Amaila Hydro Power is Guyana’s best option but technical drawbacks found; need for political consensus to attract new investors- Norwegian experts

Last Updated on Wednesday, 28 December 2016, 21:44 by Denis Chabrol

Norwegian experts have confirmed that the proposed 165 megawatt Amaila Falls Hydropower station is the best option for Guyana to wean itself off of fossil fuel generation and has recommended that government quickly makes a decision and, together with the opposition, reach consensus before renewing a search for international investors.

“In order to establish broad interest among well experienced and reputed international sponsors, it is most important that the political parties succeed in reaching a lasting agreement on the way forward. This would reduce potential investors’ perception of political risk by the project and thereby make engagement in the project more attractive and reduce the mark up on the tariffs for covering such risk,” Norconsult said in its 49-page report released by the Ministry of the Presidency on Wednesday.

Assuming that Guyana reaches national consensus and all arrangements are concluded in a timely basis,  the experts say project preparation for AFHP until Financial Close and Notice to Commence to the Engineering Procurement and Construction (EPC)  contractor will take three years. From this point in time, we estimate another 3.5 years for construction until start commercial operation of Amaila Falls Hydropower Project.

While the People’s Progressive Party Civic (PPPC) had been in office, the then opposition A Partnership for National Unity (APNU) had refused to give parliamentary support to allow for unanimous House approval for a proposal by Sithe Global for certain project features, including raising the ceiling for maximum annual payment by Guyana Power and Light (GPL) as the sole power purchaser. Voted into office at the May 2015 general elections, APNU+ Alliance For Change (APNU+AFC) maintained that the Amaila deal was not in the best interest of Guyana and eventually, agreed with Norwegian International Climate and Forest Initiative and the Norwegian Agency for Development Co-operation (NORAD) to have Norconsult conduct an objective and fact-based assessment.

In the report dated December 12, 2016, the consultancy company that reviewed the feasibility of the US$858.1 million project, however, found several technical drawbacks  in the original plans including insufficient data to determine potential impact of the dry season, the absence of a bottom outlet and a flawed financial model.

Based on its revisions, NorConsult estimates that it can cost US$57 million less, by removing the US$20 million that have been spent on constructing the Amaila Falls Road and adjustments to contingency, financing fees and Sinosure insurance.

Against the background of perceived high investment risks in Guyana mainly due to political and regulatory reasons, NorConsult said one possible way for Norway to support the project would be to issue guarantees to the project for the repayment of the loan. “This would reduce the financing costs substantially, and the risks for the equity sponsor of the project. We recommend that possible guarantee support mechanisms are evaluated as part of the further work on the project,” the consultancy company said.

NorConsult concluded that  Amaila Falls Hydro Power is the fastest way and first major step forward towards an emission-free electricity sector in which current oil-fired generation would be substituted.

In  reviewing the proposed tariff structure, Norconsult said that With the modified financing and removal of the access road construction cost, the average generation tariff has decreased from the original 9.04 USc/kWh to 7.98 USc/kWh. The initial tariff has decreased from 11.2 USc/kWh to 8.85 USc/kWh, although the number of years with the higher tariff has increased from 12 to 15. After the 20 years’ Power Purchase Agreement period, the project is returned to GOG, and the energy cost will then be 1.43 USc/kWh, which only covers operating costs and maintenance. With this suggested financing scheme, the annual payments from GPL under the Power Purchase Agreement will be below USD 93 million in the initial years, but increasing somewhat due to inflationary adjustments of operating costs until year 15 when tranche A has been fully repaid. Under the original financing scheme, the corresponding annual PPA payments were USD 117 million, which means that the suggested changes to the financing has reduced the annual PPA payments by about 20% in the initial years.

The consultant said because Amaila Falls would be unable to provide 100 percent emissions-free power generation in Guyana, other generating sources would have to be added in parallel like 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.  Norconsult further  said as the power demand is growing, and for reaching the goal of 100 percent emission free generation by 2025, as assumed by the Low Carbon Development Strategy, a second hydropower plant of capacity comparable with AFHP will have to be commissioned by 2025. In that regard, Norconsult said “in parallel with preparations for AFHP, therefore, prefeasibility 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.”

Norconsult said Guyana should stick to the Build Own Operate and Transfer (BOOT) 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 EPC Contractor should not be associated in any way.”

The consultants said that by restructuring the financial model, the risk for Guyana’s economy can be reduced. The annual payments from 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,” they said.

In preparation for possible construction of the Hydropower plant, Norconsult said the Engineering Procurement and Construction (EPC) tenders from 2008 are outdated and would have to be replaced by a new tender process after certain technical features of the project are reviewed and new EPC tender documents are issued.

The report states that the Inter-American Development Bank (IDB) or a similar institution would have to continue supporting the Guyana government, a d the Guyana Power and Light would 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, Norcosult said,  the same engineering company may continue in a role as independent engineer in the relation between GOG/GLP and the new main sponsor.

Norconsult found that the decision by the PPPC administration to build the Amaila Falls Hydropower station did not take into account latest data on the inflow estimate of the reservoir in the dry months.

“It is clear, however, that the low season inflow will not be sufficient for continuous full capacity generation. That means additional generation from other sources will be required in the dry season from a certain year as the demand is growing, possibly already from the year of commissioning of AFHP,” states the report. “For reducing the present hydrological uncertainty, which is especially desirable in the low flow season, longer periods of direct measurements in Kuribrong River at the project site are required. The main benefits would be verification of the believed underestimate of the water flow in the dry season and thereby more reliable estimates of the low season energy production and improved basis for planning the required low season back up capacity.”

The consultancy firm states that Guyana’s objective of reaching 100 percent emission-free/renewable energy use by 2025 may not be achieved  unless the required back-up thermal plant capacity is, if technically and logistically feasible,  switched from oil to biomass fuel.

If a combination of biomass, solar and wind do not satisfy demand, Norconsult said there would have to be power outages or alternatively the construction of a second hydro power station with a seasonal reservoir large enough for maintaining most of the production capacity during dry periods. We are not aware whether a site may exist with a potential for a large, environmentally acceptable, seasonal reservoir.

Development of smaller run-of-river hydro may reduce the dependence on thermal generation as the demand grows beyond AFHP’s capacity, but will not be a solution to achieve the “some 100% emission-free goal” as run-of-river projects will not contribute much in the dry season and not reduce the need for back up capacity in the dry months, the report states. It added that reliable supply combined with lower tariffs will certainly attract industrial investment and thereby accelerate growth in consumption. To maintain 100% renewable energy use, new emission free, or emission neutral, generation capacity will have to match the growth in demand.

Supported by IDB, SG started a program for continuous simultaneous measurements in 2011 at Amaila Falls and Kaieteur Falls. That consulting firm notes that this program was discontinued in 2013 after SG withdrew as sponsor. A planned review of the hydrology based on the additional data acquired so far, is suspended.

Norconsult  suggests that there  continuous water flow measurement  resume as soon as possible and before a new main sponsor would be ready to take the front seat.  T”wo to three additional years of continuous flow data would provide a more reliable basis for an updated energy production simulation and thereby reduce the risks for both parties related to the PPA (Power Purchase Agreement).

The experts said based on the same improved flow data the design flood capacities of the dam spillway and flood levels of the reservoir should be reviewed as well. In addition to flow records we recommend a continuous sediment sampling program of at least one year’s duration to get a picture of the seasonal variation.

Other aspects  flagged by Norconsult for attention include whether to erect a stronger transmission line based on  long-term plans for Guyana’s power system which may include more suppliers. “Considering need for transmission from other hydropower development in the same region in the future, as well as a possible extension of Amaila Falls, it should be considered whether the capacity of the line should be upgraded and the line itself be regarded as a backbone in a future transmission system intended for several projects rather than only as a component of AFHP.

Among possible developments in the future that could be connected to the same line is the Tumatumari Project (152 MW) located at about 70-80 km distance from Amaila Falls towards Linden. “In the Generation System Extension Study of June 2016 the specific development cost of the Tumatumari Project is estimated to be about the same as for AFHP.  Upgrading of the capacity of the line would mean higher investment cost at the first stage, but large cost saving, including less need for clearing of new corridors for parallel lines, for other projects that could be connected to the line later on.”

In releasing the report, the Guyana government highlighted what it termed several “flaws and risks”. They include:

• The absence of a separate flywheel between the turbine and the generator.  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.  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.

 

• 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, this configuration has resulted in the pressure shaft and pressure tunnel being quite expensive plant components. The report goes on to state “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”. 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.

 

• Norconsult report further identifies 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”. A major headache for the project is identified in the statement “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.”

 

• Norconsult further 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 goes on to state that “the dimensions described for the pressure shaft and pressure tunnel are also not sufficient for satisfying requirements for regulation stability”.

 

• Norconsult further notes the absence of any sediment handling methodology in the design of the plant. This is quite a serious issue since sedimentation can threaten the plant’s continued operation.

 

• 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.”

 

• 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. 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 analyses of other renewable energy alternatives considered biomass, PV and wind projects.  Biomass while much cheaper at 4.4UScents/kWH which require clearing of large areas of forest since sufficient biomass is unavailable otherwise. The report further states “PV solar and wind projects were at the time more expensive than Amaila Falls with unit costs of 26 and 14 USc/kWh, respectively. However, recent projects in other developing countries have shown that the cost of PV solar and wind projects have dropped significantly and may now be more competitive (as part of energy mix) but from a system point of view, solar power is not sufficiently stable and can therefore not be recommended as the main source of power in the main grid. Solar may be used in off-grid areas with battery back-up and or in the main grid for generation during day-time, but it cannot function as source for base load power.”