Thursday, 2 September
$2 billion a year from Asian Development Bank to finance clean energy projects
in Australia, Turkey and Brasil
Soon there will be a new source of financing for clean energy projects. The
Asian Development Bank(ADB) announced on Wednesday that it is planning to issue
clean energy bonds. The Bank is targeting Japanese retail investors and it said
that it would match the funds raised this way on a dollar-per-dollar basis.
The bond will have four tranches, one denominated in Australian dollars, another
in Turkish lira and two tranches in Brazilian real. They will mature in four
and seven years.
The ADB is targeting $2 billion a year in clean energy investments by 2013
to focus on wind, solar, water, geothermal and biomass(e.g. sugarcane). It has
invested more than $5 billion in clean energy since 2005 but this will the first
time that an ADB bond program will be targeting clean energy investment. The
ADB Press release states that the Clean Energy Bond issue follows the successful
sale in April of ADB’s inaugural Water Bond, which is supporting the ADB’s work
in the water sector in Asia and the Pacific.
The choice of the currencies in the bond program is interesting. This probably
means that the Bank is guessing for most of the investment to occur in these
three countries ($500m per year in Australia and Turkey each and $1 billion
per year in Brasil). We know all about Australia's increasing demand for electricity
of course and how an increasing fraction of that demand will have to be satisfied
from clean energy when a carbon pricing regime is put in place in the near future
as expected.
I know a bit about Turkey too and I will spend a bit of time to relate what
I know as I think this may be of more interest to the readers of this blog instead
of trying to read tea leaves to predict what will happen to the Australian renewable
energy sector in the immediate future under the new government (whatever form
and shape it takes). Turkey has a huge demand for new sources of electricity
as indicated by the following graph on the left. I prepared this graph when
I was a guest lecturer at the Bogazici University a few years ago. The red crosses
are from the web site of the Turkish regulatory authority TEIAS and the blue
line is a exponential curve I had fitted to the past data (which are the circles).
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The second map on the right is from the web site of the European
Geothermal Energy Council - EGEC and shows the relative potential in the
European countries. Turkey clearly has a lot of geothermal potential. Most of
that potential is volcanically sourced. In spite of this geothermal potential,
due also to the availability of cheap and abundant natural gas from its Eastern
neighbours, most of the Turkish electricity investment has been in natural gas.
The levelised cost of gas-produced electricity in Turkey, I am told, is about
7-8 cents per kWh. This should be compared against the current retail cost of
electricity, which is close to 20 cents/kWh (not much different from Australia).
Since the electricity demand is increasing exponentially, it is difficult for
a natural gas investor to lose money at the current retail prices.
The electricity from cheap gas has worked against wider adoption of geothermal
energy in the past. This is inspite of the abundance of easy (relatively speaking)
geothermal resources. I say "easy" because I anticipate many Turkish
sites which will deliver temperatures exceeding 200 oC when drilled
to a depth of 3000m. The following is shows well temperatures from existing
geothermal wells in Turkey. The x-axis is the depth in meters and the y-axis
is the temperature. As one can see, the Turkish geothermal sector has hardly
started drilling below 2000 meters yet. The ellipse I added in the upper right
corner of the graph is labelled as the "Unknown Territory". I know
that a lot of work is needed to prove this potential, possibly by the government
first as a precompetitive project. Nevertheless, I think it is fair to expect
the unkown territory in this chart to hold huge resources to power the future
of the nation. The availability of the ADB Clean Energy Bonds may encourage
Turkish investors to start exploring in this territory. Most people I talked
in Turkey agreed that the investment in deeper geothermal sources would be commercially
feasible at the current electricity prices. The problem so far was that it was
not as cheap as gas-fired electricity and therefore geothermal sector was not
able to compete against natural gas for the investors' dollars. The ADB bonds
may change this.
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