Tuesday, December 18, 2018

Finance: Sustainable Energy Program for the Eastern Caribbean Helps to Mitigate Geothermal Risks

Developing Geothermal Power in Small Islands Developing States (IADB)

In order to develop geothermal power, abundant underground heat and steam is required, which is not that easy to find. At the same time, large investments are needed in assessing the resource, conducting exploratory drilling, constructing geothermal plants, and building transmission lines. Small Islands Developing States (SIDS), like those in the Eastern Caribbean, have the additional challenge that undertaking a large investment like a geothermal plant with their own funds could jeopardize their national macroeconomic performance.

The Sustainable Energy Program (SEF) for the Eastern Caribbean was designed to tackle both problems. The SEF uses the climate funds such as the Clean Technology Fund (CTF) and the Green Climate Fund (GCF) to mitigate the geothermal risks. These climate funds are used as contingent recovery grants (CRGs). That means that the developer receives the CRGs and if they drill and fail, the financing is treated as grant. However, if the geothermal exploration is proven successful, the CRG is transformed into a concessional loan and the developer repays the cost of the well by selling the electricity.