Yunnan Kunming Dongchuan Xiaoqing River 7th Level Hydropower Station (hereinafter referred to as “the project activity” or “the proposed project”) is located on the downstream of intersection of Dabai River, Kuai River and Wulong River, in Dongchuan District, Kunming City, Yunnan Province, P. R. of China. It involves the construction and operation of a diversion type hydropower station. The project is constructed and operated by Kunming Dongchuan Xiaojiang Hydropower Exploitation Co., Ltd. The project is implemented in an exiting reservoir1 with no change in volume. The total installed capacity is 24MW and expected to operate 3,908 hours per year, corresponding to the Power Load Factor (PLF) of 44.61%2, which corresponds to an average annual power generation of 93,790MWh and the net electricity supplied to the grid of 84,073MWh3.

1 The reservoir started construction in 2002 and finished construction in July 2007. It is construction and operated by local government.

2 The Plant Load Factor (PLF) of the project activity is calculated as the ratio between annual operational hours and yearly hours (i.e. 8,760 hours). All values used for calculating PLF refers to the approved FSR. Thus, PLF =3,908 hours / 8,760 hours = 44.61% The value for annual operational hours has been derived from the approved FSR completed by Yunnan Huayu Reconnaissance and Design Ltd., which was contracted as a third and independent organization by the project owner to write the FSR of the project for implementation approval, and the FSR was approved by local DRC. In addition, in order to demonstrate that the PLF of the project is reasonable and credible, the PLF of the project can be crosschecked by the average PLF of operational hydropower plants in Yunnan Province, where the project is located. According to official statistics from the China Electric Power Yearbook 2007 and 2008, the average PLFs of hydropower plants located in Yunnan Province in 2006 and 2007 are 44.19% and 42.49% respectively. Therefore the PLF 44.61% of the project is within reasonable range of PLF of hydropower plants that were operational in Yunnan Province, and therefore the PLF used for CDM analysis in the PDD is reasonable. And when the PLF is increased up to 62.42%, the IRR can reach the benchmark. However, this is not likely, for the annual operational hours as defined in the approved FSR is derived from hydrological studies based on statistics of water flow in the flooding and dry seasons over the 46-year (1955-2000). Therefore, an increase of up to 62.42% or more is not likely and cannot be considered as a plausible assumption for an investment decision. Furthermore, as explanation above, the operational hydropower plants in Yunnan Province in 2006 and 2007 are both lower than the project. Therefore, a PLF of 62.42% is impossible. Thus it can be concluded that the PLF used by the project is reasonable, credible and conservative.

3 According to the FSR of the project, the annual net power supplied to the grid=annual power generation *coefficient of effective power *(1- internal consumption rate). The annual power generation is 93,790MWh, the coefficient of effective power is 0.90, and the station service power consumption rate is 0.4%. So the net power supplied to the grid is 84,073MWh. The effective power factor of 0.9 is reasonable and credible, and the explanation is as following:

• Based on “Economic Evaluation Code for Small Hydropower Projects (SL16-95)” published by the Ministry of

Water Resources of the People’s Republic of China in 1995 and the Interim Regulations of Hydropower Construction Project Financial Evaluation, the effective co-efficient is the ratio of “(actual) annual power

The electricity generated by the project would have been supplied by the South China Power Grid prior to the start of the implementation of the project activity, which is the same as the baseline scenario.

The project activity includes water intake, diversion channel, forebay, pressure channel, power house, booster station, etc. It will employ two units of CJA475-L-138/4×113 turbines and two units of SF12- 10/2860 generators matched with the two turbines. The electricity generated will be transmitted to the Yunnan Grid via the Dongchuan Grid, and finally to the South China Power Grid.

The project will transmit renewable hydropower to the South China Power Grid, substitute relevant generation from fossil fuel power plants of the South China Power Grid (main emission: CO2), and then reduce Greenhouse Gas emissions amount to 70,903tCO2e annually.

The hydropower is a renewable clean energy project without exhausting the fossil fuel. The development of the project is in compliance with the developing objective of the Chinese energy industry, and it will contribute to the sustainable development of the energy sector, especially that of the electricity industry. The main contributions include:

• Reducing reliance on exhaustible fossil fuel, so to alleviate power shortage in local area;
• Reducing the emission of pollutant resulting from burning fossil fuel and improving the environmental condition of the local area;
• Improving the local traffic conditions, such as creation of roads and other facilities;
• Offering about 25 employment opportunities and improving the incomes of local residents, improving the life quality of local residents. Meanwhile, the social economic development will be improved.

generation with considering the lack of absorption capability of the grid and other factors as above” and “theoretical annual power generation estimated in FSR according to a long term statistical data of hydrological conditions”.

• The average theoretical annual power generation, as well as the installed capacity of 24MW and annual utilization hours of 3,908h, which are all calculated based on a strong and long term statistical basis for the hydrological conditions of Xiaoqing River, namely 46 years of water flow measurements (1955-2000). Therefore, the theoretical annual power generation does therefore differ from the actual power which will be generated.
• Because of the haul and accident frequency of equipments, emergency stop, electricity absorption limitation of local grid and the electricity demand of local site which the project located, the theoretical electricity generation cannot be achieved. The difference part between theoretical electricity generation and actual electricity generation must be considered. Therefore, the effective coefficient is introduced.
• The installed capacity of the project is 24MW and the project is a monthly regulating hydropower station. In accordance with the Economic Evaluation Code for Small Hydropower Projects (SL16-95) published by the Ministry of Water Resources of the People’s Republic of China in June 2, 1995, the coefficient of effectivelectricity should be chosen within a range of 0.70-0.90. The higher value of 0.90 employed by the project activity is a conservative choice since a higher coefficient leads to higher power supply and therefore an overestimation of the IRR.
• In addition, an expert named Huizhou Cheng (the Chairman of International Network on Small Hydro Power (IN-SHP) of United Nations Industrial Development Organization (UNIDO)) has sent a letter to EB Chairman to clarify the issue of coefficient of effective electricity. In the letter, Mr Cheng demonstrates the concept and selective value of the coefficient of effective electricity and fact about the coefficient of effective electricity in China clearly.
• Furthermore, even if used the coefficient of 1.0, the post-tax project IRR is 7.66%, which is still significantly below the benchmark of 10%.