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Annex A: Project Logical Framework
Hierarchy of Objectives / Key Performance Indicators / Monitoring & Evaluation / Critical Assumptions /GEF Program Objective / Outcome/Impact Indicators: / Sector Reports
To promote low greenhouse gas emitting technologies in order that their cost may decline to commercially competitive levels through learning and economies of scale / Increase from baseline in global share of renewable energy sources
Project Development Objectives / Performance Indicators / Project reports / (from Project Objective to Program Objective)
1. Reduce costs of advanced bagasse fired power generation technology
2. Increase the use of bagasse as a renewable energy source in Brazil
3. Decrease the environmental impact of expected growth in power generation in Brazil / 1.1 Costs of EFCC bagasse fired plants are reduced to approximately US$237 per MWhr exported by third manufacturing cycle
2.1 Total electricity generated from bagasse in GWh/a – [baseline – XGWh/a]
2.2 Total bagasse-based power capacity in MW [baseline – X MW]
3.1 Emissions vis-à-vis fossil fuel alternative (tons/a):
o CO2 [baseline – X tons/a]
o NOx [baseline – X tons/a]
o SOx [baseline – X tons/a] / Reports from PROINFA and Sector Regulator
EFCC power plant reports / Experience of EFCC in Brazil is applicable to other countries with underutilized bagasse resources
EFCC bagasse-fired technology is replicable to other renewable sources
Output from each component: / Output Indicators: / Project reports: / (from Outputs to Objective)
1. Tranche I: Participation of strong equity partner in EFCC Project and progress on issues required to mitigate Project risk
2. Tranche II: Successful demonstration of first EFCC power plant project:
- Outputs during project implementation:
o Reach satisfactory financial close for EFCC plant, finalizing all necessary documentation
o Finalize appropriate EPC contract
o Successful construction and commissioning of plant
- Outputs during plant operation:
o Demonstrated operational viability of EFCC bagasse fired power generation
o Improved efficiency of EFCC versus alternative bagasse fired power plant designs
o Reduced emissions compared with Baseline
o Costs of EFCC power plant sufficiently low to warrant future development
o Revenues of first EFCC plant are sufficient to cover financial costs
o Improved local capacity to plan, finance and implement an EFCC plant / 1. Tranche I: Output indicators will include:
o Commitment letter and term sheet from strategic equity partner willing to co-finance Tranche II activities
o Satisfactory independent engineer’s technology assessment and preliminary project review
o Implementation plan for EPC, including clear specification of notice to proceed conditions and progress milestones
o Letter of intent from potential EPC contractor/s in response to implementation plan
o Letter of intent to purchase power
o Letter of intent to supply natural gas
o MOU to supply bagasse and facility site by host and arrangement for off-take of steam and power by host
o Letter of interest and term sheet for providing insurance cover
2. Tranche II: Output indicators will include:
- Output indicators to be measured during project implementation:
o All appropriate permits and licenses required at financial close
o All appropriate contracts required for financial close
o Firm financing commitments from equity holders and lenders to the Project
o Signed and delivered EPC contract (EPC wrap and all sub-component contracts)
o Hand-over of the EFCC plant
- Output indicators to be measured during plant operations:
o Production of 520,000 MWhr per year of exportable electricity and meet all of the electricity and steam needs of the host sugar mill
o EFCC proves to be at least 75% more efficient than alternative bagasse fired high pressure steam boiler/turbine power plant designs
o Reduction of approximately 92,000 tonnes of CO2 emissions annually compared to the Baseline (Reference Plant + NGCC)
o First cycle plant costs below US$2,000 per KW of gross capacity or US $300 per MWhr exported
o Revenue levels allow minimum debt service coverage ratio of 1.3x
o At least 50% of plant equipment and installations are produced in Brazil and at least 50% of operations staff are local / Progress reports
IFC project supervision reports / Continued institutional support and interest in renewable sources in Brazil
Sufficient stability in fuel prices and no significant drop in conventional power plant prices
Benchmark costs and financial returns are within acceptable range for further development
Learning curve effects result in reduced investment and operating costs for second and third cycle plants
Project components/sub-components: / Inputs: (budget for each component) / Project reports: / (from Component to Outputs)
1. Tranche I: Carry out activities necessary to obtain the commitment of a strong equity partner for the Project:
o Independent engineer’s technology and preliminary project review
o Plant system definition, thermal performance at full and part load, overall heat and mass balance, sensitivity analyses, control protocol, mechanical arrangement, and site plan
o Negotiation of EPC agreement including sourcing plan and subcontractor quotations by subsystem on principal hardware and services
o Gas turbine subsystem design adaptation for external firing including turbine control valve, high pressure piping, and turbine air heater
o Gasifier subsystem definition and certification testing
o Applications for permits and licenses and patent fees
o Negotiation of power purchase and fuel supply (bagasse and natural gas) agreements
o Negotiation of insurance placement, and debt and equity commitments
2. Tranche II: Carry out activities seeking to close the financing and engineer, procure, construct and commission an 80 MW two-train bagasse fired EFCC cogeneration facility supplemented by a 250 tonne per hour conventional steam generator / GEF funding of $3 million for Tranche I combined with $3 million of counterpart financing
GEF funding of $41 million combined with counterpart financing of approximately $130 million / Monthly progress reports.
IFC supervision and disbursement reports, activity completion reports / No major technological or design problems ('first of a kind') issues
Minor technical problems are addressed through acceptable mitigation measures
Acceptable costs and reliable supply agreements are negotiated with Brazilian equipment suppliers and input providers
Acceptable Power Purchase Agreements are reached
Reasonable financing terms are obtained
Sufficient implementation capacity at Hague
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Annex B-1: STAP Review and Team’s Response
STAP Reviewer: Eric Larson
Question/Comment 1: Why is there no discussion of cane trash (field residues) as possible fuel? UNDP/GEF funded extensive work by Copersucar to understand the potential for this (from technical, economic, agronomic, environmental perspectives). The EFCC project should take advantage of this prior work. Trash has potential advantages relative to buying bagasse to supplement Costa-Pinto’s own bagasse resources: the trash might be under Costa Pinto’s control, cane farmers may be anxious to sell their trash (to avoid having to burn it on the field, which is increasingly being outlawed in Sao Paulo state), and the lower moisture content of trash (relative to bagasse) should improve EFCC efficiency (all other factors being equal).
Response: During the first EFCC project sponsored by GEF (for the UAE sugar cane refinery in Cosmopolis), a considerable amount of effort was devoted to assessing the feasibility of utilizing that sugar mill’s cane field residues. It was determined that by doing so at least 10% more energy could be made available to the cogeneration facility. Hague has been, and will continue to be, interested in utilizing the field residues at Costa Pinto. However, to date, Cosan has been reluctant to mechanize its field operations due to the significant impact that this change in harvesting procedures would have on the local labor pool. Therefore, for now, Cosan has removed from consideration the utilization of their energy-rich field residues.
Question/Comment 2: I gather that Cosan is a private company, but I do not recall seeing this stated explicitly in any of the documents. Please verify.
Response: Cosan is a private company. We have included this in the Project Brief (Section 1.1.1, 4th paragraph) and Executive Summary (Page 2, 4th paragraph). In 2000, Cosan formed a joint venture with two French companies (UNION SDA and SUCDEN) for the purpose of owning select sugar refining operations in Brazil.
Question/Comment 3: Comparisons with natural gas combined cycle (NGCC) are used as a basis for calculating carbon emissions avoided. This is appropriate if NGCC will be the marginal source of new baseload electricity in the future. What are the Brazilian government’s projections for future growth in NGCC?
Response: The NGCC was selected as the basis for calculating the carbon emissions avoided through use of the EFCC because the NGCC is the most efficient thermal power plant alternative to the EFCC. The Brazilian government is committed to balancing its hydroelectric capacity with thermal plants. However, the price dynamics for natural gas may cause the government to proceed cautiously with NGCC and place even more emphasis on biomass fired plants.
Question/Comment 4: What is the rationale for GEF share of Tranche I funding to be 50%? It would seem more appropriate for the GEF share to be in line with the GEF’s share in Tranche II, or ~25%.
Response: One of the main challenges of this Project is that Hague is a small company with very limited resources and that the larger equity sponsors, while currently expressing interest in the Project, are only willing to contribute funds once some of the technological and implementation risks have been mitigated. GEF support will therefore be taking a larger share of the initial risk of the Project. During the course of Tranche I the Project will have mitigated most of these prevailing risks and uncertainties and a significant increase in Project co-financing is therefore expected for Tranche II.
Question/Comment 5: A key argument for GEF to fund OP7 projects is the expectation that costs for the technology will come down as a result of the GEF project. The executive summary indicates that one long-term performance indicator is “costs of EFCC bagasse fired plants by third manufacturing cycle.” Does this mean the 3rd EFCC plant or does it mean the 3rd generation of EFCC plants (after several 1st and several 2nd generation plants have been installed)? In any case, it is important to well document why cost reductions can be expected and the level and timing of expected reductions expected. What is the basis for the cost reductions foreseen from first-cycle to third-cycle technology? Table 15 in the Brief shows cost reductions for several items that are very conventional, commercially-mature technologies, including steam turbine generator, ISGs with IDF and recirculating fan, bagasse boiler NOx reduction and baghouse, bagasse boilers, and fuel storage and handling. Why would cost reductions be expected in these items? For those less-commercially established items (e.g., gasifier/alkali removal/TAH/TCV, etc.) why are the specific reduction levels (as shown in Table 15) expected?
Response: The third manufacturing cycle was intended to signify the third generation of EFCC plants. Each design generation is initiated when the manufacturing cycle is initiated, i.e., when hardware orders are placed on the suppliers. The generation is completed when performance, operation and maintenance information is received from the field following one year of commercial operations plus six months elapsed time to implement the desired modifications in the design thereby initiating the next generation. The number of units in each generation is determined primarily by market factors (permitting, financing, and market acceptance) and facility capacity.
The cost reduction assumptions were:
· Typically, standard items repetitively purchased against a firm specification in a competitive market would yield a 5% installed cost reduction in constant dollars over three generations.
· Cost improvements in the equipment specified and more sourcing in Brazil would yield an additional 6% reduction in constant installed cost dollars in three generations.
· New technology items, due to design and manufacturing process improvements as well as more sourcing in Brazil, would yield a 35% reduction in installed cost in constant dollars by the third generation.
Overall, this results in a 22% reduction in the installed cost of the plant in constant dollars over three generations. This response has been incorporated into the Project Brief (Section 4.3.1) and the Executive Summary (Page 8).
Question/Comment 6: In the Executive Summary there is considerable discussion about the possibility of getting a PPA for the Cosan project under the PROINFA program, but the Project Brief indicates that the project is unlikely to qualify under PROINFA because of natural gas use. If the latter is true, there should be more emphasis/discussion of how PPA will be secured (outside of PROINFA).
Response: The Project’s strategy is to have the primary PPA with private industry, and to back this up with a PPA from a public utility under the jurisdiction and rules and regulations of the Brazilian government. This second PPA need not be under the PROINFA program.
Question/Comment 7: The discussion in Executive Summary of how GEF funding will take the form of flexible funding instruments is a bit unclear. The Brief clarifies this somewhat, but there is still some room for improvement.
Response: There are still significant uncertainties regarding the structure of this flexible funding instrument, which could take the form of equity or quasi equity such as subordinated debt, preferred shares, etc. The reason for this uncertainty is that the nature of the instrument will depend largely on the general Project funding structure and the negotiations with other debt or equity investors (which will take place during Tranche I). The principal, however, that will guide the negotiations will be that GEF should recover part of its funds if the Project yields equity returns which are above certain pre-agreed levels. Explanation has been expanded in Executive Summary (page 10).
Question/Comment 8: Table 16 in the Brief shows 3rd cycle cost estimate and power export. Shouldn’t efficiency be expected to improve from 1st to 3rd cycle, so that exportable power would be higher?
Response: Yes. The plant thermal efficiency is expected to improve over time.
Question/Comment 9: Brief (Section 2.3) indicates that Cosan Costa Pinto mill is one of the largest in Brazil, and that this mill will need to import bagasse to run the EFCC at capacity. What is the size distribution of mills in Brazil? How many other mills could support this scale of EFCC? Is the answer consistent with the claim that 46% of bagasse in Brazil could be used with EFCC in the long term (supporting 4000 MW of power generating capacity)?