California law brings hot rock power in from cold

Mon Mar 19, 2012 1:31pm EDT

* New plant opening at California's Salton Sea

* Geothermal already has 40 pct of state's renewable energy

* Wells have big capital costs but prized for baseload power

By Braden Reddall

SAN FRANCISCO, March 19 (Reuters) - The surreal inland lake known as the Salton Sea, which sits below sea level in a desert east of San Diego, is mainly known as an ecological disaster born of failed water engineering schemes and massive fertilizer runoff.

But the region is now emerging as a key location for a venerable but unsung technology that could be crucial to California's ambitious renewable energy plans: geothermal power.

The first new geothermal plant in the Salton Sea area in two decades, Hudson Ranch I, fires up this month. At just under 50 megawatts, the $400 million plant built by lender-backed start-up EnergySource is small, but there is plenty more to come.

CalEnergy, part of Warren Buffett's MidAmerican Energy Holdings, is pressing ahead with a 160-megawatt project known as Black Rock after years of delay. Ormat, an Israeli-run company with 349 MW of capacity at eight geothermal plants in California and Nevada, is building nearby. A crucial power line to San Diego is set to be completed this summer.

Subir Sanyal of GeothermEx, a consultant working for the banks behind Hudson Ranch, said the Salton Sea region had the potential for 1,400 MW more on top of the 326 MW produced by 10 existing projects there. One megawatt is roughly equivalent to the electricity used by 1,000 homes.

Growth will be driven by a California law, signed by Governor Jerry Brown last year, that will require 33 percent of all electric power to come from renewable energy sources by 2020, up from just under a fifth now. Solar and wind power may get all the attention, but geothermal already accounts for two-fifths of the renewable energy in the state.

The California mandate is giving new life to a technology plagued by high upfront costs and uneven government support. Geothermal will be especially important because unlike wind and solar, it provides the steady "baseload" power that electric utilities love.

"They want it and if you can show them a credible project, you can move forward," said Erik Layman, a geothermal consultant in San Luis Obispo, California. "But capital is king."

HOT AND COLD

If oil and natural gas are "cooked" underground over millions of years, the essence of geothermal is to capture immediately the power created by steam from water boiled in Earth's "oven."

Engineers joke that even advanced geothermal plants are at the "cutting edge of late 19th Century technology," according to a recent report from the Geothermal Energy Association, which argued that this simplicity is its strength.

Finding utility-scale geothermal sources, however, is as expensive and risky as drilling for oil. Wells cost up to $5 million apiece, getting a plant built can take seven years, and transmission is often an issue since most geothermal resources are found in remote areas.

To the chagrin of geothermal promoters, the technology has not enjoyed the same degree of government support as wind or solar. The Department of Energy (DoE) provided loan guarantees for some projects, but critical federal tax credits expire next year and uncertainty over whether they will be renewed makes them all but useless for geothermal developers.

"The DoE has gone hot and cold on geothermal," said Margaret Torn, an adjunct associate professor in energy and resources at University of California Berkeley who also works at the nearby Lawrence Berkeley National Laboratory, the former workplace of DoE head Steven Chu. "Sometimes the funding is there, and suddenly it's not."

Like all alternative energy technologies, geothermal often struggles to compete on price with conventional fuels. The political backlash following the collapse of DoE-backed solar panel manufacturer Solyndra, and the sudden abundance of cheap natural gas, have created additional headwinds for all renewable energy efforts.

WHERE'S BIG OIL?

The challenging economics may explain the notable lack of U.S. geothermal investment by Chevron Corp, which is not only California's oldest energy company, but also one that often brags about being the world's top geothermal producer, thanks to plants in Indonesia and the Philippines.

While acknowledging its long history with geothermal power in California - mostly deriving from its 2005 merger with Unocal - Chevron would only say that it sees those two countries on the other side of the Pacific as "highly prospective and desirable areas" to expand.

Layman, who once worked for Chevron, described Big Oil generally as a "big zero" when it comes to U.S. geothermal, despite the past efforts of Unocal, as well as Phillips Petroleum and Anadarko Petroleum Corp.

"Drilling risk is their business, and they're not putting a dime into it, as far as I can tell," Layman said.

Ironically, the world's largest producing geothermal field sits 100 miles (160 km) north of Chevron's San Francisco Bay area headquarters. The many plants in an area known as The Geysers are scattered among picturesque hills near Sonoma County's Alexander Valley - far better known for wine than energy.

While the natural steam resource here had been running out a few decades ago, it was replenished by a pipeline that started bringing waste water from the nearby city of Santa Rosa in 2003.

Calpine Corp, which produces enough energy at The Geysers to power San Francisco, recently got approval to spend $700 million on 100 MW of capacity to add to its current 725 MW.

That's still very small in relation to California's peak demand of more than 50,000 MW. But Karen Douglas, head of plant siting at the California Energy Commission, said recently that even without the renewable mandate, geothermal could be a way to replace the carbon-free power of the state's two nuclear plants, which she does not expect will be around in the decades to come.

"The more geothermal, the better," Douglas said at an industry conference in San Francisco.

California will not be alone. Eight states already have geothermal plants operating, and six more have projects under development. Hudson Ranch, for one, will send power to Arizona.

The Western Governors Association estimates 13,000 MW of identified geothermal resources will be developed by 2025, and the national Energy Information Administration predicts overall U.S. geothermal production will triple by 2035.

John Carson, chief executive of Alterra Power Corp, a Vancouver-based company with geothermal projects in Iceland, Chile as well as Nevada, is undeterred by the recent lack of U.S. enthusiasm for clean energy development.

"We think that's a pendulum swing to some extent," he said. "And that that's going to come back our way."

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