-0,AJ1o ~~ F7 p RESTRICTED Report No. PU-5a Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized IRELAND ELECTRICITY SUPPLY BOARD APPRAISAL OF THE PUMPED STORAGE POWER PROJECT Public Disclosure Authorized February 7, 1969 Public Disclosure Authorized Public Utilities Projects Department CURRENCY EQUIVAIENTS Irish £l US$2.40 US$1 = £ -/8/4 1 Shilling(s) US$0.12 1 Penny (d) = one US cent (US$0.01) ESB's fiscal year ends March 31 W3EJHTS AND MEASURES EQUIVALENTS One kilometer (km) n 0.622 miles One megawatt (NW) - 1,000 kilowatts One gigawatt hour (GWh) - One million kilowatt hours (kWh) One kilovolt (kV) - 1,000 volts One mega-voltampere (MVA) - 1,000 kilovoltanperes (kVa) ACRONYN AND ABBREVIATIDNS "ESB" or "Board" - Electricity Supply Board nERIn - Economic Research Institute, (now the Econaoic and Social Research Institute), Dublin tcjEn - Cdras Iompafr Eireann (Irish Transport Co.) IRELAND ELECTRICITY SUPPLY BOARD TABLE OF CONTENTS Page SUHiA1f i 1. INTRODUCTION 1 2. ENERGY USE IN IRELAND 2 Turf 2 The Power Sector 3 Interconnection 4 Rural Electrification 5 Tariff Structure 5 3. THE ESB PROGRAhU 6 4. THE PROJECT 8 Status of Engineering and Procurement 8 Construction Schedule 9 Cost Estimate 9 Disbursements 10 Operating Cost 10 5. JUSTIFICATION OF THE PROJECT 10 Load Forecasts 10 Required Generating Capacity 11 Size of the Project 11 Alternatives 12 6. THE BORROWER 12 Physical Assets 13 Tariffs 14 Accounting and Audit 14 Capital Structure and Financial Position 15 Past Earnings 17 7. FUTURE FINANCES 18 Financing Plan 18 Future Earnings 19 Future Financial Position 20 8. CONCLUSIONS 20 This report is based on the findings of missions to Ireland of which the latest wias in August/September 1968 composed of Messrs. J.J. Fish and S.S. Scales. LJST OF ANNEXES ANNiEX 1. Historical and Forecast Generation and Demand 2. Daily Load Curve Showing Pumped Storage Operation 3. Principles of Pumped Storage - The Turlough Hill Project 4. Balance Sheets - Actual and Forecast, 1965-1974 Notes and Assumptions in Balance Sheets 5. Income Statements - Actual and Forecast, 1965-1974 6. Sources and Application of Funds, 1969-1974 7. Rates of Return on Average Net Assets in Service, 1969-1974 MAP Location and Arrangement of Turlough Hill Pumped Storage Project IELAND ELECTRICTrY SUPPLY BOARD PUIPED STORAGE Pa{ER PROJEC' SUvIARY i. The Government of Ireland on behalf of the Electricity Supply Board (ESB), has requested a loan to finance part of the cost of a 280-NW pumped storage power project to be located about 40 km south of Dublin. The proposed loan would be for the equivalent of US$14.5 million, including interest during construction which would cover about 80% of the foreign exchange cost of the Project. The total cost of the Project would be US$31.5 million. ii. The loan would supply only 8% of ESB's capital expenditure program for the next four years. This would be the first loan to Ireland and the Project would be the first pure pumped storage scheme financed by the Bank. iii. ESB's capital expenditure program is well planned. The Project forms an integral part of this prograra, and is needed to meet the future load growth and improve system operating flexibility. It is technically sound, the estimated cost is reasonable, and the construction schedule is realistic. iv. The proposed Borrower, the Electricity Supply Board, is an autonomous Government agency responsible for generating and selling all central-station power in the Republic of Ireland. The system provides service to virtually all sections of the country. The ESB is a stable, conservative organization with a successful operating history and possesses a staff capable of managing the construction and operation of the Project. v. ESB's financial position is regulated by the Electricity Supply Act of 1927, which provides essentially that income should be just suffi- cient to meet expenditures including allowances for appropriate reserves. While this criterion has in the past yielded a relatively low rate of return, ESB's financial performance is generally satisfactory. vi. The Project is the least-cost alternative for supplying the needed capacity provided the cost of capital is not more than 14%. The estimated internal rate of return for the Project investment is 19%, valuing additional sales at average rates. vii. Satisfactory agreement has been reached during negotiations on the points sum,marized in paragraph 8.03. The Project would be suitable for a Barik loan of US$14.5 million equivalent, for a period of 25 years including a grace period of about five years. JmLiA D EIECrRICITY SUPPLY BOARD PUMPED STORAGE PWER PROJECT 1. INTRODUCTION 1.01 This report covers the appraisal of a Project for the instal- lation of a 280-MW pumped-storage power plant at the Turlough Hill 1 site on the system of the Irish Electricity Supply Board (see Map). The PTroject was originally proposed for Bank financing in 1966 and a reconnaissance and identification mission visited Ireland early in 1967, but consideration of the Project was deferred pending increased availability of Bank funds. 1.02 The purpose of a pumped-storage project is to supply economical capacity for generating power to meet load peaks, and to provide flexi- bility to system operation. Water is pumped from a lower reservoir to an upper reservoir during the low-load early morning hours using the surplus capacity of the large, efficient steam plants on the system. During peak load hours, the water is returned to the lower reservoir through turbine generators. A pure pumped-storage project (as in the Turlough Hill Project) consumes more energy than it generates, but in so doing it permits more efficient use of the energy that is generated by transforming low-cost night energy into valuable peak energy. A fuller explanation of the pumped- storage technique is given in Annex 3. 1.03 The Government of Ireland has requested a loan on behalf of the Electricity Supply Board, which would be the Borrower. The proposed loan amount of US$14.5 million equivalent, including interest during construction would cover about 80% of the estimated foreign exchange cost of the Project. The total cost of the Project is estimated to be the equivalent of US$31.5 million. The proposed loan would cover only about 8% of ESB's investment program for the next four years. 1.04 This report is based on information furnished by the Electricity Supply Board to a mission consisting of Messrs. J.J. Fish and S.S. Scales who visited Ireland in August/September 1968, supplementing data collected by Mr. F.H. Howell who visited Ireland in January, 1967. 1/ "Turlough" (tur-lok) means "dry lake" in the Irish language and is the name given to the hill where the Project's upper reservoir will be located. The reference is to the proposed man-made reservoir, or "dry lake". 2. ENERGY USE IN IRELAND 2.01 In 1964, the Economic Research Institute of Dublin (ERI) sponsored a four-part study of energy&- use in Ireland, aimed at fore- casting energy consumption by sector and source in 1970. Most of the values given in the following paragraphs are from that study. The fore- cast is that use of commercial energy will increase at the rate of 4.9% p.a., and that in 1970, 32% of all commercial energy will be consumed as electricity, up from 21% in 1954. By sector, 36% of all energy will be consumed by industry, up from 27% in 1954. Imported fuels will provide 73% of total energy and indigenous sources (mostly peat and hydroelec- tricity) 27%. About half of the electricity used will be generated from imported oil, 30% from peat (called "turf"), and 20%o from hydro power. 2.02 Natural gas is not yet available in Ireland. Piped manufactured gas is available in the larger urban centers but it is not significantly cheaper than electricity and is not marketed aggressively. On the other hand, liquified petroleum gas ("bottled gas") has recently been introduced in rural areas and is enjoying a good acceptance for cooking and supple- mental heating - loads which are not particularly desirable on the elec- trical system. In terms of the total energy sector, though, gas plays a small part - less than 4% in 1963 and a forecast of only 2.4% in 1970. It is expected that gas will continue to be priced competitively with electricity, and so even if natural gas were introduced or existing supplies were marketed more intensively, the proportional share of the market is not likely to change significantly. Turf 2.03 Hand-won turf, that is, peat cut in bricks and dried, is the traditional fuel of Ireland, but the work of cutting turf is arduous and not particularly productive. This form of fuel accounted for 10% of total energy used in 1963, but its use is declining, being replaced gradually by electricity, gas and commercial peat briquettes. 2.04 The production of commercial milled peat, briquettes, and other peat products, is the function of Bord Na Mona, (the Turf Board), a govern- ment agency which started intensive development of the peat bogs about 15 years ago. The goal of the development was to relieve Ireland's dependence on imported fuel. Today, two-thirds of total peat production is consumed in ESBIs power stations with most of the remainder sold as briquettes for domestic and industrial uses.