How is the geothermal industry dealing with tax credit and policy uncertainty? During today's OnPoint, Karl Gawell, executive director of the Geothermal Energy Association, discusses progress on production and development for the geothermal industry. He explains how federal tax credits and state renewable portfolio standards have driven growth and addresses some of the concerns surrounding the link between geothermal production and earthquakes.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Karl Gawell, executive director of the Geothermal Energy Association. Carl, thanks for coming on the show.
Karl Gawell: Glad to be here, Monica.
Monica Trauzzi: Karl, GEA just released its annual production and development report. How did the geothermal industry fare in 2011, considering the economic downturn and some of those hurdles?
Karl Gawell: Well, I think that's the good consideration, because it's been a tough year in terms of the overall economy and we were concerned what would come out. Final results showed we still had steady growth in the geothermal industry and we continue to see expansion across the western United States.
Monica Trauzzi: Two drivers behind the growth are federal tax credits and state renewable portfolio standards. How much of a difference could a federal clean energy standard or RPS make on the industry if it were to be enacted?
Karl Gawell: Well, there's no question that the state renewable portfolio standards are driving the market and federal tax incentives are helping investment come to the market because it's expensive and risky. But it's very uneven right now. California, Nevada, very strong RPSs, but that's not true cross the West and right now geothermal is in almost a third of the country. So, we are supportive of a federal clean energy standard because it could really broaden the market. And we would like to see a federal standard put in place, as long as it builds on the state efforts and doesn't undermine what the states have already begun.
Monica Trauzzi: So, let's talk about the tax credit factor. They're set to expire at the end of 2013 and what we hear constantly on this show from other renewable energy trade groups is that the lack of certainty on tax credits is causing production to slowdown. It's causing investment to slow down. Are you seeing those types of impacts or do you expect to see that in the next year or so?
Karl Gawell: Well, we're seeing it now. I mean geothermal projects have longer lead times than a typical wind project. You don't build a geothermal project in a year. It takes four years, five years to build, so the dynamic is a little bit different. We don't immediately off the cliff, but our tax credit expires the end of next year and we're already seeing a slowdown in new projects moving forward. And it really is a question of uncertainty. I mean the issue here is not is there resource? There's tons of resource to be developed. There's lots of clean energy out there. The real question is investment and will investors take the risk? And without the tax credit, it makes that much more difficult.
Monica Trauzzi: And you're really focusing on geothermal as providing this baseload energy that we often hear talked about. What regions of the country though could benefit the most from this technology?
Karl Gawell: Well, right now geothermal is being produced mostly in the western United States, but we're seeing 15 states with projects under development. So, if you looked at a map of the country and took everything from the Gulf Coast through Texas, all the way up through North Dakota and everything west of there, you're seeing geothermal moving forward. So a substantial part of the country is using its geothermal resources to provide heat and power.
Monica Trauzzi: Is it an economically viable technology though?
Karl Gawell: Well, you know, renewables have had the reputation of, in the long run over their lifetime, they make good economic sense and geothermal does as well. Often when you look at the price point on geothermal we would come out very competitive with wind, for example. But the thing is you've got to have a long-term horizon and that's the problem. To get that kind of return you've got to be interested in looking at a project and seeing a return over 10 or 20 years. And that's why investment is the hurdle, because investors want a quicker return than that and they're often looking at you, comparing you to natural gas, looking at what else the market has. And investors want to have that long-term certainty that they're going to get a good return. Consumers get a good value. Investors is where the real problem lies.
Monica Trauzzi: Are consumers getting a good value though? I mean there have been reports that show that state RPSs are causing electricity rates to skyrocket. So, are those reports just completely untrue or is there some truth to that?
Karl Gawell: Yeah, I'm never sure which day of the week it is when I go to California, whether I'm the hero or the goat. It seems like when prices are up they love us because we provide stable, reliable power. Suddenly we have cheap gas prices and everybody is saying, gee, why aren't you as cheap as gas? And, in fact, the volatility of the market is one of the problems. Over the long run, I don't think there's any question that geothermal and most of the other renewables make good economic sense. But it's when gas is suddenly, what, two dollars a thousand cubic feet, which is an historic low. And suddenly people are saying, well, wait a minute, now we want you to be as cheap as they are. And that's simply not going to work. That's not good energy policy, because that's not going to last.
Monica Trauzzi: Let's talk about water usage. With water scarcity becoming such a major topic of discussion here in the United States, how concerned are you that geothermal industry's ties to water usage could backfire in some way and that when scarcity becomes front and center, that there may be some pushback on the technology?
Karl Gawell: Well, water uses for geothermal is little bit different, because when they look at the statistics and they talk about water usage and geothermal, it's usually the geothermal fluid itself that's being used. Over the last five years, all but one power plant we've seen come online has been what's called binary technology and most of those do not use water cooling. They use air cooling. So, a binary air cooled power plant essentially has close to zero impact upon the environment and really uses no water. So that's where the new -- that's where the technology is going.
Monica Trauzzi: Earthquakes, another big topic we've been talking about, particularly with hydraulic fracturing. But there's also been some attention towards geothermal and whether that technology may be impacting the earth in such a way. How does the industry plan to respond or deal with this issue?
Karl Gawell: Well, we've been actively engaged with the scientific community through the Department of Energy and, in fact, have already produced a protocol about how earthquakes will be dealt with in terms of any projects that are using high-pressure fracturing. But see high-pressure fracturing is not normal within the geothermal industry. A typical geothermal power plant might have reinjection wells, which will have micro earthquakes perhaps at the bottom of them, but it's not the kind of thing you're seeing in the fracturing with oil and gas. That's the advanced technology or the so-called EGS systems. And there we've worked out a protocol in terms of how to make sure that they're carefully monitored, that sites are carefully reviewed in advance. And, in fact, I was just on a phone call, of all things, at 6:30 this morning with people from Switzerland and Australia because that protocol is in constant flux in terms of being updated. And we're working with people from, like I said, Switzerland to Australia to make sure we're using the best science we can to avoid any of those problems.
Monica Trauzzi: So, how far are we from commercially viable, wide-scale deployment of geothermal energy in the United States?
Karl Gawell: Well, I think in terms of most of the United States, the Western and the Gulf states, the resource is there to produce now. And in the future I think that we'll see even more, because the resource is tremendous. I mean it's here underneath our feet. And what we're seeing in other countries, for example, there's dozens of geothermal projects in Germany. And the reason they're going forward in Germany is because the German government has put a premium on developing new technology. Many of those are EGS style projects. And when I look at them and I say, gee, could we be doing what they're doing in Germany and West Virginia or Tennessee? The answer is we could if the policy was there and the price was there that we were willing to pay to do those projects. So, theoretically, the heat is in the rock. We're learning how to take it out. The real question is what's the economics? What are you willing to pay for it?
Monica Trauzzi: All right, we'll end it right there. Thank you for coming on the show.
Karl Gawell: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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