Geothermal energy is hands down THE best renewable energy avenue out there: The Earth is always generating heat, and there won’t be any “peak heat”, nor could we ever extract this energy at the same pace with which the Earth generates it. The process has a carbon footprint that is negligible compared to other fossil fuel and renewable energy processes. Yet geothermal power gets decidedly little press.
The idea of geothermal power has been around for ages: Italy built the world’s first power plant that generated electricity from the Earth’s heat over a hundred years ago. In 1957, New Zealand was next to latch onto the idea with its own geothermal power plant, followed two years later by the US, which today boasts the largest geothermal power capacity in the world.
It’s a simple idea in terms of physics: Water heated up within the Earth emerges as steam and is used to turn a turbine that produces electricity. Geothermal power plants include dry steam plants (like Italy’s first), flash steam plants (the most common), and binary cycle plants (today’s favored).
• Dry Steam Plants: A well is drilled and the steam (150°C or higher) that comes from this well turns a turbine, cools back into water through a compressor and sends the cooled water back to Earth via a secondary well.
• Flash Steam Plants: Highly pressurized hot water (180°C or higher) is extracted and fed into lower pressure tanks and then sent on to turn a turbine
• Binary Cycle Plants: This process uses lower temperature water (minimum of 57°C) in combination with a liquid that turns to steam into order to turn the turbine.
While geothermal power appears to be the least attractive of energy subjects for the mainstream media, it is constantly evolving. Now we have new potential for an “enhanced geothermal system” that could be a game-changer because it would significantly increase the amount of electricity we could generate from this process (more on this further down).
Right now, the world has almost 11 gigawatts of geothermal electricity-generating capacity in 24 countries, with the US in the lead.
But there are a number of newcomers to this scene who are gearing up for a much more ambitious geothermal electricity-generation strategy, including Indonesia, Mexico, Costa Rica, Japan and Kenya. And most recently, Chile is considering that perhaps its feared volcanoes actually have something to offer by way of geothermal power.
While the US market is the leading one in terms of geothermal, its growth is slowing, and any significant uptick (for now) on geothermal expansion is thanks to the idea’s increasing attractiveness in Central America, East Africa, and Asia.
Let’s look at some of the key existing and emerging markets …
Chile: Virgin Territory for Geothermal Exploration
For now, Chile has massive untapped geothermal energy capabilities, but lacks initiative and investment incentives. That said, New Zealand is jumping in on this scene and could provide the impetus necessary to get the geothermal ball rolling—finally. Chile’s geothermal power will hinge on its volcanic chain—the longest in the world. In fact, 10% of the all the world’s volcanoes are in Chile, which means it could be a geothermal bonanza. For a country that depends on 70% imports for its energy needs, geothermal could be a God-send (literally). Chile’s academics believe that the country could generate 16,000 megawatts of geothermal power, which is beyond its 9,000 megawatts of demand.
So far, Chile has granted 76 concessions for geothermal exploration, with 42 currently being processed and another 24 under review. It’s never gone beyond exploration, though, and the country still produces no geothermal electricity. Why? It’s simple: a lack of investment incentive, and specifically the absence of any risk insurance for geothermal drilling failures.
This is where New Zealand comes in. Chile has struck a strategic partnership with this geothermal leader to work towards the goal of seeing 15% of all electricity in Chile produced from geothermal. What New Zealand offers is technological know-how, project planning, and public relations—dealing with indigenous communities who fear geothermal power generation and do not understand the benefits, and making them stakeholders.
And the indigenous communities are a major hurdle. They believe volcanoes are to be feared, and a botched geothermal drilling attempt in 2008 caused an eruption that no one in the area will soon forget.
There are two other venues where we see a lot of untapped potential in Central America: Nicaragua and Panama. Panama has geothermal potential of 5,000MW, and it’s ripe for development. Nicaragua has a smaller capacity, but still impressive at 2,000MW, and it’s also open for business, announcing the construction of a $190 million geothermal plant in 2010.
Mexico: The World’s Largest Geothermal Plant
Mexico has 958MW of installed geothermal capacity, accounting for 3% of its total energy production. It also houses the world’s largest geothermal plant, the Cerro Prieto Geothermal Power Station.
The Philippines: Geothermal Growth with Strong Govt Support
The Philippines—the second in the world in terms of capacity--generates over 1,900MW of geothermal electricity, accounting for 27% of total energy production, and its success has in large part been due to the fact that geothermal energy has very strong government support.
The Philippines is also a bit of a geothermal pioneer, having harnessed this power source since 1977. Chevron is a key player here, having invested over $2 billion to date on geothermal energy installations.
Europe: Italy and Iceland Dominate, but Turkey will Challenge
Italy, home to the first geothermal project over a century ago, is still a major geothermal force in Europe. Italy has 843MW of installed geothermal capacity, accounting for 10% of its total energy production. Iceland has 575 MW of installed capacity, accounting for 30% of its total energy production. (Iceland even heats its streets with geothermal energy).
Together, Italy and Iceland hold more than 90% of all of Europe’s geothermal energy capacity. But ambitious Turkey is working to challenge this, having already installed 100MW of geothermal electricity-generating capacity, making it for now the third largest in Europe. By 2015, it could reach 550WM of geothermal electricity capacity, with enough investment.
Kenya: More Geothermal Power than China
Not only is the East African Rift a major oil venue, it is also a sweet geothermal energy spot. Kenya generates over eight times (202MW) the geothermal electricity that China does (24MW) as of 2012.
Indonesia: Massive Volcanic Potential
Indonesia is situated on the Pacific Ring of Fire, so lots of volcanic activity, and tons of geothermal potential that’s barely been tapped into. In fact, most experts will say that Indonesia has the biggest potential in the world.
Right now, Indonesia has 1,197 MW of installed geothermal capacity, accounting for 3.7% of its total energy production. The country holds 40% of the world’s geothermal potential, and is on track to develop 44 new geothermal power plants by 2014, raising capacity to 4,000 MW. By 2025, it could be generating 9000 MW from geothermal sources.
US: Geothermal Leader, with Slowing Growth
The US has 3,187 MW of installed geothermal electricity-generating capacity as of 2012—more than any other country in the world. Over 28% of all geothermal electricity production is from the US. There are 77 geothermal plants in the US, generating 15 billion kilowatt hours of electricity per year. This impressive growth is slowing, however, but what we’re really looking at are some advancements that could change this game.
In partnership with Ormat Technologies (featured below) and GeothermEx, the US Department of Energy has successfully produced 1.7 additional megawatts of electricity from an Enhanced Geothermal System (EGS) project inside an existing wellfield at Ormat’s Desert Peak 2 geothermal power plant in Churchill County, Nevada. This will be the first EGS project that connects up to the US electricity grid.
What the project does is to stimulate an existing sub-commercial injection well to boost power output by 38%, using new subsurface technologies. Essentially, the technology expands the existing hydrothermal fractures deep within the Earth’s crust, while EGS technology enhances the permeability of underperforming wells. What that does is allow them to extract additional heat from a reservoir’s rocks and inject geothermal fluid at higher flow rates. Even better, these are air-cooled power plants, so they don’t consume water in the conversion process. All the geothermal fluids are re-injected.
Ormat dumped $2.6 million into the project, while the DOE contributed $5.4 million. It’s taken four years, but now we’re there.
Two US companies worth watching on the geothermal scene:
US Geothermal Inc (NYSE:HTM)
This company’s stock took a hit last week when its CEO retired, but it will bounce back. Right now it’s a leading geothermal developer, producer and seller of geothermal electricity. It operates a number of geothermal projects in Idaho, Nevada and Oregon. But it’s also expanding now to Central America, with the development of El Ceibillo just outside Guatemala City. El Ceibillo is an advanced stage, steam geothermal prospect sitting on an almost 25,000-acre concession. The project is part of a wholly owned subsidiary, US Geothermal Guatemala SA, and well drilling was launched on 29 April.
Stateside, the company’s projects are now generating positive net income and cash flow, and the Guatemala expansion looks promising, especially since US Geothermal has 100% in the acreage.
A year ago, we would have said it was too early to consider US Geothermal attractive. Not so now. We think this year will end up being US Geothermal’s first year of full profitability, and from here we should see more nice gains.
Ormat Technologies (NYSE:ORA)
Engaged in the geothermal and recovered energy power business, Ormat is looking good these days, with analysts at Barclays Capital last week raising their price target on shares from $22 to $23. Ormat’s one-year low is $16.67, while its one-year high is $23.49, with a market cap of $1.034 billion.
The most recent big event was the achievement of commercial operations this month at its Plant 2 in the Olkaria III complex in Naivasha, Kenya. The commercial operation of this plant boosts Ormat’s total electricity-generating capacity by 36MW to 611WM worldwide. In 2014, Ormat will bring a third plant online in Kenya, which should add another 16MW of capacity. Even better, Ormat has a 20-year power purchase agreement with Kenya—so there’s a guaranteed market for this. And it’s got the capital to meet its Kenya ambitions, too: the Overseas Private Investment Corporation (OPIC), which already provided Ormat with $265 million to build its first two plants in Kenya, will provide another $45 million for the third plant. As of March 31, 2013, the company had available committed lines of credit with commercial banks aggregating $440.9 million, of which $152.9 million was unused.
Ormat’s got its hands in a number of markets, with its 611MW of capacity spread out over the US, Guatemala, Kenya and Nicaragua. It’s also got a 20-year power purchase agreement Southern California Public Power Authority (SCPPA) for its Nevada generation.
Plus, Ormat is in on this game-changing new technology that could put geothermal electricity-generation back on the map in a very big way.
