Managing risks and helping investors better understand the risks involved with geothermal power is the key factor in securing financing for new projects, several participants in a Geothermal Energy Association (GEA) conference told reporters April 10.
Several speakers from the April 11 GEA Finance Forum held a conference call with reporters, where they said the revamped production tax credit (PTC) is potentially better suited for geothermal development than the old version.
As part of the so-called fiscal cliff negotiations earlier this year, Congress approved an extension of the PTC that enables the tax credit to be used for projects that enter “construction” during 2013.
Currently, geothermal advocates are waiting for the government to define what constitutes “construction” for geothermal projects, said GEA Executive Director Karl Gawell. “We are waiting for the IRS shoe to drop,” Gawell said.
A key factor will be whether the government defines construction as building the power generation facility, or if it could also include the lengthy process of “proving” the underground resource, officials said.
There is much drilling and other site work done to prove the viability of a geothermal resource, the GEA officials said. Proving the resource can take years and financiers often don’t understand the process, said Marathon Capital Vice President Sid Sinha.
Most investment people like the idea of geothermal power because it can run “24/7” with a high capacity factor, Sinha said. The downside is quantifying the risks involved, the Marathon Capital official said.
Investors seem to have become more risk averse in recent years, Gawell said.
Geothermal has not yet really benefitted from federal tax credits to the extent that wind and solar have, said MidAmerican Energy Holdings Vice President of Legislative and Regulatory Affairs Jonathan Weisgall.
While wind and solar are only intermittent sources of power, it is easier for electric utilities to cost, risk and construction schedules needed to develop baseload geothermal energy, Weisgall said.
Wind is a more “nimble” source and can be built quicker, Weisgall said.
The risks, however, can be mitigated, Gawell said. In addition, the Department of Energy is doing research aimed at mitigating the cost and risk issues, said Doug Hollett of DOE’s geothermal technologies office.
Earlier in the week, Sen. Ron Wyden, D-Wash., referred to geothermal and hydro power as the “forgotten” renewables.
“We were the forgotten resource but I think that is changing,” Gawell said. For example, geothermal only became eligible for the PTC within the last 10 years, the GEA official said.
Part of the problem is that years ago large geothermal projects, such as in the Salton Sea area, were discovered. While the generating resource was large, it was concentrated in a handful of areas in the Western United States.
People were looking for geysers, and only found a few of them, Gawell said.
Research is now showing that geothermal energy potential exists in much of the United States, albeit in small sizes, Gawell said. Most of the geothermal resource in the United States remains undiscovered and as a result the locations are uncertain, Gawell added.
GEA has said that geothermal capacity in the United States grew by 5%, or 147 MW since the last survey in March 2012.