Geothermal on the Bubble

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Like most renewable technologies, geothermal energy is awaiting clarity from Congress on the amount of federal support it will receive and for how long. But there’s a catch: projects take much longer to bring on line than Congress has been willing to extend tax credits.

The wind industry is now in a panic when it sees its favored policy tool, production tax credits, expiring at the end of this year. Geothermal’s PTC lasts until the end of 2013, but that’s no less consequential.

“The underlying problem we face is twofold. On federal level, it’s short-term policies. We’ve built federal policies that seem to work for wind and solar but don’t for geothermal, biomass or hydropower because all of those technologies have longer lead times,” said Geothermal Energy Association [3] (GEA) Executive Director Karl Gawell.

In geothermal’s case that could be up to 10 years. Congress extends renewable energy tax credits for a year or two at a time.

Projects are rushing to get ahead of the 2013 deadline. “In the next couple years we’ll put a couple hundred megawatts on line, but we could do a better,” Gawell added.

The financial community is reluctant to commit to project finance now knowing what the policy landscape might look like in two years.

The industry has topped 3,100 megawatts of generation capacity, with several thousand more megawatts in development. About 200 MW over the next year is a major capacity addition.

U.S. policy uncertainty isn’t the technology’s only problem. “It’s slow growth, it’s single-digit growth, the world market looks like it’s growing twice as fast,” Gawell said.

International support is shaky not because of policy, but due to the world financial crisis, especially in Europe. “Any company having a European loan promised or in place is feeling pretty queasy now,” he added.

On demand side of the equation, California will continue to be the geothermal leader. The state has the most aggressive renewable portfolio standard in the country. It has committed to eliminate nuclear generation and said it intends to back out of 5,000 MW of out-of-state coal power.

Geothermal fits in that scenario when the renewables requirements ramp up, especially in the next decade.

“When you’re looking at geothermal projects, a 10-year horizon is a nice horizon,” Gawell said.

There are also transmission disconnects, as investment tends to follow commitments to capacity additions. But with the large window in geothermal projects, the mismatch continues.

Much of that will be addressed at the federal level, along with the tax credits.

Gawell is hopeful, as energy policy has usually been a bipartisan effort. The State of the Union address this week was encouraging, as President Obama reemphasized energy policy. “I thought the president said two important things: let’s extend the tax credits and let’s have a clean energy standard,” Gawell said.

Like everyone else, he’s waiting to see how the rest of the year plays out.

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