Latin America: geothermal energy

Geothermal heat has so far only played a minor role in Latin America. However, this green energy could help to cost-effectively generate electricity and reduce emissions. On behalf of the German Federal Government and the European Union (EU), KfW has launched the “Geothermal Development Facility” and given it an initial 55 million euros of funding.

Geothermal heat is always available, even when wind turbines are still and solar power plants are inactive. In Latin America, use has only been made of five per cent of its potential to date. There is a reason for that: using geothermal energy requires a very large initial investment. For one thing, there is “exploration risk”. It is necessary to find a place that offers enough thermal water or steam to make financing economically viable. For another, expensive test drilling is needed.

In order to hedge these investments, KfW, working on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) and the EU, has launched the Geothermal Development Facility GDF. This is the first coordinated, continent-wide initiative to develop geothermal energy in Latin America.

The facility provides 55 million euros of risk management instruments. Of this, Germany is responsible for up to 35 million euros in grants for the risk management fund. The facility is being implemented by a fund manager based in Washington DC and with a project office in Bogotá. Projects in eleven Latin American countries can access the financing.

As a response to climate change, countries in Latin America have also undertaken to reduce greenhouse gas emissions and are relying on renewables to do so. Geothermal energy can contribute towards their share of the reduction in emissions. The facility is expected to lead to one billion euros of investment and enable the installation of geothermal power plants with total capacity of 350 megawatts. These would save nearly two million tonnes of carbon dioxide per year and supply environmentally friendly energy to two million people. KfW has already successfully launched a similar risk management fund in East Africa.