Gerardo Hiriart
Director General
Grupo ENAL
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View from the Top

Risks and Opportunities in Geothermal Energy

Wed, 02/22/2017 - 17:08

Q: What role will geothermal energy play in the new landscape and the country’s clean energy goals?

A: Geothermal energy will play an important role because it is the only renewable source that is totally independent of weather and oil prices. Geothermal is the most constant among all renewable sources and it is easy to dispatch, which increases its competitiveness. The intermittency of other renewables such as solar or wind increases the need for storage capacity, raising project costs and therefore energy prices. Geothermal can also offer steady capacity, adding value to a project’s competitiveness. The problem now is the lack of fields ready to develop as there are no advanced geothermal exploration projects besides those from CFE. Geothermal projects take longer than solar or wind energy to analyze and select a location and it also takes longer to build the plant. Financing geothermal projects is also a big challenge, particularly when compared with other renewables.

Q: How can the Fund for Risk Insurance of Geothermal Exploration ease financing for geothermal projects?

A: The fund, which is managed by the development bank NAFINSA, is the only solution at the moment. But it is not that easy to obtain. Geothermal project developers usually have to pay for all the preliminary studies, which can add up to US$1 million and are not financed by banks. We can use the fund for the construction of wells but we need to cover 30 percent of the total costs upfront. This mechanism represents a huge risk for a small company like us because that 30 percent can be lost if the exploration stage is unsuccessful.

For the same reason it is hard to find private investors willing to share the risk. Geothermal projects always run the risk of finding different conditions at the bottom of an exploratory well from what was projected in the preliminary analysis. This situation differs from solar or wind energy projects where the failure margin is small. We do get loans and insurance for the construction of large wells in which we pay a premium and are protected against project failure. This mechanism partially helps project developers.

Q: How does ENAL’s in-house technology improve the company’s capabilities for developing geothermal power plants?

A: We have learned a lot throughout the years about geothermal energy, which is something not all companies understand. The knowledge and experience we have acquired drove us to develop our own software. During the drilling process, we need to evaluate the well’s condition, so we developed technology to enhance productivity by means of high-velocity water jets. We have made contributions to improve drilling and exploration technology, lowering exploration costs and increasing the success rate, which is part of Grupo ENAL’s added value to the industry.

Q: What makes geothermal projects attractive for Mexico?

A: There are many places in the country offering high geothermal potential under different conditions, some more accessible and attractive than others. Mexico is a pioneer in geothermal development, always placing among the top five countries with the highest geothermal capacity, but a lot of potential remains unexploited. To boost geothermal development in Mexico, we need to acknowledge that it is different from other technologies, not only regarding costs but in several aspects. We would like to have a special auction for geothermal projects where project proposals could compete on a level playing field. Mexico has around 2,000 geothermal experts and a developed local value chain, which must be considered in the selection of technologies for the country’s future energy mix. Local content is one of geothermal’s strongest points but it is often overlooked because the government favors cheaper technology even if all the components are imported. Geothermal energy is also at a disadvantage against other technologies participating in the auctions because CFE gives under three years to start operations while a geothermal development usually takes four or five years.