About the Project

The GEORISK project aims to develop financial schemes mitigate the impact of the resource risk by spreading it in such a manner that project developers can accept their fair share of it. This mitigation of the risk through financial instruments allows to lower the financial exposure of developers in case of failure to develop a geothermal reservoir.

Until the first borehole has been drilled into the geothermal reservoir, developers cannot be sure about the exact parameters (temperature and flow rate) of the planned geothermal project. Once drilling has taken place, improved knowledge reduces the resource risk and make it possible to attract external capital. The type of financing schemes that can reduce this risk have been established in 6 European countries. The GEORISK project works to establish such risk insurance all over Europe and in some key target third countries to cover the exploration phase and the first drilling.

As other energy sources, geothermal energy faces a range of technical, economical, commercial, organisational and political risks. Some of the risks can and should be borne by the project owner, some are routinely transferred to bodies that are better suited to carry specific risks, yet other risks can be high enough to be – in the absence of a risk transfer mechanism – a show-stopper. Unless the subsurface is particularly well explored and characterized for geothermal energy utilization (e.g. the Lardarello region, the Paris Basin, the major grabens along the Northern Anatolian Fault Zone of Turkey), the resource risk poses a formidable challenge and is the major barrier to entry for geothermal project developers in Europe but also worldwide and seriously hampers its market uptake.

This resource risk (also called geological risk) associated to geothermal project development is unique. It includes:

• The short-term risk of not finding an economically sustainable geothermal resource after drilling;
• The long-term risk of the geothermal resource naturally depleting rendering its exploitation economically unprofitable.

Until the first borehole has been drilled into the geothermal reservoir, developers cannot be sure about the exact parameters (temperature and flow rate) of the planned geothermal electricity or H&C project. Once drilling has taken place, in situ pump tests, temperature and hydrological measurements then reduce the resource risk and make it possible to attract external capital.

Some countries in Europe (France, Germany, Iceland, The Netherlands, Denmark and Switzerland) have already established public insurance schemes (e.g. geothermal guarantees, risk insurance funds, capital grants) that allow project developers to transfer some of the geological risk to public bodies. Risk mitigation schemes for geothermal have been recently launched by National and Multilateral funding agencies and banks in Latin America, Mexico, Chile, Eastern Africa. These latter schemes are mainly in the form of capital grants. In some countries however, privately issued insurance schemes are emerging. In most of Europe however, for a multiplicity of reasons, particularly the high exploration risk, the small size and exotic nature of the market and lack of experience the private insurance sector stands back.

In most cases indeed, project developers have very little capability to manage the financial risk owing to the poor knowledge of the deep subsurface, lack of technological progress and high cost. In effect net present values of project cash flows weighted for the probability of success/failure tend to be overly negative, thus effectively shutting out private capital from investing in geothermal energy.

Target countries

GEORISK project aims to mitigate the geothermal resource risk, working to establish risk mitigation scheme all over Europe:

• Facilitate the transition of existing insurance scheme in Europe (France, Germany, Turkey, Switzerland, Denmark, The Netherlands…) according to the market maturity of the sector
• Replicate and promote the insurance scheme for target countries in Europe (Hungary, Poland, Greece, Belgium, Croatia, Slovenia, Spain…)
• Adapt and present tools in Latin America (Chile and Mexico) and Africa (Kenya)