The World's #1 Renewable Energy Network for News, Information, and Companies.

The Next Challenge for Geothermal: Turning the Corner Towards Private Investment

Early this year, the U.S. geothermal industry caught a rare win with the passage of a PTC provision that allows projects to qualify for the tax credit as long as they are "under construction" by the end of the year. Many had been hopeful that the provision would help kickstart geothermal development in the U.S. Today, however the industry is still waiting for a clear definition of what "under construction" means, which is making it difficult for investors to feel confident enough to pull the trigger on new projects.

While the U.S. industry waits for projects to start moving at home, many are moving their interests to emerging market development and clean energy exports, especially in booming geothermal markets like East Africa and Southeast Asia, according to Karl Gawell, executive director of the Geothermal Energy Association. "Most people in the energy business know that you don’t work in isolation. You may be based here in America, but you are also selling equipment and operations on the worldwide market."

Recent geothermal development announcements in emerging markets like Rwanda, Indonesia, and Kenya have sparked worldwide interest, said Gawell. “Over 70 countries in the world right now are preparing to move geothermal projects forward. We're looking at potentially marketing $100 billion in projects."

To help get these projects started, the World Bank recently announced a $500 million investment fund to aid in the exploration and drilling phases of project in emerging markets – one of the most costly and at-risk phases of geothermal development. When looking at the value chain of geothermal development, about 10 percent of the costs goes into test drilling, whereas with wind, for example, resource validation is only about 1 percent of the project cost, according to Pierre Audinet, clean energy program leader of ESMAP at the World Bank.

Each project must drill about three or four test wells, which can cost anywhere between $3-6 million each, and they have a high rate of failure. According to Audinet, if drilling takes place in an area with little to no existing development and knowledge of its geology, there is usually a 50-60 percent failure rate. However, if the project is in an area where drilling has occurred nearby with a good deal of information about its geology, the failure rate drops to about 30 or 40 percent – which is still a hefty number. Under the World Bank plan, part of the costs of failed wells will be reimbursed, which should help to reduce some risk and attract more investment. 

“[Exploration and drilling] are generally funded either through the developers own equity and/or with public support, which is why we see such sluggish development of geothermal energy worldwide,” said Audient, “not because the resource is not there, but because it is hard to validate. It takes money, and it takes a big risk appetite, which is why we are acting in this area.” 

Though many in the industry expect that this fund will move projects along, the question still remains: How will these projects raise the capital to actually build plants and start producing energy? 

According to Audinet, once projects complete the exploration and drilling phase and have found successful resources, the World Bank hopes to connect investors and developers to the “guaranteed” opportunity of baseload renewable power. Once the exploration barrier, and major financial risk, is out of the way, it will simply be a matchmaking game.

“The World Bank doesn’t want to run commercial operations, they want to use seed capital for funding issues that will bring in private capital,” said Gawell. “This is the next challenge for geothermal – whether it can turn that corner.”

Stay tuned for our update on the global geothermal financial market from the Geothermal Energy Association’s Finance Forum on April 11th, 2013, which includes speakers from the World Bank, Ex-Im Bank, the Ambassador of Kenya, Ambassador Odembo, and more. 

Lead image: Curved road sign via Shutterstock

RELATED ARTICLES

US Capitol

Republicans and Democrats Back Bill to Level the Playing Field for Renewable Energy

Vince Font, Contributing Editor U.S. Senators Chris Coons and Jerry Moran are leading a bipartisan effort to reintroduce tax code legislation aimed at leveling the playing field for renewable energy investment. The Master Limited Partnerships Parity Act w...
Pope Francis

The Common Goals of the Pope and Clean Energy

Paul Stinson, EDF Pope Francis turned a keen eye toward the environment and the problem of climate change with his encyclical,“Laudato Si” (“Praised Be”). As a clean energy advocate, I’m heartened that Pope Francis recognizes the need t...
money pile

Deeper Capital Markets for Renewable Energy

Tomas Gardfors and Ann Vesely, Norton Rose Fulbright Following the global financial crisis, a more diversified funding market is developing in Europe. Institutional investors are helping to fill the funding gap left by the contraction in bank lending in the wake of the crisis...
Clean planet

Renewable Energy Responsible for First Ever Carbon Emissions Stabilization

Vince Font, Contributing Editor Carbon emissions in 2014 remained at the previous year’s levels of 32.3 billion metric tons — a milestone that points to the impact worldwide renewable energy investment is having in the face of a 1.5 percent annual increas...
As associate editor of RenewableEnergyWorld.com, I coordinate and edit feature stories, contributed articles, news stories, opinion pieces and blogs. I also research and write content for RenewableEnergyWorld.com and REW magazine. I manage REW.com...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 3
1505REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

SAP for Utilities

The SAP for Utilities conference is the most comprehensive SAP for Utili...

GRC Fieldtrip - McGinness Hills Geothermal Plant

The 13.4 MW Salt Wells Geothermal Plant is owned by Enel North America a...

GRC Fieldtrip - Steamboat Geothermal Plant Complex

Ormat’s Steamboat Geothermal Power Plant Complex located...

COMPANY BLOGS

Net Zero Energy Efficient Buildings and Geothermal Heat Pumps

As the U.S. market for green building design and construction evolves, ...

Geothermal Earth Day Visual: Shaping Environmental Solutions

Earth day 2015 is an important point in history for the environment. Mem...

Environmentally friendly solutions for projects

geoAMPS joins the celebration of the worldwide observance of Earth Day o...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS