Planning and Timing Considerations Related to Geothermal Power Projects
When looking to obtain financing for a geothermal power project, developers should take into consideration sufficient contingency planning, timely financing requests, and strategically targeting financing sources.
Sufficient Contingency Planning
Developers need to incorporate sufficient contingencies into a geothermal power project’s financial model to protect all investors and demonstrate a thorough understanding of project development risks and requirements. Some specific areas that should be considered include:
- Time and investment to obtain all necessary permits
- A reasonable drilling cost per well that reflects the required well depth, diameter, and geology
- Adequate production well drilling funding that assumes a credible rate of dry holes
- Funding to cover a sufficient number of injection wells
- A reasonable all-in cost of plant construction assuming use of an engineering-procurement-construction contractor
- Reasonable development and construction time horizon.
Timely Financing Requests
Sometimes, developers may seek financing before a geothermal power project is mature enough. Developers should consider the risk parameters, financial metrics, and non-financial requirements of prospective lenders before financiers are approached. This includes making sure the geothermal property, resource rights, and permitting and approval processes are all secured and that those elements are fully understood in the initial stages of development.
Strategically Targeted Funding Sources
Another area of consideration for developers is which strategically targeted funding sources are needed for a geothermal power project's development stage. For example, an insurance company will not be interested in providing capital early in the resource identification and valuation stages, while a private equity investor would be an unnecessarily expensive funding source in the later project development stages when construction and term loans are available.