Full Committee Hearing- Geothermal Energy

The purpose of the hearing is to receive testimony relating to implementation of the Energy Policy Act of 2005 on geothermal energy and other renewable energy production on Federal lands in the Western states.

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Witness Panel 1

Hon. Lynn Scarlett

Deputy Secretary

Department of the Interior
Read statement
Witness Panel 1

Hon. Lynn Scarlett
Statement of Lynn Scarlett

Deputy Secretary

U.S. Department of the Interior

before the

Senate Energy Committee

Oversight Hearing on Onshore Renewable Energy on the Federal Lands

July 11, 2006

Mr. Chairman, thank you for the opportunity to appear here today to discuss with you the Department of the Interior’s role in managing renewable energy resources on the public lands.

Background

Rising gasoline prices and home heating and cooling bills are reminding Americans of how dependent we are on secure, reliable supplies of energy. Energy is vital to expanding our economy and enhancing Americans’ quality of life. The Energy Policy Act of 2005 (EPAct) encourages the development of renewable energy resources as part of an overall strategy to develop a diverse portfolio of domestic energy supplies for our future. In fact, public and private wind and other renewable energy generating sectors of our economy are the fastest growing energy sources in the United States.

However, an imbalance exists between our energy consumption and domestic energy production. We are looking at ways to narrow the gap between the amount of energy we use and the amount we produce. Earlier this year, in the State of the Union Address, President Bush declared his continuing intention to secure America’s energy future, which includes promoting dependable, affordable, and environmentally-responsible domestic energy production while reducing U.S. dependency on foreign oil. In passing the EPAct, Congress also signaled that it shares the President’s goal of providing access to reliable domestic energy supplies that are crucial to the economic health and security of every American household and business. The EPAct creates incentives and streamlined procedures for Federal resource agencies to cooperate in meeting this challenge. The Department of the Interior (DOI) is doing its part in implementing these incentives. There is no single solution, but renewable and other alternative energy sources are integral components of our energy future.

While the quantity of domestic energy produced from renewable resources on Federal lands is small in comparison to conventional resources, the growing cost of conventional energy resources and the need to diversify our energy portfolio has spurred an increased interest and growth in renewable energy development.   The Energy Information Administration’s (EIA’s) recently released 2006 Annual Energy Outlook estimates that our consumption of renewable fuels will grow approximately 60 percent from 6 quadrillion BTUs in 2004 to 9.6 quadrillion BTUs in 2025 as a result of advancements in renewable energy technologies, higher fossil fuel prices, State requirements to produce renewable energy, and incentives provided by the EPAct. The EIA estimates that in 2030 renewable energy will account for over ten percent of our domestic energy production and about seven percent of our consumption.

DOI, as the manager of over one fifth of the nation’s land, has a significant role to play in this projected increase in domestic renewable energy production. Lands managed by the Bureau of Land Management (BLM) currently supply almost half of the nation’s geothermal generation and over 5 percent of domestically- installed wind capacity. The potential for more renewable energy production is high according to the 2003 assessment by the BLM and Department of Energy’s National Renewable Energy Laboratory of the potential for renewable energy production from public lands. The assessment indicated that 20 BLM planning units in seven western states have high potential for power production from three or more renewable energy sources.

New authorities and provisions in the EPAct have given DOI bureaus, such as the Minerals Management Service (MMS), the BLM, and the U.S. Geological Survey (USGS), the ability to explore the future development of promising new energy sources such as onshore and offshore wind, solar, and biomass energy; the EPAct also has provided bureaus, such as the U.S. Fish and Wildlife Service (USFWS), additional resources to help ensure these technologies are developed in an environmentally responsible manner.

I will discuss each of these energy sources, as well as alternative sources of fossil energy, and how they are integrated into DOI’s energy programs. I also will discuss how DOI agencies are playing a leadership role in utilizing renewable energy resources at existing and new DOI facilities.



Production of Renewable Energy Resources

Wind

The BLM manages approximately 100 wind energy right-of-way (ROW) authorizations. Since 2001, the BLM has issued more than 90 wind energy ROW authorizations, compared to less than 5 issued from 1996-2000. Most of these authorizations are for testing and monitoring. Approximately 25 of the ROW authorizations are producing windfarms, with the capacity to produce 500 Megawatts (MW) of electricity – enough to meet annual electricity consumption of 420,000 homes based on EIA’s average consumption statistics that a 1 MW plant running continuously at full power for a year could produce the amount of electricity consumed annually by 804 U.S. households.

In response to increased demand for wind energy, the BLM and the USFWS completed a programmatic wind energy EIS and a programmatic biological opinion in 2005 allowing 52 land-use plans in 9 western states to be amended. Completion of this EIS and the biological opinion was a significant accomplishment that should provide the foundation for the authorization of more than 3,200 MW of wind energy in an environmentally responsible manner. The BLM is reviewing several proposals that would more than double the capacity of wind generation on public lands. It is anticipated that applications or authorizations for 300-500 MWs – of the 3,200 MW wind capacity identified in the EIS - will be processed in the next two years.

With the new authority under the EPAct, the MMS is working diligently to develop a regulatory program to authorize offshore alternative energy proposals, such as wind, solar, wave, and ocean current technologies. The Renewable Energy and Alternate Use Programmatic EIS, developed by the MMS, is currently open for public scoping. The EIS will form the foundation for the new alternative energy program and for future applications. The MMS expects to complete the programmatic EIS and rulemaking process by November 2007.

Solar

The BLM has received two ROW applications for large concentrated solar power commercial generating facilities encompassing 12,800 acres with an estimated output of 1,750 MW. The BLM is prepared to respond to additional industry interest for concentrated solar power use of the public lands based on a BLM Solar Energy Development Policy issued in 2004.

Geothermal

The BLM currently manages 354 geothermal leases, 55 of which are producing and provide geothermal energy to 34 power plants. Since 2001, the BLM has processed more than 200 geothermal lease applications, compared to 20 lease applications received from 1997-2001. Since the enactment of the EPAct, Nevada BLM has issued 25 geothermal leases. Another 97 applications filed prior to enactment are pending approval. In addition, the BLM manages a small number of direct-use leases, which provide an alternative source of energy for greenhouses, fish farms, and other commercial facilities. Demand for both electrical power and direct-use from Federal geothermal resources is expected to increase.

Over the past 5 years, the BLM has diligently worked to expedite the processing to pending geothermal lease applications on public lands.   Since 2001, 199 leases have been issued, compared to 25 leases from 1996-2001. In 2004, the BLM completed a strategic plan to guide the agency in allocating resources for high priority geothermal activities.

The EPAct made comprehensive changes to the Geothermal Steam Act - the authorizing statute for geothermal development on public lands – by requiring land nominated and made available for leasing to be leased on a competitive basis; restructuring royalties; and revising lease terms, conditions, and rentals.   As a result, the BLM and the MMS are rewriting their geothermal rules to conform to the statutory changes. The BLM authorizes geothermal development on Federal lands, and the MMS collects revenues owed to the Federal government and ensures these payments comply with applicable statutes and regulations.

To improve coordination in the geothermal leasing and permitting process, address pending leases, and develop a joint data system for geothermal activity, the BLM and Forest Service (FS) signed an Interagency Memorandum of Understanding (MOU) in April 2006.



This year, the USGS began a three-year effort to update a nationwide geothermal resource assessment completed in the 1970’s. The assessment will include estimates of electric power production potential from identified geothermal systems; estimates of the magnitude and general location of undiscovered geothermal systems; and evaluations of the impact of new geothermal technologies, such as Enhanced Geothermal Systems. The USGS is collaborating with other Federal, State, and local government agencies and the geothermal industry on a number of specific geothermal research projects, including new geothermal technologies, consulting with States developing and implementing Renewable Portfolio Standards (RPS), and providing technical advice to local agencies, Indian tribes and others seeking to develop geothermal projects.

Biomass

Utilization of biomass by-products from timber harvests and other activities on the public lands is an innovative market solution for reducing recurrent wildfire danger, disposing of wood waste, and expanding economic opportunities for local communities to develop energy generation industries. The BLM offered nearly 30,000 tons of biomass mostly through stewardship contracts in 2004, the first full year the BLM had this authority. In 2005, 71,000 tons of wood by-products were offered through contracts by the BLM. The target for 2006 is to offer 60,000 tons of biomass through contracts or agreements.

When treating areas for hazardous fuels reduction, the goal for 2006 is to offer biomass in 10 percent of the BLM’s mechanical treatment projects, increasing to 50 percent by 2008. The BLM has also established six demonstration sites, which have a potential generation capability of 66 MW.

We have been working to sponsor conferences, participate in workgroups, and form partnerships to identify and remove barriers to biomass utilization. For example, BLM entered into a Memorandum of Understanding (MOU) with the Confederated Tribes of Warm Springs and FS in Central Oregon under which 80,000 dry tons (8,000 acres) of woody biomass material would be offered each year. The competitive offerings will be available beginning in FY 2008. Based on this MOU, the Tribe is seeking a power purchase agreement and bank financing to develop a 15.5 MW cogeneration plant.

A Declaration of Cooperation was signed in mid-January, 2006 in support of a Lakeview, Oregon Biomass Energy Facility. The BLM Lakeview District was one of 22 signatories, including businesses, governments, and non-profit organizations in support of this project. Some hurdles still need to be cleared before there are any ground-breaking activities to build the proposed power plant, which is planned to be 10-15 megawatts in size. The Oregon governor's office is touting this agreement as a prototype for other potential agreements throughout the state to achieve multiple objectives, including sustaining rural communities, dealing with high fire prone forests, and encouraging utilization of biomass in lieu of burning. One noteworthy item about this agreement is that it garnered support from a broad cross-section of stakeholders from industry and conservation groups.

To aid in the utilization of biomass, in 2003, the Departments of the Interior, Agriculture, and Energy signed a Memorandum of Understanding agreeing to work together to promote the use of wood biomass. An interagency working group has been established under this Memorandum of Understanding and will report to the Biomass Research and Development Board.

Early in 2004, the Secretary of the Interior charged DOI bureaus with development of a coordinated biomass implementation strategy. Under this direction, and using the authorities provided in the Healthy Forests Initiative, the National Fire Plan, stewardship contracting, and the Healthy Forest Restoration Act, the BLM implemented its strategy for increasing biomass utilization from BLM-managed lands.

DOI also adopted a standard contract provision that allows for the removal of biomass as part of all forest and rangeland thinning projects or any other contracts that cut vegetation. This contract option is for use by all DOI bureaus. In addition, Section 210 of the EPAct authorizes Federal grants for biomass use. The BLM is working with the FS to implement a joint biomass action plan and foster new markets in biomass utilization. To help increase the market for materials made of small wood and wood biomass, the agency has added a factor to their procurement solicitations to encourage the purchase of bio-based materials.

Alternative Sources of Fossil Energy

DOI is also facilitating the development of alternative sources of energy from unconventional fossil fuel resources, such as gas hydrates, which, while currently uneconomic to commercially develop, present enormous potential for domestic energy production in the years to come.



Gas Hydrates

Gas hydrates are naturally occurring solids in which water molecules trap gas molecules (usually methane) in a cage-like structure. Gas hydrates are widespread in permafrost regions and areas offshore and have the potential to contribute significantly to the world’s gas supply. The most recent assessment of gas hydrate potential for the United States was conducted by the USGS in 1995. The USGS estimated that the United States had more than 200,000 Trillion Cubic Feet (TCF) of in-place gas hydrate resources, compared to current estimates of approximately 1,200 TCF of natural gas from conventional sources. More than 98 percent of this potential resource is believed to exist offshore. Currently, the nation consumes approximately 24 TCF on an annual basis.

Although there is no current commercial production of gas from known gas hydrates deposits, recent studies have demonstrated that production of these resources is technologically feasible.

Research into gas hydrates has been conducted for approximately 25 years, and the level of knowledge about the occurrence and potential recoverability of gas hydrates has evolved. Promising results have been shown in Alaska. With this new knowledge, the MMS, in co-operation with the USGS and leading academic researchers, is currently in the process of reassessing the extent of potential quantities of in-place gas hydrates on the Outer Continental Shelf and MMS will be the first to assess the technically recoverable resource.

The MMS has focused its hydrate activities on assessing and evaluating hydrate resources and assuring that industry hydrate exploration and development activities can occur in a safe and an environmentally sound manner. In addition to partnering with USGS in developing a methodology for assessing offshore gas hydrates and performing a new resource assessment, the MMS is also developing a detailed tract-specific methodology that would be used as the basis to determine fair market value assuming production of this resource eventually becomes economic. The methodology will provide significantly more specificity on the location of the resource.

The USGS, the BLM, and the State of Alaska are currently in the process of reassessing the potential quantities of technically recoverable gas hydrates on the North Slope of Alaska – the first ever technically recoverable resource estimate of its kind. This estimate will support the BLM and the Alaska Department of Natural Resources resource management responsibilities.

Working with other Federal agencies, DOI has established goals to (1) improve our understanding of the various aspects of gas hydrate occurrence in the natural environment, (2) improve our detection abilities via various geophysical techniques, including remote sensing, and (3) improve our understanding of potential production techniques and the behavior of hydrates during production, including reservoir performance and fluid behavior.

DOI is evaluating the need for rulemaking to encourage natural gas production from gas hydrates as directed by Section 353 of EPAct.

Utilization of Renewable Energy Resources at DOI Facilities

In addition to DOI’s significant role in domestic renewable energy production, bureaus within DOI are taking on a leadership role by working to advance the use of renewable energy resources at numerous facilities in the field. There is significant potential for the installation and use of renewable energy resources, such as solar, geothermal, and wind power at existing and new DOI facilities.

The BLM generates a total of 185 Megawatt-hours of electricity from photovoltaic systems each year from over 600 installations. Varied uses of photovoltaics include water pumping, outdoor lighting, communication sites, weather and water monitoring, remote field stations, and visitor centers. Since 1995, the BLM has installed over 130 photovoltaic systems to replace fossil-fuel powered generators. The seasonal nature of the remote facilities and long summer sun hours have made solar energy a cost effective approach to supplying power to these facilities. Some examples of solar photovoltaic projects undertaken at the BLM facilities include:

Grid-connected systems at the Cannonville and Big Water Visitor Centers (Utah); and the Vale Fire Dispatch Center (Oregon);

Outdoor lighting systems at various recreation sites along the Colorado River near Yuma and on Lake Havasu (Arizona);

Upgrades to the Nixon system (Arizona) to meet the needs of the new 3,000 sqft fire station;

Water pumping and water treatment at the Clay Creek Recreation Site (Oregon);

Water pumping on a remote stock and wildlife site water system (Idaho);

Off-grid system (3 kW) at the Washburn Ranch, Carrizo Plain National Monument (California); and

Grid-connected system (7.5 kW) at Escalante Science Center, Grand Staircase-Escalante National Monument (Utah).

The National Park Service (NPS) also is utilizing innovations in solar power at facilities throughout the National Park System. The Zion National Park Visitor Center, designed collaboratively by the NPS and the Department of Energy's National Renewable Energy Laboratory, uses 66 percent less energy than code and is virtually immune to the frequent power outages in the region. The project represents a synthesis of passive heating, cooling and daylighting, energy efficiency, and photovoltaic technology. Shading, natural ventilation, passive evaporative cool-towers, clerestories, trompe walls, direct solar gain, thermal mass, high efficiency lights, and 7 kilowatts of photovoltaics all work together to nearly eliminate loads. The project resulted in cost savings of more than $10,000 and 309 million BTU in site energy and 1 billion BTU in source energy.

At Mojave National Preserve, the NPS has constructed a new Wildland Fire Center that is highly functional, energy efficient, and cost effective. The Center features an 11 kilowatt hybrid system with 85 thin flexible photovoltaic panels placed on the roof, eliminating the expense of a solar panel array frame. In interior spaces without windows, solar light tubes practically eliminate the need for electrical lighting during the day. A solar-powered radiant floor heating system prevents the water lines in the fire engine bays from freezing.   The project has achieved an energy savings of 624 million BTU and a cost savings of more than $16,000 in one year.   At the White River Entrance of Mount Rainier National Park, the NPS has constructed a 20-kilowatt solar hybrid system, which brings reliable electrical power to a remote area without a connection to an electric utility. The new system is saving the White River installation more than $9,000 in fuel costs and approximately 776 million BTU annually.

The Bureau of Indian Affairs improved energy conservation at Sherman Indian High School by installing new lighting, heating, ventilation, and a renewable energy photovoltaic system. These and other improvements helped achieve a savings of more than 8 billion BTU and more than $179,000.

At Missisquoi National Wildlife Refuge, the FWS has worked collaboratively with community partners, Efficiency Vermont, the State of Vermont, the Town of Swanton, and a design team led by Centerbrook Associates on a new headquarters and visitor contact station that exemplifies the principles of sustainable design. This facility, dedicated on October 15, 2005, minimizes energy use, makes efficient use of resources, and reflects sensitivity to the site. Achievements of the project include selection of recycled-content materials, passive solar energy design, energy efficiency, water conservation and runoff treatment, and sustainable architecture. Its renewable energy systems capture geothermal, solar, and wind energy with a geothermal heating, ventilation, and air conditioning (HVAC) system; a 15 kW photovoltaic solar array; a Bergey 10 kW wind turbine; and an energy-efficient lighting and controls system.

At the Parker River National Wildlife Refuge, the USFWS incorporated the use of recycled building materials and low-VOC building materials, including engineered wood, plastic lumber, linoleum flooring, fiberboard, sheetrock, exterior decking, tile, deck piers, and carpet with high recycled content in the construction of the visitor center and administrative headquarters. Water conservation technologies, including directing roof runoff to groundwater recharge, installing low-flush toilets, and implementing other best water management practices, save thousands of gallons of water per year. Passive solar techniques such as southeast building orientation and daylighting, along with super insulation of the building envelope and high-efficiency lighting with self-adjusting dimmers significantly reduce energy use over a traditional office building.

Conclusion

In conclusion, Mr. Chairman, energy is vital to expanding our economy and enhancing Americans’ quality of life, and producing energy from renewable and other alternative domestic resources is a critical component of the Nation’s energy portfolio. Lands managed by DOI have a major role to play in the diversification of the Nation’s energy sources while ensuring protection of habitat and mitigating impacts to wildlife, cultural and natural resources. DOI also will continue to lead by example, utilizing renewable energy resources at existing and new DOI facilities.

DOI has been working with other agencies and has taken steps in a variety of scientific endeavors to understand renewable and other alternative energy resources and to help bring them to a place where they may contribute to the energy mix of the country. Even the development of renewable energy resources requires surface acreage, and DOI manages millions of acres of land, many of which have energy potential. The BLM and MMS have been working on a variety of fronts to meet industry demand for renewable and other alternative sources of energy. The USGS has been leading scientific investigations to improve our understanding of these energy resources. We stand ready to respond to the ever-increasing need for energy development from the resources we manage on behalf of the Nation.

Thank you for the opportunity to highlight a few of the steps the Department of the Interior has taken to encourage the development of renewable and other alternative energy resources on the public lands.

Renewable energy will be extremely important in delivering larger supplies of clean, domestic power for America’s growing economy. This concludes my testimony. I would be happy to answer any questions you have.
Ms. Sally Collins

Associate Chief

US Forest Service, Department of Agriculture

Read statement

Witness Panel 1

Ms. Sally Collins

Sally Collins

Associate Chief

Forest Service

US Department of Agriculture

Before the

Committee on Energy and Natural Resources

United States Senate

Renewable Energy on Federal Lands

July 11, 2006

Mr. Chairman and members of the Committee, thank you for this opportunity to discuss renewable energy production on National Forest System lands.

I understand this hearing is one of a series the committee is holding regarding implementation of the Energy Policy Act of 2005, Public Law 109-58. Renewable energy development plays a significant role in the agency’s implementation of the Energy Policy Act of 2005 (EPAct 2005). As you know, that law significantly benefits consumers by increasing energy supplies while protecting the environment and fostering greater competition in the marketplace. The Act also improves the Nation’s energy security and reduces our dependence on foreign sources of oil by increasing the use and diversity of renewable energy sources and by reducing energy consumption through greater conservation and energy efficiency.

First, a quick synopsis of what we’ve done under the EPAct 2005 to date. To meet the provisions of titles II and III of the Act, we have completed three Memorandums of Understanding (MOUs). One, under section 365, improves energy permit coordination on Federal lands and which assigns agency personnel to pilot project offices. The second, with the Bureau of Land Management (BLM) for timely processing of pending geothermal lease requests under section 225 was completed in April 2006. The third with the BLM under 363 improves oil and gas leasing and permitting procedures between the BLM and Forest Service. We also worked cooperatively with BLM to revise the Oil and Gas Onshore Order No. 1 regulation on the approval of oil and gas onshore lease operations.

In addition, we have processed 254 special use authorizations (97 percent) within established timeframes for electric transmission lines, oil or gas pipelines, and renewable energy generation facilities. We, along with other Federal agencies developed and published an interagency rule making for expedited trial-type hearings for applicants or other parties contesting conditions for hydropower facilities. We have begun implementing section 368, which calls for designating energy corridors on Federal lands. This effort included public scoping meetings in 11 Western states. The public comment period started with the publication of the preliminary draft corridor map (June 9, 2006) and ran until July 10, 2006.

I will now discuss each renewable energy source separately.

Geothermal Energy

Nearly 50 percent of the nation’s geothermal energy production comes from Federal lands. There are currently 354 Federal geothermal leases, 116 on NFS lands. At the present time, there are 5 producing leases on NFS lands contributing to a 12 mega-watt power plant and a 45 mega-watt power plant. Generally, one megawatt provides enough electricity for about 1,000 homes.

A joint report prepared by the Department of Energy’s (DOE) National Renewable Energy Laboratory and the Department of the Interior (DOI) describes the potential for geothermal development on public lands in the 7 states that have geothermal resources. The report is entitled Opportunities for Near-Term Geothermal Development on Public Lands in the United States. While no specific geothermal resource assessment analysis has been completed to date addressing NFS lands, the report provides a synopsis of geothermal activity and site specific facts related to this activity for NFS lands by State.

The BLM and the Forest Service coordinate geothermal resource leasing activities on NFS lands. The Forest Service provides the consent to lease and the BLM issues the leases. The Forest Service serves as lead agency for geothermal leasing availability analyses and decisions and conducts analysis on geothermal activities on NFS lands. Also, we develop lease stipulations for NFS lands that are only as restrictive as necessary to protect the resources for which they are applied. The Forest Service and the BLM coordinate the signing and release of decision documents in leasing of NFS lands.

Despite the environmental benefits of geothermal energy, there have been barriers to development of these resources on NFS lands. The study conducted jointly by the DOE and DOI concluded there is a need to streamline environmental reviews. The EPAct 2005 addresses this and other issues. The Act calls for streamlining the permitting process, changes the royalty structure to provide payments to local governments, and directs the U.S. Geological Survey to update the assessment of geothermal resources made during 1978 and submit this updated assessment to Congress. It also provides a production tax credit. These changes have spurred increased interest in developing geothermal resources.

The Forest Service concurrence is pending on 65 lease applications in Oregon, Washington, California., Arizona, Nevada, and Idaho. Issues to be addressed include requirements associated with threatened and endangered species and the need to amend land management plans that do not presently address geothermal development. Under section 225 of the EPAct 2005, the Forest Service has signed an MOU with BLM that provides administrative procedures for processing geothermal lease applications, establishes a program to reduce the backlog of lease applications by 90 percent within five years, and provides for a joint data retrieval system for tracking lease and permit applications.

Woody Biomass

Biomass has surpassed hydropower as the largest domestic source of renewable energy. A recent joint U.S. Forest Service – Department of Energy report, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply, commonly known as the “Billion Ton Report,” projects that there are over 1.3 billion dry tons per year of biomass potential – enough to produce biofuels sufficient to meet more than one-third of the nation’s current demand for transportation fuels by 2030. About one-quarter of that total, roughly 400 million dry tons of biomass could be produced in a sustainable manner from all forest and rangelands - including private, state, tribal and federal lands.

Woody biomass is woody materials removed from National Forest System, other Federal, State and private lands as a byproduct of forest management activities. Woody biomass includes tree stems, limbs, tops, needles, leaves and other woody parts. Currently most of this material is underutilized, commercial value is low, markets are small to non-existent and the infrastructure needed to process this material is insufficient or nonexistent in many parts of the country.

The Administration’s Healthy Forests Initiative has significant potential to increase the availability of woody biomass from Federal lands. As the committee is aware, the Forest Service and the Department of the Interior last year treated hazardous fuels on more than 2.9 million acres of land, and reduced hazardous fuels on an additional 1.4 million acres through other land management actions. Roughly one-quarter of the acres treated resulted in biomass utilization for forest products, bio-based or bio-energy purposes, but the potential exists for substantial expansion of biomass use. Federal agencies plan to treat 2.9 million more acres in 2006, and accomplish hazardous fuels reduction on an additional 1.6 million acres through landscape restoration activities, with an additional 4.6 million acres planned for 2007, which includes 3 million acres of hazardous fuels treatments and 1.6 million acres through landscape restoration activities.

To put this material to productive use requires an integrated strategy involving federal, state, tribal and private forest owners along with communities and other private interests. The public benefits of diverting this material from other disposal options such as open burning or expensive landfilling, and the positive environmental consequences of a clean and renewable energy source are just beginning to be articulated and valued in the market through renewable energy credits, carbon credits and pollution credits.

Local areas and regions of the country have unique opportunities and challenges related to biomass utilization. Hurricane damage in the South, fuels treatments needs around communities, and insect outbreaks all provide cross-ownership woody biomass utilization challenges.

The Forest Service is also increasing our Research and Development efforts at the Forest Products Laboratory and at our Research Stations to provide renewable energy and alternatives to fossil fuels from woody biomass. This effort includes improved in-woods operations, transportation and handling, processing and new bio-based products.

The restoration of our nation’s forest to be more resilient to natural disturbance, such as catastrophic wildfires is a primary objective for a significant portion of our timber sale program. These restoration efforts are dramatically affected by biomass utilization and the global timber market.

Therefore, biomass utilization is critical to our ability to meet our restoration needs. The FY 2007 President’s Budget addresses this need by dedicating $610 million to implementing the Healthy Forest Initiative. This includes $5 million to foster markets in biomass utilization. Additionally, the President’s Healthy Forests Initiative, the Healthy Forests Restoration Act, and stewardship contracting, allow the Forest Service to work more effectively and efficiently with the local community in treating hazardous fuels, and to promote investment in the local timber infrastructure.

In summary, the Forest Service’s biomass energy activities are aimed at providing a predictable and sustainable supply, improving utilization through technical assistance and science, and developing partnerships across woody biomass interests.

Wind and Solar Energy

In 2005, the Forest Service and the Department of Energy’s National Renewable Energy Laboratory established a partnership to conduct an assessment of renewable energy resources on National Forest System lands in the continental United States, including administrative and physical limitations on access to them. One goal of the resulting report was to identify those National Forest and Grassland units that have the highest potential for private-sector development of wind, concentrating solar power and photovoltaic energy resources.

Using geographic information system (GIS) data, the interagency team developed screening criteria for each of the solar and wind resources to produce maps of the 25 NFS sites with the highest potential for development of each energy source. Sites had to be relatively flat and not near urban areas and were excluded if they were not accessible to appropriate transmission capacity or a major road. Inventoried Roadless Areas and other Specially Designated Areas were also excluded. The assessment found that 99 NFS Units have high potential for power production from solar or wind sources and 20 have high potential for power production from two or more wind or solar sources.

Energy facilities qualify as one of the potential uses of National Forest System lands. (Mining and Minerals Policy Act and Forest Service Manual 2802). The Forest Service processes proposals for solar and wind energy facilities using existing Special Uses regulations and policies. Proposals to use National Forest System Lands are submitted to the District Ranger or Forest Supervisor having jurisdiction over the affected lands. The authorized officer then initiates pre-application actions that involve initial and second-level screening which are followed by a formal application in the event that a proposal meets the screening criteria.

The processing of recent wind energy proposals on the Green Mountain National Forest in Vermont and on the Huron-Manistee National Forest in Michigan has revealed that policy needs to be developed related to wind energy projects due to the unique factors, such as the impact on migratory birds, associated with this energy resource.

In response, Joel Holtrop, Deputy Chief for the National Forest System, announced the creation of an ad hoc Wind Energy Guidance Team on February 24, 2006. The team is developing policy to addressing the factors associated with wind energy facilities on National Forest System lands.

The primary goal of the team is to provide local Forest Service officials with the information and tools necessary to efficiently process proposals for wind energy facilities. A specific wind energy policy will ensure that local officials can make well-informed decisions and will ensure that adequate and consistent analyses and procedures are implemented to assess and evaluate proposals.

The team will determine whether any special considerations should be made when screening wind energy proposals, the type and term of authorizations, and the methodology for calculating the fees associated with the authorization. The team is also considering guidance for potential visual, scenery, recreation, or wildlife impacts and measures to mitigate those impacts.

The recent BLM Programmatic Environmental Impact Statement on Wind Energy Development is being used as a resource to allow for interagency consistency in policy. The ad hoc team has directly consulted with BLM employees concerning certain text and procedures of the BLM Programmatic Environmental Impact Statement (PEIS). The Forest Service intends to adopt many of the best management practices provided in the PEIS. In those instances where the Forest Service's legal authority, management practices and procedures do not allow us to completely align with the BLM, we are developing direction that is better suited to our agency's particular needs.

Our guidance also differs from the BLM due to continuing advances in wind energy technology, as well as new information on its affects on wildlife and civilian and military radar. Our direction will address these emerging issues to ensure it is based on the available best science. The Forest Service expects to publish the wind energy policy and handbook direction in the Federal Register this fall. The policy will call for the evaluation of wind energy proposals to be done at the Forest level using public comment processes due to the differing landscapes, habitats, wildlife populations, and public concerns unique to each site.

To date, the Forest Service has received no applications to construct a concentrating solar power or photovoltaic project.

In conclusion, Mr. Chairman, the Forest Service is firmly committed to the development of renewable energy sources on National Forest System lands. These lands are already one of the nation’s larger sources of hydropower and geothermal energy. The agency will play a leading role in increasing the utilization of woody biomass as a renewable energy source. We are confident we can accomplish all of this within the statutory and regulatory framework under which the Forest Service manages 193 million acres of forests and grasslands.

I would be glad to answer any questions you may have.
Mr. Jim Wells

Director, Natural Resources and the Environment

Government Accountability Office

Read statement

Witness Panel 1

Mr. Jim Wells

United States Government Accountability Office
GAO Testimony Before the Committee on Energy and Natural Resources, United States Senate
RENEWABLE ENERGY
Increased Geothermal Development Will Depend on Overcoming Many Challenges
Statement of Jim Wells, Director Natural Resources and Environment
For Release on Delivery Expected at 2:30 p.m. EDT
Tuesday, July 11, 2006
GAO-06-930T
What GAO Found
United States Government Accountability Office
Why GAO Did This Study
Highlights
Accountability IntegrityReliability
July 11, 2006
RENEWABLE ENERGY
Increased Geothermal Development Will Depend on Overcoming Many Challenges
Highlights of GAO-06-930T, a testimony to Pete Domenici, Chairman, Energy and Natural Resources Committee, U.S. Senate
The Energy Policy Act of 2005 (Act) contains provisions that address challenges to developing geothermal resources, including the high risk and uncertainty of developing geothermal power plants, lack of sufficient transmission capacity, and delays in federal leasing. Among the provisions are means to simplify federal royalties on geothermal resources while overall collecting the same level of royalty revenues. This testimony summarizes the results of a recent GAO report, GAO-06-629. In this testimony, GAO describes: (1) the current extent of and potential for geothermal development, (2) challenges faced by developers of geothermal resources, (3) federal, state, and local government actions to address these challenges, and (4) how provisions of the Act are likely to affect federal geothermal royalty disbursement and collections.
What GAO Recommends
GAO concluded that it will be difficult for the Department of the Interior (DOI) to demonstrate that it intends to collect the same level of geothermal royalties as called for in the Energy Policy Act because the Minerals Management Service (MMS) does not systematically collect sales revenue data from electricity sales. Therefore, GAO recommends that the Secretary of the Interior instruct the appropriate managers within MMS to systematically collect these data, and DOI agreed.
Geothermal resources currently produce about 0.3 percent of our nation’s total electricity and heating needs and supply heat and hot water to about 2,300 direct-use businesses, such as heating systems, fish farms, greenhouses, food-drying plants, spas, and resorts. Recent assessments conclude that future electricity production from geothermal resources could increase by 25 to 367 percent by 2017. The potential for additional direct-use businesses is largely unknown because the lower temperature geothermal resources that they exploit are abundant and commercial applications are diverse. One study identified at least 400 undeveloped wells and hot springs that have the potential for development. In addition, the sales of geothermal heat pumps are increasing.
The challenges to developing geothermal electricity plants include a capital-intensive and risky business environment, technological shortcomings, insufficient transmission capacity, lengthy federal review processes for approving permits and applications, and a complex federal royalty system. Direct-use businesses face numerous challenges, including challenges that are unique to their industry, remote locations, water rights issues, and high federal royalties. The Act addresses many of these challenges through tax credits for geothermal production, new authorities for the Federal Energy Regulatory Commission, and measures to streamline federal leasing and simplify federal royalties, which totaled $12.3 million in 2005. In addition, the Department of Energy and the state of California provide grants for addressing technology challenges. Furthermore, some state governments offer financial incentives, including investment tax credits, property tax exclusions, sales tax exemptions, and mandates that certain percentages of electricity within the state be generated from renewable resources.
Under the Act, federal royalty disbursement will significantly change because half of the federal government’s share will now go to the counties where leases are located. Although the Act directs the Secretary of the Interior to seek to maintain the same level of royalty collections, GAO’s analysis suggests this will be difficult because changing electricity prices could significantly affect royalty revenues. Finally, MMS does not collect sales data that are necessary to monitor these royalty collections.
Glenwood Hot Springs, Colorado (left) and geothermal power plant at The Geysers, California (right) Source: GAO
www.gao.gov/cgi-bin/getrpt?GAO-06-930T.
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and methodology, click on the link above.
For more information, contact Jim Wells at (202) 512-3841 or wellsJ@gao.gov.
Mr. Chairman and Members of the Committee:
We are pleased to participate in the Committee’s hearing to discuss the development of geothermal energy on federal lands and the role of geothermal resources in the nation’s portfolio of alternative energy sources. We previously testified that fossil fuels, such as coal, oil, and natural gas, provide about 86 percent of our nation’s total energy consumption, with the rest coming from other sources, including nuclear energy and renewable resources, such as hydroelectric energy, wind, solar energy, and geothermal resources.1 Our nations’ long-standing reliance on imported crude oil and natural gas and disruptions in their supply highlight the need to develop renewable energy sources. Among these sources is geothermal energy. Geothermal energy is a unique renewable resource in that it can provide power that is independent of weather and climate, thereby enabling a consistent and uninterrupted supply of heat and electricity. Geothermal energy also creates fewer environmental impacts than the production of natural gas and other conventional fossil fuels. Because many areas that have the potential to produce additional geothermal energy are located on federal lands, the federal government plays a major role in the future development of geothermal energy.
Harnessing geothermal energy, however, is not easy. Developers of geothermal energy face many challenges, including the high risk and uncertainty of developing geothermal power plants, lack of sufficient capacity to transmit electricity from these plants to consumers, inadequate technology, and delays in leasing federal lands, which supply about 50 percent of the geothermal resources used to generate electricity. To address these and other challenges, the Congress included detailed provisions in the Energy Policy Act of 2005.
My testimony today is based on a report we recently completed entitled “Renewable Energy: Increased Geothermal Development Will Depend on Overcoming Many Challenges.” In this report, we addressed: (1) the current extent of and potential for geothermal development; (2) challenges faced by developers of geothermal resources; (3) federal, state, and local government actions to address these challenges; and (4) how provisions of the Energy Policy Act are likely to affect federal geothermal royalty disbursements and collections. In addressing these issues, we reviewed
1See Meeting Energy Demand in the 21st Century: Many Challenges and Key Questions, GAO-05-414T (Washington, D.C.: March 16, 2005).
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key studies on the extent and potential of geothermal development, interviewed a variety of government and industry officials, reviewed substantial supporting documentation and the Energy Policy Act, analyzed geothermal royalty data, and toured geothermal electricity plants and other facilities in California, Idaho, Nevada, and Oregon.
In summary, we found the following:
• Although locally important, geothermal resources produce a very small portion of our nation’s total electricity and heating needs. In 2004, geothermal resources generated about 0.3 percent of the nation’s total electricity and supplied heat and hot water directly to about 2,300 district heating systems, fish farms, greenhouses, food drying plants, spas, and resorts. The most recent estimates of future electricity generation from geothermal resources suggest that the current production of 2,500 megawatts of electricity—enough to supply 2.5 million homes—could increase to as much as 12,000 megawatts in 11 years. Although the future potential of other geothermal applications is less known, about 400 undeveloped geothermal wells and hot springs could supply heat and hot water directly to a variety of businesses and other organizations.
• The developers of geothermal resources face significant financial, technical, and logistical challenges. Geothermal electric power plant developers face a capital intensive and risky business environment in which obtaining financing and securing a contract with a utility are difficult, where recouping the initial investment takes many years, and where transmission expenses could be costly due to remote locations or capacity constraints on the electric grid. These developers must also use exploration and drilling technologies that are inadequate for the unique attributes of geothermal reservoirs. Developers of electric power plants on federal lands face additional administrative and regulatory challenges and a complicated royalty payment system. Businesses and individuals trying to tap geothermal resources for direct use face unique marketing, financing, and technical challenges and, in some cases, must contend with remote locations, restrictive state water rights, and high royalties.
• To address the many challenges of developing geothermal resources, federal, state, and local governments have implemented a number of incentives and initiatives, many of which show promise. However, it is too early to assess their overall effectiveness. To address the capital intensive and risky nature of developing geothermal power plants, the Energy Policy Act grants developers a federal tax credit. Some states also encourage the production of electricity from renewable energy by granting various tax credits or by passing laws or adopting policies requiring that public
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utilities provide a minimum percentage of their electricity from renewable energy. To address technological challenges, the federal government and the state of California awarded research and development grants through the Department of Energy’s Geothermal Technologies Program and the California Energy Commission, respectively. The Energy Policy Act gives the Federal Energy Regulatory Commission new authorities to address transmission limitations and contains provisions designed to improve the efficiency of federal geothermal leasing and to simplify or reduce federal geothermal royalties.
• How federal royalties are shared will change significantly since passage of the Act, and the total amount of royalties collected could change significantly if electricity prices also change. While the Act continues to provide that 50 percent of federal geothermal royalties will be disbursed to the states in which the federal leases are located, an additional 25 percent will now be disbursed to the counties in which the leases are located, leaving only 25 percent to the federal government. The Act also directs for most leases that the Secretary of the Interior seek to maintain the same level of royalty revenues as before the Act, but our analysis suggests that this will be difficult because of two factors. First, because lessees in certain situations will have the option of choosing a different formula for calculating royalties, changing electricity prices could significantly affect the percentage of future royalty revenues that they pay. Second, the Minerals Management Service (MMS) does not routinely collect from royalty payors the gross sales revenue figures for the electricity they sell so MMS cannot determine if or how these future royalty revenues differ from what lessees would have paid before the Act. We have made recommendations to the Secretary of the Interior to instruct the appropriate managers within MMS to collect from royalty payors the gross sales revenue figures from electricity sales. MMS has agreed to do so.
Geothermal energy is literally the heat of the earth. This heat is abnormally high where hot and molten rocks exist at shallow depths below the earth’s surface. Water, brines, and steam circulating within these hot rocks are collectively referred to as geothermal resources. Geothermal resources often rise naturally to the surface along fractures to form hot springs, geysers, and fumaroles. For centuries, people have used naturally occurring hot springs as places to bathe, swim, and relax. More recently, some individuals have constructed buildings over these springs, transforming them into elaborate spas and resorts, thereby establishing the first direct use of geothermal resources for business purposes. Businesses have also established other direct uses of geothermal resources by drilling wells into the earth to tap the hot water for heating
Background
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buildings, drying food, raising fish, and growing plants. Where the earth’s temperature is not high enough to supply businesses with geothermal resources for direct use, people have made use of the ground’s heat by installing geothermal heat pumps. Geothermal heat pumps consist of a heat exchanger and a loop of pipe extending into the ground to draw on the relatively constant temperature there for heat in the winter and air conditioning in the summer.
Geothermal resources can also generate electricity, and this is their most economically valuable use today. Only the highest temperature geothermal resources, generally above 200 degrees Fahrenheit, are suitable for electricity generation. When companies are satisfied that sufficient quantities of geothermal resources are present below the surface at a specific location, they will drill wells to bring the geothermal fluids and steam to the surface. Upon reaching the surface, steam separates from the fluids as their pressure drops, and the steam is used to spin the blades of a turbine that generates electricity. The electricity is then sold to utilities in a manner similar to sales of electricity generated by hydroelectric, coal-fired, and gas-fired power plants.
In the United States, geothermal resources are concentrated in Alaska, Hawaii, and the western half of the country, primarily on public lands managed by the Bureau of Land Management (BLM). The Congress set forth procedures in the Geothermal Steam Act of 1970 for leasing these public lands, developing the geothermal resources, and collecting federal royalties. Today, BLM leases these lands and sets the royalty rate, and the Minerals Management Service (MMS)—another agency within the Department of the Interior (DOI)—collects the federal geothermal royalties and disburses to the state governments its share of these royalties as required by law. In 2005, MMS collected $12.3 million in geothermal royalties, almost all of which was derived from the production of electricity.
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Geothermal resources currently account for about 0.3 percent of the annual electricity produced in the United States, or 2,534 megawatts—enough electricity to supply 2.5 million homes. Even though the percentage of electricity generated from geothermal resources is small nationwide, it is locally important. For example, geothermal resources provide about 25 percent of Hawaii’s electricity, 5 percent of California’s electricity, and 9 percent of northern Nevada’s electricity. As of January 2006, 54 geothermal power plants were producing electricity, and companies were constructing 6 additional geothermal power plants in California, Nevada, and Idaho that collectively will produce another 390 megawatts of electricity. Over half of the nation’s electricity generated from geothermal resources comes from geothermal resources located on federal lands in The Geysers Geothermal Field of northern California; in and near the Sierra Nevada Mountains of eastern California; near the Salton Sea in the southern California desert; in southwestern Utah; and scattered throughout Nevada.
Industry and government estimates of the potential for electricity generation from geothermal resources vary widely, due to differences in the date by which forecasters believe the electricity will be generated, the methodology used to make the forecast, assumptions about electricity prices, and the emphasis placed on different factors that can affect electricity generation. Estimates published since 1999 by the Department of Energy, the California Energy Commission, the Geothermal Energy Association, the Western Governor’s Association, and the Geo-Heat Center at the Oregon Institute of Technology indicate that the potential for electrical generation from known geothermal resources over the next 9 to 11 years is from about 3,100 to almost 12,000 megawatts. A more comprehensive and detailed study of electricity generation from all geothermal resources in the United States was published in 1978 by the U.S. Geological Survey (USGS). This assessment estimated that known geothermal resources could generate 23,000 megawatts if all of them were developed. The USGS estimate is greater because it did not consider how much electricity could be economically produced, given competing commercial sources of electricity. In addition, the USGS estimated that undiscovered resources could generate an additional 72,000 to 127,000 megawatts. In short, geothermal resources that could generate electricity are potentially significant but largely untapped.
In 2005, over 2,300 businesses and heating districts in 21 states used geothermal resources directly for heat and hot water. Nearly all of these are on private lands. About 85 percent of these users are employing geothermal resources to heat homes, businesses, and government
Current Geothermal Development Is Limited, and Estimated Potential for Additional Development Varies
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buildings. While most users heat one or several buildings, some users have formally organized heating districts that pipe hot water from geothermal wells to a central facility that then distributes it to heat many buildings. The next most plentiful direct use application is for use by resorts and spas, accounting for over 10 percent of sites. About 244 geothermally heated resorts and spas offer relaxation and therapeutic treatments to customers in 19 states. Two percent of geothermal direct use applications consist of heated greenhouses in which flowers, bedding plants, and trees are grown. Another two percent of geothermal direct use applications are for aquaculture operations that heat water for raising aquarium fishes for pet shops; catfish, tilapia, freshwater shrimp and crayfish for human consumption; and alligators for leather products and food. Other direct use geothermal applications include dehydrating vegetables, like onions and garlic, and melting snow on city streets and sidewalks.
The potential for additional direct use of geothermal resources in the United States is uncertain due to the geographically widespread nature of low-temperature geothermal resources and the many different types of applications. USGS preformed the first national study of low-temperature geothermal sites in 1982, but this study was not specific enough to identify individual sites for development. In 2005, the Geo-Heat Center at the Oregon Institute of Technology identified 404 wells and springs that might be commercially developed for direct use applications—sites that had the appropriate temperatures and are within 5 miles of communities.
Geothermal heat pumps have become a major growth segment of the geothermal industry. They make use of the earth’s warmer temperature in the winter to heat buildings and use the earth’s cooler temperature in the summer for air conditioning. The Geothermal Heat Pump Consortium estimated that 1 million units were in operation in all 50 states as of January 2006. Because geothermal heat pumps are effective where ground temperatures are between 40 and 70 degrees F, they can be installed in almost any location in the United States and, therefore, constitute the most widespread geothermal application and represent the greatest potential for future development.
The development of geothermal resources for electricity production faces major challenges, including high risk and financial uncertainty, insufficient transmission capacity, and inadequate technology. Geothermal groups reported that most attempts to develop geothermal resources for electricity generation are unsuccessful, that costs to develop geothermal power plants can surpass $100 million, and that it can take 3 to 5 years for
Geothermal Development Faces Many Challenges
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plants to first produce and sell electricity. Although some geothermal resources are easy to find because they produce tell-tale signs such as hot springs, most resources are buried deep within the earth—at depths sometimes exceeding 10,000 feet—and finding them often requires an in-depth knowledge of the area’s geology, geophysical surveys, remote sensing techniques, and at least one test well. The risks and high initial costs associated with exploring for and developing geothermal resources limit financing. Moreover, few lenders will finance a geothermal project until a contract has been signed by a utility or energy marketer to purchase the anticipated electricity. Geothermal industry officials describe the process of securing a contract to sell electricity as complicated and costly. In addition, lack of available transmission creates a significant impediment to developing geothermal resources for electricity production. In the West where most geothermal resources are located, many geothermal resources are far from existing transmission lines, making the construction of additional lines economically prohibitive, according to federal, state, and industry officials. Finally, inadequate technology adds to the high costs and risky nature of geothermal development. For example, geothermal resources are hot and corrosive and often located in very hard and fractured rocks that wear out and corrode drilling equipment and production casing.
Developing geothermal resources for direct use also faces a variety of business challenges, including obtaining capital, overcoming specific challenges unique to their industry, securing a competitive advantage, distant locations, and obtaining water rights. While the amount of capital to start a direct-use business that relies on geothermal resources is small compared to the amount of capital necessary to build a geothermal power plant, this capital can be substantial relative to the financial assets of the small business owner or individual, and commercial banks are often reluctant to loan them money. Challenges that are unique to certain industries include avoiding diseases in fish farms; combating corrosive waters used in space heating; and controlling temperature, humidity, and light according to the specifications of the various plant species grown in greenhouses. Even when overcoming these unique challenges, successful operators of direct use businesses may need to secure a competitive advantage, and some developers have done so by entering specialty niches, such as selling alligator meat to restaurants and constructing an “ice museum” in Alaska where guests can spend the night with interior furnishings sculptured from ice. Furthermore, developing direct uses of geothermal resources is also constrained because geothermal waters cannot be economically transported over long distances without a significant loss of heat. Even when these resources need not be moved,
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obtaining the necessary state water rights to geothermal resources can be problematic. In areas of high groundwater use, the western states generally regulate geothermal water according to some form of the doctrine of prior appropriations, under which specific amounts of water may have already been appropriated to prior users, and additional water may not be available.
Developing geothermal power plants on federal lands faces additional challenges. Power plant developers state that the process for approving leases and issuing permits to drill wells and construct power plants has become excessively bureaucratic. BLM and Forest Service officials often have to amend or rewrite resource or forest management plans, which can add up to 3 years to the approval process. Delays in finalizing the resource and forest management plans and in conducting other environmental reviews have resulted in backlogs of lease applications in California and Nevada, particularly when the public has raised more environmental issues. Geothermal applications, permits, and environmental reviews are also delayed by a lack of staff and budgetary resources at the BLM state and field offices that conduct the necessary work and when BLM must coordinate with the Forest Service, which manages land in some project areas. In addition, developers of geothermal resources for both power plants and direct uses faced a challenging federal royalty system prior to the Energy Policy Act. While developers of geothermal power plants generally did not consider the federal royalty system to be a major obstacle in constructing a geothermal power plant, some described paying royalties as burdensome and reported expending considerable time and expense on royalty audits. On the other hand, some developers of geothermal resources for direct use stated that the federal royalty system was a major obstacle and no longer economically feasible.
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The Energy Policy Act of 2005 includes a variety of provisions designed to help address the challenges of developing geothermal resources, including the high risk and financial uncertainty of developing renewable energy projects and the lack of sufficient transmission capacity. Provisions within the Act address high risk and financial uncertainty by providing tax credits and other incentives. For example, starting on January 1, 2005, the Act extends for 10 years a tax credit on the production of electricity from geothermal resources for already existing plants and for any new plants producing by December 31, 2007. The Act also provides a financial incentive for tax-exempt entities, such as municipalities and rural electric cooperatives, by allowing the issuance of clean renewable energy bonds for the construction of certain renewable energy projects, including geothermal electricity plants. Investors can purchase the bonds, which pay back the original principal and also provide a federal tax credit instead of an interest payment. Another provision in the Act may decrease the high risk of geothermal exploration by directing the Secretary of the Interior to update USGS’s 1978 Assessment of Geothermal Resources, which is in need of revision because significant advancements in technology have occurred since its publication. The Act addresses transmission challenges by providing the Federal Energy Regulatory Commission (FERC) with new authorities in permitting transmission facilities and in developing incentive-based rates for electricity transmission in interstate commerce. FERC can now approve new transmission lines in certain instances when a state fails to issue a permit within 1 year of a company’s filing of an application, and companies that acquire FERC permits for transmission facilities can acquire rights of way through eminent domain proceedings. In November 2005, FERC initiated the rulemaking process for establishing these rates.
State governments are also addressing the financial uncertainty of developing renewable energy projects by creating additional markets for their electricity through Renewable Portfolio Standards (RPS). An RPS is a state policy directed at electricity retailers, including utilities, that either mandates or encourages them to provide a specific amount of electricity from renewable energy sources, which may include geothermal resources. To date, 22 states plus the District of Columbia have RPSs, and three other states have set RPS targets, although not all states have significant geothermal resources. Additional state programs also provide tax credits and other financial incentives for renewable energy development, including electricity generation from geothermal resources. These incentives include property tax incentives, sales tax incentives, and business tax credits.
Efforts by Federal, State, and Local Governments to Address the Challenges of Developing Geothermal Resources Show Promise
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To address technological challenges, the state of California and the Department of Energy provide financial assistance and grants to the geothermal industry. California’s Geothermal Resources Development Account competitively awards grants to promote research, development, demonstration, and commercialization of geothermal resources. California’s Public Interest Energy Research Program also funds awards for renewable resource projects, including geothermal projects. On the federal side, the Department of Energy’s Geothermal Technologies Program competitively awards cost-sharing grants to industry for research and development. In the past, program funds have been used to pioneer new drill bits, demonstrate the large scale use of low-temperature geothermal resources to generate electricity, produce new seismic interpretation methods, commercialize geothermal heat pumps, develop slimhole (reduced diameter) drilling for exploration, and produce a strategy for reinjection at The Geysers Geothermal Field. The program’s budget was $23 million in fiscal year 2006. However, the President’s budget contains no funding for fiscal year 2007, and the House’s proposal for fiscal year 2007 is to appropriate a substantially reduced amount of $5 million. In contrast to these funding decisions, the Senate Energy and Water Appropriations Subcommittee just recently approved a budget of $22.5 million for geothermal research and development. While the future impacts of reduced or eliminated funding for geothermal technology is uncertain, industry representatives believe that this funding is necessary to address the near-term need to expand domestic energy production and the long-term need to find the breakthroughs in technology that could revolutionize geothermal power production.
The Energy Policy Act also contains provisions aimed at addressing the challenges of developing geothermal resources on federal lands. Specific provisions are aimed at streamlining or simplifying the federal leasing system, combining prospective federal lands into a single lease, and improving coordination between DOI and the Department of Agriculture. The Act also requires the Secretary of the Interior and the Secretary of Agriculture to enter into a memorandum of understanding that establishes an administrative procedure for processing geothermal lease applications and that establishes a 5-year program for leasing of Forest Service lands and reducing its backlog of lease applications, as well as establishing a joint data retrieval system for tracking lease and permit applications. Finally, the Act also contains provisions that simplify and/or reduce federal geothermal royalties on resources that generate electricity and on resources put to direct use. MMS is in the early stages of implementing these provisions, and hence it is too early to assess their overall effectiveness.
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A royalty provision of the Energy Policy Act redistributes the federal royalties collected from geothermal resources—cutting in half the overall geothermal royalties previously retained by the federal government. Established by the Geothermal Steam Act of 1970, as amended, the prior distribution provided that 50 percent of geothermal royalties be retained by the federal government and the other 50 percent be disbursed to the states in which the federal leases are located.2 While the Energy Policy Act continues to provide that 50 percent of federal geothermal royalties be disbursed to the states in which the federal leases are located, an additional 25 percent will now be disbursed to the counties in which the leases are located, leaving only 25 percent to the federal government. The Act also changes how the federal government’s share of geothermal royalties can be used. Prior to passage of the Act, 40 percent of the federal government’s share was deposited into the reclamation fund created by the Reclamation Act of 1902, and 10 percent was deposited into the general fund of the Department of the Treasury. For the first 5 fiscal years after passage of the Act, the federal government’s share is now to be deposited into a separate account within the Department of the Treasury that the Secretary of the Interior can use without further appropriation and fiscal year limitation to implement both the Geothermal Steam Act and the Energy Policy Act.
While, for most leases, the Energy Policy Act directs that the Secretary of the Interior seek to maintain the same level of royalty revenues as before the Act, our analysis suggests that this will be difficult because changing electricity prices could significantly affect the percentage of future royalty revenues collected. Electricity prices are not possible to predict with certainty, and as discussed below, changing prices could significantly impact royalty revenues because electricity sales account for about 99 percent of total geothermal royalty revenues. The Act contains provisions for each of three specific types of leases that generate electricity: (1) leases that currently produce electricity, (2) leases that were issued prior to passage of the Act and will first produce electricity within 6 years following the Act’s passage, and (3) leases that have not yet been issued.
For leases that currently produce electricity, future geothermal royalty revenues will depend on electricity prices. The Act specifies that the Secretary of the Interior is to seek to collect the same level of royalties
Geothermal Royalty Disbursements Will Change Significantly, and Changes in Electricity Prices Could Alter Total Royalty Collections
230 U.S.C. § 191 (a). The State of Alaska is an exception to this provision, receiving 90 percent. Page 11 GAO-06-930T
from these leases over the next 10 years as it had before the Act’s passage but under a simpler process. Prior to passage of the Act, lessees of most geothermal electricity projects paid federal royalties according to a provision within MMS’s geothermal valuation regulations referred to as the “netback process.” To arrive at royalties due under this process, lessees are to first subtract from the electricity’s gross sales revenue3 their expenses for generation and transmission and then multiply that figure by the royalty rate specified in the geothermal lease, which is from 10 to 15 percent.4 The Act simplifies the process by allowing lessees, within a certain time period, the option to request a modification to their royalty terms if they were producing electricity prior to passage of the Act. This modification allows for royalties to be computed as a smaller percentage of the gross rather than the net sales revenues from the electricity so long as this percentage is expected to yield total royalty payments equal to what would have been received before passage of the Act. Royalty revenues from a geothermal lease currently producing electricity will remain the same if the lessee elects not to convert to the new provision of the Act. On the other hand, if the lessee converts to the new provision, royalty revenues should remain about the same only if DOI negotiates with the lessee a future royalty percentage based on past royalty history and if electricity prices remain relatively constant. If royalties are based on historic percentages of gross sales revenues and electricity prices increase, however, royalty revenues will actually decrease relative to what the federal government would have collected prior to passage of the Act. The federal government will receive less revenue under this situation because expenses for generation and transmission do not increase when electricity prices increase, and the higher royalty rate specified in the lease is not applied to the increase in sales revenues.
For the second type of lease—leases that were issued before the Act and that will first produce electricity within 6 years after the Act’s passage—royalty revenues are likely to drop somewhat because lessees are likely to take advantage of an incentive within the Act. The Act allows for a 50 percent decrease in royalties for the first 4 years of production so long as
3The valuation regulations 30 C.F.R. § 206.352 (c) (1) (ii) actually call for using gross proceeds, not sales revenue, in this calculation. The Energy Policy Act also refers to the term gross proceeds. Gross proceeds are all financial compensation accruing to the lessee from the sales of electricity. Since sales revenues are generally the largest component of gross proceeds, we use the two terms synonymously in this report for simplicity.
4Deductions are estimates that are to be recalculated at the beginning of each year. Prior year’s deductions are to be adjusted based on actual costs during that year.
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the lessee continues to use the netback process.5 Because of the substantial reduction in royalties, it is likely that lessees owning leases issued before passage of the Act will elect to pay only 50 percent of the royalties due on new production for the 4- year period allowed by the Act. This incentive also applies to sales revenues from the expansion of a geothermal electricity plant, so long as the expansion exceeds 10 percent of the plant’s original production capacity. Owners of geothermal electricity plants currently paying royalties under the netback process may elect to take the production incentive for new plant expansions if they perceive that the royalty reduction is worth the additional effort and expense in calculating payments under the netback process and worth the possibility of being audited.
It is difficult to predict exactly how royalty revenue from the third type of lease—leases that have not yet been issued—will change, but it appears that revenue impacts are likely to be minor, based on our review of historic royalty data. The Act specifies that the Secretary of the Interior should seek to collect the same level of royalty revenues over a 10-year period as before passage of the Act. The Act also simplifies the calculation of royalty payments by providing that, for future leases, royalties on electricity produced from federal geothermal resources should be not less than 1 percent and not greater than 2.5 percent of the sales revenue from the electricity generated in the first 10 years of production. After 10 years, royalties should be not less than 2 percent and not greater than 5 percent of the sales revenue from the electricity. Our analysis of data for seven geothermal projects showed that lessees were paying a wide range of percentages after 10 years of production—from 0.2 to 6.3 percent. Three of the seven projects paid under the minimum 2 percent royalty rate prescribed in the Act, suggesting that some projects in the future could pay more under the Act’s new provisions than they would otherwise have paid. On the other hand, one project paid greater than the maximum 5 percent prescribed in the Act, suggesting that it is possible for a plant to pay less in the future than it would otherwise have paid. However, neither the amount that the one plant would have overpaid nor the amounts that the three plants would have underpaid are significant.
Even though provisions of the Energy Policy Act may decrease royalties on direct use applications, the impact of these provisions is likely to be small because total royalty collections from direct use applications are
5Pub. L. No. 109-58 § 224 (2005).
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minimal. In fiscal years 2000 through 2004, MMS reported collecting annually about $79,000 from two direct use projects, or less than 1 percent of total geothermal royalties. While a provision of the Act may encourage the use of federal geothermal resources for direct use by lowering the federal royalty rate, we believe based on challenges facing developers that it is unlikely that this royalty incentive alone will stimulate substantial new revenues to compensate for the loss in revenue due to the lower royalty rate. We believe that in order to substantially increase the development of federal direct use applications, developers must overcome the relatively high capital costs for investors, unique business challenges, and water rights issues.
Finally, MMS does not routinely collect data from the sales of electricity that are necessary to demonstrate that MMS is seeking to maintain the same level of royalty collections from geothermal resources, as directed by the Energy Policy Act. For most geothermal leases, MMS will need to calculate the percentage of gross sales revenues that lessees will pay in future royalties from electricity sales and compare this to what lessees would have paid prior to the Act. However, MMS does not routinely collect these data. Accordingly, we are recommending that the Secretary of the Interior instruct the appropriate managers within MMS to collect from royalty payors the gross sales revenues from the electricity they sell. MMS has agreed to do so.
The Energy Policy Act of 2005 addresses a wide variety of challenges facing developers of geothermal resources. The Act incorporates many of the lessons learned by state governments and federal agencies in an attempt to provide financial incentives for further development and make federal processes more efficient. However, the Act was only recently adopted, and insufficient time has passed to assess its effectiveness. Several of the Act’s major provisions will be left to the federal agencies within DOI for implementation, and the drafting and public comment period for regulations that implement these provisions will not occur overnight. Agencies will also need to spend considerable time and effort in working out the details for implementation and securing the necessary budgets. Hence, the fate of a significant portion of our nation’s geothermal resources depends on the actions of these federal agencies.
Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other Members of the Committee may have at this time.
Conclusions
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For further information about this testimony, please contact me, Jim Wells, at 202-512-3841 or wellsj@gao.gov. Contributors to this testimony include Ron Belak, John Delicath, Dan Haas, Randy Jones, Frank Rusco, Anne Stevens, and Barbara Timmerman.
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Witness Panel 2

Dr. Walter Snyder

Director

Intermountain West Geothermal Consortium

Read statement

Witness Panel 2

Dr. Walter Snyder

Statement of Walter S. Snyder

Director, Intermountain West Geothermal Consortium

Before the Energy and Natural Resources Committee

U.S. Senate

July 11, 2006

Mr. Chairman and distinguished members of the Energy and Natural Resources Committee, I am Professor Walter S. Snyder from Boise State University and Director of the Intermountain West Geothermal Consortium (IWGC). The IWGC is comprised of members from academic institutions in Idaho, Nevada, Utah and Oregon and from DOE's Idaho National Laboratory; our members conduct geothermal research throughout the West. I am honored to have this opportunity to testify today about the importance of geothermal energy production and use on Federal lands in the Western States on behalf of all members of the IWGC.

As has been articulated by the President and Congress, the United States faces a pressing need for the diversification of the national energy portfolio to promote national energy security, lower energy costs, increase reliability, and decrease foreign dependence. Geothermal resources are a key component of this portfolio both for the generation of electricity and the direct use of geothermal heat. This diversification requires the full utilization of high and low temperature geothermal resources, including increased geothermal power generation, expansion of existing geothermal sites, and the development of resources in urban environments close to end users. This is particularly opportune for the West where geothermal resources are sufficient to allow for their economic utilization by our rapidly growing urban centers.

To be able to fully and economically utilize geothermal resources, we must better understand the geological, geophysical, geochemical, and hydrologic nature of these complex systems. Our existing geologic knowledge is insufficient for an accurate assessment of the West's geothermal resource potential. To find new resources, increase the productivity of known resources, and bring these resources online and sustain them, we must improve our ability to fully delineate and characterize both deep and shallow geothermal resources through improved scientific methodology and understanding. That is, we must continue to conduct the basic research that is required to develop this crucial natural and renewable resource.

Through a strategic research program, the Intermountain West Geothermal Consortium (IWGC), authorized by EPACT 2005, is poised to aid federal agencies, industry, state governments, and municipalities to address a wide variety of issues related to geothermal resources. The Consortium is unique in the geothermal community by being the only true multi-institution geothermal research entity. We have moved quickly since EPACT became law and this reflects the collaborative spirit that is our underpinning. The Consortium will bring to the geothermal research community and industry the first coherent, integrated research program and plan for geothermal energy development. My comments, from the perspective of the IWGC, reflect needs and concerns of all geothermal researchers, and research centers from other universities and national laboratories, such as the Geothermal Energy Program at New Mexico State University, Sandia National Laboratories, the Great Basin Center for Geothermal Energy, the National Renewal Energy Laboratory, and others.

The Consortium’s Goal

Our central position is that expanded use of geothermal within the Nation’s energy portfolio requires a better understanding of the complex geologic context of these resources. This complexity is due to their natural heterogeneity, the complexly interrelated processes that have produced these geothermal systems, the impact of production on the natural conditions of the reservoirs, and the need to integrate studies at scales ranging from regional down to the specific details of an individual well. This understanding requires improved geology, geophysics, hydrodynamic modeling, and geochemistry. This knowledge can be used by industry to explore for and find new prospective geothermal regions, maximize the production at sustainable levels from existing sites, and develop procedures to assess the extent and sustainability of direct use geothermal resources. A sustained research program, one that is collaborative in nature and strategic in design, will greatly help expand the geothermal component in the Nation’s and West's energy portfolio.

Geothermal in the West's Energy Portfolio

Perhaps one of the most powerful statements on the importance of geothermal resources is provided by the Western Governors' Association Geothermal Task Force report of January, 2006 and the recent ancillary report by the WGA's Clean and Diversified Energy Advisory Committee (June, 2006). Several of the highlights of these reports that are relevant to my testimony are:

!   The Western States share a capacity of almost 13,000 megawatts of geothermal energy that can be developed on specific sites within a reasonable time frame. This is a commercially achievable capacity for new generation and does not include the much larger potential of unknown, undiscovered resources.

!   Geothermal power can be a major contributor to the power infrastructure and economic well-being of the Western States. New geothermal power capacity could add nearly 10,000 jobs, and also generate about 36,000 person-years of construction and manufacturing business.

!   Geothermal power is a reliable, continuously available (24 hours per day – 7 days per week) baseload energy source that typically operates 90 to 98 percent of the time.

!   Insulated from conventional fossil fuel market volatility, geothermal power supports energy price stability and boosts energy security because it is a domestic resource.

!   Geothermal power can help fulfill Renewable Portfolio Standards (RPS) that strive to diversify the states’ and nation’s energy supply.

!   Geothermal energy is a clean electricity source, discharging far less emissions, including greenhouse gases, than equivalent fossil-fueled generation.

These are powerful, compelling conclusions and have been supported and expanded by others, including the Geothermal Energy Association, the Geothermal Research Council, and the Sustainable Energy Network. The 13,000 megawatts of capacity noted above is the equivalent of about 15 nuclear power plants or 30 coal-fired plants. The Geothermal Energy Association suggests that the potential may actually be two or more times greater, and we agree with that assessment. The 13,000 megawatt estimate is based on current knowledge of the geology, geophysics, hydrology, geochemistry, and reservoir and production engineering. With a more rigorous and complete assessment of the details of this geology, there is no reason that geothermal power output capacity cannot be doubled or even tripled above the 13 gigawatt base estimate. But to reach this output requires continued, indeed expanded, and more targeted research.

Direct use is another important, but often overlooked, part of geothermal energy portfolio. Expanded direct use can significantly reduce our power consumption, but it is a woefully underutilized resource. Direct use includes heating of buildings, greenhouses, aquaculture, and food dehydration. Its utilization has allowed local business enterprises to flourish that would not have otherwise been possible. Direct use for these and other purposes should and could become much more widespread. Boise, Idaho is a prime example within the U.S. of a city that utilizes direct geothermal heat to reduce power consumption. For over 100 years, this moderate temperature geothermal system has provided heat to homes and businesses and since 1983 has been utilized by the City of Boise to heat over 50 downtown buildings. It is estimated that the use of the Boise geothermal system saves the equivalent of about 40,000 megawatt hours per year. What we can learn from a much needed detailed study of the Boise system (that does not currently exist) could be transferred to other metropolitan areas where there are similar systems; for example Reno, Nevada and Salt Lake City, Utah. The potential in these and other Western metropolitan areas is effectively unassessed at this time.

The Role of Research

The West is rich in geothermal resources, this is common knowledge. This is amply documented by the regional maps depicting high heat flow, the reports of the Western Governors' Association, Geothermal Energy Association, Geothermal Research Council, and other organizations. However, the challenge to changing prospects into reality lies in the details --the geologic, geophysical, geochemical and modeling research that must be conducted to fully understand and produce these complex geothermal systems. Compounding this challenge is the fact that many geothermal systems do not have obvious surface expressions, such as hot springs; they are hidden and require a new approach to find them. This information can be made available to federal agencies as they manage geothermal resources on our federal lands, to state agencies as they pursue their mandates, to counties and municipalities as they attempt to assess potential use of geothermal, and to industry as they seek new geothermal resources and ways to better use existing ones. A major hindrance to understanding geothermal systems is that none of the geothermal development companies have in-house research capabilities and thus they, and the nation must rely on university and national laboratories to conduct the needed research.

For power generation, whereas operating costs are comparatively low once a producing field is established, perhaps the major impediment to expanding geothermal's contribution to the energy portfolio is the relatively high up-front cost of bringing power on-line. One of the best remedies to this impediment is improving resource information through efficient exploration and maintaining successful wellbore logs. The geothermal industry agrees with this, and it is the academic and national laboratory research community that must address ways to increase the rate of successful drilling by providing industry with necessary basic geoscience facts and models.

For direct use, the main issues are the extent and size of the resource and the sustainable rate at which it can be used. States, counties, municipalities, and small direct-use companies simply do not have the resources to conduct the level of studies necessary to fully delineate and characterize potential direct use resources. Again, the academic and national laboratory research groups need to step in.

As with most resource industries, ours finds that there is a shortage of trained professionals available to meet personnel needs in both government and industry. This shortage will only become worse without concerted efforts to educate the next generation of science and engineering professionals. Only those universities involved in research will be able to adequately train the students who must become the next generation of state, federal and private industry professionals working on geothermal and related activities.

The Intermountain West Geothermal Consortium

The Intermountain West Geothermal Consortium (IWGC) is comprised of six institutions from four states and will be conducting targeted studies of low-, moderate-, and high- temperature geothermal systems in Idaho, Oregon, Utah, Nevada, California, and elsewhere. As recently stressed in letters to Congress by the Geothermal Energy Association, the knowledge gained by IWGC-type activities is necessary for the continued expansion of geothermal development throughout the West, and indeed, nationally.

The Energy Policy Act of 2005 authorized the creation of the Intermountain West Geothermal Consortium. The IWGC is initially comprised of the Idaho National Laboratory, the Idaho Water Resources Research Institute at the University of Idaho, the Geo-Heat Center at Oregon Institute of Technology, the Desert Research Institute (Nevada), the Energy and Geoscience Institute at the University of Utah, and Boise State University.

We have moved quickly to implement the IWGC once EPACT became law. The IWGC works closely with industry and state and federal agencies to assist in bringing geothermal resources online for direct use and power generation. The consortium proposes to conduct targeted studies of low-temperature systems of importance to municipalities and small companies. It will conduct critical studies of high- and moderate-temperature resources to better aid industry in bringing these resources online for power generation. By working with the Geothermal Research Council, the Geothermal Energy Association, state geothermal working groups, state geological surveys, the USGS, Forest Service, Bureau of Land Management, and by partnering with other geothermal groups and institutions, we will be able to broaden the scope and impact of our work. Although IWGC focuses regionally, the knowledge and technology developed will be used to enhance utilization of geothermal energy as a resource throughout the West and the United States.

IWGC is and will address numerous research questions including the following: To better assist exploration and development efforts, can we better couple geophysical signals with reservoir simulation, including forward and backlooking (inverse) modeling? "What geophysical techniques can be used to identify and characterize hidden geothermal systems such as

the Raft River geothermal system in Idaho? What geoscience information on geothermal systems is required to allow geothermal systems to be engineered to enhance and maintain permeability and long-term reservoir productivity? How can we assess and reduce the predictive uncertainty in geothermal reservoir performance? How can energy conversion be improved and operation and maintenance costs reduced? Are there new non-power generation uses of geothermal fluids? And, can we develop better methodologies to monitor the reservoir for exploration, production and long term maintenance using new methodologies and a more complete understanding of the system? The list of questions go on but this serves as an example of the geothermal resource research needs.

Research and Knowledge Transfer

There is an growing awareness of the need to maximize the return on the federal research dollar investment by making research results more readily available. Traditionally, part of that return is reinvested in the science research process itself - typically through publications. However, for a subject such as geothermal, publications alone are an insufficient outcome. What is needed is better method of knowledge transfer to geothermal stakeholders--the relevant federal and state agencies, state, county, and municipality governments, and industry. There are several ways to accomplish this that taken together constitute a new paradigm for research: 1) publication of results, 2) open access to all relevant data through a digital information system, 3) open access to physical geologic samples and logs, and 4) directly working and communicating with stakeholders.

It is important to note that items 1 and 2 are significantly different. What hinders public policy decision making, agency management decisions and activities, knowledgeable use by state and local governmental bodies and industry, and the science itself is not access to published papers, but the lack of complete access to relevant data and metadata. Item 3 highlights the fact that far too often in the geological sciences physical samples, that still have great value are not properly stored or made available to all interested parties - samples that were paid for by federal research dollars. IWGC will make those data available. Finally, item 4 requires that research organizations persistently engage in stakeholder communication.

The IWGC is adopting this new paradigm for research operations. Publications will continue to be written, for that is the golden frank of the researcher. But we are also developing a digital information system that will host all data generated by IWGC researchers and make these data openly available in understandable format after a reasonable moratorium period. The Energy and Geoscience Institute at the University of Utah, currently houses the largest collection geothermal cores and samples, and the IWGC is committed to continue to support that effort. The IWGC will work with stakeholders not only through our website, but by hosting and participating in conferences, seminars, and workshops and engaging in other outreach efforts. We will work directly with stakeholders on specific issues importance to them. We will also partner with organizations already engaged in community outreach, including the Geothermal Energy Association, Geothermal Research Council, GeothermalBiz, the Geothermal Education Office, the Sustainable Energy Network, the Environmental and Energy Studies Institute, GeoPowering the West, and others. Separately, these four approaches are not revolutionary, but taken together they represent a new approach to research and knowledge transfer to better serve the geothermal stakeholders.

Funding

The Senate Appropriations Committee has approved $22.5 million in FY07 to the Department of Energy budget for geothermal research and development. The House approved $5 million. The members of the Intermountain West Geothermal Consortium want to express their support for the Senate's mark. Although EPACT authorizes geothermal research and the IWGC, without funding it will be impossible to implement the Act's provisions. More fundamentally, without ongoing and sustained research and therefore research funding, the continued expansion of geothermal energy within our nation's energy portfolio will be severely curtailed.

All members of the IWGC want to thank the Senate Energy and Natural Resources Committee for holding this hearing addressing geothermal and renewable energy resources in the Western U.S. The decisions made by this Committee can have a very real impact on the nation's energy supply and we appreciate and ask for your continued support.

Thank you.
Mr. Paul Thomsen

Public Policy Administrator

Ormat Technologies

Read statement

Witness Panel 2

Mr. Paul Thomsen

Statement of Paul A. Thomsen

Public Policy Administrator

Submitted to the U.S. Senate Energy Committee

July 11, 2006

Mr. Chairman, members of the committee, it is my honor to testify today on behalf of not only ORMAT Nevada, but also on behalf of the Geothermal Energy Association which has an attached statement that has been reviewed and approved by the Board of Directors and will be submitted into the record.

By way of introduction ORMAT Nevada is a subsidiary of ORMAT Technologies, which is a New York Stock Exchange registered company (symbol “ORA”). ORMAT is a technology based company which develops, owns, and operates geothermal and recovered energy facilities as well as manufacturers and supplies geothermal and renewable energy power plants to third parties. ORMAT has supplied 800 MWs of geothermal power plants in 21 countries throughout the world. We own and operate geothermal power plants producing over 250 MW in the United States and more specifically in California, Hawaii, and Nevada, and is pleased to provide US Geothermal Company with technology to bring Idaho’s first geothermal power plant online. To date ORMAT has arranged over $ 1.5 billion dollars in geothermal projects and corporate financing.

The Impact of the Epact:

From the industry prospective we feel it is too early to assess the impact of the EPACT on the geothermal Industry because: (i) only one operating 20 MW project, which happens to be the ORMAT Richard Burdette Project has qualified to date for the PTC; (ii) the new regulations to implement the Rishell Amendment to the steam act are still currently being drafted, and (iii) the DOE Geothermal Research Program funding for fiscal year 2007 has been zeroed out by the administrations current 2007 budget.

The Potential Impact of the Epact:

That being said the Industry truly believes that despite the fact that geothermal power currently provides approximately 50% of the KWhs of renewable energy produced in the United States, the PTC will enhance the ability of geothermal projects to compete with other fossil fuel technologies. The PTC can effectively lower the price of geothermal energy by 1.9c/KWh making geothermal energy cost competitive with fossil fuels, enabling the development of the potential 5,600 MW capacity available in the Western United States over the next decade.

The John Rishell Amendment to the Geothermal Steam Act will simplify processes allowing the BLM and other federal and state agencies to work in the spirit of the legislation encouraging expanded geothermal production.

The significant increase in the funding authorized for DOE’s renewable research programs, including geothermal energy will facilitate collaboration between researchers and industry to harness the underutilized geothermal resource in the West.

As considerations for the future:

ORMAT believes that the Production Tax Credit should be extended more effectively for geothermal facilities. This may be accomplished by qualifying geothermal facilities for the PTC before the operational placed in service date if: (i) the facility has a power purchase contract in place and (ii) has begun construction. This is not without precedent. For some other tax provisions with similar time-certain requirements, the law allows investments to qualify based upon having binding contracts in place that meet specified requirements.

ORMAT believes that the BLM and other state agencies need to move quickly on the pending lease applications and complete regulations that will implement the new law. BLM needs to hold new lease sales in every western state. Let’s implement the new law and urge Congress to actively oversee the process to ensure that all agencies keep the spirit of the legislation – to boost production of geothermal energy. Then and only after a thorough review of the results, should industry ask Congress to take action on any changes that may be needed.

ORMAT feels that the full geothermal potential of the Western United States can be brought online in the near term with the assistance of DOE. In the next decade ORMAT feels that the DOE research program can best benefit by focusing its funding in the following areas: (i) improve accuracy of exploration technology to reduce risk; (ii) improve drilling technology to reduce risk and cost; (iii) improve identification, and characterizations of geothermal resource areas; (iv) share in the cost of exploration and drilling in new areas; (v) continue investigations into future technologies such as Enhanced Geothermal Systems (EGS).

On behalf of ORMAT, and the Geothermal Energy Association, I want to applaud this committee for its interest in the secure domestic baseload energy supply that is geothermal energy. We humbly realize that the decisions made by this committee impact our nations energy security.

Statement of the Geothermal Energy Association

Submitted to the Senate Energy Committee

July 11, 2006

Mr. Chairman, Members of the Committee, the Geothermal Energy Association (GEA) appreciates the Committee’s interest in the development and use of geothermal and other renewable energy resources on the public lands. Mr. Paul Thomsen of Ormat Technologies will be testifying today as a witness for both his company and the Association. The GEA Board of Directors has reviewed this statement to be submitted for the record of the hearings along with his testimony.

The Energy Policy Act of 2005 has had a major, positive impact on geothermal energy. In March of this year, GEA conducted a survey of industry activity. The survey showed a substantial surge in developing geothermal power projects in the US. Some 45 projects are under development. These projects could nearly double US geothermal power output to a total capacity of roughly 5,000 MW. The US had 2,828 MW of geothermal power capacity on-line in 2005.

The survey identified new power projects in Alaska, Arizona, California, Hawaii, Idaho, New Mexico, Nevada, Oregon and Utah. These projects, when developed, would provide between 1778 MW and 2055 MW of new electric power for the grid.   This would be enough electricity to meet the needs of cities the size of Albuquerque, Las Vegas, Sacramento and Seattle combined.

Results of the survey provide dramatic evidence that new federal and state initiatives to promote geothermal energy are paying off. The most significant catalyst behind this new industry activity has been passage of the Energy Policy Act by Congress (EPAct) in 2005. EPAct made new geothermal plants eligible for the full federal production tax credit, previously available only to wind and closed-loop biomass projects. It also authorized and directed increased funding for research by the Department of Energy (DOE), and gave the Bureau of Land Management (BLM) new legal guidance and secure funding to address its backlog of geothermal leases and permits.

If we can build and sustain the momentum that EPAct has given the industry, geothermal energy can become a major US energy source. The untapped potential of this resource is enormous. Today, geothermal energy provides nearly 3,000 MW of reliable electric power in the US but according to the US Geological Survey (USGS) this represents only a small fraction of US resource potential. Representatives from the USGS testified before the Subcommittee on Energy and Mineral Resources of the House Resources Committee, U.S. House of Representatives, on May 3, 2001 that their 1978 report still represents the best available resource estimate. According to that report, there is an identified geothermal potential of 22,000 MW and an undiscovered, unidentified potential for geothermal production of an additional 72,000 to 127,000 MW from hydrothermal resources alone.

We want to thank Members of this Committee for helping us turn back some of the early challenges to this new momentum. The FY 2007 Budget could have undermined several of EPAct’s initiatives, which would have been major setbacks to progress. We were pleased to see Chairman Domenici state his support for directed funding for BLM’s geothermal program in his letter to the Budget Committee.   These funds are critically needed to ensure that the backlog of leases and permits is addressed. Also, we were very pleased that the Senate Energy and Water Appropriations Subcommittee and the full Senate Appropriations Committee restored FY 2007 funding for DOE’s geothermal research program.

Building Upon The Energy Policy Act

The Energy Policy Act has helped launch a new era for the geothermal industry.   But, as this Committee knows, it’s only the beginning. Consistent federal and state policies over a longer period of time will be needed to develop a new industry. The roller-coaster of federal and state energy policies has undermined development of many clean technologies. As the Preface to the report of the Western Governors’ Association’s (WGA) Clean and Diversified Energy Advisory Committee (CDEAC) states, “A strong, overarching theme…is the need for stable, long-term policies at both the federal and state levels….”

The Chairman and Members of the Senate Energy Committee know well that energy is too often an issue of the moment, or the latest crisis. But to address US energy needs the nation needs sustained longer-term energy policies. GEA has supported the work of this Committee to develop such policies, including the landmark Energy Policy Act of 2005. We hope that the Committee will consider new energy legislation this session to build upon this success, and we make the following suggestions and observations to assist your efforts to expand the future contribution from our nation’s largely untapped geothermal resources.

Tax Incentives and State Renewable Initiatives

Because of the high initial cost and risk of developing new geothermal power projects, geothermal, one of the largest renewable energy resources in the western US, has not been developed to its full potential. The CEC recently estimated that the initial capital cost of a typical geothermal facility was roughly $2700 per kilowatt, which is 4-6 times greater than the capital cost of a comparable-output combined cycle natural gas power plant as shown in the following table. (The CEC estimate does not reflect recent increases in steel and drilling costs discussed later in this statement, and does not include "site specific" costs such as permitting and transmission.)

Table 1: Capital Costs of Natural Gas and Geothermal Facilities

(CEC estimates)

Capital Costs

Installed Costs

In-service Cost

Combined Cycle Natural Gas

542

592

616

Geothermal Flash

2128

2410

2558

Geothermal Binary

3210

3618

3839

Source: Comparative Cost of California Central Station Electricity Generation Options, Magdy Badr and Richard Benjamin, California Energy Commission, 2003.

Because a geothermal facility has very low fuel costs and no fuel market volatility, in the long run, over 30-50 years, the "levelized" cost of a facility might be quite reasonable. But without the Section 45 Production Tax Credit (PTC), the initial risks, long lead times, and high capital cost will compel many investors to choose other alternatives that have shorter lead times, less risk, and lower front-end costs.

The Energy Policy Act amended the Section 45 PTC to include new geothermal facilities on the same basis as new wind facilities. The PTC gives the developer the incentive needed to choose an investment in geothermal energy. However, given the longer construction lead-time for geothermal plants, 2-3 years, the short period the law allows for new plants to be placed in service undercuts its effectiveness. The short timeframe also means that some of the largest new geothermal facilities may not go forward because they face unacceptable risks trying to meet the rigid deadline.

Ideally, the placed in service deadline for the Section 45 PTC should be extended an additional 3 to 5 years and geothermal facilities should be given greater flexibility in meeting the placed in service requirement. If geothermal facilities that secure binding contracts and are under construction by the placed in service deadline could be certain to qualify for the credit, substantial additional geothermal generation would be developed in the next few years. Otherwise, many developers may balk at taking an all-or-nothing gamble on future extensions of the credit.

We also urge Congress to consider extending to geothermal energy the favorable tax treatment provided for oil and gas exploration in EPAct. The cost and risk of exploration for new geothermal resources is as high or higher than those in the oil and gas industry, and the ability to attract capital to finance geothermal exploration is far more difficult. We understand that the DOE has also completed a study examining the potential for a targeted loan guarantee program to address exploration risk, and would urge the Committee to examine this report when it is released.

Further, we should point out that state initiatives to use more renewable resources, particularly Renewable Portfolio Standards (RPS), are critical complements to these federal incentives. These state efforts ensure that renewable power developers will be able to sell their power after undertaking the considerable expense and risk to build a power plant. Power purchase contracts that meet developer, consumer and utility needs for clean, reliable and affordable power are vital. Today, the combination of state initiatives and federal incentives makes this possible. We also know that this Committee has considered and supported adopting a national RPS, which GEA has also supported. However, we caution the Committee that the states are still learning how to make these standards work effectively, and that the lessons they learn should be examined as the Committee considers any future federal initiative. It has been our position that any federal effort should build upon these state initiatives and be careful not to undermine them, and we appreciate the effort the Energy Committee has taken to address this issue in the past.

BLM Leasing and Permitting

The Energy Policy Act included an extensive re-write of the Geothermal Steam Act of 1970. In its provisions, DOI is directed to place a priority on clearing up its large pending lease backlog. For new leasing, regular lease sales must be held at least every two years in states with geothermal resources, and all leases will be subject to competitive bidding. BLM and Forest Service (FS) are directed to adopt a 5-year leasing plan for National Forests with geothermal potential. The royalty provisions of the law are completely rewritten. For new leases royalties will be determined on a "gross proceeds" basis. Royalties for existing leases are reduced for expanded production in the next four years (following enactment). County governments will receive 25% of the royalty income, and the federal share of the royalties is dedicated to BLM’s geothermal program for the next five years to provide the resources needed to address the lease and permit backlog and implement amendments to the law.

GEA supports many of the changes made by the Energy Policy Act to the Geothermal Steam Act. We are, however, concerned about the long lead-time involved in putting the new program in place, and are aware that in the intervening time there have been concerns and fears expressed about how the new leasing system might work. GEA believes that the new leasing law should be put into place as quickly as possible, and once it is operating Congress should plan an oversight hearing to determine whether there are changes needed in the law or the implementing regulations.

Earlier this year, U.S. Senators Harry Reid and John Ensign were joined by Senators Bingaman, Murkowski, Wyden, Craig, Crapo, Cantwell, Akaka, Feinstein, Murray, Allard, Inouye, and Salazar in a letter to the Interior Secretary nominee Dick Kempthorne, Acting Interior Secretary Lynn Scarlett, and Bureau of Land Management Director Kathleen Clark urging them to move forward expeditiously on geothermal energy leasing and permitting.

On June 16^th BLM Director Kathleen Clarke replied saying, in part:

We understand and share your concern about the need to provide access to Federal lands for the development of geothermal power. Currently there are 354 geothermal leases on BLM and U.S. Forest Service (FS) lands. Of these, approximately 50 are producing geothermal resources, which contribute over 45 percent of the Nation’s geothermal power. Over the past five years, the BLM has issued over 200 geothermal leases, compared to less than 10 issued in the previous five years. Increased demand for alternative energy has resulted in a significant increase in the number of new applications filed, leaving the BLM with 130 pending applications and the FS with 64 pending applications. As mandated by the Section 225 of the Energy Policy Act of 2005 (EPAct), the BLM and the FS have finalized a Memorandum of Understanding to work together to eliminate the inventory of pending lease applications over the next five years.

Many of these lease applications cannot be issued because the applicable BLM or FS land use plan did not analyze the potential impacts of geothermal energy production. To resolve this problem, the BLM has prioritized areas that have the greatest geothermal potential and number of pending applications and directed resources to revise the land use plans to allow the issuance of geothermal leases. In addition, the BLM and FS will prepare a programmatic environmental impact statement to amend or revise those land use plans that have the greatest potential for geothermal energy production.

The BLM and Minerals Management Service (MMS) are also drafting proposed regulations to address significant changes to the Federal geothermal program as mandated by the EPAct. The EPAct does not authorize the BLM to issue new competitive leases in the absence of regulations. The BLM and MMS have established an aggressive timetable that meets the legal requirements for rulemaking, with plans to publish proposed regulations by early July and final regulations by December 2006. Although the EPAct did not place a deadline on the agencies, expeditious completion of these regulations is a priority.

The BLM Director’s response to the fourteen Senators indicates several causes of delay in developing geothermal resources on federal lands. First, it appears that EPAct should have given the agencies deadlines, since that would ensure faster implementation. Second, there is more demand for geothermal leases than the agencies can process with existing resources, which creates a backlog. And, third, a fundamental cause for delays is the need to meet land use planning and National Environmental Policy Act (NEPA) requirements and the associated need for the agencies to have the resources to do so.

Land use plan amendments and associated NEPA documents are posing serious and continuing obstacle and delays, particularly in California where these federal requirements are routinely interpreted broadly and add to already cumbersome state processes. But, the problem is not just the planning and analysis, it is the double-bind that is created when agencies do not have the millions of dollars needed to conduct these studies and, as a result, no action gets taken.

Although California has extensive untapped geothermal resources, California’s BLM offices have not issued a geothermal lease in some 20 years. People applying for geothermal leases in California have been more likely to die while waiting in line than receive a lease. The impact this has had on whether companies want to even consider applying for a federal lease, or making nominations under the new law, is simply incalculable.

Further, the economic impact of delays can simply wipe away any incentives that Congress or the states might provide. In a recent report, GEA examined what the cost of a 20 year delay could mean for a project. If a rate of return of 17% is applied to a specific exploration cost of 150$/kW during 20 years, the resulting cost of exploration would be 3466 $/kW. This cost corresponds to the total capital costs for the most expensive projects currently under development. Figure 1 shows the evolution of exploration cost when long delays take place.

Figure 1: Financial impact of delay on exploration costs.

The following table and chart shows the evolution of the expected value of a $100 and $150 capital investment when a 17% rate of return is considered. This illustrates the financial impact delays may have on the project viability.

Delay (years)

0

1

2

3

4

5

6

7

8

9

10

Exploration Costs

100

117

137

160

187

219

257

300

351

411

481

150

176

205

240

281

329

385

450

527

616

721

Delay (years)

11

12

13

14

15

16

17

18

19

20

Exploration Costs

562

658

770

901

1054

1233

1443

1688

1975

2311

844

987

1155

1351

1581

1850

2164

2532

2962

3466

(From: Factors Affecting Costs of Geothermal Power Development, by Cédric Nathanaël Hance, Geothermal Energy Association, August, 2005. Available for download at http://www.geo-energy.org/publications/reports/Factors%20Affecting%20Cost%20of%20Geothermal%20Power%20Development%20-%20August%202005.pdf)

Reaching NEPA decisions in a timely manner is critical to the future development of geothermal energy. Adding mandatory timelines for the completion of NEPA documents would be one of the most beneficial actions that Congress could take to address the inordinate delays created by agency implementation of NEPA. While it is unfortunate that Congress may have to take this step, there does not appear to be any more reasonable approach than establishing statutory requirements for NEPA compliance.

DOE Research and Development

EPAct included a significant increase in the funding authorized for DOE’s renewable research programs, including geothermal energy. It also included specific direction and goals for their geothermal research efforts and created an “Intermountain West Geothermal Consortium” to facilitate collaboration between researchers and industry to harness the underutilized geothermal resource in the West.

There are substantial needs for improvements in geothermal technology, information, and efficiencies for which federal research is vital. The range of near-term needs is broad. Knowledge of the geothermal resource base is limited and largely outdated. The technology available today to identify and characterize the resource is too unreliable to effectively mitigate the high risk of development. Drilling is expensive and faces a range of difficulties in harsh geothermal environments. While power cycles are improving, there is always room for additional efficiencies. Where the resource does support commercial production, we need to be able to apply the techniques under development to engineer it to achieve power generation.

A recent workshop was conducted by the National Renewable Energy Laboratory (NREL) to examine the simple question: What is the total “potential” accessible geothermal resource in the U.S.? That workshop went beyond the identified and undiscovered hydrothermal resources mentioned earlier to examine the potential from direct uses, co-production from oil and gas fields, geopressured resources, distributed generation, engineered geothermal systems, and geothermal heat pumps. The workshop concluded that the energy potential from the full range of geothermal resources was in the millions of megawatts!

The Department of Energy should be working with industry, the university, and the laboratory research community to develop the tools needed to access this massive resource base. But, we believe DOE needs some encouragement to re-examine the potential of geothermal energy and its role in meeting US energy needs. We strongly urge this Committee to hold a separate hearing on research priorities for geothermal energy and invite witnesses from DOE, leading laboratories, industry, and university research centers to provide testimony to help structure an effective federal effort.

The Western Governors’ Clean Energy Initiative

As Congress considers its next steps after EPAct, we call to the Committee’s attention the recent recommendations from the Western Governors’ Association (WGA) Clean and Diversified Energy Advisory Committee (CDEAC), and specifically the CDEAC Geothermal Task Force Report and recommendations. The CDEAC effort is unquestionably the most systematic, thorough, and contemporary examination available of the potential for geothermal energy and other clean energy technologies to contribute to the energy needs of the West. The CDEAC effort concluded that clean technologies can meet or exceed the West’s need for new energy sources, but that sustained federal and state support is needed to achieve this goal.

The CDEAC Geothermal Task Force made the following specific recommendations, which we recommend to the Committee:

E. Geothermal Priority Recommendations

Market Development- The marketplace needs to support the continued development of geothermal resources.

            1. Federal and state tax credits are important to reduce the risk and high capital cost of new projects. The federal production tax credit (and clean renewable bonding authority) should be made permanent, or at least extended ten years.

            2. State laws and regulations should promote a continuing series of opportunities for power purchase agreements between developers and utilities. Whether generated through Renewable Portfolio Standards, Integrated Resource Planning, or other mechanisms, power purchase contracts are fundamental drivers of the market.

            3. Federal and state laws and regulations should provide incentives for utilities and others to enter into long-term contracts for renewable power. Accounting and regulatory standards should treat renewable power contracts as benefits instead of liabilities, and power purchase contracts should have the backing of the government to ensure their credit worthiness.

Timely Permitting and Environmental Reviews- Geothermal projects should be prioritized to ensure that permitting, leasing, and environmental reviews are completed in a timely and efficient manner.

            1. Federal, state, and local agencies should coordinate resources and requirements. Agencies should be designated to take the lead on specific issues to avoid duplication, and once issues are resolved, they should not be revisited without cause.

            2. A critical path for new projects should be defined as part of this cooperative effort, and timeframes for key agency decisions along the pathway should be established.

Transmission Access and Adequacy- The Western Governors should lead the process to ensure that adequate transmission is available for the identified resources.

            1. There should be consistent Western state policies on inter-connection to the grid that facilitate new geothermal (and other renewable) power development.

            2. A fee to support the cost of new transmission could be set that would spread the cost across all states, parties and technologies on a capacity basis.

            3. Both inter- and intra-state transmission is needed to support the identified resources and should be fast-tracked for permitting and environmental reviews.

Federal Program Support- Continuing support from key federal programs is needed to achieve the 2015 goals. Federal programs should be coordinated with state agencies.

            1. As the National Research Council concluded (Renewable Power Pathways, 2002), given the enormous potential of the resource base, geothermal research by the U.S. Department of Energy should be increased, particularly into technologies that can reduce risk, reduce costs, or expand the accessible resource base.

            2. Better resource information is needed. The new USGS resource assessment and DOE’s cost-shared drilling and exploration technology efforts should be priorities.

3. The US Department of Energy’s GeoPowering the West initiative should continue to support state and local governments, Indian Tribes, and others seeking to utilize the West’s untapped geothermal resources.

(From the Executive Summary of the Geothermal Task Force Report, available at: http://www.westgov.org/wga/initiatives/cdeac/geothermal.htm)

Geothermal Energy’s Future Potential

While only a small fraction of the geothermal resource base is utilized today, it already provides significant energy for our nation. The United States, as the world's largest producer of geothermal electricity, generates an average of 16 billion kilowatt hours of energy per year – more than wind and solar combined. With continued federal and state support, much more geothermal generation is possible. The U.S. Geological Survey (USGS), in its Circular 790, estimated a hydrothermal resource base of between 95,000 and 150,000 MW, combining both the identified and estimated undiscovered resources. As the recent NREL workshop concluded, the full range of geothermal resources has even greater potential to serve our nation’s energy needs.

Within the next ten years, it is estimated that with continued federal and state support geothermal resources could be providing between 8 and 15 Gigawatts of electric power to help meet national energy needs. With advances in technology, even more of the largely untapped domestic resource base could be developed. Geothermal’s role among clean energy technologies is important to recognize. It is one of the few technologies that can supply, clean, reliable, low emission fuel that is also a baseload resource providing power 24-hours a day, 365 days a year. This power could also support our national hydrogen initiative and nation ethanol goals, both of which will require significant amounts of energy to produce alternative domestic transportation fuels.

In addition to significant electric power generation, direct uses of geothermal resources by businesses, farms, and communities have substantial potential for energy, economic, and environmental benefits. While geothermal resources have been used in communities and homes for decades -- for example Boise, Idaho has been using geothermal resources for space heating for over 100 years -- the extensive potential for direct use has been largely ignored and underutilized. Direct use resources span the entire country -- from New York to Hawaii – and their increased use would displace fossil fuels.

The benefits of expanding new geothermal production will be substantial. Geothermal power can be a major contributor to the power infrastructure and economic well-being of the United States. Geothermal power is a reliable, 24/7 baseload energy source that typically operates 90 to 98 percent of the time. Insulated from market price volatility, geothermal power supports energy price stability and boosts energy security because it is a domestic resource. Geothermal power can help diversify the nation’s energy supply and is a clean, renewable energy source.

We appreciate the interest of the Senate Energy Committee in geothermal energy and are prepared to work with the Committee and its staff to achieve the enormous potential of this renewable resource.

Thank you.
Mr. Chris Taylor

Director of Project Development-Northwest Region

Horizon Wind Energy

Read statement

Witness Panel 2

Mr. Chris Taylor

Testimony of the

American Wind Energy Association

before the

Senate Energy Committee

July 11, 2006 Hearing on

Implementation of the Energy Policy Act of 2005-

Development of Renewable Energy on Federal Lands

Prepared by Chris Taylor

Director of Development

Horizon Wind Energy, LLC

on behalf of the

American Wind Energy Association

122 C Street, N.W.

Suite 380

Washington, D.C. 20001

Introduction:

Mr. Chairman (and members of the committee), my name is Chris Taylor. I am Director of Development for Horizon Wind Energy (Horizon). Horizon is one of the nation’s largest wind energy development firms. We develop, build and operate wind power projects across the US from upstate New York to Southern California. We currently have over 700 MW of wind projects under construction in Washington, New York, Illinois and Texas and expect to construct another 600 MW in 2007. These projects represent an investment of nearly $2 billion in 2006 and 2007 alone. Horizon Wind Energy is a wholly owned subsidiary of Goldman Sachs, a leading international financial services firm. I direct Horizon’s development efforts in the Northwest region and have projects under development and/or construction in Washington, Oregon and Montana.

I also serve on a variety of committees for the American Wind Energy Association, a trade association representing every aspect of the wind industry, and I have been an active participant in the development of state, regional and national siting policies related to wind power. For example, I represented the wind industry in negotiations with the Washington Department of Fish and Wildlife which resulted in the issuance of the state’s wind power siting guidelines in 2003; I was appointed by Governor Kulongoski in 2005 to the Oregon Renewable Energy Working Group; and I am a member of the National Wind Coordinating Committee’s Wildlife Core Group, which is a diverse group of experts from industry, environmental NGO’s, state and federal agencies and independent biologists.

Horizon Wind Energy and the American Wind Energy Association (AWEA) greatly appreciate this opportunity to provide testimony before the Senate Energy Committee today.

I’d like to start by thanking the committee for its past support of renewable energy and wind energy in particular. The Energy Policy Act of 2005 contained a critical 2 year extension of the Production Tax Credit (PTC) which has fueled the continued rapid growth of the wind industry and is expected to lead to record levels of new wind plant construction in 2006 and 2007. We thank you for this extension and hope that a longer term extension will be adopted in the near future so that manufacturers, developers and others in our industry can make the type of firm, long term commitments for procurement and construction that will drive further cost reductions.

With respect to the subject of today’s hearing, I would like to provide a very brief overview of our perspective of the current regulatory climate for development of wind power on federal lands. The three federal resource agencies that have the greatest effect on our industry are the Bureau of Land Management (BLM), the Fish and Wildlife Service (USFWS),and the Forest Service (USFS), and I will try to touch briefly on each agency today.

BLM:

The wind industry is generally very pleased with the outcome of the BLM’s recent (2005) Programmatic Environmental Impact Statement (PEIS) process for wind energy development. The process the BLM followed was very open and involved participation from a wide variety of stakeholders (including representatives of both the wind industry and environmental organizations) and resulted in practical, common sense rules. As a result, the BLM produced a set of successful guidelines featuring “Best Management Practices” for wind power development on federal lands. These guidelines have been widely accepted by both the wind power industry and the environmental community. These BLM guidelines allow for commercially successful development of wind power facilities on federal lands while protecting habitat, wildlife and other resources.

The BLM has a fairly long history of leasing land for wind power generation in California and Wyoming and there are many operating wind projects on BLM land in these two states. My firm and many of our competitors are now actively seeking Rights of Way (ROWs) from BLM for wind testing and monitoring as well as for actual wind project development. As with any large bureaucracy, we occasionally encounter individual BLM staff at the local field office level who are resistant to our requests, but overall, we believe the BLM does an excellent job of facilitating wind power development on lands under its jurisdiction.

USFWS:

In July 2003, the USFWS issued a document it called “Interim Guidance on Avoiding and Minimizing Wildlife Impacts from Wind Turbines”. While these guidelines are in theory voluntary, the reality is that wind energy developers are increasingly being asked to follow these guidelines by USFWS field personnel offering comments on proposed projects being reviewed under NEPA or its state equivalents and by state and local agencies. We have very serious concerns with this guidance document, which we have shared with the USFWS on many occasions. These guidelines were developed with little to no stakeholder involvement, despite requests from members of our industry and others to participate before the document was issued. As a result, the guidelines have been widely criticized by both wind energy developers and the environmental community. In addition, more than a full year of effort was required to even begin correcting the factual and practical problems with the first set of guidelines.

It is my understanding that senior managers within the USFWS have acknowledged the need to revise and correct these guidelines and that a collaborative process to do so will be initiated in the near future. My company and AWEA hope to be actively involved in that effort. We thank the leadership of USFWS and the Department of the Interior for their willingness to correct the current guidance document. I do want to emphasize, however, the urgency of getting the current, flawed USFWS guidelines revised and corrected. Over the past 3 years, the current document has caused countless delays in the permitting and review of proposed wind energy projects with no appreciable benefit in terms of wildlife protection. We can not afford to spend another three years correcting this document.

The reality is that the vast majority of the wind power projects that are being built today are built by large, responsible, well-capitalized firms that understand the importance of proper siting and are sensitive to the needs of birds and other wildlife. Firms like FPL Energy, PPM Energy, and Horizon (the three largest developers in the US today) take these siting issues very seriously and have experts on staff and consultants under contract specifically to address them. We spend millions of dollars a year on wildlife related studies and mitigation efforts, most of it totally voluntary. This is both the responsible thing to do and a logical business decision, since our future growth depends on being able to permit and construct lots of new wind projects. Even for those projects developed by smaller firms, it is increasingly difficult to obtain financing to construct a new wind project without having conducted appropriate studies to evaluate potential impacts to birds and other wildlife.

USFS:

It is my understanding that the United States Forest Service is currently in the process of drafting national guidelines for wind energy development on Forest Service lands. The wind industry first learned of this informally at a meeting with wildlife groups and agencies in Washington DC in March 2006. We immediately asked the Forest Service personnel involved in the guidelines process to allow us to participate in the development of this document which will likely have a substantial impact on our industry. My company and several others have applications pending with the USFS for ROW’s for wind testing and monitoring in states from Vermont to California. Given how much of the western US is administered by the Forest Service, it is vital that whatever guidelines are developed regarding wind development on National Forest lands be realistic and informed by the latest science.

To date, no wind developers or other parties have been involved – despite their repeated requests – to lend their expertise in helping to draft the proposed Forest Service guidelines. Given that the USFS has virtually no experience or expertise in the issues surrounding wind power and wildlife, it seems unwise to reject input from those parties with the greatest experience and expertise in these issues.

We urge the Forest Service to open up this process to allow input by wind energy developers and other groups who have knowledge and experience vital to forming sound, practical policies that encourage wind energy development while also protecting Forest Service lands. Given the considerable expenditure of time and federal funds that go into such efforts, we also urge the Forest Service to follow the BLM approach in developing guidelines for wind power development on Forest Service lands.

To that end, we strongly encourage the Forest Service to immediately open up the wind power guidelines development process and to allow for meaningful participation and input from all interested groups.

___________________________

Chris Taylor

Director of Development

Horizon Wind Energy, LLC

53 SW Yamhill Street

Portland, OR 97204

Chris.taylor@horizonwind.com

Tel. 503-222-9400, x. 103

www.horizonwind.com

on behalf of the

American Wind Energy Association

122 C Street, NW

Suite 380

Washington, D.C. 20001

Tel: 202-383-2506
Mr. Bob Liden

Executive Vice President and General Manager

Stirling Energy Systems
Read statement
Witness Panel 2

Mr. Bob Liden
Testimony of Robert B. Liden

Before the United States Senate

Energy and natural resources committee Hearing

On Renewable Energy on Federal Lands

July 11, 2006

2:30 pm

Good afternoon. My name is Robert Liden,

and I am the Executive Vice President and General Manager of Stirling Energy Systems, Inc. (SES), a solar energy development company headquartered in Phoenix, Arizona. We also have engineering offices at Sandia National Laboratories in Albuquerque, New Mexico, and a small satellite office in Tustin, California.

I want to thank you Mr. Chairman and senator bingaman for having this important hearing and allowing ses the opportunity of testifying. without this committee’s continued support for solar energy and, in particular, for concentrating solar power, we would not have been in a position to proceed with these large contracts, bringing into commercial deployment technology that is the fruit of over 20 years of research and development by private industry, the U.S. Department of Energy, and the national laboratories (particularly Sandia National Laboratory).

I also would like to applaud you for passing the very comprehensive Energy Act of 2005, which, among other things, provides increased tax credits, a loan guarantee program, and other key incentives for the development of clean, renewable energy.

Our company has signed contracts with two large utilities in Southern California and are in negotiations in new mexico for a third project to develop the world’s largest solar power plants. What is particularly relevant here is that both of the projects in California will be sited primarily on BLM land.

Regarding the two large solar contracts in california, both are 20-year power purchase agreements, one with Southern California Edison (SCE), and the other with San Diego Gas & Electric (SDG&E). The SCE contract is for 500 MW (peak output), with an expansion option for an additional 350 MW. The plant will be sited in the Mojave Desert east of Barstow, CA. The SDG&E contract is for an initial 300-MW plant, with options to expand by another 600 MW. This project will be sited in the Imperial Valley near El Centro, CA. The two contracts, when fully built out (including the expansion options) will result in 1,750 MW of peak power generation capacity.

The solar technology being employed for these projects is a concentrating dish-engine system that was initially developed in the mid 1980’s by McDonnell Douglas, later purchased and further tested by SCE, and in 1996, purchased by SES. it is important to note that our dish technology does not require water for cooling. We have spent the past 10 years testing and modifying the dish system design for high-volume manufacturing and deployment.

For these two contracts, we will be deploying as many as 70,000 dishes, which will be installed on a total of 11-13 square miles of desert land and our technology. (The specific land requirement is partly dependent on local siting issues, such as washes, rock outcroppings, etc.) In essence, we will be planting 70,000 technological trees in two large solar forests. As mentioned above, almost all the land at the selected sites is owned by the Federal government and administered by the Bureau of Land Management (BLM).

We are currently in the process of performing environmental impact studies and preparing permit filings required by the Federal Government and by the state of California. I am pleased to report that the two regional BLM offices that are working with us have both provided excellent support and help.

This is a continuing experience for us, and we are, in a very real sense, plowing new ground. These will be the first large solar dish power plants ever constructed, and it has been nearly 15 years since any large-scale solar plants of any kind have been built in the U.S. I offer the following observations, however, based on our experience to date:

Renewable energy projects, particularly solar and wind, require large amounts of land. (However, to put this in perspective, a solar dish farm covering about 11 square miles of land in the solar-rich Southwest can generate as much energy each year as the Hoover Dam, which requires 247 square miles of Lake Mead.)

The Mojave Desert is the prime site for large-scale solar project development in California. There are persistent efforts by environmentalists and conservationists, however, to get legislation to preserve all of the Mojave Desert and not allow any development.

Endangered species (such as desert tortoises) require mitigation efforts, including securing up to 6 times the amount of land actually required for the solar project. This is expensive and, in many cases, is a real “deal-stopper”. At times, the BLM requires the developer to purchase non-BLM land for this mitigation and deed it over to the BLM for use in providing a protective habitat for the displaced tortoises. This is also problematic, since BLM no longer has enough staffing to handle the real estate acquisitions, and the private land-owners, approached by a developer, generally seize the opportunity to hike significantly the price of their land. (In fact, what we have seen is that the BLM regional offices – at least the ones in Barstow and El Centro – are understaffed and stretched too thin. Even providing emergency medical services to people injured on the government lands is a challenge, given the few people and the vast amount of land to oversee.)

How Congress can help encourage the development of renewable resources on Federal lands:

Encourage the land-holding agencies (Department of Interior, Department of Defense, etc.) to establish “set aside” lands in their resource plans specifically for the development of solar, wind, etc. (NREL has well-developed maps showing the prime areas for development of all the renewable resources to assist the agencies in this effort.) To further encourage the development of renewable energy projects on these lands, environmental impact studies should be undertaken by the Federal land owners, resulting in the identification of, for example, solar or wind enterprise zones, where solar or wind developers can more rapidly and efficiently bring their projects “on line”.

Encourage FERC, WAPA, and other Federal power transmission authorities to develop a master plan for upgrading and expanding the transmission network to facilitate getting the power from Federal lands to the major load centers and population centers. These upgrades are sorely needed, but they are generally very expensive. Requiring developers to finance these upgrades (even if the developers are ultimately repaid their expenses) is onerous, and it discourages all but the most deep-pocketed developers from proceeding with their projects.

Establish ground rules for setting lease rates on Federal lands that encourage the use of these lands for renewable project development and recognize the need for low-cost land to keep the overall cost of renewable energy as low as possible.

Finally, a brief reminder of why renewable energy development is important:

The economic impact of new renewable energy projects is immense – hundreds to thousands of jobs to develop and operate these power plants, bringing new tax dollars into primarily rural communities, where unemployment is high and a boost to the local economies are sorely needed.

Renewable power plants reduce the nation’s dependence on fossil fuels and imports, enhancing our national security, improving our balance of payments, and stimulating our economy.

Renewable power plants improve our environment, reducing greenhouse gases, and cleaning our air. (For example, our two solar projects in California, if built out to their full potential of 1,750 MW, will displace 1.8 million tons of coal consumption and reduce CO₂ emissions by 400 tons per year compared to a coal-fired plant of the same size.)

Again, I thank you for this opportunity and I look forward to any questions the committee may have.
Mr. Bernie Karl

Proprietor

Chena Hot Springs Resort

Read statement

Witness Panel 2

Mr. Bernie Karl

Testimony by

Bernie Karl

Proprietor, Chena Hot Springs Resort

Fairbanks, AK

Senate Energy and Natural Resources Committee

Hearing on Geothermal Energy

July 11, 2006

My name is Bernie Karl. I am the proprietor of Chena Hot Springs outside of Fairbanks, Alaska. Chena Hot Springs will be the site of the only new geothermal power plant installation in the United States this year. It will also be the site of the lowest temperature resource (165ºF) ever used for commercial power generation in the world. Attachments to my written statement contain additional details on this exciting and unique project.

The power generation project at Chena would not be possible without support from the United States Department of Energy’s Geothermal Technologies Program, which is currently threatened with elimination. I am testifying in support of reinstating and expanding the Department of Energy’s geothermal budget as well as extending the production tax credit for geothermal resources.

Our country faces a number of critical energy concerns including the need for a diverse portfolio of clean, renewable domestic sources of supply. Additional investment in public private geothermal R&D partnerships can open up extensive new opportunities for domestic production of renewable energy. New technologies that hold tremendous promise for tapping moderate temperature geothermal resources, including those associated with oil and gas production are emerging. Without validation in real world operating conditions and a stable, sustained commitment to financial incentives, the necessary investment will not be made and these technologies will never penetrate the market resulting in lost opportunities for renewable domestic energy production and the associated economic and environmental benefits.

For example, until just a few years ago, it was believed that power generation from geothermal resources lower than 230ºF was uneconomical. However, that picture is changing as the cost of energy rises, and the technology improves. Moderate temperature geothermal resources are by far the most prevalent in the United States and around the world. Estimates indicate there are between 20,000 and 40,000 MW of geothermal electrical energy potential in the US alone in the 190 to 300 degrees Fahrenheit range.

In fact, you could hit those temperatures right here underneath Washington DC if a hole 20,000 feet deep[1] were drilled. Heat from the earth, whether used for power generation or heating buildings and homes is the most reliable form of renewable energy available to us. It doesn’t depend on clear skies, windy days, or rainfall, making geothermal a good base load alternative energy. While using the heat from the earth for heating and cooling is economical throughout the US, our best geothermal resources for power generation are in the western states.

4% of power generation in the West today is generated from geothermal resources. However, this existing generation is almost all from high temperature, easily accessible resources. The next step in geothermal power generation will require new technologies, including enhanced geothermal (EGS), exploration for blind systems, and development of improved technologies for moderate temperature power generation. All of these areas are being explored by the Department of Energy’s Geothermal Technologies Program and are jeopardized by the Administration’s proposed elimination of funding.

I can testify from firsthand experience that the Department of Energy’s program, with Dr. Roy Mink, and until recently David Garman, at the helm represents the best our government can offer. They are hands-on managers, who understand the possibilities and are tirelessly working to steer our country in the right direction while keeping a close eye on the bottom line. Without their support, the geothermal projects at Chena Hot Springs, which have attracted $3 million in private investment alone, would never have come to fruition.

In the future, the geothermal industry is also going to need to think outside of the box. There are currently 225,000 producing oil and gas wells[2] in Texas which produce 95% water along with 5% oil and gas.    This water is a waste by product of the oil industry. However, at temperatures averaging 265ºF, this water could be used in a power generation cycle before being re-injected into the ground.

If every producing oil and gas well in Texas alone used this technology, the same power generation technology being tested right now at Chena Hot Springs in Alaska, we could generate 5000MW of power from this renewable geothermal resource. This is the equivalent of 5 new nuclear power plants. In addition, this technology could extend the life of currently unprofitable oil and gas wells thus providing additional jobs and energy security benefits. With the modular power plant designed and developed by United Technologies in partnership with Department of Energy, this type of power generation could be brought online within a very short time period after the technology is demonstrated and validated in real world operating conditions.

Geothermal energy is also a potentially vital piece of a future ‘hydrogen economy’ in which Congress is investing research dollars. Hydrogen production over the long run makes sense only from using renewable energy sources. Therefore, development of those resources should go hand in hand with hydrogen research.

President Bush has stated repeatedly that we are addicted to oil and as a country we need to wean ourselves from this addiction. Geothermal energy is part of that solution. Geothermal development has had success with readily accessible higher temperature sources. The opportunities for geothermal technology development have not been exhausted; there is still huge potential for additional future generation of heat and power by applying new technologies to abundant lower temperature resources.

The Department of Energy has historically been the driving force behind new development and exploration in geothermal – the ‘thinking outside the box’ that industry is often reluctant and financially unable to undertake alone. I believe that reinstatement, and even expansion of the geothermal technologies program budget is critical for the future of power generation in the Western United States.

In addition, I recommend the Renewable Electricity Production Credit that is due to sunset in 2008 be extended until 12/31/14 as provided in S 2829. The continued R&D investment via cost shared public private partnerships sponsored by DOE coupled with a longer term production credit will provide the market with more certainty and enable sound investment choices.   There are never simple solutions, only intelligent choices. Thank you for the opportunity to speak on this important and timely topic.
Mr. V. John White

Executive Director

Center for Energy Efficiency and Renewable Technologies

Read statement

Witness Panel 2

Mr. V. John White

July 11, 2006

Honorable Pete V. Domenici

United States Senate

Chairman, Senate Committee on Energy and Natural Resources

Washington, DC 20510-6150

RE: Implementation of the Energy Policy Act of 2005 as it pertains to geothermal and other renewable resources on Federal lands in the Western US

Dear Senator Domenici;

Center for Energy Efficiency and Renewable Technologies (CEERT) greatly appreciates the opportunity to offer testimony to the Senate Energy Committee on the implementation of the Energy Policy Act of 2005 (EPAct) act as it pertains to the growth of geothermal and other renewable resources in the Western US. While we believe that the legislation provides an excellent opportunity to enhance the growth of these sustainable resources, the Committee is right to realize that the implementation of such policies must be done correctly to achieve the maximum benefit.

CEERT is a non-profit public benefit organization composed of national environmental groups including Natural Resources Defense Council, Environmental Defense and Union of Concerned Scientists as well as technology and energy producers working to increase the use of renewable energy and energy efficiency. Our organization has become an important forum and a vehicle for these various groups to come together and generate positive action on common issues like global warming, air pollution and environmental and economic sustainability.

Over CEERT’s 15 years of existence we have seen renewables grow from a boutique industry to an increasingly significant energy resource. Internationally, the renewable industry has one of the world’s fastest growing markets with new capital flowing in all the time. Our home state of California is in many ways the birthplace of this industry, yet as in the rest of the US, the growth of renewables has lagged behind many other leading economies. While there are a number of reasons for this, the EPAct affords an excellent opportunity to improve the process for the development of renewable energy in the West and around the US.

Resource Planning

CEERT has had extensive recent experience in facilitating stakeholder groups for the development of transmission around renewable energy resource areas. Through these processes we have learned a number of valuable lessons which can be readily applied to the implementation of the energy bill. First and perhaps most evident is that areas that are sensitive must always be treated as such. Whether the concerns are environmental sensitivity, proximity to population centers or any one of the other myriad issues that must be addressed when developing energy infrastructure, concerned stakeholders can greatly affect the development of any project if they see sufficient need. Any streamlining of project impact review processes must not come at the expense of a thorough investigation of all potential effects from a project. It has been our experience that any steps skipped or missed early in the process will only lead to delays later on. From the perspective of many of our affiliates, those developing geothermal as well as other renewables, these delays at later stages can be far more costly as those involved will have more to lose. This is very clearly illustrated in a report recently released by the Geothermal Energy Association (GEA) which shows a curve of project cost growing ever steeper with each year of delay.[1]

Despite the clear economic value to an efficient permitting and development process, the Bureau of Land Management (BLM) has seen a massive backlog of geothermal energy lease applications accumulate. In fact California’s BLM office has not issued a geothermal permit for 20 years despite the fact that there are substantial known developable geothermal resources in the state.

Agency Coordination

One major reason for these delays is the insufficient staffing for federal agencies such as the US Forest Service (USFS) and BLM for review of National Environmental Protection Act (NEPA) documents. A great deal of money and hard work is put into the development of these documents by the project developer and a similarly thorough review process by the requisite agency should be expected in compliance with federal laws. A renewed commitment from the Department of the Interior and its sub-agencies should be made to eliminate these inefficiencies and thoroughly evaluate all NEPA documents. Ideally the BLM and other federal agencies should have staffing to take part in the actual studies of these projects as well as assessing their impacts. In our experience this path for permitting, in which the agencies are engaged early in the study process, has resulted in better projects and a more thorough assessment of the impacts.

Related to this inefficiency by the federal agencies are the often overlapping and seemingly cumbersome procedures of various state permitting processes. In California the California Environmental Quality Act (CEQA) demands an extremely rigorous environmental investigation. A higher level of coordination between the various state and federal agencies responsible for evaluating these project proposals could be very helpful in speeding the process along. As the BLM enters into a rulemaking for regulations to address the changes in the Federal Geothermal Program as mandated by the EPAct, careful considerations should be made to ensure that any new rules can work together with existing state permitting processes without slowing down the approval process.

Under CEERT’s leadership, the Tehachapi Collaborative Working Group worked to find innovative ways to address these inefficiencies through an open stakeholder process. The study group was organized with the mission of developing a transmission plan to access the considerable known resources in the Tehachapi Wind Resource Area. The stakeholders included utilities such as Southern California Edison and Pacific Gas & Electric, wind developers such as PPM Energy, and EnXco Inc., state and federal land use agencies including USFS, private land owners and other important stakeholders. Though this can appear unwieldy, the early involvement of these numerous stakeholders ensures that potential problems are addressed early and more costly delays are avoided later in the development process. After a year of work by TCSG, all stakeholders are nearing agreement on a comprehensive, multiphase transmission project that will provide access to over 4000MW of wind energy in the Tehachapi region. Given the scale and complexity of the project this is an important step forward for all of those involved in its development.

This process also highlights an important aspect of most large scale renewable development including geothermal, wind and utility scale solar. All of these resources are tied directly to the location where the energy is generated. The wind blows where the wind blows, the sun shines where the sun shines and there is no way to change those characteristics. The mobile nature of gas, oil and coal through trains pipelines and tankers give those types of power plants and added flexibility in their siting and development process and offer those resources easier access to the existing electricity grid. As the West’s transmission system has begun to approach the outer limits of its capacity, renewables have begun to run into a chicken and the egg problem. Without transmission, developers cannot secure financing to build their projects; and without committed projects, regulators cannot approve the transmission to connect them. By following the study group process used in Tehachapi there is now a plan in place to develop the transmission in concert with the procurement of the electricity on a phased, as needed basis. Additional help could also be provided if the FERC process allowed for the public benefits of clean renewable energy to also be considered in the evaluation of new transmission projects.

CEERT is also currently following a similar route in developing transmission plans to access geothermal in Southern California’s Imperial Valley as well as a project in the early stages to develop a plan for accessing solar energy from the Mohave Desert. To sufficiently develop the West’s renewable energy including the still substantial untapped geothermal, it is important that the planning of transmission run parallel to the development and procurement of renewable resources. These resources are of increasing competitiveness in an open market and offer substantial societal benefits from their increased use. Their growth should not be hindered by public policies that put these resources at a disadvantage while making it easier for utilities and developers to permit and construct fossil fueled plants.

Though the technology has not been at the forefront of renewable energy growth, CEERT would like to draw the committee’s attention to the continuing development of the Concentrating Solar Power industry. This technology, which was initially developed in California, has matured considerably with modern installations in Europe producing reliable utility-scale power on demand with exceptionally low environmental impact. CEERT sees this as the next generation of renewable development in the Western US which has considerable solar resources in the desert Southwest. The recent report of the Western Governors’ Association (WGA) Solar Task Force estimated that if 4,000 MW of new CSP capacity were to be built the cost of electricity would be competitive with conventional sources.[2] Though the technology currently represents only a small piece of the renewable pie, it is important that it is not forgotten in the resource assessments and transmission planning that will be conducted. This largely untapped resource has huge potential to serve the ever growing electricity needs of the desert Southwest with out having to transmit the energy through massive interstate transmission projects.

Western Governors’ Association

Looking at these problems in the bigger picture of the entire American West, the Western Governor’s Association (WGA) offers an excellent venue to address these issues of coordination. The organization’s approach to problems that affect the entire Western Region are clearly reflective of the nature of the electricity grid. The development of geothermal in Idaho will ideally be deliverable in California helping to meet renewable needs there and the WGA will undoubtedly be critical in making that happen.

The WGA recently adopted the recommendations from the Clean and Diversified Energy Advisory Committee (CDEAC) for a current, systematic and thorough examination of the development potential for clean resources in the West. Building on the model used in the California working groups, the federal government’s policies should support stakeholder processes being setup by the WGA to develop transmission plans for expansion across the west, ensuring that access to new renewable resources is an important piece of the planning process. In considering the location of known renewable resources in the transmission planning, development of these resources can occur more rapidly. Large transmission projects designed to access renewable resources will make development of those resources more realistic. It will provide access to better project financing by decreasing the risk of the investment and lessening the possibility of delays in the future.

In the interim, close attention should also be paid to the WGA’s recommendations regarding the use of the existing transmission in the West. The committee should encourage FERC to implement policies that offer better access for renewables to the existing grid including: short term transmission services and products, and urging utilities to assess available transmission capacity and opportunities to make better use of the existing transmission systems.

CEERT has worked with the WGA to offer input on the various recommendations made by the CDEAC and feel that the situation of California, already a net importer of electricity, is very closely tied to the energy systems of the other Western states. Many of the other recommendations made by the CDEAC echo our concerns and experiences in California. This includes timely permitting and environmental reviews for renewable projects particularly geothermal whose value can suffer greatly due to delays in this process. Additionally the recommendations call for increased coordination among the various states, local and federal agencies in the permitting process. These are all positions that should be supported by the Committee.

Production Tax Credits

Another disadvantage faced by developers of geothermal and other renewable resources is the short time horizon in which they can receive a Production Tax Credit (PTC) for their project. The nature of renewable energy is such that the primary cost of the resource is paid in upfront financing for the development and construction of a project. Once in operation a renewable energy project demands only the operation and maintenance costs - there is no fuel cost. This is vastly different from a fossil fuel plant, which is cheaper to construct and thus able to turn a profit in a shorter amount of time, making an investment a lower risk and therefore more appealing to investors. It makes little difference that the renewable technology, over its lifecycle, will offer stable electricity rates compared to the gamble over thirty years on a natural gas plant. Moreover, once the initial capital investment has been repaid, these renewable projects can offer wholesale electricity rates below most fossil fuel generation facilities.

To help resolve this situation, production tax credits offered by the federal government have made initial investments in renewable energy much more financially appealing for a broader range of institutional investors. However, with longer lead times for construction of geothermal and other renewable energy facilities, an extension of the PTC would provide a more stable, long-term capital flow to allow projects to be constructed more efficiently. In the end better projects will be built because developers will have the flexibility to address any problems and build the most effective plant for its purpose.

This extension of the PTC will also allow renewable energy developers to create more effective business plans and make more effective business decisions based on long-term market strategy. As the PTC is currently designed, it must be reauthorized every few years leaving these companies in limbo each time the credits reauthorization is in question. Leaving the PTC in place for a longer period of time will allow these companies to develop strategically into more effective players in the larger energy market.

Conclusion

CEERT believes that within the next 10 years the renewable energy industry is poised for an unprecedented boom in the US. Indeed, this current situation is already due to many innovative and forward looking public policies that have pointed our nation to a sustainable future. However, to ensure that these policies are effective they must be carefully and prudently implemented.

CEERT greatly appreciates the interest of the Senate Energy Committee on these important issues for geothermal and other renewable energy resources. We are prepared to offer any help to the committee in achieving the enormous potential of these vast resources.

Thank you,

V. John White

Appendix 1

Delay (years)

0

1

2

3

4

5

6

7

8

9

10

Exploration Costs

100

117

137

160

187

219

257

300

351

411

481

150

176

205

240

281

329

385

450

527

616

721

Delay (years)

11

12

13

14

15

16

17

18

19

20

Exploration Costs

562

658

770

901

1054

1233

1443

1688

1975

2311

844

987

1155

1351

1581

1850

2164

2532

2962

3466

[1] See Appendix 1 for graphic illustration. From: Factors Affecting Costs of Geothermal Power Development, by Cédric Nathanaël Hance, Geothermal Energy Association, August, 2005. Available for download at http://www.geo-energy.org/publications/reports/Factors%20Affecting%20Cost%20of%20Geothermal%20Power%20Development%20-%20August%202005.pdf

[2] Clean Energy, a Strong Economy and a Healthy Environment, a Report of the Clean and Diversified Energy Advisory Committee to the WGA, June 2006, This document can be found online at: http://www.westgov.org/wga/meetings/am2006/CDEAC06.pdf

Capital Costs	Installed Costs		In-service Cost
Combined Cycle Natural Gas	542	592	616
Geothermal Flash	2128	2410	2558
Geothermal Binary	3210	3618	3839

Delay (years)	0	1	2	3	4	5	6	7	8	9	10
Exploration Costs	100	117	137	160	187	219	257	300	351	411	481
Exploration Costs	150	176	205	240	281	329	385	450	527	616	721

Delay (years)	11	12	13	14	15	16	17	18	19	20
Exploration Costs	562	658	770	901	1054	1233	1443	1688	1975	2311
Exploration Costs	844	987	1155	1351	1581	1850	2164	2532	2962	3466

Delay (years)	0	1	2	3	4	5	6	7	8	9	10
Exploration Costs	100	117	137	160	187	219	257	300	351	411	481
Exploration Costs	150	176	205	240	281	329	385	450	527	616	721

Hearings and Business Meetings

Archived Webcast

Witness Panel 1

Hon. Lynn Scarlett

Ms. Sally Collins

Mr. Jim Wells

Witness Panel 2

Dr. Walter Snyder

Mr. Paul Thomsen

Mr. Chris Taylor

Mr. Bob Liden

Mr. Bernie Karl

Mr. V. John White