Models and Risk Management in Geothermal Projects

Abstract

Understanding and managing resource risk is a critical factor in making geothermal projects profitable. Objective and robust models of key project elements are important tools for evaluating, reducing and managing risk. Three essential types of models are:
? conceptual hydrogeologic models;
? numerical reservoir models; and
? financial models.
All three models should conform to the basic principles of simplicity, objectivity, plausibility and testability. Adherence to these principles facilitates realistic planning, good decision-making, and agile responses to unexpected results; ignoring them leads to loss of time, money and credibility in the development process. There are potential pitfalls in modeling (mostly related to failure to observe the basic principles) that can lead to an increase rather than a decrease in project risk.
The different models provide critical inputs to the planning, development and operation process, and also provide input and feedback to each other. Therefore, it is important that the models should be consistent with one another, and updated as needed when new information becomes available. Mutual understanding of the purpose, characteristics and limitations of the different models among principal project team members is the best way to ensure consistency.
Reliable and robust models are particularly important at the stage when the developer is seeking project financing, because they serve not only for project planning but also as a vehicle to show potential financiers and their due-diligence consultants that the benefits, costs and risks of the project have been addressed in a systematic way. They are also useful throughout the operating life of a project, for evaluating ways to optimize the exploitation of the resource and thereby maximize the project’s profitability.