A long-awaited, independent study of the contentious Amaila Falls Hydropower Project (AFHP) has given it a positive review but the government yesterday signalled its continuing opposition and used some of the findings by Norconsult to bolster its case.
The government’s stance is likely to put it at odds with Norway which has set aside US$80M from its forest protection deal as Guyana’s equity contribution to the project. The main parties in the governing coalition – APNU and the AFC – have always been opposed to the 165 MW AFHP on various grounds including its US$858.1m price tag. Norway has however appeared to favour the project and after the APNU+AFC government took office in May 2015, the two sides agreed in December 2015 for an “objective and facts-based” assessment of the AFHP for a decision on the way forward. With the Norconsult report stating that the project should go ahead and suggesting how the project cost could be pared to US$801m, Georgetown may now have a difficult time explaining to Oslo its continuing opposition to the project which had been conceived under the former PPP/C government.
According to the Report’s summary, the only realistic path for Guyana towards an emission free electricity sector is by developing its hydropower potential. “The fastest way forward is to maintain AFHP as the first major step for substituting its current oil fired generation. AFHP was prioritised as the first hydropower plant because it was the only project with a full feasibility study completed, it has a higher plant load factor than the alternatives, a smaller reservoir and a levelised unit cost in the same range as the most attractive alternatives”.
The Norconsult report noted that Amaila Falls alone cannot provide a 100% emission free power generation in Guyana and that other generating sources will have to be added in parallel such as sun, wind and thermal production based on emission neutral fuel (bagasse) for back-up in the dry periods when the water flow to AFHP may be insufficient for full capacity operation.
It was noted that as the power demand is growing, and for reaching the goal of 100% emission free generation by 2025, as assumed by the Low Carbon Development Strategy (LCDS), a second hydropower plant of capacity comparable with AFHP will have to be commissioned by 2025. In parallel with preparations for the AFHP, therefore, “pre-feasibility studies will have to be carried out for promising candidates for the second hydropower project and a full feasibility study be performed for the selected candidate”, the summary section of the report said.
According to this section of the Report, the environmental and social impacts of AFHP are well established in the performed studies. No resettlement is required and there is limited human activity in the area directly affected by the project, it stated noting that about 23 km2 of rainforest is inundated by the power plant’s reservoir. “The live storage volume is small compared to the annual water flow and the plant will be operated mainly as a run-of-river plant with little impact on the downstream river hydrology, except for the about 4 km stretch of the river between the intake dam and the tailrace outlet from the powerhouse”, it said adding that the most serious threat to the environment that may result from the project is the access road, which is almost completed and has already created easier access for mining and exploitation of the forest along its alignment.
The summary said that a strict control regime is required for obstructing such activities and that it is important to take up again consultations with all affected parties as soon as resuming the project preparations.
Financial analysis
Norconsult said that it had received a copy of the financial model used for optimizing the financing of the project and had modified the construction cost to match the one presented to Parliament by the original developer, Sithe Global. Norconsult said that with these amendments the model yields an average tariff of 9.04 US cents per kWh and an initial tariff of 11.2 US cents per kWh “meaning that the model seems to reflect the assumptions that were presented to the Parliament”. The projected cost per kWh had also been a major source of contention for critics. Norconsult said that the main selling point of the presentation was that the fuel cost alone of the present electricity generation was 19 US cents per kWh which meant that constructing the project “would cut electricity costs by more than 50% for the energy produced by the AFHP, or USD 3.3 billion over 20 years”.
In its financial analysis, Norconsult suggests ways in which financing and other charges for the project could be trimmed. It noted that US$20m for the access road is included in the project and this should be excluded as it is a sunk cost.
Other hydropower plants that could have replaced AFHP as the first hydropower project to be implemented, would require 1-2 years of investigations and studies, including environmental and social impact assessments meeting today’s standards, to reach an updated feasibility study stage comparable to AFHP, Norconsult said.
The first needed step for revitalising the AFHP is a decision by the Government to maintain AFHP as the priority project in the transition to a green generation regime, as recommended in the “Initial Study on System Expansion of the Generation & Transmission System” of 2014 and reiterated in “Guyana’s Power Generation System Study” of June 2016, and thereafter to resume the planning of Amaila Falls with political consensus and understanding with all stakeholders.
“It is our opinion that the BOOT (Build, Own, Operate, Transfer)-type public private partnership model should be maintained for the project implementation. An internationally well merited investor and operator in the hydropower industry should be invited to take the majority position and the driving seat (main sponsor) in the project company. The main sponsor and the Engineering/ Procurement/Construction (EPC) Contractor should not be associated in any way”, it said.
By restructuring the financial model, the risk for Guyana’s economy can be reduced, the summary said while adding that the annual payments from Guyana Power and Light (GPL) may possibly be reduced by 20%, which are significantly lower than the current fuel costs paid by GPL for its oil fuelled generation. The risk to Guyana’s economic stability would be at the same level with other projects generating the same amount of energy, as the investment would be of a similar magnitude.
The Norconsult report opined that the EPC tenders from 2008 are outdated and need to be replaced by a new EPC tender process. “Before that, certain technical features of the project should be reviewed and the EPC tender documents be updated. In order to save time this work should be done in parallel with identifying and assigning a new main sponsor”, the summary stated.
It was stated that in order for these activities to get going, the government will need continued support by the Inter-American Development Bank (IDB), or a similar institution, and GPL will need technical and management support by a highly qualified engineering company with extensive experience from the international hydropower industry. If later agreed between the parties, the same engineering company may continue in a role as independent engineer in the relation between GOG/GLP and the new main sponsor, the report said.
“We may suggest that the cost for buying out Sithe Global from the project company and expenses for services by an engineering company engaged for support until a new main sponsor is established, are covered from a portion of the USD 80 million deposit in IDB for later being turned into equity contribution from GOG to the project company”, it said before adding that it is estimated that three years will be required for a decision to be taken to resume project preparation for AFHP until Financial Close and Notice to Commence to the EPC Contractor.
From that point in time, “we estimate another 3.5 years for construction until start commercial operation of Amaila Falls Hydropower Project”, the summary said.
The report touches on a range of issues including customers on isolated grids (Linden and Georgetown were the two delivery points for power from the project and as such customers would have had to be connected to the Linden grid or the DBIS system), need for back up generation capacity, environmental and social risks, design issues and alternative overall project layouts, financial analysis and the generation system expansion.
The report stated that in moving forward, while the company is supportive of an initiative for updating a least cost development study, this will take time. “If further preparations for AFHP are kept on halt in the meantime, it is our judgement that at least 2 additional years will elapse before the first hydropower project can be ready for operation”, the report said that in parallel with resuming preparation for AFHP, a least cost development study “among other promising candidates” should commence. It is suggested that based on the outcome the second hydropower project for implementation should be selected.
The report said that under the present circumstances, implementation of AFHP as an all public sector enterprise would not be suggested but the earlier intended private/partnership model should be maintained.
The first hurdle to overcome, the report said is reaching “political consensus” on restoring the project as the first step towards an emission free/emission-neutral electricity sector in Guyana.
“In order not to lose more time than necessary, a decision should be taken shortly, supported by the opposition, to resume preparations for the implementation of AFHP”, the report said before setting out three possible ways to move the project forward.
The first is the buying out of Sithe Global from Amaila Falls Hydro Inc. (AFHI) and the resumption of the negotiations with China Rail, which were interrupted after the change of Government in May 2015; the buying out Sithe Global from AFHI, identifying and assigning a new main sponsor in AFHI and resuming negotiations with China Rail as EPC Contractor only or the buying out of Sithe Global from AFHI, identifying and assigning a new main sponsor in AFHI, updating EPC tender documents and assigning a new EPC Contractor after a new tendering process.
The report said that while the first option may seem as the fastest way for reaching the start of construction and thereby project commissioning, this is not recommended.
According to the Report, there is doubt that the second option may attract sufficient interest from potential new sponsors as restoring China Rail as EPC Contractor would also most probably cause Norway’s International Climate and Forest Initiative (NICFI) withdrawing its support to the Project.
The Report states that the third option will involve the starting at the pre-EPC tender stage. “The old EPC tenders are not a good basis for contract negotiations 8 years later. New tendering gives the opportunity to review and update the tender documents, provide the necessary transparency in the process and create confidence among potential investors”, it said adding that the sub sections outlined in the way forward anticipates that this is the better option.
It was stated that the preparations for buying out Sithe Global from AFHI were interrupted when the negotiations with China Rail, as potential new main sponsor, came to a stop in May 2015 after the change of Government. “Negotiations for buy-out of Sithe Global should be resumed once GOG makes a decision to restart the preparations for AFHP”, the report said.
Government’s take
A press release by the government yesterday gave a completely different perspective on the Norconsult report. The last major government pronouncement on the Amaila project was the statement made by Finance Minister Winston Jordan in August 2015 during the budget presentation.
He had said “Mr. Speaker, this Government is well aware of the importance of clean, reliable and affordable energy for development and the improved welfare of our people. As such, we are prepared to explore every avenue to reduce the cost of energy – including examining the Amaila Falls Hydroelectric Project. The problem, Mr. Speaker, is that as currently configured, it would not only be irresponsible, but a downright criminal act of deception, were we to proceed with the Amaila Falls. Our investigations have revealed that at the current cost of almost US$1 billion, the Guyana Power and Light Inc (GPL) would be required to make annual payments amounting to US$130 million to the operators of the hydro facility, which will total US$2.6 billion over the 20-year commitment period of the power purchase agreement”.
The government yesterday appeared unwilling to shift from this position. The press release from the Ministry of the Presidency said that the Norconsult report “identifies several risks and flaws in the design of the project, which will threaten its long-term effectiveness and prove too costly and burdensome to the people of Guyana… It announced that the government now intends to utilize the renewable energy options outlined in Budget 2017.
Describing the review which was conducted by Norconsult, a Norway-based engineering and design consultancy firm as important, government contended that “it provides indisputable evidence to support the position taken while in opposition that the Hydropower project in its current configuration does not meet minimum requirements to ensure its viability and longevity”.
Norconsult completed its final report on December 12 and the 49 page document was made public by government yesterday afternoon.
A Ministry of Presidency press release give a summary of key risks and flaws and also indicated that government’s long term energy plan to the increased use of renewable energy will be presented to Cabinet by mid-January.
The release quoted Minister of Public Infrastructure David Patterson as saying that “final touches are being made to the draft document” and once Cabinet has had their input, it will be released to the wider public. He also noted that the Government is committed to exploring all avenues for the development of renewable energy in keeping with its ‘green’ development agenda.
It was stated that the minister’s comments comes in wake of Norconsult’s objective and facts-based assessment of the project on the agreement of the Governments of Guyana and Norway. The company was contracted by Norway.
Though the project is just one of several renewable energy options being looked at by Guyana, the release said government believes that the company’s final report identifies several risks and flaws in the design of the project, which will” threaten its long-term effectiveness and prove too costly and burdensome to the people of Guyana and the country as a small developing state’.
It was noted that it is government’s view that the Report has given credence to its position on the need for an energy mix to increase the country’s share of renewable energy by close to 100 percent by the year 2025. The Report, it was stated also provides supporting evidence that the Project would not be optimal in its current model and presents an “unbalanced risk” to the Government and People of Guyana.
The release said that rectifying the many issues identified will increase the total cost of the project substantially, thereby impacting the tariff rates from the outset. Additionally, there are at least six more years of work to be completed, including a minimum three years of water flow study and analysis on the project, the release stressed.
According to the Ministry of Presidency having studied the report and conscious of the specific needs of the country, the Government of Guyana “proposes to utilise a mix of energy options, starting with less risky options such as solar and wind, as outlined in Budget 2017”.
Provisions, it was stated have been made for expansion of the scope of clean, alternative energy in the country resulting in more reliable electricity supply; the establishment of programmes to promote energy efficiency at a household level for financial savings to householders; budgetary allocations of almost $1 billion dollars for renewable energy and energy efficiency projects; the installation of solar photovoltaic (PV) systems on the rooftops of 64 Government buildings; the installation of a large scale solar farm in Mabaruma with smaller solar farms in Lethem, Mahdia and Bartica; a one off tax holiday concession of two years for corporation tax to the business community for the importation of items related to wind and solar energy investments, water treatment, waste disposal and recycling facilities and the replacement of inefficient lights with their energy efficient counterparts.
The release then went on to list several flaws and risks outlined in the report. None of these was deemed by Norconsult to be serious impediments to the project.
Flywheel
The first is the absence of a separate flywheel between the turbine and the generator for the AFHP. “This is described by Norconsult as a highly uncommon design and impractical for vertical shaft units of a size as in the case of AFHP”, the report said adding that this requirement is also notably absent from the Engineering/Procurement/Construction (EPC) Contract drawings, the technical description of the project, the Bill of Quantities and in the Independent Engineer’s Due Diligence Report of 2013”.
It was stated that while the report acknowledges the existence of an escarpment just beyond the midway point of the tunnel routing alignment, creating a horizontal distance of about 1.2 km from the vertical pressure shaft inside the mountain ridge to the powerhouse at the end of the tunnel has resulted in the pressure shaft and pressure tunnel being quite expensive plant components.
Quoting the section of the Report which states “Considering the longitudinal profile of the waterway and apparent suitable rock conditions, we find it surprising that an underground powerhouse is not mentioned anywhere as a project layout alternative”, the Ministry of Presidency pointed out that this observation is also supported by a short note in the Independent Engineer’s (IE) report, which stated that more usually a powerhouse underground would have been expected under natural conditions as encountered at Amaila Falls.
Another flaw in the project, the release said is Norconsult’s further identification of the absence of several details from the Owner’s requirement including the “minimum requirement to overall plant efficiency, which includes the hydraulic losses in the waterway”.
The release said that “a major headache” for the project is identified in the statement which reads “The power plant is required to yield a certain output (MW) at a certain headwater level with no maximum figure set for the corresponding turbine water flow. Therefore the EPC Contractor could chose to diminish the cross area (diameter) of the tunnels in order to save cost and compensate by increasing the water flow. This would mean less energy production of the same amount of water and thereby a less efficient utilisation of the Amaila Falls as a hydropower resource.”
The release noted that the report points out that “19 m head loss in about 3 km long headrace tunnel is higher than would be expected for a hydropower plant designed by traditional procedures for hydraulic optimisation”. The report adds “the dimensions described for the pressure shaft and pressure tunnel are also not sufficient for satisfying requirements for regulation stability”.
The absence of any sediment handling methodology in the design of the plant, was another flaw of the project as contained in the Report that was outlined by the Ministry of Presidency. The release said that this finding “is quite a serious issue since sedimentation can threaten the plant’s continued operation’.
The release said that Norconsult also questions the steel lining proposed for the tunnel lining and notes that risks associated with this configuration can be reduced by an “expensive vertical core drilling from the surface and down the hole hydraulic splitting tests at different levels in the holes” or “Alternatively, the risk could be eliminated by assuming steel lining in the whole length from the powerhouse up to the top of the pressure shaft with a substantial additional cost, which would then be reflected in the tariff from the beginning.”
It was stated that the report clearly establishes that the overall project layout chosen as the “Owner’s Requirement” for the EPC Contract may not be the optimum solution for the project. According to the release this is particularly informed by the report finding of absence of “any indication in the project material that these layouts have been compared with an alternative underground powerhouse location, which could eliminate the frequency stability problem and give substantial cost saving for the tunnel system and the generating units.”
The exploration of the Falls’ hydropower potential was in planning stages for many years and in August 2013 all preparations for the implementation of AFHP came to a standstill after it did not gain unanimous support from Parliament owing to a disagreement between government and the opposition over certain features. The main sponsor at the time was Sithe Global, a US based investor; the company later withdrew itself as the main sponsor.
