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

Geothermal ProJeCt riSKS
There are several risk factors that affect investors’ appetite for risk in geothermal projects and hence 
the availability and cost of commercial capital for such projects. Many of the risk factors are the same 
as those faced by any grid-connected power generation project, such as completion and delay risk, 
off-take risk, market demand or price risk, operational risk, and regulatory risk. Additionally, there are 
two major risks that distinguish geothermal from most other power generation technologies.
The first is the resource or exploration risk that reflects the difficulty of estimating the resource 
capacity of a geothermal field and the costs associated with addressing this uncertainty. The nature of 
operational risks faced by a geothermal project is also affected by resource risks. 
A second major risk more relevant for geothermal than most other power generation options is the 
financing risk due to the long lead time (time lag) between the initial investment and the start of 

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revenues. The risk of the long lead time is exacerbated by the cost profile typical of geothermal 
projects with a high up-front capital cost (followed by relatively lower cost O&M).
Financing risks and resource risks are closely interlinked. For example, risk premiums required by the 
financiers will be higher for greenfield projects where the resource risk is the highest, rather than in 
brownfield areas where some development has already taken place and therefore the anticipated lead 
time is shorter and revenues more certain.
These risks are described in more detail below, starting with the resource risk specific to geothermal 
projects.