Ethiopia has signed a preliminary agreement with a U.S.-Icelandic firm for a US$4 billion private sector investment intended to tap its vast geothermal power resources and help it become a major exporter of energy for East Africa.
Reykjavik Geothermal, whose Icelandic geothermal expertise is backed by U.S. investors, signed a deal with Ethiopia on Wednesday to construct a 1,000 MW geothermal power plant, Africa's largest, in the volcanically active Rift Valley.
When complete, the project will be Ethiopia's biggest foreign direct investment, run by its first privately owned utility. In an economy traditionally dominated by state spending, the government has suggested that the nascent sector could be a model for increased private investment.
"This is an epic
moment for all of us ... bringing Ethiopia to the forefront of geothermal
development," said Reykjavik Geothermal CEO Gudmundur Thoroddsson, who
signed the deal with Mihret Debebe, his counterpart at the state-run Ethiopian
Electric Power Corporation (EEPCO), in Addis Ababa.
Ethiopia currently suffers
frequent blackouts because of a lack of power. But it is due to boost its
generating capacity from 2,000 MW to 10,000 MW within the next three years,
much of it coming from the 6,000 MW Grand Renaissance Dam under construction on
the Nile.
Experts put its hydropower
potential at around 45,000 MW and its geothermal potential at 5,000 MW, but
Reykjavik says the accessible geothermal resources could be nearer 15,000 MW.
"For 50 years, everyone has
known that there was potential, but the initial risk and initial cost of
developing geothermal is high," said Reykjavik Geothermal managing
director Thorleifur Finsson.
"After we managed to develop
many sites in Asia and America, eyes have been opened that there is a
possibility and ... today's technology has minimized that financial risk,"
he said. "There is huge potential."
PRIVATE FINANCE
Power will be extracted from
under the volcanic Corbetti Caldera crater by pumping water to a depth of more
than 1,000 meters to be superheated in geological strata where the temperature
is around 350 degrees Celsius (660 Fahrenheit).
Finsson said it was envisaged
that the first 500 MW of power from the Corbetti Caldera would come onstream in
2018, and the second 500 MW by 2021, but that finance had so far only been
committed for a first phase of exploration drilling.
Depending on the results of this,
he said he expected "financial close at around end of December 2014 or
beginning of 2015". He said the power purchase agreement was expected to
commit EEPCO to buy the station's output for 25 years.
Ethiopia, Africa's second most
populous country, has also been one of the continent's fastest growing
economies, with 9.7 percent growth in fiscal 2012/13.
However, much of this is the
result of heavy public infrastructure spending; the International Monetary Fund
has said balance of payments pressures and the difficulties faced by the
private sector - whose share of Ethiopia's GDP is the sixth lowest in the world
- raise doubts about its growth model.
At the unveiling of the
geothermal project in New York last month, Prime Minister Hailemariam Desalegn,
in office for just over a year, suggested this might have to change if Ethiopia
was to meet its expanding power generation ambitions.
"My vision is that over the
next 30 years, we will need to harness as much as 80,000 MW of hydro,
geothermal, wind and solar power, not just for Ethiopia, but for our
neighboring countries as well ...
"We will need to partner
with the private sector to bring in significant private investment going
forward. From that perspective, this 1,000 MW project with RG is not that large
- but it's a great start. What Africa needs now is not just aid, but trade and
investment."
By Aaron Maasho
Additional reporting and editing
by Kevin Liffey
Source: Thomson Reuters, 2013.
