Quantifying Risk in Geothermal Development--High-Enthalpy and Low-Enthalpy Cases

Abstract

Like most resource-harnessing ventures, geothermal energy shares both exploration and exploitation risks. Resource discovery and confirmation is carried out mainly by activities, among which are drilling operations, which incur high initial costs. These activities display relatively high risks and are the major barrier to accelerated development worldwide. Once the resource is proven, it mobilizes important financial resources for geothermal production infrastructure development, power plant and transmission line construction. Both the risk and high upfront capital cost make geothermal ventures less attractive to conventional financing schemes. To help accelerate geothermal development a number of national governments have created risk mitigation instruments such as loan guarantees, guaranteed cost sharing of unsuccessful drilling projects and insurance programs and incentive measures to help cover the upfront costs of exploration drilling and power plant construction, in addition to tax cuts, mandated power purchase programs and even feed-in tariffs to provide a market for geothermal power and heat. This paper presents two case studies. The first addresses the high-enthalpy, power-generation case, in the exploration phase where the main problems of quantifying success-failure risk of exploratory drilling are addressed and a numerical criterion to assess the well output from well testing figures proposed. The second study deals with a large geothermal district heating (GDH) scheme, where the drilling success ratio approached 100% (one recorded full and two partial failures out of around 100 wells) whereas exploitation of the low-temperature deposits showed, in the early stages, severe technical and nontechnical shortcomings leading to frequent, prolonged well shutdowns and, ultimately, to their abandonment. A quantified risk prognosis was at a stage projected 15 years ahead which later proved relevant.