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Feature

When do deep drilling geothermal projects make good economic sense?


Hubert Sacher and René Schiemann

Deep drilling to exploit geothermal energy involves risks related to engineering, financing and non-discovery. Feasibility studies conducted at an early stage of the project point the way to successful exploitation of geothermal energy. The key task of these studies lies in the systematic disclosure of the risks and opportunities involved in a project,

The exploitation of geothermal energy as a sustainable and almost inexhaustible source of base load energy is regarded as a technology of the future. In recent years, the number of countries with geothermal programmes has risen from 46 to 71. At present, these countries have an installed capacity of over 10 GW, producing almost 70 TWh of energy per year.

Yet geothermal heat and electricity production to date has focused on countries with near-surface heat reservoirs. But regions without volcano or “hot-spot” areas frequently offer geothermal potential in deeper layers of the earth. For electricity production to be profitable, temperatures need to be over 100°C, frequently requiring ultra-deep drilling several thousands of metres into the earth – as is the case, for example, in the thermal water reservoirs in the Upper Jurassic limestone of the Molasse basin in Southern Germany.

Uncertainties in the drilling phase

As drilling alone costs several millions of euros, the feasibility and profitability of a geothermal project should be assessed at an early stage. In the majority of cases deep drilling takes several weeks and unforeseeable technical or geological problems may often cause drilling to take twice as long – effectively doubling the costs.

These costs are frequently not adequately calculated before the start of a geothermal project, and may jeopardise its cost effectiveness even if the rest of the project's planning has been effective. Therefore the planning of the technical and financial aspects of the drilling phase should address these potential risk scenarios at an early stage in the run-up to the project.

Inadequate communication

Problems at interfaces, risk assessments that are incomplete (or not completed on time) and technical problems may jeopardise the profitability of a geothermal project.

In December 2009, for instance, the Deep Heat Mining Project in Basel (Switzerland) had to be abandoned. Within the scope of this project, large quantities of pressurised water were injected into the boreholes, resulting in seismic activity. The objective was to widen the fissures in the deep layer of rocks, thus facilitating water routing. To some extent, the tremors generated by this approach were felt on the surface of the earth.

Even though no major damage occurred, the public failed to accept the project – primarily because the competent authorities and the population were inadequately informed in advance. Risk assessment was repeated and revealed that similar seismic activity would have to be expected if the project were continued. These results show the significant role of communication and public relations activities necessary when dealing with innovative technologies.

Preparation and review of feasibility studies

Only comprehensive feasibility studies offer reliable assessment of a geothermal project. To ensure maximum certainty in planning and use, the risk assessments produced by companies such as TÜV SÜD examine not only the technical implementation but also the geological structures, the financing and the insurance against the risk of non-discovery.

It is vital that these experts also review existing studies to verify that they meet the requirements in terms of content and quality. In the first step of such an approach, experts should analyse the framework conditions of a feasibility study i.e. are the authors of the study independent? Are they adequately qualified for all the required disciplines (geology, plant engineering, civil and construction engineering, financing, insurances)?

Later as the project progresses, the experts need to focus on the design and installation concepts of a plant.

By way of example, when TÜV SÜD analyses the risks involved in a project, comprehensive site assessments and review of the exploration and drilling concepts are central issues in assessing the risk of non-discovery. Subsequently, the experts check the forecasts of energy yield and profitability for plausibility, and verify compliance with the relevant standards and legal requirements. The organisational structures and the roles and responsibilities in operations management are also analysed. A separate interface management function is established to ensure that the project will run smoothly and safely.

The fundamental criteria of assessment include a review of the basic suitability of the design, the realisation of individual components and their integration into the overall concept.

Within this scope, TÜV SÜD's experts for example take into account the complexity and novelty of a project and any existing experiences with specific suppliers. Possible suppliers of technical components are assessed and evaluated before the start of the project. After all, the planners and designers of a geothermal power station not only need to accurately define the relevant quality requirements, but must also find suitable suppliers for the individual components.

Regarding the feed pumps, for example, only a few manufacturers permanently meet the requirements of strength, pressure level and corrosion resistance, some of them extreme. In addition, fallback options must be provided for delivery problems or quality deficiencies that may emerge at a later stage.

Further test criteria include flexibility, quality and staff and the substitutability of critical components in service.

Business plan: keeping an eye on costs

A business plan documents the total cost of ownership (TCO). TCO includes both investment costs and the costs incurred for operations, insurance, maintenance and repair. The general risk of non-discovery i.e. of failing to discover commercially exploitable geothermal reservoirs through one or several boreholes may be reduced by taking out insurance.

The experts conduct a Technical Due Diligence on the basis of yield and risk forecasts. Important building blocks of these due diligence reviews include realistic identification of the geothermal power station's own electricity consumption, consideration of worst-case scenarios concerning additional heating fuels and spare part costs, and the perfect combination of public funding options. Correct assessment of the availability, service life and maintenance costs of an installation is also indispensable.

Comprehensive technical due diligence

The technical framework conditions in particular require in-depth examination. When deep drilling is performed to discover geothermal anomalies and a combined heating and power plant is connected at a later stage, the power station and the borehole must be regarded as one functional entity and aligned to each other. The reasons for this are firstly that geothermal fluid often has a very high content of mineral salts or gases, which makes it very corrosive, and secondly the extreme levels of extraction pressure involved.

Salt concentrations of up to ten times that of sea water are risk factors for plant operation that must also not be underestimated. The experts solve this problem by carrying out adequate and informative pump tests on boreholes plus hydrochemical analysis of fluid characteristics. The results of these tests provide information about the material concepts needed in the primary cycle and the process systems suitable for it.

Ongoing assessment of the production and test procedures assures compliance with the contractually agreed quality standards in material selection, design and assembly. In addition to standard operation, the experts can also examine and assess startup and shutdown procedures and possible incidents.

Definition of project milestones

Within the scope of a feasibility study, review from a legal point of view also covers financial and management aspects. Bonus payments and contract penalties must be reasonable. However, a legal review also scrutinises responsibilities and the structure of project development. An important aspect in this context is the definition and certification of realistic milestones i.e. borehole depth and the installation of individual plant components. The same applies to the project's time horizons and fallback options.

To review the project schedule, the experts rely on computer simulation which records and assesses all influencing factors and sets them in relation to each other. This method aims at obtaining realistic time horizons for placing the plant into service, taking worst-case scenarios into account. As an impartial third party, TÜV SÜD for example can also ensure milestone monitoring and act as mediator between the stakeholders in case of conflict.

Conclusion

A technologically and financially successful geothermal project is based on systematic risk assessment and early and comprehensive feasibility studies. Key elements include site assessments, development and drilling plans, the technical aspects of the funding model and the business plan, including investment, operating, insurance and maintenance costs.


About the authors:

  • Dipl.-Ing. Hubert Sacher is Renewable Energies Sector Manager, TÜV SÜD Industrie Service; Munich
  • Dipl.-Geol. René Schiemann is Geothermal Energy Sector Manager, TÜV SÜD Industrie Service GmbH, Stuttgart

Renewable Energy Focus
Volume 11, Issue 5, September-October 2010, Pages 30-31

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Comments

Malcolm Mossman said

21 April 2011
This approach applies only to the continued development of operating economic projects. The project needs adequate recharge of water for steam &/or hot water production.100 deg.C is not necessary if a heat pump is used with water 10-20degC above the groundwater temp. Once the fracture system is opened, the rate of water injection or removal can be adjusted to a level that does not induce earthquakes and is hopefully economic. Each geothermal fluid should be empirically tested to determine the proper facility materials & operations. No! insurance. New natural resource economic risks are almost always too high for insurance or public funding. The parasitic loads [elec., mechanical, heat, cooling, etc.] are often large. The borehole temperature, heat transfer medium, depletion rates, & the market &/or utilization value will determine the viability of the project.

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