Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 36485-MO PROJECTAPPRRAISAL DOCUMENT ONA PROPOSEDGRANT FROMTHE GLOBAL ENVIRONMENT FACILITY TRUST FUND INTHEAMOUNT OFUS$43.2MILLION TO THE OFFICENATIONALDEL'ELECTRICITE (National ElectricityUtility) OF THE KINGDOMOF MOROCCO FORAN INTEGRATED SOLAR COMBINED CYCLE POWERPROJECT February20,2007 SustainableDevelopmentDepartment Middle East andNorthAfrica (MNA) This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective January 31,2007) Currency Unit = Morocco Dirham (MAD) MAD8.59195 = US$1 MAD = US$ FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AfDB Afixan Development Bank CDER Centre de Dkveloppement des Energies Renouvelables (Renewable Energy Center) MAD MoroccanDirham DSM Demand Side Management EA Environmental Assessment EE Energy Efficiency EMP Environmental Management Plan EPC Engineer,procure, and construct ESMAP EnergySector ManagementAssistance Program EU European Union GEF Global Environment Facility GHG Greenhouse Gas GoM Government o f Morocco HV HighVoltage IPP Independent Power Producer ISCC Integrated Solar Combined Cycle Power Plant JLEC Jorf Lasfar Energy Company (JLEC) LV Low Voltage LYDEC Casablanca Power Distribution Company MEM Ministryo fEnergyand Mines MoF MinistryofFinance MV Medium Voltage MW Megawatt O&M Operation and Maintenance ONAREP Office National de la Recherche Petrolikre (National Petroleum Office) O.N.E. Office National de 1'Electricitk (National Electricity Utility) PIU Project Implementation Unit RAP Resettlement Action Plan STP Solar Thermal Power UNFCCC UnitedNations Framework Convention on Climate Change Vice President: Daniela Gressani Country Director: Theodore Ahlers Sector Director: Inger Andersen Sector Manager: Jonathan Walters Task Team Leader: Noureddine Bouzaher FOR OFFICIAL USE ONLY MOROCCO INTEGRATEDSOLAR COMBINED CYCLE POWER PROJECT CONTENTS Page A.STRATEGIC CONTEXT AND RATIONALE ...................................................................... 1 1. Country and sector issues .................................................................................................... 1 2. Rationale for Bank involvement.......................................................................................... 2 3. Higherlevel objectives and Rationale for GEF funding..................................................... 4 B.PROJECT DESCRIPTION ...................................................................................................... 6 1. LendingInstrument .............................................................................................................. 6 2. Project Development Objective and Key Indicators ........................................................... 7 3. Global Development Objective ........................................................................................... 7 4. Project components.............................................................................................................. 8 5. Lessons learnedand reflectedinthe project design ............................................................ 9 6. Alternatives considered and reasons for rejection............................................................. 11 C.IMPLEMENTATION ............................................................................................................. 14 1. Partnership arrangements .................................................................................................. 14 2. Institutional and implementation arrangements ................................................................ 15 3. Monitoringand evaluation o f outcomeshesults ................................................................ 15 4. Sustainability ..................................................................................................................... 17 5. Critical risksand possible controversial aspects ............................................................... 20 6. Grant conditions and covenants......................................................................................... 20 D.APPRAISAL SUMMARY ...................................................................................................... 21 1. Economic and financial analysis ....................................................................................... 21 2. Technical ........................................................................................................................... 25 3. Fiduciary............................................................................................................................ 26 4. Social ................................................................................................................................. 26 5. Environment ..................................................................................................................... -27 6. Safeguard policies.............................................................................................................. 28 7. Policy Exceptions and Readiness ...................................................................................... 30 Annexl: Countryand Sector Background ................................................................................ 31 111 ... This document has a restricted distribution and may be used by recipients only in the performance of their official duties.Its contents may not be otherwise disclosed without World Bank authorization. Annex 2: Major RelatedProjects Financed by the Bank and/or other Agencies ..................36 Annex 3: Results Framework and Monitoring ......................................................................... 38 Annex 4: Detailed Project Description .................................................................................... 41 Annex 5: Project Costs ................................................................................................................ 44 Annex 6: Implementation Arrangements .................................................................................. 45 Annex 7: Financial Management and DisbursementArrangements ..................................... 46 Annex 8: Procurement Arrangements ....................................................................................... 49 Annex 9: Economic and Financial Analysis .............................................................................. 54 Annex 10: Safeguard Policy Issues ............................................................................................. 59 Annex 11: Project Preparation and Supervision ...................................................................... 72 Annex 12: Documents in the Project File ................................................................................. -73 Annex 13: Statement of Loans and Credits ............................................................................... 74 Annex 14: Country at Glance ..................................................................................................... 75 Annex 15: Solar Technologies and Integration ......................................................................... 77 Annex 16: IncrementalCost ....................................................................................................... 78 Annex 17: Scientific and Technical Advisory Panel(STAP) Review ..................................... 89 Annex 18: Cost Reduction of Solar Thermal Power Technology ........................................... 98 Annex 19: MAP IBRD 34713 .................................................................................................... 103 iv MOROCCO INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT PROJECT APPRAISAL DOCUMENT MIDDLEEASTAND NORTHAFRICA MNSIF Date: February20, 2007 Team Leader: NourredineBouzaher Country Director: Theodore 0.Ahlers Sectors: Power (80%);Renewable energy Sector Managerhlirector: JonathanD.Walters (20%) Project ID: PO41396 Themes: Technology diffusion FocalArea: Climate change (P);Infrastructure services for private sector Lending Instrument: Specific Investment Loan development (S);Climate change (S) Environmental screening category: Partial Assessment [ ] Loan [ ] Credit [XI Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 0.00 ProPosedterms: GLOBAL ENVIRONMENT FACILITY 0.00 43.20 43.20 AFRICAN DEVELOPMENT BANK 14.38 375.62 390.00 Total: 53.92 513.88 567.80 Borrower: Responsible Agency: Office Nat. de 1'Electricite 65, Rue Othman BenAffan Casablanca, 20000 Morocco Tel: 212-22-668267 Fax: 212-22-433112 berrehili@one.org.ma 2umulativeI 15.00 I 40.00 I 43.2 I Project implementation period: Start Mayl5,2007 End: December 28,2012 Expected effectiveness date: April 30, 2007 Expectedclosing date: December 28,2012 Does the project depart from the CAS incontent or other significant respects? Ref: PAD A.3 [ ]Yes [XINO " Does the project require any exceptions from Bank policies? Re$ PAD D.7 [ ]Yes [XINO Have these been approvedby Bankmanagement? [[ ]Yes [XINO ]Yes [ IN0 I s approval for any policy exception sought from the Board? Does the project include any critical risks rated "substantial" or "high"? Ref: PAD C.5 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Re$ PAD B.2, Technical Annex 3 The mainnational objective o fthe project is to increase the contribution o frenewable energy sources inMorocco's energy mix and add capacity to the power gridto help cope with the sustained growth in electricity demand Global Environment objective Re$ PAD B.2, Technical Annex 3 The global development objective o fthe project is to reduce greenhouse gas emissions from anthropogenic sources by increasing the market share o f low greenhouse gas emitting technologies. The project will also test the viability of solar thermal technology and contribute to replication o f integrated solar combined cycle (ISCC) power generation technology inMorocco and elsewhere. It i s one o f a number o f similar projects inthe world to be supported by GEF as part o f a program to accelerate cost reduction and commercial adoption of large-scale low greenhouse emittinggeneration technologies. The mainglobal benefits o fthe project are: (a) contribution to the demonstrationo f operationalviability o fhybrid solar thermal power generation inMorocco; (b) contribution to accelerated marketpenetrationo f large-scale backstop power generation technologies; and (c) reduction o f greenhouse gas emissions from power generation. Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 1. Construction and operation o fthe IntegratedSolar Combined Cycle Power Plant o fAin Beni Mathar; 2. Transmission lines; 3. Substations; 4. Access road; 5. Boreholes; 6. Land acquisition; 7. Gas pipeline; 8.Environmental and social development andManagement; and 9. Consultancy services. Which safeguard policies are triggered, ifany? Re$ PAD D.6, TechnicalAnnex 10 -Environmental Assessment; and -Involuntary Resettlement. Significant, non-standard conditions, if any, for: Re$ PAD C.7 Boardpresentation: Streamlined. Loadcredit effectiveness: - Engineeringconsultant recruited - EPC/O&M signed Covenants applicable to project implementation: Project and performance indicators monitoring Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues With a growing population, strong economic growth, and a policy o f universal access to electricity, Morocco's electricity demand i s increasing rapidly. Growth in Moroccan electricity demand'has accelerated over the last 3 years from 6% p.a. on average during 1997-2002 to 8% p.a. during 2003-2006. Even with intensified electricity conservation and demand side management (DSM) efforts, electricity demand i s expected to continue growing at a similar rate. The "Office National de 1'Electricite" (O.N.E.) projects that peak demand will grow from 3300MW in 2005 to between 4825MW and 5300 MW in 2010 and 7000MW and 8500MW in 2015 depending on assumptions on economic growth andenergy conservation. Moreover, the country i s mostly dependent on imported fossil fuels to generate electricity, and the role of fossil fuels is expected to increase further, given the lack o f endogenous resources. Preventing a further increase in import dependency requires the urgent development o f the country's renewable resources, inparticular wind and solar energy. Inthis context, the major issues that face theMoroccan electricity sector include: Urgent need for new power generating capacity addition: on current plans, capacity will not be sufficient to meet peak demand without the addition o f the 472'MW Ain Beni Mathar Integrated Solar Combined Cycle Plant on schedule. Widespread power blackouts could result from a schedule slippage. Bottlenecks in transmission and distribution to meet growing demand while ensuring security and quality o f supply. The need to reduce electricity demand growth through demand side management measures (DSM) to reduce bothpeak load demand and total demand. The lack o f availability o f natural gas in sufficient volumes to fire power plants beyond AinBeniMathar. The need to develop non fossil fuel fired power generation, renewables in particular, in order to diversifythe power generation mix and reduce import dependency overall. Integrationinto a regional Maghreb power market and with EUmarkets, that may impose harmonization o f some rules and regulations regarding market operation. Large financing requirementsto meet growingelectricity demand. A national electricity company which needs to invest over $lbillion per year in generation and transmissioddistribution infrastructure. A number o f measures have already been taken or are under consideration by the Government and O.N.E. to address these issues: Ambitious plans to increase the contribution of renewable energy (RE) to 10%of the primaryenergy demandin2012 (or 20% o fthe fuel input into the power sector). A law is inpreparationto ensure these objectives aremet. An aggressive program to increase energy efficiency (EE): the example is to be shown by the Government with new programs for energy efficiency in public buildings. The RE law also covers EE. Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 Drafting o f a liberalization law that calls for gradual introduction o f competition, starting with high voltage customers, creation of an electricity regulator and restructuring of O.N.E. A feasibility study for an LNG terminal, as a way to diversify sources o f natural gas supply and secure access to large new volumes o f natural gas afler 2012 to feed the power generating sector. Development o f tighter links with the EU institutions through various programs and initiatives under the auspices o f the European Neighborhood Policy. Creation o f an attractive investment climate inparticular through a stable and predictable regulatory framework. Cooperation with all donors to find sources o f financing for the large infrastructure investmentrequired. Measures to ensure a healthy and dynamic local financial sector, that can provide local financing for power projects as was the case for the Tahaddart CCGT plant. Overall, the private sector was actively involved in developing power generation capacity, particularly inthe 1990s, and today 70% o f Morocco's power is generated by the private sector. A resurgence in private sector investment is expected once the new regulatory framework i s established, including for renewable energy. Morocco ratified the United Nations Framework Convention on Climate Change (UNFCCC) on the 28tho f December 1995. Inaddition, Morocco hosted the seventh Conference o f the Parties to the UNFCCC inNovember 2001 and ratified the Kyoto Protocol on January 25,2002. As a non- Annex Icountry, Morocco i s eligible for financing from the GEF through the mechanisms established by the Convention. The proposed project has received the endorsement from the GEF Operational Focal Point and i s formulated inaccordance with national priorities. 2. Rationale for Bank involvement The proposed project integrates conventional combined cycle gas turbines with solar thermal technology. It will provide urgently-needed power in Morocco (472MW), and simultaneously contribute to an important global test o f a new approach to renewable energy. As noted in the Bank's report to the Development Committee on the Clean Energy Investment Framework, incentives are needed to induce technological change to a low carbon economy. The proposed project would demonstrate how de-carbonizing o f the power sector could be facilitated by the large-scale development o fnew energy production technologies. The proposed project i s strategic for the achievement o f the objectives o f GEF's Operational Program 7, which aims to reduce, over the long term, the costs o f energy technologies with low greenhouse gas emissions, and which are currently not cost-competitive (see below under "Higher level objectives and Rationale for GEF funding"). The Bank fully supports that pioneering objective. The proposed Morocco project i s one o f a series o f similar projects, which together will contribute to learning about such technologies, and dissemination o f that learning. In this way, Morocco, GEF, and the Bank are jointly participating in a very promising global experiment. 2 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 The proposedproject is also strategic for the Bank inMorocco, now that the Bank has regained a high-level of partnership inthe country's energy sector after a gap o f some years (the project i s included inthe 2005 CAS). The Government o f Morocco, O.N.E., and the Bank are engaged in an intensive policy dialogue in this key sector, and a comprehensive program o f financial and technical support i s being developed. Reliability and long-tern involvement are the foundation o fthis relationship. The first in a programmatic series of Energy Development Policy Loans (DPL) i s now at an advanced stage o f preparation (Board presentation i s proposed in FY07). The DPL supports the Government's energy sector reform program which focuses on (i)energy security and sustainable development; (ii)increasing energy sector productivity and Morocco's competitiveness; (iii)moderating fiscal exposure in the energy sector; and (iv) enhancing monitoring, evaluation, and public communicationinthe sector. The D P L i s being developed in consultation with the European Commission under the auspices o f the European Neighborhood Policy, and the EU and Morocco's joint objectives o f closer economic integrationand environmental protection. There are clear synergies betweenthe proposed Integrated Solar Combined Cycle Power Project (ISCC) and the programmatic DPL: (i)support for sustainable development through an experimental renewable energy technology that could prove highly efficient, if the experiment succeeds; (ii) avoidance o f power blackouts inMorocco which would have serious political and economic implications, and would undermine reform; (iii)a gradual approach to electricity market liberalization which will be supportive o f renewable energy development; (iv) promotion o f private participation inpower which would allow the eventual privatization o f the ISCC; and (v) enhanced monitoring and evaluation capacity in Morocco which will be critical for global dissemination o f the learningwhich is at the heart o fthe ISCC project. The goals of the ISCC and programmatic DPL, will also be underpinned by a proposed Bank investment loan to O.N.E. This i s at a relatively early stage o f preparation (for Board presentation in FY08), and will focus on augmenting transmission capacity to keep pace with rapid electricity demand growth and investment in generation capacity, including ISCC. The loan will also include assistance to O.N.E. to restructure in order to respond better to the reformedpolicy framework, includinginits support for renewable energy development. The Bank's participation inthe proposedISCC project is intended to catalyze the financing that i s essential to the project going ahead. This financing comes fi-om GEF, the African DevelopmentBank (AfDB), and 0.N.E andthe Bank's role i s to help coordinate the packaging o f financing and contracting to achieve the project objectives. At this late stage o fproject preparation, site selection and acquisition, biddingand contracting, it would be very costly to Morocco ifthe package needed to be reconfigured inany major way. The EPC contractor has beenselected andis ready to be mobilized inMarch2007. The Bank's role is to continue to coordinate so that the plant commissioning remains on schedule and the project objectives are achieved. 3 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 3. Higher level objectives and Rationale for GEF funding In1996, the GEF's Scientific andTechnical Advisory Panel(STAP) recommendedhigh temperature solar thermal power technologies as one o f the renewable energy technologies that had significant cost reductionpotential. The GEF support for solar thermal technology was mooted as a means to increase market awareness through limitedscale demonstrationprojects in solar resource rich developing countries. GEF Operational ProgramNumber7 ("Reducing the Long-term Costs o fLow Greenhouse Gas- EmittingTechnologies") emphasized certain limited technologies includingparabolic trough based solar thermal electric technologies to be cost-effective. "For cost-effectiveness, the scope o fthe technologies coveredbythe operationalprogram needs to be limitedto those whose costs will drop significantly with economies o f scale inmanufactureand application." The selection o ftechnologies for OP 7 was madebased on certain criteria; extent to whichbasic RD&Dhas already been done (for technologies where the markets arebothinrecipient and developed countries) or significant prior operational experience exists; size o fremaining technological barriers and risks; technology's current cost; prospects for reduction incosts o fthe technologies inquestion (steep learning curves); contribution that GEF financing can make to cost reductions; and the primary market i s inthe recipient countries because o f resource endowment and potential for that technology, when commercial, to reduce greenhouse gas emissions. Large-scale solar-based power plants are still a longway from beingcost-competitive with fossil-fuel based plants. However, within the range o f solar thermal electric generation options, the integrationo f solar and combined cycle (ISCC) technology is the most promising inthe long- term as a reliable and cost-effective source o fpower supply. For developing countries especially, where the primary needi s electricity (not necessarily green electricity), the combination o f solar energy with a large-scale fossil fuel power plant can, inthe technology introduction stage, be more attractive than stand-alone solar plants. For this reason, the technology is consistent with the objectives o f GEF OP7, whichjustifies GEF grant support in pursuito fthe global program objective o fincreasingthe market share o flow greenhouse-gas emittingtechnologies that have not yet become widespread least-cost alternatives. OP7 states that "the objective will be achieved by GEF's promotion o f such technologies so that, through learning and economies o f scale, the levelized energy costs will decline to commercially competitive levels.. ..A project leads to reduction in GHG emissions not only directly, but also indirectly by being one o f series o f projects that induce cost reductions in the technology.. .The direct outputs o f the technology are the amount o f energy generated, the amount o f GHG emissions avoided etc. The indirect project output, o f greater programmatic interest, i s the reduction in cost that it caused and the time horizon for the achievement o f program objectives will typically be on the order o f decades. The technologies identified under this program will require the security o f funding and long-term commitment o f GEF support." Consequently, GEF and the Bank agreed to pursue solar thermal projects inIndia, Mexico, Morocco and Egypt as part of a strategy to facilitate the commercialization o f solar thermal , 4 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 technology. The Indiaproject (later dropped) entered the work program in 1996, followed by the Mexico and Morocco projects in 1999 and finally the Egypt project in2004. The Mexico project i s now under implementation, and the financing for the Egyptproject has been negotiated, and theprocurementprocess has almost beenconcluded. The proposedMorocco project is slightly ahead o fthe Egyptproject: financing has beennegotiated, and the contractor has been selected. After eight years o fpreparation, construction is ready to start - pendingapproval ofthe GEF grant. Inessence, the GEF participation inthe project is intended to support primarily global program objectives, and Moroccan national development objectives only secondarily. That i s the rationale for substantial grant financing from the international community through GEF. However, one-third o f the financing for the solar component o f the project would come from O.N.E. equity and borrowings in testimony to the fact that the global environmental objectives are closely linked to the Morocco's national sustainable energy development strategies. In the GEF-World Bank portfolio o f solar thermal projects, the preferred configuration is the ISCC. This configuration integrates the steam output from a solar field into the steam turbine o f a combined cycle gas turbine (CCGT). Given that there i s now significant experience relating to combined cycle operation, as well as adequate knowledge o f solar field operations, the ISCC configuration is sound from a technical standpoint. However, as projects utilizing this integrated configuration have not yet been implemented, the first few projects, including the Morocco project, may face teethingproblems. But any problems that arise are not likely to be fundamental in nature but rather related to optimizing energy flows, particularly under transient solar conditions. Byintegratingthe solar field with the combined cycle technology, the ISCC configuration offers several cost reduction and operational advantages over independent solar thermal plants that make them more suitable for introducing solar field based electricity generation in developing countries. Inthe ISCC configuration, the needfor an independent power block for the solar field i s offset by utilizing a larger steam turbine in the CCGT plant, reducing the capital costs through economies o f scale. Such a configuration also reduces the solar energy losses that occur in an independent solar plant due to daily start-up and shut-down. In addition, the hybrid plant can remain in continuous operation irrespective o f solar availability providing much needed generation. The solar field also offers a power boost when CCGTs suffer a reduction in plant output at times o f high outdoor temperatures, since that coincides with high solar radiation as well. In 2005, the World Bank commissioned an independent assessment of the World Bank/GEF strategy for the market development o f concentrating solar thermal power. The study's conclusions may be summarized as follows: 0 Over the last 2 years, the industry has been reinvigorated. Several projects are presentlyunder construction around the world. Nonetheless, these projects have not reached the kind o f critical mass to suggest that the industryis now self-sustaining. 0 Solar thermal electricity offers a number o f advantages when considered as part of a country or region's energy generation options mix. Solar thermal, based on a hot 5 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 fluid, can integrate well with conventional thermodynamic cycles and power generation equipment. 0 Inmost cases, the IntegratedSolar Combined Cycle configuration showed lower LEC thanthe SEGS plants California. The reason for this is that the incremental cost of a larger steam turbine i s much lower than building a stand-alone power block for a SEGS plant. 0 ISCC i s well-suited for market introduction because the additional marginal investment for the conventional plant components is relatively low. There are also areas o f overlap, and thus cost-reduction potential, with the plant infrastructure and project implementation costs. 0 The technology i s not new, but stalled in its development path. There is no fundamental reason why the technology could not follow a similar cost reduction curve to wind energy and eventually be cost-competitive. Cost reductions would require a combination o f plant scale-up, increased production volumes and technological innovation. Against the thousands o f megawatts needed for CSP to reach cost-effectiveness, the GEF portfolio will not, of themselves, lead to any significant reduction in the underlying cost o f the technology. However, the plant capacity o f projects in the GEF portfolio is not insignificant compared to the present 300MW or so o f possible- to-firm projects in OECD countries. Therefore, the GEF co-financed plants are important to maintaining momentum in the CSP industry and to developing operational experience indeveloping countries. By supporting implementation of the first solar thermal power demonstration plants, the GEF will help create confidence in the technology and institutional learning, thereby reducing the hurdle for subsequent market entry o f CSP. Several ISCC projects outside the GEF/Bank portfolio are also being developed inAlgeria, Spain etc. Over the long run, it i s expected that the cost o f the technology will come down due to technical progress and lessons learned from earlier deployment (as in the case o f the proposed project). In the Northern Mediterranean "sunbelt", several STP projects are already being planned in Greece, Spain, and Italy through national programs and the support o f the EU. Bulk transmission o f electricity from STP plants from high insolation sites in Southern Mediterranean countries, such as Algeria, Libia, Egypt, Morocco, and Tunisia, may also open wider opportunities for European utilities to finance solar plants inthat region for electricity consumed in Europe. Reform of electricity sectors across Europe, the rising demand for "green power", and the possibility o f gaining carbon credits are increasingthe viability o f suchprojects. Finally, research and development work continues inEurope and the United States to hrther reduce costs by improving plant components. B. PROJECTDESCRIPTION 1. Lendinginstrument A GEF grant ($43.2 million) will be used to finance part o f the proposed integrated solar combined cycle power plant, by covering about two-thirds o f the total capital cost o f the solar 6 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 component ($66 million)', or about 8% o f the total capital cost o f the integrated plant ($568 million). The remainder o f the project cost will be covered by O.N.E. borrowings from AfDB ($390 million) and O.N.E.'s own equity contribution ($135 million). See Annexes 4 and 5 for project cost details, and Annex 16 for details o f the incremental costs o f adding a solar component to a combined cycle power plant. 2. ProjectDevelopmentObjectiveandKey Indicators The mainnational objectives o fthe project are to addurgently-needed capacity to the Moroccan power grid to help cope with the sustained growth inelectricity demand, to increase the contribution o frenewable energy sources inMorocco's energymix thereby reducing greenhouse gas emissions, and to contribute to a program o f global environmental significance. Keyspecific perfonnance indicators are the following: -- Total electricity generated from the ISCC power plant (GWyear) Share o f ISCC energy intotal energy production (%) - - Solar output (GWyear) Solar output as a percentage o f total energy producedby the ISCC power plant 3. GlobalEnvironmentalObjective The global environmental objective o f the project i s to reduce greenhouse gas emissions from anthropogenic sources by increasing the market share o f low greenhouse gas emitting technologies. The project will demonstrate the operational viability o fhybridsolar thermal power generation technology and contribute to replication o f integrated solar combined cycle (ISCC) power generation technology inMorocco and elsewhere through the learning effect provided by its construction and operation, and through economies o f scale as use o f the technology spreads. It i s one o f a number o f similar projects inthe world to be supported by GEF, andby other financing sources, as part o f a global programmatic effort to accelerate cost reduction and commercial adoption o f large-scale low greenhouse emittihg generation technologies. Secondarily, the project will make a modest direct contribution to the reduction o f greenhouse gas emissions. To evaluate the perfonnance o fthe project inachieving the global program objective, the following indicators have beenchosen: Quantitative Indicators Cost o f solar thermal (#/ kWh), 0 Cost o f solar power as a % o fnatural gas price, Reduction inC02emissions (tonnes / year) estimated at about 610,000 tonnes over the 25- year economic life o f the plant, 'The incremental capital cost o f the solar component i s $62.5 million, which i s equal to the total capital cost of that component ($66.5 million) minusthe avoided capital cost o f an equivalent combined cycle capacity ($4 million). 7 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Numbero fO.N.E.'s stafftrained invarious aspects o f solar thermal technology, and 0 Dissemination. o Numberofvisitors to and information requests about the plant. o Numbero fworkshops and conferences inwhich the experience about the construction and operation o f the plant was presented. o Information about the plant postedon O.N.E.'s externalweb site. Qualitative Indicators: 0 Lessons learned duringthe pre-constructionphase (feasibility study and biddingprocess, environmental and social safeguardsand financing.), Lessons learned during the construction o f the plant; and Lessons learned from the operation o f the plant and initial assessment o f the viability o f the technology after three years o f operation ofthe ISCC power plant. The dissemination and other qualitative indicators are designed to capture the global learning effect o f the project, which i s its overarching objective. They are considered at least as important as the quantitative indicators, which measure the modest direct impact o f the project, and give some quantitative indication o f this individual project's contribution to the overall impact of a long-term series o f investments inthe technology. (See Annex 3 - Results Frameworkfor baseline and targets) 4. Project components The project includes the integration o f a parabolic trough solar field (of about 183,120 m2) with a traditional natural gas-based power generating unit (combined cycle). The proposed project involves the construction and operation of a solar/fossil he1 hybrid power station o f about 472 MW, o f which 452 MW2 from combined cycle gas turbine and 20 MW from the solar component with an expected annual net production of 3,538 GWh per year. The solar output i s estimated at 1.13% o f the annual production representing 40 GWh per year. It i s expected that the solar thermal power plant will be inservice by February2010. The plant will be built and operated through an Engineering, Procurement and Construction (EPC) cum Operation and Maintenance (O&M) contract. O.N.E. will thus be the owner o f the plant. The O&M contract will last 5 years and include appropriate incentives to ensure an efficient operation o f the plant, particularly the solar field. These incentives are related to the output o f the solar field and efficiency o f its operation and are enforced by monetary penalties. The O&M contract will also lay the ground for maximizing the utilization o f the solar field over the long term through on the job training of O.N.E.'s staff in the operation and maintenance of the solar field. The bidding documents issued in July 2005 established minimumrequirements for the solar thermal power to ensure that the minimum solar share target could be met. The * Ina previous design, the combined cycle capacity was only 207MW. However, a planned gas-fired plant elsewhere inMorocco was severely delayed, so an additional gas turbine was subsequently added to the design of the Ain Beni Mathar plant, to give a total combined cycle capacity of 452MW. The biddingprocess was modified to require bidders to submit 207MW and 452MW options, and O.N.E. selected the latter. 8 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 prequalification o f consortia that had both combined cycle and solar thermal power experience ensured the effective integrationo fthe solar field and the combined cycle power plant. A breakdowno fthe project components isprovidedinthe table below. Indicative Bank % of GEF % of Component costs % of financing Bank financing GEF (US$h!f.) Total (US$M) financing (US$M) financing I.Design, Construction 519.27 91.45 43.2 100 and Operation of an Integrated Solar Combined Cycle Power Plant 2. Transmission lines 17.84 3.16 3. Substations 9.04 1.59 4. other infrastructure (1) 14.24 2.50 5. Environmental and Social Dev. and Management 2.31 0.40 6. TechnicalAssistance 5.09 0.90 TotalProject Costs 567.80 100.0 0.00 0.0 43.2 100 1) See Annexes 4 and 5 for deta S 2) Costs include physical and price contingencies (see Annex 4) The timeline up to construction is as follows: 1. Pre-qualification - Done 2. Preparation o fbiddocuments - Done 3. Preparation and submissions o f offers - Done 4. Technical and commercial evaluation o f offers - Done 5. ISCC Contract signature -by April 30,2007 (date o f expiry o fbidvalidity) 5. Lessonslearnedand reflectedinthe projectdesign Power Sector Development in Morocco Inearlier Bank projects, some o f the critical issues were the high level o f subsidyprovided by GoM to O.N.E.'s investment program to compensate for delayed tariff increases, the high level o f arrears in subsidy payment, and the lack o f autonomy o f O.N.E. GoM has now shifted its policy by promoting financial sustainability o f O.N.E., as well as private participation, which in turn has substantially reduced O.N.E.'s investment requirements. Recent GoM actions on electricity tariff increases and those adopted by O.N.E. to recover arrears and to streamline its organization, have substantially improved the financial and institutional performance o f the 9 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 sector. This i s being further underpinnedwith support from the programmatic energy DPLs and the proposedinvestment loan to support O.N.E. restructuring. Solar ThermalPower Plant Development Worldwide N o large-scale solar thermal power plants have beenbuilt indeveloping countries to date, and no plant integrating solar thermal technology and combined cycle gas turbines has yet been built anywhere. GEF-supported projects are now in preparation in Morocco and Egypt, and under implementation in Mexico. The most significant solar thermal installations are in California where 354 MW o fparabolic troughs, with back-up gas-fired steam boilers, have beengenerating electricity and selling it to the utility for more than 15 years. However, to meet the cost reduction objectives o f GEF's OP7, it i s necessary to move beyond the troughhack-up boiler design upon which the California projects were based. The purpose i s to permit higher thermal efficiencies, improve the dispatching o f the plant and encourage greater competition in the design and supply o f the equipment. Such a plant would be more attractive to utilities, thus increasingthe market size. For this reason the project includes the following features: (i) bidders have been allowed to choose among qualified manufacturers for the parabolic trough designs and the gas-fired power equipment; (ii) competition i s key to ensure the lowest electricity cost possible and, whenever possible, locally manufactured components; and (iii) the contractor will have incentives to maximize output from the solar field, which will bring about a focus on O&M costs, thus bringingdown life-cycle costs. To accelerate utility acceptance o f a power generation technology based on intermittent energy sources such as solar, a way must be found to provide reliable backup and enable the delivery o f firm power. The project integrates the STP plant with a gas-fired combined cycle power plant such that continuous generation by the hybridplant i s possible regardless o f the solar radiation intensity at any particular time. Furthermore, more efficient construction, financing and operation can also be expected as a result o fprivate sector involvement inthe EPC and operation and maintenance contracts. Biddingprocess Given that no integrated solar thermal combine cycle plants have yet beenbuilt, and given that the solar thermal market includes a limitednumber o f suppliers, pre-biddingcost estimates were subject to a high degree o f uncertainty. Since the GEF grant funding was essential to allow inclusion in the overall project o f a technology that is not yet cost-competitive as an energy source, and the grant size was pre-determined, the bidding process needed to safeguard against costs far inexcess o f the grant. For that reason, bidders were asked to submit two offers: one for 30MW solar capacity and one for 20MW. This was deemed fully consistent with the objectives o f the project, since the learningattained with 20MW o f capacity does not differ significantly from learning with 30MW (see below). 10 Morocco ProjectAppraisalDocument IntegratedSolar CombinedCyclePower Project February2007 This is also consistent with the recommendation o fthe independentstudy team commissionedby the Bank, which concluded that bids should not "specify a particular solar field capacity, but rather a minimum threshold, with capacity offered an assessment criterion. The resulting competition will ensure the maximum capacity possible i s offered for the finance available." 6. Alternatives considered and reasons for rejection Inthe eight years over whichthis complex projectwas developed, using anuntestedtechnology and during a period o f significant changes inthe power sector, a number o f alternatives were considered, including outright cancellation. However, after due consideration, GEF, O.N.E., and the Bank retained their joint commitment to go aheadwith the project inaccordance with the mutually-agreed objectives. Choice ofplant site The pre-feasibility study financed by the European Community (EC) provided the economic analysis for the 11alternatives studied at the Jerada andAin Beni Mathar sites. The alternative at Ain Beni Mathar (about 80 km south of Oujda), which provided the lowest levelized tariff and the highest rate o f return, was selected. The selection also included criteria about the sun level, the availability o f cooling water, and the location with regards to the electricity grid'and gas network. It is notable that the relatively highsolar radiation (and hence temperature) and highelevationo f the Ain Beni Mathar site made it simultaneously preferable for the solar component, but suboptimal for the combined cycle component (which operates with lower efficiency at high temperatures and high elevation). The choice o f site was essentially a compromise permitting the effective testingo f the integratedtechnology concept, while incurring an incremental cost for so doing. However, this choice did impose a risk: if the solar component o f the project did not go ahead, because o f the complexities o f contracting and financing the project, the combined cycle plant would either be left in a suboptimal location, or be subject to serious delays as the whole project were redesigned in a different location. Nonetheless, O.N.E. decided to assume that risk. Choice of private versuspublic sector ownership The proposed project, along with other similar projects in the GEF portfolio, were initially expected to be implemented as Independent Power Projects (IPPs) and are now being developed as public sector power plants. The IPP approach was unsuccessful due to the risk aversion of the private sector to this new technology coupled with the general global decline in IPP interest in developing countries. InMorocco, O.N.E. launched two expressions o f interest for an IPP for the solar thermal combined cycle power project inMay and October 2002, but attracted no interest. Likewise, a planned seminar in May 2003 to inform and attract potential investors was not held due to lack o f interest. The issue was discussed with GEF Sec which provided its written approval on July 17, 2003 for the structure to be changed from an IPP to a public sector project. The issue was also brought to the attention o f the GEF council through a council paper titled 11 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 "Solar Thermal Portfolio: A Status Report" Information document number GEFK.23hnf.9 circulated for the M a y 2004 meetings. Choice of smaller versus larger solar capacity At the time of GEF work program inclusion in 1999, a pre-feasibility study, based on then- available cost estimates, concludedthat 38MW-45MW o f solar capacity could be financed with a $43.2 million GEF grant. More detailed analysis conducted subsequently, in a` full feasibility study, concludedthat possibly 30MW couldbe purchased for that amount. However, since there was very considerable uncertainty about marketreactionto an untested technology with very few suppliers, the biddingprocess for the proposedproject was designedto mitigate the risk o f costs provingto be higher than expected (as described above). The biddingprocess therefore allowed biddersto submit two solar options: one with a minimumo f o f solar capacity, which was used to determine the selection o f the winning bid, and one with a capacity of 3OMW. The outcome o fthe biddingprocess demonstrated the logic o fthat approach: even 20MW proved to cost well above $43.2 million (the lowest evaluated bid gave a capital cost for 20MW o f $66 million, and for 30MW it was $70.3 million.). O.N.E. nonetheless decided to proceed with the solar component o f the project -at the level o f 20MW - using $23 million o f its own financing to supplement GEF funds.3This decision was based on O.N.E.'s commitment to the agreed GEF objectives, and to avoiding the power blackouts that would likely occur inMorocco as a result o f serious delays incurred through redesigning the project to exclude the solar component. Furthermore, it was recognized that use o f own resources to this extent would not impose a significant tariffburdenon Moroccanconsumers. However, O.N.E. decided not to spend the additional $27.1 million o f its own funds that would have been necessary to reach 30MW o f solar capacity, because achievement o f the project objectives would not have been materially affected by that incremental expenditure, and O.N.E. would have incurred significant borrowing/opportunity costs for those additional funds. In essence, it was recognized by all stakeholders, that the global program objectives could be achieved equally with 20MW of solar capacity as with 3OMW, given that the objectives focus primarily on learning anddemonstration, rather thanon the direct reduction o f emissions. As the "Assessment o f the World Bank/GEF strategy for the Market Development o f Concentrating Solar Thermal Power" acknowledged in 2004, "Given that these are first-off projects in developing countries, the risk margin is likely to be high, resulting in the possible situation where all the bids come in either too expensive for the finance available, or non-conforming (reduced field size). The capacity o fthese first projects is to some extent arbitrary. It is unlikely that inten years time the issue o f whether the first ISCC project comprised 25 or 28MW o f solar will be an issue. What will be an issue is whether.. ..theyoperated successfully." For ease of presentation. the O.N.E. contribution i s given here as a portion o f the total capital cost o f the solar component. Elsewhere inthe report, O.N.E.'s contribution i s given as a portion of the incremental cost of the solar component. 12 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Cancellation of the solar component of theproject Cancellation o fthe solar component of the project was considered in2004, but rejected. Some GEFcouncil members expressed their concerns regardingthe slow pace o fimplementationof this portfolio at the May 2004 council meetings. Inresponse, the Bank commissioned an independentassessmento ftheseprojects inclose collaboration with the GEF Secretariat as well as the client countries andthe Solar Thermal Industry. The draft o fthis review titled "Assessment o fthe World Bank/GEFstrategy for the Market Development o f Concentrating Solar Thermal Power," Information document number GEF/C.25/Inf. 11was circulated to the GEFcouncil for the June 2005 councilmeetings for comments, and subsequentlyfinalized incorporatingthe comments received. The review, carried out by a consortium ledby Council for Scientific and Industrial Research (CSIR), South Africa, concludedthat the World Bank and GEF should not pullout o fthe portfolio but rather follow a "prudent, active support o fthe technology, but with appropriate exit strategies ifmilestones are not met." Two o fthe key conclusions o fthis study were: The solar thermal industry, beginningagain inearnest [after 354 MW additions in 1980s inthe U.S], is fragile. Against the thousands o f megawatts needed for the technology to reach cost-effectiveness, the Bank-GEF portfolio by itself will not lead any significant reduction inthe underlyingcost o f the technology. However, these projects are important to the global solar thermal industry as they constitute a significant percentage of the planned projects at present. 0 Given these are first-off projects in developing countries, the risk margin is likely to be high, resulting in the possible situation where all bids come in either too expensive or non-conforming due to reducedfield size. Therefore, bids should not specify a particular solar field capacity, but rather a minimum threshold, with capacity offered as an assessment criteria. Choice of small versus larger combined cycle capacity The combined cycle capacity was initially conceived at about 100MW, at the time o f GEF work programinclusionin 1999. Subsequently, it was increased to 207MW, given the rapid growthin demand for power inMorocco andthe economies o f scale o f the larger plant. Duringthe bidding process in 2006/7, an alternative option of 452MW was included, because another combined cycle plant elsewhere in Morocco was encountering serious delays. Ultimately, O.N.E. selected this larger option, inorder to avoid electricity blackouts inMorocco, and giventhat the increased combined cycle capacity would have no negative impact on the achievement o f the project objectives supported by GEF. Inshort, the solar learning experience is not significantly affected bythe combinedcycle ~apacity.~ A similar increase incombined cycle capacity took place duringpreparationof the GEF-supported Solar Thermal Agua Prieta I1Project inMexico. 13 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February2007 Choice of specific type of solar technology The Global Environment Facility (GEF) has identified "solar thermal-electric technologies in high insulation regions, initially emphasizing the proven parabolic trough variant for electric power generati~n"~,as one o f the renewable energy technologies it supports through its operational program number 7. Development o f solar power technology (STP) represents one o f the most cost-efficient options for renewable bulk,power production, and the most cost-effective way o f producing electricity from solar radiation. Indeed, STP could play an important role in meetingsome o f the increasingdemand for electricity, with fewer emissions than the alternative plants powered purely with fossil fuels. STP plants produce electricity in the same way as conventional power stations, except they obtain all or part o f their thermal energy input by concentrating solar radiation and converting it to high temperature steam or gas to drive a turbine. Essentially, STP plants include four main components: the concentrator, receiver, transport-storage, and power conversion. Many different types o f systems are possible usingvariations o f these components. Although there are, broadly, three solar thermal technologies: the parabolic trough, the central receiver, and the parabolic dish system; the parabolic trough is the most technically and commercially proven option. However, although solar electric generating systems have proven to be a mature electricity generating technology, they do not represent the end o f the learning curve o fparabolic trough technology. A numberofimprovements and developments have taken place since. One o f these improvements i s the integrated solar combined cycle system (ISCCS), which integrates a parabolic trough plant with a gas turbine combined-cycle plant. Essentially, the ISCCS uses solar heat to supplement the waste heat from a gas turbine in order to augment power generation inthe steam turbine. This represents cost savings for project usingthis design. Both the incremental cost and O&M cost o f the ISCCS are lower than a trough plant alone, and the solar-to-electric efficiency is improved. Studies have shown that the ISCCS configuration reduces the cost o f solar power by as much as 22 percent over the cost o f power from a conventional solar electric generating station (SEGS) o f similar size. The ISCCS i s the most efficient technology available and it has been adopted for the proposedproject (see Annex 15 for an illustration). It has however been decided to exclude thermal storage as this technology has not yet been commercially proven on a large scale. The Government, through the Ministry o f Energy and Mines (MEM) and O.N.E., is committed to the proposed project and has stressed its preference for a commercially proven technology for the solar capacity. As such, it has been decided that the project design be based on the parabolic trough technology. C. IMPLEMENTATION 1. Partnershiparrangements The project i s co-financed by O.N.E., GEF and the Afiican Development Bank (AfDB). Their respective contributions to the total project cost are 24%, 8%, and 68% respectively. GEF:OperationalProgramNumber7: Reducing the Long-TermCosts of Low GreenhouseGas-EmittingEnergy Technologies. 14 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 2. Institutionalandimplementationarrangements Consultants partially financed under a GEF PDF C grant, now closed, assisted O.N.E. in the preparation o fbidding documents, and draft EPC and O&M contracts and advised O.N.E. during the evaluation o fproposals. The construction and operation o f the ISCC power plant will be implementedby an EPC cum O&M arrangement secured through international competitive bidding. The Production Department o f O.N.E. will have the responsibility for overall project management. This Department will ensure the coordination and the technical and administrative management o f the project. It will work in close collaboration with the Supply and Markets Department for the procurement aspects, with the Environment and Quality Department for the coordination o f the studies and the monitoring of environmental measures, and with the Technical Department for the technical controls and oversight. The Financial Department will be in charge o f the project financial management, and coordination with the various loadgrant providers. The production department will be assisted by a consulting engineer to be recruited under the project and financedby AfDB and O.N.E. The World Bank will supervise and monitor the implementation o f the activities through regular supervision missions (with the African Development Bank) and regular contacts with O.N.E. The power station which comprises a combined cycle and a solar component will be jointly financed by AfDB, O.N.E., and GEF because there will be a single contract signed for both. Following the pre-qualification exercise that took place in May 2004, consortia were formed each o f which was composed o f a combined cycle manufacturer and a solar manufacturer. This arrangement minimizes the risk to the project due to the fact that the responsibility and the risk of interface between the combined cycle and the solar component i s left to the consortium and i s not borne by O.N.E. Since the responsibilities are clearly defined, the arrangement also reinforces the incentives for operatingthe plant inthe most efficient manner possible. The implementationperiodwill be three (3) years and i s expected to take place betweenMay 2007 andApril 2010. Inaddition, the project will be supervised over the next three years to learn from its operation and ensure that the integratedsolar combinedcycle power plant i s optimally operated. The Personnel and GenerationDepartments o f O.N.E. will oversee the training o ftheir own staff invarious aspects o fISCCtechnology. 3. Monitoringand evaluationof outcomes/results Monitoring and evaluation The project's primary purpose i s to demonstrate and encourage replication o f ISCC power generation technology. Consequently, an adequate project performance monitoring, evaluation, anddissemination system is a key component o fthe project design. 15 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 The monitoring and evaluation o f results and outcomes will be the responsibility o f O.N.E. Data' will be collected and reportedon by the EPC contractor and the consulting engineer while under contract. The successor, be it O.N.E. or a private operator, will take over this responsibility for the remaining life time o f the plant. This would allow continuous monitoring o f the project's keyindicators. The format, contents and frequency o f implementation progress reports as well as reporting procedures have been agreed with O.N.E.. The Bank will closely supervise the project during its construction and first three years o f operation to make sure that the learning from this experience has been fully captured and disseminated. A mid-termreview will be carried out after the first year o f operation to evaluate the achievement o f the project development objective and take corrective action to ensure an efficient operation o f the project, especially the solar component. Duringthe course o f implementation, the World Bank will monitor and evaluate global benefits related to OP7 objectives (market penetration, global cost reduction o f ISCC technology, etc.) for all the solar thermal projects inthe portfolio. Dissemination O.N.E. will disseminate the results from the project both domestically and internationally, as a way to support future replication. The main components o f O.N.E.'s dissemination strategy include: (a) transparency in the availability o f information from monitoring and evaluation activities; (b) ease o f access to relevant monitoring and evaluation information, as required by decision-makers and other users, including full disclosure o f non-confidential information; (c) special initiatives to engage policy and operations decision-makers and program stakeholders in internalizing the lessons from experience and best practices; (d) use o f lessons learned and best practices inthe development o f new policies and projects; and (e) systematic action on findings andrecommendations that flow from the M&Eprogram. Some o f the main dissemination techniques will include: preparation o f reports, summaries and abstracts; management and staff review sessions; wide participation in project review processes by project staff and intendedbeneficiaries; special analyses o f experience inproject documents; country and regional seminars and workshops. O.N.E. will also make all the information about the ISCC power plant, including performance indicators, available on its external web site. The dissemination will also be made through facilitating visits by the power industry, utilities and other interested institutions from all over the world to learn from the construction and operation o f the plant and the results achieved. O.N.E. has indicated that it welcomes such visits as well as requests for information. The primary end users o f monitoring and evaluation products are: GEF Council and GEF Secretariat, the relevant Conventions, STAP, other international organizations, NGOs, country representatives, power industry, utilities and related stakeholders and interested members o f the public. 16 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Capacity building o f O.N.E. for the above activities will be implemented as part o f a technical assistance component to be financed by the project. A result indicator has been included in the results framework regarding the training o f O.N.E.'s staff in integrated solar combined cycle power technology. The format will be a combination o f formal and on-the-job training. The dissemination o f global results and outcomes will be the responsibility, as for the monitoring and evaluation o f global benefits, o f GEF, andthe World Bank. . As part o f the dissemination and replication strategy for the project, the World Bank and GEF will undertake a number o f knowledge management activities, such as: Disseminate experience from the ISCC projects at key energy events and conferences, including those organizedby the Bank's Sustainable Development Network. Organize international workshops on ISCC projects, once operational, to share lessons learned from early operation o f the ISCC power plants. Identify financial resources for studytours from countries with potential interest in ISCC. Maintain a strong link with market initiatives for the development o f the CSP technology, such as the Global Market Initiative. Conduct a specific portfolio assessment o f the ISCC projects as part o f the Bank's annual GEF Project Implementation Review, with the participation o f stakeholders from power sector, industry, technology R&D institutions. 4. Sustainability Project sustainability The higher capital cost o f the hybridplant will be partly offset by the proposed GEF incremental cost grant and will not require significant increases intariffs to consumers. The integration o f the solar field with a CCGT is the most efficient technology available. The hybrid power plant i s expected to operate sustainably as an integral part o f the Moroccan power system. The incentive structure for the EPC cum O&M will ensure optimal design for integration o f the solar thermal with the gas-fired plant and maximize solar output from the plant when in operation. Dissemination o f information about this demonstration project will contribute to future replication inMorocco and elsewhere andhelp refine GEF strategy regarding this technology. The Government is currently engaged in the implementation o f policy measures that would: (i) gradually liberate the electricity market; (ii)rationalize energy pricing; and (iii)promote renewable energy and energy efficiency to reduce the country's energy dependence. O.N.E. has devoted considerable efforts to preparing the proposed project to address growing concerns in Morocco about the adverse environmental impacts o f SO2 and C02 emissions from conventional power plants. The Government o f Morocco (GoM) and O.N.E., which will be directly responsible for the project, are fully committed to the project's success and sustainability and have already collected a considerable volume o f information and data on the construction, operation and maintenance o f solar thermal power plants in the U S and Europe. O.N.E. power 17 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February2007 plant staff will be trained in the requisite skills for operating and maintaining a hybrid solar combined cycle power plant duringthe construction and operation of the plant. Solar thermal power (STP) technology has made remarkable progress over the past decade. Many new STP plant technologies and component designs are now being operated successfully. Teething problems experienced during adjustment periods have been successfully addressed. Because o f the important risks related to the introduction of this complex technology, governments and agencies in Europe and the U S have cooperated with the private sector, sponsors and financial institutions to support demonstration projects to minimize investmentrisk. As expected, performance o f some o fthe STP demonstration plantswas lower than expected and appreciable adjustments and operational modifications were made to ensure trouble-free operation. After the initial teething problems, the performance characteristics o f the plants have approached designtargets and even exceeded them ina few cases. For the proposedproject, a large part o f the experience gained inconstructing and operating new STP projects in the U S and Europe will be made available through GEF support. However, implementation and operation o f the technology in a developing country still carries appreciable risks. The plant availability factor may be lower during the first year or two than those achieved inoverseasprojects. Nevertheless, the chance ofultimate success for the project is good, andthe global benefits from the dissemination o f the technology in Morocco and other countries should be substantial. The success of the proposed project, which GEF support would promote, i s the critical first step in Morocco's and the Northern Africa region's gradual approach for adopting and developing ISCC technology on a large scale. GEF support i s also critical to strengthening and speeding up the dissemination and replication strategy. Replicability The general approach adopted by the project is highlyreplicable within Morocco, regionally and globally. The main barriers for future replication are costs and the associated learning needs, the overcoming o f which this project i s expected to address by providing cost reduction and operation information and disseminating it throughout the STP community. Successful construction and operation o f the proposed commercial-scale ISCC project will convincingly demonstrate a cleaner and reliable way to meet growing power demand in Morocco and thus pave the way for replicating the technology elsewhere in Morocco and particularly in the Southern Mediterranean "sunbelt" (Algeria, Tunisia, Libya, and Egypt). The project would also promote replication o f the technology in Morocco and elsewhere by: (a) transferring experience in the design, construction, and operation of ISCC plants in a developing country context; (b) facilitating the manufacture o f some ISCC components inMorocco, which will reduce their cost and make the technology more cost-effective; and (c) training personnel o f neighboring countries' utilities to operate ISCC power plants. Furthermore and most importantly for replicability, there are no countervailing reductions in international prices o f competing fuels (particularly fossil fuels) and competing technologies. Quite the contrary is currently happening in international markets, particularly for fossil fuels where the highprice levels achieved are widely believedto be a long-run trendthat is likely to be sustained. 18 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 The legal and regulatory framework currently being put in place under the Bank's energy Development Policy Loan (DPL), now under preparation, supports the development o f renewable energy and its integration into the grid and lays the ground for replication o f the solar combined cycle power technology in Morocco. Furthermore, the project's potential for replicability in Morocco alone i s large because the country has one of the world's best solar resources. The success o f the proposed project, with GEF support, i s the critical first step in Morocco's gradual approach for adopting and developing ISCC technology on a large scale. GEF support is also critical to strengthening and speeding up the dissemination and replication process. After the replication o f the proposed ISCC project on a larger scale in Morocco and elsewhere, it i s expected that the production cost o f the ISCC power plants will fall significantly and that the levelized electricity generation cost will be about the same or even less than that o f conventional power plants. The cost reductions will result from three factors: reduced component costs due to increased manufacturing volume, economies o f scale from increased plant size, and technological improvements. 19 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 5. Criticalrisks and possible controversial aspects FromOutputsto Objective The continued commitment to innovative Continued engagement with the G o M for approaches to clean energy production M the success o f the project through sectoral (especially renewables) i s not maintained policy dialogue. The level-playing field between renewables 1. Develop an energy strategy (including and other sources o f energy is not renewables) as part o f the Energy D P L established / maintained M 2. GEF grant and competitive bidding provide safeguards FromComponentsto Outputs Technological or design problems are Onlypre-qualifiedfmwere allowed to encountered M bid. However, those "problems" would in themselves constitute learning, and hence would contribute to project objectives. There i s no incentive to ensure that the Ensure that incentives are properly solar contribution i s maximized / the designed and included inthe contractual incentive i s not working properly? M arrangements, particularly inthe O&M contract O.N.E. does not have experience with O.N.E. staff will be trained inthe requisite hybridsolar combined cycle power plants. M skills during the construction and operation ofthe plant. O.N.E. does notplace a highpriority on 1.Amonitoring and evaluation planhas disseminating learning. already been agreed with O.N.E., including dissemination indicators to be monitored duringthe operation o fthe plant 2. O.N.E.has taken "ownership" o f GEF program objectives, and committed substantial finds to their pursuitinthis project. OverallRiskRating I M 6. Grant conditions and covenants Effectiveness conditions The following events are specified as additional conditions o f effectiveness o fthe Grant Agreement: 0 Engineering consultant recruited. 0 EPC/O&M signed. 20 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 Disbursement Conditions Effectively compensate the people affectedby the land acquisition for the ISCC power plant. Effectively compensate the people affectedby the land acquisition for the gas spur. Other covenants: Project Execution and Environmental and social safeguard measures 1. Incarrying out the Project, the O.N.E.shall ensure that: (a) all land acquisition requiredfor the purposes o f carrying out any works under the Project, and activities related to the resettlement, rehabilitation and compensation o f project affected person in connection with such works, will be completed prior to the carrying out o f such works and in accordance with the provisions set forth inthe EA, EMP, the RPF and the relevant RAPs ina manner satisfactory to the World Bank; and (b) the RPF and related safeguard policies shall uniformly apply to all components o f the Project that result in involuntary resettlement and/or land acquisition, regardless o f the source o f financing. 2. (a) The Environmental Assessment, the EMP, the RPF and the R A P s shall not be amended, revised, or abrogated without the prior approval o f the World Bank; (b) Prior to the carrying out o f any Project activities not identified, assessed, nor included in the EA or EMP, such activities shall be subject to an environmental assessment, under terms o f reference and inform and substance satisfactory to the World Bank; and (c) Land acquisition activities under the Project which have not been identified, assessed, nor included in a RAP or RPF shall be subject to an environmental and social assessment under terms o f reference and inform and substance satisfactory to the World Bank. 3 0.N.Eshall provide biannualproject reports inaccordance with Section2/06 o fthe Standard Conditions and on the basis o f indicators agreed with the Bank. D. APPRAISAL SUMMARY 1. Economic and financial analysis The economic benefits o f the proposed project include increased availability and improved quality o fpower supply. Furthermore, the project would assist ONE to develop institutional and technical capabilities in solar thermal combined cycle technology. The project i s expected to play an important role inthe optimal development and operation o f the power subsector. The capital costs o f project, reduced by the amount of the grant, together with incremental fuel and operating and maintenance costs associated with i t are shown in Annex 9. All costs are expressed interms o ftheir equivalent border values. The minimummeasure ofthe economic benefits associated with the project i s represented by incremental sales revenue. On this basis, the net present value is estimated at USD48 million at 10%discount rate and the rate o f returni s 11.4%. 21 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 The foregoing revenue based measure o f the net present value is, by its nature, more a measure o f the adequacy o f tariffs than of the true economic merit o f the project. A better measure o f economic benefits couldhave been obtained by estimating consumers' willingness to pay (WTP) for the incremental electricity sales. However, since domestic consumers are subsidized, the WTP is likely to be much higher than the average 2006 tariff used in the calculations. If, therefore, the project i sjustified with the average tariff used as proxy for economic benefits, it i s afortiori justified ifone were to use WTP. The switching values6 o f critical variables (investment cost, fuel cost, and sales) calculated in Annex 9, show that the project i s sensitive to variations inthese variables. Fuels costs shouldbe kept under constant review over the life o f the project and measures to adjust tariffs taken in a timely manner. Incremental CostAnalysis An incrementalcost analysis based on intertemporal comparisons o fthe baseline and likelyplant and the proposed GEF alternative i s shown in Annex 16. This incremental cost analysis shows that the incremental cost o f the Ain Beni Mathar ISCC plant i s $63.16 million (of which $62.5 million i s incremental capital costs). US$43.2 million will be contributed by GEF and the remaining US$ 20 million will be financed from 0.N.E's resources (equity and AfDB borrowing^).^ See Annex 16 for details of the incremental costs (particularly Table 16.4). Financial analysis 1. Historical analysis (2003-2005) : O.N.E.'s financial position duringthe last three years (2003-2005) was sound. This is supported by the following: (i)adequate tariff (average o f USD 0.08 per KWh in 2006, second highest in the MENA region after Lebanon) compared with O.N.E.'s operating cost excluding depreciations o f USD 0.065 per KWh; (ii) new client arrears, which were substantially reduced from 9 months in 1994 to 4 months in 1997. According to the 2005 financial data, last year arrears have represented about 4 months and half of turn over. Table 1 (Annex 9) provides a summary o f O.N.E. financial statements and performance during the last three years'. The historical analysis shows that: O.N.E. operating revenues increased by more than 16% in2005. Half o f the growth was due to the quantity o f energy sold which increased by about 9 %, confirming the tendency o f the last three years in terms o f growth in electricity demand in Morocco. The A switching value indicates by how muchthe variable has to change to reduce the netpresent value to zero. 7For ease o fpresentation. the O.N.E. contributionis given here as a portion o f the incremental cost o f the solar component. Elsewhere inthe report, O.N.E.'s contribution i s given as a portion o f the total capital cost o f the solar component. The audit report for 2005 is still due. The financial data usedhowever is considered as final by the ONE finance department. 22 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 remaining change in operating revenue was due to other operating revenues which doubled in2005. However, the increase in operating revenues was more than offset by a sharp increase in production costs due to: (i) infuel costs which almost doubledbetween 2003 and increase 2005 and (ii)14 % increase in the cost o f power purchased and imported by O.N.E. mainly from Jorf Lasfar IPP and Spain. Consequently, the operating income was negative in 2005 for the first time in three years. In order to preserve its financial autonomy, O.N.E. obtainedthe government approval for a 7% averageincrease intariff. The change inpriceswas made effective intwo stages during2006 (inFebruaryfor industrials andin July for households). This was the first increase inO.N.E. electricity prices since 1997. 0 Arrears over a year old owed by former publicly-owned and operated regional utilities companies remain an issue. Their total amount i s MAD 1,072 million (USD 123 million equivalents). Most o f the arrears, 900 MAD, are due to the former public water and electricity utility o f Casablanca which i s now operated by Suez under a concession contract. Under the contract the private operator i s not responsible for the liabilities o f the previous public entity. Therefore, unless an agreement with the Municipality o f Casablanca i s reached O.N.E. will have to write them off as part o f the extensive balance sheet cleaning exercise currently underway. These arrears are expected to have minimal impact on O.N.E.'s future financial viability. Projections and scenarios analysis (2006-2011) Financial projections for 2006-2011 (Table 2, Annex 9) are largely based on the assumptions summarized in Table 1. These assumptions were discussed with O.N.E. and are based on the utilityleast cost plan for production and expectations interms o fcoal, fuel andnatural gas prices. The base case scenario takes into account conservative expectation for hydropower production; succession of low andmediumyears interms o fwater flows. 23 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Table 1 :Base case scenario assumptions I HvdroDower Droduction exnectation I L o w I Medium 1 low IMedium I L o w I Medium I MAD/ US Dollar exchame rate I 9 1 9 1 9 1 9 1 9 1 9 1 MAD/ Euroexchange rate 11 11 11 11 11 11 Investmentprogram(Mhons M A D ) 9 7,035 5,400 5,640 8,330 8,660 3,410 Debt service (Mhons MAD) 1,087 1,171 7,163 2,207 2,463 2,680 The planned investments for the period 2006-2011 will total approximately MAD 36 billion (USD 4 billion equivalent). These represent the expansion and upgrading o f more than 70 percent o f O.N.E.'s fixed assets. The base case scenario includes also O.N.E. planned extemalization o f its pension fund which will require about 11billion MAD (USD 1.2 billion equivalent) o f additional debt to be financed through the issuance o f two bonds in 2006 and 2008. Note that 2006 losses in terms o f net income are mainly due to O.N.E. write o f f o f the pension fund assets. The write off should not affect O.N.E. cash position. Overall under the base case scenario and taking into account the 2006 tariff increase, O.N.E.'s financial situation should remain sound during the next five years as perceived from its cash position, earningbefore interest and taxes (EBITA) and debt service ratio. Nevertheless, given that O.N.E. i s currently undertakingan update o f its investment master plan in order to be able to respond to the recent upward change in terms of growth in electricity demand, it i s likely that capital expenditure will be higher than currently planned. While the financing of any additional capital expenditures would be financed through PSP/IPP schemes, O.N.E. might need further tariff revisions in order to be able to raise additional capital (see scenario analysis below). 9Including the investments implemented by the private sector under concessions contracts with ONE. 24 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 A sensitivity analysis was carried out to assess O.N.E.'s financial situation under different scenarios for fuel, coal and natural gas prices as well as the price o f power purchased. The analysis included two scenarios: (i) annual increase in the cost o f fuel, coal and natural gas 5% and 5% annual increase inthe price o fpower purchased and (ii) same as scenario 1but with 10% annual increase instead o f 5%. The table below summarizes the impacts o f both scenarios on O.N.E.'s EBITA and Debt coverage. IIScenarios summam, 2005 2006 2007 2008 2009 2010 2011 Base case II II II II II II II II I Debt coverageratio I 6.6 I 2.6 I 2.4 1.1 I 1.1 I 0.9 I 1 O.N.E.'s financial position remains sound under the first scenario. However, as shown by the results from scenario 2, an increase o f more than 5% will require a further increase in O.N.E.'s tariff. Should the second scenario materialize the lengthy process for public utility tariff revision inMorocco mighthave a further negativeimpact onO.N.E.'s financial performance. 2. Technical The main technical issue to be addressed is the specification o f the performance required from the plant in terms o f its capacity, output, fuel consumption, and efficiency and how these are to be divided between the conventional and solar portions o f the plant. In addition to minimum qualifications for the solar trough technology, these performance specifications will ensure effective integration o f the steam systems for the solar field and the gas-fired combined cycle plant. The contractor selection process reviewed plant designs to ensure that the plant will operate effectively in all modes. In particular, integration and control o f the system should be flexible enough to allow the solar contribution to be consistently maximized, while under other circumstances allow power to be efficiently generated on natural gas only (e.g., duringnight time or if, for some reason, the solar field i s not operational). Creating an incentive structure to maximize solar output from the field for the whole life o f the plant and a bid evaluation mechanism, which i s transparent but does not inadvertently introduce a bias for or against a particular technology or cause bidders to `game' the evaluation i s a significant task. The bid evaluation criteria and the determination o f the levelized electricity cost (LEC) include incentives for the maximization o f the solar output. This i s reflected in the EPC and O&M contracts. 25 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 3. Fiduciary The financial management system was appraised to determine if it complies with the requirements o f the Bank in respect to OPA3P10.02. The evaluation o f the O.N.E. covered the areas o f accounting and financial management, as well as the reporting and auditing process of the project. The financial management system, including necessary arrangements to respond to the needs o f the financial monitoring o fthe project, satisfies the requirements o f the Bank. The financial management system presents a low fiduciary risk. The project will be carried out while beingbased on the procedures andthe accountingand financial organizationo fthe O.N.E., which has a financial management system considered to be satisfactory. As an autonomous public entity with commercial and industrial characteristics, the O.N.E. has financial autonomy and is subjected to the financial control o f the State. Its accounting system is based on the rules applicable to the state owned enterprises and its financial statements are submitted to an annual external audit. In addition, the O.N.E. has acquired a substantial experience in financed project management. The financial management will be ensured by the finance and treasury divisions within the financial department o f the O.N.E., in coordination with the concerned technical departments. Specific arrangements for the needs for financial reporting were approved during the evaluation. Financial monitoring reports (FMR), which will cover all the activities and sources o f funds o f the project, will be prepared quarterly by the O.N.E. and transmitted to the World Bank and the other donors of the project 45 days after the end o f each period. The final format o f these reports has been transmitted to the O.N.E. during appraisal. An annual audit report o f the project accounts, transmitted to the Bank no later than six months after the end o f each exercise, will be carried out in accordance with the Bank guidelines by an acceptable auditor and according to acceptable terms o f references by the Bank. The project i s co-financed by GEF, AfDB, and O.N.E. Financial flows will come from the funds o f the GEF via the Bank, loan funds from the AfDB, and counterpart funds financed by the O.N.E. Flows o f funds between the World Bank, the O.N.E., and the recipients will be organized according to traditional disbursement procedures o f the Bank. In order to facilitate the disbursement o f the eligible expenditures, the O.N.E. will open separate accounts individualized for each donor in the name o f the project in a commercial bank. The opened account for the funds will be managed in accordance with the procedures o f the Bank as regards to disbursement. 4. Social The development of the power plant is expected to have a positive social impact on the local population and the local economy (i) providing both direct (and indirect) sources o f employment during the construction and production phases (500 direct jobs during the former and 50 during the latter phase) - the majority o f workers will be locally recruited; (ii)leadingto improvementsinlocalinfrastructureincludingthe rehabilitation oflocal roads; and (iii) improving access to electricity particularly for poor rural families who are currently not connected. 26 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 During project preparation, the World Bank's team and a representative o f the Ofice Nationale d 'klectricite' (O.N.E.) conducted a series o f informal consultations with pastoralists in the immediate vicinity o f the proposed plant. The local pastoralists viewed the plant as an asset to the region given its employment generation potential and improved availability o f electricity. The project site i s situated 10 kilometers to the West o f the national route P19 linking Oujda (90 km to the North) and the town o f Ain Beni Mathar. The entrance to the access road for the project site i s about 5km to the north o f the town o f Ain Beni Mathar. The project site itself and its immediate vicinity are sparsely populated. The main economic activities o f the inhabitants are extensive agriculture and extensive livestock grazing. The site itself i s used by local nomadic pastoralists for grazing purposes. However, given the large tracts o f land available in the vicinity it has been determined that the livelihoods of the pastoralists will not be unduly compromised by the presence o f the power plant, or the access roads, power lines or gas lines. A potential negative social impact of the project is the spontaneous development of a shanty town community in the vicinity o f the project site drawn to the increased employment opportunities in the area. The presence o f a sizeable town in the area, Ain Beni Mathar, may mean however, that immigrants to the area may relocate there. Local authorities and O.N.E. will have to be aware o f the potentially negative impacts and monitor the development ofthe area. 5. Environment An initial environmental assessment was undertaken by a consultancy firm and completed in mid-2004. The project was designated as Category B project on the basis o f this first report and the subsequent Environmental Assessment Study performed by a consortium composed of another international and a local consultancy firm; as the O.N.E. decided to undertake a complementary study in order to cover the aspects related to the construction o f the two 225 kV and the 60 kV transmission lines, and to cover some o f the missing aspects related to the World Bank policies and requirements. The new assessment, undertaken for the totality o f the project, with both components integrating the solar trough collector field and the traditional natural gas-based power generating unit, confirmed that the project has minimal negligible impacts on the environment as the plant utilizes solar and natural gas. The use o f solar power does not produce any pollutants, and the combustion o f natural gas generates the lowest level o f C02 emissions compared to any other fossil fuel. In addition, the combustion o f natural gas does not entail SO2 emissions, and has significantly lower emissions o f NO2 than other fossil fuels. In that respect, the project has an overall direct environmental benefit as it will lead also to an increase in the share o f renewable energies in the country's energy sector, and a reduction o f green house gases emissions. The report also confirmed the potential very positive socio-economic fallouts due to the creation o f employment. 27 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 The key environmental issues raised and properly addressedinthe environmental assessment and the EMP are the main risks that could exist due to an accidental contamination o f the site by the heating fluids during operation as well as during transportation to the site in the construction phase. Such risks will be largely reduced and properly managed through the inclusion o f a retention and treatment system and by following the safety measures for proper handling and transportation o fhazardous substances. The volumes o f cooling water to be pumped from the aquifer, inthe selected proposal presented in the international competitive bidding, should not exceed the maximum amounts, as determined in the environmental assessment in order to maintain the current balance o f the resource. The most important impacts expected duringthe construction phase are due to the large volumes o f construction and solid wastes that will be generated. The Environmental Management Plan has included the potential environmental impacts associated with the construction o f the Power Plant, the substations, the access road to the Plant and the transmission lines; in addition to the proposed mitigation measures, and a proper monitoring program. A capacity building program to strengthen the capacities o f the O.N.E. for the follow-up on the implementation o f the overall EMP, as well as the implementation o f the parts o fthe EMPunderthe direct mandate o f the O.N.E., has also beenbuilt ininto the project. Inaddition and giventhe special nature of the project as a GEF project aiming at disseminating the results and the lessons learned to increase the overall global benefits, a comprehensive monitoring and evaluation program that goes beyond the environmental safeguards requirements o f the Bank has been included in the Environmental and Social Development and Management Component. 6. Safeguard policies Environmental The project has triggered the Environmental Assessment Policy (OP 4.01), which requires a partial assessment to be conducted for the project, and the preparation o f an Environmental Management Plan. The Borrower has contracted out an independentconsultant to undertake this assessment and prepare the EMP. The review o f the first drafts o f the EMP revealed an obvious lack o f details and specific mitigation measures, which did however exist in the Impact Assessment Report. The Borrower was accordingly requested to amend the EMP with the support o f the consultant, to integrate the specific mitigation measures. The potential environmental impacts o f the power plant are confined to the site and appropriate mitigation measures have been identified and included in the Environmental Management Plan (EMP), which follows the World Bank's guidelines, notably OP 4.01. Social The Social Safeguards policy onInvoluntary Resettlement (OP/BP 4.12) has beentriggered as it has been determinedthat land acquisition will be requiredfor the construction site o f 28 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 the power plant, the gas pipelines, the access road and the electric lines. Specifically, the project requires the acquisition o f -- 159 ha 97 are 50 ca for thepower plant; 6 ha 17 are 11 ca where the gas pipelines will be laid and 12 ha 35 are 20 ea - will be temporarily occupiedhsed during the constructionphase; and For the access road and electric lines, a study is being undertaken to determine the exact land size requirements. A Resettlement Action Plan (RAP) and a Resettlement Policy Framework (RPF)havebeen prepared for the project. The RAP applies to the power plant site and the gas pipelines because the project-affected people have already been identified and land acquisition procedures have been launched. Since the exact nature and extent o f land acquisition for the access roads and electric lines has not yet been determined, an RPF has been formulated, which will be followed with a Resettlement Action Plan downstreamonce the feasibility study has been completed. At the time o f appraisal, the project affected persons on the Power Plant site had been compensated by O.N.E. for the loss o f agricultural productivity. The assets valuation o f the people on the gas pipeline site has been completed and O.N.E. anticipates to proceed to the compensation due to these people prior to the start o f the work. As mentioned earlier, the precise sites and lands to be acquired for the construction o f the access roads and the electric lines have not yet been determined; hence the compensation procedure will be launched once the sites and the people whose land will be acquired have been determined, as stated inthe RPF. Thepersons and government agencies affected by the land acquisition canbe classified as follows: - Public land: For the power plant site, the Ofice Nationale de I'Electricite' (O.N.E.) has proceeded with the purchase of land from the Ministryo f Interior, the custodian o f public collective land. Two land parcels for the gas pipelines will also be acquired in the same manner. - Collectiveland owned by the Communeof BeniMathar - Collectivite' Ethnique de Be'ni Mathar: O.N.E. has compensated the collective landusers who are actually farming on the - site selected for the power plant for the loss o ftheir cropsharvest. Private land:For the gas pipelines, 21 landowners will be compensated for their landand any eventual loss o f cropsharvest. As for the power plant site, there are no private land - owners whose landwill be acquired. Land owned by public Agencies (Office Nationale de Chemin de Fer, Direction Rkgionale de 1'Equipement, et 1'Agence du Bassin Hydraulique de Moulouya): O.N.E. i s preparing and processing a request letter for the permission o f temporary occupation o f these lands ownedby public entityagencies duringthe constructionphase. InJune 2006, a social assessment was conductedat the project site with all the acquisition- affected people. A series of intensive consultations were conducted with 8 persons whose land andor assets will be affected by the power plant construction and 21 persons affected by the gas pipelines. The people were informed about the project and the compensation 29 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February2007 procedures for their loss. Inaddition the consultations touched upon the implications o f the project in terms o f employment generation. The assessment further improved the local communities' understandings o f the project and its implications, and confirmed that the populations are awaiting the employment opportunities whichthe project will likely offer. Equally, elected representatives o f the local commune o f B6ni Mathar as well as three public agencies that will be affected by the land acquisition for the gas pipeline, including I'OfJice National des Chemins de Fer (ONCF) ;la Direction Rkgionale du Ministkre de 1'Equipernent et 1'Agence du Bassin Hydraulique du Moulouya have been consulted in this regard. The entityresponsable for land acquisition inO.N.E. is the Division Gestion du Patrimoine et des Affaires Immobilikres. The Division has experience in land acquisition issues and operates according to Moroccan law. However, given their unfamiliarity with Bank guidelines, a capacity buildingprogram will be conducted for the 0.N.E.staff working on land acquisition inorder to enhance their knowledge about the Bank's guidelines on Social safeguards, and precisely the policy on Resettlement and Land acquisition. It is further recommended that a third party (NGO or consultant) be hired to work with O.N.E. and provide additional oversight on land acquisition issues during the implementation and supervision stage o f the RPF and RAP, in compliance with Bank social safeguards to ensure the timely implementationo f land acquisition procedures. Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) 11 [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, beingrevisedas OP 4.11) [ I [XI Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OD 4.20, beingrevised as OP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety o f Dams (OP/BP 4.37) [I [XI Projects inDisputedAreas (OP/BP/GP 7.60)* [ I [XI Projects on InternationalWaterways (OP/BP/GP 7.50) [ I [XI 7. Policy Fxceptions and Readiness Not Applicable * By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputed areas 30 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 Annex 1 Annex 1:Countryand Sector Background MOROCCO:INTEGRATED SOLAR COMBINED CYCLE POWERPROJECT TheEconomy 1. Promoting rapid growth and creatingjobs: Morocco's population i s about 30 millions and its 2005 income per capita was about $1,653. Approximately 400,000 new jobs must be created annually until 2010 to meet the goal o f 6% unemployment set in 2004 by the government. The challenge for the country i s therefore to promote rapid economic growth as an engine for job creation. 2. Maintaining macroeconomic stability: Morocco has maintained macroeconomic stability. Morocco's consumer price inflation rate was 1%in2005, down from 1.5% in2004. As a result o f higher food and fuel prices, it i s estimated to have been2.5% in 2006. The challenge for Morocco is to keep the inflation rate differential between Morocco and its main trading partners incheck so as to maintainthe competitiveness of Moroccan exports. 3. Controlling fiscal expenditures: Controlling fiscal expenditures remains a priority for Morocco. The fiscal position of the Kingdom improved in 2005 despite important expenditures generated by the implementation o f early retirement programs and higher petroleum product prices, because of the remarkable resilience o f fiscal revenues. The 2005 budget deficit was about 4.2%. The public wage bill accounts for more than half o f government expenditures and control i s therefore a priority for the government. The purpose is to reduce its weight relative to gross domestic product (GDP) and to strengthen public savings to finance public investment. Early retirement and other measures which have benefited about 38,800 public servants have contributed to the reduction o fthe wage bill from 13% o f GDP in2005 to 12 % o f GDP in2006. 4. Fostering efficiency and trade: Since the early 1 9 8 0 ~Morocco has pursued other ~ economic liberalization efforts including a reform program supported by the World Bank and International Monetary Fund (IMF). Morocco has signed several agreements with the European Union on economic cooperation, including one establishinga free trade zone for industrial goods over a 12-year transition period. The U.S.-Morocco Free Trade Agreement (FTA), which was signed in 2004, eliminated tariffs on 95% o f bilateral trade, with the remaining tariffs to be eliminated over the next nine years. TheEnerm sector 5. High level of import dependency: a source of vulnerability and of concern over security of supply: Morocco is almost entirely dependent on imports to satisfy its energy demand, with 95% o f primary energy demand (excluding non commercial forms o f energy) covered by imports. The country i s the largest energy importer in northern Africa with a total cost for its imports increasing from $3 billion in2004 to $4.2 billion in2005 because o f risingoil prices. 31 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 1 Imports are dominated by oil, accounting for 2/3 o f energy imports, and coal ( 1/3 o f imports), while electricity is only a small proportion o f imports at present. Energy imports have increased steadily since 2000 andrepresented 22 percent o f the country's imports (US$4.6 billion) in2005. Thus, Morocco is highly exposed to international price fluctuations,' which have a destabilizing effect on its balance o f payments. The increase in energy prices i s estimated to have reduced Morocco's GDP growth by 1percent over the 2000-05 period.2 Inthe Government's base case projections, Morocco's energy risk exposure i s projected to grow, as consumption increases from 10 million tons o f oil equivalent (toe) in 2005 to 17 mtoe in 2014. The energy price risk exposure also impacts the poor directly through the increase intheir energy-related expenditures, which presently represents 8.7 percent o f their b ~ d g e t . ~ The price control policy in place since 2000 has substantially subsidized consumer prices for petroleumproducts. Energy subsidies representedUS$1.04 billion in 2005 or 46 percent o f the Government's capital investmentbudget, andwould have further increased to US$l.26 billion in 2006 had the Government not taken measures inSeptember 2006 to reduce subsidies. One o f the key element o f Morocco's energy policy i s to reduce import dependency and increase security o f supply through the development o f indigenous sources o f energy ( in particular renewable energy) andenergy conservation. 6. Universal access to electricity, strong electricity demand growth and urgent need for additional power generating capacity: Access to electricity, a priority o f the Moroccan government, i s already high and increasing hrther with a rapid growth in rural electrification: from only 18% in 1995, it has increased to 72% in 2005 and 81% in 2006 and i s projected to reach 100% in 2007. This rapid growth in rural electrification will contribute to boosting electricity demand growth. Growth in Moroccan electricity demand has accelerated over the last 3 years from 6% p.a. on average during 1997-2002 to 8% p.a. during 2003-2006. Even with intensified electricity conservation and demand side management (DSM) efforts, electricity demand is expected to continue growing at a similar rate. The "Office National de 1'Electricitk" (O.N.E.) projects that peak demandwill grow from 3300MW in 2005 to between 4825MW and 5300 MW in2010 and 7000MW and 8500MW in2015 depending on assumptions on economic growth and energy conservation. Ifthe Ain Beni Mathar plant is not commissioned on schedule by 2010, then power generating reserve margin o f lo%, even if capacity in the pipeline (projects under construction or capacity will be insufficient to meet the level o f electricity demand, while maintaining the target committed) i s fully commissioned. No large scale new plant has been commissioned inMorocco The increase o f petroleum product prices from US$38.25 per bbl in 2004 to US$54.0 per bbl in2005 increased Morocco's import bill by US$1.5 billion and imports' share in the balance o f payments from 17 percent to 22 percent. Steam coal prices have also increased significantly over the same period, from US$34.9 per ton (Europe) in2000 to US$69.6 per ton in2005. This estimate is based on the evaluation o f DEC o f the impact o f a $30 increase o f oil prices on growth for middle-income countries. Energy expenditures at full market price represented in2000 about 8.74 percent o fhousehold expenditures for the lowest income quintile and 7.29 percent for the highest income quintile, based o n Morocco's 2000-0 1household survey results. 32 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 1 since March 2005 when the CCGT of Tahaddart came into operation. Ain Beni Mathar will be the first large scale plant to be commissioned after Tahaddart. The proposed capacity for Ain Beni Mathar has been doubled because another CCGT project at A1Wahda, originally scheduled to be cofnmissionedin2008-09, has been cancelled because of lack o f availability o f natural gas. The project was conditioned on the signature o f a new gas contract with Algeria which failed to occur. To face this tight capacity situation, the Government o f Morocco has increased the ceiling for autoproduction capacity from lOMW to 50MW, and O.N.E. i s offering third party access for those generators. 7. Increasing role for natural gas as a way to diversify the energy mix, but penetration hindered by lack of resources; Extendeduse o f naturalgas, especially inthe power sector, i s a cornerstone o fthe country's energy policy, aiming at the diversification o f the sources o f energy, the provision o f energy at the lowest cost and the reduction o f the environmental impact. The commissioning o f the Tahaddart planthas resulted inan increase inthe share o fnatural gas in Morocco's primaryenergy demand to 3.5% in2006, from less than 1% in2004. The commissioning o f Ain BeniMathar would lift that share to 6%, but it would also absorb the remainder o f the transit gas available. Furthernatural gas penetrationwould require an agreement with Algeria on contracting additional gas volumes or the developmento f additional gas import infrastructure, which i s unlikelyto be feasiblebefore 2012. For the moment, plans for additional gas-firedpower plants have been cancelled. 8. Regional energy market integration: The Government recognizes that the country could benefit significantly from integratinginto a regionalpower market. This would enable Morocco to receive back-up services and benefit from reserve capacity at a lower cost, purchase/sell electricity f r o d t o neighboring countries on the best financial terms, and possibly, export "green electricity" from wind farms4. The potential gains interms o f avoided investment inreserve capacity, improved security o f supply, and access to cheaper electricity contribute to lower the cost o f electricity A Protocol was signed in2003 to create a Maghreb regional energy market that would integrate gradually with the EUenergy markets andthe EuropeanCommission is financing a study on regional market integration. The EuropeanInvestmentBank has already been active infinancing the strengtheningo fthe interconnectionbetween Morocco and Spainwhich was increased in2005 to 1400MW. The strengthening o f the interconnectionwith Algeria will be completed by the end o f 2007. AlthoughMorocco is a transit country for Algerian gas exports to Spain andPortugal, a regional gas market has not yet developed inpractice. The Algerian gas i s transported across the Strait o f Gibraltar via the 300-350 Bcf/year Maghreb-Europe Gas (MEG) pipeline. Morocco receives royalties (in cash or inkind) from the pipeline as payment for passage through its territory and i s For instance the strong growth indemand in2006 was inpart met through imports as imports from Spain increased from 784 GWh in2005 to 2003 GWh in2006. 33 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 1 increasingly turning to natural gas to meet increasing energy demand, especially in the power sector. However, as discussed above, the volume o f gas available is limited and may not allow the development o f other power stations beyond Ain Beni Mathar. 9. Promotion of renewable energy and energy efficiency key to ensure security of supply and reduce import dependency: Inthis climate o f strong demand growth and expensive energy, energy efficiency (EE) and renewable energy (RE) seem to be the most promising ways to reduce dependency on imports. The Government has therefore given priority to EE and RE inits energy policy, and a new program to accelerate the penetrationo f renewables and to promote EE was announced by the Council o f Ministers on January 26th 2007. The objective i s for renewables to capture 10% o f primary energy demand and 20% o f power generation by 2012. The DPL in preparation will ensure that the Bank provides the necessary support for this program to succeed inachieving its objectives. Renewable energy plays a key role in 0.N.E.k capacity expansion plan. The plan calls for two, new wind projects by 2008: One o f the wind power facilities (60 MW) will be located in Essaouira, while the other (140 MW)-willbe located near Tangiers. The Essaouira facility i s scheduled to come on-line in 2007. The Ain Beni Mathar project is in line with the Government's objective to increase the role o f renewables and O.N.E.'s plan to increasingly rely on renewablesto meet its objective of diversification. In parallel, O.N.E. has initiated a demand side management (DSM) program to tap the large potential for energy savings which has been identified. This initiative is in line with the objectives o f the Moroccan energy policy and consistent with efforts advocated by the Bank and other lenders to give priority to measures that reduce growth inenergy demand. Ifsuccessfbl, the program would reduce greatly the need for massive investment in generation and transmissioddistribution infrastructure. In order to successfilly implement the program, O.N.E. i s setting up a D S M department, as part of its reorganization. 10. Electricity sector liberalization under way expected to induce a revival in private sector financing: Supported by the Bank DPL, reform o fthe Moroccan electricity sector i s under way. A draft law, presentlyunder discussion by the Government, calls for: (i) gradual liberalization of the electricity market, starting with eligibility o f high-voltage customers, (ii)establishment o f an electricity regulator who will advise on price revisions, attribution o f licenses for new generators and distributors, supervision o f existing and new concessions, setting o f technical and commercial standards, supervision of calls for tenders for new capacity in the context o f sector planning by the Transmission System Operator, and regulation o f competition and (iii) restructuring o f O.N.E. and unbundlinginto three commercially separated activities: generation for the regulated market, dispatch and transmission, and distribution. These lines o f business will be entrusted to separate subsidiarieswithina O.N.E. holding company. The creation o f a stable and clear regulatory framework should encourage private sector participation in the expansion o f power generating capacity, and possibly other activities o f the electricity value chain. The private sector already plays a key role in the electricity sector in Morocco, with over 50% of the power generating capacity in the hands o f IPPs (contributing to 34 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 1 over 70% o f generation) and 55% o f electricity sales to end users done by private operators. Although private sector financing in Morocco has been deemed a success story5, recent experience has been less positive, in particular with no private bidder for the Ain Beni Mathar plant. It is expected that interest will be revived once the electricity liberalization law is fully implemented and enforced. Moreover, the interest in wind energy o f domestic and international investors has remained vivid. The interest o f large industrial companies to further expand auto- production in units o f increasing size i s a sign o f a dynamic market keen to experience competition. See for instance "Moroccan Independent Producers- African Pioneers", by Issac Malgas, Katharine Gratwick and Anton Eberhard, Management PrograminInfrastructure Reform and Regulation, January 2007 35 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 Annex 2 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies MOROCCO:INTEGRATED SOLARCOMBINED CYCLE POWER PROJECT The Bank has resumed a high-level o f partnership inthe Moroccan energy sector after a gap o f some years. The Government o f Morocco, O.N.E. and the Bank are engaged in an intensive policy dialogue in this strategic sector, and a comprehensive program o f financial and technical support i s being developed. Reliability and long-term involvement are the foundation o f this relationship. The first in a programmatic series o f Energy Development Policy Loans (DPL) is now at an advanced stage o f preparation (Board presentation i s proposed inFY07). The DPL supports the Government's energy sector reform program which focuses on (i)energy security and sustainable development; (ii)increasing energy sector productivity and Morocco's competitiveness; (iii)moderating fiscal exposure in the energy sector; and (iv) enhancing monitoring, evaluation, andpublic communication inthe sector. The DPL is being developed in consultation with the European Commission under the auspices o f the European Neighborhood Policy, and the EU and Morocco's joint objectives o f closer economic integration.. The DPL preparation i s also supported by a number o f ESMAP-hnded studies focusing on renewable energy, energy efficiency, andsocial protection. There are clear synergies between the proposed Integrated Solar and Combined Cycle Power Project (ISCC) and the programmatic DPL: (i) support for sustainable development through a renewable energy technology that could prove highly efficient, if the experiment succeeds; (ii) avoidance o f power blackouts in Morocco which would have serious political and economic implications, and would undermine reform; (iii)a gradual approach to electricity market liberalization which will be supportive o f renewable energy development; (iv) promotion o f private participation inpower which would allow the eventual privatization o f the ISCC; and (v) enhanced monitoring and evaluation capacity in Morocco which will be critical for global disseminationo f the learning which i s at the heart o f the ISCC project. The goals o f the ISCC and programmatic DPL will also be underpinned by a proposed Bank investment loan to O.N.E. This is at a relatively early stage o f preparation (for Board presentation in FY08), and will focus on augmenting transmission capacity to keep pace with rapid electricity demand growth and investment in generation capacity, including ISCC. The project will also include assistance to O.N.E. to restructure in order to respond better to the reformed policy framework, including inits support for renewable energy development. Other lenders such as EIB, KfW, JBIC and AfDB support the development of the power sector in Morocco. Their most recent projects are shown below: 36 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 Annex 2 Agency Project Target Issue (s) AfricanDevelopmentBank - IntegratedSolar Combined Increase supply o f Cycle Power Plant (to be co- Generation electricity financed with GEF) Increase transfer capacity - Network Interconnection Transmission and enhance security o f supply EIB, FADES,KuwaitFund- - PumpedStorage Increase transfer capacity Generation and enhance security o f supply Kfw Increase the share o f - Essaouirawind farm Renewable energy renewable energy inthe energy mix and reduce GHGemissions AFD, JBIC, Kfw,EUand Rural electrification Improve access IsDB 37 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 3 Annex 3: ResultsFrameworkandMonitoring MOROCCO: INTEGRATED SOLARCOMBINED CYCLE POWER PROJECT ResultsFramework PDO/ Global ProjectOutcome Use o f ProjectOutcome EnvironmentalObjective Indicators Information 1. Increase contribution o f 1. More capacity and more Lessons learned will serve inthe renewable energy in Morocco's renewable energy Solar design o f future ISCC power energy mix and provide more plants capacity to meet demand 2. Reductiono f C02emissions, 2. Reduction o f annual C02 Monitor C02emission reduction which contribute to global climate emissions (a minimumo f and adjust operatiodequipment change, relative to continued 20kt o f C02/year). as necessary to meet objective reliance on fossil fuels. 3. The long-term costs o f low 3. Thermal Power Plant costs in Monitor solar generation cost and greenhouse gas emitting d I kWh determine if change inoperation technologies i s reduced. o f the ISCC plant is necessary to maximize solar output. IntermediateOutcomes IntermediateOutcome Use of Intermediate Indicators OutcomeMonitoring: ComponentOne: ComponentOne: ComponentOne: The operational viability o f solar 1. Yearly global production o f Show that solar thermal plant - a thermal power generation i s electricity o f the ISCC plant high-end technology - can be demonstrated inMorocco. constructed and operated 2. Share o f ISCC energy intotal efficiently ina developing energy production (%) country context 3. Yearly contributiono f solar L o w generation from the solar electricity component or from the ISCC as a whole is symptomatic o f 4. Solar output as a percentage management, incentives and o f total energy produced by operational problems that need the ISCC power plant. immediate resolution 38 - x & EB &5b 0 0 m, 3 - P a * G 0 -, 09 a 2 N E 0 0 0 0 2 0 0 0 C 0 0 0 0 C u E 0 0 0 0 5- 0 0 0 0 0 8L VI b Y u8 5 3 VI 0- 3 i?? e, 0 e a, E .C K 3 Y (r U YVI 8 e, a .-e w 4 0 Y 'eY .e e T'5 b 75 w e ?-g 0 , x ba 30 3 0 + a, aa, rcl 0 c, x 3 .3 3 .3 k=- a, B -43 0 0 d .. v, 8 Ycd 30 r: .-3 P -3 + cd s .3 3 Y 8 e e . Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 4 Annex 4: DetailedProjectDescription I5 MOROCCO:INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT The maincomponents o fthe proposed project are: 1. The design, construction andoperationo f an IntegratedSolar Combined Cycle power plant; 2. The construction o f225kV and 60kV transmissionlines; 3. The construction o fHighVoltage and Very HighVoltage substations; 4. The construction of an access road; 5. The drilling o fboreholes; 6. Landacquisition; 7. The construction o f a gas pipeline to supply the plant; 8. Environmental and Social Development andManagement; and 9. Consulting services for project management and supervision. The project description and cost for each component, including contingencies is as follows: Project Component 1 Design, Construction and Operation of an Integrated Solar Combined - US$519.27 - CyclePower Plant million (including US$43.2 million from GEF) The gross capacity o f the Integrated Solar Combined Cycle (ISCC) plant will be about 472 MWe (at site conditions: temperature 15"C, 40% humidity, Atmospheric Pressure 909 mbar and solar input at 58.7 MJ/s) and will consist of gas turbine(s), a steam turbine, and a parabolic trough solar field with a capacity of about 20 MWe plus ancillary facilities for the proper operation of the power plant (backup power plant, etc.). The solar field will cover a total reflective area o f 183,120 m2. It includes the space betweenrows o f collectors for cleaning and other maintenance (18 mbetween rows). The total net energy produced by the plant would be 3,538 .GWh per year, which includes the solar contribution o f 40 GWh per year. This corresponds to a solar share of 1.13 percent of the total annual energy producedby the plant operating at a full load. An ISCC with aero condenser and without storage i s anticipated to be the preferredchoice within the technical design options. The primary fuel for the gas turbine will be natural gas supplied via a spur from the Maghreb- Europe gas pipeline. Following the construction, a 5-year O&M contract will be put in place to ensure proper operationof the newly constructed plant.The O&M contract will be extended to the same firm in charge o fthe construction o f the plant. Project Component 2 - Construction of 225kV and 60kVpower lines- US$17.84million (US$15.5 million financed by the AjDB, and US$2.34 million by O.N.E.) 15The cost of components include physical and price contingencies. (Physical contingencies of 10% and price contingencies o f 2% for foreign and 3% for local costs). 41 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February2007 Annex 4 This component will cover the construction o f two 225kV and one 60kV transmission lines. The electricity produced by the ISCC plant will be evacuated by two 225kV transmission lines to the Oujda (110km) and Bourdim (70 km) substations. The 60kV line will be constructed to provide a backup power supply to the auxiliaries o f the ISCC plant in case o f emergency. This line, o f about 10 km, will connect the 60/225 kV substation o f Ain BeniMathar to the ISCC power plant. Project Component 3 - Construction of a 225 kvsubstation US$9.04 million (US$7.15 - million A P B , and US$1.89 million O.N.E.) This component covers the construction o f one 225 kV substation. Project Component 4 - Construction of an access road- US$3.8 million (O.N.E.) To link the power plant to the main road (Route principale 19), which links Oujda to Bouarfa, an access road o f about 6km will be constructed. As part o f the access road, two bridges over the Charef and Tabouda rivers will also constructed. The infrastructure will be designed to support the heavy equipment necessary for the construction o f the ISCC power plant. Project Component 5 -Boreholes - US$0.35million (O.N.E.) The operation and maintenance o f the power plant, in particular the cleaning o f the solar collectors and the cooling o f the plant, require the drilling o f at least two boreholes. Water will be pumped from the acquifer located below the site o f Ain Beni Mathar. Water reserves equivalent to one day consumption will be maintained. The extracted water will be treated before use and the site wastewater will be collected and treated in a two-hectare stabilizationpond. The implementing agency for the construction o f the boreholes will be the Agence de Bassin de Moulouya (the Moulouya Watershed Agency) which i s legally mandated to undertake this work. Project Component 6 -Land acquisition- US$0.87million (O.N.E.) 203 hectares o f land will be acquired by O.N.E. for the construction and operation o f the plant. 160 hectares will be for the power plant (including 88 ha for the solar field), 6 hectares for the boreholes and water distribution, 31hectares for the gas spur from the Maghreb-Europe Pipeline to supplythe power plant and the transmission lines, and 6 hectares for the access road. Project Component 7- Gaspipeline - US$9.22 million (O.N.E.) The gas supply will be ensured via the construction o f a 13 km gas spur from the Maghreb- Europe gas pipeline. 42 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 4 Project Component 8 -Environmental and Social Development and Management US$2.31 million (0.N.E.) This component will include a comprehensive monitoring and evaluation programto disseminate the results and the lessons learned from the project in all its phases (pre-construction, construction and operation) to increase the overall global benefits. It also includes: (a) the implementation o f the Environmental Management Plan which mitigates the potential environmental impacts associated with the construction o f the power plant, the substations, the access road, the transmission lines and the gas pipeline; (b) a capacity building program to strengthen the capacities o f the O.N.E. for the follow-up and monitoring o f the implementation o f the overall EMP, which i s the responsibility o f the EPC Contractor and its sub-contractors. The details o f the environmental and social mitigation measures to be adopted during the construction and operation o f the plant, as per the Bank's procedures and safeguards requirements, and as definedinthe Environmental Management Plan are presented inAnnex 10. The Environment and Quality Department o f the O.N.E. has responsibility for the coordination o f the studies and the monitoring o f the environmental and social development and management component; and for liaising with the ADB. Project Component 9 - Consulting servicesfor project management and supervisiorz US$5.09 million (US$4.55million AjDB, and US$O.54million O.N.E.) This component will finance the services o f the consulting engineer during construction, testing and operation o f the plant for the two-year guarantee period. The main mission o f the consulting engineer i s to: (i) critically review all detailed engineering designs; (ii) supervise the construction o f the plant; (iii)supervise the testing and delivery o f equipment in factory and on-site; (iv); supervise the testing o f the plant; and (v) provide assistance during the two-year guarantee period. The consulting engineer will make sure that the data for the monitoring o f the performance indicators i s collected and suppliedby the EPC contractor. The consulting engineer will make these data available inhis periodic report to O.N.E. 43 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 5 Annex 5: ProjectCosts MOROCCO:INTEGRATEDSOLARCOMBINEDCYCLEPOWERPROJECT Project Cost By Component and/or Activity Local Foreign Total U S $million U S $million U S $million 1.Design, Constructionand Operationof an Integrated Solar Combined Cycle Power Plant 23.50 439.08 462.58 - civil works 12.99 18.55 31.54 - solar component 7.70 58.75 66.45 - mechanical and electrical equipment 2.81 361.78 364.59 2. Transmission Lines 15.75 0.00 15.75 3. Substations 1.60 6.44 8.04 4. Access Road 2.02 1.35 3.37 5. Boreholes 0.19 0.12 0.31 6. Land acquisition 0.84 0.00 0.84 7. Gas pipeline 0.83 7.38 8.21 8. Environmental and Social Development and 2.24 0.00 2.24 Management 1.oo 3.98 4.98 9. Consultancy services Total Baseline Cost 47.96 458.36 506.32 Physical Contingencies 4.39 45.44 49.83 Price Contingencies 1.57 10.08 11.65 TotalProjectCosts' 53.92 513.88 567.80 Project cost excluding financial charges, customs duties and value added tax. Price contingencies are on the base cost and physical contingencies. 44 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 6 Annex 6: ImplementationArrangements MOROCCO: INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT Partnership arrangements The project is co-financed by O.N.E., the GEF and the African Development Bank. Their respective contribution to the financing of the project i s respectively o f 24%, 8% and 68%. Institutional and implementation arrangements Consultants partially financed under a GEF PDF C grant, now closed, have assisted O.N.E. inthe preparation o f bidding documents, draft EPC and O&M contracts and will advise O.N.E. during the evaluation o f proposals. This phase, which i s still ongoing, i s being carried out by O.N.E.'s Directorate of Developmentfollowing an agreed timetable. The construction and operation of the ISCC power plant will be implemented by an EPC cum O&M arrangement to be secured through international competitive bidding. The Production Department o f O.N.E. will have the responsibility for overall project management. The Production Department will ensure the coordination, and the technical and administrative management o f the project. It will work in close collaboration with the Supply and Markets Department of the procurement aspects, with the Environment and Quality Department for the coordination o f the studies and the monitoring o f environmental measures, and with the Technical Department for controls and oversight. The Financial Department will be in charge o f the project financial management, and coordination with various loadgrant providers. The Production department will be assisted by the consulting engineer to be recruited under the project and financed by AfDB and O.N.E. The World Bank will supervise and monitor the implementationo fthe activities through regional and specialized staff as required. 45 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 7 Annex 7: FinancialManagementandDisbursementArrangements MOROCCO: INTEGRATED SOLARCOMBINED CYCLE POWER PROJECT Assessment of the FinancialManagementSystem 1. An assessment o f the financial management system in place at O.N.E. (Office National de l'ElectricitC), the project executing agency, was carried out to determine ifit complies with the Bank requirements for the project managementinrespect to the OPh3P10.02. Accounting system 2. The accounting function at 0.N.E.k performed by the central accounting division in the financial department. The accounting of the office i s governed by the rules applicable to the autonomous public entities (decree o f November 10, 1989). O.N.E. maintains an accrual accounting system, managed on an Integrated Information System (11s) since year 2000, and held according to rules related to the "obligations comptables des commerqants" and the Moroccan chart o f accounts. The operations related to the financed projects are registeredinthe accounting records o f O.N.E.inaccordance with the accounting procedures applicable within the office. Internal control system 3. The State financial oversight, to which O.N.E. is subject according to provisions o fDahir o f April 14, 1960, guarantees the separation o f the functions through several levels o f independent controls involving (a) the State controller for the control a priori o f the expenditure at the stage o f their commitment and (b) the treasurer payer who jointly signs with the director o f O.N.E. all the payment orders. In addition, the internal audit function i s performed by the audit and organization department, directly attached to the general manager's office. External audit 4. The financial statements o f O.N.E. are subjected to an annual external audit. The financial statements o f the last three exercises, audited by an international audit firm, were certified with qualifications. These are mainly the result of the upgrade o f the accounting system and do not suggest the existence o f accountability issues. The audit of a GEF Grant (Grant GEF 22942) didnot raise issues likely to questionthe use o f the funds o f the grant. 5. Bank policies require that an annual external audit of the project accounts, established in accordance with acceptable accounting standards, be carried out in accordance with acceptable auditing standards and terms o f reference and that the auditor i s acceptable to the Bank. The project financial statements including all sources and use o f funds must be audited each year in accordance with Bank guidelines. The project audited financial statements must be transmitted to the Bank no later than six months after the end o f each fiscal year. 46 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 7 Financial reporting and information system 6. The financial monitoring of projects i s ensuredby the service for long and mediumterm financing within the finance and treasury division (financial department), in coordination with the concerned technical departments. O.N.E. acquired a substantial knowledge inmanagement of projects financed by international donors (BIRD, BAD, ED, INSIPID, BID, KFW...). The existing human resource capacity is adequate to carry out the financial management tasks o f the project. There i s no need for change inquantity and quality o f the existing staff to meet Bank and O.N.E. financial reporting requirement. The integrated information system (11s) allows a follow- up o f outstanding debt in foreign currency and in Dirhams (module loan) but it does not automatically provide a sufficient level of information for the financial monitoring of the project in term of allocation and use of funds by component and category of expenditure. O.N.E. elaborates project financial statements according to the format agreed with the donors based on the existing information adapted for the needs o fthe project. Project monitoring 7. O.N.E. will submit to the Bank a half yearly FinancialMonitoringReport (FMR) 45 days after the end o f each period. These reports will be established in accordance with Bank guidelines. The FMRwill provide, for all the sources o f funds for the project: - a summary cash-flow table showing received funds by sources and expenditures by category for the past semester and the accumulated amount up to the date o f the - report, as well as projection for the next six months, a summary o f the use o f funds showing payments by project component/activity for -- the past semester and the amounts accumulated as o fthe date o f the report, a summary o fprocurementprocesses andprocedures, a summary o f the physical progress byproject component/activity. 8. Insofar as the existing information system of O.N.E. does not automatically provide a sufficient level o f detail requiredby the Bank for the production o f the FMR, a project financial information system will be produced in term o f resources and use o f funds, by component and category o f project expenditures and sources o f financing. The financial tables will be produced manually based on the reprocessing o f the data provided by the existing information system. The formats o f the reports were agreed with O.N.E. duringproject preparation. Evaluation of the system in use 9. The financial management system of the project is in line with the minima conditions requiredby the Bank taking into account the management system o f O.N.E. and the experience acquired in financial project management. Flow of funds 10. The project i s co-financed by GEF, AfDB and O.N.E. Financial flows will come from GEF funds via the Bank, the loan funds from the AfDB, and counterpart funds financed by '47 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 7 O.N.E. Flows of funds between the World Bank, O.N.E. and the recipients will be organized according to traditional disbursementprocedures o f the Bank. Disbursement 11. Method of disbursements. The proceeds o f the grant will be disbursedfirst and once the grant funds are fully disbursed, the AfDB loan will take over. The proceeds o f the Grant would be disbursedinaccordance with the traditional Disbursementprocedures o f the Bank and will be used to finance project activities through the disbursement procedures currently in use: i.e. Withdrawal Applications (WAS) for direct payment, for Special Commitments and/or reimbursement accompanied by appropriate supporting documentation or. The Project Management Unit (Office National de 1'Electricite) will be responsible for submitting the appropriate supporting documentation for activities implemented so that payments can be made from the Special Account opened for that purpose, or to submit WASfor direct payment to the Bank accompanied by the necessary supporting documentation. As projected by Bank's standard disbursementprofiles, disbursementswouldbe completed four (4) months after Project closure. 12. Special account. To facilitate disbursementof eligible expenditures O.N.E. will open and establish at a Commercial Bank a Special Account in Dirhams with an initial authorized allocation equivalent to $5 million to cover Grant's share o f eligible Project expenditures. The Authorized allocation o f the SA would be the equivalent o f an estimated four (4) months' o f eligible expenditures financed by the Grant. O.N.E. will be responsible for submittingmonthly replenishment WASwith appropriate supporting documentation for expenditures incurred and will retain and make the documents available for review by the Bank supervision mission and project auditors. The supporting documentation will include reconciled bank statements and other documents as may berequired. 13. Use of Statement of Expenditure. Activities to be financed under the grant funds should not require the use of statement o f expendituresas a disbursement method. 14. Allocation of grantproceeds. Categoryof expenditure Amount of the grant Percentageof allocated(US$) expendituresto be financed 1.Goods, works, including 43,200,000 100% installation works and services for the EPC/O&M Contract. Total 43,200,000 15. Planningof supervision.Financial supervision activities will include a review o fhalfyearly FMRs,review o fannual auditedfinancial statements andmanagement letters. There will be about two financial management supervision missions per year. 48 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 8 Annex 8: ProcurementArrangements MOROCCO:INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT A. General All procurement activities under the project will be carried out by Office National de L'Electricitk (O.N.E.). Procurement for the proposedproject would be carried out inaccordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and the provisions stipulatedinthe Legal Agreement. The Grant will finance a single contract, which i s jointly financed with O.N.E. and the African Development Bank. Consequently, no Procurement Plan i s required. A general procurement notice was publishedin UNDevelopment Business and on d-g Market on April 6, 2004. Such contract consists inthe supply and installation (single responsibility contract) o f the ISCC Power Plant at Ain Beni Mathar estimated at about US$519.27 million (including contingencies) o f which the GEF grant will finance up to US$43.2 million. The borrower carried out a prequalification process under the Bank's supervision andno objection. Prequalifiedcontractors were invited to submit bids for this contract. Procurement was conducted using the Bank's Standard Bidding Documents (SBD). Procurement for non-Bank financed contracts will be conducted using AfDB and national SBD satisfactory to the Bank. The supply and installation o f the transmission lines and substations for the evacuation o f the power from the power plant will be financed by the AfDB and O.N.E. Selection o f Consultants: Consulting services for the supervision and management o f the ISCC Power Plant will be financed by AfDB and O.N.E. and consultants will be selected inaccordance with AfDB procedures. B. Assessment of the agency's capacityto implementprocurement An assessment of the capacity o f O.N.E. to implement procurement actions for the project was carried out during the pre-appraisal mission in September 2005 and updated during the appraisal mission in June 2006. The assessment reviewed the organizational structure for implementing the project. The main findings are as follows: The Direction Production o f O.N.E. would be responsible for the construction o f the ISCC Power Plant. A project manager within the Direction Production has been appointed. The Project Manager reports directly to the Director o f Production and will liaise with and rely for support from the following Departments: Direction Approvisionnernents et Marches for procurement matters; Direction Technique et Ingenierie for technical matters; and Direction Financiere for financial managementandaudit matters. O.N.E. has substantial project management experience including familiarity with standard bidding documents for projects financed by international financial agencies, such as the EIB, AfDB, Islamic Bank and others. The Direction Production will manage the procurement, erection o f equipment/materials and commissioning, and will closely coordinate with the other relevant departments. The consulting firm Fichtner (financed by the AfDB) i s assisting O.N.E. in 49 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 8 the preparation o f prequalification document and evaluation, bidding documents and evaluation o fbids, and assisting incontract negotiation. A source o f possible risk i s that O.N.E.'s staff may not be fully updated on the Bank procurement/contract management procedures. To minimize this risk, duringproject t launch, training to O.N.E. procurement specialists will be`provided to update the procurement skills including familiarization with new Bank procurement guidelines. The overall projectriskfor procurementis Average. C. ProcurementPlanandAdvancedProcurement Procurement Plan: This project involves the financing o f only one contract under International Competitive Bidding (ICB) which had its procurement process advanced and is nearly completed. Consequently, a procurement plan i s not required. For the overall project, Attachment 1 shows the procurement actions. Advanced Procurement: The single contract beingfinanced by the GEF Grant had its procurement actions advanced. It i s a Two Stage biddingprocess with prequalification. The contract i s for a combined cycle power plantjointly financed by the Bank, O.N.E., and AfDB. It includes a solar component fundedby a GEF grant. The Borrower has the help o f a consulting engineer (Fichtner Solar who i s also working on a similar project inEgypt). Prequalification -- The borrower issued prequalification documents, received and analyzed applications and finally prequalified four potential bidders. The Bank supervised all steps o f the process and issued the corresponding no objections (OPRC cleared the no objection to the list o f prequalified potential bidders). The number o f bidders in this case was low because the solar component restricts the number o f qualified bidders. First Stage o f Bidding-- The borrower issued biddingdocuments (200-250 MW plant capacity) for the first stage o f bidding for the four prequalified bidders and received technical bids submitted by only 3 bidders because one excused himself16. The borrower carried out clarification meetings with bidders, cleared their minutes with the Bank and sent it to bidders. The borrower (with the Bank's no objection) issued final biddingdocuments. Second Stage o f Bidding -- The borrower received final proposals from only two bidders since the third excused himself17. Inaccordance with the biddingdocuments the Borrower has opened the technical proposals and has kept sealed and safeguarded the price proposals submitted by the 16The bidder indicated that "Infact we are not in the condition to submit a bidfor this biddingprocess being responsive to all the requirements included in the bidding documents because the conditions and guarantees required are very strong and we do notfind interest in the contract resultingfrom such bidding documents." After having participated inthe technical discussions this bidder sent a letter indicating that it would not submit a bidfor this contract. This bidder was contacted again (for the higher capacity option) and reaffirmed his lack o f interest inparticipating inthis biddingprocess. 50 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 8 two bidders for both options o f solar capacity (20 M W and 30MW solar) for the 200-250 MW plant capacity. Before the opening o f the price proposals, O.N.E. contacted the Bank requesting approval to issue an amendment to the bidding documents asking bidders who offered commercial bids to submit additional bids for a higher plant capacity (400-450 MW) for the two options for solar component (20 M W and 30 MW). The Bank agreed to the request with the condition that O.N.E. would keep (sealed and safeguarded) the price proposals received for the lower capacity (200-250 MW). Therefore, O.N.E. evaluated the commercial proposals for,the higher plant capacity for the 20MW solar component option to define the winningbidder. Then, O.N.E. opened the winning bidder's commercial proposal for the 30MW solar component option. O.N.E. analyzed this proposal and submittedto the Bank a final recommendation on the option o f its choice for contract signature, namely 452MW o f CCGT and 20MW o f solar capacity. D. FrequencyofProcurementSupervision In addition to the prior review supervision the Bank has been carrying out of the advanced procurement process, the capacity assessment o f the Implementing Agency has recommended one field supervisionmission to carry out post review o fprocurement actions. 2. ConsultingServices No consultant contract will be financed under this Bank project. All Consultancy services for project management for the ISCC Power Plant will be financedby the AfDB and O.N.E. 51 . ? : d 3 E Q B> > Y n -4 -4 m - . ? ; . 2 M vr . Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project November 2006 Annex 9 Annex 9: EconomicandFinancialAnalysis MOROCCO: INTEGRATED SOLARCOMBINED CYCLE POWER PROJECT A. ProiectEconomicAnalysis Method 1. The proposed project forms an integral part o f O.N.E.'s least-cost expansion plan. Incremental capital costs, operation and maintenance costs, and benefit streams o f the project (all in2006 prices) are shown in Table 1of this Annex. Assumptions underlying these figures are detailed below: Operation and Maintenance (O&M) 2. Incremental operation and maintenance costs at generation have been estimated at $14.4 million per year Transmission and distribution costs 3. Transmission and distribution costs are estimated at 0.6 U S cent/kWh FuelCosts 5. Fuel costs have been estimated on the basis o f the economic cost of gas for Morocco o f $6/MMBtu. Economic Benefits 6. Economic benefits associated with incremental electricity supply to consumers are calculated using average tariffs. Although benefits in this case are more a reflection o f the adequacy o f tariffs than the true value o f the benefits o f the project, calculations using consumers' willingness to pay (WTP), as proxies for benefits, are unnecessary. As tariffs, particularly for domestic consumers, are subsidized, WTP i s likely to be greater than average tariffs. Therefore, if the project i s justified using average tariffs, it is, a fortiori, justified using WTP. Results o f the Analysis 7. The calculations show that the NPV o fthe project is equal to $48 million andthe rate o f return i s equal to 11.4%. Switching Values: 8. The switching value o f a variable i s that value at which the project's NPV becomes zero (or the IRR equals the discount rate). The switching values for the ISCC project are given in the table below in terms o f the percentage change in the value o f the variable needed to turn the project's NPV equal to zero. Switching values are useful in identifying which variables most affect project outcome and are presented below: 54 Morocco ProjectAppraisalDocument IntegratedSolar CombinedCycle PowerProject February2007 Annex 9 SwitchingValues Variable ISwitching value Sales -3% FuelCosts 2% Total InvestmentCosts 13% The most two critical variables are the level o f sales and the fuel costs. While sales may drop, it i s unlikely, given past experience and the growth of the economy that they will drop by the required level of 3% to bring down the NPV to zero. Things are, however, different for fuel costs. They can easily increase by 1%. This is also an area o f concern for the future and their evolution should be kept under constant review. Beyond operating its power stations efficiently, this variable i s beyond the control of O.N.E. As suggested earlier, should fuel prices increase, tariffs would have to be adjusted accordingly (ifthe reforms take place, the adjustment would concern the regulated market, the non-regulated or competitive market will automatically adjust). Finally, the project's worth is also sensitive to changes in total investment costs, but an 13% increase in total investment costs i s considered quite unlikely since we are dealing with actual bidresults. 55 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 9 MOROCCO INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT ECONOMIC ANALYSIS Fixed operating costs 14.4 US$ million/year Trans. and Dis.Costs 0.6 UScent/kWh Gross Generation 3538 GWh/year (this excludes the solar generation of 40.5 G W y e a r as there are Fuel Cost 6 US$/MMB no fuel costs) Average Tariff 0.08 US$/kWh (at the consumer level) Average T and D losses 12% Life of the Plant 25 years Discount rate 10% US$ M i l l i o n Invest Fixed O&k Trans. An( Fuel Cost Total Energy Total Net Cost Cost Dist. Costs costs .Sales Revenues Revenues (GWh) 2007 250 0 0 0 250 0 0 -250 2008 250 0 0 0 250 0 0 -250 2009 56 14 21 141 233 3,159 253 20 2010 14 21 141 177 3,159 253 76 2011 14 21 141 177 3,159 253 76 2012 14 21 141 177 3,159 253 76 2013 14 21 141 177 3,159 253 76 2014 14 21 141 177 3,159 253 76 2015 14 21 141 177 3,159 253 76 2016 14 21 141 177 3,159 253 76 2017 14 21 141 177 3,159 253 76 2018 14 21 141 177 3,159 253 76 2019 14 21 141 177 3,159 253 76 2020 14 21 141 177 3,159 253 76 2021 14 21 141 177 3,159 253 76 2022 14 21 141 177 3,159 253 76 2023 14 21 141 177 3,159 253 76 2024 14 21 141 177 3,159 253 76 2025 14 21 141 177 3,159 253 76 2026 14 21 141 177 3,159 253 76 2027 14 21 141 177 3,159 253 76 2028 14 21 141 177 3,159 253 76 2029 14 21 141 177 3,159 253 76 2030 14 21 141 177 3,159 253 76 2031 14 21 141 177 3,159 253 76 2032 14 21 141 177 3,159 253 76 GEF Grant of $43.2 million has been deducted from total costs NPV (US$ Million) 48 Equivalently, it could have been put on the benefit side while maintining total costs on the cost side. IRR 11.41% 56 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 9 -Financial B. Analysis: Table 1 : O.N.E. financial Derformance (2003-2005) 2003 2004 2005 Actual Actual Actual Income StatementItems UnitVolume (GWh) 15,215 16,295 17,698 Revenues(operating) 12,339 12,442 14,478 Operating Income 598 599 (68) Fuel, Coaland Gaz 1,666 1,849 3,198 Powerpurchase 5,034 5,003 5,760 Labor costs 1,462 1,571 1,672 EBITA 1,374 3,242 2,975 N e t Income 69 (39) (241) Funds StatementItems InternalSources 2,934 2,802 5,400 Borrowings 1,448 2,023 1,956 EquityInvestments 797 694 482 Total Sources 5,179 5,518 7,838 CapitalExpenditures 3,442 4,662 7,130 WorkingCapitalIncrease (Decrease) 1,028 (1,525) (170) Debt Service 1,275 1,055 821 CashVariation (565) 1,326 57 Total Uses 5,179 5,518 7,838 Balance SheetItems CurrentAssets 8,132 9,409 11,376 N e t Fixed Assets 40,370 42,690 46,736 TotalAssets 48,502 52,098 58,112 CurrentLiabilities 7,701 9,337 11,533 Long-termLiabilities 21,872 24,916 26,687 Equity 18,929 17,846 19,893 TotalLiabilities and Equity 48,502 52,098 58,112 FinancialRatios Operating Income as a YOof Revenue 4.8 ' 4.8 -0.5 N e t Income as a O/Oof Revenue 0.56 -0.32 - 1.66 R e monNetFixedAssets 0.2 -0.1 -0.5 DebtService Coverage 2.3 2.7 6.6 YOInvestment self financed 44% 36% 33% CurrentRatio 1.1 1.o 1.0 Debt as a YOof TotalCapitalization 53.6 58.3 57.3 57 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 9 2006 2007 2008 2009 2010 2011 Growth (9'0) 7.12% 6.16% 6.58% 5.85% 1.96% 2.24% 15.32% a s hflow StatementItems InternalSources 3,272 3,247 3,975 4,863 5,040 6,611 Borrowings 13,181 2,506 7,283 1,200 1,029 1,200 EquityInvestments 804 1,036 908 965 897 600 Total Sources 17,257 6,789 E,166 7,028 6,967 8,411 CapitalExpenditures 5,483 5,794 8,484 8,743 3,410 3,910 Working CapitalIncrease(Decrease) 1,431 (445) 344 631 462 530 DebtService 1,087 1,171 7,163 2,207 2,463 2,680 CashVariation 9,257 269 (3,824) (4,552) 632 1,290 Total Uses 17,257 6,789 E,166 7,028 6,967 8,411 Balance Sheet Items Current Assets 7,915 7,703 7,970 8,256 8,560 8,730 N e t FixedAssets 44,730 47,111 49,291 48,500 46,874 47,427 Total Assets 52,645 54,8U 57,262 56,756 55,435 S6,lSS Current Liabilities 7,425 7,365 8,723 8,095 7,315 7,288 Long-termLiabilities 29,050 30,503 30,835 29,921 28,584 28,469 Equity 16,170 16,945 17,703 18,740 19,536 20,398 Total Liabilities and Equity 52,645 54,8U 57,262 56,7.56 55,435 S6JS.5 FinancialRatios Operating Income as a % of Revenue 6.3 4.3 7.1 8.0 6.4 6.4 N e t Income as a YOof Revenue -30.29 2.93 2.84 4.69 3.49 3.44 ReturnonNetFixedAssets - 10.5 1.o 1.o 1.8 1.5 1.5 Debt Service Coverage 3.O 2.8 1.3 2.2 2.0 2.3 % Investmentself financed 40% 36% 27% 30% 75% 74% CurrentRatio 1.1 1.o 0.9 1.0 1.2 1.2 Debt as a YOof Total Capitalization 64.2 64.3 63.5 61.5 59.4 58 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 Annex 10: SafeguardPolicyIssues MOROCCO: INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT In accordance with the World Bank Safeguards policies on environment, the project has been classified as a "Category B" Project. The project has also been classified under the "Environmental Category 11" o f the African Development Bank, which means the impacts are site specific and that measures to minimize or mitigate these impacts can easily be identified and recommended. The rating i s based on the conclusions o f the preliminary assessment at the concept stage and reconfirmed after the Environmental Impact Assessment was done. The two safeguard policies to be triggered under this project are OP 4.01: Environmental Assessment and OP 4.12: Involuntary Resettlement. The Bank's Safeguard Policies have been made available to the implementing agency, O.N.E., which on its side shared it with the consultancy consortium, BurgCap and PhCnixa, which conducted the EIA. The first draft presented to the Bank did not follow the directives and the operational procedures o f the Bank with respect to environmental and social assessment, and O.N.E. was asked to re-submita revisedEIA, which was found to be acceptable to the team and the Environmental and Social Safeguards reviewers. Inaddition to the Bank's guidelines, the assessment took into consideration the requirements of various national environmental laws and regulation o f direct relevance to the project, namely Law 11-03 on the protection of the Environment, Law 12-03 on EIA, Law 13-03 on Air Pollution, despite the fact that no Executive Regulations have been issued to-date to operationalize the enforcement o f these laws. Other regulation o f relevance, such as Law 10-95 on Water and the 1914 Decree governing the establishment o f hazardous, unsanitary and disagreeable establishments. EnvironmentalAspects Several alternatives were considered as part o f the EnvironmentalImpact Assessment, including siting and technology alternatives. A pre-feasibility study conducted in 1994 has considered 2 alternative sites for the solar-thermal power plant: Ouarzazzate and Taroudant. In 1996, the search for a more suitable site on the basis o f various environmental factors, the proximity to the water resources needed for the cooling system, and the proximityto the Maghreb-Europe natural gas network ledto the selection of the Beni-Mathar site, inJerada, because o f its proximity to the transmission and distribution network and the land availability. The electricity produced by the proposed plant will be evacuated through two 225kV transmission lines and one 60 kV transmission line. The two 225 kV lines will go to the Oujda substation (110 km) and to the Bourdim substation (70 km) while the 60kV line will be constructed to provide a backup power supply to the auxiliaries o f the plant in case o f emergency. This line, o f about 10 km, will connect the 60/22 kV substation of Ain Beni Mathar to the power plant. 59 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 In its identification o f the path o f the high voltage transmission lines, the Office National de 1'Electricite has taken into consideration to generally avoid inhabited areas and protected areas o f ecological importance. The operation o f the solar thermal power plant does not lead to negative impacts with respect to i t s air emissions ,as C02 and NO2 emissions associated with the use o f natural gas are much less than in the case o f any other fossil fuel, and there are no SO2 emissions. The main risks that could exist would be due to accidental contamination o f the site by a spill o f the heat transfer fluid duringoperation as well as during transportation to the site inthe construction phase. Such risks will however be largely reduced and properly managed through the inclusion o f a retention and biological treatment system to be included in the detailed design o f the project, and by following the safety measures for proper handlingand transportation o f hazardous substances. Due consideration should also be given to avoid exceeding the allowable volumes o f cooling water to be pumpedfkom the aquifer inorder to maintain the current balance o f the resource. Other important impacts, for which mitigation measures have been identified, and that should be included in the terms o f reference (TORs) and contracts o f the construction firms are related to solid waste and the final disposal o f such waste inpre-identified controlled landfills, incase they cannot bere-used or recycled on site. EnvironmentalManagementPlan Following the guidelines o f the Bank and the Pollution Prevention and Abatement Handbook, an Environmental Management and Monitoring Plan has been developed. The Government o f Morocco i s in general familiar with the Bank's safeguard policies and its requirements, and specifically the Quality and Environment Division o f O.N.E. has acquired very important experience during the preparation o f the TORs for the EL4 and the supervision o f the EIA consultant's work, in close collaboration with the project's environmental and social safeguards team. The implementation o f the Environmental Management Plan will be the responsibility o f the EPC Contractor and its sub-contractors, as clearly specified in bidding documents that should take into considerationthe recommended mitigation measures. Monitoring the implementation o f the Environmental Management Plan will be the responsibility o f the Quality and Environment Division o f O.N.E. The cost o f implementation and monitoring o f the EMP i s covered in the cost o fthe project. PublicConsultationandDisclosure A day o f public consultations was organized by O.N.E. on December 29, 2005 in the Municipality o f Ain BeniMathar. The objective was to provide information to the general public on the power plant, to raise awareness among the invited participants, and to answer their questions and concerns while sharing the results o f the Environmental Impact Assessment. The 60 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 participants comprised o f over 120 individuals, included the local residents, elected officials, NGOrepresentatives from the region and economic operators. Social Aspects Background The project triggered the Involuntary Resettlement Policy (OPBP 4.12) as it has been determined that land acquisition will be requiredfor the construction site o f the power plant, the gas pipelines, the access road and the electric lines. Specifically, the project requires the acquisition o f - 159ha 97 are 50 ea for thepower plant; 6 ha 17 are 11 ca where the gas pipelines will be laid and 12 ha 35 are 20 ea will be - temporarily occupiedhsed during the constructionphase; As for the access road and the electric lines, a study is being undertaken to determine the exact land size requirements. This Annex presents the summaries o f (i) Resettlement Action Plan and (ii) Resettlement the the Policy Framework (RPF) that have been prepared under the project. The Resettlement Action Plan applies to the power plant site and the gas pipelines because the project-affected people have been identified and land acquisition procedures have been launched. Since the exact nature and extent o f land acquisition for the access roads and electric lines has not yet been determined, a Resettlement Policy Framework has been formulated, which will be followed with a Resettlement Action Plan downstream once the feasibility study has been completed. Both the RPF and RAP documents have been based on the findings of the project feasibility study, the Environmental and Social Impact Assessments, the site visits conducted and consultations held with the project-affectedpeople. The RPF and RAP have been disclosed at the World Bank's Infoshop and made available at the local commune level, a place accessible to the public concerned in Morocco (Le. relevant municipalities) prior to project appraisal. I. SummaryoftheResettlementActionPlan A. PotentialImpactsof LandAcquisition The land acquisition for the power plant site and the gas pipelines does not lead to involuntaryresettlement,either residentialor commercial,of local inhabitants,nor does it pose any threats to incomes or livelihoods,or createhtensifypovertyor vulnerability. The acquisition, which directly affects 8 and 21persons, respectively, involves minor reduction inagricultural plot area, none o fwhich wouldrequirethephysicalrelocationo fthesepersons. B. CensusSurvey & SocialAssessment A social assessment was conducted at the project site with all the acquisition-affectedpeople in June 2006. A series o f intensive consultations were conducted with 8 persons whose land and/or assets will be affected by the power plant construction and 21 persons affected by the gas 61 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 pipelines. The people were informed about the project and the compensation procedures for their loss. Inaddition the consultations touched upon the implications o f the project interms of employment generation. The assessment further improved the local communities' understandings o f the project and its implications, and confirmed that the populations are awaiting the employment opportunities which the project will likely offer. Equally, elected representatives o f the local commune o f BCni Mathar as well as three public agencies that will be affected by the land acquisition for the gas pipeline, including 1'Office National des Chemins de Fer (ONCF) ; la Direction Rkgionale du MinistBre de 1'Equipement et I'Agence du Bassin Hydraulique du Moulouya have been consulted inthis regard. C. LegalFrameworkGoverningLandAcquisition The compensation for the land acquisition can be done either on mutually agreed terms or through expropriation in the public interest, which is stipulated in law n"7-81 issued by dahir n"1-81-254 dated6 M a y 1982. This law supersedes previous dahirs dated April 3, 1951, June 25 1929, and August 22, 1938 respectively as well as the vizirial order dated October 20, 1954. (Refer to RAP for details). D. EligibilityCriteria The persons and government agencies affected by the land acquisition canbe classifiedas follows: - Public land: For the power plant site, the OfJice Nationale de I'Electricite' (O.N.E.) has proceeded with the purchase o f land from the Ministry o f Interior, the custodian o f public collective land. Two land parcels for the gas pipelines will also be acquired in the same manner. - Collectivelandownedby the Communeof BeniMathar - Collectivite' Ethnique deBe'ni Mathar: O.N.E. has compensated the collective land users who are actually farming on the site selected for the power plant for the loss o ftheir cropdharvest. - Privateland:For the gas pipelines, 21 landowners will be compensated for their landand any eventual loss o f crops/harvest. As for the power plant site, there are no private land owners whose landwill be acquired. - Land owned by public Agencies (OfJice Nationale de Chemin de Fer, Direction Re'gionale de I'Equipement, et I'Agence du Bassin Hydraulique de Moulouya): O.N.E. i s preparing and processing a request letter for the permission o f temporary occupation of these lands owned by public entity agencies during the construction phase of the gas pipelines. 62 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 E. Valuation and Compensationfor Losses Description ofthe compensation The compensation levels are determined by a Commission o f Experts comprised o f the following members: .... 1 Representative o fthe local authority o fAin BCniMathar ; President o fthe Rural Commune o fBCniMathar ; Two community representatives o fthe Collectivitk Ethnique o fBCniMathar; The representative o f the Sewice de I'Enregistrement de la Direction Rkgionale des ImpSts ; A representative o fthe Direction Rkgionale desDomaines. This Commission has fixed the compensation based on the current land value inthe region and also on the basis o f negotiationsbetweenits members among whom are local community representatives: the President o f the Rural Commune andthe representatives o f the Locla Commune - Collectivite` Ethnique of Bkni Mathar. Land acquisition procedure The taking o f land and related assetdcrops may take place only after full compensation has beenmadeto all affected people. The procedures applied by O.N.E.for land acquisition are as follows: Address a letter to the Governor of the concerned Province to call for a meeting with the . Commission o f Experts; Participate as observers in the two meetings o f the Commission of Experts, who are in charge o f validating the list o f affected persons and agencies as well as fixing the land .. value; Undertake Social Assessment and census; Compensate the land users and/or land owners, in conformity with the validated list and agreed prices. F. CommunityParticipation In June 2006, a series o f intensive consultations were conducted with local project affected people as part o f the social and land acquisition assessment. The assessment was conducted by a local consultant. The study consulted with individuals whose land and/or assets will be affected by the construction o f the power plant and the gas pipelines and they were informed about the project and the land compensation procedures. In addition, the consultations touched upon the implications o f the project interms o f employment generation. The assessment further improved 63 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 the local communities understandingso f the project and its implications and confirmed that the populations are awaiting the employment opportunities which the project will likely offer. Equally, elected representatives o f the local commune o f BCni Mathar as well as three public agencies that will be affected by the land acquisition for the gas pipeline, including I'OfJice National des Chemins de Fer (ONCF) ;la Direction Rkgionale du MinistBre de I'Equipement et 1'Agence du Bassin Hydraulique du Moulouya have been consulted on this regards. Additionally, In October 2005 the project team conducted a series o f informal consultations with pastoralists in the immediate vicinity of the proposed plant. The local pastoralists viewed the plant as an asset to the region given its employment generation potential and improved availability of electricity. On December 29,2005 and as part o f the Environmental Management Plan (EMP), a day o f public consultations was organized by O.N.E. in the Municipality o f Ain Beni Mathar. The objective was to provide information to the general public on the power plant and to raise awareness, among the participants, and to answer their questions and concerns while sharingthe results o f the Environmental Impact Assessment (EIA). The participants, over 120 individuals, included: the local population, elected officials, NGO representatives from the region and economic operators. G. Grievance Procedures Incase of litigation or conflict, the concerned populations can directly address their complaints and concerns to the two local representatives o f the Collectivitk Ethnique and the Commune Rurale. Additionally, the land owners and/or land users who would like to contest the proposedfixed compensation can call upon the tribunal for a revised valuation o f the landassets. Any affected person may appeal to the court for redress. The court has the power to hear submissions, review the process, and make such provisions as it deems necessary. These include ordering compensation to be paid, halting works, etc. H. Organizational Responsibilities O.N.E., which i s the grant recipient for the project, will be responsible for ensuring that the land acquisition procedures will be undertaken in compliance with the Moroccan law on Expropriation and Land Acquisition as well as the World Bank's operational policy OP 4.12. The main Unit in O.N.E. who will be incharge o f the implementation of these procedures is the Division de la Gestion du Patrimoine et des Affaires ImmobiliBres. I. ImplementationSchedule InJune 2004, the landacquisitionfor the PowerPlant site was finalized: the list ofaffectedpeople and /or entities and the compensations for their loss were validated and approved by the 64 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 Commission of Experts. The required public land has been purchased, and the compensations to the communal landusers for the loss of use o f the land andor loss o f crops have been grantedby O.N.E. InFebruary 2006, the Commission of Experts completed validatingthe list of landowners/users, the size o f the land and other characteristics and valuated the land/assets to fix the compensations for the land acquisition entailed by the construction o f the gas pipelines. Due compensation will be granted to the affected people prior to the start o fthe work on the gas pipeline. O.N.E. is officially requesting authorizationfrom the concerned partiedagencies for the temporary occupatiodusage o f their lands for the construction o f the gas pipeline. O.N.E. expects to obtain the official permissionbyNovember 2006. J. Cost and Budget For the power plant site: H 7 998 750,OO Dhs has been transferredpaid to the Ministry o f Interior for the acquisition o f communal land; and H 192 877,08 Dhshas been paid to the 7 communal landusers for their loss o f crops/assets. For the gas pipelines, H 687895,OO Dhshas been allocated for the private andpublic land acquisitions; and H 19 024,OO Dhs for the temporary occupation/ of landparcels. The land acquisition costs (including compensation, land purchase, etc.) are being financed from O.N.E.'s budget. This cost remains negligible/much lower in comparison with the overall project cost. K. Monitoringand Evaluation O.N.E. will be incharge o fmonitoring the implementationof this RAP to ensure that the project- affected people are adequately compensated. For every operation and any type of land acquisition (private, public or communal land), the table in annex 3 will be filled out and submittedto the Bank for non-objection. This table will allow O.N.E. to inform the Bank o f the progress made on the Plan and will be used as a monitoring and evaluation tool to document accomplishments, identify the dates for specific activities, delays, if any etc. Inaddition to the internal supervisionby O.N.E., the implementationofthe Resettlement Action Plan should be followed up by a third party entity such as a local NGO/ consultant who i s specialized in Land acquisition and Social Development related issues. Performance indicators shouldbe usedto measure progress. 65 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 Annex 10 11. Summaryof the ResettlementPolicy Framework A. PrinciplesandObjectivesGoverningResettlement Minimization of expropriation of land. The expropriation o f private land is minimized in accordance with Moroccan law, which requires public utility projects o f any nature to make maximum use o f public land, and only to resort to expropriation when there i s no alternative. Minimal expropriation o f private land also serves the interest o f O.N.E. and the concerned municipalities which are obliged to pay compensation awarded by independent assessment as explained below. Preference i s always given to transfer o f government or public land from other agencies where this i s available, but even in this case compensation i s payable. Also provisions will be taken by O.N.E. to avoid disturbing existing structures, in particular residences, farms, areas o f religious or cultural heritage value, parks or other areas o fpublic value. Legal process is obligatory.All expropriations must be carried out according to the provisions o f Moroccan law. The law o f expropriation defines the procedures to be followed and protects the rights o f all parties involved. Wrongs committed during expropriation may be redressed by the courts with provision for payment o fdamages and punishment o foffenders. Compensation and eligibility principles. Whenever expropriation o f private land is unavoidable, Moroccan law clearly indicates that land should be expropriated through full Compensation at market value, independently determined, with advance public notice, negotiation and right o f appeal. Rights to compensation extend to owners, tenants, workers, or any personwho can demonstrate any interest lost as a result o f expropriation. B. Descriptionof Proceduresfor PreparingandApprovingA ResettlementActionPlan The procedure for the land acquisition for the access road and the electric lines i s as follows: . Address a letter to the Governor of the concerned Province to call for a meeting with the Commission o fExperts; The Commission o f Experts meets to fix the landvalue and compensation ; The local Authorities validate the list o f land ownershsers to be compensated based on the Commission's valuation. Finally, O.N.E. pays the fixed compensation according to the validated list. Compensate the land users and/or landowners, inconformity with the validated list and agreed prices. As per the World Bank's safeguard policy on Involuntary Resettlement OPDP 4.12, a Land Acquisition and Resettlement Plan (LARP)will be formulated and implementedby O.N.E., and will encompass the following.: - Project description - Potential impacts o f LandAcquisition -- Objectives o fthe Resettlement program Socio-economic studies - Legal Framework 66 Morocco ProjectAppraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 - Institutional Framework - Eligibility for compensation - Valuation of, and compensation for Losses - Resettlement measures - Community Participation - Grievanceprocedures - Organizational responsibilities -- Implementation schedule Costs and Budget - Monitoring & Evaluation The taking o f land andrelated assetdcrops may take place only after full compensation has been made to all affected people. C. EstimatedPopulationDisplacement At thepresent state, no physical displacement o fpersons, residences or commercial enterprises is expected, and any such instances will be fully detailed inthe RAP. The completion o f the feasibility study will determine the exact location and size o f land requiredfor the access road andthe electric lines. A censuswill be conductedto identify the people that will be affectedby this land acquisition. D. EligibilityCriteria The following main categories are entitledto compensation where land/assets loss i s established. (a) Owners; (b) Tenants with andwithout occupancy rights; (c) Usuii-uct users; (d) Ownerso f trees or other permanent improvements; (e) People who use the land for commercial purposes; (0 People who have made or maintained improvements o f any nature, including caretakers, guardians, etc. E. Legal FrameworkGoverningLandAcquisition The same legal procedures will apply as inthe RAP (See above). F. Methodsof ValuingAffectedAssets; The same procedureswill apply as inthe RAP (See above). G. GrievanceRedress Mechanisms; The sameprocedureswill apply as inthe RAP (See above). H. Arrangementsfor FundingCompensation The land acquisition costs (including compensation, land purchase, etc.) will be financed through 67 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 10 O.N.E. 's budgetary provisions. This cost remains negligible in comparison to the overall project cost. I. MechanismsforConsultationswith,andParticipationof,ProjectAffectedPersons A Census and a Social Assessment to inform and consult with the persons that will be affected by the project, and specifically by land acquisition for the access road and electric lines construction, will be undertaken once the feasibility study is completed andall relevant information on the land size to be acquired and ownership o f the landhave been obtained. J. Monitoringof Implementation O.N.E. will be responsible for the formulation and monitoring of a Resettlement Action Plan which will needto be prepared following the procedures described insection C. Ineach case, whenany type oflandacquisition andcompensation is involved the following timetable i s prepared. This timetable serves as a monitoring device showing all actions involved, the responsible agency, expected completion date, the reason(s) for any delay and new expected completion date. This table shall be submittedto the Bank for non objection. Action (fill Agency( S I Expected Reason(s) for delay and description) involved completion date new expected comdetion date 68 U 0 Y Q) zm G . ( E . u 0 0 4 9 . 0 0 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 11 Annex 11:Project Preparationand Supervision MOROCCO: INTEGRATED SOLARCOMBINED CYCLE POWERPROJECT Planned Actual PCNreview 0713011998 08/05/1998 Initial PID to PIC 0610111999 0411411999 Initial ISDS to PIC 09/25/2003 09125I2003 GEF Council Approval 10/15/2004 1011512004 Appraisal June 2006 0613012006 Negotiations July 2006 0911112006 GEF CEO Endorsement February 2007 Board Approval March 13, 2007 Planned date o f effectiveness M a y 2007 Planned date o f mid-term review December 2009 Planned closing date December 2012 Key institutionresponsible for preparation o f the project: Office National de 1'Electricite (O.N.E.) Bank staff and consultants who worked on the project included: Name Title Unit Noureddine Bouzaher Task Leader MNSSD Rachid BouhamidiICharles Financial Analysts MNSSD SterlingILizmaraKirchner Rene Mendonca Power Engineer (Consultant) ConsultantlMNSSD Meryem BenchemsiISiaka Financial Management Specialists MNACS BakayokoMoez MakhloufISamia Msadek Armando Araujo Ribeiro Procurement Specialist (Consultant) ConsultantlMNSSD Dominique Bichara Senior Counsel LEGMS Khalid Boukantar ProgramAssistant MNSSD Sophie Jablonski Junior Professional (JPA) MNSIF Dahlia Lotayef Environmental Specialist MNSSD Yaa Oppong and Tiguist Fisseha Social Safeguards Specialists M N SSD Fanny Missfeldt-Ringius Environmental Economist AFTEG Jonathan D.Walters Sector Manager, Energy and Economics MNSSD Support Unit/Overall coordination and quality control Rohit Khannal Chandrasekar Bank GEF Coordination/ adviserslreviewers ENVGC Govindarajalul Silvia Pariente-David Sr. Economisth-eviewer MNSSD Estimated Approval and Supervision costs: 1. Remaining costs to approval: $40,000 2. Estimated annual supervision cost: $80,000 72 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 12 Annex 12: Documentsinthe ProjectFile MOROCCO: INTEGRATED SOLAR COMBINED CYCLE POWERPROJECT References: - Description sommaire de la centrale de Ain BCniMathar . - Evaluation de la capacit6 d'un organisme ti proceder a la passation de march& pour les projets, fixation des seuils d'examen prkalable et plande supervisionde la passation des march&. - Bilan energktique 2004. - Evolution de lapuissance installke 2004 -2012. - Satisfactionde l'energie appelee nette (GWh) - ScCnario fort et scknario faible. - Satisfaction de lapuissance appelke A la pointe (MW). - Projections de la demande 2004 -2012 (ScCnarios moyen, fort et faible). - Bilan, compte d'exploitation, compte de gestion et tableau de financement 2004. - Perspectives financibres 2005 2010. - - Projections 2004 - 2010: (i) Indicateurs financiers ;(ii) Comptes charges et produits ;(iii)etat des soldes de gestion ;(iv) tableau de financement ;(v) emplois et ressources. - Coats estimatifs duprojet duprojet d'Ain BCniMathar. - Calendrier prkvisionnel d'exkcution. - Etat d'avancement des composantes. - WASP computer output for generation planning2004 -2033. - Draft procurement plan. - Lettre du Premier Ministre au Ministre de 1'Energie marquant son accord pour l'approvisionnement de la centrale de Ain BCniMathar en gaz nature1a prklever sur la redevance p e r p epar le Maroc au titre du transit par le Gazoduc Maghreb Europe. - WASP computer simulations on least-cost generation (October 2005). - International Energy Agency (IEA) (2003). Renewables for Power Generation: Status and Prospects. 2003 Edition, Paris. 73 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 13 Annex 13: Statementof Loans andCredits MOROCCO:INTEGRATED SOLARCOMBINED CYCLE POWER PROJECT Operation Portfolio (IBRD, IDA, and Grants) as of 01/26/2007 amraronrporcoaoi@mloAaa I ~ U G an01 muow m c~ev~~mrnr ta 74 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 14 Annex 14: Country at a glance MOROCCO:INTEGRATEDSOLARCOMBINEDCYCLE POWERPROJECT Lcwlr. mid& insam $0.2 2,475 1,73Q I,a1B 52.2 4,747 T 1.5 1.o 1s. 1.4 &NT w oapirr 10 *5gr 60 76 70 I 33 10 12 $1 88 SP 106 t8@ $4 11) 115 iUG, I13 19@5 20% 33.I 51.7 20.7 25.8 27'3 34.4 140 t 6.8 17.1 26.4 -3.6 6.1 dl 71.Q 133.4 2&04 200609 4 2 4.3 0.7 26 47 5-4 75 t 76 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 15 ANNEX 15- Solar ThermalTechnologiesandIntegration MOROCCO: INTEGRATED SOLAR COMBINED CYCLE POWERPROJECT Concentrator refIertwe i , Receiver a) Parabolic trough Receiver ,# Receive. or , Concentrato! Tower b)Cttntrai receiver c) Parabolicdish Source: Fichtner Solar GmbH I Source: Fichtner Solar GbmH 77 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 Annex 16: IncrementalCost MOROCCO: INTEGRATED SOLAR COMBINED CYCLE POWERPROJECT IncrementalCost Analysis 1. Total incremental costs o f the Morocco Integrated Solar Combined Cvcle (ISCC) project (472 MW with 20 MW solar) are US$63.16 million. The GEF will cover an amount o f US$43.2 million, corresponding to 68% o f the total incremental costs. GlobalEnvironmentalObjective 2. The Global Environment Facility (GEF) has identified"solar thermal-electric technologies inhigh insulation regions, initially emphasizing the proven parabolic trough variant for electric power generation"'*, as one o f the renewable energy technologies it supports through its operational program number 7 (OP 7). The project, with other thermal power projects now being developed worldwide (e.g. Algeria, Spain, etc.) including two planned GEF solar thermal projects in Egypt and Mexico, will contribute to buildinga critical mass to bringdown the production costs o f the ISCC technology. 3. The demonstration o f the use o f parabolic trough for electric power generation as per OP 7 i s at the heart o f the support o f the GEF for this project. In accordance with the findings for renewable energy technology development for power generation, the IEA (2002) report emphasizes that "the highest potential for cost reduction among the renewable electricity technologies are (a) expensive and (b) recent in development. They tend to have a steep learning curve with a progress ratio of about 80%".'9 ISCC technology fits in this category. The construction o f the projects in Egypt, Morocco, and Mexico are intended to set the stage for future developments. In 2002, about 354 MW o f parabolic trough solar concentrating power plants were installed. The addition o f 20 MW in Morocco would increase the installed capacity by 6%. An addition o f 30 MW solar would increase the installed capacity by 8%. Parabolic trough technology, as used for ISCC power plants, i s the leading concentrating power technology. The other two types o f technologies (power tower and parabolic dish) are at a more experimental stage. 4. Among the countries inAfrica, Morocco has led the application o f renewable energy together with Egypt. Because o f its strong dependence on fossil fuel from imports, Morocco has targeted its energy policy towards the diversification o f the sources of supply and the valorization o f the national resources, inparticular through the promotion of all the useable forms of renewable energies (hydraulic, wind and solar), which use domestic resources. 5. Morocco has a large potential o f renewable energy, as reflected in solar radiation o f 5 kWh/m*/day, and inwind with a potential o f 6,000 MW (inparticular on the 3,500 km o f coastal areas). Inrecognition of this importance, Morocco has adopted a renewable energy strategy, which prescribes that the share o f Renewable Energies (including hydraulics) reaches 10% in the national energy balance 18GEF: Operational ProgramNumber 7: Reducingthe Long-TernCosts of Low Greenhouse Gas-Emitting Energy Technologies. 19International Energy Agency (IEA) (2002). Renewables for Power Generation. Paris.p. 18. 78 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 by 2012, compared to 3.9% at present2' While Morocco has accessed her significant wind energy potential with the commissioning o f the 50MW wind farm at Koudia A1 Baida (2001) and a number o f additional wind farms have been posted for submission o f tender, Morocco still has not found a way o f tapping its significant solar resources. 6. In early 2007 - and despite large progress made inthe area o f solar technologies - no competitive solar technologies exist. Solar photovoltaics have become increasingly popular for off-grid applications or applications dedicated to a specific type o f use (lamps, hifi equipment, navigation equipment, mobile phone network equipment). At a cost o f UScents 25 - 80/kWh, the technology i s still far away from being competitive for large-scale electricity production. As identified by IEA (2002)21, which reviewed the future potential of different solar technologies, solar trough technology has the most important technological development potential for large-scale solar applications. IEA (2002) estimate solar trough technology to be in the range o f UScents 20 - 25/kWh. Consequently, the possibility o f a grant from the GEF towards the incremental costs o fthe solar troughtechnology constitutes a unique opportunity for the G o M to become a driver inthe development o f technology. 7. A direct global benefit o f the project is the carbon abatement achievedby substitutingsolar energy for fossil fuels. Assuming the 20 MW solar field will be operating about 35% o f the time (compared to 67% for the gas turbine), the solar contribution to the overall generation o f the power plant will be about 1.1%or about 40 GWhper year. This translates into carbon savings o f about 24,300 tons of C02 per year or 610,000 tons o f C02 over the 25 year lifetime o f the plant. These values are based on the actual bids received and represent an increase in carbon savings compared to the original estimates o f 22,500 tons of C02 per year. The incremental cost per ton o f C02 avoided i s US$ 104/ton o f C02. Sector Background 8. Morocco's energy sector faces serious constraints due to its dependence for more than 95 percent on energy imports and its remaining substantial use o f traditional energy (firewood and charcoal). The energy sector inMorocco is also characterized by the preponderance o f the petroleum products, even if their share in the power sector were reduced from 83%,in 1980 to 62% in 2005. Total consumption, though, remains relatively low (0.4 TEP/capita/year). Morocco's total energy expenditure increased from 27 billion DH (US$3 billion) in 2004 to 37.7 billion DH (US$4.2 billion) in 2005 due to the rise in the prices o f oil and coal. In order to counter this dependence, Morocco has actively sought to increase the diversity o f energy resources usedinthe electricity sector inthe last 15 years. Inearly 2007, the primary fuels used in the production o f electricity include coal, heavy fuel oil, natural gas, hydraulics, wind and solar photovoltaics. 9. Moroccan electricity demand grew about 5 to 7 % per year on average over the last decade, and it i s expected to continue growing at this pace for the foreseeable future. In 2006, total sales o f electricity amounted to 21,104 GWh, an increase o f 10% compared to 2005. The total number o f customers i s at 2,654,222 up by 10.6% due to the ongoing rural electrification program. Under the rural electrification program some 3,610 villages were connected to the grid, and some 363 villages received individual solar 2o The Moroccan Government states in their 2007 Energy Sector note that "The importance of om local potential, the considerable evolution o f technologies and the strong growth o f the world market, accompanied by a significant and continuous fall o f the costs, constitute for Morocco, essential opportunities which will result in these new resources representing a significant share inthe national energy balance inthe years to come." 2' IEA (2002), p.18. ibd. 79 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 systems. The rate o f electrification inrural areas increased from 62% in2003 to 85% in2005 and 89% in 2006. The average tariff in 2004 was 0.678 MAD/kWhcorresponding to about U S # 8kWh. To meet the growing demand, additional generation capacity o f between 200 - 300 MW per year will be needed. The connection to the grid o f the solar thermal power plant in the Moroccan expansion plan is scheduled for the middleo f 2009. 10. Institutional Framework: since 1963, the National office o f Electricity (ONE) i s the principal actor o f the electricity sector. As a publicly-owned commercial and industrial entity, it was created by dahir it no163-226 o f August 5 1963 which: 22 entrusts ONE with the public service responsibility for the generation, transmission and the distributiono f electricity; obliges ONE to ensure the service o f the distribution o f electricity inthe absence o f service supplied by the communes ("Regies") or by concessions; gives ONE exclusive right for the settingup o f generation capacity exceeding 10MW. 11. The Government o f Morocco (GOM) has embarked on a power sector reform program and has undertaken important steps to secure private investors to operate the sector's power generating and distribution facilities. As early as 1994 the electricity law was amended to permit the operation of IndependentPower Producers (IPPs). By Order inCouncil no2-94-503 o f September 23, 1994, the ONE was entitledto enter in agreements with private entities, for the generation o f electricity by entities with generating units larger than 10 MW, provided that the generation i s intendedexclusively for the needs o f ONE. Since this law was passed, three concession contracts for the generation o f electricity with off-take by ONE through dedicated Purchasing Power Agreements were concluded with Jorf Lasfar Energy Company (JLEC); the Wind company o f Strait (CED); and Electric power o f Tahaddart (EET).23 12. As a singlebuyer established by the Order inCouncil o f September 1994, ONE ensures the supply o f electricity to all the customers o f the Moroccanmarket through its own generation, the purchase from concessionaires, and imports. ONE i s the most important distribution company inMorocco, covering 95% of the national territory, serving 1.466 communes and supplying 56% o f the customers. 13. Energy supply: in early 2007 a total of 5.2 GW capacity was installed inMorocco, o f which 3.5 GW was thermal power (of which 1.6 GW are coal-fired), 1,265 hydropower, 54 MW wind power, and 464 MW pumpedstorage. Several IPPs are operating inMorocco, including the coal-fired power plant o f Jorf Lasfar. The latter contributes about 10,000 GWh or almost 55% o f Morocco's electricity demand. 22The rights and obligations o f ONE are defined ina schedule o f conditions, approved by the decree no2-73-533 o f November 29, 1973, which defines the technical, administrative and financial terms relating to the operation o f installations for generation, transmission and distribution o f electricity. 23More details on these concessions as follows: Jorf Lasfar Energy Company concluded on September 12, 1997 a contract with ONE for the exploitation o f the two existing generation units inJorf Lasfar and for the construction and operation o f two other units inthis same power station. The total capacity o f these four units is 1.356 MW. The generation o f this power station accounted for 55.4% o f the demand at the end o f 2004. Wind company o f the Strait which signed a contract with the ONE on October 2, 1998, and designed, built and operates the wind farm Abdelkhalek Torres (Koudia A1Bai'da), with a capacity o f 50 MW. Electric power o f Tahaddart, with 48% o f capital held by the ONE, 32% by ENDESA and 20% by SIEMENS. The purpose o f the company is the construction and the operation o f a combined cycle power plant at Tahaddart, with a capacity o f 384 MW and using transit natural gas. The power station was brought into service on March 26,2005. 80 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 Substantial amounts o f electricity are also being imported from Spain. In2006, the net import from Spain amountedto 2,003 GWhor nearly 10% o f electricity generation. 14. In2004, electricity generated from coal accounted for about 70% of generation. The secondmajor fuel was HFO with 1,881 GWhproduced in2004. InFebruary 2005, natural gas became the second major fuel with the completion of the 385 MW combined cycle power plant at Taharddart. Morocco i s beneficiary o f a natural gas wheeling arrangement whereby the country can extract up to 7% o f all gas wheeled from Algeria via Morocco to Spain through the Euro-Maghreb gas pipeline.The consumption o f Tahaddart was 348 million m3 in 2005, producing nearly 11.6% o f Moroccols electricity or a share o f 3.1% o fthe countryk total energy balance. 15. The G O M i s committed to developing renewable energy resources such as mini-hydro, solar, and wind. The most visible sign o f the GOM's commitment to renewables is the construction of the 50 MW wind farm at Koudia A1 BaYda. The addition o f further capacity is planned for April 2007 at Cap Sim (60 MW) and for 2008 at an area near Tangiers (140 MW). Power generated from wind is around 200 GWh annually or 1% o fpower generated. 16. Due to the availability o f GEF funds, the solar thermal power plant planned at Ain Beni Mathar has figured inMoroccok power expansion plan. The inclusion of full incremental costs allows the plant to enter the least cost expansion plan. The G o M fully recognizes in its recent Energy Sector Letter the importance o f such funding to access the significant solar resources inthe country: "Inthe last few years, the renewable energy sector benefited from a favorable national and international environment supportive to durable forms o f energy". Baseline 17. An analysis o f Morocco's system expansion plan, fuel supply and availability, and potential candidate plants suggests that the least-cost baseline course of action would be the commissioning o f further gas-fired combined cycle capacity, if natural gas was available. The baseline plant is therefore assumed to be a combined cycle gas turbine (CCGT) fueled with natural gas capable o f producing the same output as the proposed GEF alternative. GEFAlternative 18. The GEF alternative i s a combined CCGT and solar field power plant o f the parabolic solar trough concentrating solar power design. As opposedto photovoltaic technology, the Integrated Solar Combined Cycle Power Plant (ISCC) technology uses direct insolation. Due to Morocco's high levels o f direct insolation, it makes the country an ideal location for the settingup o f such plant. The plant i s to be located inA h BeniMathar, which is about 86 kmsouth o f Oujda. Inthe context o fMorocco, A h BeniMathar is a least cost site with excellent levels o f solar insolation 2,290 kWh/m2/year, direct access to natural gas (close vicinity to the Euro-Maghreb pipeline), water supply, and close access to the national grid. The plant is directly implemented by ONE through a combined Engineering, Procurement, Construction (EPC) and O&M (Operation andMaintenance) contract. 19. The preferredproposed alternative foresees the construction o f a solar thermal - fossil fuel hybrid power plant of a total net capacity of 472 MW, with 20 MW solar. The bids for power plant were made for different options. The originally planned 227 MW plant was substitutedin favor o f a larger plant, as 81 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 another gas-fired thermal power plant for the Moroccan grid was canceled. Thus the need arose for the power plant at Ain Beni Mathar to be increased in size. 20 M W 30 M W 452 M W Option A Option B 20. Based on a feasibility study prepared by Fichtner Solar (2005) the proposed solar thermal power station would have the characteristics as shown in table 16-1. The lowest cost bid for option A, which i s the preferred option o fthe GoM, is presentedintable 16-1. Table 16-1: Characteristicsof the Solar ThermalPower Plant I * Original estimate I Scope of the Analysis System boundary 21. The analysis is based on the direct comparison o f the proposed solar thermal plant with the least- cost conventional solution, assuming the same load factor. Additional domestic benefits 22. The GEF alternative will result in improvements in domestic air quality. Morocco has already initiated and implemented important actions dealing with local air pollution, including measures on promoting renewable energy (e.g. the Koudia A1 BaYda windfarm), utilizing cleaner fuels (in particular natural gas), and improving efficiency in energy production and usage (e.g. at Jorf Lasfar Iand 11, which are underprivate management). 24 The total of $476 million includes project components 1, 7 and 9 - all without contingencies (see Annexes 4 and 5 for details). 82 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 Key Assumptions 23. The incremental cost analysis uses assumptions common for economic analysis at the World Bank. The economic cost o f gas i s assumed at US$ 6/mm BTU. This i s the price o f gas throughout most of Europe and can be assumed the market price for transit gas, as if this gas was not consumed in Morocco it could be sold in Spain at about that price. Key assumptions are summarized in Table 16-2 below. Parameter Value costs This incremental cost analysis benefits from the availability o f the actual bid data. For the purposes of comparability, both initial cost estimates and actual bid data are compared. It i s noteworthy that the bid prices for both the CCGT and the solar component are higher than anticipated. Equally, the incremental cost estimates are higher than originally estimated, by a total o f nearly US$14 million. Difference o f estimates incapital costs are due to: (a) the decline of the US Dollar with respectto the Euro: since 2003 the US$ has declined by 33% with respect to the Euro. As the market is dominated by European suppliers, this would hlly convert into a price increase o fplant; (b) the increase of metal and other commodity prices in world markets: as the solar part of the plant i s particularly heavy in equipment (steel), changes inthe metal markets affect the plant price significantly. Since 1999, when the GEF adopted the strategy o f pursuing concentrating solar technology, the price o f steel has increased by 77% (inreal terms). Similarly, the copper price has increased by 284% (inreal terms). See also graphbelow. (c) the winning bid's plant size: although rated at 20 MW, the winning bid has a solar field that i s 32,000 m2 larger than the estimated value. This indicates that the estimates had underestimated the required size for guaranteeing a rating at 20 MW. Against this background, the increase in incremental costs at 28% appears relatively modest. 83 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 4w 24. Nevertheless, there are a number of factors due to modifications undertaken in the 350 scope o f the project and the project design, +Steel products which have contributed to limiting the price 3M s 0 increase with respect to the cost estimate. Most (D I, noteworthy i s the increase in size o f power I 250 plant from originally 227 MW to 472 MW, and D the shift from an IPP to an EPC contract. The 2M larger size of gas fired power plant allows for economies o f scale. Moreover, production of 150 larger-scale turbines i s more common, and technology developments will focus on those. I W 1999 2000 2001 2002 2003 2004 2005 2006 Equally, an IPP will be more expensive, as the private investor has higher expectation o f financial rates of return than the public sector. Finally, the project configuration and arrangements have been optimized in the selection process for the EPC cum O&M contract through the utilization o f open competitive bidding. Capital costs 25. The cost for the baseline CCGT was estimated at US$632/kW and that of the GEF alternative at $826/kW. The actual costs o f the least cost offer for the CCGT part o f the ISCC was US$ 918. Solar power entails substantially higher capital costs than conventional generation and the kW installed costs an estimated $2,16O/kW for the solar field. The actual costs as per bid amounted to US$3,289. The overall detailed cost breakdown - based on the findings o f the feasibility study and project appraisal- i s shown in estimated cost o f the ISCC was US$826/kW, but the actual price was higher at US$997.4. A more table 16-3 below, and a technical breakdown i s provided in Table 16-6 below. Capital costs include physical contingencies. The comparison o f cost estimates between the baseline and the GEF alternative focuses on the costs of design, construction, and operation alone as the costs for the requiredtransmission lines, substation, access road, boreholes, gas pipeline connection, environmental mitigation and consultancy services are assumed to be roughly the same in both cases. A detailed breakdown o f Project costs is included inAnnex 5 above. Recurrent costs 26. The main recurrent cost elements concern fuel purchases and operation and maintenance (O&M). The original estimates for O&M data for the ISCC plant were based on the experience in this area collected from the nine solar thermal plants that have been operating in California since the 1990s. Over the years, operators have succeeded insubstantially reducing O&M costs by increasing the efficiency and lifetime o f solar field components, improving the effectiveness o f the solar field - power block interface and other measures. Nevertheless, the ISCC envisaged under the GEF funding i s technologically substantially different to those plant constructed in California. Most importantly, the plants in California are significantly smaller in size. This introduced a significant level o f uncertainty into the estimate for O&M costs. The fixed annual O&M costs hadbeen estimated at a total o f US$2,750,000. The actual fixed O&M price as per lowest evaluated bidder amounted to US$5,210,000. This indicates that the operating experience from plant inCalifornia may not be readily converted into cost for ISCC. 84 Morocco ProjectAppraisal Document Integrated Solar Combined CyclePower Project February2007 Annex 16 Table 16-3: Cost Estimates and Actual Costs Estimateat Project Bid price "A" YOchange Appraisal . , I ISCC fossil part, fixed O&M (US$) 1,980,000 ISCC solar field, 5,2 10,000 +89 fixed O&M costs 770,000 (US$) ISCC, variable O&M costs ($/kWh) 0.05 0.03 -40 CCGT, fixed O&M costs $1,840,000 Not applicable Not applicable CCGT, variable O&M costs ($/kWh) 0.05 Not applicable Not applicable Incrementalcosts 49.6 63.16 28 Incremental costs covered by GEF 43.2 43.2 0 Share of incremental costs covered by 88% ' 68% -22 GEF Incremental costs 27. The above considerations result in an incremental cost estimate o f US$ 63.16 million for the 472 MW ISCC with 20MW o f solar field. Table 16-4 presents baseline costs and the costs o f the ISCC alternative broken down in capital, fuel and O&M costs over the plant lifetime. The incremental cost i s equally broken down in incremental capital, fuel and O&M costs. It i s assumed that the baseline plant would generate the same GWh o f electricity as the ISCC alternative. Due to the high actual O&M costs compared to the somewhat lower fuel cost savings, the overall operational costs o f the ISCC plant are somewhat higher than o f the baseline plant. More detailed technical data are provided intable 16-7. 85 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February2007 Annex 16 NPV Capital Recurrent (discounted) Baseline(CCGT) [costs scaled to ISCC estimates] Capital costs 414 414 Fuelcosts 1,171 1,171 O&M costs 93 93 Alternative(ISCC) Capital costs 476 476 Fuel costs (gas turbine) 1,158 1,158 O&M costs 107 107 Total 1,741 1,265 Levelized electricitv costs ($/MWh) 59.6 16.3 43.3 Increment Incrementalcapital 62.51 62.51 Incrementalfuel costs -13.39 -13.39 IncrementalO&M costs 14.04 14.04 Total incremental costs 63.16 62.51 0.65 Incremental levelized costs ($/MWh) 2.1 2.1 0.0 Note: Figure may not add up due to rounding. * Discounted at 10% over the 25 year plant life. I SensitivityAnalysis 28. In order to assess the robustness of results, a sensitivity analysis is conducted to verify the impact of changing underlying assumptions on the level o f incremental costs. The results o f the sensitivity analysis are summarized in table 16-5. They indicate that the results are highly robust to changes in the underlying assumptions. Table 16-5: Sensitivity Analysis for IncrementalCost Estimate I Total IncrementalCosts I Percentage change wrt (US$ million) basecase (`2) $7/mmBTU 60.83 -3.7 Gas price $6/mmBTU 63.16 Base case $5/mmBTU 65.32 3.4 15% 62.95 -0.3 Discount rate L 10% 63.16 Base case 5Yo 63.57 0.6 I 3 0 I 63.18 I 0.0 I Plant lifetime (years) 25 63.16 Base case 20 63.12 -0.1 25The incrementalcapital costs of the solar component equalthe total capital cost ofthat component minusthe voided capital cost of20MW of combined cycle capacity (which would have beenneededinthe absence ofthe solar component). 86 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 Summary: IncrementalCost Matrix 29. The results o f the incremental cost analysis can be summarized inthe incremental cost matrix shown in table 16-6. Table 16-6: IncrementalCost Matrix Baseline Alternative Increment Domestic Benefit a) physical 3,497 GWhper year of 3,538 GWhper year o f 40 GWh electricity electricity (40 GWh are produced through the solar field b) programmatic Limitedinstitutional Demonstratedpractical Reductiono f perceived risks inrenewable- capacity to develop viability o f utility-based based power; gain inoperational complex renewable- solar-thermal technology. experience. basedgeneration projects at ONE. Upto 20 O.N.E..staff at various levels trained insolarihybrid technology. Participating inplanning, preliminary design o f technical and financial requirements, preparation o f biddingdocuments for hybridplant. GlobalBenefits a) environmental 610,000 tons o f COzabated over 25 years o f project life. 20 MW(e) o f solar thermal capacity (or an b) programmatic No hybridsolar thermal 20 MW(e) solar thermal increase o f global capacity by 6%) power plant in capacity (or an increase o f installed and operating. operation; high risk global capacity by 6%) perceived by investors. installed and operating. More countries and investors globally willing to consider solar thermal power Demonstration effect. options. Creation of new opportunities for solar thermal power industryas a result o f demonstrated large-scale component and Solar thermal industry system integration; optimizationo f dormant with little Revived interesumarket components relevant for up-scaling power future prospects; high opportunities for solar plant. costs. thermal industry. Costs($M) Capital Costs 414 476 62.51 Fuel Costs 1,171 1,158 -13.39 O&M 93 107 ------_ 14.04 Total 1,678 1,74 1 63.16 87 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 16 Table 16-7: IncrementalCosts Calculations TechnicalData - Available Grant (mln$) 43.2 LEC of total generation ($/MWh) 62.16 Solar Generation (GWWa) 40 Solar Generation as percent of design value 1.1 LEC of solar generation ($/MWh) 247 Solar field Size (1,000 m2) 183.12 DNI(Annual directnormal irradiation, kWh/m2/a) 2,290 Power plant gross capacity (av. temp., max solar heat, MW) 478 Power plant net capacity (day, av. temp., max solar heat, MW) 472 Power plant net capacity (night, av. temp., max solar heat, MW) 450 Specific C02emissions of comparable generation (kg C02ikWhe) 0.60 Annual COzemission reduction (kt/C02/a) 24.3 Total C02emission reduction (mlnt/C02/25years) 0.61 Incrementalcost per ton of C02avoided (US$/ton) 104 88 Morocco Project Appraisal Document IntegratedSolar CombinedCycle Power Project February2007 Annex 17 Annex 17: ScientificandTechnicalAdvisory Panel(STAP) Review MOROCCO: INTEGRATED SOLAR COMBINED CYCLE POWERPROJECT Independent Tec h ica1Review 1. Introduction This project will assist the Government o fMorocco, through its state-owned Office National de 1'Electricite (O.N.E.), to finance and construct an integrated solar thermal combined cycle (ISCC) power plant through an Engineer, Procure and Construct (EPC) cum Operation and Maintenance (O&M) contract. O.N.E. will finance the plant through an African Development Bank (AfDB) loan (already secured for about 64% o f the project cost), their own contribution of about 16%, and a grant from the Global Environment Facility (GEF), which will beusedto finance the incremental cost o fthe solar thermal portion o fthe ISCC power plant (about 20% of total investment costs.) The O&M contract will last 5 years andinclude appropriate incentives to ensure an efficient operation o f the plant, particularly the solar field. Selection o f the EPC/O&M contractor will be through an international biddingprocess, and details o f the plant design and the contractual arrangements can only be defined after the winning bidis selected. As aresult, the Project Appraisal Document (PAD) has beenwritten with a limitedamount o ftechnical details, basedprimarily on the feasibility studycarried out by Fichtner Solar in2005. Therefore, this technical review can only address the details provided regarding the project approach, site selection, conceptual design, biddingprocess, and expected contractual arrangements. It cannot comment on the adequacy o f the final plant design or contracts. The gross capacity o f the ISCC power plant i s expected to bebetween 200-250 M W e and the solar thermal parabolic trough collector field i s expected to have an equivalent capacity o f between20-30 MWe. Based on the feasibility study, the annual net electricity producedby the plant i s expected to be about 1,590 GWh, which includes the solar field contribution o f about 56 GWhper year. This corresponds to a solar share o f 3.5 percent ofthe total plant output when operating at a full load. The primary fuel for the gas turbinewill be natural gas suppliedvia a spur from the Maghreb-Europe gas pipeline. 2. GEFContext The proposedproject addresses GEF Operational Program 7 (OP7): reducing the long-term cost o f low greenhouse gas-emitting technologies. OP7 aims to accelerate market penetration o f several large-scale backstop technologies that are constrained by highcapital costs and high commercial risks. The strategy i s to identifyprojects that address national priorities and then finance the incrementalcosts o f investments,capacity buildingand other activities that reduce market barriers and perceived risks by investors. Based on the technical success o f the 354 MW o f solar thermal power plants still operating in California after more than 15 years, this technology can be considered an important large-scale 89 Morocco Project AppraisalDocument IntegratedSolar Combined Cycle Power Project February2007 Annex 17 non-carbon emittingbackstop technology. Many o f these plants currently operate at solar outputs that exceed their initial design specifications. Also, this reviewer agrees that significant cost reductions and eventual commercial acceptance ofthis technology can only beginto occur with the implementationo fseveral demonstration projects incarefully selected countries and sites. The proposedproject i s one o f four similar projects (the others being inIndia, Mexico and Egypt), which havebeen approved byGEF as part its program to accelerate cost reduction and commercial adoption o fthis large-scale non-carbon emittinggeneration technology. Inaddition, the timingo f this project fits well with new installations o f solar thermal power technology taking place inindustrialized countries. These projects include a 1MWEsolar parabolic trough organic Rankine cycle power plant undergoing start-up inArizona, a 64 M W e solar thermal power plant under construction inNevada, and two 50 MWe solar thermal power plantswith thermal storage under construction inSpain. 3. Key Issues a. Project Approach The reviewer agrees with the Project implementation approach o f constructing the plant on the basis of a turnkey EPC contract and a 5-year O&M agreement with the same contractor. First, the ISCCS design integration and the technology selection risks will beborne bythe contractor, who will have the expertise to manage those risks. Second, competition among the EPC bidders will help ensure that the most cost-effective combination o ftechnology and local component manufacturing will be selected. Third, the O&M contract should contain appropriate incentive structure for bothmaximizing the total plant reliability as well as maximizing the utilization o f the solar field over the longterm. The PAD only discussesthe latter issue, but the O&M contract will needto address both issues. As 0.N.E.owns the plant, it i s assumed that they will control the dispatch of the gas-fired portion o f the plant. Finally, the use o f only pre-qualified biddersis likely to allow the selected EPC contractor andkey suppliers to capture technology and organizational learning effects that are essential to achieving long-term cost reductions for solar thermal power. One question that this reviewer could not assess from the PAD is whether the bidder prequalification includes the potential manufacturers o f the solar collectors and heat collection elements. 3.2 Scientific and Technical Soundness Nine solar thermal power plantsthat raise steam to generate power have been successfully operating for over 15 years. The basic concept o f integrating a solar thermal steam raising facility with a natural gas combined cycle power plant i s sound and has been extensivelystudied. While such a project has yet to be implemented, a project employing this concept should be completely feasible, as the technical basis for such an integrated system i s quite straightfonvard andbothaspects o fthe plant are technically proven. The reviewer concurs with the decisionnot to include thermal storage within the plant configuration. 90 Morocco Project AppraisalDocument IntegratedSolar Combined Cycle Power Project February2007 Annex 17 The technical andeconomic effectiveness o fthe ISCC power plant will depend on the detailed design and selection o f equipment,which will be made at a later stage o fproject development. Therefore, this review will only list the most important technical issues that will needcritical analysis when the detailed design i s available. As the technology selection will be left to the EPC Bidders,who will all be pre-qualified, the bid documents must establish minimumrequirements for the solar thermal steam raising component to ensure that the minimumsolar share target can be met. Effective integration o f the steam systems for the solar thermal field and the gas-fired combined cycle plant i s essential to achieving significant cost reductions and proper performance o f the power plant. The selection process should review plant designs to ensure that the plant operates effectively inall modes. In particular, integration and control o fthe system should allow the solar contribution to be consistently maximized. Inaddition, the system should allow power to be efficiently generated on natural gas only, ifrequired (duringnighttime or ifthe solar field i s not operational). 3.3 Adequacy of the FinancingMechanism The financing approach to this Project is muchsimpler than the IPP approaches that havebeen attempted on other GEF solar thermal power projects. Inparticular, this financing approach avoids the complicated negotiation for power purchase, he1supply and implementation agreements that can be problematic for IPP projects. O.N.E.'s funds appear to be available, the AfDB loan i s reported as secured, and with approval o f the GEF grant, all Project funds will be inhand. Inaddition to the EPC/O&M contract, the Project includes funds to enable transmission o fthe power to load centers, provision o fnatural gas from the Maghreb-Europe pipeline, and supply o f water for cooling and collector field washing. 3.4 Identificationof GlobalEnvironmentalBenefits The project's principal global environment objectives are to contribute to improving the economic attractiveness o f non-carbon emitting solar thermal generation technology globally and to demonstrate the operational viability o fthis hybridsolar thermal power generation system ina developing country. The Project will contribute to the global learning effects that will lead to a reduction incosts for solar thermal technology over the long term. Inaddition, this Project could be the first solar thermal power plant constructed ina developing country, and will be critical to demonstratingthat the technology capacity can be developedto manage these type plants. With the new solar thermal power plants beingconstructed inthe U S andEurope, andthe other GEF solar thermalpower projects movingtowards implementation, the technology has the potential to provide a significant proportion o fnew electricity generating capacity inthe next century on a non-carbon emitting basis. Major markets exist for this technology inother high sunlight regions o fthe world, many o fwhich are indeveloping nations. This project will build an ISCC power plant designed to minimize the cost o fbuyingdown the solar technology. As a result, the global benefit from reducing carbon emissions fi-om power 91 Morocco Project Appraisal Document IntegratedSolar Combined Cycle Power Project February 2007 Annex 17 generation, estimated at 570,000 tons o f COz over the 25-year lifetime o f the plant, are relatively small. They represent only 3.5% reduction o fthe conventional gas combined cycle power plant emissions. As solar thermal costs decrease the solar fraction o f future plants will increase, and so will the global environmental benefits from reducing carbon emissions. 3.5 Fit with GEF Goals The project has a good fit with the GEF Operational Program #7. The plant itself will have lower CO;! emissions than a combined cycle power plant o f the same annual output. More importantly, it will help revitalize the solar thermal industry, and it will facilitate the technological and organizational learning that are critical to achieving long-term cost reductions. 3.6 Regional Context The project i s a good fit to Morocco's growing electricity demand, its existing commitment to private sector development o fnew power projects, its excellent solar resource and its current availability o f natural gas. The project also meets Morocco's commitment to develop renewable sources o f energy. 3.7 Replicability This project and its companions inMexico, India and Egypt are not likely to result inimmediate cost-competitiveness for solar thermal power plants. However, they are very important steps in that direction. A comprehensive study by Sargent and LundJ6, which assessedthe viability o f long term cost reductions for solar thermal technology, concluded that with cumulative installations o f about 1000 MWe, the cost for the technology can be reduced from today's cost of 10 - 11 cents per kWhto a range o f 5 - 6 cents per kWh. This report confirms the commissioned incollaborationwith the GEF Secretariat, which concluded that a phased approach should be adopted to support longterm cost reductions for solar thermal technology. These four projects represent the first o f three phases, and they will provide an initial opportunity for cost reduction. Achieving the cost reductions identified inthe Sargent and Lundyreport would create very important opportunities for replication o f solar thermal power plants, not only inMorocco, but also throughout theMediterraneanRegion, SouthAsia, andother partsofthe world with similar climates. The need for future GEF buydown will most strongly depend on the cost o f conventional power, the future benefits that canbe achieved through C D M and the valuation (ifany) o f environmental externalities. 3.8 Sustainability From the GEF perspective, the main sustainability issue will be to ensure that the plant i s operated ina manner that maximizes output from its solar thermal field throughout the lifetime o f the plant. As already discussed inSection 3.1, the O&M contract should contain appropriate incentive structure for bothmaximizing the total plant reliability as well as maximizing the utilization o f the solar field over the long term. However, as the owner, O.N.E. will be directly 26Assessment o f Parabolic Trough and Power Tower Solar Technology Cost and Performance Forecasts, Prepared for the Department of Energy andNational Renewable Energy Laboratory, SL-5641, October 2002. 27Cost Reduction Study for Solar Thermal Power Plants, Enermodal Engineering, May 1999. 92 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 17 responsible for the Project's long-term success. Inaddition to data collection on the construction, operation and maintenance o f solar thermal power plants inthe U S and Europe, strong importanceneeds to be placed on training of O.N.E. power plant staff inthe requisite skills for operating and maintaining an ISCC power plant duringthe construction and initial operationo f the plant. 4. SECONDARY ISSUES 4.1 Linkagesto Other FocalAreas No comment. 4.2 Linkagesto Other Programs As already mentioned, this project has linkages to other similar projects inMexico, India and Egypt, and it forms part o fthe GEFprogram on Greenhouse Gas Reduction. 4.3 Degreeof Involvementof Stakeholders According to the Project Brief, there i s a highdegree of involvement o f all the key stakeholders, including the GoM, O.N.E. and the Centre de Developpement des Energies Renouvelables (CDER). Inaddition, local stakeholders, includingthe elected officials from the Municipality o f AinBeniMathar, NGOrepresentatives from the region, andthe local residents havebeen consulted regarding the Project. 4.4 CapacityBuildingAspects The proposed project contains specific elements o f capacity buildingthat will involve technical, managerialand financial departments within O.N.E. These are necessary and appropriate. In addition, successful implementation of the Project should provide local manufacturing andjob opportunities within the region, and support essential capacity expansion within the international solar thermal component manufacturingsector. 4.5 Innovativeness N o comment. 5. CONCLUSION This reviewer's overall assessment is that the project is technically feasible, that the proposed approach to project development is sound, and that the project has significant long-term potential to meet GEF goals. 6. SUBSTANTIVE EDITORIAL COMMENTS Minor editorial comments are provided ina marked-upversion o f the PAD. However, a few items were significant enough to warrant discussion, and are summarized below. 93 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 17 6.1 GHGCalculation Ifthe annualproductionfromthe solar field is 35 GWh, andthe C02 emissions from anatural gas combined cycle power plant are 0.65 kgper kWh, then 23,000 tons per year o f CO2 emission reductions i s correct, as givenon page 24. Then, the 25 year emission reduction total shouldbe 575,000 tons o f C02 (as statedon page 51), not 200,000 tons of C02 as stated onpage 5. 6.2 Annual Solar Output The reviewer can't determine ifthe expected annual solar output, based on the feasibility study, i s 35,38 or 56 GWyr. Page 5, and Table 2 on page 51 use 56 GWh/yr, but page 24 used 35 GWyr, and page 51 at the top uses 38 GWh/yr. Correctingthis output value will also impact the C02 calculation. 6.3 Solar ThermalPower PlantCosts The second data row o fthe table onpage 24 gives what appear to be costs for the solar thermal portion of the ISCC power plant. There i s no basis for these numbers. Ifthe method of calculation i s the annualized capital investment inthe solar field plus the solar field O&M costs dividedby the equivalent solar output, thenthe initial operating year value appears too high, and the reduction inthis value for the second and third years appears too great. Some explanation i s needed. 94 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 17 Annex 17: STAPReview MOROCCO:INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT Responsesto STAPTechnicalReview The STAP Reviewer, Mr.Pascal DeLaquil, commented on the project document inMarch2006. The following are the responses/comments to the issues raised. Issue/Comment ReferenceinProjectDocument/Response "3.1 ......,the O&M contract should contain SectionB.Para. 4 and 5 appropriate incentive structure for both maximizing the total planreliability as well as maximizing the utilization o f the solar field over the longterm. The PAD only discusses the latter issue, but the O&M contract will needto address both issues.. ." "3.1 ......Finally,the use o f only pre- Section C. Replicability. Long-term cost qualified bidders i s likelyto allow the reductions insolar thermal power will result selected EPC contractor and key suppliersto from three factors: reduced component costs capture technology and organizational due to increased manufacturing volume, learning effects that are essential to achieving economies o f scale from increasedplant size, long-term cost reductions for solar thermal and technological improvements. The power." experience gained by one EPC contractor has a minor effect on cost reduction over the long term. "3.1......One questionthat this reviewer Section A. Para 2 could not assess from the PAD i s whether the bidder prequalification includes the potential manufacturers o f the solar collectors andheat collection elements." "3.2....As the technology selection will be Section B.Para. 4 left to the EPC Bidders, who will all bepre- qualified, the biddocuments must establish minimum requirementsfor the solar thermal steam raising component to ensure that the ninimumsolar sharetarget canbemet. Effective integration o f the steam systems for :he solar thermal field and the gas-fired :ombined cycle plant i s essential to achieving significant cost reductions andproper lerformance o f the Dower Plant." 95 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 17 "3.2. ..... The selection process should Included inthe biddingdocuments andwill review plant designs to ensure that the plant be included inthe EPC and O&M contracts. operates effectively inall modes. In There are inparticular penalties for not particular, integration and control o fthe meetingminimumsolar contribution target< systemshould allow the solar contribution to be consistently maximized. Inaddition, the systemshould allow power to be efficiently generated on natural gas only, ifrequired (duringnighttimeor ifthe solar field is not operational). " "3.3 ...The financing approach to this Project Agree i s much simpler than the PP approaches that have been attempted on other GEF solar thermal power projects. Inparticular, this financing approach avoids the complicated negotiation for power purchase, fuel supply and implementationagreements that can be problematic for IPP projects. "3.4. ...... Inaddition, this Project could be Agree the first solar thermal power plant constructed ina developing country, and will be critical to demonstratingthat the technology capacity can be developed to manage these type plants." C <3.4........Assolar thermal costs decrease Agree the solar fraction o f futureplants will increase, and so will the global environmental benefits from reducing carbon emissions." 6 <3.5.. ...... The plant itselfwill have lower Agree CO2 emissions than a combined cycle power plant o f the same annual output. More importantly, it will help revitalize the solar thermal industry, and it will facilitate the technological and organizational learning that are critical to achieving long-term cost reductions." 96 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 17 "3.6. ... The project i s a good fit to ~ Agree Morocco's growing electricity demand, its existing commitment to private sector development o fnew power projects, its excellent solar resource and its current availability o fnatural gas. The project also meets Morocco's commitment to develop renewable sources o f enerw." C <3.8.. . . the O&M contract should contain . . Section B.Para. 4 and 5 appropriate incentive structure for both maximizing the total plant reliability as well as maximizing the utilization o f the solar field over the longterm. 6 63.8.. . ...strong importance needs to be .. " Section B.Para. 4 and 5 placed on training o f O.N.E.power plant staff An indicator for O.N.E.'s staff training in inthe requisite skills for operatingand various aspects o f the ISCC technology has maintaining an ISCC power plant duringthe beenincluded inthe monitoring and construction and initial operation o f the evaluation (M&E) plan plant." b< 4.4......Inaddition, successful The project providesjobs and economic implementation o f the Project should provide activities inthe region. The development o f local manufacturing andjob opportunities local manufacturing should be left to the within the region," private sector and i s likelyto evolve over time. "6.1. Ifthe annualproductionfromthe Corrected solar field i s 35 GWh, andthe C02 emissions from a natural gas combined cycle power plant are 0.65 kgper kWh, then 23,000 tons per year ofCO:! emissionreductions is correct, as given on page 24. Then, the 25 year emission reduction total should be 575,000 tons o f C02 (as stated on page 51), not 200,000 tons o f C02 as stated on page 5." 6 66.2... ... The reviewer can't determine ifthe Corrected expected annual solar output, based on the feasibility study, is 35, 38 or 56 GWyr. Page 5, and Table 2 on page 5 1use 56 GWyr, butpage 24 used 35 GWyr, and page 51at the top uses 38 GWyr. Correctingthis output value will also impact the C02 calculation." 97 Morocco ProjectAppraisalDocument IntegratedSolar CombinedCycle PowerProject February2007 Annex 18 Annex 18: Cost Reductionof Solar ThermalPower Technology' MOROCCO: INTEGRATED SOLAR COMBINED CYCLE POWER PROJECT The aim o f any electricity producing technology must be to realize competitive electricity generation costs. Several studies have examined the future cost reduction potentials for solar thermal power generation technology. The most important studies inthis context are Enennodal (1999), and DLR (2004) which arebriefly reviewedbelow: Enermodal (1999): CostReduction Studyfor Solar ThermalPower Plants The Enermodal study uses the specific investment costs per installed capacity ($/kW) as a reference measure. This reference number does not however seem appropriate to forecast cost reduction for solar thermal power plants because larger solar fields in combination with heat storage can lead to lower levelized electricity costs due to a higher plant capacity factor, even though the specific investment costs increase. The second point o f note in the approach usedby the Enermodal study is the fact that it uses the cost o f the first plant out o f the nine existing parabolic trough plants as the starting point o f the learning curve instead o f using a linear regression function o f all reference plants (see Figure 1). Therefore the cost o f the first plant determines strongly the cost forecast for future technology deployment. Figure 1:Enennodal Study-Experience curves for different assumptions onthe 1 rogress ratioI DLR (2004): Scenario model "Athene" 1WorldBank: Assessmentof the WorldBanWGEF Strategyfor the Market Development of Concentrating Solar ThermalPower - GlobalEnvironmentFacility Program- The WorldBank 2006 98 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 18 This study assumes as a starting point the empirical values from the existing parabolic trough plants. But for the future cost reductions, it i s explicitly mentioned that all solar thermal power technologies are included.Technological variants and improvements as well as competition are essential preconditions o f the experience curve model. Cost reduction inthis study i s split into four categories: > Improving efficiency (from 13.2 percent today to 17.0 percent in2025) P Learningeffects dueto volume production o collector costs, surface-specific progress ration (PR) is 0.9 o thermal energy storage (up to 12hrs), capacity-specific PR=0.88 o steam cycle components from 850/kW down to today's conventional plant costs o f 740 /kW, PR=0.94 > Economies o f scale due to larger units (up to 200 MW,): doubling capacity leads to 15 percent cost reduction P The annual operation and maintenance costs will decrease proportionally to the reduction of investment costs (2.5 percent o f investment). Furtherassumptions o fthis model are: > N o CO2-allowances considered, respectively carbonprice increasing from initially 7.5 Eurolt C02 to 30 Euro/t C02 in2050 > Plant life time: 25 years > Internalplant project interest rate: 8 percent (inreal terms) > Solar Resource DNI=2350 kWh/(m2a)(favorable sites for solar thermal power generation range between 1800 and 2900 kWh/(m2a). > Market growth of 23 percent p.a. (IEA references: wind (1971-2000) 52 percent p.a., PV 32 percent), (implementation of 5000 MW till 2015 corresponds to GMIgoal). P FossilReference LEC (IEA)with same number o fannual operating hours as STPPs k Fuelpricesincreasingby0.52 percent p.a. (IEA) As a result ofthe assumptions given above, the cost reduction forecasts o fthe Athene study are giveninthe following graph: 99 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 18 Figure2: Developmentof levelizedelectricity costs and revenuesfrom the power exchange market referredto by LEC of fossil power plants (plant project interest rate 8 percent),the brightblueline includes EmissionReduction Credits (ERC) of initially 7.5 Euro/t C02increasingto 30 Euro/t C02in2050 0,12 ......... . . . ................................. .....". ..".. .. ......... ""I ~ . " ".. ....... .....".".....".......I,,.. ,, ..........I ...,, ..,,,, " 0,11 5 z OV1O -Revenues 0,09 w, o,oa -Revenues ow incl. ERC 0,07 C 0,06 a 0,05 ,$ 0,04 0,03 I Source: DLR (2004) According to the Athene study, the cost competitiveness o f solar thermal power generation will be reached in2025. The total necessary subsidiesaccount to 12billion, which corresponds to a total installed capacity o f 42 GW,, not taking into account COz trading. Ifthe above-mentioned carbon prices are included, cost competitiveness will be reached in2023. The total necessary investmentwill thereby be significantly reduced to 2.5 billion, respectively 22 GWe. The implicit assumption is that the numberof full-load hours is constantly increased due to largerthermal energy storages up to 6500 hrs/a (12 hrs thermal storage). However, insome cases it maybe more economical to aim at producing only peakingto mid-load-power for the period when power tariffs on the electricity market are highest(smaller energy storage), which inturn couldjustify lower thermal storage. The Athene model is a very thorough assessment usingmanyvalidation points from experienced facts and developments. The assumptions usedare generally conservative. Inthis context, the Athene scenario maybe considered as a very conservative scenario for solar thermalpower cost and market development. 100 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 18 Cost Reduction-Summary All studiesreferenced assumed a conservative global solar thermal power market development. It has also to be stated that many o fthe countries inthe world's sunbelts lack the financial resources to finance solar energy. With present global solar thermal power marketmovements re-emerging,there is no fundamentalreasonwhy technology growth similar to wind energyis not feasible. The main messagesfrom the comparison of costprojection studies are: > The technology has the potential to be cost-competitive within 10to 25 years, and has thepotential to be a significant electricalpower option for developing countries, which often have abundant solar resources. With hybridization and thermal energy storage, solar thermal power is dispatchable power that helpsto support grid stability. > Should GEF promote solar thermal investments now in developing countries and not once the technology has moved further down the learningcurve? The GEFprojects will contribute to OP7's goal o f "reducing the long-term costs o f low greenhouse gas-emitting energy technologies" ifat least two or three are successfully deployed and operated. However, the projects inthe current portfolio will not have a significant cost-reduction impact on the underlyingcost o f the technology. It is difficult to quantify the cost reductioneffect o f the four projects: Inthe beginning o fthe portfolio's history, it seemedthat it would be one o f the GEF plants that would be the first to be built after the California SEGS plants. However today, with other commercial solar thermal power activities evolving, other projects may perhaps come infirst. Thereforethe questionis, whichpart ofthe cost reduction curvewillthe GEF projects influence? Intheory, the cost reduction effect will be largest for the first plants built. Inpractice, much o f the early cost reduction will result from a reduction o f the risk premiumas design, construction, and O&M experience i s gained. The developing countries inparticular experience an additional premium due to the perceived added difficulties o f carrying out large projects usingnew technology. This i s another cost reduction area that the GEF projects can impact in a positive manner. Affordable technology and climate protection are goals officially supported by many developing countries with good solar resources. Inorder to meet these goals, GEF should support the implementation o f climate-protecting renewable energy indeveloping countries. Whereas the OECD countries can afford subsidizing power technologies on a large scale, developing countries usually are not able to do so. By supporting the implementation o f the first solar thermal power pilot plants, GEF will help create technology trust and institutional learning and therebyreduce the hurdle for subsequent market entry. The solar fields o f solar thermal power plants contain many components that can be locally manufactured, such as concrete foundations or standardsteel components or, dependingon the solar technology andthe project, country, mirrors. 101 Morocco Project Appraisal Document Integrated Solar Combined Cycle Power Project February 2007 Annex 18 Enermodal. 1999. Cost Reduction Study for Solar Thermal Power Plants. Kitchener, Ontario: EnermodalEngineering Limited. DLR (GermanAerospace Center). 2004. "Financing Instruments for the Market Introductionof STTPs - Scenario Model `Athene.'" BMU-fbnded study SOKRATES, December 2001- December2003, FinalReport 2004. 102 10° W 5° W 0° SPAIN Mediterranean Sea Tangier Tétouan Tétouan To Al Hoceima Algiers 35°N Larache Chechaouene Chechaouene Nador Nador 35° N MOROCCO OuedMoulouyTaourirt a Oujda Oujda OuezzaneOuezzane Taounate aounate aourir Oued Sebour Kenitra Sidi Sidi Taza aza ts. Sale Kacem Kacem Fès Fès Ain Bini Ain Bini RABAT M MatharMathar Meknès Meknès Khemisset Khemisset Casablanca Ifrane Ifrane AzrouAzrou Atlas Ben Slimane Ben Slimane Boulemane Boulemane A L G E R I A El Jadida BerrechidBerrechid s To Settat Settat Oued Zem Oued Zem Khenifra Khenifra Middle n El Bayadh Khouribga Khouribga t a i BouârfaBouârfa ATLANTIC Oued n ErRbia Beni Mellal Beni Mellal u Figuig Figuig Safi o OCEAN El Kelaa El Kelaa des Srarhna des Srarhna M Azilal Azilal s Errachidia Errachidia Oued Tennsift DemnateDemnate a l To Essaouira Marrakech Marrakech t Tindouf 0° Chichaoua Chichaoua Tahannaout ahannaout A MOROCCO Jebel Toubkal Jebel oubkal (4,165 m) (4,165 m) INTEGRATED SOLAR Ouarzazate Ouarzazate N COMBINED CYCLE POWER Souss Oued D A R Y U PROJECT SITE Agadir Oued M t s . ZagoraZagoraDraa BO Taroudannt roudannt SELECTED CITIES AND TOWNS 30° N 30° N PROVINCE OR PREFECTURE CAPITALS* NATIONAL CAPITAL Tiznit znit A n t i A t l a s P P O R X I M AT E Tata ata A RIVERS A L G E R I A MAIN ROADS This map was produced by IfniIfni RAILROADS the Map Design Unit of The World Bank. The boundaries, PROVINCE OR PREFECTURE BOUNDARIES colors, denominations and 0 50 100 150 200 Kilometers any other information shown INTERNATIONAL BOUNDARIES on this map do not imply, on Goulimine Goulimine IBRD the part of The World Bank APRIL Group, any judgment on the 0 50 100 150 Miles INTERNATIONAL BOUNDARIES legal status of any territory, Draa (Approximate) 34713 Dr 2006 or any endorsement or Tan-Tan an-Tan Oued a c c e p t a n c e o f s u c h *Province or Prefecture names are the same To boundaries. 5° W Tindouf their capitals.