Scaling-Up Renewable Energy Program-Grant
- Reference: P-TZ-FA0-012
- Approval date: 20/12/2013
- Start date: 16/01/2015
- Appraisal Date: 18/12/2013
- Status: OngoingOnGo
- Implementing Agency: TANZANIA GEOTHERMAL DEVELOPMENT COMPANY
- Location: Dar Es Salaam
Four sub-components will support the development of Tanzania's geothermal sector, as follows:
1. Enabling Environment for Geothermal Development Such donors as BGR/KfW, ICEIDA/NDF, JICA, and DFID have expressed interest in supporting activity 1 alongside the SREP. The budget provides details of the division of financing between the SREP and other donors under this section. "Policy framework regarding roles and responsibilities for resource development and allocation of licenses; ownership of exploration knowledge; business models for exploratory and power development phases; risk mitigation and other incentives; power purchase tariff policy; and roles for government, donors, and the private sector. "Legislation and regulations and tariff formulation to implement policy. Along with the SREP, various donors, including the Icelandic International Development Agency (ICEIDA), Nordic Development Fund (NDF), JICA, BGR, and DFID, have expressed interest in supporting this work. "Institutional development plan and establishment of relevant organisations and their staffing. "Capacity building, training, and knowledge and lessons sharing.
2.Geothermal Resource Confirmation and Feasibility Assessment JICA has expressed interest in conducting an initial analysis of the geothermal sites in Tanzania up to the pre-feasibility stage. The SREP will conduct further investigations to confirm the resource, including test drilling, and prepare the feasibility analysis. "JICA is supporting satellite imaging and resource identification of high potential sites. It will take into consideration existing resource information and complementary developments being undertaken by others and selection of 3-5 fields for further investigation. Prospective sites may include Ngozi-Songwe (Mbeya), Kisaki (Morogoro Region), Luhoi (Pwani Region), Lake Natron (Arusha Region), Majimoto (Mara Region) and Lake Manyara (Manyara Region). To reduce the concentration of resource risk, the sites have a wide geographic spread and cover promising geothermal reservoirs suitable for power generation. "Surface-level explorations will be conducted for a few sites to supplement existing work and expand the preliminary resource assessment. "A pre-feasibility report will be prepared based on a conceptual-level model of field, conceptual engineering design, power/energy output, environmental suitability, and project economic/financial viability. "For promising sites (2-3 sites, according to results of the previous phase), an exploratory well-drilling programme will be prepared to confirm the reservoir's existence, exact location, and potential. "Test drilling will be undertaken. "Feasibility studies will be prepared.
3.Power Generation Project Development SREP financing will support transaction advisory services to prepare project documentation for bidding the project out to the private sector for power development. Specific steps are as follows: "Develop co-financing and risk mitigation options offered to successful bidders. "Develop the project development strategy (most likely a PPP). "Prepare legal and other contractual documentation. "Provide transaction advisory services to bid award project(s) to the private sector or on a PPP basis. "Offer co-financing or risk mitigation for power project development, as needed. "Estimate the costs related to grid connection and ensure mobilization of necessary financing by the government and development partners.
4.Power Project Investment and Operation The private sector will invest in the power project, operate it on a Build-Own-Operate or PPP basis, and sell power to TANESCO. The AfDB will provide a risk-mitigation instrument to cover the payment risk of the utility to the private sector at the IPP stage. IMPLEMENTATION READINESS The Tanzanian geothermal sector is in its infancy, with the government having taken the initiative to set up a task force for geothermal development. Surface-level explorations have been undertaken in several fields, and exploratory well drilling at one site has started. Eight personnel have been trained by the ARGeo in Iceland. A new satellite imaging study of the geothermal potential is to be conducted within the year, with support from JICA. This work will help identify specific areas to be explored more intensively under this project. The outcomes of the March 2013 Workshop on Geothermal Laws and Regulations, which advised the government on setting up a geothermal development roadmap, guided the preparation of this project concept.
The project aims to catalyse the generation of about 100 MW, developed by the private sector, with public-sector support targeted to overcome the higher-risk phases of development, and thus make geothermal energy a reliable, low-cost, and significant contributor to Tanzania's electric power supply. The project will achieve this objective by:
(i) creating the enabling environment and strengthening institutional and human resource capacities,
(ii) reducing development risks by financing resource exploration and confirmation, and
(iii) providing transaction advisory services to ensure that sites with proven resources are competitively awarded. Once the resource is confirmed and power development projects are awarded, the SREP and other financing partners will contribute to power development by
(iv) providing risk mitigation and/or other forms of co-financing for the power development phase. SREP funding will be used to catalyse from both public and private sectors the significantly greater financial resources that are required.
Geothermal energy development requires substantial investment during initial exploration, which is the highest-risk phase of the project. Given the uncertain outcome, the private sector is reluctant to invest. If it does decide to invest in the exploratory phase, it will require higher revenues and thus a high tariff to cover the risk. This would make an otherwise economically attractive power source that offers generation diversity and reliable and dispatchable power commercially unviable. Thus, SREP support is of critical value.
SREP support is also needed to create the enabling legal and regulatory environment and build and strengthen institutional and human-resource capacity, which are essential requirements for geothermal becoming a major source of power supply. Having the legal and regulatory framework in place will be key to attracting private-sector investors for the production phase. SREP funding will clearly catalyse additional financing from the AfDB, other development partners, and the private sector, who previously have hesitated to invest in geothermal development considering the aforementioned bottlenecks. SREP funding will be best used in coordination with other partners' financing to reach common objectives in developing geothermal power in Tanzania. The proposed project is fully responsive to the SREP Investment Evaluation Criteria.
The project aims to catalyse the generation of about 100 MW, developed by the private sector, with public-sector support targeted to overcome the higher-risk phases of development, and thus make geothermal energy a reliable, low-cost, and significant contributor to Tanzania's electric power supply.
MANDAGO Stella - ONEC2