State Policies for Geothermal
Development
OISTRIBUTION OF THIS DOCUMENT IS UNLlMlTED
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This publication was made possible through a grant (ISR 74-1552) from the
Division of Intergovernmental Science and Public Technology of the National
Science Foundation. Any opinions, findings, conclusions or recommendations
expressed in this publication are those of the author(s) and do not necessarily
reflect the views of the National Science Foundation.
NSF/RA-760230
The National Conference of State Legislatures, formed from three previously
existing legislative organizations in January 1975, is the only nationwide organi-
zation representing all state legislators and their staffs. It is headquartered in
Denver, Colorado, with state-federal offices in Washington, D.C.
Executive Director: Earl S. Mackey
State Policies for Geothermal
Development
Uncovering a Major Resource
Douglas M. Sacarto
RENEWABLE ENERGY RESOURCES PROJECT
Patrick Binns
Director
Douglas M. Sacarto
Research Assistant
Dena K. Bellows
Project Assistant
National Conference of State Legislatures
1405 Curtis St. 23rd Fl.
Denver, Colorado 80202
CONTENTS
Figures ix
Forward xiii
Acknowledgements xv
1. SUMMARY AND RECOMMENDATIONS 1
The Value of Geothermal Resources 1
Obstacles to Geothermal Development 2
State Policies for Geothermal Resources 3
Suggested Policies 3
Notes 6
2. FEATURES OF THE RESOURCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7
Origin and Potential 7
Plate Tectonics 7
Geothermal Acreage 8
High-Temperature Reservoirs 12
Magma and Hot Dry Rock 12
Hydrothermal Convection Systems 12
Medium-Temperature Reservoirs 13
Geopressured Reservoirs 13
Geothermal Byproducts 14
Geothermal Reserves 15
Conclusions 17
Ownership of Geothermal Resources 18
Land Ownership 18
Mineral Ownership 19
Groundwater Ownership 19
Geothermal Leasing 19
Notes 20
3. EXPLORATION AND DEVELOPMENT 21
Exploration 21
Exploration Costs 21
Exploration Risk 21
Reservoir Development 24
Field Development Costs 24
Field Development Risk 25
Reservoir and Well Lifetimes 25
Contents
Powerplant Development 26
Flashed Steam Plant 26
Binary Fluid Plant 27
Total Flow Plant 28
Geothermal Power Costs 28
Hydrothermal Systems 28
Geopressured Reservoirs 30
Geothermal Investment and Marketing 32
Magnitude of Investment 32
Stimulating Investment 32
Marketing 33
Notes 33
4. TAXATION 35
The Scope of Taxation 35
Property Taxes 35
State Taxes on Gross Receipts 36
State Income Taxes 37
Arizona 37
California 37
Louisiana 38
Oregon 38
Utah 38
Federal Income Tax 38
Oil and Gas Model 38
Tax Benefits 39
Current Deduction 39
Percentage Depletion 40
Tax Benefits for Geothermal Development 40
Tax Benefits and Investment 41
Notes 42
5. STATE GEOTHERMAL LEASING AND
DEVELOPMENT REGULAnONS 43
Introduction 43
Leasing: Resource Definition 43
Resource Categories 43
Physical Portrait 44
Modifications of the Federal Definition 44
The California Definition 45
Conclusions 46
Leasing: Resource Access 46
Acreage Limitations 47
Rentals and Royalties 48
Lease Terms and Adjustments 48
Modified Bidding 49
Conclusions 49
Development Regulations 52
Reservoir Management 52
Environmental Protection 56
Conclusions 58
Notes 58
APPENDIXES 61
1. State Laws and Regulations Regarding
Geothermal Resources 61
2. Federal Geothermal Leasing and
Development Regulations 63
Access to Federal Lands 63
Geothermal Operations on Federal Lands 65
Notes 67
Contents
3. Federal Geothermal Lease Summary 69
4. Federal Geothermal Steam Act
of 1970 (P.L. 91-581) 73
5. Federal Geothermal Energy Research, Development,
and Demonstration Act of 1974 (P.L. 93-410) 77
6. Federal Regulations for the Geothermal
Loan Guaranty Program 81
SELECTED BIBLIOGRAPHY 89
Figures
1. Geothermal Regions of the World 2
2. Geothermal Energy Use 3
3. Earth Cross-Section 8
4. Classified Geothermal Acreage 8
5. Map of Classified Geothermal Acreage in Alaska 9
6. Map of Classified Geothermal Acreage in California, Nevada, Oregon anet
Washington 10
7. Map of Classified Geothermal Acreage in Rocky Mountain States 11
8. Map of Potential Gulf Coast Geopressured Resources 12
9. Hydrothermal Convection Reservoir Schematic 12
10. Subsurface Pressure and Boiling Temperature of Water 13
11. Section of Idealized Geopressured Reservoir 13
12. Maximum Temperatures Recorded in Boreholes in Cameron County,
Texas 14
13. Temperature, Pressure and Methane Content Expected for Gulf Coast
Geopressured Reservoirs 14
14. Volume and Electrical Energy Potential for Thirteen Well-Explored
Geothermal Systems 15
15. Area Comparison for Identified and Potential Hydrothermal Convection
Systems 15
16. Heat Content of U.s. Geothermal Resources 16
17. Recoverable Energy from U.S. Hydrothermal Convection Reservoirs 16
18. Recoverable Energy from Onshore Geopressured Reservoirs 17
19. Land Ownership in the Fifteen Geothermal States 18
20. Mineral Acreage held by States 18
21. Acreage Patented with Minerals Reserved to the United States 19
22. Acreage of State and Federal Geothermal Leases 19
23. Exploration Costs for 7500-acre Tract 21
24. Broadlands Geothermal Field in New Zealand 22
Figures
25. Schedule of Probable Successes and Statistical Costs in Exploration 22
26. Alaska North Slope Petroleum Lease Bids 23
27. Electric Power as a Function of Well Flow 23
28. Locating a 200 MW Field within 7500 Acres 23
29. Estimates of Exploration Success Rates 24
30. Wells to Supply 200 MW as a Function of Reservoir Temperature 24
31. Wells to Supply 200 MW as a Function of Flow-Rate 25
32. Drilling Costs for Geothermal Wells 25
33. Amortization of Exploration Costs 25
34. Power Plant 11 at The Geysers 26
35. Percentage of Hot Water Flashing to Steam as a Function of Temperature and
Pressure 27
36. Effect of Noncondensible Gases on Net Power Output and Cost 27
37. Comparison of Geothermal Power Systems 27
38. Power Costs for Representative Hot-Water Reservoirs 28
39. Financing and Tax Assumptions for Hot-Water Reservoirs 28
40. Initial Capital Investment for Hot-Water Reservoirs 28
41. Distribution of Total Power Costs for Hot-Water Reservoirs 29
42. Distribution of Power Costs Related to Hot-Water Powerplant Costs 29
43. Distribution of Energy Supply Costs for Hot-Water Reservoirs 29
44. Results of Sensitivity Analysis for Hot-Water Reference Reservoir B 30
45. Well Costs for Geopressured Reservoirs 30
46. Characteristics of Gulf Coast Geopressured Reservoirs 31
47. Well Productivity for Geopressured Zones 31
48. Internal Rate of Return for 300°F Zone III Geopressured Reservoir, Electricity
plus Natural Gas 31
49. Internal Rate of Return for 300°F Zone III Geopressured Reservoir, Electricity
Only 31
50. Capital Costs for Geothermal Development 32
51. Calculation of Property Tax Assessment for Vapor-Dominated Geothermal
Reservoir 36
52. State Tax Rates on Corporate Net Income 38
53. Tangible and Intangible Costs for a Geopressured Well 39
54. Benefits from Current Deduction compared to 20-year Amortization 40
55. Expenditures for Oil and Gas Wells (1959) Classified by Tax Treatment 40
56. Net Benefit of Percentage Depletion and Deduction of Drilling/Development
Expenses 40
57. After-Tax Value of Percentage Depletion for Geothermal Resources 41
58. Tax Benefits for a Geothermal Well 41
59. Types of Definitions Adopted by the States for Geothermal Resources 44
60. State Geothermal Exploration Permits 47
Figures
61. Leasing of State Lands 48
62. State Geothermal Lease Provisions 50
63. Expansion Loops in Steam Lines at The Geysers 53
64. Statewide Regulatory Powers 54
65. Directional Drilling 54
66. Noise Levels at The Geysers and from Familiar Noise Sources 56
67. Steam from Producing Wells at The Geysers 57
68. Total Dissolved Solids of Various Waters 58
69. Unitization Schema for Federal Lands 66
Foreword
The Renewable Energy Resources Project was established in the spring of
1975 to help states define policies suited to the development of new energy
sources, especially solar energy and geothermal resources. The project's final
report concerning geothermal resources is presented here as State Policies for
Geothermal Development. This report has been the work principally of Douglas
Sacarto, with the assistance of Dena Bellows. The project as a whole has been
directed by Patrick Binns, and was made possible through financial support from
the National Science Foundation's Division of Intergovernmental Science and
Public Technology.
State Policies for Geothermal Development reviews for the states various techni-
cal, economic and institutional aspects of geothermal development. The report
summarizes research results from numerous specialists and outlines present
state and federal policies affecting the geothermal industry. From this material
key policy areas have been identified and several s
