Hydro Power Hub

www.investingeorgia.org 1

HYDRO POWER HUB
HYD RO POW ER HU B
Georgian National Investment Agency 2013


OVERVIEW OF GEORGIA’S (HYDRO-) POWER SECTOR

• Domestic: Demand growth and increasing share of renewables requires an
extension of hydropower generation by around 65% until 2020

VEST
• Export: Georgia is surrounded by countries with a projected structural
power deficit (e.g. Turkey, Russia South) or expensive power generation,
opening up attractive export opportunities
Strong demand growth prospects

• Power generation accounts for 3% of GDP and ~ 1% of employment but is
of high strategic importance to Georgia

• ~ 10% of power production are exported, but Georgia still needs to import
power during winter

ORGIA
Importance of the sector low in
terms of GDP and employment

• Georgia boosts significant and economically viable HPP potential – already
today 75% of power generated via HPP (2,700 MW) – 25% via thermal
(mainly gas)

• All new HPPs operate in a liberalized market
• Cost of hydropower generation is very competitive in the region
Power sector with strong focus
on cost competitive HPP

• FDI inflows amounted to USD 200 million in 2011 and are growing
• 65% of economically viable potential not yet exploited
• Projects of up to USD 750 million have been concessioned to investors
from e.g. India, Turkey, Czech Republic and other counties.

Large projects have been • Pipeline well filled with several large scale projects (100-702 MW) as well
placed and pipeline is filled as 70+ smaller projects

ALL CONDITIONS FOR CAPTURING OPPORTUNITIES FROM
GROWING DOMESTIC DEMAND AND EXPORTS ARE IN PLACE
Opportunities Conditions for investment Situation in Georgia Evaluation

• Electricity demand growing in

IN
HPPs for Domestic demand line with high GDP growth
Mostly covered
domestic growth and • Share of hydropower to grow in by commissioned
supply offtake guarantee total generation capacity HPP developments
• Domestic offtake guarantees

Excess demand • Turkey and Russia projected to
have excess demand
in neighboring
• Armenia/Azerbaijan still with
countries generation overhang

IN GEO
• Incremental generation cost
Competitive among the lowest in the region,
generation cost ~50% lower than target market
Turkey Investment
HPPs for opportunity
export for new HPP
developments
• 160 MW currently available (to TK)
Transmission • Upgrade of infrastructure by 2014
capacity to increase capacity by 5-10
• Transmission guarantee granted

• Agreement with Turkey under
negotiation
Offtake guarantee
• Export buyer SPV being
discussed



DOMESTIC DEMAND GROWTH REQUIRES AN EXTENSION
OF HYDROPOWER GENERATION BY AROUND 65%
DOMESTIC DEMAND AND SUPPLY PROJECTIONS

VEST
TWh, 2020 15.7 6.2
High
2.1 2.1 scenario1

+65%
Low
10.9 4.1 scenario1
1.4

ORGIA
RGIA
13.6

Current i
installed
ll d Decreasing
i Projected
j d Demand d
capacity share of demand overhang to
thermal 2020 be covered

• Georgia’s demand for electricity is increasing in line with expected GDP growth, requiring more HPP
generation capacity
• Commissioned HPP developments likely to saturate the demand growth

1
High scenario assumes 6% CAGR of demand (in line with GDP), low scenario assumes 6% till 2015, thereafter 3%

ATTRACTIVE EXPORT POTENTIAL IN THE REGION,
PARTICULARLY IN TURKEY

TURKISH GENERATION DEFICIT IS EVOLVING TURKISH CONSUMPTION PROFILE PERFECTLY

IN
OVER THE COMING YEARS MATCHES GEORGIA’S GENERATION
Energy deficit High scenario Generation Georgia
forecast
TWh Low scenario Consumption Turkey

Increased consumption
due to air conditioning

Surplus due to increased
river flows

GENERATION COST, USD CT
Generation cost
USD Ct

IN GEO
GEORGIA’S GENERATION COSTS ARE HIGHLY COMPETITIVE

Current generation tariff
New generation cost
TRANSMISSION CAPACITY IS CURRENTLY BEING UPGRADED

Transmission capacity
MW

850
880

160
1,480

850
2011
2016

1,560 250

160



GEORGIA SURROUNDED BY COUNTRIES WITH A STRUCTURAL
POWER DEFICIT OR EXPENSIVE POWER GENERATION

2020
• Turkey expected

VEST
to have deficit
of up to 80-120
Ukraine TWh by 2020,
with seasonality
of its demand
South Russia matching
Romania
Georgia’s supply

Bulgaria Uzbekistan • Russia’s
Georgia Southern
districts will also
Azerbaijan

ORGIA
RGIA
experience a
Greece Turkey Turkmenistan
Armenia structural deficit
of up to 40 TWh
by 20201

Lebanon • In other markets,
Iraq
Georgia’s
Iran
Israel hydropower
is very cost-
competitive
compared to
local tariffs2

Structural deficit by 2020 No deficit, but current tariffs > Georgia’s generation cost

Ad hoc deficits projected No deficit, but subsidized tariffs

1
Assuming current consumption and supply pattern
2
This does not even include countries with heavily subsidized electricity generation (e.g. Azerbaijan, Kazakhstan)

SETTING UP A REGIONAL EXPORT CONSOLIDATION SPV HELPS
TO CONSOLIDATE EXPORT SUPPLY AND FACILITATE PPAs

ILLUSTRATIVE SETUP FOR EXPORT CONSOLIDATION EVALUATION

IN
SPV represents
single interface for
power producers

PPA
Utilities Increased
efficiency in
negotiations
PPA Electricity delivery
Export with utilities and
Power transmission
consolidation

IN GEO
producers Electricity SPV Transmission agreement
providers
delivery

PPAs to power
Funding and Proceeds
Transmission providers with
guarantee Trans-
provider competitive bid
mission
fees could generate
earnings potential
for SPV
Several counter-
Ultimate parties, depending
shareholder on offtake countries
Market risk lies
with SPV if foreign
COULD BE utilities do not
sign PPAs
• Government of Georgia (contract specific
guarantee/ stake)
• Private investor



NUMEROUS INVESTMENT OPPORTUNITIES IN HPP IN GEORGIA

PROJECTS DESCRIPTION

VEST
• 7 large-scale HPP (100-450 MW) developments
Largescale – Clearly identified list of projects open for investment
– Packaged with attractive offtake and export opportunities
HPP
• Domestic offtake agreement (subject to negotiations)
developments
• Export with transmission guarantee

• Buildup of a regional trading company with dual mission

ORGIA
Regional – Consolidate export PPAs and transmission agreements
with key offtake countries (e.g. Turkey)
consolidation – Eventually develop modern trading/power pool
and trading SPV infrastructure and regulation

• Bundling of several of the ~ 70 existing small-/medium-
scale projects (< 100 MW) into an investment fund
Renewable
– Facilitates financial investments into smaller HPPs
energy project – Overcomes critical hurdles of small-scale HPP financing
finance fund to international investors

OUR COMMITMENTS ALONG 4 CRITICAL THRUSTS

Subject to negotiation

IN
Pre-packaged 1 Pipeline of 7 large HPP projects

HPP investment
projects 2 Full package of agreements provided by central government counterparty

3 Increasing domestic demand (+65% in 10 years)
Guaranteed
offtake in local
markets 4 Domestic offtake PPAs offered (part of the year or year-round)

Attractive export
potential (incl.
guaranteed
transmission)

Attractive
IN GEO
5

6

7
Regional shortfalls and competitive generation costs

Cross-border trading agreement negotiated with Turkey

Transmission infrastructure to in place/being upgraded, incl. take or pay
transmission guarantees

investment 8 Business friendly environment with favorable and simple tax system

environment



THE GOVERNMENT OF GEORGIA FACILITATES YOUR INVESTMENT
AND NAVIGATES THE NETWORK OF LOCAL PARTNERS

Project entry/ Technical and Transmission Distribution

VEST
negotiations licensing and offtake

• Georgian National • Georgian National • Georgian State • Electricity System
Investment Agency Energy and Water Electrosystem Commercial Operator
O MEST I PART NE RS
D OMESTI C PARTNERS

ORGIA
Supply Regulatory
Commission

• Ministry of Energy and • Commercial distributors
Natural Resources (e.g., Telasi, EnergoPro)

• Electricity System • Eligible direct
Commercial Operator consumers (Using more
than 7 GW of energy)

• Export offtakers
CONTACT NAVIGATOR

• Industry-specific expertise through dedicated investment advisors
• Experience in dealing with foreign investors
• Links to all administrative and business partners

HYDROPOWER PIPELINE BOOSTS SEVERAL NEW MEGAPROJECTS ABOVE
100 MW CAPACITY THAT ARE CURRENTLY OPEN FOR INVESTMENT

IN
N
Project Capacity Forecast Invest. Ready to invest?
volume
USD millions

• Namakhvani Cascade 450 MW 926

• Khaishi HPP 400 MW 620

• Oni Cascade 270 MW 599

IN GEO
EO
• Nenskra HPP 210 MW 491

• Tobari HPP 200 MW 310

• Fari HPP 180 MW 297

• Lentekhi HPP 120 MW 189

• Hydropower pipeline also boosts ~70 small/medium projects (<100 MW capacity)
that are currently open for investment



NAMAKHVANI CASCADE

BASIC PARAMETERS

VEST
Tvishi HPP Namakhvani HPP Joneti HPP Total

Installed Capacity 100 MW 250 MW 100 MW 450 MW

Av. Annual Generation 386 GWh 941GWh 354 GWh 1681 GWh

ORGIA

NAMAKHVANI CASCADE

SUMMARY OF COSTS

IN
Cost item Cost (USD)
Pre-design works 1,829,676

Design works 6,526,916

Pre-construction & environmental monitoring works 24,167,097
Preparation of construction site and facilities 197,852,902

Construction of HPPs 572,175,289
Indirect investment costs 2,651,347

Unexpected costs (contingencies) – 15% 120,780,484

IN GEO
TOTAL INVESTMENT COST 925,983,711

TVISHI HPP

NAMAKHVANI HPP
NAMAKHVANI

ZHONETI HPP

Note: All the calculations are based on preliminary assumptions. Therefore any clariﬁcations will cause appropriate changes in the ﬁnal results.



NAMAKHVANI CASCADE

PROJECT DATA

VEST
Tvishi HPP Namakhvani HPP Joneti HPP
Dam Height 56.5 (m) 111 (m) 31 (m)

Dam Volume 13.1(mln.m3) 156(mln.m3) 12.5(mln.m3)

Res. area at max. level 0.97 km2 4.35 km2 1.25 km2
Reservoir volume 13.5% 156.0 mln m3 12.5 mio m3

Reservoir useful volume 121.2 Million USD 52.0 mio m3 6.0 mio m3
Maximal water head 12% 83.0 m 32.0 m

ORGIA
NAMAKHVANI HPP’s Cascade

KHAISHI HPP
BASIC PARAMETERS

Total Installed Capacity 400 MW

IN
Average Annual Generation 1470 GW/h

IN GEO
ASSUMPTIONS AND FINANCIAL INDICATORS

Construction Cost 620 Million USD
Construction Period 5 Years
Domestic Tariﬀ 4.8 USc/KWh
Export Tariﬀ 8 USc/KWh
Project IRR 11%
Project NPV 126.4 Million USD
Equity IRR 15%
Equity NPV 160.1 Million USD
Payback Period 15 years
Number of Observations 30 years




KHAISHI HPP
PROJECT DATA

Dam Height 204(m)

VEST
Dam Volume 445(mln.m3)

Normal Headwater Level 910 (m)

Tailwater Downstream Pool 700(m)
Project Discharge 270 (m3/sec)

TOPOGRAPHIC MAP

ORGIA

ONI CASCADE
BASIC PARAMETERS


IN

Total Project Cost

Net Present Value (Million USD)
IN GEO
E
598.9 Million USD

Full Project

270.0
Project
Corp. Tax
201.8
Equity

135.5
Internal Rate of Return 13.31% 12.57% 13.17%
Beneﬁt / Cost ratio 1.39 1.29 1.79
Balance year 13 15 18




ONI CASCADE

VEST
ORGIA

NENSKRA HPP
BASIC PARAMETERS


IN
Average Annual Generation 1,205 GW/h

IN GEO


NENSKRA HPP

INVESTMENT COSTS AND ASSUMPTIONS GEORGIAN GOVERNMENT OFFER

• 20 years Stability Period

VEST
Total Investment Cost 491 Million USD
Plant Factor 66% • Construction permit
Proportion of Firm Energy 85% • Energy Generation license
Construction Period 5 Years • Transfer of land right for 1 USD
Duration life of project 50 Years • Full year PPA

ORGIA

TOBARI HPP

BASIC PARAMETERS

IN

PROJECT DATA

Dam Height
IN GEO
173(m)
Dam Volume 200(mln.m3)

Normal Headwater Level 1060 (m)




TOBARI HPP


VEST
Project IRR 12%
Project NPV 94 Million USD
Equity IRR 17%

ORGIA
TOPOGRAPHIC MAP


FARI HPP
BASIC PARAMETERS


IN
N

PROJECT DATA

Dam Height
Dam Volume

Normal Headwater Level
IN GEO
173(m)
240(mln.m3)

1300 (m)




FARI HPP


VEST
Project IRR 12%
Project NPV 91.7 Million USD
Equity IRR 17%

ORGIA
TOPOGRAPHIC MAP


LENTEKHI HPP

BASIC PARAMETERS

IN

IN GEO


LENTEKHI HPP



VEST


Estimated Cost per kW capacity $1,575 /kWh

Simple Pay Back Period 7.6 years
Pre-tax Internal Rate of Return-Assets 10.9%

Pre-tax Internal Rate of Return-Equity 29.6%

ORGIA
Anticipated Life-span 50 years
GEOLOGY MAP

Lentekhi Project, 120 MW


INVEST
IN GEORGIA
A
GEORGIAN NATIONAL
INVESTMENT AGENCY
www.investingeorgia.org

E-mail: enquiry@investingeorgia.org
Portfolio Manager: Alexander Sajaia
E-mail: asajaia@investingeorgia.org

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