Ormat's retreat: Geothermal no slam dunk

Ormat Technologies' recent troubles at its Carson Lake project in Churchill County underscore the gamble geothermal developers take when trying to bring new projects online.

Ormat recently pulled the plug on a power purchase agreement signed in 2006 with NV Energy after delays in bringing online the proposed 30-megawatt Carson Lake geothermal plant.

Reno-based Ormat began pre-drilling at the Carson Lake site near the beginning of 2007, but the company never found the high-temperature hot water supplies it expected to drive turbines at the proposed facility.

Costs mounted as Ormat conducted additional exploration drilling in hopes of finding a lower-temperature resource.

On Dec. 22 the company announced it had terminated its power purchase agreement for the Carson Lake facility and paid NV Energy a fee of $1.7 million. The power purchase agreement was scheduled to go into effect in 2010.

"We were expecting to find a high-temperature resource at Carson Lake, and what we were expecting to find never materialized," says Paul Thomsen, Ormat's director of public policy and business development. "When we looked to do additional drilling for a low-temperature resource, we ran into permitting delays that started to have an economic impact on the project. After keeping it on the books for some time, we thought in conjunction with NV Energy that it was best to terminate the existing PPA."

Thomsen says that Ormat hasn't completely nixed plans for a geothermal plant at Carson Lake.

"The world was a different place in 2006 than in was in 2011, and there is a real focus on pricing and getting the best value for ratepayers. These are all things we have to consider when looking at the project," he says.

"We are going to continue to look at whether or not a low-temperature resource at Carson Lake is viable and would lend itself to being a commercially viable project. We have a lot more work to do and have to evaluate the economy and where prices are going in the future."

The Carson Lake facility is a good example that geothermal development often is a gamble - there's simply no guarantee that drilling deep will produce a viable hot-water resource. Developers sometimes roll boxcars and crap out.

Vancouver-based Nevada Geothermal Power, for instance, faces problems at its Blue Mountain geothermal project near Winnemucca because of declining hot water temperatures that have led to reduced power production. The Blue Mountain power plant, which came online in 2009, was scheduled to produce an average of 49 megawatts when constructed.

However, in the third quarter of 2011 it produced an average of just 30 megawatts.

Also in early 2011 Reno's Ram Power encountered large cost overruns at its flagship San Jacinto-Tizate plant in Nicaragua. Ram founder Hezy Ram ended up resigning from the company, which also shook up its personnel in its Reno office in October. Ram Power got its San Jacinto project back on track in late December, though, when it announced it had successfully synchronized a 36-megawatt expansion at the plant with the Nicaraguan national electrical grid.

"We take on all the risk for exploration and put all those people to work," Ormat's Thomsen says. "Whether or not it ever comes to fruition, the ratepayers are not held responsible for that work.

"This is why you don't see a lot of utilities developing projects - it is a risk they can't take on. It is risk borne by the developers, and ratepayers are protected from it. When people look at the cost of renewable energy, they say it is just so much more expensive. Some of that cost is from insulating the utility from (development) costs."