Details emerge on PPA for large Ethiopian development

Corbetti Caldera, Ethiopia (source: Reykjavik Geothermal)

Alexander Richter 29 Oct 2013

Details have emerged on the recently signed power purchase agreement for a large geothermal development in Ethiopia between Reykjavik Geothermal and Ethiopian Electric Power Corp. (EEPCA). Both parties have now agreed on a tariff of $0.079 per kWh for the first 500MW of the project, and $0.065 per kWh for the second phase, which accounts for the remaining 500MW.

“The purchasing agreement was signed by Mihiret Debebe, chief executive officer of EEPCO, Gudmundur Thoroddsson, CEO of RG, and Nejib Aba Biya, co-founder of RG. Also in attendance were Debretsion Gebremichael, minister of Communication & Information Technology and deputy prime minister heading the economic and finance cluster, Sinknesh Ejigu, mining minister, as well as Patricia Haslach, the newly appointed US ambassador to Ethiopia.

As part of the 25-year agreement, for a year and half, Reykjavik will generate 20MW, according to the PPA. Details will be clearly defined in the supplemental agreements to be signed within the coming three months, according to Mihiret. By 2016, the capacity is projected to be 100MW and reach 500MW by 2020, completing the first phase of the project.

The US-Icelandic company, on the other hand, is more concerned with potential delays at customs, according to Nejib. “We understand the first phase will be particularly risky,” he told Fortune. Financing for the overall project will come from equity financing, accounting for 25pc of the total, while the rest will be through debt financing, Nejib disclosed.

The American Capital Corporation (ACC) -one of the largest independent mortgage brokers in California- could provide up to 200 million dollars. “We are on the right track with them,” said Nejib.

The Development Bank of Canada, the Obama Power Initiative, as well as private entities in North America, have shown interest in financing the project, according to Aba Biya. The company, whose production downtime is only two weeks within a year according to Nejib, is expected to begin building the first phase by 2015, when it aims to have secured financing.

The company has secured an exploration license for an area covering about 6,500 sqkm. With steam temperature reaching up to 350 degrees Celsius, the area where Corbetti geothermal project is located has a potential of 500MW to 1,000MW, according to the company.

A directive that details tariff prices based on type of energy produced – wind, solar, hydro, geothermal – is soon to be issued and is expected to be approved, according to Mihiret. In the meantime, the current tariff was determined based on the country’s experience in selling to neighbouring Djibouti, and experiences of other countries that purchase electricity. Ethiopia, which supplies about 80pc of Djibouti’s electricity demand, sells a kWh of electricity for 0.07 dollars.

Source: All Africa