FINANCING OF GEOTHERMAL ENERGY PROJECTS : A Case of Geothermal Development Company Ltd.

EAPIC September 5-9,2011

BY: George MwendaSnr. Officer, Business Development;Corporate Planning & Strategy

GDCKenya.

Introduction-Overview

Geothermal Energy future supply

Global Geothermal Power Financing

Regional Perspective-E.A . & Africa

Kenya

GDC

Worldwide Geothermal Dev’t

Worldwide Geothermal Ranking

Kenya Geothermal Potential

GDC Business Model

Surface Exploration

Exploration and Appraisal drilling

Feasibility Study

Production &Development of Steam Supply

Construction and Operation of Power Plant

GDC

GDC

GDC

GDC/Private Entity

Private Entity/ GDC

Investment by Private Entity/ GDC

Sale of Steam

Investment by Private Entity / GDC

Financing Plan/ Requirements

7

Financing Sources/OptionsGovernments Private

InvestmentSpecial Purpose Insurance

Grants AID - Technical Assistance Concessional LOANS Green Funds

CDMAdvisory Services

Project Preparation/ Feasibility

Capacity Building (Training)

Technical Assistance

Credit (Very long-below market interest)

Loans (Long, market rate interest)

Mul

tilat

eral

De

velo

pmen

t Ban

ks

AfDB ♦ ♦ ♦ ♦ ♦ ♦IDA ♦ ♦ ♦ ♦ ♦ ♦ ♦IBRD ♦EIB ♦ ♦ ♦ ♦IFC ♦MIGA ♦

Bila

tera

l Fin

anci

ng In

stitu

tions

France AFD ♦ ♦ ♦ ♦ ♦Prorpaco ♦

Germany KfW ♦DEG ♦

Japan JICA ♦ ♦ ♦ ♦ ♦JBIC ♦ ♦ ♦ ♦

China Exim Bank ♦USA Exim

Bank♦

USTDA ♦ ♦ ♦USAID ♦ ♦

OPIC ♦

Alternative Sources

Governments

• Taxes, royalties, fees & levies

• Government Instruments

– Treasury bills

– Infrastructure bonds

• Other bilateral arrangements

• Commercial loans

Private Sector

• Retained earnings

• Equity

• Corporate bonds

• Commercial loans

BEP 4th

Year

Build up periodGDC will continue to earn revenue 25years after the planning period

Financial & Economic Analysis

Financial Viability

• Positive free cash flow• IRR > WACC• Early Break even• Short Payback period

Economic Viability

• Proj. IRR > Alternative

Project IRR 2.00

2.50

3.00

3.50

4.00

4.50

5.00

USc

ents

/KW

h

Cost of Debt

Change in steam price with changing cost of debt

At 15% RoR & 5 MW a well

At 12% RoR & 5 MW a well

At 10% RoR & 5 MW a well

Risk Analysis

Country Institutional Project

Policies

Repatriation of dividends, profitsTaxations

Foreign exchange restrictions

Change of Gov.

Consistence of policies

Political Stability

War & Civil disturbances

Expropriation

Currency inconvertibility

Legal & Regulation

Process to pursue claimsForeign Law recognition

ArbitrationEnforcement of awards

Licensing & permitting

Risk Analysis

Country Institutional Project

Breach of Contract

Off Taker Transmission Company

Completion

O & M

Steam SupplierSteam

Supplier

Completion

Guarantee of supply

Power Producer

Power Producer

Completion

O & M

Risk Allocation

Manufacturer/ Contractor

Manufacturer/ ContractorProven TechnologiesGuarantees & Warrantees

Long term supply & Service contracts

Risk Analysis

Country Institutional Project

Environmental

Environ. Impacts

Social Impacts

Technology

Proven

O & M

Resource Risk

Existence

Size

Well Character (Temp., Press. Flow, Chemistry)

Performance with time (Cooling, decline)

Reinjection

Access

Market

Price

1

1.5

2

2.5

3

3.5

4

4.5

5

1 2 3 4 5 6 7 8 9 10

USc

ents

/KW

h

Average Well output (MW)

Price of steam at various well outputs

At 15% RoR & 0.75% cost of debt

At 12% RoR & 0.75% cost of debtl

At 10% RoR & 0.75% Cost of debt

At 15% RoR & 4 % Cost of debt

At 12% RoR & 4% Cost of debt

At 10% RoR & 4% cost of debt

at 15% RoR & 7% cost of debt

At 12% RoR & 7% of cost debt

At 10% RoR & 7% cost of debt

Packaging Geothermal Projects to Attract Financing - Kenya

CSR

Detailed surface study

Environ. Baseline Studies

GAB

Project Preparation

ESIA-Drilling

EMP

Stake holder engagement

CSR

Geo. Permit

Land Access

Exploration, Appraisal & Feasibility

CSREMP

Drilling ConsultantsFeasibility study consultantsGAB

Production Production drilling & Plant Construction

ESIA - Plant

EMPGeo. License

Plant & steam field consultants

LAND ACQUISITION

ENGAGEMENT OF POWER PRODUCER

PPA, GENERATION LICENCE & STEAM

CONTRACT

POWER PRODUCERS SOLICIT FINANCING

GOK- MAIN FINANCIER FINANCING BY GOK & IPP

SOVERIGN GUARANTEES

Menengai Phase 1 Project –budgetary Costs

CAPITAL INVESTMENTa) Cash

1 2 3 4 5 6

2010 2011 2012 2013 2014 2015RESOURCE Dev.

CAPEX Rigs purchase cost 70

Water reticulation system 6 2 2

Resource development staff 8 8 8 8 8 -

Civil Works - Access roads 4 1 1 1 1

Civil Works - Sites 0.2 0.2 0.2 0.2 0.2

Drilling costs 24 48 90 90 54 -

Well testing 1 2 5 5 3 -

Feasibility studies 4 4 Steam field and Wellhead

- CAPEX Well Head Generating Units - - - - - -

Steam Gathering system 80 80

10% Contigency 4 14 11 18 15 -

Total cash 47 149 120 202 160 -

Cumulative 47 196 316 518 678 678

Project Financial and Economic Analysis

(800) (600) (400) (200)

- 200 400 600 800

1,000 1,200

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

Mill

ion

US$

Cumulative Cash Flow

Cummulative cash flow

Expenditure

Revenue

• Break even - 6 yrs

• Payback - 12 yrs

• IRR – 7.6% (WACC – 7.6%)

• Projected Tariff – US$ 0.09

Highlights

Projected Tariff –US$ 0.09

– Financing

– Financial and Risk analysis

– Packaging projects

Financing Issues-Summary

THANK YOU