Update: Financing Geothermal in challenging times

Alexander Richter 4 Jun 2009

An updated research document by ThinkGeoEnergy was issued yesterday. It is an update on the same document published in April, but now includes the recent allocation of research and development funds with the Department of Energy in the U.S.

In document, that I wrote on behalf of Íslandsbanki in April, I looked into the current financial climate and how it affects geothermal financing. In light of recent updates in the U.S.  I updated the document, which is available for download now. The document was issued by Islandsbanki and was available at the GEA Geothermal Workshop in Seattle, yesterday.

As the financial sector collapsed world wide last fall, the environment for financing renewable energy projects has changed. The availability of tax equity has mostly vanished, and finanncing geothermal projects has become extremely difficult. With the hope that the new stimulus legislation in the U.S., will improve the investment climate for projects, the document looks into the actual affect the U.S. stimulus legislation is most likely to have on industry development.

The key issues discussed in the document:

  • Decrease in oil prices can be seen as temporary and with no large implication for geothermal development efforts.
  • Current financial situation serious: the tax equity market has dried up, limited availability of debt financing and limited investor interest in early-stage projects, with a slightly better situation for close-to-operation projects.
  • Stimulus legislation very positive: extension of production tax credits (PTC), availability of investment tax credit (ITC), and possibility of cash grants up to 30% of development cost. New capital structures are available with different models for investors, who can now benefit despite not having a taxable income.
  • Production tax credits still more valuable option for geothermal developers despite possibilities for ITC and cash grants, but cash grants could help lower financing cost for developers.
  • Loan guarantees are likely to decrease the cost of financing and stimulate much-needed availability of funds.
  • General concern for time limitations of ITC, cash grants and loan guarantees, which will be challenging for the majority of geothermal projects today.
  • Department of Energy, Research, and Development allocations: with the allocations towards various critical areas for geothermal technology development, this part of the stimulus package will have a very positive impact on the industry, for current projects and future development.

For the full report, click here (link to the document on Islandsbanki’s website will be provided later)