How much does a geothermal power plant cost?

How much does power from a geothermal power plant cost?

Does the price of geothermal power fluctuate like the price of oil and gas?

What factors influence the cost of a geothermal power plant?

What else should I consider about the cost of geothermal power compared with other technologies?

Do you want to know more about costs related to geothermal energy?

How much does a geothermal power plant cost?
An economically competitive geothermal power plant can cost as low as $2800 per kilowatt installed. While the cost of a new for geothermal power plant is higher than that of a comparable natural gas facility, for natural gas construction costs account for only one third of the total price of the facility, while the cost of the fuel at a natural gas facility represents two thirds of the cost. The initial construction costs of a geothermal facility, in contrast, represent two thirds or more of total costs. So while initial investment is high for geothermal, natural gas and geothermal are still economically comparable over a long term.

How much does power from a geothermal power plant cost?
Recent California Energy Commission (CEC) estimates place the levelized(1) generation costs from new plants at 4.5 to 7.3 cents per kilowatt-hour(2) for geothermal, which over the lifetime of the plant can be competitive with a variety of technologies, including natural gas.(3) At current fossil fuel market prices, natural gas costs the equivalent of 8 to 9 cents per kilowatt hour.(4) However, most geothermal developers contend that the cost for new projects is more accurately reflected in a range of 5.5 and 7.5 cents per kilowatt hour, with cost estimates under 5.5 cents per kilowatt hour relying on lower than average upfront financing agreements (see What else should I consider about the cost of geothermal power compared with other technologies? for more details), or considering only new projects that are built as extensions onto existing projects. Extension projects typically forgo many of the construction, risk, and transmission costs associated with brand new plants. Also, while upfront costs for geothermal are high, lifetime costs are low because geothermal’s fuel source is stable, free, indigenous, and renewable. In assessing the viability of an electricity source, other factors besides cost should be considered: geothermal energy produces low air emissions, has minimal environmental impacts, decreases dependence on foreign fuel, and generates significant rates of employment, particularly in rural areas. Natural gas and coal produce few of these added benefits.

Does the price of geothermal power fluctuate like the price of oil and gas?
No. Geothermal energy acts as a price stabilizer that offsets the U.S.’s dependence upon the highly volatile fossil fuel power market. This is because geothermal power does not need outside fuel to operate – geothermal relies on a constant source of free fuel. Once a power project is built, most of its power production costs are known and few market parameters can modify them.

What factors influence the cost of a geothermal power plant?
The size of the plant: As with most electricity producing facilities, the larger the power plant and corresponding increase in electricity production, the lower the cost per megawatt hour. Total costs at a large geothermal facility can decrease by 25 percent compared to costs for a smaller plant with similar characteristics.  

Resource characteristics:  

• The temperature of the resource: Geothermal power plants that utilize higher temperature resources can cost one quarter of what a comparable plant that uses lower temperature resources could cost. Even within the low temperature plant type, the binary plant, research suggests that the equipment cost of a binary power system may decrease by 10% or more when resource temperatures increase from 250 to 300°F.(5)
• The chemistry of the geothermal fluid: To bring geothermal resources to the surface and use them for electricity production, wells must be drilled into the natural collection of hot water or steam, called a geothermal reservoir. Geothermal fluids from the geothermal reservoir may have high scaling(6) and/or corrosion(7) proprieties that affect the design and quality of construction materials needed to build the power plant, thereby impacting the project’s costs.  
• The resource depth and permeability(8): The least cost will be incurred for a shallow, porous resource, while the greatest cost will be incurred for a deep, less permeable resource.

Power plant technology:Various technological parameters can affect power plant cost. These include the power conversion and cooling system type.
Knowledge of the resource: Drilling costs associated with the development of a new project in a well-known field can be 37 percent lower than drilling costs of a similar project located in an "unknown" geothermal field.

Environmental policies: As environmental regulations increase in strength and breadth, geothermal energy will become even more competitive with more polluting forms of electricity. That’s because geothermal can offset most of the harmful emissions and environmental problems created by many fossil fuel technologies. Recent analyses of emissions legislation including “four pollutants,”—mercury, carbon dioxide, sulfur dioxides, and nitrogen oxides—as opposed to only “three pollutants”—mercury, sulfur dioxides, and nitrogen oxides— show that renewables such as geothermal increase most significantly under a four pollutant plan that includes CO 2 regulations.(9)

Expanded environmental regulations will hopefully result in a phase-out of government subsidies provided to fossil fuel companies. The subsidies currently in place for fossil fuels tend to shift the burden of payment onto citizens, rather than the emissions producers themselves, and tend to distort market. Because the cost to citizens is not transparent—that is, subsidies are paid through general tax funds, rather than through higher utility rates—the costs of fossil fuel generation are often lower than the true costs.

Tax incentives: Because geothermal requires such high upfront costs, a tax credit passed as a provision in H.R. 6, the Energy Policy Act of 2005,(10) will provide much needed incentives for new geothermal production. The Production Tax Credit, or PTC, awards 1.9 cents per kilowatt hour to all new geothermal facilities brought online within two years of the passage of the bill. While the incentive many not benefit all new geothermal projects,(11) it will likely stimulate significant production across the West. The PTC will lower the cost of geothermal power plants, and will help bring more geothermal projects online.

Markets: Market changes, most of which remain outside the control of geothermal developers, will influence the cost of a geothermal project. Financial market conditions impact all project's components and development phases, since they determine the actual cost of the project. Strong demand for drilling services or construction materials can drive up prices and translates into higher project costs. Volatile cost components such as steel prices and drilling services can also influence the cost of geothermal project.

Financing options and cost: Different types of utilities will be required to pay different rates of interest over various timeframes for their loans. For example, Independent Power Producers (IPP),(12) which account for all but one geothermal power producer in the U.S., will pay an average interest rate of 10.7 percent over 15 years, while a municipal utility(13) will pay an average interest rate of 5.5 percent over 30 years.(14) This means that the levelized cost of power produced by an IPP is at least 44 percent more expensive than the levelized cost of a municipal utility. In the United States, all but one geothermal power producer are IPPs.

What else should I consider about the cost of geothermal power compared with other technologies? Time delays can increase the cost of geothermal power: While procedures for approving construction of coal and natural gas facilities are generally concise and transparent, those for permitting and leasing geothermal lands – before construction can even begin – can be arduous and unclear. Respondents to a recent survey about the barriers of new developing geothermal projects listed up to 25 years of delay, with an average of 2 years, due primarily to difficulties in obtaining leases and permits for their projects. Luckily, new laws have been put into place as of 2005 that standardize, simplify, and equalize these procedures for geothermal developers.

Connection to the electricity grid can influence the price of geothermal power: Areas with geothermal resources are not always furnished with transmission facilities.(15) This is because geothermal resources are often located in remote, rural communities. Transmission connection is not a significant factor for oil and gas plants, which are typically located in more populated areas. But by developing geothermal in rural communities, even where transmission lines are not as readily available, benefits accrue to small, rural communities that need economic development more than larger, more urban populations. Geothermal projects where a new transmission line must be built will be higher than those projects that do not require transmission construction.

Geothermal energy is a highly capital-intensive technology: Geothermal power plants are characterized by high capital investment for exploration, drilling wells, and plant installation, but low cost for operation and maintenance. In 2001, EPRI(16) estimated that capital reimbursement and associated interest account for 65% of the total cost of geothermal power. Capital costs of a combined cycle natural gas power plant, in contrast, only represents about 22% of the levelized cost of electricity produced from the plant, while the fossil fuel cost accounts for 67%.(17)

Because capital costs are high for geothermal, geothermal price estimates often rely on Power Purchase Agreements (PPA) to estimate costs per kilowatt hour for a geothermal plant. A PPA is a contract typically developed between the owner of a power plant and the electricity buyer. When a PPA is agreed upon, the project developer will borrow a sum from the bank or financial institution, and the project developer will pay back that loan, with interest, over twenty years. After a project pays back the debt incurred by a PPA at around 5-7¢/kWh, costs then fall by 50 percent to cover just operations and maintenance for the remaining 10-20 years that a facility operates.

The cost of geothermal energy is dropping faster than the cost of fossil fuel: Costs for geothermal generation at some facilities have decreased to half the original price per kilowatt hour of power in 1980,(18) when the first independent geothermal plants were installed, falling at a faster rate than coal. The current price for extensions onto existing projects can be competitive with polluting coal-fired plants. While geothermal’s costs have steadily decreased throughout the years, those of natural gas have increased recently, often experiencing boom and bust type cycles that can negatively impact the economy. Recent Energy Information Administration (EIA) analysis places geothermal energy at a lower levelized cost than Natural Gas Combined-Cycle, Wind, Open-Loop Biomass, Nuclear, Solar Thermal, and Photovoltaic (with costs increasing in the order in which they are listed). (19) Since the analysis providing the levelized cost of energy figures displayed by EIA do not reflect actual financial conditions faced by geothermal developers, developers contend that the price listed for geothermal is slightly lower than that of a new power project, On the other hand, most industry experts agree that geothermal is one of only a few alternative technologies that will compete economically with polluting technologies in the near term—even without considering the ancillary benefits of geothermal production.

Geothermal provides other benefits that offset any marginal increase in price over fossil fuel technologies:

• Geothermal energy is reliable. Because geothermal resources are available 24 hours a day regardless of changing weather, geothermal energy is as reliable as any fossil fuel facility.  
• Geothermal energy is renewable. Geothermal resources are sustainable because of the heat from the earth and water injection, and thus will not diminish like fossil fuel reserves.
• Geothermal energy produces minimal air emissions and offsets the high air emissions of fossil fuel-fired power plants. Emissions of nitrous oxide, hydrogen sulfide, sulfur dioxide, particulate matter, and carbon dioxide are extremely low, especially when compared to fossil fuel emissions.
• Geothermal energy can offset other environmental impacts. Electricity generation from geothermal resources eliminates the mining, processing and transporting required for electricity generation from fossil fuel resources.
• Geothermal energy is combustion free. Unlike fossil fuel power plants, no smoke is emitted from geothermal power plants, because no burning takes place: only steam is emitted from geothermal facilities.
• Geothermal energy conserves precious freshwater resources. Geothermal plants use 5 gallons of freshwater per megawatt hour, while certain types of geothermal plants use no fresh water. This compares with 361 gallons per megawatt hour used by coal facilities.
• Geothermal energy minimally impacts land. According to the U.S. Department of Energy, geothermal energy uses less land than other energy sources.
• Geothermal energy is competitive with other energy technologies when environmental costs are considered. A 1995 study estimates that costs of power generation would increase 17 percent for natural gas and 25 percent for coal if environmental costs were included.(20)
• Geothermal energy serves as a price stabilizer. Because geothermal has such low fuel costs, and uses a fuel supply that is not transported long distances or reliant on unstable markets, the price of geothermal power remains constant over the life of the plant.

Do you want to know more about costs related to geothermal energy?
You can find out more detailed answers to your questions by viewing GEA's 2005 paper, Factors Affecting Cost of Geothermal Power Development.

(1) “Levelized cost” is defined as the total capital, fuel, and operating and maintenance costs associated with the plant over its lifetime divided by the estimated output in kWh over its lifetime (expressed here in current dollars).
(2) A “kilowatt-hour,” the most common unit for measuring electric energy, is equal to 1 kilowatt or 1,000 watts of power used for one hour. A 100-Watt light bulb operated for 10 hours uses 1 kWh.
(3) California Energy Commission ( CEC) (June 2003). Comparative Cost of California Central Station Electricity Generation Technologies, Final Staff Report. Accessed August 11, 2005 from http://www.energy.ca.gov/reports/2003-06-06_100-03-001F.PDF
(4) Energy Information Administration (EIA) (2005). Natural Gas Weekly Update. Accessed August 22, 2005, from http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp.
(5) Brugman J., Hattar M., Nichols K., Esaki Y. (1996). Next Generation of Geothermal Power Plants, Electric Power Research Institute (EPRI).
(6) Scaling refers to the extent to which minerals initially dissolved in the geothermal brine deposit on power plant components and pipes due to fluid chemical and physical property changes during the power production process. Geothermal power production consists of taking the heat out of the geothermal fluid to transform this energy into power. Geothermal brines exiting the power plant have a much lower temperature (physical property change) than before they were transported.
(7) Corrosion refers to the gradual destruction or eating away of metallic components due to the presence of “aggressive” (corrosive) chemical components into the brine.
(8) “Permeability” is defined as a measure of the relative ease of fluid flow in porous rocks.
(9) Palmer, Karen and Dallas Burtraw (Jan 2005). Cost-Effectiveness of Renewable Electricity Policies. Discussion Paper 05–01: Resources for the Future.
(10) For more information about HR 6, please visit http://thomas.loc.gov/.
(11) Unlike many other renewable technologies, geothermal plants can take 3 to 5 years to build, even after all permits are in place. This long lead time prevents many new companies from benefiting from the PTC unless it is extended after the first two years. However, some companies are reluctant to take this risk when an extension is not guaranteed.
(12) An “IPP” is a private entity that generates electricity and sells it to other businesses including utilities.(13) A “municipal utility” is one owned and operated by a town or city with an organized local government. (14) U.S. DOE, EPRI (1997). Renewable Energy Technology Characterizations.
(15) “Transmission facilities” deliver power from the plant to the homes and communities that use it.
(16) G. Simons (2001). "California Renewable Technology Market and Benefits Assessment", Electric Power Research Institute (EPRI).
(17) Oak Ridge National Laboratory (1999). An assessment of the economics of future electric power generation options and the implication for fusion.
(18) Center for Energy Efficiency and Renewable Energy (CEERT). Geothermal Power. Accessed August 15, 2005, from http://www.ceert.org/ip/geothermal.html.
(19) Howard Gruenspecht, Administrator, Energy Information Administration, U.S. DOE (May 2005). Statement Before the Subcommittee on Select Revenue Measures., Committee on Ways and Means, U.S. House of Representatives. Table 1. Accessed August 15, 2005, from http://www.eia.doe.gov/neic/speeches/howard052405.pdf.
(20) Haberle and Flynn (1995). Comparative Economics and Benefits of Electricity Produced from Geothermal Resources in the State of Nevada. Univ. of Nevada, Las Vegas.