The Ethiopian Electric Power Corporation (EEPCO) is set to pay 630.7 million dollars a year to Reykjavik Geothermal (RG), once the latter completes its 1,000MW geothermal project near Shashemene, 240km south of Addis Abeba.
After negotiations that spanned 18 months, the two parties signed a Power Purchasing Agreement (PPA) on Wednesday, October 23, 2013 at Sheraton Addis. The agreement calls for a tariff of 0.079 dollars a kWh for the first 500MW of the project, and 0.065 dollars a kWh for the second phase, which accounts for the remaining 500MW.
The purchasing agreement was signed by Mihiret Debebe, chief executive officer of EEPCO, Gudmundur Thoroddsson, CEO of RG, and Nejib Aba Biya, co-founder of RG. Also in attendance were Debretsion Gebremichael, minister of Communication & Information Technology and deputy prime minister heading the economic and finance cluster, Sinknesh Ejigu, mining minister, as well as Patricia Haslach, the newly appointed US ambassador to Ethiopia.
As part of the 25-year agreement, for a year and half, Reykjavik will generate 20MW, according to the PPA. Details will be clearly defined in the supplemental agreements to be signed within the coming three months, according to Mihiret. By 2016, the capacity is projected to be 100MW and reach 500MW by 2020, completing the first phase of the project.
The power plant is to be constructed at Corbetti Caldera – a volcanic mountain in Ethiopia’s Rift Valley at a total cost of four billion dollars.
The deal is crucial to the government’s effort to diversify from hydropower and wind energy to geothermal, according to an engineer who has been working closely in the industry.
The US-Icelandic company, on the other hand, is more concerned with potential delays at customs, according to Nejib.
“We understand the first phase will be particularly risky,” he told Fortune.
Financing for the overall project will come from equity financing, accounting for 25pc of the total, while the rest will be through debt financing, Nejib disclosed.
The American Capital Corporation (ACC) -one of the largest independent mortgage brokers in California- could provide up to 200 million dollars.
“We are on the right track with them,” said Nejib.
The Development Bank of Canada, the Obama Power Initiative, as well as private entities in North America, have shown interest in financing the project, according to Aba Biya.
The company, whose production downtime is only two weeks within a year according to Nejib, is expected to begin building the first phase by 2015, when it aims to have secured financing.
The company has secured an exploration license for an area covering about 6,500sqkm. With steam temperature reaching up to 350 degrees Celsius, the area where Corbetti geothermal project is located has a potential of 500MW to 1,000MW, according to the company.
The project, which was first announced by Prime Minister Hailemariam Desalegn on September 27, 2013, in New York, where he was attending the United Nations’ general assembly meeting, is set to significantly boost geothermal power production in the country.
Ethiopia currently produces only 7.3 MW out of its total potential to generate 10,000 MW from geothermal sources.
“The government cannot invest at this scale,” said Debretsion.
In addition to the new power project, the country is building the Grand Renaissance Dam (GRD) with 5.5 billion dollars and plans to export electricity to seven countries. The GRD, expected to generate 6,000MW, has 71pc downtime, while the geothermal project has three percent downtime. This makes the geothermal investment attractive, in spite of its higher cost per megawatt, according to the expert.
A directive that details tariff prices based on type of energy produced – wind, solar, hydro, geothermal – is soon to be issued and is expected to be approved, according to Mihiret. In the meantime, the current tariff was determined based on the country’s experience in selling to neighbouring Djibouti, and experiences of other countries that purchase electricity. Ethiopia, which supplies about 80pc of Djibouti’s electricity demand, sells a kWh of electricity for 0.07 dollars.
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