VANUATU GOVERNMENT ADOPTS WORLD BANK REPORT REPORT ENDORSES GEOTHERMAL DEVELOPMENT
'The Takara geothermal power plant is the ... least-cost base load power supply addition for Efate ... compared to diesel, wind and solar photovoltaics. Development of the Takara geothermal resource should be prioritised above development of other generation technologies.'
25 May 2012
Principal Findings of the World Bank Report
Independent review by qualified consulting team
'This study conducted an independent review of KUTh's data and analysis and confirms that KUTh's exploration and development strategy is sound.'
Further exploration
'Further exploration is required to establish with certainty the size and commercial viability of the geothermal resource at Takara. The project warrants active Government support.'
Public sector participation
'Government (Vanuatu) may wish to consider grants for portions of the exploration drilling and network investment, possibly with funding from development partners.'
Private sector ownership
'The project will rely on the private sector due to the substantial investment requirements and the highly specialised nature of geothermal development.'
Benefits
'Analysis shows that an 8MW net geothermal project at Takara
would (i) yield positive net economic benefits for
Vanuatu and (ii) be the economically least cost option for
new power generation.'
Background
In 2009-10 KUTh conducted exploration programs in Vanuatu
which resulted in the identification of an inferred
geothermal resource (The Australian Code for the Reporting of
Exploration Results, Geothermal Resources and Geothermal
Reserves (Edition 2, 2010) with three targets located in the
north of Efate , Vanuatu.
New coastal ring road & proposed
transmission path
Existing
transmission reach
Existing
transmission reach
Figure 1 : Island of Efate , Vanuatu with KUTh tenements
Takara, Teouma and Epule outlined.
The company presented these findings to the Vanuatu Cabinet
of Ministers in June 2010 outlining its intentions to
progress the project in close collaboration with the utility
(UNELCO) with next steps being the drilling of exploration
wells in the preferred target location (Target C).
The Vanuatu government decided to invite the World Bank to
conduct a study into how KUTh's geothermal plans could be
integrated into current energy programs to benefit the
island.
Figure 2: KUTh Inferred Resource targets A, B & C. Figure 3:
60 degree ground temperature near to
Target C
Vanuatu Geothermal Resources (100% KUTh) | ||
Confidence Level | Inferred Resource (PJth) Recoverable energy | Estimated Median Power Potential (MWe for 30 years) |
Target A | ||
P90 | 140 | 43 |
P50 | 350 | 43 |
P10 | 600 | 43 |
Target B | ||
P90 | 70 | 22 |
P50 | 170 | 22 |
P10 | 300 | 22 |
Target C | ||
P90 | 82 | 18 |
P50 | 140 | 18 |
P10 | 220 | 18 |
Table 1: KUTh Energy Limited conventional geothermal resource inventory [30 June 2011]. All resource figures are compliant with the Australian Code for the Reporting of Exploration Results, Geothermal Resources and Geothermal Reserves (Edition 2, 2010). Resources are determined relative to an assumed base (reinjection) temperature of 80°C. The recovery factor range is 10 - 30% based on analogy with equivalent resource plays in fractured and/or porous volcanic rocks. The estimation of theoretical electrical power generation capacity over
30 years was undertaken as net of in-house power usage and assumes a temperature dependent conversion efficiency in the range 10 to
17% which is typical of commercially available binary plants.
The Report
The World Bank Report titled 'Vanuatu: Efate Geothermal Power and Island-Ring Grid Development Framework -
18 January 2012' was commissioned in 2010 and its findings are for consideration by the Vanuatu government. An international geothermal consulting team was engaged by the bank to review KUTh's geothermal development plans, the regulation of power supply (new concessions) on the island of Efate and the extension of the transmission grid to connect the geothermal plant to Port Vila and include infill grids to supply areas not previously serviced.
The report found that, of the estimated US$95 million to
US$120 million broader project cost, KUTh's 8MW (net)
geothermal development would cost between US$75 million to
US$91 million (excluding the transmission infrastructure
which is not for KUTh's account). KUTh estimates that the 8MW
(net) project cost will be towards the lower end of that
range, of which up to half will be funded through development
bank loans. Furthermore, subject to successful exploration
results, the project will be implemented in two stages of 4
MW (net) each, allowing for a phased financing plan over 5
years. KUTh is exploring various funding options for the
balance of the project cost to ensure that current
shareholders' financial return is maximised.
The report found that the Government should proceed with the
project as KUTh's geothermal plant would provide the
economically least cost base-load power supply addition to
Efate. The study 'conducted an independent review of KUTh's
resource data and analysis, and confirms that KUTh's
exploration and development strategy is sound.'
While agreeing with most of the conclusions in the report,
KUTh does not agree with the view that the negotiation of the
PPA, tariff and production licence should occur after
completion of exploration drilling. KUTh maintains that
certainty of power off-take and price, for example, are
important commercial conditions precedent to committing
further company funds to this project. To this end, KUTh is
currently negotiating a PPA with UNELCO, who recently
confirmed their support for the project.
KUTh has also lodged a geothermal production licence and
support documents with the government of Vanuatu. Along with
the PPA, these documents will be the catalyst for the project
moving forward into the exploration drilling phase.
Commenting on the report, KUTh managing director, David
McDonald said "The report from the World Bank has been a long
time coming and it has been frustrating being sidelined
during this process. On the positive side, it is clear from
the report that there is strong endorsement for the project.
KUTh has had an effective 'due diligence' exercise carried
out by an international team of geothermal experts who have
reviewed our exploration results and concur with the
company's preferred drilling location. Furthermore, the
expert group has confirmed KUTh's phased commercial
development program with two by 4MW power plants. It is
gratifying that such a high level peer appraisal confirms
both our technical and commercial approach."
Figure 4: Power Plant schematic on Takara site
It's not about megawatts it's about revenues and profits
Vanuatu is the first of KUTh's remote grid diesel replacement
strategies. There is no doubt there have been some challenges
and some unfortunate delays in reaching this point but this
report confirms the strategy KUTh is pursuing. Potential in
situ geothermal resources that have sufficient demand in the
local market are worth investigating. The dynamics of diesel
replacement are very different to coal produced energy and as
such an 8MW plant in Vanuatu could produce revenues in line
with a 50MW coal fired plant in Australia (based on the
average wholesale price paid to independent power producers
in 2010-11). There will be additional costs associated with
remote island development and these have been factored into
KUTh's preliminary assessment of the project. The WB report
also recognises this in their assessment of project viability
and concluded that, even with the additional costs, the
project is still the least-cost energy option for
Vanuatu.
David McDonald further added "In an environment of
uncertainty surrounding carbon policy in Australia, it is
important that the company continue to pursue projects where
the risk profile, capital requirements and funding support
mechanisms are within the scope of KUTh's ability to deliver
on the project potential. Vanuatu is such a project and
importantly we are developing a portfolio of diesel
replacement projects in other Pacific locations where we can
transfer the experience, skills and alliances."
The business case is compelling
Vanuatu is located in the Pacific 'ring of fire' and has surface expressions of conventional geothermal potential.
Nearby expertise in conventional geothermal is readily available in New Zealand.
Australia has a strong presence in the region.
The model is based around the replacement of diesel generated electricity which has higher pricing benchmarks than coal or gas fired power stations. Geothermal power can be competitively priced and create a domestic security of supply.
Potential demand upside will come from developments along the recently completed island ring road.
Strong government support for the project.
Vanuatu is a signatory to the Kyoto protocol and through the Clean Development Mechanism (CDM) may offer KUTh the potential to access carbon credits (CER's) for the proposed project.
Vanuatu has a Geothermal Act which provides a regulatory framework for KUTh to operate within.
The utility (UNELCO - a subsidiary of GDF Suez) has publicly announced its support for the project.
The company is engaged with multilateral development banks concerning project financing options through the development chain.
Next Steps
• Completion of the final government agreements and PPA so
that power off-take and tariff certainty is settled.
• The company is seeking expressions of interest from
potential drilling companies and will commence negotiations
in the next quarter to finalise well design, drilling
contracts and timing. Initially the company is undertaking a
surface temperature grid survey at Takara in the north of
Efate to identify the hottest near surface locations as this
will influence the equipment needed and where and how we
drill the first well. This part of the program is being
driven by Dr Fiona Holgate and Hagen Hole (Drilling
Engineer).
• The company has commissioned an equity research report on
the World Bank findings to summarise the potential of the
Vanuatu project to KUTh shareholders.
• A copy of the Executive Summary of the final World Bank
Report is included on the KUTh website www.kuthenergy.com
The information in this Statement that relates to Geothermal Resources has been compiled by Mr James Vincent Lawless, a former employee of Sinclair Knight Merz Ltd. Mr Lawless has over 20 years' experience in the determination of geothermal resource capacities relevant to the type of geothermal play under consideration, has been accepted onto the register of geothermal resource specialists maintained by AGEG and has agreed to abide by the associated code of ethics.
Mr Lawless is a Competent Person as defined by the Australian Code for Reporting of Exploration Results, Geothermal
Resources and Geothermal Reserves (2008 Edition). Mr Lawless has consented in writing to the public release of this
Statement in the form and context in which it appears.
ENDS
For more information contact:
David McDonald Managing Director Ph: +61 2 9238 6865
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