PHI: Single Well Engineered Electrical Turbine System (SWEETS) Geothermal Power Project Project Preparatory Technical Assistance Concept Paper

Date: 1 December 2011

1. Country partnership strategy (CPS) / Regional cooperation strategy (RCS): Final TA Paper for VP Approval.

• Year included in CPS/RCS/COBP/ROBP/CPS or RCS Midterm Review Report: N/A • Document reference number and date approved: N/A • In case of change in the PPTA title, type, or amount, please state reason: N/A

2. Coverage

X Country Subregional Interregional

(Project Site: Los Baños, Laguna, Philippines) sovereign X non-sovereign

3. Assistance Focus

a. Sector(s): Agriculture and natural resources Industry and trade Education Public sector management

X Energy Transport and ICT Finance Water supply and other municipal infrastructure and services Health and social protection Multisector

Subsector(s): Renewable Energy b. Targeting classification

Targeted intervention TI-H TI-M TI-G X General intervention (more indirectly addressing poverty reduction)

c. Theme(s) Economic growth Gender equity Social development X Private sector development X Environmental sustainability Governance Regional cooperation and integration Capacity development

Subthemes - Climate change mitigation - Private sector investment

d. Location impact

Relative weight of spatial impact of the project

High Medium Low

Rural X

Urban

National X

Regional

4. Partnership N/A 5. Name of the Specialist (project team leader) in

charge of the project: Jose Manuel C. Limjap Name of the Alternate Specialist: Christine Genalin C. Uy

• Local Number: 1745 • Local Number: 6488 • Email Address: jmlimjap@adb.org

• Email Address: cguy@adb.org

6. Department/Division: PSOD / PSIF2

7. Key Development Issues to be addressed: As of December 2010, the total installed and dependable capacity in the Philippines stood at 16,359 MW and 13,902 MW, respectively. Coal (30%), oil-based (20%) and natural gas (17%) are the major sources of power accounting for 67% of the total installed capacity in 2010. Renewable Energy accounts for 33%, broken down as follows: geothermal (12%), hydro (21%), and wind/solar/biomass (0.4%). Electricity demand is forecast to grow by 4.0% per annum over the next twenty years under the Philippine Power Development Plan 2009 – 2030. Electricity sales are projected to grow from 67,743 GWhs in 2010 to 149,067 GWhs in 2030. The Luzon grid will account for much of the country’s electricity demand--projected to increase by 4.5% per annum from 45,102 GWhs in 2010 to 109,477 GWhs in 2030. The Luzon grid will require an aggregate investment of 11,900 MW in new capacity between now and 2030. Under the 2009-2030 Philippine Energy Plan, RE-based installed capacity is targeted to double by 2030. The Project will help address the growth in electricity demand and increase share of geothermal/renewable energy in country’s energy mix. The Project will help the government achieve its goal to increase share of renewable energy in the country’s energy mix to 40% by 2013. It will also help curtail the continued rise in greenhouse gas (GHG) emissions in the country since a significant portion of the country’s energy requirements are supplied by coal and oil-based plants. The SWEETS 50 MW geothermal power facility can potentially generate up to 394,200 MWh of electricity, assuming a 90% plant load factor. If connected to Meralco, tCO2 savings could amount to 177,390 tCO2e/year. If connected to the national grid, tCO2 savings could amount to approximately 157,680 tCO2e/year.1

• Link to ADB’s Strategy 2020 and 2009 Energy Policy This PPTA embodies ADB’s Strategy 2020 and 2009 Energy Policy. It will assist the ADB to identify high quality renewable energy projects for potential financing. Under Strategy 2020 and 2009 Energy Policy, ADB has committed to (i) grow its lending portfolio for environmentally sustainable and private sector development utilizing clean technologies and PPP frameworks and (ii) to seek out renewable energy projects for financing and to assume greater—but thoroughly assessed—risks and act as a catalyst for investments that the private sector might not otherwise be willing to make. ADB will help facilitate direct private sector investments that support inclusive growth and improve the environment. Pursuant to the 2009 Energy Policy, ADB’s investments in the energy sector will focus on energy efficiency and renewable energy projects, along with expanding access to energy, particularly in remote rural regions where coverage remains limited. • Link to Country Partnership Strategy This PPTA is also consistent with ADB's Country Strategy and Program for the Philippines, which lists inadequate infrastructure as among the six major constraints for the country to achieve rapid poverty alleviation. The low levels of investment in and poor condition of infrastructure in the country have also contributed to the negative perception of the Philippines as an investment destination, making it even more difficult for the country to achieve economic growth. In this connection, the Country Operations Business Plan (2009-2010) for the Philippines encourages support for the development of critical infrastructure by the private sector consistent with Strategy 2020. Among the critical infrastructure needed to improve the quality of life and spur economic growth in the country is the cost-efficient expansion and improvement of electricity infrastructure, particularly in remote rural areas and isolated islands where the Government aims to achieve 90% electrification at the household level by 2017.

8. PPTA and Project Description:

The proposed technical assistance will be provided to support the preparatory work necessary to confirm feasibility of a closed loop, SWEETS 50 MW geothermal power facility in Los Baños, Laguna, Philippines.

1 The difference is due to the different generation mix of Meralco and NGCP.

SWEETS Process and Benefits

The SWEETS enhanced geothermal system is a closed-loop system aimed at replacing fossil fuels with cost-effective extraction of geothermal energy for the generation of electricity. It is designed for use in a single hole/well bore unlike other enhanced geothermal systems. The process includes the following components (see Figure 8.1): (i) Piping to carry heat transfer fluid in a closed-loop from the surface to the well bottom and back to the

surface for generation of electric power; (ii) Heat exchanger in the lower section near the well bottom; (iii) Cementitious grout that is used internally in the well bore surrounds the piping and adds significantly to the

conductive coupling of the heat exchanger to the environment; and (iv) Heat Nest in the lower section near the well bottom is a heat transfer enhancement technique utilized in the

region surrounding the core well bore to maximize heat reservoir interface and increase the heat flux to the heat exchanger.

Figure 8.1: SWEETS Process

The system configuration is aimed at maximizing the transfer of heat from hot dry rock to the contained heat transfer fluid and maintaining the heat temperature as the fluid moves from the well bottom to the generation equipment at the surface. The system, as designed, is green (no emissions and no environmental contamination from heat transfer fluid), operates 24/7 for base load power, makes use of existing T&D infrastructure, has minimal visual impact and is low in cost. The use of cementitious grout and the containment of the heat transfer fluid inside piping virtually eliminate the possibility of groundwater contamination. There are other enhanced geothermal systems (EGS) which ”enhance” and/or create underground geothermal heat systems through hydraulic stimulation of subsurface rock to create a reservoir of superheated water. In these systems, water is injected into hot rock through an “injection well” that travels through fractures in the rock thereby capturing the heat of the rock until it is forced out of a second borehole (the “production well”) as

hot water which is converted into electricity using either a steam turbine or a binary generation system. All of the water, now cooled, is then injected back into the ground to heat up again. Various EGS systems are currently being developed and tested in France, Australia, Japan, Germany, Switzerland and the US. These systems, however, present several serious problems. First, they require substantial quantities of water for use in the injection well and this factor severely limits where EGS facilities can be located. Second, injection water becomes polluted with the various salts, minerals and other toxic elements present in the bedrock, making it caustic and unsuitable for discharge and other purposes and increasing overall maintenance costs. Third, to establish a large enough heat reservoir for an EGS power facility, the bedrock generally must be fractured. Depending upon the depth of the geothermal heat, it can be very expensive to create and maintain a sufficiently large hot water reservoir. Last, when huge amounts of water are injected into hot, dry rock for an EGS facility, this can adversely affect land stability in the surrounding region, cause gaseous emissions and water pollution as well as induce seismicity and landslides. The SWEETS technology is superior to other EGS technology in several important ways. It does not require creation of a water reservoir; thus, it can be located anywhere there is a source of adequate hot rock geothermal heat. It can be implemented anywhere land is available for drilling. It can effectively generate electric power with a geothermal heat source of 195oF. It is a totally closed system, has limited environmental impact, and creates no pollution. The heat transfer fluid only needs to be replaced annually.

Project Site

Los Baños, Laguna is the preferred project site due to its abundant geothermal resources plus rights to explore geothermal resources in Los Baños are still available. It is also likely that the required heat may be generated even at depths less than 700 meters thereby minimizing drilling cost. The Sponsor has done some ocular inspection of potential project sites. The project site initially identified and to be subjected to geophysical study is undeveloped and vacant. No existing activities will be disrupted and no people will be displaced physically or economically. There are no IP in the area. If proven feasible, the construction and operation of the 50 MW geothermal facility will generate local employment opportunities and will also generate additional revenues for Los Baños via taxes and contributions under Energy Regulation 1-94 to benefit the host community.2

Los Baños is part of Meralco’s franchise area. Based on data provided by Meralco, estimated peak demand is at least 157MW. Almost 100% of Los Baños is connected to Meralco. There is need for additional power sources to cover anticipated demand growth and the surrounding areas. There are 4 universities (including University of the Philippines) in Los Baños and they can be tapped as end users. The power facility can be connected directly to Meralco or to the national grid (NGCP). • Proposed Technical Assistance: Feasibility Study FEA is forming a 50-50 joint venture company with Shodensya Co. Ltd., a Japanese company engaged primarily in the manufacture of energy efficiency products. The JV company will be the Sponsor/Executing Agency for the PPTA. This PPTA is the first effort to demonstrate commercial feasibility of the SWEETS technology. Given this, we have agreed with the Sponsor that the PPTA should be done in 2 phases. Initial tasks under Phase 1 will cover site review/selection and geotechnical analysis, including test drill for 2 pilot wells (up to 400 meters) to determine heat radiant. If geologic reviews are favorable, then a pilot well drilling will be undertaken. Pilot well estimate is Php6,000/meter or Php2.4 million (approx. $56K at FX rate of Php43.00/$1) per pilot well if plan is to drill up to 400 meters. The budget includes a contingency for a third pilot well, if needed. The geophysical/site surveys (site review and selection) will identify areas where heat level/radiant may be at high level and to be confirmed by the test drills. If findings are satisfactory, then we proceed to Phase 2, including review and confirmation of well design and top facility design previously done by the Sponsor, data analysis of test drill results, cost analysis,

2 The Philippine Department of Energy (DoE) Energy Regulation 1-94 mandates power generation facilities to allocate one-

centavo per kilowatt-hour (P0.01/kWh) of the total electricity sales as financial benefit of the host communities of such generation facility.

environmental and social safeguards review consistent with ADB’s Safeguards Policy Statement (2009); and transmission. Phase 2 also includes sub-surface rights and land use review and assessment (includes land lease agreement); preliminary IEE; resource and risk assessment; preliminary carbon credit assessment3

; preparation of financial analysis and plan for actual project; and preparation of final report.

The Sponsor will be required to acknowledge and agree that funds advanced by ADB to conduct the feasibility study will be recovered by the ADB if the 50MW Geothermal Power Facility Project (the “Project”) successfully achieves financial close and proceeds to construction. A recovery mechanism will be implemented in accordance with ADB policies on technical assistance to the private sector. If the Project is not implemented by the Sponsor after an agreed period of time, the information generated through PPTA funding can be used by ADB at its discretion.

a. Impact

The impact of the PPTA is the demonstrated commercial viability of the SWEETS technology.

b. Outcome

The outcome of the PPTA is the construction and operation of a 50 MW geothermal generation capacity for increased share of renewable energy source in the Philippines.

c. Outputs

The output of the PPTA is completion of the feasibility study, supporting the development of a 50 MW geothermal power facility using the SWEETS technology.

The preliminary design and monitoring framework is attached as Appendix 1. The PPTA will be processed over an estimated 9 month period, excluding the time allotted to engagement of consultants. The major milestones and expected completion dates are summarized below:

Proposed Milestone and Completion Date

Milestones Expected Completion Date Initial Concept Approval November 2011 Approval of PPTA December 2011 TA Agreement signed December 2011 Consultant Procurement (Phase 1) March 2012 Phase 1 Completion June 2012 Consultant Procurement (Phase 2) September 2012 Feasibility Study started October 2012 Feasibility Study completed March 2013 Final Report May 2013

3 We will explore the possibility of registering the 50MW geothermal project into CDM to gain additional revenue or equity

support. Based on estimated emission reduction if connected with the Luzon grid, the Project may be able to avail of additional income aggregating to $3.9 million - $7.9 million over a 5 year period. This assumes that the CDM will extend beyond 2012 via bilateral agreements that may be entered into by the Philippine government.

9. Assumptions and risks Key risks in undertaking the PPTA and its corresponding mitigants in project design and implementation include:

Risks Mitigation Measures Delay in consultant recruitment

Close coordination and monitoring in engaging a competent and experienced consulting firm.

Poor consultant performance

Strict consultant applicant evaluation and hiring. Close collaboration with consulting firm and Sponsor. Although consultants may be working directly with the Sponsor, a progress report will be submitted monthly to ADB and any contract variation or change to the engagement contract will be subject to ADB approval.

Lack of adequate and reliable data

Intensive monitoring and review of project performance and consultant outputs.

Site conditions and/or land ownership do not support the construction in the desired location in a cost efficient manner

Feasibility Study (FS) to include geotechnical, meteorological and seismicity analysis and pilot well drillings for a detailed profiling of the site. Based on FS results, Sponsor will initiate negotiations with landowner for a lease agreement.

Sponsor fail to obtain the necessary permits and approvals to construct and operate the Project and stakeholders may oppose the Project due to concerns over environmental, social and/or safety issues.

The consultant and Sponsor will engage with national and local government stakeholders as part of the FS to determine extent of permits and approvals required as well as likelihood of obtaining such permits and approvals in a timely manner. The consultant is also tasked to interview residents/local officials to assess concerns on environmental, social and developmental impact issues as well as conduct stakeholder meetings to assess public opinion.

Sponsor fails to fund their share of the PPTA cost.

FEA will partner with Shodensya, a Japanese company, for this project. Toshiba, a major shareholder of Shodensya, has expressed interest to participate in the project and help fund it.

10. Implementation Arrangements

a. Proposed executing/implementing agency (EA/IA)

JV Company to be established by First Environtech Alliance Corp. (FEA) and Shodensya Co Ltd. (Shodensya).

b. Institutional/organizational/procurement and financial management assessments on the EA/IA previously conducted

Yes X No The EA/Sponsor will be the JV company to be established by FEA and Shodensya. The ADB, through the user division, Private Sector Infrastructure Finance 2 (PSIF2), will be responsible for the recruitment of consultants for both Phase 1 and Phase 2, negotiating the consulting contract, and supervising (including billing and payment) of the consulting services during implementation with support from COSO, if necessary. Upon approval, a TA Letter Agreement will be executed with the Sponsor, setting out the terms and conditions of the technical assistance. PSIF2 and the EA/Sponsor will each assign a Project Officer that will be responsible for:

• Timely communication and actions between the Consulting Firm, the Sponsor and ADB; • Monitoring and when appropriate providing guidance to the Consulting Firm; • Attending scheduled review meetings at the start, interim and end of the PPTA; and • Reviewing, commenting on and approving the Inception, Draft and Final reports.

FEA, a Philippine registered company, is the sole agent for the SWEETS technology in the Philippines. FEA has a sublicense agreement with Arrow Resources, the Asia Agent and majority owner of GTherm, a U.S. company holding the global, sole-license agreement for the SWEETS technology. The patent for the SWEETS technology is held by the United States (U.S.) of America and represented by the U.S. Department of Energy (USDOE). GTherm (U.S.) was granted an exclusive license to practice the inventions “Thermally Conductive Cementitious Grout for Geothermal Heat Pump Systems”, as published in the U.S. Federal Register, 26 January 2009.

FEA will partner with Shodensya, a Japanese company engaged primarily in manufacture of energy efficiency products. Toshiba, a major shareholder of Shodensya, has also expressed interest to participate in the project and help fund it. c. PPTA inputs

The consultants will be engaged by ADB in accordance with the Guidelines on the Use of Consultants (2010, as amended from time to time). The FS will require total 15 person-months of consulting services in 2 phases. For Phase 1, an individual consultant shall be hired through “Individual Consultants Selection” (ICS) method. This assignment, open to both international and national consultants, is to be completed over a period of three (3) months maximum. For Phase 2, an international consulting firm shall be hired through QCBS by following ADB's Guidelines on Use of Consultants by ADB and Its Borrowers (2010, as amended from time to time) with 90:10 quality-cost ratio and using Bio-Data technical proposal. The Phase 2 assignment will be on an intermittent basis over a six (6) month period; process for engagement of Phase 2 consultants will start after favorable completion of Phase 1. A consulting firm will be recruited to undertake the PPTA using the quality- and cost-based selection method at a ratio of 90:10. The consulting services are expected to start by April 2012 and finish by March 2013. The PPTA will be undertaken by a team of professionals with diverse fields of expertise in geothermal energy, geology, well design engineering and environment. The PPTA will engage and finance a total of 15 person-months (PM) of consulting services (12 PM international and 3 PM national). Composition of the consulting team will be as follows: 1. Geologist/Geothermal Energy Expert (Phase 1): international/national, 2 person-months 2. Senior Geothermal Energy Expert/Project Manager: international, 4.5 person-months 3. Geotechnical Engineer: international, 2 person-months 4. Power Plant Engineer: international, 2 person-months 5. Financial Specialist: international. 1 person-month 6. Environmental and Social Safeguards Specialist: national, 2 person-month 7. Geothermal Energy Transmission Specialist: national, 1 person-month 8. CDM Expert: international, 0.5 person-month The Summary Terms of Reference for each consultant is attached in Appendix 2. Although consultants’

fieldwork may be supervised by the Sponsor, a progress report will be submitted monthly to ADB and any contract variation or change to the engagement contract will be subject to ADB approval. Disbursements under the PPTA will be done in accordance with the ADB's Technical Assistance Disbursement Handbook (May 2010, amended time to time). The Sponsor will be informed that approval for assistance under this PPTA does not commit ADB to finance components of the Project. If ADB considers possible equity and/or debt finance for the Project, it is anticipated that additional inputs for environmental and social assessments and documentation may be needed. Any additional work for the Project, such as environmental assessments and permits, will be financed by the Sponsor separately. The Project Sponsor must be knowledgeable and have the capacity to apply environment and social safeguards following ADB’s 2009 Safeguard Policy Statement.

d. Complementary inputs to be provided by Government and/or other TA providing agencies

N/A

11. Nature/extent of government/beneficiary involvement in identifying or conceptualizing the assistance:

Renewable energy is forecasted to provide up to 40% of the country’s primary energy requirements by 2013. To achieve this goal, the government has proactively involved the private sector in pursuing renewable energy projects. Initiatives such as the passage of the Renewable Energy Act of 2008 and proposed feed-in tariffs for RE generating plants are designed to create interest from private sector participants.

12. Cost Estimates and Proposed Financing Arrangements

The total project preparation cost is estimated at $854,0004. ADB’s share of TA cost will be financed by TASF-Others.

13. Estimated period of TA implementation:

a) Approval of PPTA: December 2011 b) Physical Completion of PPTA: March 2013 c) Closing of PPTA: May 2013

4 Total project preparatory cost including remuneration per consultant will be investigated in detail prior to engagement of consultants.

Appendix 1

PHI: Single Well Engineered Electrical Turbine System (SWEETS) Geothermal Power Project PRELIMINARY DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets/Indicators

Data Sources/Reporting

Mechanisms Assumptions

and Risks

Impact Demonstrated commercial viability of the SWEETS technology

Project EIRR exceeds 12% FIRR exceeds X% (TBD) New industrial connections annually (TBD) New households connected to electricity annually (TBD) ESMS Compliance

2010 Energy Sector Accomplishment Report produced by the Department of Energy in Philippines Project documents Audited FS ESMS report

Assumptions Regulatory actions and/or decisions reflect the government’s support for renewable energy. Risks Lack of investor interest to develop renewable energy projects. Test drills fail to produce the required heat radiant to make Project viable.

Outcome Construction and operation of a 50 MW geothermal generation capacity for increased share of renewable energy source in the Philippines

Philippines electricity generation capacity increased by 50MW upon commissioning of the project in 2014 Appropximately 394,200 MWh of electricity generated annually on average from 2014-2019 157,680 tCO2 saved per year from 2014.

At least 10 persons employed in the construction of the 50MW geothermal facility.

At least 10 persons employed in the operation of the facility $X of locally procured goods and services (during construction and operations)

Company Reports Public Disclosures by NGCP

Assumptions The results of the feasibility study support construction of the 50MW facility in a cost effective manner, which convinces ADB and other co-financiers to provide financing. The JV of First Environtech and Shodensya is committed to implement the project if deemed viable. Risks Failure of the JV to secure financing for the project. Sponsor fails to obtain the necessary government permits, clearances for the timely implementation of the Project even though proven feasible. Negotiation for land lease falls through.

Appendix 1

Design Summary Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

between 2014 – 2019 (TBD) $ X of annual taxes to local government on average between 2014 and 2019 (TBD) ESMS established

Outputs Completion of the feasibility study supporting the development of a 50 MW geothermal power facility using the SWEETS technology.

PPTA final report complete by February 2013. Initial construction of 10, 1 MW each, wells with expansion to 50 wells at same location by 2013.

Company Reports

Assumptions If proven feasible, facility will be constructed by the sponsors following successful conclusion of feasibility study Risks Local governments do not cooperate with project sponsor as contemplated by the renewable energy regulations Site conditions and/or land ownership do not support the construction in the desired location in a cost efficient manner

Proposed Milestones and Completion Date d) Initial Concept Approval: November 2011 e) Approval of PPTA: December 2011 f) Technical Assistance Agreement signed: December 2011 g) Consultant Procurement (Phase 1): March 2012 h) Phase 1 Completion: June 2012 i) Consultant Procurement (Phase 2): September 2012 j) Feasibility Study started: October 2012 k) Feasibility Study for the Project completed: March 2013 l) Final Report: May 2013

Appendix 2

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The technical assistance (TA) will partly finance the cost of conducting a feasibility study (FS) for a closed loop, SWEETS 50 MW geothermal power facility in Los Baños, Philippines. 2. The implementation of the FS will require the services of international and national individual consultants. The FS will require total 15 person-months of consulting services in 2 phases. For Phase 1, an individual consultant shall be hired through “Individual Consultants Selection” (ICS) method. This assignment, open to both international and national consultants, is to be completed over a period of three (3) months maximum. For Phase 2, an international consulting firm shall be hired through QCBS by following ADB's Guidelines on Use of Consultants by ADB and Its Borrowers (2010, as amended from time to time) with 90:10 quality-cost ratio and using Bio-Data technical proposal. The Phase 2 assignment will be on an intermittent basis over a six (6) month period; process for engagement of Phase 2 consultants will start after favorable completion of Phase 1. It is expected that the technical team of the international consulting firm will consist of Senior Geothermal Energy Consultant/Team Leader, Geotechnical Engineer, Power Plant Engineer, CDM Specialist, Financial and Economic Specialist, Environmental and Social Specialist, and Geothermal Energy Transmission Specialist. Any procurement under the PPTA shall be carried out by following ADB's procurement rules and procedures. 3. ADB will administer the TA consultant contract(s) in cooperation with the Sponsor. The Sponsor will supervise the consultants’ fieldwork. Although consultants may be working directly with the Sponsor(s), a progress report will be submitted monthly to ADB and any contract variation or change to the engagement contract will be subject to ADB approval. Disbursements under the PPTA will be done in accordance with the ADB's Technical Assistance Disbursement Handbook (May 2010, amended time to time). The scope for each consultant will include but not be limited to the following: Phase 1

1. Geologist / Geothermal Energy Consultant (International/National; 2 person-months)

Description of Tasks

Perform due diligence on the Los Baños area regarding the best heat sources including: • Visit proposed site to observe general topographic and geological features of

the project area. • Assessment of existing conditions, geological features, existing land use,

listing of known faults and indications of recent and historical flood marks. • Collect and review available data and information including where available:

• previous studies by sponsor • topographic maps and surveys • aerial photographs, satellite topography data • site geotechnical information • seismic reports from vicinity • regional geological maps • data on existing power distribution network and demand • current Power Development Plan for the region • Identify any potential fatal flaws in site location or physical surroundings

Based on the data, recommend the best available sites to reach a consistent 190C at the shallowest depth. With the sponsor, select the best location for a test well. The Sponsor will negotiate with the owner. For the drilling the consultant will:

• Assist the sponsor with awarding the well drilling contract • Oversee the sub-contracted well drilling company including reviewing the

down hole boring logs, ensuring proper casing placement, grouting, site QA and general well construction.

Appendix 2

• Monitor the temperature readings • Supervise any expansion of the heat source, sample the temperatures over a

7-day period and provide an analysis of the heat source capability • Use the well data to extrapolate and model the surrounding heat source for a

single and multiple SWEETS wells. Output

Inception report Well procurement and award based on SWEETS design Heat source assessment, model and final report

Key Qualifications

• Advanced degree in geology or hydrogeology • Philippines and International experience • Direct knowledge and experience with Philippine geologic formations • Reviewed/analyzed at least 5 structural and stratigraphic cross-sections and maps • Has sufficient language and writing proficiency in English

Phase 2

2. Senior Geothermal Energy Consultant / Project Manager (International; 4.5 person-

months) Description of Tasks

Review and confirm that the results of geotechnical analysis and test drills on two pilot wells support the proposed site’s suitability for a SWEETS geothermal project construction. Provide preliminary layout/drawings of the SWEETS 50 MW facility, showing the location and orientation on the site of significant access roads, structures, equipment and other facilities. Outline technical description of the SWEETS facility, including all systems and one line electrical diagrams. Provide drawings showing transmission lines (indicating capacities) on the proponent’s side of the point of interconnection, and the interconnection point(s) with the system. Prepare detailed breakdown of equipment and materials needed for the project, including civil works, drilling rigs (rental or purchase), well casings, grout/insulation materials, generation equipment, balance of plant, instrumentation and controls, and electrical interconnection. Collect information from potential suppliers for budget pricing. Prepare budgetary cost estimates. Coordinate with the other consultants/specialists to obtain necessary resources to support the team’s requirements. Monitor work progress and cost against scope, schedule and budget. Coordinate the timely submission of the team’s deliverables. Coordinate meetings with the members of the consulting firm, with local authorities, and the Sponsor. Serve as a focal point to communicate and resolve interface and integration issues with other members of the team.

Output

Review of Phase 1 assessment of proposed site suitability for a geothermal project construction Identify areas for improvement of the heat source, heat transfer or well field design

Appendix 2

Define expected energy output, identify losses from heat transfer in the well and power generation Inception report Field and monthly reports Oversee preparation and submission to ADB of a substantive and comprehensive Draft Report and Final Report—incorporating all information collected, work performed and analysis done under Phase 1 and by each member of the consulting team, including soft copies of the financial model and analysis. Final Report to be delivered to ADB by May 2013.

3. Environmental and Social Specialist (National; 2 person-months)

Description of Tasks

Conduct an environmental and social baseline assessment on flora, fauna, watersheds, etc. and determine likely mitigating measures for any impacts on the air, water, subsoil, flora, fauna or noise that might result from the project Review existing applicable laws and regulations, all permitting requirements (geothermal and renewable energy), local building requirements, right-of-way provisions, and zoning ordinances that must be considered before the project can be implemented. Since the topside is to be used for farming and construction, permitting needs confirmation. Sub-surface rights for geothermal use need review and recommendations. Determine applicable regulations and guidelines that may require compliance. Interview residents and local officials to assemble a listing of environmental, social and developmental impact issues. Conduct a stakeholder engagement meeting(s) to assess public opinion. Conduct a detailed Social Acceptability Assessment (SAA), including public consultations with affected persons. Prepare an Initial Environmental Examination (IEE) report that analyzes the environmental impacts of the SWEETS facility.

Output

Summaries of stakeholder engagement meeting(s) to assess public opinion. Social Acceptability Assessment (SAA) Initial Environmental Examination (IEE) report; findings and analysis to be included in Final Report

4. Geotechnical Engineer (International; 2.0 person-months)

Description of Tasks

Review site geologic conditions developed by the geologist, review any EIA issues relating to geology (faults, instability, structure) and estimate depth to 200 degrees centigrade. Based on the results of the geologic reviews and geotechnical analysis, review and validate the SWEETS well design, well field design and TOP Facility design prepared by the Sponsor to ensure their adaptability to site conditions. Develop site-specific procedures for well casing, well logging and telescoping according to SWEETS guidelines/procedures. Prepare procedures for SWEETS grout, thermo-couplings and capping. With the financial specialist, prepare cost estimates for drilling up to 50 wells. Gather information on all development issues of the SWEETS geothermal project through characterizing the site from a land use and heat source perspective and define scope for further detailed site investigative studies, if any. Identify construction conditions to determine designs in minimizing environmental impacts and assessing costs for equipment access and installation.

Appendix 2

Verify and confirm the geotechnical analysis to determine turbine choices, design of the TOP Facility, and overall economics of the Project’s energy power sales to the grid. Define turbine and other equipment choices and terms, conditions, and warranties that may have to be addressed in contracts with manufacturers. Review Site Investigation report and assess if any further SI works are required to complete the project design. Ensure technical feasibility of the construction and minimize capital costs of civil and electrical infrastructure as far as possible. Optimize layout with due consideration of constraint zones required to minimize interference with other site users. Assist the local environmental consultants and authorities with any technical input that may be required about the design or operation of the SWEETS geothermal facility. Coordinate with the Project’s geologist/geothermal energy specialist and provide other inputs that may be required in relation to the Project’s environmental impact. Prepare the preliminary design of the SWEETS facility grids with component lists. Assess the SWEETS facility’s power quality compliance with grid codes. Calculate total delivered energy from the SWEETS facility grid to the main power grid based on grid integration strategy and the availability and fault characteristics of the SWEETS facility and main grids.

Output Well field design using SWEETS base design Preliminary well field design Calculation of energy production and losses All information collected, work performed and analysis done to be included in the Final Report

5. Power Plant Engineer (International; 2 person-months)

Description of Tasks

Determine physical requirements for initial 10 SWEETS wells with expansion to 50 SWEET wells.

Determine any physical impediments for any options. Incorporate well design in to top well pad and overall facility design. Adapt SWEETS top facility design to site-specific conceptual design. Verify preliminary costing details for top facility. Review turbine specs and recommend back-up measures to ensure constant energy supply

Output Preliminary Top Facility design All information collected, work performed and analysis done to be included in the Final Report

6. Geothermal Energy Transmission Specialist (National; 1 person-month)

Description of Tasks

Develop an interconnection plan to evacuate the power from the SWEETS facility to the nearest connection point of the Luzon grid. Identify the corresponding additional facilities, if any, required to maintain adequacy of the system. Prepare a Grid System Impact Study (SIS) on the interconnection of the SWEETS facility on the Luzon transmission system of NGCP which includes an interconnection plan, thermal assessment, voltage assessment, stability analysis, fault current assessment and operational assessment.

Output

Appendix 2

Transmission plan All information collected, work performed and analysis done to be included in the Final Report

7. CDM expert (International; 0.5 person-months)

Description of Tasks

Review the requirements for project eligibility for carbon credits under the relevant guidelines Estimate the quantity of CER’s which may be generated by the project Estimate the value of the CER’s per annum.

Output

Draft CDM proposal with inputs from ADB CDM specialist All information collected, work performed and analysis done to be included in the Final Report

8. Financial Specialist (International; 1 person-month)

Description of Tasks

Coordinate with the other consultants/specialists to obtain cost detail Review current financing arrangements and financing plan. Recommend improvements, risks and contingencies. Development of a preliminary financing plan and recommendation for the project’s financing structure Conduct a base case and sensitivity analysis related to projected changes in all external factors, such as waste cost, electricity cost, interest rates, investment costs, and O&M costs that could impact the Project profitability, as well as outline practical strategies and approaches to mitigate these risks Pro-forma financial analysis based on projected capital cost, operating and maintenance costs, expected revenues, debt service, and calculation of weighted average cost of capital, internal rate of return, payback, and debt service coverage ratios Undertake an economic analysis in accordance with ADB’s Guidelines for the Economic Analysis of Projects which includes (a) least-cost analysis, (b) economic viability analysis and model, and (c) risk and sensitivity analysis, including calculation of an economic internal rate of return for the project Identification of potential funding sources, investors and ADB terms

Output

Financial analysis including but not limited to investment cost, financial viability analysis and model, cash flow analysis, and risk and sensitivity analysis All information collected, work performed and analysis done to be included in the Final Report

Appendix 2

KEY QUALIFICATIONS For Phase 2, the PPTA requires an engineering firm with a diverse team of consultants with expertise and experience in preparing and designing feasibility studies for geothermal power projects. Preference will be given to an international engineering firm with a Manila office or one that associates with a local engineering firm to minimize international travel and ensure easy coordination and communication with key power sector entities and local municipalities. The engineering firm should be familiar with the Philippine power sector and related laws and regulations, the Philippine power purchase agreements, as well as other technical and environmental requirements of the country in general. Each consultant must be

a citizen from an ADB member country and the Consulting Firm (and any associate firms) must also be registered in an ADB member country. The Technical Proposal should indentify the proposed members of the consulting team that will undertake the PPTA and include a curriculum vitae (CV) for each member. A consultant may undertake more than one role.

Senior Geothermal Energy Consultant / Project Manager • Advanced degree in geology • SE Asia experience • Reviewed/analyzed at least (5) structural and stratigraphic cross-sections and maps • Proven track record in managing geologic, hydrogeologic and geophysical investigations with relevant

experience in at least (5) projects similar in scope • Conducted geological evaluations using PETRA make to confirm sale package • Provided input to economic evaluation process • Experience interpreting 3D and 2D seismic data and well data • Has sufficient language and writing proficiency in English

Environmental and Social Specialist • Proven technical skills in designing mitigation/conservation measures and environmental features for

power plants • Has strong experience in preparing environmental and social impact assessments and environment

management and risk mitigation plans for infrastructure projects, preferably in power • Familiar with Philippine environmental laws and regulations • Sufficient language and writing proficiency in English • Preference is given to knowledge and experience with ADB’s environmental and social safeguard

polices (namely, ADB’s Safeguard Policy Statement (2009), ADB’s Environmental Assessment Guidelines (2003), Handbook on Social Analysis (2007)) as well as previous experience in Asia and the Philippines, in particular

Geotechnical Engineer

• Degree in geology • Proven track record with relevant experience in at least (5) projects similar in scope • Familiar with well drilling (mining, oil or similar) rigs in Asia and Philippines in particular, drilling cost,

machinery reliability, drilling service companies, use of rigs in different geologic formations, well design and well maintenance

• Conducted numerous geological and geo-hazard assessments in the Philippines • Sufficient language and writing proficiency in English

Power Plant Engineer

• Proven track record in estimating geothermal power production, reviewing power purchase agreements, reviewing geothermal power plant plans, power conversion and geothermal power plant costs

• Sufficient language and writing proficiency in English

Appendix 2

Geothermal Energy Transmission Specialist • Knowledgeable with the Philippine power sector and related laws and regulations • Strong experience in dealing with the National Grid Corporation of the Philippines (NGCP) and/or

Meralco • Familiarity with the Luzon grid • Sufficient language and writing proficiency in English

CDM Specialist

• Familiar with IPCC guidelines • Familiar with calculating carbon offsets, current market and ADB programs

Financial Specialist

• Has proven expertise in project financial modeling, risk and sensitivity analysis, projected financial statement reporting, performance and covenant metrics and IFRS

• Proven track record in price forecasting, market analysis, due diligence, feasibility studies, geothermal or oil and gas appraisal, cost contingency, especially for energy projects

• Asia experience, preferably with ADB projects • Sufficient language and writing proficiency in English

Appendix 3

Initial Poverty and Social Assessment

Project Number: {XXXXX} December 2011 PHI: Single Well Engineered Electrical Turbine System (SWEETS) Geothermal Power Project

INITIAL POVERTY AND SOCIAL ANALYSIS

Country: Philippines Project Title: SWEETS Geothermal Power Project Lending/Financing Modality:

Project Preparatory Technical Assistance

Department/ Division:

PSOD/PSIF2

I. POVERTY ISSUES

A. Links to the National Poverty Reduction Strategy and Country Partnership Strategy 1. Based on the country poverty assessment, the country partnership strategy and the sector analysis describe how

the project would directly or indirectly contribute to poverty reduction and how it is linked to the poverty reduction strategy of the partner country.

The proven feasibility and cost efficiency of the SWEETS technology will also provide an effective alternative of energy source for rural, off-grid areas. It will increase the quantity and quality of rural electricity supply, thus assuring greater economic activities in rural regions, reducing poverty, and providing a better quality of life. The improved power supply is expected to increase employment opportunities, stimulate development of new business, and bring easier access to information and technology. The construction and operation of the 50 MW geothermal facility will also generate local employment opportunities and will also generate additional revenues for Los Baños via taxes and contributions under Energy Regulation 1-94 to benefit the host community. The Project will increase the share of geothermal/renewable energy in the country’s energy mix, thus helping (i) ease growth in fossil fuel demand and upward pressure on energy prices, (ii) improve energy security, and (iii) reduce emissions of greenhouse gases. The PPTA will also help encourage private sector participation in a geothermal project in the Philippines. The PPTA will provide the outputs that will help in seeking financing from private sector financial institutions, including private equity and commercial banks as well as the ADB. B. Targeting Classification Select the targeting classification of the project:

X General Intervention Individual or Household (TI-H) Geographic (TI-G) Non-Income MDGs (TI-M1, M2, etc.) Explain the basis for the targeting classification: The Project is expected to alleviate poverty in the local communities where the Project is located through the supply of stable, cost efficient electricity. Reliable power supply from alternative energy sources will improve living conditions particularly in poor villages by reducing the use of diesel power generators. The Project is also expected to provide employment opportunities to local residents. C. Poverty Analysis

1. If the project is classified as TI-H, or if it is policy-based, what type of poverty impact analysis is needed? N/A 2. What resources are allocated in the PPTA/due diligence? N/A

3. If GI, is there any opportunity for pro-poor design (e.g., social inclusion subcomponents, cross subsidy, pro-poor

governance, and pro-poor growth)? Please explain Yes, potential beneficiaries of the Project will be rural communities that are underserved by the power sector. There will be an opportunity for pro-poor design by the sponsors. If successful, the project concept can be spread to other rural communities in the Philippines.

II. SOCIAL DEVELOPMENT ISSUES A. Initial Social Analysis

Based on existing information: 1. Who are the potential primary beneficiaries of the project? How do the poor and the socially excluded benefit from

the project? The Project will have most beneficial impacts on rural populations in underdeveloped provincial areas of the Philippines that currently either do not have access to electricity or are being supplied power by high-cost fossil fuels. This would then improve the productivity of the people living along the area. Moreover, construction and operation of the plants will also generate jobs for the local community.

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2. What are the potential needs of beneficiaries in relation to the proposed project? Many rural communities in the Philippines have no access to electricity. A reliable and cost-efficient supply of power is important for attracting commercial and industrial activities, which in turn enable the poor to diversify income sources from increased employment opportunities. The ability of local governments to promote economic development and improve living standards also depends on the availability of adequate power supply. Electricity and communication information variables (public telephone, television, post office and news agents, all of which are supported by power supply) are considered as proxy for access to technology, which matter to the incomes of the poor. Villages in areas where these services are absent may simply not have an important means of raising productivity of their assets. The SWEETS design can work well in off-grid areas. 3. What are the potential constraints in accessing the proposed benefits and services, and how will the project

address them? For off-grid communities, the SWEETS design is perfect with the exception that local power generation will require local distribution. The sponsors are intending for single users; however, if energy is to be supplied to an entire community, local funds are needed for distribution. B. Consultation and Participation

1. Indicate the potential initial stakeholders. Stakeholders include industry, national government agencies, local government units, homeowners associations, non-government organizations, land owners and other local residents. 2. What type of consultation and participation (C&P) is required during the PPTA or project processing (e.g.,

workshops, community mobilization, involvement of nongovernment organizations and community-based organizations, etc.)?

Government officials, discussions with landowners and information sharing with communities in a Stakeholder Engagement Meeting 3. What level of participation is envisaged for project design?

X Information sharing X Consultation Collaborative decision making Empowerment 4. Will a C&P plan be prepared during the project design for project implementation? Yes X No Please

explain. Environment management and social plans will be prepared by the sponsor for the Project after completion of the FS.

C. Gender and Development Proposed Gender Mainstreaming Category: _SGB_

1. What are the key gender issues in the sector/subsector that are likely to be relevant to this project/program? Improvements to the rural environment will uplift the living conditions in rural households. 2. Does the proposed project/program have the potential to promote gender equality and/or women’s empowerment by

improving women’s access to and use of opportunities, services, resources, assets, and participation in decision making?

Yes X No Please explain. Improved electricity services benefit all equally in the service area. 3. Could the proposed project have an adverse impact on women and/or girls or to widen gender inequality? Yes X No Please explain Improved electricity services benefit all equally in the service area.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Issue Nature of Social

Issue Significant/Limited/ No Impact/Not Known

Plan or Other Action Required

3

This draft is for consultation purposes only and does not necessarily reflect the views of ADB’s Management, Board of Directors, or the Government of [country]. Comments may be submitted to [e-mail address] by [deadline].

Involuntary Resettlement

The Sponsor has done some ocular inspection of potential project sites. The project site that has been initially identified and to be subjected to geophysical study is undeveloped and vacant. No existing activities will be disrupted and no people will be displaced physically/economically

No Impact or Limited; further assessment will be made as part of the Feasibility Study

X Uncertain A social safeguard compliance audit will be undertaken.

Indigenous Peoples

There are no Indigenous Peoples living in the identified project site and the land is not an ancestral domain.

No Impact; further assessment will be made as part of the Feasibility Study

X None

Labor X Employment

Opportunities Labor Retrenchment Core Labor Standards

Construction and operation of the geothermal power plant will generate employment opportunities for the local beneficiaries.

Limited

X No Action

Affordability

The tariff structure is mandated by regulation.

No impacts

X No Action

Other Risks and/or Vulnerabilities

HIV/AIDS Human Trafficking Others (conflict, political instability, etc.), please specify

No other social risks are anticipated as a result of the Project.

No impacts

X No Action

IV. PPTA/DUE DILIGENCE RESOURCE REQUIREMENT 1. Do the TOR for the PPTA (or other due diligence) include poverty, social and gender analysis and the relevant

specialist/s? X Yes No If no, please explain why.

2. Are resources (consultants, survey budget, and workshop) allocated for conducting poverty, social and/or gender analysis, and C&P during the PPTA/due diligence? X Yes No An environmental and social specialist will be engaged and tasks will include consultation with local residents in the host communities.