Geothermal development needs public private partnerships to thrive

GeoGlobal project site, Chile (source: GeoGlobal Energy)

Francisco Rojas 8 May 2014

In a recent article in The Handshake Magazine, the issues with financial risk revolving around geothermal exploration are detailed. Such risks are inherit to the industry, due to the expensive prospection costs that are needed to assess the viability of a potential field. These costs can amount between $15 to $25 mUSD per field, or around a 10% of the capital expenditure needs to be put at risk, alongside with the idiosyncratic long periods of time that such projects require to move from exploration to the commissioning phase according to the aforementioned sources.

The step forward is therefore centred around those solutions that allow to spread risk and liberalise the access to capital. In the article, there are three plausible models, the case were all the risks and costs are undertaken by a public entity, such a a government, citing examples like KenGen in Kenya or the prevailing models in Iceland, the opposite case, where a large multinational company or private developer takes care of the entirety of the project and finally, the PPP (Public-Private Partnerships) that is a middle point between the two other models.

The PPP is seen as the most viable option, since there are innumerable combinations available that can be adapted to the particularities of risk present in the country. Some of the most popular variants of PPP’s include tolling or energy conversion agreements, joint ventures or other options such as funding from government entities, limited exploration or power generation incentives.

As a corollary, the authors suggest that PPP’s are the way forward since spread the risks more evenly between investors and participants. Once the hurdle of risk is mitigated, the expansion of the geothermal industry is soon to follow.

Source:  The Handshake Magazine