Geothermal Energy
An Alternative Energy Business Model Chris Bledsoe Matilda Bretado John Perez Ata Sagnak April 19, 2007 Table of Contents Table of Contents ...................................................................................................................................................... 1 Industry Overview ................................................................................................................................................... 2 Geothermal Energy: What is it? ..................................................................................................................... 2 Geothermal Energy: How does it work? .................................................................................................... 3 Geothermal Energy: What else can it do? ................................................................................................. 7 Geothermal Energy: How does it affect the environment? ............................................................... 9 Business Model ....................................................................................................................................................... 11 Business Model Overview ............................................................................................................................. 11 Challenges in Constructing Model ............................................................................................................. 13 Other Issues Relative to Business Model ................................................................................................ 14 Conclusions and Recommendations ........................................................................................................ 18 References ................................................................................................................................................................ 20 Brown, G. (1996). Geothermal Energy. Oxford, UK: Oxford University Press. ............................. 20 1 Industry Overview Geothermal Energy: What is it? Geothermal energy is heat derived from the Earth which can be harnessed and utilized for practical human needs. This heat comes from the inner layers of the earth which are vastly hotter than the surface. The liquid core itself is estimated to have a temperature approaching 9,000° F. Heat from the core constantly filters up to the surface via a semi‐solid layer of rock called the mantle. As portions of this layer liquefy and form magma (a process which occurs when temperatures and pressures become sufficiently high to liquefy the mantle rock), it flows up towards the crust due to its lower density and in the process carries heat from the core up towards the crust. At certain thin points in the crust, this upwelling magma comes close enough to the surface to form magma flows such as volcanoes. At other points, it simply heats the surrounding rock and water table enough to produce the type of activity that is useful in geothermal production (Geothermal Education Office, 1997‐2000). These “hot spots” tend to occur around junctures in the plates underneath the earth’s crust, especially where continental plates are either pushing together or pulling apart. Areas such as the Pacific Basin (known as the “Ring of Fire”) and Iceland (which is steadily growing due to a divergence of the continental plates in the Mid‐
Atlantic) are particularly noteworthy areas in terms of their potential to utilize geothermal energy. Aquifers form as rainwater seeps through fissures in the earth and collects in pockets between layers of impermeable rock. When magma flows close to these layers, the water in the aquifer becomes very hot (up to 700° F), and can force itself through the 2 overhanging layers of rock as a fumarole (steam only), a geyser (a mix of steam and water), or as a hot spring (water only) (Brown, 1996). The power of this heated water and steam can also be harnessed to produce electricity and heat through geothermal production. People have utilized geothermal energy for thousands of years in the form of hot springs. The Romans used the heated water produced at these springs to bathe in and reap supposed health benefits. Numerous such locations were found all over Europe, and have been quite lucrative attractions for tourists and travelers up until the present. However, modern technology has made it possible to use this natural resource in more ways than just bathing. Geothermal Energy: How does it work? Geothermal power is mostly accessed by drilling into the top of a sufficiently heated reservoir. This is accomplished in much the same manner as drilling for oil through the use of geological surveys, seismic data, etc. A plant is then constructed on the surface to convert the heated water or steam into useful energy. Geothermal plants come in a variety of types. The type of plant constructed depends mostly on the temperature of the water in the underlying reservoir. A reservoir that only produces steam, known as a dry reservoir, will be brought into a plant where the steam is piped directly into a turbine, which is used to convert the geothermal energy into electrical energy as shown in Figure 1. The condensed steam is then either emitted to the atmosphere through cooling towers or re‐injected into the reservoir in order to maintain reservoir pressure and recycle the produced water (Geothermal Education Office, 1997‐2000). 3 Figure 1 ­ Dry Steam Power Plant Another type of plant that uses similar principles is known as a flash power plant. This process uses water with temperatures between 300° and 700° F. As this super‐heated water is brought to the surface and depressurized it goes through a process known as “flashing” wherein the liquid water instantaneously changes state and produces steam. As in the dry plant, this steam is used to run a turbine which then produces electrical energy. This process is shown in Figure 2 Some of these plants (where low impurities in the water allow for such a process) even utilize water that has not flashed in the first cycle to be transferred to a lower pressure tank, where an additional cycle of flashing can be used to produce electricity (the double flash power plant). The condensed steam is either emitted 4 via cooling towers or re‐injected back into the reservoir to maintain pressure and recycle produced water just as is done in the dry plant (Geothermal Education Office, 1997‐2000). Figure 2 ­ Flash Steam Power Plant A third kind of plant known as a binary plant makes use of water with temperatures between 250° and 360° F in a heat exchange process. This heated water is passed through a heat exchanger which transfers heat from the water to another liquid (usually iso‐butane or iso‐pentane) with a relatively low boiling point. This transfer of heat causes the secondary fluid to boil and change from a liquid to a gas state. Once in a gaseous state, the secondary fluid is used to turn a turbine which produces electricity as shown in Figure 3. After the geothermal fluids have been utilized by the turbine, they can then be re‐injected into the reservoir (via an injection well) in order to maintain reservoir pressure and allow 5 the water to be re‐heated so that it can once again be circulated through the system (Geothermal Education Office, 1997‐2000). This type of geothermal plant is generally more expensive to run than a plant that utilizes steam, but nevertheless has several advantages over steam plants. The first advantage is that it uses a closed system with regard to the fluid flow, and therefore has virtually no emissions in comparison with the steam‐based plants. The second advantage to the closed system is that is conserves reservoir water much more efficiently. Finally, the third advantage of the binary plant system is that it can operate effectively with reservoirs of lower temperatures, making it suitable for more widespread use around the world than the steam‐based plants. Figure 3 ­ Binary Cycle Power Plant 6 The fourth and final type of geothermal plant is known as a hybrid plant due to the fact that it uses both the flash and binary systems. These types of plants are used all around the world due to their versatility (Brown, 1996). Geothermal Energy: What else can it do? In addition to geothermal power plants, there are many direct uses for geothermal energy that do not require the use of turbines to produce electrical energy. Reservoirs that have a temperature from 70° to 200° F are particularly useful in these applications, as they are less than optimal for use by power plants. The following paragraphs outline some of these additional uses for geothermal energy. The first of these uses is in hot springs and spas with regard to bathing (balneology). This is one of the oldest uses for geothermal energy and continues to be popular with the public. Eurasia, Japan, New Zealand, Mexico, and the United States are just some of the countries that feature major hot springs and spas. Certain cultures tend to be quite attracted to the practice of bathing in hot springs. One bathing facility in Japan attracts 12 million tourists a year. Russia, which has a well‐developed culture centered on saunas and hot springs, has 3,500 spas (M.L. Nemzer, 1997 to 2000). A more current use for geothermal energy can be found in agriculture. This can come in the form of piping warm water into greenhouses to increase crop yield and save on heating costs as well as in traditional field agriculture, where crops can be kept from freezing either by means of natural steam or by buried lines which transmit heat from reservoir water to the soil. In Hungary, geothermal energy accounts for 80% of energy demand for vegetable farmers (M.L. Nemzer, 1997 to 2000). 7 Aquaculture is also an industry in which the warmth derived from geothermal energy is used to increase yield. Eels, alligators, tropical fish, shellfish, catfish, trout, abalone, and tilapia are grown with help from geothermal energy. The warm water helps to speed the growth of these animals. Geothermal methods are increasingly becoming an efficient way to engage in aquaculture, especially in China, the U.S., Japan, and Iceland (M.L. Nemzer, 1997 to 2000). Another popular use for geothermal energy, especially in Western Europe, is to use this energy to heat buildings. In this type of operation, geothermal wells bring up heated reservoir water (usually 140° F or hotter) to a heat exchanger. The heat from the water is transferred through the heat exchanger to ambient temperature air which is then pumped directly into individual buildings. Geothermal heating projects like the Southampton Geothermal District in the U.K. (installed in 1989) has a maximum heat output of 12 thermal megawatts (Brown, 1996). In France alone, 200,000 homes are now heated by means of geothermal energy. The U.S., Iceland, Turkey, Poland, and Hungary use geothermal energy in the same manner to a substantial degree. In Iceland, one of the richest countries in the world in terms of geothermal energy, virtually all buildings in Reykjavik (the world’s largest geothermal heating district) use geothermal energy to provide heat (M.L. Nemzer, 1997 to 2000). Another similar application of this technology utilizes geothermal energy is the geothermal heat pump (GHP). This technology does not even require having a well drilled into a heated aquifer. Rather, the only requirement is to drill deep enough into the ground around a building to reach a zone were temperature tends to remain in a constant range (45°‐55° F), winter or summer. A pipe is then emplaced which circulates water from the 8 building to the underground pipe. Depending on the outside temperature gradient, the building is able to maintain a fairly constant temperature near the temperature of the underground pipe. This process also helps to transfer excess heat to the ground during summer or to bring heat up from the ground during winter. This can reduce electricity usage by 30‐60% when compared to traditional systems. It is estimated that as many as 300,000 such systems are currently in use in the U.S (M.L. Nemzer, 1997 to 2000). There are countless other uses for geothermal energy. This naturally occurring heat is an efficient and regenerative resource that can be used to provide the heat and/or energy necessary for almost any application that can be designed. Geothermal Energy: How does it affect the environment? One of the main attractions of geothermal energy is its renewability and environmental friendliness. The U.S. Department of Energy classifies geothermal energy as a renewable resource. Current production from existing geothermal fields is estimated to be sustainable for decades if not centuries. Additionally, geothermal energy mitigates the use of less clean energy resources, such as coal, petroleum, and nuclear energy. It is estimated that worldwide electrical production from geothermal fields avoids the consumption of 5.4 billion gallons of oil or 28.3 million tons of coal (M.L. Nemzer, 1997 to 2000). Nevertheless, there are still some issues that geothermal energy plants must address. The first of these is the need to avoid contamination of groundwater through leaks or seepage from geothermal transmission pipes or reservoirs. Geothermal fluids contain higher concentrations of minerals than typical ground water. Care must be taken 9 to ensure that the extraction, storage, and injection processes are undertaken so as not to contaminate ground water (especially that use for drinking) located between the wellhead and the target geothermal reservoir (M.L. Nemzer, 1997 to 2000). Another concern for geothermal plants is the possibility of having to deal with emissions of H2S, which possesses a rotten‐egg smell and can be highly toxic at relatively low concentrations. Equipment is available which can scrub 99% of the H2S from geothermal steam. Silica and H2S removed from geothermal production can be sold as a by‐product used in various applications. Geothermal plants also emit CO2, a gas linked to climate change, although at a rate much smaller rate than that emitted by plants which use fossil fuels. Closed‐cycle (binary) plants have virtually no emissions at all (M.L. Nemzer, 1997 to 2000). Finally, an additional benefit of geothermal plants is that they are relatively small. In areas where scenic views are important, special cooling technology can be used to eliminate the clouds of steam emitted from cooling towers. Plants can also be constructed to be as small as 24 feet in height, making them relatively unobtrusive (M.L. Nemzer, 1997 to 2000). 10 Business Model Business Model Overview As presented in the previous section, there are innumerous applications for the use of geothermal energy. This business model was constructed with respect to only one of these applications—electricity generation. Not only does this model focus on one application of geothermal energy, but it also focuses on a select geographic location. The initial intent of this model is to implement the use of geothermal energy in the state of Texas. As will be shown later in this report, certain areas of Texas have sufficient geothermal reserves available to support such a venture. This business model will aim at implementing a geothermal plant in one of three areas within the state—East Texas, the Gulf Coast Region, and West Texas. One of the major challenges in constructing a business model for geothermal energy is addressing the significant capital cost required to develop a plant of this nature. The capital needed to finance such a plant is dependent upon both the size and location of the facility. Federal grant monies are available for this type of renewable energy project. This would be the initial source of funding, but it would likely require additional investments from partners and outside investors. The high capital costs associated with a geothermal plant can pose a major challenge that must be addressed. The final portion of the business model is quite possibly the most important part of the model. This business model aims to use strategic alliances formed with oil producing companies in order to utilize the knowledge and resources of these partners to achieve joint interests. Oil producing companies would make good partners in this type of business 11 due to the fact that their core competencies can be utilized in order to produce geothermal energy just as they are used to produce oil and gas. They also have an advantage in the fact that they already have operations set up in the geographical areas where the geothermal energy facilities will be constructed. These companies could provide excellent assistance in selecting appropriate geological formations as well as knowledge of how to drill into these formations. Their expertise in fluid properties and fluid handling could likewise be used in the production of geothermal energy. There are many correlations between the oil industry and the production of geothermal energy. This business model would seek to capitalize on these similarities by providing the necessary capital to fund such a project and then using the knowledge and resources of the oil industry to aid in the design and construction of the necessary facilities. In return the partners would receive a joint interest in the electrical energy generated from geothermal energy. These partners could simply reap revenue from the sale of the electricity or use the electricity to power their own oil producing facilities. Choosing the latter option would allow these companies to sell the gas that would have otherwise been used as fuel to power their production equipment. This type of strategic alliance is not uncommon to oil producing companies. These companies often partner with one another to increase oil production through the drilling of new wells, implementation of enhanced oil recovery, or constructing facilities that can be used by multiple partners within the industry. Oil producing companies use these partnerships to generate the capital or resources required to increase oil and gas production. Therefore, this proposed alliance to produce geothermal energy would fit well within the typical means of operations implemented by companies in the oil industry. 12 The business model for this project is focused on selecting the appropriate geographic area, raising the necessary start‐up capital, and creating strategic alliances with oil producing companies. The successful integration of these three business model constituents could pave the way for an extremely profitable venture. Challenges in Constructing Model The advantages in utilizing a renewable source compared to oil and gas are evident in the fact that it can be constantly reproduced without depletion. However, there are challenges in constructing the business model to effectively implement this technology. The viability of the production of geothermal power is strongly influenced by “two important variables at the plant: (1) the efficiency of converting a fluid’s thermal energy to electricity and (2) the cost of equipment and construction” (Geothermal.org, 2007). Production being done in California and Nevada by Sage Resources and Pacific General are estimated to generate 2600 megawatts of electric power. The estimated capital costs are expected to be felt in a “phased investment of $50 million over the next 3‐4 years” and believe that the initial start‐up costs will run near $5 million dollars. In 2000, GeothermalEX, Inc. conducted a study for the cost in building a plant in West Texas; they estimated the capital costs to be approximately $1.3 million for a single plant. Cost is a major challenge in constructing a geothermal plant. Although the initial start‐up costs may be shocking, the government will step in to help businesses interested in geothermal energy. The U.S. Department of Energy and Renewable Energy has made federal grant monies available for applica (Geothermal Education Office, 1997‐2000) (M.L. Nemzer, 1997 to 2000) (Brown, 1996)nts seeking to implement this type of technology. In 13 2005, a $2 million grant was available to help advance the “exploration and definition of new geothermal resources which will ultimately lead to more electrical generation and direct‐use applications from geothermal resources” (U.S. Department of Energy and Renewable Energy, 2007). Contingencies on federal grants have matching costs associated with them. Companies intending to receive federal monies will receive them, but certain guidelines must be followed. The result of this was shown through the awarding of grant monies available in 2005. This $2 million grant was split in different amounts between 11 different awardees. The Energy Information Administration (EIA) forecasts that renewable sources will account for 10.0% of the country’s total electric energy production in 2015 compared with 8.1% in 2005. These sources include hydroelectric, geothermal, wood, waste, landfill gas, solar, and wind power. Hence, creating a new plant can prove costly to build thus hindering the pace of the availability of geothermal energy.
Other Issues Relative to Business Model The constrictions listed in this section with respect to the development of geothermal energy sources are applicable anywhere in the world. However, this study only deals in detail with those issues that are relevant to Texas, especially West Texas. As noted earlier the most important aspect of the utility of geothermal energy is the availability of geothermal sources, either as a hydrothermal source or as hot dry rock. In Texas, both types of sources are available in different parts of the state. Figure 4 shows known Texas Geothermal Areas and the main characteristics of those sources. 14 Figure 4 ­ Geothermal Areas in Texas This map provides the locations of main areas where the geothermal energy has been documented to have potential. A majority of the information on this map is from surface delineation of the sources (i.e. hot springs), wells drilled specifically for geothermal energy, and wells drilled for oil and gas exploration/production. One addition to the information provided on the map would be to mention the thousands of deep gas wells 15 (greater than 10,000 feet) located primarily along counties such as Pecos, Ward, Terrell, Val Verde, and Edwards. Within these counties, there are dozens of oil and gas fields with wells drilled deeper than10,000 feet which produce water at more than 250o F. This is a
potential source of geothermal energy. From a business perspective it is important to understand
from this map that geothermal energy has geographical restrictions. Access to readily available
heat sources can be a major constraint to the use of geothermal energy.
Another constraint in the development of a business model utilizing geothermal energy is related to the characteristics of the source. As can also be seen from Figure ?, a majority of the known geothermal potential is from hydrothermal and geopressured areas. In both source types the quality of the brine (water) could pose problems. If the brine is rich in dissolved solids (Na, K, Calcium, Chlorides, etc.), it may cause problems during the operations where water is recycled. Certain chemistries are prone to form scale when the original pressure and temperature conditions are altered. Scaling in the recycling system (i.e. pipes, pumps, heat exchangers, etc.) would limit the flow and cause major operational issues. The modeling of the extent of such brine chemistry induced problems can be a challenge in developing a business model for the use of geothermal energy. Scale inhibitors, special metallurgy, and constant maintenance would be needed which would increase the cost of operating such a system. The quantity of the produced fluid (hot brine) is another factor in developing a geothermal energy source. The flow rates must be high enough to effectively and efficiently power the turbines which produce electricity. If the flow rates are low or inconsistent, additional energy usage would be needed either to lift more fluids from underground or to help with the stabilization of the turbines. Lack of sufficient quantities 16 of fluids would drastically add to operational costs. The most effective hydrothermal energy development would be one wherein the fluids are brought to the surface with the aid of minimal artificial lifting, thus eliminating the consumption of extra energy. As the term “thermal” indicates, the utility of the geothermal energy is dependent on its level of heat generating capabilities. The higher the temperature of the fluid results in more efficient the geothermal energy generation. The most important aspect of the fluid then becomes its heat retention characteristics. Obviously, deeper reservoirs produce higher temperature fluids. However, this is only relevant if the fluids are brought to surface by natural means with minimal or no energy consumption such as hot springs, geysers, flowing geopressured aquifers, or flowing oil and gas wells. Any extra energy usage for producing the heat bearing fluids would erode the economic attractiveness of developing geothermal sources. Another issue related to the heat retention characteristics of the fluid is the chemistry of the fluid. Higher amounts of dissolved solids in a fluid create greater heat retention capacity. However, it is important to remember that extra elements dissolved in the water can create scaling problems as previously discussed. This interdependency between the temperature and chemistry of the fluid is another factor which complicates the development of a business model for geothermal energy by introducing various factors which are difficult to incorporate in economic evaluations. Another factor that needs to be discussed is the recycling of the fluids after harvesting the geothermal energy. In general, fluids suitable for geothermal energy are non‐potable and must be disposed. There are some exceptions to this rule, usually with shallow sourced waters, but in general the fluids are not suitable for other uses without further treatment. If fluid treatment can be accomplished in relatively economical ways, 17 then the by‐product water can be utilized in activities such as agriculture and desalination. However, in most cases the fluids must be recycled (re‐injected) into the ground in order to maintain the necessary quantities and pressures for continued geothermal energy production. The ideal situation would be to re‐inject the fluids at the same level from which they were extracted in order to maintain the original reservoir/aquifer conditions and sustain continuous supply. However, if the areas of production are highly pressured, then re‐injection would require costly surface facilities to reach the required injection pressures. It should be noted that in such a case, the lifting cost of the fluids would be minimal. If the supply of fluids is believed to be extensive and does not create worries about the existence of future supplies, then re‐injection into another interval in the subsurface may provide an alternative in the case of highly pressured reservoir/aquifers. The constrictions mentioned above collectively make up the underlying reasons behind the two most important aspects when considering the development of a geothermal energy source. The first aspect of consideration is the efficiency of converting the thermal energy of a fluid to electricity. Heat retention capacity, fluid quantities, and fluid chemistry can be considered as the main factors relating to this efficiency issue. Fluid chemistry, temperature, disposal requirements, and geographical locations are factors that affect the second most important criteria; cost of equipment and construction. Conclusions and Recommendations Overall, geothermal energy appears to lend itself well as a candidate for renewable energy. As described in this report there are constraints associated with the implementation of a business model to produce geothermal energy. However, the benefits 18 of this model seem to far outweigh the challenges. This type of business model would not only provide and efficient and environmentally friendly source of energy, but it also has the potential to generate significant financial rewards. Geothermal energy may not be the complete solution to the energy needs of the future, but it is definitely a viable source of renewable alternative energy for many years to come. 19 References Brown, G. (1996). Geothermal Energy. Oxford, UK: Oxford University Press. Geothermal Education Office. (1997‐2000). Geothermal Energy Facts ­ Introductory Level. Retrieved from http://geothermal.marin.org/pwrheat.html Geothermal.org. (2007). Retrieved from www.Geotherml.org M.L. Nemzer, A. C. (1997 to 2000). Geothermal Energy Facts ­ Advanced. Retrieved from Geothermal Education Office Website: http://geothermal.marin.org/geoenergy.html Sage Resources. (2007). Retrieved from Sage Resources: http://sagenv.com/_wsn/page5.html Standard & Poor's. (2007). Industry Survey: Energy. Retrieved from http://emi.compustat.com/cgi‐irwinus‐auth/mihome.cgi?app=irwinus U.S. Department of Energy and Renewable Energy. (2007). Federal Assistance Opportunity. Retrieved from U.S. Department of Energy and Renewable Energy: http://www.eia.doe.gov 20