Geothermal is Hot for Developing Countries

Mar 27, 2011 - pro.energycentral.com

Renewable energy is growing in demand; solar, wind, and biomass sources are acclaimed as the way to a greener future. For certain developing countries however, geothermal might be an even more promising option to displace fossil fuels and achieve energy independence.

"Geothermal has all the climate change benefits that other forms of renewable energy does and it has some additional benefits," said Fuphan Chou, Investment Officer of Power and Renewables at the International Finance Corporation (IFC), a member of the World Bank group. "For example, geothermal energy is base load, meaning that once you turn it on, it just keeps on going 24 hours a day, seven days a week, like a coal plant; it's not intermittent the way solar, wind or even hydro can be."

Developing countries that are situated on the "ring of fire", a seismic belt in the Pacific ocean, or on the East African rift, a continental rift zone may have the potential to use geothermal energy to create electricity and heat houses They are more often aware of the power that lies beneath them on account of earthquakes and volcanic eruptions.

The IFC recently closed the financing for the San Jacinto plant, a geothermal project in Nicaragua that is expected to generate 20 percent of Nicaragua's energy once completed. This would replace energy currently generated from imported oil and decrease average energy prices and price volatility, "all key contributors to a financially sustainable energy sector," according to Chou.

Expressing the IFC's interest in geothermal, Chou told MediaGlobal that "the IFC seeks to support projects that support economic development, poverty reduction, climate change mitigation, and provision of affordable energy. Geothermal projects have the potential in the right circumstances to address all of these."

Geothermal can be cost-competitive in the long run and can provide energy at a stable rate indefinitely but it is also a large investment that pays off only after 5 years, if at all. As is often the case in the developing world, one of the main challenges is funding. For national governments this is a question of energy security as well as a chance to show the world they're serious about climate change issues, and many try to attract foreign investment in the area.

"The main challenge is capital, most power projects have a very high need of capital in the beginning," Subir Sanyal, president of Geothermex Inc., a company specializing in geothermal energy, told MediaGlobal. "Geothermal is particularly expensive initially because you have to drill the wells, you have to build the power plant."

"Governments try to attract private developers who need a high rate of return to cover the country risk. The currency may decline, the country's stability may be an issue or there might be corruption and so on."

Sanyal explained that geothermal power plants have the potential to replace coal power plants and reduce pollution.

One of the main obstacles for companies interested in financing geothermal projects in the developing world is a low power price, with governments often subsidizing energy costs within the country, making it impossible for geothermal operators to break even.

"It's a combination of perceived country risk and low power price," said Sanyal. "That's what has been delaying geothermal development in many countries, including Indonesia."

The International Monetary Fund has been putting pressure on developing countries to raise the price of power and stop keeping it artificially low as they enter the free market.

Privately owned companies also invest in geothermal energy in the developing world without assistance from the World Bank. Dita Bronicki, CEO of ORMAT, one of the largest geothermal developers in the United States and a significant player worldwide, told MediaGlobal about ORMAT's investment in Kenya, "We took the risk, we trusted the country. And we also mitigated the country risk with political risk insurance."

In this case, the company financed a 48-megawatt power plant, and attracted foreign direct investment only after it was completed. It will be expanded to 100 megawatts. The electricity produced by this powerplant is sold to the national electricity grid, adding to reliable and sustainable power for Kenya as well as creating employment opportunities.

"All of our powerplants are run by local people and managed by local people," Dita emphasized. "We use experts during the construction phase but once the construction is complete the plant is run by locals; we train them, we test them, we empower them and they run the plants."

For those countries lucky enough to have the resources, and a reliable regulatory system, geothermal can transform their energy reality as it did in Iceland.

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