VANUATU GOVERNMENT ADOPTS WORLD BANK REPORT REPORT ENDORSES
'The Takara geothermal power plant is the ... least-cost base
load power supply addition for Efate ... compared to diesel,
wind and solar photovoltaics. Development of the Takara
geothermal resource should be prioritised above development
of other generation technologies.'
25 May 2012
Principal Findings of the World Bank Report
Independent review by qualified consulting team
'This study conducted an independent review of KUTh's data
and analysis and confirms that KUTh's exploration and
development strategy is sound.'
'Further exploration is required to establish with certainty
the size and commercial viability of the geothermal resource
at Takara. The project warrants active Government support.'
Public sector participation
'Government (Vanuatu) may wish to consider grants for
portions of the exploration drilling and network investment,
possibly with funding from development partners.'
Private sector ownership
'The project will rely on the private sector due to the
substantial investment requirements and the highly
specialised nature of geothermal development.'
'Analysis shows that an 8MW net geothermal project at Takara
would (i) yield positive net economic benefits for
Vanuatu and (ii) be the economically least cost option for
new power generation.'
In 2009-10 KUTh conducted exploration programs in Vanuatu
which resulted in the identification of an inferred
geothermal resource (The Australian Code for the Reporting of
Exploration Results, Geothermal Resources and Geothermal
Reserves (Edition 2, 2010) with three targets located in the
north of Efate , Vanuatu.
New coastal ring road & proposed
Figure 1 : Island of Efate , Vanuatu with KUTh tenements
Takara, Teouma and Epule outlined.
The company presented these findings to the Vanuatu Cabinet
of Ministers in June 2010 outlining its intentions to
progress the project in close collaboration with the utility
(UNELCO) with next steps being the drilling of exploration
wells in the preferred target location (Target C).
The Vanuatu government decided to invite the World Bank to
conduct a study into how KUTh's geothermal plans could be
integrated into current energy programs to benefit the
Figure 2: KUTh Inferred Resource targets A, B & C. Figure 3:
60 degree ground temperature near to
Vanuatu Geothermal Resources (100% KUTh)
Inferred Resource (PJth) Recoverable
Estimated Median Power
Potential (MWe for 30 years)
Table 1: KUTh Energy Limited conventional geothermal resource
inventory [30 June 2011]. All resource figures are compliant
with the Australian Code for the Reporting of Exploration
Results, Geothermal Resources and Geothermal Reserves
(Edition 2, 2010). Resources are determined relative to an
assumed base (reinjection) temperature of 80°C.
The recovery factor range is 10 - 30% based on analogy with
equivalent resource plays in fractured and/or porous volcanic
rocks. The estimation of theoretical electrical power
generation capacity over
30 years was undertaken as net of in-house power usage and
assumes a temperature dependent conversion efficiency in the
range 10 to
17% which is typical of commercially available binary plants.
The World Bank Report titled 'Vanuatu: Efate Geothermal Power
and Island-Ring Grid Development Framework -
18 January 2012' was commissioned in 2010 and its
findings are for consideration by the Vanuatu government. An
international geothermal consulting team was engaged by the
bank to review KUTh's geothermal development plans, the
regulation of power supply (new concessions) on the island of
Efate and the extension of the transmission grid to connect
the geothermal plant to Port Vila and include infill grids to
supply areas not previously serviced.
The report found that, of the estimated US$95 million to
US$120 million broader project cost, KUTh's 8MW (net)
geothermal development would cost between US$75 million to
US$91 million (excluding the transmission infrastructure
which is not for KUTh's account). KUTh estimates that the 8MW
(net) project cost will be towards the lower end of that
range, of which up to half will be funded through development
bank loans. Furthermore, subject to successful exploration
results, the project will be implemented in two stages of 4
MW (net) each, allowing for a phased financing plan over 5
years. KUTh is exploring various funding options for the
balance of the project cost to ensure that current
shareholders' financial return is maximised.
The report found that the Government should proceed with the
project as KUTh's geothermal plant would provide the
economically least cost base-load power supply addition to
Efate. The study 'conducted an independent review of KUTh's
resource data and analysis, and confirms that KUTh's
exploration and development strategy is sound.'
While agreeing with most of the conclusions in the report,
KUTh does not agree with the view that the negotiation of the
PPA, tariff and production licence should occur after
completion of exploration drilling. KUTh maintains that
certainty of power off-take and price, for example, are
important commercial conditions precedent to committing
further company funds to this project. To this end, KUTh is
currently negotiating a PPA with UNELCO, who recently
confirmed their support for the project.
KUTh has also lodged a geothermal production licence and
support documents with the government of Vanuatu. Along with
the PPA, these documents will be the catalyst for the project
moving forward into the exploration drilling phase.
Commenting on the report, KUTh managing director, David
McDonald said "The report from the World Bank has been a long
time coming and it has been frustrating being sidelined
during this process. On the positive side, it is clear from
the report that there is strong endorsement for the project.
KUTh has had an effective 'due diligence' exercise carried
out by an international team of geothermal experts who have
reviewed our exploration results and concur with the
company's preferred drilling location. Furthermore, the
expert group has confirmed KUTh's phased commercial
development program with two by 4MW power plants. It is
gratifying that such a high level peer appraisal confirms
both our technical and commercial approach."
Figure 4: Power Plant schematic on Takara site
It's not about megawatts it's about revenues and profits
Vanuatu is the first of KUTh's remote grid diesel replacement
strategies. There is no doubt there have been some challenges
and some unfortunate delays in reaching this point but this
report confirms the strategy KUTh is pursuing. Potential in
situ geothermal resources that have sufficient demand in the
local market are worth investigating. The dynamics of diesel
replacement are very different to coal produced energy and as
such an 8MW plant in Vanuatu could produce revenues in line
with a 50MW coal fired plant in Australia (based on the
average wholesale price paid to independent power producers
in 2010-11). There will be additional costs associated with
remote island development and these have been factored into
KUTh's preliminary assessment of the project. The WB report
also recognises this in their assessment of project viability
and concluded that, even with the additional costs, the
project is still the least-cost energy option for
David McDonald further added "In an environment of
uncertainty surrounding carbon policy in Australia, it is
important that the company continue to pursue projects where
the risk profile, capital requirements and funding support
mechanisms are within the scope of KUTh's ability to deliver
on the project potential. Vanuatu is such a project and
importantly we are developing a portfolio of diesel
replacement projects in other Pacific locations where we can
transfer the experience, skills and alliances."
The business case is compelling
Vanuatu is located in the Pacific 'ring of fire' and
has surface expressions of conventional geothermal
Nearby expertise in conventional geothermal is readily
available in New Zealand.
Australia has a strong presence in the region.
The model is based around the replacement of diesel
generated electricity which has higher pricing benchmarks
than coal or gas fired power stations. Geothermal power can
be competitively priced and create a domestic security of
Potential demand upside will come from developments
along the recently completed island ring road.
Strong government support for the project.
Vanuatu is a signatory to the Kyoto protocol and
through the Clean Development Mechanism (CDM) may offer KUTh
the potential to access carbon credits (CER's) for the
Vanuatu has a Geothermal Act which provides a
regulatory framework for KUTh to operate within.
The utility (UNELCO - a subsidiary of GDF Suez) has
publicly announced its support for the project.
The company is engaged with multilateral development
banks concerning project financing options through the
Completion of the final government agreements and PPA so
that power off-take and tariff certainty is settled.
The company is seeking expressions of interest from
potential drilling companies and will commence negotiations
in the next quarter to finalise well design, drilling
contracts and timing. Initially the company is undertaking a
surface temperature grid survey at Takara in the north of
Efate to identify the hottest near surface locations as this
will influence the equipment needed and where and how we
drill the first well. This part of the program is being
driven by Dr Fiona Holgate and Hagen Hole (Drilling
The company has commissioned an equity research report on
the World Bank findings to summarise the potential of the
Vanuatu project to KUTh shareholders.
A copy of the Executive Summary of the final World Bank
Report is included on the KUTh website www.kuthenergy.com
The information in this Statement that relates to Geothermal
Resources has been compiled by Mr James Vincent Lawless, a
former employee of Sinclair Knight Merz Ltd. Mr Lawless has
over 20 years' experience in the determination of geothermal
resource capacities relevant to the type of geothermal play
under consideration, has been accepted onto the register of
geothermal resource specialists maintained by AGEG and has
agreed to abide by the associated code of ethics.
Mr Lawless is a Competent Person as defined by the Australian
Code for Reporting of Exploration Results, Geothermal
Resources and Geothermal Reserves (2008 Edition). Mr Lawless
has consented in writing to the public release of this
Statement in the form and context in which it appears.
For more information contact:
David McDonald Managing Director Ph: +61 2 9238 6865