30 October 2013, Addis Ababa – The Ethiopian Electric Power Corporation (EEPCO) is to pay 630.7 million dollars a year to Reykjavik Geothermal (RG), once the latter completes its 1,000MW geothermal project near Shashemene, 240km south of Addis Ababa.
After negotiations that spanned 18 months, the two parties signed a Power Purchasing Agreement (PPA) recently at Sheraton Addis. The agreement calls for a tariff of 0.079 dollars a kWh for the first 500MW of the project, and 0.065 dollars a kWh for the second phase, which accounts for the remaining 500MW.
The purchasing agreement was signed by Mihiret Debebe, chief executive officer of EEPCO, Gudmundur Thoroddsson, CEO of RG, and Nejib Aba Biya, co-founder of RG. Also in attendance were Debretsion Gebremichael, minister of Communication & Information Technology and deputy prime minister heading the economic and finance cluster, Sinknesh Ejigu, mining minister, as well as Patricia Haslach, the newly appointed US ambassador to Ethiopia.
As part of the 25-year agreement, for a year and half, Reykjavik will generate 20MW, according to the PPA. Details will be clearly defined in the supplemental agreements to be signed within the coming three months, according to Mihiret. By 2016, the capacity is projected to be 100MW and reach 500MW by 2020, completing the first phase of the project.
The power plant is to be constructed at Corbetti Caldera – a volcanic mountain in Ethiopia’s Rift Valley at a total cost of four billion dollars.
The deal is crucial to the government’s effort to diversify from hydropower and wind energy to geothermal, according to an engineer who has been working closely in the industry.
The US-Icelandic company, on the other hand, is more concerned with potential delays at customs, according to Nejib. “We understand the first phase will be particularly risky,” he told Fortune. Financing for the overall project will come from equity financing, accounting for 25pc of the total, while the rest will be through debt financing, Nejib disclosed.
The American Capital Corporation (ACC) – one of the largest independent mortgage brokers in California – could provide up to 200 million dollars. “We are on the right track with them,” said Nejib.
– Addis Fortune