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

F I g u r E 2 . 7 
Histogram of Geothermal Well Output
Based on a sample of 91 High-Temperature Geothermal Fields in the World
Source | Adapted from Stefansson 2002.
30%
25%
20%
15%
10%
5%
0%
0 
2
4
6
8
10
12
14 
Fr
equenc
y
Output in MW (electric) per Well
Calibrated to Well Depth of 2 km
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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 
The other important factor subject to uncertainty is the depth to which wells need to be drilled to tap 
into the reservoir. For example, the difference between drilling to a depth of 2.5 km instead of 2 km for 
full size wells may easily translate into an additional cost in excess of US$ 1 million per well.
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It is also 
important to note that the unit cost per meter drilled will likely increase with increased depth.
B O x 2 . 3
The Oil Industry: Who Carries the Exploration Risk?
Risk management is an important feature of the oil industry. Companies hedge against risk by investing in a 
diverse portfolio of projects, often in several countries, and by involving partners. Countries rarely have the 
same ability to diversify their petroleum investments as large companies do. It is therefore not surprising that 
governments, even when they participate in commercial activities through a national oil company, seldom choose 
to bear the risks of direct exploration. Usually, governments hedge against exploration risk by transferring part 
of it to investors through contract and fiscal system design. Normally, the investors bear the risk and cost of 
exploration (and development as the case may be) and the government’s or national oil company’s share of the 
cost is paid out from production according to specifications of the petroleum contract. If no commercial discovery 
occurs, the cost of exploration is borne solely by the investors.
Source | Tordo, Johnston, and Johnston 2010.
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In this handbook, the cost per meter drilled is assumed to be in the range of US$ 1,000 to 3,000. A useful calculation from another source 
is based on US$ 1,500 to $2,500 per meter (as of 2009), inclusive of the cost of the drilling rig movement between well pads, but exclusive 
of initial mobilization charges. Assuming mobilization of the rig to the field to cost from US$ 250,000 to 500,000, an initial 3-well exploratory 
program for a typical depth of 1.5 to 3 km may cost between US$ 7 and 24 million (PPIAF 2010).

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C h a p t e r 2
Figure 2.8 illustrates the relative magnitude of risks and costs incurred as a geothermal project goes 
through its development phases. With each successive stage, the cumulative costs keep rising, but 
a greater understanding of the field characteristics is reached, reducing the risk. The breakthrough 
in risk reduction typically comes with confirming the resource through a few test drillings. Even then, 
however, the eventual production cost of electricity (and thus the expected profitability/rate of return) is 
only an estimate, and its range may still be relatively wide.