Uprating and Refubishing Hydro Power Plants VIII (URHP) - the conference organised by International Water Power and Dam Construction and CZCOLD - was held recently in the Czech Republic's picturesque city of Prague.
For those of you who didn’t attend, the keynote speech by Geoffrey P Sims, Consultant Brown & Root, and past vice president of the International Commission on Large dams, summed up the themes and purpose of the conference. We reproduce the speech below to give you an idea on what you missed!
TRENDS IN THE REHABILITATION OF HYDROELECTRIC PLANTS IN EASTERN EUROPE
Good morning Ladies and Gentlemen. Welcome to the eighth conference on Uprating and Refurbishing Hydro Power Plants. You have come to Prague from all over Europe in order to work together to exchange your experience on the rehabilitation of hydroelectric projects. Through your discussions and debate you will be extending and refining the state of the art and you will focus your research on those areas that have particular urgency. I am confident that the broad scope of the agenda will provide you with good opportunities in this regard.
International Water Power and Dam Construction has arranged a concise and practical conference of three days. This conference has been organised in collaboration with members of ICOLD.
The involvement in the organisation of the Czech National Committee on Large Dams has added much in the way of local relevance to the content of the conference. Under an umbrella of uprating and refurbishment as a vehicle for creating new business for old plants, the conference follows four major themes:
A – Uprating and rehabilitation in Eastern Europe (8 papers),
B – Overcoming Barriers To Rehabilitation (panel session),
C – The WCD: Matching opportunities with needs (panel session)
D – Detailed Rehabilitation Experiences (19 papers).
These four themes have attracted a total of more than 30 papers. This total is in itself an eloquent testimony to the value of our meeting and will, I am sure, contribute to its success.
The study tour IWP&DC has planned to the Stechovice and Orlik projects looks to be an experience of great interest and pleasure.
The Organizing Committee has invited me to give this keynote speech. I have accepted the role with some trepidation. After all, I am a civil engineer by training and my career has been spent as a consulting engineer with about half spent on new projects and half on rehabilitation, mostly overseas. As the Chairman of the ICOLD Committee on Rehabilitation, I have worked closely with European, Australian and American specialist civil engineers to produce Bulletin 119 on Rehabilitation of Dams and Appurtenant Works. I served under Jose Pedro of Portugal on the ICOLD Committee on Ageing of Dams and Appurtenant Works. This has given me an understanding of the civilengineering perspective on how structures behave as they get older. I have long held the belief that rehabilitation and uprating of hydropower projects involves not only the work on the electrical and mechanical plant, important though that is, but is should also strongly involve the civil engineering aspects of the project as well. Therefore I am greatly encouraged with the breadth of interest reflected by these four themes which will I am sure provide a good mix of subjects to be discussed over the next three days.
THE GROWING EMPHASIS ON UPRATING & REHABILITATION
Among the global trends affecting the generation and distribution of electricity are the following. Each of these has more or less direct and positive implications for uprating and rehabilitation of hydroelectric plants. It appears that the trends apply positively in eastern and central Europe.
• Political transformations
• Liberalisation of electricity markets
• Project financing trends
• Recent and ongoing power technology development
• Sustainable development trends
I will take this opportunity of discussing some of these trends in a little more detail and see how the trends work in this region of Europe.
2.2 Political transformation
The changes in governance and economic systems in Eastern Europe from the old command economies of the Soviet era are characterized by more democratic forms of government. This leads to a larger voice for all constituencies including government itself, industry, civil society and the general public, in shaping national policies for energy and power sector development. These new voices, and the new issues that are brought to the table through this process, tend to focus on the efficiency of the existing power distribution system from a range of perspectives including economic, technical, environmental and social. The effect is to present positively the improvement of existing assets through uprating or rehabilitation.
Although this trend is apparent in countries that are in political transition from centrally planned to democratic systems, it is also influencing policies in other countries including those in western Europe and the USA. This has resulted in pressure for and acceptance of more open debate about government policies, especially in energy and power. It also means a greater involvement in major planning and operating decisions by individual people or communities affected by development projects that impact their property or livelihood. Uprating and rehabilitation of an existing asset is less intrusive than the construction of a new facility and is therefore seen positively in this changing context by most of those involved in making the decisions.
We engineers have to accept an increased role for ourselves in this process of deeper and wider communication. Who else can explain the often complex technical issues in terms that can be used by other less technically aware stakeholders? I shall speak a little more later about the engineer as communicator in the context of overcoming barriers to innovation.
2.3 Liberalisation of electricity markets
The power sector in many if not most industrialised countries has entered a period of structural change with the introduction of competition in energy and electricity markets.
This is a global trend, notwithstanding the recent difficulties in meeting demand in California. Market-based decision making processes and associated regulatory frameworks are evolving. Governments, concerned with spiralling infrastructure costs, areturning to competition to make the provision of public services such as electricity more efficient. Thus the reform process has facilitated regional interconnection of grids, power pool arrangements, and the early stages of formation of de-centralised or distributed electrical systems.
Power sector reform is pervasive, affecting all aspects from regulation and tariffs to ownership of assets, and dispatch and operation policies of individual plants. The role of hydropower in modern interconnected systems is particularly valuable for example in meeting peak demand and for controlling system frequency. There are therefore important commercial opportunities in improving the quality of hydropower assets through their uprating and rehabilitation.
Combined cycle gas powered thermal plants are currently attractive to system planners and financiers. Such plants can be fast-tracked, gas is abundant, there is less risk for the investors and opposition seems to be less. They are therefore formidable competitors to new hydro, but the comparison is much more favourable to hydro when the uprating of an existing hydropower asset is proposed.
2.4 Project Financing Trends
There are specific implications for project financing accompanying the wide political and economic trends I have outlined above. With less traditional government financing available, the private sector will play a larger role. This has implications on accessing financing for new generation and for uprating or rehabilitating existing assets. The private financing sector will ruthlessly seek out the opportunities with the lower risk and higher economic rate of return. Well presented opportunities for gas-fired thermal plant or uprating or rehabilitation of existing hydro are clearly among the most attractive proposals for a private financier to consider.
The policies of development banks active in Europe are broadly supportive of projects with good environmental credentials. Hence the European Bank for Reconstructio n and
Development (EBRD), European Investment Bank (EIB) and the World Bank (IBRD) are often willing seriously to consider projects for uprating and rehabilitation of hydroelectric projects. Support from such prestigious agencies is often of crucial importance in encouraging other organisations to join in contributing to the financing on reasonable terms.
Largest of the lenders to central and eastern Europe is the EIB, established in 1958 by the Treaty of Rome. It lends many times more than the EBRD and a good deal more than the World Bank. It operates on a non-profit basis and can pass on its excellent credit rating to its borrowers. Of the €2.95 billion it lent in central and eastern Europe during 2000, 15% was for water and 7% was for energy projects (Maxwell, 2001). The EIB often can act as a catalyst to obtain other sources of funding. Its risk-capital arm is the European Investment Fund, which was founded to facilitate the financing of investment by small and medium enterprises.
The EBRD, was established in 1991 with a core business of financing projects that will advance the transition to market economics. Hence infrastructure is a key priority.
Although private sector activity is its main focus, accounting for 70% of operations in 1999, it is considered to have a semi political mission. The agreement establishing the EBRD stipulated that public sector projects should not exceed 40% of the bank’s investments.
It is considered that there is still some distance to go before public-private partnerships can be readily accepted in central and eastern Europe. In the context of hydropower rehabilitation both public -private partnerships and private finance initiatives need to be developed as implementation can involve changes to legal systems. There are many examples in western Europe of innovative procurement practices in support of private-public partnerships.
2.5 Sustainable development trends
Many would argue that sustainability is becoming one of the basic tests for development policies and a sine qua non for access to financing from development agencies. Therefore the planning and design of uprating and rehabilitation actions should aim to improve the physical sustainability of the asset. Thus, although uprating or rehabilitation will initially be focussed on improvements to output, efficiency or safety, they should also respond to the question of environmental sustainability.
Where dam safety measures are too expensive and do not provide a commercial return to the owner, an option to be considered will be dam removal. Environmental groups have been delighted to publicise this option when it has been taken. There is no reason in principle why we as engineering advisors should not embrace this option when it is appropriate. We note that at this stage it is mainly smaller, older obsolete dams that have been decommissioned to date, and mainly in the USA. The International Rivers Network (IRN) is pressing to decommission projects. The typical pamphlet The Global View of Dam Removal (IRN, 2001) contains an example of the efforts to decommission dams here in the Czech Republic.
Of particular relevance to hydropower generation is the determination by governments to bring their environmental protection legislation and practice into line with other parts of the world. It would be wrong to assume that eastern and central Europe did not have environmental legislation; the truth is that in many areas their standards were and still are higher than in the west (Palmer, 2001). An issue that plays directly to the benefit of hydro and even more to the rehabilitation and upgrading of existing plants is the pollution caused by the coal industry. In Poland for example coal mines may be closed for environmental reasons if they do not reach acceptable standards by 2005. The EBRD concludes that improvement in the area’s environmental quality are related to economic policies.
Economic reform can generate efficiency gains that reduce industrial pollution. Thus the more advanced countries in the region, the ones that will join the EU first, have done well because they are politically and economically stable and have a regulatory framework attractive to western investors, whether state or private.
3 THE WCD REPORT AND ITS IMPACT ON REHABILITATION OF HYDRO ELECTRIC PROJECTS
The World Commission on Dams was established by the World Bank and the International Conservation Union to study and recommend responses to the weighty challenges before those of us involved with developing dam projects. There has been particular difficulty in getting approval for new projects. You have only to look at the Ilisu project in Turkey to appreciate the problem. The WCD report (WCD, 2000), published late last year, and its knowledge base, is a valuable resource and we should take full advantage of it. The report strongly supports the trend I have mentioned above of greater involvement by those affected in the essential development decision-making process. The principal stakeholders include financing institutions, industry and civil society. Theme C of this conference will consider the opportunities these stakeholders present in the context of uprating and rehabilitation.
Many countries have welcomed the WCD report as a means of overcoming the lack of understanding between those in favour and those opposed to dam-based projects. But it is also true that some countries, including European ones, are anxious lest the procedure proposed by the WCD will add unacceptable costs and time to desperately needed projects. To them I would say that the procedures proposed by the WCD, or ones like them, may become inevitable as the effect of improving education spreads throughout Europe and the world. It behoves us to study the report and its conclusions and recommendations and to implement them efficiently.
The WCD recommendations apply to all engineers involved with hydro projects, whether they work in the developed world or elsewhere. They refer specifically to the quality of our work in maintaining and rehabilitating existing assets. They point out that unless existing projects are well run it will be more difficult to secure the funding and public support needed for the development of new ones.
All four of the conference themes A, B, C and D, whether concerned with the technical details of improvements or the wider politico-social aspects, are relevant to us engineers as businessmen and entrepreneurs. We are aware of the economic importance of our projects and the need to optimise their performance. We have to make the best use of what we have and in this way we can hope for priority for the scarce capital available for our projects. The WCD reinforces the common sense belief that by communicating better and running our projects better will provide the conditions to expand our businesses.
4 OVERCOMING BARRIERS TO REHABILITATION
An important motivating factor in progressing with uprating and rehabilitation is the need to remove barriers to innovation and change, Theme B of this conference. These barriers include non-technical issues such as legal, regulatory, environmental and social matters.
Removing these barriers can only come through an understanding of the challenges in these fields. Success in overcoming the barriers will assist the market entry of such innovations as renewable and more efficient conventional technologies, and consumer-oriented energy services. In this context it will not be surprising if the barriers are lower for improvements to existing projects than for new ones.
WCD invite us to consider the benefits of improving our communication not only with our professional colleagues as we are doing here at this conference, but also with non technical people including those affected by the rehabilitation work we propose. To be effective the engineer must communicate, setting out to a conservative and largely non-technical community the benefits of our project plans.
The concept of communication resonates in this conference, particularly for those of us who come from the west. Starting from such a wide separation, it may take years to acquire the necessary experience and cross-cultural know-how for us to operate efficiently in central and eastern Europe. All the more important then to be able to demonstrate even a modest knowledge of the local language, which will surely be appreciated. The substantial E U Commission programmes Phare and ISPA with a combined annual spend of £2.5 billion are those of most interest here and are intended to help with the process of social and economic reform of the countries who will join the EU.
4.2 Working with opponents
The World Commission on Dams and the IRN has the approach right. We engineers should accept the challenge to communicate clearly, firstly by getting the science right, and then sharing our knowledge with all the stakeholders, preferably by using their own language.
5 EASTERN EUROPE AS A MARKET
5.1 Political developments in Eastern Europe
Nigel Holden wrote in a recent paper fo rtheInstitution of Civil Engineers in London. Civil Engineers wishing to take advantage of the potentially enormous opportunities for developing their business in the former Soviet-controlled economies of central and eastern
Europe should be aware. It is a minefield of disparate cultures, languages and religions, and has probably endured more political turmoil and oppression than any other region this century. If its people have one thing in common, it is a well-founded distrust of foreigners. Would-be business partners from outside thus need to tread warily, to approach markets on an individual basis and to handle business relationships with the utmost intelligence and tact. (Holden, 2001). It is surely through meetings such as this one in Prague that knowledge and trust can be established.
Many countries in the former Soviet bloc are working hard to adapt their economies to allow them entry to the European Union. Five countries have been identified as the next batch to be admitted to the European Union; Poland, Czech Rebublic, Estonia, Hungary and Slovenia. Here in the Czech Republic, considered along with Poland and Hungary to be one of the economic tigers of the region, they are very conscious of the work required.
Improvements to the power systems are of particular relevance to these efforts as the power systems of Eastern Europe are modernised, phasing out obsolete thermal plants and uprating or rehabilitating hydro electric plants. It appears to be a common feature that the economies of the Eastern European countries are temporarily depressed, just at the time that reconstruction takes place.
As a direct result of this the demand for power and energy is depressed temporarily. There is an opportunity therefore, perhaps limited to the next few years, to improve the existing generation assets to allow them to become competitive within what will surely be a coordinated continent-wide system. We should take advantage of this window of opportunity for uprating and rehabilitation of hydro electric plants in eastern Europe that has been provided through the dynamics of economic reconstruction
It appears that during the 19 and 20 centuries western Europe has specialised in denigrating central and eastern Europe. People in the west tend not to know the shocking history of the region, but in central and eastern Europe they do. We are fortunate therefore to have during this first session of the conference, engineers and businessmen with a deep and detailed knowledge, not only of the historical context of our work, but who can also guide us on the business and technical aspects too.
5.2 Eastern European Regional Power Trade
In addition to the global trends supporting uprating and rehabilitation world wide, discussed earlier, there are also trends specific to eastern Europe that are encouraging the improvement of hydropower projects in this part of the world. These include:
• The window of opportunity for uprating and rehabilitation as a concomitant of regional economic reconstruction from centrally planned economies to more liberal models.
• Eastern European regional power trade and grid interconnection
• Conformity with European Union directives and policy
• The implications to eastern European countries in gaining access to the EU
• The policies of development banks and funding agencies
Romania is a particularly large generator of hydroelectric power in this region. It is active too in rehabilitation as recent figures suggest. In the first 5 months of 2000, it generated 4.16 TWh of hydroelectricity, accounting for 22% of total energy production. Iron Gates I and II on the Danube 12% of Romanian electricity production (IWP&DC, 2001).
These figures confirm that there are substantial benefits to be obtained through the interconnection of national power systems of Eastern Europe as they become connected to the large systems in the west. These benefits of interconnection include reducing the need for reserve generating capacity for example, making fuller use of plant that can be rapidly started. In this context many other new opportunities are presented specifically for hydroelectric power plants. This is true whether they are uprated or rehabilitated or left in their present state, but logically the opportunities will improve as the plant becomes larger, more efficient and more reliable. Because of its rapid reaction time, the principal benefits of hydro to an interconnected system will include in addition to additional generation, dynamic system benefits such as spinning reserve, reactive power, stability and frequency control.
This process appears to be well underway in eastern Europe, providing opportunities in regional grid interconnection and power exchange. We should not forget either that hydro assets can be operated to take advantage of new pricing and tariff policies in the new energy markets. As an example of this, Norway is increasing capacity at some hydro plants to provide greater peaking duty as a result of their being a part of Nord Pool.
5.3 Competition between generators
The essential point here is that with open access to national and international power grids, the biggest rewards will go to the producers using the most efficient plant. Hence uprating and particularly rehabilitation of hydroelectric plant are of economic merit.
5.4 The European Union
The European Union already has many directives and appears to be contemplating more.
Policy areas that particularly interest the EU are those that deal with environmental concerns. In the context of power generation this implies an interest by the EU in the renewable energy portion in the generation mix and river management. Thus there is expected to be growing support for renewable energy sources that currently include the usual suspects of wind, wave, photovoltaic together with small hydro. For reasons that are not entirely clear, hydro projects larger than about 10MW are often not regarded as coming from a renewable source.
Increasingly, therefore renewable energy sources with a low environmental impact will be important to those Eastern European countries contemplating EU accession. These countries will clearly have to meet the requirements of the EU Directives but the implications for uprating and rehabilitation are clear. There is likely to be support for the improvements in output of existing plants, especially where the environmental impact can be demonstrated to be positive.
5.5 Engineering needs, training, use of foreign consultants and contractors.
A direct consequence of the liberalisation of electricity markets is the need for regulatory structures and institutional capacity. Formidable resources in the field of economics, financial and legal aspects of the power sector are required for successful reform of a power market. These become critical factors particularly bearing in mind that in the old command system engineers were trained to perform technical work and were not involved in economic matters. In the market economy therefore engineers and academics have had to accept that the modern professional activity of an engineer includes:
• Company management
• Project management
• Risk Management
• Management of the construction process
• Quality assurance and quality management
New regulatory structures have to deal with economic, technical, safety and environment issues and require a mix of professional staff with expertise in these fields. In addition, government needs to assure that it and other stakeholders, including utilities and private sector suppliers, have the skills to manage renewable energy sources and demand side management programs. These are new to the post communist countries and training modules are still required (Minasowicz et al, 2001).
Particularly in the fields of engineering and information technology there are prospects, where the enabling financial, institutional and technical conditions are met, for technological leapfrogging. This means the adoption of innovations in a developing country in a manner similar to what is starting to occur in other rapidly advancing sectors such as telecommunications.
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