Geothermal Energy: Hot Water as Fuel

Meeting Soaring Energy Demand with Clean, Reliable Power

Hot Water As Fuel

Hot water has never been so valuable. While historically, hydrocarbons have been the most essential product to extract from the subsurface, the unit value of geothermal heat for electricity production is being driven higher by elevated power demand. After decades of electricity generation stagnation, this forecasted growth is due to both data centers’ massive development plans and the electrification of everything. Many power-hungry customers are willing to pay 2-3x wholesale electricity prices for expedient access to power, fueling geothermal’s promising renaissance, and expanding margins to potentially compete with other subsurface products.

Considering the significant promise of clean, firm power, it is important to understand why geothermal has been relatively subdued as an industry. In addition to a deficiency of conventional hydrothermal resources, the unit economics have been restrictive. Geothermal experts have provided estimates of less than 10% for many projects. To contextualize this, consider the estimated geothermal LCOE (levelized cost of electricity) to be ~$64[1]. In this case, the average wholesale electricity price in the US of $30-$40[2] is below the minimum cost power must be sold at for the plant to be economically sensible. Thus, profitable projects had to match exceptional spot markets; even then, the margins left much to be desired. However, we have entered a modern era in which utilities are prepared to sign PPAs of $80-$100/MWh and above[3], with certain customers such as hyperscale data centers and community choice aggregators expected to be willing to pay >$115/MWh. This would put an average geothermal project squarely in the black, while also allowing next generation geothermal to commercialize early in its cost curve. There are currently 24 states, plus the District of Columbia and Puerto Rico, with 100% clean energy goals[4], which drives the decarbonization push for public utilities and the private sector alike.

Both utilities and data centers expect reliability on par with the grid of 99.95% uptime [5] with the floor for the lowest tier of data centers still requiring 99.67% uptime[6]. To meet these 24/7 requirements, Google’s sustainability team has shown that including advanced, firm, carbon free energy can reduce capacity needs by 40% as compared to purely intermittent carbon free generation[7]. Furthermore, a grid relying on purely variable generation requires three times more transmission to handle peak production rather than a mix of firm generation[8]. The market is desperate for a clean firm solution such as geothermal.

Data Centers…

Speaking of Google, data centers are expected to demand up to 9% of the total power generated in the US by 2030 [9], with single locations demanding up to 1GW of capacity. The scale of this is nearly inconceivable to serve via solely intermittent generation—imagine providing a gigawatt of storage capacity for the 12-18 hours that the weather does lend itself to solar or wind generation. After all, the largest battery storage system on earth is only (but still, impressively) 3.3GWh [10]. This insatiable demand problem is complicated by big tech’s self-imposed commitments to 24/7 clean energy, often by a timeline of 2030.?

Procuring power for these customers is not straightforward. We have implicitly expressed four pain points. 1) accessing power expeditiously 2) incredible reliability 3) solutions that can scale to hundreds of megawatts or even a gigawatt 4) carbon-free power. A brute force solution could be constructing large geothermal plants behind-the-meter. Upon first glance, this solution bypasses the 2-6 year grid interconnect queue time and leverages geothermal’s firm nature. Unfortunately, the cost of building a substation for a micro-grid is unrealistic (numerous experts were hesitant to even venture a guess), and the reliability of geothermal behind-the-meter cannot yet compete with the redundancies the grid has in place to ensure coverage. Therefore, geothermal PPAs thus far have been served by traditional grid interconnect with transmission provided by utilities.

Offtake

While this long grid interconnect timeline is challenging, there are ways that project developers can optimize their offtake planning. Choice in product (heat vs. electricity) and choice of customer can have significant effects on project forecasting. In the below figure, we have weighed potential sales routes based on the key factors of location, price, and interconnect queue time. These figures are all based on the U.S. market.

Google, and hopefully other customers soon to follow, have such high demand that they have recently unveiled new purchase agreement contract structures to enable expedited grid interconnect. This is known as the CTT (clean transition tariff) [11]. In these agreements, the buyer is willing to cover the costs of potential construction of grid over-capacity that would otherwise be passed onto the rate payers. In doing so, grid operators can expedite interconnect review by many years for larger projects. This would constitute the most optimal offtake channel offering relaxed location constraints, the highest unit value, and the fastest interconnect.

While many challenges remain in financing and developing geothermal power, the market drive is robust. This momentum is going to enable projects that would have previously been economically unfeasible via elevated willingness to pay. Finally, it is clear that geothermal carries cost, logistical, reliability, and carbon intensity advantages over other forms of energy production today. We are excited to continue our work in this space by soon publishing articles covering the geothermal value chain, bankability, and technical innovations.

Authors: Joshua Rubnitz , Adam Erlichman Qianran (Katherine) He, PhD , Alessandro Girardi