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.

In our series of continuing entries spawned from the GEA Financing Workshop last week, we’ll use Dan Schochet’s presentation as the basis to answer this question. Dan is the Vice President for Project Development at Ormat, a leading independent power producer which operates over 370MW of geothermal electricity generation and has developed over 1,000MW of geothermal projects. It’s clear Ormat and Dan have been around the block a few times…

The screenshot below is from Dan’s presentation:



The information above is modeled using a hypothetical 20MW plant as the development target. Obviously, each project will deviate from the model based on the type of harvest technology employed, binary, flash, or dry steam. Also, the resource depth will factor greatly into field development costs. But, the good thing about this model, is it’s based upon real experience in developing geothermal projects and can provide a basis for modeling any specific resource taking into account resource quality and depth as well as transmission issues.

The other important thing this model provides is information in both the time and money dimensions. On the time front, once a project area has been secured (the cost is not noted on this model, the time is in point #6,) it takes an average of 36 months to move the project to a point where it is producing power for customers. On the money side, a 20MW plant in this model comes in at around $3.5M per developed megawatt of capacity (exclusive of resource acquisition) broken down into the categories of exploration/assessment at 10% of budget, well field development at 29% of budget, plant and transmission infrastructure at 50% of budget, and “soft expenses” accounting for the remaining 11% of the budget.

On the revenue side of the equation, assuming one can operate at 95% capacity factor, this asset can produce 166,440 megawatt hours of power per year (a little more in a leap year) yielding revenue of $11.6M per year in power sales (assuming $70/megawatt hour,) potentially $1.2M in renewable energy credits (this might not be available if the power is sold into an RPS state, in which case the power price may go up to compensate,) and generate Federal Production Tax Credit benefit of $3.3M for the first 10 years of operation. That would yield a maximum benefit from the plant of $16.1M per year, and a likely benefit $14.9M per year.

If the entire cost of the plant was financed at 7% interest over 20 years, that result in annual debt payments of $6.5M. Obviously, it’s not terribly conducive to finance 100% of geothermal projects (or you’d want to get much better terms.) Ormat shows the operating cost of geothermal plants as $35 per megawatt hour, setting aside SG&A burden, that would amount to cost of $5.8M. The plant operating expense plus the debt expense is $12.3M per year, or a deficit of $0.7M per year on this project in real dollar terms. Since the PTC is available, there are legal ways to pass the benefit to equity investors, so $2.6M per year could be used to make the economics work. It’s clear at least some of the plant development cost should be supplied by means other than debt (equity financing is common and may provide a legal way for equity investors to use the excess PTC.)

This is very interesting and instructive information for geothermal project developers to have. As we at MeV pursue our own development projects, it’s taken months to collect the information that is presented in this one slide from Ormat. Our own analysis of the available data provides numbers within 3% of the Ormat model (which is encouraging on the accuracy front, though daunting on the fund raising front.)

In February, the Nicaraguan government communicated that geothermal concessions granted in the country were suspended. In an update to that situation, Polaris Geothermal, which operates and develops geothermal plants in Nicaragua announced they’ve signed a memorandum of understanding (MOU) that should lead to the realization of their 66MW project by 2009.

The market likes this news and Polaris’ stock is up more than 20% today.

As you may have heard, today, May 15th is the national gas boycott day. It’s a great attention ploy and maybe even an interesting symbol of protest. But in the end, all it will do is defer sales until later in the week.

What’s required to really move prices? A change in behavior. If each driver in the US would do the following things over the next year, it could reduce fuel demand by as much as 10%.

The easiest actions you can take to increase your fuel efficiency by 10%:

• Drive the speed limit, the faster you go, the more fuel you burn (and your ticket risk goes down) this yields around 5% fuel efficiency
• Remove unnecessary items from your car, each 100 lbs of weight removed can add up to 2% fuel efficiency
• Don’t idle your car unnecesarily, for any delay longer than a stop light, switch the ignition off
• Whenever you make a trip, combine multiple segments into one eliminating the need for mulitple trips
• Take it easy, hot rod starts and fast braking can decrease fuel efficiency by as much as 33%.

Easy suggestions to increase your fuel efficiency by 10%

• Make sure your tires are properly inflated, wheels balanced, and aligned this will yield around 3% fuel efficiency
• Ensure your car has a clean air filter which could yield up to 5% fuel efficiency
• Keep your car “tuned up” which will yield up to 4% fuel efficiency
• Use the right grade of motor oil, this will yield up to 2% fuel efficiency

More suggestions to increase your fuel efficiency by 10%

• If you must commute, carpool or take public transport
• Buy a more fuel efficient car, a 10mpg difference could save as much as $3,000 per year in fuel
• Avoid “rush hour” travel
• Telecommute to work

Obviously, these suggestions range in cost and effort from essentially zero (change your driving behavior and remove excess weight) to very expensive (buy a more fuel efficient car.) We publish all of them so you can select the actions you want to take to actually change the fuel comsumption over time rather than simply boycotting gas purchase for a day. Not everyone can do everything on this list, but everyone can do some combination of these items to total a 10% reduction. Let’s focus our effort on these pragmatic actions and we’ll see an impact on the price of gas, save yourself money, and oh by the way, we’ll reduce our greenhouse emissions as a bonus.

That was the theme of the MIT report on Geothermal potential released earlier this year. 100,000MW of geothermal power would amount to 10% of 2006 levels of US energy production. An interesting question (and perhaps the most salient question) is: What would it take to get to these production levels?

Susan Petty, a consultant for Black Mountain Technology, started her talk at the GEA Geothermal Financing workshop last week by attempting to answer this question by quantifying what would be required to reach 100,000MW by 2050:

• $1B invested in R&D over the next 15 years (as referenced in the MIT report)
• Exploration yielding 390 square miles (1,010 sq km) of productive geothermal resource area per year
• 80 drill rigs operating continuously over the next 40 years, amounting to 10% of the total US rig population
• $2 Trillion dollars of development funding to build the plants and transmission infrastructure

In the year 2050 if all of those things happened, geothermal production areas in aggregate would cover 17,600 square miles (45,000 sq km,) roughly the same area as the states of Maryland and Connecticut combined. Given the current state of geothermal funding, the development costs, and exploration challenges, it is unlikely that 100,000MW of geothermal power will be in production in 2050 – but, there is no hope of success unless the industry aims for such lofty goals.

It’s certainly interesting to look backward from the goal like this, thanks Susan for taking the time to share this with the geothermal community.