ACCELERATING DEVELOPMENT OF GEOTHERMAL ENERGY IN DEVELOPING COUNTRIES

1. ACCELERATING DEVELOPMENT OF GEOTHERMAL ENERGYIN DEVELOPING COUNTRIES “Day of Geothermal Power” Organized by UNEP Energy, BGR, Rödl & Partner, GtV, GFZ and others • 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 L. Y. Bronicki ORMAT Group P62

2. 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

3. 1. STATUS OF GEOTHERMAL ENERGY (CONT.) A Mature and Competitive Industry Installed Geothermal Capacity (~8,500 MWe), Worldwide Potential (~60,000 MWe) Source: DOE, GRC, IGA

4. 1. STATUS OF GEOTHERMAL ENERGY Environmental Features of Geothermal Energy Comparison with Other Energy Sources Land Area Occupied CO2 Emissions FUEL TYPE Geothermal: Binary or Combined Cycle Geothermal: Steam range Natural Gas – Gas Turbine Min. Max. Oil Coal 0 0.25 0.5 0.75 1.0 1.5 1.25 kg CO2 per kilowatt-hour

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 • CO2 trading and clean developing mechanism (CDM) • RPS legislation and tax incentives (PTC)

6. 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

7. 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

8. 3. CONSTRAINTS ON GEOTHERMAL POWER PLANTS DEPLOYENT 3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS (CONT.) Comparison of Public and Private Sector Financing of Green field geothermal plants in developing countries • Assumptions: • Discount rate • 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% • 5. Soft costs • Public sector: often not budgeted to project • Private sector: fully accounted by investors

9. 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) - PRIVATEIPP’s supported by EXIM (power plants)

10. 4. SUCCESS STORIES (CONT.) Example of an ORMAT Project49 MW Leyte Geothermal Power Plant, the Philippines ECA = US EXIMBANK (PUBLIC) BOT BOT 1495b

11. 4. SUCCESS STORIES (CONT.) Example of an ORMAT Project24 MW Zunil Geothermal Power Plant, Guatemala BOO BOO 1495b

12. 4. SUCCESS STORIES 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

13. 5. Acceleration of DeploymentKey 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