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PREPARING FEASIBILITY STUDIES FOR THE FINANCING OF GEOTHERMAL PROJECTS

An Overview of Best Practices

Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized

? 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW | Washington DC 20433 202-473-1000 |

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TABLE OF CONTENTS

ACKNOWLEDGMENTS

iii

EXECUTIVE SUMMARY

iv

ABBREVIATIONS

v

1. PREPARING A GEOTHERMAL FEASIBILITY STUDY

1

The Feasibility Study in the Context of Geothermal Project Development

1

Recommended Contents of Geothermal Feasibility Studies

3

2. PROJECT CONCEPT AND BACKGROUND

5

3. MARKET CONCEPT AND ANALYSIS

7

Utility Owned

8

Long-Term Energy Sales

8

Short-Term Electricity Markets

8

Thermal Projects, Sales of Heat and/or Goods

8

4. GEOTHERMAL RESOURCE ASSESSMENT AND FIELD DEVELOPMENT PLAN

9

Resource Assessment

9

Volumetric Methods

10

Detailed Numerical Models

10

Field Development Plan

13

Phased Projects

14

5. LOCATION AND SITE

15

6. ENVIRONMENTAL AND SOCIAL SAFEGUARDS

17

Best Practices

17

Project Maturity

17

Environmental and Social Risks and Impacts

18

Environmental and Social Safeguard Topics

20

7. ENGINEERING AND TECHNOLOGY

23

Project Maturity

23

Main Technical Parameters

23

Technology Choice and Equipment Selection

24

Basic Engineering

24

Maintenance and Operation

24

Table of Contents i

Power System Study

26

Civil Works

26

Cost Estimates

26

8. PROJECT EXECUTION PLAN AND SCHEDULE

27

Work Breakdown Structure and Schedule

27

Project Implementation Budget

27

Project Execution Issues

28

9. FINANCIAL ANALYSIS AND INVESTMENT APPRAISAL

29

Financial Model

29

Sensitivity Analysis

31

Economic Analysis

31

Funding Plan

32

ENDNOTES

33

REFERENCES

34

APPENDIX A. GEOTHERMAL PROJECT RISKS

35

APPENDIX B. RESOURCE ASSESSMENT

40

List of Figures

Figure 1.1: The Development Phases of a Geothermal Project

2

Figure 1.2: Project's Risk Profile and Cost at Each Development Phase

2

Figure 1.3: Contents of Geothermal Feasibility Studies

3

Figure 4.1: Example Probability Distribution for the Results of a Monte Carlo

Volumetric Assessment

11

Figure 4.2: Example of Data Collected During Discharge Testing of a High-Enthalpy

Production Well

12

Figure 4.3: Geothermal Resource Assessment and Interactions

with Other Deliverables

13

Figure 5.1: Layout and Location of Olkaria IV and V and Well Pads

15

Figure 7.1: Design Documents to Accompany Feasibility Study

25

Figure 7.2: Mist Eliminators at Nesjavellir Power Plant

25

List of Boxes

Box 4.1: Creating a Conceptual Model

10

Box 6.1: Environmental and Social Impact Assessment

18

Box 6.2: Examples of Typical Environmental and Social Impacts and Risks

19

Box 9.1: Financial Model

30

ii

PREPARING FEASIBILITY STUDIES FOR THE FINANCING OF GEOTHERMAL PROJECTS

ACKNOWLEDGMENTS

This report is a collaborative effort of the World Bank Group's Energy Sector Management Assistance Program (ESMAP) and the Foreign Ministry of Iceland. Its preparation was overseen by a team of World Bank staff at ESMAP, led by Elin Hallgrimsdottir (Senior Energy Specialist), Joeri Frederik de Wit (Energy Economist), and Thrainn Fridriksson (Senior Energy Specialist). The report was prepared by a team of Icelandic experts: Ari Ingimundarson (Mannvit), Gudni Axelsson (?SOR), Benedikt Steingr?msson (?SOR), Ingi Ingason (Stertuvik Economix), and ?lafur ?rnason (EFLA). The teams are grateful for the constructive comments and contributions of the expert reviewers of the report, Jill Haizlip (Geologica) and Greg Ussher (Jacobs). The teams extend their appreciation to Rohit Khanna (Program Manager, ESMAP) for his guidance and support throughout the development of the report, and express their gratitude to ESMAP for financial support, and especially to the Icelandic Ministry of Foreign Affairs for funding this report. The Energy Sector Management Assistance Program (ESMAP) is a partnership between the World Bank and 18 partners to help low- and middle-income countries reduce poverty and boost growth through sustainable energy solutions. ESMAP's analytical and advisory services are fully integrated within the World Bank's country financing and policy dialogue in the energy sector. Through the World Bank Group (WBG), ESMAP works to accelerate the energy transition required to achieve Sustainable Development Goal 7 (SDG7) to ensure access to affordable, reliable, sustainable, and modern energy for all. It helps to shape WBG strategies and programs to achieve the WBG Climate Change Action Plan targets.

Acknowledgments iii

EXECUTIVE SUMMARY

A geothermal feasibility study is a document, prepared by the project developer, that collects and presents information necessary to determine the technical and financial viability of a geothermal energy project and its compliance with environmental and social safeguards.

A feasibility study's role in overall project development is to review viability of a project and secure financing. A bankable feasibility study is finished when the developer achieves financial closure for the project, which means the remaining project activities are financed.

Detailed standards for the preparation of feasibility studies in the geothermal industry have not been published to date. Based on a review of feasibility studies from other sectors and industries, and the authors' personal experience in the geothermal industry, this document recommends that such studies include the following elements:

1. Project concept and background: A high-level overview of the project's scope, and a description of the relevant context in the host country

2. Market concept and analysis: A description of the energy market in which the project will operate, and an overview of the agreements prepared or in place for the sale of power produced over the project's lifetime

3. Geothermal resource assessment and a field development plan: An overview of the characteristics of the geothermal resource and its expected power generation capacity, and a detailed field development plan that indicates where the remaining production and reinjection wells are to be located, including makeup wells

4. Location and site: A description of aspects related to the project's geographical placement, and a summary of its critical characteristics

5. Environmental and social safeguards: A description of how the environmental and social impacts and risks necessarily associated with geothermal development will be managed, which are critical safeguards for a project's successful development

6. Engineering and technology: An outline of the functional aspects and physical layout of the proposed geothermal power plant

7. Project execution plan and schedule: A plan for the project's implementation, which starts with the decision to invest and is deemed complete upon the commencement of commercial production

8. Financial analysis and investment appraisal: A financial analysis showing that the project has a sound financial basis and considers both costs and revenues

Even though the focus is on geothermal projects for electricity production, most of the recommendations presented are equally valid for direct-use geothermal projects.

iv

PREPARING FEASIBILITY STUDIES FOR THE FINANCING OF GEOTHERMAL PROJECTS

ABBREVIATIONS

AACE CAPEX CO2 EIA EPC ESF ESIA ESMAP ESMP ESS H2S Hg IFC MWe NCG OPEX PPA PS SEP WB/WBG WBS

American Association of Cost Engineering capital expenditure carbon dioxide Environmental Impact Assessment engineering, procurement, and construction Environmental and Social Framework Environmental and Social Impact Assessment Energy Sector Management Assistance Program Environmental and Social Management Plan Environmental and Social Standards (WB) hydrogen sulfide mercury International Finance Corporation megawatts electric non-condensable gas operating expenditure power purchase agreement Performance Standard (IFC) Stakeholder Engagement Plan World Bank Group Work Breakdown Structure

All currency is in United States dollars (US$, USD), unless otherwise indicated.

Abbreviations v

Credit: Eruption at Merardalir, Iceland. ? Albert Jakobsson. Used with the permission of Albert Jakobsson. Further permission required for reuse.

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