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What Geothermal Energy Could Do for Consumers

Iceland's Blue Lagoon
U.S. consumers tend to fall in and out of love with alternative energy as gas and oil prices rise and fall.

We're once again carrying a torch for alternatives -- particularly geothermal energy. And a surprising amount of money and expertise fueling the flame comes from Iceland, which has been steadfastly cozying up to this fuel source for a few decades now.

Geothermal power is expensive to tap into (though cheap to maintain) because it involves an exploration and drilling process similar to oil. As with other types of power, sky-high oil prices are making it more attractive. It's as clean as energy comes, and a well-managed field churns up a steady stream of steam power day in and day out for decades at a time.

It probably won't lower heat and electricity prices for consumers in the short term, but investments being made in the U.S. now should in the long run drive innovation and broaden competition in our energy market.

That can't be a bad thing for consumers.

Geothermal energy is entirely domestic, making it more reliable than oil or natural gas. And it's entirely renewable if managed properly, making its prices, if not lower, then at least more predictable.

Then there are all those additional uses that make geothermal energy so attractive to the Icelanders. Magnus Johannesson, chief executive of Iceland America Energy, sees local markets developing here for many of them.

Snow removal, for example, would be useful in the Rocky Mountains, while geothermal powered air conditioning would be valuable in Las Vegas. Outdoor heated pools could make a splash in Seattle or San Francisco. Alaskans would be interested in fish farms and fish drying while California farmers might buy into fruit and vegetable drying.

The toughest problem right now, however, is that the U.S. geothermal industry is simultaneously a mature and underdeveloped industry.

According to a 2005 survey from the Geothermal Resources Council , we're the biggest producer of geothermal power -- mostly for electricity -- in the world, with 10 times the in-use capacity that Iceland has.

At the same time, we're tapping into only the tiniest fraction of our total potential, and what we have accessed we don't use very efficiently. Despite dwarfing Iceland capacity-wise, we only generated 20% more energy per year than they did when the survey was done.

Moreover, out in California, one of the earliest and biggest projects in the U.S., the Geysers , now mostly owned by Calpine, is showing its age. The field reached its peak in the 1980s but wasn't managed to be renewable and began to run out of steam in the 1990s. A few years ago the city of Santa Rosa began pumping treated gray water into this field to extend its life, but it provides only about half the power it used to.

It's a resource we squandered unnecessarily.

In contrast, Iceland has "wells that are 30 or 40 years old with no diminished capacity," Hlynur Gudjónsson, trade commissioner for the consulate general of Iceland, told me during my recent trip to Reykjavik.

Indeed, Icelanders have gotten very good at exploiting and protecting their natural resources. One of their cooler tricks: They can carve multiple wells from a single hole by striking out in different directions. This helps them to get the most out of every drilling investment while also limiting the impact on the landscape.

It's a significant development for the U.S. because all of America's geothermal potential is out West, and much of it lies beneath protected wilderness and Native American tribal lands, places where it's more likely to be tapped if it can be done unobtrusively.

Despite the value in developing new capabilities like this one, the Office of Management and Budget has tried to rescind, and succeeded in trimming, funding for geothermal research because the office deems it a mature resource. Luckily, states and the capital markets are stepping in with funding and support.

About half the states have instituted renewable portfolio standards that require local utilities to get a portion of their power from green sources by a certain date -- California's is the most aggressive at 20 percent by 2010. As utilities look for sources to fill these quotas, predictable demand for alternative energies emerges.

Icelanders, looking to export some of their accumulated geothermal knowledge, are eager to jump into that market. Glitnir , an Icelandic investment bank that has a niche practice in this sector, recently opened a New York office , intending to provide some of the billions the firm believes it will take to develop a geothermal sector here. Geysir Green Energy , a more venture-oriented Icelandic investment firm, has invested in Western Geopower, a Canadian company with projects in California. Iceland America Energy recently opened shop in Los Angeles to develop geothermal wells in California and elsewhere.

And Icelanders aren't the only ones betting on American geothermal potential. Goldman Sachs (GS - Get Report) has been in talks to buy a share of Geysir and has invested in geothermal projects in Idaho. Merrill Lynch (MER)bought a $35 million stake in Vulcan Power, a company developing projects in California, Oregon, Nevada and Arizona.

Meanwhile, Ormat Technologies (ORA), which has projects in California, Nevada and Hawaii, turned to the public market and has seen its stock price more than triple since it went public in November 2004.

Developing geothermal energy sources for power and heat is the top priority for these businesses. But will we ever see an American version of the Blue Lagoon , the outdoor geothermal and lava rock spa outside of Reykjavic?

Johannesson says that the water coming out of ground has to be just right, containing minerals and algae that make it worthwhile -- and a scenic location such as Hawaii wouldn't hurt. He doesn't know of any spots right now, but he believes they're out there somewhere in America.

As a newly won-over fan of geothermal energy (with an aching back), I look forward to someone finding them.
Eileen P. Gunn writes about the business of life and is the author of "Your Career Is An Extreme Sport." You can learn more about her at her Web site .

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