Hawaii sits atop the most active volcanic hotspot in the United States, and the state has spent nearly five decades building a legal framework for turning that heat into electricity. Central to that framework is the geothermal lease — the mechanism by which the Board of Land and Natural Resources grants private developers the right to drill state-owned subsurface resources in exchange for royalty payments to the state treasury.
The statute controlling those leases is HRS Chapter 182, layered with county zoning through HRS 205-5.1, Native Hawaiian consultation under Act 97 of 2012, and Public Utilities Commission review whenever the electricity from a wellfield reaches the grid. Together these threads dictate who can drill, what they pay, and how the power gets sold to Hawaii Electric Light Company or its parent HECO.
This analysis walks through the leasing process step by step, quantifies the royalty formulas that flow to state and county coffers, and traces how Puna Geothermal Venture — the only operating plant in the islands — moves through each regulatory checkpoint. Households weighing a move to the Big Island will find geothermal at the intersection of energy costs, land use policy, and cultural stewardship.
How the HRS 182 leasing framework works
Under HRS Chapter 182, the state of Hawaii retains subsurface rights to geothermal resources on public lands, ceded lands, and many private parcels where the state reserved mineral rights at the time of original conveyance. Any developer that wants to extract steam or hot water for power generation must first hold a lease issued by the Board of Land and Natural Resources through a competitive process.
The Department of Land and Natural Resources (DLNR) manages the auction. Prospective bidders submit qualification packages showing technical capacity, draft environmental review language, and a financial bond. Auctions run as sealed cash-bonus bids. The Board reserves the right to reject any bid that falls short of the appraised fair market value of the tract being offered.
Lease terms typically extend 30 years with a right of renewal so long as the resource remains in commercial production. A lease covers a defined block — usually measured in hundreds of acres — and can require the lessee to drill within 3 to 5 years or forfeit the tract. Standby royalty payments apply to acreage that sits idle after the initial drilling deadline passes.
Who sits on the BLNR
The seven-member Board of Land and Natural Resources is appointed by the governor and confirmed by the state Senate. One member represents each of the four counties — Hawaii, Maui, Kauai, and the City and County of Honolulu — plus three at-large seats. The Board meets twice a month in Honolulu and issues written decisions on every lease application, subject to judicial review in state court.
The statutory royalty floor on gross production
Hawaii’s geothermal royalty regime is spelled out in Section 182-5, which sets a floor that no lease may drop below. Historically the state applied the same royalty schedule used for hard mineral leases, with royalties calculated on the gross value of geothermal resources sold or utilized at the wellhead — not on net profits after operating costs.
The current statutory minimum sits at 10 percent of gross proceeds during the first 10 lease years, sliding up to 15 percent for years 11 through 20, and 20 percent from year 21 onward. The Board may negotiate higher percentages during the auction, but never lower. The formula applies whether the resource is sold as steam to a third-party generator or used directly by an integrated developer such as Ormat.
| Lease Year | Statutory Minimum Royalty | Applies To | Payable To |
|---|---|---|---|
| Years 1–10 | 10% of gross value | Steam or heat sold or used | State treasury |
| Years 11–20 | 15% of gross value | Steam or heat sold or used | State treasury |
| Years 21+ | 20% of gross value | Steam or heat sold or used | State treasury |
| Idle acreage | Standby rental per acre | Undrilled leased tract | State treasury |
How the money is split
Once collected, royalty proceeds flow to three destinations. Roughly half is retained by the state general fund. Thirty percent goes to the county in which the producing well sits, under HRS 182-18. The remaining share flows to the Office of Hawaiian Affairs whenever the resource is being produced from ceded lands, satisfying the state’s ceded lands revenue trust obligation.
On Hawaii Island, the county share is deposited into a dedicated Geothermal Asset Fund managed by the Department of Research and Development. That segregated fund is the practical mechanism by which royalty dollars reach Puna District residents who live nearest to the wellfield and shoulder the localized impacts.
County geothermal resource zones under HRS 205-5.1
Statewide leasing is only half the story. HRS Chapter 205-5.1, enacted through Act 152 of 1983, requires each county with geothermal potential to designate Geothermal Resource Subzones through a public hearing process before any commercial drilling can occur. Subzones function as an overlay on the county general plan and answer where a wellfield is compatible with surrounding land uses.
Hawaii County is the only county that has actually mapped subzones. The Kilauea Middle East Rift and Kilauea Lower East Rift zones, both in Puna District, were designated in 1985. Together they cover roughly 27,750 acres of hot volcanic terrain across Lava Hazard Zones 1 and 2. Kauai and Maui have geothermal potential but have never opened subzone proceedings.
How subzoning intersects with the LUC districts
Even after BLNR grants a lease, the surface use still has to comply with the Land Use Commission’s four-district system. A wellfield inside the state Conservation District carries a different permit path than one inside the Agricultural District — a distinction traced in the state’s Land Use Commission classifications. Developers routinely request boundary amendments before construction, a process that runs 12 to 24 months.
Puna Geothermal Venture: the only operating case study
Since 1993, Puna Geothermal Venture (PGV) has been the sole operating geothermal power plant in Hawaii. The plant sits inside the Kilauea Lower East Rift Geothermal Resource Subzone at roughly 300 feet elevation in the Puna District of Hawaii County. Ormat Technologies purchased the facility in 2004 and has funded successive expansions bringing nameplate capacity from 25 MW to about 38 MW before 2018.
The May 3, 2018 lower Puna eruption sent lava flows across more than 24 miles of terrain and destroyed pumping stations, transformers, and part of a substation at the PGV site. The plant sat cold for nearly four years while insurance settlements and rebuild work advanced. Commercial operation restored in November 2020 at reduced capacity. Ormat has since announced a 46 MW expansion path targeting full output by 2027.
| Year | Event | Capacity Impact |
|---|---|---|
| 1985 | Kilauea Lower East Rift GRS designated | Zone opened for leasing |
| 1989 | Original HELCO PPA signed | 25 MW committed |
| 1993 | Commercial operation begins | 25 MW online |
| 2004 | Ormat Technologies acquires facility | Ownership transfer |
| 2011 | Expansion completed | 38 MW nameplate |
| May 2018 | Kilauea eruption destroys infrastructure | Offline |
| Nov 2020 | Restart at reduced output | ~20 MW |
| 2022 | Full 38 MW capacity restored | 38 MW |
| 2027 target | Expansion completion | 46 MW planned |
Well temperatures and drilling economics
PGV’s production wells reach depths of 6,000 to 8,000 feet and tap fluids at 500 to 600°F. Each new well costs $10 million to $15 million to drill, and drilling success rates in Puna have historically hovered near 60 percent. Reinjection wells return spent fluids to the rift, avoiding surface water discharge and keeping reservoir pressure stable across the wellfield.
PUC review of HELCO and HECO power-purchase agreements
The electricity leaving a geothermal wellfield does not reach customers without a power-purchase agreement (PPA) between the generator and the local utility. On Hawaii Island, the buyer is Hawaii Electric Light Company (HELCO), a HECO subsidiary. Under HRS Chapter 269, every PPA above a de minimis threshold must be filed with the Public Utilities Commission for review before it can take effect.
The Commission weighs multiple criteria: pricing versus the utility’s avoided cost, ratepayer benefit, reliability contribution, environmental performance, and consistency with the state’s 100 percent renewable portfolio standard by 2045. Dockets often run 12 to 18 months. Intervenors range from the Division of Consumer Advocacy to individual Puna residents contesting specific contract terms or emissions provisions.
The PGV contract restructuring
The original 1989 HELCO-PGV contract set fixed payments loosely tied to Hawaii Island’s avoided fossil fuel cost. In 2017 the Commission approved a restated agreement that de-linked payments from oil prices, capping the tariff at roughly 22.6¢ per kWh for the first tranche and stepping down at expansion milestones. That decoupling matters — Hawaii Island’s residential retail rates commonly sit above 40¢ per kWh, per data from the U.S. Energy Information Administration.
Households comparing power bills to mainland benchmarks will find deeper context in the analysis of why electricity costs so much across the islands, and prospective solar owners can layer geothermal grid benefits against the Battery Bonus incentive paid to storage-equipped rooftop systems on Oahu.
Native Hawaiian consultation under Act 97
Act 97 of 2012 amended HRS 182 to require formal cultural consultation before any new geothermal lease may be issued. The statute imports the framework of HRS 195D, giving Native Hawaiian practitioners standing to raise concerns about impacts to iwi kupuna (ancestral remains), heiau sites, gathering rights, and Pele traditions specific to the Kilauea region.
The consultation process runs through the Office of Hawaiian Affairs and DLNR’s State Historic Preservation Division. A cultural impact assessment must accompany the environmental impact statement, and the Board is directed to condition or deny leases where mitigation cannot address documented adverse effects. Contested case hearings are routinely triggered; a single hearing can add 12 to 24 months to a lease timeline.
Pele practitioners and the Wao Kele o Puna precedent
The consultation requirement carries deep history. In the late 1980s the state’s Kahauale’a lease proposal sparked sustained litigation from the Pele Defense Fund. That fight culminated in the return of Wao Kele o Puna — a 25,856-acre native rainforest tract — to the Office of Hawaiian Affairs in 2006. Coverage archived at Honolulu Star-Advertiser documents the precedent that reshaped how the Board approaches every geothermal application filed since.
The Geothermal Royalty Trust Fund
Act 62 of 2018 consolidated the county share of royalty payments into a segregated Geothermal Asset Fund, administered by Hawaii County’s Department of Research and Development. Deposits accrue from PGV royalty checks plus interest earnings. Allowable disbursements are dedicated to community benefit projects inside the Puna District — the population that shoulders localized noise, odor, and emergency-preparedness burdens tied to the wellfield.
Reported balances have grown from roughly $1.9 million in 2010 to more than $3.2 million by 2024. Allowable uses cover emergency-response infrastructure, homeowner air-quality equipment, and educational scholarships tied to renewable energy fields. The Puna Community Development Corporation administers grant rounds and typically funds 15 to 25 projects each annual cycle.
| Fund Metric | 2010 Snapshot | 2024 Snapshot |
|---|---|---|
| Estimated balance | ~$1.9 million | ~$3.2 million |
| Annual PGV royalty inflow | Suspended during outage window | Resumed post-restart |
| Grants awarded per cycle | Under 10 | 15 to 25 |
| Priority uses | Community meetings, education | Air purifiers, PV backup, scholarships |
| Administrator | County directly | Puna Community Development Corp |
What eligibility looks like
Eligibility centers on residency inside the Puna Judicial District and a demonstrable connection to public benefit. Homeowner associations, nonprofits, and public schools have all received disbursements. Individual applicants often qualify for small equipment grants — a household air purifier tied to hydrogen sulfide episodes, or a photovoltaic backup during grid outages that follow lava events.
Environmental review, air quality, and well permitting
Every geothermal lease triggers a full environmental impact statement under HRS Chapter 343. The document must analyze subsurface hazards, subsidence risk, hydrogen sulfide (H2S) emissions, noise, cultural impacts, and cumulative ecological effects on native forest ecosystems. Draft and final versions circulate for public comment, and the state Environmental Review Program tracks each step against statutory deadlines.
The Hawaii Department of Health Clean Air Branch issues covered source permits that cap H2S at wellhead-specific limits, monitored continuously. Community concerns have driven placement of ambient air quality monitors in Leilani Estates and Pahoa. Well drilling and completion require additional permits from DLNR’s Engineering Division and the county Planning Department. Public dockets on new expansions are covered regularly by Honolulu Civil Beat.
The 1991 blowout and its regulatory legacy
The 1991 PGV KS-8 blowout — where a well vented uncontrolled steam and H2S for 31 hours — remains the touchstone incident driving today’s monitoring rules. Fines totaled roughly $1 million. The state subsequently adopted mandatory pre-approved emergency response plans, quarterly community notification protocols, and a $200,000 environmental performance bond as prerequisites to every new lease issued under HRS 182.
What relocating landowners should know
Buyers eyeing Puna parcels for hobby farming, off-grid homesteads, or investment need to check whether the state has reserved subsurface mineral rights on their target lot. Many Puna parcels sold since 1974 carry a state reservation under HRS 182 and 178, meaning the surface owner cannot block a geothermal lease that the Board issues over the underlying resource. Title reports usually flag the reservation.
Surface access is not automatic. HRS 182 requires the lessee to pay surface damages and secure a right-of-entry before physical operations begin. Practical due diligence includes a title search through the Bureau of Conveyances (see the review of BOC recording fees and Land Court practice), review of any recorded lease exhibits, and a check of the Hawaii County GIS overlay for GRS boundaries.
Deed selection at purchase also matters, since a bargain-and-sale or quitclaim conveyance may transfer less than the seller thinks — the mineral reservation typically persists regardless. The overview of bargain and sale versus limited warranty deed recording covers what warranties actually survive the state’s reservation.
Insurance and financing implications
Lava Hazard Zone rating (LHZ 1 through 9) drives homeowner insurance availability in the same footprint where geothermal is productive. Puna District parcels inside LHZ 1 or 2 face limited insurance markets and elevated premiums. Some lenders will not fund a mortgage without a Hawaii Property Insurance Association policy in place, and repair reserves on lava-adjacent lots run higher than statewide averages.
Wastewater compliance in Puna
Buyers also inherit the state’s cesspool conversion mandate. Puna District cesspools must be converted by 2050 under Act 125 — a project readers can price out against the Act 326 conversion tax credit or research through the wider cesspool conversion law overview. Layering the compliance cost against LHZ premiums shapes total cost of ownership on a Puna homestead.
| Regulatory Checkpoint | Agency | Typical Timeline | Cost Range |
|---|---|---|---|
| Lease auction package | BLNR / DLNR | 6 to 12 months | $50k to $200k prep |
| Environmental impact statement | State Environmental Review Program | 12 to 24 months | $300k to $800k |
| Cultural impact assessment | OHA / SHPD | Concurrent with EIS | $50k to $150k |
| GRS overlay confirmation | Hawaii County Planning | 3 to 6 months | $5k to $20k |
| Covered source air permit | DOH Clean Air Branch | 9 to 12 months | $25k to $75k |
| Well drilling permit | DLNR Engineering | 60 to 120 days per well | Bond posted |
| PPA docket | Public Utilities Commission | 12 to 18 months | Intervenor fees vary |
What comes next for Hawaii geothermal
Beyond PGV, Ormat and other developers have quietly evaluated the Ka’u District and Mauna Loa’s Southwest Rift for exploratory drilling, though no new leases have been auctioned in either area. The 2045 renewable portfolio target continues to pressure the Public Utilities Commission to favor firm renewable generation over intermittent solar-plus-storage on Hawaii Island, where the grid remains isolated from an interisland cable.
Legislators have periodically debated raising the royalty floor above 10 percent, adding a carbon-adder to steam sales, and expanding cultural monitor authority during drilling. None of those proposals has cleared both chambers as of 2026, but industry watchers expect the topic to resurface each session as PGV’s expansion nears completion.
Coverage of new dockets and eruption impacts continues at Hawaii News Now and through Hawaii County public meeting agendas. Households planning a Big Island move — especially one anchored in Puna — should track those channels alongside monthly HELCO bill statements.
- Confirm state mineral reservation status on any Puna parcel before closing.
- Review Hawaii County GIS overlay for GRS boundaries.
- Check LHZ rating for insurance underwriting exposure.
- Model total cost against Act 125 cesspool conversion deadlines.
- Track Public Utilities Commission dockets for PGV expansion tariff changes.
- Read the annual Geothermal Asset Fund grant announcement in June.
Frequently asked questions
Does Hawaii pay a royalty for geothermal power?
Yes. Under HRS 182-5, every geothermal lease issued by the Board of Land and Natural Resources carries a minimum royalty of 10 percent of gross value produced during the first decade, stepping up to 20 percent by year 21. The state, the host county, and the Office of Hawaiian Affairs share proceeds under a statutory formula anchored in ceded lands trust obligations.
How much geothermal power does Hawaii actually produce?
Only Puna Geothermal Venture on Hawaii Island operates commercially, and its restored capacity sits near 38 megawatts, with an approved expansion targeting 46 MW by 2027. That output has historically covered roughly 25 percent of Hawaii Island electricity demand, though the 2018 Kilauea eruption forced a multi-year outage that ratepayers absorbed through higher fossil generation and imported diesel.
Where can new geothermal wells actually be drilled?
Only inside a designated Geothermal Resource Subzone under HRS 205-5.1. Hawaii County is the sole county that has mapped subzones — the Kilauea Middle East Rift and Kilauea Lower East Rift zones, both in Puna District, totaling roughly 27,750 acres. Any exploration outside those boundaries would require the county to open a new subzoning proceeding first, with full public hearings.
Does Native Hawaiian consultation actually stop lease auctions?
Rarely outright, but consultation under Act 97 and HRS 195D has produced significant lease modifications, added cultural monitors during drilling, and triggered contested case hearings that delay projects by 12 to 24 months. The 1980s Kahauale’a litigation and the 2006 return of Wao Kele o Puna to Hawaiian trust status remain the strongest examples of consultation reshaping outcomes on the ground.
How does the PUC decide if a geothermal PPA gets approved?
The Public Utilities Commission weighs contract price against HELCO’s avoided cost, alignment with the 2045 renewable portfolio standard, reliability contributions, environmental performance, and evidence in the record from the Consumer Advocacy Division. Dockets typically run 12 to 18 months. The 2017 PGV restated agreement is the reference precedent for how commissioners de-link renewable payments from volatile oil pricing.
Can a landowner block a lease over their parcel?
Not usually. Many Puna parcels conveyed after 1974 carry a state mineral reservation under HRS 182 that lets the Board of Land and Natural Resources lease subsurface rights regardless of surface ownership. Surface owners retain the right to negotiated damages, right-of-entry compensation, and mitigation conditions attached to the lease — but they cannot veto a lease that has cleared cultural consultation.
How does geothermal royalty money reach Puna residents?
Through the Geothermal Asset Fund administered by Hawaii County’s Department of Research and Development, which receives the county’s 30 percent royalty share plus interest earnings. The Puna Community Development Corporation typically manages grant rounds of 15 to 25 awards annually, funding air-quality equipment, small photovoltaic backup systems, scholarships, and emergency-preparedness infrastructure inside the Puna Judicial District boundary.
Are geothermal royalties subject to state income tax?
Royalties paid to private surface owners for right-of-entry are treated as ordinary income and reported on Form N-11 or N-15 with the Department of Taxation. The state’s share of royalty proceeds bypasses individual returns entirely and flows directly into the general fund and county accounts under HRS 182-18, without triggering personal tax liability for residents.
