During the last two decades, the global installed capacity for geothermal electricity hasnearly doubled. Despite this recent expansion, geothermal energy is not getting the same level of attention as other renewable energy resources, and it remains heavily underutilized. If the world were able to tap just a small portion of the Earth’s heat, we could provide everyone with clean and safe energy for centuries. Current estimates of our global potential for geothermal energy range from 35 gigawatts (GW) to 2,000 GW. However, simple technological improvements could greatly increase these projections.
For example, a Massachusetts Institute of Technology (MIT) study concluded that if the United States were to invest US$1 billion in geothermal research and development over the next 15 years, the country could increase its generating capacity by 100 GW by 2050. Currently, the United States is the world leader in installed capacity, but it still produces only about 3 GW of geothermal energy. Encouragingly, the same MIT study estimated that, with the proper technical improvements, 2,000 zettajoules (1 ZJ=1021 joules) of geothermal energy would be extractable in the future. This is equivalent to the estimated energy contained in the world’s petroleum reserves as of 2010. Recognizing this vast potential, some countries are finally taking action to tap into this clean energy source.
Central America, in particular, is progressing quickly as several countries begin to develop previously untouched geothermal resources. Central America is located within the Pacific Ring of Fire, a volcanically active region that has excellent potential for geothermal electricity. Estimates for the geothermal potential of the region are as high as 13,000 megawatts (MW). However, the region is harnessing only 506 MW of this energy and is still heavily dependent on expensive imported fossil fuels.
El Salvador, known as the “land of volcanoes,” is the largest producer of geothermal electricity in the region with 204 MW of production. With approximately 24 percent of its total electricity production coming from geothermal resources, El Salvador is a world leader in the development of geothermal power. Moreover, the country received a US$2 million grant from the Inter-American Development Bank (IDB) in May to establish a geothermal training center for Latin America and the Caribbean. As part of this initiative, the international training center will offer technical courses in geothermal energy development at la Universidad de El Salvador.
Despite a destructive, decade-long civil war during the 1980s and two devastating earthquakes in 2001, El Salvador has managed to develop a successful geothermal energy sector. The country’s existing geothermal power plants provide the national grid with electricity that is cost competitive with hydroelectric and fossil fuel generation. El Salvador plans to grow this sector in the future and to achieve 40 percent of its total electricity from geothermal by 2020. The country’s geothermal developer, La Geo, plans to add to the two existing facilities in Ahuachapán and Berlín and is exploring facilities at three other geothermal fields.
El Salvador’s success provides the other Central American countries with a roadmap for developing their own geothermal resources. According to recent estimates, Nicaragua, Guatemala, and Costa Rica all have geothermal electric potential exceeding that of El Salvador. These countries would receive numerous benefits from cultivating a robust geothermal energy sector, including lower national electricity prices, reduced reliance on fossil fuel imports, and greater national grid stability.
For these other Central American countries to develop successful geothermal energy sectors, government support of the private sector through national targets and regulatory frameworks should be established. Countries should formalize and adopt a national objective for increasing geothermal resource development. In El Salvador, the National Energy Council identified geothermal energy as a national priority decades ago. Such targets and objectives are an indication to investors that the government is willing to support the sector’s development through policy stability and regulatory support.
Formal targets need to be backed by regulation aimed at supporting geothermal development. As such, each national government should consider establishing a supportive regulatory framework. In El Salvador, when the government liberalized the electricity market, it generated more competition by opening the industry to private enterprise. Unfortunately, the move also had the unintended consequence of fostering the growth of fossil fuel power and creating a trade imbalance. After developing a predictable legal and institutional framework for geothermal development, the government was able to secure funding from international development banks and friendly governments for their geothermal projects. Consistent tax incentives and duty concessions also incentivized growth in the sector.
The Salvadoran government assisted in the exploration of sustainable geothermal resource fields as well, a critical step in the development of geothermal. Initial exploration for geothermal resources can cost up to US$40 million with little or no guarantee on returns, a significant barrier to geothermal development. Risk sharing and other forms of risk mitigation support from governments, when implemented effectively, can provide investors with the needed security to develop the sector. The potential economic, environmental, and social benefits of a strong geothermal sector should incentivize Costa Rica, Guatemala, and Nicaragua to implement such supports to take advantage of their immense geothermal potential.
Finally, each country will need in-country expertise to understand geothermal science and advance its development. Utilizing the new geothermal training center in El Salvador would be a great starting point for building this technical knowledge.
If each Central American country formalized policy objectives and established support for the sector, the region could become a world leader for geothermal development, create a more stable electrical grid, and reduce dependency on hydrocarbons. Moreover, this formula could be adapted to meet the needs of other emerging economies with geothermal potential.
Indonesia—with its growing economy and urbanizing population—has become a world leader in geothermal energy by following a similar path. Currently, the country has the third largest installed geothermal capacity in the world, trailing only the United States and the Philippines. The Indonesian government established a national goal to increase installed geothermal to 5,000 MW by 2025. Furthermore, Indonesia’s government has attracted international investment by streamlining the exploration permit and regulatory processes, providing certain tax exemptions, and mandating purchases of geothermal energy by the state-owned electric utility company.
Other countries in Latin America, East Africa, and Asia with substantial geothermal potential should consider prioritizing geothermal energy development and incorporating similar policies into their national energy plans.