Thursday, December 7, 2017

Denmark: Compensation Guarantee for Geothermal Projects

Geothermal Development: The Danish Compensation Guarantee (Wellperform)

Development of a geothermal well is a costly ordeal, and combined with the apparent risk of a low payback or even abandonment of the hole, the investors and stakeholders are left understandably precautious.

To encourage the pursuit of geothermal energy sources, a compensation guarantee has been put in effect per 2015 for projects in Denmark.

The compensation guarantee comprises a user charge, correlating to a percentage of the budget: 13.5% for the first well, and 9% for each following well. In return, the insurance policy covers three guarantees in total:
  • Drill Risk Guarantee: coverage of budget overruns while drilling. 
  • Total Damage Guarantee: partial coverage of drilling costs, provided the project must be abandoned due to technical problems. 
  • Reservoir Risk Guarantee: partial coverage of drilling costs, provided that the reservoir does not perform as expected.