Risk of temperature differences in geothermal wells and generation strategies of geothermal power

Keiji Sakakibara; Takashi Kanamura; Keiji Sakakibara; Takashi Kanamura

doi:10.3934/GF.2020023

Green Finance

2020, Volume 2, Issue 4: 424-436. doi: 10.3934/GF.2020023

Previous Article Next Article

Research article

Risk of temperature differences in geothermal wells and generation strategies of geothermal power

Keiji Sakakibara ^,,
Takashi Kanamura

Graduate School of Advanced Integrated Studies in Human Survivability (GSAIS), Kyoto University, Japan

Received: 30 September 2020 Accepted: 27 November 2020 Published: 04 December 2020
JEL Codes: G12, G42

The objective of this paper is to discuss the impacts of the uncertainties of temperature differences between production and injection wells on geothermal power generation strategies using real option valuation. Contrary to previous studies, this study focuses on volumetric risk from the wells' temperature differences which produce both the power generation revenue and the scale-driven maintenance cost. We propose a new model of the temperature difference in a geothermal power plant and evaluate two newly designed American-type real options of a geothermal power plant with uncertainties in the temperature differences by incorporating twofold power generation strategies with temperature difference boundaries. In the first strategy, if the difference exceeds an upper threshold, the power generation ceases due to the increase of the maintenance cost from scale formation; in the second, if the difference is greater than an upper threshold or is less than a lower threshold, the power generation ceases due to the increase of the maintenance cost from scale formation or due to a shortage of calories, respectively. Results show that the net present value of a geothermal project is greater than the real option value with both the maintenance cost uncertainty and power generation uncertainty due to the negative and positive impacts of the temperature on the generation, while the net present value is less than the real option value which only reflects the maintenance cost uncertainty. It implies that the appropriate inclusion of the temperature difference risk is essential to evaluating the project value of geothermal power generation.
- geothermal power generation,
- temperature differences in geothermal wells,
- scaling,
- maintenance cost,
- real option
Citation: Keiji Sakakibara, Takashi Kanamura. Risk of temperature differences in geothermal wells and generation strategies of geothermal power[J]. Green Finance, 2020, 2(4): 424-436. doi: 10.3934/GF.2020023

Related Papers:

Abstract

The objective of this paper is to discuss the impacts of the uncertainties of temperature differences between production and injection wells on geothermal power generation strategies using real option valuation. Contrary to previous studies, this study focuses on volumetric risk from the wells' temperature differences which produce both the power generation revenue and the scale-driven maintenance cost. We propose a new model of the temperature difference in a geothermal power plant and evaluate two newly designed American-type real options of a geothermal power plant with uncertainties in the temperature differences by incorporating twofold power generation strategies with temperature difference boundaries. In the first strategy, if the difference exceeds an upper threshold, the power generation ceases due to the increase of the maintenance cost from scale formation; in the second, if the difference is greater than an upper threshold or is less than a lower threshold, the power generation ceases due to the increase of the maintenance cost from scale formation or due to a shortage of calories, respectively. Results show that the net present value of a geothermal project is greater than the real option value with both the maintenance cost uncertainty and power generation uncertainty due to the negative and positive impacts of the temperature on the generation, while the net present value is less than the real option value which only reflects the maintenance cost uncertainty. It implies that the appropriate inclusion of the temperature difference risk is essential to evaluating the project value of geothermal power generation.

References

[1]	Alexander GB, Heston WM, Iler RK (1954) The solubility of amorphous silica in water. J Phys Chem 58: 453-455. doi: 10.1021/j150516a002
[2]	Anderson A, Rezaie B (2019) Geothermal technology: Trends and potential role in a sustainable future. Appl Energ 248: 18-34. doi: 10.1016/j.apenergy.2019.04.102
[3]	Bilqist RA, Dachyar M, Farizal (2018) The valuation of geothermal power projects in Indonesia using real options valuation, In: MATEC Web of Conferences, EDP Sciences, 248: 03004.
[4]	Chen S, Zhang Q, Tang Y, et al. (2019) Investment strategy for shallow geothermal resource based on real option model. Energ Procedia 158: 6118-6125. doi: 10.1016/j.egypro.2019.01.500
[5]	Compernolle T, Welkenhuysen K, Petitclerc E, et al. (2019) The impact of policy measures on profitability and risk in geothermal energy investments. Energ Econ 84: 104524. doi: 10.1016/j.eneco.2019.104524
[6]	Thermal Nuclear Power Technology Association (2018) Current Status and Trends in Geothermal Power Generation 2017. 3: 43-44 (in Japanese).
[7]	Feili HR, Akar N, Lotfizadeh H, et al. (2013) Risk analysis of geothermal power plants using failure modes and effects analysis (FMEA) technique. Energ Convers Manage 72: 69-76. doi: 10.1016/j.enconman.2012.10.027
[8]	Founier RO, Rowe JJ (1977) The solubility of amorphous silica in water at high temperatures and high pressures. Am Mineral 62: 1052-1056.
[9]	Gazheli A, van den Bergh J (2018) Real options analysis of investment in solar vs. wind energy: Diversification strategies under uncertain prices and costs. Renew Sust Energ Rev 82: 2693-2704.
[10]	Goto K (1955) Studies on the State of Silicate in Water (Part 2) Solubility in Amorphous Calculations. Jpn J Chem 76: 1364-1366 (in Japanese).
[11]	Hirowatari K (1990) Experimental study on scale prevention method using exhausted gases from geothermal power station. J Geotherm Res Soc Japan 12: 347-362 (in Japanese).
[12]	Hosoi M, Imai H (1982) Study on precipitation and prevention of the silica scale from the geothermal hot water. J Geotherm Res Soc Japan 4: 127-142 (in Japanese).
[13]	Huttrer GW (2020) Geothermal Power Generation in the World 2015-2020 Update Report. Proceedings World Geothermal Congress 2020 Reykjavik, Iceland.
[14]	IEA Geothermal (2020) Annual Report 2019. Available from: https://drive.google.com/file/d/1hqz5BB391z_LcaeVERQ_YU5zJbhm-2Ok/view.
[15]	Itoi R, Maekawa H, Fukuda M, et al. (1986) Study on decrease of reservoir permeability due to deposition of silica dissolved in reinjection water. J Geotherm Res Soc Japan 8: 229-241 (in Japanese).
[16]	Itoi R, Mekawa H, Fukuda M, et al. (1987) Decrease in reservoir permeability due to deposition of silica dissolved in geothermal injection water numerical simulation in one dimensional flow system. J Geother Res Soc Japan 9: 285-306 (in Japanese).
[17]	Karadas M, Celik HM, Serpen U, et al. (2015) Multiple regression analysis of performance parameters of a binary cycle geothermal power plant. Geothermics 54: 68-75. doi: 10.1016/j.geothermics.2014.11.003
[18]	Kimbara K (1999) Geothermal resources survey in the volcanic fields of Japan: a review. Earth Sci (Chikyu Kagaku) 53: 325-399 (in Japanese).
[19]	Kitzing L, Juul N, Drud M, et al. (2017) A real options approach to analyse wind energy investments under different support schemes. Appl Energ 188: 83-96. doi: 10.1016/j.apenergy.2016.11.104
[20]	Knaut A, Madlener R, Rosen C, et al. (2012) Effects of temperature uncertainty on the valuation of geothermal projects: a real options approach. FCN Working Paper 11.
[21]	Kojima Y, Kawanabe A, Yasue T, et al. (1993) Synthesis of amorphous calcium carbonate and its crystallization. J Ceramic Soc Japan 101: 1145-1152 (in Japanese). doi: 10.2109/jcersj.101.1145
[22]	Loncar D, Milovanovic I, Rakic B, et al. (2017) Compound real options valuation of renewable energy projects: The case of a wind farm in Serbia. Renew Sust Energ Rev 75: 354-367. doi: 10.1016/j.rser.2016.11.001
[23]	Ministry of the Environment (2010) Study on the Method of Reviewing Environmental Impact Related to Geothermal Power Generation (in Japanese). Available from: https://www.env.go.jp/nature/geothermal_power/conf/h2304/ref02.pdf.
[24]	Mo J, Schleich J, Fan Y (2018) Getting ready for future carbon abatement under uncertainty—Key factors driving investment with policy implications. Energ Econ 70: 453-464. doi: 10.1016/j.eneco.2018.01.026
[25]	New Energy and Industrial Technology Development Organization (2014) Renewable Energy Technology White Paper (in Japanese). Available from: https://www.nedo.go.jp/content/100544822.pdf.
[26]	Ritzenhofen I, Spinler S (2016) Optimal design of feed-in-tariffs to stimulate renewable energy investments under regulatory uncertainty—A real options analysis. Energ Econ 53: 76-89. doi: 10.1016/j.eneco.2014.12.008
[27]	Sasaki M (2018) Classification of water types of acid hot-spring waters in Japan. J Geotherm Res Soc Japan 40: 235-243.
[28]	Sato K, Odanaka K, Shakunaga N, et al. (1996) How to inject water into the geothermal fluid transport pipe. Japan Metals and Chemicals Co., Ltd. Jan30th, 1996, Patent Number: 1996-028432 (in Japanese).
[29]	SPATECH Shinshu (2015) (in Japanese). Available from: http://spatec-shinshu.jp/c3b.html. Access on: Dec 3, 2020.
[30]	Snyder DM, Beckers KF, Young KR, et al. (2017) Analysis of geothermal reservoir and well operational conditions using monthly production reports from Nevada and California. GRC Trans 41: 2844-2856.
[31]	Shiozaki A (2019) Geothermal power generation development in Japan. Japan Soc Eng Geol 60: 120-124 (In Japanese). doi: 10.5110/jjseg.60.120
[32]	Yu S, Li Z, Wei Y, et al. (2019) A real option model for geothermal heating investment decision making: Considering carbon trading and resource taxes. Energy 189: 116252.
[33]	Zhang M, Liu L, Wang Q, et al. (2020) Valuing investment decisions of renewable energy projects considering changing volatility. Energ Econ 92: 104954.

GF-02-04-023-s001.pdf

Reader Comments

Your name:*

Email:*
© 2020 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)