geothermal power plant projects in central america - Orkustofnun

Interest on loansFleischmann (2007) included in the financing issues for independent geothermal developers itemssuch as: construction financing (interest rates may be up to 10% or more and the construction lenderrequires a take-out guarantee at commissioning); and term financing (usually based on 30% equity,IRR in the high teens, interest 7% or more for 15 years). Hance (as cited in IEA, 2011b) states thatwhen considering geothermal development, in some countries such as the United States, interest ratesfrom 6% to 8% is usually requested for debt lenders.The IEA (2011b) in its recent report indicated an assumed 10% interest rate assumed for theproduction cost calculations related to geothermal heat and power technologies. In a study ofcost/size/risk analysis of geothermal projects (Elíasson and Smith, 2011), calculations assumed thatfirst time projects require 30% equity, a 7% interest rate on 12 year majority with a 3 year grace periodon the first project loan, and 25% equity, 6% interest and the same majority for subsequent projects.It is clear that different types of financing options (loans) may have different interest rates and terms.The work of Rodríguez and Henríquez (2007) revealed that, in Central America, all of the financingoptions: equity financing, bank financing (private banks and multilateral institutions) and debenturethrough the stock exchange, are used to some extent by different developers. In this study, a 9 %interest is assumed in the three loans considered for geothermal development.DepreciationA straight line depreciation method is assumed, as defined in Section 2.3.DividendsThe policy of dividend payments to owners is assumed to be 30% of the net income at the end of thefinancial year.Corporate taxA corporate tax of 30% is assumed is defined in Section 2.3. As explained in Section 2.4, in CentralAmerica each country has different tax incentive schemes for the development of renewable energies.The impact of the tax incentives on the financial returns of geothermal projects is discussed in Section6.7.Loss transferIn this study, loss transfer is not allowed.6.4 Model outputs for two resource scenarios and one power plant technology6.4.1 Cash flowsIn this analysis, two cash flows are considered: CCF and FCFE. Two different sizes of investments arediscussed, as results of two different geothermal resources expected. In the next section, a wide rangeof temperature resources and mass flow have been evaluated. Figure 39 shows the cash flows for twosingle-flash power plant projects: scenario 1 for 240°C, and 300 kg/s (27.7 MW); and scenario 2 for240°C, and 300 kg/s (55.5 MW).As Figure 39 indicates, the geothermal development project has negative cash flows during the first 7years, largely as a consequence of significant capital expenditures. Most of the high initial fixed costsoccur during the drilling and power plant construction phases. During this period, geothermaldevelopment projects finance a high proportion of their investment needs with debt.In this analysis, debt financing helps to obtain better IRR of Equity; this is because it is assumed in themodel that the payment of interest is tax deductible. FCFE reflects to the equity investor the effect ofchanges in the levels of debt, and repaying the principal on existing debt represents an outflow in theestimation of FCFE. After the geothermal power plant construction period, when commercial47