Drilling for geothermal hot water and steam is very costly -- about FJ$19 million for each hole. Itís also high-risk, since hot water may not be found. That is why governments do not invest in geothermal exploration.

If geothermal is so good, why hasnít it been installed in Fiji before?

The main reason is that the first stages of a geothermal power project are extremely expensive and have a high risk of failure: drilling for geothermal hot water can cost about FJ$19 million (US$11 million) per hole and drill holes may not strike hot water, even though a good source may not be far away.

These costs and risks are too high for governments to undertake this work, since there is no guarantee at all that drilling will be successful. However, some non-government investors are prepared to bear the high risk of financing geothermal drilling. Although they may lose all their investment, if drilling is successful the return from a large geothermal power station is good.

However, the economics of small projects -- such as the power stations that will be required initially in Fiji -- are less attractive than those of large undertakings. Savings in mass production and quantity buying are not available, and there are fewer units of power output by which to divide the capital cost expenditures. Therefore, rates of return on investments are typically lower for small projects. This is the second main reason why interest in geothermal projects in Fiji and other South Pacific countries has not been high enough to get a project started.

Before the proponents of a geothermal power project can be at all confident that drilling for hot water may be successful, complex and expensive geological studies are also needed. Availability of the results of some studies by the Fiji Government has been a crucial factor in enabling the present initiative by Geothermal Electric Limited to go ahead.

A previous factor was the limited availability of generating plant of appropriate size at a competitive cost. However, in recent years the market has matured. In stark contrast to geothermal exploration and drilling, which has very high risk and cost, medium and small-size geothermal electricity generation plant has become accessible, and finance is also available to make the investment worthwhile.

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