Sacramento, California — In a geothermal sector hit hard by the shaky financial markets, one might think that capital-hungry enhanced geothermal systems (EGS) companies would be feeling the pinch. But the opposite seems to be true: Buoyed by stronger-than-ever government support and interest from venture capitalists, 2010 turned out to be a pretty good year for the EGS industry.

EGS development is much more difficult – and is therefore much less mature – than traditional geothermal power development. Rather than use hot water hundreds or thousands of feet underground to generate steam to run a turbine, EGS utilizes the constant heat stored in hot rocks more than a mile deep. Companies engineer their own wells by pumping cold water through the bedrock, letting it heat up as it works its way through natural fractures, and pumping it back to the surface to generate electricity. It sounds straightforward in theory. In practice, it’s not easy.

There’s still a way to go before EGS production reaches commercial scale in the U.S. The technical challenges associated with drilling extremely deep wells, fracturing the hard rock, getting water flow rates right and monitoring what’s happening underground loom large for developers.

However, with more governments and early-stage investors supporting EGS around the world, the resources are increasingly available to meet those challenges.

After years of stop-and-start funding for geothermal in the U.S., the Department of Energy received over $400 million through the stimulus package for geothermal programs. Around $150 million was targeted specifically for EGS companies to help them develop new drilling technologies, site characterization evaluation methods, performance-monitoring systems and project demonstrations. Project developers like AltaRock Energy, Ormat and Geyser’s Power Co., have received substantial amounts of money from the DOE.

Google and venture-capital giants like Kleiner Perkins and Khosla Ventures have also swooped into the space, looking for disruptive renewable energy technologies that have strong, consistent government backing. (Although these investors still have concerns about the lack of broader policies like long-term tax credits, a carbon price and a federal renewable energy target).

In Australia, the government plans to release over $250 million in funds to project developers and technology companies over the next few years. And in Germany, France and the UK, where there are feed-in tariffs available for EGS projects, companies are moving ahead with both demonstration-scale and commercial-scale projects. (In fact, the first small-scale commercial plant, at almost 4 MW of capacity, was built in Germany).

The International Geothermal Association says that there could be around 80,000 MW of EGS projects completed globally in the next 40 years. Much of that development will be in the U.S. and Australia. But the great thing about EGS is that it can be developed almost anywhere – as shown by all the projects underway in Europe, a region lacking traditional hydrothermal resources.

However, even with all this support, progress has been somewhat slow in the industry. Back in 2007, when the Massachusetts Institute of Technology released a report on the immense potential of EGS, there was a surge of interest in the sector. The promise of hundreds of thousands of MW of limitless energy made for an exciting story. But setbacks have been common: Australia’s GeoDynamics delayed a project for more than a year due to an explosion and subsequent flooding of a well; U.S.-based AltaRock Energy stopped development of a California project due to a collapsed well; and an urban project in Basel, Switzerland was abandoned due to concerns about seismic activity.

Things seem to be getting better for some companies though. AltaRock has started a new project in Oregon, backed by $25 million in DOE funds and $21 million in venture capital. And this summer GeoDynamics announced that its 1-MW project in southern Australia and 25-MW project in northeastern Australia are back on schedule.

Experts watching the sector believe the technical issues will eventually get worked out. But as these experiences have proven, development in the EGS space over the next five years will be incremental, not dramatic – even with all the money pouring into the space.

In this week’s podcast, we’ll have a roundtable discussion with Charles Baron of Google, JoAnn Milliken of the DOE and Will Osborn of AltaRock about specific project developments, technical improvements and the overall prospects for EGS. We taped the conversation at the Geothermal Conference and Expo in Sacramento, California this week.

For a look at how EGS works, check out the video below.

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