Geothermal Development in East Africa Boosted By Significant Funding

17 July 2013

Smart Energy

A new project supported by the African Development Group plans to exploit the geothermal potential in the Lake Assail region to enable Djiboutian population's access to a reliable, renewable and affordable source of energy.

Currently Djibouti relies mostly on fossil fuels and some hydropower imports from Ethiopia. The majority of the country's current generation capacity is situated in Djibouti City. The existing power stations are old, polluting and expensive to operate.  In addition, fuel imports are expensive and require important foreign-currency expenditure.

As a consequence, only half the population of the country has access to electricity due to high tariffs. Djibouti is however blessed with substantial geothermal potential, capable of meeting the country's energy needs and possibly exports to neighboring countries, while reduce CO2 emissions from thermal electricity generation.

The geothermal exploration project in the Lake Assail region is structured as Public Private Partnership, where the government of Djibouti is taking the lead on the first exploration and appraisal drilling phase.  The private sector will be responsible for the production drilling, steam gathering system and electricity production and evacuation to the national grid.

In collaboration with the World Bank, the African Development Bank Group has structured the financing of this project.  The first phase will cost approximately US$ 32 million. The Fad Board approved a USD 7.5 million financing from the African Development Fund and the Sustainable Energy Fund for Africa (SEFA), a Danish funded initiative implemented by the Fad.The Fad and the World Bank have jointly mobilized different donors to co-finance the project: the Global Environment Facility (GEF), OPEC Fund for International Development (OFID), Agency Françoise de Development (AFD) and the Global Geothermal Development Plan (GGDP) through Energy Sector Management Assistance Program (ESMAP).

The Fad alone has mobilized from its own resources: USD 5.31 million grant from the African Development Fund (ADF),  USD 0.4 million loan from the African Development Fund (ADF), and (iii) USD 1.8 million from SEFA. The government of Djibouti will also make a contribution.

The contribution from the Fad and SEFA will be used to continue to raise more financing and will serve as a catalyst to rally independent geothermal electricity producers. Specifically, SEFA funds will finance the recruitment of a geothermal consulting company that will be responsible for the technical management of the project and for preparing the power plant´s feasibility study.

Through this intervention, SEFA will play a catalytic role by supporting the structuring of a bankable project that will ultimately leverage private investment and deliver a sustainable energy solution with strong economic, environment and so cial returns.The current project seeks to replicate the innovative model adopted in Kenya where the Fad approved in 2011, the Meninges Geothermal Development Project. For this project concessional funds were provided by development financing institutions, such as the Fad and the Climate Investment Funds (CIF) hosted by the Fad, to finance the drilling exploratory phase of the project.

Drawing from the Meninges experience and tapping into the East African Rift valley geothermal potential, the Fad has also been working on a series of small-scale geothermal units, adapted to the specific context of each country. In Ethiopia, the Fad is playing a leading role in defining a geothermal roadmap.

In Tanzania, it is leading the Scaling Up Renewable Energy Program which includes the financing of a geothermal development project.  In the Comoros, the Fad is also working to develop a 20 MW geothermal plant matching the needs of the archipelago.Building on its Kenyan experience in the East African Rift Valley with the Meninges geothermal project, the African Development Bank is working on an ambitious geothermal development program for Africa.

Apart from the gigantic projects such as the 400 MW geothermal development project under implementation in Meninges, Kenya, the Fad is also working on a series of small-scale geothermal units, adapted to the specific context of each country of the East African Rift Valley having geothermal potential.

It is currently working with the government of Djibouti on the development of a 50 MW power plant in the Lac Assail region. In Ethiopia, the Fad has played a leading role in defining a geothermal development roadmap.

In Tanzania, the Fad is leading the development of the scaling-up renewable energy program of the Climate Investment Funds, which will include the financing of a geothermal development project. In the Comoros, the Fad has started the identification process for a 20 MW geothermal plant, matching the needs of the archipelago.

As explained by Tonia Kindlier, Fad Resident Representative in Tanzania, during the 4th African Rift Geothermal Conference held in November 2012 in Nairobi, "Our ambition is to support the accelerated development of the large untapped geothermal resource potential in the Eastern Africa region.

Geothermal development has been relatively limited in this region in the past. Only about 217 MW of geothermal energy has been developed so far, most of it being in Kenya. This is insignificant compared to the region's huge potential, estimated at 10,000 MW in Kenya alone.

"For Youssef Arfaoui, Chief Renewable Energy Expert, "The African Development Bank is now pushing the geothermal agenda with innovative models that help overcome the several risks associated with geothermal development, among which the most important one is the exploratory drilling risk, which is related to the probability of hitting dry wells during the exploration and appraisal drilling phase. The mitigation of the risks will also make off-taker and consumer tariffs affordable."

In fact, a new model has emerged to fast-track the development of geothermal resources in the East African Rift Valley. This model entails the financing of the early stage and high-risk activities mainly related to drilling by development finance institutions such as the African Development Bank using concessional financing.

The financing goes to a special purpose company in charge of undertaking the drilling activities and hence taking most of the drilling risk, which in turn paves the way for private investors to step in and convert the steam into power by channeling high pressure steam sources deep underground to operate power generation turbines.

"An eloquent illustration of this new model is the Meninges geothermal development project in Kenya, which the African Development Bank has recently supported with approximately USD 150 million highly concessional financing from its own resources blended with climate investment funds," explains Thermo Bah, Fad Senior Power Engineer.

The Meninges Project is the first ever project to be approved under the Scaling-up Renewable Energy Program for low-income countries of the Climate Investment Funds.

The Meninges project, once completed, will have tremendous development impact for the Kenyan people by increasing the energy supply in the country by an amount equivalent to the current consumption needs of 500,000 Kenyan households, 300,000 small businesses and some 1,000 Gown for other businesses and industries.

The project will also displace around two million tons of CO2per annum, hence significantly contributing to the fight against climate change. Building on the success met in Kenya with the Meninges project, the Fad is focusing on developing the geothermal potential in Tanzania, as Tanzania has been identified as the next country having an important geothermal potential, with the appropriate institutional framework and being ready with concrete geothermal sites already identified.

Categories: Energy

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