Geothermal energy, in the form of steam or hot brine produced from reservoirs, has been used for electricity production since the middle of the 20th century.
Along with its low carbon credentials, geothermal energy is a reliable and dispatchable resource, which differentiates it from other natural resources such as solar and wind. As countries look to optimize their energy transition plans, these factors are driving renewed interest and potential investment in geothermal energy.
The drilling and construction phases of geothermal projects can present some financial and technical risks for project owners. The key risk focus areas include:
- Natural perils. Inevitably, projects are located in fault zones prone to significant seismic activity. The natural perils vary between sites, but present challenges during construction. Projects also can increase seismic activity, such as earthquakes or landslides.
- Drilling and geological hazards. Due to unknown conditions underground, during drilling and construction a site may be subject to well instability, risk of casing collapse, damage to the bottom hole assembly, blowout, and contamination of adjacent ground water resources. When equipment is damaged or unrecoverable, financial risks increase for project principals since drilling equipment rental agreements always include a “new-for-old” stipulation, regardless of the cause of the loss.
- Maintenance and machinery breakdown. Electricity generation can be disrupted due to the breakdown of critical infrastructure, such as transformer or turbine failures. Maintenance-related issues, such as the corrosion of wellheads, casings, and pipelines, hydrogen-related embrittlement, and out-of-production wells, could also impact operations.
- Liability risk. In certain countries, mining regulations specify all liabilities to a project operator, and these cannot be transferred to contractual partners. The scope of liabilities includes the drilling and construction risks noted above, damage to third-party property, bodily injury, and environmental risks, such as chemical fluids that may be spilled during drilling or lubrication oil spills during operation.
