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Extracting Earth's Energy:<br>U.S. Geothermal Ready to Tap Steam

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Geothermal energy may be about to enter the nation's alternative energy mix in a significant way.

In a remote desert Idaho location, a new $35 million geothermal energy plant is being constructed at a site where, 30 years ago, proponents believed geothermal promised a true energy breakthrough. This time, however, a new vision -- as well as a substantial federal tax credit, growing concern about global warming and high natural gas prices -- may make the critical difference in giving the technology real legs.

Still, the Raft River power project near Malta, Idaho, some 200 miles southeast of Boise, at first glance might ignite some skepticism. Workers are drilling wells one mile deep in the Idaho desert, looking to extract 300-degree water, which can be converted into energy that would be sold to regional utilities and then pumped back into the earth's crust.

Officials with U.S. Geothermal, the renewable energy development company that is overseeing plant construction, intend to produce 10 megawatts monthly average power output from the binary-cycle geothermal plant beginning in the fall of 2007. That would generate $5 million in annual revenue, according to company officials. Idaho Power recently signed a 20-year purchase agreement with U.S. Geothermal.

Daniel Kunz, the company's CEO, hopes a second phase of the plant will go online in late 2008, producing an additional 25 megawatts of power. A third phase is planned for 2011 with the potential for another 50 megawatts of production: "We see the ultimate potential here to produce a couple of hundred megawatts of clean energy. The technology is not new. It's 25 years old. But it is unique in its reliability. It's tried-and true technology. We have the newest generation of it."

According to the Geothermal Energy Association, Raft River is one of 45 geothermal power projects currently under development in nine western states. The projects have the potential to produce between 1,818 and 2,095 megawatts for the power grid, nearly doubling the total current geothermal power production in the United States. The Western Governors' association Geothermal Task Force identified more than 100 sites in the United States with near-term development potential. California leads the nation.

Economic Viability

However, geothermal still has to prove its economic viability. Raft River could help achieve that goal. Last August, a financial partnership was formed between U.S. Geothermal and an affiliate of the Goldman Sachs Group to own, construct and operate Phase 1 of the plant.

U.S. Geothermal made a $5 million cash contribution to the partnership, called Raft River Energy I. U.S. Geothermal is also transferring seven existing production and injection wells, as well as specific geothermal rights and leases covering 1,800 acres from the 5,200 total acres of geothermal rights currently held. The Goldman Sachs affiliate kicked in the $34 million needed for construction. Officials say an independent assessment shows there is a 50 percent probability that 15.6 megawatts per square mile exists at Raft River.

Just the fact that such a partnership could move forward helped validate the financial viability of geothermal as an important future energy source, Kunz and others believe.

Geothermal supporters concede that the technology first gained prominence -- and quickly flopped -- when the U.S. faced its first energy crisis in the 1970s. In fact, the Raft River site was touted as a solution in the 1970s and attracted $40 million in investment capital back in 1982. Ironically, it is those wells drilled back in 1982 that Kunz is now focusing the company's efforts on developing.

"The government did a vast amount of work on the geology in the 1970s," says Kunz. "They put in 14 monitoring wells and built the original plant. The project was a success, but the production costs were high."

That first geothermal facility actually produced seven megawatts of power for about eight months, Kunz adds. But the federal government's decision in the early 1980s to privatize geothermal energy development helped doom the project. Because the energy produced wasn't cost-competitive, the original plant was disassembled and sent to Nevada. But the wells and the geological studies showing the potential of the energy source remained.

U.S. Geothermal acquired the rights about four years ago, recognizing "it as a tremendous resource," says Kunz. "Our business plan is to commercialize the existing well fields by building a new (geothermal) plant on top of the site."

What will be different this time around at Raft River? The Energy Policy Act of 2005, which extended the full federal production tax credit, formerly limited to wind power plants, to geothermal facilities. The measure also authorized increased research funding by the Department of Energy and provided funding to the Bureau of Land Management to address a backlog of geothermal leases and permits. The current tax credit expires in December 2007, which means geothermal plants must be producing power by that time to be eligible.

"Geothermal in some ways is still a pioneering technology," says Karl Gawell, executive director of the Geothermal Energy Association. "Raft River is the first (geothermal) project in a new region that is proving that it is not a get-rich-quick scheme. It is really important because this Idaho resource has never been tapped before, and many people believe it is a major resource."

Plants will have hurry to get authorized and operational, if they are to qualify for the tax credit. But, at least Raft River is sure it will get up and running. With the tax credit, it would expect to earn about $1.7 million annually.

That windfall could make the difference between financial success and failure for geothermal energy producers. The earth houses a vast energy supply as geothermal heat. That's a domestic resource that is equivalent to at least a 20,000-year energy supply at our current rate of consumption.

By Al Senia, Guest Editor

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This article originally appeared in EnergyBiz magazine in the November/December 2006 issue.

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