Application of decision theory to the procurement of a geothermal power plant April 2nd 2008 Viktor Þórisson

Presentation Overview 1.Company overview & background 2.What is geothermal energy? 3.Definition of the project 4.Application and precision tree in this project

Company Overview Export of Icelandic Geothermal Know-how Development of geothermal potential for electrical generation and direct use. Reliance on comprehensive know-how and operational experience. Founded in 1969 by the main geothermal consultancies in Iceland to export the Icelandic geothermal consulting. What we do Feasibility Studies & Business Plans Project Management Engineering Construction & Commissioning Operation

What is geothermal energy?

What is geothermal? The thermal energy stored within the earth's crust is collectively called geothermal energy. Faults and fractures develop where the earth crust is unstable or is moving, most commonly in areas of active volcanism.

What is geothermal? In areas of active volcanism, the upper crust is frequently intruded by hot magmatic intrusions. These intrusions move heat from the inner parts of the earth towards the outer crust. They are the prime force that usually drives geothermal systems. In some parts of the world hot rock formations within the crust contain water, which is the ideal medium for carrying this energy up to the earth's surface in a useful form.

Simplified geothermal power plant cycle

Waste water bathing

Main factors affecting the profitability Temperature of reservoir (or enthalpy) Flow from well (or production index) Depth of well Chemical conditions of the brine

Definition of the project Decision tree to answer the question: In a geothermal project. When to procure the critical components with the longest lead time for a power plant, after last drilling, before first drilling or somewhere in between?

The project chart if components are ordered after drilling

Main trade offs in the model are Benefit:Trade-off: Shorter time until plant is operational. More information available when components are ordered and thus optimizing the efficiency of the plant The risk of higher investment cost than necessary due to over dimensioning of the turbine. Potential higher costs if project results in no go after drilling and thus order cancellation fees of components are incurred.

Overview of the tree

Probabilities, methodology (1-cummulative distribution)

Fitted distributions

Definition of failure

Probability of failure first drilling Probability of failure due to reasons other than geological is defined as 5%. Probability of success first drilling is therefore: 89,26% * 95% = 84,9%

Probability of success second drilling

Given success first drilling

Results from simulation, probability of failure of the project, given success/given failure first drilling.

Potential plant size Mean plant size 13,8 MW given success first drilling. Example of Possible values: TPI 1651,5 1602,1

The newsboy problem C O * P O = C U * P U

Sensitivity of production to flow

Other costs Cost of over sizing (C O ) EUR/MW unnecessary investment cost. Cost of under sizing (C U ) Expected cancellation fee of turbine.

The optimal path

Sensitivity of costs

Sensitivity of costs

2 way decision analyze of costs

Sensitivity of probabilities

2 way decision analyze of probabilities

Thank you