Financial evaluation of Chachimbiro geothermal project in Ecuador

Abstract

In recent years, the Government of Ecuador has been implementing changes to the energy matrix, as oil consumption represents 76% of total energy use in the country. Hydropower is the second largest source of energy and only a small percentage can be attributed to other forms of renewable energy. Ecuador currently produces 89.16% of its electricity from hydropower, 9.86% from thermal sources which implies more fuel usage and 0.95% from non-conventional sources, which includes energy such as solar, wind and biomass. In spite of the fact that around 90% of generated electricity is derived from renewables, there is a need to introduce an uninterrupted, or base load source of, energy such as geothermal, which is classified as a green energy source and would decrease the dependence on thermoelectric plants in the country. In this study, a financial evaluation of the Chachimbiro geothermal project is carried out, being the first geothermal project to be developed in Ecuador. The project is managed, controlled and supervised by the government company CELEC EP. The study describes and analyses the costs, investment, market, prices, installed capacity, generation, conditions and a loan agreement which must be obtained to develop the project. The project requires a total investment of 107 Million USD and includes two phases: (1) field study phase, this includes the drilling of 5 wells of which 4 are production wells and one a re-injection well, additionally there will be a wellhead of 5 MW; and (2) the construction phase that focuses on the construction of a 25 MW geothermal plant. In order to determine the financial profitability of the project, financial tools such as the Net Present Value and the Internal Rate of Return were applied, the discount rate was established through the calculation of the weighted average cost of capital and finally the main results were obtained. These results show that the project is feasible.