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9.2.5 The key risks of the strategy and the mitigation measures The risks faced in implementing the strategy are directly related to the risks of the geothermal projects in the Eastern Caribbean. The recommended geothermal projects face numerous risks. However, the type and severity of the risks varies across countries depending on the progress achieved to date in developing the geothermal resource. While countries that are in early phases of developing their geothermal resource face greater risks (predominantly resource risk), those countries that have completed exploratory drilling still face some risks that should be addressed (for example, construction risk). Table 9.3 provides an overview of the types of risks prevalent in the geothermal projects in our study. The allocation of risks may vary from country to country, but the table reflects the recommended allocation principles. Table 9.3 Market, Demand, or Volume Risk Resource Risk Construction Risk Technical Risk Operating Risk Political and Social Risk Environmental Risk Financing Risk Regulatory Risk The government Risks Allocation and Mitigation for the Recommended PPP Structures The PPA between the SPV and the utility transfers the demand risk to the utility, who in turn can ensure the demand because it is the only utility operating in the country. Selecting a project developer with the necessary technical expertise would be a key for reducing resource risk. Contingent grants for exploratory and production well drilling can help reduce costs and thus risks. The SPV can hire a company to build the plant and incorporate penalties if the plant is not completed on time or milestones are not achieved as contractually planned. The risk for the geothermal power plant is low because this is a proven technology. However, for projects that include exporting electricity, the risk is higher due to the use of interconnection cables. In those cases, detailed feasibility studies need to be carried out. Since the governments do not have the technical expertise to operate the geothermal power plant, the private partner should be qualified and bring the required expertise. The operating contract can be designed as a performance-based contract that rewards or penalizes the operator based on results. The participation of the governments in the SPVs and multilateral development banks in the projects reduces the projects’ political and social risk. Also, if the electricity prices are reduced through the use of geothermal energy, the public will likely support the project. In addition, the government and the SPV should carry out consultations with stakeholders to ensure their views and concerns are taken into account, from project design to implementation. This risk can be reduced by carrying out environmental impact assessments (EIA). The EIA will allow the governments and private partners to assess the risk of the geothermal project and propose an action plan to mitigate the risks identified. The financial risk for the project is reduced with the PPA, and the payment support mechanism for the utility’s payments under the PPA. Financing from development banks reduces the cost of capital, helps mitigate risks of the earlier stages of the projects, and reduces the likelihood that SPVs will not have access to financing. The government is responsible for making any necessary changes to the legal and regulatory framework to enable the development of the project; for example, changes to the tariff to allow for cost recovery of geothermal generation. In addition, and because those changes take time, the parties to the project can draft clear rules governing the sustainable exploitation of the resource and the operation of the power plant in the project agreements (concession, PPA, and others). Risk Party That the Risk Proposed Measure for Mitigating the Risk Is Assigned To Utilities SPV and the multilateral development banks SPV and, possibly, the construction company that builds the plant SPV SPV SPV and the government SPV and the government SPV and the government 63PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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