Investment in Common-Use Network Infrastructure to Trigger Incremental Expansion in Geothermal Energy Generating Capital Stock

Abstract

This paper analyses the potential of a novel approach to avoid the cost of expensive transmission infrastructure in connecting remote geothermal power suppliers to market through a community of data centres. A strategy for investment in a common-use facility to trigger incremental growth in a complementary commercial alliance is presented. The commercial alliance consists of investors in the ‘common-use’ fibre-optic cable data network, a community of data centres, and geothermal energy resources. A real options approach to capital investment decision making is used to define the conditions under which investment in the common-use facility (which in economics is a ‘local public good’), will be commercially justifiable. Excess capacity in the fibre-optic network resource is what gives it the attributes of a ‘local public good’. A critical assessment shows that investment in such infrastructure could play a significant role in triggering the initial and later additions to installed geothermal energy capital stock, to generate and supply power to a network of data centres in a remote area. The infrastructure needs of data centres are chosen for this assessment because these facilities can be collocated with the geothermal resource, and their energy consumption is well suited to a demonstration-scale plant.