Turning Up the Heat on Geothermal Energy Development in Latin America
As climate change and energy crises grip the globe, countries have started prioritizing energy sources that are renewable and indigenous. Geothermal energy, where available, can provide renewable power that is not subject to weather conditions or international fuel price fluctuations. With many countries on the Ring of Fire, Latin America is positioned to use geothermal energy to decarbonize the electricity grid, heat and cool buildings, and support industrial processes, among many other applications. Despite this potential, geothermal energy currently only accounts for a small portion of the region’s overall energy mix. For countries of Latin America to fully take advantage of this resource, they will need to make significant investments, raise awareness, create appropriate regulations and policies, partner with industries and local stakeholders, and develop human capital.
Geothermal energy is a renewable and inextinguishable source of energy. Geothermal energy comes from the heat that was generated during the planet’s formation, and it is constantly renewed by the decay of naturally occurring radioactive elements deep underground. This thermal energy is stored in rocks and fluids and brought as steam to the planet’s surface using deep wells. The steam drives turbines, which in turn drive electricity generators. The heat that creates this steam will remain available for billions of years. Some geothermal sites may lose their heat after 30 to 50 years of use, but unlike fossil fuels, it is nearly impossible to use all of the Earth’s geothermal resources.
Like other renewable resources, such as solar and wind, modern geothermal power plants have insignificant greenhouse gas (GHG) emissions compared to fossil systems. This makes geothermal an important energy source as the world commits to lowering its emissions to combat climate change. Not only does geothermal energy use have insignificant GHG emissions, but its life-cycle emissions can also be lower than other energy technologies on a lifetime kWh output basis. For example, geothermal energy has life-cycle emissions six to twenty times lower than natural gas and four times lower than solar photovoltaic (PV) energy due to the materials used to construct the plants.
Latin America has a wealth of geothermal energy resources that could be used for clean energy, decarbonizing industrial processes, and energy security. According to an Inter-American Development Bank (IDB) report, the Latin America and the Caribbean (LAC) region has a geothermal potential between 5,500 MW and 7,000 MW. Of that, only around 1,700 MW have been developed, mostly in Mexico, Costa Rica, El Salvador, Nicaragua, Chile, and Guatemala. Among the projects listed in the report, the vast majority of the operating capacity (1,400 MW) was developed by the public sector, with only 250 MW developed by the private sector and 50 MW developed by a combination of the two.
Several obstacles have prevented the countries in the region from fully developing their geothermal potential. Geothermal exploration is commercially risky and expensive. Developers have to drill multiple exploration wells before finding a reliable geothermal resource, and sometimes they do not find one at all. Private investors usually cannot mitigate and manage this risk independently and need government or development financial support. Furthermore, governments generally do not have regulations and policies that enable geothermal projects to be bankable or to successfully go through the permitting process. Lastly, a lack of knowledge about the benefits of geothermal energy among government officials and citizens can result in apathy or opposition to proposed geothermal projects. This brief focuses specifically on Costa Rica, El Salvador, and Peru—three countries with strong geothermal potential but differing levels of geothermal development.
Global Financing Support
Multilateral and bilateral finance institutions—such as the IDB, the World Bank, the Japan International Cooperation Agency (JICA), the German Agency for International Cooperation (GIZ), the Credit Institute for Reconstruction (KFW), and others—are ready to finance geothermal projects in Latin America. The IDB, World Bank, GIZ, and JICA offer concessional loans to government-led geothermal exploration and production projects. For example, in Costa Rica, JICA is financing around 50 percent of the cost to develop two new geothermal power plants at Borinquen.
IDB Invest and other avenues of direct foreign investment (DFIs) offer commercial loans to privately led geothermal production projects. For example, the Clean Technology Fund offered a contingency grant to Cerro Pabellón—the first privately operated geothermal power plant in South America—for $30 million to finance the exploratory works of the project. In addition, the loan would have been converted to a grant if adequate geothermal resources were not found. This project was developed by a joint venture between Enel Green Power Chile and Empresa Nacional del Petroleo (ENAP).
Another important fund offering support to both governments and the private sector is the Geothermal Development Fund Latin America (GDF). The GDF offers financial support in mitigating geothermal exploration risk. It is a multi-donor facility launched in 2014 that is set to provide at least $75 million in grant-based risk mitigation instruments and $1 billion in financing to geothermal projects in Latin America. The Risk Mitigation Fund offers contingency grants for up to 40 percent of the cost of exploration drilling; if the exploration is successful then the project developers must repay 80 percent of the funds received, and if not, there is no financial commitment. It also offers grants for surface studies, which finance up to 40 percent of the cost to a maximum of €600,000. To date, the GDF has issued 17 grants for surface studies, one of which was to the Peruvian subsidiary of the Philippine-owned Energy Development Corporation (EDC Peru), and 10 concessionary grants for confirmation drilling.
Why Geothermal Energy?
Many benefits come from developing Latin America’s abundant geothermal resources, including stable, decarbonized, and indigenous electricity and heating; improved economic opportunities; and energy security. This section will discuss geothermal’s added value over other technologies, the ability to use geothermal heat for building heating and industrial processes, and the positive impacts it can have to both the global community and local communities.
Added Value of Geothermal-Generated Electricity
Geothermal energy reduces reliance on imported fossil fuels and provides price stability. The Russian invasion of Ukraine increased crude oil and natural gas prices worldwide. In Latin America, the resulting surge in energy costs put pressure on households’ disposable income. For instance, the average net income decreased by 2 percent of GDP in fossil-fuel poor Central America and the Caribbean (except Trinidad and Tobago). Also, to mitigate the impact of price fluctuations, governments have instituted short-term policies like limiting price hikes in Brazil, cutting taxes in El Salvador, and increasing fuel subsidies in Mexico; ultimately, all of these cut into social spending budgets.
Geothermal offers additional benefits when compared to other renewable energy sources. While geothermal, wind, and PV can all provide zero-carbon electricity generation, geothermal plants are compact and can provide dispatchable power for baseload generation. Geothermal power plants can provide more electricity generation with less space because they have higher capacity factors—89 to 97 percent, compared to 26 to 40 percent for wind and 22 to 32 percent for solar PV.
Solar PV and wind plants are variable renewable energy (VRE) and need the sun shining or the wind blowing to produce electricity. VRE sources can create fluctuations in the grid that need to be managed by energy storage systems or complemented by dispatchable power plants that can control power output on demand. Geothermal power plants are one of the few dispatchable zero-carbon options. Large capacities of solar PV and wind would have to be built with large battery storage at great expense to provide the same around-the-clock power as geothermal.
In addition to electricity generation, geothermal heat can have direct-use applications, such as heating and cooling buildings, greenhouses, and other industrial applications. Direct use requires lower-temperature geothermal resources than those used for electricity generation.
The most common direct use of geothermal energy is building heating through geothermal heat pumps or district heating systems. For example, the Peppermill Hotel and Casino in Reno, Nevada, has a geothermal well in its parking lot that takes up about the equivalent of one parking spot and delivers 1 MW of heat via a heat pump. It replaced four gas-burning water heaters and saves $2.2 million in fuel costs annually. Building heating applications can also be used for greenhouse heating and horticulture to provide humidity control in hot regions, for example, for growing roses in Kenya. Another example of direct use is geothermally heated spas, which can attract tourism and are already prevalent in Costa Rica and El Salvador. Geothermal can also be used in cooling and freezing applications with absorption technology. For example, in Chena Hot Springs, Alaska, geothermal powers the cooling for an ice museum. Direct use also includes industrial applications, such as fruit and vegetable drying, aquaculture soft drink carbonation, food processing, and many others.
Green hydrogen—hydrogen produced by electrolysis powered by renewable energy—is an important component for decarbonizing the production of ammonia, fertilizers, and other chemicals as well as for the creation of synthetic fuels that could replace bunker fuel and other fuels for hard-to-electrify segments of transportation. Geothermal energy is well positioned to create cost-effective green hydrogen since it can provide 24-hour electricity to an electrolyzer. Green hydrogen can also allow for the “export” of geothermal energy as a commodity in the form of hydrogen, ammonia, e-methanol, or other e-fuel. New Zealand recently completed the Halcyon Project, which is a green hydrogen plant powered by geothermal power.
Another important direct-use application of geothermal energy relevant to Latin America is in the mining industry. Remote mines can benefit from the ability to produce zero-carbon electricity to power their operations—like the Lihir Gold Mine in Papua New Guinea, which gets 75 percent of its power needs from geothermal energy. Geothermal energy can also be used to dry mined materials and heat buildings and other structures. There is also emerging technology to generate geothermal energy by pumping hot geothermal brine to the surface and converting it to gas to power a turbine. This brine can also yield lithium—an important element in batteries used for electric vehicles and energy storage for renewables. This process of mining lithium would have a much smaller footprint, be less water intensive, and be less likely to leak toxic chemicals into the environment than traditional lithium mining in salt deserts and open pits. Another synergy between mining and geothermal is that the data collected by the mining industry for mineral exploration could also be useful for identifying and developing geothermal resources—particularly in abandoned mines—which could result in significant cost savings. While there has been much discussion of the synergies between geothermal and mining, few operational projects exist.
Positive Global and Local Impact
In 2015, the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21) launched the Global Geothermal Alliance (GGA) as a coalition for action to increase the use of geothermal energy. The GGA has 50 members, including Costa Rica, El Salvador, and Peru. Costa Rica is aiming for a decarbonized economy with net-zero emissions by 2050; El Salvador has set a target of 640 kilotons of CO2-equivalent annual emissions reduction from fossil fuel burning activities by 2030; and Peru has committed to reducing GHG emissions by 30–40 percent by 2030.
Geothermal development can also positively impact the lives of people in the region and local economy by creating high-paying jobs, tax revenues, social development initiatives, and increased electricity access in rural areas. The geothermal industry provides a wide range of employment opportunities, including construction and drilling equipment operators, excavators, surveyors, architects, geologists, hydrologists, and many others. Due to the location of many geothermal resources, many of the jobs created are in rural areas. Geothermal energy creates more indirect employment than any other type of renewable energy—about 34 jobs per MW installed. For wind, 19 jobs are created per MW, and 12 jobs are created per MW of solar PV.
Like other power projects, geothermal power plants make expenditures for local, provincial, and federal taxes and royalties and can increase tax revenues for governments. Other local benefits of geothermal energy include social development initiatives made voluntarily by the geothermal company. For example, the Philippine National Oil Company – Energy Development Corporation gives 40 percent of its geothermal profits net of taxes to the municipalities hosting the geothermal resources and to a local development fund.
Challenges to Geothermal Energy Development
Developing geothermal in Latin America has been discussed for decades. However, only 5 percent of the region’s geothermal resources have been developed. Development challenges include high exploration costs with uncertain returns, lack of enabling policies and regulations, and lack of knowledge about geothermal energy’s benefits. Furthermore, individual geothermal projects may face opposition from local communities due to potential negative environmental and social impacts, including noise pollution, increased seismicity, aesthetics of released steam, and impact on local cultures and Indigenous peoples.
Geothermal Exploration Risk and Development Costs
Like oil and gas, geothermal energy is an underground resource that requires tens of millions of dollars in exploration investments without certainty that these will yield a return. Unlike oil and gas, however, geothermal energy does not have a well-funded and diversified group of private players that have the financial muscle and technical expertise to bear the geothermal exploration risk. According to the World Bank, an exploration campaign and initial test drilling program of three to five geothermal exploration wells could cost $20 to $30 million. This is a significant investment with a high risk of not yielding any return. In contrast, it takes only $15,000 to $50,000 to conduct a wind resource assessment to develop a wind farm.
In addition to the investment needed to construct the plant, geothermal development involves drilling exploration wells, production wells, injection wells, and test wells, as well as steam-field development. These elements result in a much higher installed cost for a geothermal power plant than a similarly sized wind or solar plant. According to the U.S. Energy Information Administration (EIA), the capital expenditures (CAPEX) for geothermal plants is $3,076 per kW (excluding exploration wells), compared to only $1,718 per kW for wind and $1,327 per kW for solar PV. However, since geothermal power plants have a significantly higher capacity factor than wind and solar PV, each technology’s levelized cost of electricity (LCOE, in $/MWh) is relatively similar. For example, the EIA reports that the average capacity factors in the United States are 90 percent for geothermal, 43 percent for wind, and 29 percent for solar PV. A 50 MW geothermal, wind, or solar PV power plant with these capacity factors and EIA’s CAPEX estimates would all have an LCOE of around $60 per MWh. If the geothermal exploration cost was included in the LCOE calculation, however, geothermal’s LCOE would be higher than those for wind and solar PV. With a higher LCOE, geothermal would lose against solar and wind when competing for a power purchase agreement in a renewable energy auction.
On the other hand, geothermal electricity would be competitive with wind and solar PV if geothermal’s “added” value—24/7 baseload power—was considered when comparing it to intermittent wind and solar PV technologies. If wind or solar power were expected to provide the same kWh per year as a 50 MW geothermal power plant, wind and solar PV’s LCOE would increase by over five times, to $330 per MWh, compared to geothermal’s $60 per MWh, making geothermal more competitive with wind and solar. Since wind has a significantly lower capacity factor, 113 MW of wind turbines would need to be built with 1.7 GW of battery storage. Similarly, for solar to generate the same MWh as 50 MW of geothermal, 533 MW of solar PV panels would need to be built with 1.4 GW of battery storage.
Lack of Government Support
In many Latin American countries, there is an absence of the supporting policies, regulations, and government permit systems that would allow for the timely approval of geothermal projects. This support could include funding the exploration costs for geothermal projects, as was done in Costa Rica and El Salvador.
In no Latin American country is there a policy, request for proposals, auction, or feed-in tariff structure that meaningfully differentiates intermittent power from firm power and assigns a value to the provision of baseload dispatchable power. This discourages geothermal investments in countries with abundant geothermal resources, and in the long term it could lead to challenges for grid stability. Turkey is an example of a country where geothermal’s added value has been recognized. The Renewable Energy Resources Support Mechanism provides a differentiated tariff for geothermal energy that has been credited with the growth of Turkey’s geothermal sector. The feed-in tariff for geothermal was $0.105/kWh plus a “made-in-Turkey” bonus of up to $0.027/kWh for a total maximum tariff of $0.132/kWh. The tariffs for hydro and wind were only $0.073/kWh and those for solar and biomass were $0.13/kWh. The feed-in tariff helped guarantee companies a purchase price for the energy they generated at a fixed rate high enough to generate a return for 10 years.
Government support for geothermal projects may also be lacking due to the fact that geothermal projects have a life of 30 or more years but may take up to 10 years to develop. Hence, geothermal projects are often not the most attractive for politicians to promote on a campaign trail or promise to constituents. Lack of continuity in geothermal policies between administrations discourages investment in geothermal projects.
Lack of Knowledge
Most people in Latin America do not know what geothermal energy is and why it is in the public’s interest to develop geothermal resources. One reason there is a lack of geothermal knowledge is that it can be difficult to understand where potential geothermal resources are located. Additionally, there are the publicly available Global Wind Atlas and Global Solar Atlas, which show the quality of the wind or solar resources on land and offshore (for wind) around the world, but no such resource exists for geothermal.
Countries that do not have developed geothermal projects lack resources and an understanding of geothermal in their ministries of energy. This is also true in academia, where there is a dearth of degrees or training programs on geothermal energy. As a result, these countries also lack in-country technical geothermal expertise and must hire foreigners for the development of any geothermal project. Industries that would benefit from direct-use applications could be the biggest advocates for geothermal energy in a country, but not if they are unaware of its existence. With little support or understanding of geothermal in the government, academia, or private sector, it is hard for local communities to understand or trust any geothermal development near them. Communities that do not understand geothermal energy and its potential benefits are more likely to block potential projects.
Costa Rica is known for being at the forefront of renewable energy production in Latin America, with geothermal being part of its clean energy mix. In May 2019, Costa Rica produced 99.99 percent of its electricity from renewable sources. From 2010 to 2021, Costa Rica attracted $2 billion in investment for new-build clean energy, with $0.5 billion of that for geothermal projects. Geothermal energy provides 14 percent of the total electricity generation in the country, despite the fact that it only makes up 7 percent of the installed capacity. Costa Rica’s geothermal power potential is estimated to be around 875 MW. So far, state power company Instituto Costarricense de Electricidad (ICE) has developed a total of 262 MW of geothermal power, located at Miravalles (165 MW) and Las Pailas (97 MW).
Currently, Costa Rica is developing two geothermal power plants, Borinquen I and II. Borinquen I (55 MW) is expected to require a $449 million investment ($8,171/kW) in exploration and production costs. The project is expected to be commissioned in 2027. Borinquen II is at an earlier stage of development, is expected to require a $388 million investment ($7,062/kW), and will be commissioned by 2030. Costa Rica can be considered a leader for geothermal energy in the region, with the largest geothermal installed capacity in Central America and the second largest in Latin America after Mexico. However, geothermal energy development in the country is slowing due to stagnating electricity demand. While plans to build geothermal are slowing in the near to medium term, it will continue to be a vital part of Costa Rica’s generation mix with a changing climate.
An Example for the Region with Slowing Demand
Since Costa Rica already produces nearly 100 percent of its electricity from renewable energy, plans to build more generating capacity of any type have slowed. Due to stagnant electricity demand, ICE has announced it will not pursue any new power generation project until 2027, excluding those already in development. However, once it does, ICE will prefer geothermal projects that are able to provide firm power at competitive prices, including expansions of existing geothermal fields. Since there is no domestic demand for additional electricity in the short to medium term, Costa Rica could consider alternatives to developing that capacity for local electricity demand.
One option to develop the remaining accessible geothermal capacity is to export electricity to neighbors like Nicaragua and Honduras, which rely more on fossil fuels than Costa Rica does. Through the Central American Electrical Interconnection System (SIEPAC), Costa Rica’s grid is already connected to Panama, Honduras, Nicaragua, and El Salvador. If the domestic power requirement grows in the future, this option has the additional benefit of using new power plants to meet domestic needs.
Another option for Costa Rica’s available geothermal capacity is to develop it further for direct-use applications. In general, there are few examples of direct-use applications in Costa Rica, mostly at individual pools, spas, and hotels. One obstacle to developing direct heat is that Costa Rica lacks a national regulatory framework that permits direct use. Recently, a pilot project was announced for the implementation of geothermal heat pumps in the agri-food sector to replace conventional refrigeration powered by fossil fuels. This project would provide an example and help encourage further direct-use projects in the country.
Lastly, Costa Rica’s geothermal potential could be developed for new uses, such as lithium mining or green hydrogen production. Other countries are exploring these new uses, with the United States researching geothermal lithium mining to reduce reliance on imported lithium and Eastern Caribbean countries looking at creating green hydrogen and ammonia for export. Geothermal projects in the Eastern Caribbean are relatively small owing to the limited electricity demand of individual islands and island nations. However, the installed power generation capacity of some of the geothermal resources—as estimated or proven by drilling—are significantly greater than the local demand. This situation provides opportunities to use the excess power in creative ways to promote the energy transition that is underway today; for example, exporting the excess geothermal power to nearby islands, or using it for electrolysis to produce green hydrogen. As part of the Sustainable Energy Facility (SEF) for the Eastern Caribbean, the Caribbean Development Bank (CDB) and the Inter-American Development Bank (IDB) are supporting an investigation into whether the excess geothermal energy can be used for the production of green hydrogen at a competitive price in comparison to direct export of geothermal-based electricity via subsea transmission lines.
El Salvador, commonly called the Land of Volcanoes, has a long history of using geothermal energy for power generation. Geothermal exploration in El Salvador started in the 1960s under the technical cooperation of the United Nations, and the first 30 MW unit was installed in 1975 with a resource capacity estimated at 644 MW. Since then, El Salvador has developed 204 MW of geothermal power. The two existing plants are in Ahuachapán (95 MW) and Berlin (109 MW), both owned and operated by LaGeo, a state-owned company and a subsidiary of the Hydroelectric Commission of Lempa River (CEL). The two plants meet 25 percent of the electricity consumption needs in El Salvador.
El Salvador’s previous geothermal development has relied almost entirely on government funds, but development has slowed due to a growing fiscal deficit. Currently, El Salvador is developing two geothermal fields, one in San Vicente (10 MW) and one in Chinameca (25 MW). Both projects will be developed through a BOT (build-operate-transfer) model, where the plant is built and operated for a period by a private entity until its ownership is transferred over to the government. In these BOT contracts, LaGeo is responsible for extracting the steam and the BOT contractor will be responsible for building and operating the power plant that converts the steam into electricity. Under this arrangement, the private contractor bears none of the exploration or resource risk. The international tender for these projects was launched in 2022.
Historic Geothermal Producer Hoping to Attract Private Investment
The BOT structure being used to develop San Vicente and Chinameca is a good approach, both for attracting private investment by reducing the exploration risk and for lessening the amount of capital the government needs to spend to develop a geothermal power plant. Successful and bankable BOT contracts for geothermal tend to have the following characteristics: (1) the power purchase agreement (PPA) term is 20 years or greater; (2) there is an effective system to consult with and provide benefits to affected communities as well as address concerns, such as water issues; (3) there are DFI-backed guarantees on price and political risk; and (4) priority of dispatch over other technologies with low marginal costs like wind, solar, and hydro is ensured or there is a guarantee of minimum dispatch from the power plant.
El Salvador has held auctions for renewable energy generation, but the government did not include geothermal in the scope. If geothermal projects were to compete in the same auctions as solar and wind, they would struggle to win contracts based on cost per kWh alone. For example, in the distribution utility DELSUR’s 2016 renewable energy auction for the procurement of 170 MW, solar PV projects were allocated 120 MW with an average price of $55.33/MWh, and only one wind project of 50 MW was awarded a PPA with a price of $98.78/MWh. In this case, wind was less competitive than solar, and geothermal would have been even more expensive with its high exploration costs. To address this disadvantage, El Salvador could investigate ways for geothermal projects to compete equally with other renewable energy technologies in future auctions. This could be done by adjusting the parameters of the auction scheme and considering the added value that geothermal energy could bring to the grid, like complementing generation from VRE sources and adding to system flexibility or by launching geothermal-specific tenders as is being done with the BOT contracts.
Additionally, the current regulatory framework focuses primarily on power generation, leaving out other potential uses for geothermal, such as direct heat. To improve this, El Salvador could classify geothermal resources by temperature and streamline procedures established for the different types of use. A clear regulatory framework for direct use would attract more investment and leverage private financing for direct-use projects, increasing the opportunities to develop El Salvador’s geothermal resources. More direct use of geothermal heat could lead to a more sustainable energy future for El Salvador and less dependence on fossil fuels.
Finally, El Salvador is trying to raise funds for geothermal development through Bitcoin-backed Volcano Bonds. Of the money raised from the bond sale, half will be converted into Bitcoin and the other half will be used to construct infrastructure, like geothermal power. This plan has been criticized by the International Monetary Fund (IMF) and credit ratings agencies, since the nation’s existing bonds are trading at a steep discount due to investor concerns of default. To fund more geothermal, El Salvador can make regulations more favorable for private investment while it also experiments with untested Volcano Bonds.
The use of geothermal in Peru dates back to the pre-Inca and Inca periods, when the hot springs in Cajamarca were used for healing and worship. Peru’s geothermal resources remain largely unexploited. There is an estimated 2,860 MW of geothermal resources throughout Peru’s highlands, particularly in the south, where there are active volcanoes. Geothermal energy could be a great boon to Peru, which produces 36 percent of its electricity from fossil fuels and 58 percent from hydropower. In 2011, the Ministry of Energy and Mines (MINEM) asked JICA to create a masterplan for using geothermal energy in the country. JICA surveyed 61 potential sites for geothermal power all over the country, and out of these sites, 13 were found to have a substantial amount of power-generating capacity, totaling 735 MW. MINEM received requests to explore 40 of the sites further and approved 14 for surface exploration. However, none of the sites have progressed beyond the surface exploration phase in the past seven years.
No geothermal energy projects have been built in Peru, and only a few international investors are interested in the Peruvian geothermal market. The only projects currently being considered are from a Peruvian subsidiary of the Philippine-owned Energy Development Corporation (EDC). The EDC has conducted surface studies in Peru with environmental studies funded in part by a grant from the GDF. The EDC has invested $15 million in several geothermal fields where it has a commercial interest. It plans to invest over $1 billion in two 100 MW plants, one at Achumani in Arequipa and the other at Quello Apacheta in Moquegua. However, the EDC lost its social permit in Achumani and there are no current social activities in Quello Apacheta. The EDC’s projects do not yet have a social license, and the local communities and governments are not fully on board. As a result, the EDC has not reported any new geothermal development activities to the authorities since 2015.
Land of Great Potential, but No Projects
One of Peru’s greatest challenges to developing the geothermal industry is that there is not yet an operational project in the country to use as an example for other potential projects. As a result, authorities are still unaware of the positive externalities that could be generated by the geothermal industry to benefit both the electrical system and the local economy. Currently, 80 percent of electricity generation in Peru is in the center of the country, causing the northern and southern regions to lose economic competitiveness by not having local, cost-competitive, and reliable sources of electricity. Locating geothermal power generation in the southern region where abundant geothermal resources exist could help encourage more businesses and industries to locate there. The lack of projects in Peru also means that there is limited local experience in geothermal plant construction, operation, and legal framework.
Currently, the only direct-use geothermal applications in Peru are for thermal spas. Direct-use applications are typically smaller in size, can take less time to develop, require lower temperature resources (which are more widely available), and require smaller investments. A direct-use project to process, dry, or heat minerals or food could help the industry understand geothermal energy’s benefits. While Peru has a law regulating the production of electricity from geothermal, it does not regulate the use of geothermal heat. A clear regulatory framework for the direct use of geothermal heat would help attract private investment. Direct-use projects, once implemented, could also help bring awareness of the benefits of geothermal to industry, local communities, and governments.
Unlike Costa Rica and El Salvador, where state-owned companies developed the existing geothermal projects, the Peruvian government has not funded any. While laws regulating power generation from geothermal sources exist from 1997 and 2010, no private investors other than the EDC have tried to develop projects in Peru. Like El Salvador, Peru provides incentives to private energy producers, such as a fixed PPA price established through public renewable energy auctions, but the government has not held any renewable energy auctions in recent years. To encourage the development of geothermal projects, steps could be taken to start holding renewable energy auctions again. Geothermal-only auctions would be important to avoid competing with solar and wind on a $/MWh basis and to account for the added benefits of reliability and stability from geothermal power.
Unfortunately, Peru is currently in political turmoil. It is on its seventh president in as many years, many of whom have been embroiled in probes and controversy. This rapid change in leadership makes it difficult for a government to focus on long-term projects such as geothermal, hold renewable energy auctions, or institute consistent policies on geothermal development and regulation. Political instability also makes Peru a riskier place for investment, thereby making geothermal development difficult in the near future. In the meantime, progress could be made with smaller direct-use projects and geothermal educational and training opportunities to help everyone, regardless of political view, be aware of the benefits geothermal could provide to their community and country.
What Comes Next
Seize the Moment. The geothermal potential of Latin America has not been fully tapped despite decades of research and discussion. However, there have recently been signs that governments, investors, and everyday people are increasingly interested in geothermal energy in Latin America. In addition, around the globe there is more climate change awareness, environmental consciousness, and understanding that the transition to a low-carbon energy system needs to happen. Attention has also been drawn to indigenous energy resources, like geothermal, against the backdrop of oil and gas price spikes and volatilities due to the war in Ukraine and supply chain issues. Geothermal producers, as well as its supporters, should capitalize on the increased attention and make a concerted effort to inform policymakers and the public about the benefits and potential of geothermal energy.
Regional Cooperation. As seen in the examples of Costa Rica, El Salvador, and Peru, countries in Latin America are at different stages regarding geothermal development. DFIs and regional organizations such as the Central American Integration System (SICA) can facilitate knowledge sharing between member states. Development agencies, multilateral institutions, climate advocates, and academics are uniquely positioned to aggregate and disseminate regional geothermal learnings, foster capacity-building and regulatory solutions, and encourage coordinated regional action.
Geothermal Atlas. Development and multilateral agencies could enable geothermal development in Latin America by compiling geothermal resource maps. Publicly available maps like those for wind and solar would make geothermal information more readily available to potential developers, local governments, and communities. A regional geothermal atlas would be more difficult to create than the global solar and wind atlases, which relied primarily on satellite data. However, existing geothermal masterplans could serve as valuable template or as a starting point.
Mitigate Exploration Risk. The high risk and cost of developing geothermal power capacity in Latin America pose barriers to raising capital, advancing exploration, and completing projects. DFIs already support the development of the geothermal sector in Latin America by investing specifically in the exploration phase of geothermal projects like it was done in Cerro Pabellón. While this support has been helpful in supporting Latin American geothermal developments, DFIs such as the U.S. International Development Finance Corporation (DFC) could increase their reach and impact by increasing the volume of funding and dissemination of information about the funds.
Improved Government Support. To fully take advantage of the benefits of geothermal energy, governments should institute policies and frameworks that allow geothermal to compete with other energy sources, particularly variable renewable energy. Since geothermal has high exploratory risks, governments could consider funding the exploration phase of geothermal projects to help attract private investment in the production phase of geothermal power plants. For countries with renewable energy auctions, price evaluation parameters could be adjusted to account for the additional value geothermal brings to a grid by being a dispatchable, reliable resource; or geothermal-specific tenders could be launched.
Increased Direct-Use Applications. Direct-use projects can help continue growth in the geothermal industry in countries with more mature geothermal power sectors, such as Costa Rica. Direct use could also attract more private investment to the geothermal sector in countries like El Salvador and be a more accessible entry point to creating a geothermal industry in countries like Peru. Governments can encourage more direct-use projects by establishing regulatory frameworks for geothermal heat. Development agencies can encourage direct-use development in Latin America with facilities such as GIZ’s project with SICA to improve the industrial use of geothermal heat in Central America. The project supports the adaption of legal frameworks for the direct use of geothermal energy, promotes the development of pilot and demonstration projects, and strengthens cooperation in geothermal energy in SICA member states.
Partnering with Industries. Working with industries that could benefit from geothermal-generated electricity or use direct-use applications of geothermal heat can help increase interest and momentum behind geothermal development. The mining industry, for example, has many synergies with geothermal energy, from remote power generation to mineral drying to lithium extraction. Once industries understand that geothermal energy could help improve their bottom line and reduce GHG emissions, they will likely become advocates for the technology. It may not be appropriate to partner with the mining industry in every country, but there are certainly opportunities and synergies to explore. The private sector could also become an ally in advocating for more projects and clear regulatory frameworks.
Investment in the Future. Increased geothermal development will require technicians, operators, and engineers with specialized training and certifications. There are already training programs like the “Diploma of Advanced Studies in Geothermal” created by EDC Peru and the Peruvian College of Engineers. Additionally, continued outreach to government officials and local communities can help spread understanding of the benefits of geothermal and assuage fears about environmental damage, water usage, exploitation without giving back to the local community, and other concerns. Development and multilateral agencies can encourage the next generation of geothermal technicians, advocates, and community leaders by continuing to conduct and fund geothermal training programs and community outreach sessions.
Ryan C. Berg is the director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Juliana Rubio is the program manager of the CSIS Americas Program. Kathleen Cohen is the manager for strategic services at K&M Advisors. Alfonso Guzman is the president of K&M Advisors.
The authors would like to thank Jane Nakano, senior fellow with the CSIS Energy and Security and Climate Change Program, and Victor M. Vargas Rodríguez, independent geothermal consultant, for their technical input and support.
This project was made possible with support from the Japan International Cooperation Agency (JICA). The CSIS Americas Program is grateful to JICA for its support.
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