Cost of Financing Geothermal Power Plants

The levelised cost of generating geothermal energy depends on the origin of the resources invested and the way they are secured, as well as the amount of the initial capital investment. In the case of
geothermal development, in some countries such as the United States, debt lenders (typically charging interest rates from 6% to 8%) usually require 25% of the resource capacity to be proven before lending money, so the early phases of the project, which have a higher risk of failure, often have to be financed by equity at higher interest rates (Hance, 2005). The average capital structure of geothermal power projects is composed of 55%-70% debt and 45%-30% equity. Large utilities building their own plants, either with their own available balance sheet or with cash flows, have a different cost structure from other investors when combining equity and loans to finance plants. Different financing schemes can have significant consequences on the costs of generating electricity and the expected rates of return on investment. Costs can be reduced by the availability of a long-term energy supply contract from a creditworthy off taker.

Source: EIA