Two Bills May Lower Hurdles for U.S. Geothermal Industry

In a bitter, divided Washington, good ideas sometimes have to wait in line. And they wait. And they wait.

That’s one of the worries facing the geothermal industry, which has seen little movement in tangible projects coming online since the end of 2009. There are many reasons for the lag in completed developments, but the overriding ones continue to be the long permitting process and the expensive upfront costs of test drilling. So when there’s movement on the legislative front to address these barriers, they’re usually met with solid support, and sometimes, uniform skepticism.

Why the skepticism? Because in Washington political will often falls victim to the reality of gridlock. Two particular pieces of legislation are slowly moving forward, but no one quite knows how quickly. The first is a House bill that was approved by the Natural Resources Committee and now awaits a vote on the House floor, perhaps in the fall. This bill would presumably cut down on the permitting process for geothermal exploration on federal land in instances in which the developer already owns a lease. This would save developers time and money, which could conceivably make projects more attractive to investors — another hurdle facing the industry.

Meanwhile in the Senate, the Energy and Natural Resources Committee recently heard testimony on the Geothermal Exploration and Technology Act of 2011, which would do three things: It would establish a revolving loan fund for exploratory geothermal drilling; it would create a demonstration program for large-scale geothermal heat pump systems; and it would allow federal oil and gas leasees to produce geothermal power.

The big question now is whether supporters in Washington will be able to make any of this happen. Or whether party leaders will even try.

“The whole situation we have here — everything is in gridlock,” said Washington-based Geothermal Energy Association Executive Director Karl Gawell during a conversation late last week during the height of the debt limit debate. “The Senate Energy Committee continues to function, and do its job. The problem is nobody really knows if any of this is really going to go anywhere. One of the unspoken victims in all this is the legislative process. It’s just grinding to a halt.”

What Would the Bills Do?

Geothermal projects usually take 4 to 8 years to come online, and the upfront costs can make investment a riskier proposition than other forms of renewable energy. Both the House and Senate measures are looking to cut into the long lead time and the major infusion of capital needed to simply explore the viability of a project.

“On any lease, you may drill multiple wells before you start thinking of production,” said Gawell speaking of the permitting process addressed in the House legislation. If it takes 15 months to get the permits required for each of those test wells, the project would be a hard sell for both developers and investors.

“You don’t face the same resource risk with solar and wind as you do with geothermal,” said Gawell. “You have to spend a lot of money to find a resource and know how big it is. The process is really closer to a mining venture than it is to a wind or solar project. The upfront money is really hard to find and expensive because it’s high risk. Investors like to see faster returns. They like to see a project within two or three years.”

Gawell hopes the House legislation, introduced by Idaho Republican Raul Labrador, will force the federal Bureau of Land Management to reassess its permitting process. Together with the Senate bill, introduced by Senate Democrat Jon Tester of Montana, the legislation could help spark investment in the industry. Attempts to reach both congressmen at their Washington offices last week were unsuccessful.

In the U.S., only one utility-scale geothermal plant came online in 2010 — that was a 15 MW plant in Nevada — after seeing 176 MW come online the year before. Gawell said that given the long development time for projects, gaps like that are to be expected and do not necessarily point to a slowdown in the industry.

Spurring Investment

Yet, with all the funding and technological hurdles, there remains considerable interest in at least exploring the possibilities. According to Gawell, there is between 700 and 800 MW of geothermal capacity that could come online by the end of 2013.

“Geothermal is still seen as a quality resource,” he said. “It has great market value. When you talk to utilities, if they can get geothermal, they love it. It‘s baseload, it’s reliable, it usually comes in at a pretty low cost.”

The industry has also received significant backing from the Department of Energy, which most recently included $400 million in federal stimulus money in part directed to improving exploration technology and techniques. Much of this money was doled out over years, so many of these research and development projects remain in the field testing phase. The DOE money was also supported by more than $300 million from private investors. While the industry doesn’t expect the DOE funding to continue at the same level, it is hoping that private investment in technology manages to keep pace.

Teaming Up with Oil

The last section of the Tester bill could open new opportunities for the geothermal industry and in particular small-scale projects. If approved, the legislation would allow those with federal oil and gas leases to produce geothermal power. The current system requires a competitive lease be issued to produce geothermal power on federal land.

The easing of the leasing restriction could open the door to co-generation with oil producers, but the oil industry as a whole would have to be convinced that it is in their best interest. So far, there’s only been a little movement toward co-generation with demonstration facilities in Louisiana, Mississippi and Wyoming.

According to Gawell, the typical oil well in West Texas produces eight gallons of hot water for every gallon of oil recovered. Right now, they have to pump those oil wells with electricity, and for many of the oil fields, that represents their largest cost. So geothermal power would seem to be an ideal fit for an operation looking to secure its bottom line.

“You have to make the technology work, but the biggest obstacle so far are the oil fields,” said Gawell. “Oil companies don’t want anyone coming in and mucking up their oil fields. Until you can show them that you can do it and do it seamlessly, they’re not going to let you in. You need these demonstrations to gain market acceptance.”

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