Geothermal Resource Development in Nevada – 2006
Existing efforts and next steps to successful development in the Silver State
Daniel J. Fleischmann
Geothermal Energy Association (GEA)
December 2006
Photo: Mount Rose (10,776’) looms a vertical mile above the Richard Burdette Plant, Steamboat, Nevada. Taken by Daniel Fleischmann, GEA
Table of Contents
Reviewers and Contributors ...1
Preface ...2
Introduction...3
Geothermal resource potential in Nevada...4
Efforts towards new geothermal power production ...7
Steps to further development ...10
Research...11
Regulations ...15
Government incentives...18
Power Market policies...21
Distributed generation projects ...27
Direct use applications ...30
Web resources with more information for Nevada...42
Endnotes ...43
Tables
Table 1
: Nevada’s Developing Projects – 12/12/2006 ...7
Figures
Figure 1
: State borders from the “Preliminary Geothermal Map of the Great Basin,
Western United States: 2005” ...4
Figure 2:
Nevada Geothermal Resources ...6
Reviewers and Contributors
David Blackwell (Southern Methodist University), Gordon Bloomquist (Washington State University), Roger Bowers (Consultant), Tom Box (Calpine), Toni Boyd (Geo-Heat Center – Oregon Institute of Technology), Peggy Brown (Great Basin Center for Geothermal Energy at the University of Nevada-Reno), Grey Champneys (Constellation Energy, Soda Lake Geothermal Power Plant), Andrew Chiasson (Geo-Heat Center), Jim Combs (Geo Hills Associates), Susan Combs(Nevada Commission on Economic Development), Mark Coolbaugh – (University of Nevada-Reno), Paul Dankowski (Nevada Department of Wildlife), Colin Duncan (Ormat Technologies, Inc), Brian Fairbank (Nevada Geothermal Power, Inc.), Curtis Framel (U.S. Department of Energy), Larry Garside (University of Nevada-Reno), Karl Gawell (Geothermal Energy Association), Don Gieseke (Empire Energy LLC), Joe Greco (Caithness), Mark Harris (Public Utilities Commission of Nevada), Roger Hill (Sandia National Laboratory), Gwen Holdman (Chena Hot Springs), Rich Hoops (Bureau of Land Management – Nevada), Kevin Jackson (Caithness), Roger Jacobson (Desert Research Institute),Joe Johnson (Sunrise Sustainable Resources Group), Alyssa Kagel (Geothermal Energy Association), Bernie Karl (Chena Hot Springs), Pete Konesky (Nevada State Office of Energy), Pat Laney (Idaho National Laboratory), Mike Lattin (Canyon Construction Co.), Steve Lintz (Moana Swimming Pool), Jim Lovekin (GeothermEx, Inc), John Lund (Geo-Heat Center – Oregon Institute of Technology), Susan Lynn (Public Resource Associates), Randy Manion (Western Area Power Administration), Roy Mink (U.S. Department of Energy), Christy Morris (Nevada Division of Minerals), Robert Neilson (Idaho National Laboratory), Gerry Nix (National Renewable Energy Lab), Susan Petty (Black Mountain Technology), Steve Ponder (Sierra Pacific Power), Hezy Ram (Ormat
Technologies, Inc.), Marshall Reed (U.S. Geological Survey), Joel Renner (Idaho National Laboratory), Subir Sanyal (GeothermEx, Inc), Claude Sapp(Geothermal Rail Industrial Development, LLC), Allan Sattler (Sandia National Laboratory), Dan Schochet (Ormat Technologies, Inc.), Walt Snyder (Boise State), F. Mack Shelor (Consultant), Lisa Shevenell (University of Nevada-Reno), John Snow (Amp Resources), Paul Thomsen (Ormat Technologies, Inc.), Dennis Trexler (Nevada Geothermal Utility Co.), Charlene Wardlow (Ormat Technologies, Inc.), Pamela Wilcox (Nevada State Lands Division), Jim Witcher (Witcher & Associates), Colin Williams (U.S. Geological Survey), Ryan Wiser (Lawrence Berkeley National Laboratory), Kermit Witherbee (Bureau of Land Management), Tim Young (Sierra Capital Services), Richard Zehner (University of Nevada-Reno).
Preface
Every state with geothermal resources faces different challenges to utilizing those resources to help meet its energy needs. Nevada has been particularly effective in recent years at taking steps to increase geothermal development. The purpose of this report is to combine an analysis of relevant literature and interviews with industry stakeholders in Nevada to determine what is being done, and what needs to be done to better encourage this development. The interviewees
represent different perspectives, which help construct a balanced and objective understanding of the status quo. For this report, there are interviews with over 60 leading experts in the geothermal field in the United States, 40 of which have worked specifically with geothermal resources in Nevada. The interviewees include geologists, developers, utilities, regulators, consultants, direct use facility operators, clean energy advocates and university researchers.
This research was complemented by travel to Nevada to visit geothermal direct use and power facilities and to meet with industry stakeholders. It was also aided by previous study on
geothermal development in Utah, which was completed in May of 2006, and released in June of 2006, and subsequent studies written and released from September through November of 2006 on Arizona, Idaho, and New Mexico.
Ultimately, after taking into consideration the broad spectrum of opinions, the findings of this report represent a general consensus (or majority viewpoint) of what these experts believe are the overall needs to unlocking greater development in Nevada. The help received, whether
informative, critical, or “filling in a gap” of information, was indispensable to the final product. Thank you to all who contributed time and effort to help bring this report to final publication.
Introduction
As one embarks across Nevada’s northern highways, lofty mountains and wide valleys stretch across miles of undeveloped landscape. In numerous areas, tucked below the mountains, rest underground reservoirs with super-heated fluid. Nevada has often been described as one of the most promising states for geothermal resource development. For thousands of years, geothermal resources have been used in Nevada and the Great Basin for cleansing, cooking, and heating. However, it wasn’t until 1940 that the state’s first commercial geothermal operation was installed to heat residential homes in Reno. Exploration for high-temperature resources began in the 1970s after the first oil crisis. The exploration performed during that time period led to the development of every existing geothermal power plant in Nevada today. The first came online in 1984 when small binary units were constructed in Wabuska with a capacity of 1.3 megawatts (MW). Another 13 geothermal power plants were developed over the next eight years until development ceased after 1992. It wasn’t until 2005 before another geothermal power plant would come online. The new plant, developed by Ormat Technologies, Inc., is called the Richard Burdette Geothermal Facility and has a capacity of 25 MW.
Photo: Richard Burdette Geothermal Facility – Steamboat Springs, Nevada. Photo by Daniel Fleischmann
Nevada remains second to only California in existing geothermal power capacity with 276.4 MW from its 15 power plants. In 2005, these facilities generated 1,268.7 gigawatt-hours (GWh) during the year (with the new Richard Burdette Plant only generating power in November and December)1.
While the Dixie Valley geothermal facility sells power to the California utility, Southern California Edison (SCE), the other 14 plants sell power within Nevada. Roughly 9% of retail sales in the northern Nevada electric-grid are powered by geothermal plants2.
Nevada will not have to wait long for another geothermal power facility. As of December 12, 2006, there are 37 MW under construction and a total of 24 projects under development that range from 637 to 751 MW (see Table 1). Additionally, there are five unconfirmed projects in various stages of development that could add an additional 72-102 MW. Drilling permits for 61 geothermal wells were issued by the Nevada Division of Minerals in 2005 (more than double the number of permits from 2003 and 2004) and 33 of those wells were actually drilled3.
To understand what is driving the resurgence in development, one should review several key trends that occurred over the past ten to 15 years. For one thing, Nevada’s population nearly doubled between 1990 and 2005. Furthermore, between 1993 and 2002, the state’s retail sales for electric power increased by 57.8% -- which, according to the Energy Information Agency (EIA), grew at a rate more than 2.7 times faster than the U.S. average during that time4. Nevada, which
by 1970 had a population of half-a million, now has a population of 2.5 million and growing. In addition to geothermal power plants, there has been renewed interest in using geothermal resources for distributed generation. This includes a geothermal-powered bio-diesel plant expected to come online in early 2007. New geothermal direct use projects are also under
development including expansions to the Elko District Heating system and geothermal space heating at a college campus outside of Reno.
Because the geothermal research and development efforts are as advanced in Nevada as anywhere in the U.S., there are two questions that need to be examined: 1) What more can be done to harness as much of Nevada’s geothermal resources as possible—including examining how existing state and federal policies are affecting the industry; and 2) What activities related to geothermal development are going on in Nevada that could be applied in other states.
This report attempts to answer these questions. It focuses on ongoing efforts and it discusses how policymakers can address challenges to developing Nevada’s potential and get new projects online. The main focus of the paper is on power plant production, but the development of direct use projects is also addressed.
Because of the recent volume of new activity in Nevada, this report is a snapshot of the progress made by December of 2006. This report is one of several examinations of obstacles and
opportunities for geothermal energy on the state level being conducted by GEA. The final report will bring together these reports and offer cross-cutting analysis of the barriers and needs
identified in different western states.
Any opinions expressed in this report are those of the author, and do not necessarily reflect the views of the Department of Energy, the many individuals who contributed to this report, the Geothermal Energy Association or the members of GEA’s Board of Directors.
Geothermal resource potential in Nevada
Nevada contains the largest portion of the Great Basin (a large section of the Basin and Range Province that runs throughout the western U.S.) The Great Basin covers the entire state (See Figure 1), with high-temperature geothermal areas primarily concentrated in northwest and north-central Nevada north of US Route 6 and west of Elko and Eureka5 -- an area covering roughly
2/3rd of the state: equal in size to the states of Missouri, North Dakota, and Oklahoma (See Figure
2).
Figure 1: State borders from the “Preliminary Geothermal
Map of the Great Basin, Western United States: 2005” –
Source –University of Nevada-Reno:
http://www.geothermal.org/articles/onestopshop.pdf
Researchers say that much of the deep drilling in Nevada has been for the mining of minerals, particularly gold. While certain parts of the state have been drilled for oil and gas, Nevada is not a major producer and developers say that this drilling has not been a primary source ofserendipitous geothermal discoveries—although the state has seen a fair share of oil and gas drilling compared to the Pacific Northwest. Nevada produced an average of 1,000 barrels a day of oil in 2005 (ranked 26th in the U.S.) and only had four producing natural gas wells by year-end 20046.
Nevada’s geothermal resources are the products of both recent magmatic activity and the deep circulation of high heat flow in underground reservoirs. Both types of geothermal systems can be used for power production, and both are prevalent in the state. Evidence of recent magmatic activity is often identified at the surface by the presence of Pleistocene rhyolite domes. According to the U.S. Department of Energy (USDOE), deep circulation of high heat flow is caused by the Great Basin pulling apart each year, creating fractures in the earth’s crust which allows water to circulate in the hot, primarily volcanic rock formations, especially common in parts of northern Nevada7.
In January of 2006, the Geothermal Taskforce of the Western Governor’s Association (WGA) estimated that Nevada could install an additional 1,488 MW of geothermal power economically by 2015 and estimated potential by 2025 as high as 2,895 MW from identified resource areas 8.
The WGA report complemented the April 2004 Public Interest Energy Research Program (PIER) report on New Geothermal Site Identification and Qualification, prepared for the California Energy Commission (CEC) by GeothermEx, Inc. 42 geothermal prospects are estimated in the WGA report (63 total are mentioned) and 60 prospects are identified in the PIER report (although the report did not estimate the # of MW).
While these reports assess many different geothermal resource areas in Nevada, geothermal developers have actually leased several prospects not included in either of these reports because some discoveries have been held in propriety. For this reason, an effort to evaluate the full quantity of the work performed on Nevada’s (and other states) geothermal resources was funded by USDOE and released in 2005 by Geo Hills Associates. In their final report, they cited 2,737 thermal gradient boreholes and 377 slim holes or exploration and/or commercial production wells in Nevada -- most drilled in the 1970s and early 1980s. They cited 122 separate geothermal prospects (including those that now have power generation projects). This is well above the 63 total in the WGA and PIER reports. According to the report, of these 122 prospects, only 39 have been considered “identified prospects”, leaving 83 prospects that need further assessment and exploration data9.
Researchers agree that this volume of geothermal exploration is accurate. Oil and gas exploration companies came to Nevada in the 1970s and performed much of the initial exploration drilling for geothermal resources. At the time, however, these companies were generally looking for big hits, similar to The Geysers in California. Because few prospects indicated temperatures or conditions of a similar magnitude, companies did not move ahead on many of these prospects at the time. In 1978, the U.S. Geological Survey (USGS) released USGS Circular 790. The document estimated the recoverable geothermal power potential from identified resource areas in Nevada at 2,559 MW, and the total recoverable identified/unidentified resource at roughly 12,800 MW. 2,559 MW is actually lower than the 2006 WGA estimate for identified resources. Researchers suggest two major reasons for this discrepancy: (1) there were no power facilities in Nevada in 1978, and (2) constrained by engineering and technological limitations, the USGS did not consider resource areas with temperatures below 302°F (150°C)10. Several years after the report
was released, advanced binary plants were demonstrated feasible in Idaho, and binary power plants currently produce electricity from temperatures considerably lower, including plants in Nevada at Empire and Wabuska. Binary technology is utilized at 10 of Nevada’s 15 power facilities. Since 1978, subsequent estimates for Nevada’s geothermal power potential for identified resource areas have ranged from 1,283 MW to 3,140 MW, although some of these studies have chosen select sites while excluding sites with only limited exploration11.
Figure 2: Nevada Geothermal Resources – Source: Idaho National Laboratory:
http://geothermal.id.doe.gov/maps/id.pdf
Another limit to the findings of USGS Circular 790 is that the authors were only considering resources shallower than 9,842 feet (3,000 meters). Presently, geothermal production has been utilized at depths greater than 3,000 meters in other parts of the world, and researchers contend that in addition to deep convective resources, conductively heated hydrothermal resources may be available for production at deep depths throughout the state, depending on fluid, permeability, and the economics associated with development.
A new USGS assessment of geothermal resources is planned to update resource potential estimates from USGS Circular 790. This new assessment has been encouraged by researchers
throughout the geothermal energy field in part because there is a broad spectrum of opinions about the size of the available resource and there is a need to update previous estimates using advanced information technology and field data not available in 1978. Developers say that given the significant development in Nevada since USGS Circular 790 was released, a new report is needed to update all the new information and to help guide further exploration and development planning.
Data shows that the development of Nevada’s geothermal resource base represents a real opportunity to contribute to Nevada’s energy supply. For instance, in 2004, the University of Nevada-Las Vegas released population forecasts which estimated Nevada would contain 3.6 million residents by 2024. This would result in an increase of nearly 60% from the energy needs in 2004 (based on existing consumption figures) representing an additional 17,523 GWh needed by that time. If the 2,895 MW of potential estimated by WGA is developed by that time, 140% of that new demand could be met by geothermal energy (not factoring in a decline in energy
intensity through improvements in energy efficiency)12.
Efforts towards new geothermal power production
Completed in November of 2005, the Richard Burdette Plant, just outside of Reno at Steamboat Springs is adjacent to four other geothermal units, the oldest of which has been operating since 1986. While many consider its construction is a milestone, both as new development and as technological advancement, it has yet to prove that new geothermal development is economical outside of producing well fields.
However, just a year after this new plant came online, development efforts in Nevada have begun in locations without existing power plants. As of December 12th, 2006 four geothermal power
projects had secured a power purchase agreement (PPA) located on resource areas that had never had a producing well field.
Of the 63 combined resource areas noted in the PIER report and the WGA Geothermal Task Force Report, 19 sites (including those on producing well-fields and those that are “greenfields”) have projects under development, with another five sites with proposed projects (aka
unconfirmed) (See Table 1). Not only do these projects represent megawatts, they represent jobs and economic development; tax revenues and economic multipliers; clean air and sustainable energy. In addition, as the industry continues to grow, both in the U.S. and worldwide, the application of efficient next generation plants will outperform older models.
Table 1: Nevada’s Developing Projects – 12/12/2006
Phase IAurora, Colado, Lee Allen, New York Canyon, Patua, Salt Wells (Vulcan Power Company leases) – 210 MW combined – Vulcan Power Company
Black Warrior – 50 MW – Nevada Geothermal Power
Fish Lake Valley – 49-118MW – ESMERELDA ENERGY COMPANY Grass Valley (Leach Hot Springs) – 20 MW – Ormat Technologies Inc. Hazen – 20-30 MW – GRID LLC
Reese River – 20-30 MW – Cayley Geothermal Corp.
Phase II
Blue Mountain – 24 MW – Phase II – Nevada Geothermal Power
Gerlach – 5-10 MW – Alternative fuel facility under consideration – Gerlach Green Energy, LLC Pumpernickel – 20-30 MW – Nevada Geothermal Power
Phase III
Blue Mountain – 30 MW – Nevada Geothermal Power Buffalo Valley – 30 MW – Ormat Technologies, Inc.
Fallon Naval Base (Carson Lake) – 30 MW – US NAVY geothermal program & Ormat Technologies, Inc.
Galena 3 – 15-25 MW – Ormat Technologies, Inc. Salt Wells – 26 MW – AMP RESOURCES
Stillwater – 26 MW – AMP RESOURCES (Plant #1)
Phase IV
Desert Peak – 15 MW – Ormat Technologies, Inc. Galena 2 – 10 MW – Ormat Technologies, Inc.
Steamboat Hills binary – 12 MW – Ormat Technologies, Inc.
Unconfirmed
Hawthorne Army Depot – 10-15 MW
Hot Sulphur Springs (Tuscarora) – GRED III funding – 20 MW near-term in WGA report Rye Patch 12 MW – Site has existing power plant offline. Needs new well drilling. Rye Patch received GRED I money.
Silver Peak – 20-30 MW – Sierra Geothermal Power Corp.
Wilson Hot Springs – 10-25 MW – Sierra Geothermal Power Corp.
Total figures
Phase I: 12 projects: 394-483 MW Phase II: 3 projects: 49-64 MW Phase III: 6 projects: 157-167 MW Phase IV: 3 projects: 37 MW
Unconfirmed: 5 projects: 72-102 MW
Total w/out unconfirmed – 24 projects: 637-751 MW Total w/ unconfirmed – 29 projects: 709-853 MW
Key
• Phase I: Identifying site, secured rights to resource, initial exploration drilling • Phase II: Drilling and confirmation being done; PPA not secured
• Phase III: Securing PPA and final permits • Phase IV: Under Construction
Unconfirmed: Proposed projects that may or may not have secured the rights to the resource, but some exploration has been done on the site
Source: “November 2006 Geothermal Power Production and Development Survey” 11/10/2006 – Geothermal Energy Association (GEA): http://www.geo-energy.org/publications/reports.asp- Five additional Phase I projects (with power service contracts) were confirmed by Vulcan Power Company on 12/12/2006
Case studies
There are several projects under development that represent successful examples of how new development is evolving since the previous boom period. This includes well field expansion at Steamboat Springs and initial developments at Blue Mountain.
Steamboat Springs
The Richard Burdette Plant at Steamboat Springs is the first geothermal power plant to be completed in Nevada in the 21st Century. Perhaps it was completed first because of its
advantageous attributes. In addition to the benefit of existing plants producing from the well field and an existing transmission infrastructure, the project also benefited from being located close to Reno where the power plant could supply local load, and where a steady supply of labor could be employed.
The plant has five production wells measuring from 4,000 to 6,000 feet (1,220 to 1,829 meters), producing from temperatures that reach the surface at 310°F (154°C) and are injected back into the reservoir at 180°F (82°C). The plant is far more efficient than earlier models, both for producing power and in its mechanical design for operation. Because the units are modular, the well field can be incrementally expanded over time. In fact, at least three more facilities are under development in the Steamboat Springs resource, with a potential capacity of up to 47 MW. The entire Steamboat Springs area is expected to reach a full capacity of approximately 100 MW once all these projects are completed.
Because the Richard Burdette plant is automated (which will be the case for the other plants under development at the site) issues can be monitored by computer from anywhere in the world. While this is not critical in a location near Reno, it is especially helpful for power plants in remote locations to where transportation is time-consuming and where it is difficult to employ plant engineers who are willing to live nearby.
Blue Mountain
Blue Mountain is located north of I-80, 22 miles from Winnemucca in Humboldt County. The geothermal resource was discovered in the early 1990s when groundwater as hot as 190°F (88°C) was recorded in gold exploration drill holes. In 2002, Nevada Geothermal Power, Inc. drilled a 2,133-foot (650-meter) exploration core hole that recorded a temperature of 292.5ºF 144.7ºC at 2,115 feet (644.5 meters). The well was funded in part by the USDOE through the Geothermal Resource Exploration and Definition (GRED) program, which facilitated the project to move forward at a time when financing for a project without major previous exploration was difficult to secure.
About 60% of the Blue Mountain resource area is located on private land, where the company owns 100% of the surface and water rights, allowing them to utilize water-cooling for the plant. The first wells, however, are located on federal land which required acquiring permits from the Bureau of Land Management (BLM). The site is located 15 miles from the state electrical transmission grid, running along I-80, although developers say that transmission access is not a major hurdle for the property based on existing local infrastructure. A production well drilled in the summer of 2006 measured hotter than anticipated temperature fluids of 361°F (183°C) from depths between 2,240 feet (683 meters) and 2,815 feet (858 meters). In addition, flow tests from geochemical analysis of geothermal brine produced from this well predict reservoir temperatures of up to 460°F (240°C) within 1,600-4,000 feet (500-1,200 meters) of the surface. These findings, in addition to ownership of a large land position (15 square miles) and ongoing studies of the area over the past several years, indicate that the resource can continue to be expanded after the first plant is completed13.
Efforts to drill new wells
Expanding resources requires new production wells and sometimes additional leases. Efforts to expand the use of producing well fields have been attempted at several geothermal power
facilities in the U.S. While some these efforts have been successful, including at Steamboat Springs in Nevada, and at Coso and the Salton Sea in California, there are others that have been unsuccessful.
One example of an unsuccessful well is at Soda Lake, near Fallon Nevada. Soda Lake has two power facilities located less than a half mile apart from each other. In optimal conditions, the plants have a net-capacity of 12 MW. The first plant has been operating since 1987, and the second has been operating since 1990. In 2002 an exploration well was drilled that recorded temperatures of 377°F (191.7°C) at a depth less than 2,000 feet (610 meters). Unfortunately, issues with the drilling process caused the well to collapse. Developers at Soda Lake say that they could have prevented the well failure and suggest that the error would not be repeated if they drilled another well. They contend that the results of the failed well proved that a sizeable resource is available and could be recovered at the site. However, because the well cost roughly $4 million, investors have been reluctant to finance another well.
Although failed wells like this are common in the oil and gas industry, geothermal developers find that failed geothermal wells may be show stoppers. If a well fails to produce, no matter what the reason, they may not have the capital resources to drill another. However, developers contend that new drivers and incentives such as the federal production tax credit (PTC) and Nevada’s Renewable Portfolio Standard (RPS) are helping the industry grow. As new plants are developed and the industry grows financially, efforts to drill at producing well fields is likely to increase.
Steps to further development
From 1993 to 2004, no new geothermal power facilities were developed in Nevada. Despite the active development from 1984 through 1992, geothermal projects were affected by changes in federal and state laws governing utility regulation and utility renewable contracts (see
descriptions of PURPA on page 24), as well as changing economics due to increases in natural gas supplies and an overall decline in energy prices. During this period, federal incentives towards alternative energy expired, and funding for federal programs was reduced. However, when the California energy crisis struck during 2000 and 2001, Nevada residents were deeply affected when natural gas prices hit new highs. Experts say this event ended a long period of energy price stability in the state and reaffirmed the need for Nevada policymakers to encourage investment in domestic renewable alternatives. In fact, it was during 2001 that Nevada first increased its existing RPS benchmarks.
Today, with new geothermal projects under construction, and well-drilling occurring elsewhere, Nevada seems to be on the right track. For now, there is a window of opportunity to develop new geothermal projects, and recent efforts by the federal and state government have helped this happen. However, despite this initial progress, developers say that they actually face many of the same barriers today that they did three decades ago for developing projects. This includes the issues of acquiring a PPA, of acquiring rights to develop geothermal prospects, and of planning long-term projects with uncertain extensions for federal tax credits. Most agree there is still plenty of room for improvement from a policy, regulatory, and research perspective, and there is a general consensus that continued effort and planning is necessary to maintain industry
momentum and to keep this window of opportunity open.
The analysis below identifies six issues of importance to geothermal development, including research, regulations, government incentives, power market policies, distributed generation projects, and direct use applications. For each of these issues, the analysis identifies ongoing
efforts, remaining barriers, and proposed policy alternatives that a general consensus believes will continue to foster geothermal resource development for years to come.
Research
Like oil and gas, geothermal resources are buried deep beneath the surface of the earth, and cannot be recovered without well drilling. However, exploration efforts for geothermal resources are still considered nascent to those for oil and gas (both in breadth and in technical experience). Exploration is a time-consuming process that generally involves significant upfront costs with high risks and uncertainties. Most agree that the efforts of researchers and the state and federal government can reduce these risks, especially in Nevada, which benefits from a wealth of information compiled during prior geothermal exploration efforts.
Resource identification
One of the greatest challenges to geothermal development is the characterization of resources. Geology is not well-defined at many locations with geothermal potential, and developers generally do not have the time or money to use advanced resource characterization and identification techniques. These techniques are therefore generally tested by universities and federally-funded national labs, rather than by developers themselves. In Nevada, this type of research is performed primarily through the University of Nevada-Reno (UNR) at the Great Basin Center for Geothermal Energy.
The Great Basin Center was officially established in May of 2000, and has since become a premier research institute for geothermal study in the U.S. Among its recent activities include geophysical and geologic analysis, regional and local structural analysis, resource
characterization to understand existing geothermal systems, remote sensing (mapping rocks, minerals, and thermal features from aircraft and satellites), using multi-gas soil gas detectors to find concealed structures, satellite imagery, seismic velocity, short-wave and thermal infrared imagery, geochemistry, and InSAR. Using the Global Positioning System (GPS), methods like InSAR are used to study earth movement over time to determine if geological features are pulling part from one another indicating preferential locations for geothermal systems14. In addition, they
have coordinated with the BLM, the USGS, geothermal developers, and other researchers on the use of Geographic Information Systems (GIS) for assessing potential resource areas based on geographical data15. Because many geothermal systems are blind (i.e. without apparent surface
manifestations) the applied research at the Great Basin Center can be used to identify them. The work done at the Great Basin Center has helped to identify a queue of new resource prospects needing more exploration and has already led to new projects that are under lease and are expected to move ahead to exploration drilling. They currently maintain a database of more than 200 geothermal resource areas in the state, which they have updated over the past few years to include the latest information on well drilling, existing facilities, and geophysical and
geochemical studies. Researchers say that they would like to update and even expand this database, but the necessary time and funding are not currently available. While their work primarily focuses on resources in Nevada’s Great Basin, most agree their research is applicable for exploration efforts throughout the western U.S.
Federal efforts
The federal government has played a significant role in Nevada’s geothermal development throughout the past three decades, through funding from the USDOE. Programs in the late-1970s and the early 1980s included cost-shared confirmation drilling and loan guarantees. Studies of promising geothermal prospects led to new exploration wells, and new projects. During the
1990s, as energy prices declined, so did efforts towards exploration and development. However, in 1999, the USDOE initiated the GRED program. There were three funding cycles over the next five years to study geothermal resources, and cost-share geochemical and geophysical work, core-hole drilling, and exploration well drilling. Developers of geothermal prospects in ten separate resource areas in Nevada received assistance from the GRED program and six of them now have projects under development, while projects have been proposed at two of the other locations. In addition to GRED, USDOE has also helped fund geothermal research, exploration, and development over the past few years through the Great Basin Center and through additional projects, such exploration work at Pyramid Lake. Developers say that the efforts of USDOE have mitigated many risks and uncertainties that they would be unlikely to take on themselves. Most agree that the research funded by USDOE has been essential to the learning process and has helped correct mistakes. For example, according to several interviewees, initial geothermal development and exploration efforts during the 1970s and early 1980s were unsuccessful when individuals new to geothermal were put in charge of drilling. However, these early efforts have at least helped correct past mistakes. Continued government involvement has protected against further mistakes by employing experienced researchers to help on new projects and by utilizing the most advanced methods to analyze resource areas.
State efforts
On the state level, there are no specific geothermal programs funded by state dollars. While the Public Utilities Commission of Nevada (Nevada PUC) regulates the state RPS, and incentives and rate flexibility mechanisms are built into the system, the state has no grant or loan program for geothermal development. The geothermal program at UNR receives some general state funding for staff, but not for specific research projects. This leaves the industry and the federal
government to provide funding for these activities. Geothermal permitting activities at the Nevada Commission on Mineral Resources-Division of Minerals (NDOM) are funded by fees on oil, gas, and geothermal drilling. Geothermal programs at the State Energy Office are funded partly from royalties from geothermal power plants and partly from the USDOE. Federal funding for state energy offices has been reduced 25% in recent stop-gap funding bills, leaving Nevada’s government with less ability to expand renewable energy programs at the state level.
Next steps
Because Nevada has excellent geothermal resources and the industry has a track record for development, most agree that there are ample opportunities in Nevada for the federal government to test new applications and make a return on its investment. For instance, there is a general agreement that the Great Basin Center has an opportunity to become a model geothermal research institution in the U.S. While the expansion of existing programs at colleges and universities across the western U.S. are important, researchers say that what makes the Great Basin Center unique is that it provides the opportunity for people from all over the world to get hands-on experience with projects undergoing exploration and development. Many engineers who work on geothermal projects today were trained at schools in other parts of the world, such as Iceland, Italy, and New Zealand and industry stakeholders in the U.S. say it is time for more of them to be trained at American institutions.
Another reason for the support of this institution is that many experienced geothermal professionals are nearing retirement and it is crucial that these professionals share their knowledge with the next generation. The Great Basin Center program works closely with industry and provides an opportunity for students to work on actual projects. While there is a general consensus that the Great Basin Center should be expanded, the reliance on federal funding is cause for concern. In order to expand existing programs, it may require greater pursuit
of private endowments or other sources of funding. While industry has stepped up to provide funds for the Great Basin Center, clean energy advocates suggest that since geothermal energy is a clean renewable energy source, other sources of funding may be available from
non-governmental organizations that seek to promote alternative energy development. Next steps for federal programs
Most agree that the conditions are right for new government investment in Nevada’s geothermal resources—given rising energy prices and increased investment and policy support for alternative energy technologies. One issue that has come up repeatedly is the importance of the USDOE Geothermal Technologies program in funding exploration, assisting new development, and fostering technological breakthroughs. High energy prices are fueling the demand for alternative energy, and planned geothermal power projects currently under development could represent an increase of over 67% in total U.S. geothermal energy capacity in the next five years alone16. However, despite the need for greater government support when the industry is re-emerging, funding for the program has declined significantly in recent years. In fact, the FY 2006
appropriation for the USDOE Geothermal Technologies program is 16% lower than the average budget from 1990-1999, even without accounting for inflation17. Of more pressing concern, at
the time of this writing FY 2007 funding for the program is still uncertain, and might possibly be zeroed out.
If the program remains, and is expanded, smaller developers say that loan guarantees, in particular, are helpful at getting projects off the ground. According to a report done by
SENTECH, Inc. in March of 2005, the federal loan guarantee program that ran in the 1970s and early 1980s had a corresponding subsidy rate of approximately 3.6 MW per million dollars of expenditure. If this subsidy rate was held constant, it would translate to $1 billion spent (at that time) leading to 3,600 MW of baseload geothermal power -- or 150% of the total installed geothermal capacity in the U.S. today18.
Cost-shared drilling is cited as one of the most effective government programs because it helps reduce risks. Developers say that getting the first well drilled is among their greatest challenges. Developers say they lack the capital resources to pursue a project without confidence that the resource can be developed economically. According to an August 2005 report by the GEA, exploration (including geological studies, drilling, and confirmation) is typically up to 1/3rd of the
overall costs of a geothermal project. Drilling can be up to 1/4th of the overall costs, considering
the cost of a geothermal exploration well ranges from $1 million to $9 million, depending on the depth, the type of material being used, and the current market for drilling products. According to the report, an average well “would probably be in the range of $2-5 million”19 however, recent
spikes in demand for steel and drilling equipment have sent those costs soaring in the past year (particularly drilling rigs given the high prices for oil and gas). In addition, strains on labor have affected the market, especially in remote locations.
Improving drilling and extraction technologies
Researchers assert that the federal government can use Nevada’s geothermal resources as a testing ground for technologies that can expand resource production. For example, many deep wells drilled in Nevada have measured intermediate-to high temperatures that came up as “dry holes”. The heat from these resources is unable to be extracted through conventional
hydrothermal wells because they lack available fluid and/or permeability. In these cases, the USDOE has been researching alternative heat extraction methods such as Enhanced Geothermal Systems (EGS) and Hot Dry Rock. EGS is a process where geothermal aquifers with low permeability can be stimulated to create a conductive fracture network where the reservoir operates like a conventional hydrothermal reservoir. It was proven feasible by a demonstration
project in Soultz-sous-Forêts, France. This process can serve to extend the margins of existing geothermal systems or create entirely new ones20. Hot Dry Rock targets a heat source that lacks
both permeability and fluid, and was proven technically feasible through a demonstration project at Fenton Hill (on the western rim of the Valles Caldera in New Mexico). These methods, while more expensive than those used for conventional geothermal power projects, have potential for future application in the U.S. and Nevada21.
Just because developers drill a “dry hole” does not mean that the resource is unavailable or extraction methods like EGS or Hot Dry Rock are necessary. Often times, a resource is available, but the drilling was not precise. As discussed above, drilling is one of the greatest challenges to developing a geothermal project. Researchers assert that advancements in drilling technology need to be developed and tested that can improve the rate of success in reaching productive geothermal zones. The challenge, according to developers, is drilling within a precise vicinity of the targeted resource, say within a quarter of a mile, to be able to reduce the risk of drilling dry holes. Generally, the techniques used for oil and gas drilling, such as seismic surveys, are not as effective for geothermal drilling, because geothermal resources typically form in areas of abrupt changes in geology (such as faults) that may confuse the seismic signal. For this reason,
developers need assistance combining traditional methods such as temperature gradient drilling with advanced methods such as remote sensing. Although researchers say that improvements in drilling technology will be made as the industry grows, most agree that research and development funding from the federal government is essential to help solve this dilemma.
Next steps for state programs
There is a general consensus that the state government has improved coordination with the geothermal industry as new development has picked up over recent years. However, there is still concern that the state could do more to reduce the reliance on federal funding for geothermal research. While most agree the Nevada state government does not have the capability to fund a large geothermal program, like the Geothermal Resources Development Account (GRDA) and PIER in California, the contribution of geothermal resource development to the state energy mix warrants additional support. In fact, the establishment of a state renewable energy office is under consideration, funded by a tax such as a “public benefit” or “system benefit” fund, or through another revenue stream.
Outreach
Among government programs, the least expensive is outreach. Outreach requires no drilling, no leases, and no transmission lines. Both the state and federal government can be involved, as well as industry. Outreach allows more people to be involved in educating the public, policymakers, regulators, and utility companies about the viability and benefits of geothermal energy. Outreach may include state agencies working with non-profit organizations and encouraging volunteer grassroots efforts whose purpose is to educate the public about geothermal resource development (and energy alternatives in general). According to clean energy advocates, there are numerous innovative ways to approach this, including the development of internet resources, holding public awareness events, encouraging youth projects in public schools, and encouraging youth field trips to geothermal power and direct use facilities.
Federal outreach efforts to promote geothermal development in Nevada have been supported by the GeoPowering the West (GPW) program. Because of the industry presence in Nevada, and the active relationship between the USDOE, the Great Basin Center, the State Energy Office, and the utilities, there is no official “state working group” in Nevada. However, GPW has participated in outreach events and regulatory meetings, they have brought together investors, they have reached out to tribal groups, and they have held an all-states GPW meeting in Reno in 2004. The Great
Basin Center also hosts workshops (sponsored by the USDOE Technologies Program) as part of their outreach mission, the most recent of which took place December 4-5, 2006, to discuss the industry’s exploration needs.
Regulations
Approximately 83% of the surface land and 83.5% of the mineral acreage in Nevada is managed by the federal government. 67% of the surface land is managed by the BLM, and the rest is primarily military-owned or managed by the U.S. Forest Service (USFS). Regulations play a large part in the acquisition of geothermal resources. Indeed, they are one of the greatest challenges to geothermal development.Many of the best geothermal prospects identified in Nevada located on private land have been developed, especially those along the I-80 corridor. Because of this, developing geothermal resources in Nevada has required, and will continue to require, working with federal agencies, particularly the BLM.
Private lands in Nevada predominate near cities (like Las Vegas and Reno) or else are scattered in small areas. State lands make up less than 1% of total state acreage, and predominate in state wildlife refuges and in Carson City where the state capital offices reside. The State of Nevada’s water appropriation process applies to all land in Nevada, and involves tribal lands in the process. They require geothermal power developments to re-inject the geothermal fluid back into the aquifer. If a plant consumes ground or surface water, such as in a water-cooling tower, they must have water appropriations for this loss. State regulations define a “geothermal resource” as “the natural heat of the earth and the energy associated with that natural heat, pressure and all
dissolved or entrained minerals that may be obtained from the medium used to transfer that heat, but excluding hydrocarbons and helium.” Geothermal resources in Nevada belong to the owner of the surface property (which is the federal government if the resource is on federal land or mineral acreage). An industrial well used to produce power requires a drilling permit from the NDOM22. Tribal lands
Tribal lands in Nevada make up roughly 1.7% of its total mineral and surface acreage. Of the 22 federally recognized tribes that have land in Nevada, three specific reservations are of particular interest for geothermal development opportunities23.
First, extensive exploration has been performed and development is likely within the Pyramid Lake Paiute Reservation located 50 miles north of Reno (See Table 1).
Second, interest in geothermal exploration has been expressed in the Walker River Paiute
Reservation; a ~530 square mile (339 thousand acre) reservation ~75-80 miles southeast of Reno, to the north of Walker Lake24. As of yet, no development has occurred, although there has been
active discussions between developers and the tribe about geothermal development opportunities. Third, the Fallon Reservation and Colony of the Paiute-Shoshone tribe is also an area of interest. While smaller than the Pyramid Lake and Walker River reservations, the Fallon Reservation and Colony abuts existing geothermal power facilities at Stillwater. The Reservation has used solar energy, and developers say that there is potential within the reservation for geothermal
development.
Geothermal development on tribal land depends on both the project and the tribe. Those who have worked with these tribes say that their leaders are generally open to development if it benefits their community and does not disturb environmentally sensitive and/or culturally important landmarks. As part of the Title V provisions in the Energy Policy Act of 2005
(EPAct), the USDOE has begun soliciting applications from federally-recognized tribes in order to “conduct feasibility studies to determine the viability of economically sustainable renewable energy installations” including geothermal. The available funding is $4 million, with an award ceiling for individual projects at $150 thousand. Solicitations are due in February of 200725. Federal lands
Acquiring federal lands has been a challenging prospect for developers. For one thing, once a federal lease is issued, the developer of a geothermal project is not only subject to complying with federal laws and regulations, but is also subject to state and local regulations. These include the regulatory requirements necessary to obtain drilling permits, construction permits,
commercial use permits, right-of-way grants for roads, pipelines, transmission lines, and
communication sites, along with accompanying environmental reviews. Geophysical exploration may take place without a lease, however exploration well drilling prior to obtaining a lease could result in a substantial risk if the lease is not issued. Only two of Nevada’s 15 power plants were constructed on federal land. However, because of their proximity to federal land, 13 of them use federal mineral resources, or built transmission on federal land, thus requiring federal leases or permits.
Leasing
Nevada has about two-thirds of the total federal acreage leased for geothermal development in the U.S. For several years, the volume of federal lease applications had created a significant backlog which stifled new development. After additional funds were appropriated to BLM to conduct the necessary National Environmental Policy Act (NEPA) documentation, they have been able to significantly reduce the backlog. For example during the period from 1997 through 2001, BLM Nevada issued only 20 leases that included almost 30,000 acres, while in the five year period from 2002 through 2006, BLM issued 278 leases that include over 455,000 acres26.
While most agree that removing this backlog will allow new projects to move forward, the provisions of EPAct did not authorize transition rules, thereby restricting BLM from accepting nominations for competitive leasing until new regulations are implemented to conduct
competitive leasing. There is concern by developers and researchers that this delay will impact new exploration in promising areas on federal lands that currently do not have a lease, although the BLM and the USFS are continuing to process lease applications that were filed prior to the enactment of EPAct.
Environmental reviews
There is no denial by developers that environmental reviews and regulations are important to ensure protection of secure water resources and for quality control to ensure drilling and construction has a limited impact on the local environment. However, the primary regulatory concern for developers is not the requirements themselves, rather the lack of adequate manpower to process them. In addition, most agree that it is critical that adequate funding is provided to enable these agencies to perform environmental reviews in accordance with NEPA.
Ongoing efforts
In EPAct, several actions were taken to facilitate geothermal development on federal lands. In addition to providing funding to help BLM process backlogs, the law increases rental fees over time to discourage speculation, and requires all future USFS and BLM resource management plans to consider geothermal leasing and development in areas with high geothermal resource potential. A policy change in EPAct led to a Memorandum of Understanding (MOU) between the USFS and BLM that affects developments on both types of land, mandating that geothermal leases be executed in a timely manner. Leasing can be extremely complicated on USFS land.
However, unlike California, Idaho, and the Pacific Northwest, where a number of the best
geothermal prospects are located on USFS land, most of Nevada’s promising resources on federal land are managed by the BLM. Therefore, regulatory issues on USFS lands have not affected geothermal development in the state.
One change that has begun to occur is new regulations on the royalty structure for power plants that send 25% to county governments along with, and in addition to, a 50% federal royalty sent to the state and the other 25% sent to the federal government27. Several interviewees touted this
policy because they believe it will be an effective incentive for communities to pursue geothermal projects to benefit economic development. One example of this is in Churchill County where five geothermal power facilities are currently operating with another two under development28. At the
time of this writing, the County, which is about 90% federal lands, has already received several hundred thousand dollars in royalty payments from existing facilities and is planning to use the money for its schools and roads. Developers say that while the impact on Churchill County is beneficial, it may have even more of an impact on counties with tinier populations. For example, a handful of power project have been proposed in Esmeralda County and Mineral County, which have a combined population of just over 5,500 (fewer than one person per square mile)29.
What still needs to be done
Nevada has been more active than other states at processing geothermal leases and permits, and they have accomplished a great deal over the past few years. However, most agree that to fully absorb all of the leasing and permitting for geothermal resources in Nevada, the BLM needs adequate funding and dedicated staff to process regulations and to ensure that developers do not have to wait too long until the next lease sale. For instance, even with new federal regulations requiring the BLM and USFS to process lease applications, funding for this activity is still far behind what was appropriated to these agencies during the 1980s (even without accounting for inflation). While funding naturally declined during the 1990s when there was less activity, most agree that the recent surge in lease applications mirrors the conditions of the early 1980s and justifies a similar appropriation.
There is a general agreement that if policymakers wish to expand geothermal development, funding for federal agencies that issue geothermal leases should be a top policy priority. Developers assert that these additional funds should prioritize projects nearing completion that are struggling to meet the deadline to qualify for the PTC (particularly if it is extended for only two to three years in the next legislative session).
A May 2006 report by the Government Accountability Office (GAO) discussed the challenges of lease backlogs and delays in the federal permitting process as a principal barrier to geothermal development. Among the issues they discussed are the challenge of processing leases when, as some BLM officials noted for the report, “some developers have reported difficulty in
consolidating the various geothermal leases into an economically viable project that can recover the costs of the power plant and transmission line. These developers, according to these BLM officials, say that speculators often lease geothermal resources not for development purposes but rather to resell the leases at a significant profit, running up the cost of the project.”30 Several
interviewees say that mitigating this issue requires a “carrot and stick” approach. For example, most agree there is a need to encourage development, while allowing adequate time for
exploration. At the same time, owners must also be discouraged from sitting on property without performing any geophysical or exploration work. Thus, many believe that effective program would at the very least require meeting specific (reasonable) benchmarks for progress.
For environmental reviews, there is concern about how they will be handled in the future. Currently, most projects with federal leases issued have gone through an environmental assessment (EA). However, there is ongoing consideration to develop a Programmatic
Environmental Impact Statement (PEIS) process that would cover all BLM and USFS lands in the Pacific Northwest and the Great Basin in order to conduct these efforts in a broader context (similar to the effort performed for wind development, except that the wind PEIS was only conducted for resources on BLM lands)31. Although all projects with federal leases must go
through NEPA analysis, they have not been generally required to go through an EIS. In many cases a less expensive EA has been sufficient, and an EA can be completed in much less time. Developers expect that the PEIS should not impact ongoing geothermal projects. Further, they might be discouraged by a PEIS review if they believe the process will mean that leases are not processed in a timely manner. Furthermore, developers say that oil and gas development has a simple, standardized approach, and a lengthy NEPA review process would put geothermal at a disadvantage compared to the oil and gas industry (although the oil and gas industry is actually smaller in Nevada than the geothermal industry, with fewer than 10 oil and gas drilling permits issued in the state in 2005). Regulators assert that projects already undergoing NEPA analysis would not be affected by the new regulations, nor would projects with lease applications still under review. Furthermore, regulators say that the PEIS effort has secure funding due to the changes in the law that earmarks royalty funds for the BLM. This should allow BLM’s effort to be designed to create certainty and encourage investment by effectively streamlining the process to support new projects.
Overall, most agree that the progress made by the BLM and the cooperation with the state on geothermal leasing and permitting has been the most successful in the country. California still faces serious backlogs, and development in the Pacific Northwest has faced more serious
roadblocks, especially on USFS land. In Nevada, however, there is a general consensus that with continued support from the federal and state government, many geothermal prospects on federal land can be exploited for viable power projects—while continuing to mitigate environmental consequences—without significant delays.
Government incentives
In 2005, according to the EIA, of the 11 western states in the continental U.S. from the Rocky Mountains to the West Coast, retail energy prices in Nevada were second highest behind
California32. As a result, geothermal projects are more competitive in Nevada than in other states
with geothermal resource potential. Most agree that because geothermal prices are generally stable in the long-term, the impetus to develop these resources should be a priority for legislators. Clean energy advocates cite the environmental benefits of geothermal resources, while regulators note that the potential for carbon taxes or carbon trading credits will shift the economics towards renewable projects. This has already occurred in California where a cap and trade system for carbon emissions—the first in the country—was establish in September of 2006.
When geothermal power projects were initially developed in Nevada during the 1980s, geothermal developers benefited from the participation of oil and gas companies who had performed initial drilling. Most of these oil and gas companies entered the geothermal field looking to diversify as a hedge against reliance on foreign oil markets after the oil crises of the previous decade. These companies had large amounts of capital on hand to finance the drilling. Environmental aspects weren’t a large incentive, nor were the utilities looking to purchase geothermal energy. Climate change was a non-issue. At that time, the emphasis was on economies of scale. Small power plants were not considered good investments. Only recently
has there been a greater emphasis on issues such as climate change and RPS mandates. Today, while the impetus for development has changed, the oil and gas industry has only recently engaged geothermal development opportunities, and the majority of the new projects are being undertaken by smaller companies without nearly as much capital as the oil and gas companies. While costs and risks limit the availability of geothermal resources in the marketplace, most agree that government incentives can help turn viable resources into power-producing facilities—that is, if government and university research programs can improve technology and methods of resource identification. In the past, government incentives have bridged the gap between development potential and actual development. Given rising energy costs, there is a general agreement that adequate incentives could be applied today and produce a similar result.
Federal incentives
The most important incentive for geothermal developers is the PTC. In EPAct, the PTC was extended until January 1, 2008, providing a subsidy of 1.9¢ per kilowatt-hour (kWh) on
geothermal power sales for the first 10 years of projects online by that date, and in December of 2006, the PTC was subsequently extended until January 1st, 2009. The Richard Burdette plant
that came online in 2005 is the first geothermal power plant to take advantage of the PTC and there are at least six more power facilities expected to be built in Nevada by the time the credit expires33. Furthermore, based on the volume of new projects under development in Nevada, it is
clear that the initial inclusion of geothermal power plants in the PTC in 2004 immediately enabled projects to move forward with drilling and construction. However, developers say that the majority of proposed projects in Nevada will only be cost-competitive if the PTC is extended beyond January 1st 2009 to encompass the average 3-5 years required for development of a
geothermal project.
The option of a long-term extension of the PTC is not the only solution of the table. Some developers who have (or are planning) a project in Nevada suggest the possibility of changing the definition of the placed-in-service date for the PTC. For instance, the current credit says that projects operating before January 1st, 2009 would get the PTC for 10 years, and projects built
afterwards would get nothing (if the PTC is not extended by that time). In the alternative
scenario, a plant would need only to start construction by the placed-in-service date. If they miss the date, then the length of the credit would be reduced. This policy change would stop the “placed-in-service cliff” that occurs when the PTC expires; making the cost of power more predictable. This would mean, under the current PTC deadline, if a plant is under construction by December 31st, 2008, and comes online in 2009, it gets the credit for nine years; online in 2010, it
gets credit for eight years; online in 2011, it gets the credit for seven years, etc.
Existing facilities such as Soda Lake 2 (pictured) just north of Fallon, factor into RPS requirements. Both Soda Lake 1 and 2 sell power to Sierra Pacific Power customers. Photo by Daniel Fleischmann
Renewable Portfolio Standard (RPS)
Most agree the RPS is a critical policy for geothermal development in Nevada. While not technically an incentive, developers say it helps create a market for geothermal power by explicitly encouraging utilities to sign PPAs for geothermal power plants. The Nevada PUC manages the RPS and requires the investor-owned utilities (IOUs) to supply a “minimum percentage of the total electricity they sell [from] renewable-energy resources”34. The RPS was initially passed in 1997 by the state
legislature, and in 2001 was revised to require minimum renewable portfolios to increase by 2% every 2 years, culminating in 15% by 2013. In 2005, the standard was revised again to 20% by 2015, increasing 3% every two years. Nevada’s potential for geothermal development will likely enable it to be the largest source of these increases, although the RPS requires that 5% of the portfolio to come from either solar power plants or residential solar energy.
Hydroelectric power is only included among the eligible renewable power technologies if the hydro facility is less than 30 MW. All of the renewable power generated must serve Nevada customers. Although the power is not required to be built in Nevada, developers say that the majority of new renewable load will be generated in-state35. It is uncertain how much additional
generation of renewable power will be required to reach 20% by 2015. With the population expected to swell by nearly 60% by 2024 (as noted above) a 30% increase in energy demand by 2015 would require 7,460 GWh from renewables to be generated into Nevada by its IOUs. However, even if half of what the WGA Geothermal Taskforce report identified as economical by that time (1,488 MW) is added to existing capacity, geothermal energy would generate over 100% of the required generation36. While 5% of the RPS is required to be met by solar power,
utilities are allowed to meet up to ¼ of their RPS requirements (or 5% of their total requirements by 2015) through demand-side management (i.e. energy conservation or energy efficiency). Based on the GEA Survey of new projects under development, if 5% of the RPS was met by solar power and 5% through demand-side management, geothermal power plants could meet the other 10% even if geothermal projects currently in Phases II through IV stages of development (see Table I) were developed by 201537.
There is a general consensus that the RPS is working well in its existing form. However, because RPS requirements increase incrementally, time will tell just how effective the policy becomes. Despite early praise, several interviewees still raise issues with some of the ways in which the RPS is structured. For example, the penalties for non-compliance have not yet been clarified or tested. In addition, while the RPS is based on generation and not capacity, some are critical that the RPS places no specific priority on peak load generation to ensure that renewables are producing power when needed. Some of the cause for this concern results from the recent experience in California where its capacity reached all-time records exceeding 50,000 MW during a summer heat wave in 2006, which tested the limits of the electric grid and demonstrated the need for peak load sources to be able to perform in such conditions. Ultimately, most agree that as long as there is continued coordination between the state government, utilities, developers, and the Nevada PUC to meet the RPS benchmarks, these concerns can be resolved.
State incentives
Beyond the RPS, there is a general consensus that the Nevada legislature has not provided significant enough incentives to lower the cost of geothermal projects. The most significant tax incentive for renewable energy projects in Nevada is a property tax exemption which exempts “any value added by a qualified renewable energy system from the assessed value of any residential, commercial or industrial building for property tax purposes” including a geothermal power plant38.
Another, smaller, incentive is a Renewable Energy Producers Property Tax Abatement. The incentive, as written, allows “new or expanded businesses in Nevada” to apply to the Nevada Commission on Economic Development (NCED) to qualify for “a 10-year, 50% property tax abatement for real and personal property used to generate electricity from renewable energy resources or for a facility for the production of an energy storage device.” The facility must have a minimum capacity of 10 kW, and geothermal power plants are eligible. To qualify, a project must meet certain other requirements. For example, projects must provide a minimum number of
jobs: 15 for rural counties and 75 for urban communities, including the Las Vegas-Henderson area and the Carson-City-Reno-Sparks area. The property tax abatement is only part of the NCED’s tax abatement program that also includes “green” buildings. Clean energy advocates assert that a limitation of this program is that the tax abatements only target revenue to county governments. Therefore, the state does not face the tax burden for this policy. Since it was initiated in 1997, three projects have been granted the abatement and only two have taken advantage (both solar projects)39.
According to clean energy advocates, one reason the incentives provided by the state of Nevada are relatively modest is because of the political disposition toward low taxation on the state level. Because of its low sales tax and the fact that there is no state income tax, there is a limit on the sources of revenue to offset any proposed tax incentives. Several interviewees doing business in the state suggest that the lack of incentives compared with California, Oregon, and Washington State, lead investors to want to develop renewable projects in those states rather than Nevada. Developers assert that the PTC and the implementation of regulations affecting development on federal lands remain their most important issues. However, because geothermal plays a primary role in meeting the state RPS, developers agree that the state should do what it can to ensure that state incentives for development are strengthened. State action could include a state tax credit, a subsidy, or a loan guarantee to reduce a developer’s risk. Most agree that whatever incentives may be passed, more is needed on the state level to avoid any setbacks that could hinder the ability of utilities to meet the goals set by the RPS. The more immediately the incentives are passed, the more helpful they will be.
Advocacy
Due to the size and the presence of the geothermal industry in Nevada, the state government and the geothermal industry have been engaged at the policy level. The RPS has been a big driver for the geothermal industry. The BLM has worked with the NDOM on removing lease backlogs and more projects have begun to move forward.
Independent organizations such as the Sunrise Sustainable Resources Group and Western Resource Advocateshave promoted geothermal resource development in the state and have testified in front of the state legislature, particularly regarding the RPS. Geothermal developers in the state have also worked with the legislature and clean energy advocates on energy policy issues. Developers have worked closely on the local level with county governments on tax issues and amending land use plans to accommodate geothermal resource development. However, with possible cuts to the USDOE Geothermal Technologies program and with the PTC only assured through 2008, clean energy advocates stress that advocacy efforts at the state level have become more critical than ever.
Power Market policies
The Great Basin is a wide open landscape, sparsely populated, and particularly remote. While Nevada’s power market has been able to incorporate coal plants and geothermal plants in remote locations to serve its energy needs, the state still imports over half of its energy from other states. That includes the Hoover Dam generation plant on the Arizona/Nevada border, although Nevada customers only receive 235 MW of generation capacity from that facility. Nevada receives a large supply of imported natural gas from Canada and the Rocky Mountain states, which are used to power in-state facilities40.
