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Cogeneration as CDM project

Mohammad Nashwan
15-16 August 2009
Presentation Outline

 Case study
 Additionally
 Baseline
 Revenues
Case Study
:Project Name
.Waste Gas-based Cogeneration Project at Alexandria Carbon Black Co
Country: Egypt
Methodology: AM0032
GHG reducing Measure/Technology: Use of waste gases for electricity
.generation and displacement of grid power
ER estimate: 1 09 514 t CO2/year
Large Scale

Owner of the project

Alexandria Carbon Black Company S.A.E. (ACB), Egypt is an Indo-Egyptian
joint venture of the Aditya Birla Group with the Egyptian Government. It is
.the only Carbon Black producer in the Middle East and North African region

Project developer
MGM International
Additionality Determination
a) The project activity is a co-generation
project of steam and power utilising
surplus waste gases generated as a by-
product from the carbon black
manufacturing process and steam and
electricity are primarily for supply to a
recipient plant AFCO.
b) This co-generation activity is installed in
the same premises of ACBC, where the
waste gas has been generated.
c) The utilised waste gas is surplus gas generated due
to capacity increase (business expansion) by
addition of additional two production lines to the
existing three production lines in the carbon black
manufacturing process, The waste gas from these
two production lines is not required to meet on-site
energy requirements. This energy generated (both
steam and power) are consumed by recipient plant
to meet their energy requirements
Baseline determination
The start date of the project activity is 27 October 2003
and this was verified from the boiler purchase order to
M/s. Alstom Power, Germany, for the supply of boiler
and accessories. It was also evidenced by the internal
note dated 15 June 2003 to the management that CDM
revenues were considered for the project activity prior
to its implementation. The fact that the project
proponent proposed a new methodology NM0107 on
10/04/2005 for the project activity (approval by the
Methodologies Panel at its 21st meeting and accepted &
approved by the Executive Board at their 25th meeting)
also demonstrates that CDM was actively considered for
the project activity
Step 1: The following two baseline
alternatives in addition to the project
activity undertaken
in absence of CDM benefits were
1) The electricity is obtained from the
existing and/or new grid-connected
power plants and steam from a fossil
fuel based new boiler and the waste
gas is incinerated at the project
activity site.
2) The electricity and steam are obtained
from cogeneration plant, on-site or off-
site (nearby the project site), using fossil
fuels and the waste gas is incinerated at
the project activity site.
These baseline alternatives and the project
activity are consistent with current laws
and regulations
Step 2: Investment Analysis
It has been demonstrated that among the
identified two baseline alternatives above, the
cost of power generation from natural gas
based co-generation project at 87 LE/MWh
(fixed cost of 61.37 LE/MWh plus 25.91
LE/MWh energy cost) is cheaper than importing
from the national grid, which costs 183
LE/MWh. Hence, the co-generation project at
AFCO is chosen as most economically attractive
baseline scenario for the project. This baseline
scenario also results in less emissions
And since project generates income from the sale of
power and steam to recipient plant a benchmark
analysis approach has been applied by choosing
the return on investment as a benchmark for the
investment made for the project. Since ACBC has
used its own cash reserves for the
implementation of the project, the benchmark
chosen is the commercial deposit rate of interest
offered by banks in Egypt. It has been
demonstrated that the average commercial
deposit interest rate from 2003 to 2006 in the
Banks of Egypt is 7.67% and the selection of this
as the benchmark is deemed reasonable.
All the assumptions considered for estimating the input
values used in the IRR analysis, such as the cost of
steam and power generation and selling prices of
steam and power to the recipient plant, have been
verified and found to be correct. It has been
demonstrated that the return on investment at 4.99%
(and a payback period of 20 years) based on the full
project cost, without CDM revenues is below the
selected benchmark. It was also demonstrated that on
considering CDM revenues the return on investments
improve to 13.9 % (payback period of 7.2 years). The
relevant documents on the cost of the project activity
have been verified. The sensitivity analysis carried out
by varying 10% of the capital cost, and 10% increase
in sale price of steam and power also demonstrates
that the project is unattractive with out CDM revenues.
The price of steam and power as per the agreement are 13.7
LE/t of steam and 62 LE/MWh, respectively. These prices
were based on the actual cost of generation of electricity
while the price for steam is higher than the generation
costs. Although these prices are lower than the prices
AFCO would need to pay for steam and electricity if
implementing on-site natural gas co-generation (the
baseline scenario), the agreed sale price is in our opinion
reasonable. In order for AFCO to accept the risk of having
to rely on steam and electricity supply from ACBC instead
of setting up their own co-generation plant and being self-
sufficient, ACBC had to offer lower prices (while still
making a profit).
Additionality assesment
 Total CERs of one year is 109514 CER / year
 Price of CER in 2006 was 10 Euro
 Total revenue in one year is 1,095,140 CERs
 2.5% will be deducted by UNFCCC secretaries as
fees for issuance
 around 2 % will be deducted also for registration
 Validation 50,000 USD ( one time)
 Verification every year 18,000 USD$ every year
ore every issuance.
 Developer fees there is two standard ways
• First the project developer is paying all above
fees for the first issuance against signing ERPA
with project proponent, and the standard price is
around 10 Euro it depends on the project and
assessment risk which should be done by
developer’s experts during due diligence period.
• The project owner will invest all expenses and
take the risk to register the project and he will
take care of selling these CERs in EU –ETS or by
Thank You
Mohammad Nashwan

Abu Dhabi –UAE