Navigant Research Blog

Sleeping Geothermal Giant Stirs

Mackinnon Lawrence — February 19, 2013

Source: Indiana Public MediaRumblings in the geothermal power sector have been highlighted in early 2013 by several important developments.  Geothermal startup AltaRock Energy, which is backed by Google, Khosla Ventures, Kleiner Perkins, and Vulcan Capital, has reported cost reductions through the successful creation of multiple engineered geothermal areas from a single drilled well at its Newberry project outside of Bend, Oregon.  JP Morgan, meanwhile, has purchased an interest in eight existing geothermal plants owned and operated by a U.S.-based subsidiary of Ormat Technologies.

These announcements signal a likely expansion in geothermal activity over the next decade.  Although the levelized cost of geothermal power is competitive with fossil fuel-based plants, the drilling required to exploit resources involves significant risk and requires large capital outlays, with often speculative ROI potential.

These obstacles have confined geothermal prospecting to low-risk, high-return resources in proven rift zones or volcanically active parts of the world where naturally occurring pockets of steam or hot water are close to the Earth’s surface.  Due to these limitations, geothermal power capacity currently stands at 11 GW worldwide, representing less than 0.2% of installed generation capacity globally.

However, the recent JP Morgan/Ormat deal underscores the stable revenue potential of conventional geothermal power once a plant is up and running.  After a resource has been identified and proven viable, geothermal power plants can provide reliable and emissions-free baseload power with capacity factors greater than 90%.  Although resources must be managed carefully, plants do not require fuel delivery infrastructure like coal or natural gas plants since they sit directly atop active steam fields.  These attributes make geothermal power particularly attractive to investors and among the most enticing of emerging renewable technologies.

Geothermal Frontier

AltaRock’s announcement, meanwhile, signals potential reductions in the cost of enhanced geothermal systems (EGS), an innovative approach to engineering geothermal resources that involves drilling 4 miles into the Earth’s crust and artificially fracturing granite and other impermeable rocks.  These fractures are then connected to create an artificial reservoir in which water can be injected to create steam.  Significantly more expensive than traditional hydrothermal resources, EGS remains a highly speculative technology: just two small facilities are in operation today.

Although EGS is truly the wild west of energy speculation, its outsized long-term potential is what has investors like Google most excited about companies like AltaRock.  Outlined in a 2006 MIT report, entitled The Future of Geothermal Energy – Impact of Enhanced Geothermal Systems (EGS) on the United States in the 21st Century, EGS resources would allow for a decoupling of geothermal development from naturally occurring anomalies, greatly expanding the geographic range in which projects could be developed.

The MIT study projects that EGS and hydrothermal resources could supply roughly 140,000 times the total U.S. annual primary energy use in 2005 or all of the world’s current energy demand and then some.  And it’s probably cheap: the report concludes that EGS could be capable of producing electricity for as low as $0.039 per kWh less than the cost of coal-fired generation.

In the meantime, innovations around conventional geothermal resources are also pushing geothermal power into the 21st century.  Simbol Materials, a California-based startup, is piggy-backing on geothermal development in the geothermal-rich Salton Sea field, with plans to extract lithium from geothermal brine for use in innovative battery applications like electric cars.  Plans to lay undersea cables from Iceland, a geothermal power leader which sits atop more potential than it can consume, would provide a renewable power source to Scotland.  Similar proposals have been floated among island nations throughout the Caribbean and South Pacific.

Pike Research’s Geothermal Power Projects report shows that conventional (hydrothermal) development has expanded from just 26 countries in 2010 to 64 at the start of 2013.  With 567 named projects identified worldwide, the geothermal industry is looking more and more like a dormant volcano beginning to stir.

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