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1/There has great analysis on what the oil price crash means for renewables, but I haven’t seen anything on the most impacted renewable: geothermal.
Now that WTI is flirting with $20, a quick THREAD on why this is a major positive development for geothermal development costs:
Now that WTI is flirting with $20, a quick THREAD on why this is a major positive development for geothermal development costs:
2/Geothermal involves drilling deep wells into hot areas to directly produce steam, which means it’s supply chain overlaps significantly with oil and gas. As much as 50% of the cost of geothermal comes from drilling, so a plunge in oil prices can drop costs dramatically.
3/The oil price crash has been far, fast and unprecedented. This chart from @javierblas shows how the 2020 crash has been faster than any in modern history, which means the impact on the services costs will likely be greater than ever before. https://pbs.twimg.com/media/ETbSB0hXsAAAAqx?format=jpg&name=medium
4/Rig count is a good measure of activity, which also means it's a good proxy for cost impact. In the last crash US Rig Count fell rapidly to below 400. This one will be even deeper. As a result, oil field services costs will likely drop 20-40% or more.
5/This is coming at a time when geothermal energy is already undergoing a resurgence in America. This @Sammy_Roth piece covers the sudden trend in new geothermal, driven by ever increasing environmental and RPS goals. https://www.latimes.com/environment/story/2020-01-22/california-needs-clean-energy-after-sundown-geothermal-could-be-the-answer
6/Most new geothermal has been signed in the $65-75/MWh price range. Because it is 24/7 and carbon free, it’s been attractive for customers even at that price. The drop in oil field services costs alone may send geothermal costs lower by 20% or more.
7/But oil field services costs aren’t the only recent development in geothermal. In December, the PTC for geothermal was finally (finally!) reinstated after being forgotten in the 2017 tax extenders bill. (although it’s only good through 2020…) https://www.thinkgeoenergy.com/revival-and-extension-of-u-s-production-tax-credits-for-geothermal-facilities-lauded/
8/And interest rates have dropped globally by ~2% this year. Since geothermal, like all renewables, substitutes Fuel with Capital, lower financing costs make a huge difference on costs. See Lazard:
9/So the impact of drilling cost decline, PTC extension, and lower interest rates probably lead to a 20-30% decline in geothermal from the $65-75/MWh at the start of the year.
We may see geothermal <$60 soon, and maybe even <$50 if it gets equal ITC treatment.
We may see geothermal <$60 soon, and maybe even <$50 if it gets equal ITC treatment.
10/Because geothermal is 24/7, it holds a lot of value to deep decarbonization in cleaning up the last 20% of the electric grid. The 2019 GeoVision study from the DOE found that we could get 120 GW of geothermal by 2050. https://twitter.com/TimMLatimer/status/1136749191592628226?s=20
11/Quick thought experiment: 120 GW at 4 MW/geothermal well is 30,000 new wells, or 1,000 wells/year for 30 years. At drilling rates of 8 wells/rig/year, it would take 100+ rigs to hit that goal. Recall the rig count from earlier:
12/This downturn will likely send the rig count into the 200s, so geothermal development at 100+ rigs could put as much as a third of the oil field sector back to work developing a 24/7 clean energy resource.
13/SUMMARY: The oil price crash drives geothermal costs dramatically lower. If we continue to prioritize decarbonization through actions like extending the geothermal ITC, 100% clean energy just got a lot more possible in a way that will also put the oil field back to work. END
