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Heat Mining: Energy Underfoot

Geothermal energy rising from the earth's core could be a major source of clean power in the future

From Standard & Poor's Equity ResearchMany are in love with the idea of alternative energy. But there's yet to be an economical alternative to petroleum that can generate large amounts of energy without damming up rivers, crowding the landscape with windmills, or generating radioactive waste.

That may be about to change, however, as interest grows in an emissions-free energy source that can generate power at prices competitive with traditional fuels. It's virtually inexhaustible, and it's right under your feet. It's the heat emanating from the earth's molten core, also known as geothermal energy.

Geothermal could have a major effect on the energy future of the U.S., according to a study published in January by the Massachusetts Institute of Technology. Using existing technology, there is the potential to generate geothermal energy in the U.S. equivalent to 2,000 times the country's total energy consumption in 2005, the study says.

Getting Better Over Time

There are numerous geothermal power plants today in the U.S., built in places where water seeps into underground areas and rocks bearing heat from the earth's mantle lie close to the surface. It is simply a matter of drilling into the ground and capturing the rising steam.

This naturally occurring system can be recreated by drilling into porous rock, flooding the area with water, and generating electricity from the steam. With an investment of $300 million—the cost of a single natural-gas-fired combined-cycle power station—over a period of 10 to 15 years, the U.S. could develop a new generation of commercially viable power stations, the MIT study says. This investment could help drive down the cost of future geothermal plants by exposing the strengths and weaknesses of various technologies.

Within 50 years, 100 gigawatts (GW) of geothermal power plants—10% of the U.S.'s current power consumption—could be developed for $1 billion, or the cost of one clean-coal plant. This would replace all the coal-fired and nuclear power plants that are scheduled to retire over that time.

Calpine is the largest geothermal power generator in the U.S. Among the 26,000 megawatts (MW) of power generation capacity it owns are 750 MW of geothermal power derived from 19 plants at "the Geysers," a 30-sq.-mi. area north of San Francisco that is the largest geothermal power complex in the world. Baltimore-based Constellation Energy Group (CEG) has a 50% interest in three power plants at Mammoth Lakes, Calif. and two more at Fallon, Nev., with a combined generation capacity of just 34 MW out of 11,850 MW in total.

MidAmerica Energy Holdings—acquired in 2005 by Warren Buffet's Berkshire Hathaway (BRKA)—has about 325 MW of geothermal generation capacity out of 5,500 MW total through its Calenergy subsidiary.

Prime Geothermal Real Estate

Several other companies are more directly exposed to geothermal power. Ormat Technologies (ORA) owns and develops geothermal power facilities, and builds related equipment, including "turn-key" geothermal power stations it uses itself and sells to others. It has 250 MW of generation capacity in the U.S., and 113 MW spread across the Philippines, Guatemala, Kenya, and Nicaragua. At the end of 2005, it had 158 MW of geothermal capacity under construction.

Vancouver-based Geothermal Power has leases on 15 properties covering roughly 70,000 acres of land it believes could generate 250 MW of power.

Nevada Geothermal Power is developing a commercial geothermal project in northern Nevada aimed at tapping into an underground pool of superheated water. It has signed a 20-year agreement with the local electric utility to sell up to 35 MW of power, enough to supply 24,000 homes, from the project. Nevada Geothermal also owns leaseholds over three other properties in Oregon and Nevada, including a partnership with Sierra Geothermal.

Scully is a reporter for Standard Poor's Editorial Operations.

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