A panel of bankers and investors is at the Governors Geothermal Workshop in Phoenix today explaining what the geothermal industry needs to do to finance development of this renewable resource. Lending from financial institutions was represented as much cheaper than selling equity.
Rich Endicott, President of The Biltmore Bank in Scottsdale, told the audience that traditional bank lending (underwriting) expects the primary source of repayment to be from savings generated by the geothermal system. But lenders also are looking for secondary and tertiary sources to ensure repayment - this may come from equity investors, government guarantees, or the system host for example.
In addition to cash flow, lenders also are looking for secure collateral and evaluation of the character of the borrowers and the project. Collateral includes purchase agreements for the energy, long term leases, government performance guarantees and incentives, credit insurance, or assets.
Rick Tallman with Renova Capital said his company is investing millions in electricity production from geothermal but the high cost of drilling deep wells and potential for problems makes this a much higher risk endeavor. He said many of the current hydrothermal projects around the country except for the Geysers field in California are in this situation. He said that ground source heat pumps are one of the safest, lowest risk energy investments you can make; the technology is well established, drilling is very shallow, and the unknowns are fewer.
Rick urged creation of a state revolving loan fund as a way to stimulate geothermal energy development. He noted that most water systems in the US have been funded this way over the past decade. The rapid payback and low risk makes it an effective tool and actually is a money maker for the state.