GEOTHERMAL JOINS THE NEW ENERGIES THAT BEAT COAL OR SOON WILL

Geothermal has joined the list of New Energies ready to step up when coal makes its overdue retirement.

A new report from Credit Suisse, a no-nonsense investment bank, finds that geothermal is cost competitive with fossil fuels as a source of electricity.

Reports vary on relative costs of power generation. Old Energy identifies its costs in established markets but without taking into consideration what economists call externalities. Externalities for fossil fuels and nuclear energy are things like environmental degradation, national security threats and human health impacts that are not part of the market price. Old Energies are cheaper in the marketplace because they don’t have to cover such costs whereas New Energies don’t incur them.

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But the wind power industry has already begun to prove the times they are a-changin’ and solar energy has been widely reported to be nearly ready to do the same. Now, Credit Suisse says geothermal is eligible to join the club.

As usual, there are detractors ready to doubt geothermal’s eligibility.

Natural gas, with its old-boy connections to the petroleum industry, did not have much trouble getting in the club. Wind power has had to fight its way in. But clearly there is more economic appeal to building new wind installations and new natural gas plants than for building new coal plants or new nuclear plants because natural gas and wind have been the 2 biggest sources of new power generation in the U.S. for the last 2 years and were the 2 biggest sources in Europe last year.

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Hardly a month goes by without a new breakthrough in the solar energy sector. Just this week, thin film giant First Solar announced it had broken through the $1/watt barrier.

Until recently, solar energy-generated electricity was not expected to compete on a level playing field against coal before the middle of the coming decade. With the Obama stimulus package providing $28 billion in direct incentives for New Energy and another $13 billion for New Energy R&D, that time schedule may have sped up.

Credit Suisse says geothermal is there.

The U.S. Geological Survey National Geothermal Resource Assessment says there are at least 40,000 megawatts of discovered and yet-to-be discovered U.S. geothermal capacity, much on public lands in the western states.

Geothermal power plants work by bringing hot water up from deep beneath the Earth's surface, either by allowing it to rise naturally or by pumping it. It can be used to drive turbines directly or to heat something more volatile (like isobutene) to maximize efficiency.

The Credit Suisse report says geothermal plants can be built at costs allowing for the generation of electricity at (base case) $36/megawatt-hour. Its conclusion for coal: $55/megawatt-hour. It puts wind at $43/megawatt-hour, natural gas at $52/megawatt-hour and nuclear at $62/megawatt-hour. Solar power plants are at $90/megawatt-hour (and coming down).

$/megawatt-hour. (click to enlarge)

The cheapest untapped source of energy of them all is efficiency, which costs only $15/megawatt-hour. (As Amory Lovins says, the cheapest megawatt is the negawatt, the megawatt that goes unused.)

There are still challenges for geothermal to hit that $36/megawatt-hour target. The Credit Suisse calculations assumed financing at 8%. Financing is not really available these days and is likely to be more expensive if and when it becomes available.

Karl Gawell, Director, Geothermal Energy Association (GEA): "In general, there is financing out there for geothermal, but it's difficult to get and it's expensive…You have to have a really premium project to get even credit card interest rates."

Thanks to the stimulus package, however, financing limitations will be harder on the Old Energies than the New Energies. On the other hand, natural gas plants straddle the line between Old and New Energy in the minds of many big money investors and so have readier access right now to big money.

Kevin Kitz, engineer, U.S. Geothermal, Inc.: "Natural gas is popular for this reason…It has a low capital cost, and even if you project cost of natural gas to be high in future, if you use a high [interest rate in your model] that doesn't matter very much."

Kitz's assumptions are questionable but he may be right in that decisions are made about what to finance by people immersed in Old Energy-controlled numbers. Old habits die hard but new information is emerging which will erode the popularity of natural gas the same way coal has fallen out of favor. Gas supplies are peaking. Liquid Natural Gas (LNG) technologies are expensive and unsafe. And, in the end, natural gas is a fossil fuel which generates greenhouse gas emissions (GhGs). When a price is put on GhGs in the U.S., capital is likely to step up its migration toward New Energy.

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The present perception is that natural gas plants can be built anywhere while geothermal is localized largely to several states in the West. First, this is a fallacious assumption about natural gas. Many regions have limited supplies and are only part of the system because of pipleines. Second, all of the most abundant New Energies share this same limitation of localization with natural gas but have limited "pipelines."

Geothermal is most abundant in a dozen or so western states, Hawaii and Alaska. Wind is on the Great Plains, the Great Lakes, in the Pacific Northwest and off the East Coast. Solar power plants will be most powerful in the Southwest. Wave installations will be off the West Coast. Current energy is richest in the rivers.

The national electricity transmission grid’s necessary upgrade to a smart system interconnected by a high voltage superhighway will be the New Energies' pipeline, eliminate limitations of localization and integrate a higher level of efficiency into every U.S. home and building. Between its facilitation of efficiency, of emissions-free New Energy and of competition between power providers that will drive the price of electricity down, the transmission system upgrade – which will also make the nation less vulnerable to power outages and hostile threats – will more than pay for itself.

There is a doubt about the Credit Suisse analysis because it doesn't factor in geothermal’s very high exploration costs, which can be hundreds of thousands of dollars for per well.

Gawell, GEA: "The United States Geological Survey estimates that 70 to 80 percent of U.S. geothermal resources are hidden…You can't see it on the surface, and we don't have the technology to find it without blind drilling. ... Geothermal hasn't had the breakthroughs in geophysical science that the oil industry had in 1920s. We are still looking for where it's leaking out of the ground."

Research in Europe may partially alleviate that problem. I-GET (Integrated Geophysical Exploration Technologies for deep fractured geothermal systems), a joint research project by central EU nations, is exploiting seismic and underground electrical conductivity measurement methods to create new computer models of deep rocks. The objective is not only to more effectively find out where to drill but to more effectively drill deeper and thereby reach geothermal resources in a wider range of locations. The research is being watched by would-be geothermal developers around the world.

An enhanced geothermal drilling rig. (click to enlarge)

Another doubt about geothermal’s readiness to compete with Old Energies has to do with its ability to generate 24/7. While geothermal experts say there is no problem with intermittency, a spokesman for one of the oil industry’s biggest boosters raised questions

Larry Makovich, vice president/senior power advisor, Cambridge Energy Research Associates (CERA): "They're assuming that if you put a megawatt of geothermal capacity in you're going to run over 95 percent of the hours in the year…Here's the catch: if you look at actual electric production of geothermal in the U.S., it runs 62 percent of the time."

Here’s the catch, Larry: If you look at actual electric production of ANY power generation source in the U.S., you’ll find that it goes on and off, sometimes predictably and sometimes unpredictably, as demand rises and falls. Grid operators have built-in systems to manage energy-source and demand variabilities.

It is true that impurities from deep earth steam (silica, heavy metals, ammonia, etc.) can cause problems.

Makovich: "When you take steam out of the Earth it is different from taking steam out of a boiler from a coal or natural gas plant…It's got a lot of other stuff in it."

Ever seen a coal ash spill, Larry?

At least one authoritative academic study found that geothermal plants generate up to 95% of the time and average about 80%. In conjunction with other New Energies and a proper transmission system, this should be more than serviceable.

Whatever increased costs there may be in dealing with all these challenges will be as nothing when Old Energy producers have to start paying for their GhG spew. Until the long arm of the law (in the person of the new sheriff in Washington-town named Obama) begins assessing the Old Energies for their true costs (now evaded as externalities), there are federal and state tax credits and other incentives to keep geothermal and the other New Energies price-competitive. And there are state Renewable Electricity Standards (RESs) driving utilities to buy into New Energy sources.

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Kevin Kitz, 20+-year engineering veteran, U.S. Geothermal, Inc.: "It's been great to see a change in the market—the enthusiasm…Five years ago I said everyone wants green power as long as it's not one one-thousandth of a cent more expensive than coal. Now people just want renewable power, period—It's nice to be loved."

Footnote: Speaking of 5 years ago, just about then the USGS started considering the possibility of an Environmental Impact Study (EIS) to qualify and quantify geothermal on Western federal lands where the vast majority of U.S. geothermal resources are. Under the Bush-era agencies involved in the EIS, it took a curiously long time before the report finally emerged last October. The delay allowed a very long time for natural gas supplies in the same regions to be exploited.

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Can Geothermal Power Compete with Coal on Price? An investment bank report says geothermal energy is now cheaper per kilowatt-hour than coal-derived power. But there are lots of caveats
Christopher Mims, March 2, 2009 (Scientific American)
and
Geothermal Energy: Intelligent Use Of The Earth’s Heat
February 27, 2009 (Science Daily)
and
U.S. Geothermal Power Production and Development Update
March 2009 (Geothermal Energy Association)

WHO
Karl Gawell, Director, Geothermal Energy Association (GEA); WGA; Kevin Kitz, engineer, U.S. Geothermal, Inc.; Dr. Ernst Huenges, Head of Geothermal Research, GFZ - German Research Centre for Geosciences; Western Governors Association (WGA)

WHAT
Geothermal energy has officially joined the list of New Energies capable of competing with coal. New research and support from the Obama administration is expected to facilitate development.

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WHEN
- A 2005 Western Governor's Association (WGA) report on geothermal resources in the U.S. Southwest drove the development of a USGS EIS.
- A landmark 2006 MIT report substantiated the potential of geothermal.
- The final USGS EIS was completed October 2008.
- The stimulus bill extended geothermal’s production tax credit (PTC) of 1.9 cents/kilowatt-hour through 2013.

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WHERE
- U.S. Geothermal, Inc., is based in Boise, Idaho
- Iceland, with a 500-megawatt capacity, is the world-leader in geothermal development. Germany, with 100 megawatts, is also aggressively developing its resources.
- GFZ - German Research Centre for Geosciences is in Berlin.
- I-GET trials are ongoing in Italy, Germany and Poland
- I-GET is being watched in Indonesia, New Zealand, Australia, Japan and the U.S.

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WHY
- Credit Suisse, says geothermal power costs 3.6 cents per kilowatt-hour, coal costs 5.5 cents per kilowatt-hour and natural gas costs 5.2 cents per kilowatt-hour
- The cost assumptions is based on an 8% interest rate for financing new plants.
- U.S. Geothermal, Inc., owns and operates three geothermal sites.
- I-GET (Integrated Geophysical Exploration Technologies for deep fractured geothermal systems) aims to exploit low-temperature geothermal reservoirs and deep geothermal sources.
Deep geothermal is said to have the potential capacity “1,000 wind power plants.”
- The new I-GET approaches are being tested at four European geothermal locations with different geological and thermodynamic conditions: high-temperature reservoirs (Travale/Italien, metamorphic rocks, and Hengill/Island, volcanic rocks) and medium-temperature in deep sediment rocks (Groß-Schönebeck/Germany and Skierniewice/Poland).
- Based on seismic and underground electrical conductivity measurement methods and performed in conjunction with borehole measurements and rock-analysis.
- The 2005 WGA report reported that with existing geothermal resources and existing technology electricity could be generated at ~6.5 cents per kilowatt-hour (including a 1.9 cent per kilowatt-hour federal tax credit).
- Assuming a coal plant life of 50 years and a geothermal plant life of 25 years might shift some cost-benefit favor to coal. But such assumptions might not be accurate.

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QUOTES
Dr. Ernst Huenges, Head of Geothermal Research, GFZ - German Research Centre for Geosciences: "The new methods deliver important decision-support for the selection of sites for future geothermal projects. With this we can considerably reduce the risk of expensive misdrills…Reliable geothermal technologies are in demand worldwide. Even countries with a long experience in geothermal energy such as Indonesia and New Zealand are interested in the results acquired in I-GET…"