geothermal energy

Thermal energy has a negative connotation as its predominant source is coal-fired power; however, globally geothermal resources are on the rise as they produce far fewer carbon dioxide emissions and, unlike solar and wind energy, are always available, 365 days a year.

The potential of geothermal energy in East Africa is enormous. With resources estimated at approximately 15,000MWe (e = electric) in the Rift Valley, various countries in the region have started to explore this great potential, both with public and private project developers.

This article first appeared in ESI Africa Issue 3-2019.
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The region’s pioneer is Kenya, with an installed capacity of 676MWe. Other countries are now trying to catch up in this technology, due to the numerous benefits that it can bring to their national power markets and economies.

The advantages of geothermal power resources range from indigenous, low emission baseload and secure power supply, to the reduction of a country’s dependence on fossil fuels. When compared to the dynamic expansion of wind and solar capacities on a global level, geothermal power is often considered the ‘hidden champion’ of the renewable energies.

The recent power cuts in Ethiopia during May 2019, due to droughts and reduced power production of their hydropower plants, show the vulnerability of power markets that are concentrated on hydropower and have not yet achieved a redundant mix in the generation portfolio. Extending a country’s energy mix with geothermal capacities can reduce the described vulnerability, and, in particular cases, increase the government revenues by exporting the power surplus to neighbouring countries.

Geothermal market development in East Africa

The vast geothermal potential in the region, combined with the benefits of this energy resource, was the reason for the initiation of a funding programme focussed on the market development in East Africa: the Geothermal Risk Mitigation Facility (GRMF). It is hosted and managed by the African Union Commission (AUC) and is currently focussing on eleven countries along the Rift Valley.

The overall objective of the GRMF is to encourage public and private sector investment into geothermal power generation. Providing financial support to mitigate the early stage exploration risk associated with geothermal power projects to improve project bankability and secure external financing will see the vision of this Facility achieved. The GRMF, therefore, acts as a catalyst in establishing geothermal energy as a strategic option for power generation capacity expansion in the partner countries. Public and private developers receive GRMF funds in the form of grants.

During the first five Application Rounds, GRMF awarded 30 projects (14 surface studies, 16 drilling programmes) in six countries (Djibouti, Ethiopia, Kenya, Tanzania, Comoros and Uganda); with a total grant volume of $117 million. The planned installed capacity of the awarded drilling programmes amounts to a total of 2,800MWe. Significant market developments are currently observed in Kenya, Ethiopia, Tanzania and Djibouti.

Currently, on a global level, only Kenya and Ethiopia are considered as notable players in East Africa. Estimations by IRENA (International Renewable Energy Agency) indicate their combined installed capacity until 2025 at a total of 1,111MW, which represents a global market share of approximately 6%. However, in the midterm, realising the geothermal potential of other East African countries would change this figure significantly. The related requirements for ‘tapping’ these potentials will be explained later in this article.

Direct-use applications

Apart from power generation, there are several direct-use applications for geothermal energy. These include but are not limited to:

• heated greenhouses

• agricultural crop drying

• milk pasteurisation

• fish farming

• geothermally operated laundromats

• tourism in the form of heated swimming pools, geothermal steam baths, or spa hotels

Many projects with the abovementioned direct use applications already exist in East Africa. Investors should consider these applications, as they generate social benefits around the project sites and are an excellent utilisation of 24-hour energy supply.

Thus, they increase the acceptance of the projects by local communities. Entrepreneurial projects started in one of these sectors, and due to their particular development, often attract companies from other industries to the area. It is an advocate for further economic growth in the region through geothermal energy use.

Challenges in the market and possible solutions

Despite the promising figures as described by IRENA, there are still challenges to exploit the vast potential in the region. The first challenge refers to the mobilisation of funds that are required to develop this type of project. Most projects receive financing through equity or public funding during the early stage with the first eight to 12 exploration wells. The high need for venture capital in the form of equity allows only a limited number of companies to access the market, after partners are found to provide necessary financing.

Nevertheless, the undeveloped potentials are now attracting renewable energy bonds from Europe, which include geothermal in their portfolios. Take into account that attaining the capital needs can be achieved with transparent regulatory frameworks, and PPAs (power purchase agreements) backed by government guarantees. The economic impact of fast-paced development of geothermal resources will allow even higher purchase prices for a stable, baseload power generation.

Considering the number of early-stage projects in East Africa, international financial institutions should keep a close watch on this market, and design further appropriate instruments to support the governments and project developers in their activities.

Due to the relatively small market size of finalised projects in East Africa, geothermal project developers face technical difficulties. These challenges include the lack of capacities resulting in extra costs for the purchase and transport of equipment, or the absence of adequate human capital in this specialised industry. In this context, note that there are already initiatives in place to tackle the mentioned challenges.

One outstanding initiative is the African Geothermal Centre of Excellence (AGCE) that was established by ICEIDA (Icelandic International Development Agency), UNEP (United Nations Environment Programme) and GDC (Geothermal Development Company) of Kenya. The AGCE is focussing on capacity building by offering training to strengthen the skills and knowledge in the geothermal sector. Adding to these institutional training activities, developers also opt for strategic cooperation with experienced partners in the region to implement their projects successfully.

Conclusion and outlook

Apart from the financial and technical challenges, many countries still have to create or optimise their regulatory framework with regards to the private sector. It is through a stable policy environment that significant acceleration in market development can be achieved.

However, the decision to be made is whether the approach should be on fast-paced development financed by international private developers with higher power purchase prices – or instead on slower growth, which may prove to be cheaper for consumers.

In this context, take cognisance that two private companies have already signed power purchase agreements (PPAs) with the government of Ethiopia for the Corbetti and the Tulu-Moye projects. The total capacity of both projects is estimated at approximately 1,000MW. The two signed PPAs can be seen as flagship projects for the region, as they give hope to other private developers – not only in the geothermal sector – and could mobilise further funding from abroad for the extension of renewable power generation in East Africa.

In this sense, utility companies, independent power producers (IPPs), and EPC companies should examine the development of the geothermal sector in East Africa to identify business opportunities in the upcoming years. Geothermal in East Africa should become a ‘famous champion’ for regional prosperity. ESI

References

• Department of Energy Technology, School of Engineering and Technology, Kenyatta University, Kenya; Geothermal Energy Development in East Africa: Barriers and Strategies; 2018

• Geothermal Risk Mitigation Facility (GRMF); GRMF Developer Survey; 2018

• International Geothermal Association (IGA); Geothermal Outlook in East Africa: Perspectives for Geothermal Development; 2018

• International Renewable Energy Agency (IRENA); Geothermal Power; 2017

• KenGen; Opportunities for Direct Utilization in Eburru; 2016

• UN Environment (UNEP); Status of establishment and operation of the Africa Geothermal Centre of Excellence (AGCE); 2017

About the author

Matthias Klarl has experience in various industries in Europe, Latin America and Africa. In 2016, he joined Rödl & Partner as Energy Consultant. Since 2017, he has been based in Addis Ababa, Ethiopia as the company’s Technical Consultant for the Geothermal Risk Mitigation Facility (GRMF).

Access further details on the GRMF on www.grmf-eastafrica.org