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Proposed PPP Strategy for Geothermal Development We recommend establishing a Fund to support the development of ongoing geothermal projects through PPPs to deploy geothermal energy in the five Eastern Caribbean states in our study. The strategy has two main components. First, we recommend implementing the geothermal project through PPPs. Second, we recommend the multilaterals establish a Fund as a vehicle to help finance the geothermal projects that are already in progress. The PPP strategy addresses the barriers to geothermal development identified in Section 9.1 and enables projects that generate economic benefits for the five Eastern Caribbean countries in our study. Specifically, developing geothermal energy through PPPs allows governments to attain three major benefits: • PPPs can help increase the funds available for geothermal projects by channeling private, public, and multilateral resources. It helps address two of the barriers discussed in Section 9.1: high capital costs and lack of access to credit at affordable rates. The combination of high capital costs of the geothermal projects and the limited fiscal space of governments means that the Eastern Caribbean countries lack sufficient funds to fund geothermal projects without other sources of financing. • PPPs can help avoid project delays and help ensure that once the power plants are built they are efficiently managed. Studies have shown that the private sector is usually more efficient and effective at managing infrastructure construction and at service delivery.118 In addition, the private sector has the necessary expertise to drill the wells and build and operate the plants, which is another of the barriers presented in Section 9.1. • PPPs can also improve maintenance of infrastructure assets, which means that the forecasted generation and financial and economic returns of the geothermal projects are more likely to be realized. The PPP structure includes developing a special purpose vehicle (SPV) that would build, own, and operate the geothermal plants, which gives the SPVs incentive to ensure that the geothermal plants are adequately built and maintained. 9.2 118. World Bank Institute, PPIAF, “Public Private Partnerships: Reference Guide,” Version 1, February 2012. 119. In 2014, the average electricity tariff for the EC countries in this study was US$0.34/kWh. By comparison, in the United States of America (US), the average tariff was US$0.12/kWh. Source for US average tariff: U.S. Energy Information Administration, “Electric Power Monthly,” August 26, 2015, accessed September 22, 2015, http://www.eia.gov/electricity/monthly/epm_table_grapher. cfm?t=epmt_5_03. Source of average tariff of EC countries: CARILEC, 2014 Average Tariffs in EC Countries (2015). The PPP strategy also contributes to developing geothermal projects that generate economic benefits for the Eastern Caribbean states. Electricity customers in the countries see high electricity tariffs and high volatility in their monthly bills.119 The five countries have small, isolated electricity markets. That means that these countries lack the scale necessary to import cheaper fossil fuels for electricity generation, such as natural gas. As a result, they are dependent on costly imported liquid fossil fuels for electricity generation and electricity prices are high. High electricity prices hinder economic growth and high public sector energy bills drain public resources. Limited borrowing capacity, as implied by the countries’ debt-to-GDP ratios averaging 86 percent, limits the governments’ ability to invest in sustainable energy technologies and diversify the energy matrix. Therefore, the proposed PPP strategy will help attain these economic benefits (see Section 9.3): • Reductions in generation costs and CO2 emissions from electricity generation due to introducing geothermal generation that displaces diesel-based generation • Reductions in electricity tariffs if savings in generation costs are passed on to end users • Reductions in fuel oil imports due to introducing geothermal generation, which will have a positive impact on the national accounts of the Eastern Caribbean countries In this section, we first explain in more detail our recommended strategy of implementing ongoing geothermal projects through PPPs. We first present the general recommended PPP structure (Section 9.2.1), followed by the specific recommended structures for each country (Section 9.2.2). Based on our review of the planned geothermal projects, we then estimate the total financing needs of each of the countries (Section 9.2.3), and present the characteristics of the Fund (Section 9.2.4). Finally, we present an overview of the risks prevalent in the geothermal projects and recommended actions to mitigate these risks (Section 9.2.5). 56PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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