Leading news: Geothermal Discussions Include Budget and Economic Benefits

This post brings you a new geothermal industry survey, news on the proposed 2016 federal budget and geothermal funding, California’s “50% renewables” debate, GEA member companies and more.

GeoJobs2009-2013

The visual above is included in the new “Geothermal Energy Association Issue Brief: Additional Economic Values of Geothermal Power,” released this week, and displays 13 of the 17 utility-scale geothermal plants completed over a five year period (2009-2013). The numbers come from company press releases, public statements, and numbers reported to state and local governments.

Click below for this week’s leading geothermal news.

*Industry Survey Explores Job Creation, Property Taxes and Additional Economic Benefits of Geothermal Energy
*Proposed Budget Sees Permanent Clean Energy Incentives
*2016 Geothermal Budget Proposes a 74% Increase
*California’s “50% Renewables” Debate Could Expand Geothermal Possibilities
*Ormat Technologies: McGinness Hills Phase 2 Begins Commercial Operation
*Ormat Technologies: JV Agreement to Raise $175 Million
*Analysts Predict 20.7 GW Geothermal by 2020
*GEA Welcomes New Member Companies Expro Group, Wieland Thermal Solutions, Solenis and Polaris Energy Nicaragua S.A.

Industry Survey Explores Job Creation, Property Taxes and Additional Economic Benefits of Geothermal Energy
Press Release (Washington, D.C.) February 5 — According to the U.S. Energy Information Agency, geothermal power is a long-term consumer bargain for the western power grid. New information based on a survey of the U.S. industry and released by the Geothermal Energy Association (GEA) explores the economic benefits geothermal facilities bring to communities where they operate. GEA reports substantial revenues from taxes and royalties to state and local governments, long-term local employment and millions of dollars in environmental benefits.

“The Additional Economic Benefits of Geothermal Energy” found:
• In 2013, geothermal power producers paid $29 million dollars in annual property taxes, including $21 million dollars to the State of California.
• A 50-MW geothermal plant will require 310 person-years of construction and manufacturing employment.
• An average 50-MW facility will create permanent employment for about 100 people.

Properly developing the remaining identified geothermal resources estimated by the U.S. Geologic Survey to exist in the State of California alone could add 2,500 permanent on-site jobs, another 20-30 million dollars in property tax revenue for the state and almost 15,000 construction and manufacturing jobs.

The Issue Brief was prepared by GEA’s Analyst & Research Project Manager Benjamin Matek. He said, “The report supports the view of the industry, EIA and others that geothermal development is by far among the most economically beneficial out of the renewable resources available to western states.”

He added, “These plants bring substantial economic benefits to communities through permanent employment, property taxes, rents and royalties. Building one small geothermal plant in a community can generate $6.3 to $11 million dollars in property taxes that can be used toward education or other local services and provide 20-30 permanent jobs.”

The Issue Brief builds upon previous GEA reports and on new data collected in January 2015. For a copy of the Issue Brief, go to: geo-energy.org/reports

Budget Proposal Sparks Hope for Permanent PTC/ITC Extension
In the proposed 2016 budget released this week (see PDF), President Barack Obama renewed his push for the permanent extension of the $0.023/kWh production tax credit (PTC) and 30% investment tax credit (ITC).

The proposal states:

“The Budget would make permanent—and pay for important research and clean energy incentives that the Congress routinely extends on a year-to-year basis, including the Research and Experimentation Tax Credit, the Production Tax Credit, and the Investment Tax Credit. It would also re¬form these incentives to make them simpler and more efficient, for example by creating a single formula for calculating the Research and Experimentation Tax Credit and making the renewable energy Production Tax Credit refundable so innovative.”

The U.S. Treasury released its further clarification:

“The proposal would extend prior law for facilities on which construction begins before the end of 2015. For facilities on which construction begins after December 31, 2015, the proposal would permanently extend the renewable electricity production tax credit and make it refundable.

“In addition, the proposal would make the production tax credit available to otherwise eligible renewable electricity consumed directly by the producer rather than sold to an unrelated third party to the extent that its production can be independently verified. Solar facilities that qualify for the investment tax credit would be eligible for the renewable electricity production tax credit for construction that begins after December 31, 2015.

“The proposal would also allow individuals to claim the production tax credit for residential energy efficient property installed on a dwelling unit. The current credit for energy efficient property would be allowed to expire at the end of 2016.

“The proposal would also permanently extend the investment tax credit under the terms available to sources in 2016. Specifically, the proposal would permanently extend the 30-percent investment tax credit for solar, fuel cell, and small wind property and the 10-percent credit for geothermal, microturbine, and combined heat and power property. The proposal would also make permanent the election to claim the investment tax credit in lieu of the renewable electricity production tax credit for qualified facilities eligible for the production tax credit.”

2016 Geothermal Budget Proposes a 74% Increase
The U.S. 2016 federal budget proposal includes a total $7.4 billion for clean energy technology programs with about three-quarters going to the Department of Energy. The geothermal budget request shows 74% increase from 2015 and states:

“The Budget provides $96 million in FY 2016, supporting full implementation of the Subsurface Technology and Engineering RD&D crosscut. The crosscut is a critical effort for advancing innovative RD&D under the Hydrothermal subprogram to reduce the cost and risk of geothermal development, by targeting opportunities to leverage advances in other subsurface sectors. FY 2016 funding also includes moving the Frontier Observatory for Research in Geothermal Energy (FORGE) toward field operations. FORGE is a dedicated site focused on creating an accelerated commercial pathway to large-scale EGS power generation in the U.S.

The geothermal industry has also focused on reducing the cost and risk of development. See a 2014 report, “Best Practices for Geothermal Power Risk Reduction Workshop Follow-Up Manual” (PDF).

The FORGE program to create an Enhanced Geothermal System (EGS) laboratory is a data sharing opportunity for the R&D community and is expected to contribute to additional future successes.

The geothermal budget proposal also states:

“Additionally, FY 2016 funding will target validation activities for the program’s “Play Fairway Analysis,” which assesses exploration risk and the probability of finding new geothermal resources on a regional scale, resulting in maps and studies that reduce the industry’s drilling and development risks. Major changes are the result of funding full implementation of the Subsurface Technology and Engineering RD&D crosscut and Phase 3 of FORGE.”

California’s “50% Renewables” Debate Could Expand Geothermal Possibilities
A Desert Sun article explains how California’s proposed AB 197, introduced by State Assemblyman Eduardo Garcia (D-Coachella) for a minimum 50% renewable energy resources by 2030, is different from California’s current renewable energy mandate. Even if this bill doesn’t progress it “could help set the tone for later debate.”

Mary Nichols, chairman of the California Air Resources Board, explained current legislation encourages growth mainly in the solar and wind industries, creating a buildup of intermittency and lack of diversity. A “clean energy standard” to replace the Renewables Portfolio Standard expands the possibilities for geothermal by valuing its reliability to the grid as well as its ancillary benefits. Geothermal advocates point to potential development in the Imperial Valley.

Ormat Technologies: McGinness Hills Phase 2 Begins Commercial Operation
Press Release (RENO, Nev.) February 4 — Brings complex generating capacity to approximately 72 MW — Ormat Technologies, Inc. (NYSE: ORA) announced today that the second phase of its McGinness Hills geothermal power plant located in Lander County, Nevada has begun commercial operation. Since February 1, 2015, the complex sells electricity under the amended Power Purchase Agreement with NV Energy at a new energy rate of $85.58/MWh with a 1 percent annual escalator through December 2032.

The second phase broke ground on March 2014 following resource confirmation and excellent performance of the first phase of McGinness Hills, which had been operational since June 2012. During the construction, the project has generated hundreds of direct and indirect jobs in the United States. The support and cooperation of the utility, state, county and federal agencies is credited for the project coming on line and ahead of schedule.

The project received favorable project financing terms from the Department of Energy’s loan guarantee program under section 1705 and a $140 million loan was drawn under the OFC 2 Senior Secured Notes in August 2014.

“Ormat continues to expand its generating capacity and enable the increased use of green, renewable energy,” commented Isaac Angel, Ormat’s CEO, “In less than three years we doubled the generating capacity of the McGinness Hills complex adding firm capacity to NV Energy’s customer-benefitting renewable energy resources. Implementing our phased development approach enables us to bring on line the second phase rapidly as well as to take advantage of economies of scale in the McGinness Hills complex, and we expect it will further improve our financial performances.”

Ormat Technologies: JV Agreement to Raise $175 Million
Press Release (RENO, Nev.) Feb. 5 — Ormat Technologies, Inc. (NYSE:ORA) today announced that its wholly-owned subsidiary Ormat Nevada Inc. (“Ormat”) has entered into a binding agreement with infrastructure funds managed by Northleaf Capital Partners (“Northleaf”) under which Ormat will contribute certain geothermal and recovered energy generation power plants into a newly established holding company subsidiary (“JV”), and Northleaf will acquire an approximately 40% equity interest in the JV. The Company will raise approximately $175 million from the transaction. The transaction is expected to close in the first quarter of 2015, subject to customary closing conditions.

The power plants that will be contributed to the JV as part of the transaction include Ormat’s Puna geothermal power plant in Hawaii, the Don A. Campbell geothermal power plant in Nevada, and nine power plant units across three recovered energy generation assets known as OREG 1, OREG 2, and OREG 3. Ormat will continue to consolidate the JV and its assets, and will continue to provide day-to-day management control, operations and maintenance control over the projects.

Northleaf is a leading independent global private equity and infrastructure manager, with offices in Toronto, Canada, London, UK and Menlo Park, USA and more than $6 billion in commitments under management. Northleaf’s infrastructure program is focused on long-term investments in core assets in OECD member countries.

As part of the transaction the parties agreed that any future development of the assets will be undertaken within the JV.

“This milestone transaction represents a significant opportunity for Ormat to strengthen its balance sheet by monetizing operational assets at an attractive valuation,” commented Isaac Angel, Ormat’s CEO. “Our transaction process initially identified a number of global institutional and private equity infrastructure investors seeking long term stable investment opportunities. We are delighted to join forces with Northleaf, based on the strength of their substantial and meaningful interest in our geothermal and recovered energy plants. The valuation, which represents a premium to our current trading valuation, reinforces the value of our operational assets and underscores our experience and proven track record. By partnering with a proven and strong capital partner we are highlighting the potential for future transactions and additional growth opportunities together.”

“During this period of volatility in global energy markets and commodities pricing, we worked closely with our new investor to structure an arrangement related to our Puna geothermal power plant that provides Northleaf a stable energy rate,” added Mr. Angel. “This arrangement mitigates Northleaf’s exposure to fluctuations in energy prices, while Ormat stands to benefit from the upside when prices improve.”

“Direct investments in contracted geothermal assets in partnership with a world-leading company such as Ormat are consistent with Northleaf’s strategy and offer significant potential for stable, long-term returns,” said Northleaf Managing Director, Jamie Storrow. “The partnership with Ormat is very appealing to us, given the company’s reputation as a leading geothermal manufacturer, operator and developer. We look forward to maintaining a productive and long-term relationship with Ormat.”

Analysts Predict 20.7 GW Geothermal by 2020
Analysis from Frost & Sullivan forecasts global installed capacity of renewable energy to increase from 1,566 GW in 2012 to 3,203 GW in 2025 — an increase of over 100%. The analysts expect global geothermal capacity to grow up to 20.7 GW by 2020. “It is little wonder then that renewable energy installations have seen a gradual shift in market power to emerging economies,” Frost & Sullivan Energy & Environmental Industry Director Harald Thaler stated. “On account of urbanisation, population growth, energy security concerns, and strong economic development, regions such as Asia, Latin America, the Middle East and Africa have increasingly been contributing to renewable energy capacity growth.”

This comment reflects similarities to GEA’s data that the geothermal industry is experiencing strong growth in emerging economies. View a recent GEA report, The Status of Geothermal Power in Emerging Economies (October 2014), geo-energy.org/reports.

GEA Welcomes New Member Companies Expro Group, Wieland Thermal Solutions, Solenis and Polaris Energy Nicaragua S.A.
Juliana Glenn, GEA staff–The Geothermal Energy Association extends a warm welcome to our new members. GEA is dedicated to providing our members with the valuable information, resources, and networking opportunities companies need to grow and thrive. Membership dues provide the bulk of financial support for GEA and directly facilitate our efforts to engage policy makers on key industry issues, organize events, and produce industry data, reports, and publications. Our newest members are:

  • Expro Group — an international oil and gas service company whose mission is well flow management. They provide services and products that measure, improve, control and process. Visit www.exprogroup.com.
  • Wieland Thermal Solutions — a designer and producer of enhanced surface tubes and heat exchangers for optimal heat transfer with a minimal investment of materials and energy. Visit www.wieland-thermalsolutions.com.
  • Solenis — an international industrial water treatment company that provides specialty chemicals for water-intensive industries. Visit http://solenis.com.
  • Polaris Energy Nicaragua S.A. — the Nicaragua-based subsidiary of Ram Power, Corp. that provides power generation and power plant operation & maintenance services. Contact aarguello@polarisgeothermal.com.

We thank all Geothermal Energy Association members for their support.

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