Drilling Down To The Economic Realities Of Geothermal Power

When someone who has just completed a series of mining asset sales totalling $1.6 billion chooses to share some frank thoughts on geothermal power, you have to respect the source.

Geothermal bubbled up in the news in May as a lost opportunity for BC Hydro in the Joint Review Panel's thumbs-sideways assessment of the Site C dam project.

Lumina Copper founder Ross Beaty knows something about copper - enough to complete the company's sale to First Quantum Minerals earlier this month for $470 million. Beaty is also passionate about renewable energy, which led him into a geothermal power investment in 2008, only to come out of the experience somewhat sobered.

"Geothermal energy is free, global and almost limitless - in fact, the heat in the first couple of kilometres below the earth's surface contains enough energy to supply the world for over 100,000 years!" he writes in an unpublished report.

"So in 2008 I started a renewable energy company focused on geothermal power production, thinking that my geology and resource-development background and my experience in the same rocks and countries that geothermal power was located in might offer an advantage. After a couple of years and investment of about $150 million from my shareholders, I became quite disillusioned about the ability of geothermal power to be anything other than a bit player in the world energy equation. Reality triumphed over my idealism.

"Theoretically, geothermal energy is everywhere, generated from heat produced due to radioactive decay of minerals in the earth's interior. …

"But in reality, commercial geothermal electricity production is an extremely tough and risky business. Drilling is very costly due to the wide-diameter, kilometres-deep drill holes required to access and explore geothermal systems that are high-pressure and high-temperature; rock formations containing high-temperature fluids are complex with variable chemistry, pore density and permeability; reinjection is often difficult and costly; extraction of fluids often removes heat from the geothermal system more rapidly than it can be restored naturally; large volumes of cool water are often required to cool the geothermal fluid before it can be reused; highly flammable chemicals are often used in electrical production; and geothermal systems are often located far from electrical demand, requiring long and costly electrical transmission lines. …

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"So in 2011 I merged my geothermal power company with another company that produced large amounts of wind power and run-of-river hydro power to diversify away from purely geothermal power. The resulting company, Alterra Power, today produces nearly 600 megawatts (2,000 gigawatt hours of electricity a year), enough to power about 200,000 homes with electricity."

By Beaty's calculations, geothermal power costs about $5 million to create each megawatt of electricity, compared with hydro, wind and solar capital costs "in the range of $3 million to $5 million per megawatt" and coal/gas power plants at around $1 million to $2 million per megawatt.

Of course, lifetime free fuel, increasing prices on carbon and regulatory subsidies can justify the Geothermal Energy Association's conclusion that "when looking at the entire life cycle of the plant, geothermal power is one of the most affordable and enduring technologies."

Beaty's experience casts serious doubt on the Joint Review Panel's estimate that geothermal could supply 700 megawatts of renewable power, or almost two-thirds of Site C's production. There still isn't an operating geothermal power plant anywhere in Canada.

Alterra CEO John Carson confirmed Beaty's skepticism in a recent Globe and Mail article, saying "no one has imminent plans for production-scale drilling" in B.C.

Which isn't to say that BC Hydro has properly investigated alternatives to Site C, only that geothermal's potential can easily be overestimated.

By Mining.com