Technology Basics

Currently existing geothermal energy production technologies may be categorized accordingly:

• Electric Power:  Geothermal energy is generally accessed by drilling a well as deep as several kilometers underground. Energy is utilized in one of 3 ways to power turbines: 
  (A) Binary-cycle plants, the most commonly used technology, are used when the source hydrothermal water is not hot enough to drive a generator. Heat is transferred from the hydrothermal water to another liquid that has a lower boiling point than that of water, generating vapor that can drive a turbine.⁴
  (B) Flash steam plants pull superheated water from deep below the surface into lower-pressure tanks to produce steam. They are most common in areas where high-temperature resources are available.⁵
  (C) Dry steam plants utilize geothermal steam directly.⁶

• Direct Use:  In areas near geothermal reservoirs, hot water or steam is piped directly to the process requiring thermal energy. The figure at right shows the direct use applications worldwide.

Direct applications of geothermal worldwide in 2004 by percentage of total use.

Source: Fridleifsson et al. (2008). Data from Lund, J.W., Freeston, D.H., and Boyd, T.L., 2005. Direct application of geothermal energy: 2005 Worldwide review. Geothermics 34, 691-727.. Author: Frieleifsson et al. (2008). Permission: International Geothermal Association.

• Geothermal Heat Pumps  supply space heating and cooling using buried pipe systems that circulate to depths where the ground temperature remains relatively constant (generally only a few meters deep).

Cost and Finance

Current geothermal energy production is very small compared to estimates of the economically viable technical potential in the near term.⁷ Glitnir Bank estimates that current installed capacity represents less than 5% of the economically feasible potential in 2020 for electricity production, and 0.05% for direct heat applications.⁸ Part of the reason for this discrepancy is financing: geothermal projects are capital-intensive, and have difficulty getting loans, particularly in the early stages.⁹ It should also be noted that geothermal wells are drilled with the same equipment as oil and gas wells, and drilling is a large part of geothermal project costs. For this reason, geothermal project costs will tend to increase with high fossil energy prices, due to heightened demand for drilling equipment.

Geothermal projects are typically developed in four phases: Identification, Exploration, Drilling, and Production. The time frame of each of these steps is such that about three years pass before any electricity is produced, and between $40 million and $60 million has been spent for a typical 50-MW plant.¹⁰ Of these costs, drilling accounts for between $35 million and $50 million. Most, if not all, capital prior to the development's proven feasibility is financed through equity and not debt. Due to the high risk at the early stages of the process, banks generally do not fund development with loans at phases prior to drilling. Therefore, the initial investment money comes from seed capital, venture capital, or equity financing.¹¹

This gap between available financing and required financing for a developer creates a substantial barrier to entry that explains in part why geothermal energy accounts for such a small share of global energy use, in spite of apparently favorable economics (if one only looks at levelized cost of energy, for example). How the investment environment might change in the future will be a key determinant of global geothermal energy production.

Palinpinon geothermal plant, the Philippines

Source: Author    Author: M. Gonzalez   Permission: Creative Commons Attribution ShareAlike 3.0

Advantages

Geothermal energy produces reliable (i.e. not intermittent) baseload renewable electricity. While there are some CO2 emissions from non-binary geothermal systems, the emissions are far lower than any fossil-based electric power technology. The CO2 emissions intensity of geothermal electricity, 0.18 lb CO2 per kWh, is about 17% of the average emissions intensity of the existing stock of gas power plants in the USA. ¹² Binary geothermal systems have almost no CO2 emissions as the system is closed.

Geothermal heat pumps may be installed nearly anywhere; they do not require nearby hydrothermal activity. While capital costs are higher than standard furnaces, the present-day technologies may deliver a payback in as little as 3-5 years.¹³

Geothermal may also serve as a key source of power in many developing nations. Kenya, for example, produces much of its electricity from geothermal resources, and in the future may be able to meet all of its electricity demand with only geothermal and hydroelectricity. Also of note, 10 of the 15 countries with the highest shares of geothermal energy (per national electricity production) are developing nations, including El Salvador, the Philippines, Nicaragua, Indonesia and Guatemala. ¹⁴ Thus, geothermal may allow some developing countries to supply a large amount of their future electricity demand through a clean, renewable resource.

Disadvantages

There are two main limitations on geothermal energy: siting and financing (for research and project deployment). As with all renewable energy sources, the energy is produced where it is found, regardless of whether it is used for generating electricity or direct applications. For this reason, using currently commercialized technologies, geothermal projects can only exist in regions with abundant geothermal resources, generally areas with recent tectonic activity.

Financing is a difficult challenge for geothermal; part of the reason why projects cannot get loans in the early stages is that, in fact, there is a high probability of failure in the first few years of a proposed geothermal project.¹⁵ The high failure rates stem from uncertainties in the conditions that will determine the ultimate economic feasibility of projects. Slight differences in water temperature 2-3km below the surface can mean large differences in costs of energy extraction.