Geothermal Investments Safer Now with Risk Sharing Mechanism
Geothermal exploration and development is a high-risk investment because of the uncertainty associated with a natural resource whose feasibly to be exploited, for power generation and/or for direct use applications, can only be validated after significant capital expenditures in exploration drilling. With public support programs for geothermal exploration no longer available, private investors have to assume 100% of the exploratory risk after acquiring the rights to a particular license area. Moreover, like in most other countries, commercial financing is generally not available in Turkey until the geothermal resource has been fully validated and construction of the power plant has commenced.
The objective of the RSM project is to increase private sector investment in geothermal exploration drilling in Turkey by providing partial coverage of exploration drilling costs in case of unsuccessful wells. Funding for the RSM is provided by a contingent grant from the Clean Technology Fund (CTF), provided through the World Bank, to the Government of Turkey. US$ 37 million will be available for exploration drilling projects under the RSM.
The implementing agency is the Development and Investment Bank of Turkey (TKYB).
Within the scope of RSM, once a Beneficiary is successfully enrolled in the program:
- 40% to 60% of the cost of failed wells will be paid by the RSM to the Beneficiary, up to a total of US$ 4 million under a scheduled program.
- If two wells in a three well program are unsuccessful, the contract between the RSM and the Beneficiary is automatically terminated.
- Higher coverage will be given for wells outside the Aydin, Denizli and Manisa, where geothermal exploration is less advanced.
- A success fee, amounting to 5% of the estimated well cost, is either paid upfront by the Beneficiary to the RSM or a letter of guarantee is required.
- When a completed well meets or exceeds the success criteria that has been set on a custom basis for the drilling program, the success fee is retained by the RSM, but otherwise it is reimbursed to the Beneficiary.