Quick note re Geothermal

For some time I've had Geothermal as my No. 1 candidate for best long term alternative among renewable energy options. I thought I'd lay out my arguments in simplest form.

First, the resource is limitless for all practical purposes and relatively equally distributed around the world. The later is down the road although in the short run, due to technology limitations, some locations are more attractive than others.

Second, it offers both a"utility scale" and more granular solutions. One can utilize the same resource on a different scale both on the MW but also on a "subdivision scale" or even on an individual home scale.

Third, we are still on the steep part of the technology curve with geothermal and problems to be solved are within visible reach of further development of technology. Advances in drilling techniques "ported over" from fracking type of drilling will solve the problems of occasional seismic activity and also drive down the cost of that most expensive part of the initial infrastructure.

Fourth, in purely corporate finance terms, geothermal projects are evaluated like any other investment - on the basis of their Net Present Value. In a NPV calculation the rate used to discount future cash flows to their present value needs to reflect the risk profile of the investment and for geothermal, that discount rate is currently relatively high as there are significant uncertainties inherent in the projects.

As technology progresses and experience reduces those uncertainties, the discount rate applied to future cash flows will fall and therefore positive NPV will pop up with all other things remaining equal. In other words, the initial cost does not have to fall nor do future returns need to increase to make a project make financial sense if only the associated uncertainty decreases.


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