Graphic Spotlight: What is the role of public finance in deploying geothermal energy in developing countries?

, March 2016

 

Despite great potential, geothermal deployment in developing countries has been below expectations since 2010. Geothermal energy has the potential to provide significant amounts of low-carbon electricity in many developing countries and is the cheapest source of available power in some developing countries.

The major barrier is securing early-stage project finance given the scarce public resources available to invest in exploration and development. While some countries are pursuing policies to liberalize energy and electricity markets to attract private investment, significant difficulties remain.

CPI analyzed three case studies on behalf of the Climate Investment Funds, with the aim of helping policymakers and development finance institutions understand which policy and financing tools to use in order to enable rapid and cost-effective deployment of geothermal for electricity.

Role of public finance in deploying geothermal energy

Our case studies show that the increase in tariffs needed to provide sufficient returns to incentivize private investment can be entirely offset by public measures addressing specific risks. This graphic illustrates how these public risk mitigation measures (orange) combine to result in a final levelized cost of electricity for a privately developed project (dark grey) that is even lower than what it would have been for the state to develop it (light grey).

To ensure higher participation of the private sector in energy related investments, developing countries face the difficulty of balancing the higher cost of financing from private investors (compared to financing from public investors), with the need to maintain low electricity bills for the end users. A tailored allocation of public resources is key to addressing this issue.

Our analysis shows that by implementing specific risk mitigation measures governments achieved the same amount of electricity generation while appropriating only 15-35% of the resources they would have spent had they built and operated the project themselves.

For more information, see full publication by Valerio Micale and Padraig Oliver: http://climatepolicyinitiative.org/publication/lessons-role-public-finance-deploying-geothermal-energy-developing-countries/

 

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