Vanuatu government endorses geothermal development
Erakor Island Resort, Efate, Vanuatu (source: flickr/PhillipC creative commons)
Alexander Richter
30 May 2012
The country of Vanuatu has adopted a World Bank report of earlier this year and endorses the development of the Efate geothermal project by Australian KUTh Energy.
Recently announced by Australian KUTh Energy, the country of Vanuatu has adopted a World Bank report of earlier this year and endorses geothermal development in the country. It relates to the project by the geothermal development company KUTh developing the Efate geothermal power project.
The World Bank Report titled ‘Vanuatu: Efate Geothermal Power and Island-Ring Grid Development Framework – 18 January 2012‘ was commissioned in 2010 and its findings are for consideration by the Vanuatu government.
An international geothermal consulting team was engaged by the bank to review KUTh’s geothermal development plans, the regulation of power supply (new concessions) on the island of Efate and the extension of the transmission grid to connect the geothermal plant to Port Vila and include infill grids to supply areas not previously serviced.
The report found that, of the estimated US$95 million to US$120 million broader project cost, KUTh’s 8MW (net) geothermal development would cost between US$75 million to US$91 million (excluding the transmission infrastructure which is not for KUTh’s account). KUTh estimates that the 8MW (net) project cost will be towards the lower end of that range, of which up to half will be funded through development bank loans. Furthermore, subject to successful exploration results, the project will be implemented in two stages of 4 MW (net) each, allowing for a phased financing plan over 5 years. KUTh is exploring various funding options for the balance of the project cost to ensure that current shareholders’ financial return is maximised.
The report found that the Government should proceed with the project as KUTh’s geothermal plant would provide the economically least cost base-load power supply addition to Efate. The study ’conducted an independent review of KUTh’s resource data and analysis, and confirms that KUTh’s exploration and development strategy is sound.’
While agreeing with most of the conclusions in the report, KUTh does not agree with the view that the negotiation of the PPA, tariff and production licence should occur after completion of exploration drilling. KUTh maintains that certainty of power off-take and price, for example, are important commercial conditions precedent to committing further company funds to this project. To this end, KUTh is currently negotiating a PPA with UNELCO, who recently confirmed their support for the project.
KUTh has also lodged a geothermal production licence and support documents with the government of Vanuatu. Along with the PPA, these documents will be the catalyst for the project moving forward into the exploration drilling phase.
Commenting on the report, KUTh managing director, David McDonald said “The report from the World Bank has been a long time coming and it has been frustrating being sidelined during this process. On the positive side, it is clear from the report that there is strong endorsement for the project. KUTh has had an effective ’due diligence‘ exercise carried out by an international team of geothermal experts who have reviewed our exploration results and concur with the company’s preferred drilling location. Furthermore, the expert group has confirmed KUTh’s phased
commercial development program with two by 4MW power plants. It is gratifying that such a high level peer appraisal confirms both our technical and commercial approach.”
