Mar 9, 2011

Harnessing volcanoes’ energy in Nicaragua

Sitting on top of a chain of volcanoes, Nicaragua is the ideal candidate to exploit geothermal energy sources. Ironically, though, the country depends on oil and coal for its electricity even as it struggles to keep up with energy demand. The Inter-American Development Bank (IDB) aims to change that through the San Jacinto-Tizate Geothermal Power Project.

The IDB $30.3 million loan to Polaris Energy Nicaragua, S.A. (PENSA), the company building and operating the plant, will go towards increasing the capacity of the San Jacinto geothermal power plant in the western part of the country.

The idea is to expand the existing 10 MW generating unit to a total of 72 MW through additional resource development and the installation of two new, higher capacity turbines.Upon completion of the expansion, the San Jacinto plant, Nicaragua’s second geothermal plant, will produce enough energy to power nearly one out of every twelve homes in the country.

“This project is not just about expanding access to electricity. It is also about transforming the country’s energy matrix to reduce its dependence on fossil fuel imports and boost its long term competitiveness,” said Hans Schulz, General Manager of the Structured and Corporate Finance Department of the IDB.

It has been long known that tapping geothermal heat to generate electricity is a cheap, eco-friendly way of providing much-needed electricity to Nicaragua. However, the country has been caught in a chicken-and-egg situation, where the large upfront exploration costs have hindered investments in this area.

In a country where 40 percent of the energy is supplied by the private sector, the Bank seeks to increase the role that companies play in developing renewable energy. The IDB sees the private sector as both an important source of financing and as an incubator for creative energy solutions.

Much of the IDB’s added value comes from its ability to provide confidence and attract investors. “We can help Central America to mobilize private sector investment for geothermal energy” said Elizabeth Robberechts, Investment Officer in the IDB’s Structured and Corporate Finance Department. “We expect this project to have a demonstration effect leading to more private sector investments in the region’s abundant geothermal resources.”

Geothermal power plants convert hot water from the earth’s interior to steam or vapor to run a turbine and generate electricity, after which the water is injected back into the underground geothermal reservoir.

In many ways, geothermal energy is the ideal form of renewable energy. Geothermal power plants do not require fuel as they run on their own produced energy, and are thus immune to fuel cost fluctuations. Generation capacity is largely unaffected by changing weather conditions, and geothermal plants use a minor fraction of the land and freshwater needed for most other energy facilities.

Thanks to Nicaragua’s volcanoes, geothermal energy is also highly scalable: it can produce energy for a small town or a large city depending on the capacity of the plant. Unlike wind, solar or hydro power, geothermal power plants provide a constant source of energy, operating 24 hours a day, 7 days per week, and therefore can effectively offset the use of other baseload plants powered by fossil fuels.

The IDB has a long record of working in Nicaragua’s energy sector, with a special focus on sustainable and renewable energy. Recognizing the need for broad, comprehensive policies, the Bank has provided resources to support the preparation of the country’s National Sustainable Electrification and Renewable Energy Program.

(Written by Omar Wahab)

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