ThinkGeoEnergy Interviews K. Imolauer from Rödl & Partner
ThinkGeoEnergy had the opportunity of interviewing Mr. Imolauer, Industrial Engineer and Associate Partner at Rödl & Partner
Rödl & Partner is an integrated professional services firm with 102 wholly-owned locations in 46 countries. It has multiple and varied service lines, such as audit, legal, management and IT consulting, tax consulting as well as tax declaration and BPO catering to 3900 entrepreneurial minded partners and colleagues. ThinkGeoEnergy had the opportunity of interviewing Mr. Imolauer, Industrial Engineer and Associate Partner at Rödl & Partner.
Rödl & Partner has been working on geothermal projects in Europe, but also internationally. What have been key geothermal projects that highlight the activities of Rödl & Partner?
Key geothermal projects have been related to risk management and structured financing. Besides our normal consulting services regarding legal or economic issues we have developed the first private enterprise insurance for the discovery risk, which was signed with Munich Re firstly for the geothermal project of Unterhaching, Germany, where we have been assigned project managers. Furthermore we have elaborated the structures for countrywide Risk Fund solutions in Germany, Indonesia, South-America (Geothermal Development Facility (GDF)) and even EU-wide for the EU-Commission (GEOFAR).
Together with Icelandic firm Mannvit, Rödl & Partner has been managing the Geothermal Risk Mitigation Facility for East Africa (GRMF), a program set up by the African Union. What has been the role of Rödl & Partner on this project?
Rödl & Partner took the leading role as Fund Manager. We are responsible for the evaluation of Expression of Interest and Applications till Grant Signing as well as the Monitoring of the projects, and liquidity planning for the Fund itself. Mannvit from Iceland contributes all required geotechnical expertise for the operation of the GRMF.
Risk mitigation in geothermal development and in particularly financing projects has been a key concern. Funds like the facility for East Africa are seen as a great tool to support projects at the early stage and therefore make projects more accessible to financing. What do you see as key elements to look at in the developing of such funds?
The Fund concept has to be as different as the markets are. The maturity of markets is reflected in its regulatory framework and the political will to open these markets for e.g. private foreign investors. Without an analysis of these regulatory aspects and certainly the geological resources it is not possible to have a tailor made solution for the country or region.
What players are investing in geothermal projects today and who would be potential investors in case of the availability of sufficient risk mitigation tools?
This also differs between the regions. In East Africa we have a majority of public entities, but also some private project developers. In South America there are more private developers active due to the fact, that it is easier to enter the power generation market as IPP (Independent Power producer).
What do you see as key capabilities of developers to qualify for risk mitigation support, as part of tools like GRMF?
Professionalism. The developers have to consider the application like dealing with a co-financing party. In the same diligent manner the project, its process and documentation has to be elaborated and submitted, and consequently will result finally in a successful application.
There have been different international efforts in providing risk mitigation tools through grants, specific credit facilities, insurance schemes and others. What are key elements that those efforts have in common? How much of these programs needs to be tailored towards country specifics such as legislation, energy market etc.?
The basic principle, which has to be clear to all stake holder: existing risks are transferred to a public entity – whatever instrument, like grant, contingency grant, guarantee or insurance is taken, on the end, failing projects will cause public costs. There can be leverage and revolving effects integrated but essential will be the question: does the instrument fit to the maturity of the market and will the program show the expected impact. Consequently, it has to be tailor made according to market and donor requirements.
What are key elements for investors in those risk mitigation programs? Do they differ by player, e.g. bank, equity fund, larger energy company?
Usually the addressee of the facilities is the project developing entity (public or private); they have anyway the challenge to finance the early development stages by equity. Banks usually are only in place, if an insurance (e.g. from Munich Re) is in place. But, in general, it does not depend too much on the background, because if venture capital is provided all players will integrate it in their structured financing. Or it will be essential for the project to be realized or a “nice to have” trigger for the Return on Equity.
Some risk mitigation programs finance projects earlier than others. What do you think has the most positive impact on attracting investment and pushing development?
All instruments have their impact: grants for surface studies let ideas become projects on the market, which consequently could lead to drilling programs. Subsidies for drilling will support the financing at a critical stage and therefore enable the developer to approve the resource and probably gain a project status to proceed. Surely the latter has a stronger impact if power-on-line is the objective, as a confirmed resource will be developed sooner or later.
Some countries like Kenya are actually looking at taking over the resource development completely and only get investors on board for the development of plants. Is this something that could be a good model for other countries, e.g. in East Africa? Or how much should governments be involved in the development/ to what stage?
That’s a political question: Shall a country allow the usage of its geological resources rather “openly” to the market or control it, e.g. by developing upstream by its own. Being German and having seen the boom in Germany during the last decade, makes me belief, that a fast energy transition is possible if the markets get the adequate framework for private capital investments. In certain cases this might not be the correct solution, if there is the danger, that costs (e.g. by FiTs) explode, but on the end depends on the national energy policy and which way they take to achieve their objectives.
What program do you think has been so far the most successful one, or is this too early to say?
Probably too early to say, but I am convinced that GRMF contributed to an accelerated market development for geothermal projects and will bring in the coming Application Round 3 also new players to the market. GDF also will be a great program and surely will support the South American market substantially.
Public players, such as small municipalities often could benefit from geothermal projects, e.g. through district heating, but don´t have the necessary financial muscle. What could be incentives to help these communities develop their own projects or attract private players?
As developed for GEOFAR, for the European Commission, we think first of all, that there should be grants to support feasibilities study and surface investigations, to create the project idea and give the base for further steps. The second stage is much more complicated, any concept that allows the community to proceed with drilling will be fine, probably it will be the combination of several instruments like grants, insurances or guarantees. And certainly also PPP – Models can be play an important role, if the project development knowledge is not in place or the financing cannot be borne by the community. Geothermal is the hidden champion of the renewables – any support will be welcome!
We would like to thank Rödl & Partner and specially Mr. Imolauer for his time and for participating in the interview.