By Hezy Ram
The geothermal saga on the island of Nevis is over seven years old and there is no end in sight. The idea makes a lot of sense: use the natural resource of high temperature steam, which Nevis is blessed with, to reduce dramatically the cost of power to the people on the island. After so many years, every person on the island can reiterate the benefits of weaning off the oil that is used to power plants operated by Nevlec. Nevis now ranks very high when it comes to outrageously high electrical rates and it is this fact that hampers its economy a great deal.
Hezy Ram is an experienced geothermal developer, who has been involved in developing and financing over a dozen of projects in North and Central America. Currently his company, REI is developing a 140 MW plant in Kenya
I was drawn to this project over two years ago and do not have a good understanding why the project was stuck for so many years before I came on board. I would like to share my experience with the public with the hope that the NIA will be motivated to take the right steps to move this project forward finally.
Personally, I was interested in the Nevis geothermal not only because of it’s intrinsic fundamentals such as a good geothermal resource and supportive community. My interest stems from the fact that over 20 years ago (I have been developing geothermal projects over 25 years), I was instrumental in developing a 30 MW geothermal project on the Big Island in Hawaii and witnessed first-hand the positive impact this one project had on the local economy. I was anxious to replicate my experience in developing geothermal projects on remotely located islands.
Getting in, my company REI joined forces with the current developer WIPN and proceeded to line up the team both technically and financially capable to execute this challenging project. Let me assure you that this project is not a “piece of cake’. The people in Nevis know very well that the island lacks serious infrastructure as well as local talent, which means that the project will be extremely expensive and the execution very challenging. So I brought in what I believed to be the A team:
• The technology supplier is a large European corporation which has one of the best geothermal power plant technologies in the world. This supplier also agreed to provide financing from the German Export-Import Bank.
• The contractors include a Central American mechanical/civil one with geothermal and island job experience as well as a US large company to act as the general contractor.
• The engineer is a renowned firm, arguably the best geothermal engineer in our space, being involved in about 1,800 MW of projects worldwide.
• Another member of the team is the world largest O&G service company to help on the resource development.
• Drilling contractor was contracted for the job. A rig was ready nearby to mobilize.
• As financial partners we lined up a special energy fund which agreed to provide some of the development funding (on top of the amounts already invested by my group), and
• The major financial partner, which is part of the World Bank Group, committed to provide the long term debt for the project.
With the team in place, we asked for and were invited to make a presentation to the NIA.
There were in fact two presentations, one to several ministers and another one to the full cabinet. These presentations took place about a year ago and included representatives from all members of our team, both technical and financials. In addition to general presentations, we presented a budget, benefits to the local job market and a timeline for the project. In essence, we were ready to commit to start the drilling back in 2013 and have the first phase of 10 MW online by early 2016. An ambitious plan, but possible as the project was viewed by us as “shovel ready”.
We all know about the legal issues which surrounded the project and especially those related to the original developer – WIPN. Recognizing the complex nature of the issues and the likely potential to delay the project, we devised an elegant way to resolve all the problems by REI willing to assume the obligations/assets of WIPN. We have reached out to all major WIPN’s creditors and convinced them to work with us in order to move this project forward. The lawsuit filed by Renova which was the basis for the NIA (under the previous control) to halt the project from moving forward was also withdrawn.
Thus the basis in our opinion for any claims by the NIA should have been withdrawn as well. We have shared all our information with the NIA and advised them as to the power rate we needed to make it all happen. Let me tell you that our required power rate would have gone a long way towards the 40% reduction in the current price as promised by several politicians. We also offered to prepay some of the royalties due to the NIA.
In summary, with a very good and experienced team in place, money in the bank, we were ready to start, as I indicated, about a year ago. Against our best judgment we agreed to go through another hurdle which was thrown at us in the last moment – a half cooked RFP (Request for Proposal), which came about courtesy of the US government. Most precisely the Office of the Coordinator for International Energy Affairs in the State Department. To make a long story short, more months were wasted in replying to this RFP during which we have supplied over 700 pages (!) of documents.
Then, much to our surprise and due to the recommendation of what we felt were clueless consultants from an accounting firm, our offer was rejected. You all heard the announcement four or five months ago about the “winner” of this process. All I can tell you is that many in the geothermal industry were quite surprised with this outcome as the individuals chosen to lead the effort had no proven recent experience in developing geothermal projects. In fact, two of the three individuals are not and were never members of the Geothermal Resources Council (GRC), which is the industry trade association.
I was really surprised to find out about all their claims and more so as nobody at the NIA or their consultants took the time to check these claims. As one of the private developers of geothermal plants in Kenya, I can state clearly that these individuals have no activity there. And so on and so forth. Assuming that the NIA will realize that this choice might not have been optimal, we advised them that we were keeping our offer active for three more months, but this offer was dismissed of hand as well.
So it seems like we reached a dead end not for the right reasons. If I was a betting man, I would attribute the attitude of the NIA to politics, which we have no control over. And one cannot but speculate that, while the population of Nevis is hurting, there are those who benefit financially from the procurement and shipping of the oil.
Sadly, I am afraid that I cannot be optimistic about the fate of geothermal power on Nevis (and actually St Kitts, as the geothermal resource seems to be quite large). I have no confidence that the other group will be able to pull this one off and when this prediction will become reality, we will all be back to square one. In the meantime, the rest of the Caribbean are doing some things right.
It looks like both Dominica and Montserrat are done with the first stage of drilling and St Lucia and others are not that far behind. The ratepayers on these islands are slated to finally benefit from having geothermal resources on their islands.