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Enel Green Power is the World’s largest renewable energy company (around 6,500 MW installed capacity in 2011), strengthened by being
owned by the Italian public utility Enel (Enel Green Power 2011).
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The potential motivations for oil companies to undertake geothermal development projects include the diversification benefits for their
portfolio, synergies with the core business, and new relationships established with the country. From the oil company perspective, these
benefits may outweigh the significant upstream risks of geothermal development.
expenses and yield a profit. Risk is borne separately by the private companies
and the government
entities, the latter being supported by the national treasury.
In addition, a fairly broad spectrum of structures has been found between Models 2 and 6. Sometimes,
more than one state-owned company or more than one level of government is involved in the provision
of funds for geothermal development, while the private sector plays a limited role. In other cases, PPP
structures are utilized in which the private participant plays an active role, as in Models 4 through 7.
As can be seen, apart from Model 8, public funding has an important
role to play in all cases, and it
usually comes either as direct support to investments or through loan guarantees. A loan guarantee
covers the risk of default on the loan. Insurance or guarantee schemes specifically covering resource
risk for the private sector are rare. Although there is increasing interest in employing such schemes,
their introduction will most likely require a substantial amount of support from donors and IFIs, at least
initially. Today, state-supported geothermal drilling insurance exists mostly in Iceland.
In the United
States, a scheme of reservoir insurance has been tried but did not take off commercially due to steep
cost of premiums—equal to between 2 and 5 percent per annum of the face value of the policy (World
Bank/PPIAF 2010).
From a government perspective, two key decisions have to be taken when choosing an approach to
financing geothermal development. One is the level of participation by the private sector and the other
is the level of vertical integration of geothermal development phases.
Figure 3.7 maps the development models used historically in various countries when making these
two decisions. The far left and far right extremes on the horizontal axis represent fully public and
fully
private development, respectively. On the vertical axis, the top side represents a fully vertically
integrated business model, whereas the bottom side represents an unbundled value chain with
different players in the upstream and power generation business.
The countries on top left of Figure 3.7 have chosen a vertically integrated, public sector led approach.
In these countries, a national champion undertakes the geothermal development
activities all along the
value chain, from early upstream exploration to power plant construction and operation. The countries
in the bottom left area have several public entities participating in the value chain at different stages.
The governments of the countries on the right have taken a much less proactive stance, relying
to a large extent on the private sector. On the top right, one private entity undertakes the activities
across the value chain. Large international corporations such as Enel and Chevron can lead such
development, taking significant resource risk. One example is the public-private
LaGeo joint venture
in El Salvador, in which Enel Green Power is the private investor.
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In the case of the Chevron project
in the Philippines, an oil company with a strong balance sheet funds the entire project development
cycle.
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