News from 2017-01-20 / KfW Development Bank, Sustainability
Energy from the Earth
KfW launches the first international climate initiative for geothermal energy in Latin America
At the end of December 2016, KfW created a fund for hedging risks associated with research into geothermal energy. This fund is a key component of the Geothermal Development Facility (GDF) for Latin America, which was launched by KfW on behalf of the German Federal Government and the EU in collaboration with a number of other international donors and financiers. The first test drillings could be carried out as early as this year, the costs of which will be absorbed by the fund.
Geothermal energy is a renewable energy source which is characterised by particularly favourable generation costs and low emission values. A further advantage which sets it apart from electricity produced using sun or wind energy is that geothermal heat is available around the clock. However, searching for suitable locations is expensive. Just a test drilling alone costs up to 7 million euros depending on the nature of the existing subsoil. A test drilling involves drilling to a depth of up to three kilometres. In the future, development costs such as these will be partially covered by the fund which was founded in Latin America in December. Up to 40 % of the costs will be absorbed and will be paid back in the event of success. In addition, the participating financiers are providing loans in order to finance further investments into the power plants as part of the Geothermal Development Facility. This is intended to speed up the execution of projects initiated by the risk hedging fund. In view of the high level of interest among project developers in Latin America, KfW believes that the first grant contracts will be signed as early as mid-2017. The first drillings are then expected to take place in the second half of 2017.
The fund's volume is EUR 50 million in risk hedging instruments and over EUR 700 million for credit lines. This will be used to finance the preparation for and construction of geothermal power plants in ten countries in Latin America.
Savings of 50 million tonnes of carbon dioxide
"We anticipate that the GDP risk hedging fund will be used to implement around 10 to 15 geothermal energy projects, with a total capacity of at least 350 megawatts and a total investment volume of well over one billion euros", says KfW Senior Project Manager Jens Wirth. "In light of the regulatory frameworks in most Latin American countries, most of the investments are expected to be provided by private contributions."
Without international funding there would be very little investment in geothermal energy, as the high cost of searching for locations, and the risks associated with this, puts investors off. Building a geothermal power plant costs around 3 to 4 million euros per megawatt. A power plant with an output of 50 megawatts therefore requires an investment of up to 200 million euros.
The GDF pools international resources within an innovative overall concept. Along with the European Union, the World Bank, the Inter-American Development Bank (IDB), the Development Bank of Latin America (CAF), the Central American Bank for Economic Integration (CABEI), the European Investment Bank (EIB), the French Development Agency (AFD) and the Japan International Cooperation Agency (JICA) - more than a dozen financiers overall - are taking part.
With the Geothermal Development Facility, KfW Development Bank aims to expand on its successful involvement in promoting global climate-friendly geothermal projects even further. The GDF is a further development of the risk hedging fund for geothermal projects in eastern Africa, which was set up by the African Union (AU) in 2012 with the support of KfW Development Bank on behalf of the Federal Ministry for Economic Cooperation and Development, the EU and the British Department for International Development. There are also bilateral projects in Chile, Indonesia and Kenya.