Geothermal Policy Options and Instruments for the Andean Region Based on Icelandic and International Geothermal Experience July 2015 Geothermal Policy Options and Instruments for the Andean Region Based on Icelandic and International Geothermal Experience Orkustofnun, National Energy Authority Iceland July 2015 1 Publisher: Orkustofnun, Grensásvegi 9, 108 Reykjavík Tel: 569 6000, Fax, 568 8896 Email: [email protected] Website: http://www.nea.is/ Editors: Baldur Pétursson and Jónas Ketilsson. Cooperation Team: Guðni A. Jóhannesson, Sveinbjörn Björnsson, María Guðmundsdóttir, Tryggvi Sigurðsson, Harpa Þórunn Pétursdóttir, Skúli Thoroddsen, Kristján B. Ólafsson, Ingimar G. Haraldsson, Lúðvík S. Georgsson, Þorvaldur Bragason, Erna R. Bragadóttir and Petra S. Sveinsdóttir. Geothermal Policy Options and Instruments for the Andean Region, is published on the Orkustofnun website. OS-2015-06 ISBN 978-9979-68-503-6 Material may be reproduced, but an acknowledgement of source is kindly requested. July 2015 2 Table of Contents EXECUTIVE SUMMARY ............................................................................................................................... 6 I GLOBAL GEOTHERMAL EXPERIENCE ................................................................................................. 8 1 DEVELOPMENT OF THE GEOTHERMAL SECTOR WORLDWIDE............................................... 8 1.1 OVERVIEW AND CHALLENGES OF THE GEOTHERMAL SECTOR ................................................................... 8 1.2 RENEWABLE / GEOTHERMAL POLICY – OPTIONS AND INSTRUMENTS ...................................................... 10 1.3 SUPPORT TO RENEWABLE ENERGY IN THE EUROPEAN UNION ................................................................ 13 1.3.1 Operational Support ........................................................................................................................ 13 1.3.2. Financial Support ............................................................................................................................ 14 2 DEVELOPMENT, COMPETITIVENESS AND RISKS OF GEOTHERMAL PROJECTS ................... 17 2.1 RISK AND FINANCING OF GEOTHERMAL PROJECT .................................................................................... 17 2.2 COMPETITIVENESS OF GEOTHERMAL TECHNOLOGY – COMPARISON ...................................................... 18 2.3 COST AND STRUCTURE OF GEOTHERMAL PROJECTS .............................................................................. 19 2.4 GEOTHERMAL DISTRICT HEATING ............................................................................................................. 20 2.4.1 Cost Structure of Geothermal District Heating ............................................................................ 20 2.4.2 Policy towards Geothermal District Heating, Savings and Security ......................................... 21 2.4.3 Legal, Financial and Cost Structure of Geothermal District Heating Projects ........................ 22 2.4.4 Global Price Comparison of Geothermal District Heating ......................................................... 25 2.4.5 The Geothermal Global Market Structure .................................................................................... 26 2.4.6 Demo - Business Model - for Geothermal District Heating and Gas ....................................... 27 2.5 SCENARIOS FOR A 50 MW GEOTHERMAL POWER PLANT ....................................................................... 29 2.5.1 The Financial Model ........................................................................................................................ 30 2.5.2 The Implementation and Financing ............................................................................................... 34 3 INTERNATIONAL DEVELOPMENT AND FINANCING OF GEOTHERMAL PROJECTS ................ 36 3.1 INTERNATIONAL DEVELOPMENT MODELS OF GEOTHERMAL PROJECTS .................................................. 36 3.2 INTERNATIONAL – FINANCING MODELS OF GEOTHERMAL PROJECTS ...................................................... 36 3.2.1 Financial Options for Different Project Phases ........................................................................... 37 3.2.2 Geothermal Development Assistance – Global Lessons Learned ........................................... 38 II GEOTHERMAL RESOURCES IN THE ANDEAN REGION ................................................................. 39 4 THE ANDEAN REGION, GEOTHERMAL CHALLENGES AND OPPORTUNITIES ......................... 39 4.1 GEOTHERMAL RESOURCES IN S-AMERICA ............................................................................................... 39 4.2 PERU .......................................................................................................................................................... 41 4.2.1 Background information .................................................................................................................. 41 4.2.2 Main Challenges .............................................................................................................................. 43 4.2.3 Opportunities and Policy Options .................................................................................................. 44 4.3 CHILE .......................................................................................................................................................... 45 4.3.1 Background information .................................................................................................................. 45 4.3.2 Main Challenges .............................................................................................................................. 47 4.3.3 Opportunities and Policy Options .................................................................................................. 48 4.4 BOLIVIA ....................................................................................................................................................... 49 4.4.1 Background information .................................................................................................................. 49 4.4.2 Main Challenges .............................................................................................................................. 49 4.4.3 Opportunities and Policy Options .................................................................................................. 51 3 4.5 ECUADOR ................................................................................................................................................... 52 4.5.1 Background information .................................................................................................................. 52 4.5.2 Main Challenges .............................................................................................................................. 53 4.5.3 Opportunities and Policy Options .................................................................................................. 54 4.6 COLOMBIA .................................................................................................................................................. 55 4.6.1 Background information .................................................................................................................. 55 4.6.3 Opportunities and Policy Options .................................................................................................. 57 4.7 OPPORTUNITIES AND POLICY OPTIONS FOR THE ANDEAN REGION ......................................................... 58 III GEOTHERMAL DEVELOPMENT AND EXPERIENCE IN ICELAND ................................................ 59 5 GEOTHERMAL RESOURCES IN ICELAND ......................................................................................... 59 5.1 THE NATURE OF GEOTHERMAL RESOURCES ............................................................................................ 59 5.2 THE NATURE OF LOW-TEMPERATURE SYSTEMS ........................................................................................ 61 5.3 THE NATURE OF HIGH-TEMPERATURE SYSTEMS ....................................................................................... 62 5.4 WELLS IN USE IN ICELAND .......................................................................................................................... 62 5.5 THE HISTORY OF GEOTHERMAL DISTRICT HEATING (GEODH) ................................................................ 63 5.6 PUBLIC SUPPORT OF GEOTHERMAL DISTRICT HEATING .......................................................................... 69 5.7 ECONOMIC IMPACT ..................................................................................................................................... 70 6 GEOTHERMAL ELECTRICITY GENERATION .................................................................................... 74 6.1 DEVELOPMENT IN ICELAND ........................................................................................................................ 74 6.2 DRILLING FOR GEOTHERMAL WATER AND STEAM ...................................................................................... 76 6.3 SUCCESS OF HIGH TEMPERATURE GEOTHERMAL WELLS IN ICELAND ..................................................... 79 7 LEGAL AND INSTITUTIONAL FRAMEWORKS IN ICELAND ............................................................ 80 7.1. INTRODUCTION .........................................................................................................................................