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Overview of Financing Geothermal Power Projects

Financing geothermal power projects involves specific processes, costs, and risks. There are also several advantages and challenges to developing and financing geothermal power projects. The financing strategies presented apply to geothermal power projects that:

  • Use conventional, proven technologies
  • Are located in the United States
  • Produce utility power (roughly 10 megawatts or more).

In 2008, the U.S. Geological Survey completed an assessment of moderate- and high-temperature geothermal resources in 13 states. These data help lower project costs and risks for project developers by shortening the resource identification phase of project development; yet geothermal resource development still has risk.

Financing Processes, Costs, and Risks

Access to financing at attractive rates is a critical requirement to successfully develop and maintain a geothermal power project. However, one of the main constraints on geothermal power project developers is the ability to secure financing. The acceptance of risk must be rewarded through financial returns—different types of investors tolerate different levels of risk.

Within the overarching exploration and drilling and construction and operation financing stages of a geothermal power project, there are several development stages; each has costs and risks associated with it. The table below provides a summary of typical geothermal power project financing stages, project or development stages, tasks, approximate costs/kilowatt (kW), and the risk considerations for each stage.

Example of a Geothermal Power Project's Processes, Costs, and Risks
Costs / kW Installed* Risk Considerations
% of Total Project
Probability of Project Completion
Resource Identification Desktop Exploration Reconnaissance $14 <1% N/A
Resource Evaluation Geophysics, Exploration Drilling $300 8% Low
Test Well Drilling Delineation Drilling, Well Flow Testing, Feasibility Studies $169 5% Moderate
Well Field Development Production and Injection Well Drilling $1,367 38% High
Plant Construction Plant and Transmission Line Construction $1,800 49% High
Plant Operation N/A Minimal N/A Project Complete

*The costs and percentages of total costs presented in the table are for illustrative purposes only. Your project costs will vary.


There are several advantages to financing geothermal power projects compared to other renewable energy technologies, including the relatively constant power a geothermal plant provides and a plant's ability to leverage current and future environmental regulations if implemented. According to Islandsbanki's 2009 U.S. Geothermal Energy Market Report, the United States was the global leader in geothermal projects and is expected to continue that leadership in the next decade. Even so, less than 0.5% of the United States' electricity generation currently comes from geothermal resources. Yet, geothermal energy can be an important contributor to a sustainable energy portfolio in the United States.

Power Output

Geothermal projects have one significant difference in their energy production profile compared to most other renewable energy technologies: they provide relatively constant power using a technology that has been operating at utility-scale for more than 50 years. According to the California Energy Commission, some geothermal power projects can operate with capacity factors in excess of 90%– higher than most other renewable energy technologies. Learn more about the basics of geothermal electricity production.

Environmental Regulations

Environmental regulations, such as renewable energy credits (RECs) and greenhouse gas (GHG) emission reduction regulations, can positively affect geothermal power project financing.

RECs represent the green attributes of a geothermal power project and can be sold as a product separate from the underlying power produced by a facility. They may provide an additional revenue source that can help achieve acceptable returns for many renewable energy projects and are the unit of trade in renewable energy standards compliance markets and the voluntary green power market. In both of these markets, RECs are used for accounting purposes to document that an entity has secured a specific amount of renewable energy resources.

If implemented, GHG emission reduction regulations, like cap-and-trade agreements, would likely increase the price of power from conventional sources by internalizing the cost of GHG emissions. Energy from geothermal sources may provide an advantage because there are limited GHG emissions from geothermal sources and thus limited regulatory risk.


There are some challenges to address when financing geothermal power projects, including the high risk of development and permitting issues. These challenges can impact both developers and investors and, if not addressed, can sideline a geothermal power project.

High-Risk Development

In the exploration and drilling stage, geothermal developers must target investors who are comfortable with the high levels of risk and long development time horizons related to geothermal power projects. The high risk and significant investment required to find and prove the geothermal resource is unique to geothermal power projects and substantially changes a project's level of certainty as well as the required development time. Geothermal power projects also compete for capital (and drilling rigs) with mineral, coal, oil, and gas exploration projects.

The higher overall risk of geothermal power plants has led to limited utility investment in geothermal power project development. However, some municipal utilities, in contrast to larger utilities, are considering geothermal investments. Four main challenges persist for developers to encourage utilities to move forward with geothermal project:

  • Familiarity—utilities and regulators may be unfamiliar with the technology
  • Investment metrics—utilities' approved rates of return may not be sufficient to accommodate the project's initial high risk
  • Regulators—some regulators may hesitate to commit ratepayer funds to potentially risky development without a mechanism for avoiding risk
  • Competition—By the time utilities' rates of return are sufficient to warrant investment (i.e., construction), other entities may offer financing to developers at more attractive rates.


Multiple permits may be required for a geothermal power project due to the nature of the resource and the location of the project. The length of time it takes to obtain all required permits can greatly affect the length of loans, and consequently the cost of these loans. Therefore, it is important to understand the permitting rules and regulations that apply to your geothermal development project. Geothermal projects are already subject to lengthy resource development (three to four years) and plant construction (18 months to four years) timelines, so any additional timelines can be costly.