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Economics
The commercial viability of geothermal power
production is influenced by capital costs
for land, drilling, and physical plant; operating
and maintenance costs; the amount of power
generated and sold from the plant; and the
market value of that power. However, because
geothermal power plants incur high capital
costs at the beginning of the project, they
are typically at an economic disadvantage
to conventional fossil fueled power plants.
Fossil fuel plants have lower up-front capital
costs, but incur fuel costs for the life of
the plant. This section discusses capital
cost, operating and maintenance cost, average
cost of power production over the life of
the plant (known as the levelized cost of
power production), as well as the economic
impacts of geothermal power such as labor
creation, tax base contributions, and balance-of-trade
impacts.
Capital
Cost
Capital costs are the fixed costs for power
plant construction. Geothermal capital costs
include the cost of land, drilling of exploratory
and steam field wells, and physical plant,
including buildings and power-generating turbines.
Geothermal plants are relatively capital-intensive,
with low variable costs and no fuel costs.
The capital cost for geothermal power plants
ranges from $1150 to $3000 per installed KW,
depending on the resource temperature, chemistry,
and technology employed. These costs may decrease
over time with additional technology development.
Plant lifetimes are typically 30–45
years. Financing is often structured such
that the project pays back its capital costs
in the first 15 years. Costs then fall by
50–70%, to cover just operations and
maintenance for the remaining 15–30
years that the facility operates.25 Table 3
shows the capital costs for geothermal plants,
and Table 4 shows conventional baseload power
direct capital costs for comparison.
Table 3. Geothermal Power Direct Capital
Costs
(US$1999 /KW installed capacity)26
| Plant Size |
Cost |
High-Quality Resource |
Medium-Quality Resource |
| Small plants (<5 MW) |
Exploration |
$400–$800 |
$400–$1,000 |
| Steam field |
$100–$200 |
$300–$600 |
| Power plant |
$1,100–$1,300 |
$1,100–$1,400 |
| Total |
$1,600–$2300 |
$1,800–$3,000 |
| Medium plants (5–30
MW) |
Exploration |
$250–$400 |
$250–$600 |
| Steam field |
$200–$500 |
$400–$700 |
| Power plant |
$850–$1,200 |
$950–$1,200 |
| Total |
$1,300–$2,100 |
$1,600–$2,500 |
| Large plants (>30 MW) |
Exploration |
$100–$400 |
$100–$400 |
| Steam field |
$300–$450 |
$400–$700 |
| Power plant |
$750–$1,100 |
$850–$1,100 |
| Total |
$1,150–$1,750 |
$1,350–$2,200 |
Table 4. Conventional
Baseload Power Direct Capital Costs
Resource |
CaptialCost
($US1999/kW) |
Geothermal |
$1,150–$3,000 |
Hydropower27 |
$735–$4,778 |
Coal28 |
$1,070–$1,410 |
Nuclear29 |
$1,500–$4,000 |
Operating
and Maintenance Cost
Geothermal power plant operating
and maintenance costs range from $0.015
to $0.045 per KWh, depending on how often
the plant runs. Geothermal plants typically
run 90% of the time. They can be run up
to 97–98% of the time, but this increases
maintenance costs. High run times are found
when contractual agreements pay high prices
for power. Higher-priced electricity justifies
running the plant at high-capacity factors
because the resulting higher maintenance
costs are recovered. Table 5 provides geothermal
operating and maintenance cost by plant
size. Large plants tend to have lower O&M
costs due to economies of scale.
Table 5. Geothermal Operating and
Maintenance Costs
by Plants Size (U.S. cents/kWh)30
Cost
Component |
Small
Plants
(<5 MW) |
Medium
Plants (5–30 MW) |
Large
Plants
(>30 MW) |
Steam field |
0.35–0.7 |
0.25–0.35 |
0.15–0.25 |
Power plants |
0.45–0.7 |
0.35–0.45 |
0.25–0.45 |
Total |
0.8–1.4 |
0.6–0.8 |
0.4–0.7 |
As shown by Table 6, geothermal operating
costs of 0.4–1.4 ¢/kWh are within
the range of O&M costs of conventional
power plants.
Table 6. Opeating and Maintenance
Cost Comparison
by Baseload Power Source (U.S. cents/kWh)
Resource |
O&M
Cost (cents/kWh) |
Geothermal |
0.4–1.4 |
Hydropower31 |
0.7 |
Coal32 |
0.46 |
Nuclear33 |
1.9 |
Levelized
Cost
The levelized cost of power production is
the average cost of power production over
the life of a power plant, taking into account
all capital expenses and operating and maintenance
costs, as well as fuel costs for power plants
that rely on external fuel sources. Major
factors affecting geothermal power cost are
the depth and temperature of the resource,
well productivity, environmental compliance,
project infrastructure and economic factors
such as the scale of development, and project
financing costs.
Real levelized costs for geothermal electricity
generation are $0.045-$0.07 per KWh, which
is competitive with some fossil fuel facilities,
without the pollution.34 The lowest cost of
geothermal electricity is approximately $0.015
per KWh. At the Geysers, power is sold at
$0.03 to $0.035 per KWh. Some geothermal power
plants can charge more per KWh during some
time periods, because of incentives related
to reliability of generation and power provided
during peak demand. The cost of generating
power from geothermal resources has decreased
about 25% over the past two decades.35
The goal of the geothermal industry and the
U.S. Department of Energy is to achieve a
geothermal energy life-cycle cost of electricity
of $0.03 per KWh. It is anticipated that costs
in this range will result in about 10,000
MW of new capacity installed by U.S. firms
within the next decade. Table 7 presents the
levelized cost comparison of power by source.
It shows that in some cases, geothermal energy
can compete directly with conventional baseload
power sources.
Table 7. Levelized
Cost Comparison
of Baseload Power by Source
Resource |
Levelized
Cost36
(U.S. cents/kWh) |
Geothermal |
1.5–7.0 |
Hydropower |
0.5–2.4 |
Coal |
2.0–5.0 |
Nuclear |
1.5–3.0 |
Job
Creation
In 1996, the U.S. geothermal energy industry
as a whole provided approximately 12,300 direct
jobs in the United States, and an additional
27,700 indirect jobs in the United States.
The electric generation part of the industry
employed about 10,000 people to install and
operate geothermal power plants in the United
States and abroad, including power plant construction
and related activities such as exploration
and drilling; indirect employment was about
20,000.37 Table 8 provides estimates of job
creation from renewable energy development
based on existing and planned projects in
California and the market outlook of project
developers and equipment manufacturers. Natural
gas is included in the table because the bulk
of new nonrenewable generation is expected
to rely upon natural gas. The table indicates
that geothermal and landfill methane energy
generation yields significantly more jobs
per MW of installed capacity than do natural
gas plants.
Table 8. Employment Rates by Energy
Technology38,39
| Power Source |
Construction Employment
(jobs/MW) |
O&M Employment
(jobs/MW) |
Total Employment
for 500 MW Capacity |
Factor Increase
over Natural Gas |
| Wind |
2.6 |
0.3 |
5,635 |
2.3 |
| Geothermal |
4.0 |
1.7 |
27,050 |
11.0 |
| Solar PV |
7.1 |
0.1 |
5,370 |
2.2 |
| Solar themal |
5.7 |
0.2 |
6,155 |
2.5 |
| Landfill methan/digester gas |
3.7 |
2.3 |
36,055 |
14.7 |
| Natural gas |
1.0 |
0.1 |
2,460 |
1.0 |
Economic
Impacts
One of the most important economic aspects of
geothermal energy is that it is generated with
indigenous resources, reducing a nation’s
dependence on imported energy, thereby reducing
trade deficits. Reducing trade deficits keeps
wealth at home and promotes healthier economies.
Nearly half of the U.S. annual trade deficit
would be erased if imported oil were displaced
with domestic energy resources.
Geothermal energy production in the United
States is a $1.5-billion-dollar-per-year industry.40
Nevada’s geothermal plants produce about
210 MW of electricity, saving energy imports
equivalent to 800,000 tons of coal or 3 million
barrels of oil each year. In addition, state
governments receive tax revenue. In 1993,
Nevada’s geothermal power plants paid
$800,000 in county taxes and $1.7 million
in property taxes. The U.S. Bureau of Land
Management collects nearly $20 million each
year in rent and royalties from geothermal
plants producing power on federal lands in
Nevada—half of these revenues are returned
to the state.41
Economic
Impacts in Developing Countries
Nearly half of the developing countries have
rich geothermal resources, which could prove
to be an important source of power and revenue.42
Geothermal projects can reduce the economic
pressure of developing country fuel imports
and can offer local infrastructure development
and employment. For example, the Philippines
have exploited local geothermal resources
to reduce dependence on imported oil, with
installed geothermal capacity and power generation
second in the world after the United States.
In the late 1970s, the Philippine government
instituted a comprehensive energy plan, under
which hydropower, geothermal energy, coal,
and other indigenous resources were developed
and substituted for fuel oil, reducing their
petroleum dependence from 95% in the early
1970s to 50% by the mid-1980s.43
Developing countries will likely require
increasing amounts of power in the coming
years. Through technology transfer programs,
some industrialized countries are helping
developing countries make use of their local
sustainable and reliable geothermal energy
resources.
Endnotes
25. Renewable Northwest Project: Geothermal
Power. http://www.rnp.org/RenewTech/tech_geo.html;
accessed Oct 16, 2002.
26. The World Bank Group: Geothermal Energy.
http://www.worldbank.org/html/fpd/energy/geothermal/index.htm;
accessed Oct 9, 2002.
27. Hydro Research Foundation. According to
this source, hydropower averages $2000/kW.
http://www.hydrofoundation.org/research/faq.html#averageCost;
accessed Oct 28, 2002.
28. U.S. Department of Energy: Clean Coal
(Data in $US1998/kW). http://www.fossil.energy.gov,
Oct. 28, 2002.
29. Institute for Energy and Environmental
Research (IEER). http://www.ieer.org/ensec/no-5/table.html;
accessed Nov 21, 2002.
30. The World Bank Group: Geothermal Energy
1999 data. http://www.worldbank.org/html/fpd/energy/geothermal/assessment.htm,
accessed Oct 22, 2002.
31. Idaho National Engineering and Environmental
Laboratory: Hydropower Program 1996 data.
http:hydropower.inel.gov/hydrofacts/plant-costs.shtml,
accessed Oct 14, 2002.
32. Energy Information Administration/ Electric
Power Annual 1999 Volume II
Table 13: Average Operating Expense for Major
U.S. Investor-Owned Electric Utilities 1995
through 1999, 1999 data.
33. Energy Information Administration/ Electric
Power Annual 1999 Volume II
Table 13: Average Operating Expense for Major
U.S. Investor-Owned Electric Utilities 1995
through 1999, 1999 data
34. Renewable Northwest Project: Geothermal
Power. http://www.rnp.org/RenewTech/tech_geo.html,
accessed Oct 16, 2002.
35. Energy Efficiency and renewable Energy
Network: Technologies: Geothermal. http://www.eren.doe.gov/state_energy/technology_overview.cfm?techid=5,
accessed Oct 14, 2002.
36. Douglas Westwood. 2001. The World Renewable
Energy Report 2001-2010. As referenced in
The Hydrographic Journal, Introducing
the Hydrographer to Offshore Wind Farms. Issue
No 105, July 2002. (http://www.hydrographicsociety.org/Articles/journal/2002/105-1.htm);
Idaho National Engineering and Environmental
Laboratory: Hydropower Program 1996 data http://hydropower.inel.gov/hydrofacts/plant-costs.shtml
and U.S. Department of Energy
http://www.fossil.energy.gov/coal_power/special_rpts/market_systems/sec9.pdf
37. U.S. Department of Energy, Office of Power
Technologies, Clean Power for 21st Century
Dollars from Sense: The Economic Benefits
of Renewable Energy, 1997. http://www.eren.doe.gov/power/pdfs/dollars_geothermal.pdf,
accessed Oct 16, 2002.
38 Construction and O&M data for renewable
technologies from EPRI Report No. 1001193
(November, 2001): California Renewable Technology
Market and Benefits Assessment. Appendix C
Table C-3 Payroll, Taxes and Other Values.
39. Natural gas data from CALPIRG Charitable
Trust (June 2002) Job Growth from Renewable
Energy Development in California. http://www.calpirg.org/reports/renewableswork.pdf
Accessed Oct 16,2002
Calculation of total lifetime employment assumes
a 30-year power plant lifetime for each technology.
Labor impacts of renewable energy have also
been published by the Renewable Energy Policy
Project in V. Singh, BBC Research, and J.
Fehrs , The Work That Goes Into Renewable
Energy, REPP Research Report No. 13, November
2001. The REPP numbers for direct jobs in
wind power are 0.95 FTE/MW for O&M and
0.67 FTE/MW for installation, which implies
14,500 jobs for a 500 MW wind farm and a ratio
of 5.9 to natural gas jobs, significantly
higher than the EPRI estimate.
40. Geothermal Energy Program: Environmental
and Economic Impacts. http://www.eren.doe.gov/geothermal/geoimpacts.html,
accessed Oct 8, 2002.
41. U.S. Department of Energy, Office of Power
Technologies, Clean Power for 21st Century
Dollars from Sense: The Economic Benefits
of Renewable Energy, 1997. http://www.eren.doe.gov/power/pdfs/dollars_geothermal.pdf,
accessed Oct 16, 2002.
42. Geothermal Energy Program: Environmental
and Economic Impacts.
http://www.eren.doe.gov/geothermal/geoimpacts.html,
accessed Oct 8, 2002.
43. International Association for Energy Economics.
South and Southeast Asia Pricing Issue.
Special Issue. Volume 9, 1988. http://www.iaee.org/documents/SP_SOU88.pdf,
accessed January 28, 2003.
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