Currently Djibouti relies mostly on fossil fuels and some hydropower imports from Ethiopia. The majority of the country’s current generation capacity is situated in Djibouti City. The existing power stations are old, polluting and expensive to operate. In addition, fuel imports are expensive and require important foreign-currency expenditure.
As a consequence, only half the population of the country has access to electricity due to high tariffs. Djibouti is however blessed with substantial geothermal potential, capable of meeting the country’s energy needs and possibly exports to neighboring countries, while reduce CO2 emissions from thermal electricity generation.
The geothermal exploration project in the Lake Assal region is structured as Public Private Partnership, where the government of Djibouti is taking the lead on the first exploration and appraisal drilling phase. The private sector will be responsible for the production drilling, steam gathering system and electricity production and evacuation to the national grid.
In collaboration with the World Bank, the African Development Bank Group has structured the financing of this project. The first phase will cost approximately US$ 32 million. The AfDB Board approved a USD 7.5 million financing from the African Development Fund and the Sustainable Energy Fund for Africa (SEFA), a Danish funded initiative implemented by the AfDB.
The AfDB and the World Bank have jointly mobilized different donors to co-finance the project: the Global Environment Facility (GEF), OPEC Fund for International Development (OFID), Agence Française de Développement (AFD) and the Global Geothermal Development Plan (GGDP) through Energy Sector Management Assistance Program (ESMAP).
The AfDB alone has mobilized from its own resources: USD 5.31 million grant from the African Development Fund (ADF), USD 0.4 million loan from the African Development Fund (ADF), and (iii) USD 1.8 million from SEFA. The government of Djibouti will also make a contribution.
The contribution from the AfDB and SEFA will be used to continue to raise more financing and will serve as a catalyst to rally independent geothermal electricity producers. Specifically, SEFA funds will finance the recruitment of a geothermal consulting company that will be responsible for the technical management of the project and for preparing the power plant’s feasibility study.
Through this intervention, SEFA will play a catalytic role by supporting the structuring of a bankable project that will ultimately leverage private investment and deliver a sustainable energy solution with strong economic, environment and social returns.
The current project seeks to replicate the innovative model adopted in Kenya where the AfDB approved in 2011, the Menengai Geothermal Development Project. For this project concessional funds were provided by development financing institutions, such as the AfDB and the Climate Investment Funds (CIF) hosted by the AfDB, to finance the drilling exploratory phase of the project.
Drawing from the Menengai experience and tapping into the East African Rift valley geothermal potential (http://www.afdb.org/en/news-and-events/article/afdb-poised-to-boost-geothermal-development-in-east-africa-10265), the AfDB has also been working on a series of small-scale geothermal units, adapted to the specific context of each country. In Ethiopia, the AfDB is playing a leading role in defining a geothermal roadmap. In Tanzania, it is leading the Scaling Up Renewable Energy Program which includes the financing of a geothermal development project. In the Comoros, the AfDB is also working to develop a 20 MW geothermal plant matching the needs of the archipelago.