aaaaaaaaaaaaaBuku 2-7 Barnett - 2006.pdf

buku

1. Moving a Geothermal Project from Concept to Commercial
Reality
Peter Barnett
Sinclair Knight Merz (SKM
)

2. Introduction •
I
n moving a geothermal project from concept to
commercial operation, we follow a program of sequential stages from initial exploration through to commissioning
•
O
bjective is the discovery and proving of the
required:
–
quantity, and
–
quality of
geothermal energy
•
I
s now a more or less standardized industry
process

3. Key stages in geothermal development • Pre drilling exploration model
– To determine whether a project is worth drilling
• End of exploration drilling evaluation
– Feasibility Study
• Commitment to proceed with development
• Establish a nominal size and cost of development
• Development
– Combination of delineation and development drilling
• Continued resource evaluation
– Detailed engineering
• Steam field
• Power plant
– Construction
• Ongoing production drilling
– Commissioning

4. Key issues in the development process •
A
t all steps in this process we need to deal in
detail with issues of:
–T
im
in
g

–
C
osts (capital)
–
Risks
–
R
eturns

5. Staged Geothermal Exploration & Development
1101001000
Activity
1
2
3
4
5
Project ide
n
tific
a
tion / reconn
a
issance
Geolog
y a
nd g
eochem
istr
y
Geoph
ysics
Prefeasib
ilit
y stud
y
Exp
lorati
on dri
lling,
w
e
ll testin
g
Resource assessment, feasibilit
y
study


GO/NO GO GO/NO GO
Permitting / EIS Infrastructure (pads, roads) Commerci
a
l ne
gotiatio
n
s to PPA
EPC Manufact
u
re
Prelimi
nar
y de
sign

EIS, permitting


Devel
opme
n
t /
producti
on dri
lli
ng
GO/NO GO
Establish EPC
contract
FINANCIAL CLOSURE
EPC Construct
ion
COMMISSION
Cumulative Cost, US$ M
Time, y
ears
Nominal timing and capital cost requirements for a 100 MWe “Greenfield”
geo
thermal project

6. Project timing •T
im
in
g
–
G
reenfield developments
•
T
ypically 60 months required fr
om first surface exploration
–
24 months for
sur
f
ace explora
tion and exploration drilling
–
30 to 36 months to develop proj
ect from time of commitment
»
(
feasi
b
ility study)
–
B
rownfield developments •
less time required as fuel
supply is not such an issue
–
F
ield expansions
–
I
nfield optimisation plant
•
p
roject timing largely dictated
by time for equipment supply

and installation
–
C
an be only a few months
»
e
g
t
opping t
u
r
b
ines

7. Project costs …
1
•
C
apital Costs dependant on:
–
W
ell costs
•
r
eservoir depth
•
w
ell productivities
•
f
ield enthalpy
•
s
team field collection system
–T
y
p
e
–
P
ressure control system
•
number of injection wells
–
P
ower Plant •
cycle type
•
p
lant size
•
inlet pressure

8. Project costs …
2
•
I
nitial estimation of project capital costs –
W
ell costs
•
a
ssume USD 1,200 to 1,500 per m
–
S
team field collection system •
w
et steam field –
a
ssume USD .35 to .40M per MWe
•
d
ry steam fields
–
a
ssume US
D 0.20 to 0.25 MWe
–
P
ower plant •
dependant on cycle type
•
s
ignificant economies can be achieved with:
–
increased unit size
–
increa
s
e
d
inlet pressure
•
o
verall unit capital cost estima
ted to vary from US$1,600/kW
to US$2,500/kW (McVeigh, 2003)
–
depending on pr
oject size and ot
her project-specific criter
ia

9. Sanyal (2005) eqn fitted to McVeigh (2003) data
$1
,500
$1
,700
$1
,900
$2
,100
$2
,300
$2
,500
$2
,700
0
2
0
4
0
6
0
8
0
100
120
140
16
0
P
o
w
e
r
Plant S
i
z
e

(M
W Ca
pacity
)
Total Project Development Cost (USD/ kW)
C
d
= 2500 e
-0.003*(P-5)
•
C
d = capital cost in US$ / kW
•
P
= plant capacity in MW

10. Key issues for commercialization •
A
lthough the activities undertaken in the “Key
Stages in geothermal development”
a
re
important, there are two essential requirements for project commercialization: 1. Securing project funding
Need funds in two amounts:
•
e
xploration drilling (e.g. USD 10 to 15 M)
•
f
or the power development
(e.g. USD 100 to 150M)
–
r
equires packaging of the project in su
ch a way to make
it financeable
2. Commissioning:
–
i.e. the commencement of commercial generation and thus revenue with which to repay loan funds

11. Sources of Funding ….
1
•
E
xploration drilling
–
G
overnment agencies
•
government funds
•
g
rant funds
–
(
e.g. international assi
stance, foreign aid agencies)
•
c
oncessionary loan funds
–
W
B, IFC, JBIC, ADB
–
D
evelopers •
internal reserves
•
c
ommercial loans
–
E
xploration drilling seen to have a high risk profile •
p
resents a barrier to exploration drilling and thus the creation
of new projects for development

12. Sources of Funding ….2 •
D
evelopment funding
–
G
overnment
•
C
oncessionary loans
–
P
rivate Sector •
I
nternal res
e
rv
es
•
C
ommercial loans
•
D
evelopment projects have a lower risk profile
and funding is thus more readily obtainable
•
F
unders are seeking projects with greatest
potential for:
–
t
echnical and economic success
–
c
oming on-line within a reasonable time frame i.e. having minimal legal, in
stitutional and environmental risks

13. Role of government vs. private sector •
O
nce exploration projects are proven viable and
development risks reduced, then private sector is much more likely to participate
•
I
ts all a question of risk and return on capital –
G
overnments take a utility viewpoint with relatively
low IRR expectations
–
I
PP’s view risk as requiring a greater return on capital
with IRR’s of 15%, or probably higher

14. Role of government vs. private sector •
SKM view is that:
–
G
overnment agencies remain best placed to handle
exploration drilling and resource proving
•
a
s government is in the best position to accept the risk
–
S
ubsequent field development can then be
undertaken by the private sector and/or government
•
T
o ensure active involvement of the private
sector in geothermal developments, government needd
to set the appropriate incentives:
–
a
power price which adequately compensates the
private sector for:
•
c
ost of money in the commercial sector
•
development risk
–
and provides contractual and regulatory certainty

15. Geothermal Risk Issues • As project commercialization progresses, the
term “RISK”arises ever frequently

16. Geothermal Risk Issues • Key geothermal risk issues include:
– Pre development
• exploration risk (of failure)
• environmental risks
• regulatory
– new geothermal law (#27 / 2003)
– regional autonomy law (# 25/ 1999)
– Development
• fuel risk (for start up)
• construction risk
• plant performance
– Commercial operation
• long term fuel risk
• commercial risk
• currency risk

17. Probability of Success vs Exploration Stage
0%
20%
40%
60%
80%
100%
120%
D
e
s
k

T
o
p
R
econ
n
.
Geophysics
Ex
p
lo

D
r
l
g
D
e
l
n

D
rl
g
F
e
asibility
I
n
t
i
al

P
r
odn D
r
lg
Fin
a
nci
a
l
C
l
o
s
u
r
e
P
r
o
d
n Drlg
Inje
c
n Drlg
Constru
c
ti
o
n
Phase
% Probability
MEAN MAX MIN

18. Probability of Proving a Viable Project 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Desk Top
Reconn.
Geophysics
Explo Drlg
Deln Drlg
% Probabilty
MEAN MAX MIN

19. Exploration risk •
O
nce exploration drilling has been completed and a
resource proven, subsequent development risk is much reduced
•
T
his is support for the view that Government should
remain in the business of exploration drilling and resource proving, to reduce project risk
•
Risk reduction supports are becoming increasingly available to Governments:
–
CDM and carbon trading
–
A
RGEO type mechanisms •
r
egional revolving funds for exploration drilling
•
d
rilling failure insurance mechanisms
•
a
n overall continuing maturity of the geothermal industry
with improved understanding
of geothermal systems and
models etc

20. Rationale of Risk Guarantee Fund
Role of the RGF
African Rift Ge
othermal Devel
opment
Facility Sequencing
Res
our
ce
a
s
se
ss
m
e
nt
Dr
i
lli
ng
Feasi
b
il
it
y
Study
/
Tender
Geo
t
herma
l
Po
w
e
r Pl
an
t
Deve
l
opm
en
t
Res
our
ce
a
s
se
ss
m
e
nt
Dr
i
lli
ng
Feasi
b
il
it
y
Study
/
Tender
Geo
t
herma
l
Po
w
e
r Pl
an
t
Deve
l
opm
en
t
Resource o
w
ne
r’s responsibil
i
t
y
In
v
est
or’s
resp
ons
ib
il
it
y
Resourc
e

a
s
se
ss
m
e
nt
Dr
i
lli
ng
Feasibi
l
it
y
Stu
d
y
/
Te
nd
er
Geo
t
h
erma
l
Po
w
e
r Pl
an
t
Devel
opm
en
t
Resourc
e

a
s
se
ss
m
e
nt
Dr
i
lli
ng
Feasibi
l
it
y
Stu
d
y
/
Te
nd
er
Geo
t
h
erma
l
Po
w
e
r Pl
an
t
Devel
opm
en
t
Res
our
ce
a
s
se
ss
m
e
nt
Dr
i
lli
ng
F
e
as
ib
i
l
it
y
Stu
d
y
/
Te
nd
er
Ge
other
m
al P
o
w
e
r
Plan
t

De
vel
o
pme
n
t
Geothermal
Resource
Assessment
Network
Risk
Guarantee
Fund
Transaction
Advisor
Geothermal
Power Plant
Development
Funding
Scheme
Tr
ansiti
o
n
T i m
e A x i s
T i m
e A x i s

21. Fuel Risks •
S
tart Up Fuel Risk
–
R
eserves assessment •
r
equired in advanc
e of development funding
•
h
istorically has been based on volumetric stored heat
computations
•
n
ow based on numerical modelling simulations based largely
on model matching to reservoir natural state
•
Long Term Fuel supply Risks
–
L
argely an O&M issue, managed through: •
s
taged plant expansions
•
detailed rese
rvoir m
odelling based on:
–
c
losely matching actual field per
formanc
e with time
–
detailed geochemistry
•
a
ctive reservoir monitoring and management programs

22. Commercial Risks •
K
ey issue is the ability of the project to generate
sufficient income to:
–
r
epay project loans
–
m
eet O&M costs
–
m
eet companies profit requirements
•
(
for priv
ate sec
t
or compa
n
ies and becoming an increasing
requirement for corporatized or partially privatized government companies)
•
D
ependant on:
–
s
elling price of power •
a
s locked into PPA
–
loan interest rate and IRR
–
long term contractual certainty

23. Example project cash flows # 1
-
50,0
00,00
0
-
30,0
00,00
0
-
10,0
00,00
0
10,0
00,00
0
30,0
00,00
0
50,0
00,00
0
70,0
00,00
0
90,0
00,00
0
110,0
00,00
0
130,0
00,00
0
150,0
00,00
0
0
2
4
6
8
1
0
1
21
4
1
6
1
82
02
2
2
4
2
62
8
3
0
Project Year
Cash Flows USD
Inter
e
st Ex
penses
(U
S$)
Loan
Pr
in
cipa
l R
epay
m
e
n
t
(
U
S$)
Ne
t
Ca
sh
Flow
Inter
e
st I
n
come
(U
S$)
Ca
sh Ba
la
n
c
e(
US$)
LOAN INTEREST RATE = 3.5%

24. Example project cash flows # 2
-50,000
,000
-30,000
,000
-10,000
,000
10,000
,000
30,000
,000
50,000
,000
70,000
,000
90,000
,000
110,000
,000
130,000
,000
150,000
,000
0
2
4
6
8
1
0
1
2
1
4
1
6
18
20
22
24
26
28
3
0
Pro
j
e
c
t
Ye
ar
Cash Flows USD
Inter
e
st
Ex
pens
es
(
U
S$)
Lo
an
Pr
in
ci
p
a
l Re
pa
y
m
en
t
(U
S$)
Net Cash
Flow
Inter
e
st
Income
(U
S$)
Cash Bala
nce
(
US$)
LOAN INTEREST RATE = 7.0%

25. Conclusions …
1
•
A
staged geothermal develo
pment process is essential
during project commercialization -
f
or risk reduction
•
S
ecuring project funding is the single most important
step in the commercialization / development process
–
E
xploration drilling
–
D
evelopment
•
G
overnment should remain in the exploration and
resource proving phase
–
a
ble to handle the higher
front end project risk
–
c
an avail of risk reduction mech
anisms not available to IPP’s
•
I
PP’s and / or Government undertake development –
p
rivatization model argues
that IPP’s will be more efficient
–
but, still under vigor
ous debate (worldwide)

26. Conclusions …
2
The key risk issues are not technical but are: •
R
egulatory
–
u
ncertainties remain in: •
geothermal law
•
implementation of regional autonomy law
•
C
ommercial
–
a
bility of project to generate sufficient income to meet
all obligations
•
s
elling price
of power
–
c
ost of money and attached risk premium
•
long term contractual certainty
•
T
hese issues merit continued strong interest
and advocacy by the Indonesian geothermal industry