Leasing woes stall industry development, even in hotbeds

E&E News
By Dylan Brown
November 19, 2014

Hot water bubbling up everywhere, Nevada became the Wild West of a geothermal energy boom when the long-stagnant industry ushered in the new millennium with a technological renaissance and a public lands leasing boom.

Two-thirds of the million acres of U.S. public lands approved for geothermal development between 2007 and 2013 were located within the Silver State's borders. Roughly half the 680 geothermal leases the Bureau of Land Management managed in 2013 are in Nevada, and the state's former program leader, Lorenzo Trimble, was recently promoted to oversee agency leasing nationally.

The Nevada Legislature last year also opened the door to further geothermal development by forcing the state's largest energy company to transition hundreds of megawatts of coal-generated power to other sources (Greenwire, June 4, 2013).

With no need to rely on intermittent factors like sun or wind, geothermal is part of the Obama administration's "all of the above" energy plan and generates hometown pride for Republicans from Western states, where the vast majority of its potential lies.

But despite the bipartisan potential, geothermal leasing has declined in Nevada and nationwide in recent years, with Silver State sales bookending the demise of the energy source's leasing glory years.

In 2008, one sale of 35 Nevada parcels banked BLM a record $28.2 million in total revenue. Fast-forward to 2013, when BLM made only $42,870 all year on nine Nevada parcels.

What happened? For industry and BLM, it goes back to the age-old question of the chicken or the egg.

The geothermal industry blames the chicken -- years of regulation between exploration and power production -- for dissuading interest.

According to Department of Energy statistics, adhering to the National Environmental Policy Act -- which requires agencies to weigh environmental concerns in their planning and decisionmaking by preparing detailed assessments of project impacts and alternatives -- takes a minimum of five to seven years for geothermal projects, compared with three to five years for oil and gas and less than two years for wind and solar projects.

But BLM points to the egg -- a lack of bids at recent geothermal lease auctions.

"Geothermal leasing interest is driven by industry," a BLM spokesman said. "The decrease in geothermal leasing is not a result of any action(s) by the BLM."

In a vicious cycle, an industry already battling stiff competition sees regulatory hurdles as too expensive and time-consuming to clear, leading to fewer bids and to taxpayers' footing the bill for costly feasibility analyses conducted by federal agencies.

Bidless auctions complete the cycle by failing to boost federal investment already dwarfed by money pumped into wind and solar projects.

The chicken-versus-egg leasing problem, Geothermal Energy Association President Karl Gawell recently told the Los Angeles Times, has kept the power source the "stepchild" of renewable energy.

Boiling point

Like fossil fuel development, geothermal follows geology.

Geothermal surveyors use basically the same rigs and equipment as mining and oil companies to drill "slim holes," usually around 8 inches in diameter, sometimes 10,000 feet below the surface.

As in the oil industry, geothermal wells are flow tested. But instead of roughly 4,000 gallons a day, a good geothermal find will yield 4,000 gallons a minute.

What's ideally flowing to the surface is superheated water reaching temperatures above the boiling point of 212 degrees Fahrenheit but kept in liquid form by crushing subsurface pressure.

The water is then either converted to steam through a process called flashing or used to heat a liquid with a lower boiling point to turn turbines and produce electricity.

Regardless of the method used, what's brought up is then pumped back down to the "hot spot" via an injection well to continue the cycle.

Geothermal Energy Association Vice President Doug Glaspey said the hard part is finding a hot spot big enough to support electricity production.

Low-temperature pockets usable for direct heating exist more broadly, but hot spots capable of generating electricity are usually found in seismically active areas. In the United States, that's the West.

Companies "go in, they study it, they spend money, they drill, they do seismic, and let's say they successfully drill a well," said Glaspey, who is also president of Boise, Idaho-based U.S. Geothermal Inc. "But Mother Nature, being who she is, has sent the geothermal reservoir off into a direction that they hadn't anticipated or known about."

The unpredictability creates two problems: The best spot might not be on leased land, and it usually takes half a dozen holes to find.

"It's something that virtually every developer in geothermal space has run into at one time or another," Glaspey said.

If the ideal location crops up in a neighboring parcel, a company must go back through the competitive leasing process and outbid other companies to claim the rights.

All the while, NEPA looms large over the process, working its way down the chain of command to local district offices, which examine resource management plans to investigate potential impacts to the land and wildlife.

Even if the nominating company successfully outbids everyone at auction, Glaspey said, each drilling attempt requires similar NEPA approval.

Wells in the oil and gas industry often come up dry, but Glaspey said the added delay hits geothermal harder than others because companies are operating under power purchasing agreements with utilities.

"We're selling electricity, which has a relatively narrow [profit] margin compared to oil and gas. So the economics is completely different," Glaspey said. "You can't put it in a pipeline or tanker truck and move it off-site and sell it instantly as a commodity."

Already vulnerable to falling energy prices thanks to the domestic natural gas boom and the recession, Gawell said, companies unable to fulfill agreements within typical two-year time frames can face hefty fines.

"We've seen projects that have had power purchasing agreements that have had to cancel them because BLM permitting time had taken too long," he said. "One clear way to dissuade investors is to have long permitting times and to put a tremendous amount of uncertainty into a process that is already complicated enough."

Gawell said Nevada is one of the few states that have figured out how to expedite the process, refined by repetition.

Fading demand

The nation's first commercial geothermal power plant, at the Geysers in California, in 1960 kicked off two decades of industry growth. But by 1987, the Geysers had run out of steam due to overpumping, and geothermal development was tapering off nationally.

Although its electrical output was still dwarfed by California's, Nevada was the center of geothermal's recent resurgence.

In the new century, speculators fueled a leasing surge, nominating parcels near promising geologic formations or with visible hot springs, then bidding against other companies at auction.

When a backlog of pending lease applications piled up, geothermal carved out its corner of the 2005 Energy Policy Act, which ramped up domestic energy production across the board.

The 2005 law expanded competitive geothermal leasing on public lands, formerly limited to areas with known resources. It ordered a 90 percent reduction in a backlog of 194 applications and stipulated that BLM auction off requested parcels at least once every two years, a requirement the Interior Department clarified in rule changes made in 2007.

In 2008, a BLM programmatic environmental impact statement declared that the backlog had been trimmed to just 34 pending applications. Aimed at making more consistent, timely decisions to cut costs, it forecast a bright future for the industry with an estimated 47 percent of America's 530 million acres of geothermal potential on public land in 12 Western states. Excluding tribal lands, national parks, wilderness areas and other protected space, 192 million acres of BLM and Forest Service land was deemed "open" to geothermal leasing.

Defying the forecast, however, geothermal industry activity has fallen off from 818 leases in 2011 to 680 last year as companies relinquish or fail to renew agreements. Nevada lost nearly a fifth of its geothermal leases during the same period, dropping from 511 parcels to 412.

The trend line doesn't seem to be improving this year, with only a pair of BLM sales: one each in Nevada and California.

The industry chalks this up to burdensome regulation, but BLM is quick to point out that geothermal demand isn't in the same ballpark as oil and gas, at around only 1 or 2 percent of all federal leases.

NEPA analysis for oil and gas has run into the same tangle of issues, but that industry hasn't declined similarly.

In Nevada, for instance, all energy development comes up against issues like greater sage grouse management (Greenwire, Oct. 21). Oil and gas leasing in Nevada, however, fell off only 2 percent from 2012 to 2013, compared with geothermal's 20 percent slide.

It's not a matter of overstretched employees, either.

"Retaining staff is an issue for the BLM, however there are no known instances where limited resources have affected the time it takes for the geothermal lease parcel review process," the agency said in a statement.

Still, BLM said in the statement, it "is always trying to streamline the geothermal process," referencing regular meetings with stakeholders, new Web pages to help navigate the process and instruction memorandums. According to BLM, several district offices now have "geothermal and fluid mineral leasing NEPA documents to streamline the lease parcel review process," and others "are in the process of revising Resource Management Plans."

But with leasing declining, BLM lacks an incentive to investigate areas with geothermal potential if nominated lands fail to garner even the $2-per-acre minimum bid at auction. Geothermal leasing has made the federal government $76 million since 2007, but that amount pales in comparison with what the more competitive oil and gas process yields annually.

In its statement, BLM acknowledged current internal efforts to "improve the geothermal process" but said the agency "is required to conduct business according to the laws," which necessitate environmental considerations.

Changing the laws would require an act of Congress, so the geothermal industry -- long lacking the powerful lobby of oil and gas or even the increasing Capitol Hill clout of wind and solar -- looked north.

Breaking the cycle

Idaho has the only capitol building in the country heated geothermally, but the geothermal industry remains in its infancy in the state.

Big potential brought Glaspey's U.S. Geothermal Inc. to the table to help write bills from the Gem State's two Republican congressmen, Reps. Raúl Labrador and Mike Simpson.

The two lawmakers have distinct legislation and styles, but streamlining geothermal leasing isn't part of their bitter rivalry, stoked earlier this year when Simpson sharply criticized Labrador's unsuccessful run for House speaker.

"Geothermal energy has tremendous potential to boost domestic production," Labrador said in a statement. "In Idaho alone, geothermal could produce enough power for a half-million homes."

Simpson's H.R. 2004 takes a more traditional, bipartisan approach -- something for which Labrador used to criticize Simpson, labeling him "an old-school legislator that went to Washington, D.C., to compromise." The bill dates back to 2010; its latest incarnation is co-sponsored by Rep. Peter DeFazio (D-Ore.) and serves as a companion to S. 363, put forward by Sen. Ron Wyden (D-Ore.), which the Senate has already passed.

The measure would amend the Geothermal Steam Act of 1970 to solve the problem of geothermal reserves that cross lease boundaries. It would allow a leaseholder to noncompetitively lease an adjoining parcel no bigger than 1 square mile for fair-market value.

BLM acknowledged concerns about undermining free-market forces promoting more leasing -- if you want it, pay for it -- but said there are instances "in which non-competitive leases may be appropriate."

But it raised concerns about the bill's deadlines of 270 days to promulgate regulations and 180 days to determine fair market value, saying that's not enough time.

Labrador's H.R. 1363 is more controversial.

The bill, co-sponsored by Rep. Mark Amodei (R-Nev.), would grant "categorical exemptions" from NEPA similar to those allowed for oil and gas drilling under Section 390 of the 2005 Energy Policy Act.

"It is just kind of funny to see a mining company do things that a renewable energy company can't do," Glaspey said.

In order to allow companies to pinpoint a resource with minimal impact, exploratory wells no larger than 8 inches in diameter, no deeper than 2,500 feet, disturbing less than 5 acres of leased land and completed within 45 days would be allowed if a notice of intent were filed 30 days earlier and NEPA evaluation had been previously conducted.

Democrats and BLM have taken issue with granting exceptions to NEPA. In a statement, BLM stressed that extraordinary circumstances can preclude even a legislatively established categorical exclusion.

Labrador rejects claims that his bill is another Republican attempt to work around the landmark environmental law.

"Oil and gas already has this exemption," he said. "Common sense demands that the geothermal industry operate under the same rules."

Both bills await a full House vote after passing the House Natural Resources Committee, which the Geothermal Energy Association took as a positive sign that the bills could slide through during the lame-duck session this month.

Global competition

The small streamlining fixes are vital, Gawell said, if the United States wants to remain the world's largest geothermal producer.

Instead of speeding toward BLM projections of 12,200 megawatts by 2025, geothermal still supplies less than 1 percent of the United States' power. Meanwhile, Indonesia is aiming to dethrone the United States with one thrust of proposed projects.

"Whether they reach that in a few years is a good question, but they are doing what's needed; they're adjusting their laws to help make this happen," Gawell said.

Indonesia isn't alone. An industry report indicated that 530 MW came online around the world last year, the largest increase since 1997 at more than 4 percent growth.

The percentage of the world's energy derived from geothermal sources is expected to grow as more than 700 projects are under development in 76 countries.

The industry is unlikely to eclipse wind and solar, but it's optimistic about its future in the United States. A 2006 report predicted that geothermal could eventually generate 10 percent of America's power.

"The U.S. industry is always viewed as the best," Gawell said, "but it's tough competing in a global market when your home industry is being stalled."