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Decreasing the equity requirements with wellhead power plants

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At the Iceland Geothermal Conference, Green Energy Geothermal gave a presentation as part of a session on competitiveness and innovation.

Featuring three technology providers, including GEG, a proposed GeoMagma power plant and a presentation the competitiveness of the geothermal sector, the session focused on how different approaches could help in more geothermal development.

In its presentation, GEG focused on a recent financial model done by a third party, looking at the financial impact of staging a larger-scale geothermal development 110 MW project. The case study looked at two scenarios, the traditional approach with two 55 MW units and another approach with eleven 10 MW units by GEG.

In the financial study done by a third party on behalf of a potential client, it was analysed on how sliced development with smaller units impacts the time to completion and the impact on the financial results of the project.

The model describes a favourable funding situation, highlighting a decreased equity requirement for project funding, due to the actual cash flow generated by smaller units. Under the scenario, the first three smaller units would actually be generating electricity up to two and a half years earlier than the first larger-scale unit and thereby create revenues that change the financing requirements dramatically. In the case study for the 110 MW project, it is shown that utilising the smaller units, the equity requirement by the developer decreases by up to $100 million, about 23% less than with two larger scale units. The largest reason for this is the cash generated from operations, higher non-equipment capital expenditures and development cost, such as related to design work and cost for steam gathering system.

Our presentation also shared the results of the analysis on how the internal rate of return (IRR) is impacted by a sliced approach with the smaller units. In its analysis, the client’s consultants estimate that the IRR for a smaller staged approach would result in up to 6.3% more IRR than an approach with two larger units, from 11.9% for conventional approach to 18.3% for wellhead plant approach. Here the staged development is seen as the key element, due to the earlier revenues from the plant, followed by the lower capital expenditures for wellhead plants and the lower operating costs.

The overall message provided by the case study presented is that “A faster route to power production, which improves the business case, is to use ‘wellhead generators’.”