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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Feasibility Study objective & goals
Objective:• Provide technical and economic determination of least
cost option for transfer of 3,100 MW north-south in Mozambique
CESUL Project Goals:
• Contribute to Mozambique’s economic and social development through facilitating improved access to electricity by:– Interconnecting the Mozambique power systems north-south,
i.e. creating a Backbone Transmission System
– Supply electricity at affordable prices to load centres and consumers along the transmission system corridor
• Facilitate realisation of Mozambique’s large power development potential, with particular focus on hydropower, for domestic and industrial use and bulk export of cost-competitive renewable energy to South Africa and Southern Africa
•Power system studies– Minimum one (1) AC link north-south as a premise for acceptability of any alternative
•Determination of substation locations
•Line routes – HVAC and HVDC (incl. electrode locations)
•Preliminary engineering designs (lines & substations) and costing
•Project packaging and implementation programme
•Operational and control centre requirements, including organisation & training
•Economic and financial feasibility analysis
•Liaise with CESUL ESIA/RPF Consultant (separately appointed)
The CESUL Feasibility Study builds on previous pre-feasibility study (2008) by Vattenfall Power Consultants and subsequent technical Optimisation Study (2009)
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Findings and Conclusions
• Feasibility Study confirms technical viability of combined HVAC and HVDC transmission backbone solution for 3,100 MW (and more) power transfer capability
• CESUL Phase 1 investment costs (excl. financing costs and IDC) are estimated at US$ 2,119 million (of which US$ 1,800 million for Stage 1)
– Phase 1 financing requirement of ~US$2,780 million incl. IDC & price contingency
• Economic viability of combined hydropower and transmission backbone is robust• Financial viability and competitiveness of delivering electricity at Mozambique / South Africa
border in southern Mozambique appears promising– Timely realisation of Mphanda Nkuwa project is key to commence CESUL development
– Realising Cahora Bassa North Bank will allow complete CESUL Phase 1 development
– Cost of debt financing to be tested with market participants
• HVAC solution will ensure interconnection of Mozambique’s national transmission grid, with increased access to electricity along line route
• HVDC portion of transmission backbone is scalable – for initial CESUL Phase 1 solution and beyond
• Due to magnitude of project costs, a staged Phase 1 realisation should be considered• CESUL development needs to continue without delay from early 2012 to align with planned
timeframe for commissioning of hydropower project(s)
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Mozambique demand forecast (cont. I)
• Forecast period is 2010 – 2030:– Energy supplied (before losses) (in GWh) and Peak demand (MW)– Natural growth + Large consumer demand– Medium forecast = base case (+ high and low forecast)
• General electricity demand drivers:– Annual GDP growth:
• 2010 - 2015: 6.5% - 7.9% (IMF estimates)• 2016 - 2030: initially 7.0%, tapering off to 4.0%• GDP elasticity: 1.2, tapering off to 1.1 (except large loads)
– Electricity tariffs – current tariffs do not cover costs:• 7% real increase assumed over next 5 years• Assumptions applied will contribute to dampen future demand growth
• Large user loads:– Defined as > 5 MW initial loads, identified based on information from EdM,
Ministry, developers and consultant estimates– Cost-reflective tariffs assumed, with consequences for energy intensive projects
that rely on low tariffs (e.g. Mozal expansion)– Uncertainty with respect to loads and timing dealt with by estimating probability
and applying loads to medium forecast, high forecast and low forecast respectively
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
• Potential generation projects were reviewed, focused on hydropower, coal, gas-fired projects
• Gas-fired plant with a total capacity of up to 600 MW are assumed built in Southern Mozambique, as well as 100 MW of local generation injected into Tete part of system
• Based on regional market assessment, hydropower projects are considered priority:
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Generation Scenarios and associated Transmission Solutions
Candidate generation projects and associated transmission alternatives were studied through scenarios, with grid injection of 600 MW gas-fired generation in south and 100 MW
generation in Tete common to all scenarios
No. Scenario: CESUL capacity CESUL transmission alternative
0 Reference 0 MWNot applicable (new 400kV line Songo-Matambo-Inchope + reinforcement in south required)
1 CBNB 1,245 MWSingle circuit 400 kV line (4 x Tern) with 550 kV equipment rating, 70% series compensation
2 MPNK 1,500 MWDouble circuit 400 kV line (4 x Tern) with 550 kV equipment rating, 50% series compensation
3 MPNK + CBNB 2,745 MWSingle circuit 400 kV line (4 x Tern) with 550 kV equipment rating, 50% series compensation, plusBi-pole DC line (4 x Martin), 2,650 MW capacity
4 Add. Hydro Energy 3,536 MWSame as Scenario 3 (2nd bi-pole may be required if all generation projects implemented early)
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Regional generation expansion modelling
• Southern Africa needs ~1,500 MW of additional (base-load) capacity per annum
• Future generation and transmission developments in Mozambique will depend on competitiveness of Mozambique projects compared to alternative regional projects
• Cost characteristics for Mozambique and regional generation projects were developed and analysed
– January 2011 used as reference year for prices and cost estimates
– Investment, (fixed and variable) O&M costs, and fuel costs considered
– Analysis covered thermal (coal and gas-fired) and renewable generation projects (including hydropower, wind and solar)
– Cost data were sourced from EPRI, Nexant and Consultant’s own data bases
– Particular focus on generation expansion as envisaged by South Africa’s IRP2010
• Generation expansion simulations were undertaken to demonstrate economic viability of large-scale power export from Mozambique
– Total generation costs, including energy not served (“ENS”) and spinning reserve costs, as well as generation related transmission costs (including losses) considered
– Mozambique options substituted for ‘generic’ options in IRP2010
– Overall NVP of total generation costs in regional generation simulations was calculated, using feasibility study Generation Scenarios 1 to 6 as previously presented
Generation System Savings (relative to Reference Scenario)
- 1.124 1.846 2.579 2.866 2.731 3.230
Transmission System Costs (related to generation options)
0.233 0.685 0.983 1.384 1.422 1.748 2.368
Total Costs 132.714 132.042 131.618 131.287 131.038 131.499 131.620
Total Savings (relative to Reference Scenario)
- 0.672 1.096 1.427 1.676 1.215 1.094
Tentative value of reduced CO2 emissions (using US$20 per ton)
- 0.255 0.752 0.884 1.104 1.198 0.937
Savings incl. emission reduction (relative to Reference Scenario)
- 0.927 1.848 2.311 2.780 2.413 2.031
Some observations:•All generation scenarios with inclusion of Mozambique hydropower projects appear merited•Despite significant transmission costs, both MPNK and CBNB are economically viable projects•While Scenario 4 shows the highest potential saving, this scenario may trigger additional investments in transmission infrastructure at an early stage•On balance, therefore, Scenario 3 (MPNK and CBNB) appears to be most robust, with scope for future expansion by additional hydropower resource developments
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Planning methodology & criteria
• Transmission– Planning assumptions document prepared and discussed with Eskom (ref.
“Memorandum of Transmission Planning Assumptions”)• Complies in general with South Africa’s Grid Code
– Deterministic N-1 planning criteria, but with agreement that up to 2,000 MW of generation can be tripped in Tete area for an outage of a line on CESUL transmission backbone (effectively a “N-½ criteria”)
• Will normally not affect customers in South Africa due to size of South Africa system
– Series compensation facilities and Static VAr Compensators (SVC) along AC backbone planned with redundancy
– All transmission alternatives considered include at least one 400 kV AC line from Tete area to Maputo, to provide supply to areas in between
– Recognised that wheeling capacity through Zimbabwe may be limited
• Generation characteristics recognised– Production profiles– Forced and Scheduled outages– Minimum 15% reserve requirement for South Africa, with maximum 19% import
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Conclusions from transmission studies (cont. I)
• AC line requires extensive reactive power control for energisation and voltage regulation during normal and contingency operation:
– Long line - must be split in sections
– Intermediate substations at Inchope, Vilanculos and Chibuto are required and will feed into local grids
– Line shunt reactors required at either end of each line section in combination with switched bus shunt reactors
– Large SVCs required at intermediate substations, with two units at each of Inchope and Vilanculos to maintain operability during outages of SVCs
• New substation proposed at Moamba to act as feeding point for Maputo area (and suitable connection point for gas-fired plant and potential future 3rd 400 kV line to South Africa)
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Conclusions from transmission studies (cont. II)
For DC line(s) the following is noted:
•500 kV HVDC bi-pole solution with bi-pole DC line estimated to present least-cost solution for CESUL DC link
– 600 kV HVDC bi-pole and 800 kV mono-pole also evaluated, but considered to imply slightly higher overall costs
•Bi-pole solution will provide higher overall availability (than mono-pole), although loss of 500 kV bi-pole will require tripping of generation as for a 800 kV mono-pole solution
•500 kV bi-pole solution will also limit environmental impacts through reduced width of right-of-way, lower line towers (about 3.5 m lower) and less time of operation with electrodes
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Economic feasibility – objective & approach
• Objective of economic analysis:– Establish least-cost Project option (for each generation scenario)– Ensure that benefits of least-cost Project option exceeds Project costs– Demonstrate that Project represents efficient use of scarce economic resources
• Approach:– Project benefits and costs are compared to a situation without the Project– Analysis is based on discounted cash flow (“DCF”) modelling– Required Internal Rate of Return (“IRR”) of 10% in real terms (equal to assumed
economic opportunity cost of capital)– Calculation of Economic IRR (“EIRR”), Net Present Value (“NPV)” and Economic
Unit Energy Cost (“EUEC”) of electricity generated and transported – Analysis focused primarily on assessment of Generation Scenarios 1, 2 and 3:
• Scenario 1: CBNB only (1,245 MW)
• Scenario 2: MPNK only (1,500 MW)
• Scenario 3: MPNK + CBNB (1,500 MW + 1,245 MW), with CBNB implemented 2 years after MPNK
• Scenario 3: MPNK only + Stage 1 of CESUL Phase 1 only
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Envisaged organisation of CESUL
• CESUL Project size, technical nature and complexity, as well as the very large financing requirements, are all factors indicating that CESUL should be established as a Special Purpose Vehicle (“SPV”)
– SPV model and recommended structure will be developed by CESUL Financial & Legal Advisors
– EDM is expected to be lead Sponsor
– Additional equity participation may be sought from credible international investors with relevant skills, experience and financial strength
• Organisation structure, staffing and training programme for CESUL SPV should be clarified early to mitigate against operational risks
• CESUL SPV will be granted long-term Concession under Mozambique law– Terms and conditions of the Concession need to be confirmed, including a
Transmission / Wheeling charge methodology supportive of limited recourse project financing structures (part of mandate of Financial & Legal Adviser)
– Relationships to EDM (as National Power Transmission Grid Manager), HCB, Motraco and other stakeholders must be clarified and formalised to ensure timely implementation of CESUL
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
Skills and training requirements
Management of CESUL Transmission Company • Maintenance Management System Training
Staff of new Dispatch Centres • Operator training• Maintenance engineers and technicians: hardware, software and communication
equipment training
HVDC and SVC Staff• Project engineers, operation managers, control and protection specialists• Engineers responsible for HVDC and SVC control and protection• Technicians maintaining HVDC and SVC equipment• Operators for HVDC link, remote and local control
Maintenance staff of CESUL Transmission Company • Maintenance engineers and technicians: fault tracing and preventive maintenance
of HVAC substations, as well as live-line maintenance
Key staff should be in place and be trained during Project construction phaseComplementary external maintenance support by suppliers is recommended
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
CESUL Feasibility Study – Conclusions1. CESUL is found to be technically and economically viable
2. Recommended Phase 1 design is a combined HVAC (400 kV) and HVDC (500 kV bi-pole) solution with high reliability, at a total cost of US$2,119m (funding requirement of ~US$2,780m), providing a transmission capacity >3,000 MW
3. HVAC solution will ensure interconnection of central and southern parts of national grid, allowing for economic & social development along line route
4. Phase 1 solution is considered economically and financially robust, based on large-scale export of hydropower to South Africa, with significant revenue to GoM
5. Phase 1 facilitates implementation of MPNK and CBNB, with both projects found to be economically and financially viable in combination with CESUL solution
6. HVDC portion of CESUL Phase 1 can be implemented in two stages, allowing for staggered realisation of MPNK and CBNB if required (with MPNK assumed to be the first major hydropower development)
7. Phase 1 implementation is expected to take 59 months (of which 42 months construction time)
8. Financing requirements for CESUL Phase 1 are significant, with need for close coordination of generation and transmission developments to manage commercial and timing risks
9. CESUL can be expanded by adding 2nd bi-pole with capacity of 2,650 MW
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Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”)
CESUL – Recommendations and Next Steps
i. Based on a targeted commercial operations date for MPNK by 2017, CESUL project preparation work has to commence early 2012 by progressing design, procurement and contracting arrangements
ii. In parallel, recommended legal, financial and commercial structures and arrangements need to be finalised
iii. Financial close of CESUL should be targeted for mid-2013 (to align with generation project timeframes)
iv. Early confirmation of CESUL equity sponsors (in addition to EDM) will be key to successful development
v. Timely and coordinated engagement with South Africa (Government and Eskom) will also be essential
vi. Consideration may be given to creation of a Mozambique Joint Coordination Committee for CESUL and associated hydropower projects