The geothermal industry is citing Enbridge Inc.’s deal to finance a geothermal project in Oregon as further evidence that a lack of government interest in developing geothermal projects in Canada is forcing Canadian resource companies to look abroad for geothermal energy opportunities.
In what is its first foray into the geothermal sector, Calgary-based Enbridge (TSX:ENB; NYSE:ENB) announced September 8 that it will invest up to US$23.8 million for a 20% interest in a 35-megawatt geothermal project in Oregon that’s being developed by Idaho’s U.S Geothermal Inc. (TSX:GTH; NYSE, AMEX:HTM).
“Here you have another Canadian company who believes in geothermal, knows it works and is patient,” said Alison Thompson, chairwoman of the Canadian Geothermal Energy Association (CanGEA).
“This project that [Enbridge] funded isn’t coming online until 2012, so it wasn’t like they’re trying to do it overnight.”
While not all provinces have geothermal resources that are worth developing, B.C. and Ontario do.
Yet, neither province has geothermal power plants, even though numerous geothermal players have head offices in Vancouver and Toronto and trade on Canadian stock exchanges.
“They’re focusing on regions where they’re able to get government subsidies,” said Sean Peasgood, an analyst with Wellington West Capital Markets.
Enbridge, for example, will receive a cash grant for its investment in the Oregon project under the U.S.A.’s investment tax credit (ITC) scheme.
Geothermal and other renewable energy developers are eligible for ITC grants, which are equal to 30% of a project’s capital costs, if their projects can be brought online by 2012.
“There just isn’t the same type of government stimulus in Canada,” said Peasgood. Thompson, who is also vice-president of Vancouver’s Magma Energy Corp. (TSX: MXY), said the largest issue in B.C. is around permitting. Magma is developing geothermal projects in Iceland, South America and the U.S., but none in Canada.
She said CanGEA isn’t necessarily looking for a handout – just more exploration permits.
She noted that the B.C. government has granted only one geothermal energy exploration permit since 2004.
“Yet tens or hundreds of pieces of land have been nominated or requested,” said Thompson.
Vancouver’s Sierra Geothermal Power Corp., which was acquired by Nevada’s Ram Power Corp. (TSX:RPG) this month, was granted a permit to explore a parcel of land in Knight Inlet, which is located 250 kilometres northwest of Vancouver on the Da’naxda’xw/Awaetlala Nation’s traditional land.
B.C.’s Ministry of Energy, Mines & Petroleum Resources is expected to announce two additional permit auctions this year.
Thompson used a chicken-and-egg scenario to describe geothermal development in B.C.
“There may be the will, there may be the skills, there may be resources and there may be the money, but unless you have a permit to explore your geothermal land, you can’t do anything.”
Robin Platts, a B.C. resources ministry spokesman, said in an email that prior to late-2007 interest in geothermal permits in B.C. was limited.He added that the government is working to make additional geothermal permits available, while ensuring responsible exploration and development and legislation and regulation amendments related to geothermal exploration and development are being reviewed.
CanGEA has yet to receive a formal response from the Ontario government concerning the exclusion of geothermal energy in that province’s feed-in tariff program, in which the province pays above-market energy rates to renewable energy producers.
Said Thompson: “Certainly, there are feed-in tariffs around the world for geothermal energy, and they work.”