Comments on Jinjitan Large Hydro Project (China)

Wednesday, July 11, 2007

Current Status: At Validation (as of Aug 2009)

Comments on the CDM Project Design Document for Jinjitan Hydro Project

Submitted to Dr. Sven Kolmetz, TÜV SÜD Industrie Service GmbH

July 11, 2007

Dear Dr. Kolmetz,

I am concerned about the number of hydropower projects in China that are applying for CDM credits that appear to be non-additional. Jinjitan is one such project that seems very clearly non-additional. Its construction is almost completed, the additionality arguments contained in the PDD are exceptionally weak and undocumented, and hydropower is very common practice and economically feasible in China.

First, construction of Jinjitan hydropower plant started in December 2003, and the project is expected to start generating CDM credits October 1, 2007. It is extremely unlikely that a power plant that is almost completely built and ready to generate power would not be completed unless it were to receive CDM credits. The PDD does not attempt to justify why at this stage CERs are required for project completion. This alone should be reason to reject the project.

Second, hydropower is very common practice in China. Installed capacity was 115 GW in December 2006. The China National Energy Strategy and Policy 2020 developed by the Development Research Center of China’s State Council indicates plans to build 7-9 GW of hydropower annually through 2020 . 6.9 GW of hydropower was added to the grid during 2006.

Third, the common practice section of the PDD argues that even though other similar projects have been built in the region, this project has additional barriers compared with the other projects. The barriers are not mentioned or documented and so the requirements of the additionality tool are not met. Considering how common hydropower is in China, there must be strong and documented evidence arguing why this project would not have been built without the CDM while other similar project were and are, and why this project was chosen when there are other similar more cost effective options available.

Fourth, the primary additionality argument is an IRR analysis. It seems absurd to take the IRR analysis seriously, when the decision was already made to build the project without being registered under the CDM. If indeed the CERs were necessary, registration under the CDM should have been pursued much earlier. Further, at this point, when project construction is almost completed and the majority of the investment has already been made, is it clearly the most cost effective option to complete the project. But still, if TÜV SÜD will assess the IRR argument on its own terms, I encourage TÜV SÜD to examine the numbers used in the IRR calculation. The IRR estimates sit very neatly around the 8% benchmark. But are the values justified? For example, the anticipated annual output of the project as per the PDD is 288 million kwh. This is a capacity factor of 46%. However, when project construction first started, an article published in the South China News 8 December 2003 projects its annual power generation to be 335 million kwh, 15% higher and equivalent to a capacity factor of 53% . Was the 46% capacity factor chosen just so the IRR would sit just below the benchmark without CER sales and just above it with CER sales? What capacity factors are contained in documentation about the project prior to the development of the PDD? A similar audit of other values that can affect project IRR calculations should be done, such as the expected project lifetime, the assumed tariff per kwh produced, and O&M costs.

Fifth, the project should be negatively validated on the basis of the poor quality of the PDD. In the additionality section, the PDD fails to explain and document why this project whose construction is almost completed now needs the CDM to be completed, and why a project that is not economically feasible was built when there is a huge potential of economically feasible hydropower in China and when hydropower is common practice. The PDD needs to describe and document the barriers that exist for this project that make it different from the other similar projects in the region, and needs to provide more of the inputs that went into the IRR analysis. Without convincing and documented explanations the requirements of the additionality tool are not met.

Sixth, the PDD states that 191 people are displaced by the project. They do not report having consulted with the people who will be displaced. What sort of consultation took place specifically with the people who were being displaced? The World Commission on Dams (WCD) requires the informed consent of all stakeholders negatively impacted by a dam. Does this project meet WCD requirements concerning informed consent of displaced peoples?

Seventh, The power density of the project is 4.78 W/m2 and the reservoir is 15 km2. The project takes place in a semi-tropical region, submerges a substantial amount of vegetation and the power density is very low. The reservoir emissions from the project could actually be greater than the estimated amounts. Once the reservoir is filled and before CERs are verified, the size of the reservoir should be audited, to make sure the power density is below 4 W/m2.

I will look for your response to each of these points in your validation report.

Most sincerely,

Barbara Haya
PhD Candidate
Energy and Resources Group
University of California, Berkeley