Perspectives on the Economics of Geothermal Power

Abstract

Geothermal power developers typically engage in long term, 10 to 20 years, power sales agreements during the development phase. Long term power sales agreements provide better financing conditions and cash flow stability for geothermal projects. In deregulated wholesale power markets long term power contracts are structured around the future expectations of market prices. In this study we will attempt to discuss the economics of geothermal power plants in western power markets. The study will analyze the historical price movements in the major western power trade hubs and the critical factors affecting the prices. We will introduce a Stochastic Geothermal Cost Model (SGCM) and compare the levelized cost of geothermal energy against the historical price levels and future expectations. The study will also discuss the impacts of a production tax credit and renewable portfolio standards on the economics of geothermal power.