Geothermal Energy Project Development and Finance An Overview Presentation COREN 2018 Alexander Richter, President IGA
DEVELOPMENT STAGES Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Start-up Exploration Legal Work Concession Permitting PreFeasibility Feasibility Geophysical surveys Geochemical and geological data collection & analysis Temperature gradient drilling Design & Construction Operation Focused Exploration on most favorable resource area Sufficient Exploration data collected & analyzed Drilling of first successful, full-sized production well. Confirmation Wells, Reserve Estimates & Preliminary Design Drilling & testing of remaining production and injection wells Civil works required Final design & testing
Probability of Success DEVELOPMENT RISK Actual probability of success Investors perceived probability of success Project timeline Explorat. Pre-Feas. Feasibility Detailed Design & Construction
GEOTHERMAL PROJECT RISK & CUMULATIVE INVESTMENT COST Source: ESMAP/ World. Bank
GDF Grants - surface studies GEOTHERMAL DEVELOPMENT FACILITY LATIN AMERICA Tailored approach to promote Geothermal Development Exploration Risk GDF Risk Mitigation Fund Contingency Grant GDF Bridge Financing Lines Capacity Drillings GDF Investment Financing Lines Plant Infrastructure 0 1 2 3 4 5 6 7 8 9 10 11 12 Preparation Exploration Drillings Capacity Drillings Drillings Construction Copyright KfW Entwicklungsbank
FINANCING GEOTHERMAL DEVELOPMENT Start-up Exploration/ Pre-Feasibility Feasibility/ Resource Verification Detailed Design & Construction Start of Operation Mezz./ Bridge Debt, Const. Financing Project & Vendor Financing Venture Capital Development Equity Drilling Equity Project Equity Tax Equity Developers IPPs (Development Pipeline) Resource Speculators Venture Capitalists Private Equity Public Markets Financial Partners Private Equity Strategic Partners Financial Players Large IPPs with ability to monetize PTCs Source: Islandsbanki
FINANCING ELEMENTS Equity ~ 30% Exploration Pre-Feasibility Feasibility Steam output ~70-80% Debt/ Loan ~ 70% Additional Production Wells, Design, Construction, Turbine(s) / Power Plant Bankability Perceived Risk IRR expectations
BLOOMBERG NEW ENERGY FINANCE Annual new-build debt investment as proportion years of 2002 2012 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0% 2002 2003 2004 2005 2006Source: 2007 Bloomberg 2008New 2009 Energy 2010 Finance 2011 2012 $4.8bn TOTAL Development bank 46% Commercial lender 22% State-owned entity 20% Pension fund 8% Government 4%
Role of Public Finance Report by Climate Policy Initiative 2015 Studies from Indonesia, Kenya, and Turkey
KEY TAKE-AWAYS With the right policies and financial measures, governments can drive investment that delivers the same amount of geothermal power while providing just 15-35% of the financial resources they would have spent had they built and operated projects themselves. Source: CPI Role of Public Finance in Deploying Geothermal Energy in Developing Countries 2015
Tariff requirements for public and private investors, and contribution of individual public risk and cost mitigation measures Source: CPI Role of Public Finance in Deploying Geothermal Energy in Developing Countries 2015
DIFFERENTIATION MARKETS Inexperienced geothermal sector in more developed private investment market Chile, China, India, Nevis, Peru Mature geothermal sector in a more developed private investment market Mexico, Philippines, Turkey Inexperienced geothermal sector in a challenging private investment market Armenia, Bolivia, Colombia, Djibouti, Dominica, Ecuador, Ethiopia, Guatemala, Honduras, Papua New Guinea, Rwanda, St. Lucia, Tanzania, Uganda Mature geothermal sector in a challenging private investment market Costa Rica, El Salvador, Indonesia, Kenya, Nicaragua Source: CPI Role of Public Finance in Deploying Geothermal Energy in Developing Countries 2015
PUBLIC FINANCIAL DEMAND By country groups based on maturity of investment environment of the geothermal sector Source: CPI Role of Public Finance in Deploying Geothermal Energy in Developing Countries 2015
PUBLIC FINANCIAL DEMAND Per phase of geothermal project development Source: CPI Role of Public Finance in Deploying Geothermal Energy in Developing Countries 2015
CLIMATE INVESTMENT POTENTIAL AN IFC ANALYSIS Investment potential by sector ($ billion) 1,000 900 800 700 $ bn 600 500 400 939 300 200 100 0 588 119 63 56 Solar Wind Biomass Geothermal Small Hydro Source: IFC Analysis, Climate Investment Potential in Emerging Markets (2016)
CLIMATE INVESTMENT POTENTIAL AN IFC ANALYSIS Investment potential by sector ($ billion) 30 25 20 15 27 10 16 5 0 Sub-Saharan Africa East Asia Pacific 14 Latin America & Caribbean 6 Eastern & Central Asia 0 0 South Asia Middle East & North Africa Source: IFC Analysis, Climate Investment Potential in Emerging Markets (2016)
FINANCE Key Trends Increasing investor interest New investor groups e.g. through blended finance Continued interest of development banks Key requirements: stable legal framework Feed-in-tariffs as key drivers Auction systems without bonus not working
INTERNATIONAL GEOTHERMAL ASSOCIATION International collaboration Role of IGA - independent from national interests presenting industry interests, facilitation and providing access
INTERNATIONAL GEOTHERMAL ASSOCIATION Overview - Encouraging research, the development and utilization of geothermal resources worldwide through the publication of scientific and technical information among the geothermal specialists, the business community, governmental representatives, UN organizations, civil society and the general public. - Encourage, facilitate and, promote the coordination of activities related to worldwide research, development and application of geothermal resources. Founded in 1988 30 years anniversary this year
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