Early developers of geothermal resources in Nevada headed for obvious locations - the sorts of places where steam rose from cracks in the ground - to build electric generation plants.
As those sites are developed, however, the geothermal industry now looks farther afield for prospects - a search that is substantially more expensive and risk-filled. The stakes are big.
The Nevada Bureau of Mines and Geology estimates that geothermal production revenues could total
$1 billion a year in Nevada in the next couple of decades, and geothermal resources could meet 35 percent or more of the state's needs for electricity.
But developers no longer can simply drill holes at locations such as Steamboat at the south edge of Reno or Brady Hot Springs northeast of Fernley.
"Those were the low-hanging fruit," says Paul Thomsen, director of policy and business development for Reno's Ormat Technologies Inc. "Those resources all have been developed."
Now the search for geothermal resources extends farther into Nevada's notoriously complex geology, as exploration teams attempt to predict locations where suitable resources of hot water can be found anywhere from 2,000 to 8,000 feet below the surface.
Like wildcatters in the oil business, geologists in the geothermal industry combine their experience with technology such as aerial magnetic imaging to identify promising sites.
"The single biggest risk for us is finding the resource," says Thomsen. "You've got to have geologists who have been doing it a long time. You can't rush it,"
Even at that, geologists aren't always right.
Adding to the stress: Geothermal companies seldom find lenders willing to share the risk of exploration.
"It is equity that is doing the exploration," says Shuman Moore, chief executive officer of Oski Energy LLC in Reno. "You're using your own money, and you have to raise that money."
Investors in geothermal exploration need to have a stomach for high-risk, high-reward deals. Even with new exploration data and new drilling technologies, Moore says the success rate on exploration drilling runs about 60 to 80 percent.
And for small companies with limited diversification, one or two unsuccessful wells can put them out of business.
"It doesn't take too many $10 million dry holes for a business to lose its appetite for this," says Karl Gawell, executive director of the Geothermal Energy Association in Washington, D.C.
Executives in the geothermal industry can face sleepless nights even after a promising resource is discovered.
Assuming that construction of the power plant at a geothermal property costs about $3 million to $5 million per megawatt of capacity, a 15-megawatt shortfall means that at least $45 million of investment is standing idle.
"You want to build a plant for the resource," says Thomsen. Gawell says work by the Great Basin Center for Geothermal Energy at the University of Nevada, Reno, is helping to mitigate the resource-exploration risks faced by the geothermal industry.
"They have done some good things with a limited amount of money," says the geothermal association executive. "We're learning a lot more about the geology."
That growing base of knowledge points to the likelihood that many of the geothermal plants in Nevada are likely to be 20, 30 or 50 megawatts in size, rather than the 100-megawatt plants foreseen when geothermal exploration got under way in earnest 25 years ago.
And those tempered expectations bring some challenges to geothermal executives.
Take, for instance, U.S. Geothermal Inc., a Boise company that's replacing an older 3.6-megawatt plant near Empire in Northern Nevada with a new 19.9-megawatt facility.
The expanded plant will need an expanded and improved transmission line to move the power, says U.S. Geothermal President Dan Kunz, and the company is negotiating with NV Energy to make that a reality. Without a new line, the San Emidio plant might be limited to 16 megawatts of production.
But because geothermal plants generally are smaller than wind or solar facilities, and can't be scaled up in the same way as other renewable power resources, geothermal developers sometimes have trouble getting the attention of utility executives, Kunz says.
"Many lenders don't engage in renewables because they don't understand them," Gawell says.
And for major investment banking firms, geothermal facilities that require $150 million or $200 million loans simply may not be big enough to get onto the radar compared with billion-dollar solar facilities.
Still, Thomsen says financing construction usually isn't a hurdle once a good geothermal resource has been proven and a developer has a deal in place to sell the power to a utility. "Long-term debt is not a problem in this industry," he says. "These plants are little banks."
