In 2012, the African Union Commission (AUC) in cooperation with the BMZ, the EU-ITF, DFID and KfW set up a funding program of more than $100 million for the development of geothermal resources in East Africa, called Geothermal Risk Mitigation Facility (GRMF). Since then, many projects have been awarded grants and there are very good perspectives for the future. Think GeoEnergy spoke with the Head of Energy Division of the AUC and GRMF Project Manager, Rashid Ali Abdallah, to learn more about the current activities of the program and its impact on the geothermal sector in East Africa.
Mr. Abdallah, thank you for taking your time for this interview with Think GeoEnergy. Could you give us a short introduction what’s the idea behind GRMF?
GRMF stands for Geothermal Risk Mitigation Facility for East Africa. The region has large geothermal potential estimated to more than 15,000 MW due to the East Africa Rift Valley. GRMF is a funding program for geothermal projects in eleven eligible countries in East Africa. GRMF provides grants for surface studies, drilling programs and, if necessary, also for infrastructure upgrades.
The overall idea of GRMF is to mitigate the risk of the public or private project developer in the early stage, by giving grants for particular costs groups (eligible costs for surface studies and drilling programs as well as required infrastructure updates), according to the program regulations. The high risk of geothermal projects in the early stage is mainly related to exploration and reservoir confirmation drilling. By mitigating this risk, GRMF aims to foster the development of a geothermal market in East Africa and to provide indigenous, low cost power generation for the region. Further effects of this additional baseload generation are the reduction of greenhouse gas emissions, improvements in the security of energy supply as well as the reduction of the frequency and severity of energy price fluctuations.
What is the grant intensity for eligible activities that GRMF provides to project developers?
In the past 4 application rounds, GRMF provided 80% for the total eligible cost of the surface studies that aim to identify an optimum location for drilling, 40% for the total eligible cost of drilling of two full size wells as well as 20% of infrastructure upgrading.
After this comprehensive description of GRMF, what have you reached since the launch of the program in 2012?
In the last 5 years we carried out 4 application rounds and a fifth one will be started this year. During these first application rounds we received 38 applications. Out of these 38 applications, 26 have been awarded. The 26 awarded projects consist of 11 surface studies and 15 drilling programs in 6 different countries, i.e. in Comoros, Djibouti, Ethiopia, Kenya, Rwanda and Tanzania. In total, the awarded projects are carried out by 10 private and 6 public developers. Furthermore, the regulation of GRMF is constantly reviewed and improved after each application round.
Referring to the improvements of the program, what has been changed in the recent past?
First of all, we recognized various challenges of the project developers after having been awarded or after a grant contract has been signed. These challenges resulted in slow progress and a significant capital lockup of our funds. Therefore, in August 2017 it was decided by the GRMF Oversight Committee in cooperation with our Fund Manager, Rödl & Partner (in cooperation with Mannvit & ERM), that only projects with a perspective for progress on short term shall be invited for grant contract signing. This means, the initial evaluation process for applications remains unchanged, but the projects will be part of a “Project Pipeline”, until all required documents are submitted and approved by GRMF as a condition for grant contract signing.
However, the grant contract signing still depends on the availability of funds. Hence, this approach leads to further competition among awarded projects and enhances faster development of projects and finally to power online.
OK, this sound like a promising mechanism. Have there been any other adjustments for GRMF?
The objective of the “Project Pipeline” is to accelerate the process of geothermal development in Eastern Africa. Moreover, GRMF increased its funding possibilities and intensities by including the funding of an additional full size well into the initial drilling program. So far, this was only possible within the continuation premium. This approach, next to the project pipeline, shall also drive the growth of the geothermal market in East Africa.
Both approaches seem like an effective way to bring more dynamic in this region. What are the future plans of GRMF, where other players of the sector can also participate?
In October 2017, we will launch a fifth application round (AR). Currently we are working on the exact timeline for the deadlines of the Expression of Interest and the subsequent Request for Application. The kick-off meeting for AR 5 will be on 10 October 2017 in Nairobi, Kenya. During this GRMF meeting that will take place from 10 to 13 October 2017 in Nairobi, also the new GRMF regulation will be presented and an optional two-day site visit to different geothermal prospects in Kenya is planned. Further information can be found on our webpage www.grmf-eastafrica.org .
We thank Mr. Abdallah for the fruitful insights and we wish him and the team around a successful development of GRMF for the future.