New Risk Mitigation Facility made available in East Africa in 2012
Aluto Langano Geothermal Power Plant (source: bgr.bund.de)
Alexander Richter
8 Nov 2011
A new Geothermal Risk Mitigation Facility will be made available by German KfW Development Bank and the African Union Commission, providing up to US$71 million for surface studies and exploration drilling in Kenya, Uganda, Tanzania, Rwanda and Ethiopia.
Reported by Sinclair Knight Merz (SKM), a new fund for geothermal power in East Africa will be made available and help funding early stage geothermal projects. This is to help in overcoming a series of barriers that have traditionally constrained power sector infrastructure investments in the region.
Designed by KfW Entwicklungsbank (the German development bank) and the African Union Commission, the Geothermal Risk Mitigation Facility will provide between EUR20 million and EUR50 million (US$28-71 million) to surface studies and exploration drilling of geothermal prospects in Kenya, Uganda, Tanzania, Rwanda and Ethiopia.
Investment in power sector infrastructure in East Africa has been poor, with most recent infrastructure investments dominated by the telecommunications sector. It is estimated that Africa’s power sector requires US$40.8 billion of investment each and every year, but actual investment is far below these levels due to financial, regulatory and institutional constraints.
Financial issues are characterised by limited availability of local finance, limited access to international markets due to poor sovereign credit ratings, competition for funds and project specific risks of currency exposure, high inflation and low electricity tariffs.
Investors require confidence that regulatory structures protect their investment. These include aspects such as minimum service standards, adjustment mechanisms, access to networks, entry and exit conditions for participants and investment obligations. In particular, enforcement and revision of tariffs in offtake agreements are crucial to attracting investment.
While East African governments often lack the institutional capacity to establish the necessary legal and financial conditions, power sector reforms have been initiated in many countries. Reform laws have been passed leading to unbundling of state monopolies, some privatisation, increased regulatory autonomy and greater private sector participation.”
For the full article and a very useful insight into the current investment issues for East Africa’s geothermal sector, international experience of risk mitigation schemes and the Geothermal Risk Mitigation Facility for East Africa, see link below.
Source: SKM Achieve Magazine, Issue 3, 2011 (Thanks to Ryan Libby of CanGRC for pointing out this article)
