Zorlu - Kizildere III GPP Extension

Location:

Turkey

Project number:

48791

Business sector:

Power and energy

Notice type:

Private

Environmental category:

A

Target board date:

05 Apr 2017

Status:

Disbursing

PSD disclosed:

09 Dec 2016

Translated version of this PSD: Turkish

Project Description

Provision of a senior loan of up to USD 70 million to Zorlu Dogal Elektrik Uretimi A.S. (Zorlu Dogal) guaranteed by Zorlu Enerji Elektrik Uretimi A.S. (Zorlu Enerji) and Zorlu Holding A.i. (Zorlu Holding).

The transaction is part of an up to USD 270 million financing package to be used for the construction of the 70MW Kizildere III Unit 2 geothermal power plant located in West Anatolia, Turkey.

Project Objectives

Contribution to the development of base load, indigenous energy resources in Turkey that are essential to support macro-economic stability in a sustainable manner as they reduce the country's needs for energy imports.

Transition Impact

The project's transition impact is expected to stem from three factors:

1. the demonstration of new replicable activities through the use and market expansion of innovative technologies including triple-flash turbines and Organic Rankine Cycle, the latter being applicable to many other sectors in the form of waste-heat-recovery systems;

2. the increase in private ownership in the generation sector in Turkey, still dominated by stateowned EUAS;

3. the setting of standards for business conduct with the implementation of GHG emission abatement safeguards to limit carbon emission associated to non-condensable gases dissolved in geothermal resources.

Client Information

ZORLU DOGAL ELEKTRIK URETIMI A.S.

Zorlu Dogal was established in 2008 to build and operate renewable energy assets. It is fully owned by Zorlu Enerji, one of the largest independent power producers in Turkey listed in the ISE and which was the Bank's first client in Turkey. Zorlu Enerji is in turn majority owned by Zorlu Holding, an important Turkish conglomerate with activities in textile, electronics, energy and real estate.

EBRD Finance Summary

USD 70,000,000.00

Total Project Cost

USD 270,000,000.00

The transaction is part of an up to USD 270 million financing package to be co-financed by Akbank, IsBank and TSKB.

Environmental and Social Summary

Categorised A. The Project is the increase of an existing Geothermal Power Plant (GPP) from 100 MWe at the Kizildere III (unit1) to 165 MWe through the construction and operation of Kizildere III GPP (Unit 2), consisting of a new generating unit as well as the associated boreholes, pipelines and transmission lines. Due to the size, location and cumulative impacts from existing units (Kizildere I, II and III), the Project required an Environmental and Social Impact Assessment (ESIA) in accordance to the Bank's Environmental and Social Policy prior to Board consideration. An ESIA disclosure package was disclosed by the Sponsor on 8 December 2016.

The Company acquired the 17.4 MWe Kizildere I GPP in 2008, which has been in operation since 1984 and expanded this in 2013 with the 80 MWe Kizildere II GPP. Kizildere III GPP (unit 1) is a new project in the same field and is currently under construction. Although this is not part of the Bank's
financing, the Bank's due diligence and ESIA disclosure includes cumulative issues associated existing operations of Kizildere I and II as well as the Kizildere III (Unit 1) under construction and the planned expansion through the construction of Kizildere III (Unit 2).

An independent consultant was retained to undertake an Environmental and Social Due Diligence (ESDD) of the Project. The ESDD confirmed that the Project will have no impacts on any protected areas, and is structured to comply with the Bank's Performance Requirements, National and Equator Principle requirements. The project is being subject to a Turkish Environmental Impact Assessment (EIA) process, which is running in parallel to the Bank's disclosure process. A positive conclusion of the Competent Authorities and issue of permits is a condition of financing the Project.

The ESDD has confirmed that the Sponsor has been broadly implementing good international practice at the existing geothermal power plant sites and has had good experience with addressing EHS management and engagement with local civil society. Nevertheless, the ESDD identified additional measures to be implemented as part of good international practice and these have been included in an agreed Environmental and Social Action Plan (ESAP). These include among others additional monitoring and development of additional integrated Environmental, Health and Safety (EHS) management as well as social measures in line with ISO 14001, OHSAS 180001 and SA 8000 that will cover all geothermal power operations of Zorlu Enerji in this area. This will enable EHS and social issues to be managed in a similar manner for all operations and therefore reduce cumulative impacts. As part of the EHS management systems the Company will promote the identification and management to cumulative impacts of geothermal projects with other industries in the area.

The GPP does not involve the combustion of fossil fuels. There are no gaseous emissions from the plant itself. However, geothermal fluids contain non-condensable gases, of which the great majority (98%) is carbon dioxide (CO2). These non-condensable gases (NCG) are emitted from the power plant via the cooling tower and the vaporisers, and this leads to the release of CO2. For the GPP that will be the subject of the Bank's investment, the GHG emissions will be around 0.8 to 0.9 t CO2/MWh. This is estimated to be around 530,000 t CO2 per year depending on intensity if abstraction, which will reduced over time. It should be noted that the initial concentrations of CO2 are high as provided above, however, these reduce significantly over time (degasification process) as demonstrated by the existing Kizildere operations of unit I and II, and confirmed by studies undertaken among others under the EBRD's, efforts to promote early stage geothermal exploration. As part of the due diligence process an assessment has been made of carbon emissions after 5, 10 and 30 years of operations (plant life is circa 50 years). Taking into account mitigation factors and an agreement which removes 110,000 ton CO2 per year through offset, the emissions of carbon from the Kizildere I, II and III project will be reduced from 0.62 t CO2-e per MWh to 0.52 in 2010 and 0.32 in year 30. The Company is investigating methods to further reduce emission of non-condensable gases, such as the use of the Carbfix process. However, given the specific nature of the resources, this may require additional studies once the plant is fully operational.

The emissions to air will also contain trace levels of hydrogen sulphide (H2S - also a noncondensable gas). Whilst the H2S levels within the emissions to air are below regulatory threshold limits, the H2S emissions will need to be monitored to assess possible nuisance impacts.

Experience to date with the Kizildere I and II geothermal power plants within the same area has not been associated with complaints or significant impact. Historic operations of Kizildere I, prior to privatization and acquisition by Zorlu Enerji was however associated with among other issues, surface water contamination. The Company will monitor emissions and discharges from the Project as part of the ESAP implementation, and ensure best industry practices are implemented.

The Company will also work jointly with the Geothermal Association and local stakeholders on undertaking further studies on cumulative impacts associated with geothermal energy generation in this area.

Following ESIA disclosure and the 60-day public review and comment period, all concerns raised will be summarised and responded to for EBRD Board consideration. The ESAP may also be amended if new information or analyses suggest this would improve environmental and social performance of the
project. This Project Summary Document (PSD) will be updated in case of important new information or significant revisions to the ESAP.

The Bank will monitor the Project development and implementation of the ESAP. The Company will report on emission and operations through the implementation of a Stakeholder Engagement Plan (SEP) and Corporate Social Reporting (CSR) in line with GRi standards.

There is an Environmental and Social Impact Assessment available for this project

Update March 2018. The Project has been commissioned in March 2018. The Company is implementing the agreed ESAP to the satisfaction of the Lenders and no issues have been reported or identified. The Bank will undertake additional monitoring in 2018/2019 to review operations.

Technical Cooperation

None.

Company Contact Information

Tamer Soylu
tamer.soylu@zorlu.com
+902124562838
+902124220099
Levent 199, Büyükdere Cad. No:199 Sisli- Istanbul - Turkey

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