Written by:

E.C. Battocletti

Bob Lawrence & Associates, Inc.

For:

Sandia National Laboratories

Contract No. AS-0989

And:

The Office of Geothermal Technologies

U.S. Department of Energy

February 1998

Geothermal Financing Workbook

Acknowledgment

The Geothermal Financing Workbook was prepared by Elizabeth Battocletti of

Bob Lawrence & Associates, Inc. for Sandia National Laboratories under Contract

No. AS-0989.

Special thanks go to John Finger of Sandia National Laboratories and Dr. Marshall

Reed of the U.S. Department of Energy’s Office of Geothermal Technologies for

their support; the Geothermal Energy Association, U.S. Geothermal Industry

Corporation, and others who responded to the Case Study Surveys; the various

financing sources who completed the Geothermal Financing Questionnaire and

answered the author’s many questions; the Multilateral Development Office of the

U.S. Department of Commerce; and to those who proofread the Workbook and

provided valuable comments. All mistakes which remain are solely the author’s.

The photograph on the cover and title pages is of the CalEnergy Leathers Plant

located near Brawley, California. Taken by Warren Gretz, it is provided courtesy

of the National Renewable Energy Laboratory.

— February 1998
Geothermal Financing Workbook

Table of Contents

INTRODUCTION ............................................. 1

What is the Geothermal Financing Workbook? ................ 2

The Workbook will help you, the Project Developer ............ 3

The Workbook will not .................................... 4

PROJECT FINANCING ........................................ 6

What is Project Financing? ................................. 6

Criteria for Successful Project Financing ..................... 7

Risk Mitigation ......................................... 11

Assessing a Project’s Financing Readiness ................... 17

THE FINANCING PLAN & BASIC FINANCIAL ANALYSIS ....... 20

The Financing Plan ...................................... 20

Estimate the Borrowing Capacity of Your Project ............. 23

Discounted Cash Flow Analysis ............................ 28

Annual Coverage Ratios .................................. 39

CASE STUDY PROJECTS .................................... 41

Djibouti ............................................... 43

Dominica .............................................. 47

Indonesia .............................................. 51

FINANCING SOURCES ...................................... 54

Background ............................................ 54

Sources of Financing for Geothermal Projects ................ 57

African Development Bank ............................. 60

E & Co. ............................................. 66

Energy Capital Holding Company ........................ 72

Environmental Enterprises Assistance Fund ................ 74
European Bank for Reconstruction & Development ......... 76

Export-Import Bank of the United States .................. 91

Global Environment Fund® Management Corporation ....... 95

Inter-American Development Bank ....................... 97

Inter-American Investment Corporation .................. 101

International Finance Corporation ....................... 105

International Fund for Renewable Energy &

Energy Efficiency .................................. 109

Multilateral Investment Guarantee Agency ................ 114

Overseas Private Investment Corporation ................. 121

Renewable Energy & Energy Efficiency Fund

(in development) .................................. 126

Renewable Energy Network Indonesia ................... 128

Scudder Latin American Power Fund .................... 130

U.S. Small Business Administration ..................... 132

U.S. Trade & Development Agency ...................... 138

Winrock International ................................. 143

UNLOCKING A $45-BILLION MARKET ...................... 146

How to Work with the World Bank and other Multilateral

Development Banks (MDBs) ........................... 146

Global Environment Facility (GEF) ........................ 160

CONCLUSION ............................................. 163

GLOSSARY ............................................... 164

BIBLIOGRAPHY ........................................... 169
1

International Energy Outlook (IEO) 1997 World Energy Consumption; May 1, 1997; 

http://www.eia.doe.gov/oiaf/ieo97/world.html.

2

“Geothermal Energy Can Make A Major Contribution,” First Alert, Geothermal Energy

Association, Vol.1 No. 1, January 1998. 

Geothermal Financing Workbook 1

“Financing is never in short supply—vision is.”

—Achilles Adamantiades, Workshop Proceedings on Financing the Development and

Deployment of Renewable Energy Technologies, May 15-16, 1995, p. 32.

Introduction

By the year 2015, world energy demand is projected to reach nearly 562 quadrillion

British thermal units (Btu). Two-thirds of that growth will occur in the developing

and transitional economies, particularly in Asia. Of the total energy needed, 46.3

quadrillion Btu is estimated to come from renewable sources of energy. 

At the Earth Summit in Rio de Janeiro, Brazil, in 1992, 166 countries endorsed the

text of a Framework Convention on Climate Change committing the world’s

governments to stabilizing atmospheric concentrations of greenhouse gases.1

Geothermal energy has an important role to play in both delivering electricity to

people in the developing and transitional economies (including those in the hard to

reach, off-grid rural areas) and in helping to reduce greenhouse gas emissions. By

the year 2010 U.S. geothermal power plants installed overseas will: 

U account for an estimated 15,000 MW, 

U supply electricity to 40 million people in the developing nations, and

U reduce greenhouse gas emissions by 22 million metric tons of carbon

(MMTC) per year. 

Geothermal district heating will warm 5 million homes and buildings around the

world. Direct use of geothermal resources overall will increase ten-fold by the year

2010, reducing emissions by an additional 15 MMTC.2 Many of these geothermal
3

Power Money: The International Business Executive’s Guide to Government Resources, by

Williams A. Delphos, Second edition, (Washington, D.C., Venture Publishing, N.A.,© 1996). 

4

Investors receive countless requests for financing. The more the project developers can do to

answer investors’ questions and address their concerns up-front, the better their chances of

2 Geothermal Financing Workbook 

projects will be small and medium-sized, 30 megawatts (MW) and lower. The big

questions: Who will pay for them? and How?.

The Who has been addressed by several good publications, both general and with a

regional focus. Power Money,

3

 for one, which was produced by the U.S. Export

Council for Renewable Energy, is an excellent source of information on U.S.

government financing for renewable energy projects. There is less instruction,

however, on the How, specifically, how smaller geothermal developers can

structure their overseas projects and approach potential financing sources in a

manner most likely to lead to success in obtaining financing and implementing their

much-needed smaller projects.

What is the Geothermal Financing Workbook?

The Geothermal Financing Workbook was designed to help fill the How void, to

take Power Money and other excellent sources like it, the next logical step—to give

small and medium-size U.S. geothermal companies the information they need to

identify, structure, and obtain financing for overseas geothermal projects. 

Rather than reinventing the wheel, the Workbook coalesces into one comprehensive

package and in one place, the spokes of that wheel—the information on project

financing, financing plans, financial analysis, and financing sources that smaller

project developers may find most relevant to their projects. (Financing sources

included in the Workbook have indicated an interest in smaller geothermal

projects.)

The Workbook will help smaller project developers become familiar with the

financial analysis they should conduct and the jargon they should use in order to

evaluate and present their projects in terms potential investors understand. Part of

the problem that developers find when approaching potential investors is that they

don’t “speak the same language.” The Workbook will give developers a better

understanding of financial terminology thereby increasing their chances of having

their projects taken seriously by investors, considered for financing, and ultimately,

financed.4 
having their projects seriously considered for financing.

5 Case Study Projects were selected based on the results of surveys sent to member-companies of

the Geothermal Energy Association (GEA), the U.S. Geothermal Industry Corporation (USGIC), and

key members of the geothermal industry. Although hypothetical, based on their real resources

and industry interest, Case Study Projects are entirely probable, and variations of all three are

currently in development.

Geothermal Financing Workbook 3

Finally, the Workbook will apply the tools and information it provides to “structure

financing” for three hypothetical Case Study Projects: 5

1. a 20 MW flash/hybrid plant in Djibouti, 

2. a 10 MW binary plant in Dominica, and

3. a 2 MW village power plant in Indonesia.

The Workbook will help you, the Project Developer

to...

1. Understand project financing as a mechanism for financing your

project, its advantages and disadvantages, criteria for successful

project financing, and risk mitigation;

2. Assess your project’s financing readiness, estimate its borrowing

capacity, and develop a financing plan;

3. Perform a basic financial analysis of your project using:

U discounted cash flow analysis ,

" Net Present Value analysis,

" Internal Rate of Return analysis, and

U the standard coverage tests typically used by lenders:

" interest rate coverage ratio,

" fixed charge coverage ratio, and

" debt service coverage ratio;
6

Large project developers face many of the same problems but, due to their size and extensive inhouse resources, can more readily absorb the transaction costs associated with overcoming

regulatory, market, financing, and other barriers. They also have readier access to financing and

advisory support. 

7

“Unfortunately for smaller and medium sized projects, development costs are not proportionate to

the size for the project, i.e., a 12 MW project may incur development costs equal to those of a 50

MW project...Legal costs in particular are not linearly related to project size.” Draft Financing

Readiness: A Handbook for Energy Project Developers, for the California Energy Commission by

Power Project Financing, Inc., December 11, 1997, pp 4-1 and 4-2.

4 Geothermal Financing Workbook 

4. Understand what specific potential financing sources are looking for

(e.g., investment criteria, financing structure, and application

procedures), enabling you to:

U anticipate financing sources’ need for financial data—the

“What,” “How,” and “Why;”

U tailor your approach and business and financing plans to better

respond to individual investors’ particular criteria; and 

U improve your overall chances of getting your project financed at

the optimal cost; and

5. Learn how to access the $45-billion Multilateral Development Bank

(MDB) market.

The Workbook will not:

1. Take the place of a business or financing plan or substitute for

financial advice;

2. Overcome the obstacles inherent in financing smaller (less than 30

MW) geothermal projects6, including:

U the high exploration, development, and financing costs

associated with smaller geothermal projects; 7

U project sponsors who may have less of a track record in

developing international projects; and
Geothermal Financing Workbook 5

U the poor or unproven creditworthiness of customers (e.g., stateowned utilities, municipalities, or rural populations). 

3. Remedy the lack of financing for the exploration stage of a geothermal

power project; and

4. Solve financing problems that are not related to the economic

soundness of your project or are caused by things outside of your

control (e.g., country and political risk, economic instability, inflation,

etc.).
8

This section is largely adapted from Project Financing: Asset-Based Financial Engineering by John

D. Finnerty, Ph.D. (New York, NY: John Wiley & Sons, Inc., © 1996).

9

Ibid, p. 2.

10 Ibid, p. 24.

6 Geothermal Financing Workbook 

Project financing is not...

...a way to finance a project that is so weak economically that it may

not be able to service its debt or provide an acceptable rate of

return to equity investors, or

...a way to finance a project that cannot be financed by conventional

means.

Project Financing 8

What is Project Financing?

Project financing is:

“...the raising of funds to finance an economically separable capital

investment project in which the providers of the funds look primarily to the

cash flow from the project as the source of funds to service their loans and

provide the return of and a return on their equity invested in the project.”9

A smaller project developer should consider project financing if it is unable to

obtain sufficient funds to finance a project at a reasonable cost on its own. Project

financing may then offer the only practical means of financing the project.10

There are two types of project financing: 

4. Nonrecourse—securities and other borrowings are serviced entirely

out of project cash flow.

5. Limited recourse—project sponsors are obligated to supplement the

project’s cash flow under certain (limited) circumstances.
11 Ibid, p. 3.

Geothermal Financing Workbook 7

Figure 111 illustrates the basic elements and inter-relationships of a project-financed

investment.

Project Assets

LENDERS

SUPPLIERS

EQUITY

INVESTORS

INVESTORS/

SPONSORS

POWER

PURCHASER

Loan

funds

Equity

funds

Cash deficiency

agreement and other

forms of credit

support

Returns

to

investors

Debt

repayment

Supply

contract(s)

Raw

materials

Power Purchase

Agreement

Output

Figure 1 - The Basic Elements of a Project Financing

Criteria for Successful Project Financing

In a project financing, lenders require the sponsors or other creditworthy parties

involved with the project to provide assurances, generally through contractual

obligations, that:

1. the project will be completed even if costs exceed those originally

projected or, if the project is not completed, its debt will be repaid in

full; 

2. the project, when completed, will generate cash sufficient to meet all of

its debt service obligations; and
12 Ibid, p. 53.

13 Ibid, p. 33.

8 Geothermal Financing Workbook 

3. if for any reason, including force majeure, the project’s operations are

interrupted, suspended, or terminated, the project will continue to

service (and fully repay on schedule) its debt obligations.12

On the downside, project financing is more costly to arrange than conventional

direct financing. Because project financing is structured around a set of contracts

that all parties must negotiate and agree to, it is usually more complex, costly, and

time-consuming to arrange than conventional financing. 

Due to the higher transaction costs and yield premiums inherent in project

financing, project financing will usually be more cost-effective than conventional

direct financing when:

1. it permits a higher degree of leverage than project sponsors could

achieve on their own, and

2. the increase in leverage produces tax shield benefits sufficient to offset

the higher cost of debt funds, resulting in a lower overall cost of

capital for the project.13 (For example, a heavily leveraged project

carries more debt. The greater debt results in lower profits, thereby

decreasing the project’s tax burden.) 
14 Ibid, pp. 25-27.

Geothermal Financing Workbook 9

Table 114 compares direct or conventional direct financing to project financing. 

CRITERION DIRECT FINANCING PROJECT FINANCING

Organization • Large businesses are

usually organized in

corporate form.

• Cash flows from different

assets and businesses

are commingled.

• The project can be

organized as a

partnership or limited

liability company to

utilize more efficiently

the tax benefits of

ownership.

• Project-related assets

and cash flows are

segregated from the

sponsor’s other

activities.

Control & monitoring • Control is vested

primarily in

management.

• Board of directors

monitors corporate

performance on behalf of

the shareholders.

• Limited direct monitoring

is done by investors.

• Management remains in

control but is subject to

closer monitoring than in

a typical corporation.

• Segregation of assets

and cash flows allows

for greater accountability

to investors.

• Contractual

arrangements governing

the debt and equity

investments contain

covenants and other

provisions that facilitate

monitoring.

Allocation of risk • Creditors have full

recourse to the project

sponsor.

• Risks are diversified

across the sponsor’s

portfolio of assets.

• Certain risks can be

transferred to others by

purchasing insurance,

engaging in hedging

activities, and so on.

• Creditors typically have

limited recourse—and in

some cases, no

recourse—to the project

sponsors.

• Creditors’ financial

exposure is projectspecific, although

supplemental credit

support arrangements

can at least partially

offset this risk exposure.

• Contractual

arrangements

redistribute projectrelated risks.

• Project risks can be

allocated among the
CRITERION DIRECT FINANCING PROJECT FINANCING

10 Geothermal Financing Workbook 

parties who are best

able to bear them (e.g.,

engineering firm will

build facility under a

fixed-price turnkey

contract, utility will

purchase power under a

PPA)

Financial flexibility • Financing can typically

be arranged quickly.

• Internally generated

funds can be used to

finance other projects,

bypassing the discipline

of the capital market.

• Higher information,

contracting, and

transaction costs are

involved.

• Financing arrangements

are highly structured and

very time-consuming.

• Internally generated

cash flow can be

reserved for proprietary

projects.

Free cash flow • Managers have broad

discretion regarding the

allocation of free cash

flow between dividends

and reinvestment.

• Cash flows are

commingled and then

allocated in accordance

with corporate policy.

• Managers have limited

discretion.

• By contract, free cash

flow must be distributed

to equity investors.

Agency costs • Equity investors are

exposed to the agency

costs of free cash flow.

• Making management

incentives projectspecific is more difficult.

• Agency costs are

greater than for project

financing.

• The agency costs of free

cash flow are reduced.

• Management incentives

can be tied to project

performance.

• Closer monitoring by

investors is facilitated

• Agency costs are lower

than for internal

financing.

Structure of debt contracts • Creditors look to the

sponsor’s entire asset

portfolio for their debt

service.

• Typically, debt is

unsecured (when the

borrower is a large

corporation).

• Creditors look to a

specific asset or pool of

assets for their debt

service.

• Typically, debt is

secured.

• Debt contracts are

tailored to the specific

characteristics of the

project.
CRITERION DIRECT FINANCING PROJECT FINANCING

Geothermal Financing Workbook 11

Debt capacity • Debt financing uses part

of the sponsor’s debt

capacity.

• Credit support from other

sources, such as

purchasers of project

output, can be

channeled to support

project borrowings.

• The sponsor’s debt

capacity can be

effectively expanded.

• Higher leverage (which

provides valuable

interest tax shields) than

the sponsor would feel

comfortable with if it

financed the project

directly can be achieved.

Bankruptcy • Costly and timeconsuming financial

distress can be avoided.

• Lenders have the benefit

of the sponsor’s entire

asset portfolio.

• Difficulties in one key

line of business could

drain cash from “good”

projects.

• The cost of resolving

financial distress is

lower.

• The project can be

insulated from the

sponsor’s possible

bankruptcy.

• Lenders’ chances of

recovering principal are

more limited; the debt is

generally not repayable

from the proceeds of

other unrelated projects.

Table 1 - A Comparison of Direct Financing and Project Financing

Risk Mitigation

There are countless risks in developing and financing a project. Investors are

concerned about all a project’s risks, specifically, who will bear them, how will they

be minimized, and whether the project’s cash flow will be adequate to compensate

them for the risks they are being asked to bear. 

In project financing, risk mitigation is achieved, in part, through an interlocked

system of contracts between the project sponsor and other implementing parties. 

The nature and extent of the contractual arrangements depend on the financial

strength of the sponsor(s), the profitability of the project, and the type and

magnitude of project risks.
15 “Methods of Analysis of Economics and Risk of Geothermal Development” by Subir K. Sanyal.

Presented at the Geothermal Resources Council Short Course — Engineering and Economic

Assessment of Geothermal Resources, Kailua Kona, Hawaii, 31 August to 1 September 1995, pp.

91-112.

12 Geothermal Financing Workbook 

Project financing involves identifying and evaluating the risks and allocating them

appropriately. The risks are numerous in a geothermal project, and include:

1. Sponsor risk

U equity contribution and creditworthiness of project developer

U corporate strength and experience

2. Completion risk

U cost overruns

U construction delays

U increased construction costs

U finance cost increases

3. Resource risk15

U anticipated cost of well field development

U future wells cooler than expected

U reservoir permeability less than expected

U recoverable heat reserve not sufficient to supply the project for

the proposed period

U wells produce at less than expected rate

U borehole casing becomes corroded

U development on surrounding leases leads to pressure

interference

4. Operation risk

U risk to the forecasted cash flow

U poor technical and financial performance

U plant downtime

U fuel interruption

U machinery breakdown

U poor O&M
Geothermal Financing Workbook 13

When approaching potential financing sources, the project developer,

particularly one that is not a major corporation, must address the specific

risks of the project with a clear plan of how to overcome each risk or

assign them to the party best suited to overcome them. 

U poor plant performance

5. Offtake and sales risk

U risk that the project will fail to generate adequate income

U creditworthiness of purchaser/utility

6. Political or country risk

U greatest concern to lenders

U expropriation

U currency exchange—assuring availability of foreign exchange to

service project debt and pay dividends to offshore investors is

critical to obtaining project financing

U taxation and duties

7. Approvals, regulatory, and environmental risk

U home-country laws with extra-territorial applicability

U potential for default on the part of the government or its

agencies in meeting contractual obligations

U laws may change without grandfathering provisions

8. Force majeure risk

U natural disaster or accident

U fires, flood, storms, earthquakes
14 Geothermal Financing Workbook 

Table 2 notes the most common risks inherent in a geothermal power project, 

measures which can be taken or contracts which may be negotiated to lessen them,

and additional comments.

RISK RISK MITIGATION COMMENT FOR SMALLER DEVELOPERS

Sponsor Lenders will normally require

15-50% equity to ensure the

sponsor’s continued

commitment.

Lenders generally prefer to work with corporate

sponsors which have substantial technical

expertise and financial depth.

Small project developers, who do not have the

resources and track record of major

companies, should anticipate and prepare for a

discussion with potential lenders on these

points.

Sponsor risk can be reduced in the lender’s

eyes if the smaller developer enters into a joint

venture arrangement with a more established

sponsor. 

Completion /

Construction

In the pre-construction stage,

lenders will require insurance

against physical damage,

loss, and liability.

For completion, lenders will

request fixed-price “turnkey”

construction contracts to be

negotiated with the

contractors.

This is the period of highest risk for lenders. 

It may be possible, subject to the robustness

of the project economics, to pre-agree to a

debt-funded cost overrun contingency facility,

or to raise additional equity up-front to cover

this risk.

A Construction Contract is needed.

Resource Potential lenders will likely

require the opinion of an

independent technical

consultant on the project’s

geothermal resources.

The project sponsor must show that:

• the resource is proven,

• the contractor is an experienced

geothermal developer,

• the guarantees and warranties which

have been negotiated are adequate,

and

• the resources will perform as expected

for as long as expected.

Operation Lenders derive comfort from

the employment of an

experienced third-party O&M

contractor whose costs can be

fixed.

In addition to committing to an

O&M schedule, an O&M

contractor also guarantees to

keep x MW online at y% load

Sponsors should consider an O&M contractor,

even though it may involve greater expense,

because of the additional “comfort factor” it

gives potential lenders.

Sponsors should also carefully review the

efficiency levels, downtimes, and predicted

outages in the cashflows they provide. It is

better to err on the side of conservative

estimates.
RISK RISK MITIGATION COMMENT FOR SMALLER DEVELOPERS

16 Long-term, fixed-price PPAs are becoming increasingly rare. This applies less, however, to the

developing and transitional countries where it is still possible to obtain a PPA, and where

merchant plants are a future development.

17 Also called “Cooperation” or “Coordination” Agreement.

Geothermal Financing Workbook 15

factor, and faces financial

penalties if he fails to do so. 

An O&M Agreement should be strongly

considered.

Offtake & Sales Risk that the project may fail

to generate adequate income.

The sponsor should discuss the maturity of the

market and price volatility in the business plan. 

Availability of a long-term, guaranteed-price

Power Purchase Agreement (PPA) is a key

element in eliminating volume and price risks.16

Sponsors should expect lenders to require the

repayment of their loans during the life of the

PPA or preferential offtake contracts.

Ways to contractually reduce the working

capital required for the sponsor to realize pro

forma revenue projections:

• require the purchaser to procure

directly major variable cost items, e.g.,

spare parts, or 

• structure purchase rates to insure a

direct “pass-through” of O&M costs.

To offset utilities which are not creditworthy in

their own right, it may be possible to sell

electricity directly to the end users, e.g.,

industry.

Sponsors should also expect lenders to take a

security interest in PPAs. 

Political A key consideration is the

ability of the utility/buyer to

pay in hard currency,

preferably in the currency with

which project obligations must

be paid.

Currency risk mitigation:

• sovereign guarantee,

• irrevocable standby letter of credit from

host government,

• currency “swap” arrangements and

block fund transfers, and

• combination of barter and

countertrade. 

Implementation Agreement (IA)17 or state

support agreement which seeks to guarantee

the performance of government entities involved
RISK RISK MITIGATION COMMENT FOR SMALLER DEVELOPERS

18 European Commission-Directorate General for Energy-DGXVII, THERNIE and SYNERGY

Programmes, and the European Bank for Reconstruction and Development. “Guide to Energy

Efficiency Bankable Proposals,” April 1997, pp. 15-19.

19 “Minimizing Business Risks in Geothermal Power Generation Projects,” by George M. Knapp, from

Meeting the Challenge of Increased Competition, Davis, CA, Geothermal Resources Council, 1997,

pp. 471-477.

16 Geothermal Financing Workbook 

in the project.

Political risk insurance to cover basic risks of

expropriation, currency inconvertibility, and

breach of contract by government bodies. 

(See OPIC, MIGA)

Approvals,

Regulatory &

Environmental

Identify required governmental approvals and

mandate governmental support in obtaining

permits.

Land Conveyance Agreement (LCA) transfers

land ownership to the project company

(purchase or long-term lease).

The LCA must be assignable to lenders in

case of default.

Political risk insurance to cover basic risks of

expropriation, currency inconvertibility, and

breach of contract by government bodies. 

(See OPIC, MIGA)

Force Majeure An IA may include a covenant which provides

protection against uninsurable force majeure

events to which a country may be especially

susceptible (e.g., floods, cyclones,

epidemics).

Table 2 - Common Geothermal Power Project Risks and Their Mitigation 18, 19
Geothermal Financing Workbook 17

Assessing a Project’s Financing Readiness

The Developer Self-Scoring Test, shown below in Table 3, is a simple yet effective

way to measure a project’s risk and financing readiness. 

Developed by Power Project Financing, Inc. for the California Energy

Commission, the Test is designed to assess a project’s readiness for financing,

specifically, how far, in temporal terms, a project is from seeking outside financing. 

Instructions for scoring and analyzing the Test follow.

SUCCESS

FACTOR

HIGH = 3 MEDIUM = 2 LOW = 1

Developer

Experience

• Developer team in

place

• Developer has

done similar

projects at same

company

• Developer has

experience in

necessary tasks with

similar projects at

other companies or at

the same company

with dissimilar

projects (e.g.,

geothermal vs. gas

projects)

• First attempt at

project

development in

lead role

• Experience in

individual

disciplines

does not count

Project Size • Over 50 MW • 20-50 MW • Under 20 MW

Country • Investment-grade

rated

• Strong economy

• Active, wellregarded

sovereign and

corporate

borrowing

• Top 15-20 risk

ranking of all

countries

• Emerging market

country

• Low or below

investment-grade but

still ranked

• Strongly growing

economy

• Large population

• Natural resources

and/or lost-cost labor

force

• Enabling legal

system in place

• Unstable

economy

• Political

instability

• Lack of policy

consensus

among

government,

business, and

labor

Geothermal

Resource

• Resource proven

• Exploration

drilling completed

• Resource being

proved

• Exploration drilling in

progress

• Resource

unproven

• Exploration

drilling to be

done

Status of

Contracts

• All contracts

executed and

drafted as per

international

• Competitive bid

awarded or key

meaningful and

exclusive Letter of

• No

commitments

in writing
SUCCESS

FACTOR

HIGH = 3 MEDIUM = 2 LOW = 1

20 Financing Readiness: A Handbook for Energy Project Developers (draft version), by Power

Project Financing, Inc. for the California Energy Commission, December 11, 1997, Section 1 pp. 1-4.

18 Geothermal Financing Workbook 

standards for

project financing

Intent or

Memorandum of

Understanding is

signed

Table 3 - Developer Self-Scoring Test to Evaluate Financing Readiness 20

SCORING TOTAL

SCORE

ANALYSIS OF FINANCING READINESS

Step 1 Score 1 to 3 for each

Success Factor

100 Ready to close financing; as certain as is possible.

Step 2 Multiply Success

Factor scores

60-100 Project looks very good; very likely to succeed.

Step 3 Divide by 2.43 40-60 A decently, typical good project; perhaps 6 months from

financing.

20-40 A promising project; may have many hurdles to

overcome; probably 1-2 years to go in development.

1-20 An early-stage project with very high risk or with an

unqualified sponsor.

1 Will never be eligible for commercial financing.

Table 4 - Scoring the Test to Evaluate Financing Readiness

Example

A developer with no experience (1) has a project in China (2) using conventional

geothermal technology (3) for a 20 MW plant (2) with a signed PPA (3)

Financing Readiness Score: = 1 x 2 x 3 x 2 x 3 = 36 ÷ 2.43 =14.8

Analysis: An early-stage project with very high risk or with

an unqualified sponsor.
Geothermal Financing Workbook 19

You may calculate your project’s own “Financing Readiness” score:

SUCCESS FACTOR SCORE

Developer Experience

Project Size

Country

Geothermal Resource

Status of Contracts

TOTAL

(MULTIPLY ALL SCORES TOGETHER)

TOTAL ÷ 2.43

FINANCING READINESS SCORE