Geothermal handbook: PlanninG and Financing power Generation t e c h n I c a L r e p o r t 2 / 2

resource or Exploration risk 
Modern surface exploration technology has progressed considerably, but even today it cannot 
predict either the exact depth of a reservoir or the exact steam output from drilled wells. Accurate 
values are not obtained until test wells and, finally, production wells are drilled. In this respect, the 
exploration challenges of geothermal energy development are similar to those found in the oil and gas 
industry where exploration risk is also very high.
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In the case of oil and gas projects, however, the 
potential returns on investment are usually high enough to attract private investors willing to absorb 
the exploration risk, and oil and gas companies employ a portfolio approach to mitigate the risk (Box 
2.3). In contrast, in geothermal development, the extent of the potential returns is usually more limited 
for several reasons, including the fact that electricity is typically sold at a regulated price and that the 
development of the geothermal field needs to be done using an incremental/stepwise approach, as 
mentioned earlier and further described in Chapter 3. The returns are also more distant than in the 
case of oil and gas, as revenue flows will start only after construction of the power plant.
The economics of a geothermal development project depends both on the productivity of the 
geothermal resource and on the degree of success in tapping into the resource per dollar invested. 
The amount of power extracted from a geothermal field is primarily a function of the number of wells 
drilled and the production capacity of each, which also depends on the size and permeability of the 
underlying reservoir. The production capacity of a well is largely determined by the flow rate and 
temperature of geothermal fluids.
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Results of drilling in a number of high temperature geothermal fields around the world have shown that 
the output per well among wells of the same depth can vary widely (histogram in Figure 2.7). While 
the average output of wells in any particular geothermal field becomes fairly constant after passing 
through a certain “learning period” when knowledge is gained about the reservoir (Stefansson 2002), 
the learning process itself is costly. This is because many of the wells drilled in the initial phase will 
most likely be less productive (if not completely “dry”) than the eventual “steady state” average for the 
field. In Indonesia, for example, most of the geothermal wells that are in operation produce between 4 
to 7 MW, on average. With additional reinjection wells, a total of 16 to 20 wells would have to be drilled, 
on average, for a 50 MW power project.
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The average exploration success rate in the oil industry worldwide is approximately 33%, or one in three wells (Tordo, Johnston, and 
Johnston 2010). 
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Additional parameters affecting the value of the resource and the cost of its development are: (i) sustainability of the reservoir for power 
generation (which in turn depends on reinjection and natural recharge); and (ii) fluid chemistry (high mineral contents can make it complicated 
and costly to utilize the fluids).

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