By now, most people familiar with the geothermal power industry are aware that Raser Technologies, Inc. has recently emerged from bankruptcy and filed a legal action against UTC Power Corporation and Pratt & Whitney Power Systems, Inc. The lawsuit alleges that UTC Power andPWPS defrauded Raser in connection with the sale of PureCycle® power generation units for construction of a geothermal power plant at a site called Thermo 1 in southern Utah. As has been expressed in other public statements, UTC Power and PWPS deny Raser’s allegations and will vigorously defend the lawsuit.
As the lawsuit progresses and the truth regarding the Thermo 1 project comes to light, the geothermalpower industry will discover valuable lessons that can be learned from the Raser experience. As the legal process does not typically move at the speed of business, this article attempts to provide a brief overview of the Raser story and the lessons that should be gleaned by the industry.
Background
Back in 2006 Raser was a start-up company looking to “revolutionize” the geothermal power industry. Rather than drilling wells, developing well fields, and precisely characterizing geothermal resources prior to designing and building a powerplant-a process that can take years and cost millions of dollars–Raser would use land where they believed geothermal resources could be characterized at a fairly high level of certainty without expensive drilling, and would then develop the well field and build the power plant at the same time. This approach would make geothermal power development a much more attractive investment by compressing the time framebetween initial capital expenditure and commencement of a revenue stream from the sale of electric power.
At the same time, UTC Power Corporation, a wholly-owned subsidiary of United Technologies Corporation, was developing a new form of geothermal power generation equipment called PureCycle®. The PureCycle technology is based on well-established chiller technology created and utilized for decades by Carrier Corporation. Essentially by running a Carrier chiller in reverse, a PureCycle power generation unit can convert sub-300°F geothermal water into electricity. Depending on the actual inputs of geothermal water and cooling water, a typical PureCycle unit generates about 250 kW of net electric power. Because of their simple design structure, PureCycle units can be manufactured quickly and installed in much less timethan traditional geothermal power generation equipment-which fit perfectly with Raser’s “revolutionary” business model.
Early Indications of Success
At first, Raser’s strategy seemed to be working. Raser successfully secured project financing and entered into a Power Purchase Agreement with the City of Anaheim, California for the sale of over 10 MW of electric power. In August of 2008, Raser entered into a contract with UTC Power to purchase 50 PureCycle units to be installed at the Thermo 1 site in southern Utah. Although Raser’s well-drilling at the Thermo 1 site was still in its preliminary stages, and the wells were still not characterized, construction of a power plant commenced the following month, and by mid November of 2008, all 50 PureCycle Units were installed at Thermo 1.
Performance testing and commissioning of the units began shortly after installation was complete. Well-field development continued to lag behind plant construction, but by using the available hot water from the wells that had been completed, Raser and UTC Power were able, on a piecemeal basis, to successfully “commission” all 50 of the PureCycle units at the Thermo site by mid February of 2009. Two independent engineering firms verified the ability of each installed PureCycle unit to consistently produce 250 kW when supplied with the contractually specified levels of geothermal water and cooling water.
How Things Went Wrong
During the 24 months that followed successful commissioning of the PureCycle units, Raser continued to drill and develop the well field at Thermo 1, but unfortunately progress and well output were insufficient to enable Raser to generate and sell electric power at the levels required to satisfy Raser’s lenders and investors. UTC Power and PWPS continued to make every effort to support Raser’s goal of achieving a 10 MW power plant, including everything from minor equipment upgrades to partial plant reconfiguration, but ultimately the limitations of the Thermo 1 well field proved beyond resolution by technical means. The risks of Raser’s “revolutionary” geothermal business model became apparent, lenders and investors became impatient, and Raser was forced into bankruptcy.
Lessons Learned
The first lesson learned from the Raser experience is that it is easy to get caught up in an industry “revolution”, but very difficult to turn back. At the beginning of the relationship between Raser and UTC Power, both companies were very excited about the possibility of Raser building a 10 MW geothermal power plant in a very short period of time. For once, it seemed, geothermal would break though the barrier of the traditional costly and time consuming developmentprocess. Raser touted the Thermo 1 project to lenders, investors, and the press. The momentum was impressive and everyone was watching. However, it was this pressure that continued to push Raser forward even as the challenge of successful well field development mounted and probability of success dwindled.
The second lesson learned is that even “revolutions” require thorough risk assessment and planning. Inherent in Raser’s business model was the assumption of a certain level of risk. Raser understood that it was pressing forward with plant construction at the Thermo 1 site without perfect knowledge of the geothermal resources available at the site. Although the full extent of the geological testing that was performed at the Thermo 1 site isknown only to Raser, the ultimate outcome of the Thermo 1 project serves as a reminder to geothermal power developers that until wells are actually completed, projected well characteristics are exactly that: projections. By committing to certain output levels before well characterization, a developer undermines the advantages of even scalable power generation technology such as PureCycle.
A final lesson learned from the Raser experience is that the failure of one “revolutionary” power generation project should not be viewed as a reflection of the entire geothermal power industry. PureCycle technology works. The PureCycle units supplied to Raser satisfied (and even exceeded) all performance requirements, and had well field development been successful, the Thermo 1 plant would likely be producing 10 MW of net power today. Unfortunately, the effectiveness of the PureCycle technology and other technologies supplied at the Thermo 1 can get lost in the noise of the failure of the project as a whole. The failure of one project should not distract us from the fact that geothermal continues to be a viable renewable energy source, with new technologies and resourcesbeing discovered every day, and thousands of megawatts installed and functioning effectively all over the world.
Charles E. Levey is Vice President, Pratt & Whitney Power Systems, Inc.
