Direct Use Applications Are Numerous and Diverse, and Few Are Located on Federal Land

Over 2,300 businesses and heating districts in 21 states used geothermal  resources directly for heat and hot water in 2005. 3). The Potential for Developing Additional Direct Use Is Uncertain

The potential for additional direct use of geothermal resources in the  United States is uncertain due to the geographically widespread nature of  low-temperature geothermal resources and the many different types of  applications. Geothermal Power Plants Face High Risk, Financial Uncertainty, and Technological Impediments

Geothermal development for the production of electricity is a risky,  expensive, and lengthy process. Direct Uses of Geothermal Resources Face Business Challenges, Remote Locations, Water Rights, and Royalty Issues

The small business owners, operators of heating districts, and individuals  who commonly develop geothermal resources for direct use face a variety  of business challenges. Efforts by Federal, State, and Local Governments to Address Challenges Show Promise

The Act includes a variety of provisions designed to help the geothermal  industry address numerous challenges, including the high risk and financial  uncertainty of developing renewable energy projects, lack of sufficient  transmission capacity, delays in federal leasing, and complex federal  royalties. Chief among  these efforts are financial incentives, such as tax credits for production  from renewable energy sources, sales and property tax exemptions, and  mandates that certain percentages of the electricity generated within the  state come from renewable energy sources, such as geothermal resources. These incentives include property  tax incentives, sales tax incentives, and business tax credits. The Act also contains provisions that simplify federal geothermal royalties  on resources that generate electricity and simplify and or reduce royalties  on resources put to direct use. Geothermal Royalty Disbursements Will Change Significantly, and Changes in Electricity Prices Could Alter Total Royalty Collections

Under provisions of the Act, geothermal royalties retained by the federal  government will be cut in half because half of the royalties that originally  were retained by the federal government will now have to be disbursed to  the counties in which the federal leases are located. The Act also changes how the federal government’s share of geothermal  royalties can be used. MMS Does Not Routinely Collect the Royalty Data Necessary to Maintain the Same Level of Royalty Collections

MMS does not routinely collect meaningful data on the revenue from  electricity sales. Since the Act requires the Secretary of the Interior to seek  to achieve the same level of royalty revenues when issuing new royalty  regulations, these data are necessary to know how future royalties will  compare with what would have been collected before passage of the Act. Objectives, Scope, and Methodology

In this report, we discuss (1) the current extent and potential for  geothermal development; (2) challenges faced by developers of geothermal  resources; (3) federal, state, and local government actions to address these  challenges; and (4) how provisions of the Energy Policy Act of 2005 (Act)  are likely to affect federal geothermal royalty collections.
Why GAO Did This Study

The Energy Policy Act of 2005 (Act) contains provisions that address a variety of challenges that face the geothermal industry, including the high risk and uncertainty of developing geothermal power plants, lack of sufficient transmission capacity, and delays in federal leasing. Among the provisions are means to simplify federal royalties on geothermal resources while overall collecting the same level of royalty revenue. The Act also changes how these royalties are to be shared with local governments (disbursements). This report describes: (1) the current extent of and potential for geothermal development; (2) challenges faced by developers of geothermal resources; (3) federal, state, and local government actions to address these challenges; and (4) how provisions of the Act are likely to affect federal geothermal royalty disbursement and collections.

What GAO Found

Geothermal resources currently produce about 0.3 percent of our nation's total electricity and heating needs and supply heat and hot water to about 2,300 direct use businesses, such as district heating systems, fish farms, greenhouses, food-drying plants, spas, and resorts. Recent assessments conclude that future electricity production from geothermal resources could increase by 25 to 367 percent by 2017. The potential for additional direct use businesses is largely unknown because the lower temperature geothermal resources that they exploit are abundant and commercial applications are diverse. One study has identified at least 400 undeveloped wells and hot springs that have the potential for development. In addition, the sales of geothermal heat pumps are increasing. Developers of geothermal electricity plants face many challenges including a capital intensive and risky business environment, developing technology, insufficient transmission capacity, lengthy federal review processes for approving permits and applications, and a complex federal royalty system. Direct use businesses face unique business challenges, remote locations, water rights issues, and high federal royalties. The Act addresses many of these challenges through tax credits for geothermal production, new authorities for the Federal Energy Regulatory Commission, and measures that streamline federal leasing and that simplify federal royalties, which totaled $12.3 million in 2005. In addition, the Department of Energy and the state of California provide grants for addressing technology challenges. Furthermore, some state governments offer financial incentives, including investment tax credits, property tax exclusions, sales tax exemptions, and mandates that certain percentages of the electricity within the state be generated from renewable resources. Under the Act, federal royalty disbursement will significantly change because half of the federal government's share will now go to the counties where leases are located. Although the Act directs the Secretary of the Interior to seek to maintain the same level of royalty collections, GAO's analysis suggests this will be difficult because changing electricity prices could significantly affect royalty revenues. Also, MMS does not collect sales data that are necessary to monitor these royalty collections.