Geothermal Projects Less Vulnerable to Subsidy Cuts

Geothermal energy projects are less vulnerable than wind farms to the pending loss of federal subsidies because they take longer to complete, according to the executive director of the Geothermal Energy Association.

About 100 megawatts of geothermal capacity will be added this year, and “steady growth” probably will continue because the industry is less volatile than wind, Karl Gawell, GEA executive director, said today in an interview.

A tax credit for wind farms will expire at the end of this year, and development of new wind farms may grind to a halt. A similar credit for geothermal projects will expire at the end of 2013, and Gawell doesn’t expect his industry to be affected in the same way.

“There’s some hysteria of, ‘Oh, if this changes, it means the industry won’t grow,’ but it’ll still grow,” Gawell said. “We’re still going to need renewable technologies. They’ll be growing here and around the world.”

The U.S. added about 91 megawatts of geothermal capacity in 2011 for a cumulative total of 3,187 megawatts, the most in the world, according to the GEA. Projects typically take four to eight years to complete, compared with one year for many wind farms, Gawell said.

Geothermal energy projects qualify for a tax credit of 2.2 cents for each kilowatt-hour of electricity produced.

Wind farms are eligible for the same credit, and turbine makers and developers are seeking an extension. The uncertainty surrounding potential subsidy extensions for renewables is discouraging investment in projects, Gawell said.

Wind Industry Risk

If the wind credit expires on schedule, installations of turbines in the U.S. may fall as much as 95 percent to 500 megawatts in 2013 from this year, according to Bloomberg New Energy Finance.

Vestas Wind Systems A/S (VWS), the world’s largest turbine maker, said in January it may close U.S. factories that employ 1,600 people if the credit expires.

The $637 million spent last year on U.S. geothermal projects amounted to 1.4 percent of all renewable-energy investments, according to Bloomberg New Energy Finance. The $3 billion invested worldwide in geothermal plants equaled 1.1 percent.

Much of the growth is coming outside the U.S. Geothermal capacity in Japan could grow to 2 gigawatts in the 2020s, according to New Energy Finance.

“Globally, we will see a continued shift toward Asia,” said Stefan Linder, an analyst with London-based New Energy Finance. “We expect over 50 percent of geothermal investment in that region, thanks to the number of late-stage projects, high- grade resources and increasing policy support.”

To contact the reporter on this story: Justin Doom in New York at jdoom1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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