GEOTHERMAL’S COMING BOOM

Geothermal Development Expands Globally
Tim Stephure, May 13, 2009 (Energy Pulse)

SUMMARY
According to Global Geothermal Markets and Strategies, 2009–2020, from Emerging Energy Research (EER), geothermal is on the verge of an enormous boom.

In the U.S., there are 4,400 megawatts (4.4 gigawatts) of new production in the planning and development “pipeline.”

There are 120 geothermal projects in development in 12 Western states, led by California and Nevada, and 190 million acres of undeveloped BLM and U.S. Forest Service lands were just opened up at the end of 2008 for new exploration and production.

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The global geothermal pipeline is ~9,000 megawatts (9 gigawatts) and counting, growth that will drive economies of scale and bring costs down, further expanding the industry.

Southeast Asia, led by the Philippines and Indonesia, has an estimated 40,000 megawatts (40 gigawatts) of geothermal potential and is attracting developers from all over the world.

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New technologies such as low temperature plants and better drilling equipment are shortening development timelines and further lowering costs.

The development of Enhanced Geothermal Systems, the piping of surface water into and back out of deep hot rocks instead of searching to find pre-existing geothermally heated pools, offers the prospect for long-term growth.

The geothermal boom and bust cycles driven by rising and falling natural gas prices have left a few big, state-owned utilities (ex: Enel, MidAmerican, Calpine, New Zealand's Mighty River Power and Contact Energy, CFE in Mexico, and PLN and Pertamina in Indonesia) and independent power producers (IPPs) (ex: Ormat, Geyser Green) as the major investors. Worldwide, ~30 companies have some geothermal ownership but the top 20 owners of geothermal capacity control ~90% of the installed global market. Chevron leads the world due to a massive portfolio of projects, mostly in Indonesia and the Philippines, acquired in its 2005 takeover of Unocal.

EER’s analysis predicts the world geothermal installed capacity will more than triple by 2020 from 10.5 gigawatts to 31+ gigawatts and investments in geothermal power plant development should rise to US$13 billion-to-US$19.9 billion per year by 2020.

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COMMENTARY
Geothermal energy is a proven power source. It was one of the first alternatives power producers turned to during the oil crises of the 1970s and its viability and accessibility have not changed. Like other New Energy sources, its development slowed in the 1980s and 1990s as a result of very affordable oil and natural gas prices. That has changed. Geothermal is now not only proven and abundant but also price-competitive.

The several factors driving the emerging geothermal boom include: (1) 28 state Renewable Energy Standards (RESs) - and a pending federal RES - requiring regulated utilities to obtain specific portions of their power from New Energy sources by a date certain; (2) Pending federal and regional emissions reduction regimes that will almost certainly put a price on greenhouse gas emissions (GhGs) in the next 3-to-5 years; (3) National security considerations putting a higher emphasis on developing domestic resources.

Short-term growth could be limited by transmission inadequacies and a recessionary drop in natural gas prices but longer term, growth is virtually inevitable as states rush to meet RES requirements and the price of emissions and the price of capital drive the cost of other power sources upward while economies of scale and technological breakthroughs drive the cost of geothermal (and the other New Energies) down.

Bubble size reflects megawatt resource potential. From Emerging Energy Research. (click to enlarge)

The U.S. is the biggest geothermal producer in the world and will more than double its capacity in the next 5 years. Developers will focus on California and Nevada, with resources in Idaho, Oregon, and Utah also getting attention.

Internationally, the biggest resources and the biggest opportunities for growth are in Southeast Asia. The Asian currency crisis stopped a budding geothermal boom in the last decade but growing and modernizing populations in the Philippines and Indonesia, already home to 29% of world installed capacity, will draw developers. The Phillipines is the more stable play now but Indonesia is expected to evolve into a bigger geothermal growth market in the longer run.

Japan, Iceland, Italy, and Mexico have 65+% of current world installed geothermal capacity and will continue to grow. New markets are available and expected to open up in Chile, Turkey, Russia, Nicaragua, Germany, Australia, and East Africa.

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QUOTES
- From the Emerging Energy Research (EER) analysis: “Attractive for its unique combination of baseload power, cost competitiveness, and zero emissions (at least with current technology), geothermal power is gaining increased attention from governments and the private sector as a renewable generation technology with scaling potential.”
- EER, on the stability of geothermal: “With a 40-year commercial track record and plants installed in more than 20 countries, geothermal has established itself as a proven, bankable, and cost-competitive renewable power generation technology for utility-scale applications.”

The deeper you drill, the hotter it gets. (click to enlarge)

- EER, on the interest in geothermal from investors: “Even following the significant downturn in global energy prices during the second half of 2008 and early 2009, there remains great expectations for geothermal's long-term cost-competitiveness as global demand for energy escalates.”
- EER, on geothermal's short- and long-term investment potential: “Challenges lie ahead, as transmission build-out necessary to access increased geothermal resources remains uncertain, and the looming economic crisis limits capital expenditures and depresses natural fuel prices. Nevertheless, the long-term outlook for U.S. geothermal market growth is extremely positive, with the U.S. geothermal market poised to triple over the next decade.”