Geothermal Power Plants Project Finance through Public-Private Partnership: A case of Africa.

Abstract

Geothermal power plants projects range generally from the small modular power plant to large plants of over 100MWe and are often located in remote areas. These projects are also characterized by higher initial capital costs, on a cost per kilowatt basis, than large thermal power projects because these capital costs include a lifetime supply of fuel. Owing to their very nature, geothermal energy projects face several financing hurdles, including (a) barriers due to higher capital costs and credit risk issues in developing countries; (b) subsidized use of fossil fuels; (c) statutory limitations in the method by which multi-lateral agencies share project financing, and (d) time consuming and expensive reviews of projects, which may delay and even preclude project implementation. These challenges have resulted in the need to craft innovative financing solutions that resonate with the pressing needs experienced in most of the African states. One of the solutions is financing through Public-Private Partnership. The World Bank Group defines Public-Private Partnership as “A long-term contract between a private party and a government entity for providing a public asset or service in which the private party bears significant risk and management responsibility and remuneration is linked to performance.”
Fast track financing of geothermal projects through public-private partnership and recognition of the real value of the benefits of public-private partnership in a geothermal project, will provide the opportunity for the development of new geothermal projects in Africa. Financing participants should choose a team leader, establish a budget for financing costs and set a closing timetable. Host countries and multi-lateral agencies should provide quantifiable credits for geothermal benefits. A short period from planning through financing approval should be the realizable goal so that projects are developed when and where they are most needed.
This paper aims at exploring and highlighting how to conceptualize and structure geothermal projects to reap maximum benefits offered by the Public-Private Partnership for effective project financing in Africa. In addition, we intend to showcase to the various stakeholders in Kenya, the opportunities and risks involved in investing in the geothermal space consistently and transparently.