East Africa Geothermal Energy Facility GRMF East Africa Donors’ Coordination and Collaboration Meeting – 14 June 2016
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 o
Key Attributes of EAGER • Flexibility xibility o Lookin ooking g at cur urren ent t issues ues not ot covere ered d by ot othe hers o Qu Quick k respon sponse, , wher here e possibl ssible • Large ge Pool l of Exper pertise tise o Able e to draw w on a wide de range ge of exper pertise tise: • Geoth otherma ermal techni nical cal; ; legal; ; re regulator ory; ; finance; ce; busin sines ess s stra rategy; egy; electrici ctricity ty markets ts and power plannin ing; g; tariffs fs and PPAs o Focus cus on deci cisi sion on sup uppor ort t and remo moving ving barrier iers s to progre ress ss o Repor orts on internat ernational ional exper perience ience
People • 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: o Laura Rizzotto (UK) o Matt Blythe (Nairobi)
Work Programmes: Key Issues Emerging 1. Role 1. le of Geothe thermal mal in El Electricity ctricity Ma Mark rkets: ts: o Mark rket et Ris isks s for r Geoth eother erma mal o Power er Purcha chase e Agr greeme eements ts and N d Neg egotia iati tion on 2. Geothe 2. thermal mal Development lopment – Bu Busine ness ss Mo Models dels 3. 3. Regulat ulatory y Ma Mandat ates es an and Fram amewor orks ks
Market Risks for Geothermal • 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
Typical Daily Load Profile Peaking Load Following Baseload
Competition for 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 o Run un of river r hydr dro, o, wind nd • Intermi ermitt tten ent t renewables ables displac placing ing other er baseload load in the day because of “must run” priority: o Run un of river r hydr dro, o, wind, nd, solar ar • Expor porter ers s of ba baseload eload
What Will Happen as the Baseload Market Gets Crowded? 1. Econom 1. onomic ic de despa patch ch rules es should ld app pply, but: o May be overridd rridden n by PPA term rms o Go Govern ernmen ment t polic icy y decisions sions may alloc ocat ate e losses ses 2. “Take or pay” and “must run” IPPs will be paid to 2. swit itch ch off: o Power r purchase hase costs ts will l exceed eed PPA A prices es o Who will l carry y the stran randed ded costs? ts?
This Raises Significant Questions for Geothermal Development Projects, Whether Public or Private S ector… • Where here will geo eoth therm ermal l sit in econ onomic mic despatch spatch rul ules, es, com ompare red d with h run un-of of 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 ompe 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 ok 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?
Can Geothermal Operate as Load Following rather than Baseload? • Longer term the load following market should become more valuable Peaking • Flexible generation has to compensate for Load Following intermittent renewables Baseload • Demand will always have uncertainty
Will Regional Markets Provide an Answer? • 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 oad ap apar art from om 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 oss the e reg egio ion, but ut en enoug ugh to cover er bas asel eload oad ope perat ation ion?
Geothermal Position – is this reflected in market prices? • Despat patchab hable le • Local l commun munit ity y benefits its • Relia liable ble • Direct ect use options ions • Low operat rating ing costs ts • No energy gy price ce volati atility lity o Com ompe petit itive e once ce capital tal • Can offer r ancillar llary y servic vices es reco covered ered • No emission ssions • Insurance urance against nst drought ght risk sk • PPA A struct ructure ure may y lead to • Exploration ploration cost t and risk sk to non-despa despatc tch cover o e.g. g. st stea eam m su supply y treat ated ed as s • High gh capex x to cover an avoida idable ble energy nergy charge rge
Power Purchase Risks and Negotiation Buyers will become more precise ise as to their r needs: • o 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 ore 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)
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: o To go go pu public ic sec ector or or pr privat ivate e sec ector? or? o At whic ich h stage ge in in t the e de devel elopm pmen ent t pr process? ess? • Why ar Wh are di e differ eren ent t mode dels ls chosen osen 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 0 100 200 300 400 500 600 700 800 900 Geysers - US 850 850 Cerro Prieto - Mexico 720 720 Tongonan - Philippines 610 610 Olkaria - Kenya 585 585 Landarello - Italy 543 543 0 Mak-Ban - Philippines 458 458 Salton Sea - US 400 400 0 Salak - Indonesia 376 376 Darajat - Indonesia 270 270 Tiwi - Philippines 234 234 Wayang Windu - Indonesia 227 227 Wairakei - New Zealand 220 220 Heber - USA 205 205 Kamojang - Indonesia 200 200 Palinpinon - Philippines 192 192 Los Azufres - Mexico 188 188 Miravalles - Costa Rica 163 163 Coso - US 160 160 Travale - Italy 160 160 Average age Field d = 100 MW Bac-Man - Philippines 130 130 Public Private Public+Private
Factors Impacting on Choice of Model 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 X X Limi mited d private capital Limi mited d private e appet etit ite e X X X for risk Affordability Af dability X X Speed eed to produc ducti tion on X X X Limi mited d pub ublic c se sector or X X capabi bility lity Difficult cult or restr trict cted X geogr ograp aphy X X Coun untr try y cul ulture ure
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