* Frequent power blackouts hurting economic growth
* Tanzania has geothermal potential of 650 MW
By Beatrice Gachenge
NAIROBI, Nov 21 (Reuters) - Tanzania plans to drill its first geothermal power plant next year and expand renewable energy to plug a power deficit that the International Monetary Fund sees as an obstacle to the growth of east Africa's second biggest economy.
Tanzania is racing to introduce a mix of power generation to cut reliance on hydroelectric dams that are vulnerable to erratic rainfall, and also aims to produce power from natural gas following big discoveries offshore.
Stella Mandago, a senior energy officer at African Development Bank (AfDB), told Reuters on the sidelines of a geothermal conference that the bank would, with other development agencies, co-fund $50 million in the form of a grant and loan to Tanzania.
Mandago said $25 million would be used on drilling of steam wells in Mbeya, south of Tanzania, while the rest would be used to develop renewable energy sources including solar and wind.
"The country will receive $50 million which will be disbursed right after the approval in February 2013," she said.
"There is a potential of 650 megawatts (geothermal), but we are going to focus on 200 MW first, in two phases, starting with 100 MW," said Mandago. The total capital requirement for the 200 MW would be $400 million, she added.
The first 100 MW of geothermal power is expected to be available by 2016. Drilling for the second phase is due to start in 2015 and would become available by 2018.
Although drilling down to access energy from the earth is expensive initially, the subsequent supply of cheaper geothermal power would help the country's economic growth. The IMF warned in October that Tanzania needs to limit power outages if it wants to maintain buoyant growth this year and next.
Tanzania produces about 800 MW, hardly meeting its power demand, estimated to grow to 1,583 MW by 2015.
Kenya is the first African country to drill geothermal power, tapping steam energy in the Rift Valley region, to complement hydro and thermal or fuel-based power. (Editing by James Macharia; Editing by Anthony Barker)