since there is no positive income,
therefore we didnt apply the income
tax.
From the revised IRR worksheet, no
negative income is occurred.

The response is incorrect. Even in

the previous version, there was
taxable profit in all those years
where tax was not provided.
However, now that the tax has
been corrected, CL is closed

CL-06i

Investment has been phased

over 2 years in the ratio of

The total project cost divide in two

years with portion of 75% for year -1

This is based on note, which is

termed as re-FSR. this report is

12.

CL-06g

13.

14.

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Version No.:01

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75:25. Clarify the basis for the

phasing.

and 25% for year 0 based on the

Investment Project Budget Planning.
This portion was assumed with
consideration that for the 1st
development year will require larger
amount of investment for civil work
and
procurement
(diverse
construction materials, hydro turbine
generation and switchgear orders,
etc.).

not prepared by any external

agency.
However,
since
reckoning of entire investment
even in one year does not render
the project non-additional, the
phasing is accepted. CL is closed

Response is accepted. CL is
closed

Please confirm that the project

is not entitled to any financial
and fiscal incentives (including
accelerated depreciation).

It is confirmed that the project is not

entitled to any financial and fiscal
incentives (including accelerated
depreciation). The FS report values
already considers applicable VAT,
custom etc., and further clarifications
provided on the Loan Application
letter as well (no incentive / scheme is
valid).

Please clarify how the CDM

revenues
were
considered
essential to overcome the
investment barrier to this
project activity, in particular
that the bench mark represents
a rate below which the
investment would not have
been made

For the small scale CDM project,

Lubuk Gadang MHPP conforms to the
Attachment A to Appendix B of the
Simplified Modalities and Procedures :
to show that the project activity
would not have occurred anyway due
to at least one of the following
barriers:
(a) Investment barrier: a financially
more viable alternative to the project
activity would have led to higher
emissions;
Considering
Attachment
A
to
Appendix B, the more financially

The
explanation
is
not
convincing. The response is
qualitative and not quantitative.
CL seeks the conformity of the
project to paragraph 112 (c) of
VVM and not Annex 13, EB62 or
Attachment A to appendix B or
Annex 34, EB 35. CL is open

15.

CL-06j

16.

CL-06k

Version No.:01

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3rd Assessment:
Inclusion of the CDM revenue in
the IRR calculation is appropriate
hence CL-06k is closed.

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01 997 9105065323

viable alternative to Lubuk Gadang

SHPP (Business As Usual investment
with returns minimum at the
benchmark rate applicable to the
industry sector) would have led to
higher emissions. Therefore the
additionality of Project Activity was
demonstrated,
and
CDM
was
considered essential.
2nd response:
CDM revenue improves the project
feasibility, and with the favourable
movement in CDM price and exchange
rate it is expected that the CDM
revenue would breach the benchmark.
17.
CL-06l

18.

Clarify when the ERPA was

executed as the date given in
the first page and last seem to
differ

CL 07
For the statement on p 17 of the
PDD The project ......covered in
Sumatera Power Grid, according
to the PT PLN (Persero). PP
needs to provide objective
evidence and also mention the
same in the PDD.

Version No.:01

ERPA was fully executed on January

18, 2011 as per ERPA document
submitted to DOE and as per PDD
Version 02 section B.5 table
Consideration of CDM prior to Project
Implementation
For Sumatera Island, PLN has
established
an
Interconnected
Sumatera Grid. All power plants
located in Sumatera island and wish to
sale the electricity to PLN will connect
to this Grid. The project activity is
located in West Sumatera province,
Sumatera Island therefore the project
will connect to Sumatera Grid.
The electricity from project activity
will connect to Sumatera Grid via

Response is accepted. CL is
closed

B.6.1

Steps of the Tool are provided in

section B.6.1 of the revised PDD
along with the justifications. CL
07 is closed.

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01 997 9105065323

Lubuk Gadang Interconnection point

(detail in PDD Ver. 2 section A.2 para 2
and section B.6.1).
The connection scheme to Sumatera
Grid is attached.
2nd response:
Steps tool has been accommodated in
the section B.6.1 of revised PDD.
Supporting document to substantiate
the location of the project is covered
in Sumatera power grid has been
provided in footnote. (Please find
attached .pdf no. P30_RUPTL
2010_2019_Sumatera electricity
system)
19.

CL 08

In reference to the para The

environmental
.....legitimate
land owner. as mentioned on p
30 of the PDD, PP needs to
provide
rehabilitation
/
resettlement plan and the status
of its implementation.

20.

CAR01

Version No.:01

Letters of Approval from host

party DNA and Annex I party are
pre requisite for the registration
of the project activity. Copies of

The status of land acquisition process

is stated on the Cover note Land
Certificate Issuance Letter (Ref. Land
clearance document.pdf).
The PP has settled land acquisition
payment
with
the
legitimate
landowner supported with Cover
note Land Certificate Issuance Letter
from
Notary
with
number:
012/WP/N/X/2011. By this payment,
further works on the paddy field and
plantation relocation is under the
legitimate landowner responsibility.

D.1

The same been provided by the

PP to the validation team and
found ok.
This CL is closed.

The submission process for Letter of

Approval from Host Country and
Annex I are still on-going.

PDD

Copies of the LoAs from the Host

Party and Annex 1 party for the
project activity has been
provided to the validation team.
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01 997 9105065323

the same needs to be provided

to the validation team.
21.

CAR 02

The PDD is found to be

inconsistent with respect to the
SSC CDM PDD completing
guideline as follows:
1) As per SSC CDM PDD
completing
guideline,
section A.4.2 of the PDD
should
include
the
description
of
how
environmentally safe and
sound
technology
and
knowhow is being applied
by the project activity
interalia
technology
transfer.
2) The table 3 in section A.4.3
of the PDD.
3) Table in section B.6.4 of the
PDD.
4) Tables in section B.7.1 of
the PDD.

22.

CAR 03a)

Version No.:01

Sec. B.5 does not explain the

alternatives to the project or
any statement as to why
discussion of alternatives is not

Hence the CAR is closed

1) Section A.4.2 para 2
Technology of the small-scale
project activity has been
revised as per SSC CDM PDD
completing guideline.
2) Table in section A.4.3 has
been revised.
3) Table in section B.6.4 has
been revised.
4) Table in section B.7.1 has
been revised.

PDD

1. In section A.4.2 of the revised

PDD it is stated Since this
technology is quite common,
the technology transfer is not
difficult to implement at the
project activity. PP needs to
clarify the same. CAR is open.
2. OK.
3. OK.
4. OK
2nd Assessment:
The sentence has been revised to
appear clear and easy to
understand hence this CAR is
closed.

B.5

The PDD contains a statement as

to why the discussion on
alternatives is not necessary. CAR
is closed

2nd response:
1) The statement of Since this
technology is quite common, the
technology transfer is not difficult to
implement at the project activity.
Was mentioned to explain about the
technology transfer process would not
have difficulty due to the run-of-river
project is a well-known technology in
Indonesia. However to have a better
understanding from public reader the
sentence is revised. The revised is
available at PDD Ver 3 section A.4.2
para 2 page 6.
On section B.5 of PDD clarification was
provided (under heading Investment
Analysis) : Among of above options in
the Attachment A to the Appendix B

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necessary for the project

23.

CAR 03b)
Investment analysis section
should
explain
how
the
investment analysis selected,
(benchmark analysis in this case)
conforms to guidance 19 of
Annex 5, EB 62.

24.

CAR 03c)

Investment analysis section

should
explain
the
appropriateness of the financial
indicator used for the project
type and decision making
context

Version No.:01

01 997 9105065323

of
simplified
modalities
and
procedures from small scale CDM,
Investment analysis is selected for the
assessment of additionality. Since the
approved
methodology
AMS-I.D
version 17 prescribes the baseline,
further discussion on the alternatives
is not required for the project activity.
The investment analysis section has
been revised to confirm the guidance
19 of Annex 5, EB 62, please refer to
P02_PDD Lubuk_Version 2_111129
section B.5 the supply of electricity
from a grid this is not to be considered
an investment and a benchmark
approach is considered appropriate.

Sec. B5 of PDD (Ver 2) explains

the conformity of investment
analysis to guidance 19 of Annex
5, EB 62. CAR is closed

The investment analysis section has

been revised accordingly, please refer
to P02_PDD Lubuk_Version 2_111129
section B.5 Based on the guidance 12
of Annex 5 EB 62; in cases where a
benchmark approach is used the
applied
benchmark
shall
be
appropriate to the type of IRR
calculated

Guidance 12 does not state that

post tax project IRR should be
used. It only recommends
benchmarks for project and
equity IRR. Benchmark is not the
cause, but the effect. Therefore,
the response is not correct. PDD
should explain why the project
IRR has been considered
appropriate financial indicator for
the project to demonstrate
additionality. CAR is open.
3rd Assessment:
The revised PDD has been
corrected to include the post-tax
project benchmark hence this
CAR is closed.

2nd response:
Refer to the guidance of EB 52 annex
5:
Para 19: if the alternative to the
project activity is the supply of
electricity from a grid this is not to be
considered an investment and a

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01 997 9105065323

benchmark is considered appropriate.

Para 12: in cases where a benchmark
approach is used the applied
benchmark shall be appropriate to the
type of IRR calculated (Project IRR or
equity IRR).
IRR is a common financial valuation
metric used to calculate and assess
the financial attractiveness/viability of
capital investment. The Project IRR
calculation assumes that no debt is
used for the project while Equity IRR
assumes that one use debt for the
project so the inflows are the cash
flows required minus any debt that
was raised by the project.
According to the investment Guidance
paragraph 9 stated that cost of
financing
expenditures
(loan
repayment and interest) should not be
included in the calculation of Project
IRR.
This is unlike the Equity IRR calculation
where the portion of the investment
costs which is financed by debt should
not be considered a cash outflow
(Investment Guidance paragraph 10,
which makes total investment in the
Equity
IRR
financial
analysis
calculation to become considerably
smaller without the debt portion).

Version No.:01

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PDD Version 3 has been revised

accordingly
(see
document
P02_PDD_Lubuk_Version_3_track
changes_120830.doc
page
14
Therefore, .Post tax Project Internal
Rate of Return (IRR) will be used in the
benchmark analysis as financial
indicator to determine the viability of
the project.)
25.

CAR-03d

Clarification provided in PDD section

B.5, Refer to EB 62 Annex 5, the
guidance on the assessment of
investment analysis (version 05),
paragraph 13

Sec. B.5 should present the

benchmark and its conformity to
guidance 12 and 13 of Annex 6,
EB 62

2nd response:
Revision is made that the clarification
of interest rate and taxation is moved
under heading investment analysis.
Resultant
benchmark
and
its
parameter to calculate the benchmark
has been included in Table 6 of PDD
section B.5.

PDD (ver 2) has been revised.

However, while it gives formula,
it does not give any details of
various parameters used in the
formula, which is more relevant.
The section does not even give
the resultant benchmark. CAR is
open
3rd Assessment:
Revised PDD and IRR sheet have
been submitted to the validation
team and interest rate along with
taxation has been moved in the
investment analysis section.
Hence now the resultant value
truly reflects the IRR, this CAR is
closed.

The D/E ratio used to lever the beta

for calculation of cost of equity and
determines the WACC is based on the
financing structure proposed for the
project taken from FSR. Damodarans
Version No.:01

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database and approach were suitable

and commonly used in financing
analysis, and applicable to the project
activity. The applied beta for this
project is adjusted based on the
unlevered total beta value for Power
industry, published data. This is
conforming to guidance 13 of annex 5,
EB 62 that the benchmark should be
based on parameters that are
standard in the market.

26.

CAR-03e

PDD states, Referring to

guidelines on the assessment of
investment analysis (version 05),
EB 62 Annex 5, paragraph 11, in
cases
where
a
post-tax
benchmark is applied the DOE
shall ensure that actual interest
payable is taken into account in
the calculation of income tax.
For Lubuk Gadang project, a
post tax benchmark is applied to
demonstrate the additionality of
project activity (p.14). The
quote and the subsequent
sentence have no relation.
Please modify the sentence to
suit the quote.

The subjected statement has been

deleted since the statement has no
relevancy with the context. The
revised PDD, section B.5 is available.

Since the sentence has been

removed, CAR has lost its
relevance. CAR is closed

27.

CAR-03f

PDD should give all the input

parameters used in the financial
indicator, the source/basis for
the same and the conformity of

PDD Version 2, Section B.5 has been

revised accordingly.
Specifically for equipment life time
was clarified on response to CAR-03i

PDD explains the conformity of

benchmark to guidance 12 of
Annex 5, EB 62. CAR is closed

Version No.:01

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28.

CAR-03g

29.

CAR-03h

input parameters to various

applicable guidance of Annex 5,
EB 62 and Annex 11, EB 48 and
Annex 15, EB 50.

below, and the annual generation

issue was clarified on response to
CAR-03h below.

Sensitivity analysis section of

PDD should contain a paragraph
explaining at what percent
variation in the selected
parameters,
the
financial
indicator
will
equal
the
benchmark and the probability
of its occurrence with evidence

PDD has been revised. New paragraph

has been added to the PDD (see PDD
Version 2, section B.5 page 15-16
Below are the likelihoods of scenarios
where the IRR would meet the
benchmark by adjusting project cost,
power generation and O&M cost..)

Revised PDD (ver 2) explains the

break-even point. CAR is closed

Based on Annex 11, EB 48 para 3, The

plant load factor shall be defined exante in the CDM-PDD according to one
of the following three options:

Documentary evidence has been

submitted to the effect that PPA
based calculated PLF of 68.39%.
Part (a) of the guideline has been
considered hence this CAR is
closed.

The PLF has been considered at

60%. As per PPA, it is 85.48%
and as per revised Business Plan
dated 01/04/2011 submitted it
is 65%. As per Article 2 (4) of
PPA, the project has to
maintain the availability of the
power averages of 56162 GWh
/year or equivalent with
capacity factor of 85.48% as
long as the operational period.
Therefore, the PLF of 60% and
the generation of 39.42 GWh
reckoned in the financial
indicator
calculation
is
underestimation of generation.

Version No.:01

01 997 9105065323

(a) The plant load factor provided to

banks and/or equity financiers while
applying the project activity for
project financing, or to the
government while applying the
project activity for implementation
approval;
(b) The plant load factor determined
by a third party contracted by the
project participants
(e.g. an engineering company);
According to above point (a), the data
used is the PLF provided to the bank
or financiers. PP used the re-FSR

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document to apply project financing

for Lubuk Gadang SHPP. The
PLF/Capacity Factor state on the reFSR document is 65%. The PLF of 65%
is also stated on the technical
description from technology provider
(document
P22_Technical
Description.pdf has been submitted
to DOE).
PT SMI as the financier also has their
own calculation where they adjusted
project PLF to become 60%.
Nevertheless, PLF value of 65% was
taken, as per point (a) of the
Guidelines. This is conservative.

30.

CAR-03i
Operating life of the project has
been considered at 20 years and
Annex 15, EB 50 has been cited
as the basis. As per Annex 15, EB
50, the life is 150,000 hours or
17.1 years and not 20 years.
Further, since overhaul charges
are provided once in 5 years,
restricting the operating life of
the project to 20 years is neither
appropriate nor acceptable.

Version No.:01

Turbine load factor of 65% was

applied to the operating hours, which
gives 24 x 365 x 65% = 5694 hours /
year.
Applying this value on the EB 50
Annex 15 (150,000 hours) would give
operating lifetime of about 26.3 years
(since it will not be possible to run the
equipments at 100% of time), which
was significantly higher than value
taken in the financial analysis (20
years). Therefore this value was
appropriate
considering
the
Investment Analysis Guidelines para 3
maximum of 20 years.

Explanation
is
accepted.
However, when the overhaul
charges have been accounted
once in 5 years, restricting the
life of the project to 20 years is
neither
appropriate
nor
acceptable. Guidance 3 also
states, Both project IRR and
equity IRR calculations shall as a
preference reflect the period of
expected operation of the
underlying
project
activity
(technical lifetime). Moreover,
such overhaul charges do not
seem to have been assumed by
other projects. CAR is open

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31.

CAR-03j

Version No.:01

In this context, it is observed

that the overhaul charges have
been provided at 0.4% of total
investment cost and Project
Budget Planning has been cited
as the basis. As per the extract
of a document Studi
Kelayakan dan Disain Rinci PLTM
Lubuk Gadang Sumatera Barat
submitted (whose authorship
and date are not known), the
overhaul cost is calculated at
2.6%. From the calculation, we
assumed that the overhaul
charge is 2% and we used this
value for the next financial
years. The documentation and
input parameters used appear
to be not in conformity.

01 997 9105065323

2nd response:
The selection of the technical lifetime
of 20 years has been in conformity
with Annex 15 EB 50 and Investment
Analysis Guidelines para 3.
Overhaul considered on the FSR
document in 2010 (see FSR document
page 143).
To be conservative, overhaul cost has
been removed from the calculation.
Please refer to worksheet P07_Lubuk
Gadang_IRR_Version 3_120830.xls.

3rd Assessment:
As per the Annex 15 EB 50 and
Investment Analysis Guidelines
para 3, 20 years of operational
life time has been accepted
hence this CAR is closed.

The value of 0.4% was taken from

third party data (statement letter
from SMI). Nevertheless it is removed
from IRR calculation.
IRR spreadsheet was revised, using
value of 2% of the total project cost,
refers to re-FSR document (revision to
the Feasibility Study / Studi
Kelayakan dan Disain Rinci PLTM
Lubuk Gadang Sumatera Barat in
2010).

While the overhaul charges used

is In conformity with the note,
whose authorship and date are
not known. it is not an
acceptable evidence. An internal
note prepared by the PP cannot
be accepted as evidence unless
the input figures used are
evidenced by external agencys
quotation/letter. CAR is open.

2nd response:
For conservative reason as explained
in the CAR-03i, overhaul costs has
been removed from our project IRR
calculation
(see
P07_Lubuk
Gadang_IRR _Version 3_120827.xls.)

3rd Assessment:
The overhaul costs has been
removed in the revised IRR
calculation sheet hence this CAR
is closed.

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01 997 9105065323

No overhaul costs is applied to the

revised IRR calculation.
32.

CAR-03k

Cost of the project has been

reckoned at IDR 175,483.55 mn.
and loan agreement with SMI
has been cited as the basis.
Besides the fact that the Loan
agreement cannot be accepted
as the basis as it is post decision
making, loan sanction letter
issued by the very same PT.
Sarana Multi Infratstruktur
(Persero) dated 20/04/2011
does
not
include
the
contingency at 10% added in the
project cost. Hence, any cost
above IDR 159.530.5 mn. is not
acceptable.

Version No.:01

The figure IDR 159,530.5 mn is quoted

from offers from technology provider
for civil and electro-mechanical works
(the offer documents has been
submitted to DOE), the source for
project cost in IRR calc is revised (not
from the loan agreement with SMI).
To anticipate future cost overrun on
hydro power plant construction, 10%
contingency was included to the
above figure (provision of contingency
is responsibility of PP as the project
developer, 10% was taken in the
Investment Project Budget Planning
document since there is uncertainty
risk and also because this is their first
hydro project).
From this offer/proposal, PP then
request for loan from PT SMI and they
approved the figure submitted to
them on the loan agreement
document. Clarification from Mr Novi
Arriyadi / SMI officer was provided,
and
contingency
was
stated
although not explicit (apart from
IDR 159,530.5 mn) therefore total
amount of IDR 175,483.55 mn is taken
for IRR calc.
Excluding contingency costs would
pose risks to the completion of
hydropower construction, where

Even the attachment to the note

provides the cost of only IDR
159,530 mn. The contingency is
an addition made in the note,
whose authorship and date is not
known. Even the letter addressed
to bankers also provides the cost
of IDR 159,530 mn. only. Hence,
the cost more than IDR 159,530
is not appropriate.
Moreover, it is observed that
O&M cost has been increased to
2.5% from 1% given earlier.
Changing input parameters after
the CAR has been raised is
neither
appropriate
nor
acceptable. Moreover, the email
addressed to South Pole as late
as Oct 2011 estimates the cost at
IDR 159,530 and O&M cost at 1%
only.
CAR is open

3rd Assessment:
The explanation for contingency

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01 997 9105065323

various uncertainties often arise in

hydropower project that gives
significant delay and higher expenses,
therefore giving lower return to
investment.

inclusion and the 2.5% of O & M

expenses
are
given
with
supporting links which are
verified by the team and hence
this CAR is closed.

2nd response:
a. Contingency
The explanation regarding the 2011
re-FSR and 2010 FSR is available on 2nd
response for CAR-03h.
Regarding the loan application letter
send to bank, it should not be the
financiers responsibility to cover
contingency, therefore it was not
mentioned. Later on this statement is
informed to PP by email from PT. SMI
(Mr. Novi Arriyadi).
The percentage of contingency and
the total project cost with contingency
is available on the re-FSR financial
analysis sheet. Moreover, contingency
has been considered in the FSR in
2010 (Lubuk Gadang Feasibility Study
in 2010.doc page 159, Table
Alternative III (7.5 MW) Recapitulation
of Estimate Cost Lubuk Gadang
MHPP).
Contingency must be considered due
to the uncertainty risk for renewable
energy power plant at such early stage
of development. Moreover, registered
CDM hydro projects in Indonesia
Version No.:01

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01 997 9105065323

considered
the
inclusion
of
contingency on their project cost. The
project which considered contingency
is listed below:
- Parluasan Hydro Electric Power
Plant
- 10 MW Tangka/Manipi Hydro
Electric Power Plant
There are some studies regarding
contingency as below:
- World
bank
study

Estimating Construction Cost

and Schedules
- Economic
Development
Branch BC Ministry of
Sustainable
Resource
Management Small Hydro
Generation Building Block
Profile
- CMS Inc. Contingency Use
and Misuse
By referring to the registered CDM
Hydro project and several studies and
Financial Model in FSR 2010, PP
applied contingency of 10% for the IRR
financial analysis on the revised FSR /
Investment Project Budget Planning
and the same is use for the CDM
Project IRR calculation excel sheet.
However, PP has excluded IDC from
the IRR calculation excel sheet (see
P07_Lubuk
Gadang_IRR_Version

Version No.:01

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01 997 9105065323

3_120830.xls) to be in conformity with

Guideline of Investment Analysis EB
61 Annex 13, Ver 4 guidance 9 The
cost of financing expenditures (i.e.
loan repayments and interest) should
not be included in the calculation of
project IRR.
b. O&M Cost
O&M Cost is stated as 2.5% of the
total project cost on the excel sheet
Version 1. The revision was made due
to
another
information
from
statement letter PT. SMI as the
financier (or third party) that consider
O&M Cost of 1% (for trying to be more
conservative). However the statement
letter made by SMI is considered postdecision document, therefore the
value cannot be applied, and must
revert back to the Re-FSR document to
use 2.5% for O&M cost (value in the
Re-FSR document, and also indicated
in the study titled Hydropower by IEA
ETSAP, please refer to P12_14_O&M
Cost (1.5%-2.5%).pdf).
33.

CAR-03l

Version No.:01

Calendar year, which is the

financial year in Indonesia,
should be used in all the
worksheets.
First
year
generation, revenue and cost
should conform to the expected
COD of the project as per FSR

The IRR worksheet is revised, showing

calendar year, refer to re-FSR
document on the IRR calculation,
which stated the project revenue
starting in 2013, full year.
2nd response:
The IRR worksheet is revised (see

Only in one table the year has

been changed from 1,2,3 to
Calendar year. The comment
holds good for all the worksheets
forming part of the financial
indicator calculation worksheets.
CAR is open.
The revised IRR worksheet

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34.

CAR-03m

Interest computation on loan

seems to indicate that the loan
is a bullet repayment. It is
evident that the loan is
repayable in 32 quarterly
instalments and the interest has
to be computed in conformity
with the sanction letter to be in
conformity with guidance 11 of
Annex 5, EB 62

35.

CAR-03n

Version No.:01

FSR furnished is incomplete.

Only first two chapters of FSR
has been submitted, for reasons
not clear. DOE requires full FSR
in English along with all

01 997 9105065323

P07_Lubuk
Gadang_IRR_Version
3_120830.xls)
The re-FSR document / Investment
Project Budget Planning document
showed the revised project schedule,
which indicated that the project
would be commission in December
2012. Therefore, we assumed full
electricity revenue of 12 months on
2013.

addresses the issue and has been

checked that the revenue has
been considered for 12 months in
2013. CAR is closed.

Refer to DOE CAR-03k above; loan

agreement (sanction letter) is not
applied for IRR calculation for CDM
purpose. Therefore interest rate was
calculated and refers to re-FSR table
with annual payment, showing higher
amount of interest payment, which
give higher IRR result. This is
conservative.

Interest calculation has been

made by assuming yearly
repayment.
Please
clarify
whether Indonesian banks accept
yearly repayment. CAR is open
The revised IRR has been worked
quarterly repayment. CAR is
closed.

2nd response:
The interest calculation has been
revised into quarterly repayment with
interest rate of 16.01%. (see
P07_Lubuk
Gadang_IRR_Version
3_120830.xls).
The complete FSR is attached. There
was a problem to convert the word
document into pdf version. We
attached the word version of the
Feasibility
Report
full
English

Explanation is accepted. But

strangely, the FSR does not
contain the chapter on estimated
cost and financial aspects or
statements. Clarify whether a FSR

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annexures, credentials of the

agency who prepared it and the
date of preparation of FSR.

01 997 9105065323

translation. FSR developed by Jasclean

entity, an independent consultant,
which also developed the EMMP
document for SKE.
2nd response:
The complete FSR (English translation
version) in PDF format has been
submitted to DOE. The feasibility
analysis is available on the Chapter V
page 134 145, with specific financial
analysis detail on section 5.2.
Table 5.2 on page 137 provides the
basic data of financial analysis needed
for IRR calculation.
Table 5.4 shows the worksheet for
Income, Revenue and Cost of Lubuk
Gadang MHPP (page 144 145).

36.

CAR-03o

Version No.:01

SMI had sanctioned the loan on

20/04/2011 and the loan
agreement
provides
implementation period of 24
months from the date of signing
of
the
agreement,
i.e.,
27/04/2011. As per PDD, which

As per Glossary of CDM term version

5, for starting date of a CDM project
activity (P-SSC), the starting date of a
CDM project activity is the earliest
date
at
which
either
the
implementation or construction or
real action of a project activity begins.

is prepared without the financial

details. CAR is open.
3rd Response:
The FSR with English translation
in PDF format has been
submitted to the team. The
feasibility analysis is available as
mentioned, with specific financial
analysis detail on section 5.2.
Hence this CAR is closed.

PDD has been revised and

2011/12/01 has been given as
the start date. CAR is closed

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37.

CAR-03p

38.

CAR-03q

39.

CAR-03r

Version No.:01

01 997 9105065323

was finalised on 04/10/2011,

the start date is stated to be
yet to be fixed. This does not
seem to be realistic.

Accordingly, project starts date is the

signed contract date for civil work,
which was signed in December 1, 2011
(PDD is revised).

Worksheet should also provide a

facility to check the financial
indicator with CDM benefits

Worksheet has been revised and now

includes the financial indicator with
CDM benefits.

Worksheet contains a separate

sheet for IRR with CDM benefits.
CAR is closed

As per documentary evidence

submitted
UNFCCC
was
informed on 29/11/2010; but
DNA seems to have been
informed about the project only
on 03/08/2011. The project
does not seem to conform to
paragraph 2 of Annex 13, EB 62
as PPA was signed on
10/08/2010, which involves
furnishing of a bank guarantee
for due implementation of the
project.

Please refer to document title

P09_Lubuk Prior Notification to
UNFCCC and DNA.pdf. This is the print
out version of email sent to UNFCCC
and DNA at the same date. However,
Indonesia DNA is experiencing internal
problem of having no regular replying
system to each prior consideration
sent to them. We could see if the
project has been considered by DNA
by visiting their website and we could
see our project CDM prior notification
posted on their website (document
P09_Notification from DNA regarding
Lubuk Gadang Prior Consideration)

Explanation is accepted. CAR is

closed

The expected return on equity is

given as 36.39%, which is high
compared
to
the
ROE
recommended by EB vide
Appendix to Annex 5, EB 62.
That apart paragraph 112 (b) of
VVM requires DOE to Ensure
that any risk premiums applied
in determining the benchmark
reflect the risks associated with
the project type or activity. In

Even the revised benchmark,

comprises return on equity of
31.51%, which is much higher
than
the
default
return
recommended by EB. The
computation of ROE in the CAPM
model suffers from several
inadequacies and cannot be said
to conform to paragraph 112 (b)
of VVM. Moreover, in the FSR
prepared in 2010, a copy of

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01 997 9105065323

this background, the given

benchmark calculation seems to
suffer from several inadequacies
as follows:

a) using coupon rate of a single

security as proxy for risk
free rate

b) using coupon rate as risk

free rate, implying that the
G-Secs can be purchased at
par in Indonesia

c) restricting the duration of

market return computation
to only 7 years when the
data seems to be available
for a longer period

Version No.:01

which has now been submitted,

assumes a benchmark of 14%
only. Hence, DOE is unable to
accept the revised benchmark
and the benchmark computation.
CAR is open

a) Risk free rate is identified from the

gov bond with a maturity date in 21
years (15/07/2031) during the
investment
decision
and
considering the project lifetime for
financial analysis. based on above,
the approriate value of risk free
rate for the project activity is
FR0054 with the value of 9.5%
b) Yes, the coupon rate as risk free
rate are traded in the secondary
market as stated in the Central
bank of Indonesia website.

c) The market return is calculated

based on the Jakarta Composite
Index (JCI) and was used in the
Capital Asset Pricing Model (CAPM)
to calculate the cost of equity as
shown in the Equation below. The
information
on
the
stock

The assessment to responses are

given below:
a) The explanation is reasonable
and acceptable as the Bank of
Indonesia does not seem to
have issued any other
security before decision
making date with a tenor or
more than 10 years

b) The response and the

working are contradictory.
What is considered as risk
free rate is a coupon rate and
not YTM. Almost all over the
world, government securities
cannot be purchased at par.
Hence, reckoning coupon
rate as risk free rate is
incorrect.
c) While
the
explanation
appears to be convincing, one
of the requirements of CAPM

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d) absence of any explanation

for
computing
market

Version No.:01

01 997 9105065323

movement of the JCI was extracted

from
yahoo
finance.
The
compounded return for the market
is calculated over a time period of
seven years (January 2003
December 2009, the longest data
set to give representative figure to
the current and future market) to
determine the market return. The
Asian
economic
crisis
gave
significant impact to the national
economy during 1997 1998, while
recovery took several years
following the crisis (prolonged
when the global economy was once
more under pressure after the 9/11
incident in 2001). The Indonesian
political situation was much more
stable since early 2003. Prior to
that, three different Presidents
took office every two years, and six
new
Provincial
Government
Teritories emerged but then the
Central Government realized it to
be not very effective for economic
development, and only one
Province was formed in 2004 until
today. The new elected President in
2004 was considered to be much
more democratic and provided
ample support to economic growth,
as the Vice President was a
prominent
businessman
with
forward thinking to new economic

is to choose a market index

with
relatively
longer
duration. A cursory glance at
the articles and books written
by famous authors would
reveal that the proxy for
market return is considered
for sufficiently long period,
20 years or more, though
those countries also had their
share of volatility during the
period. Moreover, no where
it is stated in the PDD what
index has been used, what
percent
of
market
capitalisation it represents
and why it is considered
appropriate proxy for market
return.

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return upto 04/01/2011

e) considering the beta of
presumably
power
generating companies in
select Asian countries as
proxy for the risk associated
with hydropower projects of
Indonesia

f)

presuming Raw beta as

levered beta and relevering
the already levered beta

g) absence of any explanation

as to the duration and
return interval used for
computing the beta

Version No.:01

01 997 9105065323

and fiscal policies. This is

considerably
different
than
previous era of Indonesian
democracy,
therefore
market
situation has remarkably changed
from the year 2004 onwards.
d) The latest market return data was
on March 2011, or one month
before the development of the reFSR and the Board decision.
e) Information for Beta value from
Bloomberg for power generating
companies in Asian countries is
considered to account for the risk
associated
with
hydropower
project in Indonesia, as applicable
for the same industry sector.

f) Values provided in excel sheet was

levered beta. Calculation was
applied to those values to give
unlevered beta for each company,
then giving Total Beta (unlevered)
for typical approach applied in the
valuation analysis (based on
levered beta, correlation with

d) The explanation is reasonable

and accepted

e) This
statement
is
unacceptable as the politicoeconomic systems in the four
countries chosen are totally
different and hence the risk
varies. Moreover, some of
the companies are not solely
engaged
in
power
generation. Therefore, to
consider the average beta
value of select companies as
proxy for risk of power
generating
company
in
Indonesia does not conform
to paragraph 112 (b) of VVM
and therefore not acceptable
f)

Explanation is accepted.
However, clarify the reasons

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market, tax rate and debt equity

ratio). WACC spread sheet is
revised, results presented in PDD
section B.5

h) considering the debt equity

ratio of presumably power
generating companies in
select Asian countries as
proxy for the leverage of
hydropower projects of
Indonesia

g) The Beta value is calculated based

on sector information, as provided
by Bloomberg Finance L.P., taken
from Asia region, power sector. The
interval Apr.2010 Mar.2011 was
taken to give representative value
prior to the time of decision
making, since typical business
dynamics on different years might
pose significant changes to
company situation that often made
diverse business activities. Hence
longer data period would have less
certainty to the specific business
sector, i.e. renewable energy
generation.

h) The average value of debt/equity

ratio
of
power
generating
companies in select Asian countries
is considered in order to
demonstrate the market debt
equity ratio for power generating
project. As per guidance 13 of

Version No.:01

for unlevering the beta,

arriving at the total beta
using correlation (of what is
not known), arriving at the
average and then relevering
it with the average DE ratio of
the companies selected and
the tax rate of presumable
Indonesia. Whether any
standard
text
book
recommend computing total
beta using correlation and
then relevering it.
g) It is not clear how the PP
came to know that the
duration is one year as in the
previous presentation, this
information was not given. It
is not clear how the duration
is considered appropriate.
There is no information on
return interval used. How the
beta would change if a
different
duration
and
different return interval were
chosen and on what market
index the stock returns were
regressed are not known.
Therefore, DOE cannot vouch
the risk premiums applied in
determining the benchmark
reflect the risks associated
with the project type or

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i)

j)

considering
commercial
lending rate at 16.01% when
as per the document
furnished the rate is 13.11%

considering
2007
commercial lending rate
when
the
investment
decision is reported to have
been taken much later

Also clarify the reasons for

providing daily open, high, low,
close and volume data of
composite Index of JSE when
only the end figures are
considered
for
computing
market return.

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01 997 9105065323

Annex 5, EB 62 the benchmark

should be based on parameters
that are standard in the market.
Thus, market debt equity ratio from
Bloomberg for power generating
project is selected in WACC
calculation.
(Damodaran also stated on the
Financial Leverage Effects : The
beta value of a firm is a weighted
average of the beta values of its
debt and equity, where the weights
correspond to market vales. The
beta of equity alone can be written
as a function of the unlevered beta
and
the
debt-equity
ratio,
http://people.stern.nyu.edu/adam
odar/New_Home_Page/lectures/ris
k.html)
i) IRR calculation has been revised.
Before we used commercial lending
rate from private national bank
for December 2010. However since
this rate doesnt really represent
the lending rate on the decision
making time (April 2011), now we
used commercial lending rate for
Commercial bank group on March
2011. Private national bank and
commercial bank are similar bank
group or type with private national
bank is more focus to private
banks. We use commercial bank

activity.
h) This correction using the DE
ratio and tax rate of each
company - has been made
after the CAR was raised.
Based on the sectoral and
local expertise DOE can state
that the DE ratio and Tax rate
given in the case of Indian
companies does not appear
to be correct. Moreover,
after unlevering the beta, for
reasons not clear it has been
divided by correlation (not
known of what) to arrive at
the total beta and then from
that average beta is arrived
at. This average beta is again
relevered using the average
market debt equity ratio and
presumable Indonesian tax
rate. It is not clear whether
any standard text book
recommends this approach at
all] Hence, the resultant asset
beta is not reliable.

i)

Commercial lending rate has

been revised. It appears
appropriate

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01 997 9105065323

lending rate which has a lower rate.

j) Commercial lending rate was taken
from March 2011 data, not from
year 2007, in the IRR calculation.
Please refer to response for point i)
above.

The data provided in the IRR

calculation sheet is similar with data
available of composite index of JSE,
monthly data. Complete data is
provided in the excel sheet to show
how the market return is derived.

j)

In the revised submission,

commercial lending rate
represents the rate prevailing
in March 2011, which is
appropriate

Since the opening, high, low data

are not used, they are irrelevant.
40.

2nd response:

3rd Assessment:

a. Issue closed
b. in the project activity, the risk
free rate is determined from
the coupon rate of the
government
bond.
This
approach is similar to other
registered CDM projects in
Indonesia, using Government
bond coupon rate from the

Version No.:01

b. The risk free rate is

determined
from
publically
available and reliable source
hence this point is closed.

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01 997 9105065323

Indonesian
Central
Bank
statistics (www.bi.go.id).
c. Data for risk premium value is
revised,
taken
from
Damodaran database.
Based on the Investment
valuation, A. Damodaran,
second Edition, page 224,
the basic proportion that
the risk premium in any equity
market can be written as:
Equity risk premium = Base
premium for Mature Equity
Market + Country Premium

c. This method has been used

transparently and the sources
along with the determination
method have been clearly
explained hence this point is
closed.

For the calculation of the Cost

of Equity = Risk free rate +
Beta * (Mature Equity Market
Risk Premium + Default
Spread)
Considering point (a) above,
taking Risk Free Rate value
from Indonesian government
bond data already took into
account the Country Premium
(default spread) for Indonesia.
Hence
the
applicable
formulae:
Cost of Equity = Risk free rate
(Indonesia bond) + Beta *
(Risk Premium)
The equity risk premium for

Version No.:01

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01 997 9105065323

Indonesia have been sourced

from A. Damodaran, New york
University
(http://www.stern.nyu.edu/~a
damodar/pc/archives/ctrypre
m10.xls) Reference index
subtitle
- DIscount rate
Estimation, Risk premium for
Other
Market
(1/11)
(published 2010 data in Jan
2011). This data applied for
this project is the latest data
available at the time of
decision-making.
d. Issue closed
e. Data for Beta value is revised,
taken
from
Damodaran
database.
The total beta applied for this
project is unlevered total
beta; based on Damodaran
published database, Total
beta by Industry sector.
As explained in Damodaran
webpage
(http://pages.stern.nyu.edu/~
adamodar/New_Home_Page/
data.html), under Data Sets,
topic
Discount
Rate
Estimation, subtopic Total
Beta By Industry Sector

Version No.:01

e. Market return has been

calculated using Damodarans
method which is publically
available.
The
beta
unlevering and
relivering has een transparently
mentioned for this project
activity
while
using
the
deb:equity ratio as 80:20 in
percentage hence this applicable
and accepted.
This CAR is closed.

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(column Description : This

total beta adjusted to reflect a
firms total exposure to risk
rather than just the market
risk component. It is a
function of the market beta
and the portion of the total
risk that is market risk. This
beta might provide better
estimates of cost of equity for
undiversified
owners
of
businesses. It is useful for
computing the cost of equity
for a private business with an
undiversified owner).
Unlevered total beta (equals
to unlevered total beta
corrected for cash) is used in
the calculation because it is
the most appropriate beta for
appraisers to use when using
the income approach to
valuation. The unlevered total
beta value captures 100% of
the disclosed risks (in an
efficient market) for guideline
publicly traded companies. It
is a function of the market
beta and the portion of the
total risk that is market risk.
These betas might provide
better estimates of costs of
equity
for
undiversified
owners
of
business.

Version No.:01

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Therefore,
it
is
most
appropriate to use unlevered
total beta in the project
benchmark
calculation
compared to unlevered beta
value.
The unlevered total beta is
being levered by applying the
tax rate and Debt:Equity ratio
of the project (the financing
structure for this project
consists of the 80% of loan
and 20% equity. This amount
of debt used to finance the
project). The formulae to
calculate the levered beta is as
follow (soft copy of the
reference is furnish in the
excel sheet):
BL = Bu {1+(1-Tc)x(D/E)}
Where :
BL is levered beta for equity
Bu is the unlevered beta (beta
without any debt)
Tc is the corporate tax rate
D/E is the debt/equity ratio
(above
formulae
from
Damodarans
Investment
Valuation page 265, also
mentioned an increase in
financial leverage will increase

Version No.:01

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the beta of the equity in a

firm
Higher
leverage
increases the variance in net
income and makes equity
investment in the firm
riskier)
Despite the fact that the
proposed project activity is
located in Indonesia, the US
power sector beta has been
taken as the most appropriate
reference for the power
sector beta in the cost of
equity calculation as the US
market offers the most robust
data set available. It should
also be noted that betas from
the comparable companies in
Indonesia are not available.
The appropriateness of using
the US beta rather than using
any emerging market specific
beta based on the following
reasoning
(explained
in
Damodaran
page
255
Historical Beta Estimate for
Companies in Smaller (or
Emerging) Markets):
When liquidity is limited,
as it often is in many
stocks
n
emerging
markets,
the
betas
estimated using short

Version No.:01

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return intervals tend to be

more biased. (Indonesia is
considered to be an
emerging
market,
http://en.wikipedia.org/wi
ki/Emerging_markets)
In
many
emerging
markets,
both
the
companies being analysed
and the market itself
change significantly over
short periods of time.

The beta value is taken as 1.7

(un-levered) for the US power
sector. The beta value is
referenced from the year
2011 (published 2010 data in
Jan 2011), data one year
before the date of decisionmaking. The value selected is
the latest data available at the
time of investment decision.
Referring
to
the
text
handbook,
Investment
Valuation, A. Damodaran,
second edition, page 165,
The beta (if using a single
factor model) or betas of each
portfolio are estimated, either
by taking the average of the
betas of the individual stocks
in the port folio of by
regressing
the
portfolios

Version No.:01

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return against market returns

over a prior time period (for
instance, the year before the
testing period). Therefore,
this duration and return
interval considered is suitable.
Moreover, this value is more
conservative compared to the
value unlevered total beta for
the last 3 years average prior
to board decision (value 2.3),
year 2008, 2009 and 2010.
f.

Clarification
discussed in
above.
g. Clarification
discussed in
above
h. Clarification
discussed in
above
i.

is given as
the point (e)
is given as
the point (e)
is given as
the point (e)

Issue closed

The cost of equity has been revised on

above description.
41.

CAR 04

Version No.:01

In section B.6.1 of the PDD,

under the Tool to calculate the
emission factor for an electricity
system PP needs to clearly
mention the options opted for

B.6.1

For section B.6.1, description for

Tool to calculate the emission factor
for an electricity system was
removed since the emission factor
value of Sumatera Grid is provided by

B.6.1

Steps of the Tool needs to be

provided in section B.6.1 of the
PDD along with the justifications.
CAR has not been responded
fully. CAR is open.
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under each of the steps. Like

under step 2, whether off grid
power plants or included or not,
under step 3 whether ex-ante or
ex-post data vintage is chosen,
etc.
The calculation procedure for
arriving at the final value of
combined margin grid emission
factor of 0.743 tCO2/MWh is not
shown in the PDD. Moreover,
the web link provided on p 23 of
the PDD should be functional.
Further please clarify in the PDD
how would the vintage data
being monitored / updated after
the first crediting period.
Moreover, PP needs to clarify
how the grid emission factor can
be default value as stated in
section B.4 of the PDD.
42.

CAR 05

Version No.:01

PP needs to take into

consideration project emissions
from on-site consumption of
fossil fuels due to the project
activity in accordance with para
21 of the applied meth. In this
context section B.6.1, B.6.3 and
B.7 needs to be revised
appropriately.

01 997 9105065323

Indonesian DNA and published on

their website. The DNA office stated
that the excel sheet of emission
factor is confidential and cant be
published for any purpose, and this
was verified by DOE during validation
visit. For our emission reduction
calculation, we used the value
stipulated from Indonesian DNA. The
new link is provided in PDD Version
2, Annex 3.
2nd response:
Steps tool to calculate the emission
factor have been provided in the
section B. b.1 of the revised PDD.

2nd Assessment:
Steps of tool to calculate
emission factor have been
provided in section B. 6.1 of the
revised
PDD
along
with
justification of GEF has been
revised in section B.4 hence CAR04 is closed.

The justification for the GEF applied

for
this
project
has
been
accommodated in the revised PDD.
Modification is made in section B.4
by changing default emission factor
into value of emission factor.
The PDD Ver. 2, section B.6.1 and
B.6.3 have been revised accordingly by
inclusion of new paragraph regarding
possible project emission estimated
from fossil fuel combustion.
For section B.7.1 we include new table
for Fuel Consumption parameter.
2nd response:

B.6.1
B.6.3 B.7

PP needs to clarify the basis of 1

ton of diesel consumption per
year in the ex-ante calculation of
project emission in section B.6.3
of the revised PDD.
Also PP needs to clarify whether
the diesel will be monitored in
litres or tons. CAR is open.
2nd Assessment:

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The fossil fuel consumption of 1 ton

for operational of Emergency DG set is
an assumption number only (it is
conservative, for such minihydro plant
scale). By having this assumed fuel
consumption number, PP could
configure the Emission Reduction
value after deduction of Project
Emission.

The revised PDD has been

cleared of such computation and
hence deem correct. This CAR-05
is closed.

The fossil fuel consumption will be

monitored in litre and converted into
ton for project emission computation
43.

CAR 06

Version No.:01

As per the SSC CDM PDD

completing guidelines, section
B.6.2 of the PDD should include
data that is measured, if
relevant with sample thereof,
and data that is collected from
sources such as official statistics,
expert judgement, proprietary
data, IPCC, commercial and
scientific literature.

Values for NCV, EF_CO2,diesel, , ,

was taken from IPCC Guidelines. The
EF CO2,grid,y (Emission Factor) data is
collected from Indonesian DNA.
2nd response:
Parameters NCVdiesel,y and EF CO2,diesel,y
which are sourced from IPCC and
Density diesel,y from national data
(published) are justified as ex-ante
value and will remain the same during
the crediting period. Thus, the
parameters are listed in the section
B.6.2 of the PDD.
(only parameters that are monitored
being listed in PDD section B.7.1)

B.6.2

The explanation has been

correctly provided however, as
per the guidance to fill the PDD,
default value sourced from IPCC
etc need to be included in the
section B.7.1 hence this CAR is
not closed.
2nd assessment:
As per the PDD filling guideline
these parameters need to be
required to be monitored hence
PP needs to consider the same
during the crediting period. CAR06 is open.
3rd Assessment: Explanation
provided is satisfactory and the
revised PDD is inline hence this
CAR is closed.

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44.

CAR 07

In section B.6.3 of the PDD, PP

needs to provide transparent exante calculation of project
emission, baseline emission
applying all relevant equations
by documenting how each
equation is applied in a manner
that enables the reader to
reproduce the calculation. (Cp
SSC CDM PDD completing
guidelines).

01 997 9105065323

The section B.6.3 of PDD Ver. 2 has

been revised accordingly.

B.6.3

PP needs to clarify the basis of 1

ton of diesel consumption per
year in the ex-ante calculation of
project emission in section B.6.3
of the revised PDD.
2nd Assessment:
Please refer to the clarification
provided in the earlier CAR as the
PDD has been revised this CAR is
closed.

B.7

CAR is open.
PP needs to address the points
like:

2nd response:
The fossil fuel consumption of 1 ton
for operational of Emergency DG set is
an assumption number only (it is
conservative, for such minihydro plant
scale). By having this assumed fuel
consumption number, PP could
configure the Emission Reduction
value after deduction of Project
Emission.
The fossil fuel consumption will be
monitored in litre and converted into
ton.

45.

CAR 08

In regards to the monitoring of

electricity:
a) The Description of the
measurement methods and
procedures to be applied
and QA/QC procedures to
be applied for all monitoring
parameters should comply
with the second and third
bullet of the section B.7.1 of
SSC CDM PDD completing
guidelines and para 17 of
General guidelines to SSC
CDM methodologies version

Version No.:01

a) The PDD section B.7.1 has been

revised accordingly.
b) The data units have been revised
accordingly.
c) Description shown in the table
parameter EG export,y is wrongly
describe as Electricity exported to
grid (gross electricity generation).
Sentence
(gross
electricity
generation) has been removed from
the
description
(section
B.7.1
parameter EGexport,y).
Electricity exported to grid is not the
same
with
Gross
electricity
generation. Electricity exported to grid

1) In export electricity parameter,

PP needs to mention about the
possibilities of the two export
grid sub stations.
2) Why in the calculation of net
electricity exported, imported
electricity has been subtracted,
when there is no import
electricity involved for the
project activity.
PP is requested to check section
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b)
c)

d)

e)

Version No.:01

17.
The data units should be in
line with the applied meth.
PP needs to clarify whether
the Electricity exported to
grid is same Gross electricity
generation.
PP needs to clarify the
compliance of the statement
The
net
electricity
export/supplied to a grid is
the difference between the
measured quantities of the
grid electricity and the import.
If applicable, cross check net
electricity supplied to a grid as
gross energy generation in the
project activity power plant
minus the auxiliary/station
electricity
consumption,
technical losses and electricity
import from the grid to the
project power plant measured
at
the
grid
interface/connection used for
billing purposes on p 12 of
the applied meth.
Referring to the statement
The PPA with the ........ the
main meter. on p 27 of the
PDD, PP needs to clarify
whether there is any check
meter installed.

01 997 9105065323

is the net electricity supply to the grid

after deduction of transmission loss
and auxiliaries (own consumption).
d)
From methodology AMS-I.D Ver.17
Measurement
methods
and
procedures, the primary cross-check
procedures for the proposes project
activity is cross-checking with records
for sold electricity (PDD Ver.2 section
B.7.1 table EGexport,y).
To comply with the methodology (if
applicable), on PDD section B.7.2
<point 3> Procedure for corrective
action, PP will use reading from
check-meter (Generation Unit and
Auxiliaries/Own Consumption) in case
of main meter failure only.
e) from the document title kWH
meter location_Lubuk Gadang, it is
shown that PP will locate the
electricity meter (kWh) at Transaction
point (main meter), each of
Generation Unit, Auxiliaries (check
meters) and. The main meter located
at the transaction point will record net
electricity supplied to the grid after
deduction of transmission loss and
auxiliaries.
The Quality Assurance is described
further in PDD Ver. 2 section B.7.2
<point 3> procedure for corrective
action.

B.7
thoroughly
resubmission.

before

2nd Response:
1) With
this
declaration
where there would no
possibility of 2nd export
meter this point is closed.
2) Section B.7.1 has been
revised in the submitted
PDD which is as per the
PDD filling guideline hence
CAR-08 is closed.

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2nd response:
1). As stated in the Lubuk Gadang PPA,
article 4 (2.1), the project
proponent will build JTM 20 kV
from powerhouse to Lubuk
Gadang Interconnected Point.
Hence, no possibilities of two
export grid substation for Lubuk
Gadang project specifics.
2). The net electricity generation for
baseline emission calculation is
revised (see PDD Version 3 section
B.7.1) page 30
46.

CAR-09

Version No.:01

In section B.8 of the PDD, PP

needs to mentions whether the
entity mentioned is PP or not
(Cp SSC CDM PDD completing
guidelines).

The PDD Ver.2 section B.8 has been

revised accordingly with SSC CDM PDD
completing guidelines.

B.8

The same has been addressed in

the revised PDD hence this CAR is
closed.

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Table 3: List of forward action requests (FARs)

Validation / Verification Manual
(37) The DOE shall raise a forward action request (FAR) during validation to highlight issues related to project implementation that require review during the first
verification of the project activity. FARs shall not relate to the CDM requirements for registration.

Version No.:01

FAR number

Reference

Summary of project owner response

Validation team conclusion

Nil

----

----

----

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