Geothermal Power for Eastern Africa. EAPIC, September 5 th 9 th, 2011 Arndt Wierheim, Project Manager, KfW

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1 Geothermal Power for Eastern Africa EAPIC, September 5 th 9 th, 2011 Arndt Wierheim, Project Manager, KfW

2 Why to go for geothermal projects in eastern Africa? Estimated geothermal resource potential of over 7,000 MWe in eastern Africa Base load energy: load factor of almost 90% over decades in Kenya Low cost option at many sites with a high natural potential (average generation costs of 0,06 US$/kWh in Kenya) Plants are almost emission free Olkaria Geothermal power plant in Kenya

3 geothermal projects at KfW Entwicklungsbank Kenya: Co-financing of the Olkaria II Power Plant (1987) Kenya: IDA-Loans to the Kenyan Government for Geothermal Wells at Olkaria IV, grant financing for Transaction Adviser (2003) Kenya: Co-financing of the 48 MW Olkaria III Power plant (IPP) (2008, operating) Kenya: Co-Financing of the 280 MW Olkaria I&IV Power Plants financial closure expected in the coming weeks Indonesia: Financing of Exploration wells at Seulawah Agam Chile: Geothermal Exploration Programme Indonesia: Conceptual Study: Ensurance concepts for geothermal exploration wells New projects under preparation: Geotermal Risk Mitigation Facility (GRMF) for Eastern Africa Co-financing of the Olkaria I&IV extension Financing of geothermal power plants in Indonesia

4 Investment barriers General Barriers Financial (Access to finance, credit) Regulatory (PPAs, FiTs, regulators, concessions) Institutional capacity Geothermal Specific Barriers Poorly understood resources High upfront capital costs much equity needed, high currency risks if not mitigated! Governments can help investors to overcome hurdles, but: competing government priorities (i.e. health, education) Long lead times Limited availability of human/technical resources

5 Geothermal exploration wells, a risky business! Up to 13m EUR for a set of two exploration wells Risk of failure about 30% internationally, some developers expect it to be initially even higher in the region, due to limited data and experiences ( mental barrier?) Strong involvement of governments necessary Geothermal well

6 Geothermal Risk Mitigation Facility (GRMF) Objective: To encourage public and private investors and to mobilise financing for development of geothermal power plants in eastern Africa Project components: Direct grants for drilling programmes and exploration studies Grant premium for successfull wells Regional geothermal database (to reduce risks of future wells) Consultant to manage the project Training and support for AUC Size: Target size ~ EUR 50m EUR 20 m grant financing from German Government committed EUR 30 m from co-financiers (e.g. EU-Africa Infrastructure Trust Fund)

7 GRMF direct grants and contingent grants Direct grants to cover parts of the costs for preparation of geothermal projects: 80 % of surface exploration costs 40 % of Drilling cost 20% of costs for infrastructure related to the project the developer covers remaining costs and provides information on the exploration results to the Facility Grant premium for success: 30 % of the well costs reimbursed to developers if they ensure financing of subsequent development steps within a certain period of time

8 GRMF - basic principles Facility pools funding from various donors Developers (public, private or PPP) apply to the Facility Clear criteria for acceptance and compensation Transparent and comprehensible application and assessment procedures Low compliance costs

9 GRMF - implementing structure Oversight Committee (representatives from the African Union (3), donors (2) and the target countries (1)): ensures that the project meets its overall objectives. Decisions taken by consensus Host (AUC-DIE): raises additional finance, encourages partnerships, organises meetings, approves documentation prepared by the Executing Team, enters into grant agreements and authorises payment of grants. Executing Team (consulting team of technical experts, auditors and legal advisers): day-to-day management of the Facility on behalf of AUC, including preparation of documentation and reports, training of potential applicants, running pre-qualification and application rounds, evaluating applications negotiating grant agreements, creating a website.

10 Thank You! Contacts: Arndt Wierheim Katrin Kessels