tigran parvanyan february 13, 2014
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SMALL HYDROPOWER IN ARMENIA:Managing the risks
Tigran Parvanyan
February 13, 2014
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Content Development of Small Hydropower Plants (SHPP) in Armenia
Technology: Classification, Main structures
Key milestones: Policy Financing
Development dynamics Risk management at SHPP
Risk management approach Risk assessment matrix Risk classification Risk assessment tool
Policy risks Real examples
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Technology: Classification of SHPPsDepending on the installed capacity
Small: 1 ÷ 30 MW Mini: 0.1 ÷ 1 MW Micro: <0.1 MW
Depending on the water resource River
Run-of-River schemes Storage schemes
Irrigation system Drinking water system
Depending on the hydraulic head
High head: H > 100 m Medium head: 30 m < H < 100
m Low head: H < 30 m
Headrace
P=9.81×Q ×H ×ŋP – power plant capacity, kW.Q – water flowing through the turbines,
m3/s.H - net head, m.ŋ - efficiency of the turbine and
generator3
Technology: main structures of an SHPP
Headworks: Diversion of water into a conduit system Weir / Dam Intake Trashrack Sandtrap Fishpass
Waterway: conveyance of water from intake to the powerhouse Headrace Forebay Penstock
Powerhouse: hosts the turbine and generator and the auxiliary equipment Tailrace: discharges the water from the powerhouse back into the river
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Key milestones of SHPP development:policy development
Law on Energy, 1997 15 years guaranteed purchase of 100% of generated energy
from RE Preferential feed-in tariff, PSRC № 207Ն, May 4, 2007
Annual review based on inflation and USD/AMD exchange rate
2007 2008 2009 2010 2011 2012 2013 20140.000
4.000
8.000
12.000
16.000
20.000 18.274 17.214 17.127 18.337 19.280 19.551 20.28721.061
12.182 11.475 11.417 12.224 12.853 13.033 13.523 14.039
8.122 7.651 7.613 8.151 8.570 8.690 9.017 9.361
Run-of river Irrigation Drinking water
AMD/kWh
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Key milestones of SHPP development:financing
Cascade Credit $5 million from WB, $7 million from EBRD, $3 million own funds in 2006 22 SHPP projects financed
German Armenian Fund: KfW together with Central Bank of Armenia EUR 6 million in 2004 EUR 18 million in 2010 EUR 40 million in 2013 26 SHPP projects financed
IFC-Ameriabank Sustainable Energy Financing facility $15 million senior loan from IFC in 2010 12 SHPP projects financed
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164.8 MW; 585.3 GWh/annum
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
6 1529
45 5466 68
8872 77
28 3243
58 6779 82
111
137 139
Under construction Operational
SHPP development in Armenia:development dynamics
218 MW; 657.9 GWh/annum
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Risk management at SHPP
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� Risk Identification
‚ Risk Evaluation
ƒ Risk Mitigation
Potential risks are identified based on the assessment (due diligence) of the project.
The potential impact of the identified risks is evaluated (quantified if possible)
Measures are proposed to mitigate or even eliminate the risk.
Risk Management ApproachFor the management of the potential risks, a three step approach should be pursued for the identification and evaluation of the risk as well as for the selection of appropriate measures to eliminate or mitigate the risk.
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Risk Management Approach - continued First step: identification of risks
During project appraisal process Covers technical, environmental, social, legal and commercial risks Country specific risks (e.g. political risks) are not considered in the
Manual Second step: evaluation of risks
Evaluation of risks with the help of the financial model Simulation of possible deviations of the base case assumptions Assessment of impact on key financial indicators Qualitative evaluation if risks are not quantifiable in monetary terms Consideration of occurrence probability
Third step: measures for risk mitigation
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Project risks have to be continuously reassessed in the course of the construction and operation process!!!
Risk Assessment
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It is recommended to quantify the potential
losses and the probability to the extent possible!
Potential losses (financial damage) or financial impact of the risk:– Low risk: Impact of individual risk on DSCR is limited. The minimum
DSCR in each year under consideration will be not less than 1.25.– Medium risk: Impact of individual risks leads to a decrease of the
DSCR of minimum 1.1.– High risk: If the risk leads to a decrease of the DSCR below 1.1 (in
any years under consideration).
low low medium
low medium high
medium high high
Potential losses
Probability
Risk assessment matrix
Risk Classification
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Potential risks are divided into a number of main categories. The categories indicate the “nature” of the risk. Most of the risks are under control of the developer.
technical risks geological risks hydrological risks energy output risk environmental and social risks cost risk construction risks
time risk permitting risk regulatory risk commercial risk operational risk financial risk
Tool for Risk Assessment
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#
Risk category
Risk description
Risk identificatio
nRisk
evaluationRisk
assessment
Risk mitigation
1 Hydrological
Overestimated water
flow
Hydrological study and underlying
dataset review
Cross checking with daily
flowHigh
Use daily discharge data
Application of discounts
2 Geological Landslide
s Seismicity
Detailed geological study, test
pits
Assessment of impact on SHPP
operationMedium
Incorporate geological expert
recommendations in SHPP design
3 Technical Wrong design
Technical DD by
independent engineer
Impact assessment
by independent engineer
MediumDesign in accordance with best engineering
practices
4 Energy calculation
Overestimated power
generation
DD of calculations
by independent
engineer
Calculations by
independent engineer
HighCorrection of power
generation figures and financial model
Tool for Risk Assessment
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#
Risk category
Risk description
Risk identificatio
nRisk
evaluationRisk
assessment
Risk mitigation
5 Environment
Low ecological
flow
Check of ecological
flow as required by
the EIA
Determine ecological
flow as required by legislation
MediumEcological flow has to be considered during energy calculations
6 Environment
Faulty or no fish passage
Review of design docs
Intake design review
Medium Fish passage should be included in design
7 Social Resettlement of people Check ESIA Check ESIA Medium Design review
Compensations
8 CostsUnderrated CAPEX – no
contingencies
Check completeness of CAPEX calculations
Independent review of
CAPEXHigh Adjustment of CAPEX if
required
9 Construction
Faulty construction
Technical expertise
Review of design by
independent engineer
High
Design DD by independent engineer
Hiring qualified construction company
Policy Risks
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Policy makers may also face risks associated with development of hydropower:
Underutilization of scarce water resources Social risk of increased costs for end-users Impact on the environment
3 months
12 months
Q, m3
Average flow of 50 years observation with 95% probability
𝑪𝑭=𝑨𝒏𝒏𝒖𝒂𝒍𝒈𝒆𝒏𝒆𝒓𝒂𝒕𝒊𝒐𝒏 ,𝑴𝑾𝒉
𝟖𝟕𝟔𝟎𝒉× 𝑰𝒏𝒔𝒕𝒂𝒍𝒍𝒆𝒅𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚 ,𝑴𝑾
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Real examplesLandslides at the water intake
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Real examplesUsing second hand pipes for
penstock
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Real examplesExcavation for power house
construction
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Real examplesHeadworks without any safety
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Real examplesPenstock gate
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Real examplesTrees planted next to incoming pipeline
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Real examples“Home-made” mechanical equipment
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Real examplesSecond-hand high-voltage cables
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Real examplesHV switchgear with “access” to water
THANK YOU
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Tigran Parvanyan Project Manager, Armenia Sustainable Energy Finance Project
+374 10 545 242
TParvanyan@ifc.org
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