REGIONAL TRANSMISSION NETWORK DEVELOPMENT: IMPLICATIONS FOR TRADE AND INVESTMENT

Turkey Romania Undersea Cable (Feasibility Study Support)

Romania Turkey 400 kV HVDC link, undersea cable project

PART 1Why HVDC ? an introduction with technical considerations

Why HVDC systems ?

HVDC is an intelligent link. The power flow can be controlled and changed very quickly practically independently from frequency at the terminal busses, voltage or power angle at the terminal busses like in HVAC transmission.

Due to the inherent properties of the electronic equipment which forms the converter bridges, the direction of the transmitted power may be also changed very quickly.

The HVDC transmission has the major advantage of flexibility inpower exchange in comparison with HVAC. Moreover, in case oftransmission of bulk electrical energy over long distances (more than 50 km) by submarine cable, the only applicable technology is theHVDC transmission.Advantages for HVDC transmission

In a HVDC system, the electricity is:

- Taken from a 3-phase AC network- Converted to DC in a converter station- Transmitted by DC OHL or cable (underground or sub sea)- Converted back to AC in another converter station- Injected into AC networkHVDC transmission principles and characteristicsControllable power injected where needed,supplemental control, frequency control- Bypass congested circuits no inadvertent flow- Higher power, fewer lines,no intermediate S/S needed- Lower losses- Facilitates integration of remotediverse resources with less impacton existing grid- Low expensive transmission line- Reactive power demand limited toterminals independent of distances- Narrower ROW, no EMF constraints- No limit to underground or submarinecable length

Cable laying

PART 2Project scope and premises, short history

The scope of this project is to install a submarine cable between the Romanian and Turkish TSOs, Transelectrica and TEIAS respectively.

Business concept : commercial interconnector, separately regulated

The Project is in line with the policies of both Romanian and Turkish Governments and fits well into the EU Green Paper on Energy and EU strategy of Priority Network Projects. The project also brings a significant contribution and stability to the regional electricity market in South-East Europe.

The Project is on going, in the Feasibility Study phase Project scope

Short history of the project2004 April energy cooperation protocol between Romania and Turkey at ministries levelThe first mentioning of the cable project2005 - June MOU between Transelectrica and TEIAS for the HVDC link projectMain scope : to prepare the oportunity study by a joint project team2006 November - JPP ( joint position paper ) between Transelectrica and TEIAS Approval of the opportunity study;Decision to continue the study at feasibility study level2007 first attempt to launch the feasibility study with minority financing of private investors ( 50 % Swedish grant available )No success; replacement of the private investor with Nuclearelectrica2008 first tender for the FS in new financing conditions;Incompatibility of the grant with open tender requirements2009 secont tender; contract signature in June

ELEMENT 01TELConstana NordSubstationELEMENT 02TELConverter station and link to Constana Nord substationELEMENT03TELUnderground cable between converter station and HVDC cable connectionELEMENT04HVDCcable

ELEMENT05TEIASUnderground cable between converter station and HVDC cable connectionELEMENT 06TEIASConverter station and link to Alibeyky substationROMANIA

BLACK SEA

ELEMENT 07TEIASAlibeyky SubstationTURKEY

Romania Turkey HVDC interconector overview

Part 3The feasibility study

Connection point with Romanian Power System: 400kV S/S Constana Nord; Connection point with Turkish Power System: 400kV S/S Alybeiky, in Asia;The cables voltage level: 400 kV;The capacity: 600MW;The length: about 400 km; Losses on the cable:- in 600MW transfer: ~ 12MW; in 500MW transfer: ~ 9MW

Deliverables The nominated Designer will submit the following documents:

Inception ReportTerms of Reference Objectives for procuring the services and works required for the seabed survey and Geological Study EIA Environmental Impact Assessment Study, including environmental approvalFeasibility Study (draft), including the necessary documentation for approvals and advicesFeasibility Study (final), including the approvals and advicesDocumentation for urbanism certificates in Romania and TurkeyTechnical SpecificationsProgress ReportsFinal Report

Client ConsultantFICHTNER ENGINEERINGRomaniaClientTRANSELECTRICA & NUCLEARELECTRICARomaniaClient DesignerVATTENFALLSwedenTechnical ConsultantTEIA Turkey Project team members and their responsibilities

Electricity market teamTechnical teamEconomical, institutional and legal, commercial and financial teamEnvironment expertSee bead expertOverhead transmission line expertElectrical substation expertConverter expertHVDC submarine cable expertPermits and approvals expertContract legislation expertPrice electricity forecasting expertElectricity market expert- Macroeconomic modeling expert- Financial analyze expert- Investment analyze expert- Contract legislation expert - Romanian & international legislation expertEnvironmental teamProcurement teamCommercial expertOverhead transmission line expertElectrical substation expertConverter expertHVDC submarine cable expertEnvironment expertEnvironment expertRomanian & international legislation expertPermits and approvals expertEXPERT TEAMS

The Feasibility Study will:Establish the design parameters, capacity and cost estimation for the HVDC link including the most suitable routing, based on previous studies and existing data which include geological, morphological and seabed structure analyze and initial sea depth survey as well as on its own investigations;Assess the legal and environmental impediments and propose the most appropriate and viable way forward for the Project from an operational and legal framework point of view, including also the EIA Study with the afferent approvals, in accordance with legalstipulations from both countries and from EU; (Transelectrica, Nuclearelectrica and TEIA will in this respect support the Designer in this process);

Contain the necessary documentation for obtaining permits and approvals in accordance with existing legislation in Romania and in Turkey, as applicable at the date of project elaboration and corresponding to this phase of the engineering;Contain the necessary documentation to obtain the urbanism certificate;Analyse the financial and economical feasibility of the interconnection project considering private benefits and costs and external effects such as public benefits and costs;Assess suitable possibilities to finance the Project;Propose a time schedule for project implementation and operation;Highlight the commercial, environmental and technical conditions of direct interconnection of the national grids of Turkey and Romania through a submarine cable across the Black Sea, through system studies performed in both countries.

Technical Specifications for procurement and execution will include, at least, a minimalcontent as follows:- Scope;- Definitions;- Standard and recommendations;- Functional and technical requirements- Testing and inspections- Execution- Provision of information Terms of Reference for procuring the services and work required for the seabed survey and geological study will be established based on our experience in similar projects. For the feasibility study we will perform a study based on existing materials/documentation related to Black Sea seabed survey and geological studies.

1. Inception report (within 6 weeks of commencement of the project).2. Terms of Reference for the Seabed survey and Geological Study. (The draftissue to be submitted within 6 weeks of commencement of the assignment).3. Plans and Terms of Reference for the Environmental Impact assessment. (Tobe submitted as an annex to the first Progress report).4. Environmental Impact Assessment (EIA), incl. environmental approvals. (The draftissue within 8 months and the final issue within 10 months after the commencementof the assignment.)5. Feasibility Study draft, incl. the necessary documents for approvals and advices.(8 months after commencement of the assignment).6. Feasibility Study final, incl. approvals and advices. (10 months aftercommencement of the assignment).7. Documentation for urbanism certificates, in Romania and Turkey (10 months aftercommencement of the assignment.)8. Technical Specifications. (Within 14 months after the commencement of theproject.)9. Progress Reports. (To be reported quarterly, no later than the 10th working day afterthe reporting period.)10. Final Report. (The final report shall be submitted upon finalisation of the assignementDELIVERABLES

- Costs for Submarine cables - material and installation;- Costs for HVDC land cables and/or HVDC OHTLs and/or HVAC type overhead electriclines, as applicable in Romania material and installations;- Costs for HVDC land cables and/or HVDC OHTLs and/or HVAC type overhead electriclines, as applicable in Turkey material and installations;- Costs for converter station, including the A.C. connection in Romania;- Costs for converter station, including the A.C. connection in Turkey;- Telecommunication equipment based on optical fibers- Site costs in Romania;- Site costs in Turkey;- Engineering, project management, project control and commissioning;- Other investments, if any;- Interest rates during construction calculated separately for each of the above mentionedparts of the HVDC link;- Total investment costs for the HVDC link.- Payment for provisional and final expropriations.Investment needs - Investments in the HVDC Link

Investments in the Romanian AC Grid- AC grid investments exclusive the breaker bay for the HVDC link;- Telecommunication and remote control equipment;- Interest rates calculated separately for each part;- Total investments due to the HVDC link in the Romanian A.C. grid

Investments in the Turkish AC Grid- AC grid investments exclusive the breaker bay for the HVDC link;- Telecommunication and remote control equipment;- Interest rates during construction calculated separately for each part;- Total investments due to the HVDC link in the Turkish A.C. grid

Investment needs - Investments in the Romanian and Turkish AC grids

The price forecast has to be calculated from different perspectives Long term off-take contract 60 % and 80 %; Market price for the remaining 40 % and 20 %; Sufficient Average Price Level (SAPL).COMMERCIAL and FINANCIAL ANALYSISBased on the recommended investment and operational plan the Designer shall establish a financial model and analyse the investment over a time horizon of both 20 years operation and 30 years operation. The output of the model shall be presented in nominal terms

PART 4Business and regulatory model.Trade and investment roadmap

Tranzit scenarios1000 MW from Romania to Turkey

Tranzit scenarios 1000 MW from UCTE (Poland&Slovakia) to Turkey

Tranzit scenarios1000 MW from Russia (IPS/UPS) to Turkey

budgetTranzit scenarios1000 MW from Turkey to Romania

Tranzit scenarios1000 MW from Turkey to UCTE (Serbia and Austria)

Tranzit scenarios

1000 MW from Turkey to UCTE (Poland and Slovakia)

Activities to be done in parallel with the feasibilty studyPreliminary business modelList of main commercial, regulatory and financial hypothesysDocumentation on the business experience of existing commercial interconnectors in EUDiscussions and clarifications with the regulatory authoritiesLegal due diligence for the preliminary business modelTOR for the complete business studyExploration and identification of potential private partnersLetters of intentDevelop procedure for the selection of the private investorsFull clarifications on TEIAS participation in the project, including Turkish applicable legislation Preliminary legal preparations for the project company ( SPV )

Opportunity StudyJoint Position Paper Feasibility Study( 75 % TEL- 25% NE )Business StudyJoint Position Paper - Final

International Agreement between Romania and Turkey

Project implementationFinancing, contracting, supply and instalation

MOU -1 MOU -2 Selection of private investors SPV the project company20052008 - 2009200920102010 - 201302.2009First tentative road map

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