Þorleifur Finnsson, Head of Project Development Reykjavik Geothermal. Iceland Geothermal Conference 2013 March 5-8, 2013, Harpa, Reykjavík

1. Realising the Geothermal Value Chain
in developing countries
Þorleifur Finnsson
Head of Project Development

2. Reykjavik Geothermal
 A Geothermal Development,
Consulting and Investment Company
 Founded in 2008 to harness the vast
untapped development opportunities
in the geothermal sector worldwide
 Focused on developing and emerging
markets

3. Resource potential is fixed, but market
attractiveness can be improved
3
Country Risk Vs. Resource Potential
(Conceptual Illustration of Geothermal Market Characteristics)
Perceived‘EaseofDoingBusiness’
Estimated Resource Potential
E.g. Ethiopia, Indonesia,
Papua New Guinea, etc
 The majority of the world’s best
resources are located in developing and
emerging markets
 Due to perceived country risk, private
financing tends to be more difficult to
come by and more expensive
 RG targets countries with high resource
potential where the authorities have
demonstrated a willingness to help
facilitate a geothermal IPP
 Bottleneck: Finding attractive
projects
Conceptual
E.g. Germany,
Australia, secondary
resources in
the United States
Iceland, Italy,
Japan, New Zealand,
Western United States

4. Developing Countries:
Opportunities
 The majority of the world’s largest
geothermal sites
 Lower resource risk
 High demand for power development
 Geothermal frequently least-cost option
 Project financing generally available for
proven resources
 Facilitates capital intensive later stage
development
 Small percentage of resources have been
developed to date
 Market opportunities for developers
comfortable with taking exploration and
country risk
 Underdeveloped energy market –
frequently single buyer system
 Increased off-take risk – governmental
guaranties needed
 Earlier investment in generation based on
grants or low interest loans
 Market price distortions - power prices
subsidized
 Governmental laws and regulations often
unsuitable for geothermal development
 Framework and contract negotiations are
cost and time consuming
 Perceived country and exploration risk
 Difficult to get financing from investors or
MDBs for early stage development
Constraints

5. Development Projects
 Papa New Guinea
 Central America
 Caribbean
 East-Africa
Consulting clients
 Government of
Iceland
 Masdar City, Abu
Dhabi Aramco,
Saudi Arabia
 Orka Energy
 Ormat
 Century Aluminium
RG: Sample Projects

6. Project Example: Corbetti, Ethiopia
Volcanoes of Ethiopia
Reykjavik Geothermal’s Focus Areas
 Ethiopia has potential for thousands of
MW of clean, sustainable and affordable
power from geothermal sources
 Geothermal power generation can:
 Provide thousands of MW of base load
power
 Be highly compatible with existing
hydro-electric power infrastructure, as
demonstrated by the Icelandic example
6

7. The Ethiopian Power Market
Ethiopia has an installed capacity of just over
2,000 MW
 This installed capacity for Ethiopia (population:
80 Mn+) is less than that of Iceland (population
300 k)
 95% + is hydro - Capacity Factor < 50%
 Ethiopia‘s economy has been growing rapidly for
the last decade (7-11% / year, depending on
sources) and the power sector has been
identified as a significant impediment to growth
 Power outages are estimated by the World Bank
to average 43 days / year, significantly hindering
growth
 The country has ambitions of becoming a large-
scale power exporter through the East African
Power Pool
The Ethiopian (and Regional) Transmission Grid
7

8. Source: UPDEA 2009
US cents/kWh
The wider East African power market

10. RG findings in Corbetti Caldera
• The caldera is a large 155 km2 prospect of extensive young volcanism
• Main volcanic products are of silicic composition, often formed in a shallow magma
chamber. The volcanic history pointing to a large and relatively shallow heat source
capable to form a high enthalpy geothermal resource
• Three dominant tectonic structures are found
• These tectonic structures are most likely to produce secondary permeability, a key factor
when siting geothermal production wells
• Shallow well information point to a fairly consistent ground water level and that the
water is boiling in the N and NE sector of the caldera
• From geoscientific results the three tectonic belts and especially their intersection (for
permeability) has the highest priority as drilling targets
Corbetti Geothermal Project
Development Strategy
• Generating capacity for initial target area of 35-40 km2 is in the 300-400 MWe range
• Possible geothermal reservoir, hotter than 250°C, is in the order of 100 km2 or the equivalent
of 1000 MWe possible capacity

11. The Corbetti caldera is large enough to
completely absorb the Olkaria ring structure

12. Geothermal Project Risk and Cumulative Investment Cost
 Once the resource is proven, the project is bankable,
unlocking large scale debt and project equity financing
12
Source:

13. Financing a Geothermal Project (1/2)
Preliminary Work Exploration Drilling
USD 20-25 Mn
USD 4-5 Mn
 Exploration drilling is a risky, capital intensive activity that
needs to be 100% equity financed to prove the resource and
bring the project to the point of bankability
 Concession rights acquisition, resource assessment
(geoscientific work) and contract negotiations are
100% equity financed
CumulativeCapitalOutlay
Point of
Bankability
Debt: 0%
Equity:
100%
13
Financing of Geothermal Power Development (Exploration Phase)

14. Financing a Geothermal Project (2/2)
From Previous Slide
CumulativeCapitalOutlay
Debt
Equity
Preliminary
Work
Exploration
Drilling
Production Drilling /
Plant Construction
Operation
~USD 250 Mn
~USD 80-100 Mn
Debt:
75%
Equity:
25%
Point of
Bankability
First USD 20-25 Mn
is 100% risk equity
 Once the resource is proven, the project is bankable,
unlocking large scale debt and project equity financing
 The first USD 20-25 Mn are
100% risk equity
14
Financing of Geothermal Power Development (100 MW Plant)

15. In the World Bank‘s words:
15
Source: Global Geothermal Development Plan
World Bank, 2012

16. How can we get more out of MDBs support of
geothermal development?
16
 Financed individual phases of geothermal
development without context with other
phases
 Done very limited cooperation with
private investors / developers
 Mostly developed reports / findings
without any continuation of power
development or resulting in Megawatts
on line
 Created market distortions through non-
transparent subsidies of public sector
projects, leading to suboptimal decisions
MDBs have… MDBs should…
 Work hand in hand with governments
and private developers for the
development of geothermal concessions
from greenfield to Megawatts online
 Select the most attractive areas for
development on a country or regional
basis
 Include in all project support a clear
timeline leading to Megawatts online
 Transparently show the effect of grants
and low rate financing on the electricity
price, thus allowing for real market price-
based decision making for the next MWh
online

17. Thank you