New Funding to Boost International Support for Geothermal Energy
December 18, 2013
- Geothermal is a potential source for abundant, clean, low-cost power for many developing countries.
- Expansion of geothermal is held back by the high cost and risk of exploration.
- New CTF program will facilitate private sector investment in geothermal test drilling.
International support for geothermal energy in developing countries took a leap forward on October 28, 2013 when the Clean Technology Fund (CTF), a program of the Climate Investment Funds (CIF), approved $115 million for the Utility Scale Renewable Energy Program. This program will initially focus on facilitating private sector engagement in geothermal resource validation through test drilling – the first, and riskiest, step in geothermal energy development.
The proposal for the program was developed by the World Bank’s Energy Sector Management Assistance Program (ESMAP) in collaboration with the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the Inter-American Development Bank (IDB)—all implementing partners of the $7.6 billion CIF, catalyzing clean technology and climate resilience investments in 48 developing and middle income countries worldwide
Many developing countries have sizeable geothermal resources that could provide clean, reliable, low-cost power. But drilling to validate these resources is prohibitively expensive for most countries, and prohibitively risky for private companies. The CTF funding addresses both challenges, and could expand geothermal exploration in these countries by an order of magnitude.
The new program gives a major boost to the Global Geothermal Development Plan (GGDP), which brings together bilateral and multilateral donors around an international investment plan to scale up geothermal power in the developing world. Led by ESMAP, the GGDP was launched by World Bank Managing Director Sri Mulyani Indrawati in Reykjavik, Iceland in March 2013.
“Many developing countries have sizeable geothermal resources that could provide clean, reliable, low-cost power,” said Rohit Khanna, ESMAP Program Manager. “But drilling to validate these resources is prohibitively expensive for most countries, and prohibitively risky for private companies. The CTF funding addresses both challenges, and could expand geothermal exploration in these countries by an order of magnitude.”
The $115 million program will initially support projects in four pilot CTF countries with high geothermal potential: Turkey, Chile, Mexico, and Indonesia. The program is open for additional pledges from donors in the coming months to expand coverage to other countries, such as Ethiopia and Kenya.
It is estimated that around 40 countries worldwide could meet a sizeable proportion of their electricity demand through geothermal power. With sufficient investment in drilling and improved knowledge about resource endowments, geothermal could play a much larger role in Latin America, the Caribbean, East Africa, and Southeast Asia, as well as areas of Eastern Europe and Central Asia.
However, validating the availability of commercially viable resources through test drilling is expensive, often requiring $15-25 million per field. This represents at least 10 percent of the capital expenditure in any new geothermal project, with no guarantee of return. Additionally, it usually takes three years for test drilling to provide sufficient confidence for investors to proceed with development of the power plant.
The new CTF program goes a long way towards meeting one of the primary aims of the GGDP – to facilitate $500 million in concessional funding from diverse sources to be matched with investment-ready geothermal validation projects. Partners will be able to fund projects through the modality of their choice, including through existing bilateral channels and international climate finance instruments, additional financing of existing projects, or co-financing of new projects.
Another main goal of the GGDP is to identify a portfolio of projects large enough that it generates learning effects that will reduce the risk of geothermal development globally. ESMAP has already identified 36 fields in 16 countries, and is deploying $5 million over 2013-2015 to identify and develop a number of other test drilling projects. Additionally, a South-South knowledge exchange component will bring together countries with a significant track record of geothermal development to share lessons learned with countries that are just starting out.
The WBG’s financing for geothermal development increased from $73 million in 2007 to $336 million in 2012, with projects underway in Indonesia, Kenya, Ethiopia, Turkey, Djibouti, and Nicaragua. With the GGDP driving a growing coalition, and new funding available through the CTF program, this commitment is expected to grow.
For more information on the GGDP, please contact the Energy Sector Management Assistance Program (ESMAP) Communications Officer, Nicholas Andrew Keyes firstname.lastname@example.org.