Penarroyo ADB Geothermal Presentation 2012

Overview of the Global Geothermal Energy Development Marketplace

Fernando S. Peñarroyo

Director InternaAonal Geothermal AssociaAon

7th Asia Clean Energy Forum

08 June 2012, Asian Development Bank Manila

The InternaAonal Geothermal AssociaAon (IGA) promotes the development, research and use of geothermal energy. The associa=on was founded in 1988 and has more than 5,200 members in 65 countries. The IGA operates as a non-‐poli=cal, non-‐profit, non-‐governmental organiza=on in a special consulta=ve status to the Economic and Social Council of the United Na=ons and to the EU. IGA is now affiliated to the Interna=onal Renewable Energy Alliance (REN Alliance).

Presenta,on Outline

l  State of the marketplace l  Technology l  Financing schemes l  Risk mi=ga=on l  Challenges

World Geothermal Electricity (2005)

Bertani (2005) WGC2005

2010 Capacity and Use

Installed Energy Power Use Capacity Use (MW) (GWh/yr) Factor Electric 10,715 67,246 0.72 Direct-use 48,483 117,778 0.28

Lund and Bertani, 2010, WGC and GRC

Geothermal energy kept its promises!

May 29, 2012

6 1950 1960 1970 1980 1990 2000 2010

Bertani, 2010, WGC

18,500 MWe in 2015

World Geothermal Electricity (2010)

2010 Worldwide Annual Use (TJ/yr)

May 29, 2012

Geothermal heat pumps 49.0%

Others 0.2%

Space Heating 14.4%

Greenhouse Heating 5.3%

Aquaculture pond heating 2.6%

Agricultural drying 0.4%

Industrial uses 2.7%

Cooling / snow melting 0.5%

Bathing and swimming 24.9%


2010 Worldwide Installed Capacity (MWt)

May 29, 2012

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Industrial uses1.1%

Cooling / snow melting0.7%

Bathing and swimming13.2%

Geothermal heat pumps69.7%

Agricultural drying0.3%

Aquaculture pond heating1.3%

Greenhouse Heating3.1%

Space Heating10.7%

Others0.1%


Leading Countries in Direct Use >1000 MWt

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

IEA’s 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

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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 addi=on to the two pillars to date of nuclear power and fossil fuels.

•  We will engage in dras=c technological innova=on 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 generaAon 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

•  Security tests •  Ethic Commission •  June 30th, decision

of the parliament to close all nuclear power plants forever until 2022

-‐ Prof. Dr. Horst Rueter

•  March 11th, 2011 Earthquake, tsunami and nuclear accident in Fukushima

•  March 15th, Moratorium, closing of the 10 oldest plants (Merkel) •  Unterweser, Brunsbüttel, Krümmel, Biblis A und B, Philippsburg 1, Isar 1

sowie Neckarwestheim 1.

Iceland’s Primary Energy Consump,on 1940-‐2009 From an under-developed to a highly industrial country in few decades, Dr. Bjarni Pálsson

TECHNOLOGY

Innova,ve explora,on techniques

•  Magnetotellurics •  Microseismic interpreta=on •  3D modelling •  High temperature logging techniques •  Infra-‐red for surface monitoring •  Geochemical modelling -‐ Dr. Colin Harvey, GNS Science, Past President New Zealand Geothermal Associa=on

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Enhanced Geothermal Systems EGS

Source: http://hotrock.anu.edu.au

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?

è fracturing Some=mes known as “Hot, Dry

Rock” In Australia, HFR is not

considered as a risky technology … the appropriate applica=on of HFR techniques is regarded as the best geological risk mi=ga=on

Direct Use Technology Developments

•  Space hea=ng and cooling with Geothermal Heat Pumps (GHPs)

•  “Geostructures”, e.g. Energy Piles •  GHPs for large building complexes

-‐ Ladislaus Rybach, Ins;tute of Geophysics ETH Zurich, Switzerland

Process Heat Innova,on 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 hea=ng, 1240 MWh/a cooling load •  310 energy piles à 30 m

-‐ Ladislaus Rybach, Ins,tute of Geophysics ETH Zurich, Switzerland

•  Development complex Suurstoffi at Rotkreuz near Lucerne, Switzerland •  1st development stage 230 flats + 11,000 m2 •  Hea=ng and DWW 1.8 GWh, cooling 1.0 GWh

-‐ Ladislaus Rybach, Ins,tute of Geophysics ETH Zurich, Switzerland Source: Wagner/Geowatt AG (2011)

Development site Suurstoffi at Rotkreuz near Lucerne, Switzerland Status in September 2011

-‐ Ladislaus Rybach, Ins,tute of Geophysics ETH Zurich, Switzerland

Geothermal stores at Science City, ETH Zurich (now in construc,on) -‐ Ladislaus Rybach, Ins,tute of Geophysics ETH Zurich, Switzerland

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

FINANCING

The Challenge: Accessing Capital

•  Geothermal developers who wish to access capital must meet several investor requirements:

-‐ Strong geothermal resource prospects -‐ Understanding the developer’s “game plan” to

gain comfort with risks -‐ Investors demand experience, which is rare in this nascent industry

Selec,on of instruments depend on project structure and financing needs

•  The long-‐term project financing and risk guarantee are cri=cal for scaling-‐up clean energy

•  The boundaries between private and public financing of clean energy are less clear cut than in conven=onal energy projects

•  Carbon finance instruments (and similar “green financing” instruments) complement both public and private financing

•  Blending of financial instruments will be beneficial in balancing economic viability and financial viability

World Bank Group Energy

RISK MITIGATION

Insurance -‐ geothermal project phases: Explora=on phase: •  Insurance (on site): building and installa=on insurance

(operator) •  Insurance (downhole): -‐ drilling, opera=onal, technical insurance for drilling contractor -‐ explora=on risk insurance (operator) -‐ produc=vity guarantee insurance (operator)

Opera=ng phase: •  Insurance (on site) -‐ “all risk insurance” includes: -‐ property insurance, catastrophic insurance (operator) -‐ opera=onal and environmental liability insurance (operator) -‐ infrastructure (e.g. turbines) insurance (operator) -‐ business interrup=on insurance (operator) -‐ Michael Schneider, KONSENS KG, Germany

Insurance and risk coverages – different approaches:

•  Geological risk insurance system (France)

•  Risk guarantee system (Switzerland, Germany)

•  Explora=on risk insurance (1 Unterhaching) •  Produc=vity 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

Philosophy of Resource Risk Management in the US

•  Although resource risk is similar world-‐wide, the economic and physical environments in the US probably lead to more acceptance of risk than elsewhere

•  Commercial / business solu=ons are preferred in the US

-‐ Joint ventures and equity partnerships

-‐ Risk pooling (via a porrolio of projects)

-‐ Power price supports

-‐ Ann Robertson-‐Tait, Roger Henneberger and Subir Sanyal, GeothermEx

Commercial Approaches to Resource Risk Mi,ga,on in the US

•  Risk Pooling – by developers themselves, by equity investors, by financiers

•  Porrolios within one company

•  A porrolio developed from projects of several companies

•  Risks can be hidden without good due diligence

•  Mechanisms used by oil & gas developers and mineral resource developers to auract risk capital

•  Equity partners who understand resource risk

•  Can tolerate a few dry holes

•  Shared royalty pools for specific projects


US Resource risk management tends to be handled by a combina,on of:

•  Technical approaches (applica=on of best prac=ces for explora=on, development and resource management, based on a significant body of resource development experience)

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

•  Government / regulatory / legisla=ve approaches (price supports and tax mechanisms, cost-‐shared funding)


CHALLENGES

Technical barriers •  While some high temperature hydrothermal are

compe==ve, 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 Interna=onal Energy Agency, EGS will only become commercially available aver 2030

•  Data from unconven=onal geothermal and EGS geothermal heat deployment are scarce

Risk Factors

•  Foreign equity ownership •  Availability of geo-‐scien=fic informa=on and

professionals •  Area status and clearance, conflict with other land

use, surface/land ownership •  Procedural efficiency and clarity between

government agencies •  Judicial interven=on and opposi=on by some

sectors of civil society

Market facilita,on and transforma,on

•  Development of more compe==ve drilling technology

•  Introduc=on 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

•  Renewable Porrolio Standard •  Inclusion of the following technology for Feed-‐in Tariff Rates •  Acid well u=liza=on •  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 incen=ves are appropriate

•  Public-‐private partnerships must foster private sector investments in new technologies

About the Speaker

•  BS Geo, Bachelor of Laws (UP), Master of Laws (Univ. of Melbourne)

•  Director, Interna;onal Geothermal Associa;on •  Trustee, Na;onal Geothermal Associa;on of the Philippines

•  Director, Clean Rock Renewable Energy Resources Corp. (Na;b and Daklan RE Service Contract areas)

•  Professorial Lecturer, UP Na;onal Ins;tute of Geological Sciences

•  Managing Partner, Puno and Penarroyo Law (www.punopenalaw.com)

Penarroyo ADB Geothermal Presentation 2012

Technology

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