An Economic Valuation of a Geothermal Production Tax Credit

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2.3 Technology Characteristics Binary cycle and flashed-steam geothermal power plants will be examined in this report. The cost and performance estimates used for these technologies were taken from the Electric Power Research Institute’s (EPRI) Renewable Energy Technology Characterizations (EPRI-DOE 1997), the jointly prepared book by EPRI and the U.S. Department of Energy (DOE). However, the average annual capacity factor and the annual O&M expense characteristics of these technologies were modified in response to more recent data (Owens 2001a). The technology characteristics used with GEOCOE are presented in Table 2. Table 2: Geothermal Technology Characteristics Technology Characteristics Plant Size (MW) Total Capital Cost (1997 $/kW) Capital Cost Depreciable Percentage Average Annual Capacity Factor Annual Power Production (kWh) Annual O&M Expense (2001 cents/kWh) Royalty Fee (% of Revenue) Plant Life 2.4 Tax Policy Cases Binary Cycle 50 $2,112 82% 92% 402,960,000 1.75 cent/kWh 2.5% 30 Flashed-Steam 50 $1,444 66% 92% 402.960.000 2.00 cents/kWh 3.5% 30 In order to evaluate the financial impact of a geothermal PTC, and to compare the PTC to the existing 10% ITC, three tax policy cases will be examined for each technology. These are: the "Base Case" with neither the ITC nor the PTC, the "ITC Case" which represents the current situation with a 10% ITC, and the "PTC Case" in which a 10-year 1.8 cent/kWh PTC is enacted in lieu of the existing 10% ITC. The tax policy cases examined in this report are presented in Table 3. Table 3: Tax Policy Cases Tax Policy Case Base Case ITC Case: Represents the current policy environment. PTC Case ITC 10% of depreciable capital costs including construction loan interest. No PTC Other Tax Benefits Yes. Five-year accelerated depreciation, 15% percentage depletion allowance, first year expense for intangible exploration and well costs, and amortizable debt and equity related fees. Yes. Same as Base Case. Yes. Same as Base Case. No No No 10-year 1.8 cent/kWh escalating with inflation. 4

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