“Day of Geothermal Power”

Organized by UNEP Energy, BGR, Rödl & Partner, GtV, GFZ and others

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ACCELERATING DEVELOPMENT OF GEOTHERMAL ENERGY IN DEVELOPING COUNTRIES L. Y. Bronicki ORMAT Group

STATUS AND POTENTIAL OF GEOTHERMAL ENERGY DRIVERS FOR DEVELOPMENT OF GEOTHERMAL ENERGY CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS SUCCESS STORIES CONCLUSION: KFS FOR THE ACCELERATION OF DEPLOYMENT

1. Status Of Geothermal Energy

Installed base and potential: Geothermal energy is a mature competitive industry Geothermal energy has the lowest environmental impact Continuous improvement in plant design: steam turbines, ORC and combined cycle Continued technology transfer from oil and gas drive the cost reduction in geothermal energy, exploration, drilling and production 2

1. STATUS OF GEOTHERMAL ENERGY (CONT.)

A Mature and Competitive Industry

Installed Geothermal Capacity (~8,500 MWe), Worldwide Potential (~60,000 MWe) COUNTRY South & Central America The Philippines Africa, including Kenya Indonesia P.R.China

USA New Zealand Japan Europe, including Iceland and Azores Islands Russia

Source: DOE, GRC, IGA

POTENTIAL FOR ELECTRICAL GENERATION MWe 3,500 6,000 6,500 16,000 6,700 12,000 1,200 2,400 2,000 1,400 INSTALLED ELECTRICAL GENERATION CAPACITY TOTAL MWe 1220 1,900 60 790 30 2,300 450 550 1,050 60

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1. STATUS OF GEOTHERMAL ENERGY

Environmental Features of Geothermal Energy

Comparison with Other Energy Sources

Land Area Occupied

Technology Land area (m2 per GWhr/year for 30 years)

CO 2 Emissions

FUEL TYPE Geothermal: Binary or Combined Cycle Geothermal 404 Geothermal: Steam Wind (land with turbines and roads) 1,335

range

Natural Gas – Gas Turbine Photovoltaics 3,237

Min.

Max.

Solar Thermal 3,561 Oil Coal (including open pit mining) 3,642 Coal 0 0.25

0.5

0.75

1.0

1.25

kg CO 2 per kilowatt-hour

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1.5

2. Drivers for Development of Geothermal Energy

Locally available in energy poor countries Proven technology transfer to LDC and high local content Need to diversify from reliance on hydro Base load capability Uncertainly of imported fuel cost CO 2 trading and clean developing mechanism (CDM) RPS legislation and tax incentives (PTC) 5

3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS (CONT.)

Barriers to Financing in Developing Countries

COMMERCIAL FINANCING: barriers due to relatively small sizes and high initial investment costs CREDIT ISSUES: barriers due to risks: political, resource and off-takers INSTITUTIONAL ISSUES: barriers due to fossil fuel subsidies, accounting for GHG emissions avoided, and societal costs of fossil fuels STRUCTURAL ISSUES: Need mechanisms enabling market entry of renewables under deregulated structures 6

3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS

Hurdle: Lack of Institutional will

Local politicians and civil servants should have a thorough understanding of why their countries need private investment, in infrastructure in general and Renewable Energy (RE) in particular Must also have a firm will to implement policies and measures needed for private infrastructure and RE development regulatory framework technical capacity – building financial incentives, especially for RE enable financiability of projects Need to have the institutional ability and strength of purpose to focus on long-term solutions such as the project development cycle; challenges and benefits are also long term Relevant for both national government agencies and multilateral institutions 7

3. CONSTRAINTS ON GEOTHERMAL POWER PLANTS DEPLOYENT (CONT.) Comparison of Public and Private Sector Financing of Green field geothermal plants in developing countries

Assumptions:

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Discount rate 2.

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Public sector: 3-8% Private sector: 13-18%% (in case of 30% equity, and 70% debt financing)

Resource risk allocation

(drilling success rate not more than 70%) Public sector: generally assumed by the IFI Private sector: fully accounted for

Commercial risk

Public sector: none Private sector: fully accounted by investors

Political risk

Public sector: none Private sector cost of insurance: 2-3%

Soft costs

Public sector: often not budgeted to project Private sector: fully accounted by investors 8

4. Success Stories

1000 MW of renewable energy in less than ten years:

The Philippine Geothermal Program

The right division of tasks in the right sequence

UNITAR / UNDP (exploration and technology transfer) GEF / WBG (drilling of wells) PRIVATE IPP ’ s supported by EXIM (power plants) 9

4. SUCCESS STORIES (CONT.)

Example of an ORMAT Project

49 MW Leyte Geothermal Power Plant, the Philippines ECA = US EXIMBANK (PUBLIC)

Award

June 1995

Contract Effectivity

Aug. 1995

Financial Closing Construction Started Commercial Operation

May 1996 Jan. 1997 Nov. 1997

BOT

BOT 10 1495b

4. SUCCESS STORIES (CONT.)

Example of an ORMAT Project

24 MW Zunil Geothermal Power Plant, Guatemala

Award

May 1995

Contract Effectivity

October 1997

Financial Closing Construction Started Commercial Operation

August 1999 June 1999 September 1999

11 1495b

4. SUCCESS STORIES

Example of ORMAT Projects

48 MW Olkaria III Geothermal Power Plant, Kenya PROJECT STRUCTURE: BOO

Phase 1+ 13 MW ORC. Wells for 120% of full capacity Phase 2 Phase 2 Nominal Capacity: 48 MW Net maximum deliverable capacity: 53 MW, including steam turbine and ORC Design Steam Flow 80 kg/s (average NCG: 3.5%) Design Gross Output Design Net Output 53 MW 48 MW Award Contract Effectivity Start Construction MIGA Policy Commercial Operation (Ph.1)

Commercial Operation (Ph.2)

Feb. 1998 Oct. 1999 Oct. 1999 May 2000 July 2000

Q2 - 2006

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5. Acceleration of Deployment

Key Points for Success for Public – Private Partnerships Risk Sharing

• Private industry to underwrite risks in construction, performance, and operation • MFIs and ECAs and national agencies to underwrite other risks: country, payment • Resource development risks: to be borne by public sector

National Policy Legislation: level the playing field

• Finance oriented, portfolio–based models should be promoted to take advantage of renewables in the generation mix • Price should reflect environmental value of energy mix (WB Carbon Fund), base load dependability, price stability (no oil imports) • Educate the stakeholders (important role for IEA-GIA, and UNEP) • Set asides for renewable energy technologies, e.g. RPS • Adapt deregulation to renewables (merchant plant issue)

Financial Institutions to Seek Innovative FAST TRACK Solutions

• Streamline the review process – avoid micro management • One stop financing - one lead agency to act as financing coordinator • Innovative technologies should be welcomed (performance guaranteed by private sector) • Harmonize cooperation in IFI’s between public and private sector departments 13