Project Financing Proposal Geothermal Hot Water Supply of Saburtalo District in Tbilisi, Georgia

1. Project Financing Proposal Geothermal Hot Water Supply of Saburtalo District in Tbilisi, Georgia Marina Shvangiradze Head of National Policy Division Climate Change Department Ministry of Environmental Protection and Natural Resources of Georgia

2. Project Background I Heat and hot water supply centralized systems introduced in Georgia in early 60-ies were cut and completely destroyed in early 90-ies after the breaking of Soviet Union Different energy carriers (electricity, natural gas, LPG, wood fuel, etc.) are being used by population for preparation of hot water and for space heating so far. Feasibility study on energy efficient rehabilitation of heating systems was conducted in Georgia in 1999-2001. All possible scenarious have been considered and assessed: rehabilitation of old centralized systems, optimization of networks and introduction of group boilers for compactly located buildings, autonomous boilers for high buildings, individual heating and hot water supply systems for each flat and use of geothermal heat. Study showed that use of local geothermal resource for heating and hot water supply is the economically and environmentally best scenario if financial barriers raised by high investment cost of project implementation will be overcome

3. Project Background II Proposal was developed within the INC under the section of mitigation options. Project aims at supply of 27,825 (12,278 flats) consumers with standard parameter (550 C) hot water. Only 20% of consumers are currently supplied by self flowing geothermal water (after utilization running to the sewage) with low temperature (especially in winter time) and variable pressure. Initial debit of water deposit planned to use in this project is 5 times decreased because of wasteful utilization of this resource. Surface charge of deposit is insignificant and not enough for maintain the water presser. Transfer of new for Georgia technology such as Geothermal Circulation System (GCS) is envisaged in the proposal which could maintain the sustainable use of geothermal heat. Electric hanged pumps will increase the current amount of geothermal water and maintain its pressure

4. Project Location and Project Proponents Site of the project implementation is located in one of the densely populated (with high buildings) region of Tbilisi, Georgia, called Saburtalo and is the nearest district with the existing geothermal wells called �Lisi� deposit. Project has been jointly developed by the Climate Change National Center of the Ministry of Environment of Georgia and Ltd. �Geothermia�, which currently is the owner of license on geothermal resource of �Lisi� deposit. Municipality of Tbilisi is also the participant of project preparation stage and has pledged to allocate 1 mln. USD for project implementation. Municipality is still the formal owner of old boiler houses and heat distribution network which are completely obsolete. GEF is the financer of feasibility study. GEF allocated 0.45 mln USD grant for installation of hot water meters for consumers and 2 mln USD grant for country which should be lent to the private sector acting in geothermal field. Revolving Fund managed by selected private bank is also project partner.

5. Technical Aspects of the Project GCS will be constructed using 4 existing geothermal wells: 2 productive (N5 and N7) for pumping the geothermal water (650 C) and 2 currently closed wells (N1 and N9) for re-injection of utilized water (of 200 C). (?T=450) 150 m3/h and 50 m3/h capacity electric pumps will be hung in productive wells and 200 m3/h geothermal water with temperature 650 C will be pumped. Geothermal Thermal Station (GeoTS) with capacity 10.6 MW comprises heat exchangers for heating 100 C tap water up to 550 C. (?T=450) Existing distribution network will be completely renewed by pre-insulated high efficiency pipes but old channels could be used. Two water reservoirs for keeping hot water when consumption is low (night time) will be constructing. From reservoirs hot water is should be delivered to consumers. Hot water meters will be installed for each flat in order to improve the payment process and increase it up to 80% (currently 20%). In past the fee for hot water and heat were fixed accordingly per person and per sq. meter space.

6. Initial Investments (USD) Energy generation component 1 052 140 GCS 606 860 GeoTS 445 280 Distribution Network 1�635 000 Internal works in the building 892 000 10% Contingency 357 914 Total 3�937 054 Maintenance Costs (USD) Annual electricity costs 143 256 Annual fresh water costs 22 079 Annual maintenance costs 30 000 Annual labour costs 45 000 Other annual costs 10 000 Total 250 335

7. Market analysis

8. Economical Parameters Project is small scale which diminishes its economical effect (high transaction costs) but it has significant environmental and social effects. Increase of consumption from 50 to 100 l per person per day (assumption) Payment 80% (assumption) Grant 0.45 mln USD (for hot water meters) Economical parameters are calculated for 20 years of project lifetime though the real (technical) lifetime is 25 years and more In 2005 the economical features of proposal such as IRR and possible tariff for hot water have been reassessed according to the current prices for electricity, network water, natural gas Investment costs have to be reassessed Tariff assumptions min=0.75 USD and max =1.00 USD IRR=5% when tariff for 1m3 hot water is 0.75 USD and IRR=11% when tariff is 1.00 USD (no taxes have been taken into consideration)

9. Project financing scheme

10. Risks I Consumption is less than assumed (100 l per person per day). Survey conducted recently has showed that population use about 100 l per day per person but temperature 35-36 0 C. Assumption on 80% payment from consumers could be ambitious. Awareness of pilot district population to accept geothermal water system. Currently geothermal water is directly delivered to the consumers (smell, aggressiveness of geothermal water, inconstancy of water temperature, etc.) Methods of payment collection (community, binding with already succeeded payment collection systems, etc) Ensuring the system with tap water. PP has preliminary agreement with water supply utility. Tariff of 1m3 drinking water is anticipated to be increased.

11. Risks II PPP is considered very intensively because: the part of assets from old systems aimed at the use in new one belong to the Municipality: formally the Municipality is still responsible for hot water tariff establishment; is responsible for the supply of city residents with various energy carriers. Success is not yet in progress. Balance sheets and historical financial status of current project owner desires better. (joint company, new project owner) Conditions of revolving fund are not yet identified. Preliminary it should be 3 years grace period, no more than 5% annual interest rate, 20 years payback period. (in case of stronger conditions the feasibility of proposal could be questioned) Possible (chemical, physical, etc.) changes in the heat containing layers of the earth evoked by re-injection process are not investigated

12. Environmental and Other Benefits of Project Implementation Population of pilot region currently use natural gas 80% and electricity 20%. If 100% natural gas consumption consider as baseline scenario in average 12,000 t CO2 will be reduced annually Socio-economical conditions of pilot district population will be improved (in-door conditions, comfort, affordibility,etc) Sustainability and security of hot water supply system will be ensured comparing with the current situation (cut of natural gas, electricity crisis, etc.) New technology will be replicated for other geothermal deposits Capacity could be increased and space heating element could be add to the system