Cost Estimation Study of Gas Pipeline Network and Alternative Systems for High-Mountainous Settlements of Georgia Usaid Energy Program
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COST ESTIMATION STUDY OF GAS PIPELINE NETWORK AND ALTERNATIVE SYSTEMS FOR HIGH-MOUNTAINOUS SETTLEMENTS OF GEORGIA USAID ENERGY PROGRAM 30 December 2019 This publication was produced for review by the United States Agency for International Development. It was prepared by Deloitte Consulting LLP. The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. COST ESTIMATION STUDY OF GAS PIPELINE NETWORK AND ALTERNATIVE SYSTEMS FOR HIGH-MOUNTAINOUS SETTLEMENTS OF GEORGIA USAID ENERGY PROGRAM CONTRACT NUMBER: AID-OAA-I-13-00018 DELOITTE CONSULTING LLP USAID | GEORGIA USAID CONTRACTING OFFICER’S REPRESENTATIVE: NICHOLAS OKRESHIDZE AUTHOR(S): GIORGI GIORGOBIANI, ALEKSI KOCHLASHVILI, GIORGI JANGVELADZE LANGUAGE: ENGLISH 30 DECEMBER 2019 DISCLAIMER: This publication was produced for review by the United States Agency for International Development. It was prepared by Deloitte Consulting LLP. The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. USAID ENERGY PROGRAM Cost Estimation Study of Gas Pipeline Network and Alternative Systems for High-Mountainous Settlements of Georgia i DATA Reviewed by: Daniel Potash, Ivane Pirveli Practice Area: Strategic Advisory Assistance to the GoG to Increase Energy Security Key Words: Natural Gas, Alternative Energy Technologies, Cost Benefit Analysis, Life- Cycle Cost Analysis, High-mountainous Settlements of Georgia USAID ENERGY PROGRAM Cost Estimation Study of Gas Pipeline Network and Alternative Systems for High-Mountainous Settlements of Georgia ii ACRONYMS BESS Battery Energy Storage System Cal Calorific Value of Natural Gas CBA Cost-Benefit Analysis CNG Compressed Natural Gas CoP Coefficient of Performance EU European Union GDP Gross Domestic Product GEL Georgian Lari GGTC Georgian Gas Transportation Company GHG Greenhouse Gas GJ Giga Joules GNERC Georgian National Energy and Water Supply Regulatory Commission GoG Government of Georgia IRR Internal Rate of Return J Joule KJ Kilo Joules kW Kilowatt kWh Kilowatt Hour kWp Kilowatt Peak LCC Life-Cycle Cost LCCA Life-Cycle Cost Analysis LEDS Low Emissions Development Strategy LPG Liquefied Petroleum Gas MJ Mega Joules MoESD Ministry of Economy and Sustainable Development of Georgia MRDI Ministry of Infrastructure and Regional Development of Georgia NPV Net Present Value O&M Operation and Maintenance PV Solar Photovoltaics SOCAR State Oil Company of Azerbaijan Republic UNFCCC United Nations Framework Convention on Climate Change USAID United States Agency for International Development USD U.S. Dollar VAT Value Added Tax WACC Weighted Average Cost of Capital Wh Watt Hour USAID ENERGY PROGRAM Cost Estimation Study of Gas Pipeline Network and Alternative Systems for High-Mountainous Settlements of Georgia iii CONTENTS 1. EXECUTIVE SUMMARY .............................................................................................................. 5 2. BACKGROUND ............................................................................................................................ 7 3. METHODOLOGY ........................................................................................................................ 10 3.1 Cost Benefit Analysis ............................................................................................................ 11 3.2 Life-Cycle Cost Analysis ....................................................................................................... 12 3.2.1 LCCA Model Inputs and Assumptions ................................................................... 13 4. FINDINGS AND RECOMMENDATIONS ................................................................................... 22 4.1 CBA Findings ........................................................................................................................ 22 Analysis of impacts on natural gas distribution tariffs for different scenarios .................... 25 4.2 LCCA Findings ...................................................................................................................... 26 5. SUMMARY OF FINDINGS AND RECOMMENDATIONS .......................................................... 30 ANNEX 1: SAMPLE COST-ESTIMATION STUDY FOR PIPELINE GAS .......................................... 31 ANNEX 2: LIST OF SETTLEMENTS ................................................................................................... 36 ANNEX 3: ILLUSTRATIVE MAP OF SETTLEMENTS ........................................................................ 49 USAID ENERGY PROGRAM Cost Estimation Study of Gas Pipeline Network and Alternative Systems for High-Mountainous Settlements of Georgia iv 1. EXECUTIVE SUMMARY While urban areas in Georgia are adequately provided with necessary energy resources to meet the population’s household energy needs, many settlements in remote and high-mountainous areas are not, and some of them are still completely off-grid. The Government of Georgia (GoG) has been considering connecting all such settlements to natural gas network to meet their energy needs, specifically for heating, cooking and hot water. While natural gas is the most wide-spread source for the abovementioned uses in urban and suburban households, it is not given that natural gas will be the best way to meet energy demand of remote and high-mountainous settlements. Before moving forward with gasification1, the GoG will need to consider such crucial factors affecting economic viability of gasification, as settlements’ distance from gas mains, access roads and their condition, number of residents, willingness and ability to pay, etc. It is therefore essential to assess economic viability of gasification, as well as consider alternative energy sources though a comparative analysis in order to help GoG find an economically optimal solution. According to clause 4 of the Decree of the Government of Georgia #791 dated April 5, 2019 on Measures to be implemented during 2019-2021 in Support of Gasification of the Georgian Population, Georgian Gas Transportation Company (GGTC) was tasked to evaluate feasibility of gasification of those villages that are included in the List of High-Mountainous Villages defined in the GoG Decree #671. Ministry of Economy and Sustainable Development of Georgia (MoESD) addressed USAID Energy Program to assist them in developing a study that would group 966 villages into clusters according to an agreed-upon criteria, carry out Cost-Benefit Analysis (CBA) of gasification for each cluster, and provide recommendations on alternative energy sources for those clusters where gasification could not be economically justified due to a negative impact on tariffs, lack of profitability or some other reason. The settlements were grouped by municipality, therefore creating 38 distinctive clusters, and each cluster was analysed separately. The decision to cluster the settlements by municipalities was agreed with GGTC and was based on the rationale that it would be the optimal way to present the costs and it would be the easiest for the Government to carry out gasification (if decided) gradually or simultaneously in individual municipalities. In addition, since majority of information - number of customers, energy use trends, available resources, budgetary funds, etc. is available on municipal level, it was deemed most sensible to carry out cost-benefit analysis for individual municipalities. In order for USAID Energy Program to perform an accurate cost-benefit analysis, it was necessary to have an adequate estimation of gasification costs, including the cost of laying gas mains and building local networks for the selected settlements. For this purpose, USAID Energy Program engaged a Georgian gas pipeline and network design and engineering company to develop the estimates. The subcontractor provided schematic drawings of gas pipes including mains and local networks for the provided settlements; technical parameters of the pipes including length, diameter and material; and cost estimates for gasification of each cluster including mains, connection points and local network costs, detailed to each settlement. CBA was conducted for each cluster based on the provided cost estimates. The study showed that gasification costs vary significantly among clusters due to several factors, including distance from gas mains, geographical location, terrain, type of soil, etc. Therefore, a unified approach cannot be used for all clusters, and the decision on gasification or provision of energy through alternative sources should be made individually for each cluster. The alternative options overviewed in this report include: Table 1: Natural Gas Alternatives Electricity subsidies GoG could subsidize electricity for heating and cooking Biomass boilers have higher efficiency than traditional wood stoves and can operate on different types of biomass, Biomass including wood logs, wood chips, pellets, and plant-based biomass. Biomass can fully substitute natural gas usage 1 To avoid misunderstanding we note here that in standard engineering literature the term “gasification” has a different meaning, however in this report it describes delivery of natural gas through gas pipeline system and is established term in Georgia and neighboring countries. USAID ENERGY PROGRAM Cost Estimation Study of Gas Pipeline Network and Alternative Systems for High-Mountainous