Geothermal Power Plants Project Finance through Public-Private Partnership: A case of Africa

Geothermal power plant projects range generally from small modular power plants to large plants of over 100MWe and are often located in remote areas. These projects are also characterized by higher initial capital costs, on a cost per kilowatt basis, than large thermal power projects because these capital costs include a lifetime supply of fuel.

Owing to their very nature, geothermal energy projects face several financing hurdles, including:

(a) higher capital costs and credit risk issues in developing countries;

(b) subsidized use of fossil fuels;

(c) statutory limitations in the method by which multilateral agencies share project financing, and

(d) time-consuming and expensive reviews of projects, which may delay and even preclude project implementation.

These challenges have resulted in the need to craft innovative financing solutions that resonate with the pressing needs experienced in most African states.

One of the solutions is financing through Public-Private Partnerships. The World Bank Group defines Public-Private Partnership as “A long-term contract between a private party and a government entity for providing a public asset or service in which the private party bears significant risk and management responsibility and remuneration is linked to performance.” Fast-track financing of geothermal projects through public-private partnerships and recognition of the real value of the benefits of public-private partnership in a geothermal project will provide the opportunity for the development of new geothermal projects in Africa. Financing participants should choose a team leader, establish a budget for financing costs, and set a closing timetable. Countries where geothermal is being developed and multilateral agencies should provide quantifiable credits for geothermal benefits. A shorter period from planning through financing approval while considering all the risks should be the realizable goal so that projects are developed when and where they are most needed.

This paper aims to explore and highlight how to conceptualize and structure geothermal projects to reap the maximum benefits offered by the Public-Private Partnership for effective project financing in Africa. In addition, we intend to showcase to the various stakeholders in Africa, the opportunities and risks involved in investing in the geothermal space consistently and transparently.