U.S. Geothermal Industry Expands with New Capital, Government Support

Texas, USA --Geothermal energy production could triple over the next few years, expanding its reach from nine to 15 states, according to a report released this week by the Geothermal Energy Association (GEA).Renewed capital investment, U.S. Department of Energy support and rapid technological advancements are driving a “second wave” of geothermal expansion, said GEA Executive Director Karl Gawell in a conference call about the new report.

“The geothermal industry has an exciting year ahead, as there are numerous projects switching from development phases to full-fledged geothermal power plants,” he said.

The United States ranks No. 1 in geothermal energy production with approximately 3,102 MW of installed capacity, according to GEA. Geothermal companies are currently developing 146 projects in 15 states. The GEA and a handful of geothermal companies discussed the report and industry developments during a conference call on Tuesday.

Geothermal installed capacity in 2005 (left), in 2010 (middle) and capacity in development in 2011 (right).  Image Credit: GEA 

“We’re very excited to see the growth in the geothermal industry,” said Halley K. Dickey, director of geothermal business development for Turbine Air Systems (TAS Energy). “We believe the geothermal industry is poised for a significant set of gains in production capacity for utility scale power production in the U.S.”

Dickey’s Houston-based company manufactures modular Organic Rankine Cycle systems such as the unit that U.S. Geothermal will use to generate power from the relatively low-temperature 285 F water at Neal Hot Springs in Oregon.

While geothermal exploration has historically been focused in the Western U.S., developers have expanded projects as far east as 

Louisiana and Mississippi in pursuit of technologies that could lead to consistent power generation from the co-produced fluids at oil and gas wells.

TAS Energy is among many companies racing to develop commercial solutions for power production at oil and gas sites.

“TAS is involved with several oil and gas managers from California to the Gulf states,” Dickey said. “The first successful pilot projects will prove to the financial and oil and gas communities that it is a (viable) way to produce utility scale energy.”

Gawell estimates the geothermal industry is developing 146 projects in 15 states, but there could be many more (particularly involving oil and gas) that remain under the radar. Drilling and exploration are expected to pick up soon after winter storm season ends. Gawell said the federal government’s continuation of a loan guarantee program, investment tax credits, and cash grants will be crucial to the continued success of the industry.

“The extension of the tax grant program through projects under construction this year has helped,” he said.

State renewable energy standards are another powerful driver, but renewed investments in geothermal clean technology are perhaps the most exciting development for the industry.

Industry leaders said falling natural gas prices would affect geothermal expansion. Geothermal companies that lock in prices based on long-term power purchase agreements might see some negative effects from falling natural gas prices, said Saf Dhillon, head of investor relations for U.S. Geothermal. He said a national portfolio standard (RPS) would increase stability. In the meantime, state and local utilities are playing a greater role in industry expansion with incentives that mandate greater renewable energy output, Dhillon said.

In spite of the positive news, Gawell said, development is still somewhat stalled due to risk-averse investors.

“(Investors) want to make sure projects have no risk and can pretty much guarantee returns,” Gawell said. “We’re not out of the woods in terms of the economy, that’s for sure.”

On the other hand, he added that the U.S. is an attractive market.  “We’re seeing funds come in from Canada, Europe and other countries in a variety of ways,” he said. Saf Dhillon explained that for U.S. Geothermal, much of the initial capital it has received for projects has come through the Canadian equity markets, where investors are more comfortable with the initial high-end risk.  Dhillon attributed that comfort-level to the Canadian market being primarily resource- or mining-based.

Now that many developers have consolidated efforts, the industry can focus on exploring locations with the most potential. Geological estimates indicate that most of U.S. geothermal resources are yet to be discovered.