NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Contract No. DE-AC36-08GO28308

Geothermal Brief: Market and 

Policy Impacts Update

Bethany Speer

Technical Report

NREL/TP-6A20-53288

October 2012
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

National Renewable Energy Laboratory

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303-275-3000 • www.nrel.gov

Contract No. DE-AC36-08GO28308

Geothermal Brief: Market and 

Policy Impacts Update

Bethany Speer

Prepared under Task No. GTP2.5152

Technical Report

NREL/TP-6A20-53288

October 2012
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iii

Acknowledgments

The author would like to thank the Department of Energy’s Geothermal Technology Program, 

including Jay Nathwani and Angela Crooks, for supporting this project. Appreciation goes to Robin 

Newmark, Dan Bilello, Tom Williams, Jeff Logan, and Chad Augustine of the National Renewable 

Energy Laboratory (NREL) for their guidance. Thanks are also due to C.J. Arrigo of Patagonia 

Financial, Wilson Rickerson of Meister Consulting, and Jason Gifford of Sustainable Energy 

Advantage for the time taken to share their insights on this report. A special thank you is in order to 

the Strategic Energy Analysis Center finance team, including Karlynn Cory, Paul Schwabe, Michael 

Mendelsohn, and Travis Lowder for helping to enhance this analysis. The author is grateful for the 

editorial support provided by Scott Gossett, Mary Lukkonen, and Linda Huff. Finally, thanks are due 

to Billy Roberts of NREL for the maps.
iv

Table of Contents

List of Figures..................................................................................................................................v

List of Tables ...................................................................................................................................v

Introduction ......................................................................................................................................1

Current Installed Capacity and Planned Development ....................................................................2

Current Federal Geothermal Financial Incentives...........................................................................5

Historic Federal Geothermal Programs .........................................................................................17

Conclusion .....................................................................................................................................20

References......................................................................................................................................22

Appendix: Estimated Plants Resulting from Late 1970s - Early 1980s DOE Programs ...............28
v

List of Figures

Figure 1. Operating hydrothermal plants of the United States by capacity.....................................3

Figure 2. Hydrothermal plants of the United States currently in development by capacity............3

Figure 3. Timeline of federal geothermal financial incentives........................................................5

Figure 4. LCOE analysis of tax incentives with optimized debt/equity ratios ..............................10

Figure 5. Nominal LCOE analysis of tax incentives with 50% debt and a 15-year loan tenor.....13

List of Tables

Table 1. LCOE Analysis of Federal Tax Benefits with Optimized Debt/Equity Ratios ...............10

Table 2. Recipient Geothermal Projects of Treasury Cash Grants................................................11

Table 3. LCOE Analysis of Federal Tax Benefits at 50% Debt and 15-Year Loan Tenor ...........13

Table 4. Geothermal Project Recipients of Federal Loan Guarantees...........................................15

Table 5. Currently Operational Geothermal Plants Resulting from DOE-Sponsored Sites from 

Late-1970s to Early-1980s Programs..................................................................................18

Table A-1. Complete List of Commercial Plants Estimated to Have Resulted from DOE 

Programs in the 1970s and 1980s........................................................................................28
1

Introduction

Utility-scale geothermal electricity generation plants have generally taken advantage of various 

government initiatives designed to stimulate private investment. This report investigates these 

initiatives to evaluate their impact on the associated cost of energy and the development of 

geothermal electric generating capacity using conventional hydrothermal technologies.

We use the Cost of Renewable Energy Spreadsheet Tool (CREST) to analyze the effects of tax 

incentives on project economics. Incentives include the production tax credit (PTC), U.S. 

Department of Treasury (Treasury) cash grant, the investment tax credit (ITC), and accelerated 

depreciation schedules.

1,2 The second half of the report discusses the impact of the U.S. Department 

of Energy’s (DOE) Loan Guarantee Program on geothermal electric project deployment and possible 

reasons for a lack of guarantees for geothermal projects. For comparison, we examine the

effectiveness of the 1970’s DOE drilling support programs, including the original loan guarantee and 

industry-coupled cost share programs.

 1 Access versions of CREST to analyze geothermal electric projects as well as solar (photovoltaics and concentrated 

solar power) at http://financere.nrel.gov/finance/content/CREST-model. 2 State and local incentives and programs designed to support geothermal projects are outside the scope of this analysis. 

For more information on state and local programs, see the Database of State Incentives for Renewables and Efficiency

(DSIRE): http://www.dsireusa.org.
2

Current Installed Capacity and Planned Development 

Globally, installed geothermal electric capacity is approximately 11.2 GW as of May 2012 (GEA 

2012a). The United States has the largest market share with 3.2 GW of operational power from 78 

hydrothermal plants as of April 2012 (Islandsbanki 2011; GEA 2012c).3,4 As shown in Figure 1, 

most geothermal capacity and plants are located in California (over 2.6 GW from 48 plants) and 

Nevada (473 MW from 21 plants) (GEA 2012b). Alaska, Hawaii, Idaho, Oregon, Utah, Wyoming, 

and New Mexico also have operating hydrothermal plants.

The United States has significant development potential with 9.1 GW of identified resources, and 

there are estimates of an additional 30 GW of undiscovered resources (Islandsbanki 2011). As 

shown in Figure 2, approximately 130 U.S. geothermal projects are in development. These projects

include a combination of conventional hydrothermal (greenfield and expansion)5 and unspecified 

resource projects (GEA 2011b).6 Nearly half of the projects in development are in Nevada, with 

additional projects in California, Oregon, Utah, Idaho, Alaska, Hawaii, New Mexico, Colorado, 

Arizona, and Washington.7 However, most projects are in the earliest stages of development, and 

few plants are close to construction.8

 

 3 The Islandsbanki installed capacity data is based on information reported by each country at the April 2010 World 

Geothermal Congress in Bali, Indonesia. 4 According to the Department of Energy’s Geothermal Technologies Program website, “The natural hydrothermal 

resource is ultimately dependent on the coincidence of substantial amounts of heat, fluids, and permeability in reservoirs, 

and the present state of knowledge suggests that this coincidence is not commonplace in the earth. An alternative to 

dependence on naturally occurring hydrothermal reservoirs involves human intervention to engineer hydrothermal 

reservoirs in hot rocks for commercial use. This alternative is known as Enhanced Geothermal Systems (EGS).” For 

additional information, see http://www1.eere.energy.gov/geothermal/enhanced_systems.html. 5 A greenfield area is a location where geothermal resources have not been proven or developed. Expansion sites are 

located near known geothermal resources. 

6 Unspecified plants could include enhanced geothermal systems (EGS), geo-pressured resources, and co-production, as 

well as the development of conventional hydrothermal greenfields and expansions (GEA 2011b). 7 GEA notes additional projects are in development in Texas, Louisiana, North Dakota, and Wyoming—these plants are 

not included in Figure 2 as the locations were not available from SNL. 8 Phase 1 consists of having identified the resource, secured rights to a resource, finished pre-drilling exploration, and 

completed internal transmission analysis (GEA 2011b). In Phase 2, the developer has “Exploration and/or drilling 

permits approved, exploration drilling conducted/in progress, and transmission feasibility studies underway.” In Phase 

3, developers are “Securing PPA and final permits, have drilled full size wells, secured financing for a portion of project 

construction, and have completed the interconnection feasibility study.” Phase 4 is where “the plant permit has been 

approved, the facility is under construction, the production and injection drilling are underway, and the interconnection 

agreement has been signed.” 
3

Figure 1. Operating hydrothermal plants of the United States by capacity 

Operating plant data source: SNL Energy 2012; Hydrothermal favorability data source: US Geological Survey; Map 

author: Billy J. Roberts, September 10, 2012

Figure 2. Hydrothermal plants of the United States currently in development by capacity

Developing plant data source: SNL Energy 2012; Hydrothermal favorability data source: US Geological Survey; Map 

author: Billy J. Roberts, September 10, 2012
4

According to the Geothermal Energy Association, total project development has remained nearly flat 

from 2010 through Q1 2012. In 2010, 5,386 MW were in development; in 2011, 5,423 MW were in 

development (GEA 2011a)9

; and as of Q1 2012, there is approximately 4,882 MW to 5,366 MW in 

development, including unconfirmed projects (GEA 2012c).10 One geothermal plant came online in 

2010: a 15-MW plant in Jersey Valley, Nevada, developed by Ormat Technologies (GEA 2011a). 

Five additional projects came online from 2011 through Q1 2012, three of which were expansions of 

existing projects (GEA 2012c). In addition to barriers directly related to project economics, the lack 

of market growth could be due to a number of factors, including policy uncertainty, inability to gain 

access to capital, permitting challenges, unavailability of drilling platforms, and/or lack of tax-equity 

investors (Salmon et al. 2011).

 9 GEA significantly changed how it collected data for 2011, making comparisons with earlier years difficult. 10 Confirmed projects in development total between approximately 4,116 MW to 4,525 MW (GEA 2012c).
5

Current Federal Geothermal Financial Incentives

Geothermal projects have been eligible for a variety of federal tax incentives and loan guarantees, 

two of which expired in 2011, and there are four others that will expire by the end of 2013 (see

Figure 3). Federal tax incentives provide a valuable benefit to geothermal plant investors by either 

reducing the upfront system costs or providing an ongoing revenue stream. To make efficient use of 

tax incentives, developers often form partnerships with equity investors who have the tax liability to 

monetize potentially significant tax credits and deductions.

11 Alternatively, a loan guarantee can help 

reduce the cost of financing capital expenditures by lowering the borrower’s default risk and 

therefore improving loan terms. Either incentive type can improve the ability of project developers, 

lenders, and investors to install plants while earning a rate of return that sustains their interest in 

the industry. 

Figure 3. Timeline of federal geothermal financial incentives

Source: NREL; Adapted primarily from Salmon et al. 2011; Feldman 2011; DSIRE 2011a

 

11 For more information on geothermal project finance, see the Guidebook to Geothermal Power Finance at 

http://www.nrel.gov/docs/fy11osti/49391.pdf.
6

Federal Tax Credits and Grants

The federal government offers two main types of tax incentives for renewable energy projects, 

including for geothermal electric plants: accelerated depreciation schedules and tax credits/grants.12

A tax attorney can determine a project’s eligibility for these incentives.

The 5-year modified accelerated cost recovery system (MACRS) is an advanced asset depreciation 

schedule that applies to a range of property classes appropriated for business use; it does not 

exclusively cover renewable energy assets and it does not sunset. After the economic downturn in 

2007 and 2008, the federal government made provisions for bonus depreciation that allowed 

businesses to deduct 50% of depreciation in the first year a qualifying property was placed in 

service. This was further modified in 2010 under the American Recovery and Reinvestment Act to 

allow for 100% first-year depreciation for property placed in service between September 8, 2010,

and January 1, 2012 (DSIRE 2011b). As of this writing, the 100% year-one bonus depreciation has 

expired, but the 50% year-one bonus depreciation is available until the end of 2013.

13

Qualifying projects also have access to one of the following federal tax incentives:

1. PTC of $0.015/kWh in 1993-dollars indexed for inflation (currently $0.022/kWh) and 

claimed at the end of each of the first 10 years of production for projects placed in service on 

or before December 31, 2013 

2. ITC for up to 30% of the eligible tax basis for projects placed in service before January 1, 

201414 

3. Treasury cash grant of up to 30% of the eligible tax basis in lieu of the 30% ITC; to 

qualify for the Treasury cash grant, projects must have begun construction or incurred over 

5% of project costs by December 31, 2011, and must be placed in service by January 1, 

201415

4. ITC of up to 10% of the eligible tax basis for projects through 2016 and possibly without 

expiration16

5. Treasury cash grant of up to 10% of the eligible tax basis in lieu of the 10% ITC for 

projects that were under construction by December 31, 2011, and will be in service by 

January 1, 2017.

 12 For additional information and resources, including eligible costs, relevant legislation, and history of the incentives, 

see DSIRE’s pages on the following: 

MACRS and Bonus Depreciation: http://dsireusa.org/incentives/incentive.cfm?Incentive_Code=US06F; 

Treasury Cash Grants: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US53F; 

Investment Tax Credits: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F&re=1&ee=0; and 

Production Tax Credits: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US13F&re=1&ee=0. 13 In the first year, the 50% bonus depreciation is taken. The remaining 50% of the eligible costs are depreciated at the 

applicable MACRS schedule over the remaining timeframe. 

14 The use of the ITC reduces the depreciable tax basis by 15%, whereas there is no reduction in the depreciation basis 

with the PTC (Bolinger et al. 2009). 15 As with the ITC, use of the Treasury cash grant reduces the depreciable basis by 15% whereas the PTC does not. 

(Bolinger et al. 2009)

16 There is uncertainty about whether there may be an expiration date with the 10% ITC beyond December 31, 2016.
7

Modeling Methodology

The levelized cost of energy (LCOE) is a calculation of the “minimum revenue per unit of 

production needed for the modeled renewable energy project to meet its equity investors’ assumed 

minimum rate of return” (Gifford and Grace 2009-2011). The specifics of LCOE calculations vary 

and can include or exclude incentives. Comparing LCOEs of projects (hypothetical or actual) can 

provide understanding into what drives project economics. For example, combinations of accelerated 

depreciation schedules and tax incentives/grants impact a project’s LCOE to varying degrees. 

The following analysis uses the geothermal version 1.2 of CREST to demonstrate the effect of 

incentive choices on the LCOE when debt is optimized for the maximum allowable amount for a 

given incentive combination based on limitations with CREST.

17,18 CREST is a suite of economic 

cash-flow models developed by NREL and collaborators to assess projects, design cost-based 

incentives, and evaluate the impact of tax incentives or other support structures. CREST was 

developed and reviewed by industry experts and NREL analysts through careful examination of cell 

logic and result comparisons with other market-tested LCOE calculation tools. Versions for 

geothermal electric as well as wind and solar (photovoltaic and concentrated power) can be accessed 

at http://financere.nrel.gov/finance/content/CREST-model.

Unless modified, all CREST input values are defaults and are held constant to measure the impact of 

incentive choices on the LCOE. The only non-tax incentive default input that was altered was the 

after-tax internal rate of return (IRR), which was increased from 12% to 15%. The debt-to-equity 

ratio was optimized by increasing the percentage of debt to just below the point at which the debt

service coverage ratio (DSCR) “fails.”19 By optimizing the debt, it is possible to see how much a 

project could feasibly borrow with a given choice of incentives. Debt is less expensive than equity, 

so developers are likely to optimize debt with the purpose of either (1) reducing the cost of capital

and increasing project returns while keeping the same electricity contract price or (2) reducing the 

electricity contract price, and thus allow for a more competitive bid.

20 Eleven incentive cases plus 

the base case were analyzed using different variable combinations. For example, the PTC + 100% 

Bonus case assumes the project took the PTC and 100% bonus depreciation with all other variables 

held constant. 

Analysis

All 11 cases reduced the LCOE from the base case. Although the base case debt is set at a constant 

50%, a developer would likely optimize the debt in all incentive situations. This was done to allow 

for a constant against which the value of the incentives and optimized debt in the other scenarios 

could be measured in terms of a reduction in the LCOE. CREST assumes that federal tax incentives 

 17 For a more detailed description of LCOE and the methodology and assumptions applied in CREST, see the geothermal 

CREST model at http://financere.nrel.gov/finance/files/content/CREST/NREL_CREST_Geothermal_version1.2.xlsx. 18 This analysis builds off of the Lawrence Berkeley National Laboratory/National Renewable Energy Laboratory report, 

PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States that

includes background information on the history and use of federal tax incentives. The report can be found at 

http://eetd.lbl.gov/ea/emp/reports/lbnl-1642e.pdf. 19 CREST has built in “checks” for the minimum DSCR that are based on recent conversations with industry to help 

users ensure that their assumptions regarding project-level debt fall within reasonable ranges. 20 In CREST, the default rate for the Target After-Tax Equity Internal Rate of Return (IRR) is 12% (although it was 

raised to 15% for this analysis) and 7% for the Interest Rate on Term Debt. While actual market target IRRs and interest 

rates will vary, the difference (8%) illustrates the disparity in the costs of equity and debt. 
8

cannot be used towards debt obligations and instead applies the benefits towards return on equity.

21

This is an assumption intended to reflect the practice of many banks that do not lend against the ITC, 

PTC, or depreciation (although exceptions could occur).

22 Very high incentive levels may cause the 

default DSCR requirements to “fail” if modifications to the default values are not made and cash 

flows remain insufficient. In other words, the greater the incentive level, the lower the amount of 

cash flow available to cover debt payments. 

As the highlighted row in Table 1 indicates, the PTC +100% Bonus Depreciation case provides the 

greatest value to a geothermal project in terms of lowering the LCOE. It should be noted, however, 

that this combination is currently not possible as the provision for 100% bonus depreciation expired 

at the end of 2011. 

Production Tax Credit

The PTC offers several benefits relative to the ITC: 

• Geothermal projects have a high capacity factor and therefore can potentially derive more 

value from the PTC—payment of which is based on kilowatt-hours generated—as 

compared to the ITC, which applies to roughly 75% of installed costs (Bolinger et 

al. 2009).

• The year-one tax credit provided by the PTC is lower than that of the ITC (which is 

received in one lump sum), thereby allowing for the involvement of a larger pool of tax

equity investors with lower tax liabilities. 

• The PTC may allow for a more liquid investment compared to a project using the ITC. 

The ITC is vested to the project owner over the first 5 years of operation and is subject to 

a 5-year claw-back requirement. Thus, a buyer would not be able to take advantage of 

any remaining years of the ITC during the 5-year claw-back period when the ITC is 

vested to the initial owner.23 In contrast, a buyer of a project using the PTC can monetize 

any remaining years of the tax credit as there is no claw-back with the PTC (e.g., if the 

project is sold in year three, the buyer can monetize the PTC for the remaining 7 years) 

(Bolinger et al. 2009). 

Using the PTC, however, can be challenging: 

• The project must be fully in service by the end of 2013 to receive the PTC for the first 10 

years of operation.

 21 Note that federal tax incentives are utilized in the LCOE calculation, however. 22 Projects likely could have taken out debt against the 30% Treasury cash grant. This is because the cash grant was 

received 60 days after a complete and eligible application was filed to the Treasury and was not dependent on tax 

liability. The timing of the cash grant payment reduced the risk that the cash grant would not be received and improved 

the ability to access debt against the cash grant. However, CREST treats the ITC and cash grant identically for 

simplicity.

23 During the first 5 years of the project, it must remain with one owner or otherwise the ITC is subject to partial clawback by the Treasury, which would reduce the value of the ITC.
9

• Using the PTC may be riskier compared to taking either the ITC or the Treasury cash 

grant

24 as the amount of the PTC received is dependent upon two unknowns: 

o The project’s energy production 

o The tax equity investor’s ability to maintain a large enough tax liability to absorb 

the PTC over the first 10 years of the project’s operation (Bolinger et al. 2009). 

• The PTC may not secure as low of a cost of capital compared to the Treasury cash grant 

or ITC due to higher perceived risk (Bolinger et al. 2009).

• The PTC requires the owner to operate the project, thereby ruling out the option of a

lease, which is feasible with the Treasury cash grant and ITC.25

 24 The 30% Treasury cash grant is no longer available as of the end of 2011, except for projects that are already under 

construction or that have met safe harbor rules.

25 Sale-leasebacks, in which the developer sells the project to the tax equity investor and leases it back, have only 

recently been applied to geothermal projects. One known example is the Dixie Valley project developed by Terra Gen: 

http://www.greenenergyreporter.com/renewables/geothermal/terragen-closes-286m-leaseback/.
10

Table 1. LCOE Analysis of Federal Tax Benefits with Optimized Debt/Equity Ratios

Variables Outcomes

Tax Credit/Grant Depreciation Optimized 

Debt

Nominal LCOE 

($/kWh)

Reduction in LCOE 

from Base Case

Base Case MACRS 50% Debt/

Not Optimized

$0.1092/kWh NA

PTC 100% Bonus 37% $0.0668 39%

50% Bonus 45% $0.0719 34%

MACRS 54% $0.0761 30%

30% Grant 100% Bonus 56% $0.0771 29%

50% Bonus 63% $0.0813 26%

MACRS 71% $0.0854 22%

30% ITC 100% Bonus 56% $0.0771 29%

50% Bonus 63% $0.0813 26%

MACRS 71% $0.0854 22%

10% Grant MACRS 82% $0.0927 15%

10% ITC MACRS 82% $0.0927 15%

Figure 4. LCOE analysis of tax incentives with optimized debt/equity ratios
11

Investment Tax Credit and Treasury Cash Grant

Based on CREST assumptions and analysis, the 30% ITC and the 30% Treasury cash grant have an 

equivalent impact on LCOE. However, some developers, investors, and lenders may have a 

preference for the cash grant payment to the tax credit. This is because the tax credit requires taxable 

income and may have to be carried forward over multiple tax years by smaller developers who lack 

the tax appetite to absorb the tax credit in year one.

26 In contrast, the cash grant required no taxable 

income, thus reducing the project’s risk. In addition, the cash grant was received in a shorter 

timeframe than the ITC (or PTC), and therefore it may have had a larger present value due to the 

time value of money (Bolinger et al. 2009; Mendelsohn 2010a).27 And with a cash grant, if the 

developer was able make use of MACRS or the bonus depreciations (or the project was able to forgo 

using accelerated depreciation altogether), it may not have needed to involve tax equity investors. 

Table 2 lists geothermal projects that have received Treasury cash grants as of October 2012. Thus 

far, 15 grants have been issued with amounts ranging from just over $5,000 to more than 

$108 million. The two smaller issuances were for projects located in the Northeast, and all of the 

larger projects are in the western states of California, Nevada, and Utah with the exception of one 

project in Hawaii. Lists of projects that have received the PTC or ITC are not available.

Table 2. Recipient Geothermal Projects of Treasury Cash Grants

Award Date Business Property Location Amount Approved

9/21/09 Enel Salt Wells, LLC Nevada $21,196,478 

9/21/09 Enel Stillwater, LLC Nevada $40,324,394 

12/28/09 Solutions In Human Resources, Inc Pennsylvania $5,071 

2/16/10 Thermo No. 1 BE-01, LLC Utah $32,990,089 

6/21/10 Shalmuk Investors, LLC Connecticut $6,142 

8/17/10 ORNI 18 LLC California $108,285,626 

7/6/11 NGP Blue Mountain I LLC Nevada $65,741,725 

10/5/11 Beowawe Binary, LLC Nevada $1,679,932

2/29/12 AMOR IX, LLC Nevada $2,112,178

3/21/12 Geysers Power Co., LLC California $12,203,772

3/29/12 CPN Wild Horse Geothermal, LLC California $3,743,320

4/14/12 Puna Geothermal Venture Hawaii $13,821,143

5/11/12 ORNI 15 LLC Nevada $34,608,728

6/5/12 ORNI 42 LLC Nevada $23,822,345

6/21/12 Hudson Ranch Power I LLC California $102,086,944

Total Grants Issued to Geothermal: $462,627,887

Total Grants Issued to All Technologies: $14,040,817,766

Source: Treasury 2012

 26 Carrying tax credits forward reduces their value as it is uncertain whether the developer will have the tax appetite to 

make use of the tax credits in subsequent years and because of the time value of money.

27 The cash grant is received from the U.S. Treasury Department within 60 days of the grant application date or the date 

the property is placed in service, whichever is later (DSIRE 2011c). The ITC is deducted from the next tax year’s filing.
12

The LCOE analysis was repeated for the same 12 cases with the debt-to-equity ratio held constant,

using the CREST default value of 50% and a loan tenor of 15 years. As with the previous analysis, 

all combinations of incentives were shown to reduce the nominal LCOE when compared to the base 

case, as shown in Table 3 and Figure 5.28

Importantly, the PTC + 100% Bonus and the PTC + 50% Bonus cases did not pass the DSCR 

requirements of a minimum annual ratio of 1.2 and an average ratio of 1.45, despite providing the 

theoretical highest value to a project in terms of lowering the LCOE.

29 Typically, banks would 

require the DSCRs to be met for the project to secure financing. Different incentive combinations 

may result in the inability to meet DSCR because CREST seeks to solve for the target after-tax 

IRR.

30 Because the PTC is not applied toward repaying debt, but rather flows toward the return on 

equity, the cash available to service the debt principal and interest payments may fall below the 

minimum or average DSCR target in specific years, or over the duration of the loan term. The 

implication is that a project developer using the PTC + 100% Bonus or PTC + 50% Bonus 

combinations could potentially face difficulties taking on as much debt compared to using other 

incentive combinations.

31 Potential solutions to passing the DSCR, using current assumptions,

include only taking MACRS with the PTC (and not the 50% bonus depreciation), reducing the 

amount of debt, lengthening the loan tenor, lowering the DSCR, or lowering the target IRR, among 

other possibilities.

 28 A nominal LCOE does not discount for inflation, whereas a real LCOE does account for the time value of money and 

negates inflationary impacts.

29 As shown in the Lawrence Berkeley National Laboratory (LBNL) report, PTC, ITC, or Cash Grant?, the PTC 

provides more value in nearly all cost and capacity factor combinations tested in that analysis because the 30% ITC is 

assumed to apply to 75% of the installed costs, whereas the PTC is not restricted to a certain percentage of installed costs 

(Bolinger et al. 2009). Also, geothermal projects typically have very high capacity factors (e.g., 85% to 90%), thereby 

allowing projects to earn significant production-based tax credits. 30 It is possible to only use equity to fund a plant development or to adjust down the amount of debt. However, some 

developers prefer to use debt to minimize the cost of capital. Therefore lenders would require a minimum DSCR of close 

to 1.2 for commercial technologies with high numbers of installed projects, and usually higher for emerging technologies 

or new installations of proven technologies (without many recent installations). 31 This analysis relies on the specific calculations and defaults included in the CREST model. Therefore, actual financial 

modeling results and implications will vary depending on the financial model used, the assumptions applied, and specific 

lender requirements.
13

Table 3. LCOE Analysis of Federal Tax Benefits at 50% Debt and 15-Year Loan Tenor

Variables

Nominal LCOE ($/kWh) Reduction in LCOE 

from Base Case Tax Credit/Grant Accelerated 

Depreciation

Base Case MACRS $0.1092 NA

PTC 

100% Bonus FAILS DSCR – adjust debt 

ratio, loan tenor, DSCR, target 

IRR, etc., to pass min. DSCR 

NA

50% Bonus FAILS DSCR – adjust debt 

ratio, loan tenor, DSCR, target 

IRR, etc. to pass min. DSCR. 

NA

MACRS $0.0782 28%

30% Grant

100% Bonus $0.0782 28%

50% Bonus $0.0854 22%

MACRS $0.0947 15%

30% ITC

100% Bonus $0.0782 28%

50% Bonus $0.0854 22%

MACRS $0.0947 15%

10% Grant MACRS $0.1030 6%

10% ITC MACRS $0.1030 6%

Figure 5. Nominal LCOE analysis of tax incentives with 50% debt and a 15-year loan tenor
14

After the PTC and ITC expire at the end of 2013, geothermal projects can apply to use the 10% 

Treasury cash grant for projects under construction by year-end 2011 and placed in service before 

2017.

32 Geothermal projects appear to have indefinite access to the 10% ITC and MACRS through

at least 2016.

33 However, as shown in this analysis, the 10% Treasury Cash Grant + MACRS and the 

10% ITC + MACRS incentive combinations provide much less value than the other currently 

available incentives, reducing the cost of energy by only 6% relative to the base case (i.e., MACRS 

only). The most valuable incentive combinations currently available (e.g., PTC + MACRS) reduced 

the first-year cost of energy by 28%. 

A comparison of Table 1 with Table 3 highlights the impact of optimizing the debt, where the LCOE 

for each case is comparatively lower with optimized debt. For example, the LCOE for the PTC + 

MACRS at 50% debt is $0.0782/kWh compared to a slightly lower $0.0761/kWh with optimized 

debt. 

Federal Loan Guarantees

The Federal Loan Guarantee Program was initiated under Section 1703 of Title XVII of the Energy 

Policy Act of 2005 to ensure the repayment of innovative clean technology (including geothermal 

electric) project debt in the event of a default. The 2009 passage of the American Reinvestment and 

Security Act amended Title XVII with Section 1705, which provides loan guarantees to approved 

commercialized renewable energy projects and manufacturers (DOE “1705”). As part of the 1705 

program, applicants had the option to participate in the Financial Institution Partnership Program 

(FIPP), under which the private market conducts most of the project due diligence and handles many 

aspects of the loan application (Mendelsohn 2010b).

Although the 1703 program has authority to support $1.5 billion of project-level debt for renewable 

energy projects, none have received loans thus far (Feldman 2011). In contrast, the 1705 program 

has supported $16.4 billion in loans for renewable energy generation and manufacturing and 

transmission projects as of the closing of the program on September 30, 2011.

 32 To qualify for the PTC, projects must be in service on or before December 31, 2013. Projects must be in service 

before January 1, 2014, to qualify for the 30% ITC. For the 30% Treasury cash grant, projects must have already met the 

safe harbor requirements by December 31, 2011, and be placed in service by January 1, 2014. 33 There is uncertainty about whether there may be an expiration date with the 10% ITC; a tax expert should be 

consulted.
15

Table 4. Geothermal Project Recipients of Federal Loan Guarantees

Project(s) Developer Lender Program Amount Capacity Issued

Blue Mountain Nevada Geothermal 

Power Co.

John Hancock 1705, 

FIPP

$99 MM -

closed 36 MW 9/2010

Neal Hot 

Spring

U.S. Geothermal Federal 

Financing Bank

1705, 

Not FIPP

$97 MM -

closed 23 MW 2/2011

McGinness, 

Jersey Valley, 

Tuscarora

Ormat Nevada John Hancock 1705, 

FIPP

$350 MM 

(conditional) 121 MW 6/2011

RETRACTED 

Wister, CD-4, 

Dead Horse 

Wells

Ormat Nevada John Hancock 

1705, 

FIPP $330 MM 80 to 90 MW NA

Total Loan Support: $545 million

(Not including retraction)

Sources: Brightenergy.org 2010; GEA 2010; Scharfenberger 2011; Ormat 2010a; Ormat 2010b

Only three geothermal projects have received loan guarantees—all under the 1705 program—for a 

total of just over $545 million in loan support for nearly 180 MW of installed capacity (Feldman 

2011).

34 In contrast, nearly $13.5 billion in 1705 loan guarantees were awarded to solar photovoltaic 

and concentrated generation projects and manufacturing plants. Thus, geothermal (along with 

several other technologies, such as biofuels and wind) received a comparatively small portion of the 

total amount of supported loans.35 Because the Loan Program Office does not release information on 

all applicants or declined loan guarantees, the total number of geothermal applicants is unknown. 

One reason cited by a developer for not participating in the loan guarantee program is the transaction 

costs. In 2010, after having been offered a loan guarantee, Ormat Nevada Inc. announced it would 

not proceed with Part II of the application for up to $330 million in loan support for its Wister, 

CD-4, and Dead Horse Wells plants (Ormat 2010a). Ormat specifically cited transaction costs along 

with uncertainties related to the permitting process as the impetus for the retraction. However, as 

indicated in Table 4, Ormat went forward with loan guarantees for its Jersey Valley, McGinness 

Hills, and Tuscarora projects in Nevada under a separate application. 

Another possible reason for a lack of geothermal loan guarantees is disinterest by lenders to 

participate in the loan guarantee program. As shown in Table 4, John Hancock Financial Services is 

the only private lender to have participated in FIPP. The only other financier to have lent to 

geothermal projects under the non-FIPP portion of the 1705 program is the Federal Financial Bank, 

which is a government corporation under the advisory of the Secretary of Treasury (Treasury 2011). 

 34 For additional information on Federal loan guarantees for geothermal projects, see 

http://financere.nrel.gov/finance/content/breaking-new-ground-geothermal-projects-secure-federal-loan-guarantees. 35 Wind projects received $1.7 billion in loan support for 1,025 MW of capacity and biofuel projects received over 

$237 million (project sizes are unknown) (Feldman 2011).
16

Possible reasons for the lack of broader participation by lenders include (1) few lenders with both 

geothermal and DOE loan guarantee program expertise, which likely results in (2) high transaction 

costs, and (3) a perception of lending to higher-risk projects because of the need for a loan guarantee

(NREL analysis; Ormat 2010a).

An additional potential barrier to loan guarantees is the mismatch between the long timeframe for 

geothermal project development and the limited window for participation in the 1705 program. It 

typically takes 4 to 8 years to bring a geothermal project on line. The 1705 program was not enacted 

until 2009 (Salmon et al. 2011). Thus, 2013 is likely the earliest point that new, incremental projects 

would be ready to apply for a loan guarantee. It is more likely that projects already under 

development came into maturity at the right time to apply for the 1705 program. For example, the 

three geothermal projects approved for loan guarantees in late 2009 to mid-2011 were well 

underway before the 1705 program was enacted (i.e., before fall 2009).

36

 36 The Nevada Geothermal Power Company’s Blue Mountain project was in the resource development stage as of 1999 

and the initial well development stage in 2006 (Melosh et al. 2008; Nevada Geothermal Power 2006). U.S. Geothermal 

Power Inc. received a drilling permit in 2008 for the Neal Hot Springs site (RedOrbit 2008). As of March 2009, Ormat’s 

McGinness project was in Stage 2 of development with exploration and/or drilling permits approved, exploration drilling 

conducted/in progress, and transmission feasibility studies underway. The Jersey Valley and Tuscarora projects were in 

Stage 3 of development (i.e., securing PPA and final permits, full size wells drilled, financing secured for portion of 

project construction, interconnection feasibility study complete) in 2009 (Slack 2009). See footnote 8 for a description of 

the various stages of development as defined by GEA.
17

Historic Federal Geothermal Programs

The oil and gas industry drills thousands of wells onshore in the United States each year; however, 

fewer than 100 geothermal wells are drilled (DOE 2008b). Although much of the equipment and 

drilling techniques used for geothermal wells are similar to those used for oil and gas, geothermal is 

a smaller and, perceived to be, riskier market.

Despite the additional costs in early geothermal exploration, developers can expect a success rate for 

exploratory wells of 35% to 50% (Young et al. 2010; Kanellos 2011).37 Interestingly, onshore oilexploration success rates are reported to be around 46%. Offshore success rates are reported to be 

slightly higher at 51% (EIA 2008; ECG 2005; NGOG).

Most of the risk of a geothermal project occurs in the initial stages of development, namely in

resource identification, resource evaluation, and test drilling. Together, these three steps account for 

an estimated 13% of the overall cost of a project or approximately $390 to $520/kW-installed.

38

[Production-well drilling and plant construction account for the remaining 38% and 49% of the 

costs, respectively (Cross and Freeman 2009)]. Because of the risks associated with these steps (i.e., 

the possibility of dry wells), the cost of financing early stages of development is high, thereby 

augmenting the cost of the initial development stages (Salmon et al. 2011). Additional risk is 

associated with early-stage geothermal development in greenfield areas where resources have not 

been proven and where the majority of projects are in development (GEA 2011a).39 

To help address these high costs and risks, a recent report for DOE recommended a cost-sharing 

program for exploratory drilling (Deloitte 2008). This program would be based in part on DOE’s 

Industry-Coupled Drilling program, which was active from 1978 through 1982. Both the U.S. 

Congress and the DOE (and precursor organizations) enacted a variety of additional cost-share 

programs during the late 1970s to mid-1980s that provided significant financial support to projects, 

including the original Loan Guaranty Program and the Program Opportunity Notices (PONs) (DOE 

2008b).

40 The Loan Guaranty Program supported exploration and field development via a 25%

equity cost-share by the developer with the government guarantee covering the remaining 75% of 

the project debt (U.S. GAO 1980). PON established “demonstration projects in which project costs 

are shared between DOE and the private companies, municipalities, or organizations that are

conducting the demonstrations” (Parker 1982). 

 37 The success rate of 50% for the Blue Mountain project was described in Kanellos 2011 as “unusually high.” 38 This estimate is based on approximate project costs of $3,000 to $4,000/kW, and actual project costs are highly 

dependent on project size and location, among other factors (Cross and Freeman 2009). For additional information on 

estimated costs for each stage of geothermal project development, see Salmon et al. 2011.

39 Greenfield sites are where previous development is either minimal or non-existent. Of the total 146 conventional 

geothermal projects in development in 2011, 111 (or 76%) are being developed on a greenfield site (GEA 2011a).

40 For details on the history of the pre-DOE federal U.S. geothermal programs and DOE geothermal programs, see DOE 

2008b. The 1970s program is spelled as “guaranty,” whereas the program enacted under the 2005 Energy Policy Act is 

spelled “guarantee.” See the DOE Geothermal Technologies Program website 

(http://www1.eere.energy.gov/geothermal/history.html) for more historical DOE GTP program information.
18

These cost-share programs resulted in the exploration, identification, and development of many of 

the resource sites in use today (DOE 2008b).41 Table 5 lists DOE-supported sites noted in the 2008 

report, Geothermal Technologies Program: Multi-Year Research, Development, and Demonstration 

Plan, as well as additional sites believed to have been developed after the initial supported resource 

development. The installed capacity is from currently operating geothermal plants that are believed 

to have resulted from drilling, exploration, and resource development done under the initial costshare programs. Projects supported under other federal efforts were excluded. Such projects include 

those at Geysers and Steamboat Springs, which amounted to 1,730 MW of operating installed 

capacity. See the Appendix for a detailed list of the estimated subsequent commercial plants.

Table 5. Currently Operational Geothermal Plants Resulting from DOE-Sponsored Sites from Late1970s to Early-1980s Programs42

DOE Developed Site Capacity DOE Developed Site Capacity

Boewawe: Beowawe, NV 18 MW Hawaii Geothermal Area: Pahoa, HI 35 MW

Coso Junction: China Lake, CA 302 MW Raft River: Cassia County, ID 16 MW

Desert Peak: Churchill County, NV 9 MW Roosevelt Hot Springs: 

Milford/Beaver, UT 42 MW

Dixie Valley: Dixie Valley, NV 64 MW Salton Sea: Calipatria, CA 339 MW

Imperial Valley: Imperial County, CA 102 MW Soda Lake: Fallon, NV 23 MW

Honey Lake: Lassen County, CA and 

Washoe County, NV 55 MW Stillwater: Fallon, NV 48 MW

Mammoth-Pacific: Mono County, CA 40 MW

TOTAL: 1,093 MW

(Current U.S. installed capacity is 3,102 MW)

Sources: Adapted primarily from DOE 2008b. Additional sources: CalEnergy Generation 2011; Calpine; DOE 1984; DOE 

1995; DOE 2008a; DOE 2011; Lewis and Ralph 2002; McLarty and Reed 1992; Morse 1979; Ormat 2011; PacifiCorp 

2011; Puna 2009; Terra-Gen 2008; U.S. Geothermal Inc. 2007a; U.S. Geothermal Inc. 2007b; U.S. Geothermal 2007c; 

and U.S. Geothermal 2009

 

41 The cost-benefit ratio of this portfolio of programs is unknown. However, a 2010 DOE report analyzed the costbenefits of DOE support for four technology clusters, including projects conducted during the mid-70s to mid-80s as 

well as others completed more recently. Retrospective Benefit–Cost Evaluation of U.S. DOE Geothermal Technologies 

R&D Program Investments: Impacts of a Cluster of Energy Technologies found that the support for the four technology 

clusters provided “as a group, ...significant economic, environmental, and knowledge benefits.” See Gallaher et al. 2010 

for details.

42 Although listed in the DOE’s Geothermal Technologies Program: Multi-Year Research, Development, and 

Demonstration Plan report as being DOE-sponsored sites, examples of participation in late 1970s to early 1980s costshare, loan guaranty program, etc., were not found for the Geysers or Steamboat. Therefore, they were removed from this 

list. However, the DOE supported the Geysers and Steamboat sites during later periods (Bodvarsson 1992). Current 

capacity at the Geysers is 1,589 MW, and there is 141 MW of installed capacity at Steamboat Springs. Cove Fort 

Sulphurdale in Utah was supported under the DOE Industry-Couple program and produced electricity between 1985 and 

2003; the plant may be brought back online in the future (DOE Exploration). The Capacity column is “installed” or 

“nameplate” capacity. Running capacity may be higher or lower than installed capacity; however, only 

installed/nameplate capacity was used for consistency.
19

There are several possible reasons for the effectiveness of the DOE’s cost-share, loan guarantee, and 

grant programs of the late 1970s and early 1980s. First, the industry-coupled cost-share was 

relatively significant, amounting to between 20% and 90%, depending on the project’s success 

(Bloomquist et al. 2007). And similarly, DOE grant programs, like PONs, provided significant 

support for exploration and confirmation drilling in the form of grants. Second, few resources had 

been developed, so industry and the DOE were able to “cherry pick” from the best resources.43

However, while these earlier investments by the DOE were effective in developing the geothermal 

market, they may not have leveraged as much private capital as other programs, like the 1705 DOE 

loan guarantee program has done thus far. 

 43 Substantial geothermal capacity did not begin to come online until the 1970s, despite the fact that geothermal project 

development began in the late 1800s (DOE 2011). Thus, few resources had been previously developed.
20

Conclusion

The United States has more operating installed geothermal capacity than any other country, 

contributing nearly one-third of global capacity. Much of the market build-out is due to investments 

by the U.S. government and DOE in the late 1970s and 1980s, and more recently, to federal tax 

incentives (coupled with additional state and local programs, which are outside of the scope of 

this report). 

As shown in the CREST analysis, federal tax incentives provide significant value to geothermal 

projects in terms of reducing the LCOE. The exact value depends on the specific choice of 

incentives. 

1. When project debt was optimized for a given set of incentives, the overall value of the 

incentives was augmented by choices that allow projects to take on additional debt. For 

example, the LCOE for the PTC + MACRS at 50% debt is $0.0782, which is slightly higher 

than the debt-optimized LCOE of $0.0761. Thus, the value of incentives may have an 

intrinsically lower or higher value when considering both the direct effect of the incentives 

on the LCOE and indirect effects, which may impact a project's financials or other outcomes.

2. In the scenario with 50% debt and a 15-year loan tenor, the two test cases of the PTC + 100% 

Bonus (now expired) and PTC + 50% Bonus did not meet the minimum annual DSCR of 1.2 

or the average DSCR of 1.45.44 This is because CREST, based on the debt assumptions, 

applies the PTC toward meeting the IRR rather than repaying debt principal and interest. 

Thus, there is the potential that a project developer, using either the PTC + 100% or the PTC 

+ 50% Bonus combinations, could face challenges to taking on as much debt as is possible 

under other incentive combinations. Potential solutions to passing the DSCR using current 

assumptions include only taking MACRS with the PTC (and forgoing the bonus 

depreciations) and reducing the amount of debt, among other possibilities.

3. At a constant debt ratio of 50%, the PTC + MACRS, the 30% Grant + 100% Bonus, and the 

30% ITC +100% Bonus provided the greatest value while also passing the minimum DSCR.

4. The choice between the ITC and Treasury cash grant makes no difference on the LCOE, but 

developers usually value the cash grant more than tax credits because it (1) is received in 

cash, (2) is received more quickly, and (3) reduces the need for a tax equity investor

(although a tax equity investor may be needed to provide a type of bridge financing postconstruction and before the system is placed in service) (Marciano and Katz 2010).

Even with the tax incentives and DOE loan guarantees, geothermal market growth is near stagnant. 

And with the larger tax incentives (100% Bonus, the PTC and the 30% ITC) having expired or 

nearing expiration and the sunset of the 1705 DOE loan program, geothermal market growth may be 

further stymied. 

Three geothermal loan guarantees were issued: Nevada Geothermal Power Co.’s Blue Mountain 

project; U.S. Geothermal’s Neal Hot Spring; and Ormat Nevada’s McGinness, Jersey Valley, 

 44 These assumptions are based on recent conversations with a few industry representatives. It is possible to reduce the 

fraction of debt and it may be possible to reduce the required DSCR (with insurance products or other risk mitigation 

measures).
21

Tuscarora projects. There are several possible reasons why few geothermal projects have received 

loan guarantees, including (1) a lack of interest by developers, (2) long project timelines, which 

makes the timing of the application difficult, and (3) disinterest by investors. Geothermal projects 

may have also been rejected for a loan guarantee. Another possibility is that due to the long timeline 

of these projects, there may have been additional projects that could not meet the 1705 program

deadline.

Policymakers seeking to spur geothermal development may wish to consider additional policies to 

support the industry. A 2008 report to the DOE GTP suggested a cost-share program to support 

drilling and exploration. The report recommended a program based on earlier U.S. federal programs

(e.g., the DOE Industry-Coupled Drilling Program and Loan Guaranty [sic] Program), which are 

estimated to have resulted in roughly 1,093 MW of currently operating capacity. Success of these 

earlier programs was likely due to the significant level of support provided by the government 

towards initial resource studies and project development, as well as the availability of high-quality 

resources. Policymakers may want to consider experiences from these earlier programs to determine 

whether they would be effective at spurring drilling and exploration in today’s geothermal electric 

market.
22

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26

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 28

Appendix: Estimated Plants Resulting from Late 1970s—Early 1980s DOE PrTable A-1 lists DOE-supported geothermal sites and the subsequent commercial utility-scale geothermal plants t

have resulted from the initial exploration and drilling efforts. As there is not a comprehensive list of DOE geotheand the resulting plants, this list is estimated based on the consultation of various resources. Some of the plants liresulted directly from a DOE-supported effort, although development of a DOE-supported plant may have indiredevelopment of additional plants at the same site (i.e., resulting from the developer having proven the resources)the DOE-supported efforts were removed. The following table should be considered as a guide or initial research definitive list. 

Table A-1. Complete List of Commercial Plants Estimated to Have Resulted from DOE Programs in the 197

DOE Developed Site Under 1970s to 1980s Estimated Resulting Commercial Pla

Name & Location Program & Year Installed Capacity and Beginning Year of Constructio

Beowawe Beowawe, NV 

Industry-Coupled Program: between 1978 and 1981 

Beowawe (18 MW), 1985 

Coso Junction Coso Hot Springs - China Lake, CA 

DOE-funded test well drilling, 1977; additional exploration support throughout the late 1970s and early 1980s. 

Navy I (102 MW), 1987; Navy II (100 MW), 1989; BLM (100 MW), 1988 

Desert Peak Churchill County, NV 

Industry-Coupled Program: between 1978 and 1981 

Desert Peak (9 MW), 2006 

Dixie Valley Dixie Valley, NV 

Industry Coupled Program: between 1978 and 1981 

Dixie Valley (64 MW), 1988 

Honey Lake Lassen County, CA and Washoe County, NV 

Industry-Coupled: 1982, 1984 Steamboat I (8 MW), 1986; Honey Lake (2 MW), 1989; 

Wineagle (1 MW), 1985; San Emidio (44 MW), 2011 
29

DOE Developed Site Under 1970s to 1980s Estimated Resulting Commercial Plants

Imperial Valley

Imperial County, CA

Loan Guaranty: 1978 Ormesa IE (10 MW), 1988; Ormesa IH (12 MW), 1989; (18 

MW), 1989); 2008; Ormesa I (44 MW) 1986; Ormesa II (18 

MW), 1987

102 MW

Mammoth-Pacific 

Mono County, CA

DOE-funded feasibility study 1979 Mammoth Pacific 1 (10 MW), 1984; Mammoth Pacific 2 (30 

MW), 1990

40 MW

Hawaii Geothermal 

Area

Pahoa

DOE-funded demonstration plant 1976 Puna Geothermal Venture I (35 MW), 1993 35 MW

Raft River

Cassia County, ID

Demonstration Project - 1974 Raft River (16 MW), 2008 16 MW

Roosevelt Hot 

Springs

Milford/Beaver, UT

Industry-Coupled: 1977 - 1979 Blundell I Roosevelt Hot Springs (23 MW), 1984; Blundell 

II/Roosevelt Hot Springs (9 MW), 2007; Thermo Hot Springs 

(10 MW), 2009

42 MW

Salton Sea

Calipatria, CA

DOE Cost-share of the Geothermal 

Loop Experimental Facility: 1976

CE Turbo (20 MW), 2000; Elmore (38 MW), 

1989; Leathers (38 MW), 1990;Vulcan:

1986 (35 MW); Del Ranch (38 MW), (1989); Salton Sea 1, (10 

MW) 1982; Salton Sea 2 (21 MW), 1990; Salton Sea 3 (50 

MW), 1989; Salton Sea 4 (40 MW), (1996); Salton Sea 5 (49), 

2000 

339 MW

Soda Lake

Fallon, NV

Industry-Coupled Program: between 

1978 and 1981

Soda Lake (5 MW), 1987; Soda Lake II (18 MW), 1991 23 MW

Stillwater

Fallon, NV

Industry-Coupled Program: between 

1978 and 1981

Stillwater (48 MW), 2009 48 MW

TOTAL: 1,093 MW