World Bank Project ID: P050567
Country: Arab Republic of Egypt
Project Title: Solar Thermal Hybrid Project
GEF Implementing Agency: World Bank
Other Executing Agency(ies): New Renewable Energy Agency (NREA)
Duration: 8 years
GEF Focal Area: Climate Change
GEF Operational Program: OP7 – Reducing the long-term cost of low greenhouse gas-emitting technologies
GEF Strategic Priority: Global Market Aggregation and National Innovation for Emerging Technologies
Estimated Starting Date: May 2006
IA Fee: US$ 4,155,000
Contribution to Key Indicators of the Business Plan: An estimated 1.1 tons of greenhouse gas (carbon dioxide) emissions avoided.
Record of endorsement on behalf of the Government(s):
Name: Dr Ibrahim Abdel GelilTitle: Chief Executive Officer
Organization: Egyptian Environmental Affairs Agency / Date: February 27, 2002
Financing Plan
GEF Project/Component
Project / US$49,800,000
PDF A
PDF B / US$300,000
PDF C / US$750,000
Sub-Total GEF
/ US$50,850,000Co-financing*
IBRD/IDA/IFCGovernment / US$25,000,000
Loans / US$72,200,000
Others
Sub-Total Co-financing: / US$97,200,000
Total Project Financing: / US$148,050,000
Financing for Associated Activities If Any:
Not applicable
Leveraged Resources If Any: Not applicable
*Details provided under the Financial Modality and Cost Effectiveness section
Approved on behalf of the World Bank. This proposal has been prepared in accordance with GEF policies and procedures and meets the standards of the GEF Project Review Criteria for work program inclusionSteve Gorman
Executive Coordinator, The World Bank / Anna Bjerde
Project Contact Person
Date: April 5, 2004 / Tel. and email: (202) 473-3541 –
1. Project Summary
a) Project rationale, objectives, outputs, and activities.
The project contributes to the Country Assistance Strategy Goal (CAS) of improving infrastructure for greater sector competitiveness and higher sustained growth, and it will also contribute to reducing long-term costs of low greenhouse emitting energy technologies which is one of the GEF Operational Program goals (OP7).
Egypt is a good candidate to host a GEF-supported solar thermal power project for three reasons: (i) the Government is serious about materializing its renewable energy potential; (ii) the needed resources are present, namely high insolation, gas for co-firing, an electricity network to interconnect to, adequate cooling water supplies and vacant land for which there is little alternative use; (iii) The Egyptian power system is currently operating at a very low reserve margin (3%) and the proposed project is included in the Least-Cost Expansion Plan, expected to come on stream in 2008.
The project’s national objective is to support the development of clean energy in Egypt, in this case solar, as a way to lower CO2 emissions in energy generation, and add much needed capacity to the power grid in Egypt. The global environment objective is to contribute to improving the economic attractiveness of solar thermal technology globally.
The main project outputs are:
· Demonstrated operational viability of solar thermal power generation in Egypt.
· Improved local capacity to plan, finance and implement complex power projects.
· Reduced emissions.
· Benchmarking of costs of the solar thermal power plant.
The project will finance the construction of an Integrated Solar Combined Cycle (ISCC) power plant under an engineer, procure, construct (EPC) arrangement with a 5-year operations and maintenance (O&M) contract. The plant will have a capacity of about 151MWe (at 20°C), combining a conventional fossil fuel portion of 121MWe with about 30MWe from solar sources. In addition, the project will finance technical assistance and capacity building activities related to project management and preparation, such as site preparation and consulting services for project management.
This project design has changed during project preparation in two key ways: (i) the project was originally conceived to be bid out under the arrangements of an Independent Power Producer (IPP) but is now proceeding under an EPC/O&M arrangement due the general down turn in investor appetite in IPPs and the prohibitive regulations on private sector infrastructure participation in Egypt following the recent devaluation of the Egyptian currency; and (ii) the project size has been increased from about 127 MW to 151 MW based on a review of the plant’s optimal size. Furthermore, the project has been under preparation for a relatively long period, but in that context, it needs to be noted that the project was scheduled for submission to the May 2002 WP inclusion Council meeting but removed at the request of the GEF due to lack of funding at that time. A project preparation time-table has been agreed to which includes the following key milestones:
· Issuance of RfP October, 2004
· Closing date for bid submissions End January, 2005
· Negotiations with lowest bidder September, 2005
· Bank Appraisal October, 2005
· GEF CEO Endorsement November, 2005
· Bank Board November/December 2005
b) Key indicators, assumptions, and risks (from Logframe)
Key performance indicators are as follows:
· Total electricity generated from renewables (GWh/year)
· Total renewables capacity (MWe)
· Emissions reduced (tons/year)
· Solar output as a percentage of total energy produced by the hybrid plant
· Cost of solar thermal power (¢/kWh and $/kW)
The main assumptions and risks are:
· Sufficient interest from bidders to undertake the construction and O&M for an ISCC plant
· No major technological design problems
· Sufficient implementation capacity at NREA
· Continued government commitment to innovative approaches to clean energy production
· Level playing field is established and maintained between renewable and other sources of energy in Egypt
· Further solar thermal capacity is planned and implemented in Egypt and worldwide
2. Country Ownership
a) Country Eligibility
Egypt ratified FCCC on December 5, 1994
b) Country Drivenness
The Government of Egypt is serious about materializing its renewable energy potential and has set a target in which renewable energy sources are expected to account for 3 percent of installed capacity by 2010 (about 600MWe-800MWe).
The Ministry of Electricity and Energy (MEE), the Egypt Electricity Holding Company (EEHC) and NREA have all shown significant commitment to the project. The Ministry has requested financing for the project from major lenders active in the power sector in Egypt, EEHC has included the project in its least-cost expansion plan and anticipates it to be operational in 2008 to meet the country's demand for increased capacity and NREA is working on specifying the technical design of the proposed plant together with its consultant, Fichtner Solar. While the preparatory studies are receiving incremental financial support from the GEF, there is a significant commitment of both financial and human resources from all three institutions.
Furthermore, at the national level, the Ministry of International Cooperation and Foreign Affairs and the Ministry of Environment have all been briefed on the project and have given their support and where necessary have issued the required approvals.
3. Program and Policy Conformity
a) Fit To GEF Operational Program and strategic priority
OP7 aims to accelerate market penetration of several large-scale backstop technologies, such as solar thermal power, that are constrained by high capital costs and high commercial risks. The strategy is to identify projects that address national priorities, and then finance the incremental costs of investments, capacity building and other activities that reduce market barriers. For solar thermal power, it is generally agreed that significant cost reductions and eventual commercial acceptance can only begin to occur with the implementation of several demonstration projects in carefully selected countries and sites. A Cost Reduction Study for Solar Thermal Power Plants (Enermodal Engineering, May 1999) was commissioned in collaboration with the GEF Secretariat to determine the viability of long-term cost reductions for solar thermal. The study concluded that a phased approach should be adopted, in which four projects would benchmark the costs and provide an initial opportunity for cost reduction. The four countries identified for project implementation were Egypt, Morocco, India and Mexico.
Although stand-alone solar thermal plants have been operating for the last 15 years or so in California, their integration with a combined cycle gas turbine (CCGT) or similar plant – the preferred choice for a hybrid – has never been demonstrated. Such integration is important commercially, since it enables continuous operation (of the hybrid) regardless of solar radiation conditions and offers higher efficiencies than other hybrid options. The proposed project is in effect a proof-of-concept installation that will help reduce the perceived technical and commercial risks of the technology, with respect to the optimal configuration, system control and other design issues.
b) Sustainability (including financial sustainability)
The higher capital cost of the hybrid plant will be offset by the proposed GEF incremental cost grant, and as a result, increases in consumer tariffs will not be required for cost recovery. The integration of the solar field with a CCGT ensures that the hybrid will provide the required electricity contribution to the system regardless of solar radiation conditions. For these reasons, the hybrid power plant is expected to operate sustainably as an integral part of the Egyptian power system. The incentive structure for the EPC cum O&M will ensure optimal design for integration of the solar thermal with the gas-fired plant and maximize solar output from the plant when in operation. This will be done under a number of commercial frameworks that will be put in place (see Section 5C), in particular through the allocation of a share of the GEF grant to be disbursed to cover O&M costs during the 5-year O&M contract against certain performance criteria including the share of solar in the overall power production output. Dissemination of information about this demonstration project will contribute to future replication in other countries and to refining the GEF strategy regarding this technology.
A preliminary analysis of the impact of the project on NREA’s financial position has been conducted and will be finalized during appraisal, when the project financial NPV and IRR will be calculated. The debt servicing related to loans to be obtained to finance the proposed project will be NREA’s responsibility, with no financial assistance expected from the government. However, the government will provide a guarantee for the loan to be taken by NREA
At the moment NREA receives aid by the government to service its debt. As progress is being made on the financial arrangements to be put in place to finance the proposed project, a detailed analysis will be done on the agency’s ability to meet debt payment obligations including the new loan to be taken under the proposed project. Financial projections undertaken by NREA show strong growth in revenue due to the several large projects currently being implemented and which will have Power Purchase Agreements for the sale of the electricity at levels that ensure cost recovery.
Nevertheless, the Government of Egypt realizes that NREA may need some financial support in the transition period required for the agency to evolve into an entity that sells renewable electricity at a large scale and is currently looking into how renewable entities can be credited when gas is displaced and exported at a higher value than consumed domestically. Furthermore, a study that looks into the institutional alternative options for NREA to take into account its evolving role will be launched soon, and its findings will be incorporated in the project design.
c) Replicability
The general approach adopted by the project is potentially highly replicable within Egypt, regionally and globally. An early study carried out by the Energy Sector Management Assistance Program (ESMAP: a joint program of the World Bank and UNDP) suggested that sites with ready access to gas supply, electricity evacuation and water infrastructure would be capable of supporting 5-10 GW of solar thermal plant in Egypt alone. High insolation sites are available across much of the region, though many lack the necessary infrastructure at this time. Worldwide there are suitable sites and, unlike other renewable technologies, solar thermal hybrid plants are inherently at utility scale.
However, the main barriers to further replication are costs and the associated learning needs, the overcoming of which this project is expected to contribute to by providing cost reduction and operation information and disseminating it throughout the solar thermal community. Further grant support is likely to be required for subsequent plants, as it is unlikely that this one alone (or even combined with the three others being prepared) will bring costs down to levels that are competitive with conventional power plants.
d) Stakeholder Involvement
There is a high level of stakeholder involvement during preparation and implementation. Beneficiaries include the project site (Kureimat), the renewable energy industry, the Egyptian public and the power sector as discussed in Section C3 of the Project Brief. Stakeholder consultations have already started to take place in the context of the preparation of the project’s Environmental Impact Assessment, further consultations will be held with all stakeholders during the permitting process.
e) Monitoring and Evaluation
Monitoring and evaluation are key components of the project. The mechanisms and indicators are identified in the project implementation arrangements and the project design summary (Annex B of this memo).
4. Financial Modality and cost effectiveness
The project will be financed by three sources: the GEF grant, local counterpart financing and a loan from an international financing institution.
Preliminary Financing Plan:
GEF Grant: US$49.8 million
Local counterpart funds: US$25.0 million
Loan: US$72.2 million
Total: US$147 million
The Government of Egypt has requested financing for the loan portion for this project from the following institutions: JBIC, EIB, KfW and AfDB. Detailed discussions have been entered with JBIC and EIB and both are prepared to consider financing of the project. In addition, IBRD stands ready to co-finance the project with either of the above-mentioned donors.
5. Institutional Coordination and Support
a) Core Commitments and Linkages
The County Assistance Strategy (CAS) emphasizes the need for interventions which support higher and sustained growth through improved macroeconomic stability and infrastructure for greater competitiveness. It also focuses on interventions with a major indirect poverty reduction impact, which promote broad based growth and the development of poor areas.