MOEJ/GEC JCM Project Feasibility Study (FS) 2014
Summary of the Final Report“（（20-MW Geothermal Power Generation））”(Implementing Entity: Mizuho Information and Research Institute,Inc.)
1．
．Overview of the Proposed JCM ProjectCountryJapan

Participating

group

Relationshipnamewith the trustee(Manufacturer)

Subcontractor

Details implemented

Outlineofthedevelopment of the
project plan, etc.
Japan

(Geothermal

Subcontractor

consultant)Analysis of technicalfeasibility of wellhead
power

Study partners

fromgenerationageothermal

resources perspective,
etc.
Japan

(Financial institution)

Subcontractor

Analysisofprofitability, etc. ofwellheadpower

generation project
Host(Geothermal

power

country

generation company)

Project

Local

implementer

arrangement, etc.

study

A geothermal field around the Great Rift Valley, Federal Democratic Republic
Project site
Category ofof Ethiopia
Renewable Energy

project
This potential JCM project is a wellhead geothermal power generation project
implemented by a foreign-capital special-purpose corporation to be proposed to
Description ofutilize geothermal power generation facilities manufactured by a Japanese

project

manufacturer. GHG emissions reduction is expected to be achieved by feeding
electricity into the grid in the Federal Democratic Republic of Ethiopia(hereinafter “Ethiopia”).

I-10

Expected project
implementer

Initial investment

Japan(A manufacturer)

Host country(A geothermal power generating company)

4,065,600,000 yen

Date of

March, 2015

groundbreaking
Annual

114,204,000 yen

Construction period

24 months

maintenance cost
Willingness toYes

investDate of project

September, 2016

commencement
The project implementer plans to cover the initial investment costs throughFinancial plan ofcapital investment and to cover maintenance and management costs by the

project

income from the sale of electricity based on the power purchase agreement(PPA) with the off taker. The PPA negotiation is currently in the final stage.

GHG emission

49,012 (tCO2/year)

Reductions

2. Study Contents(1) Project development and implementation
1) Project planning○ Project implementation structure
The following figure outlines the prospected implementation structure of this project.
Capitalinvestor A

Capitalinvestor B

Capitalinvestor C

Capital (agreed)

LenderFinancing(to be negotiated）

EPC (procurement
planned)SPC

EPC

Electricity (PPA undernegotiation)

Off-taker
Figure: Prospected implementation structure of this project(Note) The dotted lines indicate that the relationship has not been finalized but is expected in the
future.
I-11

The project implementer is a special-purpose corporation (SPC) legally established in Ethiopia.
The SPC prefers full turnkey EPC (including laying electric cables to power generation facilities
and substation facilities, etc.) with the expectation that it will take 15 months to complete theconstruction, by September 2016.

○ Management system and track record of the project implementer
We consider that the project implementer has been backed by a strong technical capability because
it is an SPC established through capital investment by foreign companies with a proven trackrecord of renewable energy development and geothermal power generation.

○ Evaluation of the project’s economic viability
Based upon estimated expenses (construction and O&M costs) and earnings according to various
preconditions to create annual financial statements, we evaluated the tariff to meet the target EIRR,
which are indicators important to the sponsor respectively.
The following table outlines the tariff to meet the target EIRR, resulting from the project inaccordance with the conditions that we assumed.

Table: Results of a preliminary economic evaluation of this projectContents

Results

Target Equity IRR
Average Tariff- Capacity Charge- O&M Charge- Fuel Charge

12.0 %
7.35 cent/kWh5.72 cent/kWh1.63 cent/kWh0.00 cent/kWh(Source) This study.

○ Financing plan for the initial investment, maintenance and management, and MRV
The SPC plans to use its own funds for small-scale power generation facilities of 20-MW output
capacity.
○ Risk analysis
In terms of the main risks assumed in the implementation of this project, we analyzed risks
including the following:
The first is resource risk. In the area where the project will be implemented, previous surface
explorations suggest that there is a high-temperature geothermal reservoir; however, an actual
I-12

geothermal reservoir has not been confirmed to exist because no exploratory excavation has
been conducted so far. Hence, the SPC plans to reduce the resource risk by promoting thedevelopment in a phased manner by starting with small-scale development and subsequently
expanding the development scale while checking the potential of the geothermal reservoir.
The second is construction delay risk. There are people living around the project site. If such
residents have to be relocated, delays may be potentially caused in starting the project.
The third is business operation risk. This risk must be borne by the SPC, as the project
implementer, in principle. However, if this project is awarded with the Financing Programme
for JCM Projects and then the project is terminated due to an unexpected problem, the Japanesecompany, as the delegate of the recipient of the subsidies, shall take responsibility to return thesubsidies to the Japanese government. Therefore, we had discussions with the SPC to secure acertain guarantee from the SPC to mitigate the risk for a Japanese company of potential returnof the subsidies.

2) Permits and License for the project development and implementation
According to the SPC, the project implementer, it has completed its registration as a
special-purpose corporation in Ethiopia. Other permits and licenses required, including concessions,have already been obtained and the negotiations on the PPA with the off-taker have almost
concluded.
Since the above information is based on a report from the project implementer and capital
investors, it is desirable to check the relevant documents, such as the actual written agreements, forconfirmation.

3) Advantage of Japanese technology
In the delivery record of global geothermal power generation installations, regardless of size, three
Japanese companies—Mitsubishi Heavy Industries, Toshiba Corporation and Fuji Electric—occupy
the top three spots (for details, see the following figure). Japanese technology is advantageous,offering long durability.

I-13

Others
11%
ORMAT
10%
Ansaldo/Tosi
11%

Mitsubishi
24%

Fuji
20%

Toshiba24%

Figure: Market shares of geothermal power plant manufactures(Source) Ruggero Bertani, Geothermal Power Generation in the World 2005-2010 Update Report, World Geothermal
Congress, 20104) MRV structure
The SPC is going to perform measurement, reporting and verification (MRV) for greenhouse gas
emissions reduction at the project site after the start of operation in case the project is approved as a
JCM project. A comment was received from the SPC, saying that the assumed monitoring work (e.g.
to check the amount of steam and the concentration of non-condensable gases (NCGs), such as CH4)
is not considered to place any particular burden on regular power generation activities.
The following table outlines a draft monitoring method, which was proposed to the project
implementer with the following two points taken into consideration. No particular comments wereconsequently made.
-With regard to the monitoring point, for simplicity, actual measurement is assumed to be taken
at the sampling opening of the steam transport piping.

-With regard to monitoring frequency, based on the actual status of, for example, the operation
condition at the site, a reduction in monitoring frequency will be within the scope of theagreement if the NCG concentration is stable.

Table: Monitoring method (Draft)
Emission sources

GHG

Frequency

Sampling method

Sampling location

Non-condensable

CO2

Once every 3

ASTM E1675-95a

Sampling from the steam transport

gases

monthsCH4

Once every 3

piping
ASTM E1675-95amonthsFossil fuel at the
site

CO2

Once a year

Sampling from the steam transport
pipingFuel meter (needs toPowerbe studied)location

generator

installation(Source) This study.

I-145) Environmental integrity and sustainable development in host country
According to the SPC, the environmental and social impact assessment (ESIA) for this project has
already been approved by the Ministry of Mines of Ethiopia. However, it has emerged that someresidents living around the project site need to be relocated, and the ESIA is being performed again
only for that part.
On the other hand, hydropower accounts for 98% or more of the power sources of the host country,
and power outages frequently occur due to drought almost every year, threatening the sustainable
development of the country. Under such circumstances, only thermal and geothermal power
generation can be base load power sources, but the country has already suspended the operation ofexisting thermal power plants, which are considered to be reserve power for emergency use, and theonly geothermal power plant (Aluto Langano) is out of operation for technical reasons. This projectis therefore expected to significantly contribute to the sustainable development of the country byproviding a stable electricity supply.

6) Toward project realization (planned schedule and possible obstacles to be
overcome)○ Study on the project’s feasibility• We will continue to endeavor to obtain the documents pertaining to the permits andlicenses for this project and clarify the issues related to the project’s feasibility, such as thepotential of geothermal resources to be exploited from the project site.

•

We will continue seek possibility to apply this project for the Financing Programme for
JCM Projects provided by the Ministry of the Environment, Japan.

○ Study on JCM methodology development• Based on the draft JCM methodology examined in this present study, we will aim to obtainapproval from the Japan-Ethiopia Joint Committee.

(2) JCM methodology development
1) Eligibility criteria○ Challenges
Eligibility criteria under the CDM methodology relevant to this project, ACM0002 provide notechnical specification regarding the introduced facilities.
Consequently, the present study checked the technical applicability to wellhead geothermal power
generation based on ACM0002 with the following two eligibility criteria as preliminary drafts. In
addition, from the perspective of reflecting the technical strength of Japanese manufacturers, a study
was conducted to revise the eligibility criteria as necessary.
I-15



Eligibility criterion (draft) 1: The project activity is installation of a geothermal power
plant at Ethiopia.

Eligibility criterion (draft) 2: Net electricity generated by the project activity is delivered
to Ethiopian national power grid system.

○ Outline of the study
As for eligibility criterion (draft) 1, it was confirmed that ACM0002 version 15.0 requires that thebaseline greenhouse gas (GHG) emissions should be deemed as the emissions from existing power
plants for capacity addition, improvement, restoration, or replacement. Since this project pertains to
new construction, it was decided to delete “capacity addition, improvement, restoration, or
replacement” from eligibility criterion (draft) 1 in the interests of simplicity.
As for the advantages of Japanese technology, it is difficult to reflect specific technical conditions
because a specific technology must be selected in most cases in response to various conditions (suchas temperature and pressure) particular to individual wells in the case of geothermal power
generation. Nevertheless, essential advantageous points common to Japanese technology are (a)longer life and (b) extensive proven track record. Based on the following five points, we decided to
add the following criterion: “The project activity employs a geothermal power generation unit
supplied by a company which has a past experience to supply a geothermal power generation unit
which steadily operated for at least 15 years.” to the criteria.

○ Final draft eligibility criterion
Eligibility criterion 1: Geothermal power generation facilities are newly constructed in
Ethiopia.

Eligibility criteria 2: Electricity is fed into the national grid in Ethiopia.

Eligibility criterion 3: The project activity employs a geothermal power generation unit
supplied by a company which has a past experience to supply a geothermal power
generation unit which steadily operated for at least 15 years..

2) Calculation of GHG emissions (including reference and project emissions)○ Calculation of project emissions
As project GHG emissions, it was determined to count the following in the same manner as
ACM0002:

CO2 emissions from combustion of fossil fuels for electricity generation at grid power
plants that are replaced due to the project activity;

CO2 and CH4 emissions from combustion of fossil fuels for electricity generation from
I-16

the baseline technology to meet suppressed demand for electricity that would be
replaced due to the project activity
The formulas are as follows:
PEy = PEFF,y + PEGP,ywhere
PEy: Project emissions in year y [tCO2/y]
PEFF,y: Project emissions from fossil fuel consumption in year y [tCO2/y]
PEGP,y: Project emissions from the operation of geothermal power plants due to the release of
NCGs in year y [tCO2/y]
Since it is not assumed to combust fossil fuels for the time being, the determination of NCGs
emissions is the key to calculating the project emissions.
While the project implementer has not started exploratory excavation at the site yet, it indicatesthe estimated upper values of NCGs concentration as outlined in the following table.
Table: Assumed upper values of NCGs concentration of this projectParameters
wsteam,CO2,ywsteam,CH4,yDescription of data
average mass fraction of CO2 in the produced
steam in year yaverage mass fraction of CH4 in the produced
steam in year y

Estimated Values

Units0.01000000 tCO2/t steam

0.00000500 tCH4/t steam(Source) Project implementator

This present study decided to use the values shown in the above table in the interests ofconsistency with the basic design of the power generation unit. The estimated upper values were
obviously used to ensure a conservative estimate.
Based on the expected steam consumption rate of the power generation facilities and with anassumption of an operating rate of 92%, the quantity of steam produced per year will be 2,030,918
tons.
Based on the above, 20,522.43 [tCO2/y] can be obtained as a result of the calculation of the
project emissions.

I-17

○ Calculation of reference emissions
Reference emissions are the total GHG emissions from grid power plants and GHG emissions
from baseline power generation technology to satisfy the minimum service level under “suppressed
demand.”Reference emissions can be calculated by multiplying the quantity of net electricity generation fed
into the grid in a year and the reference emission factor (EF) as follows:

REy = RGPJ,y * RF,CM,y
where
REy: Reference emissions in year y [tCO2/y]
RGPJ,y: Quantity of net electricity generation that is produced and fed into the grid as a resultof the implementation of the JCM project activity in year y [MWh/y]
RF,CM,y: Combined margin CO2 emission factor for grid connected power generation in year ycalculated the latest emission factor [tCO2/MWh]
The reference emission factor shall be the weighted average of the emission factor of grid powersources and the emission factor of the baseline technology to satisfy the suppressed demand, and thecalculation thereof requires the following items:- Grid emission factor;- Quantity of net electricity generation that is produced and fed into the grid as a result of theimplementation of the JCM project activity;- Minimum service level of electricity consumption per capita;- Actual electricity consumption per capita;- Type of baseline power generation technology and its emission factor (Use the IPCC default value.)

The reference emission factor can be calculated using the following formula if the actual
electricity consumption per capita is lower than the minimum service level:

RFy =EFBT , y * ( MSL − EC y ) + EFgrid , y * EC y
MSL

, if MSL − ECy > 0

RFy = EFgrid, y , if MSL − ECy ≤ 0

Where
EFBT,y: CO2 emission factor from power generation by the baseline technology in year y[tCO2/MWh]
I-18

EFgrid,y: CO2 emissions factor from the grid power plants in year y [tCO2/MWh]
ECy: Electricity consumption per capita [kWh/y]MSL: Minimum service level of electricity consumption per capita [kWh/y]This is because “suppressed demand” is considered to exist as recent electricity consumption percapita in Ethiopia (ECy) is 51.96 kWh (2011, The World Bank) to 60 kWh/y (2012, EIA) and lower
than the threshold value of 120 kWh/y (MSL, Sanchez, T. (2010)) for energy poverty, which isconsidered to be the minimum service level (for details, see the following figure). The present study
sets ECy at 60 kWh/y in order to utilize new data and to ensure a conservative estimate.

Electricity consumption percapita [kWh/y]120

Minimum service level (Basic human needs)

0

Suppressed demand to be met by additional electricity by thebaseline technology (power generation by kerosene)
Actual electricity consumption per capita(hydro-dominant grid power plants, zero emission)
Figure: Suppressed demand for electricity consumption per capita

As the baseline power generation technology, kerosene power generation is consideredappropriate because kerosene is now widely used for off-grid power generation in Ethiopia at thepresent time. Using the IPCC default value, 0.86 [tCO2/MWh] was obtained as the emission factor ofkerosene (for details, see the following table).

Table: Main default values to calculate reference emissions
Parameter
CO2 emission factor of the baseline
technology
CO2 emission factor of the power
generation by the baseline technology

Fuel

Value

Unit

Other Kerosene

0.07

tCO2/GJ

Other Kerosene

0.86

tCO2/MWh

Oil

0.30

Default efficiency factors for power plants―(Source) IPCC (2006) 2006 IPCC Guidelines for National Greenhouse Gas Inventories; UNFCCC (2013) Tool to
calculate the emission factor for an electricity system Version 04.0 (Tool07)

I-19

With regard to the grid emission factor EFgrid,y, according to the plan of the Ethiopian ElectricPower Corporation (EEPCo), the EEPCo stopped the operation of the existing diesel plants andoff-grid diesel power generators in 2012 to 2014 to turn them into standby power sources and plans
to use only renewable energy starting in 2015. Based on the planned breakdown of 90% hydropower,
6% geothermal power, and 4% wind power, it will be reasonable to set both OM and BM to zero in
the interests of conservativeness and simplicity.
When the above values are substituted into the formula, the reference emission factor is asfollows:

RFy =0.86 * (120 − 60) + 0 * 60
= 0.43[tCO2 / MWh]120

Subsequently, with an assumption of a generation capacity of 20-MW and an operation rate of
92%, the electricity generation in a year is as shown below:
RGPJ,y = 20

[MWh] * 24 [h] * 365 [d] * 0.97 [%] = 161,184 [MWh/y]Accordingly, the reference emissions obtained are as follows:

RGPJ,y * RFy = 161,184 * 0.43 = 69,534.78 [tCO2/y]○ Calculation of emission reduction
The emission reductions can be calculated as the difference between reference emissions andproject emissions.
According to the calculation, 49,012.35 [tCO2/y] is obtained as the emission reductions per year.
The reduction in CO2 that can be achieved is evaluated on the assumption that the electricity
obtained from the operation of this geothermal power plant substitutes for the grid power of Ethiopia
and the power sources based on baseline technology that generates the additionally required
electricity to satisfy the minimum service level.

3) Data and parameters fixed ex ante
The previous geothermal power generation JCM/BOCM feasibility studies pointed out themonitoring method of non-condensable gases (NCG), particularly CO2 and CH4, as an issue.
The present study took the actual status of geothermal-related projects in Ethiopia into
consideration and examined the possibility of using a default value or setting a parameter particular
to the project for the following three items from the perspective of reducing the burden of the power
I-20

producer:∙

Candidate 1: Concentration of CH4 contained in the steam of the geothermal development
project∙

Candidate 2: Grid emission factor∙

Candidate 3: Fossil fuel emission factor∙

Candidate 4: Ratio of diesel power generation to off-grid power generation (where used to
calculate the reference emissions)∙

Others○ Concentration of CH4 contained in steam
Following the study of whether a default value could be used for CH4 concentration in the steam,
we decided that monitoring must be conducted because it was pointed out that the value generally
varies depending on the sampling location and period.
A simplified and conservative monitoring method is a calculation assuming all NCGs, including
CO2, to be CH4 with a high GWP without the need to measure CH4 concentration. However, as aresult of using this method to calculate the emission reductions in the present study, the emission
reductions turned out to be negative, leading to an excessively conservative result.
Since monitoring non-condensable gases causes no particular problem according to the commentof the project implementer, the present study proposes that CH4 shall be monitored.

○ Grid emission factor
With regard to the grid emission factor, it will be an idea to assume the OM as zero becausehydropower accounts for 98% of the power mix of the existing power plants connected to the grid in
Ethiopia and the operation of thermal power plants was stopped in 2012 to 2014.
It is also an idea to assume the BM as zero because the power plants planned to be constructed in
the future use only renewable energy with no thermal plants planned to be constructed.
Assuming the grid emission factor as zero is undoubtedly conservative and also helps simplify thecalculation.

○ Fuel emission factor
For the fuel emission factor, the default value in the IPCC guidelines can be used.

I-21

○ Ratio of diesel power generation to off-grid power generation (where used to
calculate the reference emissions)This candidate item, reference emissions, was eliminated from the scope of the examination
because it was decided not to especially use the ratio of diesel power to off-grid power generation.

○ Others- Minimum service level of electricity consumption per capita (energy poverty) (kWh/y)One of the internationally accepted standards which can be interpreted as a basic human needreflecting the “minimum service level” under “suppressed demand” in electricity studied in Section
5.2 is 120 kWh/y per capita set by Sanchez, T. (2010) as the threshold value for energy poverty. Thisvalue is determined to be necessary for various services, such as electric lighting, drinking water,
telecommunications, improved health services, and improved education services, as well as foraccess to added values for local production.

- Electricity consumption per capita in a year (kWh/y)The data of electricity consumption per capita in a year are provided by the World Bank and theEIA. Of those, it will be an idea to use the value that evaluates the emission reductions moreconservatively, meaning the larger one.

************************

I-22