Mega Interest in BLM’s Geothermal Auction

By Published On: June 12, 2009

The expansion of federal tax incentives and push for more renewable power in and outside California is expected to create a fierce bidding war for the federal government’s geothermal leases in California and Nevada. “It is almost a feeding frenzy,” said Sean Hagerty, Bureau of Land Management geothermal program lead in California. Next month, BLM plans to auction off 15 large parcels in Sonoma and Imperial counties covering a total of 11,392 acres with geothermal energy development potential. The potential capacity is not expected to be more than 50 MW per project on the leased sites, according to the agency’s environmental impact assessments. That capacity expectation, however, means lower capital investments and a better chance of operational success given the current challenges of lining up financing. “The amount of megawatts isn’t pushing the projects,” according to Hagerty. Half of any lease sale proceeds in California, as well as future royalties pegged at 1.75 percent of energy revenue generated the first decade, will go to the state. Hagerty said the sale proceeds may be around $5 million. In Nevada, 103 parcels covering 325,130 acres also will be put up for competitive bid. One 228-acre parcel in Utah also will be on the auction block. Expected bidders include Calpine, the Northern California Power Agency, Ormat, US Renewables, Western Geopower, and TerraGen. Three of the 15 sites are in the Geysers region in Northern California, a section where geothermal potential to date has been relatively low. The 12 other sites are in Truckhaven in Imperial County. If any of the leases in Truckhaven tap into geothermal steam the energy may be able to feed into San Diego Gas & Electric’s proposed Sunrise Powerlink Transmission line. The $2 billion line would run from the low desert in Imperial Valley to the San Diego urban area. BLM has auctioned off geothermal leases since the 1970s. Its most recent auction was in August of 2007. One parcel auctioned at that time reached an unprecedented high of $14,000/acre, generating $6.5 million for a 470-acre parcel in the Geysers. That was the highest amount paid per acre or parcel to date. Calpine, which holds geothermal parcels near the one up for grabs two years ago, got into an intense bidding war with Bickley Geo Resources, now part of US Renewables. Bids started at $5 an acre and were driven up to $14,000 per acre, with Bickley outbidding Calpine. The smallest parcel up for bid July 14 this year is 640 acres in Truckhaven and the largest is a 1,541 acre site at the Geysers in Sonoma. Only one of the sites was previously leased. The auction of the Geysers parcels involves private land owners, who are required to allow successful geothermal bidders access to the underground resources. They, however, must be compensated for any damage to their land’s surface--an amount usually worked out in advance to avoid litigation. Successful bidders win an initial 10-year lease, which may be extended for an additional five or ten years to allow continued exploratory drilling. If steam power is discovered, the parcel lease is stretched an additional 35 years.

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