Is Geothermal Energy More Expensive Than Hydropower?

Geothermal and hydroelectric power are two major renewable energy sources that provide clean electricity with low carbon emissions. Geothermal power utilizes heat from the Earth’s interior to produce steam to drive turbines and generate electricity. Hydroelectric power converts the energy of flowing water into electricity by passing it through turbines. Both sources offer advantages over fossil fuels, but their costs can vary depending on factors like location and project scale.

The purpose of this analysis is to compare the costs of generating electricity from geothermal and hydroelectric sources. Understanding their relative costs and economic viability can help inform energy policy and investment decisions to transition to affordable clean energy.

Table of Contents

Upfront Costs

The upfront costs for geothermal power plants are significantly higher than for hydropower plants. Geothermal power requires drilling deep wells and installing piping to bring the hot water or steam to the surface. According to the Geothermal Energy Association, developing a new geothermal power plant costs an average of $2.5-5 million per installed megawatt of capacity, with some plants costing over $6 million per MW.[1]

In comparison, hydropower has relatively low upfront costs, as it utilizes the natural flow of rivers and does not require extensive drilling or infrastructure. Building a new hydropower plant costs approximately $1-3 million per installed megawatt.[2] While site-specific factors affect costs, geothermal generally requires 2-3 times more upfront investment than hydropower for an equivalent energy generating capacity.

The high drilling and construction costs make geothermal a more expensive option when building a new plant. However, once built, geothermal can provide reliable baseload power with minimal ongoing costs.

Operational Costs

Geothermal power plants have significantly higher operational costs compared to hydropower plants. According to the U.S. Energy Information Administration, the average fixed and variable O&M costs for geothermal plants are $65.6 per kW-year, while hydropower plants average just $20.1 per kW-year (https://www.eia.gov/analysis/studies/power/generationcost/pdf/full_report.pdf).

This large difference is primarily driven by the need for geothermal plants to continually pump hot water or steam from underground reservoirs to the surface. Over time, these geothermal reservoirs can become depleted or clogged with mineral deposits, necessitating additional maintenance. Hydropower plants utilize the natural flow of rivers so do not have this issue.

Additionally, geothermal plants must deal with toxic gases like hydrogen sulfide that corrode pipes and equipment, further increasing maintenance costs. Hydropower has minimal exposure to these operational issues. While geothermal can provide reliable baseload power, its substantially higher O&M costs make it less economically competitive vs hydropower in many regions.

Capacity Factors

The capacity factor measures the actual output of a power plant compared to its maximum possible output. It is calculated as the ratio of the net electricity generated in a given time period, divided by the potential output if the plant operated at full nameplate capacity for that same time period [1]. Capacity factors allow comparing different power generation technologies.

Geothermal power plants generally have high capacity factors of 90-99%, meaning they produce nearly their full potential output consistently [2]. This is because geothermal resources provide constant heat flow that can be converted to electricity around the clock. Geothermal plants offer reliable baseload power.

In contrast, hydropower capacity factors range widely from 20-90% depending on water flow and reservoir capacity [3]. Hydropower output depends on seasonal precipitation and water availability. Hydropower can complement intermittent wind/solar, but alone may not provide stable baseload power.

The high capacity factors of geothermal allow efficient utilization of installed capacity compared to hydropower’s fluctuating output. This metric informs geothermal’s competitiveness.

Levelized Cost

Levelized cost of energy (LCOE) measures the average net present cost per unit of electricity generated over the lifetime of a generating plant. It allows comparison of different technologies with different capacities and project lifetimes on a consistent basis (EIA, 2022). Geothermal energy typically has a higher LCOE than hydropower. According to the EIA (2022), the average LCOE for geothermal in 2020 was $76 per MWh, while hydropower was $39 per MWh.

There are several reasons geothermal tends to have a higher LCOE. Geothermal power plants are more capital intensive to construct, requiring expensive drilling and reservoir development. They also have lower capacity factors than hydropower, averaging around 74% versus 52% for geothermal (Wikipedia, n.d.). This means geothermal plants produce less electricity over time relative to the initial investment. Additionally, geothermal resources are limited to areas with adequate heat and permeability, whereas hydropower can be built in many locations with flowing water.

However, there are factors that can make geothermal more competitive in certain locations. Government incentives can lower geothermal LCOE, as can developments that improve capacity factors through advanced drilling and production techniques (Clauser, 2018). Overall, hydropower remains the lower cost renewable energy source, but geothermal can complement it as a stable and reliable source of baseload power.

Sources:

Clauser, C. (2018). Levelized cost of geothermal electric energy compared to other renewable and fossil fuel electricity production technologies. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S1364032117314727

EIA. (2022). Levelized Costs of New Generation Resources in the Annual Energy Outlook 2022. Retrieved from https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf

Wikipedia. (n.d.). Cost of electricity by source. Retrieved from https://en.wikipedia.org/wiki/Cost_of_electricity_by_source

Government Incentives

Government incentives like tax credits can significantly impact the costs of renewable energy sources like geothermal and hydropower. The federal government offers investment tax credits for certain renewable energy projects that allow developers to deduct a percentage of the project costs from their taxes. According to the U.S. Department of Energy, hydropower projects put into service before 2032 can qualify for an investment tax credit of 30% of eligible costs. Geothermal projects also qualify for a 30% tax credit. This allows developers to recover 30% of the project costs through tax savings, reducing the overall expense (U.S. Department of Energy).

In addition to the federal investment tax credit, some states like Oregon offer additional tax credits for qualifying renewable energy systems. Oregon offers a tax credit equal to 50% of eligible project costs for small-scale hydropower and geothermal systems up to $20 million (DSIRE). These types of state incentives can further reduce the net cost of renewable energy projects for developers and consumers.

The availability of federal and state tax credits and other incentives allows developers of geothermal and hydropower to recover some of the high upfront capital costs, making these technologies more financially viable.

Location Factors

Location plays a major role in determining the costs of both geothermal and hydropower projects. For geothermal, a site needs to have access to underground reservoirs with adequate heat and permeability. Exploratory drilling is required to locate optimal sites, which adds to upfront costs. In general, geothermal energy is cheapest in locations with easily accessible hot water aquifers near the earth’s surface, such as western states in the U.S. Accessing deeper or lower temperature reservoirs raises drilling expenses. According to the IRENA report, “Factors Affecting the Cost of Geothermal Power Development,” drilling costs make up 30-60% of the total capital costs for geothermal plants.

With hydropower, locations with high precipitation levels and existing dams and reservoirs are ideal. Building new dams and tunnels to route water can be extremely expensive. According to the IRENA report, “Renewable Energy Cost Analysis: Hydropower,” civil construction costs like dams, tunnels, and pipelines account for 60-70% of total costs for hydropower projects. The site’s topography, geology, and accessibility also impact infrastructure needs. Hydropower is generally lowest cost at sites with good water flow and existing infrastructure.

Environmental Factors

When looking at environmental factors, geothermal energy has a significantly lower impact compared to hydropower in some key areas:

Greenhouse gas emissions – Geothermal plants emit little to no greenhouse gases, while hydropower reservoirs emit methane and carbon dioxide due to decomposing organic matter underwater (https://globaledge.msu.edu/blog/post/55551/geothermal-and-hydroelectric-energy).

Land use – Large hydropower projects require flooding large areas of land to create reservoirs, displacing communities and impacting wildlife habitats. Geothermal plants use much less land by comparison (https://fourearths.com/geothermal-energy-vs-hydro-energy-a-comparative-analysis/).
Water usage – Hydropower relies on water resources and can impact downstream flows, while geothermal uses minimal water (https://homework.study.com/explanation/compare-the-costs-and-benefits-of-hydropower-to-that-of-geothermal-power-include-two-costs-and-two-benefits.html).

However, hydropower produces no waste products and is more flexible to turn on/off compared to geothermal. Overall, geothermal has a lower environmental impact, but site specific factors play a role.

Future Trajectory

The costs of both geothermal and hydropower are likely to decrease in the future as technology improves. For geothermal, enhanced geothermal systems (EGS) are an emerging technology that could dramatically lower drilling costs by creating artificial geothermal reservoirs. EGS involves injecting fluid into hot dry rock to create cracks and fissures, allowing water to circulate and be heated. This expands the potential areas for geothermal development. With further R&D, EGS has the potential to make geothermal cost-competitive with conventional energy sources.

For hydropower, new turbine technologies like variable-speed turbines can increase efficiency and lower maintenance costs. Advances in environmentally-friendly turbine design may also reduce regulatory hurdles for new hydropower projects. Additionally, small and micro hydropower projects that create electricity from existing water infrastructure like pipelines and canals have the potential to lower capital costs. Overall, continued innovation in geothermal drilling methods and hydropower turbine efficiency will likely decrease costs for both technologies in the years ahead.

Conclusion

In reviewing the upfront costs, operational expenses, capacity factors, levelized costs, government incentives, location variables, and environmental externalities of geothermal and hydropower, it appears hydropower currently enjoys lower overall costs in most circumstances. While geothermal’s capacity factor and lack of seasonal variability helps make it competitive and locational factors can skew the math, hydropower’s maturity, low maintenance needs, and environmental advantages make it tough to beat on price.

That said, continued technological improvements and declining drilling costs may allow geothermal to close the cost gap in certain geographies going forward. But for now, hydropower’s lower levelized cost and more widespread deployment makes it the cheaper of the two renewable energy sources in most contexts.