Massachusetts, USA — While it is difficult to discuss the geothermal industry in just one-year increments, it seems as though 2015 is set to have some notable developments.
In 2014, the global market didn’t quite hit 1,000 megawatts (MW) of new capacity as predicted a year prior, but it did ring in a respectable 600 MW, a number that should hold steady or rise for the next three to four years, according to Ben Matek, analyst at the Geothermal Energy Association (GEA).
A 2014 prediction that did live up to expectations was the sluggish U.S. market — it only represented a mere three to four megawatts of capacity last year, and Matek doesn’t see an uptick any time soon without some serious policy changes. In stark contrast, several international markets are really starting to pick up speed, most notably in East Africa, Turkey, Central America and the Asia-Pacific.
“In short,” said GEA Executive Director Karl Gawell, “the geothermal industry is relying on the global market for the years immediately ahead, and the U.S. market will rebound as policy straightens out.”
Geothermal nameplate, in-development, and announced capacity in major markets worldwide. Credit: Geothermal Energy Association.
US Policy Woes Lead to New Applications
As has been the trend for a few years now, U.S. geothermal growth has been slow going. This lag can be blamed on several factors, including regional power gluts, resource uncertainty that leads to weary financing, and high upfront costs. While these are certainly big barriers the industry has dealt with for some time, Gawell says a major reason for stalled growth is unfavorable policy. State renewable portfolios standards simply do not consider the true value of geothermal as a firm, flexible resource — however, decision makers may start to change their tune in the near future.
California has been directed to better determine the true integration costs of energy technologies. For example, while solar and wind may have cheaper upfront costs, they are intermittent resources that strain the grid and may require costly storage technologies as more capacity goes online. These true-cost methods may come in handy since the Governor of California recently proposed using 50 percent renewable energy by 2030. “This will help push integration costs as part of procurement requirement,” said Gawell, adding, “California may serve as a model for other states.”
The Environmental Protection Agency’s (EPA) carbon plan proposal, which calls to reduce carbon 30 percent by 2030 over 2005 levels, may also open more doors for geothermal energy.
“If the EPA rules go through it could create new opportunities in geothermal in greenfield states such as Colorado, Utah and Wyoming,” said Matek. “States will start to see energy diversity as a value for grid health and overall cost. Geothermal won’t displace wind and solar, but it will create a stronger niche.”
It’s not all bad news and frustration for the U.S. market, however. The Salton Sea Initiative in California is “one of the only bright spots” for U.S. geothermal, according to Mike Long of Galena Advisors. The project aims to restore and protect the ever-shrinking body of water located in the Imperial Valley. The area could unlock nearly 3 gigawatts (GW) of geothermal capacity, all while preserving and protecting the environment.
The project inched closer to reality when Simbol Materials announced that it would start construction on a lithium extraction plant in the region. Simbol’s technology filters geothermal brine to collect lithium that can then be used for batteries, which are becoming a hot commodity these days, especially with the upcoming Tesla gigafactory in nearby Nevada. If all goes well, lithium plants may very well be the last piece to convince legislators to approve geothermal energy plants.
“It’s a big environmental win,” said Matek. “If you can extract lithium from brine then you don’t need mines anymore. This creates a whole new section of industry that doesn’t have the same policy barriers as co-production. A lot of new companies, like miners, are getting into the geothermal space.”
In fact, Matek and Gawell suggest keeping an eye out for all sorts of evolving geothermal applications in the U.S. market, such as hybrid plants, improved efficiency for flash and binary plants, co-production and smaller plants. “There is a constant evolution of technology available for geothermal,” said Gawell. Enhanced geothermal system (EGS) technology will also continue to move forward in the coming years. Gawell said to expect a big year for EGS in 2018, when the AltaRock Newberry demonstration project in Oregon is finished, which will greatly determine the future viability of the technology.
US Geothermal Heat Pump Industry Hitting Its Stride
After several years of disappointment, the geothermal heat pump industry beat 2014 expectations and made political strides.
From 2011 to 2013, residential heat pump sales were down due to the recession, according to Doug Dougherty, president and CEO of the Geothermal Energy Exchange, and despite sales being down 30 percent in the first quarter of 2014, the industry turned that around in the third and fourth quarter to beat sales year over year. “Next year I expect to see a good 10-15 percent increase in sales,” said Dougherty. “We’re on a good roll here.”
The commercial market has been consistently running strong as many organizations are realizing the benefits of heat pumps — from schools, to libraries to museums — and Dougherty expects the commercial sector to have an even better 2015.
Despite sales being back on track, geothermal heat pumps have mostly run under the radar for many in the U.S. and Dougherty blames this on public policy. For example, in Illinois two electric utilities could not promote geothermal heat pumps because they were deemed inefficient. So Dougherty successfully petitioned to rewrite the rules that govern how efficiency is determined. He was also successful in Massachusetts, where he petitioned to have geothermal heat pumps deemed “renewable” and eligible for alternative energy credits (AECs).
“Going forward as we change laws state by state — a long arduous, detailed bureaucratic process — we are beginning to see progress across the country,” said Dougherty. “It’s an educational process to explain how the technology works and how we use thermal energy. People are realizing that we are an efficient and renewable source of energy.”
On the federal level, the GHP industry is facing an expiring 30 percent tax credit in 2016. Dougherty said he’s optimistic that there will be an extension, preferably to 2020. Since the industry is so small and production levels low, components are still expensive. The industry needs the tax credits until it can scale up and brings prices down. However, if the tax credit is not extended, Dougherty said that market will take the hit and rebound within a couple of years.
Until then, developers are finding innovative ways to monetize the GHP market. For example, the net-zero Whispering Hills development outside of Austin, Texas includes a GHP system underneath 7,500 homes and businesses. The developer owns the system, which is expected to have a very short return on investment, and leases it to the homeowners. “Once other people see this project and how to make money, it will have a snowball effect,” said Dougherty.
As the U.S. market remains mostly at a standstill, eyes are on the growth markets overseas. These regions are successful for a variety of reasons, namely because they have excellent resources, favorable policy, energy demand, and major help from institutions like the World Bank and the African Development Bank.
In Kenya, for example, about 280 MW of geothermal capacity went online in 2014. While that may not seem like much, Kenya’s total grid capacity is 1,600 MW, so geothermal contributed to a major capacity bump. The government hopes to add 20 GW of energy capacity by 2030, with 5 GW of that from geothermal resources. Kenya also has an 8.5-cent feed-in tariff that seems to be attracting companies and stimulating financial interest.
“The growth rate seems almost preposterous but we’re seeing 10 geothermal rigs running just in Kenya — they are going crazy with money flowing in,” said Galena’s Long. “Geothermal will be growing in Kenya, maybe not to the numbers the government is publishing, but 200 MW per year will be fairly sustained for 5+ years.”
Turkey also has a favorable FIT program. The government expects about 50 GW of additional demand by 2020, so it launched 120 new energy projects in 2011, with a specific focus on geothermal. At about $0.10 per kilowatt-hour (kWh) with a local content bonus of $0.07 to $0.30 per kWh, its FIT is driving major interest, according to Steve Hummel of Exergy. Some companies are even considering setting up manufacturing plants in the region in order to take advantage of the generous local content rules.
Aside from policy, development banks are paving the way for geothermal in many regions, including East Africa and Central and South America. These programs fund the most costly, and risky, part of geothermal development — resource assessment and exploratory drilling. Private financiers then step in for the duration of the project. Once the upfront resource risk is mitigated, projects can see a nearly 20 percent return.
Regions that have really started to exploit potential, like Kenya, are now starting to completely shift from development banks to the private sector. “The future of Africa will depend on its ability to shift to private industry,” said Long. “Big banks are looking at utilities to start funding through private banks.“
As for project opportunities, Long said that the international market is very competitive, but wrought with opportunity since “the majority of engineering, consulting, drilling, financing, equipment supply, etc. comes from firms outside of the region.” However, it may be very difficult for most companies to compete against Asian bidders.
U.S. companies will have a particularly difficult time entering these markets for several reasons, according to Long. Many are not interested in the risk profile or simply avoid competing in the consulting and engineering side. The U.S. also lacks a large steam turbine manufacturer, but “with the recent GE purchase of Alstom, perhaps GE will have an interest in pursuing the market using Alstom turbine technology.”
Long said that the next growth countries will likely be Ethiopia (if geothermal can compete with hydropower), Tanzania, Rwanda and Uganda, which are all pushing similar geothermal programs.
“Geothermal is a niche business, but we still see it as a very viable business,” said Long. “But to be in this business right now, you have to be international — for us it is the only viable market.”