New Concept In Geothermal Steam Pricing
Authors: Jenkins Claude B. 
Published: December 2007

Steam in the Geysers is being sold at a price determined by a relatively complicated formula which calculates a price for steam based upon the prior year's fuel cost for fossil and nuclear fuel alternatives. This pricing formula contains a number of discriminatory features in regards to geothermal energy pricing including several built-in discounts and an inappropriate comparison of fuel costs instead of bus-bar costs. At the time that this pricing formula was negotiated, there was an adequate supply of hydro power, a plentiful supply of cheap gas and oil, and a strictly "buyers" market for steam. The geo-thermal pricing formula suggested in this paper recognizes that this situation has changed and attempts to price geothermal steam on an equitable basis with a utility company's alternative cost in using other electrical power energy sources; i. e., oil, coal, nuclear.

The only known current commercial steam production for purposes of generating electrical power production for purposes of generating electrical power in the United States is in the Geysers area of Northern California, approximately 70 miles north of San Francisco.

The pricing formula under which steam is purchased is quite complicated and basically consists purchased is quite complicated and basically consists of a mathematical equation which calculates the current year's steam price on the basis of the prior year's cost of fuel for fossil and nuclear plants. The basic principle behind the formula was to equate the value of steam to the cost for alternative fuels in cents per BTU. The formula also contains provisions to reflect changes in the fossil and nuclear provisions to reflect changes in the fossil and nuclear plant operating efficiencies between a base year and plant operating efficiencies between a base year and the year in question. In theory, this approach may seem reasonable but further investigation reveals numerous inequities including a built-in formula discount for geothermal steam in comparison to fossil fuels, a one-year inflation lag, and the use of a fuel cost comparison instead of a bus-bar cost comparison.

The built-in formula discount can be shown by comparing the actual average cost to the utility in 1968 for fuel to generate power from fossil and nuclear plants (3.2 mills/KWH) with the formula calculated fuel cost for geothermal of 2.11 mills/ KWH. The inclusion of the 2.11 mills /KWH as a consent in the formula instead of 3.2 mills/KWH results in a built-in discount of 51. 6% for geothermal steam as a fuel in comparison to fossil/nuclear fuels. Utilizing the provision in the formula which permits the utility to use their most efficient fossil unit in the calculation would yield a calculated geothermal price of 2.62 mills /KWH which would still constitute price of 2.62 mills /KWH which would still constitute a discount of 19.5% for geothermal steam.

The one-year inflation lag, of course, is the use of last year's costs to determine this year's prices. During the last three years, this has resulted in discounts of 113% (1975), 57% (1976) and 26% (1977) for geothermal steam. (Figure 1)

The third pricing factor discrepancy is the use of a fuel cost comparison instead of a bus-bar cost comparison. This is probably the most inequitable component in regards to future pricing. A review of published bus-bar costs for electric power generated published bus-bar costs for electric power generated from geothermal steam compared to published steam prices indicates that it apparently costs prices indicates that it apparently costs approximately 8 mills per KWH to convert steam to electricity.