East Africa Geothermal Energy Facility GRMF East Africa Donors - - PowerPoint PPT Presentation

GRMF East Africa Donors’ Coordination and Collaboration Meeting – 14 June 2016

East Africa Geothermal Energy Facility

What is EAGER?

• Funde

ded d by DFI FID

• Regional Technical Assistance

programme running for 3.5 years from May 2015

• GBP 6 million and covering 5 countries

(Ethiopia, Kenya, Rwanda, Tanzania, Uganda)

• Seeks to cover gaps in Government role

to support geothermal development by removing barriers and speeding progress

• No duplication with other donors

• Flexibility

xibility

• Lookin
• oking

g at cur urren ent t issues ues not

• t covere

ered d by ot

• the

hers

• Qu

Quick k respon sponse, , wher here e possibl ssible

• Large

ge Pool l of Exper pertise tise

• Able

e to draw w on a wide de range ge of exper pertise tise:

• Geoth
• therma

ermal techni nical cal; ; legal; ; re regulator

• ry;

; finance; ce; busin sines ess s stra rategy; egy; electrici ctricity ty markets ts and power plannin ing; g; tariffs fs and PPAs

• Focus

cus on deci cisi sion

• n sup

uppor

• rt

t and remo moving ving barrier iers s to progre ress ss

• Repor
• rts on internat

ernational ional exper perience ience

Key Attributes of EAGER

• DFID:

ID: Gareth Martin (UK)

• Pr

Progra gramme mme Ma Manag ageme ement: nt: Adam Smith International

• Team

eam Lead ader: er: John Heath (UK)

• Pr

Progra gramme mme Ma Manag ager ers: s:

• Laura Rizzotto (UK)
• Matt Blythe (Nairobi)

People

1.

• 1. Role

le of Geothe thermal mal in El Electricity ctricity Ma Mark rkets: ts:

• Mark

rket et Ris isks s for r Geoth eother erma mal

• Power

er Purcha chase e Agr greeme eements ts and N d Neg egotia iati tion

• n

2.

• 2. Geothe

thermal mal Development lopment – Bu Busine ness ss Mo Models dels 3.

• 3. Regulat

ulatory y Ma Mandat ates es an and Fram amewor

• rks

ks

Work Programmes: Key Issues Emerging

• To date the general assumption has been that

there will always be demand for any additional power generation in East Africa

• But this is changing….
• Over the period of a geothermal development starting

today a number of countries may move to having a surplus in generation at some times or in some years

• There will be competition for baseload generation
• Large scale intermittent renewables change the

marketplace

Market Risks for Geothermal

Typical Daily Load Profile

Peaking Load Following Baseload

• Geoth

ther ermal mal

• Combin

mbined ed Cycle le Gas Turbin bine

• Coal

l fired ed generation ration

• Int

ntermi ermitt tten ent t rene newable ables s – seasonal sonal or daily ly

• Run

un of river r hydr dro,

• , wind

nd

• Intermi

ermitt tten ent t renewables ables displac placing ing other er baseload load in the day because of “must run” priority:

• Run

un of river r hydr dro,

• , wind,

nd, solar ar

• Expor

porter ers s of ba baseload eload

Competition for Baseload

1.

• 1. Econom
• nomic

ic de despa patch ch rules es should ld app pply, but:

• May be overridd

rridden n by PPA term rms

• Go

Govern ernmen ment t polic icy y decisions sions may alloc

• cat

ate e losses ses

2.

• 2. “Take or pay” and “must run” IPPs will be paid to

swit itch ch off:

• Power

r purchase hase costs ts will l exceed eed PPA A prices es

• Who will

l carry y the stran randed ded costs? ts?

What Will Happen as the Baseload Market Gets Crowded?

• Where

here will geo eoth therm ermal l sit in econ

• nomic

mic despatch spatch rul ules, es, com

• mpare

red d with h run un-of

• f river

r hydr dro, , wind, nd, even en solar ar?

• How

w will Governm ernment ent policy cy maker ers s respon pond? d?

• Will com
• mpe

petit ition ion for baseloa eload d sque ueeze eze prices es down? wn?

• How

w can geo eoth therm ermal l developers elopers influen ence ce the e mark rket? t?

• What

t will the e mark rket t look

• k like

e by the e time me a geoth thermal rmal project ect reaches ches comm mmiss ssionin ioning? g? Will ll demand emand rise e to meet t sup upply?

• Could

uld this s imp mpact act on off-tak taker r viability ility?

• What

t sort t of PPA A will be best st in the e fut uture? ure?

This Raises Significant Questions for Geothermal Development Projects, Whether Public or Private Sector…

Can Geothermal Operate as Load Following rather than Baseload?

Peaking Load Following Baseload

• Longer term the load

following market should become more valuable

• Flexible generation has to

compensate for intermittent renewables

• Demand will always have

uncertainty

• Most countr

untrie ies see eem to expe pect t to sel ell rather er than buy in in the e reg egio ional mark rkets ets

• Most see

eem to wan ant to sel ell bas asel eload

• ad ap

apar art from

• m da

day ahea ead d balancin ing g trade des

• Buy

uyer ers s ar are m e more re lik ikel ely y long nger er ter erm to wan ant pe peak akin ing g and l d load d foll llowi wing g po power er

• The dai

e daily pe peak do does es vary y in in t tim ime e across

• ss the

e reg egio ion, but ut en enoug ugh to cover er bas asel eload

• ad ope

perat ation ion?

Will Regional Markets Provide an Answer?

Geothermal Position – is this reflected in market prices?

• Despat

patchab hable le

• Relia

liable ble

• Low operat

rating ing costs ts

• Com
• mpe

petit itive e once ce capital tal reco covered ered

• Insurance

urance against nst drought ght risk sk

• Exploration

ploration cost t and risk sk to cover

• High

gh capex x to cover

• Local

l commun munit ity y benefits its

• Direct

ect use options ions

• No energy

gy price ce volati atility lity

• Can offer

r ancillar llary y servic vices es

• No emission

ssions

• PPA

A struct ructure ure may y lead to non-despa despatc tch

• e.g.
• g. st

stea eam m su supply y treat ated ed as s an avoida idable ble energy nergy charge rge

• Buyers will become more precise

ise as to their r needs:

• Ov

Overa rall cost and ri risk k will become more re important ant than n lowest st price ce

• Flexib

ibility ility will have a premium, ium, and therefore

• re the load followi

wing ng mark rket et will become attractiv ractive but also more re competitiv etitive

• Ancil

illar lary y servic ices s will have a clear value

• The optimal

mal allocation tion of risks ks betwee etween n buyers and d sellers will chang nge, e, but how?

• EAGER has prepared “Guidance for a Geothermal Specific PPA”

whic ich h starts ts to cover some of these points nts (availab ailable upon n re request) t)

Power Purchase Risks and Negotiation

Geothermal Development – Business Models

• East Afri

rica ca is is se seei eing a g a conti tinuin uing g de debate e on ge geothe herma rmal l de devel elopm pmen ent t busin ines ess mode dels ls:

• To go

go pu public ic sec ector

• r or pr

privat ivate e sec ector?

• r?
• At whic

ich h stage ge in in t the e de devel elopm pmen ent t pr process? ess?

• Wh

Why ar are di e differ eren ent t mode dels ls chosen

• sen in

in dif differ eren ent t countr untrie ies, , at di differ eren ent t tim imes, es, and d even en for di differ eren ent t fie ields ds?

Different Models at 5 Stages of the Process

Costs are indicative and cumulative for a 50MW plant

Which Models Have Been Used Historically?

World’s Largest Geothermal Fields (MW), 2016

720 720 543 543 220 220 200 200 192 192 188 188 163 163 160 160 850 850 400 400 227 227 205 205 160 160 610 610 585 585 458 458 376 376 270 270 234 234 130 130

100 200 300 400 500 600 700 800 900 Geysers - US Cerro Prieto - Mexico Tongonan - Philippines Olkaria - Kenya Landarello - Italy Mak-Ban - Philippines Salton Sea - US Salak - Indonesia Darajat - Indonesia Tiwi - Philippines Wayang Windu - Indonesia Wairakei - New Zealand Heber - USA Kamojang - Indonesia Palinpinon - Philippines Los Azufres - Mexico Miravalles - Costa Rica Coso - US Travale - Italy Bac-Man - Philippines

Public Private Public+Private

Average age Field d = 100 MW

Const strain int Model el 1 Model el 2 Model el 3 Model el 4 Model el 5

Limi mited d count ntry resour source ce

X X

Limi mited d pub ublic c fun unding ding

X X

Limi mited d private capital

X X

Limi mited d private e appet etit ite e for risk

X X X

Af Affordability dability

X X

Speed eed to produc ducti tion

• n

X X X

Limi mited d pub ublic c se sector

• r

capabi bility lity

X X

Difficult cult or restr trict cted geogr

• grap

aphy

X

Coun untr try y cul ulture ure

X X

Factors Impacting on Choice of Model

• There

re is no one right ght answer er to the choice e of model, el, and more re than one model el can apply y in the same me countr try

• Even

n the fully y privat ate e sector

• r models

els require uire Govern ernment ment involv lvemen ement: t: enabling ling envir ironm nment nt, , regulation, ulation, control

• l and

moni nitoring

• ring
• The financial

cial analysis ysis is criti tica cal l for the decision sion (note e differen erences es bet etween een volcanic nic and fault t contr trolled

• lled fields):

lds):

• Realis

listic tic and nd det etailed ailed

• Scenarios

arios to understand stand risks sks

Implications

Regulatory Mandates and Frameworks

• Starts

ts from

• m the

e ques esti tions:

• ns:
• Why

y regu gula late? e?

• What

at are e the e issues ues of publi blic c interest erest that at call l for r regulation? gulation?

• Ho

How should

• uld the

e law w and d regul gulation tion inter erface? ce?

• Who
• should
• uld regu

gula late?

• EAGER

ER has revie iewed ed in inter ernation ional pr practi tice ce and d pr produce duced d a rep eport

Resource Value Access to Electricity Affordability of Electricity Resource Exploitation (Construction and Operation) Environmental Protection Use of Land for Exploration and Access Labour Concession/Licensee Performance Community and Social Protection

Public Interest Issues in Geothermal Development

Typically the Geothermal Developer Has to Deal with Each Agency Separately

And each agency will have its own interfaces with other agencies Licens nsee Ministry of Energy etc. Environment Ministry/Agency Water Rights Agency Local Communities Finance Ministry Geothermal Agency Ministry of Labour Energy Regulator Land Rights Agency Ministry of Justice Ministry of Natural Resources

Single Point Regulator: Skills and Interface Issues

Ministry of Natural Resources

Sing ngle Point t Regulator

Devel elop

• pers

ers

Public Sector Private Sector JVs Ministry of Energy etc. Ministry of Justice Environment Ministry/Agency Water Rights Agency Land Rights Agency Local Communities Ministry of Labour Geothermal Agency

• Is ther

ere e a c confl flict ict of in inter eres est t wher ere e the e ge geother ermal mal de devel elope per r is is also custodi

• dian of the re

e resour urce ce and d may awar ard d conc ncession essions? s?

• How can scarce

ce skil ills ls and e d expe perie ience e be be e best util ilis ised? ed?

• Sin

ingl gle-poi point or multi ti-poi point t reg egula lati tion?

• n?
• Wh

What is is t the e bes est balance e bet etween een det detail iled ed laws or reg egul ulat ation ion an and f d flexibi ibilit ity y to en encoura urage ge in inno novat ation ion?

Key Points

• We can do many things in geothermal…
• Bu

But t only ly wan ant t to help lp wi with th wh what at Government ernment and their agencies need…

• And what others are not doing…
• An

And d wh what at he help lps s progress ress geothe eothermal mal develop elopmen ment

• Just

t co conta ntact ct us to discuss!! cuss!!

Can EAGER Help You?

John.heath@eager-facility.com