Realizing the Geothermal Value Chain in developing countries

Realizing the Geothermal Value Chain in developing countries

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  Realising the GeothermalValue Chain in developing countries Þorleifur Finnsson Head of Project Development
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  Reykjavik Geothermal  AGeothermal Development, Consulting and Investment Company  Founded in 2008 to harness the vast untapped development opportunities in the geothermal sector worldwide  Focused on developing and emerging markets
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  Resource potential isfixed, but market attractiveness can be improved 3 Country Risk Vs. Resource Potential (Conceptual Illustration of Geothermal Market Characteristics) Perceived‘EaseofDoingBusiness’ Estimated Resource Potential E.g. Ethiopia, Indonesia, Papua New Guinea, etc  The majority of the world’s best resources are located in developing and emerging markets  Due to perceived country risk, private financing tends to be more difficult to come by and more expensive  RG targets countries with high resource potential where the authorities have demonstrated a willingness to help facilitate a geothermal IPP  Bottleneck: Finding attractive projects Conceptual E.g. Germany, Australia, secondary resources in the United States Iceland, Italy, Japan, New Zealand, Western United States
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  Developing Countries: Opportunities  Themajority of the world’s largest geothermal sites  Lower resource risk  High demand for power development  Geothermal frequently least-cost option  Project financing generally available for proven resources  Facilitates capital intensive later stage development  Small percentage of resources have been developed to date  Market opportunities for developers comfortable with taking exploration and country risk  Underdeveloped energy market – frequently single buyer system  Increased off-take risk – governmental guaranties needed  Earlier investment in generation based on grants or low interest loans  Market price distortions - power prices subsidized  Governmental laws and regulations often unsuitable for geothermal development  Framework and contract negotiations are cost and time consuming  Perceived country and exploration risk  Difficult to get financing from investors or MDBs for early stage development Constraints
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  Development Projects  PapaNew Guinea  Central America  Caribbean  East-Africa Consulting clients  Government of Iceland  Masdar City, Abu Dhabi Aramco, Saudi Arabia  Orka Energy  Ormat  Century Aluminium RG: Sample Projects
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  Project Example: Corbetti,Ethiopia Volcanoes of Ethiopia Reykjavik Geothermal’s Focus Areas  Ethiopia has potential for thousands of MW of clean, sustainable and affordable power from geothermal sources  Geothermal power generation can:  Provide thousands of MW of base load power  Be highly compatible with existing hydro-electric power infrastructure, as demonstrated by the Icelandic example 6
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  The Ethiopian PowerMarket Ethiopia has an installed capacity of just over 2,000 MW  This installed capacity for Ethiopia (population: 80 Mn+) is less than that of Iceland (population 300 k)  95% + is hydro - Capacity Factor < 50%  Ethiopia‘s economy has been growing rapidly for the last decade (7-11% / year, depending on sources) and the power sector has been identified as a significant impediment to growth  Power outages are estimated by the World Bank to average 43 days / year, significantly hindering growth  The country has ambitions of becoming a large- scale power exporter through the East African Power Pool The Ethiopian (and Regional) Transmission Grid 7
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  Source: UPDEA 2009 UScents/kWh The wider East African power market
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  RG findings inCorbetti Caldera • The caldera is a large 155 km2 prospect of extensive young volcanism • Main volcanic products are of silicic composition, often formed in a shallow magma chamber. The volcanic history pointing to a large and relatively shallow heat source capable to form a high enthalpy geothermal resource • Three dominant tectonic structures are found • These tectonic structures are most likely to produce secondary permeability, a key factor when siting geothermal production wells • Shallow well information point to a fairly consistent ground water level and that the water is boiling in the N and NE sector of the caldera • From geoscientific results the three tectonic belts and especially their intersection (for permeability) has the highest priority as drilling targets Corbetti Geothermal Project Development Strategy • Generating capacity for initial target area of 35-40 km2 is in the 300-400 MWe range • Possible geothermal reservoir, hotter than 250°C, is in the order of 100 km2 or the equivalent of 1000 MWe possible capacity
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  The Corbetti calderais large enough to completely absorb the Olkaria ring structure
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  Geothermal Project Riskand Cumulative Investment Cost  Once the resource is proven, the project is bankable, unlocking large scale debt and project equity financing 12 Source:
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  Financing a GeothermalProject (1/2) Preliminary Work Exploration Drilling USD 20-25 Mn USD 4-5 Mn  Exploration drilling is a risky, capital intensive activity that needs to be 100% equity financed to prove the resource and bring the project to the point of bankability  Concession rights acquisition, resource assessment (geoscientific work) and contract negotiations are 100% equity financed CumulativeCapitalOutlay Point of Bankability Debt: 0% Equity: 100% 13 Financing of Geothermal Power Development (Exploration Phase)
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  Financing a GeothermalProject (2/2) From Previous Slide CumulativeCapitalOutlay Debt Equity Preliminary Work Exploration Drilling Production Drilling / Plant Construction Operation ~USD 250 Mn ~USD 80-100 Mn Debt: 75% Equity: 25% Point of Bankability First USD 20-25 Mn is 100% risk equity  Once the resource is proven, the project is bankable, unlocking large scale debt and project equity financing  The first USD 20-25 Mn are 100% risk equity 14 Financing of Geothermal Power Development (100 MW Plant)
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  In the WorldBank‘s words: 15 Source: Global Geothermal Development Plan World Bank, 2012
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  How can weget more out of MDBs support of geothermal development? 16  Financed individual phases of geothermal development without context with other phases  Done very limited cooperation with private investors / developers  Mostly developed reports / findings without any continuation of power development or resulting in Megawatts on line  Created market distortions through non- transparent subsidies of public sector projects, leading to suboptimal decisions MDBs have… MDBs should…  Work hand in hand with governments and private developers for the development of geothermal concessions from greenfield to Megawatts online  Select the most attractive areas for development on a country or regional basis  Include in all project support a clear timeline leading to Megawatts online  Transparently show the effect of grants and low rate financing on the electricity price, thus allowing for real market price- based decision making for the next MWh online
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  Thank you