Geothermal in South America: Major Prospects for Development

19 january 2013

New Hampshire, U.S.A. — If any part of the world should be concerned about the effects of climate change, it is South America. Despite contributing some of the lowest emissions globally, many of the countries in the region are located in global-warming hotspots.

As South America’s population is expected to rise 72% by 2035, the impact of climate change grows more significant each day. Governments are reacting with renewable energy development — and geothermal power has several major prospects.

Burgeoning Potential

South America has largely relied on hydropower, but its capacity is weakening. Though many regions have further untapped potential, most is located in remote regions with limited access to the grid, according to Meeting the Electricity Supply/Demand Balance in Latin America & the Caribbean, a report released by the Energy Sector Management Assistance Programme (ESMAP).

Geothermal presents a major opportunity throughout South America, but exploratory drilling has been limited. According to the ESMAP report, the range of geothermal capacity estimates is quite broad. Though expectations may be uncertain, many regions are hopeful that exploration will reveal something more.

‘Extrapolating from the experience in the US, where there has been a large amount of exploratory drilling, the potential of conventional geothermal resources in Latin America might be as much as 300 TWh per year,’ the report states.

The most viable resources are thought to be located along the Pacific Rim, which ranges from Mexico to Chile. Key spots in the Caribbean islands also carry some potential, according to researchers.

Policy Push

Several South American countries have spearheaded policy incentives to move renewable energy plans forward. Countries of note include Argentina, Chile and Peru, according to the 2012 Geothermal International Market Overview Report released by the Geothermal Energy Association (GEA).

Argentina implemented a feed-in tariff (FiT) plan for geothermal projects, with a 15-year entitlement period after the plant is brought online. The plan also includes a goal to reach 8% of renewable production by 2016.

According to the GEA, ‘Though a 1998 law supported wind and solar generation, geothermal did not become eligible as a renewable energy source until 2007. … In May 2009, the Genren Program was launched, aiming to purchase and incorporate 1000 MW from renewable energy plants, 30 MW of which is to come from geothermal energy.’

With geothermal potential of up to 16,000 MW, the Chilean government is ready to take advantage of its untapped renewable sources. To drive renewable development, the Chilean National Energy Commission partnered with the US Department of Energy (DOE) to create the Renewable Energy Center in Chile. According to its website, the DOE uses the facility to compile global renewable energy best practices and techniques to then use in the region.

‘The Chilean centre will serve as a clearinghouse of information and analytic tools and a leading source of expertise on renewable energy technologies and policies for Chile and, once it is up and running, for the region. It will also help research, develop and promote non-conventional renewable energy projects, and will serve as a source of information for investors and policymakers.’

Chile’s non-conventional renewable energy law enforces all utilities with a total capacity of 200 MW and greater to demonstrate that at least 10% of their energy comes from renewable sources. After 2014, this enforcement will increase by 0.5% annually until 2024, when it finally reaches 10%, according to the GEA report. Chile also enforces its law of geothermal concessions, established in 2000, which regulates exploration and permitting of geothermal projects. In response to this favourable policy, a total of 83 geothermal exploration concession requests are under review as of June 2012 at Chile’s energy ministry, according to Business News Americas.

Peru is thought to have nearly 3000 MW of geothermal potential, none of which has been exploited. The country currently draws most of its energy from natural gas, hydropower and fossil fuels. Recognising its need for energy development, the Peruvian government has set FiTs and tax incentives for renewables. It has also held auctions for contracts, including a recent 500 MW tender. Its goal is to generate 5% of its electricity from renewables by 2014.

Other South American countries have also recognised the need for clean energy and have implemented favourable policies. According to the International Energy Agency (IEA), Bolivia began its efforts in 1999 with grant incentives for rural renewable projects, and in 2000 passed a rural electrification project. In 2005, Bolivia passed the Rural Electrification Decree that promotes collaboration between private energy companies and government agencies to establish renewable projects.

Where is the Investment?

Though much investment has come from private funding, the Inter-American Development Bank has been a key player in South America. It has a five-year target to invest 25% of its loans toward climate-related projects, and it recently established the Emerging Energy Latin America Fund II.

According to its website, ‘IDB’s participation will consist of a senior A loan of up to US$30 million with a tenor consistent with the life of the fund (expected at 10 years), including a five-year commitment period. The repayment structure and the scope of security will be defined during due-diligence.’

The fund, a successor of the $25.2 million CleanTech Fund, is expected to reach $150 million. According to Andres Ackerman, an IDB project team leader, the fund was created due to major expected energy demand increases in the region — 75% by 2030 — half of which could be generated by renewables.

‘This financing is part of the IDB’s commitment to develop mechanisms to support long-term funding of renewable energy and clean technology projects in the region, which stimulate innovation, job creation and green economic growth,’ said Daniela Carrera-Marquis, head of the financial markets division at the IDB’s structured and corporate finance department (SCF).