Geothermal Electric Projects from a User's Viewpoint

The financing of a geothermal power plant has a unique characteristic which is not present with conventional oil, coal, or nuclear power plants and which has slowed development of geothermal resources. That unique characteristic is the increased risk as perceived by utilities, banks and lessors and the unpredictability of those risks as perceived by insurance companies. From a utility company perspective, the increased risk is the potential financial loss to the stockholders in the event the power plant is unable to economically produce electricity due to depletion, scaling or other problems. Such an eventuality could result in the utility having to ''write-off'' the value of the asset and pass the loss onto the stockholders. Banks, lessors and others share these same concerns for their stockholders; thus, are willing to finance power plants only if most of the financial risk is borne by the utility. Retention of financial risk by the utility can take the form of a ''hell or high water'' power purchase contract wherein the utility makes payments even when no power is being produced, or an indemnity agreement with a plant lessor wherein the utility agrees to indemnify the lessor in the event he loses any of the tax or income benefits contemplated, or a credit agreement with a bank or other source of funds wherein the utility company's general credit backs up the obligation. As a result of their perception of increased risk, utilities have been searching for ways to reduce the risk to their stockholders by shifting it either to the taxpayer in the form of a DOE grant or DOE loan guarantee, or the rate-payer in the form of Public Utility Commission (PUC) approvals or other sharing. Other potential methods for reducing risk may entail finding a plant lessor or other entity willing to accept some of the risk in exchange for a higher rate of return obtaining insurance; or some combination of DOE loan guarantee, lease and insurance. No attempt has been made to include the viewpoint of municipal utilities in this report. While they and their ratepayers may have the same concerns about the increased economic risks, the sources of financing are substantially different; thus, the risk of loss to the stockholders is not a concern