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

Financing risks due to high upfront Cost and Long Lead Time 
Geothermal projects involve a greater commitment of capital upfront than most other power generation 
projects. While relatively high capital costs (and relatively low operating costs) are typical for all 
renewable energy projects, geothermal projects have the additional capital expense associated with 
the upstream development of steam fields. Unlike coal or gas supplies that are purchased over the 
project’s lifetime, the upstream development of a geothermal steam field is equivalent to purchasing 
the fuel needed for the life of the project upfront. In addition, much like large hydropower projects, 

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geothermal projects have relatively long lead times from the start of exploration to power plant 
commissioning and the first revenues. 
Both these factors—high upfront cost and long lead time—can have a negative impact on the cost 
of capital. Debt financing may not be available during the early phases of the project, increasing the 
need to rely on more costly equity capital. Even when both debt and equity are available, the high 
capital requirement and the long lead time will drive up the costs. Commercial debt suppliers (banks) 
may require a higher credit risk premium to account for the higher risk due to the relatively large 
amount of debt induced by the high capital requirement. For their part, as repayment of debt usually 
has priority over cash flows to equity, suppliers of equity will require a higher premium for the delayed 
and hence more uncertain payoff on their capital.