1. 1 ACCELERATING DEVELOPMENT OF GEOTHERMAL ENERGY IN DEVELOPING COUNTRIES 1.STATUS AND POTENTIAL OF GEOTHERMAL ENERGY 2.DRIVERS FOR DEVELOPMENT OF GEOTHERMAL ENERGY 3.CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS 4.SUCCESS STORIES 5.CONCLUSION: KFS FOR THE ACCELERATION OF DEPLOYMENT L. Y. Bronicki ORMAT Group “Day of Geothermal Power” Organized by UNEP Energy, BGR, Rödl & Partner, GtV, GFZ and others P62

2. 2 Installed base and potential: Geothermal energy is a mature competitive industry Geothermal energy has the lowest environmental impact Continuous improvement in plant design: steam turbines, ORC and combined cycle Continued technology transfer from oil and gas drive the cost reduction in geothermal energy, exploration, drilling and production 1. Status Of Geothermal Energy

3. 3 A Mature and Competitive Industry COUNTRY POTENTIAL FOR ELECTRICAL GENERATION INSTALLED ELECTRICAL GENERATION CAPACITY MWe TOTAL MWe South & Central America3,5001220 The Philippines6,0001,900 Africa, including Kenya6,50060 Indonesia16,000790 P.R.China6,70030 USA12,0002,300 New Zealand1,200450 Japan2,400550 Europe, including Iceland and Azores Islands2,0001,050 Russia1,40060 Installed Geothermal Capacity (~8,500 MWe), Worldwide Potential (~60,000 MWe) 1. STATUS OF GEOTHERMAL ENERGY (CONT.) Source: DOE, GRC, IGA

4. 4 CO 2 Emissions kg CO 2 per kilowatt-hour Coal Oil 0 0.250.50.751.0 1.25 1.5 Geothermal: Steam Geothermal: Binary or Combined Cycle FUEL TYPE Natural Gas – Gas Turbine Land area (m2 per GWhr/year for 30 years) Technology 404Geothermal 1,335Wind (land with turbines and roads) 3,237Photovoltaics 3,561Solar Thermal 3,642Coal (including open pit mining) Land Area Occupied Environmental Features of Geothermal Energy Comparison with Other Energy Sources range Min.Max. 1. STATUS OF GEOTHERMAL ENERGY

5. 5 2. Drivers for Development of Geothermal Energy Locally available in energy poor countries Proven technology transfer to LDC and high local content Need to diversify from reliance on hydro Base load capability Uncertainly of imported fuel cost CO 2 trading and clean developing mechanism (CDM) RPS legislation and tax incentives (PTC)

6. 6 Barriers to Financing in Developing Countries COMMERCIAL FINANCING: barriers due to relatively small sizes and high initial investment costs CREDIT ISSUES: barriers due to risks: political, resource and off-takers INSTITUTIONAL ISSUES: barriers due to fossil fuel subsidies, accounting for GHG emissions avoided, and societal costs of fossil fuels STRUCTURAL ISSUES: Need mechanisms enabling market entry of renewables under deregulated structures 3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS (CONT.)

7. 7 Hurdle: Lack of Institutional will Local politicians and civil servants should have a thorough understanding of why their countries need private investment, in infrastructure in general and Renewable Energy (RE) in particular Must also have a firm will to implement policies and measures needed for private infrastructure and RE development - regulatory framework - technical capacity – building - financial incentives, especially for RE - enable financiability of projects Need to have the institutional ability and strength of purpose to focus on long-term solutions such as the project development cycle; challenges and benefits are also long term Relevant for both national government agencies and multilateral institutions 3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS

8. 8 Comparison of Public and Private Sector Financing of Green field geothermal plants in developing countries Assumptions: 1.Discount rate Public sector: 3-8% Private sector: 13-18% (in case of 30% equity, and 70% debt financing) 2.Resource risk allocation (drilling success rate not more than 70%) Public sector: generally assumed by the IFI Private sector: fully accounted for 3.Commercial risk Public sector: none Private sector: fully accounted by investors 4.Political risk Public sector: none Private sector cost of insurance: 2-3% 5.Soft costs Public sector: often not budgeted to project Private sector: fully accounted by investors 3. CONSTRAINTS ON GEOTHERMAL POWER PLANTS DEPLOYENT3. CONSTRAINTS ON DEPLOYMENT OF GEOTHERMAL POWER PLANTS (CONT.)

9. 9 4. Success Stories 1000 MW of renewable energy in less than ten years: -The Philippine Geothermal Program The right division of tasks in the right sequence -UNITAR / UNDP (exploration and technology transfer) -GEF / WBG (drilling of wells) -PRIVATE IPP ’ s supported by EXIM (power plants)

10. 10 1495b ECA = US EXIMBANK (PUBLIC) BOT AwardJune 1995 Contract EffectivityAug. 1995 Financial ClosingMay 1996 Construction StartedJan. 1997 Commercial OperationNov. 1997 Example of an ORMAT Project 49 MW Leyte Geothermal Power Plant, the Philippines BOT 4. SUCCESS STORIES (CONT.)

11. 11 1495b BOO Example of an ORMAT Project 24 MW Zunil Geothermal Power Plant, Guatemala AwardMay 1995 Contract EffectivityOctober 1997 Financial ClosingAugust 1999 Construction StartedJune 1999 Commercial OperationSeptember 1999 BOO 4. SUCCESS STORIES (CONT.)

12. 12 Example of ORMAT Projects 48 MW Olkaria III Geothermal Power Plant, Kenya PROJECT STRUCTURE: BOO Phase 1+ 13 MW ORC. Wells for 120% of full capacity Phase 2 Phase 2Nominal Capacity: 48 MW Net maximum deliverable capacity: 53 MW, including steam turbine and ORC Design Steam Flow80 kg/s (average NCG: 3.5%) Design Gross Output53 MW Design Net Output48 MW AwardFeb. 1998 Contract EffectivityOct. 1999 Start ConstructionOct. 1999 MIGA PolicyMay 2000 Commercial Operation (Ph.1)July 2000 Commercial Operation (Ph.2)Q2 - 2006 4. SUCCESS STORIES

13. 13 5. Acceleration of Deployment Key Points for Success for Public – Private Partnerships Financial Institutions to Seek Innovative FAST TRACK Solutions Streamline the review process – avoid micro management One stop financing - one lead agency to act as financing coordinator Innovative technologies should be welcomed (performance guaranteed by private sector) Harmonize cooperation in IFI’s between public and private sector departments Risk Sharing Private industry to underwrite risks in construction, performance, and operation MFIs and ECAs and national agencies to underwrite other risks: country, payment Resource development risks: to be borne by public sector National Policy Legislation: level the playing field Finance oriented, portfolio–based models should be promoted to take advantage of renewables in the generation mix Price should reflect environmental value of energy mix (WB Carbon Fund), base load dependability, price stability (no oil imports) Educate the stakeholders (important role for IEA-GIA, and UNEP) Set asides for renewable energy technologies, e.g. RPS Adapt deregulation to renewables (merchant plant issue)