u.s. geothermal energy market report

UNITED STATESGEOTHERMAL ENERGYMARKET REPORT

GLITNIR GEOTHERMAL RESEARCHOctober 2008

October 2008 – Glitnir Geothermal Research 2

INDEX

FOREWORD & MAIN FINDINGS 3 FOREWORD 3 MAIN FINDINGS 3

GEOTHERMAL ENERGY OVERVIEW 4 WHAT IS GEOTHERMAL ENERGY? 4 GLOBAL OVERVIEW & POTENTIAL 5

GEOTHERMAL ENERGY IN THE U.S. 6 CONSUMPTION, GENERATION & RESOURCE LOCATIONS 6 *Changed from last year. 9 GEOTHERMAL DIRECT USE IN THE U.S. 10

U.S. GEOTHERMAL ENERGY POTENTIAL 11 DEVELOPMENT & RESOURCE ESTIMATES 11 CURRENT PROJECTS & POTENTIAL 12

GEOTHERMAL ENERGY – MARKET, PLAYERS & PROJECT TIMELINE 13 INVESTMENT & DEVELOPMENT NEEDS 14

GEOTHERMAL FINANCING OPTIONS 14 GEOTHERMAL ELECTRICITY SALES ESTIMATES 15 INVESTMENT NEEDS CURRENT PROJECTS 15 U.S. GEOTHERMAL DEVELOPMENT NEEDS 16

U.S. GEOTHERMAL ENERGY OPPORTUNITIES & CHALLENGES 17 OPPORTUNITIES 17 CHALLENGES 17

GLITNIR GEOTHERMAL ENERGY TEAM 19 DISCLAIMER 20


FOREWORD & MAIN FINDINGS FOREWORD Dear Reader It is our pleasure to present our second annual U.S. Geothermal Energy Market Report issued. The overall development of geothermal energy is very positive in the US. The installed geothermal power generation capacity has increased by 4% to 2,958 MW. The overall number of projects has increased and projects currently underway would expand installed capacity in the U.S. by a 100-130% in the years to come. Compared to last year the industry is better positioned and availability of drilling rigs has improved. The joint efforts of the Bureau of Land Management (BLM) and the U.S. Forestry Service to speed up the process for leasing geothermal resources on lands they manage will also have a significant impact on the industry. Recent lease auctions by the BLM have shown the increasing interest in geothermal development and in developers’ confidence in the sector. On August 5, 2008 the BLM auctioned 35 parcels over leases on 105,312 acres for a total sales price of USD 28 million which is up from last year’s record of USD 12 million for 122,850 acres. This should increase the geothermal project pipeline in the U.S. even further. Increased renewable energy portfolio standards on state level play a positive role, as is the fact that both campaigns for the 2009 U.S. presidential elections are now including “geothermal energy” when discussing renewable energy and energy security. The availability of financing will have an impact how quickly current projects will be developed. In the near-term financing cost are set to increase, impacting owners anticipated return. Overall, the outlook is positive and the geothermal energy industry should enjoy continuous growth in the years to come. We are proud to be a member of this exciting industry and take part in the development in the United States. More information on our activities in the sector and our Global Geothermal Energy Team can be found on our website at www.glitnirusa.com/energy. Best regards, Árni Magnússon, Managing Director – Glitnir Global Geothermal Energy Team MAIN FINDINGS The overall outlook for geothermal energy development in the United States has improved greatly with now more projects under way than ever. In short these are the key developments in the U.S.: • Overall installed capacity has grown from 2,851 MW to 2,958 MW, or about 4%. • California represents 86% or 2,555 MW of overall installed geothermal power generation capacity in the U.S. followed by

Nevada with 11% or 318 MW. • There are now 7 states generating electricity with geothermal energy. Idaho and New Mexico have joined the pool of

geothermal power generation states, with Oregon and Wyoming to follow shortly. • The number of projects currently in development in the U.S. has increased by 40%, from 69 projects to 97 projects today, (103

with unconfirmed projects). • Geothermal projects in development represent a maximum capacity of 3,950 MW or an increase of 54% to last year. • The State with the most number of projects remains Nevada with now 42 projects, followed by California with 20 and Oregon

with 11 projects. • The state with most of the geothermal power generation capacity in development is Nevada with 1,100-1,900 MW, followed by

California with 900-1,020 MW. • Current projects under way require investments of 14-16 billion USD, with more than half of that amount needed in 2011 and

2012.


GEOTHERMAL ENERGY OVERVIEW

WHAT IS GEOTHERMAL ENERGY?

‘Geothermal’ literally means ‘Earth’s heat’. The temperature at the earth’s core is estimated to be 5,500 degrees centigrade – about as hot as the surface of the sun. Geothermal energy is a clean, renewable resource that can be tapped by many countries around the world located in geologically favorable areas. Geothermal energy can be harnessed from underground reservoirs (conventional geothermal), containing hot rocks saturated with water and/or steam. Wells of typically two kilometers in depth or more are drilled into the reservoirs. The hot water and steam are then piped up to a geothermal power plant, where they are used to drive electric generators to create power for businesses and homes.

Geothermal energy is considered a renewable resource because it exploits the abundant interior heat of the earth and the water, once used and cooled, is then piped back to the reservoir. It can be utilized for electricity production and for direct use, e.g. for heating and industrial purposes. In areas with no hydrothermal fluid circulation there is traditionally no potential for conventional geothermal systems, but with enhanced geothermal systems (EGS) that “allow some form of engineering to develop the permeability necessary for the circulation of hot water or steam and the recovery of the heat for electrical power generation” (USGS), geothermal energy could be utilized far beyond the possibilities of today’s technologies.

Comparison to other renewable energies

While depending heavily on political and financial support, geothermal energy represents the only real base-load capacity alternative to fossil fuels, such as coal or oil. The biggest potential and prospects for the short(er) term are in the direct use of geothermal energy, particularly for heating and other applications that use heat directly. With technological developments, e.g. in binary systems and engineered geothermal systems, geothermal energy could provide all the electricity needed world-wide. Beyond cost and other factors, the capacity factor – the ratio of actual power output over a period of time and its output if it operated at full capacity around the clock – is probably one of the most convincing arguments for geothermal energy. Geothermal energy can be utilized nearly around the clock with average capacity factors of around 90-95%.

Capacity factors of selected renewables Average net capacity selected renewables (%)

Source: Glitnir Research

Summary of key advantages of geothermal energy • Base-load power (capacity factor) - 24 hours a day (e.g. wind powered energy requires more than double the installed capacity of geothermal power to supply

electricity to the same number of households) - Availability of electricity throughout peak hours - Flexibility in shut-down/ turn on if needed • Pollution prevention - Geothermal power plant emits 35 times less carbon dioxide (CO2) than the average U.S. coal power plant per kilowatt of

electricity produced (NREL) • Land use - Geothermal uses by far the least land for electricity production kWh compared to all other renewable energy sources. • Social Economics - National security advantage of having a resource on national soil and no dependence on outside factors, such as oil prices,

weather etc. - Potential for rural development around power plants - There is a far greater job creation potential within the geothermal industry than within other renewable energy sectors. • Electricity costs - USD 0.05-0.08/ kWh - way below solar and other renewable energy sources. - Direct use: energy and fuel cost savings. - Extensive savings on fuel costs through geothermal (up to 5-8% of operating cost on comparable types of energy conversion,

DOE)

For a complete overview on “Geothermal Energy” and comparison to other renewables, see Glitnir’s “Fact Sheet on Geothermal Energy” which is downloadable on www.glitnirusa.com/energy under “Materials”.


GLOBAL OVERVIEW & POTENTIAL Today, geothermal energy generates about 64,000 GWh in electricity, with an installed capacity of 9,940 MW. The main producing countries are the United States, the Philippines, Mexico, Indonesia, Italy, which produce about 80% of the world’s total geothermal electricity generation. The top 10 countries produce around 96%. Geothermal direct-use applications generate around 75,900 GWh (thermal), of which China, Sweden, the United States, Turkey and Iceland produce around 60% of the world direct use in GWh thermal. The top 10 countries account for around 70% of the world direct use. The largest potential for geothermal electricity generation lies along the hot regions of the planet or the tectonic plates,, e.g. along the Pacific ring of fire. The regions with the largest potential are Asia, Indonesia, in particular, has the largest potential of around 27,000 MW. The Americas follow closely, primarily Latin America and the United States. There is also great potential in regions like North-Eastern Africa (the Horn of Africa) and Oceania.

Installed capacity current & potential (in MW)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

NorthAmerica

Asia Europe Africa Oceania LatinAmerica &Caribbean

World

MW

Installed capacity Additional potential

Source: Source: IGA, Bertani


GEOTHERMAL ENERGY IN THE U.S. CONSUMPTION, GENERATION & RESOURCE LOCATIONS Today, geothermal energy represents around 0.3% of total U.S. energy consumption and 7.7% of renewable energy resources (excluding hydro) in the primary energy supply mix of the United States. For U.S. electricity production, geothermal energy represents 0.4% of the total production and 13.5% of electricity generation through renewable resources (excluding hydro).

Energy consumption & electricity generation By sources, rolling 12 months as of May 2008

U.S. Energy consumption (101.4 quadrillion BTU)

By Sources, rolling 12 months - May 2008

Coal22.5%

Natural Gas23.8%

Petroleum38.5%

Other6.8%

Geothermal0.3%

Solar/ PV0.1%Wind

0.4%

Hydro Electric Pow er2.4%

Biomass3.7%

Nuclear Electric Pow er8.3%

U.S. Electricity generation (4,170 TWh)By Sources, rolling 12 months - May 2008

Petroleum Liquids & Coke

1.3%

Natura Gas & Other Gases

22.1%

Other2.6%

Coal48.7%

Wind0.9%

Nuclear19.3%

Solar/PV0.0%

Hydroelectric & Other6.0%

Geothermal0.4%

Waste0.4%

Wood0.9%

Source: EIA

The main geothermal resources are located in the Western States, with installed capacity in Alaska, California, Hawaii, Idaho, Nevada, New Mexico and Utah. All these states currently have projects in development, as well as the states of Arizona, Colorado, Florida, Idaho, Oregon, Texas, Washington and Wyoming.

Geothermal resources in the U.S. Estimated Earth temperature at 5 km (3.1 miles) depth

Source: NREL


GEOTHERMAL POWER CAPACITY IN PERSPECTIVE The U.S. remains the top country in installed geothermal power generation capacity and represents nearly one third of the world’s geothermal capacity. Today, there are today 7 states with geothermal power generation capacity installed. California represents 86% of total installed capacity and Nevada 11%. Hawaii and Utah represent each 1.2% with Alaska and New Mexico combining only marginal percentage with installations of below 1 MW each.

Top 10 countries with geothermal power generation

Installed capacity in MW

0 500 1,000 1,500 2,000 2,500 3,000

Costa RicaEl Salvador

All OtherNew Zealand

IcelandKenya

ItalyMexico

IndonesiaPhilippines

USA

MW

Source: IGA, Bertani

Geothermal power capacity as of today

Installed capacity today (MW, %)

California2,555.3

87%

Other84.63%

Utah36.01%

Idaho13.00%

Alaska0.4

0.0%

Haw aii35.01%

New Mexico0.20%

Nevada*318.011%

Source: GEA

Geothermal power capacity as of today

Installed capacity by state (in MW)

0.2

0.4

13.0

35.0

36.0

318.0

2,555.3

0 500 1,000 1,500 2,000 2,500 3,000

New Mexico

Alaska

Idaho

Hawaii

Utah

Nevada*

California

Source: GEA


Plants in current operation in the U.S. today Today there are 72 geothermal plants in operation in the U.S. The majority of those can be found in California (50). Nevada has 16 plants operating today with Alaska, Hawaii, Idaho, New Mexico and Utah each having one plant in operation.

Geothermal power plants in the U.S. (August 2008)

Power Plant Start Year Type of Plant # of Units

Installed Capacity

CALIFORNIAAMEDEE 1988 Binary 2 1.6CE TURBO 2000 Single Flash 1 10DEL RANCH (HOCH) 1989 Dual Flash 1 38ELMORE 1989 Dual Flash 1 38 LEATHER 1990 Dual Flash 1 38SALTON SEA I 1982 Dual Flash 1 10SALTON SEA II 1990 Dual Flash 3 20SALTON SEA III 1989 Dual Flash 1 50SALTON SEA IV 1996 Dual Flash N/A 40SALTON SEA V 2000 Dual Flash 1 49VULCAN 1986 Dual Flash 1 34AIDLIN 1989 Dry Steam 2 20BEAR CANYON 1988 Dry Steam 2 20BIG GEYSERS 1980 Dry Steam 1 97GRANT 1985 Dry Steam 1 113LAKE VIEW 1985 Dry Steam 1 113McCABE 1971 Dry Steam 2 106QUICKSILVER 1985 Dry Steam 1 113RIDGELINE 1972 Dry Steam 2 106SOCRATES 1983 Dry Steam 1 113SONOMA 1983 Dry Steam 1 72SULPHUR SPRINGS 1980 Dry Steam 1 109WEST FORD FLAT 1988 Dry Steam 2 27CALISTOGA 1984 Dry Steam 1 80COBB CREEK 1979 Dry Steam 1 110EAGLE ROCK 1975 Dry Steam 1 110MAMMOTH PACIFIC I 1984 Binary 4 10MAMMOTH PACIFIC II 1990 Binary N/A 15BLM 1989 Double Flash 3 90NAVY I 1987 Double Flash 3 N/ANAVY II 1988 Double Flash 3 N/AHL POWER 1989 Hybrid-Biomass/Geothermal 1 35.5NCPA I 1983 Dry Steam, Low Pressure Reaction 2 110NCPA II 1983 Dry Steam, Low Pressure Reaction 2 110GOULD 2006 Binary 2HEBER 1985 Dual Flash 2 52HEBER II 1993 Binary 7 48HEBER SOUTH 2008 Binary 1 10ORMESA I 1986 Binary 1 44ORMESA IE 1988 Binary 1 10ORMESA IH 1989 Binary 1 13.2ORMESA II 1987 Binary 1 18GEM RESOURCES II 1989 Double Flash 1 18GEM RESOURCES III 1989 Double Flash 1 18HAWAIIPUNA GEOTHERMAL VENTURE1993 Hybrid-Single Flash/Binary 10.0 35.0IDAHORAFT RIVER 2008 13.0NEVADABEOWAWE 1985 Double Flash 1.0 16.6BRADY HOT SPRINGS 1992 Double Flash & Binary 3.0 27.0DESERT PEAK II 2006 Binary 1.0 N/ADIXIE VALLEY 1988 Double Flash 1.0 67.2STILLWATER 1989 Binary 1.0 16.0SAN EMIDIO (EMPIRE) 1987 Binary 4.0 4.8SODA LAKE I 1987 Binary 4.0 5.1SODA LAKE II 1990 Binary 6.0 18.0STEAMBOAT I 1986 Binary 7.0 8.4STEAMBOAT IA 1988 Binary 2.0 3.0STEAMBOAT II 1992; 2006 Binary 2.0 29.0STEAMBOAT III 1992 Binary 2.0 24.0WABUSKA 1984 Binary 3.0 2.2STEAMBOAT HILLS 1988 Single Flash 1.0 14.4RICHARD BURDETT 2005 Binary 2.0 30.0GALENA 2 2007 Binary 1.0 15.0GALENA 3 2008 Binary 1.0 20.0NEW MEXICOLightning Dock 2008 0.2UTAHBLUNDELL 1984 Single Flash 1.0 29.0COVE FORT 1* 1990 Dry Steam 1.0 8.5COVE FORT 2* 1990 Binary 3.0 2.3TOTAL 126.0 2,590.0*In 2003 and 2004 the Cove Fort plants were shut down and are under re-developmentSource: GEA


U.S. GEOTHERMAL DEVELOPMENT The development of wind energy has been more prominent than the development in the geothermal sector in the U.S. However that will change with the large number of projects in development in the geothermal sector and there will be a strong increase in electricity generation from geothermal sources in the years to come. As it takes relatively longer to develop geothermal power capacity compared to wind or solar installations, many projects in development today won’t generate electricity until 2011-2014. Most of the geothermal development in the U.S. is taking place in Nevada (41) and California (20), which together account for nearly two thirds of all development. Oregon (11), as well as Utah and Idaho (both with 6) represent the second group of states with sizeable geothermal projects in development. The rest of the states with projects in development are Alaska (4), Hawaii (2) and Arizona, Colorado, Florida, New Mexico, Washington and Wyoming (each with 1 project).

U.S. Renewable electricity generation. In TWh (excluding hydro and biomass)

05

1015202530354045

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

12m

'08

TWh

Geothermal Solar/PV Wind

Source: EIA

U.S. Geothermal – plants & projects

2006-2008

67 67 72

51 6997

0

20

40

60

80

100

120

140

160

180

2006 2007 2008

Plants Projects

Source: GEA RENEWABLE ENERGY/ PORTFOLIO STANDARDS Regulatory approaches towards increasing the generation of electricity through renewable energy sources, such as wind, solar, biomass and geothermal energies, exist today in most of the Western states of the U.S. Short Overview: • Arizona (15% by 2025), • California (20% by 2010), • Colorado (20% by 2020), • Hawaii (20% by 2010)*, • Nevada (20% by 2015), • New Mexico (20% by 2020), • Texas (5,880 MW by 2015) and • Washington (15% by 2020). • Alaska, Idaho, Utah and Wyoming

currently don’t have renewable portfolio standards in place.

*Changed from last year.

Renewable Portfolio Standards

In U.S. states with geothermal potential

Source: DSIRE


GEOTHERMAL DIRECT USE IN THE U.S. Geothermal direct use relates to utilizing geothermal hot water for a variety of applications that require heat. It includes, among others, the heating of pools and spas, greenhouses and aquaculture facilities, space and district heating, snow melting, agricultural drying, industrial applications and ground-source heat pumps. The United States geothermal direct use is arund 31,200 TJ/ year, of which traditional direct use accounts for around 9,000 TJ. Geothermal heat pumps account for the vast majority of direct use of geothermal heat with around 22,200 TJ/ year. Total thermal installed capacity is around 8,000 MWt. There has been a continuing increase over the years, but by far the largest annual growth has been in geothermal heat pump applications. Over a 5-year time frame (2000-2005) heat pumps have seen an 11% increase, followed by agricultural drying (10.4%) and space heating (9.3%).

U.S. Geothermal direct use

Based on annual use (TJ/ year)

Other6.8%

Cooling0.05% Snow melting

0.1%

Geothermal heat pumps71.1%

District heating2.5%

Bathing & swimming

8.1%

Individual space heating

4.3%

Fish farming9.6%

Agricultural drying1.6%

Industrial process heat0.2%

Greenhouse heating

2.5%

Source: Lund, Freeston, Boyd

There are estimated 600,000 12-kWt geothermal heat pumps installed today, most of which are located in the Mid-West, Mid-Atlantic and Southern States (from North Dakota to Florida).

• Traditional direct-use categories (installed capacity/ annual use): - individual space heating (146 MWt/ 1,335 TJ/yr), - district heating (84 MWt and 788 TJ/yr), - cooling (<1 MWt/ 15 TJ/yr), - greenhouse heating (97 MWt/ 766 TJ/yr), - fish farming (138 MWt/ 3012 TJ/yr), - agricultural drying (36 MWt/ 500 TJ/yr), - industrial process heat (2 MWt/ 48 TJ/yr), - snow melting (2 MWt/ 18 TJ/yr), - bathing & swimming (112 MWt/ 2,543 TJ/yr). • Examples of direct use applications in the U.S.:

- Small district heating system in northern California, a greenhouse operation to raise tree seedlings added to the district heating system in Klamath Falls, Oregon.

With the tremendous potential of geothermal direct use, those numbers could be significantly higher, given the current oil price could increase further in the years to come. Particular growth is expected in space heating and greenhouse projects, along with increased countrywide interest in geothermal heat pumps.


U.S. GEOTHERMAL ENERGY POTENTIAL

Geothermal potential in the U.S. is undeniably considerable. Projects currently in development in the U.S. alone could more than double the installed capacity as of now. There are different estimates for the resource potential for which an overview is given below. The biggest potential by far lies within California with around 11,340 MW undiscovered geothermal resources (USGS). Nevada, Hawaii, Oregon, Idaho and Alaska also have tremendous undiscovered resources.

Installed capacity, projects & potential In MW of installed capacity

0 1,000 2,000 3,000 4,000 5,000

Wyoming

Washington

Montana

Arizona

Colorado

Utah

New Mexico

Alaska

Idaho

Oregon

Hawaii

Nevada*

California

USGS

WGA

Projects

Current

Califo rnia potential 11,340 M W

Source: GEA, WGA, USGS

DEVELOPMENT & RESOURCE ESTIMATES The table and chart in this section give an overview of current installed capacity as provided in “GEA’s Power and Development Update August 2008”. The other two, Western Governor’s Geothermal Task Force (WGA) and U.S. Geological Survey (USGS) give resource estimates for individual states with geothermal development potential. The WGA estimates estimates a short and long term development potential based on electricity prices and technological development. The USGS in its latest “U.S. Geothermal Resources Assessment” of September 2008 looks at ‘conventional geothermal’ (hydrothermal) based on identified geothermal systems, at undiscovered resources based on a ‘series of GIS statistical models’, but also enhanced geothermal systems (EGS). The overall potential for geothermal power generation is very promising. The minimum potential is a fourfold increase in installed capacity as of today (WGA) and a maximum of a tenfold increase for conventional geothermal systems (USGS).

Installed capacity, projects and resource estimates

In MW of installed capacity

2,9583,950

1,6396,863

30,033*

9,057*

05,000

10,00015,000

20,00025,000

30,00035,000

40,000

Cur

rent

Pro

ject

s

Iden

tifie

dR

esou

rces

WG

Apo

tent

ial

estim

ates

Und

isco

vere

dR

esou

rces

*USGS Sept.'08

WGA 2025 estimates

WGA 2015 estimates

Source: GEA, WGA, USGS


Projects and resource assessments

GEA Update WGA Estimates USGS EstimatesInstalled Capacity

Projects* Near Market Longer Term Identified Resources

Un-discovered Resources

EGS systems

Today low high Number of 2015 2025 (Mean) (Mean) (Mean)

Alaska 0.4 53.0 100.0 5 20 150 677 1,788 NAArizona 2.0 20.0 2 20 50 26 1,043 54,700California 2,555.3 907.6 1,016.6 21 2,375 4,703 5,404 11,340 48,100Colorado 10.0 10.0 1 20 50 30 1,105 52,600Florida 0.2 1.0 1Hawaii 35.0 8.0 8.0 2 70 400 181 2,435 NAIdaho 13.0 251.0 326.0 6 855 1,670 333 1,872 67,900Montana 59 771 16,900Nevada* 318.0 1,082.5 1,901.5 45 1,488 2,895 1,391 4,364 102,800New Mexico 0.2 10.0 10.0 1 80 170 170 1,484 55,700Oregon 297.4 322.4 11 380 1,250 540 1,893 62,400TexasUtah 36.0 234.0 234.0 6 230 620 184 1,464 47,200Washington 1 50 600 23 300 6,500Wyoming 0.2 0.0 1 0 0 39 174 3,000

2,957.9 2,855.9 3,949.5 103 5,588 12,558 9,057 30,033 517,800Source: GEA August 2008 Source: WGA January 2006 Source: USGS September 2008

Projects in development Phase I-IV

*with unconfirmed CURRENT PROJECTS & POTENTIAL

Nevada has currently the largest number of projects with an estimated capacity in development of 1,080-1,900 MW. Main overview of current projects: • Nevada (42 projects): 1,083-1,902 MW • California (20 projects): 908-1,017 MW • Oregon (11 projects): 297-322 MW • Idaho (6 projects): 251-326 MW • Utah (6 projects): 234 MW • Alaska (4 projects): 3-100 MW • Colorado/ New Mexico: 1 project and 10 MW each • Other (6 projects): 10 MW Source: GEA

Estimated potential in other publications

The abovementioned estimates by the Western Governors’ Association’s Geothermal Task Force and the U.S. Geological Survey’s new estimates published in September 2008 already draw a promising picture of the overall potential. However, there are other publications looking at either EGS alone or are bolder in their estimations to the potential not only for energy generation, but also for the positive aspects regarding climate change.

Installed capacity, projects and resource estimates In MW of installed capacity (without USGS estimates)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Cal

iforn

ia

Idah

o

Nev

ada*

Ore

gon

Was

hing

ton

Haw

aii

Uta

h

New

Mex

ico

Ala

ska

Col

orad

o

Ariz

ona

U.S

. Tot

al

MW Potential

Projects

Current

Source: GEA, WGA

To name a few one has to mention: • MIT’s “The Future of Geothermal Energy – Impact of Enhanced Geothermal Systems (EGS) …” estimating up to 100,000 MW

installed capacity until 2050. • National Renewable Energy Laboratory’s “Updated U.S. Geothermal Supply Characterization” referring to a base-case

scenario of co-produced potential of 71,600 MW and an overall potential of 126,300 MW (incl. EGS). • World Wide Fund for Nature’s “Climate Solutions – WWF’s Vision for 2050”, stressing not only the importance of geothermal

energy in providing a clean energy supply, but also the major importance on direct use in the overall sustainable energy mix for the future.


Installed capacity and projects

In MW of installed capacity by state

0.2

2,555.3

322

1,902

1,017

318

13

36

0.4

35

326

234

100

8

20

10

10

0 400 800 1,200 1,600 2,000 2,400 2,800 3,200 3,600

Colorado

New Mexico

Arizona

Hawaii

Alaska

Utah

Oregon

Idaho

Nevada*

California

Current Projects

Source: GEA

Capacity in development In the different development stages, 2007 & 2008

884

132

760 711 725

371

1,380

1113

914.2

542534

375

0

200

400

600

800

1,000

1,200

1,400

1,600

Exploration Pre-Feasibility

Feasibility Design &Construction

MW

in d

evel

opm

ent

200620072008

Source: GEA

GEOTHERMAL ENERGY – MARKET, PLAYERS & PROJECT TIMELINE

It is not uncommon for geothermal power projects to take 5-7 years until the actual operation of the installation, depending on project size and technology. This can also take additional 1-2 years more or less depending on permits and other licensing issues. Projects for direct use of geothermal heat need less time. Both applications depend greatly on the success of drilling and available resources. Clearly, like in any other industry depending on a drilling success raising capital can be difficult. The success is defined by a proven resource – sufficient reservoir volume, fluid temperature and rock parameters. The geothermal energy market is heavily dependent on a number of specialized services and suppliers, e.g. specific engineering services and technology suppliers, which demand high expertise and are in short supply.

Geothermal energy market & players


The market also depends heavily on clear legislation and administration, e.g. for permits and land use issues, not only from a domestic governments, but also on local and municipality level. It also requires strong knowledge and experience on the site of the developer, as well as a concrete understanding of geothermal development on the side of the off-taker. Generally a geothermal project can be divided into 5 different phases. Any concrete time estimate for the individual phases is difficult as this is strongly dependent on local and national legal requirements and the availability of services and supplies needed, e.g. for drilling.


Geothermal project timeline


INVESTMENT & DEVELOPMENT NEEDS GEOTHERMAL FINANCING OPTIONS The development cycle for geothermal energy projects requires equity and debt finance at various stages and very different profiles. The risks involved require a sound knowledge and experience and generally attract very different types of investors and financial institutions. An overview of the different stages can be found above. The development cycle for geothermal energy projects requires equity and debt finance at various stages and very different profiles. The risks involved require a sound knowledge and experience and generally attract very different types of investors and financial institutions. An overview of the different stages can be found above.

Geothermal financing options



GEOTHERMAL ELECTRICITY SALES ESTIMATES USD 3 billion today, USD 6 billion with current projects

Looking at investment needs of the industry to develop geothermal energy projects, one would also have to look at the sales potential for electricity generated through those projects. To the right is an overview of the electricity sales potential based on 2006 electricity sales prices for individual states (industrial & residential). Currently around USD 3 billion in electricity sales are being generated through geothermal energy in the 7 states with geothermal generation capacity. With ongoing projects those sales (all based on 2006 prices) could more than double to USD 6 billion (at the latest in 2014). With the overall potential estimated by WGA, sales could more than fourfold based on sales today. With the estimates of the US Geological Survey, one can estimate an overall electricity sales volume of around USD 30 billion. These are naturally very rough estimates which do not take into considerations the high electricity prices of 2007 and the increases in 2008, referring to the latest power purchasing agreements in the Western U.S.

Geothermal consumer electricity sales estimates Based on 2006 sales, industry/ residential (in million USD)

2,933 2,933 2,933 2,958 2,958

3,108 3,108

6,0418,304

25,979

0

5,000

10,000

15,000

20,000

25,000

30,000

Current Projects WGA LT USGSidentified

USGSundiscovered


INVESTMENT NEEDS CURRENT PROJECTS Investment needs current projects: USD 15 billion It is difficult to predict abstract potential figures, such as those of WGA or USGS. A geothermal project timeline can, as laid out above, be very long and it needs different types of investments along its development. Clearly the largest investments needed in any geothermal project are the drilling in the feasibility and the power plant design and construction in the ‘design & construction’ phase. Both account for more than 80% of the development cost. The risk profile of any investment is also very different for each phase and therefore also requires different sets of knowledge and risk management. We currently estimate an average total cost of USD 4 million for each MW of installed capacity for geothermal projects in the Western U.S. For the development of current projects in the U.S. pipeline, we therefore estimate an overall required investment volume of USD 15 billion.

Investment volume per year Current projects only

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2009 2010 2011 2012 2013 2014

mill

ion

US

D

Exploration Pre-Feasbility Feasibility Design & Construction


Based on the assumptions that feasibility and ‘design & construction’ phase represent the largest part of any investment volume, the major investments needed to drive today’s projects forward will be required in 2011 and 2012, both representing around half of the total investment volume. Current projects require around USD 1.5 billion in 2009 to get to the next level and another USD 2.7 billion by 2010. Players willing to provide the drilling equity and the construction financing will see a strong demand in 2-3 years from today.


U.S. investment needs for the long term As mentioned above the industry needs investments of around USD 15 billion to finish current projects. To develop the identified potential (USGS) an investment volume of USD 36 billion is needed, roughly the same amount would be needed for the long-term (2025) estimates by WGA. To develop currently undiscovered resources the investment volume needed would be USD 120 billion.

Investment volume for projects & potential estimates In billion USD

15,800 15,800

27,452

9,057

36,228

120,132

6,556

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Projects IdentifiedResources

WGApotential

estimates

UndiscoveredResources

*USGS Sept.'08

WGA 2025 estimates

WGA 2015 estimates

Projects

Source: GEA, WGA, USGS, Glitnir Research

U.S. GEOTHERMAL DEVELOPMENT NEEDS In last year’s report we talked about the bottle neck “drilling” and the available resources for drilling geothermal wells. This has improved in the U.S., but will remain an issue towards the year 2010 and 2011 when the majority of projects will reach the feasibility stage.

Drilling rig demand based on current projects, estimates and assumptions (as of October 2008)

Glitnir Research estimates based on conservative assumptions.

Another bottle neck that will be faced by the industry is the availability and delivery time for geothermal turbines. The demand for turbines is already very high and with the current development curve, the demand will increase sharply by 2011 until 2013, when most projects currently in development will reach the “design & construction phase”. Yet another big obstacle for utilizing the big potential of geothermal energy utilization in the U.S. and worldwide is the shortage of people with experience and knowledge in geothermal energy development and engineering. It will require strong efforts by the industry to educate the people it needs to go forward, but it also puts pressure on governments and universities to foster geothermal education, as well as research and development to utilize geothermal energy to the potential it offers.


U.S. GEOTHERMAL ENERGY OPPORTUNITIES & CHALLENGES

OPPORTUNITIES

• Clear demand for renewable energy will go unabated in the foreseeable future – this is not only a fashionable change, but a structural one as well.

• Political and social support for geothermal energy is just now being recognized as an important part of the renewable energy mix.

• There is a clear need for dependable, base-load electricity and geothermal energy is best positioned to deliver.

• The resource base, as it is estimated today, has yet to be fully understood or analyzed – but the overall resource landscape looks strong.

• New technology, like Enhanced Geothermal Systems (EGS), will add further efficiencies and competitiveness to the industry in the years to come.

• The industry is very fragmented but has many opportunities for developing strong companies.

• Resource estimates for EGS show huge geothermal energy opportunities all over the U.S., which means that development can take place all over the US, not as today, where the development is mainly taking place in the Western States.

CHALLENGES

• With the rapid development of the industry, there is an immediate need for additional expertise (from resource development to business management), support services (drilling capacity, data/information, technology, power generation equipment, etc.) and focused capital.

• There is still some fragmentation in the sector - to appropriately fund and develop the resource, consolidation will be required.

• Additional 'patient capital’ is required from multiple sources.

• Partnerships between project developers, sponsors, utilities and end users should be strengthened to ensure the industry is built on a strong and stable foundation.

• Pressure will remain to ramp up projects at a rapid pace, requiring commitments from multiple players including the public sector.

• The geothermal industry continues to compete with the oil industry for highly skilled staff. Currently many geothermal experts are coming of age.

• Further education is necessary to increase the industry talent pool, but more importantly incentives for people to join the industry are required. Overall project risks are higher with inexperienced scientists leading projects.

• Availability of rigs has improved, but with the number of projects in the pipeline there might be shortages in 2-3 years from today.

• Political support needs to grow. Geothermal energy is the only real renewable base-load electricity option, yet it does not get enough political support, e.g. through favorable incentives, to help move this sector forward. The short time frame of the current Federal Production Tax Credit and the uncertainty about its continuation is one example of an incentive that is not taking into consideration factors of great influence on geothermal energy. Furthermore incentives for geothermal exploration are needed, which could help to cover a part of the drilling risk for geothermal geothermal energy.


SOURCES Geothermal Energy NREL, at: http://www.nrel.gov/analysis/power_databook/docs/pdf/db_chapter12_2.pdf

GEA, “Kagel, A. – Socioeconomics and Geothermal Energy”, at: http://www.geo-energy.org/publications/power%20points/SocioeconomicsKagel.ppt

Global Geothermal Energy Overview & Potential Bertani, R., “World Geothermal Generation in 2007”, GHC Bulletin, September 2007, retrieved on September 19, 2008 at: http://geoheat.oit.edu/bulletin/bull28-3/art3.pdf

Lund, J.W., Freeston, D.H. and Boyd, T.I. (2005). Direct application of geothermal energy: 2005 worldwide review. Geothermics, Vol. 34, 690-727

Geothermal Energy in the U.S. – Today Renewable Energy Portfolio Standards: Database of State Incentives for Renewables & Efficiency (DSIRE), retrieved on September 29, 2008, at: http://www.dsireusa.org

Geothermal Energy Direct: use: John W. Lund, Derek H. Freeston, and Tonya L. Boyd: “World-Wide Direct Uses of Geothermal Energy 2005”, published in Proceedings of the World Geothermal Congress 2005, Turkey, 24-29 April 2005.

Geothermal Energy in the U.S. – Projects & Potential “Geothermal – The Energy Under Our Feet - Geothermal Resource Estimates for the United States”, National Renewable Energy Laboratory, Technical Report November 2006, at: http://www1.eere.energy.gov/geothermal/pdfs/40665.pdf and Geothermal Energy Association.

GEA, “Geothermal Power Production and Development Update August 2008”, retrieved on September 19, 2008, at: http://www.geo-energy.org

U.S. Geological Survey (USGS), “Assessment of Moderate- and High-Temperature Geothermal Resources of the United States”, September 2008, retrieved on September 29, 2008, at: http://pubs.usgs.gov/fs/2008/3082/pdf/fs2008-3082.pdf

Western Governors’ Association, Geothermal Task Force Report January 2006, retrieved on September 29, 2008, at: http://www.westgov.org/wga/initiatives/cdeac/Geothermal-full.pdf

Bertani, R. “What is Geothermal Potential”, International Geothermal Association Quarterly No.53 (July-September 2003) retrieved on September 19, 2008, at: http://iga.igg.cnr.it/documenti/IGA/potential.pdf

National Renewable Energy Laboratory, “Updated U.S. Geothermal Supply Characterization” Petty S., Porro G., Presented at the 32nd Workshop on Geothermal Reservoir Engineering, January 2007, retrieved on September 30, 2008, at: http://www.nrel.gov/docs/fy07osti/41073.pdf

Massachusetts Institute of Technology (MIT), “The Future of Geothermal Energy – Impact of Enhanced Geothermal Systems (EGS) on the United States in the 21st Century”, retrieved on September 30, 2008, at: http://www1.eere.energy.gov/geothermal/future_geothermal.html

World Wide Fund for Nature (WWF) (with a global view), “Climate Solutions – WWF’s Vision for 2050”, retrieved on September 30, 2008, at: http://www.wwfindia.org/about_wwf/what_we_do/cc_e/pub/index.cfm

Geothermal Energy Associations: U.S. Geothermal Energy Association (GEA), Website: www.geo-energy.org

Geothermal Resources Council (GRC), Website: www.geothermal.org

International Geothermal Association (IGA), Website: iga.igg.cnr.it


GLITNIR GEOTHERMAL ENERGY TEAM Glitnir* is a growing financial services group with strong foundations in its Nordic home markets, Iceland and Norway, offering universal banking and financial services. Services include retail, corporate and investment banking, stock trade/brokerage and capital management. The Bank drives its international expansion based on two specialized industry sectors: Seafood and Geothermal Energy, where the bank has developed significant industry expertise built on its Icelandic and Norwegian heritage. Glitnir has served the energy industry in Iceland for decades and today works with companies in this sector all over the world, focusing on all applications utilizing geothermal energy. Glitnir has formed a team of specialist bankers who focus on the geothermal energy industry. The team consists of corporate financiers, industry analysts, geothermal reservoir engineers, credit officers, dealers with years of experience within banking and the geothermal energy sector – people who are truly at home in both worlds. This combined wealth of experience is the core strength of Glitnir, allowing it to be a first choice partner for the industry and investors. The team operates globally and has been essential in building the leading position of the bank in geothermal energy world wide. The Bank’s Global Geothermal Energy team is based in Reykjavik, Iceland, and works globally with the support of the Bank’s offices and subsidiaries abroad. Glitnir offers industry-specific financial services, ranging from convenient financing and tailor-made advice on financial risk to finding the right industrial partner in the market. The nature of geothermal projects demands a strong understanding of the underlying technical issues and risks. UNIQUE BASIS FOR SUSTAINABLE ENERGY SERVICES

• Home markets, Iceland & Norway with more than 99% of electricity production from renewables (~8% in the United States).

• Iceland, one of the leaders of geothermal energy utilization for electricity production & direct use.

• Currently installed capacity (geothermal) in Iceland is 480 MWe. • Strategic partners with leading positions in the sector.

GLITNIR GEOTHERMAL BUSINESS ORIGINATION

• Extensive geographical and industry research. • Industry player mapping & networks. • Advisory for players in the geothermal sector, across the whole “value

chain”. • Glitnir Geothermal Team members are located in:

- Iceland and the U.S., but act globally HOW CAN WE AS A GLOBAL LEADER IN GEOTHERMAL ENERGY HELP YOU TO GROW?

With our unique background and experience, we have a strong foundation for our activities in this industry. Our dedicated industry team, including geothermal reservoir specialists, provides us with unparalleled market knowledge in combination with strong banking skills. This enables us to fulfill the needs of companies and investors across the value chain of the geothermal industry sectors providing opportunities for growth. Our expertise and understanding of the industry, as well as our ongoing efforts to promote geothermal energy makes us a valuable partner for our clients and companies in the industry. [email protected] www.glitnirusa.com/energy Contact details for our Global Geothermal Energy Team, as well as our regional representatives can be found on our website. *Glitnir's US business is conducted through Glitnir Capital Corporation, a non-banking subsidiary. At this time, Glitnir does not provide any broker-dealer services in the United States.


DISCLAIMER All opinions and analysis represent the views of Glitnir at the time of writing and are subject to change without notice. Glitnir and its employees cannot be held responsible for any trading conducted on the basis of the information and views presented here. Glitnir may at any time have vested interests in individual companies, for example as an investor, creditor or service provider, but its opinions and analysis are produced independently by the Glitnir Research division, based on publicly available information on the company in question. This U.S. Geothermal Market Report was written by: Alexander Richter Director l Global Geothermal Energy – Glitnir International Banking: [email protected]

u.s. geothermal energy market report

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