MEASURING GEOTHERMAL GROWTH

Geothermal Industry Interim US Market Update
Dan Jennejohn, Alison Holm and Karl Gawell, October 22, 2010 (Geothermal Energy Association)

President Obama's visit to geothermally vibrant Indonesia seems an apt ocassion to notice the U.S. geothermal industry's steady growth. Both the U.S. and Indonesia are on the Pacific Rim "Ring of Fire" where molten rock below the earth's surface gives rise to restless volcanic and seismic activity and holds the potential to be a rich source of geothermal energy-generated electricity and heating.

The U.S. leads the world in built geothermal capacity. Indonesia is third. Armies of geothermal developers are busy in both countries. Indonesia, which dodged the worst impacts of the 2008-09 economic downturn, is steadily driving growth. On the other hand, the pending disappearance of incentives in the U.S. in the wake of the continued slowdown and the emergence of a new, budget-obsessed Congress threatens to bring the industry's growth to a gasping standstill.

There could be no better explanation of geothermal energy's potential than the images of Indonesia's Mount Merapi erupting. A U.S. Congress more concerned with making short-term political points than with long-term energy planning may let that kind of power go up in smoke in the energy-hungry West if it does not act to extend New Energy incentives.

Mount Merapi (from AFP - click to enlarge

Introduction

The GEA expects geothermal industry growth to continue for the foreseeable future. Although the amount of geothermal capacity coming online in 2010 is not expected to reach 2009 levels (176 MW), geothermal projects in advanced phases of development abound. GEA estimates that 500 to 700 MW of geothermal projects will enter advanced phases of construction between the end of 2010 and through 2011. An increasing number of these projects are located in California and especially Nevada, where strong state policies and a geothermal friendly regulatory structure support strong industry growth.

Overall, strong state renewable portfolio standards, federal tax incentives, and stimulus funding continue to drive growth in the geothermal industry. With 95% of geothermal projects receiving American Recovery and Reinvestment Act (ARRA) funding still being less than 50% complete, GEA anticipates that stimulus funding will continue to be a significant driver behind geothermal development through 2011.

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Industry Growth Trends and Future Development

The US geothermal power industry continued to grow in 2010, with the overall number of new projects under development continuing to increase. While developing projects in final stages of construction and completion is expected to be down from 2009 levels, GEA anticipates the number of advanced stage projects to rebound to new highs in 2011.

Developers report that the economic downturn has made investors extremely risk-averse, thereby dampening geothermal industry growth in 2010, particularly for projects that were approaching the final construction state. However, if the economy continues to recover and federal and state policies providing incentives to investors remain in effect, a significant rebound is expected in 2011.

GEA expects the amount of geothermal capacity under construction to reach significantly high levels in 2011. GEA estimates that 500 to 700 MW of power projects will enter final phases of construction in 2011, and these projects will create 3,000 jobs primarily in Nevada and California. Figure 1 below shows the capacity identified by GEA as being in the final phase of development (Phase IV) over the past five years as well as GEA’s estimate for 2011.

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In its April 2010 US Geothermal Power Production and Development Update GEA identified 188 projects in different stages of development in fifteen states which could produce as much as 7,875 MW of new electric power. This increase in the number of projects in development represents a 25% growth in the number of new projects under development in the United States between May 2009 and April 2010. Despite a slow-down in projects reaching the final construction phase, the long-term growth trend for new geothermal projects continues. Figure 2 highlights the growth in geothermal projects identified by GEA between 2006 and 2010.

New geothermal power projects are in progress in fifteen states from the Pacific to the Gulf Coast. GEA identified new projects, in various stages of development (see figure 3), in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Louisiana, Mississippi, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming. In addition to large utility scale power projects, the survey also demonstrated expanding interest in small power systems (under 1MW) with projects in Mississippi, Louisiana, Texas, Oregon and Wyoming.

As indicated in Figure 3, Nevada and California are clear leaders in geothermal power development. However, in the past few years, Nevada has overtaken California in the number and capacity (MW) of geothermal power projects under development. Nevada's strong state policies supporting new geothermal growth, as well as its limited bureaucratic requirements and delays, have provided impetus to geothermal exploration and general industry growth.

Figure 4 shows the growth in projects under development in California and Nevada from 2006 to 2010.

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Drivers of Geothermal Development

The federal stimulus, tax incentives, and strong state renewable standards continue to fuel the growth in geothermal power. Every geothermal project coming online in 2009 has taken advantage of the tax grant provisions of the stimulus bill, which has helped to maintain the momentum for new projects. Many geothermal developers are building several projects in the US, and the cash grant provides them an effective incentive that quickly reduces their debt -- an important factor in the present economic recession.

In addition, four of the top five states with geothermal power under development have substantial renewable standards. Those states in order of geothermal development and their state renewable requirement are: 1) Nevada (25%), 2) California (33%), 3) Utah (20%), 4) Idaho (none), and 5) Oregon (25%).

DOE federal stimulus legislation funding (ARRA) is also having an important influence on the US geothermal market. In October 2009, the Department of Energy announced the results of its competitive solicitation under ARRA for geothermal technology projects.

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DOE announced awards that could result in up to $338 million in ARRA funding to geothermal research and development, and would require an additional $280 million in recipient cost-share. As of June 2010, ARRA awards administered through the DOE Geothermal Technologies Program (GTP) totaled nearly $363.5 million. Total cost share contributes an additional $362.4M, bringing the combined ARRA/cost share geothermal technology investment to more than $725.88M. The vast majority of projects that have yet to be completed indicate that much of this total will be spent in the coming year, boosting job growth within the geothermal sector.

A review of GTP ARRA awards reveals that the impact of stimulus funding has not yet peaked for geothermal. At the end of Q2 ending in June, of the 135 projects receiving ARRA funding through the DOE GTP: 1 has been completed, 3 are more than 50% complete, 116 are less than 50% complete (85.9%), 12 have not been started (1 of these only had reports for Q1, ending in March), 3 are unaccounted for on Recovery.gov.

As indicated in Figure 6, about 95% of the projects receiving ARRA funding are either less than 50% complete or have not been started as of June, 2010. With the majority of ARRA funded projects still in early stages of development, GEA anticipates that 2011 will be the high-point of geothermal activity in the US under the stimulus legislation.

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Funding for geothermal projects via ARRA has reached a large number of states but remains concentrated in those regions with significant geothermal development. While 38 states, including the District of Columbia, received geothermal stimulus awards, California and Nevada together account for almost 25% of the awards.

 15 projects are listed in California, all of which are less than 50% complete (11% of total projects)

 16 projects are listed in Nevada, two of which have not been started, the 14 others are all less than 50% complete

ARRA also appears to have drawn a diverse group of actors into the geothermal sector.

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Almost half of the GTP awards went to non-industry entities: colleges and universities, cities, counties, or other state and local institutions, tribal entities, and DOE’s National Labs. Of the 132 GTP awards for which GEA obtained Recipient Reports, 40 went to colleges and universities, 7 went to cities, counties, or local school districts, 10 went to DOE National Labs, 5 went to state departments or entities, and 2 went to tribal entities.

An examination of the recovery act data also shows ARRA awards were distributed to geothermal projects by a number of other federal agencies, many of these heat-pump related. Other funding agencies include the Departments of Agriculture, Commerce, Defense, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Labor, Transportation, and Veteran’s Affairs, the General Services Administration and the National Science Foundation.

Appendices...[1] Appendix A: California Geothermal Projects Under Development (from April 2010 US Geothermal Power Production and Development Update)...[2] Appendix B: Nevada Geothermal Projects Under Development (from the GEA April 2010 US Geothermal Power Production and Development Update)...[3] Appendix C: California DOE-GTP ARRA Awards – Q2 Data (April-June 2010)...[4] Appendix D: Nevada DOE-GTP ARRA Awards – Q2 Data (April-June 2010)...