Technical and socio-economic risk evaluation for the development of the geothermal energy in Europe P. Ledru.

Technical and socio-economic risk evaluation for the development of the geothermal energy

in Europe

P. Ledru

ENGINE, Workshop 7, Leiden, 8-9 November 2007 > 2

After two years, 6 workshops and 2 conferences…

> ENGINE, a scientific exchange platform: a R&D task force for defining research projects

• Identification of bottlenecks and prioritisation of research needs

> ENGINE, along with other coordinating initiatives (European Commission, IEA-GIA, MIT expert panel, IGA, EGEC…) can

• contribute to the construction of an international strategy

• consolidate the available information systems

> Economic and environmental constrains have changed as a result of the increase of the energy price and of the threats of global warming as a consequence of greenhouse gas concentration in the atmosphere

> Several major geothermal projects have been developed, especially in Germany (Gross Schönebeck, Landau, Unterhaching…) and Iceland, and the interest for unconventional geothermal energy worldwide has been renewed (Australia, US)

WP1

Project Management- 1 co-ordinator and secretary- follow up time / quality / cost- 1 executive Group- 1 steering committee- Connection with international agencies, national programmes, industrial partners

Deliverables- quarterly reports to EU- stronger links with potential partners for new projects

A scientific and technical European Reference Manual for the development of Unconventional Geothermal Resources

and Enhanced Geothermal Systems

WP3Investigation of Unconventional Geothermal Resources and EGS - The scientific and technological challenges of the exploration phase- Gaps, barriers and cost effectiveness

Publications- state-of-the-art- proceedings of conferences- definition and analysis of bottlenecks and solutions

WP6 Expertise on investigation of unconventional Geothermal resources and EGSSynthesis on best practices, barriers holding back development and possible solutions

WP7 Expertise on drilling, stimulation and reservoir assessmentSynthesis on best practices, barriers holding back development and possible solutions

WP8 Expertise onexploitation, economic, environmental and social impactsSynthesis on best practices, barriers holding back development and

possible solutions

Best Practice Handbook and innovative concepts

An updated framework of activities concerning Unconventional Geothermal Resources and Enhanced

Geothermal Systems in Europe

WP5Exploitation, economic, environmental and social impacts- Integrated economic approach for cost-effectiveness- Policy makers and public awareness- Gaps and barriers holding back development


WP4Drilling, stimulation and reservoir assessment

- Drilling technology, reservoir modelling and management- Gaps, barriers and cost effectiveness


WP9 Risk evaluation for the development of geothermal energyReport on the integration of results in a Decision Support system

ENGINE: ENhanced Geothermal Innovative

Network for Europe

WP2 Information and dissemination system- General information- Information on training and education- Reports and results, publications - Data management- Publication policy- Connection with media

Deliverables- a web site- access to databases, models and open-source software- on-line access to articles and reviews

Coordination action breakdown structure: http://engine.brgm.fr/

http://engine.brgm.fr/

WP1, Project Management

WP2, Information and dissemination system

WP3. Investigation of UGR and EGS

WP4. Drilling, stimulation and reservoir assessment

WP6. Expertise on investigation of UGR and EGS

WP8. Expertise on exploitation, economic, environmental, social impacts

WP7. Expertise on drilling, stimulation and reservoirassessment

LaunchingConf.(France2/2006)

FinalConference

(Lithuania, 02/2008)

WP5. Exploitation, economic, environmental and social impacts

Mid-term Conference

(Germany01/2007)

Mid-term Conference

Mid-term Conference

Specialised workshops

WP9. Risk evaluation for the development of geothermal energy

Extension of the network to Third countries (Mexico, El Salvador, Philippines)

Germany(11/2206)

Switzerland(06/2006)

France(9/2006)

Italy (04/2007)

The Netherlands(11/2007)

Iceland (07/2007)

Greece (09/2007)

Beginning of contacts with the Stakeholder Committee


Identification of bottlenecks and prioritisation of research needs

EGS technology

Priority A Impact of innovation

Priority B

Impact of innovation

Priority n

Impact of innovation

Resource investigation

Topic 1 x% Topic 2 y% Topic n z%

Drilling, stimulation

and reservoir assessment

… … …

Exploitation, reservoir

management and monitoring

… … …

Economic, environmental

and social impacts

… high … medium … low

…


What is now missing?> For starting up new

ambitious projects, to rally industrial partners and get support form politics at the national and European level?• The European Strategic

Energy Technology Plan defines a target of 20% renewable market penetration in 2020. However, if prospects for market penetration are presented for biofuels, photovoltaics or wind energy, reference to geothermal energy is still missing.


Milestones for achieving ENGINE…

> Identification of bottlenecks and prioritisation of research needs

> Defining concepts for qualifying and quantifying geologic technical and environmental risk

• Examples from US, Australia and Europe


Spe

cific

cos

ts

Time

System reliability

Reservoir engineering

Explorationforecast

R&D Explorationforecast

Reservoir engineering

System reliability

Geothermal Learning Curve


The R&D contribution to the learning curve of Geothermal Energy

202020102000

1179 X

1650 X

Business as usual

2000

MWe

4000

8000

2000

4000

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Innovation 1: non reproducibleA 100% increase in permeability after stimulation

The R&D input

MWe



202020102000

1179 X

1650 X

Business as usual

2000

MWe

4000

8000

2000

4000

8000

Innovation 2: reproducible 100% increase in permeability after stimulation

The R&D input

MWe



202020102000

1179 X

1650 X

Business as usual

2000

MWe

4000

8000

2000

4000

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Innovation 3: reproducible 3D thermal modelling of the 1st 5 km, with an error bar on t°C estimation < 10°C

The R&D input

MWe




202020102000

1179 X

1650 X

Business as usual

2000

MWe

4000

8000

2000

4000

8000



Innovation 4: Reduction of drilling investment by 50%

The R&D input

The Soultz Innovation: connectivity at depth between wells

The Gross schönebeck Innovation: non reversible increase in permeability in sedimentary basin, sustainability of t°C

MWe


Site Screening

Continental Regional Local/Concessional Reservoir

Lithosphere Strength

Tomography

Geology, Hydrogeology

Surface Geophysics (gravimetric, EM, Seismic)

Resource analysis

Hydraulic properties

Borehole Geophysics (Acoustic Borehole Imaging,

VSP,...)

Heat Flow

Moho Depth

Geochemistry, fluid geochmistry

Petrography, Petrophysics, Mineralogy

Stress Field

Regional reconnaissance

Prospect identification

Steps to delineating a geothermal resource


Evaluation of risk in US

> The level of risk for the project must account for all potential sources of risk• technology, scheduling,finances, politics, and exchange rate. The

level of risk generally will define whether or not a project can be financed and at what rates of return

> Current hydrothermal projects or future EGS projects will, in the near term, carry considerable risk as viewed in the power generation and financial community.

> Risk can be expressed in a variety of ways including cost of construction, construction delays, or drilling cost and/or reservoir production uncertainty.

> In terms of “fuel” supply (i.e., the reliable supply of produced geofluids with specified flow rates and heat content, or enthalpy), a critical variable in geothermal power delivery, risks initially are high but become very low once the resource has been identified and developed to some degree, reflecting the attraction of this as a dependable base-load resource.


Risk assessment


Risk assessment


Risk assessment

Oil & Gas Methods for the Assessment Risk & Uncertainty of Hot Rock Plays (Let’s move to Australia…)

Generalisations: • If 3 geologic factors are at least adequate – a hot rock play is prospective.

Source of heat Ex. Radiogenic, high heat-flow granites;

Insulating strata to provide thermal traps;

Hot Rock reservoirs Ex. Permeable fabrics within insulating and heat source rocks that are susceptible to fracture stimulation.

• The serial product of key geologic factor adequacy is the chance for geologic success. Where P = the probability of a geologic factor being at least adequate (for a viable hot rock resource to exist) - the chance all 3 factors are at least adequate is:

Chance of Hot Rock Adequacy = P heat source x P heat trap x P heat reservoir

Insulating strata

Hot Rock reservoirSource of

Heat Access to this figure was kindly provided by Jeff Tester – MIT

Visit: www.pir.sa.gov.au/[email protected]

http://www.pir.sa.gov.au/geothermal

mailto:[email protected]

• The estimated chance for a geothermal well to flow hot fluids at an initial rate (defined as litres per second at an initial oCelsius) deemed at least adequate (prospective) to underpin break-even outcomes is proposed as the key additional ingredient to define practical prospectivity.

• This Hot Rock heat flow rate factor (Pheat flow rate) is integrates physical and economic criteria

and is analogous to global best practice for pre-drill estimates of ‘expected’ (risked) petroleum targets – which entail estimates of minimum economic pool-size (Pmeps) for local conditions

• Example Calculation. Very certain granites at > 210oC below insulating strata in stress field known to be conducive to naturally occurring horizontal fractures:

P heat source = 90% P heat source x P heat trap x P heat reservoir x P heat flow rate

P heat trap = 90% = 90% x 90% x 50% x 50%

P heat reservoir = 50% = 20.25% estimated chance of economic success

P heat flow rate = 50%

This enables risk-ranking of plays, expected value estimates, value of

information estimates and a portfolio approach to managing risk and

uncertainty, analogous to best practice in the petroleum E&P business.

Generalisations taken a step further




Four outcomes are possible from the drilling and flow testing of a Hot Rock target.• Geologic success (rock properties are at least adequate to justify flow tests)

• Geologic failure (rock properties are insufficient to justify flow tests)

• Technical success (flow tests undertaken but outcome is not competitive in foreseeable markets)

• Economic success (flow tests demonstrate a resource is at least 50% certain to be competitive in foreseeable markets)

Example calculations for the chance for these four outcomes follows:• the chance for geologic success in a hot rock play (Pg)

= (P heat source x P heat trap x P heat reservoir)

= 90% x 90% x 50%

= 40.5%

• the chance of geologic inadequacy is the complement of Pg

= 100% - Pg

= 100% - 40.5%

= 59.5%

• the chance of a technical success (i.e. a geologic success with inadequate flow rate)

= (1- P heat flow rate) x Pg

= (100% – 50%) x 40.5%

= 20.25%

• the chance for an economic success (i.e. the probability of economic success Ps)

= (P heat source x P heat trap x P heat reservoir x P heat flow rate)

= 90% x 90% x 50% x 50%)

= 20.25% = Ps

NPV = Net Present Value

Expected Value Estimate for a Hot Rock Test Well (An Example)

P success = 20.25%

Say NPV of mean success case is $50 million for a single play trend. The NPV for the mean success case for the entire play trend is $500 million

P geologic success but < economic flow rate = 20.25%

Say cost of unsuccessful fracture stimulation is $2 million

P Geologic Inadequacy = 59.5%.

Say cost of failure is $10 million

Chance of economic failure = 20.25% + 59.5% = 79.75%

Sum of probabilities = 100%

Decision-tree for a hypothetical Hot Rock target

The chance for economic success (Ps) for this Hot Rock Play

= (Ps x NPV of Hot Rock Play) –

((1- Ps) x full-cycle NPV to prove post-frac flow > economic threshold rate)

= {20.25% x $50,000,000} - {$12,000,000 79.75%)

= $560,000 Expected Net Present Value

This is << than the expected value of the play tested by a single wellVisit: www.pir.sa.gov.au/[email protected]



Say the first ‘play-maker well was successful – and demonstrated economic flow rates are credibly more certain for a the entire Hot Rock play (worth NPV of $500 million). The implications of that successful ‘proof-of-concept’ test well could be that:

• Pheat reservoir to move from 50% to 75%; and

• Pheat flow rate to move from 50% to 75%.

In this example:• the chance for Hot Rock play geologic success (Pg) = 90% x 90% x 75% = 60.75%

• the chance of geologic inadequacy is the complement of 60.75% i.e. 39.25%

• the chance of technical success = Pheat flow rate x Pg = (100% – 75%) x 60.75% = 15.19%

• the chance for economic success = Pg x Pheat flow rate = (60.75% x 75%) = 45.56%

• the VoI gained from a successful proof-of-concept flow test is the additional expected value

The VoI gained in this Hot Rock play is estimated as follows:• Pre-drill Expected Net Present Value (NPV) for the Hot Rock Play =

{20.25% x $500 million NPV for the Play} - {$12 million x 79.75%) = $91.68 million

Post drill Expected NPV for the Hot Rock Play ={45.56% x $500 million NPV for the Play =} - {$12 million x 54.44%) = $221.27 million

The value of information ($129.59 million) from the successful proof-of-concept flow tests is the difference between the pre- and post-drill expected net present values expressed above

Value of Information (VoI) Estimate for a Hot Rock Play (An Example)




How Much Is Enough Research & Demonstration? An example

Assume 3 distinct Hot Rock play-trends to explore with geologic factor adequacies as follow.

Portfolio: Play A Play B Play C

Factors Chance of Adequacy

Chance of Inadequacy

Chance of Adequacy


Chance of Adequacy


P heat source 90% 10% 90% 10% 50% 50%

P heat trap 90% 10% 90% 10% 90% 25%

P heat reservoir 50% 50% 75% 25% 50% 50%

P heat flow rate 50% 50% 25% 75% 25% 75%

Play A Play B Play C

P geologic success(Pg) = (90% x 90% x 50%) = 40.50% = (90% x 90% x 75%) = 60.75% = (50% x 90% x 50%) = 22.50%

P geologic failure (1-Pg) = (1 - 40.50%)= 59.50% = (1 - 60.75%) = 39.25% = (1 - 22.50%) = 77.50%

P technical success = 40.50% x (1 - 50%) = 20.25% = 60.75% x (1 – 25%) = 45.56% = 22.50% x (1 – 25%) = 16.88%

P technical failure = (1- 20.25%) = 79.75% = (1- 45.56%) = 54.44% = (1- 16..88%) = 84.22%

P economic success (Ps) = (40.50% x 50%) = 20.25% = (60.75% x 25%) = 15.19% = (22.50% x 25%) = 5.63%

P economic failure (Pf) = (1 – 20.25%) = 79.75% = (1 – 15.19%) = 84.81% = (1 – 5.63%) = 94.38%

Estimates of the chance that testing all 3 play trends will result in the discovery of at least one:

Technically adequate Hot Rock play: 1 – {Pgeologic inadequacy for A x Pgeologic inadequacy for B x Pgeologic inadequacy for C}

Economically attractive Hot Rock play: 100% – (79.75% x 84.81% x 94.38) = 36%

Funding exploration through demonstration of an independent fourth Hot Rock play would inevitably increase the chance of demonstrating at least one economically attractive resource





A benchmark of case studies in Europe

> Methodology of GE-ISLEBAR • Classification of the barriers

• Each barrier has been considered as a criticality

• a "criticality index" has been assigned to each criticality in proportion to its ability to obstacle or hinder the implementation of the project : From very low…to very high


A classification of the barriers

> Resource • Geothermal resource, Well productivity, Fluid characteristics, Actual Field capacity, Long term

Field capacity, Implementation of the plant, Earthquakes-Volcanic Activity

> Project economy • Exploration Investment cost, Exploitation Investment cost, Operation costs, Maintenance

costs, Economic attractiveness, Financial parameters, Financial supports and incentives

> Demand • Energy demand, Competitivity of Alternative energy

> Environment • Normative for wells, for plant construction, for plant operation, for outside water reject, for

reinjection, for Air emission, Noise pollution, Visual Impact

> Sociological aspects • Misleading opinions , Lack of knowledge

> Conflicts of interest towards the project • Adequacy of legislation, National, regional, EU supports, Local hostile economics operators,

Local hostile environmental groups, Local hostile institutional entities

> Organisation of the project• Lack of entity in charge of the management, competition between different entities, confusion

among the roles of different entities)

0

1

2

3

4

5

1.1 Geothermal resource

1.2 Well productivity

1.3 Fluid characteristics

1.4 Actual Field capacity

1.4 Long term Field capacity

1.5 Implementation of the plant

1.6 Earthquakes-Volcanic Activity

2.1 Exploration Investment cost

2.2 Exploitation Investment cost

2.3 Operation costs

2.4 Maintenance costs

2.5 Economic attractiveness

2.6 Financial parameters

2.7 Financial supports and incentives

3.1 Energy demand .

3.2 Competitivity of Alternative energy

4.1 Normative for wells

4.2 Normative for plant construction4.3 Normative for plant operation

4.4 Normative for outside water reject

4.4 Normative for reinjection

4.5 Normative for Air emission

4.6 Noise pollution

4.7 Visual Impact

5.1 Misleading opinions

5.2 Lack of knowledge

6.1 Adequacy of legislation

6.2 National, regional, EU supports

7.1 Local hostile economics operators

7.2 Local hostile environmental groups

7.3 Local hostile institutional entities

8.1 Entity in charge of the management

8.2 Interest of different entities possibly

8.2 Roles of different entities possiblyOrganisation Resource

Environment

EconomySociological

Demand

Conflicts

Pantelleria

Nisyros

0

1

2

3

4

5










2.3 Operation costs





3.1 Energy demand .







4.6 Noise pollution

4.7 Visual Impact











Environment

EconomySociological

Demand

Conflicts

Bouillante

0

1

2

3

4

5










2.3 Operation costs





3.1 Energy demand .







4.6 Noise pollution

4.7 Visual Impact











Environment

EconomySociological

Demand

Conflicts

What should a good opportunity look like ?

1

2

3

4

5










2.3 Operation costs





3.1 Energy demand .







4.6 Noise pollution

4.7 Visual Impact











Environment

EconomySociological

Demand

Conflicts

AverageAverage :1

But have an attentive look to policy makers awareness and public acceptance

If those barriers are strong, you’ll have to work hard on them

Don’t worry to much about resource uncertainty and economy

… provided some financial tools are implemented, and demand exist




> Defining concepts for qualifying and quantifying geologic technical and environmental risk

• Examples from Australia and Europe

> An evaluation of the investment and the expected savings on cost operation at the 2020 horizon for each R&D initiative and industrial project



202020102000

1179 X

1650 X

Business as usual

2000

MWe

4000

8000

2000

4000

8000



Innovation 4: Reduction of drilling investment by 50%

The R&D input

The Soultz Innovation: connectivity at depth between wells

The Gross schönebeck Innovation: non reversible increase in permeability in sedimentary basin, sustainability of t°C

MWe




> Defining concepts for qualifying and quantifying geologic technical and environmental risk• Examples from Australia and Europe

> An evaluation of the investment and the expected savings on cost operation at the 2020 horizon for each R&D initiative and industrial project

> Data available from the updated framework of activities and expertises performed must converge to select discrete and significant parameters for the risk analysis.

> The use of Decision Support Systems that will integrate the critical parameters defined. From this modelling, a definition of the most favourable contexts for the development of Unconventional Geothermal Energy in Europe is expected.

Technical and socio-economic risk evaluation for the development of the geothermal energy in Europe P. Ledru.

Documents

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energy price

environmental riskexamples

major geothermal projects

us engine

european level

reservoir management

social impactswp7