Geothermal Economics Calculator (GEC) -- A Tool for Estimating Geothermal Economics and Economic Impacts Associated with Geothermal Development

Abstract

This paper will discuss the methods and the results from economic impact analysis applied to the development of Enhanced Geothermal Systems (EGS), conventional hydrothermal, low temperature geothermal and coproduced fluid technologies resulting in electric power production. As part of this work, the Energy & Geoscience Institute (EGI) is developing a web-based Geothermal Economics Calculator (GEC) tool that is aimed at helping the industry perform geothermal systems analysis and study the associated impacts of specific geothermal investments/ technology improvements on employment, energy and environment. It is well-known in the industry that geothermal power projects will generate positive economic impacts for their host regions. Our aim in the assessment of these impacts includes quantification of the increase in overall economic output due to geothermal projects and of the job creation associated with this increase. Such an estimate of economic impacts of geothermal investments on employment, energy and the environment will also help us understand the contributions that the geothermal industry will have in achieving a sustainable path towards energy production. The method of input-output analysis is used in this study to estimate the magnitude of economic impacts. This method can be briefly summarized as follows. First, we divide the project into two phases: the construction phase and the operations phase. The construction phase requires expenditures on capital and labor, while the operations phase requires expenditures on labor and maintenance. These expenditures constitute the direct economic impact for each phase of the project. The direct effects, however, also put into motion a series of indirect (“ripple”) effects. The suppliers of labor, for example, will spend a portion of their earned income in the region, injecting revenue into regional businesses that will in turn spend a portion of this revenue in the region (the ripple effects continue in this way). The method used in this study estimates and sums up all of the ripple effects for each industry in the region, providing the user of the model both a total measure of the project’s direct and indirect impact and an estimate of how this total would be distributed among other regional industries. This process is illustrated in Figure 1. To estimate the number of indirectly created jobs in each phase from the expenditure data, we use data on the productivity of labor. The economic impact of a project depends on the industrial structure of the host region. An important aspect of the method used in Geothermal Economics Calculator (GEC) — A Tool For Estimating Geothermal Economics and Economic Impacts Associated with Geothermal Development Varun Gowda1, Michael Hogue2 and Dr. Joe Moore1 1Energy & Geoscience Institute (EGI), University of Utah 2Bureau of Economic and Business Research (BEBR), University of Utah Figure 1. Construction and ongoing operations of a geothermal power project initiate a chain reaction of economic impacts. 12 Gowda, et al. this analysis is that it can account for regionally specific industrial structures. The results of this study and the GEC tool is to help users identify economic and environmental barriers to geothermal energy utilization as well as the likely economic impacts in terms of jobs, income, and government revenue that such activity would entail. In particular, although a significant part of the analysis will focus on the line of geothermal research aimed at estimating the internal costs of geothermal production, an important feature of this study will be to provide a comprehensive analysis of the external costs of geothermal energy production. Internal costs are easy to see and explain. They are the costs that a geothermal production company bases its price of power generation on and hence these affect the private investment. They include costs like material, energy, labor, plant, equipment and overhead. External costs are costs that are not included in what the business bases its price on. These may include the cost of disposing of the product at the end of its life cycle, or may include environmental degradation. In the case of geothermal power production such external costs—such as those associated with carbon dioxide emissions and traditional air pollution—would be much smaller. These external costs are critical in any discussion of making public investments that are sustainable. Such an analysis is crucial, since, while the internal costs of production determine the level of private investment, the external costs determine the level of public investment, which is justified on the grounds of economic efficiency. The Geothermal Industry has garnered a tremendous amount of interest from the public investors, private sector, utilities and large energy companies in the recent past. One of the major challenges in the road ahead for the geothermal industry is to be able to sustain these interests from various stakeholders on an ongoing basis to achieve growth in the industry. There has been a lot of recent recognition for the industry, but the challenge lies in converting that interest into action by enabling the stakeholders to access results from tools such as the GEC. This will help in understanding and quantifying the positive sustainable impacts that investments in geothermal development could achieve. Further, we also believe that the results from GEC analysis will be beneficial in assisting policy and technology development, and will help increase capital investments in technology to build a stronger and sustainable geothermal energy industry.