| Title | Economic Factors Impacting Direct Use Geothermal Development Viability |
|---|---|
| Authors | R. Gordon Bloomquist |
| Year | 2004 |
| Conference | International Summer School |
| Keywords | |
| Abstract | The factors that must be considered when assessing the economic viability of a geothermal project vary from project to project, from con-version technology to conversion technology, and especially from electrical generation to direct use. There are, however, a number of factors common to all projects, although actual cost and impact on project economics will be, to a large extent, de-pendent upon resource characteristics and national or even local political and economic circumstances. This paper will concentrate primarily on direct use economic factors; however, increasingly more and more projects are combined heat and power and thus economic factors related to electrical pro-duction must also be given at least some consi-deration, and economic viability may require a number of revenue streams from, for example, power sales or offset, sales of thermal energy or products produced, or even sales of byproducts such as minerals. The economic factors that are common to all projects include: provision of fuel, i.e., the geo-thermal resource; design and construction of the conversion facility and related surface equipment, in the case of district heating the distribution system and customer connections; financing; and of course the generation of revenue. The cost of obtaining the required fuel supply, together with the capital cost of the conversion facility, will determine the amount that must be financed. Revenue generated through the sale of electricity, by-products, thermal energy, or product produced, e.g., vegetables, plants, or flowers from a greenhouse, minus the cost of O&M of the fuel supply and conversion facility, must be sufficient to meet or exceed the requirements of the financing package and expected rate of return on investment. Because financing is such a critical factor in the economics of any project, an entire subchapter could be devoted to this subject with the express aims of describing the institutional prerequisites for successful financing and development of a geo-thermal energy project, summarizing the debt and equity structures for such a project, with emphasis on the broad range of structuring options and funding sources, and surveying the key issues in project agreements that should be addressed so that financing can take place. However, such a dis-cussion is beyond the scope of this paper. The reader is, however, referred to Geothermal Energy (M.H. Dickson & M. Fanelli) for more information on this topic. It must be noted, however, that for many new projects, the largest annual operating cost is the cost of capital (Eliasson et al., 1990). In fact, the cost of capital can be as high as 75% of the annual operating expense for a new geothermal district energy project with O&M (15%) and an-cillary energy provision (10%) making up the balance. |