Energy Vol. 14, No. 9, pp. 545-550, 1989 0360~5442/89 $3.00 + 0.

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Printed in Great Britain. All rights reserved Copyright @ 1989 Maxwell Pergamon Macmillan plc

A SENSITIVITY ANALYSIS OF MAGMA POWER

ECONOMICS
JOHN HARADEN
149 Eleventh Street, Del Mar, CA 92014, U.S.A.

(Received 29 November 1988)

Abstract-Recent studies indicate the technical feasibility of drilling into shallow magma
bodies and converting their heat energy into electricity. With sufficient magma penetra-
tion, recent cost estimates are competitive with those of currently used energy sources. A
sensitivity analysis is used to examine key variables and isolate crucial parameters that
determine costs. Identification of these variables pinpoints elements of risk and indicates
areas of needed research.

INTRODUCTION

A report, prepared for Sandia National Laboratories, indicated the technical and economic
feasibility of drilling into a shallow magma body at Long Valley, California, and harnessing its
heat energy for electrical power generation.’ In a previous paper,2 we presented the
preliminary economic results. Subsequent research mandated design changes and provided
more favorable economic conditions. In a recent paper,3 we reported these research advances,
described the current engineering design, assessed the resource potential, and updated the
economic results.
In this paper, we employ the economic results in a sensitivity analysis of magma-power
development. Sensitivity analysis serves to divide the key variables into two groups: those that
have a significant effect on price when varied and those that do not. Significant errors may exist
in the estimates of unimportant variables without increasing the cost of magma power.
Considerable uncertainty surrounds magma power. The exact size and location of the magma
body is unknown. The precise nature and composition of the magma regime is unknown. The
expected heat-extraction rate is problematical. The proposed magma drilling technology is
speculative. Complete knowledge of these areas would be helpful for an effective engineering
design and for an accurate economic assessment. Research should be concentrated on the
crucial variables. Reducing their uncertainty bounds the cost estimates and minimizes the risk
of magma-power development. In this paper, we isolate the crucial variables and identify the
most important research areas.

PROCESS DESCRIPTION

A magma body is assumed to lie 7000 m beneath Long Valley. The magma is rhyolite with a
temperature near 900°C. A well is drilled into the magma chamber and completed with
concentric piping. Cold water flows down the well annulus, pushes through the hot magma,
evaporates, returns as steam up the well center, and powers a conventional steam power-plant.

TECHNICAL APPROACH

With best estimates for all unknown parameters, the entire design has been rigorously
engineered, cost-estimated, and computer-simulated. The power-conversion process has been
modelled. Mathematical models have been made for the heat and mass transfer of the water
working fluid that flows from the magma, through the well, and into the surface power-plant.
An additional reservoir analysis has been made of the transport phenomena through the
546 JOHN HARADEN

magma. Computer simulations have been run of the entire physical process under many
conditons. Power estimates have been produced, revenue estimates have been calculated, and
the cost of magma power has been determined.

COST MODEL

A cash-flow model is used to calculate the cost of magma-generated electrical power,‘-4 In

this estimate, we equate the discounted cost and revenue streams. The model reflects the
current economic environment and present public utility policy. A pre-tax environment is
assumed with a real interest rate of 10%. The rate is compounded continuously at mid-year.
An initial cost for electrical power is fixed by a long-term contract for the entire plant life. All
prices and material costs are in constant 1985 dollars. For the royalty, the resource owners
receive 15% of the gross steam revenue. The steam revenue is assumed to be 50% of the
electrical revenue. The power-plant has an operating life of 30 yr and runs 80% of the time.
The construction time for the power-plant is 18 months. Plant construction begins after the well
has been drilled, completed, and tested.
The life of the power project is the life of the well. If the well life is ~30 yr, plant operation is
terminated by plugging of the well. This assessment is based on the current reluctance of
utilities to undertake ventures requiring large future outlays of capital. Most regulated utilities
choose investment strategies that minimize the present value of future revenue requirements.
This behavior is consistent with maximizing the value of the firm, subject to a requirement to
provide electrical service and a limitation on the rate of return.
We use the well design, drilling and completion costs to calculate costs for a well reaching a
depth of 5335 m. Incremental drilling and completion cost functions are then derived for crustal
and magma penetrations. These functions are added to the cost for the 5335 m well. Their sum
is the cost function for drilling a magma well with a variable magma ceiling and a variable
penetration depth. If d, is the depth of the magma ceiling and if d, is the depth of the well, the
total cost (in 1985 U.S. $) is c = 21,514,800 + 1968(d, - 5335) + 6212(d, - d,). Both d, and
&, are measured in m. Well-completion and well-testing costs are included in the total
well-construction cost. Determination of the annual well-maintenance cost requires allowance
for a plant shut-down and a concomitant loss of revenue. To estimate this cost, past experience
with geothermal wells is used to estimate potential problems for deep magma wells. The annual
maintenance cost is estimated at $325,000.
A 25 MW power-plant supplies power from 0 to 25 MW. From 25 to 5OMW, an
optimally-sized plant produces each design output. The cost of the 25 MW plant is $1271 for
each installed electrical kW.’ Economies of scale guarantee that the 50MW plant is cheaper
per kW than a smaller plant. The scaling factor is borrowed from that for coal-fired plants and
yields a 13% cost reduction.5 This value is a conservative reduction since actual geothermal
plants usually have a higher scaling factor. 6 Plant-operating and maintenance costs are 1.3% of
gross revenue.
Given the economic environment and the project-cost structure, the model yields the selling
price of electrical power that guarantees a fixed real rate of return. In the following analysis,
the royalty fee and plant-maintenance costs are explicitly built into the model. NB is the
number of years needed for plant construction and well drilling: r is the real interest rate. Cost
is an annual amalgam of costs. In the initial construction period, cost includes the costs for well
construction, plant construction, well testing, and well completion. After construction, cost
includes the costs of plant operation and well maintenance. The needed price of electrical
power is pa.
The discounted cash-flow model yields
NB+30 NB+30

2 (0.925p.) exp[-r(i - l/2)] = C (0.013~~) exp[-r(i - l/2)]

i=NB+l i=NB+l

NE+30

+ lzl cost(i) exp[-r(i - l/2)],

 Sensitivity analysis of magma power economics 547

NE+30 NB+M
pa i_z+, (0.925-0.013) exp[-r(i - l/2)] = C cost(i) exp[-r(i - l/2)],
i=l

NB+30
C cost(i) exp[-r(i - l/2)]
i=l
pa= NB+3Q
C 0.912 exp[-r(i - l/2)] ’
i=NB+l

where
(well-construction costs + plant-construction costs
if i=%NB,
cost(i) =
well-maintenance costs
1.di>NB.
In the preceding formulation, pa is the yearly cost in dollars. To convert this cost to
mills/kWh, pa must be expressed in mills, and the number of kWh must reflect the plant
down-time for well maintenance and its 80% operating rate. If P is the plant power in MW and
t is the well-maintenance time in days, all of these constraints are allowed for in the
f;;“owing expressions:
Pam = lop,>
kWh = 1000(0.80)(24)(365 - t,)P,
mills/kWh = pJkWh.

SENSITIVITY ANALYSIS

The cost model describes the base case. Starting from this baseline, the following key
variables are varied independently: magma ceiling depth, magma penetration rate, reservoir
heat-extraction rate, well life, and well-maintenance cost. The sensitivity of each variable is the
partial derivative of the cost function with respect to that variable. Variables with high
sensitivities have large cost risks associated with uncertainties in the associated costs. By
examining the sensitivities, the crucial variables can be culled from the relatively unimportant
ones. The risk of magma power can then be directly linked to uncertainties in the crucial
variables.

RESULTS

Magma power provides electricity that is potentially competitive with current prices in
California. For the base case, magma prices decline monotonically with depth from
219 mills/kWh at 7050m to 36 mills/kWh at 8000 m. These prices correspond to magma
penetrations of 50 and 1000 m. The price decline follows from the falling average cost of
magma penetration. Large fixed costs are generated by building the plant and drilling the well
to the magma chamber. Incremental magma penetrations produce constant marginal cost and
marginal revenue functions. These marginal functions and the fixed costs create a falling
average cost of power with increased magma penetration.
For the sensitivity analysis, all variables are varied about the 7400 m well with a 400 m
magma penetration. For these conditions, the cost of magma power is competitive with coal at
56 mills/kWh. Workers at the Electric Power Research Institute (EPRI) estimate the 1985 cost
of coal-fired plants to be 50-60 mills/kWh.’ Coal was chosen as the standard for electrical
generation since coal currently supplies 55% of U.S. electricity,8 and since coal will probably
be the major source of supply in the year 2000. 8*9 After the Arab oil embargos and
heightened concern for energy security, oil may never again become a major resource for
generating electricity. The use of nuclear power continues to be impeded by regulation,
mismanagement, environmental concern, and prohibitive prices.”
548 JOHN HARADEN

Doubling the annual well-maintenance cost to $650,000 raises the power cost to
58 mills/kWh. The increased maintenance cost is thus still not an important cost factor as
compared to other costs and revenues. Maintenance costs have relatively smaller effects in the
later than in the earlier years. In the calculation of power cost, all financial variables are
discounted to the present. When compared to the large costs of drilling and plant-construction,
all distant financial variables are discounted to almost nothing.
By reducing the well life from 30 to 10 yr in 5-yr decrements, the power cost rises an average
of 4 mills/kWh for each decrement. With a lo-yr well life, the power cost is 81 mills/kWh.
With a 5-yr well life, the cost jumps to 124mills/kWh. These increases can be mitigated by
increasing the well depth. For a lo-yr well life at 8000 m, the power cost is 51 mills/kWh. For a
5-yr well life at 8OOOm, the cost is 76 mills/kWh. Since the well life defines the project life,
there is a clear explanation for higher costs with shorter well lives. Shorter project lives
produce less revenue. Discounting explains the dramatic cost increases with very short well
lives and the moderate increases with intermediate well lives. After lOyr, all future revenues
are discounted substantially and have little effect on present-value calculations. This result
shows an inherent investment bias against all long-term energy projects with large initial costs
and with long operating periods.
Short plant lives and high well-maintenance costs imply corrosion levels deleterious to the
well and the power-plant. But corrosion may not be a relevant economic concern. Well
maintenance costs have almost no effect on power costs. Only extremely short well lives cause
large increases in power costs. We can tolerate significant errors in anticipated corrosion levels
and still obtain an economically viable project. Alternatively, it may not be cost effective to
develop materials with extremely high resistance to corrosion. The decrease in power costs may
not justify the investment.
A deeper magma ceiling at 7500m presents no problem. The power cost only rises to
57 mills/kWh. Drilling of the additional 500 m increases the cost of reaching the magma by 7%.
As a percentage of total drilling and plant-construction costs, this increase is negligible.
If the depth of the magma ceiling exceeds 7500 m, there may be a problem. The current well
design is predicted on an 8000 m well. Greater depths will require casing with a higher burst
pressure. To overcome increased frictional loses, greater depths may require a larger hole with
larger casing diameters. These design changes may substantially increase drilling costs. Since
these costs are already large and front-loaded, increases may have a pronounced effect on
present-value calculations and on the magma power cost.
Uncertainty about the magma ceiling may soon be reduced and the associated risk
eliminated. In 1988, a 4-yr drilling program was initiated at Long Valley.” An exploratory well
will be terminated when the bottom hole reaches a depth of 6089 m or a temperature of 500°C.
The proposed well will not approach the magma chamber but will validate geophysical
measurements. These should serve to determine the magma ceiling more accurately and show
if a different well design is needed.
The anticipated magma penetration rate is 3 m/day.’ Decreasing this rate by 50% only raises
the power cost to 57 mills/kWh. A lo-fold reduction raises the cost to 62 mills/kWh. With the
lo-fold reduction, an 8000 m well may still be employed to supply power at 44 mills/kWh. Most
of the drilling costs are accumulated in reaching the magma. With moderate decreases in the
penetration rate, the magma-penetration costs are relatively small additions and do not
dramatically increase the total drilling costs.
The penetration costs become more important with deep penetrations and slow drilling rates.
After reaching a certain depth, the cost of penetrating the magma equals the cost of reaching
the magma. With greater depths, the penetration cost dominates the other drilling and
plant-construction costs. The penetration cost then has a pronounced effect on power costs.
The power costs stop decreasing dramatically and approach an asymptote. The asymptote
determines the optimal well depth and the minimum power cost. For the most reasonable
estimates of the penetration rate, the asymptote occurs at depths that tax the current well
design and that exceed all expectations about our ability to penetrate magma. For dramatic
decreases in the expected penetration rate, the asymptote may become a limiting factor. For a
lo-fold reduction in penetration rate, the asymptote occurs at a penetration depth near 1700 m
 Sensitivity analysis of magma power economics 549

and a cost near 39 mills/kWh. This value of the penetration depth exceeds the estimated limit
of 1OOOm by 700m. Larger reductions in the penetration rate may reduce the operational
depth limits of the proposed technology.
If the magma penetration rate is reduced by no more than a factor of 10, there is little
premium on trouble-free drilling. Broaching the magma chamber can require an unusual
amount of time. Unanticipated problems can probably be handled without generating
prohibitive costs. There is ample time for the field implementation of an untried technology:
techniques can be modified and new skills mastered.
The wellbore heat extraction rate is the driving force behind the plant revenue obtained by
the operator. The rate determines the heat energy extracted from the reservoir, the power
generated at the surface plant, and the amount of marketable electricity. Any reduction in
plant power reduces revenue by the same factor. But by reducing the plant power, a smaller
power-plant can be built. The plant construction costs are necessarily less than those for a
larger plant. Drilling costs are constant. The combined effects raise the power price but that
price increase is not proportional to the power decrease. A 25% reduction in the extraction
rate raises the power cost to 67 mills/kWh; a 50% reduction raises it to 89 mills/kWh. A deeper
penetration can be a proxy for a reduced heat-extraction rate. If the extraction rate is halved
and the penetration is doubled, the extracted heat will not change. The price will be increased
slightly to cover the increased drilling cost. An 8000-m well with a 50% reduction produces
electrical power at 54 mills/kWh.

CONCLUSIONS

The most important variables are the magma penetration depth and the magma penetration
rate. These determine economic viability and minimum cost. Variations of almost all other
variables have little effect on power cost. When they do, a deeper magma penetration may
usually be used to compensate for the variations. Simultaneous variation of several variables
has not been considered. If the actual penetrating conditions are sufficiently favorable, magma
power will be economically viable, even if we made serious errors in the estimates of all other
magma parameters.
Magma power generation is a research project about a speculative technology with uncertain
costs. Uncertainty shrouds all aspects of the magma regime. The greatest risk hangs on how far
and how quickly the magma can be penetrated. Any risk assessment should be based primarily
on these fundamental questions. When their uncertainty is resolved, any lingering risk is
concerned with the lesser problems of transportation, marketing, availability, pollution, and
competition. In a recent paper,3 we argued that developed magma power would be a
formidable market force.
The current well design is limited to magma bodies no deeper than 7000 m. Deeper magma
sources will probably require more expensive well designs. Tapping of these sources will
generate a greater cost for increased depth and footage rates. Deep penetrations are more
important for these deeper sources. For any risk-free assessment of these sources, there must
be precise knowledge about our ability to drill into magma.
In 1992, an exploratory well will be completed at Long Valley.” After the well data are
analyzed, a decision must be made around 1995 about drilling a deep magma well. If the
decision is favorable, the fundamental uncertainty about magma power will be resolved. The
deep magma well will determine the ability to penetrate magma with current technology.
Serious engineering problems will still remain and must be solved before magma is a practical
energy source. But more accurate economic assessments will become possible about commer-
cial development of Long Valley. The stakes are enormous. Long Valley can be used to
generate electricity equivalent to that produced by burning 75 billion barrels of oil.3 With a
40% recovery rate, this output is the equivalent of 188 billion barrels of oil. By comparison, the
vast proven reserves of Saudi Arabia are 168 billion barrels of oil.l*
550 JOHN HARADEN

REFERENCES

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1985).
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1985).
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