Media Coverage

Geothermal Power Heats Up

Red Herring

October 12, 2005

Clean energy firm US Renewables Group plans to bring back geothermal power station by the end of 2006.

US Renewables Group said Wednesday it bought Bottle Rock Power, a California company that owns a defunct geothermal power plant in the state, in another sign that interest in clean energy is growing as fossil fuel prices remain high.

USRG, a Santa Monica, California-based company that buys and operates clean energy assets, just last Wednesday closed its first round of funding for $80 million from Rustic Canyon Partners and angels, and said it plans to raise another $170 million (see Clean Energy Firm Raises $80M).

The firm's CEO Jim McDermott wouldn't say how much the company paid for Bottle Rock or how much it will cost to upgrade and restore the facility. The plant originally cost the state $108.2 million.

"We're really excited about this because we know we can continue to deliver reasonably priced power no matter what's happening in the oil and gas markets," said Mr. McDermott. "People continue to come to California and they require electricity. Investing in geothermal and other renewable energy assets is a way to deliver the required electrical energy in a clean and effective way."

The company plans to refurbish and restart the power station next year. The company expects the 55-megawatt station to produce about 200 gigawatt-hours per year, enough to power about 25,000 homes.

Founded in 2003, USRG owns two landfill methane facilities in California, and is building another facility in Texas. It is also in negotiations to buy biomass and ethanol plants.

Geothermal's Potential

But Bottle Rock is the company's first geothermal investment.

While investments in new clean energy technologies, such as solar power, have been increasing over the last year, geothermal may seem like an odd choice.

Geothermal power plants were popular in the 1980s, but lower prices led to many closures in the mid-1990s. The Bottle Rock station, built and operated by the California Department of Water Resources until it was sold to Bottle Rock Power in 2001, closed in 1991.

The problems included a drop in production, ample power capacity in the state, and the need for infrastructure investment, USRG said.

According to a report by the Lawrence Livermore National Laboratory, the plant was only producing 20 megawatts of power—not 55 megawatts—in 1991. But Mr. McDermott said the biggest reason it failed was because of management problems.

"We believe we can manage the asset better than the previous owners," he said.

Mr. McDermott said he is still negotiating prices for the geothermal energy with Pacific Gas & Electric Company and other utilities, so he doesn't yet have a revenue expectation.

But the plant will be profitable from the day it relaunches operations, Mr. McDermott said, adding that he expects USRG will see about a 15 percent return on investment in seven to 10 years.

The investment makes sense because no additional plants are planned for the area anytime soon, because tremendous population growth is expected near the plant, which is in the Geysers steam field in Lake County, and because regulations are pushing utilities to get more energy from renewable sources, he said.

California's renewable electricity standard requires that utilities raise the amount of electricity that comes from renewable sources by 1 percent each year, and that 20 percent of the electricity will be renewable by the end of 2017.

Aside from California, 20 states plus the District of Columbia have standards requiring a certain amount of renewable energy, according to the Union of Concerned Scientists, an environmental nonprofit.

Geothermal energy provides about 5 percent of California's electricity, according to the nonprofit.

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ZENO Group
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