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Policies and Regulations Affecting Geothermal Power Project Financing

Federal and state policies, including leasing and permitting, federal financial incentives, renewable portfolio standards, and greenhouse gas emission reduction regulations, can affect geothermal power project development financing processes and timelines.

The related issues that should be considered during the project development cycle regarding these policies are summarized in the following table and described in more detail below. Note that this table is not meant to guide developers through the entire policy landscape, and should not be assumed to include all related issues in geothermal power development.

Roles of Policies and Regulations in the Geothermal Power Project Development Process*
Policy/Regulation Key Considerations During Project Development
Leasing and permitting
  • Review state procedures for permitting, and consult industry players to gauge the permitting timeframe for your state
  • Track Bureau of Land Management lease auction schedules
  • Review geothermal development areas prioritized by the Bureau of Land Management and Western Renewable Energy Zone initiative
Federal financial incentives
  • Ensure your project meets detailed eligibility requirements, paying particular attention to construction and completion timing
  • Review all forms and requirements to ensure the value of the incentive is properly captured in the pro forma
  • For most tax-related incentives, you may need to secure tax equity investors with sufficient tax appetite to monetize the value of the incentives (state tax incentives require tax appetite in that state)
Renewable portfolio standards  
  • Carefully review renewable portfolio standards requirements and evaluate the market value for renewable energy credits during the power purchase agreement contract period
  • Track ongoing renewable portfolio standards developments in your project's state and in neighboring states; renewable portfolio standards-driven power purchase agreement opportunities may change over time and may emerge in other states
  • Explore whether the value of offtake agreements could be enhanced by selling renewable energy credits and commodity energy separately (unbundling)
Greenhouse gas emission reduction regulations
  • Track timing and details of existing and future greenhouse gas regulations at the regional level, by the Environmental Protection Agency, and through new Congressional actions/mandates

*Information found in table based on a series of interviews conducted in the spring and summer of 2010 with geothermal industry developers, financiers, and other industry experts.

Leasing and Permitting Policies

Because most of the geothermal sites in the United States are located on federally or state-owned lands, various policies and requirements can impact a geothermal power project's development. A state's classification of geothermal resources will affect which federal and state agencies are involved with permitting activities in that state. What's more, a state may classify geothermal as a groundwater resource, a mineral resource, or both, and classification may vary depending on the specific type of geothermal resource developed.

The length of time it takes to obtain all required permits can greatly affect the length of loans and, consequently, the cost of these loans. Therefore, it is important to understand the permitting rules and regulations that apply to your geothermal development project.

If the project you want to develop is on federal land and the land is available for geothermal development, the U.S. Department of the Interior's Bureau of Land Management (BLM) will issue a lease through a competitive bidding process. In an effort to ease some of these potential issues and lessen confusion, BLM and the U.S. Forest Service completed a Programmatic Environmental Impact Statement that analyzed the environmental impacts of potential geothermal development on federally owned land in areas of the western United States with strong resource availability. This analysis, as well as the best practices that were defined, aims to reduce leasing and permit processing times.

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Federal Financial Incentives

Federal financial incentives, such as the Production Tax Credit, Investment Tax Credit, Treasury Cash Grant, Modified Accelerated Cost Recovery System, and U.S. Department of Energy (DOE) Loan Guarantees, enhance the financial returns of geothermal power projects. Many states also offer financial incentives for geothermal power projects. See the Database of State Incentives for Renewables and Efficiency for more information. Learn about the important elements of federal financial incentives for geothermal projects.

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Renewable Portfolio Standards

As of February 2011, renewable portfolio standards (RPS) exist in 29 states and constitute the most robust state-level policy driver for geothermal electricity project development; an additional seven states have non-binding renewable energy goals. An RPS mandate is different from a renewable portfolio goal, which is voluntary, by requiring regulated entities (frequently load-serving entities) to secure a percentage of their electricity from renewable sources.

To fulfill RPS requirements, many load-serving entities enter into long-term contracts for renewable energy using power purchase agreements (PPAs) for renewable energy certificates; the PPAs provide additional revenue certainty, which is needed to obtain financing.

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Greenhouse Gas Emission Reduction Regulations

Greenhouse gas (GHG) emission reduction regulations may assist geothermal project developers in securing PPAs. A number of states with strong geothermal resources have pursued GHG emission reduction policies, including California, Oregon, and Colorado. California is scheduled to implement a cap-and-trade program in 2012.

See how RPS polices and GHG emission reduction regulations may be used and how they can interact with geothermal power policy in the Guidebook to Geothermal Power Finance.

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