Ann: Geothermal Drilling Fund Announced, Merit Cr, page-7

re: Ann: Geothermal Drilling Fund Announced, ... Beyond Fossil Fuels: Daniel Kunz on Geothermal Energy
The president and CEO of U.S. Geothermal, Inc., weighs in on the hurdles facing his industry
Daniel Kunz of U.S. Geothermal, Inc.
Scientific American

What technical obstacles currently most curtail the growth of geothermal energy? What are the prospects for overcoming them in the near future and the longer-term?

Currently the biggest obstacle to geothermal development is the lack of sufficient direct economic incentives for the drilling of geothermal resources. There are no significant technical obstacles that are curtailing current growth and development. Like the oil and gas industry, the geothermal industry would benefit from a strong, specific and appropriate tax incentive tied directly to expenditures made for production and injection well drilling. The prospects look good now for some stimulus of the renewable energy sector with the Obama administration's recognition of the long-term strategic imperative to develop domestic, renewable and clean energy sources to secure the future of our country.

Are there obstacles to scaling up geothermal to serve a national or global customer base?

There are significant obstacles today to scaling up geothermal to serve a global customer base because most of the current investment in geothermal is going toward localized development of shallow and known geothermal resource areas that tend to be limited in size. The reality is that geothermal development has a great potential to scale significantly based on the engineered geothermal systems (EGS) outlined in the Massachusetts Institute of Technology's 2006 report on the future of geothermal energy. In EGS development there is no risk of failure for the discovery of the energy. It exists in vast quantities some seven to 10 kilometers below the surface in the heat of the Earth's volcanic system. The challenge is in developing systems that can extract that heat and transport it to the surface to make electricity.

Deep drilling already occurs in oil and gas discovery, but EGS requires special attention due to the increased size of the required well diameter. The concept requires that we construct a "teapot" at those depths by selecting the right subsurface rock conditions and then fracturing the rock in place. Once the "teapot" has been fractured so it can be used to boil water, a pair of wells will operate in unison with one well used to inject water (or even carbon dioxide) into the teapot and the second well used to allow the steam or gas to escape to the surface, where it will turn conventional turbine and generator equipment. The promise is that these systems will be very large power stations, built closer to the load centers to eliminate transmission issues, and will be a clean and renewable source of power. The concept needs a serious push by the federal government much like the big hydroelectric dams that were developed in the 1930s and later. Given the size and scale of the current economic crisis bailout being funded by the U.S. taxpayers, a modest $1 billion expenditure for an EGS demonstration site would be a very wise investment in the future of energy development.

Can the existing energy infrastructure handle growth in geothermal energy? Or does that, too, need further modification?

The advantage of the current geothermal development is that the projects start out relatively small, say 20 to 50 megawatts, and these facilities can be added to the existing transmission system without too many major issues. The medium to longer-term development of larger and more geothermal plants will require ongoing upgrades and improvements to our transmission systems so that geothermal projects can be built in more remote areas, new generation capacity can be added without overloading already loaded transmission systems and the grids can be smarter about optimizing the peaks and valleys of electricity supply and demand.

Given the current economic crisis, can your industry get the necessary capital (from public or private sources) to adequately finance its growth?

Yes, if the projects have good geothermal resource and reservoir data. Renewable energy projects can still attract investors and funding. Geothermal energy is base-load power that can be more reliable than intermittent sources like wind and so is more desirable to a utility. The primary financing problem goes back to the cost of initial geothermal reservoir discovery and development drilling. This type of capital is higher-risk and harder to find in the difficult financial environment that Wall Street and Washington has placed upon us.

From a strategic standpoint, which is the bigger competitor for geothermal: incumbent coal, oil and gas technologies or other alternative energy technologies?
It is the incremental power generation choice that a utility has. For example, a number of utilities have been using natural gas generation as a source of power for peaking requirements. Others look to coal in the longer term and try to find alternate sources for the more near term. Utilities that are located in renewable portfolio standard states will require increasing sources of renewable, and geothermal energy competes with wind and biomass and solar in those cases.

Is there a cost target that you and others in your industry are aiming to achieve in, say, five years?

The cost target for the geothermal industry is to try and remain competitive with conventional energy sources. This requires an increased number of competitors for the supply of generation equipment and plant construction services as well as lower costs for basic material and supplies which have increased dramatically over the past few years. To remain competitive, the geothermal industry also needs low-cost capital because the up-front development is relatively capital-intensive. This can be achieved through more tailored and specific federal tax incentives that are appropriate for this industry. Once the front-end capital costs are repaid, geothermal power generation offers very low ongoing costs for a base-load source because it does not require annual purchases of a market-driven fuel component like gas or coal or uranium.