From Geothermal-biz.com Newsletter:

The Final Rules on Geothermal Resource Leasing and Geothermal Resources Unit Agreements which regulate geothermal energy production on public lands administered by the Bureau of Land Management (BLM) and the Minerals Management Service (MMS) go into effect on 1 June 2007.

The rules, which were written in response to the Energy Policy Act of 2005, mandate comprehensive changes to leasing and royalty policies to encourage geothermal energy use without imposing additional administrative burdens on industry or government agencies. The new rules require competitive leasing for geothermal development rights on nearly all federal lands designated for this type of development. If no bids are received, these resources would be available for leasing on a non-competitive basis for two-year periods.

The revamped MMS’s regulations offer an easy-to-use fee schedule (in lieu of royalties) for the direct use of geothermal resources that provides incentives to encourage the development and expansion of this alternative energy source. The MMS rules also simplify the royalty calculations for electrical generation leases by basing royalties on a percentage of gross proceeds from the sale of electricity. This would reduce industry’s administrative costs to comply.

The law mandates that 25 percent of the royalties from geothermal production be paid to the counties where the production occurs, increasing those local governments’ revenues initially by $4 million a year. MMS began making direct payments to counties shortly after the law was signed.

The BLM currently administers about 423 geothermal leases; 55 of those are producing geothermal energy, including 34 power plants. The bureau has been expediting the application process for geothermal leases, issuing almost 300 leases since 2001, compared to 20 leases from 1996-2001.

In addition, BLM is in the final stages of completing a new geothermal lease form for the Energy and Policy Act Leases and modifying the LR2000 land record data base to accommodate changes in geothermal regulations (new lease case types and action codes).

For more information, contact Kermit Witherbee, BLM National Geothermal Program Lead, Tel: (202) 452-0385, Kermit_Witherbee@blm.gov.

This is certainly good news for the localities around geothermal lease sites. Perhaps we’ll see more local support for projects as a result.

Today in an orchestrated press event in Middletown, California, Calpine announced a few more details about it’s plan to bring up to 80MW more power online at the Geysers. The plan calls for a multi-rig, two-year drilling program and refurbishment of 8 steam turbines. Many dignataries were in attendance and spoke well of the plans.

This announcement is somewhat disappointing though as it doesn’t give any indication that Calpine will use waste heat for bottom cycling and preservation of mass on the property (we estimate Calpine could get as much as 70MW just from that activity with no drilling required.) Nor were there any other forward thinking aspects announced with this plan.

On the positive side, it’s nice to see Calpine investing in the Geysers, the crown jewel of their portfolio. Who knows, if they see some success with this program, perhaps they’ll decide to take another step. One thing is sure, 80MW more of capacity will be welcome in terms of climate impact (and it can’t hurt Calpine’s financials much either in the long term.)

In a brief press release today, Calpine announced its intent to add 80MW of capacity to the existing 725MW already in production at the Geysers. Details of the expansion program are to be announced on Thursday.

Today, Ormat announced an agreement to sell power beginning in 2010 to Sierra Pacific’s Nevada Power Company for output targeted between 18 and 30MW. Between this news and an upgrade from RBC Capital Markets Tuesday, Ormat’s stock is enjoying a nice run up from lows experienced post-Q1 earnings miss warning.

As an investor, Ormat is attractive around $35 share provided the company meets its stated revenue and earnings projections.

Sierra Geothermal has commenced exploration at the Reese River, Nevada site with the drilling of test wells. In a press release, Sierra announced the results of the first round of test drilling: at a depth of 3,930 feet (1,198 m) the team encountered temperatures of 256 degrees F (110C) with a consistent temperature gradient throughout the well indicating that still hotter temperatures may exist deeper in the anomaly.

Reese River was first explored in 1970’s by Phillips Petroleum and Amax Exploration who drilled 52 temperature gradient wells over a decade. Based on the results of this exploration, the anomaly is believed to be 3 miles (4.8km) long by 1 mile (1.6km) wide and believed to possess temperature gradients on average of over 225C per km in depth.

Geothermex, a geothermal reservoir engineering company, estimates there is a 90% probability that Reese River will produce 13MW and a 50% probability that it will produce 30MW. While it’s certain that Sierra hoped to reach higher temperatures in their test wells at this depth, the outcome is not bad. It confirms the anomaly and permeability of the rock layer. The missing piece of information in this release is the flow test data (though it’s unclear if the well was tested in this way.)

This constitutes progress in Sierra’s bid to develop the Reese River site.