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ACCELERATING DEVELOPMENT OF GEOTHERMAL ENERGYIN DEVELOPING COUNTRIES

1. STATUS AND POTENTIAL OF GEOTHERMAL ENERGY

2. DRIVERS FOR DEVELOPMENT OF GEOTHERMAL ENERGY

3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS

4. SUCCESS STORIES

5. CONCLUSION: KFS FOR THE ACCELERATION OF DEPLOYMENT

L. Y. BronickiORMAT Group

“Day of Geothermal Power”Organized by UNEP Energy, BGR, Rödl & Partner, GtV, GFZ and others

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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

1. Status Of Geothermal Energy

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A Mature and Competitive Industry

COUNTRYPOTENTIAL FOR ELECTRICAL

GENERATIONINSTALLED ELECTRICAL GENERATION CAPACITY

MWeMWe TOTAL MWeTOTAL MWe

South & Central America 3,500 1220

The Philippines 6,000 1,900

Africa, including Kenya 6,500 60

Indonesia 16,000 790

P.R.China 6,700 30

USA 12,000 2,300

New Zealand 1,200 450

Japan 2,400 550

Europe, including Iceland and Azores Islands 2,000 1,050

Russia 1,400 60

Installed Geothermal Capacity (~8,500 MWe), Worldwide Potential (~60,000 MWe)

1. STATUS OF GEOTHERMAL ENERGY (CONT.)

Source: DOE, GRC, IGA

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CO2 Emissions

kg CO2 per kilowatt-hour

Coal

Oil

0 0.25 0.5 0.75 1.0 1.25 1.5

Geothermal: Steam

Geothermal: Binary or Combined Cycle

FUEL TYPE

Natural Gas – Gas Turbine

TechnologyLand area

(m2 per GWhr/year

for 30 years)

Geothermal 404

Wind (land with turbines and roads) 1,335

Photovoltaics 3,237

Solar Thermal 3,561

Coal (including open pit mining) 3,642

Land Area Occupied

Environmental Features of

Geothermal EnergyComparison with Other Energy Sources

range

Min. Max.

1. STATUS OF GEOTHERMAL ENERGY

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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

CO2 trading and clean developing mechanism (CDM)

RPS legislation and tax incentives (PTC)

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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

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

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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

3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS

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Comparison of Public and Private Sector Financingof Green field geothermal plants in developing countries

Assumptions:1. Discount rate

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

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

3. Commercial risk Public sector: none Private sector: fully accounted by investors

4. Political risk Public sector: none Private sector cost of insurance: 2-3%

5. Soft costs Public sector: often not budgeted to project Private sector: fully accounted by investors

3. CONSTRAINTS ON GEOTHERMAL POWER PLANTS DEPLOYENT3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS (CONT.)

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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)

101495b

ECA = US EXIMBANK (PUBLIC)

BOT

Award June 1995

Contract Effectivity Aug. 1995

Financial Closing May 1996

Construction Started Jan. 1997

Commercial Operation Nov. 1997

Example of an ORMAT Project49 MW Leyte Geothermal Power Plant, the

Philippines

BOTBOT

4. SUCCESS STORIES (CONT.)

111495b

BOO

Example of an ORMAT Project24 MW Zunil Geothermal Power Plant, Guatemala

Award May 1995

Contract Effectivity October 1997

Financial Closing August 1999

Construction Started June 1999

Commercial Operation September 1999

BOOBOO

4. SUCCESS STORIES (CONT.)

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Example of ORMAT Projects48 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 53 MW

Design Net Output 48 MW

Award Feb. 1998

Contract Effectivity Oct. 1999

Start Construction Oct. 1999

MIGA Policy May 2000

Commercial Operation (Ph.1) July 2000

Commercial Operation (Ph.2) Q2 - 2006

4. SUCCESS STORIES

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5. Acceleration of DeploymentKey Points for Success

for Public – Private Partnerships

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

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)