PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD) - Version 03

CDM – Executive Board

CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-SSC-PDD) Version 03 - in effect as of: 22 December 2006

CONTENTS

A. General description of the small scale project activity

B. Application of a baseline and monitoring methodology

C. Duration of the project activity / crediting period

D. Environmental impacts

E. Stakeholders’ comments

Annexes

Annex 1: Contact information on participants in the proposed small scale project activity

Annex 2: Information regarding public funding

Annex 3: Baseline information

Annex 4: Monitoring Information

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Revision history of this document

Version Date Description and reason of revision Number 01 21 January Initial adoption 2003 02 8 July 2005 • The Board agreed to revise the CDM SSC PDD to reflect guidance and clarifications provided by the Board since version 01 of this document. • As a consequence, the guidelines for completing CDM SSC PDD have been revised accordingly to version 2. The latest version can be found at . 03 22 December • The Board agreed to revise the CDM project design 2006 document for small-scale activities (CDM-SSC-PDD), taking into account CDM-PDD and CDM-NM.

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SECTION A. General description of small-scale project activity

A.1 Title of the small-scale project activity:

Yeghegis small-scale hydro project - Version 3 - Completed: 21.8.2007

A.2. Description of the small-scale project activity:

The project The purpose of the project is to install and operate a second turbine of 3.75 MW (3,750 KW) at the small scale hydropower plant on the upper flow of the Yeghegis river.

The electricity will be supplied to the national grid of Armenia. The project will be implemented by Bazenc, a Closed Joint Stock Company established in 2000.

A first turbine at Yeghegis has already been installed and is operational. This first turbine will not be part of this CDM project. The second turbine was included in the original business plan, but without the CDM it was not possible to finance that turbine. This is mainly because this turbine will only operate during a wet season of approximately two and a half months and thus produces much less MWh than the first turbine. The first turbine produces about 25,000 MWh, while the second one will produce about 7296 MWh.

The already installed turbine has a capacity of 6.2 MW and the second turbine 3.75 MW. The planned total installed capacity at the project site is therefore 9.95 MW, allowing the production of an estimated total of 32.3 million KWh (32,300 MWh) per year.

The project has been under development since late 2004. It has since been extremely difficult to find the necessary grid data to calculate an appropriate grid emission factor.

The energy sector With no oil and gas reserves, Armenia used to rely on supplies from Russia as the main source of electricity generation. Despite Armenia’s large hydropower potential, in 1988 thermal power plants (TPP) produced 59% of gross electricity production; the Armenian Nuclear Power Plant (ANPP) produced 31%, and hydropower plants (HPP) only 10%.

Energy supply became a critical issue for Armenia in late 1991, when Azerbaijan shut down the main pipeline transporting Russian gas to Armenia and the railroad. This meant that a smaller pipeline through Georgia, which was subject to disruption, remained the only source of natural gas supplies used for electricity generation and heating. The ensuing energy crisis was the major motivation for the Government of Armenia to re-open the ANPP, which had been shut down after the 1988 earthquake. This alleviated the immediate energy shortfall, but this Soviet-designed facility is considered inherently unsafe by international nuclear regulatory agencies despite extensive safety improvements made in recent years. For this reason, the ANPP is expected to be shut down, but more capacity on the grid is needed first.

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Increased output from large scale hydro plants after the energy crisis has resulted in the falling of the water level in the country’s largest lake Sevan to ecologically dangerous levels. Utilization of small scale hydro potential elsewhere would contribute to the production capacity required, without further reducing the water level in lake Sevan.

Sustainable development The project contributes to sustainable development in Armenia. Specifically, the project:

- Diversifies the sources of electricity generation and decreases dependence on imported natural gas. The increase in capacity by this project can also be a small contribution to the capacity that is required to shut down the Armenian Nuclear Power Plant (ANPP). This Soviet-designed facility is considered inherently unsafe and should be shut down. However, this is not possible yet as there is insufficient capacity on the grid.

- Since the installation of the second turbine was considered during the construction for the first turbine, most preparations for the installation of the second turbine have already been made and no further large-scale construction work is required. The environmental impact of the installation of a second project at the existing site can therefore be considered minimal.

- Ensures a minimum ecological waterflow of 0.29m3/sec to ensure environmental stability of the river in line with the legal obligation stipulated by the Ministry of Nature Protection of the Republic of Armenia in its environmental impact assessment.

- Helps the Armenian Government to achieve the goal of increasing hydro and other renewable energy.

- Increases employment opportunities to local people both during construction and operation of the project in the area where the project is located.

- Increases funds for the municipality of Vardahovit via the land-lease contracts, land taxes and also property tax on the equipment that is installed.

A.3. Project participants:

Name of Party involved Private and/or public entity(ies) Kindly indicate if the Part ((host) indicates a host project participants involved wishes to be considered Party) (as applicable) as project participant (Yes/No) Armenia (host) Bazenc CJSC No

Bazenc is a Closed Joint Stock Company established in 2000 and registered in Yerevan, Armenia. The Company’s short-term goal is the construction of a small hydropower plant and organization of electricity production in Armenia. Bazenc has the same owners as the Arpa-Sevan Corporation, a construction company specialized in large scale infrastructure construction. Arpa-Sevan has built several important tunnels in Armenia, including the 48 km tunnel connecting the river Arpa to lake Sevan.

A.4. Technical description of the small-scale project activity:

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The project will install and operate a second vertical four-nozzle 1060/P 2.6 CII-type Pelton turbine with a maximum power of 3.75 MW (3,750 KW) at the small scale hydropower plant on the upper flow of the Yeghegis river. This turbine will only operate during a wet season of approximately 2.5 months (1824 hours) and will produce about 7296 MWh per year.

The planned total installed capacity of the entire facility, including both turbines, is 9.95 MW, allowing the production of an estimated 32.3 million KWh (32,300 MWh) per year.

The electricity will be supplied to the national grid of Armenia.

A.4.1. Location of the small-scale project activity:

A.4.1.1. Host Party(ies):

Armenia

A.4.1.2. Region/State/Province etc.:

Vayk Marz

A.4.1.3. City/Town/Community etc:

Vardahovit

A.4.1.4. Details of physical location, including information allowing the unique identification of this small-scale project activity :

The Yeghegis project is located at 39º55’37.2” North; 45º30’15.5” East on the upper flow of the Yeghegis River between villages Gyadikvank and Vardahovit in the Yeghegnadzor area of Vayk marz. Bazenc leased 25 ha of land from reserve lands that belong to village Vardahovit to carry out the construction. The headworks site is in the canyon of the Yeghegis river 500m south west of the village Gydikvank. The plant is located 3,800 m down the flow of the river 300m to the east of the village Vardahovit near the intake structures of the Arpa-Sevan tunnel.

A.4.2. Type and category(ies) and technology/measure of the small-scale project activity:

According to the simplified modalities and procedures for small-scale CDM project activities, the Yeghegis Small Scale Renewable Energy Project falls under the Type/Category (i) D. (Renewable Energy Projects / Electricity generation for a system). The project conforms to the project category since the nominal installed capacity is below the 15 MW threshold and the plant will sell its generated electricity to the grid. It will not increase beyond 15 MW at any point during the crediting period.

The Yeghegis project only involves the installation of a second turbine, which had already been taken into account in the original design for construction of the project. The turbine will be identical to the first turbine, a vertical four-nozzle 1060/P 2.6 CII-type Pelton turbine with a maximum power of 3.75 MW (3,750 kW).

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A.4.3 Estimated amount of emission reductions over the chosen crediting period:

Total annual emission reductions from the electricity generated by the project are estimated as 3,166 tCO2e per year, or 22,159 tCO2e over a 7 year crediting period. For details, please refer to Section B.

Years Estimation of annual emission reductions in tonnes of CO2e Year 1 3,166 Year 2 3,166 Year 3 3,166 Year 4 3,166 Year 5 3,166 Year 6 3,166 Year 7 3,166

Total estimated reductions (tCO2e) 22,159 Total number of crediting years 7 Annual average of estimated 3,166 reductions over the crediting period

A.4.4. Public funding of the small-scale project activity:

The European Bank of Reconstruction and Development (EBRD) is lending 1.1 million Euros over the next 5 years towards the financing of the project. The EBRD does not claim any compensation in the form of certified emission reductions for the repayment of the loan. Therefore EBRD funding does not result in a diversion of official assistance (see Annex 2 for more information).

A.4.5. Confirmation that the small-scale project activity is not a debundled component of a large scale project activity:

According to Appendix C of the simplified M&P for the small-scale CDM project activities the Yeghegis project is not part of a larger CDM project activity. There is no registered small-scale CDM project activity or an application to register another small-scale CDM project activity: • With the same project participants; • In the same project category and technology/measure; and • Registered within the previous 2 years; and • Whose project boundary is within 1 km of the project boundary of the proposed small-scale activity at the closest point.

SECTION B. Application of a baseline and monitoring methodology

B.1. Title and reference of the approved baseline and monitoring methodology applied to the small-scale project activity:

Project Activity Type AMS 1.D: Renewable electricity generation for a grid, Version 10

B.2 Justification of the choice of the project category:

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The Yeghegis project is a hydropower project providing electricity to the grid. With an additional installed capacity of 3.75 MW it can be qualified as a small scale project. Herewith the project can be considered a project activity falling under category 1.D of Appendix B of the simplified modalities and procedures for small scale CDM project activities. According to these guidelines, projects that qualify under category 1.D can use the predefined baseline methodology as included in Appendix B under category 1.D Paragraph 9 offers the following two choices for preparing the baseline calculation for this type of project activity:

(a) A combined margin (CM) consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures prescribed in the approved methodology ACM0002. Any of the four procedures to calculate the operating margin can be chosen, but the restrictions to use the Simple OM and the Average OM calculations must be considered.

Or

(b) The weighted average emissions (in kgCO2/kWh) of the current generation mix. The data of the year in which project generation occurs must be used.

Option (a) is selected for this project.

B.3. Description of the project boundary:

The project boundary is defined as the notional margin around a project within which the project’s impact (in terms of carbon emission reductions) will be assessed. As referred to in Appendix B for small-scale project activities, the project boundary for a small-scale hydropower project that provides electricity to a grid encompasses the physical, geographical site of the renewable generation source. For Yeghegis this includes emissions from activities that occur at the project location related to the production of electricity from hydropower.

The project boundary for the baseline is defined as the grid level which is the Armenian national grid. The project boundary for the baseline will include all the direct emissions related to the electricity produced by the power plants that will be displaced by the Yeghegis project.

Conforming to the guidelines and rules for the small-scale project activities, the emissions related to production, transport and distribution of the fuel used in the power plants in the baseline are not included in the project boundary, as these do not occur at the physical and geographical site of the project. For the same reason the emissions related to the transport and distribution of electricity are also excluded from the project boundary.

B.4. Description of baseline and its development:

The Yeghegis project is a hydropower project providing electricity to the grid. With an additional installed capacity of 3.75 MW it can be qualified as a small scale project. Herewith the project can be considered a project activity falling under category 1.D of Appendix B of the simplified modalities and procedures for small scale CDM project activities. According to these guidelines, projects that qualify under category 1.D can use the predefined baseline methodology as included in Appendix B under

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category 1.D paragraph 9. This paragraph offers the following two choices for preparing the baseline calculation for this type of project activity:

(a) A combined margin (CM) consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures prescribed in the approved methodology ACM0002. Any of the four procedures to calculate the operating margin can be chosen, but the restrictions to use the Simple OM and the Average OM calculations must be considered.

Or

(b) The weighted average emissions (in kgCO2/kWh) of the current generation mix. The data of the year in which project generation occurs must be used.

Option (a) is selected for this project.

From the four options given in ACM0002-version 6: (a) Simple OM, (b) Simple adjusted OM, (c) Dispatch Data Analysis, (d) Average OM

The option (b) Simple Adjusted OM is chosen. In line with the methodology the steps below were calculated.

The following basic assumptions were made for the use of the baseline methodology:

- The Annual plant electricity output of the second Yeghegis turbine is estimated based on the average 3.75 MW production capacity and 7296 MWh electrical energy generation per year. - Electricity will be supplied to the grid of Armenia. - Based on a number of sources (see table below), the approximate operating margin for 2005, 2004 and 2003 was calculated.

Step 1. - The Simple Adjusted Operating Margin- approach was chosen because sufficient data for dispatch data analysis was not available from any official sources at the time of PDD development. - Ex-post monitoring data vintages will be used to calculate the EF based on the year during which project generation occurs. In this PDD, as a model to estimate emission reductions (as outlined in the PDD), the ex-ante approach was used initially. - Load data for the Lambda calculation was only available for 2005, hence only this data could be used for the calculation of the operating margin. - Step i) A load duration curve was plotted. - Step ii) Data was organized by generating sources. The total annual generation from low-cost must-run resources was calculated at 4.4889 million MWh. - Step iii) “The number of hours per year for which low-cost /must-run resources are on the margin” was calculated at 940. Consequently, lambda was calculated at 0.1073.

Step 2.

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- The Build Margin emission factor was calculated using Option 2 (see B.6.3.). This Build Margin will be updated based on ex-post monitored data vintages.

Step 3. - The baseline emission factor is calculated as the weighted average of the operating margin emission factor and the build margin emission factor.

Variables Sources Commissioning date of power plants UDI Database Fuel Source Public Service Regulatory Commission of Armenia: Total4Q_2005 Capacity of power plants Energy Sector Development Strategies in the Context of Economic Development in Armenia Generation in 2005 Public Service Regulatory Commission of Armenia: Main indicators of Electric Energy System in 2005: Main charateristics4Q_2005 Load Data for Lambda calculations Armenian Electricity Settlement Centre Fuel Heat Rate UDI Database Carbon Content of fuel GHG Assessment Handbook: World Bank Emission factors Calculated based on data listed above.

B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered small-scale CDM project activity:

According to “Energy Sector Development Strategies in the Context of Economic Development in Armenia” adopted by the Government of Armenia in August 2005, modernizing and replacing the generating capacity is essential since: • 38% of Armenian installed capacity has been in operation for more than 30 years; • The primary equipment at TPPs has reached 200 thousand hours level and does not correspond to international standards in terms of technical, economic and ecologic criteria; • 70 % of the installed equipment at HPPs has been in operation for more than 30 years, and 50% for more than 40 years. The same document indicates that the capacity additions planned for 2005-2010 will include a mix of thermal power plants (capacity additions to the two existing Yerevan and Hrazdan plants) and new hydro and wind plants. The following additions to the grid are currently planned: • gas fired addition to the Yerevan power plant 208 MW • gas fired addition to the Hrazdan power plant 440 MW • small hydro plants 70 MW • Meghri hydro plant 140 MW • wind plants 100 MW

For the period 2010-16 the planned capacity additions are:

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• gas fired addition to the Yerevan power plant 208 MW • gas fired addition to the Hrazdan power plant 400 MW • Loriberd hydro plant 60 MW • small hydro plants 65 MW • wind plants 200 MW

In total the plan expects the addition of 1,256 MW of thermal power plants and 635 MW of renewable energy, of which the planned addition of 300 MW wind power plants by 2016 appears to be quite optimistic, given the fact that currently no wind farms are installed in Armenia. If the plans are implemented and the Armenian nuclear power planned is phased out as envisaged, then the Armenian energy mix would look as follows in 2016: thermal power plants would contribute to 64.7% of total capacity while carbon-free generation would contribute to 35.3%. In 2005, thermal power plants contributed to 47.87% of total capacity while carbon free plants contributed to 52.13%.

The distribution of the capacity within the actual (2005) Armenian energy mix and the planned (2016) energy mix is shown in the table below.

This projection would imply a significantly higher share of thermal power and thus a much larger CEF per MWh then the build margin as calculated for this project in Section E.

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Barriers

Various investment barriers exist for developing hydropower projects in Armenia. A report by PA Consulting Group1 summarizes the main barriers to the implementation of small hydro projects similar to the Yeghegis project. These are:

- Uncertainty of the project developers right under legal and regulatory structure - Uncertainty of future electricity tariff - Lack of capital for development and construction

It must be noted that Bazenc has in fact not had difficulties regarding all barriers as identified by PA Consulting Group. So far, there have not been significant delays in payments (Bazenc has a contract with CJSC Armenian Electric Mains). Also, there is now more certainty on the electricity tariffs.

Lack of capital for development and construction of small scale power plants

The lack of capital is seen as the main barrier, as the following problems exist for small hydro projects that want to raise funds:

- The interest rates applied to loans in drams by twenty Armenian commercial banks to corporate clients are too high averaging at about 16-18% (the reference rate of the banking interest is 15% to which a commercial bank margin of 1-3% needs to be added) - The loan terms are too short for a long term investment such as a power plant - The Armenian banks are too small to provide loans for even small hydro projects - The loan amounts are too small for international capital markets - Due to the history of payment and credit problems, it will take a long time to repair the sector image for investors - Local banks do not understand the business.

The Yeghegis project has faced large problems in attracting capital, and lack of funds is the reason the second phase of the project could not be implemented. Since no sources of capital could be identified for the project, this barrier prevented the project from implementation.

Domestic Banks were unable to provide a loan suitable for the project. This is mainly due to two reasons: Firstly, the loan amount of the project was too large by domestic standards. Secondly, the capacity of the turbine is comparatively low at 3.75 MW and it will only run for approximately 2.5 months of the year. Combined with the lack of understanding of the renewable energy business, this makes the project unappealing for the local banking sector. For this reason local banks could only offer only small loans to cover a portion of the construction costs (around 8%).

Bazenc also involved the turbine supplier to help identify sources of finance but was not successful.

Furthermore, credit rates in Armenia are high, the interest rate on a bank loan stood at 16% at the time of project development. For current interest rates see the Central Bank of Armenia website: www.cba.am.

1 PA Consulting Group (presentation), Proposal for establishment of renewable resource revolving fund in the Republic of Armenia, May 2002.

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Given this high interest rate, the limited running time of the turbine, which cause lower revenues, and the risks related to hydro projects, it proved to be very difficult to finance the project.

It appears implementation of the project was only possible with the involvement of the European Bank of Reconstruction and Development (EBRD), which provides the loan at a 9% interest rate. Loan negotiations between the EBRD and Bazenc on the second turbine of Yeghegis were completed in July 2005. The EBRD is lending 1.1 million Euros over 5 years towards the financing of the project. It subordinated two loans: a shareholder’s loan from the project developer and a loan from the Armenian construction company Arpa Sevan. The first phase of the project and the main construction works were financed with these loans. Such a structure is not uncommon in Armenia.

A rule in the Agreement establishing the EBRD is "Article 13 Operating Principles (vii) the Bank shall not undertake any financing, or provide any facilities, when the applicant is able to obtain sufficient financing or facilities elsewhere on terms and conditions that the Bank considers reasonable;” The involvement of the EBRD supports the argument, that the project would not have been able to receive finance from another source. The EBRD is a “lender-of-last-resort”, which applies rigorous financial due diligence of its projects in countries with unfavourable financing environments, which are less attractive to investors. The mission of the EBRD is to support projects, such as the Yeghegis project, which have trouble attracting finance due to local economic conditions and project characteristics.

The rationale for the Bank to support the development of indigenous sources of energy is the “public good” aspects of longer-term energy security. In addition, the Bank has considerable experience with renewable energy projects and energy sector restructuring in other countries. The Bank's involvement is essential to add credibility to local authorities' efforts to implement the required policies to increase penetration of renewable resources.

Crucially, the EBRD agreed to finance the project since it would also acquire CDM status and would be able to receive an additional source of revenue from the sale of carbon credits. At an estimated price of US$10, the revenues from the sale of CERs will generate an additional cash flow of approximately US$31,660 per year, which will improve the feasibility of the project. This additional revenue was key in EBRD’s decision to finance the project. EBRD also covered the upfront costs of developing the project under the CDM.

It should be noted, that although a large number of SSC hydro projects received construction licences from the Armenian government (see Build margin calculations), these projects face significant challenges in attracting finance.

Conclusion

A number of barriers prevented the project developer from receiving investment for the second turbine at the Yeghegis site. No source of finance could initially be identified due to the nature of the project: a small-scale hydro turbine in Armenia, which only runs for approximately 2.5 months of the year. The only source of finance that eventually became available was the EBRD, a lender-of-last resort, that conducted rigorous due diligence of the project and linked financing of the project to the additional CDM revenue. The lack of capital for this project type is a significant barrier to investment and the project is therefore additional.

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B.6. Emission reductions:

B.6.1. Explanation of methodological choices:

The baseline option under Paragraph 7 of Type I.D., Version 10 is not applicable as the project does not recover methane.

The baseline option under Paragraph 8 of Type I.D. Version 10 is not applicable as the grid does not consist of fuel-oil/diesel only generation.

The baseline emissions are therefore calculated as indicated under Paragraph 9, as follows:

(a) A combined margin (CM) consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures prescribed in the approved methodology ACM0002. Any of the four procedures to calculate the operating margin can be chosen, but the restrictions to use the Simple OM and the Average OM calculations must be considered.

Or

(b) The weighted average emissions (in kgCO2/kWh) of the current generation mix. The data of the year in which project generation occurs must be used.

Option (a) is selected for this project.

From the four options given in ACM0002-version 6: (a) Simple OM, (b) Simple adjusted OM, (c) Dispatch Data Analysis, (d) Average OM

The option (b) is chosen. In line with the methodology the steps below were calculated. • The Dispatch Data Analysis OM cannot be selected because of the unavailability of the detailed dispatch data for the Armenian grid. Such data were formally requested but not received from the Public Service Regulatory Commission of Armenia. • The Simple OM (method a) cannot be applied in Armenia since the low-cost/must run resources (i.e. hydro and nuclear generation) constitute more than 50% of total grid generation in the average of the five most recent years as shown in the table below (Source of data: Public Service Regulatory Commission of Armenia).

Year 2005 2004 2003 2002 2001 Percentage of low-cost/must run resources in total generation 70.75% 72.91% 72% 70% 50% Average of five years 67.13%

• The Armenian Electricity Settlement Center has supplied the project proponent with the data necessary for plotting the Load Duration Curve and estimating the factor lambda for the year 2005 for the Armenian electricity grid. Given the difficulty for the project developer to obtain such a large number of data ex post for each year in which the electricity generation occurs from the CDM project, the ex ante vintage was chosen. Although data were requested for vintage years 2003 and 2004 as

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well, the Armenian Electricity Settlement Center was not able to supply these data, therefore only the vintage year 2005 is available at the time of PDD submission.

The calculations that quantify the baseline and the emissions coefficient are shown in the Section B 6.3. of this PDD, relevant sourcing has also been indicated.

The remainder of this section presents the discussion on the grid-connected facilities that are considered for the calculation of the operating margin and the build margin. The ex-post monitoring data vintage has been chosen for this project.

Choice of plants for the operating margin calculation

The ex-post monitoring approach will be used. To calculate indicative emission reductions for this PDD, however, the ex-ante approach was chosen. The table below presents all the plants considered for the ex- ante calculation of the operating margin. If hydro, geothermal, wind, low-cost biomass, nuclear and solar generation are excluded, then only three thermal power plants remain for the adjusted operating margin: Yerevan, Hrazdan and Vonadzor thermal power plants. It must be noted that Vanadzor has not been running since 2001.

The imports from Iran and Artsach region are also included in the calculation of the operating margin. It must be noted that since the emission factor of the Artsach region is unknown, the emission factor of all the imports was assumed in a conservative manner to be 0 tons of CO2 per MWh (as prescribed on page 4 of the ACM0002 version 6 methodology).

The power sources included in the operating margin calculation are underlined in yellow in the table below.

Sr. Power Plants Dates Fuel Source Capacity Generation Generation Generation No. commissioned (2005) (2004) (2003)

MW GWh GWh GWh 1 Hydro 556 519.2 533.0 505.2 International Energy Corporation (former Sevan-Hrazdan Hydro Power Plant) Sevan 1949 Hydro 96 Hrazdan 1959 Hydro 34 Argel 1953 Hydro 79 Arzni 1956 Hydro 211 Kanaker 1936 Hydro 5 Yerevan 1 1961 Hydro 67 Yerevan 3 1956 Hydro 40 2 Yerevan Thermal Natural gas 550 391.7 224.9 215.6 Power Plant Section 1 1963-1965 Natural gas 250 Section 2 1966-1968 Natural gas 300 3 Hrazdan Thermal Natural gas 1110 1435.5 1390.7 1305.6 Power Plant Section 1 1966-1969 Natural gas 300 Section 2 1971-1974 Natural gas 810 4 Vorotan Hydro Power Plant, including Hydro 400 1027.6 1268.4 1302.4

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Spandaryan 1984 Hydro 157 Shamb 1977 Hydro 168 Tatev 1970 Hydro 75 5 Armenia Nuclear Nuclear fuel 880 2716.3 2402.8 1997.6 Power Plant Unit 1 1980 Nuclear fuel 440 Unit 2 1995 Nuclear fuel 440 6 Vanadzor Thermal 1976 Natural gas 96 0.0 0.0 0.0 Power Plant 7 Small Hydro Power last 2004 Hydro 51 155.8 143.7 110.8 Plants 8 Dzora Hydro Power 1930 Hydro 25 70 69.8 63.8 Plant 9 Imports from Iran and - - - 337.6 259.7 306.7 Artsach Total 3693 6653.7 6293 5807.7

Choice of plants for the build margin calculation

For the calculation of the Build Margin Option 2 is chosen, by which the Build Margin emission factor will be updated annually ex-post for the year in which actual project generation and associated emissions reductions occur. This choice is justified by the fact that a large number of power plants have obtained a construction licence and may be soon commissioned in Armenia. An ex-post calculation of the build margin will therefore represent more realistically the capacity additions to the Armenian electricity grid. The information on power plants that obtained a construction licence was supplied by the Public Service Regulatory Commission of Armenia.

It must be noted that generation and capacity data are unavailable for each of the small hydro power plants that contribute to 27.35 MW to the 51 MW capacity and are labeled under category “Other small Hydro Power Plants”. All small hydro power plants were therefore considered as one category and the year of commissioning of the last of the small hydro power plants (2004) was used as the year of commissioning of the whole group.

The build margin can be calculated as the power plant capacity additions in the electricity system that comprise 20% of the system generation (in MWh) and that have been built most recently or as the five power plants that have been built most recently. Since it is impossible to state at the moment of PDD submission which five power plants will be the most recently built, the first definition of the build margin is chosen. Thus, the plants that constitute the newest 20% of the system generation comprise hydro and thermal power plants and correspond to 1,455.9 MWh. The choice of plants for the build margin calculation is highlighted in yellow in the table below. The highlighted plants contribute to 19.25% of total expected generation. The actual generation of the plants that obtained the construction licence is not yet known. It must be pointed out that this build margin composition is for reference only and the exact composition of the build margin will be determined annually ex-post.

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As hydro power is a renewable source, there are no project emissions.

According to Appendix B, leakage is to be considered if the energy efficiency technology is equipment transferred from another activity or if the existing equipment is transferred to another activity, which is not the case for the project. Also, no methane emissions will occur, as the project is run of river with only a small water intake and no vegetation.

The operating margin and the build margin are derived from the data published by the following organisations: • Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2005 and which supplied information regarding the capacity additions to the electricity system and expected generation of these power plants. • Government of Armenia, which adopted the “Energy Sector Development Strategies in the Context of Economic Development in Armenia”, August 2005 and which includes information on Armenian policies in the energy sector and fully describes the existing plants’ operations (sub-units, commissioning dates, total electric capacity etc.) • World Bank, which published the paper “From Crisis to Stability in the Armenian Power Sector” February 2006 and which includes data on existing power plants. • Platts (a division of The McGraw-Hill Companies), which published the Utility Data Institute (UDI) database for year 2005. These data were used to calculate the heat rate of the power plants.

B.6.2. Data and parameters that are available at validation:

Data / Parameter: CO2 operating margin emission factor of the grid Data unit: kgCO2/kWh Description: The CO2 operating margin emission factor is calculated according to the simple adjusted operating margin methodology detailed in Section B.6.3. and B.6.4. Source of data used: • Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2005. • Government of Armenia, which adopted the “Energy Sector Development Strategies in the Context of Economic Development in Armenia”, August 2005 and which includes information on Armenian policies in the energy sector and fully describes the existing plants’ operations (sub-units, commissioning dates, total electric capacity etc.) • World Bank, which published the paper “From Crisis to Stability in the Armenian Power Sector” February 2006 and which includes data on existing power plants. • Platts (a division of The McGraw-Hill Companies), which published the Utility Data Institute (UDI) database for year 2005. These data were used to calculate the heat rate of the power plants. The Platts database was acquired by an ICF Carbon Consultant. Value applied: 0.47347025 kgCO2/kWh Justification of the The justification for using the adjusted operating margin method is described in

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choice of data or Section B.6.1. and relates to the availability on data on the Armenian electricity description of system. The actual steps of the calculation are detailed in Section B.6.3. and measurement methods B.6.4. and procedures actually applied : Any comment: -

Data / Parameter: Heat rate of each power plant Data unit: MJ/MWh Description: The heat rate is the thermal efficiency of the thermal power plants supplying electricity to the Armenian grid Source of data used: - Platts (a division of The McGraw-Hill Companies), which published the Utility Data Institute (UDI) database for year 2005. These data were used to calculate the heat rate of the power plants. The Platts database was acquired by a consultant from ICF Consulting. - Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2005. Value applied: Hrazdan TPP: 11,161.9 MJ/MWh Yerevan TPP: 11,607.1 MJ/MWh

Justification of the The heat rate was calculated using the UDI database data and a complex non- choice of data or linear regression developed by ICF International Power Modelling Team using description of statistical data on US and European power plants. The inputs of the regression measurement methods formula are the capacity of each unit of a plant, date of construction, type of and procedures actually fuel consumed, technology applied in the plant. The output of the regression is applied : the heat rate of each power unit. The heat rate of the entire plant was calculated as the average of the heat rates of each unit comprising the plant. Any comment: -

Data / Parameter: CO2 emission coefficient of each fuel type Data unit: tC/TJ Description: The CO2 emission coefficient of a fuel type is the carbon content of each fuel type, adjusted by the combustion efficiency factor (or oxidation factor) of 0.995 Source of data used: Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories. Workbook Vol 2. Table 1-2, page 1.6 (http://www.ipcc- nggip.iges.or.jp/public/gl/guidelin/ch1wb1.pdf) Value applied: Natural gas (dry), adjusted: 15.22 Nuclear: 0 Hydro: 0 Justification of the Data given by the IPCC is considered to be authoritative in this field. choice of data or description of measurement methods and procedures actually applied : Any comment: -

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Data / Parameter: Electricity generation of each power plant Data unit: GWh Description: This data variable indicates the level of electricity of a certain power plant that is supplied to the national electricity grid. Source of data used: - Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2005.

Value applied: Please see tables in section B.6.1. for the generation level data of the power plants included in the calculation of the operating margin Justification of the These were the most accurate data available for 2005 generation levels of choice of data or existing power plants supplying electricity to the Armenian grid. Data were description of collected and input in the calculation table of the adjusted operating margin. measurement methods and procedures actually applied : Any comment: -

Data / Parameter: Identification of power plants for the OM Data unit: Name of plant Description: The methodology ACM0002 version 6 allows the calculation of operating margin according to four methodologies. The adjusted simple operating margin was chosen for this CDM project. Source of data used: - Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2005. Value applied: Yerevan, Hrazdan and Vonadzor thermal power plants Justification of the The calculation of the adjusted operating margin implies the division of choice of data or generation sources in low cost must run resources (hydro, geothermal, wind, description of low-cost biomass, nuclear and solar generation) and other resources. If the low- measurement methods cost must-run resources are excluded, then only three thermal power plants can and procedures actually be included in the calculation of the adjusted operating margin applied : Any comment: -

Data / Parameter: Fraction of time during which low-cost / must run sources are on the margin Data unit: Hours Description: Amount of hours of the year when the low-cost must-run resources are on the margin. Source of data used: The Armenian Electricity Settlement Center has supplied the project proponent with the data necessary for plotting the Load Duration Curve and estimating the factor lambda for the year 2005 for the Armenian electricity grid. Value applied: 940 Justification of the This data variable was calculated as the crossing point of the load Duration choice of data or Curve and the Low-Cost Must-Run Resources curve, as shown in the Annex. description of measurement methods

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and procedures actually applied : Any comment: -

Data / Parameter: Electricity imports to the project electricity system Data unit: GWh Description: Amount of electricity currently imported from Iran and Artsach in the Armenian electric grid Source of data used: - Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2005. - World Bank, which published the paper “From Crisis to Stability in the Armenian Power Sector” February 2006 and which includes data on existing power plants. Value applied: 337.6 Justification of the These were the most accurate data available for 2005 electricity imports into the choice of data or Armenian grid. Data were collected and input in the calculation table of the description of adjusted operating margin. measurement methods and procedures actually applied : Any comment: -

Data / Parameter: CO2 emission coefficient of fuels used in connected electricity systems (if imports occur) Data unit: tCO2/MWh Description: Carbon content of the electricity imported in the Armenian grid Source of data used: Methodology ACM0002 version 6 Value applied: Not applicable Justification of the Since the imported electricity comes from other countries, the emission factor of choice of data or all the imports was assumed to be 0 tons of CO2 per MWh (as prescribed on description of page 4 of the ACM0002 version 6 methodology). measurement methods and procedures actually applied : Any comment: -

B.6.3 Ex-ante calculation of emission reductions:

AMS I.D. (Version 10, 23 December 2006) offers the following choices for preparing the baseline calculation for this type of project activity:

(a) A Combined margin (CM), consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures prescribed in the approved methodology ACM0002. Any of the four procedures to calculate the operating margin can be chosen, but the restrictions to use the Simple OM and the Average OM calculations must be considered.

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OR

(b) The weighted average emissions (in kg CO2equ/kWh) of the current generation mix.

The methodology used for the calculation of baseline emissions from the use of grid electricity follows option (a) of the approved baseline methodology AMS-I.D Version 10, 23 December 2006, which uses a combined margin (CM), consisting of the combination of operating margin (OM) and build margin (BM) according to the procedures described in ACM0002 version 6. The large scale methodology will be applied using Option (b) Simple Adjusted Operating Margin.

Step 1. Calculate the simple adjusted operating margin (see Annex 3)

a. Contribution to the total thermal power produced in the grid (%):

Percentage contribution = Generation in 2005 (GWh) / Total thermal including imports generation in 2005

Data Source: Public Service Regulatory Commission of Armenia -2005

b. Determine each plant’s heat rate (specific to fuel used) (MJ/MWh)

Plant heat rate = 1.055 X Plant heat rate (MJ/ MWh) (BTU/ kWh)

Data Source: Plant heat rate (specific to fuel used) – Platts,Utility Data Institute (UDI) database 2005

c. Estimated carbon content (adjusted) of each of the fuel (tons of C/ TJ):

Carbon content (adjusted) = Carbon content X Combustion efficiency of each fuel of each fuel of each power plant (tons of carbon/ TJ) (tons of carbon / TJ) (%)

Data Source: Carbon content (unadjusted) & combustion efficiency: WB GHG Assessment Handbook

d. Emission factor of each power plant (specific to each fuel consumed) (kgC/MWh):

Emission factor = Heat rate X Carbon content (adjusted) / 10^(3) of each power plant of each fuel (specific to each fuel consumed) (kgC/ MWh) (MJ/ MWh) (tons of Carbon/ TJ)

e. Emission factor converted into CO2equ (specific to each fuel consumed) (kg CO2/kWh):

CO2equ emissions = Emission factor X (44/12) / 10^(3) of each power plant of each power plant

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(specific to each fuel consumed) (kgCO2/ kWh) (kgC/ MWh)

f. Weighted average emissions of each power plant (specific to each fuel consumed):

Weighted CO2equ emissions = CO2equ emissions X Percentage contribution to of each plant for every of each power plant the grid in 2005 kWh in the grid (kgCo2/every kWh in the grid) (kgCO2/kWh) (%)

g. Calculate the operating margin for 2005:

Operating margin = Sum of weighted CO2equ emissions of each plant for every kWh in the grid (kgCO2equ/kWh) (kgCo2/every kWh in the grid)

h. Calculate λ for 2005

λ = number of hours per year for which lo-cost/must run resources are on margin 8760 hours of the year

i. Apply (1- λ) to the operating margin

Simple adjusted operating margin = (1- λ) X Operating margin

(kgCO2equ/kWh) (kgCo2equ/ kWh)

Step 2: Calculate the emission factor of each plant and develop the build margin (see Annex 3)

Build Margin = Sum of weighted CO2equ emissions of each plant for every kWh in the grid generated by the 20% newest plants

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(kgCO2equ/kWh) (kgCO2equ/kWh)

Step 3: Calculate the baseline emission factor of the grid (see Annex 3)

Emission coefficient of the grid = Build Margin + Simple Adjusted Operating Margin / 2 (kgCO2equ/kWh) (kgCO2equ/kWh) (kgCO2equ/kWh)

NB. Alternative weights are not used for hydro power projects

Calculate the baseline emissions of the project activity (see Annex 3)

Baseline emissions of the project = Estimated generation of the project * Emission coefficient of the (tCO2equ) over crediting period grid /1000 (kWh) (kgCO2equ/kWh)

Emissions from leakage are not considered. According to Appendix B, leakage is only to be considered if the energy efficiency technology is equipment transferred from another activity or if the existing equipment is transferred to another activity, which is not the case for the project.

Project emissions are not considered since the renewable energy technology generates no emissions.

B.6.4 Summary of the ex-ante estimation of emission reductions:

Year Estimation of Estimation of Estimation of Estimation of project activity baseline emission leakage (t of emission emissions (t of reductions (t of CO2e) reductions (t of CO2e) CO2e) CO2 e) 1 - 3,166 - 3,166 2 - 3,166 - 3,166 3 - 3,166 - 3,166 4 - 3,166 - 3,166 5 - 3,166 - 3,166 6 - 3,166 - 3,166 7 - 3,166 - 3,166 Total (t of CO2e) - 22,159 - 22,159

Please note: These emission reductions were calculated using an ex-ante approach for this PDD and are therefore only indicative. Because an ex-post monitoring approach was chosen for this project, these numbers are subject to change based on the periodic calculation of the emission factor. As there are no project emissions or leakage, the emission reductions are calculated as: The average of the “approximate operating margin” and the “build margin” (in kg CO2equ/kWh) times the MWhs delivered to the grid. Using the 0.4339 tCO2eq/MWh that is calculated for the first crediting period and the 7296 MWh expected production, the project will reduce 3,166 tCO2e per year.

B.7 Application of a monitoring methodology and description of the monitoring plan:

B.7.1 Data and parameters monitored:

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Data / Parameter: EGYeghegis II Data unit: MWH Description: Net generation by Yeghegis second turbine Source of data to be Measured used: Value of data 7296 Description of Recording frequency will be continuous. measurement methods All data will be monitored. and procedures to be Data will be archived electronically and on paper (invoices). applied: QA/QC procedures to According to national standards, meters will be calibrated periodically. Data be applied: measured by meters will be cross checked by electricity sales receipt. The meter(s) will either: i) be read frequently jointly by the project developer and the grid company ii)be only read by the project developer and data will be double checked with electricity sales receipts iii) be only read by the grid company Any comment: Direct monitoring via meters, and control step via invoicing to the distribution company. There is another control step via a computer log that keeps track of relevant information on both Yeghegis turbines.

Data / Parameter: OPYeghegis II Data unit: hours Description: Operating time Yeghegis second turbine Source of data to be Measured used: Value of data 1824 Description of Recording frequency will be continuous. measurement methods All data will be monitored. and procedures to be Data will be archived electronically. applied: QA/QC procedures to According to national standards, meters will be calibrated periodically. Data be applied: measured by meters will be cross checked by electricity sales receipt. The meter(s) will either: i) be read frequently jointly by the project developer and the grid company ii)be only read by the project developer and data will be double checked with electricity sales receipts iii) be only read by the grid company Any comment: Computer log.

Data / Parameter: EGYeghegis I Data unit: MWH Description: Net generation by Yeghegis first turbine Source of data to be Measured used: Value of data 25000

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Description of Recording frequency will be continuous. measurement methods All data will be monitored. and procedures to be Data will be archived electronically and on paper (invoices). applied: 5QA/QC procedures to According to national standards, meters will be calibrated periodically. Data be applied: measured by meters will be cross checked by electricity sales receipt. The meter(s) will either: i) be read frequently jointly by the project developer and the grid company ii)be only read by the project developer and data will be double checked with electricity sales receipts iii) be only read by the grid company Any comment: Direct monitoring via meters, and control step via invoicing to the distribution company. There is another control step via a computer log that keeps track of relevant information on both Yeghegis turbines.

Data / Parameter: OPYeghegis I Data unit: hours Description: Operating time Yeghegis first turbine Source of data to be Measured used: Value of data 8760 Description of Recording frequency will be continuous. measurement methods All data will be monitored. and procedures to be Data will be archived electronically. applied: QA/QC procedures to According to national standards, meters will be calibrated periodically. Data be applied: measured by meters will be cross checked by electricity sales receipt. The meter(s) will either: i) be read frequently jointly by the project developer and the grid company ii)be only read by the project developer and data will be double checked with electricity sales receipts iii) be only read by the grid company Any comment: Computer log.

Data / Parameter: OPYeghegis I Data unit: hours Description: Downtime Yeghegis first turbine Source of data to be Supplier specification and measured used: Value of data 72 Description of Recording frequency will be continuous. measurement methods All data will be monitored. and procedures to be Data will be archived electronically. applied: QA/QC procedures to According to national standards, meters will be calibrated periodically. Data be applied: measured by meters will be cross checked by electricity sales receipt. The meter(s) will either: i) be read frequently jointly by the project developer and the grid company

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ii)be only read by the project developer and data will be double checked with electricity sales receipts iii) be only read by the grid company Any comment: Computer log. Actual downtime will be compared to the supplier specification/opinion on downtime of the turbine. See explanation below.

The Yeghegis project will consist of two turbines in one physical location, where the first turbine is not part of the CDM project. The kWhs produced by the first turbine will thus not generate CERs. The second (CDM) turbine will only operate during the wet season, when the water flow exceeds the capacity of the first turbine. In principle, the second turbine only generates CERs when the first turbine is simultaneously running at full capacity.

However, if the first turbine is not operational for technical reasons (maintenance), the project would not produce electricity in the baseline situation. Therefore, if the second turbine operates while the first turbine is down due to maintenance, the kWhs produced by the second turbine may be counted as CDM and generate CERs. This will only be done as long as the downtime of the first turbine does not exceed the turbine supplier’s specification or opinion on a normal downtime for its turbine.

In addition to the project specific data mentioned above, the following data to calculate the emission factor ex-post will also be monitored:

Data / Parameter: Identification of power source plant for the BM Data unit: Name of plant Description: The build margin includes either the newest five power plants or newest power plants that have been built more recently and contributed to 20% of electricity generation of a certain year, whichever definition includes the largest generation. Source of data to be • Public Service Regulatory Commission of Armenia, which published data on used: the total electricity generation of Armenian power plants and the type of fuels consumed in 2005. • Public Service Regulatory Commission of Armenia, which supplied data on names, power capacity and expected electricity generation of power plants that already obtained a construction licence. • World Bank, which published the paper “From Crisis to Stability in the Armenian Power Sector” February 2006 and which includes data on existing power plants. • Platts (a division of The McGraw-Hill Companies), which published the Utility Data Institute (UDI) database for year 2005. These data were used to calculate the heat rate of the power plants. The Platts database was acquired by the Carbon Consultant. Value of data To be determined. The names of the plants currently included in the build margin are detailed in Section B.6.1. The names of plants to be included in the build margin will be determined annually ex post Description of The names of plants to be included in the build margin will be determined measurement methods annually ex post. The plants included in the build margin at the time of PDD and procedures to be submission reflect the better data available on future capacity additions. applied: QA/QC procedures to The data variable is not determined by the project operator. Quality control of the

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be applied: data is therefore beyond the control of the project operator. Any comment: The plants will be identified ex-post.

Data / Parameter: CO2 build margin emission factor of the grid Data unit: kgCO2/kWh Description: Calculated as the weighted emission factor of all the power plants included in the build margin Source of data used: • Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2005. • Public Service Regulatory Commission of Armenia, which supplied data on names, power capacity and expected electricity generation of power plants that already obtained a construction licence. • World Bank, which published the paper “From Crisis to Stability in the Armenian Power Sector” February 2006 and which includes data on existing power plants. • Platts (a division of The McGraw-Hill Companies), which published the Utility Data Institute (UDI) database for year 2005. These data were used to calculate the heat rate of the power plants. The Platts database was acquired by the Carbon Consultant. Value applied: To be determined. Description of The value of the build margin carbon emission factor will be determined measurement methods annually ex post. The plants included in the build margin at the time of PDD and procedures to be submission reflect the better data available on future capacity additions. applied: QA/QC procedures to The data variable is not determined by the project operator. Quality control of be applied: the data is therefore beyond the control of the project operator. Any comment: The factor will be identified ex-post.

Data / Parameter: CO2 emission factor of the grid Data unit: kgCO2/kWh Description: Calculated as the average of the Operating Margin emission factor and the Build Margin emission factor Source of data used: • Public Service Regulatory Commission of Armenia, which published data on the total electricity generation of Armenian power plants and the type of fuels consumed in 2003, 2004 and 2005. • Public Service Regulatory Commission of Armenia, which supplied data on names, power capacity and expected electricity generation of power plants that already obtained a construction licence. • Government of Armenia, which adopted the “Energy Sector Development Strategies in the Context of Economic Development in Armenia”, August 2005 and which includes information on Armenian policies in the energy sector and fully describes the existing plants’ operations (sub-units, commissioning dates, total electric capacity etc.) • World Bank, which published the paper “From Crisis to Stability in the

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Armenian Power Sector” February 2006 and which includes data on existing power plants. • Platts (a division of The McGraw-Hill Companies), which published the Utility Data Institute (UDI) database for year 2005. These data were used to calculate the heat rate of the power plants. The Platts database was acquired by the Carbon Consultant. Value applied: To be determined. Description of The detailed calculations of the emission factor of the electricity grid are measurement methods attached in an Excel spreadsheet and can be examined by the Designated and procedures to be Operational Entity. applied: QA/QC procedures to The data variable is not determined by the project operator. Quality control of be applied: the data is therefore beyond the control of the project operator. Any comment: The factor will be identified ex-post

B.7.2 Description of the monitoring plan:

According to Appendix B, Monitoring shall consist of metering the electricity generated by the renewable technology.

This monitoring plan contains simplified monitoring requirements to reduce monitoring costs as permitted by small-scale project procedures. Once implemented, the relevant data report will be submitted to a designated operational entity contracted to verify the emission reductions achieved during the crediting period. Any revisions requiring improved accuracy and/or completeness of information will be justified and will be submitted to a designated operational entity for validation. The plan is designed to collect and archive all data needed to:

• Estimate or measure anthropogenic emissions by sources of greenhouse gases occurring within the project boundary during the crediting period as specified in appendix B for the Type/Categories I.D.

• Determine the baseline of anthropogenic emissions by sources of greenhouse gases occurring within the project boundary during the crediting period, as specified in appendix B for the Type/Category I.D.

• Calculate the reductions of anthropogenic emissions by sources by the proposed small-scale CDM project activity, and for leakage effects, in accordance with provisions of appendix B for the Type/Category I.D.

The plan does not include monitoring of any variable regarding leakage since no leakage is expected. Nevertheless, in the case of evidence of any leakage, this plan will be revised in order to include a suitable variable.

With one turbine already in place, standard quality control (QC) and quality assessment (QA) measures have already been implemented and these will also apply to the second (CDM) turbine. The metered electricity data will be subject to the same standards and will accordingly be collected by the project developer. In addition, the electrical metering equipment will be calibrated and maintained regularly in order to ensure compliance with the industry standard. Existing management structures will ensure QC and QA of the collected data.

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A qualified company employee will be responsible (and, if necessary, trained) to meter and log the electricity data. This collection will include the parameters required as outlined under D.3. in order to calculate emission reductions. All management measures will be taken to ensure the attention to detail and transparency of this process.

To calculate the emission factor, ex-post monitored data for the build margin will be used. All the necessary data will be gathered annually by ICF International from the relevant authorities, including the Public Services Regulatory Commission of Armenia. ICF International is the Carbon Manager for the Caucasus zone of the Multilateral Carbon Credit Fund (MCCF), a joint initiative by the EBRD and the European Investment Bank (EIB). MCCF commits funds to purchase carbon credits from projects financed by EBRD and EIB including several small-scale hydro projects in Armenia. ICF International will ensure that data used in the ex-post calculations of the build margin are consistent across the hydro projects in the region which apply the ACM0002 methodology. This data will become publicly available in the monitoring reports of the above-mentioned projects.

QC and QA measures for ex-post data gathering and calculations are outside of the control of the project developer. During verification, however, the available data will be checked by a DOE.

B.8 Date of completion of the application of the baseline and monitoring methodology and the name of the responsible person(s)/entity(ies)

The baseline was determined in January 2005 and revised in February 2007 by EcoSecurities B.V., who participated in the project as CO2 Advisor. This entity is not a project participant listed in Annex I. Furthermore, data was drawn from the work done by Natalia Gorina, Consultant, ICF.

Michiel ten Hoopen EcoSecurities B.V. Kettingstraat 21a 2511 AM Den Haag The Netherlands Phone +31 70 365 4749 Fax +31 70 365 6495 [email protected] [email protected]

SECTION C. Duration of the project activity / crediting period

C.1 Duration of the project activity:

C.1.1. Starting date of the project activity:

01/08/2006

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C.1.2. Expected operational lifetime of the project activity:

30y

C.2 Choice of the crediting period and related information:

C.2.1. Renewable crediting period

The project activity will use a renewable crediting period.

C.2.1.1. Starting date of the first crediting period:

The crediting period will start on 31/10/2007, or on the date of registration of the CDM project activity, whichever is later.

C.2.1.2. Length of the first crediting period:

7y

C.2.2. Fixed crediting period:

Not applicable

C.2.2.1. Starting date:

Not applicable

C.2.2.2. Length:

Not applicable

SECTION D. Environmental impacts

D.1. If required by the host Party, documentation on the analysis of the environmental impacts of the project activity:

The Environmental Impact Assessment by the Ministry of Nature Protection of the Republic of Armenia from the 23.06.2005 provided a positive conclusion on the detailed design of Yeghegis SHPP construction on the Yeghegis river. The single requirement stated in the document is that relevant fisheries measures be provided and submitted within a two-month period. For this purpose a fish pass will be build at the earliest possible opportunity, weather permitting, in order to prevent any potential impacts of the project on the local fish species. In line with the details stipulated in the environmental permit the project will ensure a minimum water flow of 0.29 m3/sec. in order to ensure the environmental stability of the river and the river bed vegetation. The project developer is therefore obliged by law to meet this requirement. For completeness, below is an EBRD questionnaire filled out by Bazenc related to environmental issues.

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Environmental Questionnaire

1. Please provide a copy (if available) of the Company’s Environmental Policy, an outline of its Environmental Management System and the names of staff members responsible for environment, health and safety issues. Since the Hydroelectric Power Plants are considered to be pure energy sources, no need in any specific scheme for environment protection arose there

2. When was the last inspection by the environmental authorities and what were the results of the inspection? What corrective actions were required by the authorities (if any) and has the Company completed those corrective actions? The last routine annual inspection took place in the past year and no comments were made by the environmental authorities or any corrective actions were required

3. Does the Company have all the required permits to operate? How long are these permits valid and does the Company comply with the provisions of these permits? The Company has all required permits and the provisions of these permits are strictly observed

4. Has the Company been the subject of any fines, penalties, other legal actions or public complaints resulting from non-compliance with applicable laws and regulations? No

5. Is the Company located near to any protected sites (protected for environmental, archaeological or cultural reasons) or residential areas on which it will have an impact or which cause restrictions to the Company’s operations? No

6. List the sources, types and quantities of air emissions produced by your facility and describe any air pollution prevention measures or equipment used to reduce such emissions. There are no sources of air pollution

7. List the sources, types and quantities of effluent emissions produced by your facility and describe any water pollution prevention measures or equipment used to reduce such emissions. There are no sources of water pollution

8. List the types and average quantities of wastes produced by your facility and describe any measures implemented to reduce / re-use / recycle any such wastes. No

9. How does the Company dispose of wastes which are not re-used or re-cycled? Does the Company own its own landfill site and what is the environmental status of any such site? There no need in the disposal of wastes

10. Is the Company a source of any significant local nuisance in terms of noise produced at day or night or odours? HPP is at sufficient distance from populated areas and neither the produced noise nor odour caused any grievances

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11. What hazardous materials are stored on site, how, and in what quantities? Such materials could include heating oils, ammonia, cleaning materials, solvents, explosive gases or other flammable liquids and poly-chlorinated biphenyls (PCBs). Have there been any significant accidents involving such substances in the past five years? There are no hazardous materials of any kind stored on site. No accidents were recorded during the operation of HPP.

12. What are the Company’s emergency response provisions to deal with, for example, a fire or an accident involving hazardous materials? Even in the absence of specific hazards, the Company makes provisions to deal with fire or prevention of other accidents.

13. List the key health and safety issues associated with your Company’s operations. What is the frequency of work-related accidents at the Company’s facilities? There are no particular health and safety issues associated with the Company operations. There was no accidents at all.

14. Does the Company provide any training on environmental, health and safety issues to its workers? The Company provides required training to its workers on environmental issues, safety precautions and other emergency situations. The acquired knowledge is regularly examined and updated.

D.2. If environmental impacts are considered significant by the project participants or the host Party, please provide conclusions and all references to support documentation of an environmental impact assessment undertaken in accordance with the procedures as required by the host Party:

Not applicable

SECTION E. Stakeholders’ comments

E.1. Brief description how comments by local stakeholders have been invited and compiled:

In general, the following stakeholders to the projects can be identified:

- People living downstream (quality of water flow affected) - People living near the turbine (noise) - Other people affected by the diversion - Municipalities - Grid operator - Ministry of Energy - Ministry of Nature Protection

There are no people living downstream of the project and nobody downstream is affected by the diversion of water into the turbines. The water downstream flows into the Arpa-Sevan tunnel. This is a tunnel that was built to lead more water into Lake Sevan. The water level of Sevan had been decreasing dramatically in the past. The tunnel system leads the water from several mountain flows directly into Lake Sevan.

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The Yeghegis river lies in a ravine, and the nearest village (Vardahovit) lies some 150 m higher than the project. The village is thus not affected by any noise generated by the project.

The project will leave a minimum water flow of 0.29 m3/sec. in order to ensure the environmental stability of the river and the river bed vegetation. This is in line with the legal obligation stipulated by the Ministry of Nature Protection of the Republic of Armenia in the environmental impact assessment.

In addition, a fish pass will also be installed at the earliest possible opportunity, weather permitting in order to prevent any potential impacts of the project on the local fish species.

The municipalities have been involved from the earliest stage, as land is leased for the construction. The contacts with the municipalities were positive, as the projects increase local funding. The project pays for the lease of the land, for tax on land, and will pay property tax over the equipment installed.

The grid operator is of course also informed about the project. No negative comments were received nor expected, as small scale projects increase the security of supply.

The Ministry of Energy is also informed about the project, and small scale hydro is in line with the policies of the ministry.

The Ministry of Nature Protection is also informed about the project, and the project has received a permit (that specifies the minimum water flow of 0.29 m3/sec.).

The following specific activities where undertaken to further inform the stakeholders to the Yeghegis project:

• Announcements have been put in local newspapers to inform local stakeholders. • Official letters regarding the project were directed to the following Governmental Agencies: o The Ministry of Power Engineering of RA o The Ministry of Nature Protection o The Energy Commission of RA o CJSC Armenian Electric Mains" (as a future partner) o The Institute of Power Engineering of RA\ The Centrum of Power Engineering Policy of the Institute of Power Engineering of RA

E.2. Summary of the comments received:

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• There have been no responses yet to the announcements in the newspapers. Any responses that may yet come in will be made available to the validator. • There was no negative response in any of the received replies to the letters sent out. Replies were received from: o The Ministry of Nature Protection o The Energy Commission of RA o The Centrum of Power Engineering Policy of the Institute of Power Engineering of RA o Public Services Regulatory Commission o Energy Strategic Center o Scientific Research Institute of Energy o Environmental Expertise, SNCO o Electric Networks of Armenia o Ministry of Energy

E.3. Report on how due account was taken of any comments received:

In the stakeholder consultation that was performed specifically for the CDM, there were no comments requiring any specific action.

See E.2., following discussions with the Ministry of Nature Protection and the permit, the project leaves a minimum water flow of 0.29 m3/sec.

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Annex 1

CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECT ACTIVITY

Organization: Bazenc CJSC Street/P.O.Box: V.Vagharshyan str. Building: 20 City: Yerevan State/Region: Postcode/ZIP: 375015 Country: Armenia Telephone: (+374 1) 26 14 20 FAX: (+374 1) 26 11 00 E-Mail: [email protected] URL: Represented by: Title: Vice manager Salutation: Last Name: Hakobyan Middle Name: Mels First Name: Lusine Department: Bazenc Mobile: (+374 93) 20 14 20 Direct FAX: (+374 10) 26 50 70 Direct tel: (+374 10) 26 14 20 Personal E-Mail: [email protected]

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Annex 2

INFORMATION REGARDING PUBLIC FUNDING

EBRD press release 29 July 2005 available at: http://www.ebrd.com/new/pressrel/2005/104july29.htm Armenian hydro plant gets EBRD backing

The European Bank for Reconstruction and Development is lending €1.1 million to an Armenian mini- hydroelectricity project that will bring the country one step closer to achieving its goal of obtaining 70 per cent of its energy from renewable sources, particularly hydropower. Bazenc CJSC, an Armenian company set up in 2000 to run a small hydropower plant on the Yeghegis River, will use the loan to install a second turbine which, while only working for three summer months, will increase the company’s total electricity production by 23 per cent.

New energy laws since 2001 have tried to create an attractive climate for entrepreneurs dealing in alternative energy sources. The electricity will be sold to the Armenian government, under guarantees lasting until 2016, at prices negotiated once a year. Energy supply has been a critical issue for Armenia since independence in 1991. To make up shortfalls, the government in 1995 reopened a nuclear power plant at Hrazdan that had been closed since an earthquake in 1988.

This five-year loan is part of the Early Transition Countries (ETC) initiative launched last year to stimulate market activity in Armenia, Azerbaijan, Georgia, the Kyrgyz Republic, Moldova, Tajikistan and Uzbekistan. It uses a streamlined approach to financing more and smaller projects, mobilising more investment, and encouraging economic reform. It is part of an international effort to address poverty in the Bank’s seven lowest-income countries of operations. The Bank accepts higher risk in projects it finances in these countries, while still respecting the principles of sound banking.

The EBRD is also supporting Bazenc in acquiring a Clean Development Mechanism (CDM) status for its mini-hydro projects under the Kyoto Protocol on reducing greenhouse gas emissions and limiting global warming. CDM is the Kyoto mechanism enabling project sponsors in developing countries, which do not have targets for greenhouse gas reduction themselves, to sell their carbon credits to countries with Kyoto targets. If Bazenc gets CDM status, it will be the first such mini-hydro project in Armenia to be able to sell carbon credits. This will help sustainability of the project, as carbon credits will be paid for in hard currency. The Bank also expects to demonstrate that Armenian small-scale renewable energy projects can benefit from the international emissions trading market.

The Bank identified Bazenc while conducting a survey for potential CDM projects in the Caucasus and central Asia in 2004. Initial CDM activities are being financed from the Netherlands Environmental Trust Fund at the EBRD. The Bank has also established a Clean Development Mechanism Project Support Facility for the Early Transition Countries supported by the ETC Multi-Donor Fund. The Bank offers technical assistance for emission reduction projects, helping companies to monetise emission reductions as carbon credits.

PRESS CONTACT: VANORA BENNETT, LONDON - TEL: +44 20 7338 6940; E-MAIL: [email protected]

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BASELINE INFORMATION Step 1. The table below calculates the relative energy contribution of each of the thermal plant connected to the grid, calculates the emission factor of each plant and develops the simple operating margin for 2005.

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Calculation of lambda Year Unit Description Value Number of hours low cost/must run resources are on 2005 X the margin 940 λ λ= X/8760 0.107305936 1- λ 0.892694064

1600

1400

1200 intersection point 1000

800

600

400

200 940 hours

0 0 8760

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Step 2: The table below calculates the emission factor of each plant included in the build margin and develops the build margin

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Step 3: The table below calculates the emission factor of the grid

Final results Year Operating Margin Operating Margin Build Margin Emission of resources of resources coefficient for the excluding low cost excluding low cost grid must run must run adjusted with (1-λ) kgCO2/ kWh kgCO2/ kWh kgCO2/ kWh kgCO2/ kWh 2005 0.530383554 0.47347025 0.394295233 Average of operating margin and build 0.4339 margin

Calculating emission reductions: The table below calculates the baseline

Years Annual Generation in MWh Annual Baseline in tCO2e

Year 1 7,296 3,166 Year 2 7,296 3,166 Year 3 7,296 3,166 Year 4 7,296 3,166 Year 5 7,296 3,166 Year 6 7,296 3,166 Year 7 7,296 3,166

Total baseline (tCO2e) 22,159

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Annex 4

MONITORING INFORMATION

All monitoring information is contained in section B.7

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