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Monitoring report Swedish JI project in Timisoara ... - Terra Mileniul III


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									                                            TERRA Mileniul III

                      Joint Implementation Project Monitoring Report

                                                                                   December 2006

                                          The company
                                      The goal of the project
                                          Project costs

The project Timisoara Combined Heat and Power Rehabilitation for CET Sud Location is a
joint implementation (JI) project and part of the Swedish International Climate Investment
Program. The carbon purchaser is the Swedish Energy Agency and the project developer is
SC Colterm SA, a company owned by the Municipality of Timisoara, in western Romania.

Unlike other cities, Timisoara hasn’t seen large numbers of consumers decouple from the
district heating system, as under 15% of the total have done so. All apartment buildings are
metered and a programme to install cost distributors in these buildings is on-going.

The 2000-2007 strategy for Timisoara shows as energy-related priorities the modernisation
of primary and secondary thermal energy networks, interior installations, thermal plants and
units, through the improvement of insulation and fitting of high performance equipment, with
a focus on cogeneration. A 30% reduction target is set regarding water and thermal energy

The company
SC Colterm SA is the operator of the entire district heating system chain in Timisoara:
production (CET Timisoara Sud and CET Timisoara Centru), transport and distribution. The
district heating system in Timisoara supplies 87,000 apartments, i.e. 70% of total heat
demand. The distribution network has been partially refurbished and modernisation works
are on-going; losses along the network are reasonable (compared to other district heating
systems in the country). Thermal energy prices for the population have decreased starting
July 2006 from RON 170.6/ Gcal to RON 147.84/ Gcal1. We need to compare these figures
with the national reference price of RON 107.5/ Gcal2 (the difference is covered by

  Governmental Decision no. 1254/2005 regarding the reference price for thermal energy supplied to the
population in district heating systems
The goal of the project
The goal of the project was to upgrade the CET Timisoara Sud heat production plant with an
18 MW cogeneration unit (steam turbine). Electricity consumed internally in the heat
production plant and for the distribution of district heating water would be covered by new
cogeneration capacity. Excess electricity would be sold to the power grid or be used for
internal consumption at other locations in the city. The project was scheduled for completion

Project costs
Project cost is EUR 5.433 million. It is financed by local debt, equity and the sale of emission
reduction units (ERU) under the JI program. For the period end of 2007 - 2012 the project’s
GHG emission reductions are estimated to reach 34,671 tones of CO2/year.

In the business as usual scenario the project’s emission reductions are 344,200 – 309,529 =
34,671 t CO2/year.

These reductions account for around EUR 1 million. Emission reductions will be achieved
through replacement of current electricity taken from the national power grid, based on
lignite, with electricity produced in cogeneration. The project is able to reach an internal rate
of return (calculated along a ten year period) of about 13.4% with ERU sales.

Heat is currently produced in hot water boilers and in steam boilers. The plant has low global
energy efficiency with direct implications in generation costs; the plant is not equipped for
cogeneration. The existing facilities include three large steam boilers, connected to the heat
exchangers with a pressure reduction station, reducing the pressure to an acceptable level.
The system is not working optimally, since it uses electricity for the feed water pumps to
increase the pressure to about 16 bar and then through the pressure reduction stations bring
the pressure down to about 2 to 3 bar before transferring the heat to the district heating water
flow. This is due to the fact that the plant was designed to supply both household and
industrial consumers (the latter requiring steam; there are no prospects for future demand in
this respect). Current energy production is based on coal (69%) and natural gas (31%); there
aren’t any near future prospects for an increase in the share of gas supply due to network
issues – Timisoara is end of the pipe, and gas supply is inadequate in the cold season; a
series of small gas turbines projects are being developed by the Timisoara district heating
company though4.

Current equipment:
• 3 steam boilers of 100 t/h each, at 15 bar, 250°C, lignite and natural gas fired,
   commissioning year 1984 – 1986 – 1988

  The project development was delayed. In order to start project implementation and detailed design, the project
owner organised an international tender in March 2004 for the procurement of the steam turbine. Due to a lack of
offers a second tender was organised in May 2004. In September 2005, the steam turbine was delivered to the
company. In June 2006 construction works were on-going for the turbine building, at an early stage though.
Testing was scheduled for autumn 2006, and operation was scheduled to start in December 2006 – February
2007. The delay took place due to modifications needed in turbine design in order to match existing equipment at
the plant. In June 2006, the turbine had been delivered and it was being stored on site.
  Colterm is also preparing a cogeneration project at its other facility, CET Centru, to install a 20 MW combined
cycle gas turbine. This is also a JI project, and the legal entity is the European Bank for Reconstruction and
Development, representing the Netherlands. In the long term, it is planning a 65 MW gas turbine, which would
only be completed when the city is connected to a Hungarian gas pipeline.

•   2 hot water boilers of 100 Gcal/h each, lignite and natural gas fired, commissioning year
•   4 steam boilers of 10 t/h each, at 16 bar, 300°C natural gas fired, commissioning year
•   3 horizontal heat exchangers 25 Gcal/h each
•   2 horizontal heat exchangers 75 Gcal/h each

The heat load curve is covered mainly from the hot water boilers. The steam boilers are only
used on peak load to avoid losses in the steam-water cycle. At present, to produce heat in
the steam boilers, steam has to go through pressure reduction stations and then enter the
heat exchangers.

The technical solution consists of installing a backpressure steam turbine in CET Timisoara
Sud to process the steam produced in the steam boilers, increasing the efficiency of the
energy cycle.

The electricity produced with the new equipment would be approximately 66,800 MWh/year,
30,600 MWh/year of which is electricity used for own consumption.

The district heating company has been losing clients, who preferred to install individual gas-
fired heating plants. On the other hand, gas prices are set to increase, which may lead to a
return of consumers to the district heating system. Nevertheless, one of the key assumptions
in the project is that the baseline is expected to remain unchanged over the duration of the
project, which is unrealistic and may jeopardize its feasibility (it is said that the rate of return
is not acceptable without the sale of ERU; a decrease in thermal energy consumption means
a decrease in period of operation of the steam turbine, lower electricity production, non-
achievement of projected emission reductions – loss of ERU).

The baseline study only considered one operation year, not historical energy consumption as
one would expect, especially as there aren’t any accurate measurements for the plant’s fuel
consumption, it is being estimated.

Moreover, there is a large discrepancy in emission figures between the project documents
and the Romanian National Allocation Plan. The baseline in the project is 344,200 t
CO2/year, while the National Allocation Plan shows 232,439 t CO2/year5.

According to information submitted by the company to the Timisoara Regional Environmental
Protection Agency, the plant’s electricity consumption was 16,879 MWh in 2005. This is
another discrepancy, as the project documents state that electricity consumption is 30,597
MWh per year.

If we consider the amount of electricity that the plant gets from the national grid in the project
boundaries, a large difference between the two figures above still remains:

(consumption 16,879 MWh/ year + 2363 MWh/ year grid losses6) x 0.513 t CO2/MWh7 =
9871 t CO2/ year

  Based on multi-annual data in order to take account of fluctuations in the activity of installations; the reference
period for the 2006 National Green House Gas Inventory is 2001-2004. The figure does not include the
electricity bought from the national grid.
  The Project Baseline Document estimates grid losses at 14%.
  Source: The National Energy Regulatory Authority, “Statistical Data for Electricity Production in 2005”.

Thus, the baseline is 242,310 t CO2 (the difference between this figure and the baseline
established in the project document is over 100,000 t CO2).

The baseline study uses instead the amount of electricity that the new equipment would
produce. While one can agree that the new turbine could replace fossil fuel electricity
generation with more efficient, cogenerated, electricity, the use of a future situation in a
baseline study is not adequate.

According to this data, it seems that Colterm used a wrong baseline in order to demonstrate
that the new turbine would indeed operate for a sufficient amount of time each year in order
to produce the necessary emission credits.

The JI project only represents a temporary solution to Colterm’s situation, as losses are still
large due to a lack of industrial consumers. A totally new energy production unit was
probably excluded from the start because neither Colterm nor the City Hall can adventure
into a large scale investment. On the other hand, these decisions don’t seem to be taken
according to any strategic documents, including an analysis of potential alternative power
supply in the area (including biomass or geothermal power for example). As the equipment at
the CET Sud is around 20 years old, one can question the feasibility of this investment.

Throughout the Romanian district heating systems investments have been made to fix critical
components, while some wider programme to rehabilitate and modernise distribution
networks have started to be implemented; most of the times municipalities are somewhat
forced to go for smaller investments on the production side due to a lack of capital.

The cogeneration of heat and power is definitely the right path, along with the refurbishment
of district heating distribution, improvement in thermal insulation of buildings, installing heat
meters, etc. Municipalities and associated district heating companies should definitely
consider Joint Implementation projects as well as funding from various financial institutions.

The Timisoara CET Sud project has its issues related to baseline of CO2 emissions, which
may lead to problems with the Swedish partner upon thorough analysis of the project. It is an
energy efficiency project and it will have its benefits, though it may not be the best example
of a JI project; reaching the objectives of the Kyoto Protocol will not be possible with further
investments in the fossil fuel and nuclear sectors. The cogeneration of heat and power is one
step forward though, and we support energy efficiency programmes both on demand and
supply side. From the point of view of the Kyoto Protocol’s flexible instruments, we would say
supply side fossil fuel projects are not really the best idea.

National Allocation Plan for 2007 and 2008-2012, draft document, Ministry of Environment
and Water Management, 2006
Request for authorisation regarding greenhouse gas emissions, SC Colterm SA, 2006
Timisoara Combined Heat and Power Rehabilitation for CET Sud Location, Project Design
Document, Colterm & Envinvest, updated January 2006
Timisoara Combined Heat and Power Rehabilitation for CET Sud Location, Baseline Study,
Colterm & Envinvest, updated January 2006

                                     TERRA Mileniul III
              Bd. Marasesti nr. 86, ap. 1, 040256, sector 4, Bucuresti, Romania
               Tel +4021 314 12 27, Fax +4021 30 10 333, www.terraiii.ngo.ro


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