First Enhanced Geothermal System in the U.S. Showcases an Ancient Technology with Modern Potential, But Obstacles Persist

Published: January 24, 2024

By: Concentric Staff Writer

The vast amount of geothermal energy surging under the surface of the Earth is one of the most ancient resources in existence, but it has yet to be significantly harnessed for public consumption in the United States, including the western part of the country where its potential is the greatest.

There are regulatory and economic hurdles to traverse for geothermal, which Indigenous people have used for more than 10,000 years for heat and healing rituals at sites such as the present-day location of Calpine’s The Geysers facility in northern California. But geothermal has been tepidly pursued on a commercial level in the U.S.—a situation that begs for more analysis of how this plentiful, zero-emission resource can be better harnessed.

The recent activation of the first major enhanced geothermal system (EGS) in the U.S. is a milestone for an energy resource that has long been recognized as both plentiful and clean. Fervo Energy, in partnership with Google, said on November 28 that it began operating a new 3.5-MW EGS geothermal plant in Nevada to power data centers in Las Vegas and other locations in the state. EGS technology employs vertical and horizontal drilling, pumped water, and rock fracturing to extract steam from underground heat to power above-ground turbines. This technique is in contrast to regular geothermal development that relies on naturally occurring permeable rock to extract heat and steam.

Geothermal energy is virtually limitless, “always on,” and a “50-state solution,” according to the U.S. Department of Energy (DOE), which in 2019 launched its GeoVision program to explore new potential for the resource. Improvements in technology and tools could reduce costs and increase geothermal development, according to DOE, which says there is potential for 60 gigawatts electric (GWe) of geothermal energy capacity to be developed by 2050. EGS can also be developed in more locations since it is not limited by rock permeability and other factors that affect traditional geothermal development.

Optimizing and streamlining permitting timelines are other ways to increase EGS, as well as addressing regulatory and land-access barriers, DOE said. This would reduce development timelines as well as financing costs during construction, as has happened with oil and gas development over time. A “business-as-usual” DOE scenario predicts about 60 GWe of potential development by 2050, a target DOE said could be met “without significant impacts on the nation’s water resources.”

DOE’s Geothermal Technologies Office analyzed development scenarios through 2050, aimed at five key activities, including defining and evaluating geothermal growth scenarios using data and modeling and addressing “all major geothermal resource and markets segments.” This would include hydrothermal and EGS resources, as well as electric and non-electric applications. DOE said it is using a transparent process supported by peer-reviewed data to produce a vision for geothermal growth and articulate strategies to achieve it.

Geothermal, which had the first few gigawatts of capacity installed in the U.S. in the 1980s, is also an under-recognized resource for the heating and cooling of homes and businesses using geothermal heat pumps (GHP). GHP deployment currently is at about 16.8 GW thermal (GWth), equivalent to about 2 million households, according to DOE. Water usage can be conserved by using non-freshwater resources for this equipment.

The 2022 Inflation Reduction Act increased the federal tax credit for GHP from 26 percent to 30 percent and extended the credit until 2034. Homeowners must have installed and begun running systems that meet certain efficiency requirements to use the credit.

In 2022, geothermal made up 1.6 percent of U.S. primary energy consumption, a metric that includes transportation, industrial, residential, and commercial energy usage in U.S. Energy Information Administration (EIA) analysis. Geothermal is classified as a renewable energy source along with solar, wind, hydroelectric, and biomass, while primary energy sources as defined by EIA include natural gas, petroleum, nuclear electric power, and coal.

Despite the interest in new EGS, geothermal development has remained relatively flat in the U.S. over the past two decades, according to EIA data. U.S. geothermal net generation for all sectors monthly was about 1.2 million megawatt hours in January 2004, compared with 1.4 million MWh in September of this year, nearly two decades later. One of the reasons is the significant barriers in terms of cost and risk associated with the subsurface exploration that occurs in geothermal development.

There are other particular economic reasons why geothermal development has remained flat, according to a March report by the Lawrence Berkeley National Laboratory (LBNL). The study looked at empirical data from power purchase agreements (PPA) and examined geothermal’s role in wholesale electricity markets, where enthusiasm for the resource is affected by its lower net value relative to its PPA price.

“In the face of this challenging market outlook, policy intervention, and continued R&D investments may be warranted to sustain a vibrant geothermal industry that stands ready to contribute to the late stages of decarbonization,” LBNL said in the report. The underground heat source can also work in tandem with other low-emission technologies, such as hydrogen production and direct-air carbon capture, as well as for heating and cooling purposes.

Less than .5 GW of geothermal has come online in the U.S. in six western states where it holds major potential—California, Idaho, Nevada, New Mexico, and Oregon—and a minuscule 1 GW has been added in the past century nationwide.

When assessing geothermal resources, “identified” resources refer to those that have been located, assessed, and proven to exist, while “undiscovered” resources refer to potential reservoirs that are believed to exist based on exploratory techniques, but not directly confirmed to be accessible. Of the identified 39 GW of undiscovered geothermal capacity in the six western states, only 3.7 GW of capacity has been deployed thus far, not counting the new Google facility. Geothermal was boosted by a June 2021 “mid-term reliability procurement” order from California state regulators for 1 GW of zero-emission, high-capacity factor, non-weather dependent resources, namely geothermal. This will spur geothermal’s competitiveness through 2026, according to LBNL, along with regulatory drivers such as California’s SB 100 legislation and integrated resource planning in other Western states. This will result in new geothermal capacity sold to utilities and other procurement heavyweights in California like community choice aggregators (CCA).

LBNL analyzed historical PPA prices to judge the value of geothermal energy against competing resources such as solar, wind, and solar plus storage. Geothermal power plants do not require ongoing fuel procurement but are capital-intensive in the development phase, and capital costs make up the bulk of the required investment. Longer-term PPA structures of 15 to 30 years reduce project risks and attract financing, according to the LBNL report.

Geothermal also provides round-the-clock energy compared to variable energy resources such as solar and wind, which depend on weather and provide different energy and capacity benefits. Due to structures such as the wholesale power market in California, four hours of standard lithium-ion storage is rated similarly to geothermal in terms of capacity value. (Capacity value reflects contributions to local or regional resource adequacy requirements, in contrast to “energy value,” which refers to a resource’s specific hourly generation output.)

Solar and storage projects are also dominating interconnection queues around the country, particularly in the West. Solar and wind plus storage represent geothermal’s primary competition with an outsized presence in interconnection queues.

Geothermal appeared in CCA Silicon Valley Power’s (SVP) 2023 Integrated Resource Plan, which is aimed at compliance with state greenhouse gas emission-reduction standards and other policies. SVP sees geothermal becoming available for its resource mix in 2028. Geothermal enjoys a high load factor, and SVP plans the addition of 290 MW of new geothermal, along with 590 MW of wind, 150 MW of solar, and 110 MW of storage capacity by 2035.

“SVP faces a common challenge of deeply decarbonized systems, which is the ability to provide power reliably without firm dispatchable (emitting) thermal plants,” the CCA said. “Clean firm resources not only provide clean energy, but also firm capacity to help ensure system reliability. The clean, firm, and baseload characteristics of geothermal align well with SVP’s forecasted load growth and load shape and could provide a key clean firm option.”

But SVP says that there might only be 3.4 GW of geothermal available to California, and the California Public Utilities Commission’s mid-term reliability order requires procurement of a long lead-time resource—geothermal—which could provide competition and reduce the amount of geothermal available to SVP.

SVP will deliver energy to the City of Santa Clara through a long-term PPA with Calpine geothermal facilities in Sonoma and Lake Counties beginning in 2025. This contract will deliver up to 50 MW in 2025-2026 and increase to 100 MW in 2027-2036.

According to the International Energy Agency, EGS has many benefits including zero emissions and that it is reliable baseload power that can supplement the intermittent output of renewables. It also has a smaller physical footprint compared to resources such as wind and solar and requires a skill set similar to oil and natural gas workers, providing possible new jobs as those industries transition to a more zero-emissions-based economy.

To advance EGS, IEA recommends increasing funding for EGS research and demonstration projects, providing tax incentives and other financing tools to support geothermal projects, and demonstrating the potential of large-scale geothermal development to the public.

An “enhanced geothermal earthshot analysis” published by the National Renewable Energy Laboratory (NREL) shines more light on EGS, including a 20-percent reduction in drilling costs from GeoVision projections and productivity increases. Regional studies and other sources were used to augment the EGS potential in the western U.S. by NREL. The study projected a total installed geothermal resource of 38.3 GW in 2035 and 90.5 GW in 2050 under the updated assumptions. Geothermal accounts for a little under 2 percent of national generating capacity in 2035 and a little under 4 percent in 2050 due to a high-capacity factor compared to other renewable resources and increased EGS deployment.

The slow pace of geothermal development is in sharp contrast to other zero-emission resources like solar, wind, and battery storage, and a cost gap remains. NREL said the cost of geothermal deployments is affected by which market they are deployed in and varies with time and location due to “variations in demand and the cost and availability of competing technologies.”  EGS deployment costs are higher in the eastern U.S. because of fewer and lower-quality resources, thus making EGS deployment in the West easier. The cost of EGS resources varies by location, demand, and the cost of competing decarbonization policies.

Geothermal is poised to play a larger role in U.S. energy production as transitions to zero-emission technologies continue, bolstered by strong regulatory and policy support at the federal level. Perhaps the future will see this resource become more competitive as its potential is continually explored.

All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

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