Energy demand in the United States is projected to grow roughly ten times as fast in the coming decade as it did over the past ten years. This is largely driven by electrification, data center load growth, and increased demand from the manufacturing sector.1 While renewables are expected to make up a significant share of the new supply to meet this demand, they are not enough: To reliably deliver power from the grid requires firm energy that can be dispatched at any time—unlike wind and solar, which are only produced when the wind is blowing or the sun is shining. Many utilities, and especially corporate buyers, want, or need, that energy to be clean. These forces create an increasing need for clean, firm power.
Conventional geothermal energy is a long-established clean, firm power source, but it has not achieved scale in the United States because it relies on naturally occurring underground structures that exist only in some parts of the country. Two factors are now coming together to create a new opportunity horizon for geothermal: rapidly rising demand for clean, firm power and next-generation subsurface technology breakthroughs. Next-generation geothermal energy approaches can be deployed in many more locations, and thanks to recent technological advances, they are on a trajectory to become cost-competitive soon.
In this article, we analyze the potential of the next-generation geothermal industry in the United States. Our analysis suggests that declining costs, the ability to scale quickly, and established supply chains and workforce may be aligning with increasing energy demand to establish geothermal as an important piece of the United States energy mix. Our analysis suggests next-generation geothermal energy could supply up to 100 gigawatts of power in the United States by 2050, with approximately 40 gigawatts by 2035.
Next-generation geothermal energy heats up
There are many clean, firm power solutions, but each one comes with its own downside. There are few spots where hydropower could exist but doesn’t already. Solar and wind energy can be coupled with batteries, but most storage solutions today last only a few hours, so this is not a fully firm energy source. The next generation of nuclear reactors, known as small modular reactors (SMRs), is in development but not yet deployed.2 Another option—carbon capture technology added to natural gas plants—faces challenges in becoming cost-competitive.
The energy from heat in the Earth’s crust has been cultivated for millennia: Among its uses, ancient Romans used geothermal energy for space heating.3 Over the past 50 years, conventional geothermal electricity generation has been developed in favorable locations worldwide. In these locations, hydrothermal reservoirs contain water trapped underground in hot, porous, fractured rock. Liquids pumped through the existing subsurface cracks capture the rocks’ heat and bring it to the surface where it is used to produce steam that drives turbines to generate electricity.
While it is an established technology, conventional geothermal only provides about three gigawatts of capacity in the United States today, less than a tenth of a percent of the total energy mix.4 Because of the limited locations where hydrothermal reservoirs exist, the maximum resource potential is fewer than 40 gigawatts.5
Next-generation geothermal approaches, however, dramatically expand the available resources by engineering fractures in the subsurface, allowing almost anywhere with hot, dry subsurface rock to be a potential source of electricity. A US Department of Energy report on next-generation geothermal energy estimates the available geological resources could provide up to 5,500 gigawatts of capacity in the United States, around 140 times as much as conventional geothermal.6 Two next-generation geothermal approaches are closest to market:
- Enhanced geothermal systems (EGSs) use hydraulic fracturing to create subsurface fractures through hot rock three to five kilometers (10,000 to 16,000 feet) below the surface. Water injected into a well absorbs heat while traveling through the fractures and exits through another well to the surface where the heat is converted to electricity.
- Advanced closed-loop systems (ACLs) create a radiator-like, closed-loop system of horizontal wells filled with fluid. These loops are deeper in the ground—four to eight kilometers (13,000 to 26,000 feet)—potentially increasing the cost relative to EGSs. However, having a closed loop reduces overall water demand, which could boost feasibility in arid regions.
These approaches typically dig deeper and through harder rock than where most oil and gas drilling occurs, so drilling for next-generation geothermal is currently more expensive than for traditional oil and gas.
We estimate that around $900 million in private capital has been channeled toward next-generation geothermal technologies and projects in the past five years. Anticipated cost decreases and the urgent need for additional power supply may draw even more attention to the sector in coming years.
Our analysis suggests that more than 780 megawatts of letters of intent and power purchase agreements (PPAs) have been signed over the past two years, and approximately one gigawatt of next-generation geothermal projects is in various stages of development.
Costs could drop significantly in the next decade
Improvements in technology derived from unconventional oil and gas drilling have combined with growing energy demand to push next-generation geothermal from a niche option to a cost-competitive choice in some areas, with strong potential to become cheaper over the next decade.
We estimate that levelized production costs for a first-of-a-kind, commercial-scale (more than 50 megawatts) next-generation geothermal facility in the United States could range from $75 to $120 per megawatt-hour. Exploration, drilling, and power plant capital expenditures could make up more than 70 percent of costs.
Cost estimates are affected both by resource quality and by the geothermal technology used. Resource quality is determined by how quickly subsurface temperature rises with depth. Higher temperature gradients mean less drilling is needed to achieve the optimal production temperature, reducing the levelized cost of power. Temperature gradients are higher in the West (Exhibit 1), making this region likely to be first to adopt next-generation geothermal in the United States. For a given resource, we estimate EGSs will be lower cost than ACLs because ACLs drill deeper than EGSs. However, factors such as water scarcity or local regulations against hydraulic fracturing may nevertheless make ACLs more attractive in certain regions.
We expect costs could drop to $45 to $65 per megawatt-hour over the next decade (Exhibit 2), with local microeconomics determining much of the project viability given variation in geothermal project elements (for example, temperature gradient) and competition (for example, gas costs). These cost improvements will likely be driven by four factors: reduced drilling and hydraulic fracturing cost, improved well productivity, optimized exploration spend through better mapping and characterization of geological resources, and scaled supply chains for power plant equipment resulting in lower surface capital expenditures. Applying best practices from the oil and gas sector will be instrumental to achieving these improvements.
- Reduced drilling and hydraulic fracturing cost. Drilling and hydraulic fracturing cost is driven by rig and crew, equipment rentals, and related expenses over the course of the drill. Breakthroughs in unconventional oil and gas from 2010 to 2020 allowed improved drilling success rates, faster drill speeds, and fewer, and shorter, drilling pauses, all of which led to large cost reductions. Next-generation geothermal can adapt these innovations to accelerate cost declines:7
- Improved well productivity. Well productivity can make or break a project’s economics. Productivity describes how much energy can be extracted from the reservoir per unit of time, which depends on the reservoir temperature and liquid flow rate. The flow rate requires a balance: too fast and the liquid will not absorb sufficient heat; too slow and the electricity output per unit time will be diminished. Optimizing the flow rate can result in higher output per well.
- Optimized exploration spend through better resource characterization. Exploration spend may also go down as resource characterization improves—through more extensive mapping and the use of new AI-based technologies, for instance. Improved maps of temperature gradients and expected geology across high-potential sites will enable project developers to focus on areas with the highest likelihood of successful development, reducing risk.
- Scaled power plant equipment supply chains that reduce surface capital expenditures. As the industry scales, we expect lower costs across the supply chain owing to larger contracts for materials, equipment, and personnel, and to scaled, modular production of the turbines used to produce electricity from steam at the surface.
Although other clean-energy sources will also experience cost decreases over the same period, we expect next-generation geothermal to outcompete other sources of clean, firm power. In particular, while our analysis suggests nuclear energy could see modest cost decreases by 2030 (with hydropower remaining unchanged), next-generation geothermal could drop to $45 per megawatt-hour from $75 per megawatt-hour, where it is today. Natural gas paired with carbon capture technology is expected to remain the most costly clean, firm technology in the coming decade absent a breakthrough.
Geothermal energy has great potential if challenges can be surmounted
The uptake of next-generation geothermal energy will be driven by PPAs with utilities or commercial and industrial (C&I) customers, rather than by merchant generation. Utilities want or are mandated to diversify their power sources and reduce their carbon footprints. C&I customers want access to reliable clean energy to achieve sustainability goals. There is demonstrated demand for clean, firm PPAs—some have already been signed at more than $100 per megawatt-hour. Next-generation geothermal projects could also be deployed “behind the meter”—without (or prior to) grid interconnection. This could reduce deployment timelines and save transmission costs for customers.
Our analysis suggests that next-generation geothermal energy has a market potential of 85 to 110 gigawatts in the United States by 2050 when deployed as a grid resource competing with other technologies (Exhibit 3).
Alongside the potential for growth, we see four primary obstacles that next-generation geothermal stakeholders will need to address:
- Water. Next-generation geothermal systems require substantial amounts of water (although less than nuclear does). Many of the highest-potential resources are in water-stressed Western states. Addressing water efficiency will be important for widespread deployment. Produced water from oil and gas extraction could be used for geothermal systems, though feasibility will differ by region.
- Financing. Financing early next-generation geothermal projects can face risk/return challenges. As with other renewables, returns will mostly be dictated by locked-in prices through PPAs. However, as with oil and gas, geothermal energy carries resource risk—the temperature gradient encountered during drilling may be lower than anticipated, leading to higher project costs. This combination poses a bind for next-generation geothermal relative to bothrenewables (which don’t face as much resource risk) and oil and gas (which doesn’t face the limited upside of locked-in prices). To solve this dilemma requires either reducing the resource risk or increasing upside opportunities. The most tractable of these will likely be to reduce the resource risk through investment in exploration and characterization technology.
- Interconnection. As with other new power projects, interconnection queues face increasing delays caused in part by complexities in connecting renewable projects to the grid; connection can take several years in the most bottlenecked independent system operators. Some customers may decide to avoid this obstacle by deploying next-generation geothermal projects behind the meter.
- Supply chain. Next-generation geothermal projects are not exempt from the supply chain-related headwinds facing other power technologies. Important pieces of equipment including transformers and turbines, as well as engineering, procurement, and construction capacity, are in short supply across the United States. Global trade uncertainties could exacerbate these shortages.
Stakeholders can support and benefit from advancing geothermal energy
Geothermal-only companies (“pure play pioneers”) focused on technology improvements and, increasingly, project development are likely to continue to drive progress in the next-generation geothermal industry. Industry leaders are reporting rapid technological advancements, including further reductions in drilling time and feasibility studies for tapping reservoirs in super-hot rocks. At the same time, other stakeholders can accelerate scale-up of the industry while positioning themselves to benefit from its growth:
- Investors can unlock returns by providing capital directly to projects or by investing in services such as drilling technologies or resource characterization that could de-risk future deployment.
- Oil and gas players can form close, strategic partnerships with leading next-generation geothermal players, providing needed drilling expertise in return for business diversification into an innovative, lower-carbon energy resource closely aligned with their core capabilities.
- Utilities can include next-generation geothermal assets in their resource planning. Especially in areas with high load growth, next-generation geothermal could offer an affordable option to expand generation capacity while meeting clean portfolio standards.
- C&I and data center customers can pursue behind-the-meter deployment of geothermal resources in suitable areas, getting projects online sooner and enabling progress toward their clean-power commitments.
- Federal, state, and local governments can orchestrate detailed resource characterization in high-potential areas in collaboration with industry.
Geothermal energy offers an appealing combination of clean and firm power. Although there are obstacles to its adoption, recent advancements combined with rapidly growing power demand mean next-generation geothermal projects could quickly increase their share of the United States power mix in the coming decade. Stakeholders stand to gain from doing their part to support its development.
