Ormat VP lays out plans for California's upcoming geothermal sourcing boom

With 3 GW of geothermal equipment licensed, and over 1 GW of capacity currently owned and operated, Nevada-based Ormat has earned its reputation as one of the world’s largest owner and operators of the energy source. In operations for over 50 years, the company has seen its share of ebb and flow for the geothermal asset class.

Now, geothermal energy is on the cusp of a new growth period, particularly in California. The CPUC has issued an order requiring the state's LSEs to originate a combined 11.5 GW capacity of renewable resources including 1 GW of weather independent capacity-based resources. Geothermal fits the bill. Ormat has already put out a request for bids for PPA offers for its 26 MW Heber 2 project, which is currently undergoing repowering, but this is just the first of the company's plans to sell of hundreds of MW of geothermal power to companies across the West.

To learn more about the company's plans to capitalize on the momentum building behind the industry, NPM spoke with Ormat's VP of Business Development Paul Thomsen, a 15-year industry vet.

NPM: Can you give me some background on Ormat? Is it purely a geothermal company or is it involved in other types of energy projects, as well?

Ormat was founded in 1965, so we have been doing this awhile. Our very first project was a solar project in Africa. But our CEO at the time said that we may be a little early on this solar thing. So, one of our early successes at Ormat was identifying not just technical success, which can be the fallacy of engineers, but financial success. Our goal became creating electricity as efficiently as possible. So, we started to apply our technology to geothermal, which is still what we are most known for today.

However, we are also focused on storage of which we have 100 MW operational on the US grid. We expect to expand that to 1 GW in the near-term. We are being very aggressive in acquiring projects in Texas and California as well as building our own. We are also investing in recovered energy generation, which converts the nation's natural gas infrastructure into a source of clean energy. We do a bit of solar, but we typically link that with storage and geothermal components.

NPM: Tell me about the state of geothermal energy. It is one I am less versed in compared to more traditional renewables like solar, wind and storage tech.

Historically, I would say it is quite cyclical. We have had our ups and downs. When we had the oil embargo in the '70s, we saw a lot of the oil and gas majors get into geothermal. At that time, we were a pioneer.

Then, as the price of solar and wind came down, we saw this big lull in geothermal when everyone was going after those resources. Our projection at the time was as states and nations try to achieve high renewable portfolio goals, the value of geothermal will go up. That is because intermittent resources can only do so much, and you must start backing them up. As that has happened, it has really set the stage for geothermal to stand alone as a firmly flexible resources with zero emissions that can help supply capacity to the grid. It just took a little time. What has changed is that capacity value, the fact that geothermal is always there ready to be fired whenever it is needed, going through the roof, especially with what we have seen in California and Texas with their capacity issues.

In the last year and a half, we have seen more PPAs signed within the geothermal community than we have in the last five or six years. And that has culminated with the CPUC issuing an interim goal that started as saying you need 1 GW of geothermal. Now, they are basically describing geothermal without saying it, but regardless we are seeing huge interest. Which is why, for the first time in Ormat's 50-plus year history, we are putting out a request for bids for a PPA for one of our projects. We are doing it out of an abundance of transparency. There are a lot of people that want this resource in California and the window is short. California wants these projects online between 2021 and 2026. So, you must be permitting these projects, you must have the interconnection, and this repowering unit is available. So, we decided, by using NPM, to put this out on the street and see what the interest is. If someone wants to be aggressive and make a compelling bid, we would be happy to sign a PPA with them. It is a unique offering; we have a very large portfolio behind us, but we wanted to test the market. If this works, it will be the first of about 300 more MW of projects that we want to make available.

NPM: How does geothermal energy compare to those more traditional energy types?

When you compare geothermal to wind and solar, what is different is that we must do a lot of sub-surface work. We must get permitting to drill wells to find this geothermal resource within the earth, which is expensive. The only cost for wind and solar really is in the construction of the facility. We are trying to find places where these wells are shallow and the cost of development is less, which, in turn, allows us to offer the electricity at a lower price. As you move East in the US, you must move deeper, and we also see energy prices decline. Take Texas for example; there is a lot of oil and gas well data and geothermal potential there. Trying to get a contract price that would support that development has been the trick.

NPM: Can you take me back to when the CPUC announced their order that all LSEs would have to originate a combined 1 GW of, essentially, geothermal power by 2026? Did you see that coming or what was your reaction to that?

I serve as the VP for Business Development for Ormat in the Americas, but I am also the chairman of the Geothermal Rising policy committee. Geothermal Rising is the trade association of all the geothermal developers. Ormat and Geothermal Rising have been submitting comments to the CPUC for years. We helped them re-run their modeling software, which went from estimating there were about 200 MW of potential geothermal capacity in California to 2.2 GW. So, I think we saw this coming with the retirement of the nuclear station and the goal of reducing natural gas capacity. The bottom line is you must have baseload capacity. You can try to develop GW of storage, but you still need electricity to put into them. This 1 GW is a good start, but I think the industry can do a lot more than that moving forward. As the industry continues to show incredible progress, we are going to see more and more states follow California's example. We are already seeing a lot of interest in Nevada. We are living through one of the most exciting periods in geothermal development because all the attributes that geothermal can offer are being appropriately valued.

NPM: It sounds like geothermal is going to be critical for California LSEs to meet the requirements from the CPUC's order for non-weather dependent sources by 2026, but what are you seeing in other regions?

We really sell three things: the energy, the renewable energy credits, and the capacity. And if you are desperate for capacity with no emissions, there is really no competitor for us in the marketplace. So, when we look at Nevada, which is looking at an RPS, or New Mexico, or even large municipalities, I think we have a compelling offer. For instance, Los Angeles' modeling includes multiple GWs of geothermal in their plan to get to zero emissions. As you try to get that very deep renewable penetration, there is no substitute for a resource that is there 24/7, can ramp up and ramp down, and have no emissions, as is the case with our new state of the art geothermal plants. We already have projects in Idaho and eastern Oregon. We have supplied equipment to the utility in Utah, which has a large geothermal asset. So, I think you are going to see an Eastward expansion across the US.

NPM: Will transmission and grid congestion become a problem?

Yes. Any responsible developer needs to be very focused on that issue. Ormat has procured 300 MW of capacity on a 900 MW line in Nevada, the rest of which is reserved by NV Energy. So, we have been filling it up. Now there is a request for two more large transmission lines in Nevada, so we are already filing to reserve capacity on those lines. We also acquired Terra-Gen (subsidiary TG Geothermal Portfolio), which came with a large transmission line from Nevada into California that has about 400 MW of capacity. So, what separates us is we can deliver that energy using our capacity with very advantageous points of delivery for offtakers. California really needs to upgrade its transmission infrastructure if they want to reach these renewable goals. So, we have filed cluster studies with CAISO to add hundreds of MW to interconnect. So, frankly, when you see these huge projects in Nevada, you need to ask whether they have the firm interconnection to deliver it. It is a critical question that we are focused on every day.

NPM: Over the next few years, where do you see the geothermal industry going?

I think between now and 2026, there is a limited number of projects that have interconnection and permitting in place. Those projects are going to go at a premium, and anyone reading this that is interested in them needs to move quickly. You are going to see big groups of projects getting closed in the next decade and then we are going to have another four or five years of permitting and fewer projects available. So, I think the time is now. And that is very exciting.