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GEO(THERMAL) POWER & HEAT … the sleeping potential Alexander Richter Canadian Geothermal Energy Association (CanGEA) ThinkGeoEnergy.com @thinkgeoenergy 29 February 2012 – REFF Germany, Berlin

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Presentation given at the Renewable Energy Finance Forum (REFF) Germany 2012 in Berlin, Germany on February 29, 2012 It was given in a panel on Solar, Biomass and Geothermal at this all-renewable finance conference. It was my third time presenting at this forum (2x in London and in Berlin)

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Page 1: REFF Germany, Feb. 29, 2012

GEO(THERMAL) POWER & HEAT … the sleeping potential

Alexander Richter Canadian Geothermal Energy Association (CanGEA) ThinkGeoEnergy.com @thinkgeoenergy 29 February 2012 – REFF Germany, Berlin

Page 2: REFF Germany, Feb. 29, 2012

Heat pumps"Geo-"Exchange

Page 3: REFF Germany, Feb. 29, 2012

Geothermal heat

Blue Lagoon, Iceland

Page 4: REFF Germany, Feb. 29, 2012

Geo(thermal) power Wairakei Geothermal Power Plant, New Zealand

Page 5: REFF Germany, Feb. 29, 2012

Land  use  –  Based  on  Acres/  1GWh  

Page 6: REFF Germany, Feb. 29, 2012

What geothermal offers

•  Base-load capacity of 90% and more •  No fuel cost •  Long running time •  Heat & power •  Little land use – visibility •  Utility returns over long period of time

Page 7: REFF Germany, Feb. 29, 2012

Geothermal systems

Hydrothermal/ Conventional Geothermal EGS

Depth In km

1 2 3 4 5 6

Page 8: REFF Germany, Feb. 29, 2012

Heat map

Temp. at Depth 3.5 km

Page 9: REFF Germany, Feb. 29, 2012

Heat map

Temp. at Depth 5.5 km

Page 10: REFF Germany, Feb. 29, 2012

Heat map

Temp. at Depth 7.5 km

Page 11: REFF Germany, Feb. 29, 2012

Heat map

Temp. at Depth 9.5 km

Page 12: REFF Germany, Feb. 29, 2012

Exploration risk

•  Exploration risk = Drilling risk •  Finding sufficient water (as carrier of heat) •  Finding sufficient heat

Risk mitigation

•  Better resource data •  More initial studies, e.g. temperature gradient drilling,

slim hole drilling •  Exploration risk insurance (private or governmental)

Page 13: REFF Germany, Feb. 29, 2012

MARKETS

Page 14: REFF Germany, Feb. 29, 2012

Global potential

4,100

43,000

0

16,100 174

14,000

3,900

74,300

640 9,000

1,060 4,200

665 4,300

Current installed capacity in region Potential capacity in region

510

28,600

Page 15: REFF Germany, Feb. 29, 2012

Geothermal power generation capacity

611

204

167

536

575

843

958

628

1,970

1,197

3,093

674

86

363

225

77

182

612

530

2,303

2,307

0 1,000 2,000 3,000 4,000 5,000 6,000

Other

El Salvador

Kenya

Japan

Iceland

Italy

Mexico

New Zealand

Philippines

Indonesia

United States

2010

Additional capacity planned till 2015

Page 16: REFF Germany, Feb. 29, 2012

Capacity additions by country

•  …..

31 October 2011 GEOTHERMAL – MARKET OUTLOOK

© Bloomberg New Energy Finance 2011

Strictly no copying, forwarding, shared passwords or redistribution allowed without prior written permission of Bloomberg New Energy Finance. For more information on terms of use, please contact [email protected]. Copyright and Disclaimer notice on page 16 applies throughout. Page 3 of 14

targets, resource potentials and electricity market dynamics allowing us to extend our forecast beyond the current pipeline, country by country, to 2030.

Project announcements in Japan, Turkey and East Africa should drive up our forecast estimates in Q4. These markets are not alone, but they are some of the most notable movers of late. New project announcements are coming out of these markets almost weekly, with Marubeni now planning projects in Japan; Enel announcing it owns 142 concessions in Turkey with 26 more up for auction soon; and Kenya, Ethiopia, Djibouti, Rwanda and others in the Rift Valley revealing plans to tap geothermal resources to meet growing electricity demand. Right now we forecast these countries adding an aggregate 435MW by end-2017, but as announced intentions transition to projects we expect this number will actually be much higher.

We still expect most growth to occur in Indonesia, with the country adding another 1.1GW by end-2017 and growing at an average of 11% per year. We are hesitantly optimistic that the federal and provincial governments will arrive at workable solutions to facilitate companies in obtaining necessary permits. Pertamina Geothermal Energy (PGE) has told Bloomberg New Energy Finance it expects to be the trailblazer on this as it seeks to advance development on its 15 concessions. And beyond the red tape, the incentives being pushed by the Indonesian government – the drilling risk fund, relaxed import duties, pending $120–130 feed-in tariff (FiT), and others – are all steps in the right direction to encourage investment.

Figure 2: Historical and expected global capacity additions by country, 2006–15 (MW)

Source: Bloomberg New Energy Finance

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Rest of world

Philippines

Mexico

Kenya

New Zealand

US

Indonesia

701

381427

337 310

245

421

497

751715

-46% 12% -21% -8% -21% 72% 18% 51% -5%

Source: Bloomberg New Energy Finance

Page 17: REFF Germany, Feb. 29, 2012

FINANCING GEOTHERMAL PROJECTS

Page 18: REFF Germany, Feb. 29, 2012

Financing geothermal projects

Start-up Exploration/ Pre-Feasibility

Feasibility/ Resource Verification

Detailed Design & Construction

Start of Operation

Venture Capital

Development Equity

Drilling Equity

Project Equity

Tax Equity

Mezz./ Bridge Debt, Const. Financing

Project & Vendor Financing

•  Developers

•  IPPs (Development Pipeline)

•  Resource Speculators

•  Venture Capitalists

•  Private Equity

•  Public Markets

•  Financial Partners

•  Private Equity

•  Strategic Partners

•  Financial Players

•  Large IPPs with ability to monetize PTCs

Source: Islandsbanki

Page 19: REFF Germany, Feb. 29, 2012

Key concerns by investors/ banks

•  Natural resource exploration vs. energy finance •  Experience & know-how •  Creditworthiness of smaller firms •  Exploration risk •  Technology

Page 20: REFF Germany, Feb. 29, 2012

Approach by developers

•  Experienced teams & partners •  Portfolio (geographical diversification) •  Portfolio (additional technologies) •  Portfolio different project stages (EDC, buy-ins) •  Regional focus with availability for carbon credits,

development bank money and excellent resources

Page 21: REFF Germany, Feb. 29, 2012

•  German answer: – Drilling/ exploration risk insurance (SwissRE, Marsh,

MunichRE) – Vendor investment & finance (Daldrup, Wasabi

Energy)

Page 22: REFF Germany, Feb. 29, 2012

New finance market emerging

•  Vendor and/ or EPC contractor financing •  Bridge loans •  Operator JVs •  IPP JVs •  Tax monetization

Page 23: REFF Germany, Feb. 29, 2012

Geothermal Reporting Code •  Background Mining Reporting Codes & Security

Commissions, listed companies mining firms •  Confidence in geothermal investment decisions •  Establish growth and/or income investment potential

(stage of project) •  Understand the significance of the results •  Assist with comparable analysis!•  Understands risks and limitations of the data •  Confidence in those who prepared the technical

information (“Qualified Persons”) •  Other efforts: European Geothermal Energy Council

Page 24: REFF Germany, Feb. 29, 2012

Germany’s Renewable Energy FIT •  Erneuerbare-Energien Gesetz – Einspeisetarife •  Guaranteed payments per generated kWh

EUR/ kWh USD/ kWh

Base (combined heat & power, early start-up bonus) 25 cents 33.6 cents

Technology bonus (petro-thermal) 5 cents 6.7 cents

Total possible: ! 30 cents! 40.3 cents!

Price to developer U.S. 7-10 cents

Price to developer Philippines 3-5 cents Annual degression of 5% from 2018

•  Germany: 5 MW installed/ 90% capacity – ~EUR 11.8m/ year

Page 25: REFF Germany, Feb. 29, 2012

Contact Alexander Richter Canadian Geothermal Energy Association (CanGEA) [email protected] ThinkGeoEnergy.com [email protected] Follow me:

Twitter: @thinkgeoenergy LinkedIn Group: ThinkGeoEnergy Flickr.com/thinkgeoenergy YouTube.com/thinkgeoenergy Slideshare.com/thinkgeoenergy