AFD - Geothermal energy

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Agence Française de Développement

GEOTHERMAL ENERGY

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AGENCE FRANÇAISE DE DÉVELOPPEMENTGEOTHERMAL ENERGY ENERGY

A source of renewable and low-carbon electricity still underdeveloped Geothermal energy is a reliable, clean and affordable source of power generation. By substituting fossil-fueled generation with geothermal power plants, countries endowed with commercially viable resources can also free themselves from the increasing volatility in world oil market prices.

The development of a national resource such as geothermal energy can therefore allow countries to regain control over the cost of

electricity and enhance its energy security. Furthermore, geothermal energy generates few greenhouse gas emissions: it as a low-carbon source of energy. By promoting this energy, AFD contributes to global climate change mitigation efforts.

In East Africa, where there is a considerable potential, countries are facing very important electricity shortages. The development of this resource therefore constitutes a real economic opportunity.

On-going AFD projects in the geothermal sector

Areas with important potential for high-enthalpy geothermal energy (tectonic and volcanic regions)

Favorable areas for low-enthalpy geothermal energy (sedimentary basins)

Regions with geothermal potential. Global potential for high and medium-enthalpy geothermal power assessed at 255 GW (Source: IGA, 2001)

Geothermal electricity in brief

High and medium-enthalpy geothermal energies use the energy from the hot steam from the reservoir that is located at a depth of between 500 and 5,000 m.

The steam that rises to the surface through the production well is used to activate a power generation turbine, either directly (high enthalpy) or via a heat exchanger (medium enthalpy).

It is subsequently cooled, condensed and re-injected in the reservoir through re-injection wells.

Kenya © AFD, Mathilde Bord-Laurans

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Costs and risks related to the development of a geothermal project (source: World Bank, ESMAP)

For a country like Kenya, which does not have great hydropower potential, geothermal energy development is the cheapest baseload source of electricity (7 to 11 euro cts/kWh). In Ethiopia, geothermal energy is a long-term alternative to hydropower resources as it diversifies the power mix and improves the resilience of the country to climate change.

In AFD’s other geographical areas of operation, Indonesia also needs this source of power to reduce its dependence on fossil fuels. This is also the case – on a smaller scale – for the Caribbean islands, where it is estimated that the cost of a thermal kWh stands at 20 euro cts/kWh. In Latin and Central America, only Mexico and Nicaragua generate geothermal electricity, while the other countries are currently prospecting.

However, Indonesia only exploits 4.5% of its geothermal resources, Kenya 2.8%. If the development of this energy provides such an opportunity, why is it still held back? In addition to sectoral weaknesses or the lack of capacity, which hamper the development of electricity sectors in regions like Sub-Saharan Africa, prospecting for geothermal reservoirs requires costly exploration resources in order to have sufficient knowledge of the site.

The initial drilling requires heavy investments, which are essential for gaining knowledge of the system and for effective resource risk management. This risk has hindered the development of the technology.

AFD’s strategyAFD’s strategic intervention framework in the energy sector, which was adopted in October 2012, is based on the three pillars for sustainable development. It defines three priorities:

■■ Prioritizing renewable energy and energy efficiency;

■■ Securing and strengthening energy systems in order to support growth;

■■ Closing the energy divide and developing access to energy in areas where there is little or no supply (rural and suburban areas) in order to fight against poverty.

While seeking to build the capacities of all stakeholders in the sector, AFD Group commitments earmarked for the energy sector between 2007 and 2013 stood at an annual average of over EUR 1.5 bn.

Geographical breakdown of projects 2007-2013 (EUR million)

Asia EUR 3,566 m

Overseas France - EUR 195 mMulti-country - EUR 420 m

Mediterranean EUR 2,071 m

LatineAmerica,

Caribbean EUR 2,218 m

Africa EUR 2,971 m4%

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Kenya and Ethiopia: Two African giants who need to meet increasing energy demand

Kenya, crossed by the East African Rift, has huge geothermal reserves. They are estimated at 7 GW. In 2008, the Kenyan Government launched a development plan (Vision 2030) in which it sets out its objective of exploiting 75% of these geothermal resources by 2030.

AFD Group has supported Kenya’s development of its geothermal sector since 2007 with EUR 226 m of financing. By 2020, Kenya will be generating some 600 MW of electricity thanks to the four geothermal power plants installed on the volcanic site of Olkaria and managed by KenGen and OrPower.

Olkaria III has benefited from PROPARCO financing, and Olkaria II and IV from AFD financing. AFD also supported Kenya at the time of the creation of the State-owned company, Geothermal Development Company (GDC), an organization dedicated to geothermal exploration, by allocating funds for the procurement of drilling rigs.

Ethiopia, just as Kenya, has considerable geothermal resources provided by the Rift (estimated at 5 GW). AFD is currently supporting this country, in cofinancing with the European Union, for the exploration and assessment of this resource, which is still unexploited on the Tendaho site (Afar region). Geothermal power generation would allow Ethiopia to diversify its energy mix, be less dependent on hydropower, and avoid using fossil fuels to meet the energy needs of its population and of East African Power Pool countries.

Indonesia: An archipelago rich in geothermal resources

Indonesia is one of the regions of the world with the highest geothermal potential (estimated at 29 GW, i.e. some 40% of the global geothermal potential).

A specific feature of the archipelago is that it has considerable high-enthalpy resources (300°C in Java) and medium-enthalpy resources that are well-suited to meet the energy needs of the smallest islands.

In 2012, the Indonesian Government covered the electricity needs of its population with a total capacity of 38 GW, 81% of which comes from thermal power plants.

The Indonesian Government has set the target of developing a total geothermal capacity of 12.4 GW by 2025.

This electrical capacity, which is equivalent to the production of about a dozen nuclear power plant units, would allow the Indonesian State to better meet the energy needs of its population and to significantly limit the CO

2 emissions

of the power mix.

In 2008, AFD supported the Indonesian Government’s policy to develop low-carbon resources by allocating a loan for the implementation of a climate change mitigation and adaptation action plan. AFD, in partnership with DFID (UK), is also assisting the Indonesian State in the creation of financial tools capable of bearing the geothermal exploration risks.

Olkaria II, Kenya © AFD, Mathilde Bord-Laurans

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Tailored AFD Group financingFinancial toolsAFD Group operations can be conducted using a wide range of tools.

AFD can mobilize sovereign loans and non-sovereign loans directly to State-owned or private companies via its subsidiary PROPARCO.

It can also provide grants from the French State, or manage funds delegated by the European Union (EU), French Facility for Global Environment (Fonds Français pour l’Environnement Mondial - FFEM), or other international partners.

Finally, AFD can allocate credit lines to support the private sector, which private geothermal energy projects may be eligible for.

Support for public policies and institutionsProactive public policies for demand-side management and the diversification of energy mixes are essential.

AFD supports the development of appropriate institutional and sectoral frameworks.

AFD supports national authorities in the definition of their sector objectives and planning by ensuring that renewable energies are effectively integrated and by strengthening the capacities of operators, who are sometimes unfamiliar with these technologies.

For instance, AFD is financing Kenya’s and Djibouti’s Master Plans, which include geothermal development.

Specific support for the management of geothermal exploration risk There are considerable risks related to geothermal exploration, which hamper its development.

AFD encourages governments to move towards an effective management of exploration risks by getting public authorities to bear them at the proper level, as is the case in Kenya via the Geothermal Development Company, by exploring the possibility of establishing guarantee mechanisms in the event of failure (Indonesia), or by calling on international facilities (African Rift, for example).

AFD has also directly provided financing from the upstream exploration phases to finance drilling, such as in Djibouti, Dominica and Ethiopia.

Lake Assal, Djibouti © ONTD

Djibouti and Dominica: Two countries seeking to free themselves from their energy dependence

Since 2003, AFD has been helping Dominica to assess and exploit its geothermal resources, which are estimated at some 120 MW.

The exploitation of its indigenous geothermal resources would allow it to limit fossil fuel imports, increase its energy independence, and supply its neighbors (Guadeloupe and Martinique) with clean and competitive electricity. Initial geothermal exploration drillings, cofinanced with the FFEM and EU, were followed by the drilling of a production well and a reinjection well, financed by AFD and the Caribbean Investment Facility (EU). The project aims to build a 5 to 10 MW power plant by 2017, which will meet the island’s domestic needs.

In the long-term, a 40 to 100 MW power plant could supply electricity to Guadeloupe and Martinique via a submarine cable.

Djibouti has an electricity demand of up to 70 MW. The country is relying on Ethiopia to partly meet its electricity needs, and on the world market to supply fossil fuels for its thermal power plants.

AFD is cofinancing the drilling of four production wells in Djibouti with the African Development Bank, World Bank, Global Environment Facility and OFID. In the long-term, it is planned to build a geothermal power plant with a power capacity of 50 MW. This initiative should allow the country to better meet the energy needs of its population, and to strengthen its capacities to exploit its geothermal resources.

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Allalobed, Ethiopia © AFD, Théo Cladière

AFD, the Agence Française de Développement , is a public development-finance institution that has worked for seventy years to alleviate poverty and foster sustainable development in the developing world and in the French Overseas Provinces. AFD executes the French government’s development aid policies.

Working on four continents, AFD has seventy-one field offices and bureaus, including nine in France’s overseas provinces and one in Brussels. The Agency provides financing and support for projects that improve living conditions, promote economic growth, and protect the planet.

In 2013, AFD committed €7.8 billion to projects in developing and emerging countries and in the French Overseas Provinces. These AFD-financed projects will provide schooling for children, improve maternal health, promote equality between men and women, support farmers and small businesses, and bolster access to drinking water, transportation and energy. These newly-funded projects will also help mitigate climate disruption by abating nearly 3.3 million metric tons of carbon dioxide-equivalent annually.

AGENCE FRANÇAISE DE DÉVELOPPEMENT

5 rue Roland Barthes 75598 Paris Cedex 12 – France Tél. +33 1 53 44 31 31 Fax +33 1 44 87 99 39 www.afd.fr

SUSTAINABLE DEVELOPMENT DEPARTMENT (DDD)

SUSTAINABLE TRANSPORT AND ENERGY DIVISION (TED)

AGENCE FRANÇAISE DE DÉVELOPPEMENT

GEOTHERMAL ENERGY

FFEM

The French Global Environment Facility / Fonds Français pour l’Environnement Mondial (FFEM) is a bilateral public fund initiated by the French Government in 1994. The FFEM secretariat and its financial management are entrusted to the Agence Française de Développement (AFD). The FFEM co-finances projects that encourage the protection of the global environment in developing countries. Its co-financing is exclusively done as grants and is used for the implementation of pilot projects that combine environmental protection and economic development in the recipient countries. The FFEM is an influential strategic instrument for the French policy on Official Development Assistance regarding global environmental protection. Its activities focus on the topics of biodiversity, international waters, the climate change, land degradation and desertification, persistent organic pollutants and the stratospheric ozone layer. By the end of 2013, the FFEM has co-financed 258 projects with €299m. Two thirds were spent on sub-Saharan Africa and the Mediterranean.

www.ffem.fr

PROPARCO, AFD’s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

www.proparco.fr

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AFD - Geothermal energy