Application of Monte Carlo Simulation for Determining IRR and Cash Flow of a Geothermal Project

Abstract

Geothermal investment is full with risk and uncertainty that requires to careful considerations of the project. An investment analysis method which can accommodate those uncertain variables is therefore needed.

We have developed a Monte Carlo Simulator for IRR (internal rate of return) and cash flow behavior of geothermal projects. The method is based on Gaussian distribution that continuously generates outputs for all the parameters in the given geothermal datasets.

The simulated variables include project cost, well cost, well output, steam fraction, reinjection capacity, drilling duration, energy price, price escalation, inflation, load factor, operating and maintenance cost. The set of answers are then grouped to yield a set of IRR. The IRR spectrum allows us to view a broader perspective of possible outcomes.

Significant factors that are sensitive to the output can also be examined. The answers with the error taken into account are very helpful for project management to be able to anticipate the worst and the best case.