Economic Thaw Releasing Some Capital for Stalled Geothermal Projects

The United States’ geothermal industry is cautiously celebrating the return of investors to hot projects that had cooled off with the recession.

The Geothermal Energy Association (GEA) expects at least a half-dozen idled projects to finally begin construction in the next three years thanks to $6 billion in renewed investments, including a $96.8 million U.S. Department of Energy loan guarantee announced last week for the 23 MW Neal Hot Springs power plant in Eastern Oregon.

“There are probably more geothermal projects under development today in the United States than there has ever been in U.S. history,” said GEA Executive Director Karl Gawell.

The GEA hopes to release better estimates at the end of the month, so it is still unclear how many projects will actually get enough funding for completion. For now, Gawell says he has accumulated anecdotal evidence that more investors are picking up where they left off in 2008 and 2009.

Though exploration has all but stopped, the industry is hopeful that the extension of the Section 1603 Tax Credit program could provide a cash incentive for new development. Some say federal grants could also help jump-start investment in rapidly advancing low-temperature technology, creating the potential for a new wave of next-generation projects.

Some of the biggest geothermal developers are not yet convinced that 2011 will be the time to invest in the costly drilling of new exploration wells. Since the U.S. has become mired in the politics of climate change, there are no guarantees that cash grants through a one-year tax credit extension will sustain growth beyond 2011.

Yes even amid all the uncertainty in the U.S., Ormat and other developers are focusing attention overseas, where developing countries view geothermal resources as less expensive alternatives to coal power plants.

 “When things are slow in the U.S. … our sales folks are developing projects in the ring of fire region in places with prolific geothermal resources, like Indonesia,” said Ormat spokesman Paul Thompson.

GEA estimates the addition of at least 1,000 MW of U.S.-based geothermal projects in the next three years.

In 2007 and 2008, there were at least 12 large geothermal projects funded by investment firms (including Goldman Sachs) that planned to use production tax credits (PTCs) as incentives for bankrolling the costly development of utility scale geothermal projects in the U.S. That number fell significantly with the market collapse in 2008.

“Now there’s maybe a half-dozen,” said Saf Dhillon, head of investor relations for U.S. Geothermal, the company developing the Neal Hot Springs plant with an Organic Rankine Cycle (ORC) system. It will be manufactured by TAS Energy in Houston and transported in modular sections to Oregon.

“The cost of exploration seems really high to investors, but we’re seeing returns of more than 20 percent,” Dhillon said.

Geothermal also offers capacity factors near 90% and baseload power generation as opposed to the intermittent wind and solar. Still, the high cost of entry ($5 to $10 million for exploration drilling) leads to development costs of $5,000/kW compared to $1,500 to $2,500/kW for onshore wind.

Gawell said the DOE has shown ingenuity and resilience by demonstrating that ORC systems can produce geothermal energy with water temperatures previously thought too low for conventional steam turbine systems. Neal Hot Springs is expected to have a brine temperature of 285 F. Utility-scale geothermal plants historically use temperatures of 300 to 350 F.

TAS Energy spokesman Gary Hilberg said the Neal Hot Springs plant will be the first super-critical binary geothermal system using a refrigerant as the organic fluid and the first true modular deployment for a large geothermal project.

The DOE hopes the investment will prove to investors that similar “plug-and-play” ORC units can produce utility scale power with temperatures below 300 F.

“We believe the net effect of these advances will be … lowering the cost and risks associated with construction of these plants in the U.S. and internationally,” said Daniel Kunz, president and CEO of U.S. Geothermal.

 

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