A Global Coalition Can Tap Geothermal Power and Drive Development

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“We could go a week without working. But now there isn't one day without work.”

At her hair salon an hour outside Nairobi, Kenya, Elizabeth Kyalo is talking about the impact of electricity.  Specifically, the reliable supply of power that has allowed her to bring in more clients and build her business. “It has really helped us,” she says.

Energy is a primary driver of development.  A steady supply of electricity allows students to study at night, health clinics to expand services, markets to stay open later, and small businesses such as Elizabeth Kyalo’s to grow, creating jobs. And for many developing countries, there is a ready source of reliable power that could provide this electricity, but remains relatively untapped.  That source is geothermal energy.

In Kenya, the Olkaria geothermal plant, located on the boundaries of Hell’s Gate National Park, is providing a steady stream of power into the grid, which is then expanded to cover communities such as Elizabeth Kyalo’s.  Olkaria, which has received long-term support from the World Bank  and other agencies, is part of Kenya’s plan to substantially increase the contribution of geothermal to the country’s energy mix. Geothermal already generates 13 percent of the national electricity supply, and there are plans to raise this to almost 30 percent in the coming years.  

There are many other countries that share Kenya’s prospects. Geothermal resources are concentrated in regions of tectonic activity, from Africa’s Rift Valley, to Central America, to Southeast Asia. It is estimated that there are about 40 countries worldwide where geothermal resources could meet a very significant portion of the national electricity demand.

Image "Geothermal is relatively clean and non-polluting, and can provide constant power. For many developing countries, this is a potentially transformative resource." | Pierre Audinet, Clean Energy Program Team Leader at the World Bank’s Energy Sector Management Assistance Program (ESMAP)

“Geothermal is relatively clean and non-polluting, and can provide constant power,” says Pierre Audinet, Clean Energy Program Team Leader at the World Bank’s Energy Sector Management Assistance Program (ESMAP). “For many developing countries, this is a potentially transformative resource.”

Getting to that transformation, however, will take concerted international action.

To meet this challenge, ESMAP is initiating a Global Geothermal Development Plan, which would aim to mobilize substantial new concessional funding for geothermal development, in partnership with bilateral funding agencies and other multilateral banks.  The plan would target regions of high potential and finance the test drilling phase, in order to catalyze investment in all other stages of the geothermal value chain. Ultimately, the goal would be to achieve a significant addition of geothermal electricity production capacity in several low- and middle-income countries. As part of the Plan, ESMAP, a global knowledge and technical assistance program within the World Bank, will expand programs for knowledge exchange among client countries on geothermal science, project development and international best practices.

The plan directly addresses a longstanding paradox of geothermal energy.   Why is such an attractive source of power, which produces sustainable, baseload power with a fraction of the greenhouse gas emissions of fossil fuels, so underutilized? As of 2011, only 11 gigawatts of capacity had been developed globally – approximately 0.3% of the world’s total power generation.  

The answer is risk.   While relatively high capital costs are typical for all renewable energy projects, geothermal projects have an additional test drilling phase that is much more capital intensive than all preceding phases, and fraught with uncertainty. Significant investment is required before it becomes clear whether a site has the potential to recover the costs. Geothermal projects also have relatively long lead times from the start of exploration to power plant commissioning and the first revenues. Together with the high upfront costs, the long project cycle makes geothermal projects difficult to finance, particularly when private developers have other energy investment options.

As a result, geothermal projects usually require public sector intervention in the form of direct financial support, loan guarantees, tax incentives, or guaranteed off-take of electricity. In many countries, concessional funding in the early stages has proved critical, as drilling costs alone can account for as much as one half of the total cost of a project.

World Bank Group support for geothermal development is growing, rising from $73 million in 2007 to $336 million in 2012. Geothermal now represents almost 10 percent of the Bank’s total renewable energy lending.  The Global Geothermal Development Plan is expected to boost that support even further.  

Supporting the scale-up of geothermal power in developing countries is also one of the World Bank Group’s key commitments as part of the global Sustainable Energy for All initiative, which aims to double the proportion of renewable energy in the global energy mix, double the rate of improvement of energy efficiency, and achieve universal energy access, all by 2030.  World Bank Group President Dr. Jim Yong Kim recently joined with UN Secretary-General Ban Ki-moon to co-chair the advisory board that will provide strategic guidance to the Sustainable Energy for All initiative.

To help support the global development plan, ESMAP has just released the Geothermal Handbook: Planning and Financing Power Generation, a comprehensive guide to developing geothermal projects, based on lessons learned from project successes and failures from around the world.  Designed for on-the-ground practitioners, the handbook presents a step-by-step  approach to the phases of project development, looking at the risks involved and at the financing mechanisms needed to successfully bring projects to fruition.

“Countries who have developed geothermal energy say that if you have this resource, use it,” says Audinet.  “All funding agencies should now jointly rise to the challenge and help more countries bridge the financial gap.”

The Geothermal Handbook will be launched at the World Bank on October 17, 2012.  For more information, contact ESMAP.


Nicholas Keyes

Communications Officer, ESMAP, the Energy Sector Management Assistance Program

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