Geothermal energy startups are on the rise thanks to Big Tech companies looking to power their power-hungry AI data centers, but long-term investments remain uncertain as oil majors fall back on natural gas.
Meta and Google (Alphabet) are among the tech companies partnering with startups offering to produce geothermal electricity to power their data centers.
Large data center operators are also working to meet the energy needs of artificial intelligence, accelerating a range of clean technologies.
“We believe geothermal, like abundant natural gas, can be part of the complete energy mix we need to meet demand,” said Trey Lowe, chief technology officer at U.S. shale gas producer Devon Energy, which invested in geothermal startup Fervo Energy. Geothermal energy has been touted as a faster way to produce carbon-free electricity than nuclear, and without the intermittency of wind and solar. But startups still face high upfront costs, especially for drilling, and long waits for project approvals.
Analysts estimate that just over $700 million in financing has been provided to all geothermal projects since 2020.
Major shale oil producers Chevron, Diamondback Energy and Exxon Mobil have also begun to advocate for natural gas as the primary fuel for electric power, proposing to work with utilities to pair their power plants with carbon sequestration projects that reduce greenhouse gas emissions.
“In general, smaller oil and gas producers and service companies are showing a lot more interest… We’ve talked to Chevron and Shell, but the big companies seem more wait-and-see,” said Cindy Taff, CEO of Sage Geosystems, which develops geothermal energy storage and baseload technologies deep within the earth.
Sage recently closed a $30 million fundraising round led by US shale gas producer Expand Energy, formerly Chesapeake Energy, and plans to raise its Series B in January.
In December, Colorado-based Gradient Geothermal, which produces geothermal energy using existing oil and gas infrastructure, announced it was providing Chord Energy with services to help it produce electricity at one of its oil and gas sites in North Dakota.
Johanna Ostrum, Gradient’s chief operating officer, said most small and medium-sized independent energy companies are interested in geothermal energy for their own electricity needs, not to create electricity for resale . Geothermal energy aims to be cost competitive. The average cost of electricity (LCOE) for conventional geothermal projects in the United States is approximately $64 per megawatt hour (MWh), which is competitive with other dispatchable energy sources such as gas. combined cycle, which is around $77/MWh on average, and nuclear, which is around $182/MWh, according to energy consultancy Rystad Energy.
Thanks to the improving investment landscape, more than 60 startups have emerged in the past two years, said Bryant Jones, executive director of industry association Geothermal Rising.
“Texas is becoming the ideal location for geothermal exploration and development across the board,” said Matt Welch of the Texas Geothermal Energy Alliance (TxGEA). “This is largely due to the abundance of identified geothermal resources, the one-stop permitting process and regulatory certainty.
Ten of 22 geothermal startups launched in the United States between 2016 and 2022 were headquartered in Texas, according to a report released last year.
The current decline in commodity prices could also encourage more shale companies to diversify their revenue streams by exploiting geothermal energy.
The sector is also benefiting from increased bipartisan interest. The CLEAN and HEATS Acts were recently passed by the House of Representatives and must still be approved by the Senate. If adopted, they will facilitate the implementation of geothermal projects in the country.
“Government incentives and private investment are increasing…the combination of a low decline asset and high price certainty is attracting interest from many investors,” Mr Lowe of Devon said.
