The Geothermal Paradox: Success Means More Challenges

The geothermal industry was hit particularly hard by the 2008 financial crisis. Due to the risky nature of early exploration and the capital intensity of later-stage project development, companies have been struggling to find the money to build power plants.

Enter the U.S. government. Under the 2009 stimulus package, $400 million was set aside in the form of loan guarantees, cash grants and R&D funding. The unprecedented support for geothermal over the last two years allowed companies to keep developing plants, which increased the pipeline of conventional hydrothermal projects in the U.S. by 25% over last year.

Frank Monastero, president of the Geothermal Resources Council, now calls development of hydrothermal projects “robust” after a “desperate” 2009 for companies trying to get projects beyond the exploration phase.

“All of the things that assist in shoring up a project in the early stages were made available,” Monastero says.

In 2010, the number of finished projects in the U.S. will actually be lower than the 176 MW installed in 2009. Most of the projects completed last year had already secured financing and were spill-overs from previous years. The availability of the Treasury cash grant also helped out. But fewer developers were able to get projects into advanced stages of development, meaning less projects were ready to come online this year.

Moving into 2011 and 2012, however, there could be anywhere from 500-700 MW of advanced projects ready for completion. In a report released last month, the Geothermal Energy Association (GEA) said those projects could create more than 2,800 jobs next year.

Paul Thomsen, director of policy and business development for the industry’s largest geothermal developer, Ormat Technologies, calls the government support “instrumental.” He says the long-term nature of geothermal development means it will take longer for the economic impact to materialize.

“People are looking at what is the instant impact, which was kind of hard to quantify. But I think you’re going to continue to see developers ramp up” because of the ARRA program, says Thomsen.

The stimulus package was a life-saver for the geothermal industry (and, of course, all the other renewable energy industries). But it also created another potential problem: With so many new projects now in the pipeline, the need for investment is greater than ever. Some industry representatives wonder if the money will be there to meet the demand.

According to figures from GEA, of all the projects that have received ARRA funding this year, only one has been completed. Around 95% of projects getting stimulus funds are less than 50% complete. Karl Gawell, executive director of GEA, says developers will need billions of dollars to finish what’s been started with help from the stimulus.

“The resource is there, the policies are there that are driving it, we now have to make the connection with the investment community,” says Gawell.

The industry’s issues go beyond money, however. In order to realize the large number of projects underway in the U.S., companies need to address two very important constraints: A shortage of workers and competition for drilling rigs with the oil and gas industry.

In its yearly comprehensive report on the U.S. geothermal market, the Icelandic bank Íslandsbanki reported that the need for drilling rigs will almost double in 2011, from 12 to 22. By 2014, around 77 rigs will be needed to meet the unprecedented demand for projects. Drills available to geothermal developers have been steadily increasing since 2000, but only by one or two per year. Doubling that number is asking a lot.

The need for more workers is another potential limitation. Similar to the competition for equipment, the geothermal industry is battling it out with oil and gas companies for engineers, construction managers and drilling personnel. Many potential workers are also finding a home in high-profile renewable energy industries like wind and solar.

“You need more people, you need more technology – there’s a lot of things the industry needs to build up to sustain the growth level,” says Íslandsbanki’s Geothermal Program Director Alexander Richter.

Seeing all the projects in the pipeline through to completion will be tight. But Richter, GEA’s Gawell and others believe that the macro-drivers are there to get the industry close to its potential: A greater need for workers has encouraged more universities and trade schools to develop geothermal programs; lower demand for oil and gas has made drilling rigs increasingly available; and the continued support from state-level renewable portfolio standards and federal-level Department of Energy funds will create more demand for geothermal electricity.

“It will be a relatively large challenge. But we think the industry will be able to pull this off,” says Richter.

To hear more from these geothermal experts, watch the video package below. We toured the Geothermal Conference and Expo in Sacramento last week and asked a variety industry leaders about how they’d gauge the health of the industry. Also, for nine full-length video interviews from the show, check out our video page.

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I am a reporter with ClimateProgress.org, a blog published by the Center for American Progress. I am former editor and producer for RenewableEnergyWorld.com, where I contributed stories and hosted the Inside Renewable Energy Podcast. Keep in touch through twitter! My profile name is: Stphn_Lacey

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