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"Geothermal doesn't have to be subsidized to be profitable"

Paul Brophy

President/EGS

Published  Wednesday, October 21, 2009

Although biomass, solar and wind power generation developments in Latin America and the Caribbean often take the lion's share of the renewable energy limelight, development and promotion of the region's geothermal potential continues to gather steam.

To shed light on this renewable resource, BNamericas spoke to Paul Brophy, president of international geothermal exploration and development services firm EGS. Brophy has over 35 years experience in geologic and resource assessment services.

BNamericas: How does the region's geothermal potential stack up against other parts of the world?

Brophy: There have been resources well known and explored for many years in that region particularly in countries like Nicaragua, El Salvador and Guatemala. I can remember work being done and exploration being conducted in the late 1970s and early 1980s. For example, wells were drilled at Momotombo in Nicaragua in the late 1970s. So the occurrence of geothermal projects and systems in that part of the world has been known for a long period of time. The Central American and Caribbean countries have always been recognized as an area that has high geothermal potential.

Where we stand today, and I would include Mexico in this, they have one of the most developed geothermal provinces in the world. There are significant resources in all the countries, and I think in every country, except perhaps for Panama, there are developed and operating resources, and that says a lot for that part of the world. There are still lots more opportunities, and those opportunities have not been exercised maybe for political and financial reasons.

And in regard to the Caribbean countries, the potential is very, very large. Most of the Caribbean islands from Saba down to Grenada - excluding Barbados and Trinidad, and the other islands to the north like Puerto Rico, Saint Maarten and the Virgin Islands as they don't have a high potential for geothermal resources - have tremendous potential because they are all fairly, recent volcanic islands, with systems having been demonstrated on Saint Lucia, Martinique and Guadalupe.

BNamericas: What are some hurdles to developing geothermal resources on these islands?

Brophy: Geothermal development is constrained by the limited size of the islands and the relatively low demand for electric power.

Geothermal is like a coal power plant where you buy all your coal upfront and stockpile it; a lot of the capital cost is in drilling the wells. Well drilling probably represents 30-40% of the capital cost and another 30-40% goes into building the power plant.

The advantage is that once you've done the drilling, your wells are there and you've got your resource. You have to drill additional makeup wells from time to time, but essentially it's a high, upfront capital cost and that's been an impediment for other developers to come in and bring in drill rigs and drill the wells. If you've only got 5MW or maybe 10MW the project costs are sort of super sensitive to the cost of drilling the wells.

BNamericas: Any research/ground work done here in South America?

Brophy: One of our geologists has done a lot of work in the past in both Central and South America and we've done a little bit of work in Peru. We are always looking for opportunities in that area.

BNamericas: Do you also see the lack of specific legislative/regulatory laws as a hurdle to development of this renewable resource?

Brophy: In the past that has been the case, although countries are increasingly establishing legislation and implementing rules for geothermal development. We are currently working for the government of Nevis in the Caribbean and we have just completed the legislation and operating rules for developers there. I know that has also been done in Chile and Peru.

It comes from the fact that most subsurface resources are classified as water, minerals or hydrocarbons, and most countries don't have a classification for geothermal. And indeed in US geothermal fluids are classified differently according to which state you are working in.

BNamericas: The issue of subsidies comes up often with geothermal work, as with other renewables. Any thoughts?

Brophy: Geothermal doesn't have to be subsidized to be profitable or economic. The subsidies, particularly in the US, are intended to encourage development and minimize the upfront capital costs and some of the risk involved in drilling wells. It's like mining or oil and gas: you do have dry wells. Not every well is successful and that is the risk associated with natural resource development. Subsidies just encourage more people to go out and take that risk. Once the resource has been found, it can usually be developed and run very economically.

BNamericas: Any plans to move beyond consulting and into development?

Brophy: It has always been an option. EGS is owned by a drilling company which in turn is owned by a developer. We work closely with developers. It could be that sometime in the future we come to a prospect where we will develop it, but at the moment our services are strictly limited to consulting.

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