UNITED NATIONS ENVIRONMENT PROGRAMME/GLOBAL ENVIRONMENT
FACILITY (GEF) GRANT REQUEST
1. Identifiers :
Project Number:
[Implementing Agency Number not yet assigned]
Project Name :
African Rift Geothermal Development Facility
Implementing Agencies :
United Nations Environment Programme (UNEP)
World Bank (WB)
Executing Agencies :
Requesting Countries :
Djibouti, Eritrea, Ethiopia, Kenya, Tanzania, Uganda
GEF Focal Area :
Climate Change
GEF Programming
Framework :
OP 6 – Promoting the Adoption of Renewable Energy by
Removing Barriers and Reducing Incremental Costs
GEF Strategic Priority :
CC-2: Increased Access to Local Sources of Financing for
Renewable Energy and Energy Efficiency
CC- 3: Power Sector Policy Frameworks Supportive of
Renewable Energy and Energy Efficiency
Duration:
6 years
Eligibility:
Countries participating in this project ratified the United
Nations Framework Convention on Climate Change on the
following dates:
COUNTRIES
Djibouti
Eritrea
Ethiopia
Kenya
Tanzania
Uganda
UNFCCC
27.08.95
24.04.95
05.04.94
30.08.94
17.04.96
08.09.93
Kyoto Protocol (accession)
12.03.2002
28.07.2005
14.04.2005
25.02.2005
26.08.2002
25.03.2002
___________________________________________________________________________
2. Summary: See Executive Summary as a separate document
3. Costs and Financing (US$):
GEF:
Project:
17,750,000
1
PDF-B
PDF-C
Subtotal (GEF):
700,000
750,000
19,200,000
Co-financing (PDF-B):
850,000
Co-financing (Project):
In-kind
12,000,000
Governments of participating
countries
Italy
Iceland (ICEIDA)
USA Agencies
France
UNEP
Total
Cash
2,500,000
2,800,000
3,500,000
250,000
500,000
19,050,000
2,500,000
Total
12,000,000
2,500,000
2,800,000
3,500,000
250,000
500,000
21,550,000
Co-financing from developers1
34,000,000
Subtotal Project Co-financing:
55,550,000
Total Project Cost (including PDF):
75,600,000
Leveraged co-financing
200,000,000
4. OPERATIONAL FOCAL POINT ENDORSEMENT :
Country
Djibouti
Eritrea
Ethiopia
Kenya
Tanzania
Uganda
Name of
Signatory
Mohamed Ali
Mohamed
Mogos WoldeYohannis
Dessalegne
Mesfin
Ratemo W.
Michieka
R.O.S. Mollel
Keith
Muhakanizi
Title of Signatory
Supervising Ministry
Minister
Ministère de l’Energie et
des Ressources Naturelles
Ministry of Land Water
and Environment
Director General
Department of
Environment
Deputy Director
General
Director General
Date of
Letter
09.06.2005
21.06.2005
21.08.2005
25.12.2003
Permanent Secretary
Environmental Protection
Authority
National Environment
Management Authority
Vice-President’s Office
Deputy Secretary to the
Treasury/GEF
Operational Focal Point
Ministry of Finance,
Planning and Economic
Development
19.07.2005
1
15.05.2003
21.05.2003
Public or private developers undertaking drilling programs geared to establish the feasibility of geothermal
fields.
2
5. IA CONTACT
Olivier Deleuze Assistant Executive Director
Director, Division of GEF Coordination
United Nations Environment Programme
P.O. Box 30552,
Nairobi 00100, Kenya
Fax : 254 20 62 40 41
Bernard Jamet
Project Manager
UNEP/DTIE
39-43 Quai André Citroën
75015 Paris
Tel : +33 1 44 37 18 58
Fax : +33 1 44 37 14 74
Email : bjamet@unep.fr
World Bank
Steve Gorman
GEF Executive Coordinator and Team Leader
Environment Department
World Bank
1818 H Street NW
Tel: 1 202 473 5865
Erik Fernstrom
Task Team Leader
Africa Energy Unit (AFTEG)
Tel: 202 458 0971
Fax: 202 473 5123
Email: efernstrom@worldbank.org
3
TABLE OF CONTENTS
I. Background and Context......................................................................................................... 1
I.1 General .............................................................................................................................. 1
I.2 Project Background ........................................................................................................... 2
1.2.1 Project Initiation and Consultations ......................................................................... 2
I.2.2. Geothermal Energy Opportunities and Constraints in East Africa .......................... 3
I.2.3 GEF Programming Context ....................................................................................... 5
I.2.4 ARGeo Project Components ...................................................................................... 5
I.3 Baseline situation .............................................................................................................. 7
I.3.1 Economic Overview ................................................................................................... 7
I.3.2 Energy Structure in ARGeo Countries ....................................................................... 8
I.3.3 Electricity Production and Distribution Structure in ARGeo Countries ................... 9
I.3.4 Electricity Sector Descriptions of the ARGeo countries .......................................... 10
I.3.5 Baseline Environmental Status from Power Production Activities ......................... 14
I.3.6 Status of Geothermal Electricity Production in ARGeo Countries ......................... 15
I.3.7 Geothermal vs. Alternative Technologies ................................................................ 16
I.4 National Energy Policies and Programmes.................................................................... 18
I.5 Baseline Forecast without GEF Intervention .................................................................. 21
I.6 Forecast with GEF Intervention ...................................................................................... 23
II. Objectives and Outcomes ................................................................................................... 26
II.1 General........................................................................................................................... 26
II.2 Planned GEF Intervention ............................................................................................. 26
II.2.1 Regional Information System, Capacity Building and Awareness Raising
Programme ....................................................................................................................... 28
II.2.2 Technical Assistance............................................................................................... 30
II.2.3 Risk Mitigation Fund .............................................................................................. 33
II.2.4 ARGeo components’ contribution to the facilitation of investments in geothermal
power generation.............................................................................................................. 37
III. Activities, Outputs and Expected Results .......................................................................... 39
III.1 Planned Activities and Outputs .................................................................................... 39
III.1.1 Regional Information System, Capacity Building and Awareness Raising
Programme ....................................................................................................................... 39
III.1.2 Technical Assistance ............................................................................................. 42
III.1.3 Risk Mitigation Fund ............................................................................................. 43
III.1.4 Investments in Geothermal Power Production ..................................................... 43
IV. Risks and Sustainability .................................................................................................... 45
IV.1 Risks ............................................................................................................................. 45
IV.2 Risk Management Process ........................................................................................... 45
IV.2.1 Identification of project risks................................................................................. 46
IV.2.2 Analysis of Project Risks ....................................................................................... 46
IV.2.3 Handling Project Risks .......................................................................................... 46
IV.2.4 Tracking and Controlling Project Risks ................................................................ 46
IV.3 Sustainability............................................................... Error! Bookmark not defined.
V. Stakeholder Participation and Implementation Arrangements ........................................... 49
V.1 Coordination with other relevant projects ..................................................................... 49
V.2 Project implementation arrangements ........................................................................... 49
The World Bank components will be implemented in the context of the bank’s energy
strategy in the region, as well as its overall Country Assistance strategies for the
i
individual countries. Further, the Bank will draw upon its experience in the GeoFund
project. .............................................................................. Error! Bookmark not defined.
V.2.1 Project Steering Committee.................................................................................... 50
V.2.2 Project Management Unit (PMU) .......................................................................... 51
V.2.3 UNEP/World Bank Coordination Team ................................................................. 51
V.2.4 Project Geothermal Advisory Panel (GAP)............................................................ 52
V.2.5 National Project Committees .................................................................................. 53
V.2.6 Risk Mitigation Fund (RMF) .................................................................................. 53
V.2.7 National and regional thematic working groups .................................................... 54
V.2.8 National Project Coordination Units ..................................................................... 54
VI. Risk Mitigation Fund Financial Analysis .......................................................................... 60
VI.1 Cost of Fund operation ................................................................................................. 60
VI.2 Fund Size Requirement and Projected Fund Evolution ............................................... 60
VI.3 Sustainability of the RMF ............................................ Error! Bookmark not defined.
VII. Monitoring & Evaluation Framework ............................................................................ 61
VII.1 Approach to m&e and process definitions.................................................................. 61
VII.2 Key users, responsibilities & timelines ...................................................................... 62
VII.3 Training/Capacity Building ........................................................................................ 63
VII.5 M&E Framework Summary Table ............................................................................. 65
VIII. Project Costs and Financing ............................................................................................ 66
VIII.1 Total Project Financing ............................................................................................. 66
VIII.2 Co financing .............................................................................................................. 67
VIII.3 Investments – Leveraged Financing .......................................................................... 69
VIII.5 Summary of Costs and Financing Breakdown .......................................................... 71
IX Project Log Frame matrix ............................................................................................. 72
X Incremental Cost Analysis................................................................................................ 83
IX. Workplan ............................................................................................................................ 91
ii
ACRONYMS AND ABBREVIATIONS
ADB
ADEME
AERDP
AFD
BGR
CERD
EEPCO
EIB
EdD
EEA
GAP
GEF
GE
GHG
IEA
ICEIDA
IFC/WB
IPPs
ICS
IRIS/Passcal centre
IT
JGI
KenGen
LCPDP
KPLC
RMF
OPIC
PPPs
PSP
R&D
RE
SIDA
TAF
TANESCO
UNEP
UNDP
UNOPS
UNU-GTP
UEB
USAID
WB
African Development Bank
Agence d’Environnement et de la Maîtrise d’Energie
Alternative Energy Resources Development Programme (in Uganda)
Agence Française de Développement, French Development Bank
Bundesanstalt für Geowissenschaften und Rohstoffe (German Federal
Institute for Geosciences and Natural Resources)
Centre de Recherche de Djibouti
Ethiopian Electric Power Corporation
European Investment Bank
Électricité de Djibouti
Eritrea Electric Authority
Geothermal Advisory Panel
Global Environment Facility
Geothermal Energy
Greenhouse Gas
International Energy Agency
Icelandic International Development Agency
International Finance Corporation
Independent Power Producers
Interconnected System
Incorporated Research Institutions for Seismology
Information Technology
Joint Geophysical Imaging
Kenya Electricity Generating Company
Kenya’s Least Cost Power Development Plan for Electricity Production
Kenya Power and Lighting Company
Risk Mitigation Fund
Overseas Private Investment Corporation
Public-private partnerships
Private Sector Participation
Research & Development
Renewable Energy
Swedish International Development Aid
Transaction Advice Fund
Tanzania Electric Supply Company
United Nations Environment Program
United Nations Development Program
United Nations Office for project Services
United Nations University - Geothermal Training Programme
Uganda Electricity Board
United States Agency for International Development
World Bank
iii
PROJECT DESCRIPTION
I. BACKGROUND AND CONTEXT
I.1 GENERAL
1. Presently, about 8,300 MW of geothermal electrical power generation are on line in some
20 countries, including China, Costa Rica, El Salvador, Iceland, Indonesia, Italy, Japan,
Kenya, Mexico, New Zealand, Nicaragua, Philippines, Romania, Russia, Papua New Guinea ,
Turkey, and the United States. By some estimates, as much as 80,000 megawatts of
geothermal based generated electrical power are available from volcanic systems in
developing countries throughout the world. Indonesia alone estimates its potential at 19,000
megawatts.
2. Geothermal energy for electricity generation or direct uses is considered in the GEF
Operational Strategy approved by the GEF Council in 1995, as one of the RETs of possible
GEF interest for the reduction of GHG emissions. Geothermal based energy schemes are in
fact virtually free of GHG emissions, and in general environmentally benign. While the
transformation technology is mature, the uncertainties and risks, linked with the exploration
of this natural resource have for a long time limited the development of this otherwise very
attractive and cost effective energy source to the developed countries (Italy, USA, New
Zealand, Iceland, Japan). Only recently, large geothermal developments have occurred in
developing countries. During the GEF Pilot Phase, the World Bank funded a large geothermal
program in the Philippines, the Leyte-Luzon Geothermal Project, including a $US 30 m GEF
grant. The success of the operation led to investments in the order of billions of US dollars,
and to the installation of many hundred megawatts of geothermal generated electricity.
Following this initial intervention, GEF sponsored geothermal activities have been very
limited and no other GEF geothermal project (electricity generation) has been implemented
and completed since then. A number of attempts have been however made, that did not result
in actual projects:
a) Djibouti Assal Project (UNDP, 1998). The project idea was to support a private sector
development in the Assal geothermal field. The initiative did not however materialize
due to lack of follow up action from the Government and the Implementing Agency.
The project idea was later incorporated into the present Argeo concept.
b) IFC promoted initiatives. In several instances, the IFC initiated the preparation of GEF
geothermal projects involving private developers in Vanuatu, Fiji and Kenya.
Notwithstanding full GEF support, the IFC did not eventually follow up on these
projects for internal reasons. In one of these cases (Olkaria, Kenya) an approved GEF
grant was even cancelled, but the project was eventually developed on its own with
success by the private company ORMAT.
3. However, a new generation of geothermal initiatives have been developed during the last
years, all based on a systematic barrier removal approach, with emphasis on the mining risk,
such as the approaches developed in Iceland or France, as well as by the GEF/World Bank
GeoFund, through the setting up of guarantee funds. The basic principle is that instead of
infrastructure grants, guarantee instruments to catalyse private sector involvement have to be
1
considered, as well as policy environment, institutional capacity and technical assistance and
research. Regarding the latter, of particular relevance is the Joint Geophysical Imaging (JGI)
Medium-Sized Project with Kengen and Duke University, which is under implementation.
The immediate objective of the JGI project is to transfer and adapt Joint Geophysical Imaging
(JGI) methods for assessing geothermal reservoirs to Kenya with potential impacts for the
African Rift Valley. The overall goal is to expand the opportunity for geothermal
development in the region through the increased probability of finding large, productive
steam reservoirs in highly permeable formations due to higher resolution and more accurate
assessments. As part of the project activities, UNEP developed a plan for replication through
technical assistance, policy development and financial instruments in the Africa Rift Valley
region, which resulted in a geothermal resolution supported by the participants of the Eastern
Africa Market Acceleration Conference held from 9 to 11 April 2003, in Nairobi, Kenya, and
which provided substantial input to the ARGeo PDF B. ARGeo explicitly builds on the results
and experience gained from the JGI project.
4. It should be noted that, although the World Bank was not initially involved in the project
concept and the PDF B phase, its participation in the project implementation as a CoImplementing Agency, is a key improvement for the project design as it will facilitate the
incorporation of the lessons already learned from World Bank Energy Sector programs as
well as the GeoFund project mentioned above. It is World Bank’s intention to support
geothermal energy in its energy sector dialogue with the client countries. The project’s
objective of promoting geothermal energy is consistent with the Bank’s energy strategy in the
region to diversify Electricity supply to increase the supply security.
5. Once geothermal projects are implemented, experience and comparative studies have
shown that geothermal operational costs are competitive with more classic electricity
production methods. Indeed, geothermal power projects are characterized by low operating
costs due to low marginal costs for indigenous fuel, high availability, and low environmental
impacts. For example, in Kenya, Olkaria I ran at 98% availability for 22 years and at lower
costs per/ kWh than standard, diesel production. This is because once the initial exploration
phase has been overcome, the operation poses much less risk and leads to the production of
electricity at an affordable cost. Overall, the cost of generating power from geothermal
resources has decreased about 50 percent during the past two decades. Unit costs of power
from geothermal plants remain highly variable, and range from 2.5 to over 10 US cents per
kWh2. Today geothermal power in the US is typically in the range of 4.5 – 6.5 US cents per
kWh3. This compares with current average costs for diesel electricity production in countries
such Djibouti and Eritrea which range over 20 US cents per kWh4.
I.2 PROJECT BACKGROUND
1.2.1 Project Initiation and Consultations
6. PDF-B activities concerning the design of the African Rift Valley Geothermal
Development Facility (ARGeo) began in November 2003. The GEF intervention during the
PDF-B phase was justified by the following reasons:
2
http://www.worldbank.org/html/fpd/energy/geothermal/
http://www.sustainableenergy.org/resources/technologies/geothermal.htm
4
Depending on imported fuel costs, production efficiency and size of network.
3
2




Reduction of greenhouse gases;
Promotion of the adoption of renewable energy sources and fostering private sector
investment in this field; and
Reinforcement of national plans for energy development/ diversification/security
through lessening the dependence on imported oil.
Contribution towards lowering average electricity prices to improve domestic living
conditions and stimulate small and medium energy intensive industries, leading to
socio-economic development in the African Rift Valley region.
7. Five countries in the region with geothermal resources and an expressed interest in their
exploitation began project preparation activities with UNEP and KfW at the start of the
PDFB. A sixth country subsequently joined. As a result, the initial six countries 5 involved in
the ARGeo project are: Kenya, Djibouti, Eritrea, Ethiopia, Tanzania and Uganda
8. During the PDF-B phase, these six countries have been largely associated to the
preparatory studies and the design of the ARGeo programme. Country’s assessments have
been carried out for each country both on the geothermal prospects and on the energy
framework, which results are included in the volume II Annex to this proposal. In addition,
several seminars and meetings have taken place with the participation of representatives of all
the targeted countries including special sessions devoted to discussing the ARGeo features:
a)
b)
c)
d)
e)
The Pomarance Geothermal Conference, Italy 28-29 January 2004
Geothermal Energy Seminar, Djibouti, 14-15 March 2004
KenGen Geothermal Conference, Nairobi, April 2004
First ARGeo Steering Committee, Rome, 25-26 September 2004
Second ARGeo Steering Committee, Addis Ababa, 9-10 February 2005
I.2.2. Geothermal Energy Opportunities and Constraints in East Africa
9. The African Rift Valley system extends from the Red Sea to Mozambique. The Western
Rift Valley runs parallel through Uganda, and Rwanda. A recent report prepared by the US
Geothermal Energy Association determined that the geothermal energy potential in Africa’s
Rift Valley using present-day technology was in the 2.5 to 6.5 GW range,6 which developed
would represent from ¼ to ¾ of current worldwide production from geothermal sources.
10. The two major competing energy sources in southern and eastern Africa are imported
petroleum-fuelled plant and hydroelectricity. Diesel medium speed power plants can be added
without much planning and at a low cost for capacity but at a highly fluctuating cost to
operate, being subject to world petroleum price variations. Hydroelectricity from most dams,
while the lowest cost power source, has also proven unreliable due to drought and silting of
reservoirs indicating that a stranded investment penalty should apply.7 A severe drought in the
5
The ARGeo facility is designed to possibly admit additional countries, once it is established and in place.
Preliminary Report: Geothermal Energy, The Potential for Clean Power from the Earth. Geothermal Energy
Association, April 7, 1999 and the Strategic Plan for Geothermal Energy Program, US Department of Energy,
1998.
6
7
With the exception of the Lake Victoria fed Nile River. Some Kenya dams are said to be approximately 70%
silted, Malawi dams are approximately 80% silted.
3
years 1999/2000 had considerably contributed to a down turn of the economy due
substantially, among other factors, to power outages.
11. With this regard geothermal-energy based power denotes clear benefits. Firstly, it is
insensitive to drought effects and petroleum-price fluctuations. Secondly, it is - in contrast to
fuel-based power - a clean energy and thus induces major improvements in environmental
conditions and public health and associated savings. However, whereas geothermal-energy
based power has reached overall competitive prices, up-front detailed geological
investigations and expensive drilling of geothermal wells require a major financial
commitment while geological risks still exist, in spite of the progress made at the level of
surface investigations.
12. There are different types of barriers to geothermal development, some of them generic
and some specific to individual countries. The following list addresses barriers relevant to the
East African Rift Region:




Legal, Regulatory, Institutional Barriers:
Lack of information on Geothermal Energy (GE) resources and facilities.
Insufficient legal, regulatory, and institutional framework to support GE
development.
Lack of standards for assessing the economics of geothermal resources.
Lack of cooperation between different government bodies (e.g., those in
charge of Energy, Water Environment, Natural Resources, Agriculture,
Forestry, R&D), etc. to help promote RE use
Inability to price GE, competing fuels, lack of incentives
Institutional weaknesses of utilities to pursue GE development.
Technical Barriers:
Lack of management and planning capabilities to identify, prepare, and
implement feasible GE projects
Lack of technical and techno-economic knowledge and know-how of
geothermal energy technologies
Lack of geothermal equipment (geophysical imaging, drilling, etc.)
Lack of tools to help decision makers in prioritizing and selecting suitable
geothermal energy projects
Market Barriers
Insufficient information on competitiveness of proposed GE vis-à-vis
traditional fuels
Lack of national or regional energy planning, setting targets for GE
development into energy sector projections.
Investment Risk and Financial Barriers
High up-front investment costs for GE development
High resource risk at early stage geothermal field development
High transaction costs for GE investments developed by the private sector
Perceived high risks associated to the identification of geothermal reservoirs
Difficult access to and eligibility for guarantees from government or other
institutions
Difficult access to foreign financial sources (donors, banks, investors), thus
lack of availability of long-term finance needed for GE technologies
Lack of creditworthiness, collateral, and of capital and funds useable as equity
among interested project promoters
4
-
Perceived high credit risk in the targeted countries, among the poorest in the
world and some of them subject to political instability.
I.2.3 GEF Programming Context
13. Geothermal projects are characterised by the need to engage upfront relatively substantial
financial resources to pay for the surface technical investigations and the drilling of
exploratory wells. In addition, many influencing factors affect efficiency that are site specific
(type, temperature and depth of well, chemical properties, type of technology used, distance
to electricity network, etc.).In spite of the progress made over the last 30 years in terms of
improving the preliminary investigation techniques (geologic analysis, geophysics, geochemistry, etc), a risk does exist that the drilling of exploratory wells results in a failure,
meaning that no commercially suitable reservoir can be identified. Given the cost of a drilling
campaign ( in the range of US$ 10 to 15 million), such a risk is not affordable, neither for
most of the countries in the African Rift region, nor for private geothermal developers which
are usually relatively small companies, in no way comparable to the main oil majors. In
addition, with the exception of Kenya which is expected to play a leading role in this regard,
all the ARGeo countries need to raise their level of expertise and managerial capabilities in
the geothermal area as well as developing appropriate sector policies and a favourable
institutional environment, allowing in particular for the establishment of public-private
partnerships (PPPs).
14. The Project is consistent with the GEF Operational Strategy for its Climate Change Focal
Area, and supports the objectives set out in Operational Program #6: Promoting the Adoption
of Renewable Energy by Removing Barriers and Reducing Implementation Costs. Although
the use of geothermal for power production can be considered as a mature technology, it is
clear few private and public developers are keen to undertake geothermal power generation
projects because they face the barriers of high risks and capital intensity at a very early stage.
From this standpoint, the project should be considered as a pilot to test whether: (i)
geothermal technologies for power production are still at a stage where cost reductions can be
achieved, and (ii) the barriers hindering the utilization of geothermal for power production
could be removed in a sustainable way. In accordance with OP #6, the project identifies and
addresses critical barriers to the utilization of geothermal energy, including exploration risks,
the lack of a conducive policy and regulatory framework, financial constraints and limited
capacity to implement geothermal energy projects.
15. The project falls under GEF Strategic Priorities CC2 (Increased Access to Local Sources
of Financing for Renewable Energy and Energy Efficiency) and CC3 (Power Sector Policy
Frameworks Supportive of Renewable Energy and Energy Efficiency). The project
contributes toward these priorities by supporting local capacity building and technical
assistance, including South-South exchanges, promoting sector reforms that support
geothermal electric generation, both grid connected and rural, providing financial and other
incentives for geothermal developments, with particular focus on the private sector.
I.2.4 ARGeo Project Components
16. As a result of the analysis in the previous sections, the design of the ARGeo project
includes three, inter-related components:
5
1. The creation of a Regional Network managing a geothermal information system and
capacity building and awareness raising programmes The project will support
activities related to the development of a geothermal energy information database,
capacity building activities through training and exchanges and equipment pooling.
2. A comprehensive Technical Assistance programme focussing on:
a) The realisation of technical surface investigation susceptible to confirm the presence of
exploitable geothermal resources with the aim of minimizing the risk failure for the Risk
Mitigation Fund, as well as feasibility study support to present bankable proposals to local
or international sources of financing
and
b) Sector policy advice and the promotion of institutional structures and an adequate legal
and regulatory framework as well as transaction advice to concerned governments. The
latter reflects the particular attention which will be paid to supporting the involvement of
private sector developers through the hiring of transaction advisors to the local
governments, in order to help them during the negotiation process of the establishment of
IPPs.
3. A Risk Mitigation Fund designed as a financial mechanism that partially covers the
resource risks of geothermal exploration and appraisal.
6
I.3 BASELINE SITUATION
I.3.1 Economic Overview
17. The six countries of the African Rift Valley region involved in the ARGeo PDF Block B
activities are among the least developed countries in the world8. Between them, they are at
relatively different stages of economic, social and institutional development.
Country
Kenya
Eritrea
Djibouti
Ethiopia
Tanzania
Uganda
Population
31 916 000
4 389 000
705 000
68 613 000
35 889 000
25 280 000
GNI
GDP
$ per capita annual growth
(Atlas method)
%
390
1,26
190
5,04
910
3,53
90
-3,89
290
5,56
240
4,88
Energy
KWh/ capita
Energy
kg oil equiv/
per capita
116,8
500,29
42,3
255,3
21,8
291,3
58,5
403,98
64,1
Table 1: Economic and Energy Indicators (2001 –2003)9
18. Kenya is generally the most advanced of the six countries in terms of economic and
institutional development. Its GNI per capita is the second highest of the list 10. Kenya is the
trade and finance centre for East Africa and has pursued different economic reform programs,
including the restructuring of the power sector in 1996. Currently, for example, IPPs provide
16 percent of the country’s electricity production. Nevertheless, recent droughts have caused
water and electricity rationing and drops in agricultural output (which represents 1/3 of GDP).
The current government (since 2002) has embarked on a wide poverty-reduction strategy and
pledged to promote economic growth.
19. Djibouti has a service dominated economy based on an international shipping and
refuelling port. The country has few natural resources and little industry aside from the port.
Two thirds of the country’s inhabitants live in the capital port city (including immigrants and
refugees). The rest of the population is made up of mainly nomadic herders. Unemployment
is over 50% and most sectors of the economy remain under state control. External assistance
continues to play an important role in Djibouti economy. Utility services for both water and
electricity are relatively undeveloped and expensive which exacerbates social living
conditions and stymies economic activity for small and medium enterprises.
20. The remaining Horn of Africa states include Eritrea and Ethiopia. Eritrea is one of the
least developed countries in the world and its economy is based primarily on subsistence
agriculture (80%). Continuing hostilities with Ethiopia have perturbed agricultural production
(1998-2000) and a severe drought in 2002-2003 also adversely affected agricultural output.
The government maintains control over the economy and has concentrated on infrastructure
improvements (transport, ports, etc.) The country has embarked on a power distribution and
8
For example, all six countries are eligible for International Development Association concessional financing (<
$1,465 GNI per capita in 2003)
8
Most recent available data 2001-2003 (World Bank Development Indicators); Energy consumption (KWh per
capita) estimates for Eritrea, Djibouti and Uganda.
9
Djibouti’s GNI per capita is high due to the value of services and the relatively small population
7
rural electrification programme to increase access to electricity and an institutional power
sector reform.
21. Ethiopia is the most populous of the ARGeo countries and the most poverty stricken.
Over 50% of its economy is based on agriculture, which suffers from drought, poor
cultivation practices, and recently, war with Eritrea. In cooperation with international donors,
Ethiopia has begun multi pronged poverty reduction programmes, including agricultural
sector development lead industrialization.
22. Finally, the Great Lakes countries of Tanzania and Uganda are both among the poorest
countries in the world. Approximately half of Tanzania’s GDP is dependent on agriculture
and it occupies 80% of the large population. International donors have recently focused on
the rehabilitation of the economic infrastructure and utilities. Macroeconomic growth has
increased significantly since 2000, averaging 6.4 percent annually. Oil and gas exploration
and development have contributed to this growth.
23. Uganda, like Tanzania, boasts a large population of which over 80% are employed by the
agricultural sector. Coffee is the major export earner, but the country also has significant
valuable mining resources (copper and cobalt). Significant economic reforms have been
introduced since the 1990’s including the rehabilitation of the infrastructure sectors.
Macroeconomic growth since 1995 averaged 6.7% per year.
I.3.2 Energy Structure in ARGeo Countries
24. The ARGeo countries have similar energy production and consumption characteristics.
Combustible waste and biomass represents the largest category of energy produced, ranging
from 70 to 90% of total energy production. All ARGeo countries import petroleum products
mainly for transport use and electricity production. Renewable energy sources (hydro,
geothermal, solar, etc) represent a small portion of total energy production, averaging 2% for
hydropower and solar and geothermal production combined.
Coal
Kenya
Djibouti
Ethiopia
Eritrea
Tanzania
Uganda
Total
61
Crude
Oil
1 500
Petroleum
Products
866
Hydro
1 489
221
51
Geothermal, Combustibles
solar, etc
Waste
268
332
12 277
174
1 053
235
Imported
Electricity
19
Total
15 323
18 270
547
12 999
19 933
768
14 338
112
0%
3 210
6%
1 919
4%
677
1%
332
1%
44 093
88%
19
0%
50 362
%
OECD
%
1 096 355
21%
2 130 261
40%
36 037
1%
105 822
2%
11
32 379
1%
178 410
3%
1 609
0%
5 345 718
Table 2: Total Energy Production, 2002 (TPES)
25. In OECD countries, by comparison, combustible waste and biomass only represent 3% of
total energy produced. The main differences between energy production in ARGeo and the
OECD lies in the increased use of coal and crude oil in the production mix, as well as natural
gas and nuclear production (33%).
11
Total Primary Energy Supply. Source: IEA statistics. Note: OECD line does not indicate gas or nuclear
production (33% of total). Data for Djibouti and Uganda pending.
8
26. In terms of final energy consumption, combustible waste and biomass is the dominant
category in ARGeo countries. This is explained mainly by cooking and heating uses.
Petroleum products, which represent the 2nd category, are primarily used in the transportation
sector. Electricity represents, on average, 2% of the energy consumed in the ARGeo
countries and is supplied mainly in urban or semi-urban areas. Rural areas remain largely offgrid or un-electrified in the ARGeo countries.
Coal
Kenya
Djibouti
Ethiopia
Eritrea
Tanzania
Uganda
61
Petroleum
Combustibles
Products
Waste
2 046
8 801
Electricity
324
Total
11 232
21
1 466
173
979
17 598
434
11 645
146
18
188
19 210
625
12 833
82
0,2%
4 664
11%
38 478
88%
676
2%
43 900
%
OECD
%
120 409
3%
1 944 475
53%
116 345
3%
726 783
20%
3 691 951
Total
Table 3: Total Energy Consumption, 2002 (TPES)12
27. Final energy consumption in OECD countries relies little on combustibles, waste or
biomass as in the ARGeo countries. Consumption of petroleum products by the transport and
industrial sectors is the dominant category. Natural gas and electricity consumption both
represent 20% of total final consumption in OECD countries, compared to 3% (electricity) in
ARGeo countries. Statistically, OECD countries consume, on average, 8,056 kWh per capita
compared to less than 121 kWh per capita in ARGeo countries. Regionally, South Africa
consumes 4,452 kWh per capita while the average for all of Africa is 512 kWh.
I.3.3 Electricity Production and Distribution Structure in ARGeo Countries
28. With regards to developed electricity production resources, Kenya is the most advanced
country in the group, with over 1,052 MW of total installed capacity. This represents
approximately 10 times the installed capacity in neighbouring Djibouti or Eritrea and at least
40% more than the rest of the other ARGeo countries.
12
Total Primary Energy Supply. Source: IEA Statistics. Data for Djibouti and Uganda pending. Note: OECD
line does not include natural gas, which represents 20% of final consumption.
9
Country
Kenya
Eritrea
Djibouti
Ethiopia
Tanzania
Uganda
Total
%
Thermal
346
130
85
36
202
Hydro
799
26%
584
Geothermal
121
671
561
300
7
2 116
70%
128
4%
Wind
1
1
0%
Total
1 052
130
85
714
763
300
3 044
100%
Table 4: Effective Electricity Production Capacity, 2004 (MW)
29. Hydropower is currently the predominant source of electricity production in the region
(70%), yet recent droughts and the silting of reservoirs pose questions concerning the
reliability of these resources. Thermal production (mainly diesel generation) is present in
most countries and is the only source of production in Eritrea and Djibouti. Volatile prices
and high import costs make diesel production a costly production source.
30. The current extent of electrification is low in most of the ARGeo countries, due to the
relatively limited development of the infrastructure (scope and depth) and the large
populations. While urban centres may have access to electricity grids (4 –20%), the rate of
electrification in rural areas is 1 – 2% for Ethiopia, Eritrea, Tanzania and Uganda. National
development policies in most countries emphasize the promotion of local, independent or
mini-grid electrification, yet the most likely source for this type of production (diesel
generators) is expensive in terms of fuel transport and spare part to remote areas. Renewable
options other than geothermal are also being explored in some countries, such as solar and
wind power.
31. Electricity demand growth is high in all ARGeo countries, averaging at least 3 to 5% per
year. In relatively mature markets, such as Kenya, the reference baseline forecast for
increases in consumption is 5.4% per year to 2020. In the more southern countries of the
ARGeo region, electricity demand is reportedly growing at 7 to 11% per year in Tanzania and
at 2% per month in Uganda. High electricity demand growth in the ARGeo countries
translates into the need for adequate and diverse electricity production supply sources,
including geothermal production.
32. Electricity prices in the ARGeo countries reflect the different production, transmission
and distribution structures, production costs varying between US cent 3.5 and US cent 30.
Electricity is provided by the national utilities in the urban, capital centres via the national
grids. High technical and commercial losses as well as poor maintenance can significantly
affect the selling price (as in Djibouti). Outside of urban areas, there is little rural network
coverage and electricity (if it is supplied at all) is usually provided via small 5 – 10 MW
diesel generation units run by cooperatives or other entities.
I.3.4 Electricity Sector Descriptions of the ARGeo countries
I.3.4.1 Kenya Electricity Sector
33. Electrification is part of the sector plan expanding from the current 15% of the population
covered. Expansion of capacity has been hampered by socioeconomic and environmental
impact objections. Reference forecast for generation capacity calls for 2,131 MW by 2019
10
growing 5.5% annually. Hydro and geothermal are included however, as noted elsewhere,
diesel has become the default replacement when other capacity does not come on line as
planned. Kenya Power and Lighting Company is responsible for transmission and distribution
while the Kenya Electricity Generating Company (KenGen) is responsible for the public
generating assets. IPPs provide 187 MW being 16% of capacity. Diesel plant is most common
and the single case of a geothermal plant demonstrates opportunities for improvement. The
Kenya Electricity Regulatory Board oversees pricing but the Power Purchase Agreements are
negotiated between KPLC and the power producers as private entities and power purchase
rates are not published. Recognising the need for public involvement in the early stages of
resource exploration, the GOK is proposing a new separate entity for this purpose referred to
as a geothermal development company. While the national energy plan projects significant
geothermal, recent experience demonstrates the danger of using medium speed diesel as a fall
back measure presenting less difficulty from a risk and investment perspective as well as short
planning and deployment period.
I.3.4.2 Ethiopia Electricity Sector
34. Ethiopia has 714 MW of installed generating capacity of which 184 MW was completed
during 2002. The vast majority of Ethiopia's existing capacity (94%) is hydroelectric and
accounts for 97.5% of electrical energy produced. Diesel generators contribute most of the
remainder (5%) of capacity and geothermal 1%. Currently, less than half of Ethiopia's towns
and 4% of the population have access to electricity. Projected energy requirements from the
year 1990 through 2040 indicate that power generation capacity needs will increase more than
14 times by 2020 and about 25 times by 2040. Most of the larger urban centres are served by
the grid (known as the Interconnected System or ICS) while smaller centres receive only parttime electric service from diesel generators operated as part of the Self-Contained System
(SCS). Most small towns and villages lack access to electricity.
35. Production costs are reported to be 2.3 cents US/kWh for hydro and 24 cents US/kWh for
diesel. Electricity is sold countrywide for an average price of 5.5 cents US$/kWh. During
recent drought conditions, only 170 MW were generated. Drought has arrived again in 2003
resulting in power outages. Increased reliance on diesel generation is necessary.
Interconnection with Djibouti is being considered in order to import diesel generated
electricity during dry periods.
36. The agency responsible for electric power in Ethiopia is the Ethiopian Electric Power
Company (EEPCO). A World Bank Power Sector reform project is now underway which
includes consideration of renewable energy especially for rural electrification. The Ethiopian
Electric Authority has been established with regulatory powers and while EEPCO is expected
to maintain the existing hydro generation facilities, new generation capacity including
geothermal would be developed by the private sector.
I.3.4.3 Djibouti Electricity Sector
37. Until 1999, the government of Djibouti had a monopoly in all facets of the electric utility
sector. Électricité de Djibouti (EdD) is the state-owned electric utility and is under the
jurisdiction of the Ministry of Energy and Natural Resources. EdD is responsible for the
generation, transmission, distribution and sale of electricity in Djibouti and has the primary
responsibility for the development of geothermal resources for power generation. In 1999,
the government committed to privatizing the port, the national electricity utility, the urban
11
water utility (in the city of Djibouti), the two national telecommunications utilities (which are
to be merged) and the airport. Thus far, only the nation's port and airport have been
privatized.
38. The Centre de Recherche Scientifique de Djibouti (CERD) is the national institute
responsible for monitoring and carrying out scientific and technical work in Djibouti. It is a
semi-autonomous government agency that reports directly to the Office of the President.
CERD provides technical support to EdD for geothermal exploration and development.
39. Djibouti currently has installed electricity generating capacity of 85 MW, all of which is
thermal (oil-fired). The city of Djibouti is the principal power market. After the 1991-93 war
with Eritrea, power demand began to recover but capacity limitations have prevented further
growth. In 1998, the problem became acute when a fire occurred in the Boulaos Generating
Station, destroying two units and impairing the ability to use six others for much of the year.
A year later six diesel gensets capable of producing 18 MW of power were installed at critical
locations throughout the city, including the airport, the marine terminal and communications
centers. Recently, EdD installed four new diesel generators of six MW each at the Boulaos
power station. Many private businesses and homes also installed smaller gensets.
40. Over the long term, electricity demand has been increasing at three to five percent per
year. Projection of peak demand in Djibouti is complicated by the problems of recent years,
including the Boulaos fire of 1998. Historically, base load demand has been on the order of 40
to 50 percent of peak demand. Simple linear regression applied to the historical data from
1971 through 1990 suggests that peak demand has grown at an average of 1.55 MW per year,
with standard deviation of 1.14 MW. Based on work carried out by Geothermal Development
Associates, conservative estimates of peak and base loads of 60 and 30 MW, respectively,
were projected for the year 2003, under normal circumstances.
41. The average cost of electricity for domestic consumers is about US$ 0.20 per kWh with
commercial customers paying approximately US$0.28 per kWh. This high cost is due to: (a)
deteriorating power generation equipment; (b) use of expensive diesel fuel; and (c) high
transmission and distribution losses. All diesel fuel is imported and thus represents a severe
drain on foreign exchange.
I.3.4.4 Uganda Electricity Sector
42. The electricity sub-sector contributes 1 per cent of the total energy (including biomass)
consumed in Uganda, which is generated primarily from Owen Falls Dam at Jinja in the
South Eastern Uganda. In the smaller, remote urban centres, electricity is produced using
diesel-oil generators. Although 40 per cent of the country’s population lives in the area
covered by the Uganda Electricity Board (UEB) system, only 6 per cent of Uganda’s
population has access to electricity – 5 per cent in the urban and 1 per cent in the rural areas.
The 94 per cent of the population, which is not yet reached, represents a potential market for
increased electric power generation, transmission and distribution. Domestic power demand is
estimated to be growing at 2 per cent per month.
43. In 1999 the Electricity Regulatory Authority was established and in turn set up the
Uganda Electricity Board (with existing generation facilities) the Uganda Electricity
Transmission Company and the Uganda Electricity Distribution Company. Private sector
generators would sell to the transmission utility.
12
44. The electric grid extends across the southern part of the country to cover Masaka,
Kampala, and Jinja to the west of Owen Falls Dam and Tororo to the east where it connects
with the Kenyan system and to the northern line running up to Lira. With the commissioning
of unit II of the Owen Falls Extension (OFE), the country has an installed generation capacity
of 270 MW while total peak demand on the system is estimated at 280 MW. This indicates a
power deficit of 10 MW, leading to load shedding, which is a constraint to investment and
economic diversification. However, recently there has been a positive development from load
shedding every the other day to once a week due to the additional 80 MW from the Owen
Falls Extension. World Bank stated at the Pomarance meeting that the extension of the
petroleum pipeline to Kampala from Eldoret would open up the possibility that diesel plant
could be used for peaking power.
45. The Government is formulating a long term integrated least-cost “Alternative Energy
Resources Development Programme” (AERDP) and defining projects that are optimal within
the framework of the program. Geothermal energy presents a high priority alternative to
hydropower especially given that the geothermal resource is in the west while hydro potential
is mostly in the east. Diesel generation in remote minigrids can be displaced through efforts
like the AfDB renewable energy activities and through displacement of diesel in neighbouring
Kenya through the interconnecting electricity grid (currently 30MW but expansion planned).
I.3.4.5 Tanzania Electricity Sector
46. The installed electrical generating capacity in Tanzania is 864MW. About 65% is from
large hydro, 35 from thermal and 10% from aging small diesels around the country. The
major hydropower plants are Kidatu (204 MW), Mtera (80 MW), Pangani Falls
Redevelopment (68 MW), Hale (21 MW) and Kihansi (180MW). Tanzania has substantial
proven energy resources including hydropower, natural gas, coal, biomass, solar, and wind.
There are indications of potential geothermal and oil resources in the country. A long range
Power Sector Development Master Plan for Tanzania covering the period up to 2026 was
recently completed. The energy and peak demand projections are expected to increase from
2,118 GWh in 1998 to 13,360 GWh by 2025. Peak demand will grow from 367 MW in 1998
to 2,312 MW by 2025. In order to satisfy this increase, a total of 1,440 MW of new generating
capacity will be required between 2002 and 2021. Government policy aims to reduce
dependence on hydro sources and increase utilization of indigenous thermal resources such as
natural gas, coal and other renewable energy resources in the medium to long term.
47. A private power agreement was recently signed by TANESCO with a Malaysian firm,
Independent Power Tanzania Ltd. (IPTL), for 10 x 10 MW diesel/gas turbines. Other IPPs
include, TANWAT in Njombe (approx. 2.5 MW generated from wood), Kiwira Coal Mine
(approx. 6MW capacity) and Songo-Songo Gas (gas to electricity) Project which is in the
planning phase. Small isolated diesel minigrids and gold mines in the west present
opportunities for generation capacity from geothermal energy that would be close to the load
compared to natural gas at the coast.
48. Electricity generation, transmission and distribution in Tanzania is carried out by the
Tanzania Electric Supply Company (TANESCO). The company is responsible for 98% of the
country's electricity supply. The present TANESCO system consists of a main grid serving
the major towns and a number of isolated grids serving smaller towns. Recently, the market
has been opened to the private sector and incentives provided. TANESCO identified some of
its non-core activities and has started divesting them. The power distribution activities of
TANESCO have been earmarked for privatization. Although the national grid extends to 14
13
of the 20 regions of mainland Tanzania and to Zanzibar, less than 15% of Tanzania’s
population lives in areas served by the grid.
I.3.4.6 Eritrea Electricity Sector
49. The Eritrea Electric Authority (EEA) has approximately 130 MW of diesel-fired
generating firm capacity in 2001 including the new 84 MW Hirgigo power plant, which will
be commissioned soon. Approximately 21% of Eritreans have access to electricity, but only
2% of the rural population is estimated to have the access. Averaged over the whole
population, per capita electricity consumption has improved from as low as 16 kWh in 1991
to 59 kWh in 2001. Present electricity rates are 10 US cents/kWh for industrial customers and
14 US cents/kWh for residential and commercial customers. No subsidies are provided and
prices are determined by actual costs with a reasonable profit. The cost of small-scale diesel
generation in the rural areas is in the 20-30 cent/kWh range. There are a number of minigrids in the rural areas which use diesel power and provide electricity for a few hours each
day.
50. The Eritrean Electricity Authority (EEA) is under the Ministry of Energy and Mines and
is responsible for generation, transmission and distribution of electricity. The electrification
of the densely populated Zobas of highland Eritrea is being done through grid extension. With
capital assistance from SIDA, the Ministry of Energy and Mines and EEA have embarked on
extending the grid to many of the villages around large cities, major roads, transmission and
distribution lines.
I.3.5 Baseline Environmental Status from Power Production Activities
51. Operational environmental impact of hydropower, the most important energy source for
electricity production in the region, is negligible in terms of GHG. Its impact on wildlife,
human settlement, etc, however, is more serious. Recent droughts and silting of hydropower
resources have reduced the utility of hydropower generating plants. Thermal electricity
production is the second most common and represents approximately 26% of the installed
generation capacity in the ARGeo countries. The fuel mixes and utility factors used for the
thermal generators vary from country to country and from site to site:
Country
Kenya
Eritrea
Djibouti
Ethiopia
Tanzania
Uganda
Total
Thermal
Capacity (MW)
346
130
85
36
202
799
MWh
1 818 576
683 280
446 760
189 216
1 061 712
kWh
(billion)
1,819
0,683
0,447
0,189
1,062
4 199 544
4,200
Table 5: Effective thermal capacity (MW) and production estimate (billion kWh), 2004
52. The International Energy Agency and UNEP have produced a series of GHG indicators to
estimate the amount of CO2 produced by the combustion of different types of fossil fuels
14
according to local fuel mixes and environmental factors13. Using the suggested indicator for
the Africa region14, the following table indicates the amount of CO2 produced per country
from thermal electricity production activities.
Country
Kenya
Eritrea
Djibouti
Ethiopia
Tanzania
Uganda
Total
Thermal
Capacity (MW)
346
130
85
36
202
kWh
(billion)
1,819
0,683
0,447
0,189
1,062
799
4,200
Emission
Factor
0,000663
0,000663
0,000663
0,000663
0,000663
0,000663
Metric tons
of CO 2
1 205 716
453 015
296 202
125 450
703 915
2 784 298
Table 6: Estimate of GHG Emissions with current installed capacity
53. Given the currently installed thermal capacity in the ARGeo countries, it is estimated that
CO2 produced by power production alone is approximately 2.8 million metric tons per year.
Other energy intensive activities aside from electricity production also contribute to GHG
emissions, including vehicle emissions, cooking, etc.
54. In terms of the potential for avoided annual GHG emissions, the following table outlines
the annual savings associated with geothermal electricity production. The table is particularly
relevant for those countries in which the main alternative to geothermal power is fossil fuel
production (Djibouti and Eritrea, and, to a lesser extent, Kenya).
Country
Kenya
Eritrea
Djibouti
Ethiopia
Tanzania
Uganda
Total
Initial Pilot Projects
Total Investments Identified
Geothermal
kWh
Metric tons Geothermal
kWh
Metric tons
(MW)
(billion)
of CO 2
(MW)
(billion)
of CO 2
70
0,613
406 552
280
2,453
1 626 206
10
0,088
58 079
15
0,131
87 118
30
0,263
174 236
45
0,394
261 355
20
0,175
116 158
50
0,438
290 394
6
0,053
34 847
31
0,272
180 044
30
0,263
174 236
60
0,526
348 473
166
1,454
964 108
481
4,214
2 793 590
Table 7. Estimated annual GHG savings from Geothermal Power Production (Pilot and Total
Projects Identified).
I.3.6 Status of Geothermal Electricity Production in ARGeo Countries
55. As previously indicated, despite the large geothermal energy potential in East Africa, only
Kenya now has geothermal operations as part of the country’s electricity generation
infrastructure. It has however to be emphasised that Kenya has been successful in the Olkaria
geothermal field but nowhere else so far and that, according to a World Bank statement,
13
The GHG Indicator: UNEP Guidelines for calculating Greenhouse Gas Emissions for Businesses and NonCommercial Organisations, UNEP, 2000.
14
Ibid. Table 6: Electricity emission factors for different countries for 1990 and 1996 (t/CO 2/kWh). Individual
details for the ARGeo countries were not available, therefore the default value for the African region was used.
15
Kenya’s geothermal development plan is at least five years behind in implementation on
average.
56. In Djibouti-Assal the initial wells had been drilled by public agencies (the Italian
Geological Survey) and under a World Bank loan. Crucial assessment data is therefore
available but the drilling risk in developing a field sufficient to support plants is still
significant and in Djibouti for instance could require an additional 3 to 6 wells for a 30 MW
plant. In addition, Assal field will need testing of the steam and water quality during appraisal
as it contains salt. Djibouti has in the past tried to attract geothermal investors to this prospect.
A private developer is willing to take on risk given their experience and projection of
potential. However, negotiations relating to the actual investment conditions have been slow
due to lack of in-country capacity to assess proposals in an efficient manner.
57. Aluto Langano in Ethiopia was developed by foreign companies, training of operators
provided and then the plant fully transferred to the utility, EEPCO. The plant is producing at a
fraction of design capacity due to difficulties that could likely be addressed through more
extensive and extended technical support. By contrast, in Kenya, a separate team of geologists
and experts manage the geothermal field versus the mechanical engineering team that runs the
plant. Olkaria I has been producing for over twenty years with over 98% availability to the
electric grid.
58. It appears then clearly, that weak in-country capacity, lack of conducive legal and
regulatory frameworks as well as up-front costs of geothermal exploration need to be
addressed. It also appears that a clear commitment by public agencies to reduce the initial
costs and the risks linked to exploration is crucial for geothermal development. Geothermal
energy is not yet appropriate for development at fully commercial terms in the targeted
region. Secondly, successful transition to private sector demands an independent advisor role
be filled to ensure flexibility and successful tendering processes, confidence building and
optimised investments. Thirdly, while significant resource assessment expertise exists in
Eastern Africa sometimes it is not recognised locally or by foreign investors and national
resource management needs to be developed to ensure country driven participation and
governmental support. Finally, scarce public funds in the region’s countries as well as the
need to cope with complex technology calls for private investor’s participation where possible
at acceptable terms through sound tendering processes.
I.3.7 Geothermal vs. Alternative Technologies
59. ARGeo country governments are confronted with the pressing need to increase electricity
supply to cope with the saturation of the existing networks and the pent-up, growing demand
in each country. As indicated earlier, increasing electricity supply in the urban and rural areas
will yield positive economic and health benefits. Choosing the appropriate mix of
economically feasible technologies to meet this demand is a critical task for the ARGeo
countries. Hydropower, the traditional choice in the region, is abundant and cheap yet it has
become unpredictable in recent years due to silting. Moreover, the lag time to introduce
hydropower is very long. Thermal generating units, the second most popular technology in
the region, are reliable and proven, yet operational costs are relatively high due to imported
fuel and parts. Given this context, geothermal represents a compelling, cost-competitive
option over other remaining alternatives.
16
Technologies
Already Existing
Hydropower
Diesel Production
Alternative Technologies
Geothermal
Solar (PV)
Wind
Production Price
Range (US $/kWh)
0.035
.20 - .30
.025 - .10
>0.15
0.06 - .08
Table 9: Indicative energy unit costs by technology
60. Solar and wind electricity generation technologies are the most likely competing
alternatives to geothermal installations. Given appropriate site characteristics (geography,
wind patterns, solar days) and favourable climate conditions, these technologies can produce
electricity for non-grid areas or peak power inputs to networks. However, due to changing
weather conditions they are less reliable than geothermal installations which produce on a
continuous basis. Moreover, reaching competitive unit costs requires large installations (wind
farms or large solar PV or thermal installations).
61. A total of 481 MW of potential geothermal projects was identified in the ARGeo countries
during the PDF-B phase of the project with an average size from 10 to 20MW. Meeting the
fast growing demand for electricity in the region is vital for addressing poverty as well as
health and economic reasons, yet current technologies are either becoming unreliable (hydro)
or expensive (diesel). Other generation technologies offer some promise, but their
performance and efficiency vary greatly due to geography, the size of the installations,
climatic conditions, etc. Geothermal is thus positioned as an ideal intermediate technology
between existing and future alternatives to meet the widening electricity supply gap in
ARGeo countries. It is a proven technology, which once installed supplies continuous power
at a competitive unit cost. Government support, however, is required (as it has been used in
other countries) to successfully surmount the risks during the exploratory and investigation
phases in order to implement this renewable energy technology. The ARGeo project defines
just such a comprehensive framework for realising these geothermal investments.
17
I.4 NATIONAL ENERGY POLICIES AND PROGRAMMES
62. A concise summary of the national sector policies in each of the six countries in the
ARGeo facility is presented in this section. Further details are contained in the Volume II
Annex.
Kenya
63. Kenya’s Least Cost Power Development plan indicates a measurable shift from the
reliance on hydropower resources to the development of geothermal sites. Regionally, the
country is also considering interconnection schemes with Tanzania, Zambia and importing
from Uganda. Domestically, the country has relevant experience with independent power
producers (IPPs) that also form a key part of the Kenyan energy policy. The World Bank is
the lead donor with regard to the Energy Sector Recovery Project designed to enhance the
policy, institutional and regulatory environment to favour private sector participation, to
support efficient expansion of power generation capacity, and to increase access to electricity
in urban and rural areas. In the framework of the Energy Sector Reform and Power
Development Project, the World Bank, the EIB and KfW have co-financed the Olkaria-II
geothermal power plant, which is operational since October 2003. KfW is currently working
on building co-financing for the development of the geothermal field Olkaria IV and
evaluating the extension of Kenya’s first private geothermal power plant for commercial
funding.
64. In terms of policy, the Draft National Energy Policy of 2004 is clear on encouraging
private sector involvement:

Rural Energy: The government will encourage and promote private sector initiatives in
entering the renewable energy market. The government recognizes the need of
development partners to identify specific programs and it will continue to seek their
support especially in areas less attractive to the private sector. Furthermore the
government will allocate resources to complement self-help groups and private sector
efforts in rural energy supplies.

Fiscal policies: The government in recognition of the need to lower the electricity tariffs
will grant income tax holidays for certain types of investments (according to scale).

Legal and Regulatory framework: The National Energy Policy would make it mandatory
for a licensed public electricity supplier operating in an area where power generation is
being undertaken by parties other than those with agreements or arrangements with such
public electricity suppliers to buy such power on terms approved by ERB

Other Renewable Energies: The government recognizes that most of the renewable
energy sources have potential for the creation of opportunities and employment
generation. In order to encourage private sector participation in harnessing these sources
of energy the government will therefore pursue the following policy strategies:

Packaging and dissemination of information on renewable energy systems to
create investor and consumer awareness and community based pilot projects;
18




Review of Electric Power Act 1997 to facilitate rural electrification base don
supply on a limited scale using renewable energy technologies;
Allowing duty free importation of renewable energy hardware as to promote
widespread usage;
Provision of tax incentive to both users and producers of renewable energy
technologies and related accessories based on the degree of maturity and market
presentation;
Encouraging financial institutions to provide credit facilities for up to a maximum
period of 7 years to consumers and entrepreneurs through fiscal incentives;
Eritrea
65. The country’s energy policy aims at:
 promoting economically and environmentally sound energy sector development
through appropriate energy production technologies, energy conservation and usage
optimisation. Introduce appropriate pricing structures that avoid subsidies;
 diversifying energy sources to reduce dependence on biomass and imported oil;
 promoting private participation in hydrocarbon exploration and developing renewable
energies;
 modernising of existing infrastructure;
 building capacity through training and establishing appropriate legal and institutional
frameworks for the energy sector
.
66. The World Bank is currently supporting the Power Distribution and Rural Electrification
Project. Swedish bilateral aid from 1998-2002 analysed wind and solar resources with 25
measurement stations throughout the country and also provided technical training and
assistance in the legal and regulatory framework for the energy sector. The Eritrean
Renewable Training Centre, part of the Department of Energy, has carried several studies on
renewable energy applications, including measuring wind speeds and solar radiation, cooking
stoves and solar photovoltaic installations for village water pumps and hospitals. USAID has
also supported studies on geothermal resources (1995).
Djibouti
67. Diversification of the primary source of energy for commercial conversion to electricity
and make available low cost, clean energy in order to make electricity more affordable to
citizens and light industry in order to enhance competitiveness and reduce poverty, are the
main objectives of the country’s energy sector policy. Geothermal development will diversify
energy production towards the principal alternative in Djibouti (there are no hydro, biomass,
or hydrocarbon competing resources).
68. The CERD, Centre des Etudes et de Recherche de Djibouti, and Electricité de Djibouti
(EdD) have carried out various internal studies of the energy and electricity sector. These
include alternative resources studies, including geothermal and wind energy. Studies have
also been carried concerning the cost/benefit of interconnection with the Ethiopian power grid
as well as critical analyses of the present tariff structure. Promotion of renewable energy in
rural areas and the possible privatisation of EdD to ensure electricity sector development are
also part of the Government study topics.
19
Ethiopia
69. Institutionally, Ethiopia has moved from a vertically integrated monopoly towards an
autonomous entity that ensures transport and distribution and allows for private generation.
Given recent outages and the silting of hydropower resources (94% capacity), the country
seeks to diversify and increase production from resources of all kinds, including geothermal.
In addition, extension of the network and rural electrification are priorities, while
interconnection schemes with Djibouti and Sudan are at the discussion stage.The African
Development Bank and the World Bank financed the Gilgel Gibe hydropower plant (184
MW) that came on line in 2002. Further feasibility studies are underway for other hydropower
projects. The World Bank Second Energy Project involves institutional reform for the
national electricity utility EEPCO and other rural energy initiatives.
Tanzania
70. Tanzania has the objective of making the electricity production triple over the next 20
years. This needs an energy efficient production, transportation, distribution and end-use
system is established and works in an environmentally sound and sustainable manner. Energy
efficiency at both the supply and demand side must be developed. Gas and oil exploration
through the promotion of private sector participation will be increased as well as regional
interconnection. Rural electrification for socio-economic reasons (reduction on reliance on
biomass and kerosene) and for promoting commerce in rural areas is also an important
objective of the national policy. SIDA has previously financed several reconnaissance and
exploratory initiatives in Tanzania, yielding a draft geothermal plan. A subsequent UNDP
mission confirmed the potential for geothermal production and suggested further studies.
71. In terms of policy, Tanzania recently revised the national energy policy to accommodate
power sector reforms, promote renewables and advance rural electrification. Under the power
sector-restructuring program, independent power producers can generate power and sell to
TANESCO. An important strategic objective in the national policy is to reduce fossil fuel
dependency through increased use of renewables and improving energy efficiency. Some
renewable energy and rural electrification projects have been implemented with assistance
from various agencies. However most of the past efforts have been targeted at households and
not at the rural industrial sector.
72. The National Energy Policy for 2003 indicates that government of Tanzania is aware that
renewable energy resources so far have remained under utilized while “electricity needs to be
made available for economic activities in rural areas, rural townships and commercial centres.
Rural electrification is therefore a case of long-term national interest and a pre-requisite for a
balanced social economic growth for all in Tanzania”.
73. Several passages of this policy refer to the development of renewable energy sources,
including the introduction of norms, best practices, environmental considerations in energy
planning, increasing research, the promotion of entrepreneurship, and increasing energy
services in grid and non-grid areas.
20
Uganda
74. The Energy Policy for Uganda (2002) indicates that despite the endowment of renewable
energy sources, “only a meagre fraction of the country’s renewable energy potential being
exploited, Uganda aims to develop the use of renewable energy resources for both single and
large scale applications.” As a result, the Government has spelled out a number of strategies
ranging from dissemination of technologies, including renewable energies in school curricula,
setting of standards, facilitating financing schemes, etc.
75. The country is in the process of establishing the available potential and demand of
various energy resources with the view of allowing for increased access to affordable energy
services for poverty eradication. An important focus is on improving energy governance and
administration in order to stimulate economic growth. An energy act has been passed for the
sector to perform without subsidies, improve efficiency, satisfy electricity demand and
increase coverage, improve reliability and quality, attract private capital, and take advantage
of export opportunities.The World Bank is financing a 10 year rural electrification project in
Uganda to increase access to clean and affordable energy through a mix of renewable and
traditional fuels. With regards to geothermal production, the UNDP, the OPEC fund and the
government of Iceland have previously identified prospects in the country along the western
branch of the Eastern Africa Rift. Ongoing geophysical studies are underway and the
government has proposed to carry full-feasibility studies to explore, and confirm the resources
with donor assistance.
I.5 BASELINE FORECAST WITHOUT GEF INTERVENTION
76. All countries involved in the PDF B project preparation activities are experiencing
increasing electricity demand growth (either through natural population growth, national grid
expansion plans, or rural electrification programs). At the same time, current generation
capacities are limited (or are already surpassed) such that supply no longer meets the
increasing demand. Diesel generation, though a popular stop-gap measure, is perceived as an
operationally expensive development option, while hydropower generation is increasingly
being questioned for reliability (mainly due to recent droughts). Interconnection projects are
also being considered. As a result, many of the ARGeo countries are investigating alternative
energy resources, including renewable energies such as geothermal power generation.
77. In the absence of GEF financing for the ARGeo facility, geothermal production will
probably not develop in most of the ARGeo countries, and even in Kenya and Ethiopia where
geothermal investments have been already realised, it is likely that this policy will not reach
fully operational status. The ARGeo programme is based on a long-term approach during
which project experience and technical know-how are transferred from existing sites in more
advanced countries to stakeholders in other countries during a 10 year period in order to
stimulate development of this technology. It can then be confirmed that lack of GEF support
will certainly lead to:

continued reliance on large scale, installed hydropower and increasingly on diesel
generation for the national network in particular as a consequence of a lack of a
specific legal and regulatory framework for the production and use of renewable
energy,
21




continued reliance on small, diesel power production sets in off-grid areas which
despite relatively low capital investment costs, demonstrate high operating costs,
especially with imported fuel prices hovering near $50 per barrel of oil;
continued “electricity gap” between urban electrified zones and off-grid, rural areas
that exacerbates poverty differences and stifles the development of small scale
industries;
continued emission of greenhouse gases;
the slower adoption and development of these clean and renewable energy
technologies in the region.
78. Specifically, the likely baseline forecast for geothermal development in the six countries
without GEF funding is as follows:
Kenya
79. Geothermal production and its further development will probably continue in Kenya
where it has an operating, active geothermal programme. Kenya’s Least Cost Power
Development Plan for Electricity Production (LCPDP) calls for the development of
geothermal production for at least 386 MW from 2004 to 2019, which would represent
approximately 24% of the country’s overall installed capacity at that point. The national
electricity utility (KenGen) and the Government are both committed to develop geothermal
energy which has an estimated capacity of 2,000 MW in the country. However, Kenya
geothermal development plan is lagging behind. While national interest and commitment is
there, making the plan operational is still a challenge. GEF financing for geothermal
development would directly supplement those activities underway and accelerate progress on
the implementation of identified projects.
Eritrea
80. The country has only recently begun serious investigations into the use of geothermal
resources. Currently, the country has approximately 130 MW of installed capacity, all
thermal power stations (diesel). The geothermal resource at Alid is promising, though it has
not been confirmed. Without external financing, the necessary further exploration and
analysis in Alid as well as in other sites will probably not be performed because the country
cannot afford the necessary exploratory costs estimated in total at around $6,5 million. In lieu
of geothermal power production, the country will then tend towards the further development
of fossil-fuel based power production.
Djibouti
81. Several studies, financed by French and Italian bilateral sources in the eighties as well as,
more recently, by the World Bank, have been carried out in the most promising Assal region.
At the end of the 1990’s, private investors began discussions with the government for the
construction and operation of a geothermal plant in this location. A feasibility study by a
private developer on a 30 MW plant in Lake Assal was completed in 2000, which indicates
that the project would be commercially viable. It therefore appears possible that at least
30MW of geothermal production might come on line in Djibouti, which would have direct
environmental benefits, given the country’s sole dependence on fossil fuels for power
production. However, the implementation of this project very much depends on the
confirmation of a high probability of the presence of the geothermal resources in order to lead
22
to production wells drilling and the ability of the GOD to enter into fruitful negotiations with
private developers. GEF financing would thus complement and advance the activities already
underway.
Ethiopia
82. Ethiopia power production structure is 94% hydropower, 5% thermal and 1% geothermal.
The country has a large geothermal potential (the estimates are over 1000 MW) and
experienced recently poor hydropower performance due to weather conditions. The local
stakeholders have now also drawn lessons from the pilot project in Aluto-Langano where a
geothermal field has been developed with the support of a private company. Ethiopian and
Italian financed drilling studies have recently indicated the feasibility of a 20MW pilot project
in the Tendaho geothermal field. Estimates during the PDF-B phase indicated however that
substantial further exploratory work will be needed to confirm the resource before operation.
In spite of the very firm commitment of the Government to geothermal development, recently
confirmed by the Minister of Mines and Energy during the Steering committee held in AddisAbaba, without GEF support, it is not likely that this exploration phase would be undertaken
and therefore the resources would remain undeveloped.
Tanzania
83. Tanzania is at the identification stage of potential geothermal resources. The country’s
power sector development master plan depends mainly on natural gas, including the Songo
Songo gas to electricity plant, and on coal and hydropower resources. Total exploration costs
including exploration drilling for the geothermal resources at Mbeya are estimated at $13
million, and therefore, it is unlikely that this resource would be developed without GEF
funding, although the potential there is seen as promising concerning the possible
implementation of a 20MW geothermal plant.
Uganda
84. Uganda is in the very early stages of confirming geothermal resources and has ongoing
resource assessment activities. The government has clearly indicated that external funding
(public or private) will be required to implement the next stage of studies, which includes
feasibility and due diligence phases. In addition to relatively large facilities, the Government
sees geothermal resources being applied towards production for mini-grids and in rural areas
(5-10 MW) which fits in the government’s overall policy for increasing rural electrification.
For one of the most likely identified site in the country, Katwe, where it is believed that a
30MW geothermal power plant could be installed, there is an obvious need of external
support to help financing further exploratory costs.
I.6 FORECAST WITH GEF INTERVENTION
85. A pipeline of cost-effective investments has been identified during the PDF B phase and is
presently being further developed by the concerned countries. All six countries have already
identified at least one project that can be targeted for immediate support by the project, while
another 10 projects are in the pipeline at various stages of advancement representing a total
potential of 481 MW of capacity, as shown in the table below. This initial list only includes
projects for which serious scientific and economic indications regarding the geothermal
23
potential have been provided. Many other opportunities do exist, however, such as the 18
possible sites identified in Ethiopia. In many cases, these projects are small in size (< 10
MW) and located in remote areas. Nevertheless, these projects allow for a ‘modular
approach’ in which developers and promoters can invest in pilot projects, acquire relevant
knowledge about the site, technology and the operating processes, and then later expand the
plant size to a more significant size or bundle several small projects into a larger framework.
This modular approach is state of the art in the industry. As a pre-requisite for financially and
economically sound geothermal development, countries without any experience in geothermal
development rather start by small power plants. They then move to larger plant sizes as they
proceed on the learning curve at industry level. This pattern was successfully applied in
Kenya as well as in other countries worldwide.
86. GEF co-financing support during the critical exploration and confirmation phase of these
projects could leverage up to USD 200 million for the initial prospects in the six ARGeo
countries and additional co-financing for the other projects could lead to up to $1.3 billion of
total investment. GEF support would then be instrumental in fostering the realisation of at
least six projects (one per country) for which calculations have shown that their impact in
terms of CO² reduction should be in the range of 1 million tons per year. In addition,
important benefits pertaining to sustainable development, including electricity generation
independent from climatic fluctuations (climate change adaptation) will be also brought
about.
Expected Plant Size MW
No.
1
2
Country/Project
ERITREA
Alid
Nabro-Dubbi
10
5
3
4
5
UGANDA
Buranga
Katwe
Kibiro
10
30
20
6
7
8
TANZANIA
Rufiji -First Enerby Co.
Natron - Manyara
Mbeya
6
5
20
9
10
11
DJIBOUTI
Assal
Obock
Dikhil
30
5
10
12
13
ETHIOPIA
Aluto Expansion
Tendaho
30
20
14
15
16
17
KENYA
Longonot
Suswa
Menengai
Silali
70
70
70
70
Total for all Projects
481
Table 10: Potential Geothermal Projects Identified during PDF-B Phase
At pre feasibility stage, the above projects show an estimated investment cost of less than
US$2700 per kW comprised of between US$100 -200 for exploration, US$300-700 for steam
field and US$750-2000 for power plant. As a first step they will constitute the long pipeline
of projects for the RMF. Total envisaged investment for the selected portfolio is estimated at
US$ 450 millions.
24
Note: Among a number of other prospects identified in Ethiopia, five more locations, namely
Corbetti, Abaya, Tulu, Moye, Dofan and Fental, could be considered in addition to those in
the table, due to their strategic location in close proximity to the existing grid and to regions
of high population density.
25
II. OBJECTIVES AND OUTCOMES
II.1 GENERAL
87. The general global environment and development objectives of the ARGeo Facility are:
 Reduction of the growth rate of GHG emissions through geothermal energy
exploitation to produce electricity Direct CO2 emissions reduction is estimated at
10Mt CO2 over a 20 year period while post project and indirect emission reduction
will reach 20Mt of CO2 over a 20 year period. The split between direct post project
and indirect project impact will greatly depend on the actual failure rate of initial
projects supported by the RMF. Should all the identified investment projects during
PDF be supported by the RMF, the replication potential for geothermal would then be
higher and corresponding emission reduction would also be higher. The above is
therefore based on conservative estimates of project impact.
 Reduce the region’s dependence on fossil fuels , and reduce the cost of electricity
The project’s objective is to facilitate investments in geothermal power production by
addressing the existing barriers (knowledge and information, technical, institutional,
financial) to the increased use of geothermal energy in the ARGeo countries and reduce
implementation costs. This is directly in line with Operational Programme N° 6 Renewable
Energies of the GEF Operational Strategy
88. When implemented, the ARGeo Facility will leverage the implementation of pilot
geothermal power production plants in each of the six initial participating countries of the
African Rift Valley region, for a total of $250 million of total investment (and $1.3 billion for
all of the 17 projects identified during the PDF B phase). Initial estimates indicate that these
investments could lead to 964,108 tons of CO2 emission savings per year and up to 19.3
million tons over 20 years15. Given the demonstration and “snow-ball” effect of the ARGeo
project, it is expected that these pilot projects will generate more interest in geothermal
technologies and that further projects will be leveraged in the six targeted countries as well as
in the future, in other countries of the Rift Valley (Sudan, Rwanda, Burundi, the Democratic
Republic of Congo, Malawi, Mozambique, and Madagascar and Yemen, on the Arabian side
of the Rift).
II.2 PLANNED GEF INTERVENTION
89. The combined activities under this programme will directly support the main goal of the
ARGeo programme – i.e.: providing a platform for accelerated geothermal development and
stimulating a number of geothermal investments in the region. Optimisation of available
resources, as well as the synergy between research and exploration activities in the Rift
Valley countries in a unified geological setting will be ensured through the regional approach.
The following sections detail the rationale and objectives for each of the project components,
as presented in §16. The alternative course of action stimulated by the GEF intervention, as
well as the integration with existing and ongoing initiatives, is reflected in the stated
objectives. The performance indicators for each set of objectives are listed and are later
expanded in the Log frame Matrix.
15
This is a conservative estimate for the operational life of geothermal production facilities.
26
The project is designed to facilitate investment in geothermal power production in the Rift
Valley addressing financial, legal and regulatory, institutional, information and resource
confirmation related barriers. To achieve this, the present project has 4 outcomes which are as
follows:
1. Enhanced knowledge of and requirements for the development of the geothermal
potential in the Rift Valley and enhanced institutional as well as individual capacity to
tap the potential at the regional level.
2. The resource risk is mitigated through surface exploration and resource is actually
explored at a minimal risk.
3. Legal and regulatory framework is adequate for investment to take place.
4. Private sector investments are catalyzed through the building of reliable, robust and
sustainable public-private sector relationships.
In order to achieve the above outcomes the project has been designed under 3 main
components:
1 The creation of a Regional Network managing a geothermal information system and
capacity building and awareness raising programs. This will be managed by UNEP. The
project will support activities related to the development of a geothermal energy information
database and capacity building activities through training and exchanges.
2 Technical Assistance, consisting of support for:
(a) Institutional and technical capacity building. This will be managed by UNEP. It
includes elements such as environmental protection legislation, resource use
regulations, social impact issues, support for surface exploration activities, and
promotion of public-private partnerships.
(b) Risk Management Fund related activities. This will be managed by the World Bank.
This includes (i) operating the GAP; (ii) supporting the private sector in drilling prefeasibility studies, safeguard issues related to environment, social impacts, and
preparation of post-drilling bankable feasibility studies; and (iii) supporting
governments in developing a conducive framework for geothermal power, including
integration of geothermal energy development in the national energy development
master plans.
The split of TA activities between UNEP and the World Bank as represented is further
explained below. The rationale for such a split is to make sure that the World Bank, being
in charge of the implementation of the Risk Mitigation Fund as described hereafter will be
in a position to consistently implement the upstream and downstream activities directly
linked to the functioning of the RMF. UNEP will implement all other technical assistance
activities, in line with its role in the scientific and technical field.
3 A Risk Mitigation Fund. This will be managed by the World Bank. The design of the Fund
will build on the design of the GeoFund. The Fund will provide financial instruments to assist
in mitigating the exploration and appraisal risks. It will thus improve access to finance for
public and private developers and play a catalytic role in establishing geothermal energy as a
strategic option in power expansion planning of the countries in the region. It will provide a
guarantee against payment of a “commercial” premium and, to a limited extent, grants for
exploration and appraisal drilling to both public and private developers at equal conditions.
27
As a result, reduced risk and cost regarding early stage geothermal development can be
expected to encourage the pursuit of projects up to the final stage of an operational power
plant.
2.
In order to control the risk to be underwritten by the Fund, guarantees will be awarded
on the basis of appropriate criteria complying with the state of the art. Project applications
shall be required to comprise a sufficient data basis regarding the concerned geothermal field.
The eligibility of the drilling site will be judged by an independent Geothermal Advisory
Panel, (GAP), which will also monitor drilling execution and assess possible events of
default.
II.2.1 Regional Information System, Capacity Building and Awareness Raising Programme
Rationale for a Regional Approach
90. Low awareness and interest among policy makers and utilities in the region (with the
exception of Kenya), and internationally, of the high potential of geothermal energy as a lowcost renewable energy source, combined with the lack of supporting policy frameworks and
technical capacity has hampered the development of this abundant indigenous energy source.
This is compounded by the fact that much of the resource information is scattered,
unorganised and difficult to access, forming an additional barrier. Many valuable reports and
data collected during the 1980’s exist only in hard copy and risk to be lost. The experience
with geothermal exploration in East and South East Asia for example has shown that a critical
part of geothermal development is the adoption of a long term resource data collection plan
and a systematic methodology of exploration and prioritization. The fact that the African Rift
possesses a unified geological setting and that countries face sometimes similar challenges in
geophysical data collection and interpretation, provides an additional argument for a regional
approach. Regional fora for exchanging information and experience, and for establishing
contacts are very limited, although the need for it became apparent at the 2003 Market
Acceleration Conference, organized back to back with the annual Kengen conference in
Nairobi. The regional approach also secures cost effectiveness for capacity building related
activities undertaken within the project and constitutes an asset for regional sustainability in
this respect.
The Creation of a Regional Network
91. A regional network will be created around four thematic clusters (cluster 1: regional
information system; cluster 2: regional forums and outreach, and regional training and
capacity building; cluster 3: resource confirmation and equipment pool related information;
cluster 4: regional program for the promotion of policies and regulatory frameworks
conducive for geothermal development), with hubs in designated national agencies and
ministries, with mandates in geothermal exploration and development, which will be the
national executing agencies for the project, and linked with research institutions and
universities active in areas of relevance to geothermal exploration and development. The hubs
will be responsible for feeding the network with data, information and news, for populating
and maintaining the information system, and organizing events supported under the project.
In addition, the network will provide inputs for the annual Eastern African Geothermal
Conference and the technical workshops, capacity building and training activities. National
working groups will be formed in each country to ensure that the regional network is fully
integrated with national activities and priorities in geothermal exploration and development.
28
Four regional working groups will be created around the four thematic clusters to coordinate
activities at the regional level. The working groups will meet at least once per year, and the
venue of the meetings of the working groups will rotate in the region. National, international
and regional agencies and institutions may participate by invitation to specific sessions. The
project will support the network and its activities for a period of five years, following which
period the subscribing countries will iteratively take it over and run it themselves. It is likely
that this will require additional support and the ARGeo Project will engage in seeking such
additional funds as part of its activity during the first five year period.
92. The regional network will be an overall support mechanism for the project and a working
instrument for activities that are more efficiently and cost-effectively implemented on a
regional basis. It will also offer a flexible structure to the project to bring on board research
institutions, universities and experts, ensuring comprehensive input into the project activities.
93. The regional network will facilitate the establishment of a regional pool of equipment,
including the JGI equipment, devise operational rules for the lending and rotation of the
equipment based on projected exploration campaigns and drilling.
Objectives of the regional information system, capacity building and awareness raising
programme
94. To substantially increase the information base and technical capacity in the region,
maximizing the use of regional expertise, and support the design of appropriate policies and
regulatory and legal frameworks for geothermal development in the participating countries.
The aim is to build a critical mass of expertise, provide a platform for experience and
information sharing as well as for regional cooperation, and making available hitherto
inaccessible information. Three levels of barriers to geothermal development will be
addressed in this manner: technical, policy/regulatory and information related barriers.
Responding to the need for enabling conditions for investment, the programme will be fully
integrated with and support the technical assistance and finance components of the project.
Approach
95. The creation of a regional network of national agencies in the African Rift with mandates
in geothermal exploration and development will be a key mechanism in achieving these goals.
The network will be an instrument of cooperation and collaboration between institutions in
each country engaged in geothermal resources related research, exploration and development,
whilst a network management unit will perform coordination and outreach functions.
96. Taking into account the different capacities and different stages of data organization and
information technology (IT) in the national agencies, the project will create network hubs in
each participating country, responsible for establishing and managing a geothermal
information system. Seeking to maximize the value of geothermal data, information and
research, the network will populate and update a geothermal database and make technical
reports available on a website in a form suitable for policy-makers and potential investors.
Collaboration with geological surveys and international, regional and national geothermal
centres outside the region will be actively sought through the network to ensure that the best
available expertise will be brought to bear on the regional network. Fora for information
exchange will be provided through a website, biennial East African Geothermal Conferences,
technical workshops, regional participation in international geothermal events and training in
29
the region. UNEP will bring IT tools and support to the project and include Argeo in its
UNEP-net as part of its knowledge management activities. This net is publicly accessible.
97. Existing training opportunities offered by the UNU Geothermal Training Programme
(UNU-GTP) will be expanded to include additional geothermal professionals from the region
and extended through training courses and field schools in the region. The UNU-GTP will
play a leading role in guiding and implementing the training component of the project.
98. Where possible, the activities under this component will build on and link up with existing
programmes and on-going and planned initiatives with similar objectives at the national,
regional and international level, in particular with programmes developed by BGR, ICEIDA
and UNU-GTP, World Bank, IRIS/Pascal centre, Duke University in USA and others.
99. The combined activities under this programme will directly support the main goal of
ARGeo – i.e.: facilitating a number of geothermal investments in the region. Optimisation of
available resources, as well as synergy between research and exploration activities in the rift
valley countries in a unified geological setting will be ensured through the regional approach.
II.2.2 Technical Assistance
Rationale
100. The technical assistance component is designed to confirm the priority prospects to a
stage where a drilling programme can be drawn up, thus providing the first step for
geothermal development, secure a reasonable policy framework and support feasibility work
to the stage of financial closing for the actual investment.
Institutional and technical capacity building. (UNEP)
101. Technical assistance for surface assessment (geophysics, geochemistry, hydrogeology,
seismic studies etc.) of the priority prospects will form the basis for accessing the Risk
Mitigation Fund. Substantial funds will be provided for surface studies in year 1, 2 and 3 of
the project, to rapidly take the prospects to an evaluation stage regarding whether or not an
exploration drilling phase should be engaged. The funds will complement the past and
planned exploration activities, and release of funds will be subject to the recommendations of
the Geothermal Advisory Panel (GAP: see V.2.4 below) on investigation proposals by
geothermal agencies, to ensure cost-efficiency. The synthesis of available information and
results from past exploration programmes, to be prepared under the regional network
components, will enable the GAP to base its recommendations on comprehensive information
as well as on the expertise and experience of its members. The pooling of resources, in
particular equipment, and expertise and financial resources for common use in the region will
further enhance efficiency and promote regional collaboration. Moreover, greater efficiency
of resource utilization is attained when regional and international know-how is made available
where technical assistance is required.
102. The Technical Assistance package will comprise support for carrying out resource
area inventories, the identification and ranking of geothermal prospects on available technical
and economic grounds, and access to equipment and funding required to support the carrying
out of detailed surface exploration activities using geology, geochemistry, geophysics and
hydrogeology, where justifiable on technical and economic terms
30
103. The optimisation of resource use in the region will be realized by fostering
cooperation among the countries and by pooling existing resources. The use of regional
expertise and the rotation and sharing of equipment and instruments will be facilitated
through the regional network. The sharing of equipment will be modelled on the IRIS-Passcal
centre in the US, with which the project will seek affiliation to increase the size of the
equipment pool. The Passcal centre requires the appointment of a principal investigator in
each country who is the focal point for Passcal equipment loans. The centre has worked in the
past with Kenya and Ethiopia.
104. Some of the geophysical equipment purchased under the Joint Geophysical Imaging
(JGI) project in Kenya for example, will be deployed in the other countries under the ARGeo
umbrella. Use of the JGI methodology will effectively map high permeability zones and lead
to the location of high production wells that based on MSP result could increase the average
well production in the region from 2.5 MWe to over 5 MWe. The JGI methodology will
directly contribute to the removal of resource exploration and assessment barriers and will
therefore reduce implementation costs related to geothermal energy development. All cost
effective means, measures and equipment will be brought to the region in order to reduce the
exploration risk at its minimum before committing RMF resources.
105. Catalysing private investment in geothermal development in the East African Rift
countries will be achieved by contributing to the building of reliable, robust and sustainable
public-private relationships.
106. Through the appointment of international experts, focus will be put on transferring
knowledge on the critical success factors for private sector participation (PSP) and public
private partnerships (PPP). International best practice will be adapted to the given country
context, thus assisting the host countries in attracting private investors and selecting the most
appropriate PSP/PPP options. A large scope of possible interventions will be considered,
including but not limited to:







Liaise with industry to develop private investor’s buy-in;
Support the evaluation of institutional capacities for the regulation of geothermal
resource mining and utilization
Advise on building business cases;
Provide training and information regarding key contracts (concessions, licensing,
power purchase agreements, etc.)
Bring in global best practices in developing contractual structures in support of
private sector participation
Support and provide in particular technical advice for the tender process leading to the
award of contracts.
Assist partner countries in contract negotiations with private investors
Risk Mitigation Fund related activities (World Bank)
107. The financial and technical assistance will directly address the barriers related to
resource confirmation through surface studies and exploration drilling. Because the private
sector is unwilling to take on exploration risks, a pre-condition to private investment is that
the size and quality of the resource is known. A pre-feasibility study requires geological,
31
geophysical and geochemistry information. An assessment and expert review at each stage is
necessary to achieve high quality conclusions and the most efficient use of resources. After
the surface investigations have provided information deemed by experts sufficiently reliable
to give a high level of probability regarding the existence of a geothermal reservoir,
exploration drillings are necessary to confirm the presence of such a reservoir. If this phase is
successful, then appraisal drillings are to launched in order to better delineate the resource in
terms of size, depth, pressure, temperature, flow, and other characteristics. If the technical and
economic assessment as an outcome of appraisal drilling confirms the viability of the
resource, production drilling is the next step.
108. In order to achieve high quality and design and launch the most cost-effective prefeasibility studies, an international Geothermal Advisory Panel (GAP) will be established,
comprising recognized regional and international experts. This panel of experts will have a
high level of authority regarding decisions to support or not proposals presented by public or
private geothermal developers.
109. A specific budget has further been set aside to secure that upon confirmation of the
resource, after exploration drilling and while the RMF obligations are being liberated the
project benefits from GEF support to finalise the necessary feasibility work for the
commercial stage. This is necessary for a limited number of pilot projects in the region to
involve the private sector and actually secure end-investment in steam field and power plant.
This will include assistance in environmental and social impact assessment according to
established World Bank safeguard frameworks and identification of impact reduction
measures.
110. A specific legal, regulatory support and transaction advice budget has been reserved as
part of the technical assistance programme in order to assist host governments with the critical
phase of transfer between the public sector – which is seen as having the major role in most
cases in the identification of resources and the exploration/appraisal work required to
demonstrate the viability of a geothermal project – and the private sector which is expected to
have a significant role in the development and exploitation of the geothermal resource. The
main rationale is to help overcoming the major barriers to private sector participation in
geothermal development. In this framework, it is intended to provide guidance to ARGeo
countries governments on what will be required to support the participation of the private
sector in geothermal development:
1. Assist the public sector in setting-up an appropriate environment for sound and
sustainable private sector participation in geothermal development
2. Review country’s institutional environment (country’s policy, legal and regulatory
frameworks, energy tariffs, …);
3. Support the integration of geothermal energy development in the national energy
development master plans, especially in power sector plans
4. Attract competent bidders to individual projects
111. It is the World Bank’s intention to fully integrate geothermal energy in the mainstream
sector policy dialogue with the client countries. The project’s objective of promoting
geothermal energy is consistent with the Bank’s energy strategy in the region, e.g., in Kenya,
the World Bank has financed two geothermal power plants together with other donors and are
currently financing the expansion of one of the plants. Further, consistent with the Bank’s aim
32
of increasing energy security, the project will increase the security of power supply by
providing a thermal complement to largely hydro-based systems, which are vulnerable to
droughts. The support to projects in the commercial stage will be fully integrated with the IFC
and World Bank activities in the Energy sector to actively build up a pipeline of project
candidates for financing in the mainstream sector programmes.
II.2.3 Risk Mitigation Fund
Rationale
112. In addition to the lack of awareness and expertise, another important barrier to the
development of geothermal energy is at the resource exploration and appraisal stage, which
represents an expensive phase (drilling of wells) with a relatively high probability of failure
(meaning that no suitable resource can be evidenced). In other words, the high-risk nature of
geothermal development comes from the fact that a large proportion of the cost of a project
must be expended before the probability of failure falls to a level similar to other power
developments. These up front high risks and capital intensity discourage private developers to
invest in high enthalpy geothermal projects even though acceptable rates of return can be
demonstrated. Similarly, the public sector it not keen to invest limited public funds on what is
seen as risky investments, compared with conventional power generation options. This
attitude is confirmed even more, given that in most of these countries there is a lack of
geothermal-technology related expertise, as explained in the previous section. The other
aspect to bring out is that the resource is public and justifies at least initially some public
funding to improve the experience in resource exploration to the point where on individual
prospects and the geologies of the African Rift generally, the risks can be reduced.
113. These are major barriers to remove in order to encourage governments in the region to
consequently pursue geothermal development as a strategic option for power generation. With
this purpose, it is proposed to set up a drilling Risk Mitigation Fund (RMF). The RMF will
provide financial instruments to assist mitigating the exploration and appraisal risks. It will
thus improve access to finance for public and private developers and play a catalytic role in
establishing geothermal energy as a strategic option in power expansion planning of the
countries in the region. It will provide a guarantee against payment of a premium and, to a
limited extent, grants for exploration and appraisal drilling to both public and private
developers at equal conditions. Whereas the Fund will pay guarantees in the event that
drilling fails to demonstrate an economically exploitable resource, it will provide a grant as a
limited portion of the drilling cost. As a result, reduced risk and cost regarding early stage
geothermal development can be expected to encourage the pursuit of projects up to the final
stage of an operational power plant.
114. Guarantee premia: Because of the high risks involved in the early stage exploration
in general and the relatively unexplored nature of the East African Rift, a “commercial”
premium for the guarantee - at a level in line with private insurance business practices - would
be prohibitively high. Developers are unlikely to be willing to take on these additional costs
and the Fund would be unlikely to make a material contribution to encouraging geothermal
development. There is, therefore, a trade-off between setting guarantee premia at a level
sufficiently high to sustain the RMF for the maximum period while encouraging its
33
utilization. The Fund shall, therefore, apply a uniform flat premium in all projects, at a
relatively low and affordable level.
115. Grants: Given the barriers to geothermal development in the context of the East
African Rift as outlined, guarantees at a reduced premium alone are unlikely to reduce the
barrier to an extent that would sufficiently encourage investment decisions from developers.
Experience with the promotion of geothermal development in other parts of the world
(developing countries such as El Salvador and Nicaragua but also France, USA, Germany,
Iceland, etc.) demonstrate that particularly in the early days of geothermal development of a
country a substantial grant element to early stage development is required.
116. Risk coverage and moral hazard: At the same time, however, there are risks that
developers will be encouraged by low fixed premiums to conduct unduly high-risk
speculative drilling - particularly if supported by grant funding. This could cause premature
exhaustion of the Fund. This risk is mitigated by providing only partial cover for the
guaranteed risk – motivating project developers to make rational investment decisions on the
basis of sound and thorough geological investigation, thus avoiding moral hazard.
117. Control of the RMF’s performance: In order to control the risk to be underwritten by
the RMF, guarantees will be awarded on the basis of appropriate criteria complying with the
state of the art. Project applications shall be required to comprise a sufficient data basis
regarding the concerned geothermal field. The eligibility of the drilling site will be judged by
an independent Geothermal Advisory Panel, (GAP), which shall as well monitor drilling
execution and assess possible events of default.
Objectives
118. The RMF will catalyse public and private investment in geothermal-development
projects in the East African Rift at the resource exploration and appraisal-drilling stage.
Project-eligibility criteria taking account of the whole project life cycle shall be such that any
project receiving RMF support is able to reach the stage of successful power plant operation.
Products
119. The RMF will provide (i) a partial risk guarantee and (ii) grants for exploration
drilling:
(i) Partial Risk Guarantee: The RMF will provide a guarantee to partially insure public or
private developers against the short-term, up-front resource risk at the exploration and
appraisal drilling stage; no country-related risk shall be covered by the RMF. It shall
compensate public or private developers in the event of defined risks materializing during
drilling execution.

Subject of insurance:
The RMF shall provide guarantees only for early stage drilling, i.e. exploration and
appraisal drilling at the exclusion of any other development activity (surface
investigations, plant construction, etc.). It shall not cover production drilling, as the
resource risk at this development stage is comparably calculable and is considered not to
represent a significant barrier to further field development.
34
The RMF will consider drilling programs. RMF support may be provided, preferably, on
a program basis, but also on a well-by-well basis, as appropriate. The difference
between the two approaches is whether the definition of default applies to the overall
result of a drilling program or to that of a single well. The latter can be expected to be
more appropriate at the exploration-drilling stage.




Eligible costs: Costs of operation eligible to a grant and/or a guarantee will be determined
by the GAP through a thorough assessment of the proponent’s applications, a verification
of the actual needs, the comparison of various offers, etc.
Risk coverage: The RMF shall cover up to 70% of the drilling cost insured (the eligible
dost less the grants received). The insurable cost basically is limited to the drilling cost
(diminished by the grant amount if available as presented below) and shall be precisely
defined, including a respective upper limit, by the GAP for each individual case. The
RMF shall only cover the resource risk.
Guarantee Premium: Developers shall pay a premium of the insured investment cost upon
approval of the guarantee.
Definition of default: The default to insure will be defined as the event in which the
drilling fails to demonstrate an economically exploitable resource, taking into account
major relevant parameters such as steam temperature, flow rate, etc. This would be
defined on a case by case basis by the GAP.
(ii) Grant: The RMF shall provide a grant to public or private developers of up to 25% of the
drilling cost of exploration drilling. It will pay the grant upon execution of the corresponding
drilling as an advance based on duly produced documentation of contracting.
The grant-eligible cost shall be the same as the insurable cost, namely the drilling cost to be
precisely defined by the GAP for each individual case. The grant shall be paid on a pari-passu
basis by the RMF Manager during drilling execution as the relevant cost is incurred.
Payments shall be subject to approval of grant-relevant incurred cost by the RMF Manager.
Even after RMF support, the geothermal private or public developers will still have to: (i)
provide upfront the finance needed to engage the drilling campaign (less the possible grant
accorded by the RMF) (ii) be responsible, in case of failure, for, in general, about one third of
the total cost of an exploration drilling campaign. By this way, the developers will participate
in the co financing of the ARGeo programme as explained in section VII.2.
Criteria and conditions to apply for RMF support
The following will be required by project proponents to be examined by the GAP and if
considered of sufficient quality and prospects, supported by the RMF:
Economically and financially exploitable geothermal potential
Risks of resource failure reduced as much as possible by documented, state
of the art surface exploration and testing (requirements to be determined by
the GAP).
Favorable national environment
Clear rules established regarding the country electricity market and its
regulation
Sound LCPDP featuring geothermal development
35
-
Clear government dedication to geothermal development reflecting in a
geothermal development strategy
Economically and financially realistic conditions for connection of
geothermal electricity production to the grid
Appropriate legal and regulatory environment
Appropriate institutional set up and capacity with regard to geothermal
development and geothermal field and power plant management
Demonstration impact in the region
Greenhouse gas mitigation potential
Credit worthiness and demonstrated commitment of the developer
Prospect for finance for geothermal field + power plant development
(public or private)
Environmental and social impact
Role of the RMF Manager
The RMF Manager’s role will be to ensure that the main activities of the Fund, i.e., issuing
risk guarantees and processing claims against them, providing grants, and monitoring field
activities, function smoothly and expeditiously. In these activities, the Fund Manager will be
guided by overall guidelines that will be prepared as part of project preparation, though
detailed functional procedures will be developed during project implementation. Thus, while
the Manager will have operational discretion, for the most part, the Manager’s responsibilities
will be that of an experienced field administrator who also undertakes due diligence in
assessing claims for payments, whether for upfront grants or against risk guarantees.
The Manager would be authorized to make payments against relatively small claims, while
larger claims would be paid directly by the World Bank on behalf of GEF, with the distinction
between ‘small’ and ‘large’ to be codified during project preparation. In this way, the Fund
Manager is not expected to be financially responsible for managing large amounts of money.
The flow of funds for large claims against risk guaranteed is shown below.
36
RMF Implementing Agency
(3) Disbursement
request
GEF Grant Trustfund
The World Bank
Fiduciary Management
and Supervision
(4) Grant
Disbursement
(2) Disbursement
request
RMF
Geothermal Advisory Panel
Recommendation
Fund Management
Secretariat
Compliance with Operational
Manual
- Eligibility Criteria
Pre-defined
roster of
specialists
monitoring
reporting
(1)Drilling
(5) Grant
Disbursement
Default report
Drilling phase under sponsor‘s
responsibility
II.2.4 ARGeo components’ contribution to the facilitation of investments in geothermal
power generation
During the PDFB phase, a large potential for geothermal production has been identified as
reflected by the table presented in Section I.6, in the six ARGeo countries that remains
unexploited mainly due to high cost, up-front exploratory and confirmation studies, as well as
financial risks. The four components of the GEF project address these issues and put into
place risk mitigating structures and mechanisms designed to promote investments in
geothermal energy in the ARGeo countries. It is expected the ARGeo programme will take
advantage of these activities by bringing this preparatory work forward, attracting cofinancing, and driving to actual investment projects that will result into direct benefits from
grid and non-grid applications as well as indirect benefits from changes in the national energy
balance.
120. To catalyse investments in geothermal production plants in the ARGeo region, thereby
increasing the role of this renewable energy source in the national (and regional) energy mix
and contribute to the reduction of GHG from thermal production sites. In addition, as the
ARGeo facility is geared towards stimulating private investment, the respective countries will
gain vital experience in formulating public-private partnerships and creating the necessary
institutional, legal and contractual environment for these types of investments that can be
applied in other domains.
37
121. Beyond the support provided by the Risk Mitigation Fund to initiate the exploration
and appraisal phases and by transaction advice services to support private sector participation,
the technical assistance component will include providing additional expertise directed to the
preparation of bankable feasibility studies and to the negotiation of co-financing
arrangements.
As a result ARGeo’s components will lead to proven feasibility of a limited number of
geothermal projects with regard to full scale development including power-plant investment.
ARGeo will then undertake an active communication to attract concessional and commercial
funding, as well as private investors, to finance plant investment.
38
III. ACTIVITIES, OUTPUTS AND EXPECTED RESULTS
III.1 PLANNED ACTIVITIES AND OUTPUTS
III.1.1 Regional Information System, Capacity Building and Awareness Raising
Programme
122. The detailed activities and outputs of the regional information system, capacity
building and awareness raising programme component are presented at length in the
following sections. However, all of these activities lead to the overall principal objective of
formulating fully documented geothermal project proposals to the RMF, including the
technical surface investigation reports.
Regional information system, capacity building and awareness raising programme
Subcomponent 1: Creation of a Regional Network of Geothermal Agencies
Activities



Establish working groups in each country for each of the four project activity clusters
with a regional dimension (cluster 1: regional information system; cluster 2: regional
forums and outreach, and regional training and capacity building; cluster 3: resource
confirmation and equipment pool; cluster 4: regional program for the promotion of
policies and regulatory frameworks conducive for geothermal development )
Develop, implement, monitor and review the working groups work plans
National and regional meetings of the working groups according to the work plan and
as needed to implement specific activities.
Outputs
1. A regional network that will support and coordinate the implementation of the
activities under component 1 and 2 of the project.
Subcomponent 2: Creation of the Regional Information System
Activities
1. Establish network hubs in the designated national executing agencies in each country
2. Support the development of a data collection and management plan for the region and
for each country
3. Support data collection and establish an easily accessible metadata base and
inventories
4. Training in geothermal data management
5. Technical support to network hubs
6. Prepare a synthesis of all geothermal research undertaken in the Rift Valley.
7. Preparation of a bi-annual regional geothermal newsletter and other outreach products
8. Create a web site that will contain project information, the meta-database, post a news
letter, announcements, queries, contact information, links, etc.
39
9. Production and publication of geothermal compendia on the African Rift resource
(atlas), uses and technologies at the national level and as a joint project at the regional
level.
Outputs
1. Fully operational information network hubs in each country
2. National and regional data collection and management plans and system
3. A metadatabase on available technical reports, and papers on geothermal prospects;
and a database of publicly available reports and data, accessible on the web;
inventories of experts and equipment in the region
4. Geothermal agency staff trained in data management
5. A synthesis of all geothermal research undertaken in the Rift Valley
6. A bi-annual regional geothermal newsletter and other outreach products
7. A web site for ARGeo containing project information, the meta-database, news letters,
announcements, queries, contact information, links, etc
8. Published geothermal compendia on the African Rift resource (atlas), uses and
technologies at the national level and as a joint project at the regional level.
Subcomponent 3: Regional Fora for the Exchange of Information
Activities
1.
2.
Biennial Eastern-African conferences organized by national executing agencies
with the support of the PMU, on a rotating basis
Regional participation in international and regional conferences, which may
include ARGeo side events
Outputs
1. A regional forum for the exchange of geothermal experience, research and technical
advances in the region and world-wide
2. Enhanced capacity in the region for the organization of conferences
3. Increased international exposure of regional geothermal experts, and increased
awareness among bilateral and multilateral agencies and the private sector about the
geothermal potential in the African Rift Valley.
Subcomponent 4: Regional Training and Capacity Building
Activities
1. Formal training at the United Nations University (UNU) geothermal training program
in Iceland. Designed for professionals in geo-scientific and engineering fields as
applied to geothermal resources exploration, development and utilization. Priority will
be given to countries with limited trained manpower resources but having good
possibilities for economically benefiting from the development of their geothermal
resources.
2. Short courses in the region (with the long-term view of establishing a regional training
center in Naivasha, Kenya). From the Short Courses and the Training by Participation
as well as geothermal workshops, the centre will grow to meet the geothermal training
needs of the region with an input as necessary from the UNU-Geothermal Training
40
Programme (GTP) and other universities, research institutions and geothermal centers
worldwide.
3. Specialized training. In addition to the fairly standardized technical training, taylormade training will be provided based on needs (for example on optimization of plants,
project financing, project management, and other topics to be determined).
4. Training by Participation: participation in field surveys, drilling programs, resource
development activities and specialized laboratory analytical works etc in the region.
The project will make it possible for young scientists and engineers from the
participating countries to take part in ongoing geothermal projects in the region and
will fund the travel costs and subsistence expenses of such trainees.
5. Technical Workshops : will be organized (back to back with Eastern African
geothermal or other regional/ international geothermal conferences or the regional
training courses as appropriate and where possible). These will address specialized
issues relating to specific geothermal exploration and development problems,
methods, techniques, instrumentation, technologies etc. The workshops will also be
used, whenever the opportunity arises, as fora for case studies and also for evaluating
project outputs at specific landmarks: e.g. end of surface investigations, end of
exploration drilling, feasibility study, power development, installation of other
resource use facilities.
Outputs
1.
2.
3.
4.
5.
Experts trained at UN Centre in Iceland and in Kenya
A regional training programme
Specialized courses developed based on needs assessment and presented.
Direct, on the job training experience in geothermal exploration and operations.
Technical workshops on issues relating to specific geothermal exploration and
development problems, methods, techniques, instrumentation, technologies etc.
Subcomponent 5: Regional Programme for Promotion of Policies and Regulatory
Frameworks
1. Review of policies affecting and governing energy development, and advise on any
conflicts or hindrances and ways of rectifying them.
2. Review of the mandates of institutions responsible for various aspects of energy
development in general and geothermal resources in particular to discern whether
there are conflicts, incoherence or whether they re-enforce each other, whether there
are necessary tasks that are not mandated to any one institution and advise on weighs
of rectifying any short-comings.
3. Preparation of policy guidance documents, analyses and briefs.
4. Organization of a regional meeting held for policy-makers, regulatory agencies,
utilities and other relevant institutions focusing on public-private partnerships,
financibility, risk-sharing, and policies and regulatory frameworks.
Outputs
1. Reviews of policies and mandates of institutions affecting geothermal, with
recommendations on improving the institutional, legal framework.
2. Advice on including geothermal energy development in national energy master plans.
3. Policy guidance documents and briefs.
41
4. Regional meeting for policy-makers , regulatory agencies, utilities and other relevant
institutions focusing on public-private partnerships, financing issues, risk-sharing and
policies and regulatory frameworks.
III.1.2 Technical Assistance
Activities
Institutional and technical capacity building. (UNEP)
 Provide technical assistance to develop an appropriate institutional setup and technical
capacity, including to evaluate the adequacy of environmental protection legislation
and regulations as well as social impact issues for successful geothermal resource
mining and utilization for power generation
 Provide support in the execution of surface exploration activities, including
geophysics, for the definition of drilling sites and reservoir models
 Facilitate access by national projects to support services available in the region, and
when necessary to facilities and services available internationally
 Support the evaluation of institutional capacities for the regulation of geothermal
resource mining and utilization
 Review existing project conditions for private sector participation in geothermal
development and in particular support private partners through public private
partnership
Risk Mitigation Fund related activities (World Bank)
 Assist in the preparation of pre-feasibility studies including technical, infrastructure,
financial and institutional aspects of geothermal development and utilization and of
proposals including specific safeguard issues related to environment and social
impacts for the access to the Risk Mitigation Fund
 Elaborate bankable feasibility studies on the basis of appraisal-drilling results,
following financial institutions rules and criteria
 Support the evaluation of the policy and regulatory frameworks with the view to
facilitate investment including enhancing private participation
 Support the integration of geothermal energy development in the national energy
development master plans, especially in power sector plans
Outputs
1. Technical assistance and finance provided for the confirmation of priority prospects
identified in the pipeline through surface exploration
2. Good practice and work specifications for the ARGeo facility.
3. Pre-feasibility studies for priority prospects received by the PMU and reviewed by the
GAP
4. Appropriate institutional set-up and capacity for geothermal resource mining and
utilization for power generation
5. Applications for submission to the RMF (including technical, financial and
institutional aspects of geothermal development and utilization and of proposals for
the access to the Risk Mitigation Fund).
6. Compilation of supporting technical data, review and analysis.
42
7. Sound project preparation (Full exploration project development and planning
activities (budget, resource, work plan, EIA, etc). Rational ranking of project
prospects into bankable project pipeline.
8. Bankable feasibility studies established
9. Institutional Assessment
10. Partner governments are well informed on appropriateness and / or deficiencies
including required amendments relating to existing project conditions with regard to
PSP in geothermal development.
11. Advice concerning key underlying agreements and contracts (PPA, concession
agreement, generation license, connection agreements, fees and permits, etc).
12. Investor searches, project information memoranda, marketing activities
13. Sound and transparent tender processes for concessions for geothermal development
or power plant construction and / or operation encourage private-sector investment in
geothermal development in the African Rift region.
14. State of the art electronic data room (CD-ROM)
15. Sound and appropriate contractual frameworks for PSP in geothermal development are
provided.
III.1.3 Risk Mitigation Fund (World Bank)
Activities
1.
2.
3.
4.
5.
Establishment of the Fund
Elaborate Guideline Procedures
Monitor the RMF’s contingent-liability coverage.
Offer grants for exploration drilling covering up to 25% of the relevant drilling cost
Offer partial risk guarantees for early-stage drilling programs covering up to 70% of
the relevant drilling cost, upon establishment of their feasibility within the Technical
Assistance component.
6. Monitor drilling projects underwritten by the RMF and executed by developers.
7. In the event of default of drilling programs underwritten by the RMF, payment of
guarantees upon recommendation by the GAP.
Outputs
1.
2.
3.
4.
Official Establishment of the RMF
Governance and management bodies are in place
Manual of Procedures for the RMF in place
Execution of drilling programs is enabled through the provision of partial risk
guarantees and grants.
5. Drilling programs underwritten by the RMF are duly executed.
6. Developers are compensated by guarantee payments of the RMF, in the event of
proven defaults.
III.1.4 Investments in Geothermal Power Production
The project components as described in the previous sections, should lead to a number of
geothermal investments in the targeted countries. The project will therefore continue to
provide assistance to project developers regarding the assembly of project documents, studies,
43
financial simulations and models, etc., and the solicitation of co-financing. It is expected that
other donors active in the sector would be interested to further support the development of
specific commercial Power Plants.
Three main outputs are expected as a result :
1. Implementation of pilot projects for a total of 80 MW (about $250 million of
estimated total investments).
2. Further preparation and implementation of 9 of the the 17 projects identified during
the PDF B phase.
3. Private-public partnerships.
44
IV. RISKS AND SUSTAINABILITY
IV.1 RISKS
A preliminary assessment identified the following risks and mitigation strategies and actions
for the ARGeo facility:
Risk
Problems in cooperation
between Bank and UNEP
Level of
Risk
Moderate
Slower than expected project
portfolio build-up
Moderate
Insufficient local equity
financing of subprojects
Moderate
Failure by public and private
sector to access financing for
the drilling
Substantial
Governments do not
implement required
conducive policies
Lack of private sector interest
Moderate
Market/economic risk
Low
Substantial
Mitigating Strategies and Actions
Well defined roles building on each agency’s
comparative advantage and close cooperation
through a shared steering committee.
Country studies on potential geothermal
supply, potential geothermal projects, and on
identification and eventual removal of
barriers. The TA component will assist in the
preparation of good quality bankable
proposals.
Mobilization of international finance
institutions that can provide equity finance
(e.g., bilateral donors, IFC)
The Fund will reduce the risk barrier
sufficiently to enable accessing of finance,
and a number of banks have expressed
support and interest. The TA component will
assist in the preparation of good quality
bankable proposals.
Apart from TA in this project, part of Bank
dialogue with individual countries.
This risk is mitigated through the combined
interventions in the four project components,
the continuous monitoring and through the
feedback from the independent evaluations.
The chance of a slow down in the rapid
increase in electricity demand and a
significant fall in the price of oil during the
project’s life time is unlikely.
IV.2 RISK MANAGEMENT PROCESS
123. UNEP/DGEF is using the standard risk management definitions as presented below to
implement its Risk Management Process (RMP). Based on the GEF Council’s request to
explore RMP, UNEP is using a risk management approach at the project level that covers the
need of the project team to proactively handle the risks on their project, allowing for
corrective planning and execution to take place if necessary. While a standard UNEP DGEF
45
risk management matrix is available upon request, a specific Argeo matrix will be produced
before CEO endorsement.
Risk Management Definition: Risk management is the systematic process of identifying,
analysing and responding to project risk and constitutes the initial management process of the
project M&E (Monitoring and Evaluation) plan.
Risk Management Objective: To locate risks before they become problems and to
incorporate this information into the project management process.
IV.2.1 Identification of project risks
124. ARGeo will evaluate prospective projects and their potential risks, in order to be able
to build a project plan that maximizes the probability of project success. An initial risk
identification has been done, and will be further strengthened at the beginning of the active
project work, and following the planned evaluations. The process of identification is assisted
by the use of a risk factor table that captures commonly encountered risks as well as specific
risks to the focal area and project. The TA component of the project is designed to reduce the
technical as well as financial risk to a minimum. However, projects at risk might occur
independently from TA activities and in particular be related to changing conditions in project
proponents, force majeur in one of the countries concerned, etc.
IV.2.2 Analysis of Project Risks
125. ARGeo will analyze the identified risks to establish the project exposure to each risk
and to determine which risk items are the most important ones to address. This analysis will
be supported by a top risk chart. While the initial risk analysis deals with the risks identified
early in the project, sustained analysis is needed as the project proceeds. In some cases new
risks can be identified. The top risk chart will be attached to the Progress Report. The risks
may or may not be addressed with a mitigation action, depending on the cost of that action
and the ranking of the risk.
IV.2.3 Handling Project Risks
ARGeo may handle project risks in different ways:



Accept the risk, with no investment of effort or cost, when the cost of mitigation
exceeds the exposure, and the exposure is acceptable.
Fund and staff the efforts to reduce the probability that the risk will become a
problem.
Fund and staff the effort to reduce the loss associated with the risk should it become a
problem.
Appropriate handling actions will be determined at the ARGeo Steering Committee level (see
section V.2.1).
IV.2.4 Tracking and Controlling Project Risks
46
Throughout the project, the ARGeo management will track progress handling the risks to
ensure that:



Actions which should reduce the probability of occurrence are effective
Actions which should reduce the loss associated with the risk are effective
A contingency plan is implemented for risks where there is no possible mitigation
126. In addition, the project team will assess additional risks that need to be addressed, as
well as changes in impact or probabilities to previously identified risks.
127. The ARGeo risk management process is intended as an early warning project
management tool to allow for corrective actions to take place (which responds to both GEF
Council requests of identification and response to risk) and therefore the process must happen
at the project level, and before the project at the design level. It comprises project
management related risk assessment, political risks, technical risks and financial risks.
IV.3 SUSTAINABILITY
The goal of the ARGeo programme is to develop a sustainable approach and its project
components are developed in that perspective:
128. The Regional Network and Technical Assistance components aim at establishing a
long-term and sustainable basis of expertise and local competencies in the region, associated
to making available for all the ARGeo countries the necessary technical means. This will
allow investigations, surface explorations, exploratory drillings, etc. to continue even after the
present ARGeo programme ends up. It is therefore expected that the Regional Network will
continue activities beyond the project. This will be achieved through a phased approach in
which the network will be gradually handed over to the beneficiary countries.
129. The sustainability of the RMF depends upon careful selection of drilling proposals to
be supported by the Fund; if the Fund supports a large number of proposals that do not yield
viable resources, then the losses may imply that the Fund is not able to support further
drilling. This will be ensured by the presence of high-quality technical experts on the GAP,
who would offer good advice to the Fund Manager.
130. The sustainability of exploration and drilling for geothermal energy beyond the project
will depend upon a carefully designed exit policy. This will be developed during the course of
project preparation. The objective of the exit policy will be to commercialize, to the extent
feasible, the allocation and bearing of the risks associated with exploration and drilling.
131. The Technical Assistance supporting the RMF will help to establish the mechanisms
and contractual arrangements that would foster private sector investment in GE the region.
Once the first few pilot projects will have been implemented with the participation of the
private sector, it is likely that further similar developments will take place with no need of
further support.
132. The RMF could be replicated in other regions/countries where geothermal energy is a
significant, untapped potential resource, such as East Asia. Further, the risk-sharing principles
47
of the RMF would be broadly applicable in situations where resources availability is either
unknown or is uncertain
48
V. STAKEHOLDER PARTICIPATION AND IMPLEMENTATION ARRANGEMENTS
V.1 COORDINATION WITH OTHER RELEVANT PROJECTS
133. A coordination workshop with the World Bank team preparing the GeoFund project
was held in October 2004 with the objective of discussing risk mitigation issues and methods.
Subsequent consultations between the Fund managers of both projects have followed. This
cooperation is now further strengthened with the World Bank becoming the Implementing
Agency of the Argeo RMF and will continue under various forms that would allow for
exchange of information and ideas and utilization of possible synergies.
134. The main lessons learnt from GeoFund are:
 The importance of finding a suitable agency as a project vehicle for successful multi
country implementation.

The structuring of the risk mitigation tool through the use of conditional grants.

The complementarities of the World Bank and IFC in dealing with regional transaction
driven projects where both government and private interests are involved. IFC is involved
in the ECA region GeoFund as executing agency for a major part of the TA components.
The team is discussing with IFC its possible role in this project.
135. During the last 10 years, the Bank and GEF have been involved in the preparation and
implementation of a number of geothermal operations, including Indonesia, Kenya,
Philippines, and Poland. Some of these projects have been integrated well with the
mainstream of the Bank’s policy dialogue with its clients, but a key lesson is that small and
scattered projects are not able to significantly influence government policies.
136. As previously mentioned, ARGeo further builds on a previous Medium Sized project
in the geothermal area (JGI) implemented by UNEP. It is however worth noting that another
geothermal project (Geo-Caraïbes) targeting small islands of the West Indies (St. Lucia,
Dominica and St. Kitts and Nevis) is also under development by UNEP and the Organisation
of American States (OAS). Although for various local reasons, this project is less advanced
than ARGeo, a permanent exchange of information has taken place between both projects
during the preparation phase, particularly with regard to the risk mitigation mechanism
features.
V.2 PROJECT IMPLEMENTATION ARRANGEMENTS
UNEP and the World Bank are the Implementing Agencies for the project.
Given the late entry of the World Bank in project preparation, the Bank has not had enough
time to undertake all its normal due diligence related to implementation arrangements. This
due diligence will be undertaken during further project preparation, with the implication that
there may be some changes in the implementation arrangements described below.
137. Overall responsibility in the countries will be vested with the following National
Executing Agencies (NEAs): Ministry of Energy and CERD (Djibouti), Department of Mines
Ministry of Energy (Eritrea), Geological Survey of Ethiopia and the Ministry of Energy
(Ethiopia), the Ministry of Energy and Kengen/GDC (Kenya), the Ministry of Energy and the
Department of Geological Survey and Mines (Uganda), Ministry of Energy and Minerals
49
(Tanzania). These agencies will participate in the project in collaboration with other national
government agencies, institutes and universities.
UNEP’s ARGeo project components will be implemented in the framework of UNEP’s
Energy Programme. Including the UNEP Risø Centre on Energy, Climate and Sustainable
Development and the Basel Agency for Sustainable Energy (BASE), UNEP’s energy
programme is one of the largest in the UN system, both in number of staff and in the amount
of resources available for non-investment areas such as capacity building and policy support.
Staff have educational and professional expertise in energy and environment planning, energy
management, economics, finance, business development, climate change mitigation analysis,
development planning, and public policy. The nucleus of UNEP’s energy work is the Energy
Branch in DTIE, but coordinated activities are also undertaken by other Divisions and UNEP
regional offices. Part of the strategy is to support growth of a nascent sustainable energy
finance community through an initiative developed by UNEP Energy, the UNEP Finance
Initiative, and BASE. The Sustainable Energy Finance Initiative, or SEFI, brings together
financiers, engages them to do jointly what they may have been reluctant to do individually,
and coaxes them to enter into public-private alliances in the sustainable energy finance area.
These alliances share costs and lower barriers to investment. When fully developed SEFI will
provide financiers with the information and tools, give them advisory support regarding
potential investments, provide a means of sharing best practice, and create the means for
launching new sustainable energy finance instruments.
138. The World Bank’s components will be implemented in the context of the Bank’s
energy strategy in the region. Further, the Bank will draw upon its experience in the GeoFund
project. As far as the Risk Mitigation Fund is concerned, the World Bank will be the
Implementing Agency, responsible for the design, the establishment, the management and the
monitoring of the RMF. This role requires the Bank to be also involved in most of the other
technical and/or managerial decisions taken, related to the work of the PMU and the GAP (see
below). In terms of daily management of the RMF, the intention is to have it established by
an agency responsible for it’s administration, which will establish an appropriate Fund
Management structure.
V.2.1 Project Steering Committee
139. A Project Steering Committee (PSC) will be maintained at the international level as a
forum for coordination and information exchange on project progress and performance. The
PSC will meet once a year and will include nominated representatives of the six ARGeo
countries, UNEP, the World Bank, the African Development Bank, and the co-financing
countries namely the USA, Iceland, Italy and France. It will be chaired on a rotation basis by
one of the countries representatives. The organisational chart of ARGeo is described below in
figure 3:
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Figure 3: Project structure
Legend:
RMF: Risk Mitigation Fund
GAP: Geothermal Advisory Panel
PMU: Project Management Unit
V.2.2 Project Management Unit (PMU)
140. The PMU will be established and steered jointly by UNEP and the World Bank. The
PMU will be set up at UNEP’s headquarters in Nairobi with the purpose of overall
management and administration of ARGeo components implemented by UNEP. I t will be
accountable to the World Bank for its activities related to the operation of the RMF. Under
the supervision of the World Bank, it will serve as an entry point for project applications to
ARGeo, whichever may be the nature of support requested from ARGeo. It will thus evaluate
applications against project-eligibility criteria to be established by the PMU and to be
discussed by the Project Steering Committee. It may provide technical support to public
applicants during project preparation to assist them in meeting ARGeo’s eligibility criteria
and will provide an evaluation report on any project application which would include a
possible drilling component, for scrutiny by the GAP. The GAP will then provide
recommendation on whether and under which terms a drilling component should be supported
by the RMF, including possible preliminary activities required to make the project eligible for
RMF support.
V.2.3 UNEP/World Bank Coordination Team
141. A UNEP/World Bank coordination team will be formally established at the outset of
the project to supervise all activities of the PMU with implications on the cooperation
between the GAP and the RMF. This coordination team will meet and exchange on a regular
basis to handle all project implementation issues and ensure good coordination among the
various bodies.
51
V.2.4 Project Geothermal Advisory Panel (GAP)
142. A Geothermal Advisory Panel (GAP) will be established to provide neutral expertise
and to guide and review surface assessments and pre-feasibility studies. The World Bank
would be the Implementing Agency with supervision responsibility for the GAP’s activities
related to the RMF. The GAP’s secretariat would be set up in the PMU.
143. The GAP will be composed of reputable international experts, selected on the basis of
their experience and knowledge of geological and geothermal activities in East Africa and
representing the various disciplines involved in geothermal developments, including geovulcanology, geochemistry, geophysics, drilling, reservoir engineering, plant engineering,
legal and environmental aspects. They will be given a non-renewable part time appointment
and will have to apply strict confidentiality and deontological criteria.
144. The GAP shall employ a small fixed panel of experts. These experts are expected to
draw on an agreed roster of specialists in various fields on a case by case basis to cover
specific issues related to the applications. Working closely with the PMU and the RMF, the
GAP’s role is (i) to provide a scientific opinion on whether a drilling program is worth
undertaking considering the probability that the drilling reveals an exploitable geothermal
resource. Its opinion will be a crucial element to be considered by the Fund Manager when
deciding upon an application for the RMF’s support. Should a program be considered
premature due to lack of supportive data and evaluations, the GAP will recommend the
actions to be undertaken as part of the technical assistance component to bring the program to
maturity, (ii) the GAP shall then monitor drilling execution by the sponsor and
correspondingly provide appropriate scientific advice to the RMF Manager, and (iii) the GAP
shall provide technical recommendation on possible default cases, with regard to the
justification of the guarantee-payment claim and the appropriate amount thereof.
52
Figure 4: Organizational setup of the RMF and other ARGeo bodies for drilling proposal and
execution.
145. Finally, the GAP will also advise on the technical assistance for the confirmation of
geothermal resources through surface exploration, and in particular the promotion of standard
good practice and work specifications, for various stages of geothermal investigative works;
review of exploration results; the identification of knowledge gaps regarding partially studied
geothermal prospects; the formulation of appropriate exploration and drilling programs.
V.2.5 National Project Committees
146. National project committees will be established in each country comprising
representatives from the National Executing Agencies, and relevant Ministries to ensure
coordination at the national level.
V.2.6 Risk Mitigation Fund (RMF)
147. The RMF is going to be managed by a Fund Manager with support of the GAP under
the supervision of the World Bank as Implementing Agency. The Fund will be managed
under World Bank fiduciary framework and guidelines.
53
V.2.7 National and regional thematic working groups
148. As set out in the description of the regional network, working groups will be set up at
the national and regional level as a support and coordination mechanism for the
implementation of activities under components 1 and 2, and also to ensure input from national
institutions other than the National Executing Agencies. A National Project Management
Group (NPMG) will be established for each country. The NPMG will facilitate inter-agency
coordination. Each country will designate a Governmental and Technical/Scientific
representative. The NMPGs will establish National Advisory Groups.
V.2.8 National Project Coordination Units
149. The National Project Coordination Units will be established in each National Focal
Agency and will have a full time National Project Manager. The National Project Manager
will be responsible for the day-to-day management of the project. Each NPCU will receive
international technical assistance through the PMU and short-term consultancy inputs. The
NPCUs will establish National Project Advisory Groups (NPAG).
V.3 TERMS OF REFERENCE AND WORKING PROCEDURES
V.3.1 Role of the Steering Committee
150. The Steering Committee is the place where all methodological approaches are
discussed, based on reports prepared by the PMU with support of the GAP and the Funds
Managers when required. It will be a forum for consultation with project parterns. In
particular it will:
 Discuss a methodological framework as well as guidelines prepared by the PMU, the GAP
and the RMF Manager, including project-eligibility criteria, defining precisely which
investments can be covered by the Fund and which are excluded, as well as any limits to
consider (maximum exposure per country, per developer, etc.);
 Similarly advise on a methodological framework for the Technical Assistance related
activities;
 Review activities developed under the network and technical assistance component on the
basis of the PMU reports and provide feedback on any issue in this respect;
 Discuss the monitoring and evaluation system so that it is consistently implemented by all
partners, and that necessary data in this regard are effectively collected and that
recommendations made regarding identified strengths and weaknesses of the project are
discussed;
 Review and approve all reports produced as part of the monitoring and evaluation
framework;
 Be consulted on any amendments to the original project design that might be deemed
necessary based on preliminary feedback obtained from the project performance;
 Develop the coordination with other countries in or around the Rift valley geologic system
with the view of supporting the replication of geothermal investments in these countries,
54
either through joining the ARGeo project ( under a mechanism to be further elaborated
and submitted for GEF approval) or through the preparation of new applications, under
GEF procedures.
V.3.2 Role of the PMU
The PMU shall undertake the following tasks:




Establish project management and monitoring guidelines for the PMU’s activities.
Coordinate and manage all UNEP activities related to sub-components 1 and 2
(regional network and technical assistance);
Coordinate the GAP’s activities with those of the RMF, under the supervision of the
Coordination Team;
Coordinate with international donors and organisations to seek for additional funding
sources for TA activities, particularly with regard to the second five year period of the
project;

Under the supervision of the World Bank as the Implementing Agency, with regard to
applications received in view of obtaining the RMF support, analyse the commercial
and economic prospects with respect to a future geothermal power plant – assuming
that the exploratory and/or appraisal phases reveal successful. This analysis should
include the following aspects, on the basis of information provided in the application
and improved through any necessary technical assistance:
- electricity-sector analysis (sector policy, institutional set up, geothermal
development strategy, power expansion planning, tariff policy and structure)
- investment and production cost analysis,
- grid access: requirement and cost of additional transmission lines; institutional
responsibility for such an investment and its subsequent operation;
- financial and economic analysis;
- sensitivity analysis;
 In case of a private sponsor, provide a preliminary assessment of the viability of the
private investment and on the need for transaction advice support:
- analysis of the regulatory and legal environment;
- political, regulatory and commercial risk mitigation mechanisms available
to or contemplated by the investor;
- and establish whether or not the project should be submitted to the RMF,
from
 a sector political perspective, and
 a financial, economic and risk evaluation standpoint on the basis of
corresponding reports of the GAP.
151. Regarding applications submitted in view of being eventually assessed by the RMF,
the PMU shall closely coordinate the execution of these tasks and that of any pre-feasibility
and feasibility studies with the RMF Manager and seek its approval regarding individual
Terms of Reference, the selection of advisors and all substantial reports. Eventually, the PMU
passes on its comprehensive project assessment report including the GAP’s recommendation
to the RMF Manager. It shall prepare a report semi-annually for the Steering Committee on its
pipeline preparatory work related to the RMF.
55
V.3.3 Sponsor application for RMF support
152. The sponsor shall prepare his application for both the guarantee and the grant
according to a template to be elaborated by the RMF Manager. It shall basically comprise:
 Details of the applicant and its major partners in the project: corporate details, legal
standing, financial standing, directors and advisors
 Experience and track record: references in particular with regard to geothermal
developments
 Financial and technical feasibility study or equivalent
 Detailed drilling plan (decision tree, expected outcomes, etc.)
 Funding sources
 Other items to be defined by the RMF Manager
153. Sponsors may be either the government of the country where the geothermal project is
located or a private developer that has been granted legal rights regarding the development of
the project.
154. As the Fund will provide support only for drilling exploration and / or appraisal
drilling the application must contain a comprehensive and detailed analysis of the project
status, in terms of all the preliminary data collected that would justify the proposed drilling
phase.
155. In case of the sponsor being a public entity, the application must contain a written
commitment, the wording and signature of which must be satisfactory to the RMF, that the
government is willing to fully develop the geothermal project in case the drilling program is
successful, according to the Fund’s criteria. This commitment shall refer to the early-stage
drilling, the subsequent completion of field development and plant construction. It shall
feature a road map for achieving feasibility of the overall project from initial drilling to plant
operation from a sector political and institutional perspective.
156. In case of the sponsor being a private entity, the application must contain an
exhaustive description of the company’s experience and references and in particular the
project structure including the funding structure.
V.3.4 Terms of reference of the GAP
The GAP experts will be remunerated for their tasks, which will include:

Support the PMU for the preparation of surface investigation activities;

preparing a methodological framework for the analysis and the assessment of the project,
from a scientific and technical point of view;
prepare a template for periodic reporting on drilling execution by the sponsor;
assessing the submitted project on geological, geophysical, geo-chemical and other
relevant aspects, with the view of being able to:
- confirm whether the data provided is sufficient to form an opinion;
if confirmation is not given, suggest the necessary complementary investigations to
be undertaken;


56



if confirmation is given, recommend on whether or not the Fund should accept
providing a risk guarantee and / or a grant to the project;
- in case the opinion is negative, prepare a document, countersigned by all GAP
experts, to be sent to the project sponsor by the PMU explaining the reasons for
refusal;
- in case the opinion is positive, prepare recommendations for the RMF Manager to
be included in the legal agreements, in particular regarding:
the basis of costs to be covered by the Fund’s guarantee by clearly distinguishing
elements that are to be insured and those that may not as well as the upper limit
of such insurable costs;
the definition for success or failure: it is of utmost importance that the GAP defines
very precisely on the basis of which objective parameters and their nature, the
results of a drilling activity can be deemed to be a success or a failure;
Under the supervision of the World Bank, monitor drilling execution on the basis of
regular progress reports from the Sponsor; contribute to the Sponsor’s staged decision
making process on the pursuit or abandonment of a drilling program. For this purpose the
GAP, at its discretion, may recommend the PMU assigns independent experts on special
issues as appropriate;
In the event that a guarantee payment is claimed, provide an assessment report to the RMF
Manager:
evaluate the scope of drilling undertaken against the drilling guaranteed
provide the technical input required to determine the level of guarantee
payment due according to prior definition of failure and the cost ensured; for
this purpose establish the result achieved in comparison to the target defined in
terms of the ensured output;
report semi-annually to the PMU and the Argeo Steering Committee regarding the status
of projects receiving support of the RMF, in particular on any important scientific issues
related to these projects.
V.3.5 Role of the Risk Mitigation Fund Manager
The Fund Management is an entity to be created by an administrative agency. It will provide
project management staff and administrative services and make use of external advisors, as
may be required.
The fund manager will evaluate project proposals following the project-eligibility criteria in
the operation manual. Initial eligibility criteria for projects to be supported by ARGeo are as
follows:
Economically and financially exploitable geothermal potential
Risks of resource failure reduced as much as possible by documented, state
of the art surface exploration and testing (requirements to be determined by
the GAP).
Clear rules established regarding the country electricity market and its
regulation
Sound LCPDP featuring geothermal development
Clear government dedication to geothermal development reflecting in a
geothermal development strategy
57
-
Economically and financially realistic conditions for connection of
geothermal electricity production to the grid
Resource Competitiveness compared to least cost alternatives
Appropriate legal and regulatory environment
Appropriate institutional set up and capacity with regard to geothermal
development and geothermal field and power plant management
Demonstration impact in the region
Greenhouse gas mitigation potential
Credit worthiness and demonstrated commitment of the developer
Prospect for finance for geothermal field + power plant development
(public or private)
Environmental and social impact
157. The Fund will have a light structure, including a project manager and making use of
external advisors. The RMF Manager’ s role will be mainly to:
 receive the applications from the PMU including the PMU’s project assessment report
with the GAP’s corresponding judgment, and control their conformity with preestablished project-eligibility criteria;
 Establish whether or not the project should be supported by the Fund, from a liabilitycoverage perspective;
 Prepare a corresponding evaluation report on the drilling component for approval by the
ARGeo Steering Committee and the IA;
 Prepare the legal agreement with the project sponsor
 Monitor the drilling execution with support of the GAP; in particular, the RMF Manager
will have to supervise compliance with the World Bank Safeguard Framework and
Procurement procedures for the selection of main contractors involved in the drilling
phase, and make sure the results of the tender are consistent with the costs insured upon
approval by the GAP.
 Financial management of the Fund including liquidation of payments to Sponsors
regarding grants and guarantees in the event of failure, upon advice from the GAP and
according to the procedures established in the operational Manual for the RMF;
 report semi-annually to the Argeo Steering Committee on financial execution of the Fund
and on the progress of the underwritten drilling projects.
V.3.8 Drilling phase
The drilling phase is under the Sponsor’s responsibility.
158. However, the RMF Manager, assisted by the GAP, will monitor this phase for
compliance to agreed Safeguard criteria and according to a pre-approved execution plan
included in the legal agreements. The Sponsor will provide regular progress reports.
159. After each well drilled, the Sponsor will have to produce a comprehensive report to the
GAP and the RMF Manager presenting the results obtained as well as the difficulties
encountered. This report will be prepared according to a specific template included in the
legal agreements.
58
160. Should the Sponsor, as a result, intend to pursue the drilling of wells beyond those
already mitigated by the Fund, such progress report will serve as a complement to the original
application. Any follow-up application shall be treated according to the same procedure as an
initial application.
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VI. RISK MITIGATION FUND FINANCIAL ANALYSIS
VI.1 COST OF FUND OPERATION
161. In the event that a holder of guarantee asserts any claims against the RMF-Manager,
any costs in connection with such claims, including any costs of legal action or litigation as
well as any lawyer’s and other fees, shall be borne by the RMF
162. As an indirect cost item, Fund operation may require the input of technical assistance
(e.g. pre-feasibility and feasibility studies, etc.) in relation to project preparation, assessment
and execution. The cost related to this input is covered by the technical assistance programme
as mentioned in the previous sections
VI.2 FUND SIZE REQUIREMENT AND PROJECTED FUND EVOLUTION
163. In offering guarantees, the Fund will, at any time, maintain assets in excess of its
maximum contingent liabilities. This will limit the number of projects that the Fund will be
able to underwrite at a time. The Fund will be able to provide new guarantees to the extent
that its contingent liability is reduced as projects are successfully completed. The Fund, thus,
is a revolving facility.
164. Because the Fund will be providing exploration and appraisal guarantees as well as a
grant element to projects, the Fund will be depleted over time, at a pace which will depend on
the success rate of the various projects. Therefore, a number of financial simulations have
been carried out, starting from a base case that takes into account the present status of projects
in the pipeline as identified during the PDFB phase and the likelihood of their future
development, and analysing the impact in terms of Fund sustainability in various scenario.
165. It is assumed that risk mitigation support is provided to the projects Longonot
(Kenya), Tendaho (Ethiopia) and Assal (Djibouti) in year 2 and to the projects Alid (Eritrea),
Rufiji (Tanzania) and Katwe (Uganda) in year 4. Sensitive parameters are (i) in particular the
default rate of projects insured, (ii) the drilling cost to be insured per project, (iii) the extent of
grant, which is a function of exploration-drilling cost, (iv) when guarantees are approved,
(v) the execution period of projects, etc. Basically, larger projects and an increasing default
rate will imply either less projects receiving a guarantee and / or a grant. In the base case the
Fund is financially sustainable throughout the first 6 years, even if the default rate increases
from 30% or 50%, which will however require a reduction of the number of projects to be
supported by the RMF. The fund thus, can maintain its sustainability without the requirement
for any replenishment during the 6 years lifetime of the ARGeo programme.
60
VII. MONITORING & EVALUATION FRAMEWORK
VII.1 APPROACH TO M&E AND PROCESS DEFINITIONS
166. For purposes of enhancing management efficiency and effectiveness and for meeting
required accountability standards, ARGeo will follow each Implementing Agency’s
Monitoring and Evaluation (M&E) approach, policies and procedures for their respective
components.
167. The Executing agency for the fund will adopt M&E approaches and procedures that
are in-line with those recommended by the World Bank.
168. The executing agency’s monitoring approach would be geared to maximise
developmental impact and sustainability through systematic periodic assessment of successrelevant indicators of projects and their environment, with the purpose of assuring appropriate
and timely corrective action. Key monitoring elements include the project’s logical
framework, the formalised project monitoring plan and problem-based reporting by local
project executing partners, assisted by their consultants.
169. Evaluation of projects at mid-term as well as ex post, plays an important role in
assuring and improving the quality of projects by means of effective institutional learning.
170. ARGeo approaches M&E as the systematic and deliberate establishment of an
integrated structure, processes and tools to support project management in its aim to
continuously improve decision-making and project implementation. The project will use the
following management processes: An inception workshop will be held based on the PMU
initial work and proposal, no later than 3 months after project start, to bring all the project
stakeholders around the table and agree on a concerted detailed workplan and M&E plan as
well as risk management processes.
1. Project Planning Process: the development of a document used to guide project
execution and control. This document will be prepared at the very early stages of project
inception with the view of being formally approved by the Steering Committee and the
Implementing Agencies during its first session and become an official guideline for the
programme. The plan will articulate the specific roles, responsibilities and actions
expected from the various project management structures.
2. Risk Management Process: systematic identification, analysis and response to project
risk. This will form an integral part of the Monitoring and Control process. It is intended
that by formalising regular risk analysis, the project will identify potential risks and
problems at an early stage, thereby increasing the chance of risk avoidance or mitigation.
3. Monitoring and Control Process: capture, analyse and report on project performance as
compared to plan. This is essential to manage for change in the work plan. The project
approach places emphasis on effective planning but accepts the need for project
management to be adaptive. Effective monitoring is critical for responsive management.
4. Review Process: identification of the project’s progress, in terms of its strengths and
weaknesses. Best practices and lessons learned will feed back into the project planning
and management processes.
5. Internal Evaluation Process: measurement and further identification of expected project
results (outputs, outcomes, impact) indicators, involving the definition of appropriate
standards.
61
6. Independent Evaluation Process: independent external evaluation of the success of the
project for accountability purposes including assessment of project contribution to GEF
goals, the cost effectiveness, sustainability and replicability of the intervention.
VII.2 KEY USERS, RESPONSIBILITIES & TIMELINES
171. The various entities involved in the project will share M&E and reporting
responsibilities as follows:
1. Planning Process: Each National Coordination Unit (NCU) will be responsible for
preparing a first 5 year phase work plan (including activities, timing, logframe, budget) and
two bi-annual work plans each year for their national/thematic components. For this
purpose a national/thematic planning meeting will be held twice a year.
The Project Management Unit (PMU) will be responsible for preparing a first 5 year phase
work plan and an annual work plan each year for the whole project, including the Regional
Network activities, the Technical Assistance developments and the Funds perspectives. To
that purpose a regional planning meeting will be held once a year, integrating the elements
of planning received from the six NCUs, as well as from the Managers of the RMF and the
TAF. This process will result in a progress report and a planning document to be submitted
and approved by the Steering Committee.
2. Risk Management Process:
Each NCU will be responsible for preparing a national/thematic risk factor table and a top
risk chart on an annual basis. The top risk chart will be attached to and commented on in
the annual NCU progress report.
The PMU and the Managers of the Funds will be responsible for preparing their respective
component’s risk factor table and top risk chart, as well as reviewing the NCUs progress
reports. The PMU will bring up to the Steering Committee any issue of concern resulting
from this analysis.
3. Monitoring and Control Process:
Each NCU will be requested to produce quarterly financial reports and, bi-annual
national/thematic Progress Reports describing the implementation status vis-à-vis timeline
and budget, to be submitted to the PMU. In addition, an updated work plan to be discussed
at the next planning meeting, explaining reasons for any changes, will be submitted on a biannual basis.
The Fund Manager and the PMU will be responsible for producing an annual consolidated
Progress Report, including financial statements, as well as an updated work plan to be
discussed at the next planning meeting and then submitted to the Steering Committee for
approval.
The PMU will launch a Mid-Term Evaluation/Audit to be executed by UNEP Monitoring
and Evaluation Office during the third year following project inception. An independent
external expert in geothermal projects will be contracted. The focus of the Mid-Term
Evaluation will be to review progress, identify problems and constraints and make
pragmatic suggestions to enhance the likelihood of achieving the desired project outcomes.
4. Review Process:
62
The PMU will be responsible for producing an annual project implementation review
(PIR) report to the GEFSec as well as preparing an annual self-evaluation review (SER) to
UNEP Monitoring and Evaluation office.
The PMU will be responsible for feeding back information and lessons learned from the
review process into the next planning meeting.
5. Internal Monitoring and Evaluation Process:
Each NCU will be responsible for measuring and further development of national/thematic
output and outcome indicators defined during project design. For this purpose an annual
internal evaluation meeting to update the Log Frame matrix indicators and compare current
conditions with project assumptions. will be held.
The Fund Manager and the PMU will be responsible for measuring and further develop
their respective components and project overall output and outcome indicators defined
during project design. To this purpose an internal evaluation meeting to update the Log
Frame matrix indicators will be held once a year.
6. Independent Evaluation Process:
An evaluation of progress will be carried out, by an external advisor not involved in the
current ARGeo operations, every two years. This evaluation can either be internal by
Implementing Agencies, M&E offices or independent and external depending on the
project progress towards development objectives. In other words the project steering
committee will provide guidance in this respect. In addition, the PMU and UNEP are
responsible for scheduling and coordinating an external, independent Final Evaluation (at
the end of the project phase) to assess attainment of the project objective and possible
impacts. Progress evaluations will also follow World Bank and UNEP M&E Guidelines
where applicable.
VII.3 TRAINING/CAPACITY BUILDING
172. The PMU will ensure that the NCUs and the Fund Manager are equipped with,
understand the purpose, and will use the M&E working tools related to the management
processes described above. To this purpose an M&E meeting will be held at project launch,
in view of making everyone familiar with these tools as defined below:
1. Planning Process:
National/thematic sub-log frames for national/thematic work plans.
Network & Technical assistance and RMF & TAF sub-log frames for respective
components work plans.
Project overall log frame for project work plan.
2. Risk Management Process:
Risk factor tables and top risk charts.
Network & Technical assistance and RMF risk factor table and top risk chart
Project overall risk factor table and top risk chart.
3. Monitoring and Control Process:
Progress report template.
World Bank and UNEP mid-term evaluation/Audit guidelines where applicable.
63
4. Review Process:
GEFSec PIR annual guidelines.
World Bank Financial Monitoring reports
UNEP SER electronic template.
5. Internal Evaluation Process:
Log Frame Matrix and development relevant indicators.
6. Independent Evaluation Process:
UNEP standard for Terminal Evaluations and World Bank implementation completion
guidelines.
64
VII.5 M&E FRAMEWORK SUMMARY TABLE
The following table summarizes the responsibilities for the project management entities regarding monitoring and evaluation
Project entity
UNEP/EOU*
Planning
Monitoring
UNEP/World Bank
Supervise the work plan and
detailed M&B plan
PMU
Develop the work plan and
detailed M&E plan; contract
M&E expert to guide the
process
Participate in the
development of the work
plan and detailed M&E plan
Participate in the
development of the work
plan and detailed M&E plan
Reviews the workplan and
detailed M&E plan
Continuous monitoring of progress Receive annual progress
reports and reports to
GEF evaluators
Continuous monitoring of progress Prepare annual progress
and impact; coordinate inputs from reports, including top risk
national coordinators/executing
chart
agencies/GAP/Funds
Continuous monitoring of progress Prepare national progress
and impact; data collection
reports; submit financial
reports
Continuous monitoring and data
Half-yearly progress
collection
reports; financial reports
National Executing
Agencies/ National
Coordinators
Funds Manager
Steering Committee
Geothermal
Advisory Panel
Receives the work plan and
detailed M&E plan
Reporting
Monitoring of all the project
components activities
Receives annual progress
reports
Participate in monitoring the
drilling activities
Reports to the Steering
Committee
Evaluation
Engage and prepare TOR
for independent M&E
consultants to conduct midterm and final evaluations
Receives evaluation reports
65
VIII. PROJECT COSTS AND FINANCING
VIII.1 TOTAL PROJECT FINANCING
173. The total budget of the increment amounts to US$ 75.55 million. This will be
funded by a GEF contribution of US$ 20 million and by non-GEF resources in the form
of co-financing of the amount of US$ 55.55 million. The contribution from GEF is
presented in the budget below.
GEF budget
Component
GEF
UNEP
WB
Project Management 6 years
1,800,000
1,000,000
800,000
TECHNICAL ASSISTANCE
Regional network, information and
outreach
1,250,000
1,250,000
0
Provide support in the
execution of surface
exploration activities, including
geophysics, for the definition of
drilling sites and reservoir
models
1,500,000
1,500,000
0
800,000
0
800,000
600,000
0
600,000
Assist in the preparation of prefeasibility studies including
technical, infrastructure,
financial and institutional
aspects of geothermal
development and utilization
and of proposals including
specific safeguard issues
related to environment and
social impacts for the access to
the Risk Mitigation Fund
Elaborate bankable feasibility
studies on the basis of
appraisal-drilling results,
following financial institutions
rules and criteria
66
Support the evaluation of the
policy and regulatory
frameworks with the view to
facilitate investment including
enhancing private participation
300,000
0
300,000
250,000
250,000
0
150,000
0
150,000
300,000
300,000
0
200,000
200,000
0
9,500,000
0
9,500,000
600,000
0
600,000
500,000
250,000
250,000
17,750,000
4,750,000
13,000,000
Support the evaluation of
institutional capacities for the
regulation of geothermal
resource mining and utilization
Support the integration of
geothermal energy
development in the national
energy development master
plans, especially in power
sector plans
Review existing project
conditions for private sector
participation in geothermal
development and in particular
support private partners
through public private
partnership
Assist partner countries in
contract negotiations with
private investors
Risk Mitigation Fund
Facilitate Ad Hoc advisory
services to Risk Mitigation
Fund:
M&E for Over-all and
individual project monitoring
TOTAL
VIII.2 CO FINANCING
174. During PDF-B works (which were co-financed by the Governments of Germany $USM 0.7, and Italy - $USM 0.15, in addition to in-kind contribution of UNEP), the
67
project proponents have been able to secure an important volume of direct co financing,
reflecting the strong support provided by various international donors as well as the
commitment of the targeted countries themselves.
175. The current total co-financing commitments for the project amount at the level of
$USM 21.05.
176. The present state of the negotiations with donors and recipient countries can be
summarized as follows:
1. Iceland
The annual contribution of Iceland to ARGeo during the first five years will be up
to US$ 500,000, in the form of technical assistance for resource exploration,
preparation of pre-feasibility studies, training regional forums. In addition,
another US$ 300,000 will be contributed during the project appraisal phase
(around 180,000 US$ on exploration in Uganda; 80,000 for the equipment survey
in ARGeo countries, and 40,000 US$ for a workshop for ARGeo countries
decision makers, as an input into a training needs assessment. In addition, Iceland
has indicated potential interest to invest in geothermal power plants in the region.
2. United States
During the Steering Committee held in Addis Ababa in February 2005, US
governmental agencies involved in the ARGeo project have expressed their
support through a statement made by an official representative. Attached to the
present project brief (Volume II Annex, Sub-Annex 2) is a confirmation of this
support. In this statement, it is estimated that future US Government grant
funding will be in the $ 500,000 to $1 million range: therefore, the project brief is
based on a rather cautiously estimated amount of $ 500,000. In addition, the US
Government has also proposed to make available to ARGeo a substantial
technical and economic geothermal site development tool. This tool has been
developed over a relatively long period of time, at a cost that exceeds $3 million:
transferring the license to ARGeo has then to be considered as a significant inkind contribution, which will considerably facilitate and reduce the cost of the
exploration studies.
3. Italy
The Italian Ministry of Environment and Territory has been a partner in ARGeo
since the beginning of the preparation phase, to which it contributed with a cash
co-financing of $US 150,000 and by hosting the first Steering Committee Meeting
(Rome, 2004). The Italian Government will continue to support ARGeo with cash
co-financing estimated in the order of $US 2.5 million distributed throughout the
project’s lifetime. This co-funding will be directed to cover partly the technical
assistance component, as well as the expenses related to the Geothermal Advisory
68
Panel. The details and modalities of the Italian contribution will be defined during
project appraisal.
4. France
Through its Agency for Environmental Protection and Energy Conservation
(ADEME), France has also shown interest in the ARGeo programme and
committed support, both in kind and in cash, particularly with regard to the
establishment of the regional network and the technical assistance to engage
surface exploration activities as well as finding and paying for the GAP experts.
According to the terms of the attached support letter (Volume II Annex, SubAnnex 5), ADEME co-financing can be estimated over a first five year project
phase at USD 250,000.
5. Participating countries
Participating recipient countries will commit to the project $US 2 million each on
average, in the form of staff time, office facilities, vehicles, laboratory facilities,
field crews for technical work (geophysics, geochemistry, surveying, testing etc.)
participation to regional conferences and SC meetings, documents, reports and
cartography, and equipment ( including drilling equipment)
6. Developers
In addition to this, developers of geothermal fields, either public utilities in the
ARGeo countries or private investors will finance the exploration and appraisal
drilling programs, with support from the RMF, to achieve proof of feasibility for
subsequent full development of the corresponding geothermal field including
plant investment. According to costs estimates during ARGeo’s preparation
phase, the funds expected to be invested by the developers undertaking these
drilling programs amount to US$ 34 million. This is assuming that drilling
programs with a total estimated cost of US$ 39 million will be supported by the
RMF with a grant amount of US$ 5 million. The remaining cost of US$ 34
million will then be borne by the developers.
177. It is considered possible that following GEF Council approval additional cofinancing could be gathered during appraisal.
VIII.3 INVESTMENTS – LEVERAGED FINANCING
178. Preliminary discussion with a number of partners potentially interested in
financing the investment components of the project (drilling - plant engineering and
construction) have resulted in positive reactions. These partners will be following
ARGeo’s developments and participate to or observe conferences and SC meetings.
69
Among them, the World Bank, the African Development Bank, OPIC, Exim Bank and
the French Agency for Development (AFD) have declared their interest in principle.
ARGeo has also been presented to the European Investment Bank (EIB) which has
declared its interest in principle to participate in the financing of the investments through
its programmes directed to Africa and/or to the promotion of renewable energy (EIB is
already a financing actor in the geothermal field in Kenya). It is expected that the total of
leveraged financing will reach $US 200 million during the project’s lifetime. More
particularly, Exim Bank has sent a letter of intent expressing their willingness to
participate in the financing of the investment phase according to their rules and
procedures (Volume II Annex, Sub-Annex 3). In addition, it should be noted that the
mechanisms designed under this project have been submitted to private developers, in
particular to the US Geothermal Energy Association and feedback received has been
incorporated in the final design presented in this project brief. On this basis, it is
anticipated that private companies will be ready to invest in the geothermal projects s
illustrated by the letter sent by the private developer ORMAT (Volume II Annex, subannex 6).
VIII.4 PARALLEL CO-FINANCING – ARGEO’S CATALYTIC ACTION
179. Since the idea of a regional geothermal fund was first discussed at the 2003
Nairobi conference, there has been renewed interest from the part of the countries and of
potential investors in geothermal developments in East Africa. This interest has generated
new initiatives, or strengthened ongoing ones, as in the case of the Aluto Geothermal
Plant Rehabilitation Project (Government of Ethiopia, with the assistance of the US
Trade and Development Agency), the acceleration of the negotiations between the
Government of Djibouti and a private sector partner, and the exploration activities in
Uganda, partly funded by Iceland.
180. All these efforts, that can be quantified in approximately $US 6-10million, have
benefited from the regional dialogue for the full design of ARGeo, and have now to be
considered as part of this overall program for the acceleration of geothermal development
in East Africa, a key step towards the systematic introduction of environmentally friendly
and sustainable energy in the region.
70
VIII.5 SUMMARY OF COSTS AND FINANCING BREAKDOWN
The following table provides for a breakdown of costs and financing sources for the whole project, excluding PDF-B and PDF-C (all
figures in million $US):
ARGeo Project Component/Financing Sources
Total
Cost
GEF
Funding
Project management and GAP activities
1.80
1.80
Regional Network
13.75
1.25
Technical Assistance
13.75
4.70
Risk Mitigation Fund
43.50
9.50
Monitoring and evaluation
0.50
0.50
73.30
17.75
TOTAL
UNEP
ARGeo
Countries
0.50
12.00
Italy
2.50
France
0.25
USA
Iceland
3.50
2.80
Developers
34.00
0.50
12.00
2.50
0.25
3.50
2.80
34.00
71
IX PROJECT LOG FRAME
MATRIX
Objectives and Outcomes
Global Objective:
Reduction of the growth rate of GHG
emissions from fossil fuel use in the
African Rift Valley countries through
geothermal energy exploitation
Project Objective:
To facilitate investments in geothermal
power production in the Rift Valley by
addressing financial, institutional,
information, and resource confirmationrelated barriers currently facing
geothermal resource development in the
region.
Objectively Verifiable Indicators
Means of Verification
Important assumptions
The technical, economic financial,
environmental and social feasibility of
geothermal energy is confirmed.
Geothermal energy is considered a
viable electricity generation option
throughout the region.
Avoided GHG emissions of 1.05 M
ton per year.
Monitoring and
evaluation reports on
avoided GHG
emissions; official
publications
Geothermal energy development
is given priority by Governments
over thermal power plants over
the next 10-20 years, and
Governments will focus on the
long-term solution of geothermal
development.
Number of geothermal energy
investments in the region baseline:
30MW by 2016,
1 projects commissioned by 2011 with
another 2 in preparation: Minimum of
25MW installed.
3 projects commissioned by 2013
with at least 65 MW installed. Another
3 in preparation.
Direct GHG reduction from project
amounts to 400,000 tons of CO2 per
year at project end.
Site visits, monitoring
and evaluation reports
on geothermal energy
investments made;
official publications
Political stability in the region.
Private sector needs for
investment security are met by
Governments. Governments are
willing to implement policies
and measures needed for
geothermal development.
72
Immediate objectives/outcomes
1. Enhanced institutional capacity,
enhanced knowledge and awareness of
the potential and requirements for
geothermal development in the Rift
Valley at the regional and national levels,
optimal use of resources in the region
(human, institutional, equipment)
Regional expertise used in geothermal
development (drilling, exploration,
geothermal field operation)
By the end of the project 10 regional
experts will be working
in the preparation of pre-feasibility
studies;
by project end another 10 experts will
be specialized in preparing prefeasibility studies. Little international
support will be needed.
Reports and data
compiled by the
national and regional
working groups and the
PMU as part of the
monitoring of project
impacts; technical
papers by experts in the
region; M&E reports.
The above is achieved through
training programme (on the job, and
formal at least once per year as well as
exchange programmes) and awareness
focussed meetings at least 1 per year
at minima.
PMU reports and
evaluation forms from
participants.
Inputs for feasibility work from
regional expert and agencies will go
from nil as baseline to 16% at project
end.
Partnerships between
international and
national firms.
The geothermal potential receives
increased attention from bilateral and
multilateral development agencies,
and geothermal agencies outside the
region as expressed by financial and
73
Memorandum of
understanding between
UNEP and the donors
National institutions are
able to retain trained staff;
institutions take
responsibility for shared
equipment; institutions
remain motivated to share
information, knowledge
and data with the region
and trust the capability of
regional experts.
in-kind contributions; Target at mid
project is set at US$ 1.0M.
Increased number of technical papers
from the region submitted to
conferences and journals on
geothermal activities in the Rift; From
1 paper per year after 2 years to 2
papers per year on average for the
remaining of the project.
Publications
Previously unavailable data and
UNEP net and
information is made available and
directory and record of
used in the preparation of previsits.
feasibility studies; All data is available
on the project website set up within
the UNEP net.
2. Priority prospects are confirmed
through surface exploration to a stage
that exploration drilling can commence
and good quality applications based on
pre-feasibility studies are submitted to
Best equipment is shared in the
region: Seismographs, Gravity
meters, Magneto meters, Magneto
telluric Equipment, Mass
spectrometer, Joint Geophysical
imaging related equipment, directional
drills……etc.
At least 5 of pre-feasibility studies and
applications reviewed by the
Geothermal Advisory Panel (GAP) by
year 3 and out of these at least 3 are of
sufficient good quality to be submitted
74
Reference to equipment
in pre-feasibility
studies and
import/export
documents.
Reports by PMU
reports and official
records of decisions
made by the GAP and;
M&E reports.
The results of the surface
exploration recommend
drilling; the public and
private sector is able to
access the remaining
the Risk Mitigation Fund (RMF).
3. The resource risk is mitigated to an
extent that risk associated with
geothermal development is reduced to a
level similar to other power
developments. Public and private sector
financing resulting in resource
confirmation through exploration and
appraisal drilling.
4 Legal and regulatory framework are
conducive of geothermal development
and governments have the capacity to
efficiently negotiate with the private
sector
to the RMF with a positive review
from the GAP.
At least 6 pre-feasibility studies to the
GAP out of which 4 are forwarded to
the RMF.
5 applications received by the RMF by Reports by the RMF
year 3 and 8 by year 6
manager; M&E reports.
3 applications that are approved by the
RMF by year 3 and 5 by year 6.
Clear rules on licensing, concessions,
PPAs and environmental and social
impact assessments in place in 1
country by mid project and in 3
countries at project end.
Informed decisions made by
geothermal development agencies and
ministries.
Negotiations between governments
75
Legal and regulatory
texts adopted and
officially published.
Records from
Government officials
and the private sector.
financing for the drilling
Public sector is able to
access financing. The risk
coverage and grant portion
are sufficient to mitigate
the resource risk to an
acceptable level. For
private sector entry at this
stage: government
guarantees, incentives, and
policies/regulations
provide sufficient security
to investors. Private
interest in geothermal
development in the Rift
Valley exists.
and private sector result in deal
closure and the transaction cost is
reduced by 25 % over the lifetime of
the project.
Experiences documented and shared
during regional meetings once a year.
The workshop would involve ministry
directors, ministers and regulatory
agencies heads as well as utilities
relevant representatives.
5.Private sector investments are catalyzed Feasibility studies are of satisfactory
through the building of reliable, robust
quality to the private sector/investor
and sustainable public-private sector
and to financial institutions. This
relationships
results in financial closure for 3
projects by project end.
M&E reports
Reports by PMU
Private investments in geothermal
development in ARGeo partner
countries
US$80 million are committed by the
private sector at mid project.
US$200 millions by project end.
5. Project management, M&E, and
information dissemination
An increasing percentage of the
funding is leveraged from national and
regional financial institutions.
Target at mid project: 10%
Target at project end: 20%
M&E serve as a basis for adaptive
Decisions of the
management with advice from the
steering committee.
76
Partner governments’
continued commitment to
private sector participation
in geothermal development
Fund availability with
partner governments for
geothermal plantinvestments
Sufficient interest by
private investors with
appropriate technical and
financial capacity
steering committee.
The project is mentioned in at least
one relevant international publication
such as the IGA newsletter and/or
invitation to International Geothermal
conferences.
Additional co-financing and leveraged
financing. ARGeo model is replicated,
and other countries in the Rift want to
join.
77
Letters; expressions of
interest.
THE MONITORING TABLE BELOW WILL BE FINE TUNED AT INCEPTION IN CONSISTENCY WITH THE ABOVE.
Outputs
Objectively Verifiable Indicators
Means of Verification Important Assumptions
1.1 Regional Network of geothermal
Regional activities are implemented in Reports and data
In order to achieve output
agencies established in the region in
a collaborative manner, information,
compiled by national
1.1
support of the project and as an
and expertise are shared across the
project coordinators
National geothermal
instrument to promote the optimal use of region. National activities benefit from shows evidence of
agencies are cooperative
resources in the region
regional network inputs where
regional collaboration
and are prepared to share
appropriate.
and linkage; reports
information and resources.
from regional
meetings; M&E
reports.
1.2 Regional information system set up
Agreed and implemented data
M&E reports; progress In order to achieve output
and strengthened national information
collection and management plan; web reports; web site; meta- 1.2
base is created and used.
site created; synthesis of all
database and
Inputs are received from all
geothermal research undertaken in the inventories;
partners and national
Rift Valley prepared and available to
newsletters; geothermal geothermal agencies.
users; metadatabase and inventories
compendium;
created and accessible on the web site; published papers.
newsletter published bi-annually;
geothermal compendium published.
1.3 Regional forums, building on the
At least one well-attended and
Conference
In order to achieve output
experience of Kengen’s annual
successful conference organized by
proceedings;
1.3
conference, are created for the exchange
national geothermal agencies take
announcements and
Governments and project
and sharing of experience, research, and
place in the first three years of the
articles in geothermal
partners remain committed
technical advances, and outreach to
project; at least 2 oral and poster
newletters; technical
to the regional approach
international and regional geothermal
presentations are made by the
papers and posters
initiated and supported by
events is increased
countries other than Kenya at
submitted to
Kenya.
international and regional geothermal international and
events.
regional geothermal
events; progress
reports; M&E reports
78
1.4 Regional training and technical
capacity building programme responding
to the needs of the countries, and making
optimal use of human resources and ongoing exploration campaigns in the
region to build technical capacity.
One technical training course per year
is held, attended by geothermal
professionals from all the countries; at
least one geothermal professional
from outside the country take part in
each exploration campaign in the
region; two technical workshops held
on topics selected by the national
geothermal agencies.
Training course and
workshop evaluation
and reports; reports and
data compiled by
project staff and
partners; progress
reports; M&E reports
1.5 Regional programme for awareness
raising and the promotion of policies and
regulatory frameworks needed for
geothermal development and private
sector investment
Analyses, briefs and policy guidance
documents on policies and regulatory
frameworks needed for geothermal
development and private sector
investment reach policy makers; at
least one regional meeting held for
policy-makers, regulatory agencies,
utilities and other relevant institutions,
focusing on public-private
partnerships, financibility, risksharing, and policies and regulatory
frameworks.
Number of priority prospects assessed
through surface exploration.
Meeting evaluation and
reports; progress
reports; feedback from
partners, and
stakeholders.
2.1 Technical assistance and finance
provided for the confirmation of priority
prospects identified in the pipeline,
through surface exploration
79
Technical reports; data
reports on resource
exploration results;
progress reports; PSC
reports.
In order to achieve output
1.4
National geothermal
agencies communicate
their training needs;
agencies leading the
exploration campaigns are
committed to training
geothermal professional
staff from the region
outside the country where
they take place.
In order to achieve output
1.5
Policy-makers are
receptive to the need for
stable policies and
institutional frameworks
and regulations.
In order to achieve output
2.1
Governments remain
committed to geothermal
exploration and
development and provide
the necessary support to
2.3 Applications are prepared for
submission to the RMF in accordance
with the requirements of the RMF
Applications to the RMF.
2.4 JGI and other equipment in the
equipment pool is used in exploration in
the region.
JGI equipment is used in each country
where geophysics assessment are
undertaken Other pooled equipment
are made available when required.
2.5 A Geothermal Advisory Panel (GAP)
is established and is operational
Reviewed exploration and drilling
proposals
Approved submissions to the RMF
3.1Operational Risk Mitigation Fund is in Grants and guaranties awarded by
place
RMF for exploration and appraisal
drilling programs
Exploration and appraisal drilling
programs executed
3.2. Bankable Feasibility Studies
established
Bankable Feasibility Studies
submitted to financial institutions
80
exploration campaigns.
In order to achieve output
2.3
Public and private sector
perceive remaining risk as
acceptable.
Progress reports;
In order to achieve output
technical reports on
2.4
exploration results
JGI equipment remains
operational; method proves
successful; countries agree
on annual workplans for
deployment of equipment.
GAP Terms of
In order to achieve output
Reference,
2.5
membership. Reports
International and regional
and records of GAP
reputable experts are
decisions,; PSC reports; available to work in the
M&E reports
GAP
Reports by the RMF;
In order to achieve output
progress reports; PSC
3.1
reports
existence of eligible
geothermal drilling
programs
Reports by the RMF,
progress reports; PSC
reports
Feasiblity Studies.
Availability of interested
developers with
appropriate technical and
financial capacity
In order to achieve output
3.2
4. Transaction advisory services are
provided
Number of transaction advice
requests, received, approved and
executed.
Progress reports; M&E
reports
Successful exploration and
appraisl drilling
In order to achieve output
4
Partner governments
continued commitment to
private sector participation
in geothermal development
Appropriate legal,
regulatory and institutional
project environment
Sufficient interest by
private investors with
appropriate technical
financial capacity
Close Cooperation and
Coordination with Donors
active in Private sector
development and financing
as the IFC and the World
Bank.
5. Project management, M&E, and
information disseminaton
5.1 Project management structures
Project management structures
established and functioning effectively
National and regional coordination
mechanisms established and
functioning
81
Reports of Project
Steering Committee
Meeting reports.
Project progress reports
Number of staff
assigned by the
5.2 Monitoring and evaluation
Project M&E plan and system
established and operating effectively
5.3 Information dissemination
Project results, best practices and
lessons learned disseminated
82
Governments/
geothermal agencies
Annual workplans
Steering committee
reports
Mid-terms and final
evaluation reports
Publications,
newsletter, web site,
and other materials
X INCREMENTAL COST ANALYSIS
Incremental Cost Analysis:
181. All participating countries in ARGeo are experiencing increasing electricity demand
growth (either through natural population growth, national grid expansion plans, or rural
electrification programs). At the same time, current generation capacities are limited (or are
already surpassed) such that supply no longer meets the increasing demand. The viable
technological choices to meet this demand include diesel generation, hydropower as well as
renewable energies (wind, solar, and geothermal). As shown elsewhere, diesel generation,
though practical, is increasingly expensive. Hydropower, both large and mini scale has raised
doubts due to recent droughts and silting. Of the remaining technologies, only geothermal
offers the promise of a long term, environmentally benign and low cost energy source. GEF
financing at this juncture can provide an important stimulus and an operational structure for
promoting the needed development of this renewable energy resource.
Two scenarios are identified:

Baseline scenario: Geothermal exploration and exploitation is continued (or not) in
the different ARGeo countries depending upon national priorities and policies. The
most likely general energy production development in the ARGeo countries would
include:






continued reliance on large scale, installed hydropower and diesel generation
for the national network,
continued reliance on small, diesel power production sets in off-grid areas
which despite relatively low capital investment costs, demonstrate high
operating costs, especially with imported fuel prices currently hovering over
$60 per barrel of oil;
continued “electricity gap” between urban electrified zones and off-grid, rural
areas that exacerbates poverty differences and stifles the development of small
scale industries;
continued emission of greenhouse gases;
the slower adoption and development of these clean and renewable energy
technologies in the region.
Alternative (GEF – scenario): GEF financing for specific activities (components 1 –
4) allows for the development of the ARGeo facility, the regional development and
exploitation of geothermal resources, and the reduction of GHG via the substitution
over petroleum-based alternatives. At a minimum, one pilot project (already
identified) is developed in each of the 6 participating countries. An overall potential
of 481 MW exists in the total project pipeline, which could leverage up to $1.3 billion
of total investment and lead to the reduction of over 1 million tonnes of CO2 per
annum.
182. The incremental cost of the ARGeo project is the cost of the Alternative (GEF –
scenario) minus the costs of already existing programmes and activities supported by regional
governments, etc in the Baseline scenario. The proposed GEF financing would serve to cover
these incremental costs.
83
Baseline activities include all planned geothermal investments in Kenya (late) as well
as in Aluto Langano (Ethiopia). Geothermal activities in the other countries are practically
non existent, so baseline will be considered as zero. At the outset, all of the ARGeo
geothermal investments are considered to essentially replace any future planned fossil fuel
based production and therefore would be incremental to the existing baseline in the ARGeo
countries.
183.
Financing for the RMF is considered as co-financing and does not figure in the baseline
scenario (as it is dependent upon the existence of the ARGeo project structure and GEF
financing)
84
Project Component
Benefits/
Costs
1.1 Establishment of a Regional Network
Activity 1.1
Global Environmental
Regional Meetings of the Benefits
Working Groups
Domestic Benefits
Activity 1.2
Regional Information
System
Costs
Global Environmental
Benefits
Domestic Benefits
Costs
Baseline Scenario
Alternative
(GEF -) scenario
Physical, human, policy and
data resources are developed
independently in the different
African Rift valley countries.
Regional meetings allow for
the coordination of activities
and the exchange of
information in the ARGeo
countries. Databases, forums,
training and evaluation of
policies concerning
geothermal energy are
coordinated.
Insufficient regional
Local experts are able to
integration + knowledge base exchange and learn from
concerning development and
regional counterparts. New
exploitation of geothermal
information, know-how and
energy resources
expertise are gained from
regional interaction. Human
resource is shared.
900,000
2,200,000
Important data on geothermal Investment in equipment, data
resources in the region exist on management, internet access
paper and in different
and organization facilitate
locations.
comparisons and background
research to develop
geothermal resources in the
region.
Key information on domestic Existing domestic data is
wells and knowledge of
organized and made
regional techniques/know-how accessible. National agencies
is developed/shared among
and stakeholders trained and
stakeholder.
knowledge base increased.
500,000
3,260,000
Increment
Setting up institutional structure to
promote and facilitate regional
meetings of working groups and
contributing to participation costs.
Development of geothermal resources
placed in a coherent, regional context.
Interaction and exchanges occur with
data, personnel, and policy.
1,300,000
Key data for investment, development
planning decisions is made readily
available to stakeholders (regional
experts, officials, investors, etc).
The circulation of key geothermal
development information among
ARGeo countries increases. This
information can be used in regional
comparisons, national plans and
project preparation.
2,760,000
85
Activity 1.3
Regional Forums and
International Outreach
Global Environmental
Benefits
Domestic Benefits
Activity 1.4
Regional Training and
Capacity Building
Costs
Global Environmental
Benefits
Domestic Benefits
Costs
SUBTOTAL COMPONENT I
Currently, only limited
regional or international fora
exist that promotes merits of
geothermal resources.
Participation in regional
conferences and outreach
programmes increases. More
stakeholders become aware of
geothermal development
potential.
Insufficient knowledge about Interaction and exchanges
geothermal resource
with international and regional
development potential exists in experts. Exchange of
the countries and
expertise.
internationally.
600,000
1,890,000
Geothermal resources
Regional, and international
represent a relatively large, yet expertise and know-how
untapped resource in the
concerning geothermal energy
African rift valley. Ongoing
is shared and transferred
experience with the resource
throughout the region.
use currently exists in Kenya
and Ethiopia.
Insufficient knowledge of the Training in geothermal
potential for geothermal
exploitation, regional
resource exploitation.
knowledge base increased
500,000
8,900,000
2,500,000
16,250,000
86
A series of regional events,
conferences is planned to raise
consciousness concerning geothermal
resource development.
Exchanges and links are established
between professionals and other
stakeholders in the region.
1,290,000
Training occurs in the region through
formal class settings and on-the-job,
direct training for existing projects.
The human capacity for developing
and exploiting this renewable resource
increases.
Experts and stakeholders in all
countries are aware of the potential for
geothermal production.
8,400,000
13,750,000
Incl: GEF : 1,250,000
UNEP: 500,000
Cofinancing: 12,000,000
Project Component/
Activity
2. Technical Assistance
Activity 2.1
Policy framework and
transaction advice
Benefits/
Costs
Baseline Scenario
Alternative
(GEF -) scenario
Global Environmental
Benefits
Some transaction will be lead
by project developers and
countries will look into the
potential. Progress will be
slow.
Transactions will not lead to
success; lack of financially
sound proposal.
Governments will be informed Conditions for geothermal
and a conducive policy
development are in place.
environment for geothermal
development will appear.
Domestic Benefits
Activity 2.2
Resource Exploration
Costs
Global Environmental
Benefits
Domestic Benefits
Activity 2.3 Support
for elaboration of
bankable proposals
Costs
Global Environmental
Benefits
Domestic Benefits
Costs
Negotiations will take into
account national interests and
priorities while reaching
agreement.
1,000,000
2,500,000
Approximately 2.5 to 6.5 GW Up-stream exploratory studies
of geothermal energy resource officially confirm the
potential exists in the African resources of selected,
Rift valley region. So far, only identified wells in ARGeo
121 MW of this potential has countries.
been tapped (Kenya)
Pre-investment and feasibility Identified and suitable projects
studies are at various levels of are developed to a workable,
advancement in the different
pre-feasibility stage.
countries.
2,000,000
10,210,000
Not only basic data is not
Studies are carried out in a
available for the elaboration of coherent, manner with the
bankable projects but the
support of a regional structure.
number of projects is reduced .
due to perceived high risks by
investors/potential funders.
Priority projects are at
different levels of
development.
Increment
Clear rules for private sector
engagement and deal closure for
geothermal projects..
1,500,000
Supporting exploration and
confirmation feasibility studies
validate geothermal potential in
selected sites. A total of 240MW of
resources confirmed..
Realistic potential for geothermal
resource exploitation identified.
8,210,000
Bankable proposals serve as a basis for
negotiation of financial packages.
Priority projects are developed Participating countries gain access to
for submission to ARGeo
ARGeo support mechanisms.
financing mechanism and to
the banking sector thereafter.
3,940,000
3,440,000
500,000
87
Activity 2.4
Geothermal Advisory
Panel
Global Environmental
Benefits
Domestic Benefits
Costs
SUBTOTAL SUBCOMPONENT 2
Despite existence of
geothermal resources in the
region, knowledge concerning
exploitation of the resources is
limited and not evenly
distributed. Limited access to
expertise at international level
No panel exists to evaluate
geothermal electricity
production projects.
0
3,500,000
88
Institutional structure in which
international and regional
experts exchange information,
evaluate projects and promote
geothermal exploitation in
ARGeo region.
Panel exists for national
experts to exchange
information and promote
geothermal installations.
600,000
17,250,000
Institutional structure created which
facilitates the exchange of information
and the promotion of geothermal
energy. Facilitation of ARGeo
financing mechanism. Risk reduction
mechanism as safeguard to the use of
RMF resources.
National experts obtain structure to
promote geothermal installations.
600,000
13.750,000
Incl GEF 4,700,000
Cofinancing 9,050,000
Project Component/ Benefits/
Activity
Costs
3. Risk Mitigation Fund
Activity 3
Global Environmental
Establishment of
Benefits
Risk Mitigation Fund
Domestic Benefits
Costs
SUBTOTAL SUBCOMPONENT 3
Baseline Scenario
Alternative
(GEF -) scenario
Increment
No risk mitigation fund exists
for the exploration of
geothermal sites. Private
investors reluctant to invest up
front sums. However some
donors act bilaterally in an
uncoordinated manner.
Potential investors for resource
confirmation also limit their
contribution.
Geothermal resources remain
largely untapped. Potential
projects are unprepared.
As a result, countries have to
invest 166MW in diesel with a
baseline levelized cost over 20
years of 1,122 millions.
Discount rate 13%, Investment
US$500/kW and O#M .10cUS
per kWh
18,400,000
Identified geothermal projects
are evaluated and structured to
share risks between public and
private participants.
Risk Mitigation Fund established,
private investors feel more confident
in sharing risks of geothermal
exploratory work.
Specific, geothermal,
renewable energy resources
are evaluated and prepared to
be exploited.
The levelized cost stands at
760 million with investment at
US$2700/kW and O&M at
3cUS per kWh.
Given successful exploration results,
geothermal resources are exploited,
generating less CO2 than fossil fuel
sources.
The negative incremental cost stands
at US$362 millions
18,400,000
61,900,000
89
61,900,000
43,500,000
Incl GEF 9 500,000
Cofinancing 34,000,000
43,500,000
Incl GEF 9 500,000
Cofinancing 34,000,000
Project Component/ Benefits/
Activity
Costs
4. Monitoring and Evaluation
Activity 4
Global Environmental
Monitoring and
Benefits
Evaluation
Domestic Benefits
Costs
Baseline Scenario
Alternative
(GEF -) scenario
Increment
No systematic M&E in place
Rigorous M&E allows project
progress involving all relevant
partners and stakeholders.
Management decisions are
taken to minimize project
risks.
Information is disseminated
and lessons shared..
Project progress and
information shared.
500,000
500,000
Adaptive management implemented.
Project progress towards objectives
evaluated.
Information disseminated.
Lack of easy and independent
data to access
0
TOTAL COMPONENTS 4
Project Component/
Activity
5Project Management
Activity 5
Project Management
0
Project progress and information
shared.
500,000
500,000
Benefits/
Costs
Baseline Scenario
Alternative
(GEF -) scenario
Increment
Global Environmental
Benefits
No project
During 6year the Argeo project
benefits from the coordinating and
supervising role of the PMU and the
Risk Mitigation Fund Management
Domestic Benefits
No project
During 6 year the Argeo
project benefits from the
coordinating and supervising
role of the PMU and the Risk
Mitigation Fund Management
Project progress and
information shared.
1,800,000
1,800,000
Costs
TOTAL COMPONENT 5
TOTAL COMPONENTS 1 to 5
0
0
24,400,000
97,700,000
Incl GEF 17,750,000
90
Project progress and information
shared.
1,800,000
1,800,000
73,300,000
Incl GEF 17,750,000
Cofinancing 55,550,000
II
IX. WORKPLAN
Years
Quarters
1
I
II
III
2
IV
I
II
III
3
IV
I
I. Regional Network
1.1 Regional meetings of the Working Groups
1.2 Regional Information System
1.3 Regional Forums and Outreach
1.4 Regional Training and Capacity Bulding
II. Technical Assistance
2.1 Policy Framework and Transaction Advice
2.2 Resource Exploration
2.3 Support for elaboration of bankable
proposals
2.4 Geothermal Advisory Panel
III. Risk Mitigation Fund
IV. T Investments
Kenya- Longenot
Djibouti - Assal
Ethiopia - Tendaho
Eritrea - Alid
Tanzania - Mbeya
Uganda - Katwe
91
II
III
4
IV
I
II
III
5
IV
I
II
III
6
IV
I
II
III
IV