Global Geothermal Drilling Fund Could Provide Boost the Industry Needs

Geothermal energy can provide significant low-carbon, baseload energy to the world at a cost comparable to fossil fuels, but the industry is being held back by lack of finances available for drilling.

Even though geothermal projects can offer attractive
returns, it is very difficult to raise the capital to drill individual wells because of the high risk of failure.

One solution to the problem would be to establish a global geothermal drilling fund, backed by either private investors and banks or government entities and development banks as the capital providers, says Bloomberg New Energy Finance (BNEF).

In a White Paper on the subject, BNEF examines how a
$500 million fund could help geothermal developers. It would offer debt financing to exploration-phase projects at rates that might appear high compared to conventional infrastructure loans but would be attractive enough to make geothermal projects viable.

A $500 million fund would result in roughly $9.6 billion in geothermal project development, enough to drill 473 megawatts (MW) across 24 projects. That would catalyse an additional 1,927 MW, making fund’s total impact 2,400 MW.

A public sector fund would be able to offer loans at a 14% interest rate with a 3.5% return compared to commercial financing at 17%, according to the report. 

"The problem is that wells are expensive to drill and the often modestly capitalized developers find it difficult to raise either equity or debt finance because investors fear that the company concerned will be one that drills unsuccessfully and then fails. The proposed fund would be big enough to take losses, in the knowledge that the winners will outweigh the losers. It would be
a particularly valuable source of finance in developing countries, where the majority of world’s unexploited geothermal power is located," says Mark Taylor, lead geothermal analyst for BNEF.

It costs $5-9 million to
develop each well, which adds up to $10-36 million to find out whether a
particular resource merits development, since a developer needs to drill 2-4 wells per site.

"The high cost and risk of answering this
question is keeping most geothermal sites undeveloped," says Jessica Thompson, president of Rinova International, which conducted the analysis.

Just 6% of the world’s estimated
196 gigwatts of geothermal potential has so far been realized, mostly in developed countries,  such as the US, Italy and
Iceland, even though the majority of resources are in developing countries such as Indonesia, the East African Rift Valley and
Central and South America.

64 countries now have geothermal projects slated for  development, more than double than a few years ago, according to Pike Research.  454 projects are under construction, adding up to 18.5 GW. That’s almost double the 11 GW of current capacity, less than 0.2% of the world’s energy sources.

Geothermal is included in feed-in tariff programs in Germany, Indonesia and Japan.

The US has over 3 million MW of geothermal resources – 10 times the installed capacity of coal power plants today, according to Southern Methodist University’s Geothermal Lab. You can view the resources using Google Earth.

Read, Geothermal Still the Underdog of Renewables, But Prospects Are Brighter.

Here is the White Paper: