Geothermal Project & Financial Drilling Risk Management: The French option Mr. Jacques Chouraki III Seminario Latinoamericano y del Caribe de Electricidad ELEC 2013 – Santiago, Chile – 4 th October 2013

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Geothermal Geological Risk

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 The main obstacle for the development of high enthalpy geothermal energy is directly related to the importance of geological risk in the exploration phase but also, to a lower extent, during the field development phase. At the exploration phase, this potential risk is associated with additional costs, which are difficult to assess and poorly understood by the investors, thus preventing financial implementation from banks or credit agencies. Barriers to Geothermal Development

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Currently, geoscientific studies, based on traditional geophysical approaches (magnetotellurics (MT), gravity and magnetics), can address the geothermal exploration drilling strategy, but the probability of success remains low, though higher than in the Oil & Gas exploration. In this context, where the objective of achieving much higher level of success would secure more investors towards geothermal projects, GEOTREF is currently developing a high-end geothermal exploration approach combining standard methods with methods and software tools at the cutting edge of the O&G exploration. Barriers to Geothermal Development

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 This new approach is globally cost-effective by reducing the risk of making inappropriate drilling or unclear steam field development decisions. The initial investments are higher but justified by a better understanding of the reservoir at the earliest stage of a project, and the realization of reliable reservoir performance forecasting. This is necessary, but not sufficient… Barriers to Geothermal Development

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 The Geothermal Drilling Risk Fund (GDRF), based on a contingency grant scheme, will procure developers with easier access to commercial financing, lower risks and lower costs for the development of their proven geothermal field and expected power generation plant. The main requirement to implement the GDRF, beside top level prefeasibility studies, is to aggregate a minimum number of wells to be drilled (around 80) in a joint program to mutualize the geological risk. ADEME, the French Environment and Energy Management Agency, has created this concept 35 years ago and has since successfully implemented this program in France. The Geological Risk Fund Approach

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 French Risk Fund Management

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Organisation Diagram Proposal

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013  Initial Fund Amount: 150 M€  Projects : 10 to 20 of 20/25 MW each (2/3 per year)  Additional Prefeasibility Study Coverage : 75%  Drilling Drilling Risk Premium: 15%  Exploration Drilling coverage: 85%  Field Development Drilling : to be included in the Projects  Exploration Drilling Failure Rate : up to 34%  Operational Royalties : 10% of the PPA Price  Fund Duration: 23 years Drilling Risk Fund Assumptions

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Drilling Risk Fund Financial Simulation Expenses Actualized Balance including Financial Interests Balance without Financial Interests

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 The system to be build must takes into account 3 levels and must be sized for these 3 levels:  Financing for complementary exploration works;  Financing for exploration wells;  Coverage of the geological risk for production/injection wells according to criteria to be define. The Risk Fund must be able to be financially balanced (between the initial allocation, the fees and the royalties from the beneficiaries, the financial incomes generated, the indemnifications in case of project failure, management fees) and must be sized largely enough for a minimum of 80 wells. Which Steps to the Next Level ?

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Assessment of the geothermal works in the Andean Countries and definition of a program of additional actions to be engaged. Performing a study on the implementation of a financial support process for the initial phases of the geothermal projects and for covering the geothermal risks. …. Building a Program: the Key…

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Despite the existence of these works, there is currently no program to appreciate what can be expected from geothermal electricity within the next 20 years in all these countries:  What is the number of these projects which can effectively be by built?  What contribution can be expected from geothermal?  What additional works should be carried out?  What funding amounts are to be mobilized for the works to be engage? These knowledge elements are essential for building up a regional strategy for the development of geothermal energy in order to attract industrial and financial investors (private and/or public). Building a Program: the Key…

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Building such a program means to produce a review of the works currently led for each countries and, on this base, define for the entire region concerned a detailed program of actions to perform within the next 20 years :  additional studies to perform,  exploration drilling campaigns to engage,  …up to the construction of geothermal plants. With, if possible, a planned schedule of construction and the amount of funding to mobilize for all the program. …toward the Andean Drilling Risk Fund

Olade ELEC 2013, Santiago - Chile, 3-4 October 2013 Thank you Muchas gracias Merci Jacques Chouraki Guadeloupe – Paris – Bogotá – Mendoza