Trend Philipp, Regional Director, Americas Member of the Board Reykjavik Geothermal. Iceland Geothermal Conference 2018 - Breaking the Barriers 24 - 27 April, 2018, Harpa, Reykjavík

1. 1
Trent Philipp
Reykjavik Geothermal
Iceland Geothermal Conference
April 2018
Financing Geothermal Development
Overview, Challenges and Opportunities
Open–Book Approach

2. Introduction
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➢ Geothermal Energy is One of the World’s Most Compelling Energy
Sources
▪ Where high quality geothermal resources exist, they can provide clean and reliable base load power at
a very competitive price
➢ Geothermal is Proven Technology
▪ Geothermal resources have been commercially used for more than a century.
▪ The long-term sustainability of geothermal energy has been demonstrated at the Lardarello field in
Italy since 1913, and around the World from Iceland to the US to New Zealand to Iceland for power
production from the 1960s
➢ Geothermal is a huge untapped source of power
➢ Based on current geologic knowledge and technology, the Geothermal Energy Association (GEA)
estimates that only about 6% of total global potential has been tapped so far (some studies say even
less), while the IPCC reported geothermal power potential to be up to 2000 GigaWatts.

3. Advantages of Geothermal Energy
Renewable Energy
Challenges
Geothermal
Advantages
Evolving
Technologies
Unstable Yield
High Costs
Large-Scale
Land Needs
Limited Off-Shoot
Industry Potential
Mature
Technology
Base-Load Power
Low Cost
Small Geographic
Footprint
High Off-Shoot
Industry Potential
Well-proven steam power generation technology - the first
geothermal plant built in 1904 still in operation today
(Lardarello, Italy)
Operates at 95%+ capacity factor or “up-time”
Cost-competitive with coal, natural gas, and hydro, and cost-
advantaged to other renewable sources
Lowest land use per MW of any renewable energy source,
and minimal environmental impact compared, for example, to
large scale hydro
In most countries with geothermal development various off-
shoot industries have developed, e.g. spas & tourism, food
processing, district cooling and industrial heating
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4. Geothermal Energy can Transform a Country
“In my youth, over 80% of Iceland’s energy
needs came from fossil fuel in the form of
imported coal and oil. We were a poor nation,
primarily of farmers and fishermen, and
Iceland was classified by the UNDP as a
developing country right down to the 1970s.
Now, despite the effects of the present
financial crisis, we are among the most
prosperous nations in the world, largely due
to the transformation which made our
electricity production and space heating 100%
based on clean energy.”
- Mr. Ólafur Ragnar Grímsson,
President of Iceland
Total Energy Consumption in Iceland by Source, 1940-2010
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5. Given the advantages of geothermal power, the question has to be
asked why the level of its utilization today is not higher ?
➢ Location Specific
o for high quality, high temperature resources
➢ Specialized and Technical
o from resource evaluation to drilling to operations and plant/resource management
➢ Risky from an investor’s standpoint
o Geological exploration risk (or resource risk) often considered the greatest challenge
o Capital intensive, with a mid-range estimate of investment costs close to US $4-5
million per MW, depending on size, which is heavily front-end loaded
Challenges

6. ➢Location Specific
o True for high quality, high temperature resources. But that is a much larger area than
many realize. Even then, those more obvious places for development remain largely
untapped
o In such locations where high quality resources exist… geothermal is likely the best
(not only renewable, but overall) energy choice
▪ Baseload / Reliable / High Capacity
▪ Low cost (at scale in high quality areas, comparable with coal/gas/large hydro)
▪ Small footprint per MW
▪ Near zero emissions
▪ Domestic (energy security)
▪ No fuel costs or commodity exposure
o Lower Temperature Resources can still be very valuable, and make market much bigger
▪ Binary technology allows for developing resources with lower temperatures for
power, and Direct Use applications particularly heating (or cooling) can expand
range of productive geothermal utilization
Addressing the Challenges

7. 1) Global Geothermal Technical Potential Map (in GW) with lower estimates. (Here without Enhanced Geothermal Systems Potential). With capacity
factor 90%. Source: Intergovernmental Panel on Climate Change IPCC 2012 and calculations of Icelandic Geological Survey - ISOR January 2012.
Relative Distribution of Geothermal Potential
It has been estimated that nearly 40 countries worldwide possess enough geothermal potential that
could (from a purely technical perspective) satisfy their entire electricity demand.
Geothermal resources have been identified in nearly 90 countries and more than 70 countries
already have some experience utilizing geothermal energy.

8. ➢ Specialized and Technical (from resource evaluation, drilling, O+M)
o True - geothermal development requires specialized knowledge and skills
▪ Multidisciplinary approach
▪ Geological mapping
▪ Geochemistry
▪ Geophysics
▪ Reservoir design and modelling
▪ Drilling engineering
➢ Expertise Exists
o Geothermal resources have been identified in nearly 90 countries and more than
70 countries already have some experience utilizing geothermal energy.
o Need to find right partners and technology/knowledge transfer needs to be a part
o Development banks and Multilateral Agencies can play a role as well as the private
sector
Addressing the Challenges

9. Addressing the Challenges
Exploration or Resource Risk
➢ Resource risk is not created equal. Lumping all geothermal resources
together in averages is not really appropriate.
➢ Investors have often flocked to safer markets, not safer resources. Trade off
of resource vs political/country risk
Source IFC report - Success of Geothermal Wells: A global study
➢ Resource Risk is often overstated
IFC Study on geothermal drilling
o Data represents wells for over 70% of global
geothermal capacity (2613 wells studied)
o 78 % of wells drilled were successful
o Average capacity of the wells analyzed in this
report is 6.8 MWe (when factored to exclude
large outliers over 23MWe)

10. Above: Papua New Guinea,
Middle: Nicaragua
Resource Risk is NOT Created Equal
Example: Studies and model and investors (both debt and equity) have tried to
equate resource risk into a standard variable
Temperatures 200+ degrees celsius
Drilling Depths generally 1000-2500 meters
Temperatures 120-150 degrees celcius
Drilling Depths generally 3500-5000 meters
Germany (Upper Rhine Graben)

11. Capital Intensive
➢ Geothermal power has a mid-range investment cost estimate of close to US $4million
per MW (dependent on size, quality and location)
➢ The costs in geothermal development are heavily front-end loaded
o No fuel, low operational expense
➢ Questions asked by a private investor in geothermal power:
o Are the government and key stakeholders fully supportive of the project, and look
at the private sector investor as a partner, and not a rival or a necessary evil?
o Is there a secure offtaker willing to sign a Power Purchase Agreement at a
reasonable price?
o Can a favourable project agreement be negotiated, clearly laying out the rights
and responsibilities of all parties (e.g. transmission, infrastructure, tax incentives,
bureaucratic delays, land rights, environmental issues, social programs, etc)?
➢ Really all about Exploration Drilling !
Addressing the Challenges

12. Once the resource is proven, the project is bankable, unlocking large scale debt and
project equity financing but many programs are in place or in development to
address this
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Geothermal Project Risk and Cumulative Investment Cost
Financing of Geothermal Development

13. Addressing the Challenges
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Financing - Stakeholders and Partners
➢ Government
o In developing markets in particular, IPP projects are really PPP projects - government
must be a “partner” - supportive of geothermal development in legislation and practice
▪ Is there specific geothermal legislation
▪ Is there IPP legislation or framework? Is there understanding of true cost of power?
▪ Is there a clear, transparent and legitimate concession process
▪ Is there clear regulatory process (in place or envisioned)
o Government support is key factor with investors, multilaterals and other lenders
o Various ministries involved – Energy, Finance, Environment, Trade
▪ Communication and transparency is key, this takes real time and effort
➢ Credibility of the Development Team cannot be overstated, and must be demonstrated, in
many developing countries they have heard this story before with little to show for it.
▪ Credible developers must walk the walk and be willing to prove it (that can and will happen)
▪ Governments should through legislation set clear and straight-forward processes, timelines
and standards for development and enforce them.
▪ Do not allow groups to sit on concessions or bait and switch, but takes both sides together

14. The St. Vincent Geothermal Project
Open-Book Approach to Project Development
Experience and Implementation

15. Open-Book Approach – St Vincent example
➢ Government of SVG a true, meaningful partner from Day 1
o Government proactively wanted to develop resources
o Wanted to bring in partners as they needed technical, financial and operational assistance
o Wanted to ensure that geothermal would provide benefits to nation
▪ Economic, Environmental and Social
➢ Initial negotiations to set up a PPP with real Government participation
o Development Partnership of RG and Emera brought all key requirements to the table
➢ Negotiated baseline agreement that provided:
o Benefits the Government wanted at minimum including automatic reduction in tariff
o Within framework development partners were confident in achieving
o While allowing for further benefits, enhancements and savings to flow through to
country/consumers
The Open Book Approach

16. Open-Book Approach – St Vincent example
➢ Open Book Approach gave Project Partners more flexibility to
optimize development plan to address key issues and provide
maximum benefit to country
o On commencement of SVG Project, it was clear there was a resource, but was it
exploitable commercially? Location and Infrastructure needs big question
▪ Open book framework allowed project to kick off and move forward under a positive
scenario for all partners while still providing room to make better for Country + Consumers
▪ Partners provided capital and technical expertise to identify commercially viable site(s), but
with an eye on full development not just
o While 10MW plant seems small, represents approximately 60% of National demand
o Given National importance - Performance and reliability become even bigger factors.
Grid integration and stability, and redundancy all critical in small system
o Open book approach allows these issues to be discussed, analyzed and decided on in a
transparent and collaborative manner (3 or 4 units…. 3 or 4MW unit size, weighting of
other key factors, concerns and benefits)

17. Open-Book Approach – St Vincent example
➢ Project Partners with Government sought grant and concessional
financing together as Public-Private Partnership.
o Geothermal Consortium could provide all capital as backstop so Government in funding their
share with concessional sources was directly lowering end price to consumer.
o Not just Government applying, Project had all requisite components to continue so support
from financing partners or even technical assistance could come in as concessional components
as long as adding value to the project plan
o All major cost components – Civil Works, Drilling, EPC and equipment supply all publicly
tendered under international procurement guidelines to allow for concessional financing
➢ Project successfully brought in grant/concessional financing including from:
o Abu Dhabi Fund for Development (ADFD)
o DFID
o CDB
o IDB
o JICA
o Government of New Zealand
➢ From initial budget set to date, Government and project partners have been
able to lower estimated tariff by more than 25%

18. Open-Book Approach – St Vincent example
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➢ Have there been challenges?
o Of Course…
▪ This is first IPP Project in country
▪ It is of major national importance, must get right, must get ALL stakeholders comfortable
▪ Logistics and infrastructure in geothermal area challenging
o However….
▪ The Open-Book Approach has allowed us to discuss the technical and financial issues that have
or will arise in a framework where everyone can see and understand the implications clearly
▪ The Partners have adopted this approach from Day 1 and so there is a shared understanding of
the give and take of any potential changes or modifications.
▪ We have been able to use concessional support to improve and mitigate many issues
▪ All with goal that net benefits are provided to consumers

19. St Vincent Geothermal Project
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Multilateral Support for Geothermal Development
➢ Grants for Drilling
➢ Contingent Recovery Facilities (Loan if successful, Grant if not)
➢ Lending into drilling phase (potentially with Insurance)
➢ Private Sector is willing to take risk but that risk needs to be shared
➢ Benefits of risk-sharing should be passed through to benefit of country/consumers
In fact, we have had such strong support for project that the Government has been
able to increase its share from 25 to 49%, while further lowering projected cost to
consumers.

20. How Can We Get More Out of Multilateral
Support of Geothermal Development?
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➢ 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.
Resource Risk as function of Resource Quality
➢ 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

21. Geothermal Utilization by Country
St. Vincent & the Grenadines
If successful, SVG will
receive approximately
60% of its power from
geothermal