Overview of the Global Geothermal Energy Development Marketplace

Fernando S. Pearroyo Director International Geothermal Association

7th Asia Clean Energy Forum 08 June 2012, Asian Development Bank Manila

The International Geothermal Association (IGA) promotes the development, research and use of geothermal energy. The association was founded in 1988 and has more than 5,200 members in 65 countries. The IGA operates as a non-political, non-profit, non-governmental organization in a special consultative status to the Economic and Social Council of the United Nations and to the EU. IGA is now affiliated to the International Renewable Energy Alliance (REN Alliance). www.geothermal-energy.org

Presentation Outline

State of the marketplace Technology Financing schemes Risk mitigation Challenges

World Geothermal Electricity (2005)

Bertani (2005) WGC2005

2010 Capacity and Use

Installed Energy

Power
Use Electric Direct-use (MW) 10,715 48,483

Use
(GWh/yr) 67,246 117,778

Capacity
Factor 0.72 0.28

Geothermal energy kept its promises!

Lund and Bertani, 2010, WGC and GRC

World Geothermal Electricity (2010)

18,500 MWe in 2015

June 19, 2012

1950

1960

1970

1980

1990

2000

2010

Bertani, 2010, WGC

2010 Worldwide Annual Use (TJ/yr)

Others 0.2% Bathing and swimming 24.9% Cooling / snow melting 0.5% Industrial uses 2.7% Agricultural drying 0.4% Aquaculture pond heating 2.6% Greenhouse Heating 5.3% Space Heating 14.4% June 19, 2012 Geothermal heat pumps 49.0%

Lund and Bertani, 2010, WGC and GRC

2010 Worldwide Installed Capacity (MWt)

Cooling / snow melting 0.7% Industrial uses 1.1% Bathing and swimming 13.2% Others 0.1% Geothermal heat pumps 69.7%

Agricultural drying 0.3% Aquaculture pond heating 1.3% Greenhouse Heating 3.1% Space Heating 19, 2012 June 10.7%

Lund and Bertani, 2010, WGC and GRC

Leading Countries in Direct Use >1000 MWt

Country China USA Sweden Turkey Japan Iceland France Germany Norway Netherlands Canada Switzerland GWh/yr 20,932 15,710 12,585 10,247 7,139 6,768 3,592 3,546 3,000 2,972 2,465 2,143 MWt 8,898 12,611 4,460 2,084 2,100 1,826 1,345 2,485 1,000 1,410 1,126 1,061 Main Use bathing/district heating GHP GHP district heating bathing (onsens) district heating district heating bathing/district heating GHP GHP GHP GHP

IEAs Top 15 geothermal energy producing countries, electricity and heat in 2009

Great East Japan Earthquake

Earthquake and tsunami on 11 March 2012

Fukushima I Nuclear Plant and other nuclear and thermal plants were severely damaged
No serious effects on geothermal plants in Tohoku region

11

Photo: TEPCO

Statement by Former PM Kan at the G8 Summit in Deauville on 26 May 2011

Japan will now review the energy basic plan. We must nurture the two new pillars of renewable energy and energy-efficiency, in addition to the two pillars to date of nuclear power and fossil fuels. We will engage in drastic technological innovation in order to increase the share of renewable energy in total electric power supply to at least go beyond 20 percent by the earliest possible in the 2020s. We aim to introduce large scale offshore wind turbines, next generation biomass fuels from algae etc., biomass energy, and geothermal energy by mobilizing Japanese technology.
- Jiro Hiratsuka, Climate Change Policy Div., Ministry of the Environment, Japan

Closing the nuclear power plants in Germany

March 11th, 2011 Earthquake, tsunami and nuclear accident in Fukushima March 15th, Moratorium, closing of the 10 oldest plants (Merkel)
Unterweser, Brunsbttel, Krmmel, Biblis A und B, Philippsburg 1, Isar 1 sowie Neckarwestheim 1.

Security tests Ethics Commission June 30th, decision of the parliament to close all nuclear power plants forever until 2022

- Prof. Dr. Horst Rueter

Icelands Primary Energy Consumption 1940-2009

From an under-developed to a highly industrial country in few decades, Dr. Bjarni Plsson

Central America Current Geothermal-electric Installed Capacity (Gutierez-Negrin, MGA)

~14% of the worldwide geothermal-electric capacity (10,715 MW)

Country Mexico Costa Rica El Salvador Nicaragua

MW 958.0 207.1 204.4 123.5

Guatemala
Total in the region

52.0
1,545.0

South America and Africa

Abundance of resources such as oil, gas, and hydro - energy policies and strategies in South America have excluded renewables and other alternatives as being too costly and technologically unfeasible Eastern Africa has an estimated geothermal resource potential of over 7,000 Mwe but high upfront costs and risks associated with exploration drilling remain the greatest obstacles. Investment in the geothermal sector is still hindered by unsupportive regulatory, institutional and financial conditions.

TECHNOLOGY

Innovative exploration techniques

Magnetotellurics Microseismic interpretation 3D modelling High temperature logging techniques Infra-red for surface monitoring Geochemical modelling

- Dr. Colin Harvey, GNS Science, Past President New Zealand Geothermal Association

Enhanced Geothermal Systems EGS

Most heat is contained in the rock, but: if rock is impermeable how do you circulate water? how do you get injector and producer to communicate? fracturing Sometimes known as Hot, Dry Rock In Australia, HFR is not considered as a risky technology the appropriate application of HFR techniques is regarded as the best geological risk mitigation
June 19, 2012 19 Source: http://hotrock.anu.edu.au

Direct Use Technology Developments

Space heating and cooling with Geothermal Heat Pumps (GHPs) Geostructures, e.g. Energy Piles GHPs for large building complexes

- Ladislaus Rybach, Institute of Geophysics ETH Zurich, Switzerland

Process Heat Innovation in New Zealand

- Dr. Colin Harvey, GNS Science

Largest industrial direct geothermal heat use in the World (~200 MWth ; 5300 TJ/yr) Norske Skog Paper Mill Two World class pulp mills using raw geothermal steam for drying World class large scale greenhouses and for milk product drying

Globally installed geothermal heat pump capacity

Data from Lund et al. (2010)

Growth rate: 20 % per year

Terminal E, Zurich airport

85,200 m2 energy supply area 2120 MWh/a heating, 1240 MWh/a cooling load 310 energy piles 30 m
- Ladislaus Rybach, Institute of Geophysics ETH Zurich, Switzerland

 Development complex Suurstoffi at Rotkreuz near Lucerne, Switzerland 1st development stage 230 flats + 11,000 m2 Heating and DWW 1.8 GWh, cooling 1.0 GWh
- Ladislaus Rybach, Institute of Geophysics ETH Zurich, Switzerland Source: Wagner/Geowatt AG (2011)

Development site Suurstoffi at Rotkreuz near Lucerne, Switzerland Status in September 2011
- Ladislaus Rybach, Institute of Geophysics ETH Zurich, Switzerland

Geothermal stores at Science City, ETH Zurich (now in construction)

- Ladislaus Rybach, Institute of Geophysics ETH Zurich, Switzerland

Total 4 mio m3, >700 BHEs 200 m, Total cost ~ 40 MCHF

FINANCING

The Challenge: Accessing Capital

The main support instrument utilized in the EU is feed in tariff, i.e. a fixed and guaranteed price paid to the producers of electricity from RE Geothermal developers who wish to access capital must have strong resource prospects, an understanding of the developers game plan to gain comfort with risks, and experience. Resource identification, resource evaluation, test drilling: the three earliest and highest risk development phases are the most difficult for raising capital.

Three approaches to raising early-stage funding

Private equity placements of a portfolio of projects Exchange-traded corporate equity financing Balance sheet financing (effectively a combination of corporate debt and retained earnings) by more established companies

RISK MITIGATION

Insurance and risk coverages different approaches:

Geological risk insurance system (France) Risk guarantee system (Switzerland, Germany) Exploration risk insurance (Unterhaching by Munich Re) Productivity guarantee insurance - insures the risk of finding geothermal reservoirs, which do not have sufficient discharge for the feasible economic development of a geothermal project.

- Michael Schneider, KONSENS KG, Germany

US Resource risk management tends to be handled by a combination of:

Technical approaches (application of best practices for exploration, development and resource management, based on a significant body of resource development experience)

Commercial approaches (risk pooling, joint ventures, equity funding)

Government / regulatory / legislative approaches (price supports and tax mechanisms, cost-shared funding) - Ann Robertson-Tait, Roger Henneberger and Subir Sanyal, GeothermEx

US Federal and State Policies and Incentives

Tax incentives Inter-agency coordination and streamlining of federal permitting and land lease processes Renewable Portfolio Standards Greenhouse gas emission reduction policies

CHALLENGES

Technical barriers
While some high temperature hydrothermal are competitive, many geothermal technologies are more expensive than fossil plants (but may be less expensive than other RE sources like solar and wind) Large differences and cost ranges per technology make it difficult for project finance Some new technologies have yet to be developed and tested commercially According to the International Energy Agency, EGS will only become commercially available after 2025 Data from non conventional geothermal and EGS geothermal heat deployment are scarce

Risk Factors
Foreign equity ownership Availability of geo-scientific information and professionals Area status and clearance, conflict with other land use, surface/land ownership Procedural efficiency and clarity between government agencies Environmental issues - Judicial intervention and opposition by some sectors of civil society

Market facilitation and transformation

Development of more competitive drilling technology (e.g. exploration-only drilling, directional drilling) Introduction of guarantee schemes Development of publicly available database protocols and tools for geothermal resource assessments RE Financial Program geologic risk insurance, facilitate access to risk capital

Development of guidelines for the following mechanisms

Resource reporting Renewable Portfolio Standard Inclusion of the following technology for Feed-in Tariff Rates Enhanced geothermal systems Low enthalpy

Conclusion
Since 2005, a geothermal renaissance. New countries and new companies have joined the geothermal community. New technologies have been implemented. Lower resource temperatures are now recoverable. EGS widens the accessibility of geothermal energy. BUT: Regulatory framework should be long term, transparent, predictable and independently administered

As long as costs are higher than fossil fuel plants, economic and financial incentives are appropriate
Forms of support other than financing, like technology sharing, training, & geological surveys are being used.

About the Speaker

BS Geo, Bachelor of Laws (UP), Master of Laws (Univ. of Melbourne) Director, International Geothermal Association Trustee, National Geothermal Association of the Philippines Director, Clean Rock Renewable Energy Resources Corp. (Natib and Daklan RE Service Contract areas) Professorial Lecturer, UP National Institute of Geological Sciences Managing Partner, Puno and Penarroyo Law (www.punopenalaw.com)