Geothermal electricity production in 2022 exceeded the previous year’s value by about 8% (0.2 billion kWh), but still accounts for less than 0.1% of renewable electricity production in US. The Long-term financing and loans geothermal power plants in US gained particular importance in 2021 following the rise in natural gas prices.
The development of large geothermal project in US requires a significant resources, gives the investor almost no exit option and brings modest returns over a long period of time. A typical geothermal project costing 50 million dollars is usually 25-30% financed by the project initiators’ capital, which are invested in the earliest stages of development.
Viola Funding Limited offers long-term loans for geothermal power plants in US. We also organize project finance of additional services. We also organize project finance tools and provide clients with a wide range of additional services, including guarantees, financial modeling and consulting.
Potentials of loans for geothermal power plants in the US
Geothermal energy refers to thermal energy stored in the earth’s crust.
Accordingly, near-surface and deep geothermal zones have very different temperature levels that can be used for electricity generation and heating.
Geothermal energy can be used for heating, cooling and electricity generation. In US, the temperature in the earth’s crust rises by an average of 3 degrees for every 100 meters.
Innovative US companies and their investors not only finance traditional energy projects based on the use of surface heat sources, but also develop new technologies for the production of geothermal energy and wind farm hidden at great depths. In particular, wells with a depth of about 5000 meters or more are being drilled, which make it possible to effectively use a huge temperature difference.
Regarding the profitability of geothermal energy in the US, the experience of previous systems makes us quite optimistic. In particular, production costs are around 3 cents per kWh, making geothermal systems competitive against fossil energy.
In the next 10 years, experts expect large investments in geothermal power plants, which are estimated at 50-60 billion euros. For now, it remains a joint task of the government and the private sector. To achieve this goal, the federal government must promote the use of geothermal energy by more than 1 billion euros per year.
Loans for construction of geothermal power plants in USA
In geothermal projects, temperature primarily determines whether electricity can be generated at a particular location.
On the other hand, whether geothermal energy can be used to supply heat depends on potential consumers. It is also important for project sponsors to determine the key direction of cash flows.
In the electricity project, these are preferential tariffs for electricity under long-term agreements, and in the heat projects, the main role is played by income from the sale of heat. In practice, this determines different concepts of financing geothermal projects.
To secure a long-term financing from commercial banks, the owner of a geothermal project must meet the general conditions that are set in any other lending area.
Banks, for their part, are more willing to lend to their regular customers, having information about their business and financial results. Each project is assessed individually by banking experts, and the terms of the loan agreement may vary significantly depending on this assessment.
Long-term loans for geothermal energy, our core service
Banks seek to make a profit. For this, the possibilities and risks of financing the geothermal project must be adequate. To date, many US banks have little or no experience with the geothermal energy sector.
Given the limited human resources and the small number of geothermal projects on the market, they also have little opportunity to use the accumulated knowledge.
United States financial institutions often refuse to issue a large loan for the construction of a geothermal power plant, despite a high-quality business plan and sufficient collateral. This is especially true of private projects, while most municipal projects are well perceived by savings banks and cooperative financial institutions.
Project finance for the construction geothermal energy
Security is provided by a special purpose vehicle (SPV) with its investments, assets and income. This requires a clearly completed and defined project to which funding is tailored.
A geothermal project generates a reliable income only when it is put into operation and when the income is guaranteed by law (EEG). The highest chance of making money exists as soon as possible after drilling is completed.
Debt coverage ratio requirements in project finance schemes are usually between 1.2 and 1.5. Loan terms are usually from 15 to a maximum of 20 years.
For classic project finance, banks set high requirements for the project and the involved companies. This is reflected in the intensive due diligence process, for which the project begins to bear costs from the earliest stages.
If a geothermal project is approved for a loan, banks put forward numerous conditions for issuing loans and supporting financing.
If you require a long term loans for a large geothermal project or are interested in financial consulting services, Viola Funding Limited for details.
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