PROPOSAL FOR PDF BLOCK B GRANT(Originally Submitted on March 31, 2000)

Revised on January 8, 2001

Country BrazilFocal Area Climate ChangeProject Title Feasibility Study for an Externally Fired Combined Cycle

(EFCC) Technology Option for a 40 MWe,200,000 lbs./hr steam Co-Generation Plant at the Usina Acucareira Ester (UAE)

Project Cost US$89.3 million (estimated) Financing Plan GEF, UAE, AEAII, HI, IFC

Others: US$61 millionGEF: US$28.3 million

Requesting Agency International Finance Corporation (IFC)National Counterparts Usina Acucareira Ester S.A.,(UAE) Rodovia SP 332,

km145,Caixa Postal 53, Cosmopolis, Sao Paulo, Brazil, with assistance from the AEAII Project Team consisting of: Advanced Engineering Associates International Incorporated (AEAII), U.S., Hague International (HI), U.S., Chroma Engenharia Ltda., Sao Paulo, Brazil

Amount of Block B requested $220,000Co-Funding: $220,000 from AEAII Project Team (PT)PDF Block Duration 12 monthsBlock A Grant NoneApplicable GEF Operational Program Operational Program #6Convention Ratification February 28, 1994

Project Objectives

The objectives of the proposed study are as follows: to determine whether the EFCC state-of-the-art technology option for co-generation is appropriate

and the most beneficial in technical, economic, financial and environmental terms for application at a selected sugar mill site in Brazil in comparison to conventional co-generation options;

to ascertain the added environmental benefits accruing from the application of the EFCC option vis-à-vis conventional co-generation options at the project site, including reduced overall carbon dioxide and other emissions produced per unit of energy output;

to generally verify any impediments for replication of the EFCC option at other potential sites; to enable a “bankable document” for the EFCC option to be produced in the course of the feasibility

study, should it be shown that this is the best all-around option for the sugar mill.

The specific objectives of the proposed project are: to dramatically increase the energy production at an existing sugar mill through a highly efficient

technology which will provide all of the mill’s energy requirements and surplus electricity for export to the local utility system or other consumer(s);

to help commercialize a technology that promises optimal transformation of local biomass fuels to a highly efficient, clean source of energy to support Brazil’s rapidly growing demand for power;

to transfer technology to developing countries that has a potential for efficiently combusting various 1

types of biomass fuels and municipal waste for thermal and electrical power production purposes; to minimize atmospheric emissions and waste streams produced in the generation of commercial

energy; to help establish a market in developing countries with biomass resources for this superior "green"

technology and for the local provision of associated equipment and services.

Project Description

The proposed project is a new co-generation plant to be located on or adjacent to UAE’s sugar mill operations in São Paulo, the most populous and industrialized state in Brazil. UAE is a high profile company in the Brazilian sugar mill industry and in the nearby major metropolitan area of Campinas. The mill produces both sugar and ethanol. The project initially arose from the need for major energy plant improvements at the UAE sugar mill, combined with the obvious need for investment in additional generating--and particularly thermal-based generating--capacity in Brazil, for which the Government of Brazil as well as state-level governments have sought to encourage private sector financing.

The project has been developed over the past three years by Advanced Engineering Associates International, Inc. The AEAII Project Team, along with supporting vendor companies Foster Wheeler Corporation (FWC) and General Electric Company (GE), will be responsible for the performance of the feasibility study, directly or through sub-contractors.

The EFCC technology proposed for the co-generation project is based on an externally-fired air heater and turbine control valve developed by Hague International (HI) combined with a unique gasifier produced by FWC and a GE gas turbine in a standard plant configuration, which includes an integrated heat recovery steam generator and steam turbine/generator equipment. The high temperature heat exchanger produces clean, hot, high-pressure air to drive a gas turbine. The exhaust energy from the gas turbine cycle is then used to produce steam for use in a steam turbine plant. The fuel is first processed by a conventional biomass gasifier in order to avoid operating problems encountered in typical boiler plants and is then combusted to provide the heat energy necessary for the patented gas turbine air heater system. The EFCC technology has the potential to produce at least 35% more power from the same fuel resources as biomass boiler plants now in use. In the specific case studied herein, the EFCC produces 50% more power than a conventional, bagasse-fired, high-pressure steam co-generation plant. See Attachment IX - Power Comparison of EFCC vs. High-Pressure Steam Combined Cycle, for details. A full-scale EFCC pilot power plant in the U.S. has been operated on natural gas and coal by HI. FWC’s Atmospheric Circulating Fluid Bed Gasifier (ACFBG) is used in wood-based and other bio-fuel commercial applications in Scandinavia and Portugal.1 A comparison of the EFCC technology with other direct-fired gasifier options (IGCC) is given in Attachment III.

It is planned that the EFCC co-generation plant will operate on a year-round basis. The plant will use bagasse and other biomass materials as primary fuel, which are available at the sugar mill and in the vicinity. Application of the EFCC option at the UAE site is expected to increase the generation of electricity by a factor of as much as two using the current level of fuel consumption, while producing additional environmental benefits associated with the more efficient use of biomass fuels. It is currently estimated that the proposed EFCC project will be able to provide approximately 200,000 pounds per hour of steam for process uses and 6 MW of electric power to the sugar mill as well as an additional 30 MW

1 A more detailed description of the EFCC technology and of the pilot plant in the U.S. can be found in Appendix II of the original U.S. TDA project proposal, a copy of which is in IFC’s project files. Appendix III of that document describes FWC’s CFB technology, and gives a list of operating facilities using the technology and a discussion of fuel and capacity issues relevant to its application in the proposed UAE Cogeneration Project.

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of surplus electric power to export to the grid during the harvest season. Similarly, during the "off season" period, the plant would provide 1.5 MW to the distillery and its 32 MW electricity surplus to the grid.

The proposed IFC/GEF and sponsor-funded feasibility study will allow the EFCC option to be considered on a par with other conventional technology options for the sugar mill, which are the subject of a separate feasibility study partially sponsored by a grant from the U.S. Trade and Development Agency (TDA). Attachment I of this proposal contains the TDA Grant Agreement and associated Attachments. After completion, this study will provide detailed baseline information for the GEF incremental cost assessment.

There are no new technical developments required for EFCC. However, as of August 1999, HI is in the process of developing five sugar mill co-generation applications in India where electricity costs are high and there is a keen interest in the additional power that is made available through use of the EFCC technology.

Description of PDF Activities by Component for (i) GEF-funded and (ii) co-funded:

A Scope of Work for the proposed feasibility study is provided in Attachment I.

It is noted that the TDA-funded feasibility study of the conventional co-generation options at the proposed site will de facto provide some general background data that may be used for the GEF-funded study.

National Level Support (including key stakeholders, and level and nature of consultations) The project has been endorsed by the Brazilian GEF Focal Point with its letter of May 24, 1999 (see Attachment V).

The proposed project and anticipated use of the EFCC technology in the project was directly presented to Dr. Eugenio Mancini, Director of the National Department for Energy Development, Brazilian Ministry of Mines and Energy, several times during the course of the project’s development. Dr. Mancini has also been provided with documentation detailing the features of EFCC.

Presentations by the Project Team were also made to various members of the National Electricity Research Center (CEPEL), in particular to CEPEL team members working on biomass or, more generally, thermal generation technologies. The then-manager of the thermal energy division, Sergio Feitoza Costa, was kept constantly abreast of the project’s development, and provided a letter of support for the project to TDA. He was given updates of all pre-feasibility calculations made for the project. CEPEL is very interested in the technology as part of an ongoing national effort to encourage generation of additional electricity by sugar mills and other industries that have access to biomass fuels and/or have a potential for co-generation.

The Project Team presented the project proposal to two high-level officials working for then-Secretary of Energy for São Paulo State, David Zylberstajn. The proposal was received with interest in light of the state’s urgent need to obtain additional sources of electricity quickly to meet growing demand and its interest in promoting co-generation technology and sugar mill co-generation in particular.

The local electric utility concessionaire, Companhia Paulista de Forca e Luz (CPFL), was presented with

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the project proposal at two different times during project development. CPFL has confirmed its willingness to purchase the excess output of the project at a price to be determined if and when it becomes available.

The steady support and involvement of the host industry and GEF grantee, UAE, has been led by the Commercial Director Sergio Coutinho Nogueira, by the Technical Director, Paulo Nogueira Jr., and by the Industrial Manager, Florenal Zarpelon, and project milestones were confirmed by the company’s Board of Directors. UAE will be contributing a substantial amount of in-kind effort to the performance of feasibility study tasks. It has an option to financially participate in the implementation stage of the project upon completion of the feasibility study findings.

AEAII, through an agreement with CHROMA Engenharia, has received considerable support and advice from the local firm. This support includes in-kind contributions for the accomplishment of the feasibility study and a potential option to participate in equity financing of the eventual project.

The project concept has also been widely described in detail to a number of other Brazilian entities, to help determine the interest in possible follow-on projects of this nature. The response by nearly all of these contacts has ranged from strong interest specifically related to the EFCC option for anticipated projects, to moderate interest for potential projects that are expected to be needed in the medium term, and which may or may not particularly benefit from the EFCC option. The Project Team believes as a result of these meetings that there is solid market potential for follow-on projects. These contacts include the manager of Petrobras’ Energy Conservation and Rational Use Center (CONPET), the Directors General or Presidents of more than ten sugar mills in Rio Grande do Sul, Alagoas, and Pernambuco, other sugar mill representatives (i.e., technical or economic consultants) in Pernambuco, Piaui, and Paraiba, two coal industry association presidents (CRM and COPELMI);2 and director and manager-level representatives of CEMIG, the utility concessionaire in Minas Gerais.

Economic Assessment Summary/Brazil Potential

Demand at the load centers is growing rapidly. CPFL, which serves the area in which the Project is located, reported that its year-on-year growth was 8.9%. for 1998.

In the project region, existing supplies come largely from hydro facilities, which are distant from the load centers. Two blackouts of significant portions of São Paulo have taken place recently. The blackouts occurred at the end of the rainy season, when the reservoirs were full and ample hydro capacity was available to serve all loads. These events occurred not because of an overload condition on the transmission system, but due to the lack of generation capacity and voltage support located in the vicinity of the load service area to mitigate the instability. Generation (such as the Project) located near the load centers can supply both active and reactive power to avoid such problems in the future.

The cane processing season, and therefore the bagasse-producing season, is counter-cyclical with the rainy season. As is typical in hydro-dominated systems, Brazil has substantial “excess” capacity but is limited by the firm energy deliverability in years of poor hydrology. The associated energy deficits and therefore the highest value of incremental firm energy commitments to the system are concentrated in the dry season. That is also the season in which the mills are operating and the bagasse is produced.

The attitude of the federal Ministry of Energy and the São Paulo utilities toward IPPs has markedly

2 2 The EFCC option is appropriate for increasing energy in coal-fired, as well as biomass, applications.4

improved over recent years. Recognition of the benefits of thermal generation – including bagasse-fired co-generation is growing. A willingness, and even enthusiasm, for bringing bagasse facilities on-line is evident, and the availability of and pricing for contracts has greatly improved.

EFCC is an attractive concept whenever there is biomass available, high power demand, and relatively few fuel alternatives. Brazil, in general, meets all of these criteria. As demand increases, thermal sources of power will be required and EFCC is expected to be an attractive alternative for meeting this demand.

Justification for PDF Grant

The EFCC technology offers promising optimized energy savings and reduced environmental emissions for a number of productive applications in various economic sectors: agricultural, energy production, petrochemical, health (namely, hospitals) and waste management service sub-sectors which (potentially) use biomass or hydrocarbon (petrocoke and coal) fuels. Use of EFCC technology for new or modernizing energy generation facilities will enable countries in development to better conserve valuable fossil energy resources, promote strategies optimizing the use of local biomass energy resources, and preserve environmental quality through fewer emissions and waste by-products. However, though the various main components are demonstrated technologies, the EFCC option has yet to be configured in the way proposed for the UAE sugar mill co-generation facility. This “first-of-a-kind” classification impedes it from obtaining reasonable terms of financing as a commercially proven technology. This was demonstrated when TDA, though having expressed its interest and excitement about the EFCC option for the UAE sugar mill project, could not overcome its mandate to only finance commercially proven technologies and in the end it approved funding for only conventional co-generation technologies in the project feasibility study.

Because this is a “first-off” project incorporating new technology, plant costs will necessarily be high. Using preliminary cost projections, this “first” plant would have total installed costs of $89.3 million or $2,400/kw. At this cost level, partial GEF support will be needed to meet a competitive market price for energy. Refer to Attachment XI, Estimated GEF Subsidies. However, it is expected that over a period of 6-8 years, the cost of a third-cycle plant will be 30% lower than that of the “first” plant.

(US Dollars 000s)Number of

Plants in CycleManufacturing

CycleTotal Capital

Cost/PlantSubsidy per

PlantNet TPI Total Subsidy

1 1 89,336 28,349 60,987 28,3492 2 68,209 7,222 60,987 14,4443 3 60,987 - 60,987 -

TOTAL 42,793

The project is provisionally classified as Operational Program #6 pending results of the feasibility study and further economic and market analysis. If the analysis shows an insufficient basis for a “win-win” status, then the project could also fall under Operational Program #7, which under paragraph 7.7(b) specifically lists “advanced biomass power through biomass gasification and gas turbines.” See Attachment X - Reduction in Greenhouse Gas Emissions, for details. The project would also meet the replication objective under paragraph 7.6. If the project were successful, a large market for this technology could potentially open up in countries such as Brazil, Peru, India, Vietnam, Jamaica and other sugarcane producing countries. HI has already initiated commercial activities in India.

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In terms of project financing and replication, the AEAII Project Team has credibly established a strong potential for implementation of the proposed and subsequent EFCC projects in Brazil. An international commercial financing institution has written two letters indicating its plan to finance a series of EFCC-based projects in Brazil or elsewhere should the feasibility study uphold the economic and financial projections made by the sponsors. Replication potential was determined by garnering specific interest in exploring the option for upcoming projects identified by a number of potential private sector clients in the sugar mill industry.

Based on the work done for UAE to date, the sponsors believe that both the conventional plant and the EFCC plant could produce competitively priced electric power. However, ultimately, the EFCC plant will provide a far more attractive return on investment, 26% versus 10% for the conventional high-pressure steam plant. Additionally, the EFCC will produce some 50% more power than a conventional plant from the same amount of bagasse.

Comparison between the Proposed EFCC Technology with the IGCC Technology Currently Being Supported by GEF in Brazil

The EFCC technology proposed under this project presents a promising alternative to the utilization of biomass gasification for power production. The essential difference between the EFCC and the IGCC approaches is that the IGCC gasifies the biomass under high pressure and inserts the resulting combustible gases directly into the firing chamber of the turbine. Because of the highly corrosive nature of many of the gasification products which cannot always be efficiently removed during combustion, this puts a heavy maintenance burden on turbine blades and housings, apart from a 10% to 15 % efficiency penalty. Under the EFCC Technology, the gasification takes place in an external, atmospheric-pressure biomass gasifier. The resulting gaseous fuel is then combusted in a separate firing chamber, with the resulting heat energy transferred via a patented ceramic heat exchanger to an air pressure chamber. The turbine itself is driven by the resulting high pressure, high temperature air which does not contain any impurities. This greatly prolongs turbine life and reduces maintenance costs substantially. The EFCC technology, therefore, represents a viable and promising alternative to the IGCC technology now under development with GEF support. Only a direct comparison of the resulting, full-scale operating plants will ultimately show which of these technologies might be superior under specific conditions and for specific fuel compositions.

A more detailed comparison of the two technologies can be found in Attachment III.

Incremental Costs

The incremental costs of introducing the EFCC technology consist of the excess capital and start-up costs for the first and second generation plants. As discussed previously, it is estimated that third generation plants could be built and operated at cost levels which would make them competitive on a commercial basis with conventional power generation technologies in Brazil and in other major sugar cane producing countries around the world. In estimating the incremental costs, the baseline situation had to be based on the likely use of natural gas combined cycle power plants. Another possibility in this part of southern Brazil would be the displacement of coal-fired plants (see Attachment XII), which would lead to a lifetime reduction of 1.21 million tons of discharged carbon equivalent. The comparison could not be based on the use of an alternative, conventional steam plant burning the available bagasse, because the analysis indicates that such a plant would not be cost competitive with alternative gas or coal-fired plants (for a comparison of the EFCC and a conventional, bagasse-fired steam power plant - see Attachment II).

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Incremental Cost Table

Baseline* Alternative** IncrementGlobal Environmental Benefits

484,000 million tons of carbon discharged into the atmosphere over 20 years

No net carbon discharge because of use of renewable resource

Reduction in carbon discharges of 484,000 million tons over 20 years

Domestic Benefits 4.48 million MWh of electricity produced by gas-fired combined cycle plants over 20 years

4.48 million MWh of electricity produced from bagasse

No domestic pollution from the discharge or open field burning of surplus bagasse

Costs US$144.2 million US$172.7 million US$28.5 million (1st generation plant only; 2nd generation plant estimated at $7.2 million,; $0 incremental costs for 3rd generation plant)

The estimated incremental cost of US$28.5 million for the first generation plant break down into the following components:

Direct Construction Costs US$14.5 million"Other" Costs (certification & field tests, incremental interest during construction)

US$10.4 million

Owners Costs, Contingencies & Incremental Operating Costs

US$ 3.6 million

It is important to note that these cost estimates are based on US prices. Brazilian prices for locally sourced and site construction costs are likely to be lower. More detailed estimates will become available upon completion of the feasibility study.

Commonality with TDA Project

There are a number of task items which refer to similar tasks in the TDA funded project work statement. These activities are standard project development tasks and vary in scope and with the nature of the project. The sponsors originally proposed a project that would assess both the EFCC and conventional options for a co-generation plant at UAE. Because of TDA funding restrictions, the original proposal was separated into two efforts for the UAE site and business related task budgets divided equally into two cases. However, site related work must be technology and project specific and will not be duplicative. In summary, budget allowances for site and business assessment are well within general project development experience and there is no duplication of tasks between the two project cases.

Cost Sharing

AEAII has assumed the responsibility of project developer and as such has extended considerable resources on this project initiative. Based on the experience of previous projects, it can be expected that significant additional expenditures will be incurred during the course of this study, in general project

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development activities that cannot be strictly defined in a scope of work. This work includes project development activities with various third parties who may have an impact on its permits, operation or design, identification of such third parties, resolution of conflicts among direct and/or indirect participants, and other activities which are geared toward establishing project acceptance. In addition, UAE, HI, CPFL, CHROMA, and the equipment vendors who have provided support to-date, also recognize that continuing support will be needed to achieve a successful project outcome.

Advanced Engineering Associates International, Inc. (AEAII) and Hague International (HI), Chroma Engineering (CE) and UAE have already invested and continue to invest, substantially in the proposed project, this investment includes:

Prefeasibility studies related to project design options; Identifying potential partners for project development - ongoing; Evaluating fuel resources - ongoing, and not included in the scope of work; Frequent visits to Brazil, at AEAII's expense (including labor, travel and other direct costs), to

promote the EFCC concept to the Brazilian government, UAE and other sugarmill owners - ongoing.

AEAII representatives have visited Brazil at their own expense, to discuss the project with CPFL, the Ministry of Energy, the Planning Ministry, and UAE and other sugar mill owners. The level of effort associated with this and other activities was not included in the original scope of work for the feasibility study. If these activities had been included in the original project proposal, then the budget would have been adjusted upward accordingly. The value of sponsors’ investment to date exceeds $165,000 (on a direct cost basis, without adjustment for overhead and associated expenses), and the information obtained from these efforts will be incorporated into and provide the basis for a more definitive feasibility study.

Items to be Financed

A completely detailed breakdown of the proposed study components and funding source for each item is given in Attachment I. The items of the Scope of Work to be financed in part by the GEF grant will include:

Design basis Agreements Project definition Cost estimates Economic evaluation Environmental Impact Study Risk Assessment Schedule Ownership options Project Financing Report

The expected cost of the GEF contribution towards the above tasks and other expenses is expected to be $220,000. The sponsors will absorb the remainder of the project costs, estimated at $220,000. (See Attachment I for details).

Deliverable

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The output of the feasibility study for the project will be a document that specifies the final optimized configuration for the proposed co-generation facility at UAE and secures financing for the project in the form of power purchase agreements, fuel and steam supply agreements, and commercial arrangements for equity and debt financing of the project.

Expected Date of Completion: One year (12 months) from the date of project initiation

Special Features

The EFCC technology (with its key components) in the proposed configuration is a special and unique feature of the proposed project, which has a strong potential for replication in Brazil (and elsewhere in the developing world).

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ATTACHMENT I

WORK STATEMENT, ORGANIZATION STRUCTURE, SCHEDULE, SOURCES OF FUNDING, AND PROJECT CAPITAL COST ESTIMATES

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A. WORK STATEMENT

Task 1 - Design Basis

The project team (PT) will examine the site in detail and provide a detailed assessment of the suitability of the site for the proposed EFCC co-generation plant.

The information developed for the conventional Rankine cycle plant under the TDA sponsored study will provide some of the information needed for the GEF funded study. Please refer to Attachment VII "TDA Terms of Reference".

Task 2 - Agreements, Including Letters of Intent and Legal Opinions

Agreements on: Power sales with CPFL and UAE Fuel supply with UAE and auxiliaryFuel supplierLand leaseInterconnectionOperating and maintenance

Legal opinions on: Taxes and import duties pertaining to projectEnvironmental, constructionWater utilization and othersEquipment import permits

Task 3 - Project Definition

Project Team (PT) is to prepare documentation, heat and mass balance, specifications, drawings, diagrams for major systems and equipment representing 80% of project costs.

3.1 Site Specific

Site Access: height/weight and other limitations for physical access to proposed site; current and planned interconnections and access to the grid; and current and planned fuel supply rights-of-way;

Land Use: current and planned land use adjacent to, and in the immediate vicinity of the proposed site; evidence of existing contamination, if any, existing or planned land use restrictions in the vicinity of the site construction impediments;

Site Features: topography, wind regime, precipitation regime, drainage and flood regime, special storm or weather event history;

Existing Environmental Conditions: air quality, water availability and quality, wastewater disposal options and capacity, landfills or land-based disposal uses, ecological setting, cultural and historic resources, and other data which may be needed to determine site suitability and later environmental impact evaluations;

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Sub-surface Conditions: geology and seismicity, hydrogeology, groundwater hydrology, and sub-surface soils and characteristics; and

Fuel supply storage and handling to the "day storage bin" on the gasifier and auxiliary fuel supply and storage.

3.2 Balance of Plant (Equipment & Services)

Interconnection and transmissionLand and land improvementsFoundationsUtilities including communicationsStructural steel and platformsLightingFencesInsulation and laggingPaintingFire protectionWater supply (raw, potable, and treated)BuildingsPlant maintenance facilityExhaust stackFurniture and fixturesOffice equipment (computers)Compressed air serviceOverhead craneTools and sparesTransportation accessForced draft wet cooling tower

3.3 Power Plant System

Fuel Group - gasifier, refractory, start-up burners, flare, gasification air blower, cyclone, ash handling, syngas cooler/evaporator, particulate filter.

Turbine Group - gas turbine, steam turbine package, and local control.

Air Heater Group - main combustor, turbine control valve, H.P. piping, blow off, and local control.

IDF Group - I.D. fan, back end scrubber/SCR and stack.

ISG Group - integrated steam generator, superheaters, evaporators, economizer, feedwater heater, make up water systems, pumps, valves, trim, and local control.

Central Control & Instrumentation - data recording, emissions monitor.

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Task 4 - Cost Estimates

Prepare a master list of equipment, and using the information developed in Task 3, determine the Total Project Investment (TPI); state margins for error.

Based on EPRI standards, adjusted for Brazil and information obtained from similar operations in the Campinos area on labor/skill rates, determine the Operating and Maintenance costs and state probable error margins.

Task 5 - Economic Evaluation

Using the information generated in Tasks 3,4 and 5, obtained from U.S. TDA funded study and current economic forecast for Brazil; prepare Operating Pro-formas through the term of the project secured loan. Conduct sensitivity analysis on principal project economic parameters, including capital cost, fuel cost, rate of inflation, and selling price of power.

Make a comparison of a conventional Rankine cycle solution, developed for the U.S. TDA sponsored UAE study, to the proposed EFCC solution in terms of the Cost of Electricity (COE) at the plant terminals over 15 years.

Task 6 - Environmental Impact Study

Using data from the above tasks and available information on the site and its surroundings, prepare an assessment of the impact for the EFCC option on the environment and compare the results with the conventional Rankine solution. The study will comprise:

Characterization of the environmental interfaces (i.e., emissions, effluents, land use, and water requirements) of the proposed project;

Definition of the existing environment at the site; Evaluation of the impact on the environment; Identification of mitigating measures that may be taken, their effectiveness and costs, where

they are appropriate, and other areas that require additional study, if any.

The environment assessment will include issues identified by UAE or that are specified in Brazilian or local environmental laws and regulations in the guidelines of the World Bank, or that are commonly applied in U.S. or international industry practices.

Task 7 - Risk Assessment

Evaluate all generic and specific background factors that might impact the EFCC project, including political trends, sector reform and regulatory issues and requirements, local and country economic factors, and relevant commercial, monetary, trade and investment policies, practices and rules. In addition, quantify all technological and financial risks associated with the EFCC option and develop practical strategies for minimizing these risks. These strategies will consider alternative fuel options and flexible adjustments in operations. In addition, the availability of capital risk insurance through organizations such as the World Bank's MIGA subsidiary, or Overseas Private Insurance Corporation in the U.S., will be examined, as applicable.

Task 8 - Schedule

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A Project implementation plan and a detailed schedule will be developed.

Task 9 - Ownership Options

Develop ownership options and a management structure for the project. Potential equity investors in the U.S. and Brazil in addition to potential financiers of debt will be identified.

Task 10 - Project Financing

A Financial Memorandum will be prepared for the purpose of providing a preliminary evaluation of the UAE Co-generation Project by private banks, the IFC, and other potential equity investors or lending agencies.

Task 11 - Final Report

The final feasibility report will include a comprehensive description of the proposed Project and a summary of the results of the individual components of the study. The report will include a detailed Project finance strategy and recommended course of action for Project implementation.

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B. ORGANIZATIONAL STRUCTURE

The organizational structure and primary responsibilities of the Project Team are shown in the chart, Figure A for this phase of the program.

The Project Manager will coordinate all work efforts and will have primary responsibility for costs, scheduling, and interface with UAE, IFC and members of the Project Team.

The following will be the responsibilities of the team members:

HI: will be responsible for the power system design, including the integration of the gasifier, gas turbine equipment, and the steam cycle. HI will work closely with other Team Members to provide an integrated plant design, and determine costs, and will support the development of the project design, equipment definition, construction schedule, and other project implementation tasks as needed to develop the Total Plant Investment (TPI) and operating cost estimates.

FWC: working with HI will provide information on their commercial atmospheric pressure biomass gasifier system and will define the necessary feedstock handling systems for the biomass fuels. FWC will also conduct all of the testing needed on the fuel and the gasifier. In addition, FWC will provide technical and cost information pertaining to boilers and associated systems.

GE: working with HI will supply technical information and costs on its gas turbine, steam turbine, and electrical equipment.

Chroma: Will be responsible for developing local costs and definition of all permitting requirements, as well as undertaking civil/structural engineering tasks, site preparation, environmental assessments, and electrical studies (primarily for interconnecting lines to the utility system). In addition, Chroma will work with HI and UAE to interface with Brazilian interests, including potential sponsors or power purchasers, to confirm evolving market and financing data.

UAE: will provide all site information necessary to define engineering requirements and to review all project work efforts. The objective of UAE's staff will be to develop a technical and economic understanding of the technology and the project to assure that the Sugar Mills operational needs will be met. In addition, UAE will provide information relevant to local factors and work with other Team members interfacing with local government and industry officials as well as other parties relevant to the project.

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C. UAE EFCC POWER PROJECT SCHEDULE

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D. SOURCES OF FUNDING

Staffing Schedule and Labor Costs: The estimated staffing requirements are based on evaluating an EFCC co-generation plant. The indicated person/hours for each task include hours allocated to several disciplines such as mechanical, electrical, civil, and structural engineering, and management. The burdened rate is a consolidated rate per hour that includes all the professionals involved in performing the tasks for the study, plus overhead and fees.

The work is to be divided into two categories as follows:

1) Site Specific which includes all tasks related to the UAE facility and the host country.

2) Power Systems or Power Island, includes all tasks or partial tests that can be replicated irrespective of the host site location.

In general, AEAII, Chroma and UAE are to provide the bulk of the staffing for category 1 and Hague International in collaboration with Foster Wheeler and G.E. Power Systems, will provide the bulk of staffing for Category 2.

The following tabulation list the staffing requirements (in hours) associated with performing each task.

STAFFING COST FOR EACH TASK*

Task DescriptionAEAII

ChromaUAE

HIFWGE

1 Design Basis $ 11,250 $ 6,7502 Site Suitability $ 6,750 $ 2,250 3 Project Definition $ 22,500 $ 67,500 4 Cost Estimates $ 22,500 $ 67,500 5 Economic Evaluation $ 6,300 $ 11,700 6 Environmental Impact Study $ 7,200 $ 10,800 7 Risk Assessment $ 18,000 $ 27,000 8 Schedule $ 11,250 $ 6,750 9 Ownership Options $ 10,800 $ 7,200

10 Project Financing $ 27,000 $ 18,000 11 Final Report $ 7,200 $ 10,800

Sub-Totals $150,750 $236,250

Grand Total $387,000

* Refers to Work Statement given with Attachment 1.

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TOTAL ESTIMATED FEASIBILITY STUDY COSTS

Labor Cost @$90/Hour3 $387,000

Travel and Other Costs: $ 41,300

3 Round Trips for 4 Specialists (based on $1,200 per round trip ticket) $14,400

Per Diem Based on:

First Trip: 2 Weeks Per Person @$200/day

Second Trip: 1 Week Per Person@$200/day

Third Trip: 1 Week Per Person @200/day

Three Round Trips for 3 Persons from New England to

Washington,D.C.

Miscellaneous materials and services (such as fax, telephone, copying and postage fees)

$11,200

$ 5,600

$ 5,600

$ 4,500

$ 11,700

Grand Total $440,000

Note: This figure does not include the Cost Share of Chroma, UAE and other Brazilian partners and investments (airplane fares, meals, hotels, etc.) to date. The use of professional interpreters are not seen as necessary for the feasibility study in light of the excellent English capabilities of the CHROMA and UAE personnel, supported by other Project Team members’ fluency in Portuguese.

Funding would be provided as follows:

Project Team $220,000

GEF $220,000

Total $440,000

31 Reflects $90 as the average of proportionate labor costs for all specialists required for the study.11

E. PROJECT CAPITAL COST ESTIMATES

Introduction

The EFCC concept is composed of two conventional thermal cycles: a gas turbine (Brayton) and a steam turbine (Rankine) cycle Thermal energy is introduced by a single combustor located in the gas turbine exhaust. The gas turbine cycle is powered by a high temperature air heater that extracts the energy required to power the gas turbine from the products of combustion as shown in Figure B.

When a bio fuel, such as 50% moisture bagasse, is used to power the cycle, the fuel is first gasified in a commercially available gasifier, such as the Foster Wheeler atmospheric circulating bed gasifier. The syngas thus produced is cooled to approximately 500C to precipitate out the alkali metal oxides. The oxides are then filtered out of the gas stream to protect the air heater. Figure B shows the basic gas turbine cycle. Figure C shows the entire combined steam and gas turbine cycles. All of the new technology hardware is in the gas turbine portion of the combined cycle. The steam cycle would be composed entirely of conventional commercially available hardware.

The new enabling technology items consist of the turbine: air heater control valve

In addition, new system control algorithms and additional high temperature, high pressure air piping and ductwork are required to complete the gas turbine cycle.

The EFCC developer, Hague International (HI), built and operated a prototype EFCC plant facility, located in Kennebunk, Maine, during the mid 1990's, shown in Figure E. The construction of this plant was funded by a consortium of organizations with the objective of developing a topping cycle to repower coal-fired power plants throughout the world. The developer, HI, is the world leader in the commercialization of ceramic heat transfer apparatus for industrial applications. This equipment is sold under the trade name of CerHx®. Several low pressure industrial installations of HI's ceramic heat exchangers in the process industry have accumulated more than 100,000 hours of trouble free operation with minor maintenance at 3 to 5 year intervals (20,000 to 25,000 hrs). Complete industrial heating process furnaces have been built by HI for the secondary metals industry employing CerHx® equipment.

Project Costs

The "Project Cost Summary" (UAE) is given in Figure D. It would be inappropriate to consider the costs associated with the first units as representative of the long term EFCC plant costs. Accordingly, a plant cost summary is also provided in Figure D for the 3rd plant of the design proposed for UAE.

As shown in Figure D, the Direct Overnight Cost of construction and Installed Equipment portion A of Figure D represents 66% of the total project cost whereas this item would, in the longer run, be between 70 and 75% of the total project cost. Further, the values given in Figure D are based on U.S. costs. A savings is expected in the capital cost and installation labor in Brazil, particularly with the steam portion of the EFCC cycle.

The EFCC developer has included Q.C. and fuel certification tests in the proposed project cost. Such costs are a consequence of the new technology, incorporated into the design, and are included to assure

12

success with the project and in anticipation of the requirements imposed by the systems performance insurer. The tests are needed to assure plant performance and to fully assess the operation of the plant. Tests by vendors, dictated by the project manager, are designed to assure technical success with the project and to alleviate delays in the commissioning and interruptions in the commercial operation of the plant after commissioning.

Past practice in the industry, was to use the bagasse generated by the process to power the factory during the processing season 170 to 210 days a year. Typically 30% of the weight of the sugar cane processed will convert to bagasse with a 50% moisture content. A small bagasse surplus of 10 to 15% remains after satisfying the sugar factory requirements. This surplus is generally disposed of for other applications to local users. In recent years, where markets have developed for electric power, the low efficiency steam plants are being replaced by high pressure more efficient steam systems. The new configurations operate typically at 66 bars 482C and can generate a surplus of power for export to the power grid during the season. This arrangement of a conventional steam plant can be economically justified in countries where power is in short supply and valued at over 6 cents U.S. per kW hour (1999). The total project investment for such plants ranges from 650 to 1,150 $U.S. per kW (1999). The lower cost is attained by sourcing much of the equipment within the host country.

Substantial economic improvements can be obtained by adding a gas turbine topping cycle, as shown in Figure F, to the conventional high pressure steam plant.

13

FIGURE B - EXTERNALLY FIRED CYCLE

14

15

FIGURE D - PROJECT COST SUMMARY (UAE) (1999 US $ x 1,000)

A DIRECT CONSTRUCTION COSTS (BUILDINGS & INSTALLED EQUIPMENT) FIRST PLANT THIRD CYCLE 1. Gasifier/Syngas Alkali Removal 15,264 10,644 2. Turbine Generators 9,819 8,819 3. Air Heater/Combustor/TCV/HP Piping 19,573 13,701 4. IDF (No Dryer) 900 500

5. ISG 6,057 5,000 6. Central Controls & Instrumentation 958 450 7. Balance of Plant 6,129 5,129

A. TOTAL BLDGS & INSTALLED EQP 58,700 44,243

B. OTHER CAPITAL COSTS 8. Interest During Construction 4,576 2,654 9. QC & Field Testing

- Gasifier Fuel Certification - 2,250- Power System Certification - 2,900- QC and Certs Engineering - 2,550

7,700 1,00010. Permitting & Licensing 800 80011. Agreements & Financing 2,200 1,54012. Construction Management & Field Supervision 2,860 1,70013. Land 50 5014. Transmission & Interconnection 1,250 1,250

B. TOTAL OTHER COSTS 19,436 8,994 A+B TOTAL CAPITAL COSTS 78,136 53,237

C. OWNERS COSTS 1. Insurance Including System Performance 1,700 500 2. Spares 1,500 1,000 3. Initial Fuel Supply 300 300 4. Start-up & Training Labor 750 500 5. Owners Integration & Field Support 500 500 C. TOTAL OWNERS COSTS 4,750 2,800 A+B+C TOTAL CAPITAL COSTS 82,886 56,037

D. CONTINGENCY AND OPERATING FUNDS 1. Debt Service Reserve 2,000 500 2. NOx Emissions Contingency 2,950 2,950 3. Working Capital 1,500 1,500 D. TOTAL CONTINGENCY & OPERATING 6,450 4,950 A+B+C+D TOTAL CAPITAL COSTS 89,336 60,987

16

FIGURE E: A PICTURE OF EFCC PILOT PLANT IN KENNEBUNK, MAINE, USA

17

18

19

20

ATTACHMENT II

PRELIMINARY PRO FORMA OF EFCC PROJECT(DECEMBER 1999)

1

PRELIMINARY PRO-FORMA

An economic assessment was performed of the UAE project implemented with the conventional high pressure steam technology and on the same economic basis implemented with the advanced technology EFCC concept.

The plant configurations used are described in the accompanying Figure G and H. The "Project Configuration Sheets" are divided into four sections as follows:

A. Power Generated & UsesB. Steam Utilized for ProcessC. Steam Generating EquipmentD. Power Generating Equipment

Proformas were prepared for the conventional steam and EFCC configurations, Figure I and J. It should be noted that capital and operating cost values are based on U.S. norms. Capital and operating savings may be possible in Brazil, but such savings should not materially affect the economic comparison since both technologies could be sourced in part in Brazil. Also, on the basis of generation capacity, the EFCC cycle is 75% a steam cycle and is composed of conventional steam equipment.

The EFCC, due to a substantially higher thermal efficiency, generates the needs of the sugar mill for steam and power, and in addition provides 61% more power for export sales than does the conventional high-pressure steam plant. In order to make a fair comparison between the conventional high-pressure steam co-generation plant and the EFCC, a fixed fuel supply was used for both cases. The fuel supply is the bagasse that is produced by the existing sugar factory, rated at 8000 tonnes of cane per day. This provides an annual fuel supply of 420,000 tonnes of bagasse. Both plants were optimized for this quantity of fuel, and designed to furnish the steam and power requirements of the sugar factory and the distillery, with all excess power being sold to the grid. The table to the right summarizes the power production and fuel consumption of both plants. In the baseline, i.e. conventional high pressure steam plant, case, the net power at the generator terminals is 156000 MW-hrs per year, while the EFCC plant produces 233740 MW-hrs. This is clearly a 50% (49.8%) increase in power over the baseline. After supplying the electricity needs of the sugar factory and distillery, the baseline plant has 123590 MW-hrs available for export, while the EFCC plant has 198840 MW-hrs for export. Thus, the EFCC has 61% more power available for export than the baseline.

Comparison of EFCC w/HP Steam Co-Gen PlantEFCC Steam

Total Gross Power 248430 166380 MW-hrTotal Net Power 233740 156000 MW-hrTotal Export Power 198840 123590 MW-hrFuel Consumed 418000 419800 T/year

Consistent with evaluating the two concepts on an equal economic basis, the capital costs used for EFCC assumes that the plant is in the third manufacturing cycle - i.e., not the prototype costs as shown in attachment 1, Figure D. It is assumed that subsidies would be available for the first installation to offset special systems performance insurance, QC, field testing, one time engineering, initial permits and

12

licensing, longer construction period and the like to put the new technology on an economic equal footing.

The expected selling price of power at the plant terminals based on the assumptions given in Figure I and J for the EFCC and the conventional high-pressure steam plant is:

For the EFCC and for the conventional steam plant = 4.9 cents/kWhr (1999)

It is recognized that the value assumed for the selling price of power at the terminals is higher than the current cost of power from hydro electric other sources now providing the bulk of the electric power for Brazil. It should be noted, however, that:

Capital and operating cost is based on U.S. prices; The cost of fuel (bagasse) is charged to the project at a rate that is competitive with other

sources of energy; The financing period is 20 years; The project would compete for capital at a "free (pre-tax) cash rate of return" of 25 percent; The power plant has a zero net carbon release for Brazil; Fixed and variable O&M costs were based on a stand alone independent co-gen plant with no

personnel sharing between the co-gen plant and the sugar factory; and Substantial fossil fuel imports would be displaced by using bagasse

CONCLUSION

The conventional steam cycle would yield a free cash, pre-tax return on equity of 9.7% (Figure I) which renders the concept, most probably, not financible. The EFCC yields a pre-tax free cash of 25.7% on equity (Figure J) and so would most probably be financible in today's market.

22

FIGURE G - PROJECT CONFIGURATION SHEET EFCC BAGASSE ONLY

UAE/Brazil Actual TCD: 8,000 Date: 12/7/99 Page 1/1Plant Description Co-generation plant for a sugar factory consisting of an EFCC based on a G.E. PGT-10 gas turbine and a separate direct fired steam generator.

Bagasse produced 420,000

(A) Power Generated & Uses "On Season" Hours: 4,300 "Off Season" Hours: 2,400Equipment Description Produced kW Uses kW Produced

kWUses kW

Condensing Steam Turbine -- 21.6Non-condensing Steam Turbine 29.8 -- 2.0PGT-10 9.5 -- 9.5

TOTAL GROSS 39.3 33.1Co-Gen Auxiliaries 2.3 2.0

Net Power 37.0 -- 31.1Sugar Works -- 5.0 --Distillery -- 2.0 --- 2.0

Total Internal -- 7.0 -- 2.0Power for Export -- 30.0 -- 29.1

TOTAL POWER SOLD MW HOURS 198,840Assumptions: Bagasse produced 28% of cane processed, power consumed 15 kW/ton cane, steam consumed 45% of

cane. (Assumes electric drives used in process)(B) Steam Utilized for

Process ConditionBar/C

"On Season" 4,300 Hrs.Tons/hr

"Off Season" 2,400 Hrs. Tons/hr

Sugar Factory 3.0/sat 150 -Distillery 3.0/sat 10 10Other #1 None NoneOther #2 None None

TOTALS 160 10

(C) Steam Generating Equipment "On Season" Hours: 4,300 "Off Season" Hours: 2,400Steam Generation Qty Fuel Tons/hr

MetricSteam Tons/hr

MetricFuel Tons/hr

Metric Steam Tons/hr

MetricEFCC PGT-10 1 38.0 85 38 85New Boiler 1 38.0 75 - -Existing Boiler (Standby) 2 Standby Only

TOTALS

Total Fuel Tons/yr 76.0 160 38 85

(D) Power Generating Equipment

MW Water Rate#/kWh

Tons/hr MW Water Rate#/kWh

Tons/hr

Condensing 1 - - - 21.6 7.65 75Non Condensing 1 29.8 11.8 160.0 2.0 11.8 10PGT-10 1 9.5 - - 9.5 - -

GROSS TOTALS 3 39.3 - - 33.1 - -

32

FIGURE H - PROJECT CONFIGURATION SHEET CONVENTIONAL BAGASSE ONLY

UAE/Brazil Actual TCD: 8,000 Date: 12/11/99 Page 1/1Plant Description: Conventional high pressure co-generation plant - fuel supply limited to that available from UAE.

Bagasse produced 420,000

Other Fuels: None

(A) Power Generated & Uses "On Season" Hours: 4,300 "Off Season" Hours: 2,400

Equipment DescriptionProduced kW Uses kW Produced

kWUses kW

Condensing Steam Turbine -- -- 14.5Non-condensing Steam Turbine 30.6 -- -- --

TOTAL GROSS 30.6 -- 14.5 --Co-Gen Auxiliaries 1.8 1.1

Net Power 28.8 -- 13.4Sugar Works -- 5.2 --Distillery -- 1.5 --- 1.5

Total Internal -- 6.7 -- 1.5Power for Export 22.1 -- 11.9

TOTAL POWER SOLD MW HOURS 123,590Assumptions: Bagasse produced 28% of cane processed, power consumed 15 kW/ton cane, steam consumed 45% of

cane. (Assumes electric drives used in process)(B) Steam Utilized for

Process ConditionBar/C

"On Season" 4,300 Hrs.Tons/hr

"Off Season" 2,400 Hrs. Tons/hr

Sugar Factory 3.0/sat 150 --Distillery 3.0/sat 10 10Other #1 - None NoneOther #2 None None

TOTALS 160 10

(C) Steam Generating Equipment "On Season" Hours: 4,300 "Off Season" Hours: 2,400Steam Generation Qty Fuel Tons/hr

MetricSteam Tons/hr

MetricFuel Tons/hr

Metric Steam Tons/hr

MetricNew Boiler 1 82 160 28 54.6Existing Boiler (Standby) - Standby Only

TOTALS 82 28

(D) Power Generating Equipment

MWGross

Water Rate#/kWh

Tons/hr MWGross

Water Rate#/kWh

Tons/hr

Condensing (extraction) 1 - - - 12.6 7.7 44.0Non Condensing 1 30.6 11.5 160 1.9 11.5 10.0

GROSS TOTALS 30.6 -- 160 14.5 -- 54.0

42

ATTACHMENT III

TECHNICAL COMPARISON OF EFCC TO IGCC

52

TECHNICAL COMPARISON OF EFCC TO IGCC

IGCC

In the IGCC, a solid fuel is preprocessed to accommodate the conventional gas turbine combustion system. To protect the gas turbine hot gas path components from excessive high temperature corrosion and erosion, the fuel is processed to remove ash and corrosive chemicals. Given the multiplicity of possible IGCC fuels, such as coal, cokes, and industrial waste, a wide variety of fuel preprocessing systems have been developed for the cycle. The preprocessing or gasification process is performed at pressure to keep the equipment size at a minimum and to avoid having to pressurize the high volume, high temperature fuel gas ahead of the combustor. This fuel preparation process discards some of the energy in the fuel due to equipment and process temperature limitations. This results in a thermal efficiency penalty of 10 to 15 percent. The complexity and cost of the IGCC fuel preparation equipment has eliminated this cycle from competition with conventional steam cycles in unit ratings below 350 MW.

Most modern heavy-duty gas turbines combustion systems operate at pressure ratios of 8 to 16. The IGCC fuel has to be delivered above this level to be introduced into the turbine combustor(s). Also, to provide adequate load following capabilities, the combustion system has to be a low thermal inertia apparatus to assure rapid response to large load changes. The response time must be in the order of 10 – 40 milliseconds for 2/3 load changes on the smaller machines. High-energy content fuels burning directly in the turbine flow path meet these requirements. The IGCC requires direct coupling of the gas turbine to the gasifier with little or no storage between the gasifier output and the gas turbine combustor. When low-thermal-content fuel gas is involved, such as would be generated by bagasse, this can lead to a variety of cycle operating complications. For example: variations in the thermal content of the fuel gas have to be accommodated by the control system. Also, the flammability limits restrict the range of fuel to air ratio at which the combustor can be operated without flaming out, particularly during start-up and during transients.

EFCC

The EFCC is an extension of the gas turbine recuperative cycle, Figure A. Unlike IGCC, this cycle adapts the gas turbine to the fuel rather than adapting the fuel to the gas turbine. In the EFCC, the recuperative cycle metal recuperator is replaced by a high temperature ceramic heat exchanger (See Figure A). This high temperature heat exchanger is called the “gas turbine air heater.” This air heater heats the turbine compressor discharge air to the temperature required at the expansion turbine inlet. This energy is provided by the energy in the gas turbine exhaust which is augmented by an external combustor just ahead of the heater. This external combustor, unlike the gas turbine combustor, operates at atmospheric pressure and burns fuels that are not suitable for the conventional gas turbine combustor because of impurities. These impurities, while damaging to the gas turbine hot gas path, will not damage the turbine air heater. The air heater is constructed from ceramic components designed to withstand

62

exposure to the corrosive and erosive elements in the fuel.

As shown in Figure A, the conventional combustor may also be retained in the gas turbine. This combustor may serve to start the cycle and to supplement the energy input of the external combustor. Standard gas turbine fuels such as natural gas would be used in this combustor.

To provide for adequate load response, a turbine control valve (TCV) is provided in the EFCC. This device controls the flow of compressor discharge air, dividing the flow between the air heater and the turbine expander. If for example, it is desired to “dump” load, the bulk of the compressor discharge air is by-passed to the turbine expander without going through the air heater. This quenches the turbine inlet air thereby dropping load. The TCV is designed to function with the same time constants as the fuel control valve on a conventional gas turbine.

The external combustor on the EFCC is similar to a steam generator combustion chamber. Since this combustor is at atmospheric pressure, the introduction of solid fuel is simplified. Also, the combustion air, supplied by the gas turbine exhaust, is available at temperatures ranging up to 950 F. This comparatively high combustor pre-heat temperature permits the use of high moisture solid fuels that are difficult to burn completely.

To provide optimum atmospheric emission levels from the EFCC cycle, the external combustor can be staged. One method of doing this is to use an atmospheric circulating fluidized bed gasifier such as Foster Wheeler Pyrogasifier followed by an atmospheric pressure topping gas burner as shown in Figure B.

The slope of the installed equipment cost curve for the EFCC mimics the conventional steam plant cost curve at unit sizes down to 30 MW (non extraction rating). Therefore, EFCC plants remain competitive down in the range of small industrial co-generation applications on solid fuels.

EFCC can provide a competitive very high thermal efficiency solution in the unit size ranges down to 30 MW where other new technologies have not demonstrated an ability to compete.

ADAPTABILITY

The IGCC cycle is sized primarily by the gas turbine. The gas turbine nominally provides 2/3 of the power output and the steam cycle provides the remaining 1/3 of the power output.

For EFCC the inverse is true. The gas turbine nominally provides 1/3 of the power and the steam cycle the remaining 2/3.

In addition, the EFCC cycle offers flexibility in the size of the bottoming cycle. By altering the effectiveness of the turbine air heater it is possible to vary the division of power produced by the gas turbine and the bottoming cycle through the range shown below without altering the thermal performance appreciably

72

Steam G.T. Turbine

50% 50%to

25% 75%

This flexibility permits the cycle to be readily adapted to an existing steam plant.

THERMAL EFFICIENCY

The thermal performance of the IGCC cycle, applicable in unit sizes above 350 MW operating on low moisture fuels is typically 7750 to 8000 Btu/kW-hr referred to the HHV of the fuel.

The same cycle at 100MW on 50% moisture fuels (bio) is theoretically in the order of 9,200 Btu/kW-hr HHV. The high capital cost makes the concept generally not competitive at this rating. At higher unit ratings, the higher cost of transporting the fuel makes the economics unattractive.

The predicted thermal performance of the EFCC cycle, applicable in sizes above 50 MW operating on low moisture fuels, is the same or better than the more capital intensive IGCC cycle i.e., 7750 to 8000 Btu/kW-hr.

The EFCC cycle at 100 MW on 50% moisture fuels (bio) is theoretically in the order of 8,900 Btu/kW-hr HHV. At 50 MW the heat rate is 9,650 Btu/kW-hr HHV.

82

92

ATTACHMENT IV

LETTER FROM FOSTER WHEELER DEVELOPMENT CORPORATION ADDRESSING TECHNICAL QUESTIONS

FOSTER WHEELER DEVELOPMENT CORPORATIONPERRYVILLE CORPORATE PARK 3 CLINTON, NEW JERSEY 08809-4000 3 PHONE 908-730-4000

July 7, 1998

International Finance Corporation1818 H Street, N.W.Room F 9P-196Washington, DC 20433

Attention: Mr. Gunter Schramm

Subject: The UAE Cogeneration Project Feasibility Study

Dear Gunter,

Mr. Paul LaHaye of Hague International and Mr. Gopal Kadagathur of AEAI has asked me to respond to three out of the four technical questions asked by the IFC concerning the UAE Cogeneration Project Feasibility Study. Hague International will by responding to you separately on question # 3 concerning the EFCC air heater cost.

Question # 1. Bagasse Feedstock Preparation and Feeding.

For the EFCC technology, the negative effects of the bagasse moisture level is primarily manifested in the topping combustor. High bagasse moisture levels reduce the chemical energy (gas heating value) of the syngas generated by the gasifier. This in turn limits the topping combustor's outlet temperature resulting in lower overall plant efficiency and may affect the combustor's flame stability.

Our experience has shown us that fuel moisture levels below 40% result in acceptable plant performance. Bagasse generally has moisture contents below this level and we do not anticipate a plant performance, fuel handling or feeding problem for the UAE site. For higher moisture levels, simple air drying of the bagasse can be utilized to reduce the moisture content to 40%. In the worst case, we have experience with feeding and gasifying bio-fuels with moisture levels as high as 50%. For this situation, natural gas spiking of the topping combustor can be used to maintain acceptable plant performance.

ATTACHMENT IV

Question # 2. Effectiveness of Alkali Particular Removal

With bagasse as a fuel, high alkali levels are expected in the syngas. To achieve a practical life span for the ceramic air heater in the EFCC, active alkali removal is needed. In the gasifier itself, we have experience achieving acceptable alkali removal rates for other fuels with low chloride, potassium, and sodium, such as wood fuels. Removal is achieved by a slow continual change over of the gasifier's fluidized bed composition.

For the bagasse fuel, in addition to the gasifier's removal capability, we have proposed an alkali removal system to further remove the alkalis from the gas generated by the gasifier. This method has been proven by our experience. We believe that together with the gasifier and downstream alkali removal systems, we can achieve acceptable alkali levels for the ceramic air heater.

Question #4 Air Emissions and the Added Cost of Pollution Abatement Equipment

Minimum emissions are a key feature of the EFCC technology. Its staged combustion (gasification of solid fuel then combustion of the derived gas) allows for a more complete and efficient conversion of the fuel energy to electrical power.

Control of NOx may require some special design considerations for the basic EFCC technology. NOx is generated primarily in the topping combustor and is strongly dependent on the combustion temperature. For this study, two options will be considered if NO, is expected to exceed current emission regulations in Brazil: (1) topping combustor design to minimize NOx production or (2) selective catalytic reduction of the flue gas. Whatever the design dictates, the costs of these systems will be properly accounted for in the UAE feasibility study.

If I can be of further assistance, please do not hesitate to call or write.

Best Regards,Robert Gigolo

Cc: F. Engstrom FW N. Raskin FW

R. Cuny FW P. LaHaye HI

G. Kadagathur AEAI S. Maia AEAI

ATTACHMENT V

BRAZIL COUNTRY FOCAL POINT ENDORSEMENT LETTER

1

Oficio n° 165

MINISTERIO DO ORCAMENTO E GESTAOSECRETARIA DE ASSUNTOS INTERNACIONAIS

Senhor Diretor,

Brasilia, 24 maio do 1999

Esta Secretaria recebeu a proposta de "PDF B: Feasibility Study for an Externally-Fired Combined Cycle (EFCC) Technology Option for Gogeneration at the Usina Acucareira Ester (UAE) in Brazil”, candidata a ser apoiada financeiramente pelo "Global Environment Facility - GEF" a de interesse da "Advanced Engineering Associates International – AEAI”, copia em anexo.

Confome os procedimentos estabelecidos para “PDFs”, este PontoFocal manifesta o scu "endorsement".

ANTONIO GUSTAVO RODRIGUESSecretario-Adjunto de Assuntos Internacionais

Ao SenhorGOBIND NANKANI Diretor do Banco Mundial no BrazilEdificio Corporate CenterBrasilia - DF

C/C: Sr. JOSE-CARLOS MEDEIROSRepresentante no Brazil do AEAIFax (021) 493-5900

ATTACHMENT V

ATTACHMENT VI

CPFL AGREEMENT IN PRINCIPLE TO PURCHASE PROJECT POWER OUTPUT

1

1

__ _t r . . i ~cr cry r ~oJ+LJ7 l IVU. 4uJGh'lJGa~~.j6

CPFLCarta 006/CECampinas, 22 de janeiro de 1999

Ilmo. Sr.Gunter SchrammEnvironmental Projects Unit, Environment DivisionInternational Finance Corporation - IFCWashington, DC

Assunto: Declaracao de intencao de compra de energia eletrica, a ser produzida por uma planta de cogeracao, proposta para ser implantada na Usina Acucareira Ester, - Cosmopolis, Sao Paulo.

Prezado Senhor,

Atraves de contatos mantidos com o Dr. Gopal Kadagathur (AEAl) e representantes da Chroma Engenharia a Usina Acucareira Ester, fomos informados sobre os estudos de viabilidade que serao desenvolvidos, para implantacao de planta de cogeracao a biomassa, na usina supracitada.

Por se tratar de estudos para viabilizacao de tecnologia ainda nao utilizada no Brasil (EFCC), a devido ao fato de que a exportacao dos excedentes de energia a demanda podera se dar atraves do sistema eletrico da CPFL, manifestamos nossa intencao de estudar a acompanhar o desenvolvimento do projeto e, na hipotese da energia gerada ser competitiva com as demais fontes de suprimento energetico que a CPFL estara avaliando, ha intencao desta empresa, em principio, em adquirir o excedente de energia eletrica do Projeto.

Colocamo-nos a disposicao de V.Sa. para esclarecimentos adicionais que se tornem necessarios.

Atenciosamente,Jose Antonio SorgeGerente de Compra de EnergiaTelefone (55-19) 756-8659Fax (55-19) 756-8680e-mail: sorge@cpfl.com.br

c Sr. Vasco Fontura FIeury Diretor da CHROMA ENGENHARIA LTDa.

ATTACHMENT VI

ATTACHMENT VII

U.S. TDA FUNDED PROJECT (CONVENTIONAL TECHNOLOGY)

ANNEX I - TERMS OF REFERENCEANNEX II - MANDATORY CLAUSES

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ATTACHMENT VIII

UAE DECLARATION OF WILLINGNESS TO PARTICIPATE IN THE PROJECT

1

Mr. Gopal Kadagathur Advanced Engineering Associates International (AEAI) 44 Pleasant Street. Suite 230

Dear Mr.

USINA ACUCAREIRA ESTER S.A.FABRICA DE ACUCAR E ALCOOL -.

Usina Ester- Caixa Postal 53 - Cosmopolis-SP-Brasil - 13150-970Fone: (019) 872.9105 -Fax: (019) 872.9117

e-mail: dirtec@usinaester.com.br

Cosmopolis, August 19th, 1999.

Usina Acucareira Ester (UAE) S.A. of Cosmopolis, Sao Paulo, Brazil hereby confirms its intent to supply fuel for the proposed 40 MW cogeneration plant (Project) to be developed by the Advanced Engineering Associates International (AEAl) consortium on the Usina Acucareira Ester S.A. plant site in Cosmopolis, Sao Paulo, Brazil. Usina Agucareira Ester S.A. agrees to supply the total sum of the waste by-product of its sugar cane processing operation, or bagasse which is the designated fuel for this cogeneration development.

Usina Acucareira Ester (UAI-) S.A. proposes to take an equity position in the Project by providing its sugar cane processing facilities as the proposed Project's site. The precise terms and conditions of the contract for Usina

Very Sincerely

1

ATTACHMENT VIII

ATTACHMENT IX

POWER COMPARISON OF EFCC VERSUS HIGH-PRESSURE STEAM COMBINED CYCLE

Comparison of Power Generated and Exported

In order to make a comparison between a conventional high-pressure steam co-generation plant and the EFCC, a fixed fuel supply was used for both cases. The fuel supply is the bagasse that is produced by the existing sugar factory, rated at 8000 tonnes of cane per day. This provides an annual fuel supply of 420,000 tonnes of bagasse. Both plants were optimized for this quantity of fuel, and designed to furnish the steam and power requirements of both the sugar factory and the distillery, with all excess power being sold to the grid.

The following table summarizes the power generated, export power to the grid, and fuel consumption for both plants.

Comparison of EFCC with HP Steam Co-generation PlantEFCC Steam

Total Gross Power 248,430 166,380 MW-hr/yrTotal Net Power 233,740 156,000 MW-hr/yrTotal Export Power 198,840 123,590 MW-hr/yrFuel Consumed 418,000 419,800 Tonne/yr

In the baseline case, i.e., a conventional high pressure steam plant, the net power at the generator terminals is 156,000 MW-hrs per year, while the EFCC plant produces 233,740 MW-hrs. This represents a 50% (49.8%) increase in power generated over the baseline. After supplying the electricity needs of the sugar mill and distillery, the baseline plant has 123,590 MW-hrs available for export, while the EFCC plant has 198,840 MW-hrs for export. Thus the EFCC has 61% more power available for export than does the baseline.

Conclusions

Compared to a baseline high-pressure, steam co-generation plant, the EFCC offers the following advantages:

50% more power generated; 61% more power available for export sales; and with no increase in fuel consumption.

2

ATTACHMENT X

REDUCTION IN GREENHOUSE GAS EMISSIONS

At present in the sugar industry, the bagasse is generally consumed to produce the steam and the electric power needed for the sugar recovery process. The greenhouse gas produced by the combustion process is principally CO2. An equivalent quantity of CO2 is adsorbed by the sugar cane during the growth cycle. The entire process is then a zero emitter of greenhouse gases.

In recent years, installations of high pressure steam power cycles have been used in the sugar industry capable of producing an excess of electric power. This export power can be sold to improve the revenue from the sugar process. This extra power is generally sold to the grid and displaces other sources of power that, for this analysis, are assumed to be powered by fossil fuel. The fossil fuel generated power that is displaced by the bagasse thus yields a reduction in CO2 greenhouse gases.

This proposal would evaluate an externally fired combined gas and steam turbine cycle (EFCC) that generates substantially more power, form the same quantity of bagasse, than does a high pressure steam cycle. This additional increment of power displaces more fossil fuel further reducing the greenhouse gases that would otherwise be emitted to satisfy the electric power needs of the country's economy.

Additionally, the high pressure steam plants, currently promoted by some government agencies, have not proven to be economically viable for the sugar industry in the current electric power market. In Brazil, natural gas is available where the proposed plant is to be located. This evaluation is therefore based on the reduction in CO2. possible with the EFCC fueled by bagasse, using a natural gas fired combined cycle as a reference.

The combined cycle was selected because it is the most competitive, commercially available fossil fueled alternative to the proposed EFCC plant. The overall thermal efficiency of this cycle is approximately 45% HHV, i.e., Higher Heating Value of the fuel input referred to the electricity produced measured at the generator terminals.

The export electricity of the EFCC plant is 198,840 MW-hr per year. With an energy content of 47,700 kJ/kg for the natural gas, the alternative plant would consume 33,350 Tonne per year of natural gas, at the rated efficiency of 45%, to produce this electricity. Burning one Tonne of natural gas produces 2.75 Tonnes of CO2. Therefore, the alternative plant would produce 91,712 Tonnes per year of CO2 in order to match the export electricity of the EFCC. On this basis, the EFCC reduces greenhouse gasses, predominantly CO2, of over 91,700 Tonnes per year.

This same logic may be applied to the conventional high-pressure steam co-generation plant. This plant exports 123,590 MW-hr per year. The alternative high-performance combined cycle plant would consume 20,730 Tonne per year of natural gas, producing 57,000 Tonnes of CO2, which is 34,712 Tonnes per year less than the EFCC plant. This, however, is not a viable economic option. As pointed out above, the low rate of return on investment makes this option difficult, if not impossible, to finance.

Conclusions

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The EFCC in this proposal, a net zero emitter of CO2, can reduce greenhouse gases by:

producing 91,000 Tonnes per year less CO2, than the best available competing technology, and,

this is a 61% greater reduction in CO2 than a conventional high-pressure steam co-generation cycle.

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ATTACHMENT XI

ESTIMATED GEF SUBSIDIES

The first EFCC plant in the sugar industry with a nominal gross power rating of 39 MW has total project investment (TPI) of US. $89.3 million. At this TPI (US$2,290 per gross kW) and an average power price of $0.049 in Brazil, the project would not provide an attractive return on investment. With the elimination of non-reoccurring costs in subsequent units sold and the benefit of the learning curve, the TPI is expected to be reduced by 32% by the 3rd manufacturing cycle as shown in Table XI-I.

To attain the competitive TPI level, three plants would be built requiring subsidies as shown in the following tabulation.

$1,000'sNumber of

Plants in CycleManufacturing

CycleTotal Capital

Cost/PlantSubsidy per

PlantNet TPI Total Subsidy

1 1 89,336 28,349 60,987 28,3492 2 68,209 7,222 60,987 14,4443 3 60,987 - 60,987 -

TOTAL 42,793

Commercial introduction of the EFCC concept would then entail subsidies of 42.8 million to be economically self-sustaining. The accompanying Table XI-1, entitled "Estimated Plant Costs and Subsidies" provides a breakdown of the estimated costs and the needed subsidies to arrive at the goal. The estimated total elapsed time from the first unit commissioning through the completion of the third plant cycle is eight years.

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TABLE XI-1: ESTIMATED PLANT COSTS AND SUBSIDIES

Cycle 1 2 2 3 3 3Plant 1 Plant 2 Plant 3 Plant 4 Plant 5 Plant 6

A. DIRECT CONSTRUCTION COSTS (BUILDINGS & INSTALLED EQUIPMENT)

1 Gasifier/Syngas Alkalai Removal 15,264 12,159 12,159 10,644 10,644 10,6442 Turbine Generators 9,819 9,176 9,176 8,819 8,819 8,8193 Air Heater/Combustor/TCV/HP Piping 19,573 15,629 15,629 13,701 13,701 13,7014 IDF (No Dryer) 900 621 621 500 500 5005 ISG 6,057 5,367 5,367 5,000 5,000 5,0006 Central Controls & Instrumentation 958 595 595 450 450 4507 Balance of Plant 6,129 5,478 5,478 5,129 5,129 5,129

A. Total Bldgs & Installed Eqpt. 58,700 49,023 49,023 44,243 44,243 44,243

B. OTHER CAPITAL COSTS 8 Interest During Construction 4,576 3,245 3,245 2,654 2,654 2,654

9 QC & Field Testing - Gasifier Fuel Certification 2,250 0 0 0 0 0

- Power System Certification 2,900 0 0 0 0 0- QC and Certs Engineering 2,550 1,413 1,413 1,000 1,000 1,000

10 Permits & Licensing 800 800 800 800 800 80011 Agreements & Financing 2,200 1,757 1,757 1,540 1,540 1,54012 Construction Mgt & Field Supervision 2,860 2,060 2,060 1,700 1,700 1,70013 Land 50 50 50 50 50 5014 Transmission & Interconnection 1,250 1,250 1,250 1,250 1,250 1,250

B. TOTAL OTHER COSTS 19,436 10,574 10,574 8,994 8,994 8,994

C. OWNERS COSTS

1 Insurance Including System Perform, 1,700 785 785 500 500 5002 Spares 1,500 1,161 1,161 1,000 1,000 1,0003 Initial Fuel Supply 300 300 300 300 300 3004 Start-up & Training Labor 750 581 581 500 500 5005 Owners Integration & Field Support 500 500 500 500 500 500

C. TOTAL OWNERS COSTS 4,750 3,328 3,328 2,800 2,800 2,800

D. CONTINGENCY AND OPERATING FUNDS1 Debt Service Reserve 2,000 834 834 500 500 500

2 NOx Emissions Contingency 2,950 2,950 2,950 2,950 2,950 2,9503 Working Capital 1,500 1,500 1,500 1,500 1,500 1,500

D. TOTAL CONT & OPER FUNDS 6,450 5,284 5,284 4,950 4,950 4,950

TOTAL CAPITAL COSTS 89,336 68,209 68,209 60,987 60,987 60,987

GEF Subsidy 28,349 7,222 7,222 0 0 0

Cumulative Subsidies 28,349 35,571 42,793 42,793 42,793 42,793

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ATTACHMENT XII

CARBON SAVINGS FROM DISPLACEMENT OF COAL-FIRED PLANTS IN SOUTHERN BRAZIL

1. Carbon Offset Basis. While the electricity capacity of Brazil today is heavily based on large scale hydroelectric projects, coal and oil are routinely used for intermediate and peaking purposes. A 1 for 1 carbon offset benefit can safely be projected for bagasse co-generation produced MWH in Sao Paulo State.

a. The Sao Paulo sugar mills are tied into the South/Southeast/Midwest Regional Interconnected Grid of Brazil. The grid has about 44,000 MW of installed capacity. Of that total, almost 41,000 (93%) are hydro with 1,387 (3.15%) of coal-fired capacity and 1,468 (3.35%) of oil-fired capacity. There is also 657 (1.50%) MW of nuclear capacity.

b. The capacity dispatch mode is of interest and relevant and the capacity factors of the capacity mix tell an interesting story. The hydro is dispatched at about a 58% annual capacity factor based on 8760 hrs per year, and is used for base load. The limit on the dispatch is a combination of water availability and limited transmission line capacity. The coal capacity is dispatched at a 42% annual capacity factor, while the oil-fired capacity is dispatched at a 16% annual factor. The nuclear is dispatched at a 55% annual capacity factor.

c. The coal capacity can be ramped down for off peak hours, but not shut down totally and it inherently will have a lower annual capacity factor than hydro. The oil-fired capacity has the lowest capacity factor and the assumption is that it is distillate oil-fired combustion turbine capacity used only for peaking hours.

d. Because of the relatively small size of the biomass plants under 50 MW, the assumption can be made for this level of analysis that up to 50 MW of bagasse capacity can displace coal capacity throughout most of the day, while 50 MW of the oil-fired capacity can be displaced during peak hours. While a detailed load flow analysis will confirm the actual MWh displacement potential by considering bottlenecks and turndown limits, the starting assumption of a 1 for 1 carbon offset displacement can be utilized.

2. With the deferral of some natural gas capacity and a still increasing demand for electricity, without the new bagasse capacity the main option for meeting the demand is to ramp up the annual capacity factors of the coal-fired, oil-fired, and possibly nuclear plants. This is unattractive from both the economic perspective and the greenhouse gas emission perspective.

3. Baseline Situation for Usina Ester Project. The Usina Ester project would be tied into the South/Southeast/Midwest Regional Interconnected Grid as stated above. The hydro is dispatched at about a 58% annual capacity factor based on 8760 hrs, and is used for base load. The limit on the hydro dispatch is caused by a combination of variable water availability limits and inadequate transmission line capacity (bottlenecks). The coal capacity can be ramped down on off peak hours, but not shut down totally so it has a lower than hydro capacity factor at 42%. The oil-fired capacity has the lowest capacity factor at 16%, and the assumption made here is that it is predominantly distillate oil-fired combustion turbine capacity used only for peaking hours. Because of the relatively small size of the biomass plants 35 – 50 MW as a percentage of the total regional generation capacity, an assumption can be made for the preliminary level of analysis. A displacement of 50 MW of bagasse capacity can displace coal capacity throughout most of the day (assume 18 hours), while 50 MW of the peak hour oil firing can be displaced (assume 6 hours). This represents displacement of only 3.60% of

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the coal capacity and only 3.40% of the diesel oil capacity. While a detailed load flow analysis will confirm the actual MWh displacement potential, the starting assumption of a 1 for 1 carbon offset displacement can be utilized. In the Usina Ester case this would mean assuming a carbon emission factor of 147 tons carbon per GWh. This is based on a weighted average of 18 hour/6 hour displacement for coal and oil-produced MWh, a 99% oxidation factor for the bituminous coal and distillate oil, a 35% fuel – electricity efficiency for the combustion turbines, a 33% fuel pile – bus bar efficiency for the coal-based plants, and an 85% annual capacity factor for the bagasse-fired power facility). Without the Usina Ester project (the baseline without some GEF intervention), the baseline carbon emissions value is definable and will continue to grow because the demand is growing for power and there are few other options available than to bear the fuel cost burden of the existing coal and oil-fired plants. Capital investments in new gas-fired capacity will not likely meet the predicted capacity growth goals because of the higher gas price resulting from the devaluation and the higher imported gas turbine pricing also resulting from the devaluation.

N:\CTEEP\People\SCHRAMM\Brazil Wind & Others\USINA Proposal PDB Blk B Grant -pl249.doc

January 8, 2001 1:22 PM

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