CHEAP AND RENEWABLE?: A new analysis shows that geothermal power plants might produce electricity more cheaply than burning coal.
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Although the environmental benefits of burning less fossil fuel by using renewable sources of energy—such as geothermal, hydropower, solar and wind—are clear, there's been a serious roadblock in their adoption: cost per kilowatt-hour.

That barrier may be opening, however—at least for one of these sources. Two recent reports, among others, suggest that geothermal may actually be cheaper than every other source, including coal. Geothermal power plants work by pumping hot water from deep beneath Earth's surface, which can either be used to turn steam turbines directly or to heat a second, more volatile liquid such as isobutane (which then turns a steam turbine).

Combine a new U.S. president pushing a stimulus package that includes $28 billion in direct subsidies for renewable energy with another $13 billion for research and development, and the picture for renewable energy—geothermal power among the options—is brightening. The newest report, from international investment bank Credit Suisse, says geothermal power costs 3.6 cents per kilowatt-hour, versus 5.5 cents per kilowatt-hour for coal.

That does not mean companies are rushing to build geothermal plants: There are a number of assumptions in the geothermal figure. First, there are the tax incentives, which save about 1.9 cents per kilowatt-hour. Those won't necessarily last forever, however—although the stimulus bill extended them through 2013.

Second, the Credit Suisse analysis relied on what is called the "levelized [sic] cost of energy," or the total cost to produce a given unit of energy. Embedded within this figure is an assumption that the money to build a new geothermal plant is available at reasonable interest rates—on the order of 8 percent.

In today's economic climate, that just isn't the case. "In general, there is financing out there for geothermal, but it's difficult to get and it's expensive," Geothermal Energy Association director Karl Gawell told ScientificAmerican.com recently. "You have to have a really premium project to get even credit card interest rates."

That means very high up-front costs. As a result, companies are more likely to spend money on things with lower front-end costs, like natural gas–powered plants, which are cheap to build but relatively expensive to operate because of the cost of the fuel needed to run them.

"Natural gas is popular for this reason," says Kevin Kitz, an engineer at Boise, Idaho–based U.S. Geothermal, Inc, which owns and operates three geothermal sites. "It has a low capital cost, and even if you project cost of natural gas to be high in future, if you use a high [interest rate in your model] that doesn't matter very much."

Natural gas, which came in at 5.2 cents per kilowatt-hour in the analysis, is also popular because it can be deployed anywhere, whereas only 13 U.S. states have identified geothermal resources. Although this limits the scalability of geothermal power, a 2008 survey by the U.S. Geological Survey estimates that the U.S. possesses 40,000 megawatts of geothermal energy that could be exploited using today's technology. (For comparison, the average coal-fired power plant in the U.S. has a capacity of more than 500 MW.)