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Geothermal Power Heats Up

Think of renewable energy, and you're likely to envision power from above, such as from the sun or wind. In fact, industry insiders often distinguish between above-ground sources like solar and wind power and below-ground sources like oil and coal. But while geothermal energy gets far fewer headlines – and far less venture capital – than solar or wind power, it actually supplies more megawatt-hours than either of these other renewables.

According to the Geothermal Energy Association, geothermal power makes up a total of 3.15 gigawatts (GW) of installed capacity in the United States, its largest producer, and more than 10 GW worldwide. And those numbers are growing in spite of the recession, with the association calling 2009 "a take-off year for a new era of geothermal growth." After remaining fairly flat for years, geothermal power activity is heating up, industry experts say.  (See chart below with total installed capacity numbers from 2006-2009.)


Confirmed new U.S. geothermal power projects grew 46 percent last year, according to a report the association released in January. That's up from about 30 percent growth in 2008, said executive director Karl Gawell. The report also cited a 6 percent increase — representing 176.7 megawatts (MW) — in total U.S. installed capacity. All together, the report identified 6.44 GW of new geothermal power plants under various stages of development and an additional 667 MW of early-stage planned projects that have not yet secured the geothermal resource.

If all of the planned projects were to go forwards as planned, an unlikely scenario, the total U.S. geothermal capacity would reach today's worldwide capacity of 10 GW — enough to meet the power needs of an average 10 million people or supply 25 percent of California's 2008 power consumption. But advocates believe the ultimate potential to be much larger still.

For one thing, geothermal energy supplies a steady supply of energy that utilities can count on for baseload power, instead of intermittent sources like solar or wind, which generate power when the sun shines or the wind blows — events that can't be controlled by utilities. As Henry Kelly, principal deputy assistant secretary for the DOE's Energy Efficiency and Renewable Energy office, put it: "Unlike waiting for the wind to blow, rocks are hot day and night."

And geothermal costs can be less per kilowatt-hour over the lifetime of a project.  In 2001 the International Geothermal Association estimated current costs at between US $0.02 to $0.10 per kilowatt-hour, and potential future costs of $0.01 to $0.08 per kilowatt-hour.  The association estimated that investment costs would be around $800 per kilowatt of capacity. For comparison, the association estimated wind costs at $0.05 to $0.13 per kilowatt-hour, with potential costs of $0.03 to $0.10 per kilowatt-hour and investment costs of $1,100 to $1,700 per kilowatt of capacity. In 2006, a National Renewable Energy Laboratory report estimated the United States could develop 26 GW of geothermal power by 2015 and more than 100 GW by 2025.

Uncle Sam Wants Geothermal

But why has geothermal power started taking off now, in the midst of a recession? One of the biggest factors has been new government initiatives. The Recovery Act called for up to $400 million for the U.S. Department of Energy's Geothermal Technologies Program — an unprecedented amount of federal funding, according to the Geothermal Energy Association — which is expected to spur an additional $291 million in matching private investment.

In addition, Congress extended the production tax credit for new geothermal plants until 2013 and allowed some geothermal projects to select a cash grant instead of an investment tax credit. Many renewable projects found themselves in a tricky financial situation when investors that previously had expected investment tax credits to help fund the projects no longer had enough income to take advantage of those credits, and the cash grant helps solve that problem with upfront cash instead of credits. "At least one project in Nevada said point blank it wouldn't have been able to build without a cash grant — it would be half completed, but not built," Gawell said.

Aside from federal incentives, state renewable portfolio standards, which require utilities to get a certain portion of their electricity from renewable sources, also have played a big role, he said. California, which grew its renewable standard to 33 percent by 2020, and Nevada, which boosted its standard to 25 percent by 2025, are also the top two U.S. markets for geothermal energy, according to the Geothermal Energy Association.  (See chart below, which shows Funding, Cost Share, MW Receiving Funding, and Project Totals)


Increasing the Spread

While geothermal projects previously took three to five years, some projects are now being completed in two years or less, with most finishing up in anywhere from two to six years, Gawell said. In November of 2008, Raser Technologies Inc. announced it had built a geothermal power plant in Utah in only six months. "The spread has grown — some take longer, some take shorter," Gawell said. "People are trying different business models and approaches on how to develop a geothermal project and some of them are working."

Still, most geothermal projects take longer than most wind projects, which often can be up and running in nine months, said Graeme Beardsmore, technical director for geothermal consulting firm Hot Dry Rocks, which has seen its work pick up in the last three months. Compared with wind projects, geothermal projects have to be more tailored to their location and their resource, which takes more time, he said. Kelly hopes that will change as the industry picks up steam and learns more about characterizing geothermal resources and developing plants.

In fact, DOE’s Kelly called the task of finding and characterizing those resources, to figure out the best way to get fluids out of them, the biggest near-term challenge to the industry. His office is working with the U.S. Geological Survey and others to find new ways to do this. "You don't want to drill a whole lot of dry holes," as drilling is expensive, he said. The idea is to be able to reliably design plants that fit the different fluids without having to engineer each one individually from scratch. "It's very doable, a matter of good solid engineering," he said. "That's why getting a lot of plants out there, getting the experience and [moving] along the learning curve, is really important."

But while geothermal has serious potential, already providing significant amounts of energy in some places (such as Iceland, where 87 percent of buildings are heated geothermally), geothermal hasn't yet seen the kind of growth that wind or solar has, said Ron Pernick, a principal at research firm Clean Edge. Part of the reason is that geothermal projects cost a good amount of money upfront — centralized geothermal power plants tend to be large, while distributed heat-pump projects also are relatively expensive and not ideal for retrofits — and projects require a lot of engineering, Pernick said. Large projects also require a lot of political will to complete, he added.

Risk Aversion Limiting Growth

In spite of the growth in projects under development, the difficulty of getting financing has been a drag on the geothermal market, as fewer projects were completed than the association had expected, Gawell said. "This year was clearly hit by the market," Gawell said. "We didn't see the increase in [completed projects] moving as fast as we would expect. We expected to see more going through the final stages."

While the association tracked many new projects in the first two stages, which include identifying a site and conducting exploratory drilling, fewer projects moved from the third stage, signing a power-purchase agreement for the energy and obtaining final permits, or to the fourth stage, production drilling and construction. In its report, the association identified 1.93 to 2.9 GW of projects in the first phase, but only 124.7 to 137.5 MW of projects in the final phase. (See chart below of projects in development by state and by phase.)


One major issue has been increased risk aversion as a result of the economy. In many cases, very solid projects haven't been able to get capital, Gawell said. For one thing, geothermal is a newer technology that's a little bit more risky than a standard coal or gas plant even though there are plenty of cost-effective geothermal projects out there, DOE’s Kelly said. "The economics look good, but if a conservative investor has a choice, he will go for the sure thing."

Even when commercial financing companies are willing to fund projects, the market's reduced risk tolerance means they can either demand much higher prices for projects or much more work being done in advance before making an investment, Gawell said. Investors now want to see far more drilling completed before funding a project — 70 percent in some cases, compared to 30 percent two years ago — and that can be very costly. Some companies are turning to equity investors to try to raise money, even though it comes at a higher cost, while others are going public on the Canadian exchange, which is more accustomed to working with mining companies than American markets, Gawell said. 

Like solar and wind projects, geothermal projects have relatively high upfront costs and low operating costs, while natural gas plants that are cheap to install but expensive to run, Kelly said. Even though the long-term levelized cost of geothermal may make it cost-competitive overall, the projects take a big capital investment right at the beginning, which can make it far more difficult to get a project started, added Beardsmore. In a credit-strapped economy, the high price of getting upfront cash can dramatically raise the overall cost of a project, while a lack of financing can keep it from happening at all. 

The good news is that a relatively small amount of federal funding already is attracting a large amount of private capital for projects, Kelly said. "The interest is definitely there," he said. "The hope is that in the next few years, geothermal will have reached 'sure thing' status and will take off."

One disappointment in the last year was the federal loan guarantee program, Gawell said. Many people believed the loan guarantees, intended to lower the overall financing rates for approved projects and help projects attract private funding, would be a very powerful tool to counteract risk aversion in the market, he said. "It could have been a big help, but it's taken too long for the DOE to get the program running," he said. "We need that program in the year ahead."

Paperwork Blues

Aside from financing, the other big gap has been the difficulty of getting the government permits necessary for a geothermal project, Gawell said. "A deluge of permits for projects has hit state, federal and local governments at the same time," he said. "While the federal office may be open and ready to go, you may need a local permit to move gravel. And many of the local permitting offices, because of state and local budget cutbacks, aren't open [for as many hours and are seeing an increased workload]. What was before in and out in 10 minutes is now wait a day or a week to get it done."

Here's an example of the legal and political challenges: "If you have a permit to take oil out of the ground and the oil comes up with hot water, who owns that water?" Kelly said. Geothermal companies also face concerns about triggering earthquakes in California, for example, Beardsmore said. "From a technical point of view it's a very small risk, but from a community awareness point of view it can be a big risk," he said.

In spite of all of these challenges, the number of projects under development is increasing, and Gawell expects more projects will get built this year than last year. "I expect it will go up very dramatically down the road," he said. "There's almost a backlog now of projects, down the road, moving from planning and construction, so I just hope it doesn't cause supply and material bottlenecks." He pointed to the shortage of solar-grade silicon that the solar industry experienced a few years ago. "We've got to have both the infrastructure and the market going forward in sync to make this happen."

Freelancer Jennifer Kho has been covering green technology since 2004, when she was a reporter at Red Herring magazine. She has more than nine years of reporting experience, most recently serving as the editor of Greentech Media. Her stories have appeared in such publications as The Wall Street Journal, the Los Angeles Times, BusinessWeek.com, CNN.com, Earth2Tech, Cleantechnica, MIT's Technology Review, and TheStreet.com.

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