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

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G e o t h e r m a l H a n d b o o k : P l a n n i n g a n d F i n a n c i n g P o w e r G e n e r a t i o n 
3
hIghLIghTS
• Besides the basic prerequisite of a promising geothermal resource potential, the other key elements supporting
a successful geothermal development effort are: availability of sufficiently accurate geothermal resource data and
other relevant information; effective and dedicated institutions; supportive policies and regulations; and access of
the project developer to suitable financing, including both commercial and concessional finance. 
• Institutional requirements include the need for a country to have a dedicated national geothermal exploration
and development organization (or company) capable of managing large-scale infrastructure projects consistent
with international and industry standards.
• Granting geothermal exploration and development rights should be based on the principles of: a clear legal
and regulatory framework; well-defined institutional responsibilities; and transparent and non-discriminatory
procedures, including adequate measures for controlling speculative practices. 
• Governments around the world use a wide range of instruments to support the deployment of renewable electricity,
including FITs or quota obligations such as renewable portfolio standards (RPSs).
• There are only a few examples of FIT schemes being applied to geothermal power, with most in continental
Europe. Africa and Asia have seen budding interest in using FITs for geothermal, but the efforts have resulted in
policies setting a ceiling price instead of a FIT in some cases (e.g., Indonesia).
• As alternatives to FIT or RPS, governments may choose to support public-private partnerships (PPPs) involving
build-operate-transfer (BOT) or similar contracts to jump-start geothermal development programs. The public
sector taking the geothermal resource risk has been key to making such schemes work (Philippines, Mexico).
• After proving the commercial viability of its geothermal sector through a series of successful PPP contracts with
the government taking the resource risk, the country may consider transitioning to models that increasingly
rely on the private developer to accept and manage the resource risk. However, the developer or investor in
this case will require a compensation for the increased risk through a higher off-take price of electricity or through
other contractual means. Many countries have preferred to directly fund the risky upstream phases due to this
trade off.
• Exposure to resource risk can be mitigated through the application of portfolio management concepts that allow
for diversification across a sufficiently large number of prospective development fields, including insurance
schemes. International development agencies and other donors have a key role to play by providing capital to set
up concessional financing facilities to mitigate geothermal resource risk, as well as by offering technical support
that can help overcome institutional capacity constraints.
• Possible designs for a donor-supported geothermal development facility include: (a) a direct capital subsidy or
grant facility; (b) a loan (on-lending) facility; and (c) a risk guarantee or insurance facility. Any of these designs
can reduce the private investors’ risks and thus reduce the risk premiums for the return on equity and the overall
cost of capital, opening up new opportunities for scaling up geothermal power.

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C h a p t e r 3
Geothermal power offers a number of attractive benefits that any country endowed with geothermal 
resource potential should seek to utilize. At the same time, as indicated by the risks and barriers 
discussed in the previous chapter, geothermal energy development is a challenging undertaking. 
The following discussion provides guidance on how the inherent risks and challenges of geothermal 
development can be addressed. The existence of exploitable geothermal potential in the country, while 
absolutely and obviously essential, is only a prerequisite.
Besides the basic prerequisite of a promising geothermal resource potential, the other key elements 
supporting a successful geothermal development effort are: (a) availability of sufficiently accurate 
geothermal resource data and other relevant information; (b) effective and dedicated institutions; (c) 
supportive policies and regulations; and (d) access by the project developer to suitable financing, 
including both commercial and concessional finance (Figure 3.1).
Each of these four elements represents a factor that directly affects the outcome of a geothermal 
development project or program. From an investor’s standpoint, the strength of each of the factors 
works to increase the expected return or reduce risk. From the perspective of a country and its 
government, these factors may determine the level of investment in geothermal energy or, indeed, 
whether or not such investments will happen at all. 
Success of 
Geothermal 
Energy 
Development
Information
• Conceptual model
• Resource Data/Inventory
• Exploration
• Drilling
• Technology
• Market data
Finance
• Commercial Debt/Equity
• Government grants or 
loan guarantees
• Development lending
• Climate finance
Policies
• Price incentives
• Quantitative commitments
• Support to PPPs
• Access to grid
Institutions
• Geothermal development 
agency/company
• Qualified ministry staff
• Qualified power utility staff
• Capable regulator