Review of 2009 and outlook for 2010 by Ardour Capital

Alexander Richter 15 Jan 2010

In an article in Renewable Energy World, Ardour Capital provides a review of 2009 and outlook for 2010 for a number of renewable energy technologies, including geothermal.

In the article it says that , “2009 was a positive year for the U.S. geothermal sector from a legislative perspective, but the sector remained challenged by toughened financing conditions.

Positive legislative developments included $350m in ARRA funding to develop and demonstrate geothermal technologies (announced in May), followed by the DOE awarding $338m of ARRA funds to support 123 projects concentrated primarily on innovative exploration and drilling techniques (announced in October). The game-changer, in our opinion, was the allowance of ITC cash grants for geothermal projects, with application acceptance beginning in August.

Nevada Geothermal Power was the first developer approved to monetize the ITC and it received ~$58.0m in November, approximately 1/3 of the cost to develop its 49.5MW Faulkner project. Other developers can also qualify for ITC cash grants, as long as their project begins construction by the end of 2010 and goes on line by the end of 2013.

Market activity was slow over the first half of 2009 but picked up in the second half. New market entrant Magma Energy completed its IPO in July 2009, raising ~$100m amid significant fanfare. The IPO created momentum for the whole sector, and was followed by the consolidation of four geothermal developers in October 2009 to form Ram Power Corp.

In spite of these positive developments, access to project financing was poor over the year, delaying pipeline expansion. Larger developers, like Ormat Technologies (ORA/NYSE-HOLD), have had continued access to project financing, however the smaller players were forced to either issue new shares or place shovel-ready projects on the backburner.

Project financing for mid to small-sized developers is likely to remain meager over the first half of 2010, delaying project realization. We expect this, in turn, to negatively impact downstream demand, particularly for geothermal power plants.

Additional grant and loan guarantee announcements should act as a positive catalyst to the sector and begin improving access to financing. Ormat is likely to be the next to receive an ITC cash grant, for its North Brawley project, scheduled to come online by the end of 2009. We also expect some DOE loan guarantee announcements in the New Year, very likely beginning with U.S. Geothermal for its Neal Hot Springs project.

Looking at technology trends, we expect heightened focus on coproduction and decreased interest in enhanced geothermal systems (EGS). Coproduction utilizes the significant amount of hot water produced by many oil and gas wells and turns it into electricity using binary technology. Approximately 40b barrels of hot water are  produced  as a  by-product of  functioning  oil and  gas  wells in the U.S. each year, and could add between 3,000 MW to 14,000 MW to the U.S. geothermal power supply (currently ~3,000 MW).

As for EGS, negative news flow surrounding projects in Switzerland, Australia and California will likely dampen enthusiasm for the technology over coming quarters. EGS remains largely unproven, faces significant NIMBY (not in my backyard) hurdles, and requires technological advancements in both drilling and rock fracturing to become a viable alternative to conventional geothermal, which taps naturally occurring reservoirs.”

Geothermal. Analysis provided by Meghan Moreland, Senior Geothermal, Fuel Cell and Superconductor Analyst.

Source: Renewable Energy World