Geothermal is gaining traction in the broader energy industry, but success depends on converting momentum into gigawatts.
Compressing the geothermal learning curve is critical to maintaining that momentum. Better understanding of the industry along with technology advances are helping open up opportunities for investment. A regulatory focus on streamlining permitting and US Department of Energy (DOE) funding for geothermal research and development further encourage the latest stage of the geothermal industry’s growth.
Speaking during the Geothermal Rising Conference in Houston on 21 September, industry leaders acknowledged geothermal has gained steam over the decades, but still must overcome a number of challenges, including compressing the learning curve, de-risking projects so they can obtain funding, advancing technologies, and streamlining permitting.
Lauren Boyd, director of the DOE’s Office of Geothermal, said the geothermal industry is only drilling about a hundred wells a year currently.
“It took tens of thousands of horizontal wells across multiple basins over more than a decade before the learning curve did its work and tight oil and shale gas became self-sustaining,” she said.
Scaling up, she said, requires compressing the geothermal learning curve. And part of scaling up requires helping companies through that “awkward territory” between having successful experiments or pilots to bankable projects, she added.
She said there’s a point “where that question changes from ‘Does it work?’ to ‘Will it work under the conditions that matter at a commercial scale?’”
When it comes to funding projects, de-risking is critical.
Mike O’Connor, director of the Mountain West Geothermal Consortium, said one of the big focus points is the “risk cliff.” There is, he said, a general idea that a project’s risk is high until work is done on an opportunity, such as the FORGE/Fervo flow test.
“FORGE and Fervo together were able to successfully demonstrate a flow test at Cave Station. All of the money started flowing right after that. That’s what we would consider the appraisal stage. And once you appraise a site, once you tell a bank you have what I think you have, now that unlocks hundreds of millions to billions of dollars of corporate equity and debt and the risk plummets,” he said.
Jonathan Sisto, managing director for investment banking, AI energy solutions, and energy transition at RBC Capital Markets, likened project funding to a chicken-or-egg scenario. He said the potential borrower needs to spend some money, such as drilling test wells, in order to get some money.
And he urged realism when talking about a project’s potential.
“One thing I would caution against is braggawatts,” he said, adding the important things are predictability and execution.
Elizabeth Wolfe, a senior consultant in the DOE’s Energy Dominance Financing Office, agreed.
“I think there’s a need to get to a place where we can cut through the incredible complexity and detail that all the scientists who work in the space understand and get to something that I, as a non-engineer, can explain to another non-engineer, and they’re comfortable that they know, if these milestones are hit, power will be generated at this rate, therefore revenue will come in, therefore debt will get repaid,” she said.
She said funding through the DOE can give projects a lengthy runway without the need to request further funding at short intervals, but they still must achieve certain milestones.
“There are a lot of risks that we don’t yet understand that require a lot of investment of capital to de-risk and frankly a lot of reserves. And in an environment where you’re already spending so much equity, the Department of Energy can finance at most 80% with its debt,” she added.
Liz Harnmeijer, senior vice president at EIG, said while there has been significant progress in geothermal, the industry is “fragile” from a financial markets perspective. While more banks involved in the sector have a “far higher degree of understanding,” she said, “there is a long way to go.”
For investments, predictability is critical, she said.
“You need many more data points to create that robustness, and many of those data points will come from hyperscalers,” Harnmeijer said.
Improving the Technology
Technology improvements will help advance the industry.
Jeff Crater, head of government relations at Quaise Energy, said R&D continues to be critically important.
“There’s a whole slew of questions that we have to address, particularly in the subsurface,” he said.
DOE Under Secretary Kyle Haustveit said the combination of horizontal wells and hydraulic fracturing—technologies drawn from the shale oil industry—are enabling enhanced geothermal systems (EGS), but challenges remain.
“We’re losing a lot of energy to that conversion process. Increasing that percentage as we increase the production will have a tremendous impact. We need to understand thermal decline. That’s one of the big question marks right now in EGS,” he said.
As technology problems are solved, he said, financing can follow. And to that end, the DOE announced on 21 September awarding more than $99 million for 21 geothermal projects, of which five are intended to validate technologies under real-world conditions, and 16 will conduct exploration drilling to identify and characterize geothermal resources.
“We definitely had more high-quality, technically viable applications than we had money,” Haustveit said.
Zach Millimet, director of government affairs and strategic partnerships for Darcy Solutions, highlighted the need for help in deploying technology at scale.
“We need support in order to continue to deploy this technology at scale in all 50 states, and that comes down to the tax credits,” not subsidies, he said.
Regulatory Support
Another factor in propelling geothermal projects is permitting.
Bruce Kohrn, chief business development officer at TLS Geothermics, called for increased staffing in offices and standardization in the permitting process.
“When the rubber hits the road, all the legislation and the rules may fail when agencies don’t have the capacity to help companies and developers move their projects along. Understaffed, undertrained, and underfunded offices are very difficult to work with,” he said.
Standardization could generate more certainty about projects for investors, he added.
Bill Groffy, principal deputy director at the BLM, said staffing increases are a focus for the agency, although that can be challenging at the federal level.
“The good news is because geothermal is a lot like oil and gas development, we do have some staff in place. It is just getting them to focus on geothermal permitting,” he said.
There have been some changes to the National Environmental Policy Act, and lease sales are being held more frequently, he said.
“We’re trying to make permitting a lot easier, a lot more efficient, and have a consistent roadmap for development going forward,” he said.
De-risking, regulatory support, and technology advances can help buoy the industry, said Al Vickers, COO at XGS Energy. A united industry is a stronger and more investible industry, he said.
“If we hold ourselves to a collective high standard, we can maintain a strong and differentiated social license to operate. And we need to work with policymakers and regulators to make sure that the permitting, planning, and policies that affect our industry position geothermal at the center of the strategic conversations about the future energy map of our country,” he said. “I think if we can do these things together, we will accelerate. We’ll take risk off the table earlier, attract a larger volume of capital to our industry, and we will all be better positioned for success.”
