You might think of it as the, “How to Get Geothermal Over the Risk-Hump Plan.”
The idea is to establish a global exploration drilling fund, ideally with some public sector support. What good would it do? According to a new white paper by Bloomberg New Energy Finance and the consultants Rinova International, it could be just what geothermal needs to fulfill its potential as a large and steady energy producer, especially in developing countries that otherwise would stoke economic growth with fossil fuels.
Geothermal’s big upside as a renewable is that unlike solar and wind, it isn’t what we might call weather-dependent. That is, it isn’t intermittent. Plus, there is, by wide agreement, oodles of thermal energy stored in Earth. Consider: “The amount of heat within 10,000 meters (about 33,000 feet) of Earth’s surface contains 50,000 times more energy than all the oil and natural gas resources in the world,” according to the Union of Concerned Scientists.
The problem is that even with some advanced technologies taking shape that might change the calculus, geothermal is still hugely risky. Too risky. According to the Bloombergians:
A developer must drill typically two to four deep exploration wells to confirm expected output and determine economic viability of a given resource. At $5-9m each, it costs about $10-36m just to know whether or not a resource merits development. The high cost and risk of answering this question is keeping most geothermal sites undeveloped.
To overcome this hurdle and get at some of the estimated “113 gigawatts of untapped geothermal potential located in 39 developing countries,” the white paper tries to pencil out how helpful a $500 million rotating debt facility could be.
Different scenarios naturally play out differently, but especially if wealthier countries kick in with support, the scheme could have legs:
A commercial financing approach using a 7% cost of capital would result in a 17% interest rate to developers, while a fund with public sector support and a 3.5% rate of return to public sector contributors could offer loans at a 14% interest rate. While these rates are high, they could be attractive, considering the total lack of access to financing at this time for early-stage drilling.
According to Bloomberg, the fund would directly finance drilling of 473 MW across a portfolio of 24 projects which would “catalyze” an additional 1,927 megawatts, bringing the total impact of the fund to 2,400MW. (That’s 2.4 GW, well short of the potential 113 GW mentioned; but it is only $500 million, which in the scheme of things ain’t much.)
Now, this isn’t a totally theoretical proposition. In fact, it’s more or less what the World Bank is seeking with its Global Geothermal Development Plan — $500 million to leverage financing for exploratory drilling on promising sites that can ultimately be developed commercially.