The views expressed herein are those of the writer and do not represent the opinions or editorial position of I-Witness News. Opinion pieces can be submitted to [email protected].
Regarding the article “Another Story worth telling: the real story of Geothermal Energy in St. Vincent. Part 1 – Innovation or Strategic Blunder?” by Mr. Herbert A. (Haz) Samuel which was published in I-Witness News dated August 2nd, 2015 I pondered whether it warranted a response from me or not. My hesitation emanated on one hand from a personal decision to avoid any political tussle which appeared to be embodied in parts of said article and as a professional I shy away from political debauchery, while on the other hand, as the Director of Energy I have a responsibility to provide some context and clarity to energy matters.
First, I would like to address the geothermal approach concern and provide historical context to the approach taken by St. Vincent and the Grenadines. I will continue with the example of Dominica as referenced in the above mentioned article. In 1991, a study by Geotermica Italiana “Exploration for Geothermal Resources in the Eastern Caribbean” concluded that the islands of Dominica, Montserrat and Nevis presented very favourable geologic conditions for the existence of high enthalpy geothermal systems at economic depth. The study also stated that St. Vincent and the Grenadines did not present any significant geothermal interest for high enthalpy resource and further emphasized that no further search for high enthalpy resources was recommended. It should be noted here, the strong scientific confidence in Dominica’s resource versus that of St. Vincent which plays a vital role in assessing the drilling risk when developing geothermal projects. Geotermica Italiana commended the high potential of Dominica’s resource and its ability to produce energy in excess of the country’s load (MW) demand and further recommended the exportation of electricity to neighbouring islands. This report was consistent with a series of reports on the Dominican geothermal resource, spanning from as early as a United Nations Development Programme (UNDP) report in 1969 to a more recent study in 2003. The geothermal reservoir in Dominica unequivocally provided sufficient scientific data and economic viability to support its geothermal development.
In much the same way, however, contradictory to the Geotermica Italiana report, over five scientific and data-driven studies including those by Huttrer (1996), Dames and Moore (1998), Brophy and Haizlip (2003), GeothermEx (2011) and National Renewable Energy Laboratory (NREL) (2012) and Reykjavík Geothermal (2014) would form the basis for geothermal development in St. Vincent and the Grenadines.
Since both countries exhibited enough scientific data for geothermal development, the question arises: what are the nuances between the approaches adopted by both countries? Mr. Samuel in his outlined recommendations suggested that St. Vincent and the Grenadines “apply for and secure grants to finance the geothermal development program, including the high risk, upfront work (as Dominica did)” and further pointed out that “grants don’t fall into a government’s lap, as if by some sort of financial gravity”. The implication here is twofold – (1) that Dominica has entirely financed its geothermal development utilizing grants, and (2) that St. Vincent has not capitalized on the opportunity by being proactive in grant applications. Mr. Samuel further emphasized that “Dominica has completed its drilling programme and is moving to the stage of design and construction of a geothermal power station” and notes that this impressive achievement was “paid for by grants and public funds”. Although indeed impressive for Dominica, Mr. Samuel’s faulted recommendation may have been due to insufficient research or other reasons, but for the purpose of clarification, Dominica’s geothermal development was not, and will not be solely financed by grants and public funds. Dominica received in 2003, a 1.2 million euros grant to conduct an exploration survey, financed by the Global Environment Facility (GEF), the United Nations Environment Programme (UNEP), the Organisation of American States (OAS) and the EU-funded programme INTERREG III-B. This survey encompassed the feasibility on a subsea transmission line with Guadeloupe and Martinique, and pre-assessed the environmental impact of such an endeavour. Agreeing that “grants don’t fall on laps”, St. Vincent and the Grenadines has also engaged the GEF, the EU and the OAS and accessed energy grants in excess of three million euros, details of which can be provided by the energy unit pursuant to public interest.
This 2003 report laid the foundation for the second stage of Dominica’s project which began in 2008, some 5 years later and which received a total of 5.5 million euros in grants from the AFD (French Development Agency), FFEM (Fonds Français pour L’Environnement Mondial) and the European Union’s European Development Fund (EDF). This grant funding facilitated the successful drilling of three exploratory slim wells (small diameter wells used to provide information). Again, I will emphasize for the purpose of comparison and of fundamental significance that St. Vincent will not be conducting exploratory slim wells due to the increased mobilization cost associated with drill rigs and the limited added value slim hole drilling would provide because of our reservoir depth. Hence, a production size exploratory well would be drilled from the outset, avoiding slim hole drilling that would add significant cost and time to the project.
In 2013, five years following the slim wells and ten years following the exploration study, Dominica successfully drilled its first production well financed by a loan from the AFD of 6.5 million euros. This single production well impressively produced 7MW of power, which will adequately suffice Dominica’s base load demand. This loan, not grant, was the first of other loans that will follow, as expected with geothermal projects. . I have been advised that the approximate cost of the project to date (after twelve years) is 27M USD (inclusive of all civil work etc.) and a further US$50 million is required to complete. As Dominica advances, negotiations regarding shareholders agreements and Power Purchase Agreement among other matters are being discussed. This discussion as well as draft procedures for a shareholders agreement and heads of terms agreement guidelines for the PPA with VINLEC have already started in St. Vincent as a reference.
For the record, the Government of the Commonwealth of Dominica favours a Private Public Partnership (PPP) approach and has sought the right partners to continue its development. In a nutshell, Dominica having several active volcanoes and a history of a rich resource spanning over forty years is currently seeking equity partners for the construction of their plant. St. Vincent on the other hand, having one active volcano, with reports spanning just over twenty years, has found the ideal partners in Emera Caribbean and Reykjavik Geothermal that can take this project to completion by 2018. Let us as a nation stand proud in this regard that we have attracted top tier private sector partners who are willing to support our efforts, regardless of our political persuasion. Let us examine the facts and the justification and get a better understanding of why our approach was different. Let us agree that after several grant-funded feasibility studies evidencing a potential geothermal resource, it is helpful to have a transparent and cooperative private sector partner willing to join the government in assuming risk. I will further add that it was the highly experienced and competent scientific team of Reykjavik Geothermal (RG) supported by Emera Caribbean that committed financial resources to explore the resource for the first time on the eastern end of the country after being disheartened by the terrain on the west.
Dominica’s ties to France are also significantly relevant to the project’s financial development and associated financial drilling risk. The French hold meaningful influence to the European Union. The French support to Dominica has been strong because of its proximity to Guadeloupe and Martinique and its cultural links. Further, the economic and commercial viability of the geothermal resource is stronger than that of St. Vincent. How, then, can one expect St. Vincent to mirror the approach of Dominica, given Dominica’s geographical proximity to the French colonies of Martinique and Guadeloupe and the interest of France due to their electricity burden these colonies presents? The ability to attract grant funding for production drilling therefore lies in the confidence of the resource. The idea that government should use public funds rather than sharing risk with a private partner on a risky venture would be the wrong approach.
The failure to obtain enough grants blended with public funds for geothermal development has been the challenge for small island developing states (SIDS). Guadeloupe is the only Caribbean island that uses geothermal energy for electricity and has been doing so since 1984. It is not by coincidence, or lack of political will, or the incompetence of any regional Energy Ministry why other islands failed to follow Guadeloupe’s example. So, let us accept that over the last two decades grant funding at this scale was not available. In fact, it was not until as recent as October 28th, 2013 that international support for geothermal energy in developing countries changed gear, when the Clean Technology Fund (CTF), a program of the Climate Investment Funds (CIF), approved US$115 million for utility scaled renewable energy projects. This program will bring into focus the private sector engagement in geothermal resource validation through drilling, the first and riskiest step in geothermal energy development. The CDB (Caribbean Development Bank) and IADB (Inter-American Development Bank) recognize the challenges faced by SIDS in geothermal development and as a result are also currently launching a Geo Smart Facility, which will lend support to Public Private Partnerships (PPP) in a form of a contingent recovery loan and grant program. The objective of such a facility would provide grant and loan access for geothermal development, at the drilling phase. The Energy Unit has been working with several such entities for grant support and concessional loans and discussions were held with the project partners on leveraging their equity funds with blended grants and concessional loans for the primary purpose of reducing electricity cost to the consumer. The energy unit is acutely aware of the benefit of seeking grant financing and is exploring all available avenues, while also recognizing the timeliness of advancing the project within reasonable timescales.
Perhaps we should be reminded that we were granted a concessional loan of US$15 million and were among five recipient nations from around the world awarded such funds from seventy-seven applications. The strength of our application was in acknowledgment of the financial challenges in geothermal development. Understanding each country’s unique situation is key and therefore Dominica’s approach should not be compared to that of St. Vincent because our geology and geography are different.
There are lessons to be learnt and best practices to be adopted, which is why we seek advice from those with experience. Recommendations ought not to come from ‘self-opinionated’ ideas, but from experienced and trusted sources. It is for this very reason, the Clinton Climate Initiative are one of our advisors. Let us recognize their role and the services being provided pro bono, which would have been a significant cost to the project. Let us recognize and credit the input from Japan and New Zealand that are providing technical support and in-house due diligence to the project. Let us see the value of having a state own utility (e.g. VINLEC) for the purposes of expediency and collaboration with Power Purchase Agreements, grid analysis, grid interconnection upgrades and granting of licence to generate power.
The Geothermal Bill which had its third reading in Parliament addresses legitimate concerns to conserve our environment and our resources within a legal framework, and this signifies a crucial step before any exploration drilling can occur. The Clinton Climate Initiative have been involved in projects of similar nature worldwide and have been actively involved in Dominica’s geothermal project and continue to serve as our advisors. The assistance from the geothermal experts from Japan and New Zealand who have committed their support to the project is unsurpassed. Likewise, we must acknowledge the invaluable contribution from IRENA (International Renewable Energy Agency) and The Abu Dhabi Fund for Development in support of SVG’s geothermal development model.
At the risk of being iterative, I will highlight that we hope to obtain more grants and concessional loans which will be announced at the appropriate time. I wish to reassure you that this project is not a fanciful one, nor are the timelines unachievable. We are confident in the resource and with the expertise of the technical team and our advisors, we also intend to conduct open tender at various stages of the project. The environment remains one of the major concerns and environmental and social impact assessment studies (ESIA) will commence shortly and would be grant financed by Japanese International Cooperation Agency (JICA). Financial analysis of the business case is currently being reviewed by Delphos International and the Government of St. Vincent finance department. This has also been grant financed through the auspices of the Clinton Climate Initiative. The Geothermal Bill which was financed by grants from the OAS has already been submitted to parliament and hopefully will be passed soon. There is already a proposed project structure and schedule and it is the intent to commence drilling by mid next year. I wish to reiterate that the government and its equity partners are diligently working together to obtain grants and concessional loans and, it is the objective of the project to reliably provide reduced cost of electricity to the people of St. Vincent.
Given the level of competency of the experts associated with this project, we at the Energy Unit are content with the notion that we have taken the utmost prudence in arriving at a very comprehensive geothermal development project, in the most advantageous financial standing. Further, Mr. Samuel’s article was at best superfluous, and at worst misguided.
Director of Energy
Government of St. Vincent and the Grenadines
The views expressed herein are those of the writer and do not necessarily represent the opinions or editorial position of iWitness News. Opinion pieces can be submitted to [email protected].