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SMALL HYDRO POWER DEVELOPMENT

A Manual for Project Developers in Georgia


Developed by
Norsk Energi
Gauldal Consult
Energy Efficiency Center

1 Introduction
1.1 SHPP Basics
1.1.1 Head and Flow
1.1.2 Energy
1.1.3 Site Layouts
1.1.3.1 Dam Scheme
1.1.3.2 Diversion Scheme
1.1.3.3 Mixed scheme
1.1.3.4 Schemes integrated within an irrigation canal
1.1.3.5 Run-of-River Scheme, Daily Regulation Scheme or Seasonal
Regulation Scheme
1.2 Initial assessments
1.2.1 Legal Criteria
1.2.1.1 Site Approval
1.2.1.2 Current and Planned Regulation of the Territory of the Planned
SHPP
1.2.2 Technical Criteria
1.2.2.1 Determining Available Water Flow and First Rough Production
Estimates
1.2.3 Financial Criteria
1.2.3.1 Potential Users of Produced Electricity
1.2.3.2 Distance to Existing Grid or User on Isolated Grid
1.2.3.3 Cost Factors
2 Planning and Designing
2.1 Technical Pre-Feasibility
2.1.1 Duration Curve and Flow Data
2.1.1.1 Compensation Flow
2.1.1.2 Availability/Collection of Data in Georgia
2.1.1.3 Understanding Flow Data Quality
2.1.1.4 Hydrological Measurements During Project Development
2.1.2 Measurement of Head
2.1.3 Components and Optimization
2.1.3.1 Dam and Intake
2.1.3.2 Conduit System
2.1.3.3 Power Station
2.1.3.4 Turbines
2.1.3.5 Generators
2.1.3.6 Controller
2.1.3.7 Transformer
2.1.3.8 Switchgear
2.1.4 Access to the Site
2.2 Financial Assessments
2.2.1 Carbon Finance Assessment
2.2.2 Capital Costs and income
2.2.3 Economical parameters
2.2.3.1 Net Present Value
2.2.3.2 Return on Investment
2.2.3.3 Internal Rate of Return
2.2.3.4 Cost factor
2.2.4 Final Market Analysis
2.2.5 Note on Taxes
3 Packaging Proposal for Financing
3.1 Components of a Business Plan
3.2 Presentation of investment project
4 Approvals and permits

4.2 Feasibility study


4.1 Application to MoENR
4.1.1 Power Purchase Agreement (PPA)
4.1.2 Relevant Legislation
4.1.3 Memorandum of Understanding
4.1.4 Carbon Finance
4.3 Environmental Impact Assessment (EIA)
4.3.1 SHPPs under 2 MW
4.3.2 SHPPs over 2 MW
4.3.3 Environmental Situation Summary
4.4 Construction Permit
4.5 Checklist for approvals and documents
5 Negotiation and Contracting
5.1 Legal Agreements and Standards
5.2 Suppliers of Equipment
5.3 Contractor/Consultant Services
5.4 Creating Your Team
6 Constructing the SHPP
6.1 Time and Budget Control
6.2 Construction Monitoring
6.3 EHS - Environment, Health and Safety
7 Commissioning
7.1 Training of Staff
7.2 Operation
7.3 Maintenance
7.4 Maintenance Schedule
7.5 Commissioning Period

1 Introduction
1.1 SHPP Basics
In this chapter you will learn about the components that make up a small hydropower plants (SHPP).
While all hydropower plants generate energy using flow of water, the flow and topography of the
hydropower site determines the right layout and equipment. Throughout this manual we define a
SHPP as a power plant generating less than 13 MW. In the following sections you will learn technical
terminology and physical elements to develop and build a SHPP. The running river or other body of
water you are considering to use as a site for a future SHPP should be described in the following
terms.
1.1.1 Head and Flow
The power output is a function of the available head and flow, where the gross head is defined as the
height difference between the level at the headwater and the level at the tail water and flow is the
water passing per second, measured in m3/sec. The available flow is calculated using hydrological
measurements and economic analysis of the optimum maximal flow intended for the SHPP.
Hydropower sites are generally categorized according to height of the head
High head:
Medium head:
Low head:

100 m and above


30 - 100 m
2 - 30 m

1.1.2 Energy
The annual energy production is a function of the power output and the duration of the SHPP
operation, thus for a given head, the energy production varies according to the available flow in the
river throughout the year.
1.1.3 Site Layouts
Since the head and flow are the main critical factors in determining the hydropower potential, there
are different ways to achieve head concentration and water regulation. The following provides
descriptions of some typical layouts or schemes to optimize the hydropower output.
Figure 1-1 illustrates a typical Georgian medium or high head small hydro scheme. Water is taken
from the river by diverting it through an intake at a weir. In medium or high head installations water
may be carried horizontally to the forebay tank by a small canal or leat. Before descending to the
turbine, the water passes through a settling tank or forebay in which the water is slowed down
sufficiently for suspended particles to settle out. The forebay is usually protected by a rack of metal
bars, a trash rack, which filters out debris. A pressure pipe or penstock takes the water from the
forebay to the turbine, which is enclosed in the powerhouse together with the generator and control
equipment. After leaving the turbine, the water discharges down a tailrace canal and back into the
river.

Figure 1 1 Hydro Scheme components


1.1.3.1 Dam Scheme
The head is mainly concentrated by the dam, which raises the upstream water level as shown in
Figure 1 2. In this case the power station can be placed either behind or in parallel with the dam. The
dam raises the level of the water to create a hydrostatic head in order to store energy.

Figure 1 2 Dam Layout


1.1.3.2 Diversion Scheme
A diversion scheme as shown in Figure 1 3 is where the supply of water is diverted from a dammed
river or lake to a remote powerhouse containing the turbine and generator. A canal, penstock or
low-pressure tunnel transports the water to the turbine.

Figure 1 3 Diversion scheme


1.1.3.3 Mixed scheme
The concentrated head is obtained not only by the dam that raises the upstream water level and
gets the head H1, but also by a diversion conduit that concentrates the head H2. The total head is
then calculated using the equation H = H1 + H2.
1.1.3.4 Schemes integrated within an irrigation canal
If the irrigation canal already exists, schemes like the one shown in Figure 1 - 4 are a suitable option.

Figure 1 - 4 Irrigation in combination with hydropower generation using an irrigation canal


1.1.3.5 Run-of-River Scheme, Daily Regulation Scheme or Seasonal Regulation Scheme
According to the type of flow regulation, a hydropower project can be classified as a run-of-river
scheme, a daily regulation scheme or a seasonal regulation scheme. The following schemes are
possible variations on these:

1. Run-of-river scheme: Power is regulated by a natural runoff without flow regulation.


Run-of-river hydropower plants do not require large reservoirs. Many SHPPs in Georgia are
designed using this scheme.
2. Daily regulation scheme: Power is generated by natural daily flow, but with daily regulating
pond which regulates the natural daily flow according to the daily load fluctuation.
3. Seasonal regulation scheme: In this case a reservoir is built at the intake of the power station
to store water during the rainy season and to release it during the dry season, thus assuring
firm power output the whole year round.
Firm energy is defined as the power that can be delivered by a specific plant during a certain period
of the day with at least 9095 % certainty. A run-of-river scheme has a low firm energy capacity. A
hydropower plant with storage has considerable capacity for firm energy. If the hydropower scheme
is to be connected to an electrical network, the firm power capacity of singular plants may not be
important
1.2 Initial assessments
The previous section introduced you to the fundamental elements of SHPP development, hydropower
production, layout and important parameters. In this section you will use this knowledge to help
ascertain your potential SHPP. Additionally in order to access the feasibility of the potential SHPP
site, regulatory as well as environmental factors are also analyzed. The main technical, legal and
market criteria for developing and commissioning SHPP are also described.
1.2.1 Legal Criteria
1.2.1.1 Site Approval
Site Approval
Before starting to plan your SHP, you should check the Ministry of Energy and Natural Resources
websites list of approved potential hydropower stations ((http://www.menr.gov.ge/en/4494). If your
site/SHPP is included then you do not have to take anymore measures. Instead you should follow the
next steps including the pre-feasibility and financial calculation.
If your site/SHPP is not listed in the website, then you will have to prepare a Site approval proposal
that should include geographical information, technical parameters, information about the developer
and the simple economic analysis of the cost and projected profit (see Annex: Site approval
proposal):
If the capacity of your site is more than 1 MW (1000 kW)2 , the Site approval proposal should
be submitted to the technical dept. of the Ministry of Energy and Natural Resources of
Georgia. The Ministry will review for a maximum of 1 month. If the site approval proposal is
accepted, it will be added in the list of the potential site and the submitter will be notified. If
the document is rejected you should consult the Ministry to find out what should be done in
order to get the approval.
However, if the capacity of your site is less than 1 MW (1 000 kW), you should prepare the
Site pre-approval proposal and submit it to the technical Department of the Ministry to check
the site availability. Coordinate the further process with the local self-governance of the
relevant region. Provided a positive answer to the proposal from both sides; the technical
pre-feasibility study should be prepared (see Annex: Site pre-approval proposal).
Was amended in the 232 clause of State Program Renewable Energy 2008, June 1 2011, resolution
227.
1.2.1.2 Current and Planned Regulation of the Territory of the Planned SHPP

Once a SHPP scheme, where the potential output is technically and financially attractive is
determined, the developer needs to obtain permissions for use of the land required and gain
necessary access to the site. The project cannot proceed unless all the rights to utilize all of the land
are obtained. It is also important to establish how contractors will access the different parts of the
scheme with the necessary equipment, and to confirm that these routes will be available.
It is important to meet with the land-owners from the very beginning to resolve any objections to the
proposed scheme and to negotiate access. Since waterways often act as property boundaries, the
ownership of the banks along the waterway and existing structures may not be clear. Failure to
settle this issue at the start may result in delays and cost penalties later in the project. You should
check with the local authorities regarding the zoning status of the land. It may be a nature
preservation area or an area regulated/planned for different purposes. These questions and matters
can be resolved with the local administrators as they have the authority to permit the rights for land
utilization.
You will need to procure and hold valid property rights to the Project Area. The project area could be
composed of both state, local municipal authority and privately owned land of both agricultural and
non-agricultural zones. The topography of the project area will most likely be relatively diverse,
including the river bed and surrounding territories, and potentially including forested areas. Under
Georgian law, rights to land include either ownership or various types of usage rights, such as, e.g.
lease, tenancy, servitude, usufruct and the right to build.
You can gain the rights to the land through different mechanisms, such as privatization (i.e. gaining
full ownership directly from the state or local government), purchase from private owners, and
expropriation by the state under the eminent domain legislation. Under certain circumstances, you
or the developer may choose to acquire specific right to a part of the project area, based on a case
by case basis. In other circumstances, depending on legal factors such as the type of ownership or
land function designation, special protections or restrictions may be involved. In these cases the
developer may be limited to only certain rights. Furthermore, obtaining valid property rights over
certain territories may not be enough to allow you the freedom to carry out the needed activities. In
such cases, you can either 1) purchase parts of the land required for the construction of the entire
SHPP, or 2) enter into a long-term lease with local municipal authority.
Georgia has a long history of protected areas. The first protected area was Lagodekhi Strict Nature
Reserve, which was established as early as in 1912. Today, the total of area officially under
protection is 495 892 hectares, which is approximately 7 % of the countrys territory. Nearly 75 % of
the protected areas are forests. When a chosen scheme for a new SHPP is located in a protected
area, allowable types of ownership, governing and use of natural resources are defined under
Georgian law on the protected areas. There are 14 Strict Nature Reserves, 8 National Parks, 12
Managed Nature Reserves, 14 Natural Monuments and 2 Protected Landscapes in Georgia.
The primary function of the protected areas is to secure and maintain the countrys the natural
heritage. Activities on protected land are regulated and follow a management plan designed to
protect the nature. Therefore, in protected areas the following are not allowed:
Destruction and modification of the natural ecosystem; exploitation or other purposes,
destruction (extermination), withdrawal (imprisoning), disorganization, injuring (crippling),
Disturbing natural resources; introduction and expansion of invasive and exotic species.
Additional prohibitions are introducing explosive and other harmful hazardous substances in
the area; and the additional activities not permitted based on the management plan.
The legal right to use and/or derive income or other benefits from the property that belongs to
someone else. The condition for this situation is that the property cannot be damaged in any way.
1.2.2 Technical Criteria

1.2.2.1 Determining Available Water Flow and First Rough Production Estimates
The energy production is estimated as a function of the flow, gross head, efficiency of the
electromechanical equipment and the pipeline features. The following relation yields the calculation
below.
For a first rough production estimate the head can be found from a GPS or a detailed map of the
project area. The head will be the height difference between the head water and tail water. The
maximum discharge is often chosen as 1.5 times the average flow in the river.

When head and flow are determined, the expected power output and energy production can be
determined from the following equation:

Using these values is sufficient for a rough and preliminary production estimate to evaluate the
profitability of the project. However, it is very important that these values are accurate when the
electro-mechanical equipment is dimensioned in order to avoid mis-dimensioning the power plant
and loss of production.
1.2.3 Financial Criteria
1.2.3.1 Potential Users of Produced Electricity
The value of the electricity generated by the SHPP must be determined at the outset, as well as
information about to whom the power will be sold. The electricity generated by a SHPP may be used
by the developer for their own needs . If it is possible to connect to the local grid, the produced
electricity may be exported via the local distribution network through an agreement with the
Electricity System Commercial Operator (ESCO) or with the local distribution companies that deliver
electricity directly to the client.
It is nearly always financially advantageous to consume as much of the power as possible on site,
and only export the surplus into the network.
1.2.3.2 Distance to Existing Grid or User on Isolated Grid
A clear destination for the power must be defined. The following are important criteria: is there a
nearby end-user that needs to be supplied or is there a convenient point of connection into the local
distribution grid? The following is a list of critical technical considerations.

1. Access to grid connection: Determine the nearest location of an existing electricity network
(low or medium voltage).
2. Obtain maps of the project area and calculate the distance from the potential hydropower
site to the nearest existing grid . Distance between the powerhouse and the load centre must
be less than 2 to 3 km. A SHPP located far away from the load centre is less attractive than

one of similar size at a closer distance. Consumer density: Capacity of a plant is at least 75
kW per km of transmission and distribution lines. A higher consumer density means that the
specific cost for transmission and distribution facilities are lower
3. If no interconnection is possible, calculate approximate power demand of the prospective
electricity consumers.
count 200 W per household (mainly lighting only)
count 500 W per household (lighting, TV, radio)
count 2.5 kW per household (lighting, TV, radio, heating)
count 2.0 kW for a freezer at a trade store
count 5.0 kW for a carpentry shop with circular saw, planer and
If Prequired Pmin , thenthe selected site will probably have the hydropower potential
required to meet the demand.
If Prequired > Pel,min , then the site will probably not have sufficient hydropower
potential to meet the demand.In this case, a more promising stream with a bigger
flow or an alternative source of power should be identified.
4. Compare power demand with minimum electrical power output.
Where: Prequired: Required power based on a demanded estimate. Pmin: Minimum available power
from SHPP.
If the grid is closer than 1 km per 100 kW installed capacity of the hydropower plant, grid connection
is likely to be viable.
1.2.3.3 Cost Factors
The initial estimate of the project cost does not need to be more than 30%.
Use overall unit cost rates for civil works.
Base cost estimates for equipment on comparisons with other similar projects.
Include sufficient contingencies to account for details that have not yet been designed.
Calculate energy production cost according to the formula below.
Compare energy production cost with prospective electricity sales tariff6 7

The capital cost of a small hydropower system is the total cost of purchasing and installing all the
system components. The capital cost can be raised through a combination of one or more of the
following: private funds, bank loans, government subsidies and charitable donations. A standard
procedure for cost estimates should be prescribed at the start as a basis for the more detailed cost
estimates needed later for all the stages of the feasibility study. Small hydro costs can be split into
four segments:
1. Machinery 40 45 %
This group includes the turbine, gearbox or drive belts, generator and the water inlet control
valve. Generally speaking, machinery costs for high head schemes are lower than for low
head schemes of similar power. High head machines have to pass less water than low head
machines for the same power output and are therefore smaller. They also run faster and thus
can be connected directly to the generator without the complication of gearbox or belts.
2. Civil Works 35 40 %
This includes the intake, forebay tank gates, the pipeline or channel to carry the water to the
turbine, the turbine house and machinery foundations, and the tailrace channel to return the
water to the river. The Civil Works are largely site-specific. On high head sites the major cost

will be the pipeline; on low head sites probably the water intake, gates and channel.
3. Electrical Works 5 10 %
The electrical system will involve the control panel and control system, the wiring within the
turbine house, and a transformer if required, plus the cost of connection to the electricity.
4. External Costs 12 15 %
This could encompass the engineering services of a professional to design and manage the
installation, plus the costs of obtaining the licences, planning permission, etc.
Costs for small hydropower projects vary considerably, because sites, conditions and sizes
are all different. The typical cost can range 2600GEL/kW (about $1,500) to 4350 GEL/kW
(about $2,500). This would mean an investment of from 5200 GEL ($3,000) to 8700 GEL
($5,000) for the "typical" simple family home, which requires a peak demand of 2 kW. You
can significantly reduce costs by critical management, procurement by paying careful
attention to details.
When considering costs, remember that there are two basic types of developers: those who
are interested in generating to meet only their own needs, regardless of the site's potential;
and those who want to get as much as possible out of the site and thus profit. The largest
cost is site preparation and the capital cost of equipment for a given scheme. In general, unit
cost decreases with a larger plant and with high heads of water. While a small scale hydro
technology does not have the advantages of 'economy of scale', many costs normally
associated with larger hydro schemes have been 'designed out' or 'planned out' of micro
hydro systems to bring the unit cost in line with bigger schemes.
This includes such innovations as:
Use run-of-river schemes where possible. This removes the cost of an expensive dam for
water storage
Use locally manufactured equipment where possible and appropriate.
Use of HDPE (plastic) penstocks where appropriate.
Use electronic load controller. This allows the power plant to be left unattended, thereby
reducing labor costs, and introduce useful by-products such as battery charging or water
heating as dump loads for surplus power. The controller also removes bulky and expensive
mechanical control gear (see using existing infrastructure)
Before moving on to Chapter 2 you should know the following:
1.
2.
3.
4.
5.

The main principles of a hydropower plant


The ownership of your potential SHPP project
Whether your site is on the list of potential SHPPs on the MoENR website
The measurements and data needed to calculate flow
The main financial criteria of a SHPP project

Annex: How to Write a Site approval proposal; How to write a Site pre-approval proposal
6

O&M is operation & maintenance

The private wholesale tariff in Georgia has been fluctuating between 1.2 - 9.6 Tetri/kWh throughout
the year in 2008-2009 with higher prices in the winter. The average wholesale price for electricity in
October-March 2008-9 was 6.6 Tetri /kWh
2 Planning and Designing
Now that you have successfully completed Chapter 1 and have determined that your potential SHPP
meet initial market, technical and regulatory criteria. In Chapter 2, you will focus on the necessary
planning and designing tasks of a SHPP. During the planning phase, you will use the initial
measurements collected to conduct more comprehensive environmental, technical reports and apply

for permits. Also you will have a chance to conduct a more detailed analysis for an energy market
framework and tariff rate for your SHPP to be profitable.
2.1 Technical Pre-Feasibility
It is important to understand more in detail the technical pre-feasibility and what parts and
parameters to have to optimize hydrology. The following sections explain in details the type of data
to collect and analyze. It will also review how each component of the SHPP functions in order to
understand the optimization parameters.
2.1.1 Duration Curve and Flow Data
One of the key factors for good project planning is the knowledge of the local hydrological conditions
in the rivers. Most of the gauging stations are in the major (biggest) rivers. This means that there are
very few gauging stations in the smaller rivers. In order to use discharge data from the bigger rivers
also for smaller rivers, it is necessary to do a downscaling of the data. The number of stations from
which data is available, the location of these stations, the characteristics of the catchment area, the
period the data is collected for and at which intervals collections are done, will impact the
uncertainty of the production estimate. Manual collections may also add uncertainties due to human
errors.
When historical flow measurements from another river are used, it is important that the drainage
basin in this river must share common features with the drainage basin of the selected river. The
comparing river does not have to be adjacent to the selected river, as long as the characteristics of
the two drainage basins are similar.
Thus when choosing the drainage basin for comparison the following parameters must be
considered:
size of the drainage basin
height above sea level
percentage of mountain
percentage of lake
percentage of glacier
Furthermore, once the drainage basin for comparison has been chosen the flow data from the
measuring station must be scaled to represent the flow in the current river. The following scaling
formula yields:
Q=Q_c(A/A_c )(q/q_c )

(2-1)

QC - Discharge at measuring point of comparison


A - Area of drainage basin
AC - Area of drainage basin for comparison
q - Annual runoff drainage basin, [mm/year]
qC - Annual runoff drainage basin for comparison,[mm/year]
This formula is used for each of the flow data (preferable daily values) obtained from the measuring
station. At least 25-30 years of data should be considered in order to ascertain flow variation from
year to year.
There are two ways of expressing the variation in river flow over the year are the annual hydrograph
(Figure 2 1) and the Flow Duration Curve (FDC) (Figure 2 2). The annual hydrograph shows the
day-by-day variation in flow over a calendar year. The FDC is more useful when calculating the
energy available for a hydropower scheme. The FDC shows how flow is distributed over a period

(usually a year). The vertical axis gives the flow, the horizontal axis gives the percentage of the year
that the flow exceeds the value given on the y-axis. Hence, the FDC can immediately indicate the
level of flow available for at least 50 % of the year, known as Q50.

The flow duration curve is an important tool when deciding the maximum discharge of the power
plant. The flow duration curve is a plot showing the percentage of time that the flow in a stream is
likely to equal or exceed some pre-determined value of interest. This value is dependent on
optimization calculations from initial geographical and financial data.
The shape of the flow duration curve in its upper and lower regions is particularly significant in
evaluating the stream and basin characteristics. The shape of the curve in the high-flow region

indicates the type of flood regime the basin is likely to have, whereas, the shape of the low-flow
region characterizes the ability of the basin to sustain low flows during dry seasons. A very steep
curve (high flows for short periods) would be expected for rain-caused floods associated with small
watersheds. Snowmelt floods, which last for several days, or regulation of floods with reservoir
storage, will generally result in a much flatter curve near the upper limit. In the low-flow region, an
intermittent stream would exhibit periods of no flow, whereas, a very flat curve indicates that
moderate flows are sustained throughout the year due to natural or artificial stream flow regulation,
or due to a large groundwater capacity which feeds into the base flow of the stream.
The number of measurement intervals and the hydrological discharge measurements at the head
are used in preparing a flow duration curve. For most studies, mean daily discharges should be used.
Discharges on a daily basis give a steep curve. When the mean flow over a long period is used, such
as e.g. a mean monthly flow, the resulting curve will be smoother due to averaging of short-term
peaks with intervening smaller flows during a month. In this case, the hydrological flow rate is more
accurate as extreme values are averaged out with more data points. However, if the hydrological
data used is sampled infrequently, the accuracy is less and can lead to the wrong power plant
design. It can result in too high or too low maximum design flow for the turbine.
The steps below describe how the duration curve is calculated given a specific period of recorded
data points. Use Excel or equivalent program.

A flow exceeded for 95% of the year (Q95) is often taken as the characteristic value for minimum
river flow. The FDCs are often very similar for a region, but can be affected by soil conditions,
vegetation cover, and to a lesser extent by catchment shape. They are also modified by man-made
reservoirs, abstractions and discharges. A flatter FDC (characterizing a heavily spring-fed river) is
preferable to a steeply sloping one, and means that the total annual flow will be spread more evenly

over the year, giving useful flow for a longer period, and less severe floods.
2.1.1.1 Compensation Flow
A portion of the flow, termed the compensation flow, needs to bypass the scheme for environmental
or aesthetic reasons. In abstraction schemes, where water is diverted from the main course of the
river, this compensation flow is needed to maintain the ecology and aesthetic appearance of the
river in the depleted stretch. The amount of compensation flow depends on site-specific concerns,
but a reasonable first estimate is between the Q90 and Q99 values of the river flow.
2.1.1.2 Availability/Collection of Data in Georgia
In Georgia stream flow records can be obtained from national hydrological organizations. (Below)
These stream flow records can be of several different types, each useful for the evaluation of the
generation potential of the selected site. These include: measured stream flow data for a number of
gauged sites, stream flow characteristics for these sites such as mean flow and flow duration curves
(both expressed as actual flow and generalized as runoff per unit area of the catchment), runoff
maps, etc.
The hydrological data is available at the following institutions
Ministry of Environmental Protection of Georgia, National Environmental Agency, Department
of Hydrometeorology
150a Agmashenebeli Ave, Tbilisi, 0112,
Tel: +995 (32) 243 95 43, +995 (32) 243 95 43
Fax: +995 (32) 243 95 02, +995 (32) 243 95 02
http://nea.gov.ge/index.php?lang_id=GEO&sec_id=224&lang_id=ENG,
E-mail: info@environment.ge hydromet@yahoo.com
Vakhushti Bagrationi Institute of Geography, Department of Hydrology and Climatology
Address: 1/8 Aleksidze str., 0193, Tbilisi,Georgia Tel.+995 (32) 2331418 Fax:+995 (32)
2331417, http://www.geography.ge; e-mail: info@geography.ge
JSC Saqtskalproeqti , 11 Moseshvili str., Tbilisi,Georgia Tel:+ 995 (32) 2220706, Fax +995
(32) 222070 email: gwp@inbox.ru
2.1.1.3 Understanding Flow Data Quality
In Georgia, historically the Institute of Meteorological Studies conducted and collected metrological
and hydro data. Regular meteorological observations in Georgia originate in 1844 and have more
than a 160 years' famous history. By 1916 in Georgia were functioning about 90 meteorological
stations and posts, and at the beginning of the second world war their quantity has reached 200
units. Meteorological stations were constructed also in high-mountainous, difficultly accessible
places. Among them meteorological stations on Mamisoni pass (1932) and in Kazbegi are considered
as the most ancient stations. Up to last period the observed network of hydro meteorological service
included over 50 hydrometeorological stations and hydro meteorological and agro meteorological
posts.
The quality of the hydrological data from the current metering station must be analyzed in order to
avoid serious mis-dimensioning of the power plant. Hence, the metering station must be controlled
to see if it is working properly. A common problem is that foreign objects or icing negatively affect
the measuring device. Furthermore, if there is a substantial variation in the flow data from day to
day this can be an indication that the metering station is not working properly. The best way of
assessing the quality of the data is to compare it to a temporary or permanent metering station in
the current river.
2.1.1.4 Hydrological Measurements During Project Development

The hydrological data available for a SHPP project often come with a degree of uncertainty.
Mis-dimensioning the SHPP can cause significant loss of future production and revenue as a result. If
there is an existing metering station in a nearby river, with similar drainage basin features, then
representative hydrological data can be obtained by scaling using the area of the drainage basins.
However, in order to make use of this procedure, the run-off of the two drainage basins must attain a
high degree of similarity. If the hydrological data available in the actual river is on a monthly basis or
the metering station has been shut down several years ago, it is strongly recommended to conduct
an on-site-measuring during the project planning which may last for several years.
The area of Georgia is about 69700 km2 and used to have about 200 gauging stations. As of
November 2010, only 24 gauging stations were still in operation. Norway, another country rich in
hydropower resources, has 5 times as many gauging stations per square meter. Despite the fact that
the national water authority in Norway is running an extensive hydrological network, they encourage
project developers to also do their own discharge measurements. Studies shows that downscaling
data from existing stations in Norway results in an uncertainty of +/- 20 % for production estimates
for small hydropower stations. This is likely to be even higher in Georgia due to the low number of
stations.
Another uncertainty introduced in downscaling comes from the fact that bigger catchments have
other characteristics than smaller catchments (e.g. lakes, glaciers, forested area). By down-scaling
the data from the big catchments to the smaller ones, uncertainties are introduced both regarding
the specific runoff and the runoff characteristics.
Conducting own measurement in a river where small hydro construction is planned is recommend
even if it is only possible to collect data for 1-2 years. Based on experiences from Norway, the
benefits of conducting discharge measurements are:
Reductions of the uncertainty in the estimation of the mean annual runoff and in the runoff
characteristics (duration curve)
Better basis for selecting a nearby long-term runoff series for description of local runoff
variations
Good documentation of the visual aspects of the rivers/waterfall
Good data for estimation of environmental flows
When the measurements take place in lakes good data for estimation of normal water
level of a potential reservoir.

The abovementioned implies that conducting own measurements will reduce the investment risks for
small scale hydropower projects, and therefore be of added value when looking for investors.
A gauging station in a small river can merely consist of a water level logger, which logs the water
level every hour. To convert the water level to discharge, measurements of the discharge should be
done on several different water levels. Based on the measurements a rating curve can be
constructed in order to convert water level to discharge. There are many manufactures of water
level loggers; the cost starting at about 720 Euros (approx. 1550 Lari) and up (Jan 2012). In addition
to the cost of a logger, there will also be some installation cost (approximately one days work).
Georgian hydrologists may support in measuring the discharge and analysing the data.
Factors to consider when establishing a gauging station
There are a lot of factors that should be taken into consideration in order to have good and reliable
data from a gauging station. Some of the points are briefly stated below.
Chose a site as close as possible to the proposed intake for the power plant.

Chose a site that is easy accessible for maintenance and downloading of data both summer
and winter
Find the approximate mean annual discharge and the discharge on the day for installation of
the logger compared to mean annual discharge. Low, mean and high.
Is the hydraulic controlling profile downstream stable or unstable?
What are the hydraulic conditions during low flow and high flow, respectively?
Risks of problems with ice anchor ice, frazil ice, ice dams
Is it possible to install a logger at the site, and is the logger easily seen from roads or walking
paths?
Do plants grow in the riverbed? If so, will these cause increased resistance to flow during
growing season
Establish a reference point in solid rock if possible.
Results and quality assurance
When performing discharge measurements in order to get reliable data for the planning process, it is
important to hire consultants with documented experience and skills within hydrology generally, and
discharge measurements specifically. Make sure that the hydrologists apply to international
standards for discharge measurements like the ISO or equivalent.
The results from discharge measurements should include, as a minimum:
A time series of the recorded water level with time resolution of 1 hour.
A list showing all discharge measurements that have been done during the observation
period (date and time, measured discharge, observed water level (from logger data),
comments regarding damage on the logger or change in the riverbed topography).
A computed stage-discharge curve
A time series of the discharge computed from the recorded water level and stage-discharge
curve on an hourly basis and daily average.
A duration curve for the observation period.
If there are gauging stations in the area with long time series of discharge an analysis should be
conducted of the this data in order to see the observation series from the measurements at the local
station could be extended. An analysis of the runoff in the measurement period should also be made
to find out how the runoff has been compared to the long time average.
2.1.2 Measurement of Head
The head needs to be accurately measured in order to dimension the power plant correctly. The
head can be measured with different techniques. The measurements should be conducted by
professionals. Most common is measurements by nivellers.

A more advanced version of the niveller is the theodolite. The theodolite has a system for measuring
angle and distance between two points. It is not regarded to be as accurate as the niveller though. If
the distance between the two reservoirs is short, and the terrain is too steep get a good
measurement with a niveller system, the head can be found by using a hose connected to a
precisely calibrated pressure transmitter. The hose is filled with water, and one has to be sure that
all air is escaped from the hose. Also the local gravity has to be known and the water temperature
must be known in order to calculate the water density.
2.1.3 Components and Optimization
In general, hydro power is a highly complex technology, which involves hydrology, civil engineering,
hydraulics, mechanical, control and electrical engineering and last but not least economical analysis.
A typical hydropower plant consists of the following main components:
dam and intake
conduite system
power station
turbine
generator
controller
transformer
switch gear
The following sections give a detailed description of the component to help you understand how to
optimize when needed. Often technical and cost factors can be matched to optimize the SHPP for
effective generation as well as return of investment.
2.1.3.1 Dam and Intake

The intake dam consists of the actual dam construction and the intake construction, leading the
water to the penstock. The dam must be constructed to withstand the forces from the water in the
reservoir in normal flow conditions and in flood periods. In this case the dam must be constructed to
divert the flood and thus prevent flooding of the gate house. For rivers with a relatively high content
of sand particles, a sand trap must be considered to reduce the amount of sand entering the turbine.
Furthermore, the actual intake must be sufficiently submerged to prevent branches, leafs and other
foreign objects from filling up the inlet chamber and obstructing the water from entering the
pipeline. Problems related to icing in front of the intake must also be considered when planning the
intake. In addition, the intake must be located in an area where the flow is calm and no swirl flow is
induced. Swirl flow creates air bubbles which flow into the penstock and further into the turbine. This
may cause serious damage to the turbine. The most commonly used SHPP dams are embankment
dams and concrete dams.
Embankment dam
The Embankment dam is often divided into the following four main categories:
A. Dam constituting of homogeneous compact masses e.g. morainal masses with a drainage core
downstream of the foundation bed. A filter in the transition zone between the compact masses and
the drainage masses is necessary.
B. Dam constituting of draining masses e.g. rock or gravel with a compact mass in a limited part of
the embankment. The drainage masses acts as a support for the intake construction.
C. The entire dam consists of rock or other masses with good drainage features and a compact
cover, e.g. wooden boards on the upstream slope.
D. The dam is similar to the one described in point C above. However, the compact cover is replaced
with a compact wall, e.g. reinforced concrete inside the dam construction.
Concrete dam
The concrete dam is divided into three main categories:
A. The gravitational dam is constructed so that the specific gravity maintains the stability of the
dam.
B. The arch dam is constructed so that both the specific gravity and the surrounding mountains
maintain the stability of the dam. Due to the arch design the forces from the water is distributed to
the bottom foundation and to the surrounding mountain walls.
C. The Buttres dam is made of concrete with concrete plates on the upstream side and supporting
pillars to absorb the forces from the water in the reservoir.
2.1.3.2 Conduit System
The conduit system conducts the water from the intake to the turbine. The following types of
conduits can be considered: Pipeline, tunnel or a blasted or drilled channel in the mountains or in
gravel. The conduit system can also be a combination of the above listed types. There are mainly
four types of pipelines which are considered when planning a hydro power plant:
polyethylen (PE)
glass fiber reinforced (GRP)
stainless steel, ductile iron
wooden pipeline
In some cases concrete pipelines can be considered for a certain part of the penstock. Different
types of pipes may be combined e.g. PE on the upper part and GRP on the lower part of the conduit
system. The pipeline can be mounted on the surface or buried in the ground.
Pipes that are buried in the ground are recommended as long as it is technical and economically
feasible. Furthermore, the masses surrounding the pipeline must be sufficient to keep the pipeline
stable during operation and to prevent water from excavating the trench. Hence, proper drainage of
water must be maintained. In many cases the pressure is so extensive that reinforced concrete

foundation must be constructed on some parts of the trench to achieve a stable pipeline. This can
especially be constructed on the pipeline where it makes an abrupt turn. Special attention must be
paid to pipelines placed on the ground to avoid possible freezing because of lack of insulation from
the surrounding gravel. Hence, in most cases a discharge device must be installed to prevent water
from freezing when the power plant is not operating. Furthermore, pipelines placed on the ground
need mounted foundations along the pipeline in order to absorb the forces acting on the pipeline.
Such a set-up is preferred when the foundation is mounted directly onto mountain.
The most important factors with regard to the pipelines are the pressure class, the inner diameter
and the friction coefficient. The penstock must withstand the pressure from the water, and the water
hammer must be considered. Water hammer is a pressure rise due to a sudden change in the flow
direction, e.g. when the power plant experience a sudden shut down.
The friction coefficient is a vital feature of the pipeline which decides the extent of the friction loss.

2.1.3.3 Power Station


The power station must be constructed to withstand and absorb the water pressure when the turbine
and the main valve are in a closed position. In order to prevent the electromechanical equipment
from vibrating and displacing, it is important to construct a proper foundation for the turbine, the
generator and the draft tube is needed. This foundation must be sufficient to absorb the forces from
the turbine, generator and the draft tube. Also, it is vital to plan sufficient space in the building to
secure a safe installation and operation of the unit. Emergency exits in the event of accidents must
be implemented. Furthermore, the level of the ground floor must be high enough to secure the
equipment in the event of a flood. The power station must be grounded to avoid lightning damage
on the equipment and earth fault current on contact surfaces.
2.1.3.4 Turbines
The turbine converts the hydraulic energy from the water to mechanical energy in the turbine shaft.
The turbine can be arranged with a horizontal or a vertical shaft depending on the size of the unit.

There are three main types of turbines: Kaplan, Francis and Pelton.

The Kaplan and Francis turbine are often considered as full turbines, whereas the Pelton turbine is
described as partial turbine. A full turbine refers to the fact that the turbine is completely filled with
water at all times during operation. A partial turbine is only partially filled with water. In Figure 2-5
the range of application for the main turbine types are illustrated. The Kaplan turbine is favourable
when there is a substantial amount of water related to the head. Whereas the Francis turbine is
favourable with moderate flow related to the head. The Pelton turbine is favourable when there is
relatively low flow related to the head.

However, in some cases other types of turbines such as Bulb turbine, S-turbine, Turgo turbine or
Cross flow turbine may be favourable compared to the more traditional turbines. In addition to
available flow and head factors, the flow variation must be considered in choosing the type and
number of units. If the power plant is planned with a regulating reservoir, this can also affect the
final choice of turbine. Another factor to consider is the extent of sand erosion when choosing a
turbine. In order to obtain a reliable power plant with a long operational time, the turbine has to be
constructed with high quality material with regard to fatigue, corrosion, erosion and wear.

2.1.3.5 Generators
The generator converts the mechanical energy to electricity. In general, the generator is divided into
to two main categories: Asynchronous and synchronous generator. The main difference between
these generators is that the synchronous generator is self-exciting and can operate on an isolated
grid, whereas the asynchronous generator is dependent on receiving reactive power from the grid
for the excitation process. A synchronous generator operates at a constant frequency and speed
under steady state operation. The asynchronous generator operates at a speed close to the
synchronous speed, but often 4 % below the synchronous value.
For units below 1 MW, asynchronous generators are cheaper and more adequate while synchronous
generators are preferred for rated power greater than 1 MW. However, the current grid company has
the final say when deciding whether a synchronous or an asynchronous generator should be
installed. The design of the generator is dependent on the power, type of turbine and rotational
speed. One important feature of the generator is the maximum allowable speed for a given period of
time, more commonly known as the runaway speed. The generator experiences runaway speed in
the event of an emergency shutdown at full load, when the unit has been disconnected from the
grid. Subsequently, the speed of the generator will increase above the synchronous speed as the
load from the grid is removed. The generators moment of inertia must be sufficient to obtain a
dynamic stable system. Furthermore, a certain life time for the bearings is required. Whether it is
slide bearings or roller bearings the life time should be of at least 100 000 hours of operation.
Generator loss and heating
The generator experience electrical losses, which mainly consists of the following:
no-load loss
iron loss
ventilation loss
leakage of current in the rotor
load loss
stator winding
leakage of current in the rotor
As opposed to the no-load losses, the load losses are dependent on the power output and increases
proportionally with increasing power output. Hence, the highest total loss appear at the highest
power output. The major part of this loss transforms into heat and must be transferred/conducted.
The losses associated with SHPP amount to about 4-6 % which means that a unit with a power
output of e.g. 1 000 kW results in a heat loss of about 60 kW. Thus the extent of heat loss must be
considered when designing the ventilation system in the power station. The generator and its
bearings can be air cooled or water cooled, where the latter is a more expensive cooling system.
However, a water cooled system will be a cheaper ventilation system as the cooling is more efficient
compared to the air cooled system. Air cooling systems may have problems such as higher level of
noice and dust/particles accumulation from the surrounding. During warm summer days it is difficult
to keep the temperature low, and thus it is necessary to open windows or such. This can lead to even
more dust/particles in the air. Condensation is a problem for air cooled system, as it can tear or
dissolve off the painting on the surfaces of the equipment.
2.1.3.6 Controller

The controller is often referred to as the brain of the power plant where most of the logical functions
and automatics are programmed. In addition to the electrical signals, the controller also controls the
alarm signals. The main purposes of the controller are to adjust the water flow based on the
available flow in the intake and to provide a reliable stable operating system. The controller
equipment consists of:
control functions related to manual control and regulation
signaling and metering
error message to alert malfunctioning
protection systems
supporting power equipment to provide both low voltage AC and DC
The controller is either of a computerized unit or a programmable logical system (PLS), which is
installed in a protected metal cabinet. In addition, different sensors are installed in the primary unit,
which supplies sufficient information to the controller. The controller has a superior view of the
power plant, including grid, intake, penstock and installations in the power station. Any malfunction
in these components will be detected by the controller, which then executes an alarm and necessary
actions. Potential errors which cause malfunctions are divided into mechanical errors and electrical
errors. The protection system continuously monitors and protects the unit if any abnormal situations
appear.
Typical electrical errors:
overcurrent
overvoltage
reverse power
earth fault
irregular load
Typical mechanical errors
runaway speed
high temperatures of the windings
high temperatures in the bearings
fracture of the pipeline
fracture of the runner, particles entering the runner etc.
In addition, the controller can survey for breaks in, fire etc. Operational modes may be:
level monitoring
power monitoring
frequency monitoring
other functions and principles may be added
2.1.3.7 Transformer
A transformer is a static electric machine that consists of electrical windings linked together by a
magnetic circuit. The transformer transfers electricity from one circuit to another. Alternating voltage
and current are transformed from the primary to the secondary winding, keeping he frequency
constant. The main application of the transformer is voltage transformation in order to optimize
electric transmission in the grid. The voltage at the high voltage side of the transformer has to be
equal to the connection point. On the low voltage side, the voltage level equals the voltage level of
the generator.
2.1.3.8 Switchgear

The main purpose of the switchgear is to disconnect the hydropower installation from the grid if any
error occurs. Switches are installed on both the low and high voltage side of the transformer,
associated with control, metering (current and voltage transformer), protective (lightning
conductors) and regulating units. There are also switches to protect the generator, the transformers
and the power line. Intensity, voltage, temperature of the system and insulation level is important
parameters that must be considered when designing the switchgear.
2.1.4 Access to the Site
Some SHPP sites can be accessed by existing local roads. In some cases the roads must be improved
during construction or new roads may have to be constructed. During hydropower operation the
station and the intake need to be accessible for inspection. Inspections can be conducted by car. The
road to the station may be constructed over the pipeline, with an appropriate layer of gravel
between the pipeline and the road. If a pipe trench is needed and constructed in landscapes such as
a forests or nature preserves, the pipes and the surrounding area must be re-vegetated and covered.
In some cases this may be a requirement included in the terms of the concession from the local
authority or landowner. Additionally, if heavy vehicles will be driven over the pipeline, it may be
necessary to make a concrete passage above the pipeline. It is important that all agreements with
the landowners of the existing roads must be in writing both with regard to the construction period
and afterwards.
The heaviest component is typically the generator which may weigh several tons more than the
existing roads are constructed for. If the existing road is not dimensioned to withstand the weight of
the heaviest component, it may be possible to get a temporary license for use of the road during the
construction period. If this is not an option the existing road must be reinforced. Additional roads
used during construction, should be returned to their original state. For any excess stones and gravel
a land filling must be established, according to current authority and agreement with the
landowners. Excess mass may also be used for other construction purposes e.g. local roads and
parking areas which may improve the area with regard to accessibility for the public.
2.2 Financial Assessments
The following section provides detailed information about the financial assessments which should be
made when planning a SHPP.
2.2.1 Carbon Finance Assessment
Before continuing with the full cost/benefit calculations, it would at this time be useful do the first
assessment regarding the carbon finance eligibility of your SHPP. If a Coordinating Management
Entity (CME) for the Clean Development Mechanism Programme of Activities (CDM PoA) is
established in Georgia, you should at this point consult the CME regarding possibilities to include
your SHPP in the CDM PoA for sales of carbon credits.
If a CME is not established, your SHPP should produce not less than about 50 GWh/yr in order for the
incomes from carbon sales to justify the efforts and administration you need to put in to realizing
this. The reason is that the emission factor for electricity is rather low in Georgia, 0.39995 kg CO2
equivalents per kWh, and you need to sell at least 20 000 tonnes CO2 equivalents per year to cover
all expenses related to the administration of the carbon sales.
A third option is to bundle several SHPPs producing each less than 50 GWh/yr, and by this splitting
the administration costs on several project owners.
In any case, beware that an agreement on carbon financing through the Clean Development
Mechanism must be settled before the investment decision is made, due to the principle that the
carbon financing must be the factor making the project financially viable. An already profitable

project will not be eligible for carbon financing.


Beware also that there is uncertainty regarding the CDM carbon credits financing post Kyoto (after
1.1.2012). You should consult the Ministry of Environment Protection of Georgia in this respect, to
get more information on deadlines and time frames.
2.2.2 Capital Costs and income
To conduct a financial analysis for investment you will need to assess capital costs and carry out an
income calculation. You will start by using the rough calculation the energy production from Chapter
1, which is a function of the hydrology, gross head, efficiency of the equipment and the pipeline
features. After you have assessed the available water flow and calculated a rough production
estimate, the following equations can be used to calculate the project income.

The final main dimensions, i.e. Q and H, are based on an optimization between investment costs and
available water. The first rough economic analysis is the pre-feasibility/preliminary study to rule out
the most obvious uneconomical project alternatives. Furthermore, it is important to underline that
this method must not be used in the feasibility study in the final designing of a SHPP.
The investment costs are divided into the following main categories
construction cost
capital cost
operation and maintenance cost
taxes and fees
grid fees
The construction costs are distributed according to the listing (below), but this can vary from one
project to another and is thus strongly dependent on the features of the selected project site.

Several assumptions have to be made when performing the first rough estimate of the potential
annual energy production:
Step 1
Possible location of the intake and power station must be identified in order to get an estimate of the
gross head. In most cases several alternative locations should be considered.
Step 2
An estimate of the average flow in the current river must be made in order to calculate the
maximum discharge of the turbine. Furthermore, the maximum discharge can be defined as
1.5*QAve, where QAve is the average flow in the river.
Step 3
The power output is then calculated according to formula
P=TotgQH/1000[kW]

(1-2)

The total efficiency can be assumed in the range 0.7-0.85 depending on the power output. Regarding
the value of the total efficiency, including the friction loss in the conduit system, the following
relation can be assumed:
Power output 100 kW:
2.2.3 Economical parameters
If the first rough economic analysis indicates that the project is feasible in a financial point of view,
the next step is to prepare a complete feasibility study. This includes a more thorough analysis of the
hydrological features of the potential site of the SHPP and conduct on-site inspections to identify any
technical obstacles/challenges. In order to evaluate the economy of a given SHPP project, a complete
overview of the financial market and the hydrological features is needed.

The investment cost has to be estimated in order to make a complete assessment of the selected
hydropower project. At this stage it is recommended to collect data from similar projects in operation
or to retrieve rough budget costs from current suppliers.
Suppliers may be helpful to give cost estimates based on fairly little technical data. Hence, regarding
a rough estimate of the electromechanical equipment it may only be necessary to provide the
following information in a simple e-mail or by phone:
Gross head
Maximum discharge of the turbine
Length and inner diameter of the pipe line
Voltage level at the grid connection
The supplier will base his estimate on similar projects.
Regarding the pipeline it is necessary to provide the following data:
Gross head
Maximum discharge of the turbine
Length and inner diameter of the pipe line
Type of pipe line (Steel, ductile iron, PE, GRP etc), or you can ask the supplier to recommend
a type of pipe line for the given project you may have to give some information about the
ground features i.e rock, gravel etc
As to the civil work it is naturally a bit more difficult to retrieve estimates from relevant contractors,
because at this stage the contractor has to base his estimates without proper drawings of the power
house, intake construction etc. In this case it may be a solution to try and locate similar existing
SHPP projects and make a request to the current project owner about an approximate cost of the
civil work.
However, the examples given in this chapter are not based on one particular project, thus the
investment costs are just rough estimates based on prior experience.

The next step in the economic analysis is to calculate the revenue based on the estimated annual
production and at this stage the net present value (NPV), return on investment (ROI), internal rate of
return (IRR) and the cost factor. These parameters are practical for a summary of the projects
profitability.
2.2.3.1 Net Present Value
The net present value (NPV) is vital when evaluating the profitability of a hydropower project as the
revenue consists of a series of payments throughout the lifetime of the power plant. The NPV is
defined as the sum of the present values (PV) of the individual cash flows minus the investment
costs.

The NPV formula is available in MS Excel. In order to calculate NPV the price on electricity, expected
percent price growth, interest rate and the expected lifetime of the power plant must be defined

Example: The Net Present Value The following assumptions are made:
Expected life time, n = 30 years
Interest rate, i = 6 %
Constant percentual price growth, g = 1.5 %
Price of electricity (Tariff) = 67 GEL/MWh
Based on these assumptions: FV = 8 588 MWh * 67GEL/MWh = 575 396 GEL
Thus the annual cash flow each year throughout the lifetime equals 575,396 GEL, and is based on
the average annual production estimated in the above example. Subsequently, the present value is
calculated according to Equation (2-4), and amounts to about 9 400 000 GEL. In these calculations
any fees related to distributing of the electricity to the grid has not been considered.
The net present value of the trading result thus yields: 9 400 000 GEL 4 000 000 GEL = 5 400 000
GEL.
Annex: NPV & IRR calculation
2.2.3.2 Return on Investment
Return on investment (ROI) is a measure of how efficient the investment is, i.e. the ratio of money
gained on an investment and the amount of money invested. ROI is also known as the rate of return
or rate of profit, and is usually given as a percentage or a ratio. The formula is given as:

The values from the previous example give a ROI of 1.35.


2.2.3.3 Internal Rate of Return
The internal rate of return (IRR) is a parameter to measure and compare the profitability of
investments. The IRR of a project is defined as the interest rate at which the net present value of the
future revenues equals the investments costs of the project. The higher the IRR for a project, the
more desirable it is to carry out the project. If several projects have the same initial investment cost,
the project with the highest IRR would be considered the best. A function for the IRR is given in
Excel, and it is strongly recommended to make use of this built-in function.

The example values given above give an IRR of 15.6 %.


2.2.3.4 Cost factor

The cost factor is the ratio of the total investment cost and the annual produced energy, kE, given in
[GEL/kWh]. It can also be given as the ratio of the total investment cost and the power output, kp,
i.e. [GEL/kW]. The cost factor is used to compare the profitability of projects with regard to the total
investment cost and the installed capacity of the power plant, and is given as:

Example: The Cost factor


Total investment cost: 4 000 000 GEL
Energy production: 8 588 MWh
Power output: 1960.8 kW
This gives a cost factor equal to 0.47 GEL/kWh or 2040 GEL/kW
The cost factor is a parameter for evaluating the investment cost compared to the installed capacity
of the hydropower plant. However, the cost factor should always be evaluated together with the net
present value, return on investment and internal rate of return to see the overall economic situation.
2.2.4 Final Market Analysis
Based on the results from the pre-feasibility study an optimum project alternative is identified, and a
further in-depth study of this alternative is necessary. The economic optimizing of the SHPP is vital in
order to achieve a sustainable and well-functioning power plant throughout the lifetime. The scope of
the optimizing is to decide economical optimal dimensions of the dam construction, conduit system
and the capacity of the electromechanical unit for the optimum project alternative. Regarding the
final economical analysis a more in-depth analysis related to the following topics is evident:
future net revenue
investment cost
sensitivity analysis
Hydropower is associated with substantial uncertainties related to future electricity price and
available flow i.e. production. Hence, a sensitivity analysis is needed to have a complete overview of
different economical scenarios. The net present value of the trading result must be calculated with
respect to a certain variation of the following parameters:
investment cost
future electricity price
production
In particular, it is vital to identify the lower limit for each parameter for to determine an investment
threshold between profitable or un-profitable.
2.2.5 Note on Taxes

To enhance Georgias investment and business climate, the Government has dramatically
overhauled its tax system since 2004. By implementing a liberal reform agenda, Georgia has
simplified its processes and has reduced the number of taxes from 21 in 2004 to only 6 today.
There are six taxes in Georgia, of which five (personal income tax, corporate income tax, value
added tax, excise tax and customs tax) are state-wide and one (property tax) is a local tax.
Personal Income Tax
The personal income tax rate is 20 % and it is scheduled for further reduction to 18 % by 1st January
2013 and to 15 % by January 2014
Corporate Income Tax
Legal entities carrying out business in Georgia are subject to corporate profit tax which is 15 %.
Value Added Tax
The tax code of Georgia sets the value added tax at the rate of 18 %.Taxable operations involving
supply (import) of goods and services in Georgia are exempt from VAT. With respect to the electricity
sector, VAT exemption applies to the import of goods/construction- installation, renovation,
rehabilitation, testing /or geological exploration services financed by favourable credits issued by
foreign states or international organisations under international agreements ratified by the
Parliament of Georgia for the purpose of rehabilitation of the Georgian electricity sector. Supply of
electricity to the consumers (except to the retail consumers) is exempt from VAT until January 1
2012.
Excise tax
Producers, importers and exporters of excisable goods are subject to excise tax. Excise tax rates are
fixed per physical unit of excisable good
Custom Tax (Tariff)
Custom tax is based on either customs value or per physical unit of goods. The rate applicable to the
customs value of the goods is fixed at 0 %, 5 % or 12 %, depending on the classification of the
goods. Most goods fall into the 0 % rate. Most food products and construction materials fall under
the 5 % or 12 % tax rates.
Property Tax
The property tax is a local tax. Georgia applies property tax at a flat rate of up to 1 % of the annual
average net balance sheet value of tangible and intangible non-current assets of Georgian entities
and Georgian permanent establishments of foreign entities. Notably, land and certain movable
property are taxed based on specific rules set out by domestic tax law.
Tax Free regimes in Georgia
Specialized tax rates and procedures have been adopted for 3 types of Tax-Free regimes in Georgia.
These include:
1. Free Industrial Zone ( FIZs);
2. Free Warehouse Enterprise;
3. Entities designated as International Financial Companies.
Currently, Georgia has established Double Taxation Treaties with 32 major trading partner countries
and plans to finalize several more in 2011. Additional reforms are projected to decrease tax rates
even further in the next few years
No payroll tax or social insurance tax
Capital expenditure can be depreciated fully in the year it has been incurred of the operation,
and 10-year loss carry forward is available

No capital gains tax


No wealth tax, inheritance tax or stamp duty
Foreign-source income of individuals fully exempted
Annex: Tax rates at a Glance
3 Packaging Proposal for Financing
Welcome to Chapter 4, thus far you have started from the very beginning to collect information,
conduct site visits, analyze data and explore many of the important initial legal ownership issues
with your potential Small Hydro Power Plant (SHPP). In this chapter you will use all the collected
information and analysis into a short but effective business proposal, in order to attract the
investment needed for further development of your SHPP.
Business plans are important and often one of the best means to reach many investors in an
effective time frame. A standard layout of information that is easily understood and recognized by
the investment community is preferable. The goal in preparing a business plan is to sell the
investment potential of your chosen SHPP and make it attractive for the investor to finance.
Presentation will matter greatly as well as follow-up and a clear rationale for investment. The use of
transparent documents will give further credibility to your SHPP.
Before you can submit the Construction Application to the Ministry of Energy and Natural Resources,
and sign Memorandum of understanding (see chapter 5), you need a bank guarantee. To get this,
you need a guarantee letter from the investor. This is why at this point it is important to make a
business plan, even though some information is still missing. The full feasibility study as well as the
Environmental Impact Assessment is comprehensive studies which you should not develop before
you have signed the MoU with the MoENR (chapter 5). Instead, you should at this point include the
pre-feasibility study and some initial assessments of the social and environmental impacts in your
business plan. Once the feasibility study and the EIA is completed, you can attach these to your
business plan.
This chapter will guide you on how to build on the site approval proposal you started in Chapter 1 to
write and compile a business plan for your SHPP. Start with Annex: Business Plan Template
3.1 Components of a Business Plan
A SHPP business plan should include the following assessments and documents:
financial and market analysis, ROI
If a CME for CDM PoA is established, a Carbon Financing Analysis should be conducted by the
CME, after the first consultation (Chapter 2). If your SHPP meets requirements, CME will
provide support and assistance to take advantage of additional carbon income from the sales
of Certified Emissions Reduction Credits.
collected documents including ownership, licences, and the first assessments of
social-environmental impacts/benefits8
risk assessment and mitigation plan
important final financial evaluation of the project
8

The full EIA shall be done after the MoU is signed with MoENR, in connection with the feasibility
study (see chapter 5)
3.2 Presentation of investment project
Once you have completed the business plan, you should be prepared to present the proposed
investment project to financial investors. This requires the following tasks and documents:

review of financial institutions banks, international financial institutions and private investors
to arrange meetings with
brief PowerPoint presentation
In order to turn a potential investors interest in the SHPP into a concrete commitment, the following
items have to be discussed and documents obtained:
discussion on the corporate structure of the loan the investor will provide
in some cases a company is established to manage and carry out the terms of the loan and
investment
a guarantee letter for the bank from the investor
Annex: Model of basic Business Plan presentation
Annex: Business plan template
4 Approvals and permits
In the previous chapters you have followed all the needed development phase steps and are now
ready to get the governmental approvals as well as construction permits. Using your prepared
business plan you have already managed to find an investor who provided you a letter of funding
guarantee which will be needed as part of the approval documentations.
First you must secure and provide a Guarantee Letter. In order to guarantee power plant
construction and exploitation on time, a bank guarantee should be provided by an appropriate
person. Bank guarantee should be issued for minimum 170 000 USD/MW (120 000 EUR/MW),
according to the power plants total capacity, by any bank in Georgia or abroad licensed by OECD. If
there are two or more prospective investors interested in the same power plant project, the
applicants may be asked to provide a higher guarantee. Priority will be given to the investor
providing the highest financial guarantee. The applicants must also commit to construct and start
operation of the power plant within a certain time frame. These two criteria will be evaluated on a 10
point scale, with a 50-50 % weighting. The Government will if necessary grant the investor support
to obtain land plot use permission.
4.2 Feasibility study
Once the MoU is signed with the GoG and the ESCO, you can start planning your SHPP in detail, also
involving consultants and designers for development of the required documentation. Up until this
point the preparations and planning have been done bearing in mind that the necessary approval
from the MoENR has not yet been given. The pre-feasibility studies, the initial financial assessments
and the business plan must therefore be conducted without too excessive costs. However, once the
bank guarantee is given, and the approval is obtained from the MoENR, it is time to proceed to the
next step; the feasibility study.
In the technical pre-feasibility and initial financial assessments in chapter 2, you made the first, basic
calculations on the performance and profitability of your SHPP. The feasibility study is a detailed
study which can take the project forward from the initial idea to a final design that will support
applications for project finance and the necessary licenses. This is a comprehensive study, which
requires in-depth knowledge on geological surveys, hydrology, water management, civil construction
work, design of turbines and aggregates, power transmission, infrastructure etc. It is therefore wise
always to employ a professional to conduct the feasibility study and the detailed design work.
The following essential tasks should constitute the main components of a feasibility study:
Hydrological Survey. Typically, a hydrological survey produces a flow duration curve. This
is based on long-term records of rainfall and/or flow data, together with knowledge of the

catchment geology and soil types. This long-term information might be backed up by
short-term flow measurements. The study should also include an estimate of the required
compensation flow.
System design. This includes a description of the overall project layout, including a drawing
showing the general arrangement of the site. The prominent aspects of the works should be
described in detail, covering:
- Civil works (intake and weir, intake channel, penstock, turbine house, tailrace
channel, site access, construction details)
- The generating equipment (turbine, gearbox, generator, control system),
- Grid connection
- System costing. A clear system costing includes a detailed estimate of the capital costs of
the project, subdivided into:
- Civil costs
-The cost of grid-connection
- The cost of electro-mechanical equipment
- Engineering and project management fees
Estimate of energy output and annual revenue. This summarizes the source data (river
flows, hydraulic losses, operating head, turbine efficiencies and methods of calculation) and
calculates the output of the scheme in terms of the maximum potential output power (in kW)
and the average annual energy yield (kWh/year), converted into annual revenue (USD/year).
EIA. An additional task, which may form part of the main feasibility report but is often
undertaken separately, is the environmental assessment of the scheme.
Annex: List of main components of a Feasibility Study
4.1 Application to MoENR
Interested parties can submit their interest for the construction, operation and ownership of the
power plants listed in the list of renewable energy generating sources, by filling out an application
form, (Annex: Application Form) approved by the resolution N107 of the government of Georgia
dated April 18, 2008. The application can either be submitted by e-mail, post or handed in by an
authorized person, to the Ministry of Energy and Natural Resources of Georgia at the following
address:
Gulua 6, Tbilisi
tel: +995 (32) 235-78-00, +995 (32) 235-78-00
fax: +995 (32) 235-78-01
e-mail: mail@minenergy.gov.ge
http://www.menr.gov.ge
Submitted applications are registered at the Ministry of Energy and Natural Resources. Within two
working days, the Ministry will publish all submitted applications on the official web-site:
http://www.menr.gov.ge. Applications will be listed on the web-site in the "List of Potential
Renewable Energy Sources of Georgia". Information will include names of the power plants for which
the applications are submitted and the deadline for expression of interest on these power plants.
Applications will not be accepted after 30 calendar days from the initial application date.
Within 5 working days after the deadline, the Ministry will review submitted applications. If the
applications completely satisfy the requirements, conditions and criteria declared in the expression
of interest, a bank guarantee for a limited amount is provided within 5 working days after the
application review. A short list of qualified candidates will be forwarded to the Government of
Georgia for discussion.
If a submitted application does not meet the requirements, conditions and criteria, and/or is not
submitted on time and a bank guarantee is not provided on time, the application will be disqualified

and not taken to the next level of discussion with the Government of Georgia. Information stating the
above mentioned will be sent to the applicant within 10 working days after the review process.
If submitted applications are determined to be similar according to the Government decision, the
Ministry has the right to send a notice to the applicant and ask to improve the proposal. Improved
applications should be submitted to the Ministry within 10 working days after the request. The
Ministry will then forward improved applications to the Government of Georgia for a decision.
Annex: Application to the Ministry of Energy and Natural Resources for Hydropower Construction (60
days)
4.1.1 Power Purchase Agreement (PPA)
The value of the electricity generated by the scheme has to be determined at the outset. Information
about the buyer of the generated electricity may also be included, however this is not mandatory.
The electricity generated by a SHPP may be used by the developer for their own needs. It is nearly
always financially advantageous to consume as much of the power as possible on site and only
export the surplus into the network. If it is possible to connect to the local grid, the produced
electricity may be exported via the local distribution network through an agreement with the
Electricity System Commercial Operator (ESCO) or with the local distribution companies that deliver
electricity directly to the client.
Since 2006, power generators and purchasers can enter into direct electricity contract agreements.
Hence, ESCO has been trading with a much smaller share of the total electricity in Georgia (around
15 % in the first six months of 2007), than its predecessor GWEM.
The following are established policies according to an order of the Ministry of Energy and Natural
Resources #98 Article 36 (Small Capacity Power Plants (10.11.2008 #98)). If the electricity released
by a small capacity power plant at receipt point has not been purchased totally or partly, based on
direct advance contract, the small capacity power plant is considered as a seller of electricity to the
Electricity System Commercial Operator (ESCO) by a direct agreement made in compliance with
Standard Conditions. Due to the direct agreement made in compliance with Standard Conditions,
System Commercial Operator shall make a settlement when purchasing balance electricity from the
deregulated small capacity power plant.
From September 1st till May 1st, within the scope of the direct agreement made in compliance with
Standard Conditions, the highest tariff is based on the thermal power plant electricity sold to System
Commercial Operator. From May 1st till September 1st the adjustable fixed tariff based on
hydropower is the lowest tariff established by GNERC. Small capacity power plant may purchase
electricity for the purpose of ensuring relevant execution of the agreement on electricity generated
by these plants; the volumes should not exceed the framework of forecasted electricity volumes
proposed (capacity).
If the SHPP produces power for export to the local network, early discussions with the local
distribution companies are needed to specify the system protection and metering equipment, and
the technical requirements. They will also provide an estimate of connection costs and the best
location to connect into their system.
There are currently two companies providing electricity transmission services in Georgia, the state
owned Georgian State Electrosystem (GSE) which operates the 300, 220, 110 and some of the 35 kV
lines and JSC Sakrusenergo which owns the 500 kV line running through the country from West to
East. ENERGO-PRO Georgia is the largest energy company in Georgia, providing electricity
generation and distribution. The companys service area covers over 70 % of the Georgian land plot.
EPG serves over 860,000 customers in the Adjara, Samegrelo-Upper Svaneti, Guria, Imereti,
Racha-Lechkhumi, Shida Kartli, Samtskhe-Javakheti, Mtskheta-Mtianeti and Kvemo Kartli.

Approximately 820,000 customers represent households and 42,000 are commercial and state
organizations. The companys main activities are electric power sales (purchase and sale),
production-technical activity (services and maintenance of power grids), power transit services,
technical services to subscribers and billing and collection services for external service
organizations.
Annex: Guaranteed Power Purchase Agreement
4.1.2 Relevant Legislation
The purpose of the state program Renewable Energy 2008 and the rule of construction of new
renewable energy sources in Georgia (hereinafter referred to as a regulation), is to support new
renewable energy sources construction in Georgia by attracting foreign investments (Annex: State
Renewable Energy 2008 Program, Annex: Regulation from the Georgian Minister of Energy and
Natural Resources).
In order to support the construction of new renewable energy sources, in case of interest or after
expression of interest, in accordance with the conditions of the presented program, the
Memorandum of Understanding (MoU) should be signed between the Government of Georgia,
Electricity System Commercial Operator, LTD (ESCO) and an appropriate party. The Memorandum is
an agreement on the cooperation of the parties.
In order to attract investments for construction of new renewable energy sources in Georgia, the
Ministry of Energy and Natural Resources of Georgia has published a list of the potential renewable
energy sources on its official website (http://www.menr.gov.ge). The list includes location schemes
and main technical parameters, and is subject to regular updates by the Ministry. The Ministry
announces the expression of interests for building, operation and ownership of the renewable energy
power sources. The expression of interest will be announced in the press distributed in Georgia and
on the official website (http://www.menr.gov.ge).
Expression of interest announced by the Ministry of Energy and Natural Resources contain the
following
name(s) of the power plant(s) listed in the list of potential renewable energy sources
possible location scheme(s) and the main technical parameters
conditions and criteria to determine the best application
application submission address and detailed contact information (telephone, email)
terms of application review and a bank guarantee submission
all relevant information about the project requested by the Ministry
State Program "Renewable Energy 2008"
The Ministry of Energy and Natural Resources in Georgia declares the express of interest for the
power plants in the list of potential alternative sources based on the building, operation and owning
(BOO) principal according to the following:
During three months in the winter season of each of the first 10 years of power plant
operation, the electricity produced by the power plant shall be realized (according to the
electricity balance) only to ensure domestic consumption. These three months of winter are
agreed by the memorandum. In other seasons of the year the market (local or/and export) is
chosen without any limitations.
During three months in the winter season of each of the first 10 years of power plant
operation, the electricity produced by the power plant shall be realized to any buyer in
Georgia by free (deregulated) tariff and/or by means of the guaranteed purchase agreement
agreed upon in advance with ESCO (standard form, which may be the enclosure of this
memorandum) in which the tariff is determined according to the legislation in force.

Annex: State Renewable Energy 2008 Program


Annex: Regulation from the Georgian Minister of Energy
4.1.3 Memorandum of Understanding
Once the Ministry of Energy and Natural Resources of Georgia approves the application, a
Memorandum of Understanding is signed. A standard form of the MoU (Annex: Model MoU), will be
signed between the Government of Georgia, the ESCO and the selected part. The memorandum of
understanding is mandatory for the applicants
The Government of Georgia is entitled to determine the best application(s) and the date for the
memorandum signing no later than 3 months after the decision is made.
The Ministry will send a notice to the selected party along with details on the time frames for the
signing of the memorandum. The other applicants will be notified and a bank guarantee provided for
the selection process will be returned to them within 5 working days after the request.
The Ministry will introduce the draft MoU to be signed with the selected applicant to the Government.
Changes could be made to the draft MoU with the consent of the Government. If the draft is
approved, the MoU is signed for the building, operation and ownership between the Government of
Georgia, ESCO and the selected party. The above mentioned memorandum of understanding will be
available on the Ministry's website (http://www.menr.gov.ge).
Annex: Model MoU
4.1.4 Carbon Finance
If a Coordinating Management Entity (CME) for the Clean Development Mechanism Programme of
Activities (CDM PoA) have been established in Georgia (ref. Chapter 2.2), and your project was
reviewed and has the potential to earn income from the sales of Certified Emissions Reduction (CER)
credits, then at this time you make it official. This means to sign an agreement with the CME, so that
they can properly market the CER, make the transaction and transfer the funds to you as agreed in
the contract
4.3 Environmental Impact Assessment (EIA)
Environmental protection is implemented and enforced by the Ministry of Environmental Protection
of Georgia, under the Law of Georgia on Permit for Impact on Environment. The Ministry is
authorized to prevent, limit or terminate any activity that has or may have a negative impact on the
environment, or exercise the same rights when natural resources are used irrationally, issue licenses
and permits (including Environmental Impact Permit), control the mitigation activities implemented
by construction companies, obtain complete information from a construction company regarding the
utilization of natural resources, monitoring systems, waste management and other issues, receive
explanations from government representatives involved in the project. A full list of such activities is
given in Article 4 of the law.
Activities or actions which pose increased risks to human health or lives are subject to permit for
impact on environment. The responsible body for issuing the permit is the Ministry of Environment
Protection of Georgia. The main part of receiving a Permit for Impact on Environment is an
Environmental Impact Assessment (EIA). If a permit for impact on environment is needed, you are
obliged to carry out an EIA for the project. The aim of the EIA is to study the current state of the
environment as well as to reveal all the possible social and ecological impacts of the project and a
plan of activities to mitigate the negative impacts.
You will have to hire a consultant who is certified to conduct the Environmental Impact Assessment.

You can get a list of consultants from the license department of the Ministry of Environment
Protection of Georgia or prepare the documents on your own. You or the consultant has to follow
through with rules for reporting the EIA as well as gaining permission. The reporting and approval
process include town hall meetings, public notices and making necessary changes.
Public participation on decisions regarding such activities is ensured by the Law of Georgia on Permit
for Impact on Environment. This obliges you or the developer to make the EIA report available for
public comment for 45 days. First of all, you or the developer has to publish information on the
planned activity in a central and local press. The announcement includes the aim of the activity;
name and location of the activity; addresses to access the EIA report; deadlines for submitting
comments; and time and venue of the public hearing for the EIA report. Once the developer
publishes the announcement and ensures availability of the EIA report, he/she is obliged to hold a
public hearing of the EIA report. According to the law, the hearing must be held not earlier than 50
days and not later than 60 days after publishing the announcement. The hearing takes place in an
administrative centre of the local-government where the project is to be implemented.
Representatives from state bodies (local self-governance bodies, Ministry of Environment Protection,
Ministry of Economic Development and other interested administrative bodies) should be invited.
Any interested party may attend the public hearing of an EIA Report. You or the developer is obliged
to prepare a EIA public hearing protocol, which should contain detailed comments and questions
received during the hearing. The protocol together with written comments received from the public
should be submitted to the Ministry of Environment Protection of Georgia. You or the developer is
obligated to take into consideration public comments into the final EIA report. If comments are left
out, the developer must respond in writing to the authors a substantiated justification which is also
submitted to the Ministry together with the public hearing protocol and the received comments.
4.3.1 SHPPs under 2 MW
No EIA license is needed for SHPP constructions under 2 MW. However, if the SHPP is located in a
protected area, environmental impact assessment protection documents are needed. You will also
need construction permit from the Ministry of Economic Development
4.3.2 SHPPs over 2 MW
Hydropower plants with a capacity of more than 2 MW requires an Environmental Impact Permit to
operate. This permit is issued by the Ministry of Environment Protection of Georgia (see process
described above) and involves the following:
Environmental Impact Assessment (EIA)
State Ecological Examination (SEE)
Public participation
The State Ecological Examination (SEE) procedure is based on the Law on State Ecological
Examination from 1997. According to this law a state expert opinion will be mandatory for a decision
on the issuance of an Environmental Impact Permit. The Ministry of Environment Protection is
responsible for the SEE through a committee of experts.
The basic principles of State Ecological Expertise are the follows:
Assessment of potential ecological risk related to the activity;
Complex assessment of potential environmental impact of the activity, prior to the
commencement of the activity;
Conformity with environmental requirements and norms;
Independence of experts and unrestricted execution of their powers;
Justified and lawful decision of the expertise;
Openness of the expertise, public participation and consideration of public opinion.

The Decree No 154 specifies which documents to be submitted, provides the details of the permit
issuance steps and defines the role of the Ministry of Environment Protection and the developer. The
permitting process and EIA preparation require the following steps:
Preparation of the EIA document.
Public EIA report announcement (newspapers at regional and central level).
A print copy and an electronic version of the EIA must be submitted to the MoE 7 days after
the publication.
The public has 45 days after the date of publication for submitting objections on the EIA.
60 days after publication, a public consultation regarding the EIA should be held in the local
area, where potential affected public stakeholders are invited.
Within 5 days after the public hearing the developer should prepare a report or minutes from
the hearing and also include comments received. These should be signed by the relevant
authorities present at the consultation meeting. Objections raised from the meeting should
be considered and justification must be made.
All this material should then be submitted to the MoEP, which has 20 days to carry out an
SEE and issue a permit. The approval of other Ministries relevant for the project is a
prerequisite for the issuance of the permit. During consultations between the authorities and
the developer during the preparation of the EIA, signals on additional measures are given.
All documents should be in Georgian, and all costs are to be covered by the project developer who
will also be responsible for the preparation.
4.3.3 Environmental Situation Summary
After conducting the environmental impact assessment, you or the consultant should prepare a
corresponding environmental impact assessment report, which is submitted to the administrative
body issuing the permit - the Georgian Ministry of Environment Protection. The Ministry evaluates
the EIA report in order to make a decision on the Permit for Impact on Environment.
4.4 Construction Permit
The power plant requires a construction permit from the Ministry of Economy and Sustainable
Development State subdivision for technical and construction inspection. The construction permit is
the legal basis for construction of the power plant and relevant infrastructure. Without such a permit,
construction of a SHPP is illegal. For plants with capacity more than 2 MW, the permit is issued by
the Ministry of Economy and Sustainable Development of Georgia. For plants with capacity less than
2 MW, it is issued by agencies of the local self-governance in the region the plant is being built.
For issuance of construction permit and putting completed premises into operation, building
complexity is divided into five classes according to various risk factors (characteristics) associated
with the structure, The 1st class is regarded as the low risk, while the 5th class is regarded as the
highest risk object:
1. Class I Buildings that do not require construction permit; - Small Hydro Power Plants with
capacity less than 50 kW do not require the construction permit;
2. Class II Buildings with low risk factor;
3. Class III Buildings with medium risk factor; - Small hydro Power Plants with capacity more
than 50 kW and less than 10 000 kW belongs to class III.
4. Class IV Buildings with high risk factor;
5. Class V Buildings with excessive risk factor (buildings of special importance). Hydro Power
Plant with capacity 50 MW belongs to Class V.
The Government Resolution #57 on Construction Permit Issuance Procedure and Permit Terms
ensures enforcement of requirements and principles of the Law of Georgia on Licenses and Permits.

This law determines the general procedure for construction permit issuance, and consists of three
stages. Each stage represents an independent administrative proceeding with specified time frames:
I. Stage Land ownership verification no more than 30 days; Land needed for construction
of power plants are sold by the ministry of Economic Development of Georgia to the investors for a
nominal price. If the land is privately owned, the investors have to directly contact the owner (in
such cases the state may assist the investors in obtaining the required land).
II. Stage Approval of technical design (incl. Environmental Impact Permit) no more
than 20 days; The approval is issued by the Ministry of Environment Protection of Georgia.
Investors have to provide Environmental and Social Impact Assessment to receive the permit. (HPPs
under 2MW do not require Environment and Social Impact Permit.)
III. Stage Issuance of construction permit not more than 10 days. In order to obtain
construction permit investors have to present a) feasibility study, detailed project design, b) land
possession/ownership document, and c) environmental and social impact Permit.
Depending on the scale and location of the project, the construction permit may also require
approval from the Ministry of Culture and Monument protection of Georgia stating that the planned
plant is not within a zone of historic heritage or an archaeological dig. The Law of Georgia on the
Protection of Cultural Heritage specifies that costs for archaeological activities, supervision,
preliminary investigation, historic-cultural heritage determination, scientific research, publication
and protection should be included in design and construction costs.
Georgias water resources are not subject to alienation. The investor may obtain rights to use water
resources through environmental impact permitting process. No licensing or permitting is required
for water abstraction or discharge in connection with process of obtaining regulatory clearances.
Fees are paid to the State Budget on monthly basis, on or before the 15th day of the month following
the usage. Collections are administered by the Georgian Tax Authorities (except for the fees paid
prior to acquiring a license or permit for which Ministry of Energy and Natural Resources of Georgia
is responsible).
Annex: Environmental Impact Assessment Procedures
Annex: Construction Permit from the Ministry of Economy and Sustainable Development
4.5 Checklist for approvals and documents
MoU signed between Government of Georgia, investor and ESCO (ESCO is optional)
PPA with ESCO (national grid)
Feasibility study
EIA report and Environmental Impact Permit
Construction permit
5 Negotiation and Contracting
You have now obtained all necessary governmental permits and permits, and are ready to start
calling for tenders, and negotiate with and hire consultants, suppliers, and contractors. This chapter
will take you throough some of the critical steps of this process.
5.1 Legal Agreements and Standards
A successful power plant development demands contractual matters. The Factory Acceptance Tests
(FAT) at the manufacturers location for critical components as turbine and generator. Site
Acceptance Test (SAT) at the site. These Procedures which often includes the following features:
Technical Standards and Tests (FAT)

the scope and detailed specifications of the equipment, and the quality in the bidding, and
later on signed contract documents
collaboration between the parties, suppliers and sub suppliers
guarantees, legal terms with regard to property and force majeure
delays due to both parties, the buyer and the supplier
risks and responsibility for damage on people and goods
mounting
FAT/SAT/test run
responsibilities for improvements
Contractual Standards
patent rights and PR limitations
contractual closures, changes and disagreements
insurance and limitation of responsibility for losses during operation etc.
prices and payment
handling of the documentation both in the engineering phase and during production,
drawings etc.
final documentation and commissioning
scope of contract and the contract documents involved
Standard contract documents are typically for sale and tailor made specification of the equipment
are enfolded and used in the bidding competition most buyers invite to.
5.2 Suppliers of Equipment
Before the commissioning, the buyer should ask the supplier and those in charge of the grid and the
engineering of the plant to present a detailed test scheme within the framework of the different
controls and tests.
5.3 Contractor/Consultant Services
5Development of a SHPP requires substantial investments and use of advanced technology. The
need for consultancy services must be outlined in each project. As a main rule it is better to be
cautious. The chosen model of development of a SHPP is leading. Anyhow if the project developer is
a small company or a private person the main parameters of optimization in the pre-engineering
phase should be verified:
location of intake, waterway and powerhouse
hydrology and inflow variation
grid connection
diameter/dimensions of waterway
turbine/s number, type and size
generator power output
transformer power output
production, income, budget costs and cost factor
For the application of concession to current authorities it may be wise to engage consultants. This
can also be wise in the development of business plans to attract investors. For detailed planning as a
basis for bidding of contracts, evaluation of suppliers, control of manufacturing, mounting of
equipment and commissioning, it is beneficial to consult an experienced partner. The representative
should be present during the quality checks at both FAT and SAT to ensure that no mistakes occur to
critical components that could negatively influence the quality.

5.4 Creating Your Team


5Once you have found the right construction company and the best suppliers of equipment that is
required for your project. You will need to create a project implementation team. The project team
will not only mange, but also monitor construction, deal with all project finance and accounting,
procuring needed equipment and hire the right skills as needed to build your SHPP.
The Project Team should include the following competences:
Project manager
Chief engineer
Construction supervisor
Finance and Accountants
Annex: List of Contractors and Equipment Suppliers
Annex: Sample Contracting Documents
- Contents of Contract for Constructional Work
- Contents of Contract Electro-Mechanical Work
- Contents of Contract Electro-Mechanical Work - Annex C Prices and Data
6 Constructing the SHPP
You have put together an implementation team, and you are now ready to start construction of your
SHPP. This chapter describes some important aspects in this process, such as time and budget
control, construction monitoring and Environment, Health and Safety (EHS).
6.1 Time and Budget Control
6During the execution of a SHPP project, procedures for project control and record keeping are
important to the project administration as well as the suppliers and workers on site. Proper tools
should be used for budget and schedule sufficient for recording the financial transactions and
progress throughout the lifetime of the project.
The schedule is often set up by a planner in the central office, and then revisions or modifications
are done incompletely or sporadically. The result is lack of effective project monitoring and
possibility of eventual chaos on the project site. The project manager should be present at project
meetings in the planning phase and on-site-meetings at least every 2nd week during the project
period. The project manager must synthesize a comprehensive view from the different reports from
the project participants plus their own field observations. It should be mentioned that the number of
cost accounts associated with small construction projects are several hundred, which may be a
boring task to check for each invoice, yet very important. The status of the project is often presented
by parameters describing each main category, as illustrated in Table 6 1.

Budgeted Cost
The budgeted cost is derived from the detailed cost estimate prepared at the start of the project.
Estimated Total Cost
The estimated or forecast total cost in each category is the current best estimate of costs based on
progress and any changes made after the budget was formed. Estimated total costs are the sum of
costs to date, commitments and exposure. For estimating costs the current information on the state
of work accomplishment for particular activities is required.
Cost Committed and Cost Exposure
Estimated cost of completion in each category divided into firm commitments and estimated
additional costs or exposure. Commitments may represent material orders or subcontracts for which
firm dollar amounts have been committed
Cost to Date
The actual cost incurred to date can be derived from the financial record keeping accounts.
Over or Under the Budget
The final column in Table 6-1 indicates the amount over or under the budget for each category. This
column is an indicator of the extent of variance from the project budget; items with unusually large
overruns would represent a particular managerial concern.
6.2 Construction Monitoring
Construction projects normally involve numerous activities which are closely related due to the use
of similar materials, equipment, workers or site characteristics. Expected cost changes should also
be propagated throughout a project plan. In essence, duration and cost estimates for future activities
should be revised according to the actual experience on the job. Without this updating, project
schedules slip more and more as time progresses. To perform this type of updating, project
managers need access to original estimates and estimating assumptions. Usually, project costs and
schedules are recorded and reported by separate forms. The schedule is often represented by a
Gant shown in Figure 6 1, which can be subscribed via e.g. MS Project or MS Excel.
Project managers must then perform the tedious task of combining the two sets of information
related to both financial figures and the milestones along the time axis. This is not straight forward
until a project is completed, and then it is too late to influence project management. For SHPP
projects it is recommended that the project manager/s is/are responsible for the total project, and
not only parts of it. A SHPP project is characteristic in the way that many suppliers representing
special fields and spheres are involved. For the project manager(s) to be able to get the overview
and coordinate the different interfaces, it is crucial to obtain a smooth and flawless progress as close
as possible to the project plan, budget and schedule.

6.3 EHS - Environment, Health and Safety


Management of Environment, Health and Safety (EHS) implies taking corporate responsibility for the
environment, and the health and safety of the employees and the community. Hence when speaking
of the environment, this includes both the surrounding environment and the working environment.
EHS guidelines and risk assessments can help identify risk factors which can cause injuries or
disease at the workplace, or damage to the surrounding environment.
Environmental considerations should in general include elements such as air emissions, waste and
wastewater management and energy and water conservation. Occupational and community health
and safety measures include elements such as physical and chemical hazards, protective personal
equipment, fire safety, first aid procedures, monitoring procedures etc.
When planning a SHPP, environmental considerations will normally be dealt with in the EIA10 .
However the health and safety of the staff and the community should be assessed in the EHS
Management system. Three simple questions are essential in such risk assessments:
What can go wrong?
What can we do to prevent this?
What can we do to reduce the consequences if it happens?
EHS should be considered in all phases of the project; in the initial hydrological surveys, in the
construction phase and in the operational phase. For example, when conducting flow measurements,
there should always be at least two persons present if the water level is higher than knee height, and
the person in the river should always wear a life jacket and be connected to a rope in case of strong
currents.
An example of a check list for EHS in the construction phase is given in annex; similar check lists

should be developed for conduction of flow measurements and operation of the power plant. As
project developer/owner, you should also demand the same EHS Management standards from
suppliers and contractors.
Annex: Check list EHS - Construction phase
Annex: Sample Time Table
10

If an EIA is not required, the surrounding environment should be considered in the EHS risk
assessment.
7 Commissioning
The SHPP is finalized, and you are ready for the commissioning. In this phase, it is important to
ensure proper training of the staff, and to establish a detailed maintenance scheduled. This chapter
will give you recommendations on how this can be planned.
7.1 Training of Staff
The training of the staff should preferably be a part of the construction period. Then the operators
may get to know the main suppliers representatives and get an understanding of the different
stages of the installation, and also be attendant to site acceptance tests. The training of the staff can
be managed by the suppliers or arranged with experienced people from other hydropower
companies.
Furthermore, it is not common to have a training plan. The person responsible for a given hydro
power plant will attend the SAT, and during the SAT he or she will learn how to operate the power
plant. During the SAT every feature/function of the power plant is tested. The operators must have a
certain experience with mechanical and electrical engineering and with modern control and
communication technology. In the planning phase some attention should be made to alarm
messages which should be easy to understand even for a staff without any thorough knowledge of
the power plant.
7.2 Operation
A SHPP represents a substantial investment. To achieve a well functioning and stable plant the
quality requirements must be defined to secure proper design and performance of the respective
parts with regard to hydrological, mechanical and electrical properties for each plant. For instance to
prevent fatigue fractures, erosion and cavitations damages, the turbines should be well designed in
the engineering phase. The grid interface should be analyzed to secure a well designed generator,
switch gear and relay protection. The intake is often a problem because of bad location with regard
to whirls and mass transportation. The intake may be too shallow which is because of the concession
terms. This can lead to problems with the gates and the trash rack. It is vital for the profitability of
the plant during the expected lifetime of the plant, the operational and maintenance costs must be
kept at a minimum which happens if the equipment is robust and well tested.
7.3 Maintenance
Maintenance can be affected due to a superior strategy on a routine basis. Both owners and
operators who know the local conditions of development must agree upon routines. For a well
defined and designed control system the control routines for many hydraulic, electrical and
mechanical components/circuits can be much easier and more to the point. Todays technology
offers flexible control equipments with use of cell phones and VPN technology for lap tops.
Type of Maintenance Methods
During part of the operation time it may be necessary to make adjustments in the intake etc.

Expected technical lifetime for a part will be dependent on the quality of the equipment. For the
smallest plants less than 100 kW output, the expected lifetime will be shorter than for larger plants.
Technical lifetime means the time the equipment can function without considering the feasibility by
exchanging it. For a SHPP of normal quality the technical lifetime is typically expected to be 50
years. After some years, to maintain secure operation, significant investments due to the economical
lifetime have to be done. Economical lifetime means the time before it is feasible with regard to
efficiency and functionality to exchange the equipment.
Control equipment based on PLS, has a lifetime of 15 years which can be compared to a 15 year old
computer. The software can easily be moved to a new system. For a control unit made of relays and
contactors the economical lifetime is 25 years. Here it is simpler to change separate parts which is
defect. For instance the economical lifetime of roller bearings are 7-8 years and slide bearings 10-15
years. The economical lifetime of the control equipment are often set to 15 years. Due to general
development of technology in the market, it can be feasible to exchange the equipment before the
technical lifetime also for big components as generator and turbine.
7.4 Maintenance Schedule
Recommended Inspection Routines
Daily basis
Check the operators for irregular conditions.
Weekly basis
Intake with check of branches and level of gravel in periods the frequency increases.
Inspection in the power house for unusual vibration, temperature, sound and smell
Yearly basis
For the reservoir, intake and pipelines the functionality should be checked once a year, for
instance junctions, joints and valves. During periods of flood and extreme cold special
attention must be made.
The supplier of electromechanical equipments yearly check in the guarantee period.
Check points based on the suppliers recommendation of their equipment.
Some not so frequently used high quality equipments, such as circuit breakers, are tested only every
10th year.
Annex: Sample Inspection and Maintenance Plan
7.5 Commissioning Period
The Commissioning Period of a SHPP can be divided in
1 week: The test phase
Factory Acceptance Tests (FAT) at the manufacturers location for critical components as
turbine and generator
Site Acceptance Test (SAT) at the site
2-3 months: The test run phase with necessary reparation and improvements as soon as possible.
2 years: The guarantee period with measurement of the efficiency.
If lack of quality is revealed in some parts of the plant or equipment during the commissioning, it is
important that it is written in the commissioning protocol. Time limits for improvements should be
notified. The protocol should be a juridical binding document signed by the involved parts in the

different contracts at stake. The contract also specifies the guarantee period which typically runs for
2 years. Afterwards the supplier runs some routine checks and may also offer a maintenance
program for the plant which may be beneficial for the SHPP with regard to operational and
maintenance costs.
Annex: Site Acceptance Test (SAT)
Annex: Factory Acceptance Test (FAT)
Abbreviations CER
CDM
CDM PoA
CME
EHS
EIA
ESCO
FAT
FDC
GoG
GRP
GSE
IRR
MOENR
MoEP
MoU
NPV
O&M
PE
PPA
ROI
SAT
SHPP

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Clean Development mechanism
Clean Development Mechanism
Programme of Activities
Coordinating Management Entity
Environment, Health and Safety
Environmental Impact Assessment
Electricity System Commercial Operator
Factory Acceptance Tests
Flow Duration Curve
Government of Georgia
Glass fibre reinforced
Georgian State Electro system
Internal rate of return
Ministry of Energy and Natural Resources
of Georgia
Ministry of Environment Protection of
Memorandum of Understanding
Net Present Value
Operation and maintenance
Polyethylen
Power Purchase Agreement
Return on investment
Site Acceptance Test
Small Hydro Power Plant

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