And so, without more circumstance at all, I hold it fit that we shake hands and part.

— Shakespeare, Hamlet (Act 1, Scene 5)

I’m not much for gooey goodbyes — even if they’re most likely only temporary.

But on the other hand, I couldn’t just up and stop writing for Whiskey & Gunpowder indefinitely without giving something more to my readers than simply a few parting words. After all, love me, hate me, or love to hate me, some of you have been reading my work in this forum for nearly 3 ½ years. And I don’t take that relationship lightly…

Yes, like it or not, friend or foe, we have a relationship. I know this because I’ve gotten literally thousands of letters and e-mails from you or readers just like you — some of them nearly as long as some of my essays. These notes have ranged in tenor from “attaboy” and “go-get-‘em” to “shame-on-you” and various other things I can’t print.

They’ve also included pleas that I run for office and that I leave the country, the most ribald of jokes and the most somber of personal anecdotes, death wishes, threats, and flirtations that border on marriage proposals, argumentations and affirmations from elected officials, industry leaders, and political insiders — plus the warmest of invitations from ordinary folks to hunt, fish, ride, shoot, drink, or just plain chat with them…

To all those who reached out to chide or cheer me, I give my heartfelt thanks.

But today, I want to give something back to you that transcends mere words. And I honestly believe that whether you like or hate me — or agree with the things I’ve written in these pages over the years or not — what I want to give you today could prove to be one of the best things that has ever happened to your bottom line.

This is not something I’m offering you only as a “thank you” for your readership. It’s something I’m doing because I owe it to you. Literally.

A Debt to My Readers, and My Chance to Repay It — to 115 of You

If I had a buck for every time I’ve claimed in these pages that I’m no economist, market analyst, stock-picker, or financial advisor, I’d have…

Well, I’d have at least twenty bucks or so.

But just last year, something happened to me that — while it didn’t instantly confer onto me an economics degree or Series-7 certification — gave me a near-instant wealth-building and investing advantage over 99.9% of the investors out there…

And it was all because of YOU. Let me explain what I mean, starting with an anecdote:

Whiskey’s Managing Editor, Greg Grillot, once said to me, “Jimbo, I can always tell when your articles run because my e-mail inbox gets crashed!”

Now, this isn’t to say that more people are reading my essays than those of my Whiskey brothers. In fact, I’d lay odds that far fewer folks read my articles than those of any other regular contributor. My stuff tends to be controversial, so I’m sure a fair number of readers see my name on a piece and automatically hit the “delete” key…

However, for one reason or another, I tend to provoke a lot of action from those that do read my stuff. You’ve written replies of every stripe to my articles, forwarded them to your friends and enemies, posted them on your personal blogs and Web sites — even printed and mailed them to elected officials. This fact alone is what has kept a quasi-literate rube like me writing in this letter alongside such esteemed financial thinkers as Jim Rogers, Doug Casey, Lord Rees-Mogg, Mark Skousen — and Agora’s own wizards Byron King, Chris Mayer, Dan Amoss, Dan Denning, and so many others.

Here’s what I’m getting at…

Because your feedback has kept me in the mix among minds I have no right to call “peers,” I was able to attend an event last July that put me in the midst of those great minds. This changed me from a dollar-dolt into a well-informed observer of monetary policy, markets, commodities, and macro-economics — and made me a much better investor.

That event: The eighth annual Agora Financial Investment Symposium.

As a result of 2007’s Symposium, I’ve completely revamped my approach to money. I’ve seen how the status-quo ways I’d been investing were boneheaded compared to the real money I could be making — if only I had the info the money mainstream’s ignoring or misinterpreting (like what many of this event’s speakers churn out on a regular basis). I also learned ways to protect (and even enhance) my assets from uncertain or volatile economic conditions — secrets that have saved me from losing thousands of dollars in just the last year alone…

Your support of my 3.5-year, 67-article run in Whiskey & Gunpowder has given me a rare opportunity to change the way I think about money and investing — and has likely made me a multi-millionaire over the long term. And because of your continued readership and engagement with my articles, I’m going to get to attend and participate in that event again this summer…

But this time, and by way of a heartfelt “thank you,” I want to invite YOU to come along with me this July 22-25 to the ninth incarnation of this event — once again set in scenic, historic, diverse, temperate, culturally rich, progressive Vancouver, British Columbia.

Here’s the kicker, though:

There are only 115 spots left before the 2008 Symposium is sold out…

How I Went from “0” to “Plugged-In, Knowledgeable Investor” in Four Days Flat

An open-minded and inquisitive investor (like I am now) could glean several lifetimes worth of information and borderline insider savvy from the dozens of exhibitors at a typical year’s Agora Financial Investment Symposium.

For instance, on each of the four days of the 2007 event — before, after, and in-between marquee speakers and special presentations — I meandered through the gorgeous exhibition halls of the elegant Fairmount Hotel Vancouver. And every minute of this time, I found a new, potentially money-making revelation that mainstream investors and the major money press overlook…

In that vast multi-room exhibitor area, I found myself surrounded on all sides by some of the world’s foremost experts from small-to-medium-sized, yet sometimes under-the-radar companies poised for huge growth in industries like:

• Mining
• Oil and gas
• Geothermal energy
• Gold and silver
• Industrial metals
• Diamonds and minerals
• Renewal and alternative power
• Real estate and mortgage
• Shipping and logistics
• Asset and money management
• Mutual funds and other investing vehicles
• Even stamp collecting and investment…

But as dizzying as this wealth of information and opportunity was, it was the Symposium’s captivating roster of A-list speakers that really brought me up to speed on what I was doing wrong with my money, what I should be doing with it, and where we’re headed as a nation and world. I learned an incredible amount from them — and about far more than just money and investing…

Each year’s Agora Financial Investment Symposium has a theme. In 2007, that theme was Rim of Fire: Crisis and Opportunity in the New Asian Era. These themes don’t dictate the content at these events — far from it — but they do loosely color the general commentary…

However, the dialogue at last year’s Symposium was some of the farthest-reaching and diverse economic, financial, and political commentary I’ve ever seen assembled in one place. Just a few such highlights I remember from last year’s event:

BILL BONNER — An animated-yet-soft-spoken, humorous and often improvisational presence at the podium, Bill blows you away with what he’s saying, not how he’s saying it. More than any other speaker I’ve ever heard, he has the ability to make incredibly complex concepts both digestible and entertaining. He also has rare ability to hurl the conversational boomerang far afield, yet still bring it safely home to his core concept. In one of his two speeches, Bonner clued us in on the pitfalls of “crack-up booms” vs. bona-fide booms, the virtues of doing nothing (and how humans can’t stand it), how keeping your assets in cash dollars is becoming a dangerous speculation, and how buying gold can be both the worst AND best thing you can do with your money…

JAMES HOWARD KUNSTLER — The blunt, shocking, misanthropic, borderline profane, yet utterly credible Kunstler regaled us with The Long Emergency, a synopsis of his own book of the same title. This treatise debunks the common myths about oil in our time, reveals how U.S. oil extraction history uncannily mirrors Hubbert’s Peak, warns of the dangers of climate change, and blasts the oft-cited, rose-colored notion of a coming “hydrogen economy.” He also illustrates for us in stark (and darkly humorous) terms the diminishing returns of technological innovation in the energy fields, plus what we should be doing to counteract the coming energy crisis…

THE MOGAMBO GURU — Sarcastic, sardonic, wisecracking, hilarious, over-the-top and utterly on-the-mark about a broad cross-section of not only the money world, but also the world in which we live, long-time columnist for Agora and other outlets Mogambo (AKA: Richard Daughty) uses his acid tongue not only to self-aggrandize and self-deprecate, but also to flagellate the American monetary system. He reminds us of the idiocy of fiat currencies like the dollar, how the near-criminality of mercantilism’s rules and tariffs fuel the institutional corruption of the U.S. government, and the dangers of an approaching boom in inflation and rising costs that an Asia-centric global economy could portend for America. Scary, entertaining and thought-provoking all in one animated, acerbic package. That’s the Mogambo Guru in a nutshell…

DOUG CASEY — Everyone’s favorite globetrotting anarchist-investing wizard, wildly successful New York Times bestselling business-book author Doug Casey is truly one of a kind. Gravel-voiced, incendiary, incisive and unabashedly America-bashing, Casey’s talks could be rehearsed, but they come off like 100% improvisation. His presentation, The End of the World as We Know It, outlined the four sections of America’s “big picture,” and how they’re all pointing toward an impending depression. Yet for all his jokes, irreverent anecdotes, doomsday predictions and anarchic rhetoric, Casey’s chock full of nuggets you can take to the bank. His seemingly off-the-cuff speech taught me the basics of stocks, bonds, currencies, real estate, commodities, and the reasons why the corrupt system we live under prevents us from making money on most of them. Casey also explained why, aside from a few select mining stocks that he’s worked hard to uncover, gold is the best investment for the near future. Oh, and he also rattled off the five reasons why none of us should vote in the upcoming Presidential election…

NASSIM NICHOLAS TALEB — Profoundly original and mind-bogglingly intelligent international bestselling author of Fooled by Randomness and The Black Swan, essayist and polymath scholar Taleb explains why conventional methods of data analysis and predicting just about anything under the sun (but especially things economic) are horribly inaccurate, and why so few mainstream experts will ever realize it. To illustrate his point, he eviscerates a mainstream investing bestseller called The Millionaire Mind. Citing the book’s flawed methodology and skewed-toward-sales message, Taleb builds upon this using his mathematical wizardry and grasp of the concept of “randomness” to expose the unsettling reasons why so much of what the conventional wisdom tells us about money and investing is exactly wrong…

Again, these are only a few highlights from four days worth of seminars and advice that I found especially riveting. Space doesn’t permit me to tell you what I got from other favorites like master money wizards Rick Rule and Larry Grossman (also hugely entertaining and humorous speakers, by the way), or my own favorite Agora advisor, Chris Mayer — whose presentation includes multiple jokes from the far-from-PC comic and “redneck” favorite Larry the Cable Guy…

At the time of this writing, nearly all of these folks are coming back for this year’s Symposium. And as if this weren’t enough of an incentive for you to skip down to the bottom of this page and sign up right now, I just found out that one more incredible speaker just signed up for this year’s event for the very first time. Even to a neophyte to money and investing like me, he needs no introduction…

But despite his pristine reputation, I can’t simply blurt his name onto this page. There has to be some sort of build up. And if this is going to be my final Whiskey contribution (for now) how could I wrap it up without some modicum of suspense. That wouldn’t be my style, would it. So for now you’ll have to sit tight and wait for tomorrow’s installment.

Cliffhanging to the very end,

Jim Amrhein
Freedoms Editor
May 29, 2008

The Only Financial Advice I’ll Ever Give You was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

A Heat-Seeking Energy Investment

What makes an energy source useful and valuable? One way to answer that question is to think in terms of thermodynamics and to look at how the potential energy of any substance is converted to heat energy. Ask yourself, for example, what is coal? First and foremost, coal is the carbonized remnants of ancient plant matter, stored up in the geologic column. Why is coal useful? It is, as the old saying goes, “the rock that burns.” One coal miner of my acquaintance calls coal a “portable climate.” Among other things, it offers the user the ability to release stored-up heat energy, and thus bring rapid warmth into a cold world. Yes, and so much more.

Consider what happens when you are driving a car and burning gasoline. What is it that you really want from your fuel supply? Do you care that gasoline comes from refined crude oil? Or are you more concerned with the fact that the gasoline combusts in the cylinders of your engine, via rapid, explosive release of heat when the gasoline is sparked? You probably learned in drivers’ education class that the basic four-stroke internal-combustion engine follows a cycle of intake, compression, power stroke, and exhaust.

When the gasoline combusts and explodes, it releases heat energy, which causes combustion gases to expand and push the power stroke. The power stroke, in connection with the well-timed power strokes of the other cylinders, turns the crankshaft. This is what allows you and your vehicle to move along. So gasoline is also, in essence, a form of stored heat.

Or consider nuclear power. What is the basic principle behind this particular energy source? Radioactive rods in a nuclear pile decay and give off heat, which in turn is used to raise the temperature of water or some other substance in a liquid phase. When the liquid phase gets hot enough, it vaporizes and its expansion turns a turbine. The turbine generates electricity. This is the case for almost all nuclear power plants in the world, whether on land or inside the confined hull of a submarine.

So the bottom line is that when we are looking for energy sources, we are basically looking for ways of obtaining heat energy in some form or another.

Geothermal Energy — The New Way to Invest in Heat

Geothermal energy is heat (the “thermal” part of the word) derived from the Earth (the “geo” part). It is the energy contained in the hot rocks, and the hot fluids that fill the fractures and pores within the rocks, of the Earth’s crust. Under the right conditions, geothermal energy can be utilized to generate electricity, and this is why we are interested.

According to thermodynamic calculations performed by many bleary-eyed graduate students over the decades, if the Earth had simply “cooled” from a molten state, it would have become a completely solid mass of iron and rock within a few hundred million years of its formation. But the Earth has been an active, dynamic planet for nearly 4.5 billion years, so something must be going on deep inside to keep the planet hot. The current belief is that the source of heat energy within the Earth is long-term radioactive decay occurring within the crust and mantle.

The uses to which these geothermal resources can be put are controlled by temperature. The highest-temperature resources are generally used only for electric power generation. Current U.S. geothermal electric power generation totals approximately 2,800 megawatts (MW), or about the same as five large nuclear power plants. Uses for low- and moderate- temperature resources can be divided into two categories: Direct use and ground-source heat pumps. I am not going to say that geothermal energy is infinite in scale, but the heat sources within the Earth are immense, and a well-managed program has the potential to be operational for many decades, if not centuries.

The Pros and Cons of Geothermal Power

Now that we have looked at the basic engineering of geothermal power, let’s look at the business and policy side of things. First, you should understand that extracting the Earth’s heat and selling geothermal power is subject to the same regulatory structures as almost all other energy-generation and transmission entities in the country.

Also, geothermal energy is capital-intensive; hence, it takes time to pay off any major investment. At the same time, geothermal power competes against the rest of the electrical grid. This means that the cost basis for a geothermal power plant has to be competitive against plants that produce electricity by burning coal, natural gas, or even oil, as well as the recently growing solar thermal energy industry.

There is plenty of good news for geothermal energy, though. Once a plant is up and running, geothermal power is quite reliable. Geothermal plants offer a continuously available (24/7) power source, with historic reliabilities in excess of 90%, which is comparable to the reliability of many nuclear plants. Compare this with wind-generated power at 25-40% reliability (the wind does not always blow when you need it), or solar-generated power at 22-35% reliability (the sun sets each night, among other drawbacks). Reliability is a critical issue in terms of operations, because plant owners usually bear the risk of getting charged back by utility customers for what is called shortfall energy. This means the power that a utility purchases on the market if the main source is not operating up to capacity.

There is more good news for geothermal, in the form of policy support. Geothermal energy does not deplete like an oil or natural gas deposit. Many hot springs of the world have been bubbling warm water or steam since prehistoric times. So geothermal power is considered a renewable form of energy production, and in our own era, it benefits from the renewable energy “production tax credit.” The production tax credit, plus five-year depreciation schedules, means that there is an effective U.S. government subsidy of over 63% of the capital cost of renewable energy projects. (Think of it as spending dollars that cost only 37 cents.) So right away, renewable energy projects, and geothermal projects in particular, are beneficiaries of significant investment tax breaks that would make any oilman jealous.

If you scan the market, you’ll be hard pressed to find pure-play geothermal companies. But as the technology takes hold, more and more of the companies will pop up on your radar.

Until we meet again…
Byron W. King

November 12, 2007

Enough to Make an Oilman Jealous was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Take ethanol, for instance. It was the choice fuel for some of the first combustion engines. In the 1820s, Samuel Morey used an ethanol blend in his experimental internal combustion engine. Due to the rise of steam power, ethanol remained an obscure fuel until 40 years later, when the internal combustion engine took off thanks to a more efficient design by German inventor Nikolaus Otto.

But also around that time, America discovered a cheap, domestic oil supply, which would compete with ethanol and later become our preferred fuel despite ethanol’s early success. Even Henry Ford thought ethanol would withstand the test of time. He designed his Model T to run on ethanol, going so far as to call it “the fuel of the future.”

Now, 100 years after the first Model T took to the roads, our leaders are spouting the same tired slogans. Our reliance on oil has not been clipped. Instead, we are faced with new debates over ethanol’s true energy output and its overall effectiveness as a cheap, efficient alternative to gasoline.

While technology can’t always help these old ideas become modern-day miracle cures for oil fever, there is one ancient technology that could provide clean, renewable energy for the planet’s 6.6 billion people.

Geothermal energy has been used for centuries. It helped provide the Vikings with heat and hot water when they settled in Iceland, and it is still a widely used energy source. Geothermal energy produces more than 25% of the power in Iceland, and is used to heat a majority of the homes in the Scandinavian nation.

But that’s in Iceland. For the rest of the world, it will take a little innovation. A 2006 report issued by the Massachusetts Institute of Technology claims that it would be possible to affordably generate 100 gigawatts of electricity or more by 2050 with a $1 billion investment. But it will take a technological boost to make this possible.

For the rest of the world where volcanic activity is minimal, there are two options to extract steam from the earth: water pumping and drilling. Water mixed with chemicals can be pumped into the ground to enlarge the natural cracks and passageways, creating big enough steamholes to effectively run large turbines.

Then there’s drilling. Thanks in part to our never-ending quest for oil, drillers have developed the equipment and techniques to drill farther into the Earth’s crust than ever before.

If we can tap into the deep geothermal wells all over the world, the result will be clean, cheap, reliable power. And that’s an old technology we can live with.

California’s New Energy Boom

Meanwhile, a little closer to home… The state of California and electricity love to make headlines together. It seems there’s never enough juice to go around on the West Coast. But all of this could soon change, thanks to a renewed interest in an efficient, green energy source.

Geothermal energy accounts for about 9,300 megawatts of the world’s electricity. That adds up to 60 million people in 24 countries who are getting their power from the Earth’s heat.

In the United States, more than 2,800 megawatts of electricity from geothermal plants supplies four million people in Alaska, California, Hawaii, Nevada and Utah. Six percent of California’s power comes from geothermal sources, where 15 new projects are under development.

Progressive, nuclear-free California is the perfect place for geothermal expansion. The state of California will require 20% of electricity sales to come from renewable resources by 2010. In 2006, 15% of all electricity used in California came from geothermal, wind, solar and small hydro.

On top of this, The Geysers in Northern California is the largest geothermal development in the world. And there’s one small company that’s paving the way for geothermal expansion.

You may be familiar with Calpine Corp. (NYSE:CPN). Calpine became the world’s biggest geothermal power provider in the late 1990s after completing the largest IPO ever for an independent energy provider in 1996.

This alternative energy star declared bankruptcy in 2005 and was eventually de-listed from the NYSE. And as this former giant rebuilds, one tiny competitor is preparing for operations at The Geysers, as well as a second location on the West Coast.

Unfortunately, I can’t divulge the name of this bulletin board gem in this forum. It’s just too small and too illiquid to reveal to a large audience.

Currently, the company is pursuing two projects that are under development. One of them is a $100 million geothermal facility at The Geysers in Northern California that is projected to go online sometime before the end of the decade. This will be just what California needs to fulfill its green energy needs as 2010 approaches.

We’ll be watching to see how the power giants respond to these developments. Buyouts and consolidation could be eminent in the near future. We could even see geothermal power expand beyond areas like The Geysers. Modern technology and advanced drilling should allow these kinds of operations to spread to locations where geothermal power was thought to be impossible.

Best,
Gunner

July 19, 2007

The Newest Old Idea in Energy was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

A Heat-Seeking Energy Investment

What is it about an energy source that makes it useful, let alone valuable? One way to answer that question is to think in terms of thermodynamics and to look at how the potential energy of any substance is converted to heat energy. Ask yourself, for example, what is coal? First and foremost, coal is the carbonized remnants of ancient plant matter, stored up in the geologic column. Why is coal useful? It is, as the old saying goes, “the rock that burns.” One coal miner of my acquaintance calls coal a “portable climate.” Among other things, it offers the user the ability to release stored-up heat energy and thus to bring rapid warmth into a cold world. Yes, and so much more.

Or consider what happens when you are driving a car and burning up gasoline. What is it that you really want from your fuel supply? Do you care that gasoline comes from refined crude oil? Or are you more concerned with the fact that the gasoline combusts in the cylinders of your engine, via rapid, explosive release of heat when the gasoline is sparked? You probably learned in drivers’ education class that the basic, four-stroke internal combustion engine follows a cycle of intake, compression, power stroke and exhaust. When the gasoline combusts and explodes, it releases heat energy, which causes combustion gases to expand and push the power stroke. The power stroke, in connection with the well-timed power strokes of the other cylinders, turns the crankshaft. This is what allows you and your vehicle to move along. So gasoline is also, in essence, a form of stored heat.

Or consider nuclear power. What is the basic principle behind this particular energy source? Radioactive rods in a nuclear pile decay and give off heat, which in turn is used to raise the temperature of water or some other substance in a liquid phase. When the liquid phase gets hot enough, it vaporizes and its expansion turns a turbine. The turbine generates electricity. This is the case for almost all nuclear power plants in the world, whether on land or inside the confined hull of a submarine.

So the bottom line is that when we are looking for energy sources, we are basically looking for ways of obtaining heat energy in some form or another. In our Outstanding Investments portfolio, we hold shares in companies that drill and extract oil and natural gas, coal, uranium and even a company that manufactures windmill components. (Wind is just a manifestation of the differential thermal heating of air masses by the sun.)

Geothermal Energy

In this edition of Whiskey & Gunpowder, we are taking a look at another way to invest in heat. That is, we are looking at a company that is part of the industry that extracts stored heat energy from the crust of the Earth — namely, geothermal energy. Geothermal energy is heat (the “thermal” part of the word) derived from the Earth (the “geo” part). Geothermal energy is the energy contained in the hot rocks, and the hot fluids that fill the fractures and pores within the rocks, of the Earth’s crust. Under the right conditions, geothermal energy can be utilized to generate electricity, and this is why we are interested.

According to thermodynamic calculations performed by many a bleary-eyed graduate student over the decades, if the Earth had simply “cooled” from a molten state, it would have become a completely solid mass of iron and rock within a few hundred million years of its formation. But the Earth has been an active, dynamic planet for near 4.5 billion years, so something must be going on deep inside to keep the planet hot. The current belief is that the source of heat energy within the Earth is long-term radioactive decay occurring within the crust and mantle.

It gets so hot down within the Earth that much so-called “rock” is in a molten state, which we observe directly when some of that molten material erupts and forms volcanoes or mid-ocean ridges. In most other areas of the Earth, this heat reaches the surface in a very diffuse state. That is, you must use sensitive instruments to measure the heat flow from most parts of the Earth’s crust. But it is there. And due to a variety of geological processes, some areas of the Earth, including substantial portions of many western U.S. states, are underlain by relatively shallow geothermal resources with much energy potential. Here is a depiction, called the U.S. geothermal resource map, prepared by the U.S. Department of Energy:

The geothermal resource map of the U.S. shows the estimated subterranean temperatures at a depth of 6 kilometers (or just under 20,000 feet), which is considered relatively near the surface. This map is a synthesis of several types of data sets, including thermal conductivity, thickness of sedimentary rock, geothermal gradient, heat flow and surface temperature. These geothermal resources can be classified as low temperature (less than 150 degrees Celsius), moderate temperature (150-200 degrees Celsius) and high temperature (greater than 200 degrees Celsius). As the map makes clear, essentially all of the U.S. has some form of available, near-surface geothermal potential.

The uses to which these geothermal resources can be put are controlled by temperature. The highest temperature resources are generally used only for electric power generation. Current U.S. geothermal electric power generation totals approximately 2,800 megawatts (MW), or about the same as five large nuclear power plants. Uses for low and moderate temperature resources can be divided into two categories: direct use and ground-source heat pumps. I am not going to say that geothermal energy is infinite in scale, but the heat sources within the Earth are immense, and a well-managed program has the potential to be operational for many decades, if not centuries.

Geothermal Power Plants

There are two basic types of geothermal power plants used today: steam plants and binary plants.

Steam plants use very hot (greater than 200 degrees Celsius) steam and hot water resources, such as are found at The Geysers complex of plants in Northern California, which is the largest geothermal electricity producer in the world and has been going strong for about 40 years with no sign of letup. Either the steam comes directly from the underground geothermal resource or the very hot, high-pressure water is depressurized (or “flashed”) to produce steam. The steam then turns turbines, which drive generators that generate electricity. The only significant emission from these plants is water vapor, in the form of steam. But there are very minute amounts of carbon dioxide (CO2 ), nitric oxide (NO) and sulfur emitted as well, which are natural products from the underground fluids, usually less than about one-fiftieth as much as come from a traditional, fossil-fuel power plant. Currently, electric power produced this way costs about 4-6 cents per kilowatt-hour (kWh).

Here is a pair of schematics that illustrate the process:

Binary plants, on the other hand, use lower-temperature, but much more common, hot water resources (100-200 degrees Celsius). And because these lower-temperature reservoirs are far more common, binary plants are the more prevalent. The hot water is passed through a heat exchanger in conjunction with a secondary fluid (hence, “binary plant”) with a lower boiling point, such as isobutane or isopentane. The secondary fluid vaporizes, which turns the turbines, which drive the generators. The remaining secondary fluid is simply recycled through the heat exchanger. The geothermal fluid is condensed and returned to the reservoir. Because binary plants use a self-contained cycle, there are essentially no emissions. Currently, electric power produced by binary plants costs about 5-8 cents per kWh. Here is a schematic to illustrate this process:

More on Geothermal Power

Now that we have looked at the basic geology and engineering of geothermal power, let’s look at the business and policy sides of things. First, you should understand that extracting the Earth’s heat and selling geothermal power is subject to the same regulatory structures as are almost all other energy generation and transmission entities in the country. So the 50 state-level public utility commissions (PUCs), or whatever else they call them in any given state, control much of the destinies for geothermal producers.

Also, geothermal energy is capital intensive; hence, it takes time to pay off any major investment. At the same time, geothermal power competes against the rest of the electrical grid, within the PUC-dictated regimes of rate setting and tariffs for transmission. This means that the cost basis for a geothermal power plant has to be competitive against plants that produce electricity by burning coal, natural gas or even oil (such as in Hawaii), as well as the recently growing solar-thermal energy industry.

Still, there is plenty of good news for geothermal energy. Once a plant is up and running, geothermal power is quite reliable. Geothermal plants offer a continuously available (24/7) base-load power source, with historic reliabilities in excess of 90%, which is comparable to the reliability of many nuclear plants. Compare this with wind-generated power with 25-40% reliability (the wind does not always blow when you need it), or solar-generated power with 22-35% reliability (the sun sets each night, among other drawbacks). And reliability is a critical issue in terms of operations, because plant owners usually bear the risk of getting charged back by utility customers for what is called shortfall energy, meaning the power that a utility has to go out and purchase on spot market if the designated source is not operating on schedule or up to capacity or promised load.

There is more good news for geothermal, in the form of what the regulators call policy support. That is, there are certain things called pivot points within government policy, which tend to swing investment trends in a positive or negative manner. Of late, geothermal has been on the receiving end of many very positive government actions and pivots.

Geothermal energy does not deplete like an oil or natural gas deposit. Many hot springs of the world have been bubbling warm water or steam since prehistoric times. So geothermal power is considered a renewable form of energy production, and in our own era, it benefits from the renewable energy “production tax credit.” This tax credit has been extended by the U.S. Congress through 2008, and is expected to receive further extensions in the future. The production tax credit, plus five-year depreciation schedules, mean that there is an effective U.S. government subsidy of over 63% of the capital cost of renewable energy projects. (Think of it as spending dollars that cost only 37 cents.) So right away, renewable energy projects, and geothermal projects in particular, are beneficiaries of significant investment tax breaks that would make any oilman jealous.

In addition, many states (22 plus the District of Columbia as of this writing) have adopted renewable portfolio standards. These are legislative mandates for utilities to meet specific numerical targets for renewable energy or other environmental criteria by certain dates. My home state of Pennsylvania, for example, has a target that mandates 18% renewable, non-polluting electricity generation by 2020. And last fall, California Gov. Arnold Schwarzenegger signed into law a bill that, as of the beginning of 2007, all but prohibits utilities in the state from signing long-term contracts for power unless the sources emit less than 1,000 pounds of CO2 per megawatt-hour (MWh) of electricity produced. While the law does not specifically ban coal-fired electric power (also called “brown power”) from sale or use in California, it sets a CO2 limit that is so low as to effectively rule out coal plants as a future source for electricity sales into the West Coast market. Take another look at that U.S. geothermal resource map, and then think about what this means for geothermal power sales to the California marketplace. The Terminator has all but terminated brown power in the Golden State.

So the policy tide of recent years is shifting in favor of geothermal, and in the future, things might be even better for the industry. In particular, any future carbon tax, or so-called “cap and trade” regime for CO2 , will doubtless benefit the geothermal industry, what with its miniscule CO2 footprint.

And there is one more bit of background that you ought to understand about geothermal power. The last major geothermal “exploration” effort was about 30 years ago, during the energy price spikes of the 1970s. There has been next to no significant geothermal exploration program in three decades. So much of the knowledge of the resource base is grounded on older data, gathered with older instrumentation. Future efforts in the field of exploration and development will undoubtedly refine the older knowledge base and expand the resource base.

Until we meet again…
Byron W. King

July 3, 2007

Enough to Make an Oilman Jealous was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.