New Mechanism Feasibility Study for Renewable Energy...

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New Mechanism Feasibility Study 2011 – Final Report

New Mechanism Feasibility Study for Renewable EnergyDevelopment Focusing on Geothermal Power Generation

in Colombia

By Mitsubishi Research Institute, Inc.

FS Partner(s) ISAGEN S.A.E.S.P., Numark AssociatesLocation of Project Activity Colombia (Nevado del Ruiz)Category of Project Activity Renewable EnergyDescription of Project/Activity This project is Colombia’s first geothermal power project,

and is planned for the Nevado del Ruiz area. The facilityscale is 50 MW capacity. Hydropower makes up the majorityof the country’s energy mix; during El Nino periods, owing todroughts, there is a risk of the electricity supply becomingunstable. Introduction of geothermal, with its stable supplyeven in El Nino periods and limited GHG emissions, isexpected. Japanese manufactures have a competitiveadvantage in the geothermal market.Viewing the project electricity generation as otherwisecoming from the grid, the emission reduction amount iscalculated.

Reference Scenario andProject/Activity Boundary

In concrete terms, in the case of a country with an insufficientelectric power supply (even allowing for latent demand),where the nation-wide capacity of hydropower - which isaffected by weather - is greater than or equal to 50% of totalcapacity of all power sources, then it was proposed that amethod be established with reference to the “Tool tocalculate the emission factor for an electricity system” whereindividual power station data exists, and with reference to the“Guidelines for the establishment of sector specificstandardized baseline” whereby such data does not exist.Energy sources seen as contributing to the stabilization ofthe power supply in Colombia are natural gas and diesel(off-grid) in the short term and coal in the intermediate term.These energy sources are assessed with the same qualitylevels as the project in order to find out the extent to whichthey would fulfil the minimum service level.The spatial extent of the project boundary includes theproject power plant and all power plants connectedphysically to the electricity system or grid that the projectpower plant is connected to. In addition, it includes anyoff-grid plants that are replaced by the project as per theestablished reference scenario.

Monitoring Methods and Plan Monitoring of the quantity of electrical power generation andsteam are carried out under normal operating conditions.Non-condensable gases (CO2 and CO4) contained in theproduced steam are considered using established defaultvalues for CO2 and CO4,in order to decrease the added

New Mechanism FS 2011 – Report

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burden on operators. However, as a consequence, it isexceedingly difficult to set an applicable default value thatwould be uniformly employable across all projects becauseof a great deal of variation in the mass fraction in steam.Among monitoring methods, the ASTM standard is used as ifit were the de facto standard of a sampling method.However, it requires more work than the method applied inJapan. Thus, it is preferable for the BOCM to choosemethods which do not impose additional burdens onoperators and to establish its own standard of monitoring.Since any monitoring method requires sufficient experienceand know-how, capacity building in cooperation withJapanese companies is important for a developing countrywhere geothermal power is newly introduced.

GHG Emissions and Reductions 231,625 t-CO2

(In the case of utilizing a fossil fuel CM)MRV System for GHGReductions

The execution of MRV is relatively simple for projects in theelectricity sector. That is because data that is used for thecalculation of emissions reductions can be measured withinthe power plant and because standard operating procedurescommonly require the plant to measure, report and verifyparameters - for instance the quantity of electricity produced.Furthermore, it is because the methods used formeasurement adhere to what are, to all intents andpurposes, globally-established standards.With regard to grid emissions factors, the optimum situationis one in which the project proponent is able to tangiblyutilize actual emissions factors calculated and released bythe government which itself collects data from the individualpower plants.Looking toward the future, it is hoped that with the necessarysupport from Japan, third parties in developing countries willnot only be able to implement Measurement and Reporting,but also carry out the required Verification step in the MRVprocess.

Analysis of Environmental,Socioeconomic and otherImpacts (including Securementof Environmental Integrity)

As harmful effects that accompany geothermal developmentfrom an environmental standpoint, the following amongothers are cited: noise pollution, ground subsidence, residualheat effects, release of airborne pollutants. These harmfuleffects are proportional to the scale of use (i.e. the scale ofthe facility introduced); especially for large facilitiesavoidance measures must be carefully considered.A license has already been acquired for test well drilling.This appears to be progressing while making reference tothe mining development division’s environmental impactassessment; it is surmised that in reality project developmentis taking place simultaneous with the government’s legalpreparations.

Financial Planning The outline and financial plan of this project are shownbelow. At this time the Phase 2 technical evaluation hasended, and the selection of winzes in the test well drilling ofPhase 3 is ongoing. Regarding construction financing, at thistime lenders are being considered. It is expected that JBICwill also be a possibility.


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Introduction of JapaneseTechnology

There is a good chance that Japanese technology will beintroduced as it is a global market leader in deliveringgeothermal energy solutions.

“Co-benefits” (i.e. Improvementof Local EnvironmentalProblems)

It is expected that the introduction of a geothermal plantcould serve to reduce air pollutants. Due to the lack ofavailable data, calculating co-benefits are based only onSOx. Quantified co-benefits are 8,940 t/year.

Contribution to SustainableDevelopment in Host Country

The project would contribute to the country’s sustainabledevelopment by stabilizing electricity supply, and assistingwith climate change countermeasures and capacity buildingfor geothermal resource development.


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1. FS Partners:The feasibility study is being carried out by the following team. Numark Associates (local contractor):

Responsible for the study of the target site (including the exchange and coordination ofdata with ISAGEN), management of the study in-country, translation of Spanish-language documents into English, and the collection and examination of data necessaryfor the methodology study. ISAGEN S.A.E.S.P. (principal project executor):

Now drawing up the fundamental plan for the project and carrying out the technicalevaluation of the current target site.

2. Description of Project/Activity:(1) Content of the project/activity

The content of the project is the following.

Nevado del Ruiz

Host Country: ColombiaRegion: the area near Nevado del Ruiz, an activevolcano on the outskirts of Manizalescity Facility scale: geothermal power plant (50 MWcapacity) Technology: Flash cycle type (planned)Counterpart & owner: ISAGEN S.A.E.S.P.(publiccorporation;57.66% of stock owned by govt)Project Summary: Colombia’s first geothermalpower project. Hydropowermakes up the majorityof the country’s energy mix; during El Nino periods,owing to droughts, there is a risk of the electricitysupply becoming unstable. Introduction ofgeothermal, with its stable supply even in El Ninoperiods and limited GHG emissions, is expected. Emission reduction method: Viewing the projectelectricity generation as otherwise coming from thegrid, the emission reduction amount is calculated.

Figure 1 Project Summary

(2) Situation in the Host CountryOn February 21, 2011, the host country proposed to the UNFCCC, as a concrete measure to

build on the 2010 Cancun Agreements, a sector- or subsector-specific market mechanismcalled the Mechanism for Carbon-Efficient Economies (MCEE) that would automaticallycancel a part of the reduction or avoidance certificates of each project activity by a percentagethat varies according to the host country’s GHG emissions. This proposal demonstrates thatthe Government of Colombia recognizes the need for a new emissions reduction mechanism(however there has been no particular progress with respect to this proposal itself). At thepresent stage following the end of COP17 the government’s stance regarding a newmechanism has become clear, and it is evident that within the government a concreteexamination has begun of a new mechanism to realize mitigation measures outside the CDM.Moreover, the Bilateral Offset Credit Mechanism (BOCM) is recognized to be one option for


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the new mechanism. Expediting the bilateral agreement process without throwing this timingoff is exceedingly important for Japan.

Incidentally, dissatisfaction with the CDM is behind the Government of Colombia’sexamination of a new mechanism. General problems of the CDM, such as the long timerequired for review, are recognized. Furthermore, there is the problem peculiar to the hostcountry of the domestic grid emission factor being small. Because this problem is one thatmust be solved for the BOCM as well, the conditions of Colombia’s electricity generation arediscussed below in connection with Nationally Appropriate Mitigation Actions (NAMAs).

Hydroelectric generation accounts for about 65% of the host country’s electricity generationmix. This means that there is a risk of the electricity supply from hydroelectric power plantsbecoming unstable due to the droughts that are the effect of periods when the El Ninophenomenon occurs.

In fact, in the El Nino that occurred from the second half of 1991 to the first half of 1992,the water storage ratio at hydroelectric power plants fell as far as to 0%, causing electricityoutages. After that episode, owing to the securing of an electricity supply reserve capacityto match demand, in the El Ninos from late 1997 to early 1998 and from late 2009 to early2010, although the water storage rates did fall, electricity outages did not come to pass.However, looking at the changes in the spot-market price of electricity from late 2009 to early2010 when the El Nino effect was particularly strong, electricity prices jumped due tohydroelectric supply shortages. This kind of situation has a large effect on economic activityin the host country and is a matter that is likely to be an obstacle to the host country’scontinuing its economic growth in the future.

At the same time, it is expected that hydroelectric generation will make up the majority ofthe generation mix in the future as well. The background for this is that in the host countrythere exists potential for the introduction of up to 93 GW of hydroelectric generation capacity.Among this ample potential, hydroelectric resources developed until 2011 amounted to 8.715GW, not more than 9.4% of potential. Additionally, because a liberalized wholesaleelectricity market (MEM) began operation in the host country in 1995, introduction ofhydroelectric power, which is inexpensive, became the standard.

Moreover, from late 1997 to early 1998 and from late 2009 to early 2010, when the effectof El Nino was strong, precipitation levels decreased, and so the ratio that hydropoweroccupied in the generation mix (on a kW-hour basis) fell. Electricity generation fromhydropower, which on average usually makes up roughly 80% of generation, temporarily fallsduring the El Nino periods to a level below 50%, and there are concerns that theaccompanying operation of thermal power plants will cause an increase in GHG emissions.

In the above circumstances particular to the host country, the introduction of geothermalpower generation is anticipated, as it can supply electricity stably and its emissions of GHGsare limited. Among the host country’s NAMAs, as one of its own actions it is recorded that,“In 2020 a rate of introduction of renewable energy of at least 77% will be secured.” Inorder to achieve this, in addition to hydropower and wind power which have introductionpotential, geothermal generation is necessary, and through the start of operation of a pilotplant in this current project, it is hoped that the development of further geothermal resourceswill be promoted.

(3) Eligibility for the New MechanismIn the CDM, assuming that “the project did not exist” and mainly using the “Tool for the

demonstration and assessment of additionality” for investment and obstacle analysis theadditionality is evaluated. Eligibility criteria define the project conditions for the reductioncredits to be accepted by the bilateral offset credit mechanism. Here we will considerseparately the eligibility of the BOCM as a whole and the eligibility of individual projects


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among geothermal projects.In the BOCM as a whole, it is thought that in particular GHG reductions from the

introduction of advanced low-carbon technologies (hard and soft) should be evaluatedpositively. Regarding the evaluation method, for instance if we take as a reference theNationally Appropriate Mitigation Actions (NAMAs), which set the level achievable with thecountry’s technology and policies, then one method is to posit that credits are generated fromprojects that could not be completed via NAMAs alone but that are realized with internationalfinancial and technical assistance.In trying to evaluate the current project, it can be said that there is eligibility both from thestandpoint of finance and of technology:

・ Financial aspect: In Colombia electricity is supplied through a wholesale marketcomposed of generation companies, transmission companies, distribution companies,and retail companies. For this reason, according to market principles it is the case thathydroelectric generation, with its lowest generation cost, is the easiest to introduce.Geothermal generation lacks market competitiveness.

・ Technological aspect: In Colombia support in both hard and soft aspects is required inorder to introduce the first geothermal generation.

Next we consider the eligibility of geothermal projects. If we evaluate from a technologystandpoint, we can imagine a method whereby an efficiency benchmark is established, or amethod whereby the technology’s diffusion rate is evaluated. Or, we can imagine anothermethod whereby the plusses of renewable electricity generation are listed up. In Columbia itis necessary to secure alternative generation sources to prepare for El Nino periods. Thermalgeneration including diesel, natural gas, and coal are regarded as promising alternativeelectricity sources. Therefore, in the BOCM it is proposed to evaluate eligibility from thestandpoints of electricity supply stability and sustainable development, which are notevaluated in the CDM.

(4) Measures for diffusion of the project/activityDue to the fact that the need to secure alternate electricity generation sources for El Nino

periods is recognized and that this project will operate a first pilot plant, it is expected that thedevelopment of other geothermal resources will make progress. For this reason, untilcommencement of commercial operation this project requires definite support from a financialand technological standpoint. Furthermore, what is hoped for is the creation of a systemwhich allows in the future for the reduction of burdens associated with the construction ofgeothermal power plants with a relatively large initial investment.

3. Description of Study(1) Study AgendaThe general purpose of the study was to shed light on the two following main issues.

Examination of the Methodology

- Assessment of endeavors put into action by a country with a high proportion ofrenewable energy (i.e. power related emissions unit output is low).Consideration of expected introduction of thermal power plants in the future.

- Examination of the establishment of a monitoring method that does not overly burdenthe plant operator.


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Consideration regarding the establishment of default values for CO2 and CH4.

Examination of the introduction of the BOCM mechanism and the potential for facilitating amore widespread utilization of BOCM in future projects

- Implementation of an interview with the operator and government representatives toascertain each entity’s needs vis-à-vis the New Mechanism.Understanding the assumptions the host country has about the New Mechanisms.

- The establishment of a funding plan that utilizes public funding such as ODA isnecessary. The BOCM needs to be recognized as a mechanism which takes advantageof technological strengths with aid being seen as non-conditional (without strings).

(2) Study Description

Consideration of MethodologyAs outlined above, CDM acts as a very important benchmark for the potentiallyglobally-accepted New Mechanism. This project in particular is implementable under CDM.Therefore, one goal of the study was to examine whether, without justification, the proposedmethodology achieved greater emissions reductions for the project implemented under theNew Mechanism than the quantity of emission reductions that would be achieved by theproject were it to be carried out via CDM.

Submission of Proposal for New Mechanism ProgramIn order to expand the application of the Bilateral Offset Credit Mechanism to includegeothermal power generation, it is appropriate to analyze the outstanding issues which existwith regard to the currently existing CDM methodologies. In addition it is similarly apt toconsider methodologies which also focus on and quantitatively assess contributions made by aproject which are not assessed as part of CDM.

As mentioned above, such project contributions include the stabilization of the power supplyand in improving the electrification rate of a country that has numerous non-electrifiedregions and whose main power supply is greatly influenced by the weather, as is the case withhydropower.

In concrete terms, in the case of a country with an insufficient electric power supply (evenallowing for latent demand), where the nation-wide capacity of hydropower - which isaffected by weather - is greater than or equal to 50% of total capacity of all power sources,then it was proposed that a method be established with reference to the “Tool to calculate theemission factor for an electricity system” where individual power station data exists, and withreference to “Guidelines for the establishment of sector specific standardized baseline”whereby such data does not exist.

Figure 2 below illustrates the flow of the above process.

Consideration of Monitoring MethodIt is of concern that the monitoring requirements at a geothermal power plant might representan added burden on operators by necessitating the monitoring of indicators not normallymonitored as per standard plant operating procedures.

Accurate determination of the quantity of emissions reductions depends on frequent


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monitoring and on a plurality of ex post parameters. However, the large number of variablefactors impacts the level of accuracy with which operators can predict emission reductions.With this in mind, consideration was thus given to the establishment of default values for CO2

and CO4 by way of literature research and via the expertise and advice of research supportspecialists.

In conclusion, due to the wide range of variation in CO2 and CO4 values at each geothermalwell, the establishment of a default value is difficult to achieve and hence an examination wasconducted into how to reduce the monitoring frequency.


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Figure 2: Flowchart illustrating the method of calculation of the baseline emission factorfor a country with over 50% hydropower and a power supply shortage

Step 2 - Identification of baseline emissions factors. This is limited to power sourcesthat contribute to the stabilization of power supply, i.e. fossil fuel, nuclear power,geothermal …

Power plant data exists for the grid Power plant data does not exist forthe grid

With reference to“Tool to calculate emissions factorfor electricity system”,

1. Calculate OM2. Calculate BM3. Examine OM:BM ratio (it is

possible to apply ratios of0:1 or 0.25:0.75 in additionto a ratio of 0.5:0.5 toconsider each country’sscenario) and calculate CM

With reference to“Guidelines for the establishment

of sector specific standardizedbaseline”,

1. Rank a country’s availabletechnologies in order ofhighest emission factor

2. List technologies thataccount for Y% of a sector’sproductivity counted inorder of the highestrankings in 1 above

3. From 2 above, select themost economically feasibleoption with the lowestemission factor

Capacitybuilding

Step 1 – Establishment of Minimum Service Level

“Guidelines on the consideration of suppresseddemand in CDM methodologies” is referred to inorder to establish a baseline which takes in accountpotential future emissions increases by establishingthe power demand level that would be achieved in anon-poverty scenario

When the fuel configuration of a country is one that depends on a specific fuel above acertain ratio (e.g. a country where hydropower represents 50% or more of the totalpower supply capacity), it is important to develop energy sources that are notweather-affected and can contribute to the stabilization of the national power supply.Hence, the emissions factor is identified as a baseline that is based upon these powersources.


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4. Results of study into the feasibility of implementation of projects/activities under theNew Mechanism

(1) Impact of emission reductions due to implementation of projects/activities

Up to now, countries with a high proportion of renewable energy such as hydroelectric powergeneration have had lower grid emission factors than countries which rely on fossil fuels togenerate and supply electric power. Moreover, for these particular countries, thedevelopment/introduction of fossil fuel electric power plants to enhance the stability ofelectric power supply does not fall under the category of CDM project.

In order to resolve such an issue, two CDM guidelines have recently been published.

“Guidelines for the establishment of sector specific standardized baseline” allows for theestablishment of additionality criteria and appropriate baselines for each sector in a countryinstead of employing one uniform method of calculation across-the-board.

Likewise, based upon highly reliable studies and government target levels, “Guidelines on theconsideration of suppressed demand in CDM methodologies” determines the “minimumservice level” of power supply within a country and permits the identification of a baseline(reference) technology (devoid of obstacles to implementation) that can provide that amountof power supply.

Using these as references, a method for establishing a suitable New Mechanism baselineemission factor is proposed.

Apart from the baseline (reference) emission factor and in the absence of any specificreference, the methodology is based on “Consolidated baseline methodology forgrid-connected electricity generation from renewable sources”.

(2) Reference Scenario and Project/Activity Boundary

In keeping with the above, a method for the establishment of a reference scenario todetermine the baseline emission factor for a “country with over 50% hydropower and aninsufficient electric power supply” is proposed.

In the case of CDM, “Guidelines on the consideration of suppressed demand in CDMmethodologies” was drawn up as a guideline to be used to help establish a baseline forpossible future emissions increases.

The fundamental approach here is in line with that guideline. The “minimum service level”,however, is considered specifically for the case of Colombia. The minimum service level hasbeen rather ambiguously defined as “a service level that is able to meet basic humandemands” and it is assumed that this level is established from sources such as research papersand developmental targets.

To put it into a more concrete context, the meaning of “minimum service level” is taken hereto denote the level of demand for power that would be reached in the absence of poverty.Accordingly, by establishing this level, it is possible to infer a reference scenario which takesinto account a rise in future emissions.


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This level must be derived based on an analysis of installed capacities, electrical powerconsumption and future power supply configurations which is in line with policies developedfrom information studied and examined by the government of Colombia.Information of this sort is found in materials such as those below.

Plan de Expansion de Referencia Generacion-Transmision 2009-2023 New National Development Plan 2010-2014

Once the “minimum service level” has been determined, it is then a matter of identifying areference technology (baseline technology in CDM) (devoid of obstacles to implementation)that provides a supply that matches this level.

A reference technology to match the minimum service level is established by taking thesituation in Colombia into account. However, a key issue in establishing this level is theextent to which the specific needs of Colombia can be taken on board. For example, theseneeds include such issues as improvements in the electrification rate, the stabilization of thepower supply and support for an optimal power supply configuration.

Ultimately, the reference level is likely to be bilaterally determined by both governments;however, conditions must be set out in order to avoid the level being established in anarbitrary manner. This study proposes that for a country with a fuel configuration that dependson a specific fuel above a certain ratio (e.g. a country in which hydropower represents 50% ormore of the total power supply capacity), there ought to be an evaluation of the quantity ofreference emissions limited to power sources which contribute to the stabilization of thepower supply, i.e. fossil fuel, nuclear power, geothermal etc.

For a country in this category, it is essential to develop energy sources that not adverselyaffected by the weather and which can contribute to stabilizing the power supply. Theseenergy sources provide the basis for the baseline in order to identify emissions factors.

Energy sources seen as contributing to the stabilization of the power supply in Colombiabetween now and 2020 are natural gas and diesel (off-grid) in the short-term, and coal in theintermediate-term. These energy sources are assessed with the same quality levels as theproject in order to find out the extent to which they would fulfil the minimum service level.

Furthermore, the spatial extent of the project boundary includes the project power plant andall power plants connected physically to the electricity system or grid that the project powerplant is connected to. In addition, it includes any off-grid plants that are replaced by theproject as per the established reference scenario.

Characteristic to geothermal power generation are sources of emissions which must be givendue consideration such as CO2 and CO4 which are contained in non-condensable gasesemitted in to the atmosphere.

(3) Monitoring Methods and Plan:The parameters to be monitored are shown below.


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Monitoring Parameter Frequency ofmeasurement as perCDM requirements

Comment

Annual quantity of electricity generationsupplied by the geothermal powergenerating plant to the grid(MWh/yr)

Continuous measurementand at least monthlyrecording

-

Annual quantity of steam produced(t-steam/yr)

Daily Daily measurement isassumed

Average mass fraction of carbon dioxidein the produced steam(tCO2/t-steam)

At least once every 3months

Daily measurement isassumed

Average mass fraction of methane in theproduced steam(tCH4/t-steam)

At least once every 3months

It is presumed thatthere are cases wheremeasurement is notcarried out

Quantity of Electrical Power GenerationMonitoring is implemented under normal operating conditions.

Quantity of SteamSampling measurements are carried out under normal operating conditions.

Non-condensable gases (CO2 and CO4) contained in the produced steamAs part of normal operations, H2S, CO2, and R gases (mixed gases such as N2, O2, H2, CH4,rare gases etc.) are commonly measured for environmental impact assessment purposes. Thissampling measurement is basically achieved by means of gas chromatography. However,whilst R gases are measured as part of normal operations, it is unusual, even in Japan, forlevels of CH4 to be individually ascertained.

According to the “Special Report on Renewable Energy Sources and Climate ChangeMitigation” which was published by the IPCC in May, 2011, a great deal of variation in themass fraction of CO2 was reported, with values between 4 and 740 gCO2 /kWh depending onthe site. As a consequence, it is exceedingly difficult to set an applicable default value thatwould be uniformly employable across all projects.

Prior to this project, a study of gas components is to be implemented and its results are to beused as a basis. However, in order to answer the question of whether or not these values maybe considered as fixed values, and in order to judge how infrequently the measurements maybe carried out, actual on-site measurements and recordings of any changes/deviations arenecessitated prior to any justification of reductions in the frequency of measurements.

Among monitoring methods, the ASTM standard is used as if it were the de facto standard ofa sampling method. However, it requires more work than the method applied in Japan. Thus,it is preferable for the BOCM to choose methods which do not impose additional burdens onoperators and to establish its own standard of monitoring. Since any monitoring methodrequires sufficient experience and know-how, capacity building in cooperation with Japanesecompanies is important for a developing country where geothermal power is newlyintroduced.


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(4) GHG Emissions and Reductions

Project Emissions ysteam,CH4yCH4,steam,yCO2,steam,yGP, MGWPwwPE

wsteam,CO2,y = Average mass fraction of carbon dioxide in the produced steam(tCO2/t-steam)

wsteam,CH4,y = Average mass fraction of methane in the produced steam(tCH4/t-steam)

GWPCH4 = Global warming potential of CH4

(tCO2e/tCH4)Msteam,y = Annual quantity of steam produced (t-steam/yr)

In the absence of data relating to the quantity of project emissions, the value is provisionallyset to 0.05t-CO2/MWh in line with information in PDDs on similar geothermal powergeneration plants.

Reference Emissions

yCM,grid,yPJ,y EFEGBE

EGPJ,y = Annual quantity of electricity generation that is produced by thegeothermal power generating plant and fed into the grid (MWh/yr)

EFgrid,CM,y = Reference emission factor (tCO2/MWh)

The annual quantity of electricity generated is 394,200MWh when installed capacity of theproject is taken as 50MW and with a plant operating ratio of 90% capacity of use.

Calculation of the reference emission factor 1.Calculated utilizing data from an individual power plant

In essence, the operating margin (OM), the build margin (BM) and the combined margin(CM) for the identified reference technology (for one or a plurality of energy sources thatcontribute to the stabilization of power supply) are calculated as per the “Tool to calculate theemission factor for an electricity system”.

Results calculated using actual data collected in Colombia are shown below.

For the purpose of the calculations, the short-term reference technology was taken to be allfossil fuels and the related intermediate-term reference technology was assumed to be coal.For example, it was decided to selectively presuppose a fossil fuel CM for generating powerplants that commence operation prior to 2020 and a fossil fuel BM or a coal CM for powerplants operating beyond 2020.

These values need periodic revision.


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Reference emission factors calculated utilizing individual power plant dataReferencetechnology

OM BM CM

Short-term(Commencing operation before 2020)

Fossil fuel 0.652 0.623 0.638

Intermediate-term(Commencing operation after 2020)

Coal 0.922 0.899 0.911

Calculation of the reference emission factor 2.Established in accordance with a standardized baseline

An evaluation based on individual data collected for each domestic power plant is desirable.However, in the case of a country where access to individual data is difficult without capacitybuilding, it is proposed to use the CDM “Guidelines for the Establishment of Sector SpecificStandardized Baselines” in order to evaluate additionality and to establish the baseline.

The evaluation focuses only on technologies that contribute to the stability of power supply.

Examples of reference emission factors set according to the guideline are shown below.

Reference emission factors obtained utilizing IPCC default valuesReferencetechnology

Referenceemission factor

Short-term(Commencing operation before 2020)

Gas（37.5%） 0844

Intermediate-term(Commencing operation after 2020)

Coal（45%） 0.521

Here, values were established using IPCC default values and the attachment to the tool forcalculation of the emission factor for an electricity system (Annex 1: Default efficiencyfactors for power plants).

One issue of note is the fact that where an emission factor is not established as being lowerthan that at the time of data collection, the incentive to collect actual data greatly diminishes.Consequently, it is reasonable to suggest that a conservative approach be adhered to regardingthe establishment of factor values.

Any factor calculated using default values must be treated as a provisional value for theinterim period until such time as capacity building is implemented and individual power plantdata can be collected.

LeakageThe main emissions sources potentially giving rise to leakage in the context of electric sectorprojects are emissions arising due to activities such as power plant facility construction andfrom fossil fuel use (e.g. extraction, processing and transport).Compared to the emissions reductions, the quantities of these emissions are consideredinsignificant and thus neglected.

Emission ReductionsThe following emission reductions are derived utilizing a fossil fuel CM that is calculated


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from individual power plant data for energy supply sources that contribute to the stabilizationof power supply in Colombia up to the year 2020.

394,200MWh*（0.638－0.05） t- CO2/MWh＝231,625t-CO2

(5) MRV System for GHG Reductions

The execution of MRV is relatively simple for projects in the electricity sector. That isbecause data that is used for the calculation of emissions reductions can be measured withinthe power plant and because standard operating procedures commonly require the plant tomeasure, report and verify parameters - for instance the quantity of electricity produced.Furthermore, it is because the methods used for measurement adhere to what are, to all intentsand purposes, globally-established standards.

With regard to grid emissions factors, the optimum situation is one in which the projectproponent is able to tangibly utilize actual emissions factors calculated and released by thegovernment which itself collects data from the individual power plants.

According to the Inter-American Development Bank (IADB) which assists the Colombiangovernment with calculating emissions factors, the bank is currently engaged in advancingcapacity building in order to make the collection of accurate data from each power plantpossible. A user-friendly guidance tool should also become available in the near future.

For BOCM, it is important that support be given to operators via cooperation withintermediary local consultants such as the IADB, in order to allow the same operators toindependently carry out Measurement and Reporting on their own.

Looking towards the future, it is hoped that with the necessary support from Japan, thirdparties in developing countries will not only be able to implement Measurement andReporting, but also carry out the required Verification step in the MRV process.

（6）Environmental, Socioeconomic Impacts：As one of the beneficial effects of geothermal development from an environmental

standpoint, the introduction of renewable energy, as an alternative to thermal power plantsthat burn fossil fuels, contributes to the reduction of air pollutants such as SOx and NOX.This point is explained in more detail in Section 5 on co-benefits.

As harmful effects that accompany geothermal development from an environmentalstandpoint, the following among others are cited: changes to the landscape, noise pollution,geothermal eruptions, ground subsidence, residual heat effects, release of airborne pollutants,release of waterborne pollutants, micro-earthquakes. These harmful effects can be divided bytime period, into those that occur during drilling and those that occur during operation, andavoidance measures are required for each. Furthermore, because in general these harmfuleffects are proportional to the scale of use (i.e. the scale of the facility introduced), especiallyfor large facilities avoidance measures must be carefully considered. The above-mentionedharmful effects are to be considered for superheated steam and flash cycle geothermal powerplants, while for closed systems such as binary cycle generation the harmful effects ofpollutants can in principle be eliminated.

In the host country, an environmental license is issued for projects or engineering works forwhich there is a danger that natural resources or scenery might be damaged. Depending on


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the importance and impact of the project, this license is issued by the Ministry ofEnvironment, Housing and Land Development (MAVDT), by a regional authority, or by amunicipality. In the 2002 decree on project license acquisition (Decree No. 1728 of 2002) itis stipulated that an environmental countermeasures diagnosis must be submitted to MAVDTthat records the plans for making environmental impacts as small as possible. These chosenproposals form the basis for the environmental impact assessment (EIA).

Among the projects that are the subject of the above environmental license issuance, thereis no precise description of the geothermal power plant. Nevertheless, according to theprincipal project executor ISAGEN, a license has already been acquired for test well drilling.This appears to be progressing while making reference to the mining development division’senvironmental impact assessment; it is surmised that in reality project development is takingplace simultaneous with the government’s legal preparations.

(7) Other Impacts:In general, geothermal power plants are often developed in regions designated as national

parks. On such occasions, it is desirable that the development be carried out withconsideration given to ecology and local communities. In the specific case of the currentproject, development is outside of national parks, so these impacts can be said to be limited.

According to an analysis ISAGEN carried out of electricity generation costs by powersource, the most inexpensive source is hydroelectric power. On the basis of economic logic, ifgeothermal power is introduced, electricity will be supplied to consumers at a somewhathigher electricity cost than before, but this cost difference is limited. In addition, the initialintroduction costs are estimated to be lower than those for hydropower, and so it may be saidthat expectations for the introduction of geothermal power generation are high.

(8) Comments from Interested Parties:

Extent of Interested PartiesThe parties with a direct interest are assumed to be those parties related to geothermal power

development companies and government bodies involved in climate change countermeasures.

Content of Comments and Status/ProspectsFrom ISAGEN the comment was received that because ISAGEN is a public corporation

57% of whose stock is held by the government, together with the Government of Colombia(Ministry of Environment, Housing and Land Development) ISAGEN would like to proceedin a forward-looking way with these deliberations.

Luis Alberto Posada Aristizabal: ISAGEN, New Business DevelopmentISAGEN is involved in the development of CDM projects using hydroelectric generation,

but at the present time there are not yet any projects registered with the UN. For this reason,ISAGEN can in large measure sympathize with the BOCM approach that is trying toovercome the problems of the CDM. ISAGEN, together with the Government, its largestshareholder, would like to proceed proactively with the formation of the BOCM. Furthermore,ISAGEN believes that because the Government of Colombia is enthusiastic about geothermaldevelopment but there are problems with funding, now is an excellent time to consider a newmechanism. Regarding geothermal power generation, at present almost all information iscoming from the United States, and so information from Japan is extremely useful.

Next, from the Ministry of Environment, Housing and Land Development, the institutionthat takes the lead in climate change policy, the comment was received that the Government


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of Colombia has begun considering a new mechanism in the wake of COP17, and has shownintense interest in the BOCM.

Now is the appropiate time for direct appeals from the Government of Japan towardrealization of the BOCM.

Ms Sandra Garavito: Ministry of Environment, Housing and Land Development(MAVDT), Climate Change Group

At this time the government is examining carbon markets. The Colombian Strategy forLow-Carbon Development (ECDBC), aiming for low-carbon development, is consideringfinance opportunities through bilateral and multilateral market mechanisms as well as theacquisition of technology support. Thus, the BOCM is consistent with the aims of the ECDBCand MAVDT would like to consider it very positively. Furthermore, deliberations are alsobeing carried out regarding new mechanisms with an integrated approach (sector- orsubsector-specific).

(9) Scheme for Executing the Project/ActivityFigure 3 below shows the general scheme for executing this project as well as the scheme

envisioned for the spreading/expansion of these activities.When geothermal power generation projects are carried out in Japan, mainly three kinds of

key players cooperate: geothermal consulting companies that perform the surveys and design;generator manufacturers that provide the power plant equipment such as turbines and electricdynamos; and electric power companies that operate and manage the geothermal power plant.In the present project as well, it is expected that in the same way during each phase each ofthe key players will work together to execute the project.

Because this project is at present in the phase of test well drilling, the stage where generatormanufacturers are chosen has not yet begun. However, interest is very strong in Japanesemanufacturers, which have much experience in the world market. Furthermore, since this isColombia’s first geothermal power plant, for ISAGEN to obtain the know-how for properoperation, it is possible to cooperate with Japanese electric power companies, which takepride in their many years of experience. Capacity building is expected with regard to boththese “hard” and “soft” aspects.

Figure 3 Scheme for the current project as well as the scheme envisioned for thediffusion/expansion of these activities


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(10) Financial Planning:The outline and financial plan of this project are shown below. At this time the Phase 2

technical evaluation has ended, and the selection of winzes in the test well drilling of Phase 3is ongoing. Regarding construction financing, at this time lenders are being considered. It isexpected that JBIC will also be a possibility.

Planned start of construction in 2014 Total budget of $113.6M

Construction /Start of

operationStep Five

Excavation of approx. 10 production and insertion wells $54M budget; scheduled to be executed in 2013

Productionwell drillingStep Four

Data collection/analysis from test well drilling at 5 selected points Technical feasibility analysis and economic analysis $23.3M budget; scheduled to be executed in 2012

Test welldrillingStep Three

Technical evaluation of 10 locations within the concerned area Being carried out using a $1.5M grant (within a total budget of $2.65M)

from the IADB’s Japanese Trust Fund for Consultancy Services (JCF) In progress from 2010 to 2011

TechnicalevaluationStep Two

Evaluation of geothermal resource potential in 3 domestic areas Carried out with $600k assistance from U.S. Trade and Development Agency Completed in FY2008

Pre-F/SStep One

Figure 4: Financial plan of the project

The type of facility introduced, which varies greatly depending on the nature, condition, andtemperature of the geothermal resource, has a large effect on the expenditures required forgeothermal power development. In this project, because a high-temperature resource isanticipated, it is assumed that an ordinary single-flash type plant will be introduced. Theeconomic evaluation of the project is shown below.

Table 1: Economic evaluation of the projectConditions of the projectCapacity 50 MW Assumed value. Provided by

ISAGENPlant factor 90% Assumed valueQuantity ofelectrical powergeneration

394.2GWh Capacity×Plant factor×Annualoperation hours

Quantity ofemission reductioncredit

231,625t-CO2 See (4) GHG Emissions andReductions

Revenue and expenditureInitial investmentcost

$167.6 million Sum of cost of ‘Production WellDrilling’ and cost of ‘Construction /Start of Operation’(See Figure 4）


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O&M cost $22.38/kW Calculated based on TechnologyRoadmap1 of IEA

Unit price ofelectricity

100Peso/kWh Referred to average spot marketprice of MEM in 2011

Conditions of BOCMBOCM credit price 10 Euro/t-CO2 Referred to average price at ECX in

2011.Exchange rate $1.3/Euro Referred to average price in 2011

$0.0005/Peso Referred to average price in 2011BOCM creditperiod

10 years Assumed that 100% of credit isobtained by project operators

Result of IRR calculationsIRR (with BOCMcredit revenue)

5.39％

IRR (withoutBOCM creditrevenue)

2.63％

（11）Introduction of Japanese Technology：

Although the project is still at the test well drilling phase and no decision has been made onthe technologies to be adopted, there is a good chance that Japanese technology will beintroduced as it is a global market leader in delivering geothermal energy solutions.

In fact, the geothermal equipment supplied by Japanese manufacturers (i.e. turbines andgenerators for geothermal plants) accounts for approx. 70% - 80% of all worldwide recordeddeliveries. In Central and South American regions, 15 out of 21 geothermal power plants weresupplied by Japanese companies, which represents 76%2 of the region’s total installedcapacity (950 MW out of 1,244 MW). In the field, Japanese technology is renowned for itshigh reliability, durability, and after sales support services which convinces many projectowners to choose them ahead of any other competition.

It is estimated that 7,770 MW - 16,770 MW aggregate capacity can be installed in theCentral and South American region (except for Mexico) which represents a promising andattractive market for Japanese geothermal specialists. While Central American countries suchas Costa Rica, El Salvador, Guatemala, and Nicaragua have thus far developed geothermalpower plants with a total installed capacity of 525MW, there is less development occurring inSouth American regions due to the existence of vast hydro energy resources, such as the caseof Colombia. However, an increase in international momentum towards adopting renewableenergy solutions in recent years has somewhat contributed to the rise in incentives beingoffered for geothermal projects in the region. In fact, there are plans to develop a totalcapacity of 180 MW in Chile and Argentina by 2015, and there could be more upcomingprojects in future for South America, as the potential geothermal energy resource in the regionis estimated to be 2,380-5,310 MW, which is sufficient to install commercial power plants.

1 According to IEA documents, a flash-type geothermal power plant has an initial investment cost of $2000 to $4000 per kWand O&M costs of $19 to $24 per kW. Assuming for this project an initial investment cost of $3352 per kW and assumingthat O&M costs are proportional to initial investment costs, we can calculate O&M costs of $22.38 per kW.2West Japan Engineering Consultants, Inc. “Study on Geothermal Power Plant Construction Project, in the Borateras Field,Peru” (FY2007)


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Current absence of laws concerned should not be an issue for the project as the necessarydomestic legislation to install and operate geothermal power plants is being prepared inparallel with the development of the proposed project. By contrast, there are some technicallimitations in Colombia as their technological capability regarding plant construction andoperation is still limited, even though surveys and studies on geothermal power generationhave long been conducted. Hence, it is anticipated that Japanese companies who have provenexpertise and knowledge in this particular field in Japan, as well as overseas, can assist withcapacity building and serve the objective of ensuring a robust project implementation.

There will be opportunities for Japanese companies of three different industries to participatein the project as shown in Figure 3, i.e. 1) Consulting firm for conducting the study,development, and design, 2) Manufacturer for providing generators, turbines and otherequipment, and 3) Utility company for support of operating and maintaining the plant. Thisarrangement coincides with the Japanese government’s policy for promoting “PackagedInfrastructure Export” which will help to realize the proposed project, whereas the project canhelp with the dissemination of Japanese technology.

(12) Possibilities and challenges

It is planned to start the construction phase in 2014 as written in the project plan. The issuesthat need to be addressed to realize the project are as follows.

Capacity building for operating phase.

The early phase of the project has been supported by Japanese technology. At the surveyphase which is currently underway, Nippon Koei Co., Ltd., a Japanese constructionengineering consultancy, is conducting the technical survey on test wells to be drilled, withfinancial support from IADB. It is beneficial for Colombia to continue receiving competitiveand reliable Japanese sourced technology throughout the project, including through theinstallation and operating phase. It may also be advantageous for Colombia to obtaintechnological information from Japan so as to reduce their current reliance on the UnitedStates in this regard, according to ISAGEN.

Financing arrangements

The cost of the survey phase has been funded by international institutions such as USTDA(U.S. Trade and Development Agency) and JCF (Japanese Trust Fund for Consulting Service)of IADB. It would be difficult to apply a yen loan financed by the Japanese government whenconsidering the proposed commencement year of the project. However, it may be possible toapply a yen loan in a proactive manor for other potential projects in the country as theColombian government is currently planning to promote several geothermal projects. It isimportant that the Japanese government starts to discuss this issue.

5. “Co-benefits” (i.e. Improvement of Local Environmental Problems)

A thermal power plant is assumed to be the alternative energy source to hydro power for thepurpose of calculating the quantified co-benefits. This is because the Colombian governmentis contemplating the implementation of gas fired power plants in the short term and coal firedpower plants in the mid-term future to help stabilize total supply as described in 4-(2)


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“Reference Scenario and Project/Activity Boundary”. From an environmental perspective, it isexpected that the introduction of a geothermal plant could serve to reduce air pollutants suchas SOx, NOx, and soot dust etc emitted from fossil fuels used in thermal plants. However,only the reduction of SOx is considered in the calculation due to the lack of available data.Gas fired power plants are excluded from the calculation because their fuel compositionmerely contains sulphur, which means any reduction effects would be limited. Hence, SOxemissions per kWh generated are calculated using data from two existing coal fired powerplants i.e. PAIPA and ZIPAEMG, as representative examples in the country. The quantifiedco-benefits based on this calculation are described in Table 2.

Table2: Quantified effects of co-benefitsHypothetical conditions NoteInstalled capacity 200 MW Assumed valueRate of operation 90％ Assumed valueSOx emission NoteEmission per kWhgenerated in coal firedpower plant

5.83 kg/MWh Based on data from PAIPA andZIPAEMG power plants

Emission per kWhgenerated in geothermalpower plant

0.16 kg/MWh See John W. Lund3

Sulphur oxide emission reduction calculated NoteEmission reduction 8,940 t/year -

6. Contribution to Sustainable Development in Host Country

The project would contribute to the country’s sustainable development in the following areas.

Stabilizing electricity supply and assisting with climate change countermeasures

Colombia needs to hedge the risk of unstable power supply during a draught periodwhich is mainly caused by El Niño, plus the country’s heavy reliance on hydro powerwithin their electricity generation portfolio. Thermal power may be deemed as analternative technology to reduce the above risk as it is the second cheapest option afterhydro energy. However it contributes less toward climate change countermeasurescompared to other alternative technologies, while geothermal energy may assist with boththe stabilization of supply and climate change objectives at the same time.

Capacity building for geothermal resource development

A Japanese geothermal power plant possesses the leading technology in the world marketand this expertise can be transferred to Colombia, whose knowledge in this field islimited, by developing the proposed project and implementing capacity building. Ingeneral, geothermal reservoirs have a wide range of temperatures which can be utilizedfor various purposes. In Colombia, only the direct use of geothermal energy has beendeveloped at a few sites, but by using this project as an opportunity to facilitate the

3 John W. Lund, Characteristics, Development and Utilization of Geothermal Resources


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required domestic legislation, this situation could be improved.

UPME (Mining and Energy Planning Unit), a research institute of the Ministry of Miningand Energy, has also been conducting country-wide assessments of reservoir temperatureswith a view to the direct use of their geothermal resources.

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