16
Medium-sized Project Brief
Project Summary
Project Identifiers1. Project name: Mini-hydropower Project / 2. GEF Implementing Agency: The World Bank
3. Country or countries in which the project is being implemented: Former Yugoslav Republic of Macedonia (FYR Macedonia) / 4. Country eligibility: FYR Macedonia signed the UNFCCC on January 28, 1998.
5. GEF focal area: Climate change / 6. Operational program/Short-term measure: Short-term Response Measure
7. Project linkage to national priorities, action plans, and programs: The proposed Project is linked to:
q the National Environmental Action Plan (NEAP). Completed in 1997 with Bank support, the NEAP identifies air pollution as the major environmental problem in the country and industries, power and heat generation plants, and the transport sector as its primary causes. In particular, heat and power generation are the main sources of greenhouse gas emissions (GHG), especially carbon dioxide. One of the recommendations of the NEAP for reducing air pollution is to “encourage the use of renewable energy resources including geothermal, solar and hydropower”. However, as the geothermal resource has yet to be assessed and the solar and wind potential is modest, Government has given priority to developing the country's relatively abundant hydropower potential.
q the long term investment plan for the country - Macedonia Investment Projects, October 96. The plan calls for the construction of both large and small hydropower plants to meet as much as possible of the projected growth in demand for electricity.
the Power System Improvement Project (PSIP), financed by World Bank and the Government. PSIP supports the rehabilitation of the six largest hydropower plants in the country and creation of an enabling environment to facilitate the development of small hydropower plants by independent power producers. The proposed Project is fully consistent with the PSIP in that it support the development of mini-hydro sites by entities other than ESM, the national utility. Both projects also are aimed at developing hydropower, especially small hydropower plants, and reducing GHG emissions.
8 GEF national operational focal point and date of country endorsement: Mr. Mikhail Dimovski, Undersecretary, Ministry of Urban Planning and Environment Date of endorsement: November 3, 1998. The proposed Project was endorsed again by Mr. Tony Popovski , the Minister of Environment, March 19, 1999.
Project Objectives and Activities
9. Project rationale and objectives:
(i) Reduce Macedonia’s emissions of greenhouse gases (primarily carbon dioxide) by substituting hydropower for power generated by lignite-fired plants.
(ii) Encourage the development of independent power plants especially mini-hydropower plants. / Indicators:
(i) reduction in carbon dioxide emissions relative to the without project scenario.
(ii(a)) power purchase agreement signed.
(ii)b)) additional proposals and/or expression of interests received for developing new mini-hydro power plants.
10. Project outcomes:
(i) Installed hydro capacity and generation increased / Indicators:
(i) installed hydro capacity increased by 1.2 MW
(ii) total hydro generation increased by about 8.8 GWh per year.
11. Project activities to achieve outcomes
(i) Project Implementation Unit ($160,000).
(ii) Debar mini-hydro power plant ($440,000).
(iii) Kavadarci mini-hydro power plant ($2,492,000). / Indicators:
(i) Staff and consultants appointed.
(ii) Plant constructed and unit commissioned.
(iii) Plant constructed and all 5 units commissioned.
12. Estimated budget (in US$):
GEF: 750,000
Co-financing:
Slovene Export Credits 1,177,000
Stopanska Bank 558,000
Equity ( utilities) 680,000
Bilateral Grant 100,000
Government/ESM 26,000
TOTAL (including IDC): 3,291,000
Information on institution submitting project brief
13. Information on project proposer:
Ministries of Economy and Environment of the FYR of Macedonia.
14. Information on proposed executing agency (if different from above): Ministry of Economy with PIU operated largely by personnel from national electric company (ESM) and foreign consultants.
15. Date of initial submission of project concept: 12/16/98
Information to be completed by Implementing Agency:
16. Project identification number: MK-GM-65996 (formerly MK-GE-44283)
17. Implementing Agency contact persons: Karin Shephardson, Regional Coordinator GEF Operations, Europe and Central Asia Region. Email: ; Tel: (202) 473-8954
James Moose, Principal Energy Economist, Europe and Central Asia Region. Email: ; Tel: (202) 473-3563.
18. Project linkage to Implementing Agency program(s): The proposed Project is an integral part of the World Bank Group's Country Assistance Strategy (CAS) for FYR Macedonia and supports two of its three key goals - those of encouraging private sector growth and increasing the efficiency of the state. Specifically, it supports the former by promoting the development of independent power plants (IPPs), which are a source of growth and employment, though a minor one. The IPPs, in turn, would provide benchmark competition to and serve as a vehicle for improving the efficiency of ESM, the state owned electric company. Largely because of these linkages, the proposed Project is specifically mentioned in the CAS.
As noted above, the proposed Project is also linked to the PSIP whose major goals are to increase the country’s hydropower capacity and generation as well as encourage the development of IPPs. Experience with this operation would provide the inputs needed to assess the likely future involvement of IPPs in the development of the country's relatively abundant large and small hydro potential and, ultimately, their implications for the structure of the sector.
FYR Macedonia - Mini-Hydropower Project
I. Project Description
Background
1. FYR Macedonia emerged in 1991 as an independent nation following the break-up of the Yugoslav Federation. The country is landlocked with two primary ethnic groups, Macedonians (Slavs) and Albanians. Located on the Balkan Peninsula, it is a mountainous country of about 26,000 square kilometers and a population of about 2 million.
2. The country’s indigenous energy resources, consisting of lignite and hydropower, meet about 58% of its energy needs. The rest is imported, mainly in the form of crude oil, petroleum products and coke or coking coal. The bulk of lignite reserves are located in one large low-cost deposit at the Suvudol Mine. It is used primarily to generate electricity at the Bitola Power Plant, which supplies the majority of the electricity for the country. Typically, about 75-80% of the electricity is generated from lignite fired plants (mainly the Bitola Power Plant), 20% from hydropower plants and the remainder is imported.
3. Hydropower is the country's principal renewable energy resource, followed by geothermal, wind, solar and biomass. The geothermal resource has yet to be assessed and the potential for developing wind and solar is modest. As for biomass, the bulk of it is already being used, with limited prospects for increasing supplies.
4. FYR Macedonia's considerable hydropower potential is located at sites suitable for both large and small-scale plants. The Government’s plan calls for developing the larger hydropower potential to meet slowly rising electricity demand, but its implementation is likely to remain constrained by the availability of funds over the foreseeable future. The smaller hydropower potential is located at about 400 sites, spread throughout the country. The analysis carried out by the Government for the NEAP shows that these sites have the potential to produce around 1.1 TWh of electricity per year or about 20% of the country’s current requirements. However, so far only about 75 GWh per year or about 7% of the total potential has been developed, largely because of lack of experience with small hydropower plants, their high costs and, until recently, the relative low price of electricity. The proposed Project is, in part, designed to remedy this situation by encouraging the development of independent small-scale hydropower plants.
Objectives
5. The development objective of the proposed Project is to meet the country’s demand for electricity, while reducing air pollution. In support of this objective, the proposed Project provides for initiating the development of the country’s relatively abundant mini-hydro power potential as a substitute for lignite, in electricity generation and accelerating the process of sector reform by establishing independent power producers (IPPs).
6. The global (GEF) objective of the proposed Project is to reduce FYR Macedonia’s emissions of carbon dioxide by substituting electricity generated by mini-hydropower plants for electricity generated from lignite-fired power plants. In the GEF context, this is a short term response measure and fully meets the eligibility criteria established by the GEF. First, the proposed Project would reduce carbon emissions for less than $10/ton of carbon. Second, the operation is low risk in that the technology, though not widely used in FYR Macedonia, is well known. Finally, expanding the use of hydropower, including mini-hydropower, is a part of FYR Macedonia’s longer term strategy for increasing electricity production and reducing pollution, including emissions of carbon dioxide. The strategy is an integral part of the NEAP and is made more concrete in the context of the country’s investment program, which lists a number of hydropower projects as top priorities for investment, including 15 small hydropower projects.
7. In addition to reducing carbon dioxide emissions, the proposed Project will promote the development of small hydropower plants by independent power producers (IPPs), the first such initiative in the country. Under the new Energy Law, ESM, the state owned electric company, is required to purchase electricity produced by IPPs. Also, a new power purchase system, aimed at providing incentives to IPPs, has been adopted, as agreed under the PSIP. It requires ESM to buy power from IPPs at only a 10%-15% discount (depending on voltage) to ESM’s household tariff, the highest tariff paid by any consumer category. The proposed Project will serve as a basis for demonstrating the adequacy of the incentive package, including the power purchase arrangements (price and off-take terms) with ESM, in attracting IPPs. As such it could serve as the basis for replicating similar projects in the future.
Description
8. The proposed Project involves installation of mini-hydropower plants on the municipal water supply pipes of the towns of Kavadarci and Debar. These were selected from among 400 potential small scale hydro sites in the country through a screening process carried out by Austrian consultants. First, all small hydro sites that in any way impeded the flow of water into neighboring countries were eliminated because FYR Macedonia does not have water sharing agreements with other riparians. This criteria eliminated most of the potential sites. Second, all sites sponsored by ESM, the national utility, also were eliminated as these could not be developed by IPPs. Finally, of the remaining sites only those for which the project design and preparation was fairly advanced and the costs and benefits could be determined were retained. After this screening only four possible sites were left. During preparation two of these were recommended for inclusion in the proposed Project, both with good quality data on water flows.
9. By focusing on sites whose water flows are known, the proposed Project avoids the problems faced by the UNDP project - Optimizing the Development of Small Hydel Resources in Hilly Areas. Start-up of that project was substantially hindered owing to the poor quality of data on water flows.
10. Details relating to the three components of the proposed Project are presented below.
q Kavadarci, located in South Central Macedonia, has a relatively stable population of about 35,000, including a small ethnic minority. Economic activities are fairly diversified with the largest employers being a metals complex (ferro-nickel) and a winery and its accompanying vineyards. This component involves installing five hydropower plants on the existing water supply pipe for the town. The pipe starts on a mountain above the town and runs 19 km downhill, with a total head of about 600 m, to supply around 360 liters/second to Kavadarci, the immediate area around the town and the adjoining town of Negotino. The five small hydropower plants would be installed close to existing water chambers on the pipe. There is an asphalt road paralleling the pipe so that the necessary access to the site is simple. Also, there is a new 10-kV distribution line nearby so that the connection to the gird is also easy. The mini-hydropower plants will have a combined capacity of 1.04 MW and are expected to generate about 7.6 GWh per year.
JP Komunalec, an administratively autonomous company, owned by the town of Kavadarci will be responsible for implementing this component. JP Komunalec has 192 employees and is funded from user fees, with no subsidy. Fees are set such that it makes a small profit. The proposed GEF grant along with export credit financing and a bank loan will allow the company to fully fund the project without Government or city support. The cash flow from the sale of electricity would pay off the export credit and bank loan in about 7 years after production begins, based on conservative assumptions. (Details are presented in Annex 1).
q Debar is located in the far west of FYR Macedonia on the Albanian border. Including the surrounding area, it has a population of around 28,000 and the great majority of the population are of Albanian background. (Presently there also are a large number of refugees in Debar.) Unemployment is high and the main industry is light manufacturing. Water is supplied from the nearby mountains and the flow of water in to the water supply system is fairly constant at around 200-230 l/s. The portion of the supply pipe to be used as penstock for the mini-hydropower plant is 260 meters long, with a head of 76 meters. This component involves installing a 160 KW generating unit, producing about 1.2 GWh of electricity per year. The turbine and generating unit would be installed in a small building in a vacant lot close to the city reservoir. An asphalt road is adjacent to the lot and a 10KV line is close by.
JKP Standard, the city utility, will be responsible for implementing this component. The company is administratively and financially autonomous and employs 82 people. It is profitable, funded from fees, and does not receive any subsidy. The proposed GEF grant along with an export credit financing and a bank loan will fully fund the installation of the mini-hydropower plant without any subsidy from the town or central government. However, because of its lower state of development Debar may be eligible for a central government interest rate subsidy, though no subsidy is assumed in the analysis. All loans would be paid off in 6 years from starting production using conservative assumptions (Details are presented in Annex 1).