Mobilizing Large-Scale Investments for Geothermal Development in Small Island Economies

June 22, 2015Martinique

Migara JayawardenaSenior Energy Specialist

ISLAND ENERGY TRANSITIONS: PATHWAYS FOR ACCELERATED UPTAKE OF RENEWABLES

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Should small islands look to mobilizing large‐scale financing for geothermal?

Average Electricity Tariffs in Select Caribbean Islands (in 2011)

Average Residential Tariff in OECS and Oil Prices (2002-2010)

Creates hardships, erodes competitiveness, and stymies economic growth

High and Volatile Electricity Costs….

Fossil Fuel Share (%) in Electricity Generation Mix in Select Caribbean Countries

Net Fuel Imports Relative to GDP in Select Caribbean countries

Dependence on expensive fuel oil drives‐up electricity costs, reliance on imports creates vulnerabilities

…are Primarily Driven by Imported Fuel Oil in Power Generation Mix

In OECS, there is Opportunity to Diversify an Shift from Fuel Oil/Diesel

• Reliable, 24/7 non‐intermittent source of power

• Hedge against volatility of fossil‐based fuels

• Indigenous, providing enhanced energy security

• Clean energy option with local and global environmental benefits

Inst. Capacity 59MWGeo potential 25+MW

Inst. Capacity 27MWGeo potential 500+ MW

Inst. Capacity 89MWGeo potential 75+ MW

Inst. Capacity 52MWGeo potential 30+ MW

Inst. Capacity 51MWGeo potential 75+ MW

Inst. Capacity 490MWGeo Inst. Cap 15MWGeo potential 40+ MW

Total geothermal potential for the Caribbean is  745 + MW which could potentially save approximately 1.3 million tCO2  per year  of GHG emissions if it becomes operational

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Several OECS Countries on Cusp of Commercializing Geothermal Developments

Downstream Plant Construction/OpsUpstream Resource Development

Stages and Risks of Geothermal Development

Cumulative time

ISurface

Reconnaissance($1-2 mil)

IIExploration

Drilling($20-30 mil)

IIIProduction

Drilling(~$20-120 mil)

IVSAGS +

Power Plant(~$20-200 mil)

VOperation + Maintenance

Identification of Resource High Resource Risk Lower Resource Risk

Financing Risk Financing Risk Operational  Risk

Cum

ulat

ive C

osts

Risk

s

P

hase

Pro

ject R

isk L

evel

Year 1‐2 Year 2‐3 Year 4‐6 Year 6‐8 Years 8+ 

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Common Options for Geothermal Financing

Steam Provider

Steam Supply

Contract

• Power Plant BOO/BTO with Steam Off‐take 

• “Brown field”: resource development completed, financing power plant only

• “Green field”: financing resource development and power plant concurrently 

Project Finance

: Already developed

: To be financed

: The Borrower 

• Multiple existing assets and financing expansions

Corporate

Finance

Easier/Harder?

Downstream Plant Construction

Upstream Resource Development

Adapted from presentation by Shinji Yamamoto, IFC at World Bank Energy Week, March 2011

Easier/Harder?

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KEY CHALLENGE: Geothermal Development Risks

Geothermal resource risk Nascent sector in many SIDS 

countries Small scale markets Risks remain throughout 

development until power plant operation

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KEY CHALLENGE: Attracting Qualified Developers to Meet Technical and Financial Requirements

Limited domestic capacity Lack of funding options

Limited interest by  qualified developers

Seek risk reduction and confidence to enter market

Power off‐take uncertainty Require high risk premiums

KEY CHALLENGE: Limitations to Mobilizing Cost‐Effective, Large‐Scale Private Financing

Private Investment in Energy Sector for Select Caribbean Countries1997‐ 2011 (US$ million)

Sources: World Development Indicators, PPI Database, The World Bank, 2015

411 

275 

63 

26 

33 

17 

110 

 ‐  50  100  150  200  250  300  350  400  450

Jamaica

Belize

Haiti

Dominica

Grenada

St. Kitts and Nevis

St. Lucia

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Where is geothermal development worth the effort?

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For further Reference