What's Needed to Address U.S. Geothermal's Deep-Seated Challenges?

Geothermal generation is clean, renewable, and cost-effective over the long term, and the U.S. has vast untapped geothermal resources. So why is it still operating on the sidelines?  

For the U.S. geothermal energy industry, 2013 ended on a positive note. Cyrq Energy’s Dale Burgett geothermal plant, a 4-MW unit in southwest New Mexico, began operating in December, the first geothermal project in a state with plenty of potential to generate electricity from the heat of the depths of the earth (Figure 1).

Cyrq Energy - Lightning Dock - Animas, NM
1. Groundbreaker. The 4-MW Dale Burgett plant is the first geothermal project in New Mexico. Courtesy: Cyrq Energy

A 6-MW expansion is already under way, said the company, which has a contract for sale of electricity from the plant in the Lightning Dock geothermal area to Public Service of New Mexico (PNM). PNM will pay $97.97/MWh over 20 years, with a 2.75% annual escalator.

But the commissioning of the plant had a bittersweet taste. It marked the end of a year that saw little growth for the domestic U.S. geothermal industry, while the rest of the world was enjoying the best geothermal year in memory. International prospects are for continued solid growth, while the U.S. faces a less-promising future.

According to the Geothermal Energy Association (GEA), the U.S. industry’s Washington lobbying group, “The international geothermal power market is booming, growing at a sustained rate of 4% to 5%. Almost 700 geothermal projects are under development in 76 countries. Many countries anticipating the threats caused by climate change realize the values of geothermal power as a base load and sometimes flexible source of renewable energy.”

Some 530 MW of geothermal capacity came online around the world in 2013, “The most geothermal megawatts to become operational in one year since 1997.” GEA reports some 12 GW in the development pipeline, and about 1,900 MW under construction in 15 countries (see sidebar “The International Scene”).

The International SceneThe U.S. has long been the world leader in geothermal energy, with most projects located in the tectonically active Rocky Mountain West. The U.S. has some 3,442 MW of geothermal general capacity, far above that of any other country. The Philippines is next with about 1,904 MW, followed by Indonesia with 1,333 MW. However, the country with the highest geothermal penetration is Iceland (see “Iceland’s Uniqueness Extends to Electricity” in the POWERblog), which gets 30% of its power from hot rocks and high-temperature steam. By contrast, U.S. geothermal generation accounts for about 0.3%.Other countries, growing faster than the U.S., are gaining on Uncle Sam. According to the Geothermal Energy Association “2014 Annual U.S. & Global Power Production Report,” “Some countries are growing so quickly there could be a time in the near future when the United States is no longer the world leader in geothermal power, despite its vast supply of geothermal resources.”Among the international highlights:

■ Indonesia has 63 projects planned, representing 4,400 MW of capacity. Whether the country, which faces serious bureaucratic and business obstacles, can actually bring all these projects into service is an open question. But the potential is there.

■ In energy-poor Chile, the government has scrapped a controversial 2,750-MW planned hydro project in the remote and beautiful Patagonia region after environmental groups raised objections. Instead, the government is looking at increased liquefied natural gas imports, efficiency measures, wind and solar in the Atacama Desert, and geothermal. The GEA estimates that Chile is looking at 54 “early-stage projects or prospects.”

■ Africa is a largely untapped geothermal play, particularly in the tectonically active Rift Valley region. According to the GEA, “Kenya and Ethiopia are building power plants greater than 100 MW.” By contrast, the average U.S. geothermal plant is around 25 MW. Kenya has 18 projects planned, with total capacity of about 800 MW, while Ethiopia has eight projects planned, with capacity of just over 1,000 MW.

■ The Philippines has 29 geothermal projects under development, with a total capacity of about 750 MW. According to the International Geothermal Association, the Philippines privatized its previously government-owned geothermal system five years ago.

By contrast, while the U.S. has the largest number of planned geothermal generating projects in the pipeline, at a total of 124, the total capacity of those projects is just 1,000 MW, demonstrating that smaller projects dominate in the U.S. geothermal market.

Cloudy Future in the U.S.

The picture is clouded in the U.S., the GEA reports, where “in 2013 the U.S. market was a quieter place to do business.” U.S. geothermal growth was flat compared to 2012, said the organization, with about 85 MW of new capacity during the year. Says GEA, “This number is about 40% lower than the capacity additions (148 MW) of 2012 and reflective of the difficulty in building a new power plant in the U.S. right now due to a number of policy barriers…. Simply put, the U.S. geothermal industry is trending opposite of the international market, which is growing at a steady 4% to 5% per year.”

This Dickensian “best-of-times, worst-of-times” condition for geothermal comes, notes the GEA, despite the fact that the U.S. “has one of the best potentials for geo power of any nation, due to strong government support, the technical knowhow, experienced developers, and vast geothermal reserves.” The U.S. has long been the world leader in geothermal power and continues that edge.

The largest geothermal generating project in the world is The Geysers (although there are no actual geysers in that geothermal field) in California wine country in Sonoma, Lake, and Mendocino counties, covering some 30 square miles (Figure 2). Opened in 1921 by a local resort developer, the project had an original capacity of just 250 kW, used to light the resort community.

2. Big steam. Calpine’s Sonoma 3 plant is one of 22 geothermal plants that make up The Geysers field in California. Courtesy: Stepheng3/Wikipedia

Investor-owned utility Pacific Gas & Electric Co. (PG&E), based in San Francisco, in 1960 began operating an 11-MW generating plant in the geothermal field. Over the years, PG&E expanded the operation of The Geysers, and capacity peaked at over 2,000 MW in the late 1980s.

However, because of falling steam pressure from the hot rocks below the field, the capacity at The Geysers began to decline in the 1990s. Over the following years, the ownership of the project changed, as geothermal developers such as Calpine Corp. and California municipal utilities took over PG&E’s sole ownership in California’s restructured energy supply market. In the late 1990s, projects to deliver municipal wastewater to recharge the aquifer at The Geysers increased the project’s capacity from a low point of about 1,000 MW in the early part of the century to some 1,500 MW currently.

Over the past nearly 40 years, the U.S. Department of Energy has devoted substantial sums to geothermal research and development, several billions of dollars by the estimates from various groups including the congressional Government Accountability Office. (For more about various geothermal technologies, see the sidebar “Defining Geothermal Technologies”.) U.S. geothermal projects have increased in numbers and overall capacity over the years, particularly in the volcanic regions of the Western U.S. The resources remain rich. The GEA recently reported that the economics of geothermal energy are positive, debunking some conventional wisdom.

Defining Geothermal TechnologiesThree technologies characterize geothermal projects. These are:■ Dry Steam. These are the oldest and simplest. They draw steam from the earth at 150C or higher to turn steam turbine generators.■ Flash Steam. These plants move deep, high-temperature, pressurized water from underground into lower-pressure tanks, where the water flashes into steam to turn a turbine.

Binary Geothermal. These plants can use water at much lower temperatures, as low as about 60C, in a heat exchanger with another fluid that has a much lower boiling point than water. The secondary fluid then flashes to a gaseous state and can drive turbines.

Under development are technologies that will use hydraulic fracturing of the geothermal rock formations to extract greater amounts of energy for power generation.

“Geothermal power is sometimes misconstrued to be an expensive source of electricity,” said the GEA’s June 2014 report, “Economic Costs and Benefits of Geothermal Power.” “While it is true geothermal plants require a significant amount of start-up capital and some government assistance in the earliest phases of exploration, the overall capital costs and operating costs of geothermal power are significantly lower than many other technologies.” Geothermal plants, notes the GEA, have no fuel costs, low operation and maintenance expenses, feature a 30-year lifetime, and are able to produce baseload power and follow load, unlike solar and wind generation.

What’s the Roadblock?

What accounts for the lagging U.S. performance in developing new geothermal projects? In an interview, Karl Gawell, the GEA’s executive director, told POWER that the complexity of the U.S. power sector, which is based on largely state-regulated markets with many moving parts, makes development difficult. Geothermal units require considerable upfront capital and long lead times. The U.S. geothermal market is developing slowly, he said, because it is “driven by state policy more than national policy.”

That distinguishes the U.S. from most of the rest of the world, where electrical systems are national and most often driven by central government policies and mandates.

At the federal level in the U.S., said Gawell, “the production tax credit was the ‘one big thing.’ But now the tax credits are gone for everything but solar,” so state policies have become the key to the future for geothermal projects. The legal authority for federal corporate tax credits for wind, geothermal, and biomass expired last year, and Congress has been unable to renew them.

The primacy of state policy for geothermal is playing out today in California. The state has the greatest concentration of geothermal power and considerable untapped resources. Regulators and legislators in the Golden State are considering how to deal with a power supply system, run by the California Independent System Operator and driven by the state’s long-standing preference for wind and solar, that is discounting diversity of generating technologies and the need for reliability services. That translates into a bias against geothermal.

“It’s really complicated when you start looking at the cost of firming variable resources,” says the GEA’s Gawell. Among the complexities are California’s aggressive renewables portfolio standard (RPS) aiming for 33% of generation coming from renewables, the state’s rapid retreat from coal (from any source, anywhere), and the unexpectedly early closure of the two-unit San Onofre nuclear station.

Too Much Solar?

Last January, the consulting firm Energy and Environmental Economics (E3) completed a study for the state’s five largest electric utilities (Los Angeles Department of Water and Power, PG&E, Sacramento Municipal Utilities District, San Diego Gas & Electric, and Southern California Edison), “Investigating a Higher Renewables Portfolio Standard in California,” looking at the implications of a 50% RPS.

The E3 report found that too much generation as a result of the penetration of solar power in the state is likely to lead to “some level of renewable resource curtailment” in order to “avoid overgeneration and to manage net load ramps.” The study found that the highest-cost generating portfolio that would meet the 50% level “is one that relies extensively on rooftop solar photovoltaic systems.” The least-cost portfolio “is one with a diversity of renewable resource technologies”—which, says the geothermal industry, includes geothermal power.

California has been on a solar buying binge, the E3 report noted. Solar is heavily subsidized at the federal and state level, including Uncle Sam picking up some 30% of the costs. “Geothermal does not have that incentive,” says Gawell. On top of that federal largess, solar projects in California are exempt from property taxes. They also benefit from photovoltaic arrays manufactured overseas by companies that are subsidized by their governments. Subsidies “should be available to the range of clean power options and not just one,” says the GEA.

California’s existing RPS program discriminates against geothermal, according to industry officials. Bob Sullivan of Ormat Technologies, one of the nation’s major geothermal developers, says, “California has a preferred loading order, and renewables are at the very top along with distributed generation and efficiency. Then fossil fuels start coming on. But geothermal keeps getting overlooked.”

California’s power supply program, Ormat’s Sullivan says, doesn’t recognize the value that geothermal represents in terms of providing necessary ancillary services such as frequency, inertia, and regulation. Intermittent resources such as wind and solar impose reliability burdens on the grid that the state’s power market does not recognize. The E3 report said, “This is particularly pressing in California where significant changes are planned to the state’s existing thermal generation fleet, including the retirement of coastal generators utilizing once-through cooling.”

Some Hope on the Horizon

The California legislature, as this article was being written, was moving a bill (SB 1139) that would give a boost to geothermal energy, as well as provide a way to fund environmental mitigation of the increasing degradation of the Salton Sea (created by an accidental 1905 flood), which bestrides the San Andreas fault in the California desert. The Salton Sea covers a large and valuable geothermal resource that will become available as the inland sea shrinks. The bill would mandate adding 500 MW of geothermal procurement by 2024. Many developers, including the Imperial Irrigation District, a major municipal power agency, are eying the opportunity to tap as much as 2,000 MW in new capacity from the Salton Sea territory (Figure 3).

3. One of many? The Salton Sea’s 49.9-MW Hudson Ranch Power I power plant could be joined by similar plants when the California water body shrinks further. Courtesy: Geoglobal Energy LLC

However, the lake’s retreat uncovers some environmental threats, such as high concentrations of selenium and other potentially toxic minerals in the soil. Restoring the area and mitigating the environmental impacts will be expensive. The California legislation would use some of the revenues from geothermal generation in the area to pay for the restoration and remediation program. The legislation, which has passed the state Senate and the key Assembly committee, has the backing of environmental groups, including the Sierra Club, Defenders of Wildlife, and the Natural Resources Defense Council.

Says state Assemblyman V. Manuel Pérez, a Democrat who represents the desert region and is one of the co-sponsors of SB 1139, “Geothermal, with its ability to provide base load power with negligible greenhouse gas emissions, has the potential to anchor Southern California’s energy needs, while keeping us on track to achieve our state’s emissions reductions goals. At the same time, the development of these resources could produce thousands of jobs for our Coachella and Imperial Valley communities while also serving as a source of financing for Salton Sea restoration.”

Geothermal energy policy is also getting state attention in Nevada, where the legislature last year passed a law taking the state out of coal-fired power and creating competitive opportunities for geothermal. The Nevada legislation requires the retirement of at least 300 MW of coal-fired capacity this year and another 250 MW by the end of 2017. To replace the coal power, the state law requires a competitive procurement of 100 MW, each in three future annual buys. A GEA analysis concludes, “It’s expected that geothermal power will win a portion of these 100 MW [requests for proposals], but it is a competitive process.”

Further north, the Oregon Public Utilities Commission has tweaked its calculations of the avoided costs for renewables to include “integration costs” for projects under 10 MW. The GEA notes, “The past methodology for calculating avoided cost did not factor in the true cost of other renewable power sources, leaving out integration and other ancillary costs.” Calculation of these costs will prove to be a complex task, according to several economists who have looked at valuing integration of resources into the grid.

When it comes to promoting U.S. geothermal energy projects, says the GEA’s Gawell, “There’s not much moving at the federal level. The dynamic changes are at the state level. It’s the states that drive the game.” He’s optimistic about prospects for geothermal in the U.S., but says it’s unlikely that the industry will grow at the pace of the international market.

Even so, the growth internationally is good news for U.S. geothermal firms, says Gawell. “Our companies have much to offer foreign project developers in terms of technology, strategy and experience. American firms are experts in the problems other countries are just getting to,” which represents a major business opportunity for the U.S. companies. ■

Kennedy Maize is a POWER contributing editor.

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