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McClatchy-Tribune  07/23/2014 6:03 AM ET
U.S. Geothermal profits heat up [The Idaho Statesman :: ]

July 23--Six months of retirement was enough for Dennis Gilles.

He took overseas trips he'd had no time for in 23 years as an executive at California energy company Calpine Corp. He tinkered with his 1967 Ford Mustang at his home in Sonoma County. But drinks by the pool got old. He was bored.

So Gilles accepted a position in 2011 on the board at U.S. Geothermal, a tiny company in Boise.

"I was still antsy, still feeling I had a lot to contribute," he said. "I was well known and well connected in the geothermal world. I wasn't done by any means."

Less than two years later, Gilles succeeded founder Daniel Kunz as U.S. Geothermal's CEO.

The groundwork was already laid for the company to turn its first profit in 11 years when Gilles took over in 2013. Now, Gilles says he plans to build U.S. Geothermal into a large-scale power company.

The company reported a $4.1 million profit in 2013 after having lost $20 million since 2010 developing power plants near Vale, Ore., and San Emidio in northern Nevada. Those plants, which together cost $172 million to build, are now making money.

Sales nearly tripled to $27.4 million last year as Idaho Power began buying power from the Oregon plant. The company is developing additional projects, including one in Northern California and a plant in Guatemala that could become its best producer.

"Now that we're profitable, we don't have to go out and sell shares -- and further dilute our shares -- in order to keep the lights on," Gilles said. "We're not in that boat anymore."

FOOT IN THE DOOR

Geothermal plants don't take much manpower to operate. U.S. Geothermal employs just 48 workers spread among its three operating plants and its headquarters at 390 E. ParkCenter Blvd.

The trick to making money starts with finding a spot that has an abundance of water more than 3,000 feet down that is heated to hundreds of degrees by the Earth's molten core. Finding those spots is hit or miss, said John Van Haren, who oversees U.S. Geothermal plant operations.

"Once science is able to say, 'Drill right there,' then it'll be a no-brainer," Van Haren said.

The second trick is scraping together tens of millions of dollars for drilling from banks or investors who can't be sure that the location will work.

U.S. Geothermal found a less risky first project by buying Idaho's first and only geothermal plant near Raft River, about 50 miles west of Pocatello. The U.S. Department of Energy invested $44 million drilling wells and built a test plant there during President Jimmy Carter's administration in the late 1970s, Kunz said.

The Energy Department ran the plant for a year before shutting it down and shipping its equipment to a site in Nevada, Kunz said. Gilles said the department's only goal for the plant was to test a new design that transfers heat from geothermal water to a refrigerant to power generators, instead of using steam. Afterward, the department closed the plant and shipped its equipment elsewhere. Sagebrush grew in its stead.

Kunz had developed mining sites before starting U.S. Geothermal. He liked the idea of a mininglike venture that would do little environmental damage. He saw Raft River as a chance to acquire a proven site without paying the average drilling cost of $5 million per well.

"The idea was to build something that's profitable, that is attractive to investors," he said. "But it's also this whole green energy thing, creating electricity that we all need. It's like the air we breathe, and it should be done in a way that doesn't have a huge impact on the earth."

Kunz launched U.S. Geo-thermal in 2002. The company leased the property and invested $40 million building a plant on top of the existing wells.

"I was financing the whole damn thing in those early stages," Kunz said. "I want low risk. I don't want to be drilling holes. I don't want to be guessing what resource is there. We were blessed with the Raft River site."

 

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