Out-Law / Your Daily Need-To-Know

Ethiopian power project wins backing from geothermal fund

Out-Law News | 02 Jun 2014 | 3:36 pm | 2 min. read

A grant contract has been signed to support the drilling of two wells in the first phase of a major geothermal power project in Ethiopia. 

The contract, worth up to $8 million, was signed by the African Union (AU) and the Icelandic-US private developer Reykjavik Geothermal Limited (RG) for drilling the wells at the Corbetti geothermal power project.

The grant was awarded under the AU-led ‘geothermal risk mitigation facility’, which is designed to encourage public private investment and financial support for geothermal exploration in East Africa. The grant was approved at an international donor meeting in Iceland last week hosted by the AU Commission and the International Development Bank.

Under an agreement with Ethiopia’s government, RG is building southern Ethiopia's Corbetti facility in two phases (4-page / 1 MB PDF). The first phase, at a cost of $2 billion, is result in an initial 500 megawatts-electric (MWe) of power being brought on line within five years, followed by a further 500 MWe from the second phase in eight years.

According to RG, the total cost of the project is $4bn, assuming 25% equity financing and debt financing of 75%.

When complete, RG said the project will represent the largest foreign direct investment in Ethiopia. The company has acquired geothermal exploration licences covering an area of more than 6,500 square kilometres (sq km) in the so-called Southern Lakes District of the Central Main Ethiopian Rift. Within that area, RG said its scientists have “pinpointed an area of 200 sq km in which high temperatures up to 350C (662F) have been identified, indicating a potential of 500-1,000 MWe”.

The project plans to utilise geothermal energy from three different resources at Corbetti, Tulu Moyer and Abaya.

Exploration drilling had initially been scheduled to start in the first quarter of 2014 and to last for up to eight months. Production drilling and construction of the first phase is scheduled to start after financial closing in the first quarter of 2015, RG said.

RG said negotiations are under way with the state-owned Ethiopian Electric Power Corporation for a ‘25-year-plus’ power purchase agreement. “The Corbetti concession is in a densely-populated area with good road access and at the heart of the national electric grid,” RG said.

Initial studies and field work for the project were completed by the end of October 2013. RG said: “Ethiopia has a rapidly growing economy... The shortfall in the power sector has been identified as a major impediment to the continued growth of Ethiopia. The untapped geothermal resources of Ethiopia are plentiful and accessible. Developers can quickly improve indigenous infrastructures and boost local economies while utilising environmentally sound best practices and technologies. The project ties with Ethiopia’s ambitious plans to become a carbon-neutral economy by 2025.”

In 2013, Norway agreed to provide Ethiopia with $13m, through the World Bank’s BioCarbon Fund, to help the country’s carbon neutrality programme.

International Monetary Fund managing director Christine Lagarde said last week that the “scaling up” of energy infrastructure investments in Ethiopia and other African nations were “critical for growth to be sustained”.

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