Geothermal Power Plant Earthquake Crisis: A Strategic Action Plan

Introduction

Increased seismic activity by geothermal power plants is a common occurrence with the risk of resulting in earthquakes. The power plant of the XXX geothermal power company, which has been in operation for a number of years, has just recently been affected by a major earthquake with a magnitude of 7.3 on the Richter scale. Whereas the power plants surroundings have been badly destroyed (every house reduced to rubble, the road broken up, and power lined down), the external damage to the power plant is minimal. The minimal external damage to the power plant is due to the availability of safety features that are aimed at ensuring the shut-down of the power plant and the machinery in it during such occurrences. While it is not immediately clear what caused the earthquake, it is speculated that it may have resulted from the company’s geothermal power plant’s operations. With reports of over 100 people dead following the earthquake, a number of repercussions begin to emerge. For example, the government is considering shutting down all geothermal power plants in the area as well as cancelling all contracts it has with the geothermal power producers in the area. Additionally, the power plant’s employees plan to quit due to the magnitude of the disaster, its impact on their careers and ethical reasons, banks have threatened to close off credit facilities, call in loans and close the company’s bank accounts, suppliers and service providers have threatened to stop supplying to the company their equipment and services due to not wanting to be associated with the company, and major shareholders, who are unhappy, are also considering the action to take. It is in this regard that this strategic action plan is prepared to manage the situation.

Geothermal Energy and Seismicity

Geothermal energy is a viable form of alternative energy with great potential, and there are expectations that it`s use will significantly grow in the future. For years now, geothermal energy facilities have been providing clean renewable power to different countries electricity grid, with no major significant earthquake events (Zang et al. 2014). It is worth noting that in contrast to other sources of renewable energy, geothermal energy is available at all times, and that is regardless of whether the sun is shining, or there is blowing wind. This would beg the question then, on how the geothermal power plants operations are related to the earthquake.

Earthquakes induced by human activity have been reported in different parts of the world. There are a range of factors that possibly induce earthquakes, and these include reservoir impoundment, underground and on the surface mining, subsurface withdrawal of fluids and gas, and the injection of fluids into underground formations. Our Action Plan is centered on mitigating the hazards brought about by the earthquake by stopping those activities that led to occurrence of the earthquake.

There are several reasons advanced by seismologists that explain how geothermal operations end up inducing earthquakes. Within geothermal fields, operators withdraw mass, comprising of steam boiled from water, and heat, which in effect, lead to the contraction of surrounding rock (Blocher et al. 2018). That goes a long way in inducing earthquakes, owing to contraction stresses. Additionally, during these geothermal operations, the extracted steam is condensed, and water subsequently allowed to flow back into the steam reservoirs at depths that range from one to three kilometers, which is meant to extend the field`s life. While the rock is hot, the condensed steam is cold, and this qualifies as another significant factor that induces earthquakes. There is also the possibility of the hydraulic pressure of injected fluids finding its way into faults, and facilitating fracturing, as a result of an increase in fluid pressures (Bujize et al. 2019).

From historical records, there is evidence that seismicity occurs in different energy and industrial applications (Majer et al. 2007). We seek to carry out extensive research and put in place efficient engineering controls to facilitate the safe and economic production of geothermal energy. An assurance is given to policymaker’s members of the general public, who are from the surrounding communities, that our plant will engineer geothermal technologies that rely on fluid injections, which would go a long way in minimizing induced seismicity risks, in addition to ensuring that geothermal power is produced in a cost effective and safe manner. Our action plan is aimed at supplementing the existing power production protocols that have been put in place by the International Energy Agency.

The present paper outlines our strategic action plan to inspire confidence in the masses on the safety of our operations, strengthen safety in different operational areas, safety assessment of the geothermal power plant, emergency preparedness, capacity building, and protection of people and the environment from any possible harmful effects that could arise from operations. As part of the action plan, several measures are introduced that would go a long way in enhancing geothermal safety.

Current Problems and Potential Solutions and Recommended Action Plans

In relation to the risk that the company’s main geothermal power plant could be irreparably destroyed and operations severely disrupted, the company should, in addition to the results it obtained from its existing monitoring program, should conduct physical on-site evaluations in order to ascertain the extent to which the earthquake has destroyed the power plant’s infrastructure and equipment. Through this, the company’s management will become informed of the areas of the plant, its operations and equipment that have been damaged, the extent to which they have been managed and the necessary action to be taken. For example, plant equipment that has been slightly destroyed could be subjected to the necessary minor repairs or spare part replacements, while those that are irreparably damaged should be replaced in their entirety. The repair and/replacement of the destroyed power plant equipment and infrastructure should be undertaken with urgency to ensure that the plant’s operations are not halted much longer than necessary. To achieve this, and to the necessary standards, the company should seek and use the appropriate technical assistance

In the face of the threat by the government to shut down all geothermal power plants in the area, the company should consider a number of actions that will potentially contribute to it remaining operational. The first option would be to hold discussions with the relevant government officials and stakeholders to reinforce to them the significance of geothermal power not only in the area, but also in the country at large. Geothermal energy, as a source of electricity, is a highly reliable energy source at a relatively stable price that significantly contributes to the stability of a country’s energy supply. Geothermal power provides Indonesia with an opportunity to sustainably diversify its power generation mix, and as a clean source of energy, produce reliable and stable baseload power round the clock. Additionally, as an indigenous source of energy- meaning it results in a purely domestic production of energy, geothermal power contributes to the country reducing the amount of power it imports (Huttrer, 2020). Therefore, the country, through its utilization of geothermal power, will be able to save on foreign currency, as well as increase its export of fossil energy and gain foreign currency through the reduction of domestic fossil energy consumption. Despite the very high initial investment costs, geothermal power production does not require fuel cost and also makes it possible to produce and supply energy in a steady and stable manner amidst fluctuating foreign exchange rates and unstable international oil prices (Bertani, 2016). Given the high initial investment costs of putting up geothermal power plants to produce geothermal energy, and the high operational and production costs associated with other sources of energy, shutting down geothermal power plants would not only result in high investment capital loss, but also increased costs due to the need to exploit and increase the power production capacity of the other (not so reliable or stable) sources of energy. Geothermal power, besides being environmentally friendly due to the fact that it does not involve a combustion process, also contributes to the empowerment and development of the local communities in which the geothermal power companies and plants operate (Xia and Zhang, 2019). By stressing these factors and advantages of geothermal power to the relevant government officials and agencies in charge of energy, the company may be able to convince the government to rethink and possibly withdraw its threat to shut down all geothermal power plants in the area.

Another major way through which the company could potentially survive the threat by government to shut down all geothermal power plants would be the issuance or sale of stocks, and therefore part of the company, to the government. This way, the company would be able, to some extent, to influence government legislation and policies relating to energy and, more specifically, geothermal power and power plants. By having the government own a part of it, the company is likely to be treated more favorably, for example in circumstances such as the current one. However, it is also essential that, even with the sale of part of it to the government, the company puts in place the necessary measures and safeguards to ensure that it is effectively and profitably run without undue government interference that would have the potential of negatively impacting its overall performance. In addition, the company could enter a strategic alliance with the government, through its state-owned or state-backed agencies and enterprises. This could take the form of a public private partnership (PPP), whereby the government exercises control over the resource evaluation and confirmation and field development, while the company, acting as an independent power producer, taking charge of building and operating geothermal power plants (Cedrick and Long, 2017). The adoption of this strategy would result in the signing of contracts that would remain valid and which cannot be abruptly cancelled, even in the occurrence of certain situations such as the current ones, unless a significant breach or disregard of the specified contract terms has been established. The mobilization and use of large-scale public funding by the company as well as the involvement of the government in the development and operation of geothermal power plants would serve as a backstop that absorbs the numerous geothermal resource risks as well as the potential subsequent repercussions that would follow resource risks (Steffen, 2018), such as the ones observed in this case.

The company could also express its support for government policies and legislations, as well as align its long-term strategic goals and objectives to those of the government. For example, the company can express its commitment to achieve 23% of renewable energy by the year 2025 and affirm it in its long-term strategic plan, to be in line with the Indonesian government’s and region’s commitment to the achievement of this target (Irena.org, 2021).

These strategies and recommendations, if effectively implemented, could enable the company to survive the current and future threats by the government to shut down geothermal power plants following the occurrence of earthquakes and other disasters attributed to the power plants’ seismic activities.

To mitigate and counter the CSR fallout from the local community that could potentially occur as a result of the current situation, the company should strongly purpose to reiterate its commitment to the local host community’s social and economic issues as well as aim to improve the community’s perception and acceptance and increase their acceptance of the company and its power plant operations in the area.

In order to timely address the potential CSR fallout from the community, the company could start by ensuring that the community has a clear understanding of the geothermal power plant and its operations, and appropriate mechanisms put in place through which they can be consulted and their views and/or concerns considered and addressed (Tata and Prasad, 2015). Besides reinforcing its commitment to the community’s social issues, the company should also design additional programs that will address any arising issues or those that afflict the community by initiating and supporting development programs that will bring about inclusive and mutually beneficial development for the members of the community (Lindgreen and Swaen, 2010). Running inclusive development programs will result in no member of the community feeling that they are benefiting less from the company’s CSR projects, which could potentially lead to them being less supportive of the company and its CSR projects. As a result, the adoption of a more inclusive CSR development projects and programs, instead of those based merely on mitigation and compensation, will contribute to the community being more supportive of the company, even in situations such as the current one.

In order to achieve this, it is essential that the company designs and disseminates the relevant information in a manner that is timely, culturally appropriate and gender-sensitive. As such, the company should create messages that are simple, easy to understand and informative in relation to the company and its projects (Johansen and Nielsen, 2011). This way, the company will be able to get the community to better understand it and foster its acceptance of the company in spite of the current situation.

However, given that the different members of the community have varying levels of education, livelihoods, perceptions and understanding of the company and its CSR projects, and interests, the company should continuously engage the community leaders and governments in order to discuss the company’s CSR and development projects and their significance to the community (Lee, Zhang and Abitbol, 2019). However, the company should take care to ensure that the community leaders’ and/or village government actions are not guided by influencer interests, but solely by the interests of the community members.

As an established organization that has always honored its financial obligations to banks and other financial institutions, and that boasts of a broad range of assets, the company could leverage on its financial statements to reach a favorable deal with the bank. A view of the company’s management track record, financial transactions, cash flow budgets, and financial (profit and loss) statements, net worth and collateral possessed reveals an economically viable and highly profitable company that is, despite its current situations, capable of- with the necessary support from the relevant financial institutions- meeting its financial obligations (Coleman, Colei and Farhat, 2016). The company could also demonstrate to the bank the significance and high viability of the geothermal power sector, which is a key testament of the immense financial profit that the company stands to gain if it remains operational, and by extension, the bank (Denis and McKeon, 2012). Portraying the potential of the sector, as well as the company’s, could potentially get the bank to reconsider their decision to close off credit facilities, call in loans and close the company’s bank accounts.

To manage the risk of losing its suppliers and service providers, the company could draw on the Resource Dependence Theory as a foundation on which to create strategic alliances with the suppliers and service providers. According to the resource dependence theory, organizations are perceived as suffering from an inefficiency of resources, resulting in a resource gap that is often filled by importing (sourcing) the needed resources from other organizations within the environment. Given that the environment in which organizations (including our company and its suppliers and service providers) operate is dynamic and turbulent, which results in resource uncertainty (Lambrechts, Demeulemeester and Herroelen, 2011), it is essential that organizations strategically align themselves with other organizations in order to minimize the resource uncertainties. On this basis, the company should aim to create an interdependence between it and its suppliers and service providers, and also establish long-term relationships that mutually beneficial (Daft, 2015). The company, being an organization whose operational resource is highly dependent on the environment, and drawing on the resource dependence theory, should create strategic alliances with its suppliers and service providers in order to exercise increased control of resource uncertainty and risk (Maleki, Khajeh and Ameri, 2016). As a consequence, the company should create and offer a resource that will prove both strategic and a source of competitive advantage to its suppliers and service providers, and thereby have them want to enter a strategic alliance with the company (Black and Boal, 1994). In this case, the resource that the company could offer its suppliers and service providers is power. This is because power is a key factor of production that most, if not all, organizations need in their operations, to implement their organizational strategy and to attain their overall organizational goals and objectives.

Shareholders, as part of an organization’s stakeholders, play a critical role in the success of the organization. Following their interest in the activities of the company, along with their aim to gain financially from the company, it is vital that the company understands their shareholders and their influence, and strive to favorably respond to them and their needs. The company could draw on the stakeholder theory, developed by Freeman (1984), to manage the challenge relating to its shareholders. In light of the current situation, and in the midst of their threat of action, the company should quickly convene a special meeting with the key shareholders. During this meeting, the company should endeavor to manage and take into account the needs, interests and perceptions of the shareholders. It should also strive to reiterate its strong commitment to their relationship and partnership, which has over the years given the company a strong footing in the market place and also contributed to its success (Freeman, 2010). Further, the company should seek to reassure the shareholders that maintaining the strong interlink of the relationship will be more beneficial to both parties (the shareholders and the company) than if the shareholders chose to withdraw or dump their shares (Phillips, 2011). This is because the move to dump the shares would result in a significant decline in their overall value, thereby resulting in heavy financial losses to the shareholders and an increased likelihood of the company going under. The company should reaffirm to the shareholders that the maintenance, or even strengthening, of the strong partnership that already exists between them and the company is what the company needs as it will contribute to the development of trust and goodwill, both of which serve to highlight the company’s potential to enhance its operations and improve its performance (Phillips et al., 2019).

Conclusion

The occurrence of an earthquake, especially one which is caused by a geothermal power plant’s operations, can result in the power plant facing numerous problems and threats of action from the various stakeholders- local host community, government, employees, suppliers, banks and shareholders- as seen in this case. It is therefore essential that geothermal power plants, besides putting in place measures to ensure that their seismic activities do not cause earthquakes or minimize the impacts of such earthquakes should they occur, also develop a strategic action plan that will enable them to overcome the multiple challenges and threats from shareholders that would arise as a consequence of their activities. Concrete solutions are provided in this plan, which, if followed faithfully, would save the power plant from completely going under.

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