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Energy from the Earth

Potential is high for Geothermal, but so are startup costs
Pagosa Springs businessman Jerry Smith sees potential for development of geothermal energy but says that securing financing for geothermal projects is a significant challenge. His company, Pagosa Verde, has two geothermal projects in the works, including one just south of Pagosa Springs.

PAGOSA SPRINGS – Renewable-energy supporters and producers celebrated this spring when Colorado legislators approved doubling the amount of renewable energy rural cooperatives must use by the year 2020. Legislators who supported the bill said it would provide expanded opportunities for wind, solar and biomass projects that are popping up in rural areas.

One renewable energy source notably absent from Colorado’s list of current projects, however, is geothermal power generation. As it stands, there are no active geothermal power generation projects in the state. It’s a statistic that Jerry Smith is determined to change, though the process has taken him five years and likely will take several more.

The Pagosa Springs entrepreneur is a trailblazer in many senses because despite the benefits – steady power, cheap generating costs and low environmental impact – geothermal has yet to take off in Colorado. And the biggest reason is money, experts said during a Thursday symposium that Smith organized to discuss the challenges and opportunities surrounding geothermal projects and other energy-related topics.

Like natural-gas and oil drilling, geothermal exploration activities require a significant investment, even before the first production wells are drilled to tap into the energy generated from heat beneath the Earth’s surface, said Magnus Gehringer, a Washington D.C.-based adviser for the World Bank and International Finance Corp. who has worked on geothermal projects all over the world. Gehringer was one of a dozen speakers at a symposium hosted by Pagosa Verde, the company Smith started in 2008 to focus on renewable energy, sustainable agriculture and other green initiatives.

More than 10 percent of the cost of a geothermal project is exploration and testing, which have an incredibly high risk factor, Gehringer said. If the project doesn’t pan out, then the money goes down the drain, he said.

He estimated one well can cost $5 million for initial exploration and $25 million for several test wells.

Investors have to be convinced that the resource will generate returns before they’re willing to sink money into a project, but no one has been that guinea pig yet.

“No one wants to be the first to sink millions into a project,” he said.

That’s why financial support from government or other public entities, especially during the initial exploratory and testing phases, is crucial for projects to get off the ground here, Gehringer said. Public funding also alleviates the pressure to produce the high returns investors expect.

Until now, the two geothermal projects under Pagosa Verde’s umbrella have kept afloat through a combination of public and private funding from the town of Pagosa Springs, Archuleta County, landowners and the company itself, Smith said. The company is preparing to drill a first set of narrow test wells on a site just south of Pagosa Springs this year and is doing geophysical testing at a second site in Gunnison County.

Smith estimated the entire cost of exploration and production for his geothermal project will average $3 million per megawatt, with an expected generation of four to 12 megawatts.

He said he expects investment in the project to increase significantly once the drilling begins.

Investors also are more inclined to invest in a portfolio of projects that smooths out the risk if one project fails, Gehringer said. Smith is trying to develop that portfolio with Pagosa Verde’s two projects.

But it’s not just the wells that need financing. Another big difference between drilling for hydrocarbons and geothermal drilling is the marketability of the product. Oil coming out of the ground is immediately transportable and marketable, but the steam coming out of the ground is worthless unless you build a multimillion-dollar power plant on location, which increases the size of the project and the financing needed, Gehringer said.

And at a time when electricity generated from wind and natural-gas sources is growing and price is dropping, geothermal power has some stiff competition, said Jennifer Drake, with Tri-State Power Generation.

Geothermal’s slow progress isn’t isolated to Colorado. The Department of Energy has put $2 billion into geothermal since 1976, and yet there are only 10 megawatts of geothermal installed per 1 million inhabitants in the United States, compared with 1,917 megawatts in Iceland and 21 in the Philippines, according to Gehringer’s research. In the last three years, the amount of geothermal capacity in the United States has stayed flat at 3,100 megawatts, he said.

Despite the challenges, Smith is optimistic.

“It’s all about the art of the possible,” he said.

And when it comes to electric co-ops’ new renewable energy requirements, Drake and others said geothermal is a valuable resource because it provides constant power that doesn’t vary with the sun or the wind.

“It’s good, clean, steady power,” Smith said.


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