Leading news: Geothermal Industry Weighs in on Policies and Economics; Prepares for National Summit

“This week’s top news for geothermal development and GEA members”

Policies affecting geothermal energy are on the table in U.S. House Committees as well as federal agencies. The GEA is following the events and has weighed in on several issues. The GEA and its membership have also released a new paper on geothermal economics and are preparing for the upcoming National Summit.

Data reported by the California Public Utilities Commission.

Above: Geothermal power is a significant portion of California utilities’ renewable resources. The table above shows investor-owned utilities’ (IOUs) direct and indirect costs, as well as costs saved due to the California Renewable Portfolio Standard (RPS) program. In 2012, the utilities’ RPS portfolios, in dollar terms, were primarily comprised of wind (40%) and geothermal (30%) resources, followed by biomass (14%). In 2013, they reported wind at 41%, geothermal at 25%, and solar PV at 19%. This and more on the economics of geothermal energy are explored in GEA’s June 2014 report, Economic Costs and Benefits of Geothermal Power. “Since most of the geothermal power in the U.S. is located in California, this is a great indicator of the cost of geothermal power relative to other technologies,” states the report, now up at geo-energy.org/reports.

Click below for “This week’s top news for geothermal development and GEA members”

*House Committee Recommends Small Funding Increase for Geothermal 
*Administration Could Expand Tax Options for Renewables and Efficiency Without Raising Total Spending
*Science Advisory Reviews National Geothermal Data System Deliverables
*DOE to Kick Off Second Round of Loan Guarantee Solicitations
*GEA Signs Letter of Concern Regarding DOE R&D Act of 2014
*IRS Releases Guidance on 1603 Treasury Grants and Energy Tax Credits
*GEA’s National Summit Unites Geothermal Leaders of Western U.S.
*New GEA Report Examines Geothermal Power Costs and Benefits
*Geothermal, Wind, and Biomass Groups Ask Governor to Veto Solar Property Tax Exemption Extension
*California’s SB 1139 Scheduled for Assembly Committee Hearings

House Committee Recommends Small Funding Increase for Geothermal 
On June 18, the U.S. House Appropriations Committee passed the Energy and Water Appropriations Bill, and details are now public. The Committee recommends a small increase over 2014 spending for the DOE’s geothermal program, though it criticizes the Administration’s budget request for a large increase in EERE programs.

For geothermal, the Committee report says:

The Committee recommends $46,000,000 for Geothermal Technologies, $198,000 above fiscal year 2014 and $15,500,000 below the budget request. Within available funds, the recommendation provides $27,000,000 for Enhanced Geothermal Systems, of which $21,000,000 is for site selection and characterization activities for the Frontier Observatory for Research in Geothermal Energy project.

The DOE geothermal energy program was funded at $35,025,000 in FY 2013 and $45,775,000 in FY 2014. This year’s Budget proposal by the Administration was for an increase in funding to $61,500,000 for the Geothermal Technology Office.

While the geothermal program did not receive most of its proposed funding increase, it fared better than the Department’s Energy Efficiency and Renewable Energy programs overall. For perspective, The Committee recommends a 6% cut in DOE’s overall Energy Efficiency and Renewable Energy budget for 2015. “The Committee recommends $1,789,000,000 for Energy Efficiency and Renewable Energy, $112,686,000 below fiscal year 2014 and $527,749,000 below the budget request.

Criticizing requests for increasing RE&EE budgets, the Committee says:

Unfortunately, this budget request once again fails to reflect a coherent energy policy or plan for this country. The President continues to highlight an “all of the above” energy portfolio in his speeches, but fails to present such a balanced approach in his budget requests. The fiscal year 2015 budget request, like its predecessors, instead seems more ideological than practical. The request makes cuts to fossil energy research and, to a much lesser extent, nuclear energy research—this country’s most important energy sources—in order to increase funding for energy efficiency and renewable energy programs by 22 percent. As attractive as renewable energy may be, it will supply only a mere fraction of this country’s energy needs over the next 50 years, and it presents considerable challenges to the nation’s existing electric power grid, given its increasing variability and uncertainty from supply and demand changes.

These programs continue to be a small part of the overall DOE portfolio and budget. The Committee increases overall DOE funding. As the Committee reports states: “The Committee recommendation is $27,305,845,000 for the Department of Energy, $24,799,000 above fiscal year 2014.” [Appropriations.house.gov]

On June 17, the Senate Energy and Water Appropriations Subcommittee met to consider their version of the FY 2015 funding legislation, and details on program-level funding are expected to be made public once the full Senate Appropriations Committee acts.

Administration Could Expand Tax Options for Renewables and Efficiency Without Raising Direct Spending
In support of manufacturers and services providers around the U.S., the Renewable Energy and Energy Efficiency Advisory Committee (RE&EEAC) submitted 16 recommendations to the Secretary of Commerce Penny Pritzker this week, including a letter on how to expand the availability of capital to RE&EE projects. Suggestions include allowing projects to be funded by private citizens or through publicly traded vehicles like Real Estate Investment Trusts or Master Limited Partnerships; making tax benefits refundable; and addressing the passive loss restrictions that limit an individual’s ability to utilize RE&EE tax benefits.

Jennifer von Bismarck of TowPath Partners, an author of the letter, tells the Geothermal Energy Association that correcting these limitations to existing tax rules would increase opportunities for individuals to finance these types of projects without increasing direct government spending. “The existing tax rules limit the investor base to a few large institutions, but support for clean energy is broad,” she says. “Assuming development activity remains constant, this change would not cost the government anything, but there would be more demand for projects, lowering the cost of capital. If the result were that more people in a 25% federal bracket used them than those in a 35% tax bracket, it would actually save the government money.”

“I think a vast number of individuals would like an opportunity to invest in clean energy, but current policy makes that difficult,” von Bismarck adds. “The U.S. geothermal industry is the largest in the world, and if Americans knew more and had access to invest, they could support the industry. One of the purposes of our recommendations is to make take-out capital available broadly, at low cost, so that early-stage investors are rewarded for taking the risk.”

Karl Gawell, Executive Director of the GEA, chairs the Commerce RE&EEAC. It was chartered to advise the Secretary on how programs and policies can increase the competitiveness of U.S. exports. Along with the GEA, other committee members represent organizations such as the American Council on Renewable Energy, World Resources Institute, National Hydropower Association, American Wind Energy Association, U.S. Green Building Council, and others.

The full letter states:

Dear Madam Secretary,

As the Obama Administration seeks to address climate change and promote development of a domestic high-tech manufacturing base, it is important to signal to the business and investment community that there is a genuine public commitment to the continued development of the U.S. renewable energy and energy efficiency (RE&EE) industry. A robust clean energy policy that provides certainty to the market, facilitates and catalyzes investment, and sustains world class technology suppliers must be developed in this context. A key to achieving this goal is expanding the RE&EE industry’s access to larger pools of more liquid, lower-cost capital than is available under current regulations.

Today, our national energy policy is implemented primarily through Treasury regulations and the tax code. However, the lack of continuity in RE&EE tax policy has too often led to unpredictable cost inputs and job losses, as manufacturers find demand for their products sharply reduced or removed as a result of policy changes. This uncertainty has unnecessarily increased capital costs and weakened the domestic market and the ability of the RE&EE industry to export.

The RE&EE industry and consumers have benefited from the stimulative effects of the U.S. Production and Investment Tax Credits and accelerated depreciation which are the primary tax benefits afforded to U.S. RE&EE companies. However, because of the risk and complexity of the investment structures necessary to utilize these benefits, only about 25 firms actively participate in this tax equity market. As such, the availability of capital – a prerequisite for the RE&EE industry’s growth – is presently dependent on only a few large institutions despite enjoying widespread support from the public.

The Renewable Energy and Energy Efficiency Advisory Committee has reached the conclusion that the RE&EE industry would be better capitalized, and better positioned to compete in global markets, if both the number and type of investors able to access the market was drastically expanded. Options for opening up this capital market include: (i) allowing RE&EE projects to be funded by private citizens or through publicly-traded vehicles such as Real Estate Investment Trusts (REITs) or Master Limited Partnerships (MLPs); (ii) making tax benefits refundable; and (iii) addressing the passive activity loss restrictions that limit an individual’s ability to utilize RE&EE tax benefits.

For example, the Department of Treasury has proposed modifications to the existing REIT regulations that would further limit third-party REIT ownership or financing of RE&EE improvements. While we appreciate the Department of Treasury’s attempt to improve these regulations, we are concerned that these proposed modifications would create unintended barriers to the financing and deployment of RE&EE technology by REITs. We encourage you to provide this input to the Secretary of Treasury. We also request that you work with the Secretary of Treasury and the RE&EE industry to pursue other regulatory and tax code modifications that would enable increased investment in this sector.
We believe that with only minor modifications to the current Treasury Regulations and/or U.S. tax code, billions of dollars of new low-cost capital would become available for investment in this industry. Investment in RE&EE should be available to all Americans, in the same way that Americans are able to invest in fossil fuel and other types of infrastructure.

We thank you for your consideration of this matter.

Science Advisory Reviews National Geothermal Data System Deliverables
Submitted by Michael Conway, Chief of Geologic Extension Service, Arizona Geological Survey–The State Geological Survey contributions to the National Geothermal Data System concluded on April 30, 2014, and included legacy data from all fifty states and new data collection in 17 states. New data collection included 21 new geothermal gradient wells, concentrated in the Great Basin.

As part of the final review of the project’s deliverables, the Arizona Geological Survey, acting as the project managers on behalf of the Association of American State Geologists, hosted a final review of the project’s Science Advisory Board to review derivative products that are now available due to the release of NGDS data, the state of geothermal exploration in the individual states, and any changes in data management at the state survey level.

State Participants in the lightning round were: Alabama, Alaska, Colorado, Idaho, Indiana, Nevada, New Hampshire, New Mexico, North Dakota, Oregon, Utah, Virginia, and Washington State. The 13 videos of the Science Advisory Board Lightning Round can be viewed online at the NGDS YouTube channel.

DOE to Kick Off Second Round of Loan Guarantee Solicitations
Ben Matek, GEA staff–DOE’s Loan Program Office (LPO) is about to begin their second round of solicitations for the Title XVII Loan Guarantee Program. Despite not being listed on their Web site under the mission statement, geothermal power projects do qualify for this program. The next round of solicitations will come out in a few weeks in conjunction with ongoing solicitation for Enhancement of Existing Facilities under the Renewable Energy & Efficient Energy Projects Solicitation. Companies such as Ormat Technologies and U.S. Geothermal have used the Loan Guarantee Program quite successfully in the past.

Specifically, LPO is looking for projects that have the opportunity to be groundbreaking and having trouble advancing because traditional lenders don’t want to take on the “innovation risk” of the project. GEA staff attended a hearing wherein Doug Schultz, the director of the LGO program, reinforced that the program was looking to “advance new projects and technologies for commercially viable use in the private market.” There are great opportunities for geothermal power to take more advantage of this program in the later stages of a project’s development.

Successful projects will explore innovative technologies, reducing greenhouse gas emissions, are located in the U.S., and have a recoverable prospect of repayment. The LPO executes this mission by guaranteeing loans to eligible clean energy projects; i.e., agreeing to repay the borrower’s debt obligation in the event of a default. For any additional questions about the program see LPO’s Web site, http://energy.gov/lpo/loan-programs-office.

GEA Signs Letter of Concern Regarding DOE R&D Act of 2014 
This week the Geothermal Energy Association signed on a letter to the House Committee on Science, Space and Technology regarding its markup of the proposed FY15 budget allocations for the Department of Energy’s Office of Energy Efficiency and Renewable Energy and related programs. The early draft of The Department of Energy Research and Development Act of 2014 drastically slashes funding of key programs and also removes “reductions of energy-related emissions, including greenhouse gases” from goals of ARPA-E.

The letter is drafted by American Council On Renewable Energy and dated June 18. It states,

Dear Chairman [Lamar] Smith and Ranking Member [Eddie] Johnson:

A combination of public and private investment in renewable energy and energy efficiency research and development has helped diversify our energy portfolio, protect the environment and encourage economic investment and growth. We are gravely concerned about the authorization levels for the Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy (EERE) and other important DOE programs contained in the Committee Print of the Department of Energy Research and Development Act of 2014. As drafted, this legislation would make substantial cuts to research and development at EERE. Committee approval of at least present funding levels will send an important signal to the market of policy continuity.

U.S. renewable energy companies compete in a rapidly growing, highly competitive global market. Many U.S. companies are developing, manufacturing, and installing cutting edge, hightech renewable energy systems. EERE and other programs help U.S. industry compete by assisting in the development of innovative solutions and systems necessary to ensure a future of reliable, clean and affordable power and fuels.

Our nation has an abundance of renewable energy resources. As a result of years of public and private sector investment in research, development and deployment, renewable power and fuels are increasingly making a difference. In 2013, nearly 40% of all new electricity generating capacity came from renewable energy, and biofuels are now responsible for roughly 10% of our nation’s fuel supply. This investment and market progress is catalyzing the transformation of the nation’s energy system. To maintain private sector investment, innovation and competitiveness in harnessing these domestic resources, a signal of policy continuity is critically important.

The Committee’s continued support for the EERE and other programs is vitally important. We would welcome the opportunity to meet with you and your staff to further discuss these important issues.

IRS Releases Guidance on 1603 Treasury Grants and Energy Tax Credits
CohnReznick Alert–In a brief but official IRS Notice (Notice 2014-39), the IRS clarified that if a taxpayer received a Section 1603 treasury grant award, and the amount of the grant award was reduced due to federal budget sequestration laws then in effect, taxpayers may not make up for the shortage in the grant award or payment caused by sequestration by taking either a PTC or ITC to make up that 1603 grant shortfall.

Some taxpayers apparently were attempting this despite the tax law being quite clear it was not permissible to do so. Others were apparently attempting this because Treasury’s awards were reduced from what the grant applicant felt was a larger eligible amount. Neither action is permitted for federal tax purposes.

With this notice, the IRS makes it clear that there is absolutely no mixing of Section 1603 grant monies and the PTC or the ITC for the same energy system. One must pick either a PTC, ITC, or grant for each energy property, and only one form of benefit may be claimed, each according to the rules specific to whichever incentive was chosen.

GEA’s National Summit Unites Geothermal Leaders of Western U.S.
Press Release (Reno, Nev.) June 18, 2014—The Geothermal Energy Association (GEA) is pleased to be holding its fourth annual National Geothermal Summit Tuesday, August 5 and Wednesday, August 6 in Reno, Nevada. The leading forum for western state policy discussions, the National Geothermal Summit will bring together policy leaders, utilities and industry professionals to discuss the opportunities and challenges facing the industry. “Geothermal power is a clean, affordable renewable energy resource, but for the industry to achieve its potential, state and federal policies must line up with industry needs,” noted GEA Executive Director Karl Gawell. “By stimulating dialogue on critical issues, the Summit hopes to make a difference in the industry’s future.”

“As a leading geothermal developer who’s brought a project online in Nevada nearly every year for the past decade, we look forward to working together with the various participants of the Summit and embracing this as a springboard toward future development of geothermal in the U.S.,” said Bob Sullivan, Vice-President of Business Development, Ormat, which is co-host of the Summit. “We’re eager to hear the ‘Future of the RPS’ discussions that will be featured on the Summit’s agenda. Key players from the regulatory and utility sectors will provide their vision and, with that, we’ll get a sneak peek into the future of geothermal.”

The Summit is made possible with the support of the City of Reno, Economic Development Authority of Western Nevada (EDAWN) and the Great Basin Center for Geothermal Energy. The Silver State is well represented with policy leadership participating, including Senator Kelvin Atkinson, Nevada Senate District 4; Assemblyman David Bobzien, Nevada Assembly 21; Rebecca Wagner, Commissioner, Public Utilities Commission of Nevada; and Paul Thomsen, Director, Governor’s Office of Energy, State of Nevada.

“The City of Reno is host to numerous geothermal companies and has enough geothermal production within the city limits to power the entire residential load. We are staunch supporters of the industry. We are also proud of our University of Nevada, Reno, which is an international geothermal leader,” said The Honorable Bob Cashell, City of Reno Mayor. “From the Governor and the Legislature to myself and the rest of the Reno City Council, Nevada’s elected officials are supportive of developing renewable energy resources and providing business and political support to ensure success of the industry.”

“While Nevada has excelled at developing geothermal, we’re not done yet! The State of Nevada is committed to the development and exportation of renewable energy by removing barriers and developing better business models. The Governor’s Office is involved in this leading Geothermal Policy Summit to hear from Industry and build on their expertise as we look to continue to grow Nevada’s geothermal development capabilities,” noted Paul Thomsen, Director of the Nevada Governor’s Office of Energy.

Thomsen continued: “I hope the Summit highlights and facilities proactive discussion that leads to a roadmap of what the industry needs to do to compete in a changing market place. We have learned from our neighbors to the west that Variable Energy Integration comes at a cost. Can geothermal capitalize on those costs? We see transmission opening up new markets for Nevada based resources. Can geothermal capitalize on these new markets? What is the role of geothermal in emerging energy imbalance markets? Can geothermal move beyond the RPS?”

“Given changes that support the growth of geothermal, much of the region and even the state could be run on geothermal energy alone,” said Mike Kazmierski, President and CEO of EDAWN. “The industry must be properly treated and incentivized as a renewable energy industry to flourish.”

New GEA Report Examines Geothermal Power Costs and Benefits
Press Release (Washington, D.C.) June 16–Geothermal energy is an affordable power source, according to an analysis of several government and private sector reports published in 2014. The Geothermal Energy Association released a new paper today titled “The Economic Costs and Benefits of Geothermal Power” that examines the public economic costs and benefits of geothermal energy.

Geothermal power “compares favorably with other technologies currently available according to three difference analyses published in 2014,” the authors state. The reports were issued by the U.S. Energy Information Agency, Bloomberg New Energy Finance, and the California Public Utilities Commission.

The paper also looks at the direct economic benefits of geothermal power. Unlike other renewables, geothermal power produced on federal lands is based upon leases that are sold competitively, generating bonus bids, and subsequent production is subject to royalty payments. According to the Department of the Interior, geothermal generated $15 million in fiscal year 2014. Also, state lands involved in geothermal power production generate additional revenues, often dedicated to support education. California, for example, reports $4 million received from geothermal production involving state lands.

The paper also discusses the significant number of jobs created when geothermal power is developed. GEA estimates that for every 100 MW of geothermal power, the industry provides 170 permanent, full-time jobs. In addition, geothermal power creates 310 annual construction and 330 annual manufacturing/equipment jobs for every 100 MW of new installed capacity.

The report is available from the Geothermal Energy Association at http://geo-energy.org/reports.aspx. For more information or to schedule an interview with a Geothermal Energy Association representative, please contact Shawna McGregor, 917 971 7852 or shawna@rosengrouppr.com.

Geothermal, Wind, and Biomass Groups Ask Governor to Veto Solar Property Tax Exemption Extension
Press Release (SACRAMENTO, Calif.) June 18–Commercial Solar Interests Sneak Property Tax Exemption Extension into State Budget Deal, Despite Fact Extension Doesn’t Expire until 2017 and Solar is Booming–The California Wind Energy Association, Geothermal Energy Association and California Biomass Energy Alliance today are asking Governor Brown to veto a solar property tax exemption that eluded the normal legislative process and was put into the state budget deal over Father’s Day weekend. Given the exemption does not expire until 2017, there was plenty of time for supporters to introduce legislation to allow for open debate of the merits of this policy, especially in light of the fact that the solar industry is thriving.

“There is no reason for the State Legislature and Governor Brown to extend a property tax exemption to large scale solar energy projects at this time,” said Nancy Rader, executive director of the California Wind Energy Association. “Proponents have time to introduce legislation which would allow discussion of the feasibility of providing a state subsidy to one renewable technology and to more thoroughly examine the costs and benefits to state and local economies.”

The original intent of the property tax exemption was to help stimulate what was once a fledgling industry. Today, solar PV is thriving and utility-scale solar is expected to increase more than 1,200 percent between 2012 and 2020, according to California Public Utilities Commission (CPUC) projections. This is in stark contrast to the outlook for other renewables like geothermal and biomass, which the CPUC predicts will decrease nearly 50 percent by 2020 due to expiring contracts and utility procurement policies under which solar resources have fared well.

“What is disturbing is this tax break for the solar industry comes at a time when existing biomass projects are shutting down,” added Julee Malinowski-Ball, executive director for the California Biomass Energy Alliance. “Wind and geothermal renewable energy producers are also facing challenges in getting utilities to recontract for their existing resources. California needs these resources to balance our energy portfolio and meet long-term greenhouse gas reduction goals.”

There is legislation and an open CPUC proceeding to deal with portions of the recontracting issue, specifically how to ensure the cost of integrating competing resources into the state electric grid is considered in the utility procurement process. The purpose is to promote energy diversity by creating a more balanced playing field for all competing renewable resources.

“There is no doubt solar energy will continue to be an important energy resource for California,” said Karl Gawell, executive director of the Geothermal Energy Association. “But giving an industry-specific tax break to solar energy will only make it more difficult to develop other renewable resources that provide significant benefits to state and local economies, the environment, and energy security.”

The California Wind Energy Association (CalWEA) is a non-profit corporation supported by members of the wind energy industry, including turbine manufacturers, project developers and owners, component suppliers, support contractors and others (www.calwea.org). The Geothermal Energy Association (GEA) is a trade association comprised of U.S. companies that support the expanded use of geothermal energy and are developing geothermal resources worldwide for electrical power generation and direct-heat uses (www.geo-energy.org). The California Biomass Energy Alliance (CBEA) works on behalf of its members to promote biomass power as a means to reach California’s environmental and economic goals (www.calbiomass.org).

California’s SB 1139 Scheduled for Assembly Committee Hearings
A California geothermal energy procurement bill, SB 1139, has been set for a hearing in the Assembly Utilities and Commerce Committee on June 23 and tentatively scheduled for a hearing in the Assembly Natural Resources Committee on June 26 in Sacramento. This bill requires that retail sellers procure a statewide total of 500 megawatts of electricity generated by new geothermal power plants by December 31, 2024.

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