That barrier may be opening, however—at least for one of these sources. Two recent reports, among others, suggest that geothermal may actually be cheaper than every other source, including coal. Geothermal power plants work by pumping hot water from deep beneath Earth’s surface, which can either be used to turn steam turbines directly or to heat a second, more volatile liquid such as isobutane (which then turns a steam turbine).

Combine a new U.S. president pushing a stimulus package that includes $28 billion in direct subsidies for renewable energy with another $13 billion for research and development, and the picture for renewable energy—geothermal power among the options—is brightening. The newest report, from international investment bank Credit Suisse, says geothermal power costs 3.6 cents per kilowatt-hour, versus 5.5 cents per kilowatt-hour for coal.

That does not mean companies are rushing to build geothermal plants: There are a number of assumptions in the geothermal figure. First, there are the tax incentives, which save about 1.9 cents per kilowatt-hour. Those won’t necessarily last forever, however—although the stimulus bill extended them through 2013.

Second, the Credit Suisse analysis relied on what is called the “levelized [sic] cost of energy,” or the total cost to produce a given unit of energy. Embedded within this figure is an assumption that the money to build a new geothermal plant is available at reasonable interest rates—on the order of 8 percent.

In today’s economic climate, that just isn’t the case. “In general, there is financing out there for geothermal, but it’s difficult to get and it’s expensive,” Geothermal Energy Association director Karl Gawell told ScientificAmerican.com recently. “You have to have a really premium project to get even credit card interest rates.”

That means very high up-front costs. As a result, companies are more likely to spend money on things with lower front-end costs, like natural gas–powered plants, which are cheap to build but relatively expensive to operate because of the cost of the fuel needed to run them.

“Natural gas is popular for this reason,” says Kevin Kitz, an engineer at Boise, Idaho–based U.S. Geothermal, Inc, which owns and operates three geothermal sites. “It has a low capital cost, and even if you project cost of natural gas to be high in future, if you use a high [interest rate in your model] that doesn’t matter very much.”

Natural gas, which came in at 5.2 cents per kilowatt-hour in the analysis, is also popular because it can be deployed anywhere, whereas only 13 U.S. states have identified geothermal resources. Although this limits the scalability of geothermal power, a 2008 survey by the U.S. Geological Survey estimates that the U.S. possesses 40,000 megawatts of geothermal energy that could be exploited using today’s technology. (For comparison, the average coal-fired power plant in the U.S. has a capacity of more than 500 MW.)

There’s another significant issue: finding geothermal resources. In that way, the geothermal industry has the same challenges as the oil and gas industry. The Credit Suisse analysis doesn’t factor in exploration costs, which can run hundreds of thousands of dollars for per well.

“The United States Geological Survey estimates that 70 to 80 percent of U.S. geothermal resources are hidden,” Gawell says. “You can’t see it on the surface, and we don’t have the technology to find it without blind drilling. … Geothermal hasn’t had the breakthroughs in geophysical science that the oil industry had in 1920s. We are still looking for where it’s leaking out of the ground.”

Despite these caveats, the new analysis is backed up by earlier ones, such as a 2006 Western Governor’s Association (WGA) report on geothermal resources in the U.S. Southwest. Using nearly the same economic model, but assuming a higher cost of capital than the one used in the Credit Suisse analysis—in other words, the interest rate that is so troublesome in today’s economy—the WGA found that geothermal could be produced from existing resources, using existing technology, for around 6.5 cents per kilowatt-hour, once a 1.9 cent per kilowatt-hour tax credit furnished by the federal government is included.

Although the WGA did not compare the cost of geothermal with coal directly, applying their assumptions to other forms of energy would boost prices across the board, especially for coal-fired plants, which are assumed to last for upward of 50 years. (The assumed 50-year life of a coal-fired power plant allows planners to spread the cost of their construction across an even longer period of time than geothermal plants, which are assumed to last less than half that long.)

Another potential stumbling block is reliability. Both the Credit Suisse and WGA studies assume that geothermal power plants are producing electricity virtually 24 hours a day, seven days a week. Larry Makovich, vice president and senior power advisor at Cambridge Energy Research Associates, believes this is an exaggeration. “They’re assuming that if you put a megawatt of geothermal capacity in you’re going to run over 95 percent of the hours in the year,” Makovich says. “Here’s the catch: if you look at actual electric production of geothermal in the U.S., it runs 62 percent of the time.”

Other sources dispute this number—Glitnir bank, a financier of geothermal in Iceland and elsewhere, claims that geothermal plants are operational up to 95 percent of the time, and a 2005 paper (pdf) by academics in the field claims that in aggregate, geothermal plants in the U.S. produce power about 80 percent of the time.

What prevents geothermal plants from running continuously is the sometimes harsh nature of the steam on which they depend. “When you take steam out of the Earth it is different from taking steam out of a boiler from a coal or natural gas plant,” Makovich says. “It’s got a lot of other stuff in it.” That “stuff” can include everything from silica and heavy metals to ammonia, depending on the source.

Geothermal advocates hope that many of these caveats become moot. A tax on the carbon emitted by power plants that rely on fossil fuel, for example, could increase the cost of coal so much that geothermal’s issues become unimportant. A carbon cap-and-trade system similar to the one used in Europe would do the same.

And state mandates that a certain percentage of energy come from green and renewable sources already seem to be having an effect. “It’s been great to see a change in the market—the enthusiasm,” says Kitz, who has been an engineer on geothermal projects since he graduated from college in 1985. “Five years ago I said everyone wants green power as long as it’s not one one-thousandth of a cent more expensive than coal. Now people just want renewable power, period—It’s nice to be loved.”

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Every day when David Oddsson goes to work, the head of the Central Bank of Iceland must brave a crowd of jeering protesters, angry that the man they view as the chief architect of Iceland’s near-total financial collapse refuses to step down. This tiny country of 300,000 spent the past decade becoming a financial hub of Europe, loading its banks with so much debt that when they finally collapsed, their inability to pay back account holders in the U.K. led that country’s prime minister, Gordon Brown, to freeze Icelandic assets under a law designed to fight terrorism.

Iceland Prime Minister Johanna Sigurdardottir has said the country still has two valuable natural resources that could help it climb out of the current crisis—fish and renewable energy. Many believe the country’s fishing stocks may already be overtaxed, however, and the vast swathes of land required to build additional hydropower dams in Iceland make them politically unpopular. That makes the exploitation of the thousands of megawatts of untapped geothermal power lying just beneath the feet of Iceland’s citizens very appealing.

“When I started in this industry in 1995, we produced under 50 megawatts of geothermal power, and today it’s 10 times that,” says Ásgeir Margeirsson, CEO of Geysir Green Energy, which is a shareholder in one of the leading geothermal power companies in Iceland.

Domestically, several hundred more megawatts of geothermal power are set to come on line in the next few years and, owing to the excellent balance sheets of Iceland’s power companies, not even the nationalization of its banks, collapse of its currency, and impending indebtedness to the International Monetary Fund can stop it, Margeirsson says. (Nor has the economic crisis affected the highly experimental Iceland Deep Drilling Project, whose long-term goal is to dramatically increase the efficiency of existing geothermal fields.)

But Iceland’s plan to become the dominant player in global geothermal power production through financing such projects, on the other hand, is as dead as the 50 percent of the country’s livestock that were snuffed out by the eight million tons of sulfur dioxide- and fluorine-laced aerosol released by the volcanic Laki fissure in 1783.

“With[in] another two years, we would have been in a position to be the strong player we’ve always believed was needed in the market,” says Alexander Richter, a former director in the Global Geothermal Energy Team of Glitnir Bank, which financed geothermal projects in the U.S., China and elsewhere, and is one of the three banks the Icelandic government recently nationalized. “The sense in the seafood and energy industries is that [the financial services built around those two industries] basically all disappeared overnight. … We were in Reno, Nev., at a geothermal trade show on basically the same day it went down here—it was surreal.”

Karl Gawell, executive director of the U.S.-based Geothermal Energy Association (GEA), notes that before the crisis, Iceland’s small domestic market for energy encouraged its geothermal industry to seek expansion opportunities overseas. Unfortunately, financing for those projects is difficult to come by because of the dismal global economy.

“In general, there is financing out there for geothermal, but it’s difficult to get and it’s expensive,” Gawell says. “You have to have a really premium project to get even credit card interest rates.”

Unlike the financial side of Iceland’s geothermal power industry, the engineering sector is using the crisis as an opportunity to sell its services internationally. Despite—and because of—the collapse of its domestic civil engineering business, Mannvit Engineering, Iceland’s largest engineering consultancy and a significant employer of geothermal engineers, is expanding its overseas business as fast as it can.

“When [the crisis] happened, our decision to put further efforts into what we’re doing abroad was almost immediate,” says Runolfur Maack, deputy CEO of foreign operations at Mannvit. “Over the past few months, the increase in our foreign income was at least 50 percent.” (Despite the increase, international business represents only a tenth of the total income of Mannvit.)

The collapse of the Icelandic krona means that Mannvit’s services are cheaper than ever. The company hopes to land more geothermal contracts in Chile and even in the U.S., the latter of which it has never before operated. “We used to be expensive, but because of the huge devaluation of the krona, we are now more competitive in our prices,” Maack says.

GEA’s Gawell warns that even as Icelandic expertise becomes more competitive, demand for it could be drying up due to global financial distress. “On the other hand, in the long run I don’t think there’s any question we’re moving into a climate change regime for energy,” Gawell says. “Countries that rely on fossil fuels will have to invest in new technology and efficiency or will pay higher prices. I think Iceland will be in very good position in those markets.”

Preparing the next generation of engineers to capitalize on the long-term trends in renewable energy is the one part of the geothermal industry that is booming. A new master’s program in alternative energy that is a joint effort of Icelandic and foreign universities (and includes a specialization in the physics of geothermal power), has been drawing more attention than ever.

“Up to now Iceland was expensive to visit, much less live in,” says Arnbjörn Ólafsson, director of international affairs at the School for Renewable Energy Science in Akureyri, Iceland. “We’ve had more applications now than ever before. It basically started in October, which was the week after the collapse in Iceland. The visits to our Web  site, especially from the U.S., went up 50 percent. It shows that there’s a lot to the old saying about ‘any information is better than no information at all.’”

Whereas many in Iceland, including its new prime minister, who took power February 1 and who is a Social Democrat, are optimistic that the country’s renewable power surplus can help rebuild its economy, there are significant obstacles that must first be overcome. The further development of geothermal resources, for instance, is heavily dependent on outside investment, yet the most important source of outside investment to date, new aluminum smelters, has become politically unpopular because of concern about the environment, and economically unsound, as long as the price of aluminum stays low.

Attracting energy-hungry alternatives to smelters, such as data centers and solar silicon plants, are an official priority of Landsvirkjun, Iceland’s national power authority. Orkustofnun, Iceland’s National Energy Authority has even floated the idea of building undersea cables that could transmit power directly to the European grid. But so far none of these projects has progressed past position papers and declarations.

“The change the left wing party brings is to prioritize alternatives to the smelters,” Geysir’s Margeirsson says. “But it is a question of investors coming in and having the courage to invest in these big projects.”

Richter, who resigned from the newly nationalized Glitnir Bank in December, and then immediately launched a Web site that aggregates news about new geothermal projects, is skeptical that new opportunities for Iceland to use its energy will come swiftly.

“The prime minister said we are blessed with two resources that have helped the country for centuries—fish and geothermal,” he says. “In a sense, that’s a very naive view.” Iceland must overcome a huge foreign debt that it has already promised to pay off, a collapsed currency that makes imports expensive as well as high inflation combined with high unemployment, Richter notes.

Both Richter and Margeirsson worry that a buyer for Iceland’s electricity may not materialize in the current gloomy economic climate. What’s more, any buyer looking to invest in the country must  be willing to accept  Iceland’s commitment to limiting development and keeping the country environmentally friendly. “You have people like Björk who are critical of current development policies,” Richter says. “So we have to do this in a more sustainable way. It can’t be all just heavy industry—we have to watch out for the environmental issues…. There’s a big discussion around that. How do you maintain growth so that the country itself is not selling out?”"

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