Geothermal Energy 2005 in Review, 2006 Outlook

“This has been a watershed year for geothermal energy, and the outlook for future growth is very strong,” said Karl Gawell, Executive Director of the Geothermal Energy Association (GEA), the U.S. industry trade association. In 2005, a wave of new power production contracts were signed, new direct use projects were underway, federal tax and regulatory laws were substantially enhanced to promote geothermal development, and a series of other events boosted prospects for expanded geothermal energy production in the U.S., according to GEA.

The United States is seeing its first wave of new geothermal power development in a decade. “The first new power plant resulting from a state Renewable Portfolio Standard (RPS) was commissioned in Nevada in 2005. “This is the first of many new plants that will deliver clean, reliable electricity to consumers,” Gawell noted. “Over 500 megawatts (MW) of new projects have secured power contracts in 2005, with more expected in the coming year,” he added. Recent analysis produced for the Western Governors’ Association (WGA) demonstrates a near-term potential of 5,600 MW of new geothermal power. New power prospects were identified in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oregon, Utah, and Washington. Today geothermal electricity is produced in only four states, but with continued federal and state support, this could triple by 2010, according to GEA. Information on both the existing and new geothermal projects is available at: http://www.geo-energy.org/information/plants.asp. The use of geothermal energy for commercial and heating purposes also expanded in 2005 with a new district heating system operating in Canby, California, and greenhouses added to the district heating system of Klamath Falls, Oregon. Additional projects were under development, with several receiving support from the U.S. Department of Energy (DOE) and the California Energy Commission (CEC) in 2005. With some of the most significant impediments to direct use of geothermal resources being addressed by Congress in its overhaul of the Geothermal Steam Act, there was renewed interest in direct use by ranchers, schools, tribes and others throughout the West. Growth continued for geothermal heat pumps installations. They were growing at an annual rate of 15 percent, with over 600,000 units installed in the U.S. New installations were occurring at a rate of 50,000 to 60,000 per year — the largest growth in the world for geothermal heat pumps. The DOE awarded the first new power technology development awards in over a decade. These competitive awards will support the development of a small-scale, off-grid power project at Chena Hot Springs in Alaska and will help demonstrate new power plant technology for the first time in the U.S. Significant new interest in the co-production of geothermal energy from deep oil and gas wells emerged in Texas, Wyoming and other oil producing states. “The rising price of electrical power and the current high price of hydrocarbons have changed the geothermal outlook in the United States in a major way,” noted Dave Blackwell of Southern Methodist University. According to Blackwell, in addition to these two states, Louisiana, Mississippi, Alabama and Arkansas contain wells that would be “candidates for exploitation.” In 2005, there were several major events in the public policy arena including expanded tax credits, new clean energy bonds, an overhaul of federal leasing and permitting legislation and other important measures. Here are some of the key developments: Tax Credits: The Energy Policy Act (HR 6) provided significant improvements for geothermal energy in terms of tax credits. New geothermal facilities now qualify for the full ten-year Production Tax Credit (PTC), placing new geothermal power facilities on the same terms as new wind facilities. The federal production tax credit is widely expected to be a major driver behind new geothermal power production. While HR 6 only extends the PTC’s “placed in service date” for geothermal and other renewable technologies to qualify for two years — giving developers 29 months to bring their facilities online — Congress is already considering extending that deadline. Clean Energy Bonds: HR 6 also established new Clean Renewable Energy Bonds (CREBs) for entities that cannot take advantage of the PTC. CREBs will support additional geothermal and renewable power development by qualified issuers which include governmental bodies (including Indian tribal governments) and mutual or cooperative electric companies. This provision is effective for bonds issued after December 31, 2005, and before December 31, 2007, and provides a total of $800 million in federal support. Geothermal Steam Act Overhaul: The energy bill included a major overhaul of the Geothermal Steam Act of 1970 which, according to Gawell, represents “a dramatic improvement in the law that will encourage the rapid expansion of geothermal energy use in the West.” Gawell adds, “the bill streamlines some of the most bureaucratic aspects of the law, provides clear direction for the agencies to make geothermal a priority, gives local governments more funding to mitigate impacts, and ensures that the federal agencies will have the resources needed to implement the new law and quickly work off a 30 year backlog of unfinished studies and ignored lease applications.” Directives for Research and a National Resource Assessment: HR 6 includes provisions directing the DOE’s future geothermal energy research efforts to work toward several important goals. It also includes provisions directing DOE to conduct a near-term assessment of the resource potential for all renewable technologies, including geothermal, with the publication of yearly reports on the results. Further, the Steam Act provisions direct the U.S. Geologic Survey to submit to Congress an updated nationwide geothermal resources assessment within three years, which has not been completed since 1978. Intermountain West Geothermal Consortium: HR 6 establishes a new Intermountain West Geothermal Consortium “to address science and science policy issues surrounding the expanded discovery and use of geothermal energy, including from geothermal resources on public lands.” The Consortium brings together industry, government and university researchers from Idaho, Utah, Nevada, and Oregon in a new effort designed to tap the region’s largely undeveloped geothermal resources. 2006 Outlook State level efforts to expand renewable power production, particularly Renewable Portfolio Standards (RPSs) in California and Nevada, combined with federal incentives and anticipated streamlined administration of leasing laws should continue to fuel strong expansion of geothermal power and direct use in the US. The four states with geothermal power production in 2005 — California, Utah, Nevada, Hawaii — will all see expanded production in 2006. Also, at least two new states — Idaho and Alaska — should be added as geothermal power producers in 2006. Further, new power development should be underway in Arizona, Oregon, and additional states that will bring capacity online in the next few years. The implementation of new Geothermal Steam Act provisions of HR 6 will be a critical item to watch in 2006. The Department of the Interior (DOI) and U.S. Forest Service (USFS) must meet deadlines under the new law. Congress recognized the need to ensure prompt action. For future geothermal projects to be viable, leasing and permitting must continue and the reforms promised by the new law for royalties, county revenue sharing, and simplified administration for direct use projects must be realized. DOE support for research and technology development could face serious tests in 2006. Looming budget deficits are rumored to be placing DOE’s budget for the development and application of new geothermal technology in jeopardy at a time when industry, state governments and the Congress are pushing for more geothermal power. “Support from the Department of Energy’s geothermal research program is critical for continued progress by the industry, and is also vital if the U.S. seeks to retain leadership in geothermal technology and the fast-growing world marketplace,” said Gawell. While the U.S. has been the leader in geothermal power, its prominence faces serious challenges in the years ahead. Countries including Germany, Japan, Iceland, and New Zealand are expanding production at home and challenging U.S companies in the international marketplace. The Philippines, which already produces nearly 20 percent of its electricity from geothermal sources, has publicly set its sights on outpacing U.S. power production. Indonesia, another major geothermal power producer, also has big plans for expansion with the government announcing plans to increase production rapidly with a goal of achieving 2,000 MW by 2009, and as much as 6,000 MW by 2020. Like the U.S., international geothermal development has been booming in 2005, so much so that analysts are upgrading projections made less than a year ago. According to GEA, “recent market developments indicate that the worldwide production of geothermal electricity should grow by 50 percent over the next five years, and direct use of geothermal energy for district heating, greenhouses, and industrial uses is expected to grow even more.” In 2005, 24 countries reported producing electricity from geothermal resources, with a total installed capacity of 8,900 MW, and 72 countries reported direct uses providing over 16,000 MW (thermal). About the author – Alyssa Kagel is the Outreach and Research Officer at the Geothermal Energy Association.
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