REPUBLIC of LITHUANIA Klaipeda Geothermal Demonstration Project Grant and Project Summary
Total Page:16
File Type:pdf, Size:1020Kb
GLOBAL ENVIRONMENT FACILITY Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Document April 1996 Public Disclosure Authorized THE WORLD BANK GEF Documentation The Global Environment Facility (GEF) assistsdeveloping countries to protect the globalenvironment in four areas:global warming. pollution of internationalwaters, destructionof biodiversity.and depletion of the ozone layer. The GEF is jointlyimplemented bytheUnited Nations DevelopmentProgramme, theUnited NationsEnvironment Programme, andthe World Bank. GEF Project Documents - identifiedby a greenband - provideextended project- specificinformation. The implementing agency responsible for each project is identifiedby its logoon the cover of thedocument. GlobalEnvironment Division EnvironmentDepartment WorldBank 1818H Street,NW Washington,DC 20433 Telephone:(202) 473-1816 Fax:(202) 522-3256 Report No. 14614 LT Republic of Lithuania Klaipeda GeothermalDemonstration Project Project Document May 1996 Natural ResourcesManagement Division Country DepartmentIV Europe and Central Asia Region CURRENCYEQUIVALENTS Currency Unit = LithuanianLitas (LT) US$ 1 = 4 Litai (May 1994 - to present) LT 1 = US $0.25 FISCAL YEAR January 1 - December 31 WEIGHTSAND MEASURES ha Hectare kg Kilogram kWh Kilowatt hour kWh = 3.6 x 106 Joules 103Joules = 0.28 Wh mD milli Darcy ABBREVIATIONS C' 2 Carbon Dioxide EG Enterprise Geoterma EJ Exajoules = 1018Joules FSU Former Soviet Union GEF Global EnvironmentFacility GHG GreenhouseGases GJ Gigajoules = 109Joules GOL Governmentof Lithuania HFO Heavy Fuel Oil ICB InternationalCompetitive Bidding iS InternationalShopping KDHE Klaipeda District Heating Enterprise LPC Lithuania Power Company MOE Ministry of Energy MOEP Ministry of EnvironmentalProtection MOF Ministry of Finance MOK Municipalityof Klaipeda MW Megawatt NO, Nitrous Oxides PIP Project ImplementationPlan PIU Project ImplementationUnit PJ Petajoules = 1015Joules PSC Project Steering Committee SOE State Owned Enterprise SO2 Sulfur Dioxide TJ Terajoules = 1012Joules TPM Total ParticulateMatter UN/ECE United Nations EconomicCommission for Europe CONTENTS PARTI: ProjectSummary ......................... i PartH: TechnicalAnnexes......................... 1 I. BACKGROUND . A. COUNTRY CONTEXT. I B. SECTORALCONTEXT .I C. BANK STRATEGYAND EXPERIENCE. 6 II. THE PROJECT.. 8 A. PROJECTORIGINS AND FORMULATION. 8 B. PROJECTRATIONALE. 8 C. RATIONALEFOR GEF INVOLVEMENT. 9 D. PROJECTOBJECTIVES. 9 E. PROJECTCOMPONENTS AND DESCRIPTION.10 F. COST ESTIMATES.12 G. PROJECTFINANCING ARRANGEMENTS .12 H. PROCUREMENT.14 1. DISBURSEMENTS.18 J. ENVIRONMENTALASPECTS .20 III. PROJECTIMPLEMENTATION ............... ................ 21 A. ENTERPRISEGEOTERMA ................................ 21 B. PROJECTSUPERVISION ............. .................. 23 C. ACCOUNTSAND AUDITS................................ 23 IV. FINANCIALASPECTS .25 A. BACKGROUND.25 B. FINANCIALFRAMEWORK FOR THE GEOTHERMALSECTOR .25 C. FINANCIALSTANDING OF DISTRICTHEATING .26 D. FINANCIAL/CONTRACTUALARRANGEMENTS FOR PROJECTOPERATIONS27 V. PROJECTJUSTIFICATION AND RISKS .. 29 A. PROJECTBENEFITS .30 B. PROJECTECONOMIC COSTS .30 C. ECONOMICRATE OF RETURN.31 D. PROJECTRISKS AND SENSITIVITYANALYSIS .32 ANNEX 1: CALCULATION OF INCREMENTAL COST AS BASIS FOR GEF GRANT ANNEX 2 TECHNICAL ASSISTANCE PROVIDED UNDER DANISH GRANT ANNEX 3: DESCRIPTION OF THE GEOTHERMAL RESOURCES AND THE GEOTHERMAL LOOP ANNEX 4: ENVIRONMENTAL REVIEW ANNEX 5: DETAILED IMPLEMENTATION SCHEDULES ANNEX 6: MONITORING AND EVALUATION CHARTS: Chart 1: Project Elements .1....................................... 1 Chart 2: Project Supervision Plan ............. ..................... 24 TABLES: 1.1 Emissions from Burning Fuel . .................................. 5 2.1 Project Cost Summary by Project Sub-Component ..... .............. 13 2.2 Financing Plan by Financier ............... .................... 14 2.3 Financing Plan by Fiscal Year ............ ..................... 14 2.4 Procurement Arrangements . .................................... 16 2.5 Summary of Procurement Packages ......... ..................... 17 2.6 Disbursement by Year ........................................ 18 2.7 Financing Plan by Disbursement Category ....... .................. 18 2.8 Estimated Schedule of Disbursements ........ .................... 19 3.1 Project Implementation Schedule ........... ..................... 22 4.1 Enterprise Geoterma - Financial Highlights ....... .................. 25 4.2 Lithuania State Power System 1994 Income Statements ..... ........... 27 5.1 Annual Reduction in Fossil Fuel Usage and Emissions ..... ............ 30 5.2 Cost Comparison - Fossil Fuel vs. Geothermal Heat ..... .............. 31 5.3 Heating Fuel Reference Prices ............. ..................... 31 5.4 Economic Rates of Return . ................................... 32 5.5 Variations of ERR depending on Changes in Aquifier ..... ............ 33 5.6 Sensitivity Analysis - Economic Rate of Return (%) ..... ............. 34 PART I: PROJECT SUMMARY REPUBLIC OF LITHUANIA Klaipeda Geothermal Demonstration Project Grant and Project Summary GEF Focal Area: Climate Change GEF Financing: US $ 6.9 million (grant) Financing Plan: Local Foreign Total ---- US $ million IBRD (loan) 0.21 5.69 5.90 GEF (grant) 6.90 6.90 MOE, Denmark (grant) 0.20 2.30 2.50 EU-Phare (grant) 0.12 0.12 Government of Lithuania 2.60 2.60 TOTAL PROJECT COSTS 3.01 15.01 18.02 Grant Recipient: Republic of Lithuania Grant Beneficiary: Enterprise Geoterma (EG) Economic Rate of Return: 11.7% (including national and global environmental benefits) Environment Category: B ii THE REPUBLICOF LITHUANIA KLAIPEDAGEOTHERMAL DEMONSTRATION PROJECT 1. Background. The Bank's overall strategy in Lithuania is to support the country's efforts to accelerate structuralreforms leading to a full transition to a market-basedeconomy and, at the same time, to support efficient investmentsin high priority sectors to facilitate a return to economicgrowth. The recently completed Public Expenditure Review, jointly prepared by the GOL and the Bank, highlightedthe need to support priority investmentsin energy, transport, and environmentalservices. The proposed Project is in line with the National Energy Strategy, which supports the developmentof indigenousand renewableenergy sources. The use of geothermalenergy as a replacementfor imported fossil fuels in district heating systems could ultimately replace up to 50% of current fuel consumption. 2. During 1989-1993a Danish consultantgroup financedby the Danish EPA carried out a comprehensivestudy to determine the size and quality of geothermalresources in Latvia and Lithuania and to assess the potential for utilizinggeothermal energy to replace currently used fossil fuel for heat generation. Becausethe temperatureof the water resourcesis between 30-95°C, the energy can only be used for heating and would normallybe financiallyunviable without accessto a district heating system. Additionally,the high cost of drilling operations could only be supportedby a large consumer, such as a district heating system. The study confirmed that substantial geothermal aquifers occur within the Devonianand Cambrian strata, and it identified a number of cities where the use of geothermalenergy could substitutefor fossil fuel up to 50% of energy consumption. The study also determinedthat the largest and most promising storage areas are located in Lithuania. 3. The findingsof the study underscorethe existence of a significantindigenous resource. The GOL requestedthe Danish EPA to extend the Baltic Geothermalstudy to include the preparationof a feasibilitystudy for constructionof a geothermaldemonstration plant in Klaipeda, whichwas identified as being the best locationfor a demonstrationproject. The city of Klaipedais situatedon the Baltic Coast on the mouth of the Kursiu Lagoon. With its populationof 204,000, Klaipedais Lithuania'sthird largest city. The town has an existing district heating network with a related annual heat demand (1994) of 5,600 Terajoules(TJ), which is expectedto increaseto 7,500 TJ by year 2000. The study indicatedthat a suitably sized demonstrationplant could provide about 10 % of the heat demand to the KlaipedaDistrict Heating System. Energy could be extracted from the geothermalwater by using heat pump technology based on absorptionheat pumps. The feasibilitystudy also determinedthat by reducing the temperature regimein the districtheating network, an additional24% of geothermalenergy could be extractedwithout any additionalinvestments in the geothermalplant. The proposed geothermal plant would produce 530 TJ without a reductionin the networktemperature. This energy amount correspondsto about 16,500tons of oil or 19.5 million mi3 of natural gas. An assumption is made that reduction of the network temperaturewill be implementedin the next energy/districtheating project, and this could result in a production of 650 TJ/year. 4. The proposed Project would be the first geothermalproject to supply heat to a district heatingsystem in the BalticStates. It is also the first geothermalproject financedby the Bankwhere the geothernal energy is transferredto a district heatingsystem by use of heat pump technology. The Project is considered a nationalpriority, and is in compliancewith the NationalEnergy Strategy's stated aim of developing indigenous energy resources. It also reduces environmental impacts, both localized air pollution (particulates and sulfur dioxide) and those with broader impacts, such as emissions of greenhousegases