New and renewed funding in Europe

AMONG the latest new hydro and rehabilitation schemes being funded in Europe by combinations of local, and other, banks are projects in Spain, Norway, Iceland but there is also a strong focus on Ukraine, Georgia and Armenia, and there are efforts underway in Romania.

For example, the European Investment Bank (EIB), which is the EU’s long-term financing institution, last year agreed a loan of EUR300M (US$378M) to Iberdrola to help expansion projects: San Esteban II, San Pedro II and La Muela II pumped storage.

In northern Europe, EIB has also agreed to loan EUR120M (US$151M) to Statkraft to help fund rehabilitation and upgrades at 40 plants in Norway. A loan of up to EUR70M to Landsirkjun is being considered to help build the 120MW Budarhals plant and dam.

The support for the existing hydro sector in eastern perimeter of Europe, however, is a growing area of activity.

Ukraine

Major long-term efforts are underway in Ukraine to rehabilitate a group of hydropower facilities held by UkrHydroEnergo (UHE), and support is coming from the European Bank for Reconstruction and Development (EBRD), EIB and World Bank Group (WBG). The utility’s programme is to have the rehabilitation of its entire 4.6GW asset portfolio completed by 2022 with the bulk completed by 2017.

UHE was formed in 2004 by the merger of two companies in charge of the cascades on Dnipro (“Dnieper”) and Dnister (“Dniester”) rivers. Before the merger there had been 18 generating units refurbished between 1996-2002 with some foreign funding support. The state-owned utility financed the ongoing work to 2006, adding a further seven units to the total refurbished. Since then it has received more international funding support for the programme. The main objectives are to improve reliability, efficiency and safety of the utility’s dams and hydro assets, and to help the country reduce its greenhouse gas (GHG) emissions in line with the aims of the Kyoto protocol.

In addition, the project will add about 400MW capacity to the Dnipro cascade, which will increase electricity production by about 500GWh per year.

The rehabilitation works range over the following plants on the Dnipro river: Kiev pumped storage & hydro plant; Kaniv; Dniprodzerzhinsk (“Dnieprojerzinsk”); Dniprovsky 1 (“Dnieprovska 1” or “DniproGES-1”); Dniprovsky 2 (“Dnieprovska 2” or “DniproGES-2”); Kremenchug (“Kreminchug’); and Kakhovka (“Kakhovska”); together with the Dnistrovska hydropower plant on the Dnister river.

WBG agreed a loan of US$106M towards the rehabilitation programme with effect from 2006, helping to fund improvements to a further 62 generating units over 2007-17. Late last year, though, the World Bank agreed to a further loan of US$60M (grace period of six years, maturity in 12 years).

Extra funding was needed to help the rehabilitation of three units at the Dniprovsky 2 plant and also three units at the Kremenchug facilities. The works are on the programme’s critical path and are to be completed by mid-2012 but a turbine replacement has hit a bottleneck with a local supplier unable to deliver within the required time-frame, said the World Bank. The additional funding will help widen procurement options to overcome the supply problem but the loan will also help the utility overcome a reduction in financial strength, due to the impact on currencies from global financial crisis, and so help co-finance the foreign component of project costs.

An additional objective of the extra loan is to support the Ministry of Fuel and Energy and the National Electricity Regulatory Commission (NERC) in planning the electricity sector reforms for Ukraine, including establishment a wholesale market.

The board of EBRD is due, in October, to consider a loan of up to EUR200M (US$252M) towards the refurbishment programme under a co-financing deal that would see EIB lend a similar amount. It said the loans would be used to help fund the upgrade and refurbishment of the hydro-mechanical and electro-mechanical equipment, improve efficiency, plant life, and safety, operational capacity and flexibility, and optimise use of water resources. Institutional and staff capabilities also need to be improved.

The EBRD loan application passed final review earlier this year. The project also supports the expansion of capacity at the Kakhovka plant.

In June, EIB approved a loan of EUR200M (US$252M) towards the refurbishment programme for the plants on the Dnipro.

Last month, US firm Emerson Process Management was awarded a US$28M contract by UHE to provide automated management and control systems for all 100 units in the plants on the Dnipro and Dnister being rehabilitated under the programme. It noted that the nine plants it will supply systems to have total installed capacity of 4639MW. The contract is being funded by World Bank loan, it noted. Separately, the company has supplied equipment to the Dnistrovska (“Dnestrovskaya”) plant recently commissioned on the Dnister.

Georgia, Armenia

EBRD is supporting development of small hydro in Georgia and Armenia, and also the refurbishment of the 1.3GW Enguri (“Inguri”) plant and downstream facilities in Georgia.

The bank notes that the two countries want to reduce their energy dependence and are pushing renewables with favourable legislation and regulation. Under Georgia’s “Renewable Energy 2008” programme it plans to build about 80 new small and medium hydro plants, and in Armenia there’s guaranteed off-take for all small renewable plants at set tariff for the first 15 years of operations.

Under its own initiatives to back sustainable energy in general, and also development in the two countries, EBRD will provide funds for consultancy services to support the developers of, mainly, small hydro plants in Georgia and Armenia, and also rehabilitation of similar facilities. The closing date for expressions of interest (EoI) by consultants was mid-August, and the 18-month assignment is due to start in late September. The budget is EUR247,730 (US$318,525), excluding VAT.

The consultant will screen potential projects through separate filters for greenfield and refurbishment projects for the EBRD to select those schemes to proceed to concurrent technical and environmental due diligence assessments. The bank is looking for about eight projects evenly split between the countries.

At Enguri, the funds would help with a range of works including the refurbishment of the last two of the plant’s five generating units and, downstream, enable the rehabilitation of Vardnili I dam and spillway, and clear and dredge the Vardnili cascade canal. Enguri is owned and operated by state utility Engurhesi, and improvements are required to the bottleneck being experienced at the Varnili facilities to enable full capacity operation of the large power station.

The total budget for the Enguri and Vardnili improvement works is US$180M. Initial refurbishment works were funded to almost US$49M in 1998 and 2006 with funding from Europe, Japan, Germany and Georgia. The next phase requires up to EUR37.5M (US$48.2M) in loans with potential for co-financing between Europe and Georgia.

EBRD has also been involved with funding dam safety improvements at Enguri, which has a 271.5m high double-curvature arch dam founded on complex geology.

The Vardnili cascade was built in the early 1970s and comprises four plants with total capacity of 340MW downstream of the Gali reservoir. Stucky and local firm Gamma studied the environmental impact of the rehabilitation and cleanup of the Vardnili cascade canal, which is partly blocked by severe sedimentation and was damaged during the Abkhazia conflict. Their report was developed for submission to EBRD and EIB in 2008, and staged improvements to the cascade are planned.

Romania

In July, EBRD noted it is considering approval of a loan of EUR85M (US$109.3M) to Romania’s Hidroelectrica to help fund just over three-quarters of the rehabilitation and modernisation cost of the almost half-century old Stejarul Bicaz plant.

The project would improve lifespan, efficiency, plant availability, environmental performance and allow remote monitoring and operations. Additionally, it would enable Hidroelectrica to optimise the operation of the hydropower cascade and upstream reservoir capacity.

At a total cost of approximately EUR110M (US$141.5M), the project calls for replacement of turbines, generators and auxiliary systems on six units at the 210MW facility, rehabilitation of hydro-mechanical equipment and penstocks, upgrade of electrical equipment and control systems, and consulting services.

The Board of EBRD is to discuss the loan in late September and, should it be approved, it is expected that the procurement process would get underway for the various contracts involved in the project.

State-owned Hidroelectrica has a portfolio of 272 hydro facilities with a combined installed capacity of just over 6.4GW, and in 2009 generated 17.3GWh of electricity.

Further afield

While supporting hydro and renewables across Europe, and in particular the outskirts, the European banks are also looking at further contributing to hydro through notable capacity expansion in Costa Rica and Zambia, and supporting small hydro in Chile and China.

In Costa Rica, EIB is reviewing a possible loan of EUR200M (US$252M) to help build the 305MW Ice Reventazon project being developed on the Reventazon river by Instituto Costarricense de Electricidad (ICE). The scheme includes a dam and the plant, which will be one of the largest in Costa Rica, and is due to be operational in 2015. The loan would fund about a quarter of the estimated project cost.

The bank is also looking at a loan of EUR135M (US$170M), or just over half the EUR265M (US$334M) anticipated project cost, for the 120MW Itezhi-Tezhi project in Zambia. The project is being developed by Itezhi-Tezhi Power Corp and uses an existing dam and reservoir.

EIB has approved a loan to GDF Suez to help build the 34.4MW Laja project in Chile.

Similarly far afield, the bank is looking at providing up to EUR44M (US$56.5M) in loans, or more than half of the total cost of EUR71M (US$91.2M), to help fund the design, construction and operation of 10 small hydro projects with a combined installed capacity of 62MW in Hubei province, China. The funding would be given to the Ministry of Finance under the China Climate Change Framework Loan (CCCFL).