Geothermal Projects Race to Meet Incentives Deadlines

At the close of 2009, the U.S. geothermal industry had seen seven new geothermal power plants come online in the previous 12 months. In 2010, only one new power plant was completed.

That lone 2010 entry was the 15-MW Jersey Valley, Nev., project developed by Ormat Technologies. The company noted that project construction was completed only a short time after all permits were granted, supporting one conclusion from a February geothermal finance meeting that permitting delays have been one of the biggest inhibitors of the industry’s growth.

Why the seeming slowdown, and what does it mean for geothermal energy’s future? The Geothermal Energy Association (GEA) sees a wave of development in the next few years, but beyond that, the industry may be subject to battles on Capital Hill regarding the nation’s economic and security challenges.

Project and Political Mismatches

Geothermal-minded investors are getting mixed signals. The lead time for geothermal projects tends to be long and is not matched by the length of legislative incentives. If this disconnect is not corrected, it could jeopardize potential investment.

Even stimulus incentives are having a delayed impact: A majority of the geothermal projects designated for the $360.8 million geothermal allotment in the American Recovery and Reinvestment Act have yet to be completed. But the U.S. Bureau of Land Management is hoping to hasten its permitting process. In March, it chose 19 renewable energy projects for priority status, including five geothermal projects.

And in terms of long-term policy, many states are stepping up to help. For example, California recently adopted a renewable portfolio standard (RPS) target of 33% renewable energy by 2020. Long-term goals like the state RPSs help, but the start-and-stop nature of federal support undermines industry growth.

A Ticking Clock: Geothermal Incentives to Expire

Some projects under development may simply have to wait for clarity from Washington. For others, there will be a rush to cash in incentives for projects that can be completed and brought online by a 2013 deadline. That would mean a potential influx to the grid of hundreds of megawatts of new power.

According to an April GEA report, 3,102 MW of geothermal power are in production in nine states. About 756 MW to 772 MW are in advanced (drilling/construction) stages of development. Many of these projects may be able to meet the current tax incentive deadlines.

Under current law, geothermal projects must be completed by December 31, 2013 in order to receive either the federal production tax credit or the investment tax credit. However, congressional leaders on both sides of the aisle hope to extend it. There is at least some chance Congress could act on some kind of tax or energy legislation this year.

As the champions of geothermal energy continue efforts to extend the deadline, investment decisions also will have to be made by private investors. “While the government incentive programs may have given the geothermal space a lift in terms of initiating new activity, it’s going to take additional support from private investment to fuel the majority of the growth in years to come,” said Saf Dhillon, investor relations contact for U.S. Geothermal Inc., in April.

Some geothermal companies that have recently indicated they will meet the 2013 deadline: Gradient Resources, with its 60-MW Nevada Patua Binary Plant; Western GeoPower, with its 26-MW plant at The Geysers, Calif.; and Nevada Geothermal Power and Ormat Nevada, with their 30-MW Crump Geyser, Ore. plant.

For geothermal, it appears that “timing is everything.” When will credits expire or be expanded, how long will permits take, and what risk tolerance will investors have? Although there are many pieces to the puzzle, what national lawmakers need to address this year is the end-date for geothermal federal tax incentives. Construction takes about two years; thus, many developers soon face a critical decision point about starting construction on projects that may not come online until after the current deadline.

A President’s Request: Invest in the Future

The problems facing geothermal energy development are in line with those clouding Washington politics. But the problems are worth fighting, because geothermal energy can combat climate change, the economic downturn, and the risk of nuclear disaster. For example, the tragedy of nuclear reactor meltdowns in Japan has spawned headlines such as “Geothermal: A More Grounded Power Source for Japan?” ( Time magazine blog piece) and “Analysis: Can Geothermal Help Japan in Crisis?” (Reuters). Japan has the third-highest capacity for geothermal energy production in the world, with 23.47 million kW (23.47 GW), after the U.S. and Indonesia.

However, in the U.S., deficit reduction debates have threatened clean energy programs. President Obama has repeatedly asked Congress and Americans not to let this happen. “We’re going to have to cut spending and ask everyone to share in the responsibility,” he said in April in a town hall speech hosted by geothermal unit provider ElectraTherm. “But we need to make sure we’re also investing in the future. We’re not going to grow the economy by gutting investments in clean energy. America has always been the leader in innovation. Instead of subsidizing yesterday’s energy sources, let’s invest in tomorrow’s energy sources.”

Investments in geothermal energy fuel the baseload energy source of the future and deserve sustained, long-term support.

— Leslie Blodgett ([email protected]) is editor-in-chief of Geothermal Weekly, which is published by the Geothermal Energy Association.