WASHINGTON, D.C. -- Developing countries that are interested in geothermal energy may see transformational results by approaching World Bank and other institutions, as Djibouti did. In an interview, the World Bank Djibouti geothermal project team talks about the project investment, lessons from Kenya’s experience, and preparations that are being made for the private sector to take up the next steps.
In October, the World Bank Group and the Government of Djibouti signed geothermal project financing agreements for the Lake Assal project in Djibouti. World Bank will provide a US$6 million highly concessional credit to support assessment of the site’s commercial potential through its International Development Association arm.
With exploration as far back as the 1970s, and facilities now operating in Kenya and Ethiopia, geothermal power development in the hot reservoir areas of East African countries is supported by World Bank as well as U.S. programs under the Obama administration’s Power Africa initiative, like the Geothermal Energy Association’s East Africa Geothermal Partnership with the U.S. government. The World Bank Djibouti geothermal project team answered a few questions. (Many thanks to Ilhem Salamon, Charles Cormier, and the rest of the World Bank Djibouti geothermal project team.)
Djibouti geothermal project area. Credit: World Bank.
LB: Why did World Bank choose the Djibouti geothermal project as its first exploration financing venture in almost 20 years?
WB: The Djibouti Geothermal Power Generation Project came to fruition primarily as a result of Djibouti’s strong confidence in its geothermal potential. Since the 1970s, the Government of Djibouti has shown an enduring commitment to develop its geothermal fields and two exploratory drilling programs conducted in the Lake Assal have shown the existence of significant, albeit highly saline, geothermal resources. Following failed attempts to develop the resource through the private sector, Djibouti reached out in early 2010 to the World Bank to seek support for the exploration phase of the development of geothermal power generation.
In response to Djibouti’s request, a thorough technical review of previous exploratory drilling programs was carried out with financing from the Energy Sector Management Assistance Program (ESMAP), a multi-donor technical assistance trust fund administered by the World Bank. The findings proved that, based on available geo-scientific results, the Fiale Caldera in the Assal Rift is a very promising candidate for geothermal development. The Djibouti geothermal exploration program was subsequently developed by the Government of Djibouti, the World Bank and six other co-financiers.
(The project has 7 co-financiers: the World Bank (US$6 million), the Global Environment Facility (US$6.04 million), the OPEC Fund for International Development (US$7 million), the African Development Bank (US$5 million), the Sustainable Energy Fund for Africa (EUR 1.8 million), the French Development Agency (EUR 2.5 million) and the Energy Sector Management Assistance Program (US$1.1 million). Finally, the GoDj will make an in kind contribution of US$0.5 million.)
The project will focus on assessing whether large scale geothermal power generation is possible and is the first phase of a two-step process to develop local geothermal generation capacity. If the resource is confirmed for large scale power generation, the intent is to follow up with a tender to attract private sector know-how to develop, operate and maintain a power plant, provided investment risks can be identified and mitigated.
The use of concessional financing for the exploration phase reduces the overall cost of geothermal power development in Djibouti by US $52 million, compared to a project that would be fully funded by the private sector. This translates in savings amounting to around 4 US cents/kWh. Geothermal electricity cost is expected to be around 9 US cents/kWh, significantly lower than current tariffs in Djibouti. In terms of overall impact of the project on Djibouti’s finances, the replacement of thermal capacity by geothermal power generation is expected to save around US $57 million per year.
Overall, geothermal power has the potential to help reduce Djibouti’s electricity production costs by 70 percent, boost access to electricity for the population and alleviate the country’s energy dependency. Given its potentially transformational impact, the project is a clear priority for the government and the people.
LB: Many countries across the region are interested in developing their first geothermal projects and are struggling to find the right balance of rules, legislation, and business incentives to attract investors. What made World Bank choose this one?
WB: As outlined above, concessional finance is used to enable the implementation of the exploration phase of geothermal development in Djibouti and subsequently encourage private sector involvement. If the exploration phase is successful, the intent is that the geothermal resource will be tendered to the private sector, which has the know-how and capacity to develop geothermal resources.
In order for the power plant development phase to be successful, the public private partnership (PPP) infrastructure and institutional and legislative framework in Djibouti needs to be markedly strengthened. The World Bank with the Public-Private Infrastructure Advisory Facility is currently providing technical assistance to Djibouti to strengthen its PPP framework. Other international donors, such as USAID and the Japanese International Cooperation Agency, have expressed their interest in providing support on this.