Geothermal Market: A renewable energy for the future

Master's Thesis, 2005

116 Pages, Grade: 8.8 of 10



1 Executive Summary

2 ENEL S.p.A.
2.1 Company Background
2.2 Company Chart
2.3 Services and Other Activities
2.4 Geothermal Activities
2.5 Outlook

3 Definition of Geothermal Energy

4 Geothermal Industry
4.1 Geothermal Development
4.2 Current Situation
4.3 Growing Demand

5 Technology
5.1 Technology and resource type
5.2 Technology overview – Electric power generation

6 Economics
6.1 Production and Operating & Maintenance Costs
6.2 Pricing

7 Substitutes / Renewable Energy
7.1 Introduction
7.2 Biomass
7.3 Hydro
7.4 Solar
7.5 Wind

8 Real Option Risk Analysis
8.1 Definition of Real Option
8.2 Real Option and Investment in Geothermal Energy
8.3 Country Analysis
8.4 Competitors Analysis
8.5 Geothermal Exploration
8.6 Distribution

9 Recommendation


Figure 1 – Geothermal Energy

Figure 2 - World Geothermal Power Installed, Industrial and Developing Countries, 1950-97

Figure 3 – Installed & Potential Capacity

Figure 4 – Earth Dynamics

Figure 5 – Dry Steam Power Plant

Figure 6 – Flash Steam Power Plant

Figure 7 – Binary Cycle Power Plant

Figure 8 – Power From Moderate – Low Temperature Fluids

Figure 9 - Projected Capital Costs for Hot Dry Rock

Figure 10 - Development Process

Figure 11 – Real Option Tree

Figure 12 – Installed Capacity versus Open Potential Capacity

Figure 13 – Average Risk versus Open Potential

Figure 14 – GDP Growth Rate % versus Open Potential

Figure 15 – Electricity Development Central America

Figure 16 – Exploration Phases

Figure 17 – Thermal Efficiency HOKKAIDO ELECTRIC POWER


Table 1 – Key Financial Data

Table 2 – Installed and Potential Capacity

Table 3 - Cost and Technical evolution data for Geothermal Electricity

Table 4 - Production and OM Costs

Table 5 - Levelized cost comparison of based power by sources

Table 6 - Geothermal operating and maintenance costs by plant sizes (U.S. cents/KWh)

Table 7 – Action Plan


Appendix 1 – Financial Data Enel

Appendix 2 – Installed & Potential Capacity

Appendix 3 – Country Risk Analysis

Appendix 4 – Competitor Analysis

Appendix 5 – Regulatory Framework

1 Executive Summary

The purpose of this project is to provide Enel with an outlook and a possible development of the geothermal sector worldwide.

We analyzed the current geothermal market, its main players, the countries in which they operate as well as the most promising areas with respect to availability and accessibility.

Further, we analyzed technological trends and pursued a risk assessment of the factors that mostly affect the exploration and development of any geothermal field. Based on the above analysis, we propose our recommendation to Enel to further strengthen its geothermal activities and global positioning.

After getting a broad overview from the main geothermal organizations, we interviewed experts with technical and business background as well as geothermal operators, and visited production power plants in order to deepen our knowledge. The analysis of the information we gathered enabled us to develop the following conclusion.

Geothermal is a clean, reliable and sustainable renewable energy, which has proved to be a viable alternative to oil, coal and gas. Its capacity has grown consistently over the last 20 years due to the rising attractiveness to energy companies. Among the reasons for this growth are the reduced exploration and drilling costs, the incentives that some governments offer and the increased corporate awareness of environmental problems (i.e., the Kyoto Protocol restrictions and the Clean Development Mechanism). A good example is Iceland, where 90% of the households already profit from energy offered at a competitive price and generated by geothermal resources.

Nevertheless, geothermal is still an underestimated energy, which is reflected by the fact that only 5.8% of the potential capacity is currently exploited. Indonesia and Mexico as well as many other countries have an open potential which in some cases is ten times higher than the capacity they are actually using. Furthermore, among those are countries which could be 100% powered by geothermal energy (e.g. Costa Rica, El Salvador, Kenya)[1].

These unexplored resources are increasingly attracting international corporations that operate in all segments of the value chain and compete for the most profitable fields. Many companies supply the steam and sell the electricity generated likewise (e.g. Pertamina, Unocal, Calpine), whereas others (such as Ormat) initially focused on technology excellence and later recognized profitable business opportunities also on the supplier side.

Based on the above observations and conclusions, we suggest the following recommendations.

Considering the prosperous geothermal resources and the current market situation, we are convinced that promising opportunities exist in the USA and Indonesia, where regulations encourage development, political and economical conditions are favorable and the chance to partner with suitable local players is possible. Additionally, for future opportunities, special attention should be paid to countries like Mexico, where privatization is in process, Guatemala and Nicaragua, where political and economical conditions are not yet stable but the open geothermal potential is very high. Finally, Kenya and Ethiopia, which are located along the African Rift, represent a long term perspective since the geothermal resources are mostly unexplored but the political and economical framework hinder current market penetration.

Further details will be outlined in the presentation and in the final report.

2 ENEL S.p.A.

2.1 Company Background

Enel S.p.A (“the Company”) was founded December 6, 1962, as Ente Nazionale per l’Energia Elettrica (National Board for the electric energy), to which the Italian Government gave the role to produce, import, export, transport, transform, distribute and sell electricity.

The company today is engaged in the generation, distribution, sale, and transmission of electricity in Italy. It also sells and transmits electricity primarily in Spain, and North and Central America. As of December 31, 2003, the company had 593 generating plants, consisting of thermal, hydroelectric, geothermal, and other renewable resources facilities. Its distribution network consisted of 1,082,369 km of lines, as of the above date. As of 31.12 2004 the company had 61,896 employees.

The Company has completed a refocusing strategy and is now entirely focused on the electricity and gas business. During 2004 they refocusing strategy was completed with the sale of real estate activities and waste treatment business, and the agreement reached for the disposal of our water activities.

Their mission is “to be the most efficient, market driven, quality focused provider of power and gas creating value for its customers, shareholders and people”.[2]

The key financial data of the Company can be seen in Table 1.

During 2004 the revenues grew by 16.5% from previous year. The gross operating margin grew by 11.9% in 2004. Main increases were registered in Telecommunications (up euro 544 million) and the Parent Company (up euro 473 million). Gross operating margin of the Networks, Infrastructure and Sales Division grew by euro 151 million (up 4.1%), the Generation and Energy Management Division registered an increase of euro 136 million (up 3.5%), Transmission Networks an increase of euro 62 million (up 10%), while the Services and Other activities area registered a euro 183 million decline due to the reduction in the operating perimeter. The EBITDA rose by 11,9% and the net profit excluding extraordinary and non-recurring items grew by 68%. The Company is now a highly cash generative business and this enables us to sustain a high dividend flow. During 2004 the value of their shares rose about 38.8%, reaching a maximum of euro 7.25.

Table 1 – Key Financial Data

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For the future the company predicts that growth will come in a number of areas – in renewables, where they have strong positions both in Italy and abroad; in gas, where they will acquire businesses and develop organically their customer base through their attractive dual fuel offer and their trusted brand.

As of 31.12.2004 the shareholding structure was the following:

- 31.45% owned by the Ministry of Economics and Finance[3]
- 10.28% by its subsidiary Cassa Depositi e Prestiti, and
- the residual 58.27% is floated on the market (mostly owned by institutional owner, the biggest being Lazard Asset Management LLC)

2.2 Company Chart

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2.3 Services and Other Activities

The Services[4] and Other activities area provides competitive services to Enel Divisions and offers them on the market. The area includes the Real Estate and services, Engineering and contracting, Information technologies, Personnel Training and Administration, Factoring and Insurance services, in addition to Water activities to be gradually divested. The financial data of these business areas can be found in Appendix 1.

2.4 Geothermal Activities

Enel has consolidated its leading international role in the renewable energy sector and is contributing to the development of innovative engineering and architectural solutions designed to integrate power stations increasingly with the environment, the landscape and the society as a whole.

One example of its commitment is the new AMIS (Mercury and Hydrogen Sulphide abatement) system applied by Enel in the geothermal sector and already operating in some plants. AMIS lowers mercury and hydrogen emissions enormously and reduces the offensive odour in the neighborhood of the power plants.

Internationally, Enel is striving to transfer its extensive knowledge of identifying, developing and optimizing geothermal resources through its expansion into Latina and North America. Through its partnership with LaGeo in El Salvador, the company is developing a new geothermal electricity generation plant and optimizing several existing plant output by adding a binary cycle system. Projects for the exploration and exploitation of geothermal plants are in the pipeline in at least five Latin American countries; in North America, Enel’s subsidiaries are actively seeking strategic investments in geothermal assets.

In Italy, Enel operates 34 geothermal plants, for a total of 700MW of installed capacity.

All the operations, from drilling the wells to operating the plants, are done in respect of the local environment: that’s why, for instance, today new colors are used to hide the pipelines, architects’ help is asked to build smaller plants and careful attention is given to the nature surroundings the factories.

2.5 Outlook

With regards to the generation area, the context in which Enel expects to operate in 2005 will be characterized primarily by a further evolution of the Pool Market for electricity. The Pool Market provides for a single national purchase price (SPP) of electricity, and differentiates offer prices by area in which the electricity is produced.

The Authority for Electricity and Gas introduced new norms regulating the exercise of market power (Resolution no. 254 dated December 30, 2004) and new merit order dispatching rules (Resolution no. 237 dated December 24, 2004). In order to compete in the new scenario, Enel will continue to pursue the former strategy aiming at maintaining a leadership in cost through the optimization of fuel procurement, the ongoing efficiency improvements of its generation portfolio, the continuation of the process for the conversion to combined-cycle technology and the substitution of fuels with cheaper ones. Capital expenditure in the renewable resources sector aimed at increasing the efficiency of plant and at producing green certificates to comply with constraints imposed by the Bersani Decree, will continue alongside the streamlining of processes and structures, in addition to the reduction in operation and maintenance costs with the objective of reaching set operating efficiency levels.

With regards to the distribution and sale of electricity, the regulatory framework for 2005 is developing in line with general rules set by the Authority for Electricity and Gas in the first part of 2004, involving the definition of rules for the second regulatory period (2004-2007). Tariffs for the distribution of electricity and connection fees were updated through the price-cap mechanism that was set at 3.5% in real terms (nominal 1.5%), with a reduction in the net margin for the sale and transport of electricity.

Projects launched focus on:

- increasing the efficiency of operating processes and the containment of costs;
- optimizing the management of investments in line with service continuity levels achieved;
- completing the Telemanager Project with the installation of over 29 million digital meters by the end of 2005;
- strengthening Enel’s presence in all segments of the electricity market in view of its full liberalization, also through the offer of new tariff plans;
- the new billing system (GIOVE Project) with the objective of replacing completely within two years

With regards to the distribution and sale of gas, the numerous Resolutions issued by the Authority in 2004 involved tariff adjustments, the quality of service and the safety of plants. Resolution no. 170/04 set criteria for the determination of distribution tariffs for the new regulatory period (October 2004–September 2008), setting the remuneration of capital employed at 7.5% and the price-cap, applied to the sole operating costs and depreciation charges, at 5%.

In this sector, Enel will continue in 2005 to pursue its growth program involving acquisitions and specific marketing with the aim of achieving a 20% market share by 2009.

With regards to the internationalization of the core business, Enel intends to pursue operations already launched such as the purchase of Slovenské Elektràrne, Slovakia’s largest electricity producer (7,000 MW, thermal, hydro and nuclear power), and will take advantage of all opportunities for an expansion abroad that allow it to exploit its know-how in countries undergoing liberalization of the electricity market and in which there is growing demand for electricity.

3 Definition of Geothermal Energy

Geothermal energy is an enormous, underused heat and power resource that is clean as there is only little or no greenhouse gases, reliable due to the average system availability of 95%, and homegrown which makes the countries less dependent on foreign oil.

Geothermal is the heat that flows from the Earth's hot interior due to crustal plate movements. Deep circulation of groundwater along fracture zones will bring heat to shallower levels, collecting the heat flow from a broad area and concentrating it into shallow reservoirs, containing hot water and/or steam, or discharging as hot springs. Through drilling method similar to the oil drilling technology the hot water and/or steam is piped to the surface where it is used for direct use or electricity generation depending on the temperature and the pressure of the steam. The low energy waste water from such power generation is then usually re-injected back into the reservoir, or further utilized for direct heat applications. The technology of geothermal power generation will be explained in Chapter 5 in more depth.

In general there are three main categories, the high (>150°C), moderate (90°C – 150°C) and low (< 90°C) temperature resources. The high temperature geothermal resources are predominantly found in island chains and volcanic regions, whereas the moderate and low temperature resources can be found in all countries. The high temperature is almost always used for power production while most of the low temperature resources are used for direct heating purposes or agriculture and aquaculture.

As mentioned earlier there are two different types of usage of geothermal energy:

- Direct use

o geothermal heat for agricultural and aqua-culture production in colder climates and for industrial processes,

o 38°C - 149°C

- Power generation

In over 30 countries geothermal resources provide directly used heat capacity of around 12,000 MW and electric power generation capacity of over 8,000 MW. The current production of geothermal energy from all uses places third among renewables, following hydroelectricity and biomass, and ahead of solar and wind. Despite these impressive statistics, the current level of geothermal use pales in comparison to its potential. Current U.S. geothermal electric power generation totals approximately 2.200 MW or about the same as four large nuclear power plants.

The size of an individual geothermal power plant can range from as small as 100 kW to as large as 100 MW. The size not only depends on the power demand but also on the capability of the energy resource. The technology is suitable for rural electrification and mini-grid applications in addition to national grid applications. Geothermal resources play an important and significant role in developing nations where there is no availability of indigenous fossil fuel resources such as oil, coal or natural gas. In Tibet the Nagqu geothermal field (Tibet Autonomous Region, PRC/1 MWe binary plant) provides a useful energy source for the local population.

The unit costs of power currently range from 2.5 to over 10 US cents per kilowatt-hour while steams costs may be as low as US$3.5 per tonne. Costs of geothermal electricity depend on the character of the resource and project size. Influencing factors are for example the depth and temperature of the resource, well productivity, environmental compliance, project infrastructure and economic factors such as the scale of development, and project financing costs.

Figure 1 – Geothermal Energy

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4 Geothermal Industry

4.1 Geothermal Development

Figure 2 - World Geothermal Power Installed, Industrial and Developing Countries, 1950-97

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4.2 Current Situation

Geothermal energy today is exploited and used in about 30 countries worldwide. Its rapid expansion for electricity generation during the 80’s in both industrial and developing countries made it possible to reach the actual installed capacity of about 8.000MW. The USA is the leading country in terms of installed capacity, with approximately 2.500MW. The effort put in the development of this energy by some developing countries can be best seen in the Philippines, the second country in the world with the highest (about 1.900MW) installed capacity. The following figure 3 shows the installed and potential capacity by countries.

Despite the numerous advantages that this resource has compared to fossil fuels (among others, geothermal energy practically doesn’t pollute and is sustainable), the open potential is still very high, as it is cleared from the following table 2 and figure 3[5]

Table 2 – Installed and Potential Capacity

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Figure 3 – Installed & Potential Capacity

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4.3 Growing Demand

Despite the fact that use of geothermal energy is growing and major breakthroughs are being made in technology and direct uses expanding, the energy accounts for only four tenths of 1% of world-wide energy use. This is because fossil fuel is cheap and plentiful and is portable, unlike geothermal energy, besides having a well established infrastructure throughout the world. Furthermore, there is no restriction on this energy supply within this century. Thus, the real challenge is how to dramatically increase geothermal energy production and use by at least 1000 MW a year in the face of this stiff competition.

Currently, there is little or no penalty on polluting the environment although this is slowly changing with the Kyoto Protocol. Some countries are making efforts to cut down on global warming gases. In fact, recent data show that today, the level of carbon dioxide is ten times lower than in the past. And there is a growing momentum to develop the so called "green energy" market for there is a certain percentage of people and governments that are willing to pay more for clean energy, and this trend seems to be growing.

The growth is most rapid in places where government commitment is strong. For example, in Iceland, 90% of houses are heated using geothermal energy while in the Philippines, 26% of electricity is from this energy source. But the energy is slow in being used to its full potential in emerging and industrialized countries. In the former, it is because of lack of money. Funding is needed as what is available at present is not adequate. This is due in part to unstable government and inadequate laws and regulations to attract private funding. Therefore it is important that people and governments know that although the initial cost of power generation and direct heat utilization is high, the life cycle cost of geothermal energy is low. Thus, when the initial cost has been recovered, operational and maintenance costs are competitive. What is needed is government interest to finance geothermal projects as well as a long-term energy plan.

Work must be done within individual governments to convince them of the benefits derived from geothermal energy; that it is clean, renewable, and indigenous. It must be made known that geothermal energy has a low life cycle cost and of the need to support its development. Resources are most abundant in emerging nations. World-wide, about 40 million people make use of geothermal energy. This can be increased to 800 million people.

It is estimated that the total worldwide geothermal resource potential suitable for future economic development amounts to about 150 EJ/a (1 EJ = 1018 J) for electricity generation and 350 EJ/a for direct heat uses.

Though it is difficult to predict future development, growth of up to 15% per annum for both geothermal power generation and direct heat use is possible for the period to 2010. By 2020, geothermal energy could supply over 5% of the global electricity. The associated savings in fossil fuel use and the reduction in CO2 production would be significant.

5 Technology

The gradual radioactive[6] decay of elements within the earth maintains the earth's core at temperatures in excess of 5000°C. Heat energy continuously flows from this hot core by means of conductive heat flow and convective flows of molten mantle beneath the crust. The result is that there is a mean heat flux at the earth's surface of around 16 kilowatts of heat energy per square kilometer which is dissipated to the atmosphere and space. This heat flux is not uniformly distributed over the earth's surface but tends to be strongest along tectonic plate boundaries where volcanic activity transports high temperature material to near the surface. Only a small fraction of the molten rock feeding volcanoes actually reaches the surface. Most is left at depths of 5-20 km beneath the surface, where it releases heat that can drive hydrological convection that forms high temperature geothermal systems at shallower depths of 500-3000m.

The figure below illustrates the relationship between tectonic plate boundaries and volcanic areas.

Figure 4 – Earth Dynamics

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However, even in parts of the world far from plate boundaries, there can still exist areas of higher than average natural heat flow. Deep circulation of groundwater along fractured zones in such localities will bring heat up from depth, collecting the heat from a broad area and concentrating it into a shallow reservoir or discharging as hot springs. The resulting fluid temperatures are lower than those produced in volcanic systems but often can sustain very high flow rates.

Geothermal resources vary widely from location to location, depending on the temperature and depth of the resource, the chemical makeup of the rocks, and the abundance of ground water. The types of geothermal resource will in turn, to a large degree determine the type of technology chosen to utilize the resource.

5.1 Technology and resource type

Geothermal resources vary in temperature from 50-350 ºC, and can either be dry, mainly steam, a mixture of steam and water or just liquid water. In order to extract geothermal heat from the earth, water is the transfer medium. Naturally occurring groundwater is available for this task in most places but more recently technologies are being developed to even extract the energy from hot dry rock resources.

The temperature of the resource is a major determinant of the type of technologies required to extract the heat and the uses to which it can be put.

The table below lists the basic technologies normally utilized according to resource temperature.

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5.2 Technology overview – Electric power generation

5.2.1 High temperature resources

High temperature geothermal reservoirs containing water and/or steam can provide steam to directly drive steam turbines and electrical generation plant. More recently developed binary power plant technologies enable more of the heat from the resource to be utilized for power generation. The binary cycle technology is described in detail below. A combination of conventional flash and binary cycle technology is becoming increasingly popular.

High temperature resources commonly produce either steam, or a mixture of steam and water from the production wells. The steam and water is separated in a pressure vessel (Separator), with the steam piped to the power station where it drives one or more steam turbines to produce electric power. The separated geothermal water (brine) is either utilized in a binary cycle type plant to produce more power, or is disposed of back into the reservoir down deep (re-injection process) wells. The following is a brief description of each of the technologies most commonly used to utilize high temperature resources for power generation.

Dry steam power plant

Steam plants use hydrothermal fluids that are primarily steam. The steam goes directly to a turbine, which drives a generator that produces electricity. The steam eliminates the need to burn fossil fuels to run the turbine. (Also eliminating the need to transport and store fuels!) This is the oldest type of geothermal power plant. It was first used at Larderello in Italy in 1904, and is still very effective. Steam technology is used today at The Geysers in northern California, the world's largest single source of geothermal power. These plants emit only excess steam and very minor amounts of gases.

Figure 5 – Dry Steam Power Plant

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Flash steam power plant

This is the most common type of geothermal power plant. The illustration below shows the principal elements of this type of plant. Once the steam has been separated from the water, it is piped to the powerhouse where it is used to drive the steam turbine. The steam is condensed after leaving the turbine, creating a partial vacuum and thereby maximizing the power generated by the turbine-generator. The steam is usually condensed either in a direct contact condenser, or a heat exchanger type condenser. The condensed steam then forms part of the cooling water circuit, and a substantial portion is subsequently evaporated and is dispersed into the atmosphere through the cooling tower. Excess cooling water called blow down is often disposed of in shallow re-injection wells. As an alternative to direct contact condensers shell and tube type condensers are sometimes used, as is shown in the schematic below. In this type of plant, the condensed steam does not come into contact with the cooling water, and is disposed of in injection wells.

Figure 6 – Flash Steam Power Plant

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Typically, flash condensing geothermal power plants vary in size from 5 MW to over 100 MW. Depending on the steam characteristics, gas content, pressures, and power plant design, between 6 and 9 tonne of steam each hour is required to produce each MW of electrical power. Small power plants (less than 10 MW) are often called well head units as they only require the steam of one well and are located adjacent to the well on the drilling pad in order to reduce pipeline costs. Often such well head units do not have a condenser, and are called backpressure units. They are very cheap and simple to install, but are inefficient (typically 10-20 tonne per hour of steam for every MW of electricity) and can have higher environmental impacts.

Binary cycle power plants

In reservoirs where temperatures are typically less than 220ºC (430ºF) but greater than 100ºC (212ºF), binary cycle plants are often utilized.

The illustration below shows the principal elements of this type of plant.

The reservoir fluid (either steam or water or both) is passed through a heat exchanger which heats a secondary working fluid which has a boiling point lower than 100ºC (212ºF). This is typically an organic fluid (e.g. Isopentane), which is vaporized and used to drive the turbine. The organic fluid is then condensed in a similar manner to the steam in the flash power plant described above, except that a shell and tube type condenser rather than a direct contact one is used. The fluid in a binary plant is recycled back to the heat exchanger and forms a closed loop. The cooled reservoir fluid is again re-injected back into the reservoir.

Figure 7 – Binary Cycle Power Plant

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Binary cycle plants are usually between 7 and 12 % efficient depending on the temperature of the primary (geothermal) fluid. The curves below give an indication of the electrical power output from a binary plant over a range of flows and geothermal reservoir temperatures.

Figure 8 – Power From Moderate – Low Temperature Fluids

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Binary Cycle plants typically vary in size from 500 kW to 10 MW.

Combined cycle (flash and binary)

Combined Cycle power plants are a combination of conventional steam turbine technology and binary cycle technology. By combining both technologies, higher overall utilizations efficiencies can be gained, as the conventional steam turbine is more efficient at generation of power from high temperature steam, and the binary cycle from the lower temperature separated water. In addition, by replacing the condenser-cooling tower cooling system in a conventional plant by a binary plant, the heat available from condensing the spent steam after it has left the steam turbine can be utilized to produce more power. A number of such plants have been built in the USA, Philippines and New Zealand with plant sizes ranging between 10 and over 100 MW. Efficiencies of such plants in terms of the power generated for the total fluid flow (both steam and water) produced by the wells is significantly higher than conventional plants, mainly due to the extra power generated by utilizing the heat in the brine.

5.2.2 Medium temperature resources

Medium temperature resources are normally hot water with temperatures ranging from 100ºC to 220ºC. The most common technology for utilising such resources for power generation is the binary cycle technology. This technology is described above under high temperature resources.

5.2.3 Hot Dry Rock

Hot dry rock geothermal[7] technology offers enormous potential for electricity production. These resources are much deeper than hydrothermal resources. Hot dry rock energy comes from relatively water-free hot rock found at a depth of about 4,000 meters or more beneath the Earth’s surface. One way to extract the energy is by circulating water through man-made fractures in the hot rock. Heat can then be extracted from the water at the surface for power generation, and the cooled water can then be recycled through the fractures to pick up more heat, creating a closed-looped system. Hot Dry Rock resources have yet to be commercially developed. One reason for this is that well costs increase exponentially with depth, and since Hot Dry Rock resources are much deeper than hydrothermal resources, they are much more expensive to develop. The figure below shows the projected capital cost for hot dry rock compared to traditional geothermal power technology from 1996 to 2030. The figure shows that the capital cost of hot dry rock will decrease by almost half in 30 years, but it will still be twice as expensive as other traditional geothermal technologies. If the technology can evolve to make hot dry rock resources commercially viable, hot dry rock resources are sufficiently large enough to supply a significant fraction of electric power needs for centuries.

Figure 9 - Projected Capital Costs for Hot Dry Rock

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Projected Capital Costs for Hot Dry Rock Compared to Traditional Geothermal

Power Technology, 1996–2030 (Source: Repp Crest, Geothermal)

5.2.4 Technological issues with geothermal developments

Whether geothermal energy is utilized for power production or for direct use applications, there are issues in geothermal utilization that often have technical implications.

Geothermal fluids often contain significant quantities of gases such as hydrogen sulphide as well as dissolved chemicals and can sometimes be acidic. Because of this, corrosion, erosion and chemical deposition may be issues that require attention at the design stage and during operation of the geothermal project. Well casings and pipelines can suffer corrosion and /or scale deposition, and turbines, especially blades, can suffer damage leading to higher maintenance costs and reduced power output.

However, provided careful consideration of such potential problems is made at the design stage, there are a number of technological solutions available. Such potential problems can be normally overcome by a combination of utilizing corrosion resistant materials, careful control of brine temperatures, the use of steam scrubbers and occasionally using corrosion inhibitors. Provided such readily available solutions are employed, geothermal projects generally have a very good history of operational reliability. Geothermal power plants for example, can boast of high capacity factors (typically 85-95%).

5.2.5 Future developments of geothermal technologies

Drilling and well[8] completion can account for more than half of the capital cost of a geothermal power project; drilling costs can have a “make or break” effect on proposed geothermal development.

The potential pitfalls the rig can run into are many. Among the problems that plague all types of drilling, including geothermal, is a lack of timely information about what is happening downhole, where the bit is cutting the rock. Drillers have few options in conventional drilling operations. They can only control weight-on-bit (the force that drives the bit into the rock), the rotary speed of the drill string, and the flow rate of drilling mud (the viscous liquid that circulates down the drill pipe through nozzles in the bit and back up the hole, cooling the hole while carrying the rock cuttings with it). For the past 20 years, a rudimentary technology called

Measurement-while-Drilling (MWD) has helped get the measured data to the surface. MWD today is used primarily to control the path of wells. However, the information travels relatively slowly, and this technology also fails under high temperatures. Diagnostics-while-Drilling (DWD) technology will use a data loop, which will bring high-speed, real-time data up the hole, combine it with measurements made at the surface, integrate and analyze these measurements to advise the driller, and then return signals downhole for control of “smart” tools.

In the area of high-temperature electronics, the USA Department of Energy is assisting private industry by developing tools that can withstand the high temperatures of geothermal wells. Hard, hot, abrasive rocks reduce the life span of bits and electronic tools to about eight hours. Almost 50 percent of conventional electronics fail at 150 °C, and of the remaining 50 percent, 80 percent fail before reaching 200 °C. Working with Honeywell’s Solid State Electronics Center, Sandia Laboratories developed and demonstrated the industry’s first 300 °C microprocessor-based circuit, a device that ran for more than 200 hours through several temperature cycles. Silicon On Insulator (SOI) prototypes have already been tested successfully in wells at temperatures above 250 °C.

Lost circulation of expensive drilling mud also frequently adds to drilling costs. A recent success in controlling lost circulation demonstrated the value of polyurethane foam for plugging problematic zones in geothermal wells. Researchers plugged a loss zone in a well in Nevada where more than 20 previous attempts with cement had failed.

5.2.6 Geothermal power project development process

Geothermal projects are developed[9] through a series of logical stages, which are summarized in the geothermal development flow chart below. This diagram shows the various stages in a typical geothermal project. Decisions to proceed to the next stage are normally made progressively throughout the project. (See - Development Process Figure 10)

Reconnaissance and exploration

Geothermal resources are usually located and defined by a progressively more intensive (and expensive) exploration program that starts at a regional level and eventually results in a drilling program to positively delineate the resource. Reconnaissance surveys will identify the most suitable prospect areas by recognition of favorable geological settings and locating any hot springs or other surface thermal discharge. Reconnaissance studies involve mapping any hot springs or other surface thermal features and the identification of favorable geological structures. The chemical composition of the discharging fluids reveals information about the deeper reservoir, including temperature and fluid characteristics. Geological studies provide information about the probable distribution and extent of aquifers, as well as the likely heat source and heat flow regime.

Figure 10 - Development Process

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Areas identified as having high potential or that are favored because of proximity to an energy use centre, will be explored by more comprehensive scientific survey methods. In addition to more detailed geological and geochemical studies, a range of geophysical techniques may be used including gravity, magnetic and resistively surveys. Resistively surveys in particular can locate anomalies that are directly related to the presence of geothermal fluids. Interpretation of these integrated geoscientific studies leads to prioritization of targets for exploration drilling programs. The application of sound scientific method and analysis during these early phases increases the probability of success with subsequent drilling and development. If these surveys provide very good indications for the presence of a useful geothermal reservoir, the resource is tested by the drilling of exploration wells so that actual subsurface temperatures can be measured and reservoir productivity tested. The exploration program should therefore be designed to suit the type of resource expected, the amount of energy expected to be produced from the project and the timeframe for the development.



[2] Enel S.p.A., “Annual Report 2004”, p.2

[3] The Ministry of Economics and Finance reduced its ownership in the company through a stock market placement (at December 31), reducing its ownership to 31,45 %.

[4] Enel, “Annual Report 2004”, p.6

[5] IGA,



[6] World Bank,


USA Department of Energy,

[7] Soultz,


[8] USA National Renewable Energy Laboratory, Geothermal Today, pdf file

[9] World Bank,

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Geothermal Market: A renewable energy for the future
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This substantial, 116 pages long, Master Thesis was developed on the basis of my MBA studies and in cooperation with the Enel Company (Energy) in Rome. For this reason you will also find a short introduction of this corporate group in the report. However, this document offers a very good overview of the geothermal market as well as an outlook and a recommendation for future development. The report was evaluated with a 8.8 on a scale of 10.
Geothermal, Market
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Phillip Sack (Author), 2005, Geothermal Market: A renewable energy for the future, Munich, GRIN Verlag,


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Title: Geothermal Market: A renewable energy for the future

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