The Danish Compensation Guarantee for geothermal projects

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. Figure 1
  • Total Damage Guarantee: partial coverage of drilling costs, provided the project must be abandoned due to technical problems. Figure 1
  • Reservoir Risk Guarantee: partial coverage of drilling costs, provided that the reservoir does not perform as expected. Figure 2

The implemented legislation on the Danish Compensation Guarantee – available on www.retsinformation.dk – was based on a document compiled by WellPerform for Energistyrelsen that may be acquired here. In addition, best practice guidelines in Danish are presented on this webpage, however an English translation will be released by WellPerform in the nearest future.

For more information on the Danish Compensation Guarantee and best practices of geothermal projects, please contact Rasmus Lystbæk Petersen at rlp@wellperform.com.

 

Figure 1. a) for budget overruns between 15% and 40% of the approved budget, the Danish Compensation Guarantee may cover 80% of the budget overrun. b) between 40% and 65%, 40% of the budget overrun may be covered. c) if the well fails or the budget overruns >100%, 75% of the budget overrun may be covered.

 

Figure 2. a) if the performance of a production tested reservoir is <30% of the expected, 75% of the approved budget may be covered for the first well drilled. b) if the performance of a production tested reservoir is ≥30% but <70% of the expected, a partial amount of the budget may be covered for the first well drilled. c) the coverage may not amount to more than the economic loss that the licence holder suffers as a consequence of  a reduced performance of the geothermal plant in conjunction with estimates of the expected performance.