Geothermal Geothermal …an IFC perspective


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Geothermal Geothermal …an IFC perspective

  1. 1. Geothermal…an IFC perspective Alexios Pantelias Senior Energy Specialist Istanbul, September 2011
  2. 2. IFC is a Member of the World Bank Group IBRD IDA MIGA IFC Multilateral International Bank International International Finance Investment and for Reconstruction Development Corporation and Development Association Guarantee Agency Est. 1945 Est. 1960 Est. 1956 Est. 1988 Role: To promote institutional, To promote institutional, To promote private To reduce political legal and regulatory l l d l legal and regulatory l l d l sector d development l investment risk i i k reform reform Clients: Governments of member Governments of poorest Private companies in 179 Foreign investors in countries with per capita countries with per capita member countries member countries income b t i between $1 025 $1,025 income of l i f less th than and $6,055. $1,025Products: - Technical assistance - Technical assistance - Equity/Quasi-Equity - Political Risk Insurance - Loans - Interest Free Loans - Long-term Loans - Policy Advice - P li Advice Policy Ad i - Risk Management - Advisory Services Shared Mission: To Promote Economic Development and Reduce Poverty p y 2
  3. 3. Extensive reach through power generation across 50+ countries Country # projects Countries with 4 projects India 25 Dominican Rep., Kenya, Nepal, Senegal, Jamaica, Sri Lanka Philippines 12 Turkey 11 Countries with 3 projects China 10 Pakistan 10 Argentina, Cote dIvoire, Honduras, Indonesia, Venezuela Chile 9 Brazil 7 Countries with 2 projects Mexico 7 Peru 7 Bolivia, Cameroon, Czech Republic, Egypt, Moldova, Guatemala 6 Nigeria, Oman, Tajikistan, Uganda, Ukraine, Nicaragua Colombia 6 Countries with 1 project p j Armenia, Bangladesh, Belize, Bulgaria, Costa Rica, Djibouti, El Salvador, Georgia, Haiti, Hungary, Jordan, Lithuania, Macedonia, Lao, Panama, Poland, Russia, Rwanda, South Africa, Thailand, Togo, VietnamIFC’s power committed portfolio as of December 31, 2010 3
  4. 4. Major barriers for geothermal development Detailed Design and Exploration Pre-Feasibility Feasibility Construction1 Lack of regulatory framework: Underlying lack of PM Final construction of PP • Occurs even in developed markets capabilities: straightforward: • Determines project economics and risk • Typically occurs in assessment upfront undeveloped markets or • Financing can typically be • Determines investors‘ interest in the market when new developers enter obtained after project market feasibility is proven • Increases risk of false • Project design and plant2 Limited information on resources: decision making regarding construction typically • Typically in undeveloped markets project design and straightforward • Limits likelihood of attracting investors feasibility assessment y • Proven technology • Increases exploration cost • Increases project cost due • IFC and private sector • Increases project risk, esp. drilling risks to hiring of outside experts investors already in the market 3 Lack of project financing: • Occurs across all markets to lesser or stronger degree, depending on risk mitigation measures in place • Prevents feasibility phase/ project development 4
  5. 5. Up to 30% of investment in phases prior to final feasibility confirmation of the project ~10% of investment ~20% of investment ~70% of investment Detailed Design and Exploration Pre-Feasibility Feasibility (3-6 months) (1-1.5 years) (1-2 years) Construction (1-3 years) • Acquire land • Geophysical surveys • Drilling of first full-sized • Drilling and testing of rights, water g , • Geochemical and p production well ( (discoveryy remaining production and gp rights, geological data collection well), confirmation wells injection wells, civil mineral rights and analysis • Conduct reserve works required, final • Market • Focused exploration of estimates and preliminary design and testing analysis favorable resource areas plant design • Build plant • Environmental • Sufficient exploration • Resource feasibility y • Connect to grid analysis data collected/ analyzed verifies the geothermal • Assess • Obtain permits for reservoir regulatory exploratory and • Plan feasibility issues temperature gradient determines final plant • Assess capital ssess cap tal d ll g drilling design based on the market • Conduct seismic surveys geothermal resource environment • Perform first ROI analysis • If successful project is de- risked • Obtain financing for feasibility • Seek PPASource: Wellington West 2009, Geothermex 2009, Fjarhitun 2009 5
  6. 6. Three groups of risk mitigation instrumentsPrivate sector Public Sector Geological Private Public Public d P bli development l Risk Insurance Partnership• Private insurance scheme • Typically revolving funds with • Government bears upfront between developer and public/ private participation cost and risk of exploration insurance company • Funds providing either loans p g drilling• Developer buys insurance or guarantees to project • Government contracts against (part of) its risk to developer for drilling developer for exploration or find nor or insufficient • Project developer repays builds national exploration resources and pays a premium (parts of) loan or does not company for that draw on guarantee depending • After resource is proven in• Drilling success determined by on drilling success wells, these are either fixed criteria such as • Drilling success determined by auctioned off to IPPs to temperature, liquid flow etc. fixed criteria such as recoup development costs or temperature, liquid flow etc. steam is supplied to IPP at a certain rate • Examples are Geothermal Development Corporation of Kenya, projects in Guatemala and also Turkey 6
  7. 7. IFC Geothermal - Geofund supported by the Global Environment Facility• IFC aims to introduce Geothermal Well Productivity Insurance (GWPI) to foster geothermal development, and to open new opportunity for insurers and project developers  This has been identified as one of the key barriers to geothermal development in Turkey, and also globally  Initially designed to cover resource productivity risk, not more general drilling/operational risks• First pilot projects to demonstrate insurance product and to identify preferred insurance partner for following geothermal projects  The Geofund program aims to support four pilot projects• Soft finance to support starting cost and facilitate first deals  Concessional finance may be applied where it can be most efficiently used• IFC committed to f th support d itt d t further t development of geothermal sector and l t f th l t d insurance segment  IFC can, and is, providing support to geothermal developers to aid them in conducting and presenting the results from feasibility studies 7
  8. 8. IFC intends to be a facilitator of insurance deals between i b t insurer and geothermal d d th l developer l Form of cooperation Roles of parties • IFC to facilitate the insurance deal  Technical Assistance to project developer Ins. policy I li Geothermal Insurer Project  Concessional finance to bridge pricing gaps developer Project developer Project developer • IFC provides independent, third party developer analysis of technical strengths of Financial g geothermal projects, and facilitates p j , support negotiations between parties TechnicalTechnical assistance • Insurer takes lead on developing insuranceassistance policy, with IFC support and input from developer IFC • Geothermal developer provides information for technical analysis and assists in forming the policy 8
  9. 9. Dependence of success rate on depth of well Success rate by depth (m) • Depths are rounded to the nearest 500m100%80% • There appears to be a fairly clear60% relationship between drilling success rate40% and the depth of the well20% 0% • Less deep wells may appear to be less successful due to the their categorisation as Non-commercial* Number of wells at each depth300250200150100 50 - 9
  10. 10. Dependence of success rate on the number of wells previously drilled in the same field Success rate by drilling order100% • We expect to see a fairly strong80% correlation between success rate and the60% number of wells previously drilled in that40% field, demonstrating “the learning curve the curve”20% • This chart shows that the success rate 0% 1 5 9 13 17 21 25 29 33 37 41 45 49 marginally improves with the number of wells drilled in the field Number of wells35 • The correlation is too weak to be3025 statistically significant201510 5- 1 5 9 13 17 21 25 29 33 37 41 45 49 10
  11. 11. Geofund initiative addresses some of the barriers… barriers Detailed Design and Exploration Pre-Feasibility Feasibility ConstructionA C Advisory on regulation to facilitate Development of financial private sector development risk mitigation solutions Renewable Regulation Market Transaction energy information reform services legislation Geological Risk InsuranceB Market facilitation through technical assistance Public Private Partnerships Basic Technical/ Project market geological Direct public development specific TA studies studiesD KM approach: Documentation Project j Development of best practices in project management specific TA and dissemination of key learnings 11