FINANCING OF GEOTHERMAL ENERGY PROJECTS : A Case of Geothermal Development Company Ltd. EAPIC September 5-9,2011 BY: George Mwenda Snr. Officer, Business Development; Corporate Planning & Strategy GDC Kenya.
Introduction-Overview Geothermal Energy future supply Global Geothermal Power Financing Regional Perspective-E.A. & Africa Kenya GDC
Worldwide Geothermal Dev t
Worldwide Geothermal Ranking
Kenya Geothermal Potential
GDC Business Model GDC Surface Exploration GDC Exploration and Appraisal drilling GDC GDC/Private Entity Feasibility Study Production &Development of Steam Supply Sale of Steam Investment by Private Entity/ GDC Private Entity/ GDC Construction and Operation of Power Plant Investment by Private Entity / GDC
Financing Plan/ Requirements 7
Financing Sources/Options Governments Private Special Purpose Grants AID - Technical Assistance Concessional LOANS Investment Green CDM Advisory Technical Funds Services Assistance Project Preparation / Feasibility Capacity Building (Training) Credit (Very longbelow market interest) Loans (Long, market rate interest) Insurance Multilateral Development Banks Bilateral Financing Institutions AfDB IDA IBRD EIB IFC MIGA France AFD Prorpaco Germany KfW DEG Japan JICA JBIC China Exim Bank USA Exim Bank USTDA USAID OPIC
Alternative Sources Governments Taxes, royalties, fees & levies Government Instruments Treasury bills Infrastructure bonds Other bilateral arrangements Private Sector Retained earnings Equity Corporate bonds Commercial loans Commercial loans
BEP 4 th Year Build up period GDC will continue to earn revenue 25years after the planning period
Financial & Economic Analysis Financial Viability Positive free cash flow IRR > WACC Early Break even Short Payback period Change in steam price with changing cost of debt 5.00 4.50 4.00 Economic Viability UScents/ KWh 3.50 3.00 At 15% RoR & 5 MW a well At 12% RoR & 5 MW a well At 10% RoR & 5 MW a well Proj. IRR > Alternative 2.50 2.00 Project IRR Cost of Debt
Risk Analysis Country Institutional Project Political Stability Change of Gov. Consistence of policies War & Civil disturbances Expropriation Currency inconvertibility Legal & Regulation Process to pursue claims Foreign Law recognition Arbitration Enforcement of awards Licensing & permitting Policies Repatriation of dividends, profits Taxations Foreign exchange restrictions
Risk Analysis Country Institutional Project Off Taker Breach of Contract Transmission Company Completion O & M Power Producer Completion O & M Manufacturer/ Contractor Proven Technologies Guarantees & Warrantees Steam Supplier Completion Guarantee of supply Long term supply & Service contracts Risk Allocation
Risk Analysis Country Institutional Project Market Environmental Technology Resource Risk Access Price Environ. Impacts Social Impacts Proven O & M Existence Size UScents/KWh 5 4.5 4 3.5 3 2.5 2 Price of steam at various well outputs At 15% RoR & 0.75% cost of debt At 12% RoR & 0.75% cost of debtl At 10% RoR & 0.75% Cost of debt At 15% RoR & 4 % Cost of debt At 12% RoR & 4% Cost of debt At 10% RoR & 4% cost of debt Well Character (Temp., Press. Flow, Chemistry) Performance with time (Cooling, decline) 1.5 at 15% RoR & 7% cost of debt 1 1 2 3 4 5 6 7 8 9 10 Average Well output (MW) At 12% RoR & 7% of cost debt At 10% RoR & 7% cost of debt Reinjection
Packaging Geothermal Projects to Attract Financing - Kenya Detailed surface study CSR Environ. Baseline Studies GAB Project Preparation ESIA-Drilling Stake holder engagement EMP CSR Geo. Permit Land Access LAND ACQUISITION Exploration, Appraisal & Feasibility EMP CSR Drilling Consultants Feasibility study consultants GAB ENGAGEMENT OF POWER PRODUCER Production drilling & Plant Construction ESIA - Plant EMP Geo. License Plant & steam field consultants PPA, GENERATION LICENCE & STEAM CONTRACT POWER PRODUCERS SOLICIT FINANCING GOK- MAIN FINANCIER FINANCING BY GOK & IPP SOVERIGN GUARANTEES
Menengai Phase 1 Project budgetary Costs RESOURCE Dev. CAPEX Steam field and Wellhead - CAPEX CAPITAL INVESTMENT a) Cash Rigs purchase cost 70 Water reticulation system 6 2 2 1 2 3 4 5 6 2010 2011 2012 2013 2014 2015 Resource development staff 8 8 8 8 8 - Civil Works - Access roads 4 1 1 1 1 Civil Works - Sites 0.2 0.2 0.2 0.2 0.2 Drilling costs 24 48 90 90 54 - Well testing 1 2 5 5 3 - Feasibility studies 4 4 Well Head Generating Units - - - - - - Steam Gathering system 80 80 10% Contigency 4 14 11 18 15 - Total cash 47 149 120 202 160 - Cumulative 47 196 316 518 678 678
Project Financial and Economic Analysis Million US$ 1,200 1,000 800 600 400 200 - (200) (400) (600) (800) 2009 Cumulative Cash Flow 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 Cummulative cash flow Expenditure Revenue Highlights Break even - 6 yrs Payback - 12 yrs IRR 7.6% (WACC 7.6%) Projected Tariff US$ 0.09 Projected Tariff US$ 0.09
Financing Issues-Summary Financing Financial and Risk analysis Packaging projects
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