We sat down with CIF Senior Energy Specialist Zhihong Zhang to talk geothermal development in Latin America and the Caribbean. The CIF team has just returned from a regional conference highlighting geothermal investment opportunities in these regions.
CIF was in Chile last week to attend the 6th Geothermal Congress for Latin America and the Caribbean. What brought you there?
CIF felt it was important to join a diverse range of multi-sector partners in the evolving conversation on geothermal development in Latin America and the Caribbean. Our experience in this sector runs deep: CIF’s concessional financing and innovative financial tools have been widely accepted as catalysts for getting early-stage geothermal projects off the ground across the region, including in Mexico, Colombia, Nicaragua, eastern Caribbean countries, and perhaps most notably, in Chile.
Chile’s Cerro Pabellón Geothermal plant is a great example of what concessional finance can achieve. It is record-breaking in two ways. First, it is South America’s first foray into geothermal power, supplying electricity to over 165,000 households. Second, it happens to be the highest-altitude geothermal complex in the world, situated 4,500 meters above sea level in the Atacama Desert. There’s no question it’s a milestone for the sector and the region.
Let’s back up a bit. What is geothermal power and why is it significant?
Geothermal power harnesses the heat trapped under the earth’s surface to generate electricity. Because it is a naturally available resource, it is a renewable and totally clean form of energy. Another benefit is that it’s very reliable—once geothermal resources are located, then electricity can be produced efficiently and with virtually no interruption.
What make Latin America and the Caribbean interesting regions for geothermal? What is the state of geothermal in these areas?
Latin America has immense geothermal potential, with estimates ranging between 10 to 60 gigawatts. The upper end of that spectrum is around four times the size of current global geothermal capacity.
At CIF we’re working hard with partners to bolster the region’s geothermal investments, which today amount to nearly $200 million. This is low relative to the global average, but there is cause for optimism. Demand is on the up, and the region can expect over a dozen more geothermal facilities in the years to come.
What is inhibiting further geothermal development in the region? What is CIF doing to overcome these roadblocks?
Most experts and practitioners agree that the biggest barrier to realizing Latin America’s geothermal potential is what we call the . Unlike solar or wind, geothermal reserves are underground and invisible to the naked eye. So it’s a lot more difficult—and expensive—to ascertain where the highest-quality geothermal reserves are. The hardships of geothermal exploration deter many investors from supporting early-stage geothermal projects. This is where risk mitigation instruments, such as CIF’s contingent recovery grant, become very useful. This kind of financing lowers the risks associated with geothermal exploration and drilling.
The second major impediment is an underdeveloped investors like certainty. They rely on governments to enact predictable, robust policy agendas that best secure their investments over the gestation period of a geothermal plant, which can be anywhere between five to ten years. This is another area where CIF demonstrates value. We have supported a range of technical assistance programs, including one in Chile, aimed at strengthening policy enabling environments and building local capacity.