Technical Due Diligence: How to Confirm Investor Confidence in Geothermal Projects

Benjamin M. Hubbard, P.E.

Principal, Geothermal Advisory

Why Is Technical Due Diligence Essential for Geothermal Investment Decisions?

The geothermal sector is growing significantly, driven by the increasing demand for secure, low-carbon energy and the need for reliable baseload power. Unlike intermittent renewables, geothermal energy offers predictable, long-term and continuous output, making it an attractive component of a diversified energy system.

However, this growth broadens an industry-wide challenge: not all geothermal projects are technically mature or commercially viable. As project pipelines expand, developers and investors must differentiate between opportunities with genuine technical potential and those that carry unquantified or binary risks.

Geothermal technical due diligence provides an independent and structured evaluation of a project’s underlying assumptions, transforming subsurface uncertainty into quantifiable insights that support informed investment decisions. This effort plays a central role in building investor confidence and enabling project bankability.

What Is Geothermal Technical Due Diligence?

It is a multidisciplinary, independent evaluation of a project’s technical, operational, and economic foundations. It is a valuable tool for investors, lenders, or acquirers to assess whether the potential return justifies the level of risk.

At its core, due diligence aims to answer three fundamental questions:

1. Is the resource technically producible at the expected rates?
2. Can the proposed development concept be executed reliably?
3. If appropriately managed, can the development generate a financial return?

To address these questions, due diligence integrates expertise across:

• Geoscience and subsurface modelling
• Reservoir and production engineering
• Wells and completion design
• Facilities and surface infrastructure
• Project execution and cost frameworks

In many instances, this evaluation is carried out through a Lender’s Technical Advisor (LTA) role or as part of a geothermal M&A transaction, where an independent review is necessary before any investment is made.

What Does Geothermal Technical Due Diligence Include?

Robust project evaluation must take a systems-based approach, recognising that project success depends on the interplay among subsurface conditions, engineering design, and operational performance.

Subsurface Characterisation and Resource Evaluation

Developing a robust characterisation of the subsurface is the starting point for any geothermal project. A realistic understanding of reservoir quality and producibility relies on:

• Geological setting and stratigraphy, including the identification of reservoir intervals, caprock integrity, and structural controls such as faults and fractures that may influence fluid flow.
• Reservoir properties, such as porosity, permeability, and pressure conditions, determine the ability of the formation to sustain economically viable flow rates.
• Thermal regime and resource temperature, including depth-dependent temperature gradients and the distribution of heat within the reservoir system.
• Petrophysical evaluation and well log interpretation, including fluid properties such as salinity, scaling potential, and geochemistry, which directly impact production performance, well integrity, and long-term operability.
• Existing well and seismic data, where available, including well tests, logs, and offset analogues, are used to constrain uncertainty and improve confidence in subsurface models.

Unlike hydrocarbon systems, where volumetrics can dominate early-stage evaluation, geothermal projects depend heavily on reservoir deliverability and the ability to sustain flow rates over time. This requires integrating subsurface uncertainty with production modelling to establish realistic performance scenarios.

Wells and Reservoir Engineering

Technical due diligence for geothermal projects requires a thorough analysis of well design and reservoir performance to effectively assess sustainable production over the life of the project. This is typically supported by an integrated evaluation of:

• Well architecture and completion design, including casing strategy, material selection, and completion techniques, ensuring compatibility with geothermal fluid chemistry and long-term operating conditions.
• Production and injection well configuration, such as doublet design and well spacing, to optimise reservoir sweep, maintain pressure support, and prevent early thermal breakthrough.
• Flow assurance and production performance, including expected flow rates, scaling and corrosion risks, and the impact of fluid chemistry on well integrity and operational reliability.

Ultimately, the objective is to confirm that the well and reservoir design are not only technically feasible but also aligned with the project’s expected performance, lifecycle, and economic assumptions.

Facilities and System Integration

Geothermal systems are only as effective as their ability to convert subsurface heat into usable energy. Due diligence, therefore, assesses whether the entire system, from reservoir to surface facilities, is designed to efficiently capture, transfer, and deliver that energy under real operating conditions.

This includes an integrated review of:

• Surface facility design and capacity, including heat exchangers, power generation systems, and plant configuration.
• System integration between subsurface and surface, confirming that well performance, flow rates, and temperatures are compatible with facility design and operational requirements.
• Operational reliability and performance, including maintenance requirements, uptime expectations, and the ability to manage variability in production conditions.
• Heat or power offtake systems, such as district heating networks or industrial heat applications.

This aspect is critical to ensure the stability of the geothermal resource.

Techno-Economic Evaluation

A financially viable development under realistic operating conditions is supported by a detailed review of:

• CAPEX and OPEX estimates, including benchmarking against comparable geothermal projects and evaluating the assumptions underlying drilling, facilities, and operating expenditures.
• Sensitivity analysis of key technical parameters to understand how variations in subsurface performance impact overall project economics.
• Development scenarios and phasing strategies, evaluating different configurations, well counts, and expansion options to optimise both technical performance and financial outcomes.
• Revenue assumptions and offtake alignment, including heat or power pricing structures, long-term agreements, and the stability of demand supporting the commercial case.
• Financial returns, such as net present value (NPV), internal rate of return (IRR), and payback period, are used to determine whether the project meets investor return thresholds.
• Execution timelines and schedule risk, assessing whether delays in drilling, permitting, or facility construction could impact financial performance and investment returns.

This integrated approach ensures that the project can deliver sustainable and competitive returns relative to the level of risk involved.

Risk Identification and Uncertainty Assessment

Geothermal projects are inherently exposed to subsurface uncertainty, particularly in early-stage developments where data is limited. This uncertainty can directly impact:

• Reservoir productivity and permeability, which control how easily fluids can flow through the formation; low permeability can restrict flow even in high-temperature resources, limiting technical and economic viability.
• Thermal performance over time, as thermal breakthrough and reservoir cooling can reduce efficiency and energy output over the life of the project.
• Drilling complexity and well costs, where challenging subsurface conditions, depth, and temperature can increase technical difficulty, capital requirements, and overall project risk.

Technical due diligence addresses these uncertainties through systematic risk evaluation.

Decision Support for Investors and Developers

By translating technical complexity into actionable insights, technical due diligence enables:

• Comparison of multiple project opportunities
• Identification of critical data gaps
• Prioritisation of development pathways
• Efficient allocation of capital

It also provides early-stage filtering, allowing stakeholders to discontinue or redesign projects that do not meet technical or economic thresholds.

Why Does Technical Due Diligence Build Investor Confidence?

For investors and lenders, confidence is built on the transparency, independence, and reliability of information.

Geothermal projects, with their reliance on subsurface performance, present unique investment challenges. Without independent validation, technical assumptions may be overly optimistic, incomplete, or insufficiently tested.

Technical due diligence addresses this by providing:

• Independent validation, delives an objective third-party evaluation that reviews project assumptions, mitigates potential bias from developers or vendors, and aligns findings with industry benchmarks and best practices.
• Clarity on risk and reward potential, giving investors visibility on key uncertainties, risk drivers, expected performance ranges, and the sensitivity of outcomes to technical assumptions, enabling a more balanced evaluation of both risk and opportunity.
• Improved investment readiness, positioning projects that undergo rigorous due diligence to meet lender and investor requirements, achieve financing and regulatory approvals, and progress efficiently through development stages.

How Does Sproule ERCE Support Geothermal Technical Due Diligence?

Sproule ERCE approaches geothermal technical due diligence as a fully integrated advisory process, combining technical expertise with commercial understanding.

Our capabilities include:

• Independent project reviews and red flag evaluations
• Buyer-side and vendor-side due diligence for M&A geothermal transactions
• Lenders Technical Advisor (LTA) services
• Portfolio-level risk evaluation and benchmarking
• Strategic advisory on development planning and risk management

What differentiates this approach is the ability to integrate:

• Subsurface expertise (geoscience, reservoir modelling)
• Engineering evaluation (wells, facilities, operations)
• Economic analysis and commercial insight

This perspective allows risks to be assessed not in isolation, but within the broader context of project value, execution, and investment strategy.

Why Is Technical Due Diligence Critical to Geothermal Project Bankability?

Technical due diligence is not an optional step; it is a critical component of the project lifecycle. It enables stakeholders to:

• Validate technical assumptions
• Quantify and manage risk
• Align project design with realistic performance expectations
• Support informed investment decisions

By acting as both a validation tool and a filtering mechanism, technical due diligence ensures that capital is directed toward projects with genuine technical and commercial viability.

In doing so, it strengthens confidence in the geothermal sector as a whole.

Learn how technical due diligence is applied in practice through our Geothermal Ventures case study, where a comprehensive portfolio evaluation supported informed investment decisions and a clear understanding of project risks:

🔗 Explore the case study