Geothermal power is one of the leading alternatives to fossil fuel based generation given its affordability, its flexibility, and the fact it can operate 24 hours a day, seven days a week, unlike some other forms of renewable energy. As of 2014, total global geothermal power capacity was around 12.8 GW, with the US, the Philippines, Indonesia and Mexico leading in terms of generating capacity (REN21). This is more than the installed capacity of all electricity generation sources of Singapore or two times that of Nigeria. However, its development is marked by high upfront costs and resource risks which necessitates public sector engagement and can discourage private sector participation.
Climate Investment Funds (CIF) has allocated over $800 million to support the development of around 3.5 GW of geothermal capacity by helping remove investment barriers, creating enabling environments and addressing financing gaps through innovative instruments. In an effort to further understand the role of public sector and the most cost-effective measures to scale-up geothermal development in developing and emerging countries, including through facilitation of private sector finance, CIF, together with Climate Policy Initiative (CPI), hosted the Third Geothermal Dialogue in Vienna. It was followed by a Country Knowledge Exchange to facilitate knowledge and idea sharing amongst countries supported by the CIF. The learnings form both events are included in the new CIF/CPI report Lessons on the Role of Public Finance in Deploying Geothermal Energy in Developing Countries.
Third Geothermal Dialogue
The participants were a mix of diverse stakeholders- those who had past experience with project implementation (like the Philippines), those who are new in this space (like Armenia), Small Island Developing States (like St Lucia), Multilateral Development Banks/ Development Finance Institutions (like the World Bank Group, African Development Bank, European Bank for Reconstruction and Development, , and KfW), public sector actors (like Geothermal Development Company - Kenya) and private sector actors (like Maspo Energy- Turkey, Munich RE), among others.
The dialogue highlighted many of the key issues all these actors are dealing with. These include regulatory and institutional framework, access to finance, private sector participation, innovative solutions, among many others. Some of the key messages to come out of the dialog included:
- Public sector engagement, including the role of DFIs, is key to alleviating some of the early stage risks in order to facilitate additional sources of financing. It could be in various forms such as through innovative financial products like contingency grants, through targeted interventions like standard setting for licensing or streamlining institutional framework, among others.
- Private sector engagement, both in terms of leveraging financing as well as reducing costs is critical to scale up geothermal development in a country.
- Sharing of resource availability data is very important to reduce some of the barriers to entry and help design innovative instruments around the development process. The private sector can play a key role here by actively sharing such information.
- Technical assistance and policy level support play a vital part in addressing capacity constraints in some of the less mature markets.
Countries Knowledge Exchange
The Knowledge Exchange involved informative discussions between country representatives from the Philippines, Colombia, Turkey, Armenia and Mexico as well as representatives from the private sector. Armenia and Colombia shared the challenges faced and progress made so far. The Philippines emphasized how a well-designed regulatory framework helped geothermal development in the country by streamlining processes and the relevant institutional framework thereby encouraging private sector participation.
Turkey shared its challenges not uncommon to countries at an early stage of market development like predictability of a regulatory and institutional environment, finance and local capacity constraints and access to quality data on resource availability.
During the exchange, while the importance of public sector finance, like availability of concessional finance through MDBs or other sources was greatly appreciated, recent developments such as the shale gas boom were recognized as a big challenge in pushing renewable energy deployment.
The Knowledge Exchange highlighted: (i) the role of the public sector in creating enabling environment to support deployment; (ii) the role of targeted financing and innovative financial instruments to mitigate risks and thereby encourage private sector participation; (iii) existing data gaps highlighting local capacity constraints and, (iv) private sector willingness to share key data to help bring costs down and support further market development.
The two events concluded and reiterated that early stage resource risks along with the resultant high financing costs must be tackled through out-of-the-box ideas in order to ensure wider deployment of geothermal generation. And going by those who have actually been key and experienced players in this space, the recipe must include a robust regulatory framework, innovative financing tools, strategic partnerships and an open knowledge sharing platform.