'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

'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
transmission path
transmission reach
transmission reach
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 island.
Figure 2: KUTh Inferred Resource targets A, B & C. Figure 3: 60 degree ground temperature near to
Target C

Vanuatu Geothermal Resources (100% KUTh)



Inferred Resource (PJth) Recoverable energy

Estimated Median Power

Potential (MWe for 30 years)

Target A










Target B










Target C










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 Report

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 Vanuatu.
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 potential.

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 supply.

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 proposed project.

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 development chain.

Next Steps

• 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 Engineer).
• 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

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

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