Reykjavik Geothermal, a power developer backed by hedge fund billionaire Paul Tudor Jones II, is about to kick off a $4.4 billion project to bring volcanic energy to Ethiopia.
Tapping long-built Icelandic expertise in channeling volcanic power, the developer is preparing to start exploration drilling in September for two 500-megawatt plants in Corbetti and Tulu Moye, south of the capital Addis Ababa. At full-scale, each project would become the largest independent power producer in Africa, according to RG.
The Reykjavik-based company’s exploration teams have picked spots to drill where they can see steam rising from the ground. “All the results from the surface exploration work indicate that we are developing projects in a huge caldera, huge active volcanoes which can sustain at least 1,000 megawatts or more,” Gunnar Orn Gunnarsson, RG’s chief operating officer, said in an interview in Reykjavik.
The projects would become a vital cog in Ethiopia’s drive to become a middle-income country by 2025. Currently, its installed electricity capacity of 4,200 megawatts only provides power for 40% of its 105 million people. Neighboring Kenya already has 685 megawatts of installed geothermal capacity, providing almost a third of its energy.
The projects will cost money and need more investors to reach full potential. The first phase will develop 50 to 60 megawatts, requiring an equity investment of $175 million for each. They have been fully funded and RG holding a significant minority share in each project.
Bringing the full projects on-line would cost about $2.2 billion apiece, with 75% anticipated to be financed via debt. Other owners in the projects include Africa Renewable Energy Fund, Iceland Drilling Co. and Meridiam SAS. RG expects “strong emerging market returns” from the projects, which will continue to improve as the projects gain scale, according to Gunnarsson.
Gunnarsson said RG is “fortunate” to be backed by Tudor Jones, who owns 23%, and Ambata Capital Partners, which holds 27%. “But as the scale grows, RG continues to seek further investors,” he said. The company is now negotiating drilling contracts after getting everything in place with the government, according to Gunnarsson. The projects have been in the works since 2010, through three prime ministers.
“Our relationship with the government has always been very positive and the current government is very supportive,” he said. “They have shown, in particularly over the last year, that they want this to happen and now we have cleared the pathway to go to exploration drilling.”