The Bureau of Land Management (BLM) Nevada State Office recently announced that it will hold a geothermal lease sale on November 14th. A total of 135,067 acres will be offered, mainly in northern and western Nevada. While geothermal development is not new, interest in it has been increasing in recent years, as the U.S. moves to decarbonize its energy grid. For example, the West’s geothermal potential was the focus of Colorado Governor Jared Polis’s “Heat Beneath Our Feet” initiative during his recently-concluded chairmanship of the Western Governors’ Association. New to geothermal leasing and wondering how it works? Read on to learn about geothermal leasing on public lands!
On BLM-managed public lands, geothermal leasing works very similarly to oil and gas leasing. For a nominating fee of $140 plus $0.14 per acre nominated, geothermal developers can nominate parcels of public land (up to a maximum of 5,120 acres per nomination) that they would like the BLM to consider including in upcoming lease sales. The BLM may also offer lands that were not nominated for leasing. Lands will not be offered if leasing would cause “unnecessary or undue degradation” to the land, or if the land is unavailable for other reasons (for example, the land is within a national park or a designated wilderness area).
The Interior Department is required by law to hold a geothermal lease sale at least once every two years in any state that has pending nominations for geothermal leasing. The sales, which take the form of a competitive auction, happen online at www.energynet.com. Bidders must register before the sale begins, but anyone can observe the sale in real time on the website. Bidding is open for one hour for each parcel; the highest bidder at the end of the hour is awarded the lease. This process is similar to a silent auction at a fundraising event. After the sale, any parcels that did not receive bids become available for noncompetitive bidding for two years following the sale, for a rental rate of $1 per acre and an administrative fee of $505. Bidders file noncompetitive bids directly with the BLM state office, not on EnergyNet.
The upcoming Nevada sale has its own page on EnergyNet which lists the parcels with their bidding start times, along with a legal description and map of each parcel. Each parcel has its own page that provides additional information such as the total cost to lease the parcel at the minimum opening per-acre bid. For example, Parcel NV-2023–11–1953 is 3,993.46 acres in Lyon County with a minimum opening bid of $2 per acre. If an entity were to bid the minimum and win, the total cost to secure the lease and pay rental fees for the first year of the lease would be $16,290.82. This figure includes the per-acre bid amount (20 percent of which is due on the day of the sale), the first year’s rental ($2 per acre for the first year of the lease, due in full on the day of the sale) plus a BLM administrative fee of $195 and a “buyer premium” of 1.5 percent of the per-acre bid amount (both due on the day of the sale). Competition between bidders for the parcel would, of course, drive the total cost higher.
Each parcel’s page also includes stipulations that would be part of the lease for that particular parcel in addition to the standard lease terms. Stipulations are limitations on when, where, or how geothermal exploration and development activities can occur. For example, a lease for Parcel NV-2023–11–1985 in Esmeralda County will be subject to stipulations including those meant to protect bighorn sheep habitat, wild horses and burros, mule deer habitat, and raptor and golden eagle nest sites. The bighorn sheep habitat stipulation that would apply to some areas within Parcel NV-2023–11–1985 prohibits surface activity between April 1st and November 30th.
Once a parcel is leased, the initial lease term runs for ten years; two five-year extensions may be granted if certain requirements related to the amount of money spent on development activities are met. After the first year of the lease, rental rates increase from $2 per acre for the first year to $3 per acre for the second through tenth years, and $5 per acre for all subsequent years. For leases acquired noncompetitively, rental rates are $1 per acre for the first ten years, and $5 per acre for all subsequent years. Lessees must also file bonds — financial instruments that serve a similar purpose to a security deposit — for the eventual reclamation of geothermal wells.
For geothermal resources that are used to generate electricity, lessees must pay royalties to the BLM. If the geothermal resources are sold in an “arm’s length transaction”, the royalty rate is 10 percent of the gross proceeds of the sale. For a sale that is not an arm’s length transaction, the royalty rate is 1.75 percent of the gross proceeds of the sale within the first ten years of production, and 3.5 percent thereafter. (An arm’s-length transaction is between two unrelated entities who do not share the same financial interest, where the agreed-upon sale price will more closely reflect the fair market value. By contrast, a non-arm’s length transaction is between two related entities with a shared financial interest, such as one entity that is the subsidiary of the other, or two subsidiaries of the same parent company, where the agreed-upon sale price may be influenced by other factors.)
For geothermal resources that are used for anything other than commercial production or generation of electricity but are not sold in an arm’s length transaction, lessees must pay a direct use fee in lieu of a royalty. Direct use fees are calculated using complicated formulas that are set by regulation at 30 CFR 1206.356 and that depend on the type of use. If the geothermal development results in any byproducts that would normally be subject to royalties under the Mineral Leasing Act (these are oil, natural gas, coal, oil shale, phosphate, sodium, potassium, and gilsonite), the royalty rate for those minerals is five percent.
Over the past ten years, BLM Nevada has held a geothermal lease sale annually (with the exception of 2015), usually in September or October. Last year’s geothermal lease sale, held at the end of August 2022, set a record for most acres leased at almost 193,000, and generated just under $3 million in revenue. Of 79 parcels offered, 66 received bids in the competitive sale; another eight received noncompetitive offers following the end of the competitive sale, generating just under $40,000 in additional revenue.
In addition to Nevada, a handful of other Western states hold geothermal lease sales and have projects in various stages of development. Idaho is home to the Walker Ranch geothermal project, which has received approval to drill up to 22 wells on approximately 200 acres. New Mexico held a geothermal lease sale in November 2021 in which three parcels were offered, one of which was leased competitively. Utah has held geothermal lease sales roughly annually since 2020, with its next sale tentatively planned for 2025.
As the United States continues its transition to a clean energy economy, interest in renewable energy sources such as geothermal will only increase and our public lands will play an ongoing and important role. Stay tuned for more from the Center for Western Priorities as we track data and policy at the intersection of energy development and public lands in the West.
Feature image: The Salt Wells geothermal power plant in Nevada, Bureau of Land Management