The Silent Killer of Geothermal Projects - Long Term Resource Risk

Abstract

The exploration risk associated with geothermal resources is well known as a major hindrance to the development of geothermal capacity. Various public and private sector approaches and technical and financial mechanisms have been established to address this issue. This article will provide a critical review of instruments such as the Geothermal Risk Mitigation Facility (GRMF) and Munich Reinsurance’s exploration risk insurance product. All available products address only short-term exploration risk. Long-term geothermal resource risk, however, is often less understood and tends not to receive the attention that is warranted. Remarkably, this is a common problem in the industry and has caused serious damage to multiple projects in both developed and emerging countries. This article will discuss case studies of operating power plants that experienced adversity when the associated geothermal resources collapsed at once or over time. Some of these projects went bankrupt, causing significant losses to lenders and investors. This paper will discuss the outcomes of each scenario. The nature of long-term resource risk, as well as steps that can be taken to address these risks, will be analyzed. These steps encompass careful planning and execution and implementation of financial solutions. As the geothermal industry matures, it has become increasingly vital to understand the short-term and long-term risks of geothermal project development, and more importantly, the measures that can be taken to mitigate these risks.