Hi Midas,Not enough details have been negotiated/released yet to...

Hi Midas,

Not enough details have been negotiated/released yet to do the analysis IMO, though my feel is it is going to be quite an attractive little project. There are a number of things to consider.

Currently the power sourced from diesel appears to be very high. In 2009, I believe the tariff was said to be one of the highest in the world @ 46c/kWh. In 2010 it was listed as 50c/kWh. I believe it may be currently somewhere just above that. Osr, where did you source your 60c/kWh figure - is that the latest published somewhere?

We are currently negotiating an offtake agreement with the utility UNELCO to replace the diesel generation but we don't yet know what that will be struck at. The desire of the Vanuatu govt to move to a green alternative source, also shielded from oil price spikes, will be helpful. I see PAX are moving into Indonesia on the basis of a guaranteed feed-in tariff of US97/MWh (around 10c/kWh) with agreements possibly ranging up to US125-150/MWh (around 12.5-15c/kWh) for some projects (?). Therefore the relatively much higher power costs in Vanuatu appear very attractive in terms of negotiating an alternative source.

We then need to consider what it would cost to implement this small geothermal plant. It appears PAX are currently suggesting figures around US64/MWh (6.4c/kWh) for a typical 4MW Indonesian well including capital, operating and finance costs, with further improved numbers resulting as the operation is scaled up. For our initial 4MW project, sourced from off-the-shelf components, would we be somewhere in this vicinity? The projects may obviously differ with PAX citing a typical Indonesian well targetting around 240C at a depth of 2000m. Our small project at Takara looks like being quite a bit shallower AFAICS. I believe there are near surface measurements around 100C and, while planned test drilling may extend to 1500m, there was a MT/AMT survey done in 2010 that appears to have shown quite a bit of activity at the 100m, 500m and 750m levels (refer ann page 2):

http://www.asx.com.au/asxpdf/20100519/pdf/31qdvn68l3x953.pdf

Shallower (and therefore narrower) wells should mean smaller rigs and lower costs in theory.

Other unknowns at this stage are what level of support funding is going to come from the World Bank recommendations (possibly more in relation to transmission lines infrastructure?), the international investment banks and donor agencies and the reported JV partner - potentially bringing equity participation as well as core competencies to help facilitate project delivery. There's also compensating carbon credits that will hopefuilly come into the mix.

I would expect more details to be released as the negotiation with the offtake utility and supporting parties progress.

Even though I remain mainly invested in KEN for what I hope is going to be a major and nationally important geothermal development in Tamania, it would appear management have positioned us well to take advantage of this smaller Pacific project until the investment climate improves. Despite the unfortunate delays experienced here as well, as it now starts to take shape, I'm actually quite looking forward to it as hopefully being quite a profitable little project in its own right.

Comments invited - particularly if I have overlooked / misunderstood anything in the above.

Cheers.