Resources (USD50M) from the Clean Technology Fund (both from the investment plan and from the Dedicated Private Sector Program, DPSP) will be channeled to a program designed to lower risks of geothermal exploration and encourage investment. With the contribution of the CTF and IDB, an estimated number of 2-3 projects could be financed.
Given that Chile is a net importer of energy resources and dependent on fossil fuels, the GoC has been promoting the development of non-conventional renewable energy (NCRE) to diversify its energy sources in a sustainable way, contributing to a diversified, clean and safe energy matrix. The GoC recently approved legislation to increase the percentage of NCRE to 20% of all new contracts by 2025. Chile also encourages clean energy through total exemption of transmission charges to renewable projects up to 9MW, and partial exemption for project between 9MW and 20MW.
The proposed MiRiG program aims to combine resources from the IP and DPSP to support investment needs of projects that have already completed some exploratory drilling but require -before they can access commercial debt financing- concessional risk mitigation support to advance with additional drilling and plant construction.
The project. The Chile Geothermal Risk Mitigation Program (MIRIG) , which will be financed by a US$50million CTF, is expected to leverage an estimated US$500-800 additional resources from other investors, including IDB, private developers and other financing institutions.The MiRiG program intends to support up to three geothermal projects in Chile that have the potential to become the first in the country (and at this point in South America), demonstrating the viability of this technology in Chile and leveraging DFI and commercial financing. The program expects to directly enable a minimum of 100 of installed capacity. CTF resources will be used in structuring financial solutions that will mitigate the effects of resource and other project development and operation risks, and incentivize project developers to make the significant additional investments still necessary to allow production drilling campaigns and plant construction to go forward. The proposed structuring solutions include senior and subordinated long term project loans, short term bridge loans (convertible to grant), and guarantees.
Project results. Focusing on the projects that already have exploitation concessions and some exploratory drilling conducted, IDB is already in discussions with the developers of prospective projects in both the SIC and SING as candidates for the application of CTF resources. Due to resource uncertainty, it is not possible to specifically define each project’s size until a certain level of production drilling has been completed; however, based on available information, it is believed that the three projects in Chile with most advanced exploration have the capacity to support approximately 200 MW of installed capacity. Assuming a cost of USD 5-6 million per MW, the all-inclusive cost to bring these projects on-line is estimated to be USD 1- 1.2 billion.
The CTF investment will support the development of at least 100MW of capacity, and is expected to result in GHG emissions savings of between 8.7 and 18.0 MtCO2e.
Ensuring successful implementation: Besides the risk mitigation and investment support the CTF will be providing, CTF resources will also be needed for the following technical assistance and knowledge management activities.
a) Development and implementation of social & environmental best practices: In order to address the issues raised by Chilean society in past years regarding the social and environmental impacts of power generation projects (hydro, coal, and in a couple of cases also geothermal), a component focused on these aspects in envisioned. This would include but not be limited to: (i) educational campaign and awareness raising on the benefits and risks associated to geothermal development, including web materials and workshops; (ii) addressing any needs on environmental regulation related to geothermal development; (iii) development of a best practices handbook for the different stakeholders (Ministry of Energy, developers); (iv) establishment of a consultation protocol and implementation of it in the projects.
b) Independent geothermal advisory services: This will entail the contracting of independent geothermal advisors to assist in –among other- determining the eligibility of the projects, defining success and failure criteria for drilling campaigns (as required by specific projects, for the cases where guarantees or insurance may be implemented), and advising on resource and project development risks. The activities would include: (i) defining the technical documentation required to conduct due diligence; (ii) technically evaluating geothermal projects, in terms of available resource information, reservoir modeling, and other aspects contributing to technical and financial feasibility of the proposed project; (iii) analyzing drilling programs indicating whether (a) the procedures for drilling and safety systems are implemented to achieve the correct safety requirements and environmental protection, (b) the specific objectives, the minimum expectations and expected outcomes are consistent with the proposed preliminary geothermal model. Geothermal expertise will also need to be transferred and shared in order to maintain the sustainability of the program in the long term and ensure the demonstration effect of the Program. This could be done through training and development of an evaluation protocol for the Ministry of Energy or the designated institution (e.g. CORFO).
Expert consultant services may also be contracted to explore solutions to mitigate other project development and operational risks, such price/market risks when no PPAs are available.
c) Knowledge Management. In order to be able to catalyze investment and share lessons learned from the design and implementation of the MIRIG, a series of activities are envisioned, such as: (i) knowledge exchange with countries in the Region (such as Mexico); (ii) training and development of materials for government agencies, developers, other financial institutions on aspects such as regulation, risk management, simulation software; (iii) development of materials for the dissemination of lessons learned.