NeCF team’s work in Jiangsu waste heat recovery projects in China

NEFCO Carbon Fund (NeCF) recently signed two emission reduction purchase agreements (ERPAs) for two energy efficiency projects in the cement sector located in Liyang city in Jiangsu province in China. NEFCO’s financial intervention was to purchase certified emission reduction units (CERs) as defined under the Kyoto Protocol for the NeCF investors.

Both of the two projects consist of the utilization of a cement factory’s waste heat for electricity generation, with total installed capacity of 2*30 MW, The projects will reduce the cement factory’s annual electricity purchases from the East China Power Grid by total around 360 GWh, thus displacing fossil fuel-based grid electricity with emission-free energy from recovered waste heat. These projects will reduce by estimate 1.2 million tonnes CO2 by 2012 and 3.2 million tonnes CO2 by 2019.

China has a committed to a very challenging policy objective related to energy intensity which is stated in China’s 11th Five Year Plan. The energy consumption per unit of GDP is expected to drop from 0.122 ton standard coal equivalent/ thousand RMB GDP in 2005 to 0.098 ton standard coal equivalent/ thousand RMB in 2010; a reduction of 20%.  In order to achieve the hard targets clean energy investment projects such as waste heat recovery are more than welcome in the country and carbon financing is making the projects financially feasible and therefore contributing in mitigating the climate change.

Signing of these two contracts was a process that has lasted nearly 5 months. NeCF started to evaluate the projects in early spring, with a comprehensive desk review and risk assessment (a process known as “due diligence”). The team undertook a comprehensive site visit at the end of May to verify the technical, environmental and social aspects of the project with consultation with local consultants and the project owners.

A delegation of three from NEFCO’s carbon finance and funds team were involved in the project site visit and due diligence process. “After flying to Jiangsu province from the busy city of Beijing the country opened totally different view for us. The Jiangsu area has a lot of agriculture and construction material industries which we were able to observe when driving from the airport to the project site. The country side was green, rather clean with hilly views and the roads where extremely in a good shape” said NeCF’s Project Manager Ms. Maija Saijonmaa. Jiangsu province is a prosperous coastal province located in the East coast of China and has a population over 74 million people.

NeCF team’s site visit covered the environmental, legal, technical and financial status checks of the cement plant, from which the newly constructed waste heat recovery and power generation plants acquire the waste steam, as well as the actual waste heat recovery utilities. The team spent one day at the project site observing the project status, going through necessary documents and assuring that everything really was as stated in the project documents and desk review. All matters were judged to be satisfactory and  a decision was made to continue with the project. After two months of the site visit the two ERPAs were signed and now NeCF has the first right to purchase 1,1 million tonnes of  CO2 emission reductions by 2012 once they are annually monitored, and externally verified and certified.

Besides these global climate benefits on reducing greenhouse gas emissions, the project offers also local sustainable development benefits by reducing local air pollution, creating employment opportunities and promoting cleaner production in the cement industry. The project enjoys local support, confirmed by the findings of a stakeholder consultation process.

TGF’s team at work in Alchevsk Coke Plant Waste Heat Recovery project in Ukraine

In the Ukrainian city of Alchevsk, a coke plant is running more efficiently and combating global climate change with support from NEFCO. The Alchevsk Coke Plant Waste Heat Recovery project was the first Ukrainian project to be contracted for the Baltic Sea Region Testing Ground Facility (TGF), a 35-million-euro carbon fund managed by NEFCO. The project is estimated to reduce over 1.1 million tonnes of carbon dioxide emissions by the end of the year 2012.

The project has been developed as a Joint Implementation (JI) project under the Kyoto Protocol, enabling the project owner to earn additional revenue against independently verified  reductions in greenhouse gas emissions. Governments and EU companies can use these Emission Reduction Units (ERUs) to comply with their emission caps under the Kyoto Protocol and the EU Emissions Trading Scheme, respectively. The TGF’s investors include the Nordic and German states as well as some large private companies from these countries.

The project consists of captive cogeneration with waste heat recovery at Alchevsk Coke Plant (OJSC Alchevskkoks) to displace the use of natural gas and grid electricity.  Prior to the project, a traditional method of coke wet quenching was used. The project introduces a modern coke dry quenching method, installed in October 2007, which enables the recovery of waste heat and its utilization to generate heat and electricity. The project entails installation of a waste heat recovery system, a highly efficient boiler firing coke oven gas and blast furnace gas and a 9 MW turbine generator connected to the boiler, generating up to 54 GWh per annum of net electricity. The boiler and turbine generator will be commissioned in February 2010. The project reduces greenhouse gases by displacing fossil fuel-based energy and avoiding the associated carbon dioxide emissions and as a co-benefit, reduces also local air pollutants.

The project progressed smoothly and swiftly through the required steps; the process from first contact to signed contract took less than six months. The project was first presented to NEFCO in late July 2009 by CF Partners. By mid-August, a Term Sheet was signed, NEFCO’s environmental screening was made and final approval was granted by the TGF Investors’ Committee. The TGF team conducted thorough environmental, financial, legal and technical due diligence during August and September. In October, the TGF team visited the site together with the project developer, Sumitomo Corporation. Meanwhile, Bureau Veritas performed an independent assessment - known as determination in Kyoto jargon - to confirm that the project meets international JI criteria. The determination was successfully finalised in November 2009 and host country approval was received the following month.
 
”The whole process has been like straight from a JI textbook. Requested information was provided promptly and communication between the different parties was seamless. Thanks to our extremely efficient and well prepared host, OJSC Alchevskkoks, the site visit was smooth and fruitful, and also very enjoyable”, recalls Hanna-Mari Ahonen, TGF’s Project Manager.

”By buying carbon credits from this project, we are leveraging financing for climate change mitigation globally and also for energy efficiency, energy security, cleaner technology and better air quality locally", she adds.