Geothermal Brief: Market and Policy Impacts Update
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).
NREL's analysis illustrates that federal tax incentives provide significant value to geothermal projects, reducing the levelized cost of electricity (LCOE) by as much as 40% in their model runs (the exact amount varies by the policies selected as not all subsidies can be used together). The report contains a number of useful graphics on the impact of federal subsidies on the economics of geothermal. Although NREL did not examine state subsidies, had they done so, the level of total support to geothermal would assumedly be even higher than 40%.
Even with the tax incentives and DOE loan guarantees, the study notes that 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, further leveling is expected. As a result, NREL suggests that some new subsidies might be pursued, including a cost-share program to support drilling and exploration. The focus of the analysis is on geothermal market development and it does not examine broader energy-market themes associated with differential subsidization of fuel cycles.