[pagebreak:AltaRock Breaks New Ground with Geothermal Power]
Geothermal power, recognized as one of the best sources of emission-free renewable energy, has long been considered a victim of circumstance.
There is an abundance of heat in the Earth's crust that can be tapped to generate electricity, but only so many locations in the world with the right temperatures, rock conditions, shallow depths and underground water reservoirs required to make a geothermal power plant economical.
It's the main reason venture capitalists, perceiving geothermal as a mature market with limited opportunity, have shied away from the space. But new technologies and processes, falling under the banner of "enhanced" or "engineered" geothermal systems, or EGS, are changing the game and attracting some of the best names in the venture-capital community.
Ormat Technologies, for example, has attracted the attention of Google.org, including visits from senior executives such as Larry Page and discussions about potential clean-energy collaborations, according to Israeli newspapers Haaretz and The Marker earlier this week (via VentureBeat). And Western GeoPower Corp. said Wednesday it had signed a $520 million, 20-year agreement to deliver geothermal power to the Northern California Power Agency.
Seattle startup AltaRock Energy envisions a time when location is no longer a barrier to geothermal development. "Our goal is to get to where we can develop geothermal anywhere," co-founder and President Susan Petty said.
Kleiner Perkins Caufield & Byers and Khosla Ventures invested a reported $4 million in AltaRock last summer as part of a Series A round that included seed backer Aaron Mandell, a co-founder and senior vice president of GreatPoint Energy.
AltaRock is setting the industry bar high: It wants to develop technologies and processes that lower the cost of constructing EGS power plants. This means better and cheaper drilling techniques, making it economical to explore depths of three miles or more.
More important, the company is perfecting methods for creating fractures in hot, dry rock that conventional geothermal systems can't use. By creating fractures, water can be pumped into the rock to retrieve heat.
The young company, which prefers to keep a low profile, has already negotiated land positions in the northwestern United States that will host its first EGS projects. A second round of funding is also in the works, Petty said.
"We're a lot closer to making EGS economic where we can displace coal than we are to making carbon capture and sequestration economic," she said. "We've just got to get out there and start drilling holes in the ground."
AltaRock claims to be the only company looking to commercialize power generation from EGS technology in the United States, although several ventures and projects exist throughout Europe and Australia. Conventional geothermal is only economical in certain U.S. locations, such as California or Hawaii, where wells are relatively shallow and hot water sits in naturally fractured rock.
But prime sites often are in areas with low populations or a lack of access to transmission lines. This geological limitation caps potential U.S. development at 50 gigawatts, according to Khosla Ventures, which cited a 2007 study from the Massachusetts Institute of Technology.
The same study found that EGS technology removes such restrictions and could make it possible to develop 1,250 gigawatts of geothermal power for less than 10 cents per kilowatt-hour.
In a recent green-energy investing paper, Khosla Ventures founder Vinod Khosla argued that EGS can be competitive in the next seven to 10 years with nuclear-, wind- and solar-thermal-power production, as well as with various "clean-coal" approaches when a realistic price on carbon is taken into account.
Trae Vassallo, a partner with Kleiner Perkins, called geothermal a "huge sleeper." With EGS, she said, it's possible to take previously drilled dry wells, deemed unworkable using conventional methods, and turn them into valuable operating assets.
"There's a lot of data out there for those lemons," said the venture capitalist. "A dry hole in traditional geothermal becomes the perfect well bore for what [AltaRock] is doing."
Vassallo was instrumental in the creation of AltaRock. After joining Kleiner Perkins in 2002, she began asking experts in the geothermal field about the potential of the renewable resource. The responses were consistent: Underfunding and modest innovation had restricted deployment of geothermal-power projects.
This inspired her to drill deeper.
"I took this on as my project and started going to these nitty-gritty technical conferences," she recalled in an interview. The conferences took her to Texas, Nevada and more exotic locations like Iceland.
What Vassallo soon discovered was that most investments in the space went to developers that had land with valuable geothermal resources, similar to investments in small oil prospectors. Little, if any, of these investments had to do with new innovations or creative business models that typically attract venture capitalists.
"We want a technology advantage, or something that really defines the industry," she said. "We want a business model or technology with a difference."
Around the same time, Jeff Tester, a professor of chemical engineering at the Massachusetts Institute of Technology, was busy assembling an expert panel to produce a comprehensive report, released last January, called "The Future of Geothermal Energy."
One member of the 18-person panel was Petty, founder of geothermal consultancy Black Mountain Technology. Vassallo had seen Petty at several conferences, but it wasn’t until a formal introduction through Tester that the two women began a fruitful dialogue.
They went out for dinner one evening after a conference at Stanford University, during which Vassallo asked Petty an intriguing question: If Petty could do anything she wanted in the geothermal space, what would it be and who would be on her dream team?
"That was how it started," Vassallo said. "Susan went away and spent a few months thinking about it."
When the decision was made to create the new company, Kleiner Perkins and Khosla Ventures provided initial funding and paired up Petty’s technical expertise with top project developers.
Don O’Shei, a principal with energy-project developer TriLateral Energy, was brought in as AltaRock’s chief executive. O’Shei was previously chief operating officer of Bechtel’s water utility subsidiary and before that was co-president of MidAmerican Energy Holdings Co. and its power-plant development subsidiary, CalEnergy Generation.
AltaRock also has hired some of the leading experts in the EGS field, including Roy Baria, a 30-year veteran of "hot-rock" projects who provides consulting services around the world. Baria is now AltaRock’s vice president of science and technology.
Petty said the involvement of the two venture-capital firms has been invaluable.
"They’re not just providing money; they’re providing us with contacts and political influence, and stuff you don’t normally get."
But difficult work lies ahead. Petty said the company already knows how to crack rock and dig wells that are several miles deep, but figuring out how to control the cracking remains tricky. It must also assure that huge volumes of water injected into the wells can be recovered and re-injected back in with minimal losses. Since water must be brought to EGS sites, losses of even a few percent can ruin the economics of a project.
Then there’s the issue of accidentally triggering earthquakes through deep drilling, which happened in late 2006 on one EGS project in Switzerland.
"It’s a potential outcome that needs to be understood and dealt with," Vassallo acknowledged.
Yoram Bronicki, president and chief operating officer of Reno, Nev.-based Ormat Technologies, which builds, owns and operates geothermal plants around the world (including a pilot EGS project in Reno), said he is cautiously optimistic about the potential of EGS.
Ormat has attracted the attention of Google.org, including visits from senior executives such as Larry Page and discussions about potential clean-energy collaborations, according to Israeli newspapers Haaretz and The Marker (via VentureBeat).
But Bronicki worries that the hype over its potential is blurring the reality.
"The industry has to prove that it’s not only successful on a pilot scale, but that this could be reproduced again and again," said Bronicki, who compares the current expectations of EGS with earlier promises of a hydrogen economy that never materialized.
At the same time, Bronicki said he holds out hope for breakthroughs and that more investment and research and development will flow to EGS. A key enabler of this will be greater collaboration and co-development with the oil and gas industry, which brings decades of expertise related to exploration and drilling.
"If a bigger part of that could be harnessed for geothermal, it will have a great impact," he said.