Five trends driving the LAC geothermal market
Original article by: newenergyevents.com
The LAC geothermal market is heating up — but it’s a slow burn. With only one operating plant each in the Caribbean and South America, and a handful in Central America and Mexico, this region of the world still holds enormous, largely untapped potential for geothermal market growth. Financing, policy, and resource risk continue, however, to be hurdles in the race to the finish line.
Challenges may abound, but there are promising indicators for what’s to come. We asked industry experts to weigh in on the trends driving the geothermal LAC markets, and what’s needed to move the needle.
1. Markets that value baseload capacity will be quicker to develop
It’s a PV world, but that doesn’t mean geothermal isn’t valuable. In some regions, solar PV is the lowest cost renewable, but industry advocates want geothermal to be valued for its capability to run 24/7. Alex Richter, Founder and Principal of ThinkGeoEnergy, suggests that the industry will be pushing this attribute, saying, “the baseload capacity that geothermal energy provides is coming into focus again.” Christiaan Gischler, Lead Energy Specialist at the Inter-American Development Bank, agrees. “Many countries in the region are developing renewables and solar and wind are beating geothermal because there is no acknowledgement of intermittency,” says Gischler. “These countries are not recognizing the real value that geothermal has to offer.”
How to solve this issue? The responsibility falls to governments to develop the right policies, according to Gonzalo Torres, Country Head for Chile and Peru for Energy Development Corporation, one of the world’s leading developers of geothermal. “The rise of [intermittent] renewables makes it necessary and urgent to implement public policies that sustain and incentivize the use of geothermal energy,” says Torres.
If countries over-develop intermittents without addressing grid stability issues there could be serious implications, says Chris McCormick, CIO for the Geothermal Development Facility for Latin America (GDF). “The countries that are proactively addressing baseload and intermittent issues will reduce costs and avoid adverse social impacts,” he says.
Caribbean islands have been quicker to acknowledge this issue than their Latin American counterparts, simply due to the size and interconnectivity of electric grids. In Caribbean islands with smaller grids, “even modest sized PV or wind projects will distort their profiles and increase the need for dispatchable and baseload power,” says Kevin Wallace, Senior Project Manager for Power Engineers. “Markets in larger and interconnected countries like Mexico will be slower to recognize this need to properly price such power and won’t have to until solar penetration is high.”
2. Projects need support from the start
The long and expensive early stages of exploration are finding relief in new regional programs designed to mitigate some of the upfront risk. “There is a growing realization by international and regional financial institutions, including the World Bank, that providing access to concessional funding and technical assistance to assist countries in overcoming these hurdles can help facilitate scaling up geothermal development in the region,” says Laura Berman, Energy Specialist in the Energy and Extractives Global Practice of the World Bank. Wallace agrees, saying, “These programs and others can help spur early phase development, drilling, and capacity building. The first project is always the toughest and then everyone benefits from lessons learned.”
The benefits don’t stop there. McCormick pointed to the momentum these programs are likely to create. “Once exploration drilling costs have been addressed, more capital will become available to fund exploration,” he says. “This includes capital from private entities looking to establish a portfolio approach to risk mitigation.”
Until early exploration costs are addressed, private-sector firms can’t — or won’t — put their own equity on the line. Gischler flags the crucial role climate funds can play. “They help to unlock the potential,” he says. “Without these funds, it’s really painful.”
For Caribbean islands who decide to prioritize geothermal, funds are available from, among others, the Caribbean Development Bank (CDB). The CDB’s Tessa Williams-Robertson anticipates that the Bank “will continue to mobilize concessional resources for island geothermal programs. Not only for investment, but also for capacity building.” This range and depth of support is crucial for countries starting from zero and endeavoring to build vastly complicated energy projects requiring technical, financial, and political know-how.
3. International community is key for the Caribbean
Geothermal development in the Eastern Caribbean islands faces distinct challenges. Despite significant potential, the islands have relatively small electricity grids — anywhere from 8-75 MW peak capacity — and have struggled to secure developers and financing. The Caribbean has one operating plant in Guadeloupe, and a handful of other projects at various stages of development, with the most advanced projects located in Montserrat, Dominica, Nevis, and St. Vincent and the Grenadines.
These projects won’t get off the ground without help. “International support will keep the focus on geothermal development in the Caribbean, and continue to push it,” says Richter. The international community, and in particular the multilaterals, have a critical role to play in all stages of development as Caribbean islands ramp up their institutional and technical capacity and develop the tools necessary to build a geothermal industry.
4. Countries transitioning to lower carbon and climate resilient energy matrix need to consider geothermal
As Latin America and the Caribbean endeavor to meet global and regional commitments to lower carbon, they will find it is prudent to make the switch to clean energy. At the same time, GDP growth will mean more demand on the grid, and how countries meet that demand is critical. Torres of EDC remarks on the importance of switching to renewables as countries experience higher electrification needs. “It is an effort in vain to sell electric cars if the electricity used to charge them is obtained from fossil fuels,” says Torres. “Geothermal energy will play a crucial role in the generation of 24/7 reliable and clean energy for high-consumption production processes.”
Of course, geothermal is not the only baseload renewable available. Hydropower has long been important to the regional energy matrix. However, according to Gischler, its status as climate resilient is debatable. “Hydro is experiencing the knock-on effects of climate change — from droughts to excessive rain,” says Gischler. He also makes the point (as do others) that climate adaptation funds should recognize geothermal energy’s relative environmentally benign status and actively participate in financing projects.
5. Capacity building is the way forward
The underlying theme of these trends is the need for continued capacity building at all levels. It doesn’t happen overnight. Properly valuing baseload energy and shifting to a low-carbon economy can’t be done without building cross-sector institutional knowledge. It’s true that many developing countries simply don’t have the institutional capacity to undertake complex geothermal projects. The value of support from the international community and programs — from GDF and MiRiG to stakeholder gatherings like GEOLAC — isn’t just in their financial lift, but in the focus on developing tools and methodologies and building cooperation and collaboration at all stakeholder levels.
It’s a competitive world out there. Solar and storage are on a roll. Geothermal is waiting in the wings but it won’t take center stage until the industry as a whole succeeds in changing the mindset of the region. Geothermal today is not a go-to baseload resource. But it deserves a second look and, many would argue, a much more significant role in the region’s generation mix.
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