PUC Boosts Geothermal Electricity : Energy: Renewable energy directive was good news for Magma Power, with plants in the Imperial Valley.
From a technological and financial standpoint, Magma Power seemed to have everything going its way.
The San Diego-based geothermal energy producer had mastered Imperial Valley’s superheated brine and last year operated its four power plants in the Imperial Valley at 105% of capacity. The company earned $33.9 million on its $94.9 million in energy revenues last year, an indication of how well it was managing its costs.
Financially, Magma Power now had the strength to finance the costly geothermal power plants itself, rather than rely on a joint venture partner to help it shoulder the high burden. Magma’s equity is more than twice its debts. All four of Magma Power’s plants built in the late 1980s and operating near the Salton Sea are co-owned with a unit of Southern California Edison.
But until recently, the big question mark in the company’s future was regulatory policy. Since even Magma Power’s efficient plants deliver energy at twice the cost of power generated by natural gas, the geothermal industry needs government incentives and supports to make its energy attractive to its ultimate customers, the utilities.
Magma Power and other alternative energy companies received the regulatory boost they were looking for in April when the state Public Utilities Commission ruling, in effect, reinforced “renewable energy” producers’ right to exist, even though they compete at a considerable cost disadvantage in the energy marketplace.
The PUC’s Biennial Resource Plan Update, or BRPU, which was approved by the commission April 22, calls for Southern California Edison and San Diego Gas & Electric to set aside a total of 250 megawatts of new energy capacity over the next decade to be bid on exclusively by geothermal power producers.
In addition, Magma Power and other geothermal companies are well-positioned to bid on up to 250 megawatts of additional capacity that is being reserved exclusively for “renewable” energy sources, meaning solar, wind and geothermal producers.
The BRPU is the exercise that shareholder-owned utilities go through every three years to update their 10-year plans on how they will meet power needs. In rough terms, the plan approved in April calls for another 10,000 megawatts of power in the state’s energy grid, an 18% increase of the 51,000 megawatts now produced statewide.
Geothermal energy industry observers describe the new BRPU as a welcome successor to the “standard offer-4” system of incentives that were mandated by federal and state laws in the late 1970s to help wean the nation’s power industry off foreign oil supplies.
Granted, the new “set-aside” is a small fraction of the 11,000 megawatts of additional power statewide called for in the BRPU over the next 10 years. But it is a significant share of the utilities’ projected new plant capacity, since the PUC has directed that utilities achieve three quarters of the additional power requirement through conservation and other means of “demand side management.”
Claudia Barker, California Energy Commission assistant executive director, says the BRPU incentives are strong enough to enable the state’s geothermal energy industry to double its 3,100 megawatts of total power production over the next 10 years.
The decision was significant because, for the first time, the PUC is specifying how much of its future energy needs must be met with non-fossil fuel sources, said Robert Resley, director of electric resource development at SDG&E.;
“In my opinion, it was a very well-balanced decision in that it carved out more renewable energy” in filling the state’s future energy needs, Resley said.
Resley said that, if the PUC had approved a plan based solely on lowest-cost providers, geothermal producers would have been left out in the cold.
“It was only when the commission looked at the benefits of renewables, meaning geothermal, wind and solar power, to the environment and as a hedge against higher gas prices, only then did it find it proper to make room for them in the resource plan,” Resley said.
Magma Power’s four plants now generate a total of 148 megawatts, only half of which it owns. The other half is owned by Southern California Edison’s Mission Energy unit.
Magma Power thinks it is in good position to compete for the added geothermal power capacity that will be put out to bid by Southern California Edison and SDG&E; later this year, said Jon Peele, senior vice president.
A significant Magma Power competitor will be Unocal, which operates a profitable geothermal unit that includes a plant near Magma Power’s quartet in the Salton Sea area. SDG&E;, however, one of Magma’s potential competitors to supply the SDG&E; “set-aside” energy, said this week that it has no intention of bidding to supply its geothermal capacity.
“Magma Power won’t get all 250” megawatts of power capacity soon to go out for bid, “but I believe they will get a good portion, and a portion is going to be a significant addition to their owned power capacity,” said Michael Cha, a research analyst for J. P. Morgan Securities in New York. The venture capital arm of J. P. Morgan owns 4% of Magma Power stock.
Even if successful, Magma Power’s payoff on new SDG&E; and Southern California Edison plants is likely to be five years down the road, when the plants would come on line. For that reason, Magma Power is exploring other markets for its energy, President Paul Pankratz told shareholders at the recent annual meeting.
One of those markets is selling energy directly to municipalities that operate utilities. One such municipality is Anaheim, which has requested bids from energy companies for 115 megawatts of added power.
Magma Power is on the short list of Anaheim’s bidders and, depending on whether it is successful on part or all of the 115 megawatts, would either expand an existing Imperial Valley plant or build two new 50-megawatt facilities.
