UNFCCC Secretariat
Martin-Luther-King-Strasse 8
D-53153 Bonn
Germany
Att: CDM Executive Board
Your ref.: Our ref.: Date:
CDM Ref 2716 MLEH/KCHA 19 October 2009
Response to request for review
“Grid connected energy efficient power generation” (2716)
Dear Members of the CDM Executive Board,
We refer to the requests for review raised by three Board members concerning DNV’s request for
registration of the “Grid connected energy efficient power generation” project (Ref. no. 2716) and would
like to provide the following initial response to the issues raised by the requests for review.
Comment 1:
The DOE is requested to further justify the suitability of the input values used to calculate the levelized
costs of electricity production for establishing additionality and the baseline scenario.
DNV Response:
In order to validate appropriateness of the input values used to calculate the levelized cost of electricity
generation for the project activity, DNV has verified the source documents (as detailed in the validation
report submitted to the UNFCCC requesting registration) as well as other publicly available data sources.
Two of the frequently referred sources are data from the Central Electricity Authority (CEA) and the
Central Electricity Regulatory Commission (CERC). Both the organisations are independent bodies under
the Ministry of Power in India and are entrusted with the authority for monitoring and regulating the
power sector in India. All power plants operated by public (Government owned) and private entities in
India are subjected to follow the guidelines of CEA and CERC. DNV would also like to reiterate that the
input values have been taken from the Information Memorandum prepared by SBI Capital Markets
Limited (SBI Caps) as relevant and appropriate. SBI Caps is a wholly owned subsidiary of the State Bank
of India, the largest public sector bank in India (http://www.sbicaps.com/Main/index.aspx). The
Information Memorandum of the project activity has been prepared by SBI Caps as an independent party.
Hence, DNV considers the information memorandum has provided authentic and independent
information on the project activity under consideration.
Further to the validation report, the following table depicts how appropriateness of the input values used
for calculation of levelized cost for the project activity has been verified.
Parameter Baseline Project Source
43 500 57 960 DNV has verified and noted that as per
the report on “India’s Ultra Mega Power
Project Cost
Project, Exploring the use of Carbon
(in Million INR)
Financing” prepared by Mott McDonald
and British High Commission dated
October 2006, cost of a supercritical
plant would be INR 49 362/kW which
comes to INR 65 157 million for a 1 320
MW power plant (Ref.: Annexure-1).
The cost figure considered for the project
activity (INR 57 960 million) is lower
and hence is on the conservative side.
As per CERC approved tariff orders
(http://www.cercind.gov.in/03022007/Pet
_106-2006%20RihandSTPS-II.pdf), the
cost of sub-critical plant comes to INR
26.5 million per MW which is about INR
34 937 million for a 1 320 MW power
plant. The value considered for levelized
cost calculation (INR 43 500 million) is
the higher one and hence stands
conservative for comparison of levelized
costs.
On further verification, it has been noted
from the service contracts made with M/s
SEPCOIII Electric Power Construction
Corporation and M/s Shandong TIEJUN
Electric Power Engineering Company
Limited, that the cost of designing,
erection, fabrication, testing,
commissioning, construction,
procurement and supply of power plant
equals to INR 4 978 million. This
matches with the estimation made in the
information memorandum.
Thus, DNV considered that the project
cost values applied for calculation
purposes are justified.
The debt-equity ratio depends on factors
like capital structure of the project,
lending terms and conditions etc and not
on the technology chosen. For this
project case, the project proponent has
used the same values for both
alternatives. As CERC recommends
Debt-equity ratio 75:25 75:25 (does not mandates) to use a debt-equity
ratio of 70:30, DNV has checked the
levelized cost calculations by applying
70:30 ratio which yielded increased
levelized cost for both subcritical (INR
2.05) and supercritical (INR 2.15) cases.
Hence, the applied values have been
found to be appropriate.
Rate of Interest on 11.25% 11.25% Rate of interest is determined by the
loan Capital lending terms and conditions.
12% 12% SBI Caps has considered the rate of
interest on loan capital to be 11.50%
while as per the senior rupee facility
agreement between the State Bank of
India (as the issuing bank) and the
project proponent it is 11%. However, it
has been clearly mentioned in the rupee
facility agreement that the rate of interest
is subject to modifications and the final
rate of interest would be as indicated by
the participating banks. Hence an
average of the two (11.25%) has been
applied for the project activity. The same
vale was also used for feasibility analysis
Rate of Interest on report (Annexure-2). DNV thus considers
Working Capital that the applied value is justified.
As per CERC guidelines
(http://cdm.unfccc.int/Projects/DB/BVQI
1189417216.52/ReviewInitialComments/
R4R2M896ODWH82ZV9TFJRASGJK4
PWF) “Working capital shall be allowed
on normative basis and the rate of
interest applicable shall be the Short
Terms Prime Lending Rate of State Bank
of India.” The senior rupee facility
agreement indicates that the State Bank
of India benchmark prime lending rate
was 12.25%. Hence use of 12% rate of
interest on working capital has been
found to be justified.
This value has been obtained from CERC
guidelines and hence DNV considers, is
justified.
(http://www.cercind.gov.in/13042007/Te
Return on Equity 14% 14% rms_and_conditions_of_tariff.pdf).
These figures are standard values and
have been assumed to be the same for
both baseline and project cases since it
does not depend on chosen technology.
While the loan repayment period is
determined in the agreement between the
project proponent and the lender(s),
Loan Repayment
10 10 DNV considers that 10 years is a realistic
Period (Years)
period and is used widely in Indian
industry. Moreover, any change in the
loan repayment period would affect the
levelized cost for the sub-critical and
supercritical technology based power
plants in the same way. The feasibility
report also uses 10 years as loan
repayment period. Hence, it is DNV’s
opinion that the applied value is justified.
The applied value for depreciation
complies with the Indian regulations for
power sector
Depreciation 3.6% 3.6%
(http://www.cercind.gov.in/070104/appe
ndix_2.doc) and hence is considered to
be appropriate.
O&M Cost (Fixed) 2.5% 2.5% The applied values comply with Indian
Escalation 4% 4% regulations for power sector
(http://www.cercind.gov.in/13042007/Te
Maintenance Spares 1% 1% rms_and_conditions_of_tariff.pdf) and
hence are considered to be appropriate.
The applied value for the plant life
complies with the Indian regulations for
power sector
Plant Life (Years) 25 25
(http://www.cercind.gov.in/070104/appe
ndix_2.doc) and hence is considered to
be appropriate.
As per the directives of the EB 48
Annexure-11, the plant load factor shall
be defined ex-ante in the CDM-PDD
according to one of the following three
options:
(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
PLF 85% 85% third party contracted by the project
participants (e.g. an engineering
company).
For the project activity under
consideration 85% PLF has been
considered in the information
memorandum which has been submitted
to the prospective lenders. Also, the same
value has been used by M/s Dessein
Private Limited in the feasibility report
dated 3 August 2007.
Hence DNV considers that the applied
value for PLF (85%) is appropriate.
The applied value for auxialiary
consumption complies with the Indian
Auxiliary regulations for power sector
7.5% 7.5%
Consumption (http://www.cercind.gov.in/13042007/Te
rms_and_conditions_of_tariff.pdf) and
hence is considered to be appropriate.
The applied value for discounting
complies with the Indian regulations for
power sector
Discounting Rate 11.1% 11.1%
(http://www.cercind.gov.in/08022007/No
tification-dated-24.9.2007.pdf) and hence
considered to be appropriate.
The applied value was obtained from the
assumption made in the information
memorandum. Further, GCV of
GCV of coal Indonesian coal as reported in the
5200 5200
(kCal/kg) feasibility report has been found to be
5200 kCal/kg (Annexure-3). Hence DNV
considers that the applied value is
appropriate.
As per the Mott McDonald Report, the
efficiency of a supercritical plant is
around 40% (Annexure-4), which
corresponds to a heat rate of 2150
SHR (kCal/kWh) 2398 2150
kCal/kWh. SHR for sub-critical power
plant has been obtained from the CEA
database which is the official database
for the Ministry of Power of India.
Fuel Price Per Tonne These values have been obtained from
2070.9 2070.9
(INR) the coal agreement made between M/s
Adani Power Limited (APL), the project
proponent and Adani Enterprises Ltd.
Fuel Price Escalation The values are same for baseline and
(% per block of 5 10% 10% project cases as the values are dependent
Years) on the terms and conditions of the coal
contract and not on the chosen
technology.
This value has been obtained from the
Exchange Rate
1% 1% information memorandum prepared by
Variation/Escalation
SBI Caps and submitted to the lenders.
Comment 2:
The DOE is requested to clarify how it has validated that the levelized cost of electricity production is the
most suitable financial indicator for demonstration of additionality for this specific project activity, given
the potential that the project and baseline will have different revenue streams.
DNV Response:
It is imperative to mention here that prior to commencement of the project activity, a power purchase
agreement (PPA) was signed between the Gujarat Urja Vikas Nigam Limited (English: Gujarat Power
Development Corporation Limited – GUVNL) and the project proponent, Adani Power Limited on 2
February 2007 for supply of 1000 MW electricity. The project proponent was selected for supply of
power to GUVNL through tariff based competitive bidding process. The bid document ‘Request for
proposal’ issued by GUVNL did not specify any power generation technology and hence the bidders were
free to chose the technology for power generation. As per the PPA, APL is obliged to supply 1000 MW to
GUVNL and rest of the capacity may be sold to other prospective buyers.
The PPA also mentions that the proposed power plant would be of 1200 MW (2x600MW) capacity. APL
initially has planned for installation of two electricity generation plants based upon sub-critical
technology, each having a capacity of 600(+10%) MW. This has been confirmed from the public notice
inviting tender for Mundra thermal power project published in the daily newspaper The Indian Express on
21 May 2007. Thus, the capacity of the plant for the baseline and project scenarios is the same (1320
MW).
The PPA clearly states that the project proponent would supply power to Gujarat Urja Vikas Nigam Ltd at
an agreed tariff of INR 2.35/kWh and the tariff would be fixed for 26 years (Year 2011 – 2037)
(Annexure-5). Thus, the revenue streams of the project and baseline alternatives would not be different.
The Request for Proposal (RFP) issued by GUVNL also mentioned that the levelized tariff of electricity,
calculated over the stipulated period (25 years for coal/lignite based power plant) would be the indicator
for selection of supplier of power.
The APL management has also considered levelized cost of electricity generation as the indicator while
taking decision on implementation of the project activity (Annexure-10).
Thus, in the absence of different revenue streams for the baseline (sub-critical) and the project
(supercritical) scenarios, the levelized cost of generation (in INR/kWh) has been deemed to be the most
suitable financial indicator for the project activity..
Comment 3:
The DOE is requested to update the monitoring plan to include all parameters requested by the “Tool to
calculate project or leakage CO2 emissions from fossil fuel combustion”.
DNV Response:
DNV has further assessed the monitoring plan in the PDD vis-à-vis the “Tool to calculate project or
leakage CO2 emissions from fossil fuel combustion”, version 02 and noted the following observations:
i) Quantity of fuel type i combusted in process j during the year y (FCi,j,y) will be monitored in mass unit
(tonne/year).
ii) Weighted average mass fraction of carbon in fuel type i in year y (Wc,i,y) will be monitored on
monthly basis.
iii) Monitoring of the parameter ρi,y (Weighted average density of fuel type i in year y) is not applicable
for the project activity as FCi,j,y is monitored in mass unit and not in volume unit.
iv) Since Option A is followed for the project activity, monitoring of the parameters ‘weighted average
net calorific value of fuel type i in year y (NCVi,y)’ and ‘weighted average CO2 emission factor of fuel
type i in year y (EFCO2,i,y)’ are not required to be monitored as stipulated in the tool.
Hence, DNV considers that the monitoring plan presented in the PDD to include all parameters stipulated
by the “Tool to calculate project or leakage CO2 emissions from fossil fuel combustion”.
Comment 4:
The DOE is requested to clarify how it has validated that comments by local stakeholders have been
invited, and how due account was taken of any comments made.
DNV Response:
The local stakeholder consultations have been carried out in two phases. Firstly, as part of the
Environmental and Social Impact Assessment, carried out by GIS Enabled Environment & Neo-Graphic
Centre,whereby the local stakeholders were invited for consultation during the period 3 October 2007 and
21 October 2007 (Annexure-6). DNV has verified and noted that environmental and social issues that
might arise due to the project activity were discussed with the public in order to take note of any objection
or any comments or suggestions of the people of the stakeholders site selection and to ascertain that the
people’s reaction and the related issues are covered and addressed in the social assessment report. Views
expressed by the attended public have been documented in the Environmental and Social Impact
Assessment Report. The above detailed description will be made part of the PDD. This environmental and
social impact assessment report has formed the basis for issuance of Environmental clearance certificate
(Annexure-9) and the Consent to establish (Annexure-8) for the project activity by the Ministry of
Environment and Forest (MoEF) of India. The consent to establish (Annexure-8) stipulates the conditions
that the project proponent is required to comply with. Secondly, APL invited comments from various
stakeholders namely, equipment suppliers, employees and local civic authorities (Panchayat). DNV has
verified the responses received for the interested parties and found that there were no adverse comments
on the project activity (Annexure-7).
Thus, DNV considers that the local stakeholders were invited for consultation and their views have been
considered, documented and submitted for obtaining consent to establish for the project activity. It is
imperative to mention here that obtaining consent to establish is a legal obligation and no project activity
can be implemented until the consent to establish is issued.
Comment 5:
The DOE is requested to clarify how it has validated submission of documentation on analysis of
environmental impact, whether any environmental impacts have been considered significant by the
project participants or the host Party, and if considered significant, how it has validated that the
environmental impact assessment was in accordance with procedures as required by the host Party.
DNV Response:
The project proponent submitted the Environment & Social Impact Assessment Report for the project
activity to the Gujarat Pollution Control Board (GPCB) in order to obtain consent to establish (NOC) for
the project activity. The report of social and environmental impact forms part of the basis for issuance of
consent to establish (Annexure-8). The GPCB has issued the NOC vide letter no. GPCB/CCA-KUTCH-
444(2)/15402 dated 6 Jun 2008. The project proponent is obliged to comply with all conditions stipulated
in the NOC.
The Ministry of Environment and Forest of India has issued environmental clearance certificate
(Annexure-9) on the basis of the environmental impact assessment report.
Thus, DNV considers that analysis of environmental impact has been submitted for review by the GPCB,
and the environmental impact assessment was in accordance with procedures as required by the host Party
India. It can also be said that APL’s response to the identified potential environmental impacts will be
monitored under the existing Indian legal provisions.
We sincerely hope that the Board accepts our aforementioned explanations.
Yours faithfully
for DET NORSKE VERITAS CERTIFICATION AS
Michael Lehmann
Technical Director
Climate Change Services
