US Legislative troubles impact several Ormat projects
Due to uncertainty about how much time permitting for a US loan guarantee program will take, Ormat Nevada Inc has removed its application for a DOE loan guarantee of $300 million for three of six geothermal projects in the state. The three projects of the Nevada subsidiary of Ormat Technologies Inc (NYSE: ORA) are currently under construction: the Wister, CD-4 and Dead Horse Wells projects, and total between 80 and 90 MW.
They would have been eligible for the Financial Institution Partnership Program (FIPP) but geothermal projects backed by the loan guarantee program need to have all the permitting complete by September 2011. That now looks unlikely.
Ormat Nevada Inc appointed John Hancock to act as the Lender Applicant under the FIPP earlier this month. But subsequent legislative difficulties in the US killed an expected extension of the loan guarantee program weeks later.
Under Section 1705 of the American Recovery and Reinvestment Act of 2009, the DOE provided a loan guarantee for up to 80% of loans for renewable technologies such as geothermal power, but the program did not get an expected extension past September 2011.
The loan guarantee program has been beset by bureaucratic difficulties. The DOE has been able to deploy only about 2.5 percent of the $2.5 billion in available funds according to a summary in November.
As a result, the Obama administration considered turning over its remaining funding to the very more efficient and successful 30% grant program Section 1603 which simply pays cash in lieu of a tax credit for entities that do not have a profit (to take a credit against) and which has been taking only a few months to approve.
Although Section 1603 has more typically funded solar projects, Ormat was the recipient of a Section 1603 30% cash grant of $108 million in September for a separate project; the North Brawley geothermal plant in Nevada.
Initially, Republicans in the US Senate prevented a majority vote on extending Section 1603 renewable energy grants in the December tax bill, in part because of its success in moving the US to a clean energy economy.
Republicans receive 75% of the funding from the fossil energy industry, both directly as well as funneled through the “US” Chamber of Commerce, which has been bleeding members since it has begun lobbying heavily against the renewable energy industry in the US. In October it was found to be largely funded by foreign oil.
But after negotiations with President Obama and Senate Democrats, the Republicans agreed to allow an up or down vote on renewable energy tax legislation including Section 1603 extension, in exchange for a concession reducing estate taxes for millionaires and a reduced (from 39%) tax rate of 35% on all incomes from a quarter of a million and over, initially rammed through congress by former President George Bush. But pushing for an extension of time for the Section 1705 FIPP program was abandoned. For the Democrats, other more crucial needs took priority, including extending unemployment benefits.
Normally, nations negotiate separate legislation for energy and social benefits, but due to a dysfunctional Senate, effectively controlled by a very regressive minority party, the US has to take whatever it can get in progressive legislation.
Without an extension of the FIPP loan guarantee program deadline, the cost to borrow on the private market for the Wister, CD-4 and Dead Horse Wells projects means the company will lose about 2% of the return on these three projects. Ormat and John Hancock have concluded they can not be permitted in time through FIPP.
Three Ormat Nevada Inc projects that can make it in time for loan guarantees are the 30 MW Jersey Valley, 30 MW McGinness Hills and 16 MW Tuscarora geothermal projects, all located in Nevada, which are covered under a separate DOE application that Ormat expects will be permitted by next September.
Jersey Valley had been fast tracked for approval from the Bureau of Land Management in October under the Obama administration’s emphasis on getting a record amount of renewable power online. It includes a 120 KW transmission line in addition to the 30 MW geothermal plant.
But abandoning the race to get the loan guarantee for the Wister, CD-4 and Dead Horse Wells projects is hardly putting a dent in Ormat’s projects. The company is set to almost double its geothermal presence in the US in three years.
To put it in perspective, these three projects represent only about 80–90 MW. In total, Ormat expects to have approximately 750 MW of new projects online in the US by the end of 2013.
The financial benefits of a fuel-free, non-intermittent energy like geothermal energy in states like Nevada and California – that have Renewable Energy Standards requiring utilities buy clean power – are so great that it will likely find financing and finish the projects anyway.
Read more on Ormat geothermal:
Ormat Subsidiary Joins Geothermal Rush in Chile
Worries About Ormat’s Geothermal and the Volcano in Indonesia are Unfounded
Ormat Set to Release Alaska’s Geothermal Energy Potential
Successful Ormat Waste Heat Recovery Test Could Green Dying Oil Fields
Volcano and Hurricane Damages Ormat’s Guatemala Geothermal Plant, Minimal Damage and No Lives Lost
Ormat Technologies Secures US Funds For Geothermal Plants
Ormat Taps Into Geo-Thermic Volcano Energy In Indonesia
Ormat’s Opti Takes On Oil Sands In Alberta, A Dirty Deed For The Company’s “Clean” Image
Ormat Technologies Secures US Funds For Geothermal Plants
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