Who Holds the Rights to Geothermal Heat Sources?
While innovation steadily advances technologies to produce geothermal energy, the determination of clearly defined laws and regulations is playing catch-up—state by state and case by case in courts. And until it does, scaling up of this promising energy source is at risk of being hamstrung.
A recently enacted law in Texas, which went into effect in mid-June, declares the landowner or the owner of surface rights as the holder of subsurface geothermal energy and associated resources. If the surface and mineral rights of the land have been separated, the owner of the surface estate prevails.
Senate Bill 785 amended a section of the Natural Resources Code to define heat as a byproduct of geothermal energy and associated resources, but excludes mineral, oil, gas, or any product of oil or gas. It also excludes “the ownership and use of groundwater,” including “minerals dissolved or otherwise contained in groundwater, including hot brines.”
The law entitles the owner “to drill for and produce the geothermal energy and associated resources.”
As with pore space rights for underground carbon storage, legislating surface and subsurface rights for geothermal energy and underground hydrogen storage is an evolving frontier. Privately held rights vs. state or federal lands contribute to the complexity of these relatively nascent efforts to advance decarbonization.
Ownership of geothermal rights varies widely from state to state, often dictated by a state’s definition of what constitutes geothermal resources. California’s definition, for example, says “the natural heat of the earth, the energy, in whatever form, below the surface of the earth present in, resulting from, or created by, or which may be extracted from, such natural heat, and all minerals in solution or other products obtained from naturally heated fluids, brines, associated gases, and steam, in whatever form, found below the surface of the earth, but excluding oil, hydrocarbon gas, or other hydrocarbon substances.”
Other states, such as Utah, define a geothermal resource by a temperature threshold (“water or steam at temperatures greater than 120°C naturally present in a geothermal system”). At that mark, a separate lease is required because the resource is no longer part of the water rights.
Once geothermal resources are defined, who holds the rights may be murky. In California, Hawaii, and New Mexico, the mineral estate is the owner. Wyoming considers geothermal heat as part of the water rights—“underground water, including hot water and geothermal.” Other states consider rights as held by the surface estate unless they have been specifically transferred.
Yet, many states have no clearly defined guidance about privately held ownership, and the parties involved in disputes head to the courts to hash out the ambiguity.
The rules governing development of geothermal energy on federal lands are more defined. Geothermal was the first type of renewable energy that the US Department of the Interior Bureau of Land Management approved for production on public lands. The first project was given the go-ahead in 1978.
A federal lease allows future exploration and development. However, it does not include the right to move ahead with any ground-disturbing activities to explore for or develop the resources. Each stage of development under the lease requires separate authorizations and compliance with the National Environmental Policy Act.
Two examples of state-controlled lands are well-known geothermal fields in California, The Geysers and the Salton Sea projects. The state’s leases in The Geysers are on school lands. Revenue and royalties are deposited into the California State Teachers’ Retirement fund. Royalty rates range from 10 to 12.5% of the gross value of geothermal steam, calculated by multiplying the gross value of electric power with the agreed percentage of steam that began initially as 36% in 1999, increasing to a maximum of 42% of the value of electricity.
While innovation steadily advances technologies to produce geothermal energy, the determination of clear law and regulations is playing catch-up ... state by state and case by case in courts. And until it does, scaling up of this promising energy source is at risk of being hamstrung.