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

T A B L E 3 . 2
Case without Public Support
PARAMETER
VALUE 
Total Investment Cost of Project
US$ 196,000,000 
Investment Cost per Megawatt
US$ 3,920,000 / MW 
Required Return on Equity
25%
Interest Rate of the Loan
6%
Equity Share in Capex (from year 2 on)
30%
Tax Rate
20%
Capacity Factor
90%
O&M, including Labor 
US$ 10,192,000 / yr
Levelized Cost of Energy 
US$ 0.05 / kWh
Tariff 
US$ 0.12 / kWh
Return on Equity
24.5%
NPV
US$ -740,354
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C h a p t e r 3
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It is also assumed that no interest or principal is due until the project starts to generate revenues.
Example
The government is interested in adding a new (greenfield) 50 MW base-load geothermal plant to the 
grid and is trying to encourage private investment in the project. It starts by considering the case in 
which no upfront grant support is provided to the private investor, but the guaranteed off-take tariff is 
set at a level sufficient to meet the private investor’s required rate of return on equity. 
base case | 
No grants (or capital subsidy) support is provided by the government. Without assured 
support from the government or international donors in the early stages of a geothermal project, a 
private equity investor may perceive the risk to be high and require an accordingly high return on 
equity. The example considered here assumes the required rate of return on equity to be 25 percent 
(Table 3.2). However, this level of return on equity proves difficult to achieve. When all costs required 
to confirm the resource are included, the capital cost incurred throughout the first six years are about 
US$ 3.9 million per MW; and the plant commissioning and the first revenues are expected only in Year 
6. As a result, the net present value (NPV) of the Base Case comes out negative, even with a wholesale 
tariff as high as US$ 0.12 per kWh and a bank loan at 6 percent secured for 25 years.
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Given the negative NPV in the Base Case, the government considers a different approach.
Source | Authors.

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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 
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