Geothermal Energy Startups Gain Traction

By Mrinalika Roy and Seher Dareen

(Reuters) – Geothermal energy startups are on the rise as big tech companies seek sustainable power for their energy-intensive AI data centers, though long-term investments remain uncertain amid a focus on natural gas by oil giants.

Meta (NASDAQ: META) and Alphabet (NASDAQ: GOOGL)'s Google are teaming up with startups proposing geothermal electricity generation to power their data centers. The race to meet artificial intelligence's energy demands is accelerating various clean technologies.

Trey Lowe, CTO at U.S. shale gas producer Devon Energy (NYSE: DVN) and an investor in geothermal startup Fervo Energy, remarked, "We believe geothermal, along with abundant natural gas, can be part of an all-of-the-above energy mix to meet demand." Geothermal is seen as a faster way to produce carbon-free electricity than nuclear and without the intermittency issues of wind and solar. However, startups still face significant challenges, including high upfront drilling costs and lengthy project approvals, dampening initial enthusiasm with only about $700 million invested in geothermal since 2020.

Prominent shale oil producers like Chevron (NYSE: CVX), Diamondback (NASDAQ: FANG) Energy, and Exxon Mobil (NYSE: XOM) advocate for natural gas as the primary fuel for electric power, eyeing carbon sequestration projects to cut emissions.

Cindy Taff, CEO of Sage Geosystems, noted growing interest in geothermal from smaller oil and gas producers, while larger firms take a more cautious approach. Sage recently raised $30 million and plans to kick off a Series B round in January.

In December, Colorado-based Gradient Geothermal announced its collaboration with Chord Energy to generate power at a North Dakota oil site using geothermal energy. COO Johanna Ostrum indicated mid-sized and smaller independent energy firms are interested in geothermal mainly for their own power needs rather than selling electricity.

The average levelized cost of electricity (LCOE) for conventional geothermal projects in the U.S. is about $64 per megawatt-hour (MWh), making it competitive with combined cycle gas at around $77/MWh and nuclear at about $182/MWh, according to Rystad Energy.

The investment landscape is improving, with over 60 startups emerging in the last two years, stated Bryant Jones from Geothermal Rising. Texas is becoming a hotspot for geothermal activity due to identified resources, streamlined permitting, and regulatory certainty.

Of the 22 geothermal startups launched in the U.S. from 2016 to 2022, ten are based in Texas. The current low commodity prices may also motivate shale companies to diversify into geothermal energy.

Bipartisan interest in the sector is growing, with acts like the CLEAN Act and HEATS Act awaiting Senate approval to ease geothermal project setups in the country. Devon's Lowe emphasized that "government incentives and private investments are increasing… the combination of a low decline asset with high pricing certainty attracts many investors."