Pierre AUDINET, PhD, Clean Energy Program Team Leader, ESMAP – World Bank Iceland Geothermal Conference 2013 March 5-8, 2013, Harpa, Reykjavík

1. Global Geothermal
Development Plan
Pierre AUDINET, PhD
Clean Energy Program Team Leader, ESMAP – World Bank
Iceland Geothermal conference
March 5-8 – Reykjavik

2. SCOPE CHALLENGE SOLUTION
The Global Geothermal Development Plan
2

3. • Geothermal energy = strong energy security + climate
change benefits
o Renewable
o Low operational costs
o Long lifetime
o Suitable for base load generation
o (often) Least cost @ US cents 8-12 per kWh
• Geothermal energy = additional economic development
benefits from heating and cooling (canning, drying, etc.)
• BUT,
o Long project lead time means that terms of financing tend to
penalize heavily the final price outcome
o Significant risks (resource, regulatory)
Geothermal (hydrothermal) is wonderful …
3

4. But development of geothermal has been slow
4
11GW geothermal
installed worldwide
when potential is
much larger
Source: IRENA, 2013
IEA Blue Scenario: geothermal electricity generation to reach 1 400 TWh per year
produced by 200GW of installed geothermal capacity (out of which 100 GW of binary
and flash), by 2050 -> Serious scale-up in pace of deployment needed.

5. Geothermal electricity is economically viable
5
Geothermal will be even more competitive in 10 years with the increase of fossil fuel
cost generation
in 2010

6. Geothermal power plants have a specific cost structure
6
Phase / Activity (ex. For a 50MW plant)
Low
Estimate
Medium
Estimate
High
Estimate
1. Preliminary Survey, Permits, Market
Analysis
1
(0.7%)
2
(1.0%)
5
(1.8%)
2. Exploration 2
(1.4%)
3
(1.5%)
4
(1.5%)
3. Test Drilling, Well Testing, Reservoir
Evaluation
11
(7.8%)
18
(9.2%)
30
(10.9%)
4. F/S, Project Planning, Funding,
Contracts, Insurances etc.
5
(3.5%)
7
(3.6%)
10
(3.7%)
5. Drilling (20 boreholes) 45
(31.7%)
70
(35.7%)
100
(36.5%)
6. Construction (Power Plant, Cooling,
Infrastructure, etc.)
65
(45.8%)
75
(38.3%)
95
(34.7%)
7. Steam Generating System, Substation,
Grid Connection (TL)
10
(7.0%)
16
(8.2%)
22
(8.0%)
8. Start-up and Commissioning 3
(2.1%)
5
(2.5%)
8
(2.9%)
Total Cost
142
(100%)
196
(100%)
274
(100%)
Installation Cast
per MW
2.8 3.9 5.5
http://www.esmap.org/esmap/Geothermal_Handbook

7. Geothermal resource risk constrains financial profitability
7
• Validating geothermal resource through test drilling is capital intensive and risky
• Commercial financing for test drilling is hard to find
• Private equity (and government support) are only capital to undertake test drilling
Source : ESMAP, 2012

8. Resource risk penalizes tariffs
US cents per kWh?
Much higher levelized tariff required because:
• Lead time is longer by 3 years
• Required rate of return on equity (Re) is higher (25%) due to high risk
premium of early entry
• The $30m cost of exploration (ie test drillings) is still ahead
• Result: levelized tariff >14 US cents/kWh (for 50 MWe power plant!)

9. Scaling-up geothermal through innovative financing
9
US cents 8 – 11
per kWh

10. 10
8 – 11 US cents per
kWh
Required levelized tariff reduced because:
• Lead time is shorter by 3 years
• Required rate of return on equity (Re) is lower due to reduced risk
• Multi-year amortization of contingent grant / loans is possible
• Some of the exploration cost may be grant financed
US cents 8 – 11
per kWh
Scaling-up geothermal through innovative financing

11. Are MDBs focusing on mitigating resource risks?
11
(well,… not really)
(Three Decades of Cumulative Multilateral Development Bank Lending for Geothermal Energy Development)
Exploratory
phase
Production
phase
Technical
Assistance
Total
($ millions)
World Bank 117 1,544 48 1,710
African Dev. Bank 4 124 - 129
Asian Dev. Bank - 554 3 557
European Inv. Bank - 256 - 256
Interamerican Dev. Bank 3 403 11 416
Total 124 2,881 62 3,068
Exploratory phase
4%
Production
phase
94%
($2.9 billion)
Technical Assistance
2%

12. A leadership coalition is required: the GGDP
12
Concept being developed in
consultation with…
Objectives of the GGDP:
Scaling-up geothermal energy by addressing the resource risk through
sustained international effort

13. Lessons learnt from past projects
13
Focus on resource
assessments leverages larger
investments in geothermal
energy than downstream
investments in power plants
Direct financing of resource
assessments is indispensable
to large scale development
given the constraints on
capital availability
Allocating the costs across a
larger number of donors is a
more effective way to expand
the pipeline of downstream
investments
Maximizing learning effects
through knowledge
dissemination within and
across countries is necessary
Why a large scale global funding effort is necessary?

14. Global leadership coalition vs. financing individual projects
14
Global knowledge dissemination to expand
community of practice and reduce failures
Streamlined process in projects preparation and
disbursement of concessional support
Helping donors to articulate development
objectives and expands the opportunities for co-
financing and parallel financing
Broadening reach of donors and complements
country level or regional efforts
Supporting the identification of a pipeline of
much larger commercial investment projects
downstream

15. 15
Country
Sound surface exploration but no exploration
drilling
Country Resource confirmed by exploration drilling
1 Kenya Longonot 1 Kenya Olkaria
2 Kenya Silali 2 Ethiopia Aluto-Langano
3 Ethiopia Corbetti 3 Argentina Copahue-Caviahue
4 Colombia Volcan macizo ruiz 4 Bolivia Sur Lopez/Sol de Mañana / Laguna Colorada
5 Guatemala Zúnil II 5 Chile Puchuldiza
6 Mexico Nuevo Leon Ejido 6 Chile Tinguiririca
7 Nicaragua Volcan Telica - El Najo 7 Chile Laguna del Maule
8 Nicaragua Volcan Casita - San Cristobal 8 Chile Tolhuaca
9 Montserrat Soufrière Hill 9 Costa Rica Borinquen
10 Turkey Aydin-Umurlu 10 El Salvador Chinameca
11 Turkey Denizli-Tekke Hamam 11 Guatemala Cerro Blanco
12 Turkey Manisa-Salihli 12 Dominica Wotten Waven
13 Indonesia Tulehu 13 Saint Kitts &Nevis Charlestown
14 Indonesia Sokoria Flores Island 14 Turkey Manisa-Alasehir
16 Philippines Batong-Buhay, Kalinga 16 Indonesia Matalako Flores Island
17 Philippines Mabini, Batangas 17 Philippines Mt. Cagua-Baua, Cagayan
18 Philippines Montelago, Mindoro Oriental 18 Philippines Daklan, Benguet
19 Philippines Mt. Natib, Battan
20 Philippines Mt. Labo, Camarines Norte
21 Philippines So. Leyte
Africa
Latin America and the Caribbean
Eastern and Central Europe
Southeast Asia
Some examples of geothermal fields to be explored
Source: ISOR for World Bank, 2013

16. Addressing the resource risks to open new areas for development
16
Field
identification
First
exploratory
analysis
Lack of funding to prove the resource …
GGDP
funding
Test drillings
Power Plant
construction
Equipment
Operation
and
Maintenance

17. 17
International donors and
government help the
exploration phase
Government offers PPA
Funds pledged against GGDP
support test drillings
NPV of the
project
NEGATIVE
Net present value of a
geothermal project
0
Investors agree on
reasonable ROR
Sharing risks to bridge the financial gap
NPV of the
project
POSITIVE

18. GGDP Financial Instruments
18
Partial capital grant
Contingent loan
convertible to partial grant
Soft loan
Partial grant to buy
down insurance/risk
guarantee costs
project total risk
concessionnality

19. Cons
➢Soft terms reduce long-term
sustainability of the facility
➢Professional fund management is
required if on-lent through
financial intermediary
➢Leverage is limited compared to
pure guarantee instruments
Pros
➢Established and widely used
lending instrument
➢Fills a financing gap
➢Relatively attractive to developers
due to reduced costs of capital
➢Effective in reducing the required
off-take price / tariff level
➢Obligation to repay creates
incentives for project viability
➢Loan repayments from projects
contribute to replenishment of
the fund
Soft loan (eq. to IDA Terms or derived)
19

20. Cons
➢New instrument requiring
customized approach
➢Long-term financial sustainability
is problematic due to relatively
high risk exposure
➢Moral hazard must be controlled
by co-financing requirements and
careful definition of terms of
contingency
Pros
➢Directly addresses the resource
risk barrier with a contingency
based on success of test drilling
phase
➢Engages the private sector
upfront
➢Effective in reducing the required
off-take price / tariff level
➢Loan repayments from successful
projects contribute to fund
replenishment
➢Increases incentives to borrow
since unsuccessful projects do not
become a public debt liability
Contingent loan convertible to partial grant
20

21. Additional implementation arrangements for GGDP
21
➢ Financial closure means securing an
investor (public or private) for the
subsequent phases of the project,
including production drilling, willing to
repay the debt incurred during the test
drilling phase
➢Reallocation policy rewards successful
borrowers and contributes to allocation
efficiency
➢ Loan may consist of several
tranches (e.g., covering
different project sites)

22. Geothermal resource assessment
specific indicators
• Validating adequacy of resource
base (commercial attractiveness of
potential, MW), well productivity
etc…
Standard indicators for promotion
of clean energy
• Tons of GHG avoided
• Leveraged capital for geothermal
energy capacity development
• Reduction in levelized electricity
tariff
GGDP Results indicators
22
Global
approach
Close
monitoring of
project results
Tailored
allocation of
concessional
funds upon
progress
Financial closure of projects
• Securing an investor (public or private) for the
subsequent phases of the project willing to repay the
debt incurred during the test drilling phase

23. You are invited to join
the preparation of the
Global Geothermal Development Plan
paudinet@worldbank.org
http://www.esmap.org/esmap/Geothermal_Handbook