Geothermal developers remain optimistic
January 5, 2009
While the global financial crisis continues to rattle financial markets and companies worldwide, and shrinks capital available for renewable energy projects of all types, the outlook for geothermal development remains positive. Bronko Terzic, global regulatory policy leader for consulting firm Deloitte Inc., sees increased activity among developers and entrepreneurs in all areas of renewable energy, including geothermal.
Still, support from the U.S. Congress via actions such as cap and trading legislation, which will in effect raise the cost of conventional fossil fuel generation closer to or above the cost of alternative energy, will be needed to allow geothermal to thrive. Hurdles such as capital intensive technology also will need to be overcome with financing and incentives such as tax breaks, Terzic noted.
One positive force working in favor of geothermal and other forms of renewable energy is that many more U.S. states and the federal government are adopting renewable portfolio standards, in which electricity suppliers are required to buy 25 percent of their electricity supply from production fueled by renewable energy.
Incoming President Elect Barack Obama also has proposed spending US$150 billion over a 10-year period on renewable programs, including research and development of technologies that will allow more geothermal resources to be detected. "These developments portend towards a positive future for renewable energy, including geothermal," said Terzic. However, the U.S. still needs a full, complete national assessment of geothermal prospects.
Meanwhile, companies such as geothermal developer Raser Technologies, Inc. are riding the wave of optimism. Raser earlier this year retained Calyon Securities (USA) Inc. (CSI), a subsidiary of Calyon and a global full service institutional broker-dealer, to explore potential strategic relationships offering additional options for implementing and accelerating its development goals. CSI will assist the company in evaluating potential opportunities related to Raser's geothermal assets that are consistent with the company's strategic objectives.
The company is continuing to expand its development program and replicate its modular power generation process in an effort to meet the growing demand for renewable energy in the United States and abroad. Martin Petersen, Raser's chief financial officer, said, "We are pleased to work with CSI and benefit from its experience in sustainable energy development investment banking. It is important to note that this relationship does not displace our existing funding commitments, or preclude our ability to seek funding for our projects under our existing financing commitments going forward. As part of our negotiations for additional power purchase agreements, we are also continuing to explore the use of pre-paid power purchase agreements, which would provide an additional financing option to offset power plant construction expenses."
Raser also has received confirmation from the New York Stock Exchange (NYSE) that Raser has been cleared to file an Original Listing Application to move from the NYSE Arca and list on the NYSE. Upon approval of its application and satisfaction of the NYSE listing requirements, Raser expects to begin trading on the NYSE "Big Board" under the ticker symbol RZ in the first quarter of 2009.
Until that time, Raser will continue to trade on the NYSE Arca under the ticker symbol RZ. "The New York Stock Exchange remains the world's premier market for publicly traded companies," said Brent M. Cook, CEO of Raser Technologies. "We believe the increased exposure to a broader investment community provided by the NYSE will be in the best long-term interests of our stockholders."
Geothermal developer Ormat Technologies reported earlier this year that the predictable cash flow from its fully contracted capacity, together with existing committed credit lines, will allow it to continue executing its growth plans despite the turbulent times within the global economic system.
U.S. geothermal development
On Dec. 18, the Department of the Interior's Bureau of Land Management published the Record of Decision and Approved Management Plans Amendments for geothermal leasing in the western U.S.
The decision follows an announcement made earlier this year by Secretary of the Interior Dick Kempthorne that the federal government would open public land in the western United States for geothermal development. The Record of Decision amends 114 BLM resource management plans and allocates about 111 million acres of Bureau-managed public lands as open for leasing. An additional 79 million acres of National Forest System lands are also legally open for leasing.
The approved development scenario, which was analyzed in the Final Programmatic Environmental Impact Statement, anticipates a potential 5,500 MW of new electric generation capacity from resources in the 12 Western states where lands will be opened for leasing, including Alaska, by 2015. BLM also estimates an additional 6,600 MW by 2025 for a total of 12,100 MW. "Geothermal energy will play a key role in powering America's energy future," said Secretary of the Interior Dirk Kempthorne. "All but 10 percent of our geothermal resources are found on Federal lands and facilitating their leasing and development is crucial to supplying the secure, clean energy American homes and businesses need."
Land withdrawn from or administratively closed to geothermal leasing will remain so. Lands within a unit of the National Park System, such as Yellowstone National Park, which features a number of geothermal geysers, will continue to be unavailable for leasing. Kempthorne noted the strong interest that states, local communities, industry and environmental groups took in the Programmatic Environmental Impact Statement. "This process has benefited greatly from the involvement of both governmental and non-governmental stakeholders, and from the clear direction Congress gave in the 2005 Energy Policy Act. "It's really a model for working together to make decisions about our energy future," Kempthorne said.
Federal lands in the western U.S. contain the largest supply of known resources of geothermal energy in the country, BLM reports. Growing interest in developing these resources is seen in the results of recent BLM geothermal lease sales in areas where current Resource Management Plans already allocate lands for such use.
An August 2007 sale drew the highest-ever per-acre bid for a lease in California's famed Geysers field. Additionally, a sale of leases in Nevada brought a record-breaking US$28.2 million in August 2008. Geothermal leasing revenues and royalties are shared with the states and counties where the leases are located, with 50 percent going to the state and 25 percent to the county.
Utah lease sale
BLM continues to see interest in geothermal leasing. The Utah State Office for the Bureau of Land Management (BLM) sold all 44 parcels offered on 144,372 acres for a total of about US$5.7 million in its geothermal lease sale on Dec. 19 in Salt Lake City. The highest bid was from Reno-based Ormat Nevada Inc. at US$130/acre on parcel No. 43 for a total of US$665,600. Bids ranged from US$2 to US$210/acre. All bonus bid, rental and royalty monies collected are shared equally with the State of Utah.
This is the first time since June 2007 that BLM Utah has offered geothermal lease parcels for sale. Utah currently has two geothermal electrical generation power plants located in the central and southwestern portions of the state. BLM Utah and the State of Utah are working together to identify viable renewable energy zones in Utah. None of these parcels are located in federally designated Wilderness Areas or Wilderness Study Areas because these areas are off-limits to new leasing by law. Parcels in Idaho, Oregon and Washington were also offered at the Utah sale.
Total revenue from the three Idaho parcels was US$59,828. The highest bid for an Idaho parcel was from Kodali, Inc. of Reno, Nev., at US$5.25/acre. Bids on these parcels ranged from US$2 to US$8.50/acre. Total revenue from the 11 Oregon/Washington parcels was US$787,025. The highest bid for an Oregon/Washington parcel was from Ormat Nevada, Inc. at US$35/acre. Bids on these parcels ranged from US$2 to US$35.
Glitnir: outlook "very positive."
The overall development of geothermal energy in the U.S. is "very positive", Iceland-based Glitnir Bank reported in its second annual U.S. Geothermal Energy Market Report, which was released earlier this year. Installed geothermal power generation capacity has increased by around four percent to 2,958 MW from 2,851 MW last year, while the overall number of projects has increased.
Projects currently underway would expand installed capacity in the U.S. by 100 percent to 130 percent in the years to come. "Compared to last year, the industry is better positioned and availability of drilling rigs has improved," said Arni Magnusson, managing director of Glitnir Global Geothermal Energy Team. "The joint efforts of the Bureau of Land Management (BLM) and the U.S. Forestry Service to speed up the process for leasing geothermal resources on lands they manage will also have a significant impact on the industry."
California represents 86 percent, or 2,555 MW, of overall installed geothermal power generation capacity in the U.S., followed by Nevada with 11 percent or 318 MW. California also has the greatest potential for geothermal energy with around 11,340 MW undiscovered geothermal resources, according to the U.S. Geological Survey.
There are now seven states generating electricity with geothermal energy. Idaho and New Mexico have joined the pool of geothermal power generation states, with Oregon and Wyoming to follow shortly. The number of projects currently under development in the U.S. has increased by 40 percent, from 69 projects last year to 97 today; with unconfirmed projects, the number grows to 103. Geothermal projects in development represent a maximum capacity of 3,950 MW or an increase by 54 percent to last year.
Nevada is the U.S. state with most of the geothermal power generation capacity in development with 1,100 MW to 1,900 MW, followed by California with 900 MW to 1,020 MW. Nevada and California account for nearly two-thirds of all geothermal development. Current projects underway require investments of US$14 billion to US$16 billion, with over half of that amount needed in 2011 and 2012.
At present, geothermal energy represents around 0.3 percent of total U.S. energy consumption and 7.7 percent of renewable energy resources, excluding hydro, in the primary energy supply mix of the U.S. For U.S. electricity production, geothermal energy represents 0.4 percent of the total production and 13.5 percent of electricity generation through renewable resources, excluding hydro.
Glitnir notes that the development of wind energy has been more prominent than development in the geothermal sector in the U.S. "However, that will change with the large number of projects in development in the geothermal sector and there will be a strong increase in electricity generation from geothermal sources in the years to come. "As it takes relatively longer to develop geothermal power capacity compared to wind or solar installations, many projects in development today won't generate electricity until 2011-2014."
While the availability of geothermal drilling rigs has improved since last year, supply will remain an issue towards the year 2010 and 2011 when the majority of projects will reach the feasibility stage. Another bottleneck facing the industry is the availability and delivery time for geothermal turbines. The demand for turbines is already very high, and with the current development curve, the demand will increase sharply by 2011 until 2013, when most projects currently in development will reach the design and construction phase.
Another major obstacle facing geothermal energy utilization in the U.S. and worldwide is the shortage of people with experience and training in geothermal development and engineering. "It will require strong efforts by the industry to educate the people it needs to go forward, but is also puts pressure on governments and universities to foster geothermal education, as well as research and development to utilize geothermal energy to the potential it offers."
Glitnir's planned investment in U.S. geothermal projects will not change despite the Icelandic government's acquisition earlier this year of a 75 percent stake in Glitnir for 600 million euros (US$821.3 million). Geothermal is a key area of expertise for Iceland, and will play a key role in meeting future global energy needs, a company spokesperson said.
The U.S. Department of Energy's (DOE) Acting Assistant Secretary for Policy and International Affairs Katharine Fredriksen, Australia's Ambassador to Iceland Sharyn Minahan, and Iceland's Minister of Industry Energy and Tourism Ossur Skarphedinsson on Aug. 28 signed the charter of the International Partnership for Geothermal Technology (IPGT), signaling the commitment of the three countries to aggressively foster and promote cutting edge geothermal technologies to promote energy security and address global climate change.
Iceland, Australia and the U.S. bring high levels of expertise, leading the world in harnessing geothermal energy and producing electricity. This framework brings international collaboration on policy and the technical aspects of enhanced geothermal systems (EGS) such as deep drilling and geothermal energy conversion.
"Enhanced geothermal systems have the potential to be the world's only ever-present form of baseload renewable energy," Fredriksen said. "This international collaborative will bind the U.S., Australia and Iceland to work together to accelerate the development of geothermal energy, bringing this clean, domestic and natural energy to the market in the near-term to confront the serious challenges of climate change and energy security."
DOE will work with Australia's Ministry of Resources, Energy and Tourism and Iceland's Ministry of Industry, Energy and Tourism to identify and encourage research, development and deployment projects critical to widespread deployment of EGS and deep drilling technologies, exchange best practices and support education and training programs.
The IPGT will foster close working relationships among the international partners to support an accelerated evolution of geothermal technology through knowledge gained from projects in different countries and geologic settings. "We look forward to working with the U.S. and Australia to remain on the forefront of geothermal energy," said Skarphedinsson. "Australia, Iceland and the U.S. all possess unique individual strengths and experience in geothermal energy, and together this partnership allows us to capitalize on a collaborative international endeavor."
"Geothermal technology provides a clean source of energy that produces few greenhouse gases," said Minahan. "IPGT can help all member countries to accelerate further development of this technology." In addition to establishing the IPGT, ministerial representatives of Australia, Iceland and the U.S. held a two day workshop bringing together experts from government, industry and academia to discuss research, development and deployment priorities for geothermal energy.
The IPGT is open to expansion and in the future may include members from other countries with commitments to emerging geothermal energy technologies.
By Karen Boman
Copyright 2009, ODS-Petrodata Inc.