This piece introduces Hot Rocks: Commercializing Next-Generation Geothermal Energy, a joint series by Employ America and the Institute for Progress, examining the potential to commercialize next-generation geothermal energy, the lessons we might learn from the shale revolution, and the federal policy changes needed to make it happen.
Despite unprecedented investments in clean energy, the path to decarbonization is still highly uncertain. We can’t anticipate the frictions that may arise as we attempt to rapidly deploy clean energy. The risks of financing new technology and a burdensome regulatory framework could prevent many projects from even getting off the ground. Targeted policy reforms can unlock private capital and technological innovation.
Together, Employ America and the Institute for Progress are examining how policy can shape the future of geothermal energy. Although our organizations tackle different challenges, we’re both committed to a future of abundant, clean energy that benefits all Americans.
So why focus on geothermal energy? Geothermal has remarkable promise to support growing demand for clean, firm energy. As Eli Dourado wrote, “there is 23,800 times as much geothermal energy in Earth’s crust as there is chemical energy in fossil fuels everywhere on the planet.” The federal government is also uniquely positioned to accelerate geothermal energy development, because the Bureau of Land Management has the authority to lease geothermal resources on 245 million acres of public lands. Much of that land is in the American West, where heat resources are shallow and easily accessible. Finally, American industry is well-equipped to lead a “next-generation” geothermal revolution. We’ve developed technologies like fracking and horizontal drilling, so the oil and gas industry’s workforce can transfer its skills to geothermal, and we have an already-developed supply chain. While we support an “all-of-the-above” approach to ensuring our energy security while decarbonizing, next-gen geothermal has not received the type of targeted policy interventions we provide other high-potential decarbonization efforts, like carbon capture, utilization and storage (CCUS), or hydrogen.
As the wind and solar industries mature, they run up against constraints, like intermittency and land-use challenges, that could limit widespread deployment. So it’s essential to quickly innovate and commercialize the next generation of clean energy technology. Unfortunately, next-gen geothermal has a capital problem. The industry faces headwinds that will hinder the pace of innovation and commercialization. With interest rates at their highest level in decades — and slated to stay elevated for an extended period — the cost of capital will limit the nascent industry’s ability to iterate and improve over time. Furthermore, a burdensome regulatory framework (particularly when compared with its closest analogue, the oil and gas industry) will limit investment into the sector as developers — weary of endless litigation — invest elsewhere.
Over the coming week, this series aims to address these challenges. What about the recent history of the shale industry might offer insight into the challenge the geothermal industry faces? What do we know about the regulatory and macroeconomic environment that can inform policy moving forward? What policies are most appropriate to accelerate next-gen geothermal commercialization? These are the questions we hope to answer.
The shale revolution provides a roadmap for accelerating innovation and commercialization for next-gen geothermal energy. The shale revolution only happened because of an accommodative macroeconomic environment that lowered the cost of capital, fiscal subsidies that made risky drilling more viable, and a permissive regulatory environment that lowered the costs of risky investments. These factors worked in concert to unlock the capital necessary to enable remarkable technological advances in drilling and fracking.
The shale revolution only happened because of an accommodative macroeconomic environment that lowered the cost of capital, fiscal subsidies that made risky drilling more viable, and a permissive regulatory environment that lowered the costs of risky investments. These factors worked in concert to unlock the capital necessary to enable remarkable technological advances in drilling and fracking.
Although today’s context is different, the history of the shale revolution can inform policy choices to accelerate next-gen geothermal energy. In our view, Congress can pass clear, targeted interventions to support geothermal. Even without congressional action, the Biden administration can start the process through targeted executive action. Our series will lay this out.
Part I: The Technological Innovations that Produced the Shale Revolution
Brian Potter walks through the technological revolution that enabled the shale boom, and what it means for the geothermal industry. As he says, “it’s difficult to predict the trajectory of technology. Over and over again we see technology spillovers, where technology developed in one industry for some particular purpose ends up spreading to other industries, often to solve very different problems. Fracking also shows the importance of serendipity, and of a keen eye for unusual patterns in scientific and technological discovery. And technology development often requires an extremely long time. Mitchell Energy spent 17 years and over $250 million dollars drilling wells into the Barnett Shale, gathering data and experimenting, before it developed a method that worked and turned a profit.”
Part II: How Public Policy Accelerated the Shale Revolution
Skanda Amarnath and Arnab Datta explain the economic and regulatory environment that enhanced the shale boom. Shale’s advances weren’t “Eureka!” innovations. Instead, they were incremental, the result of considerable time and investment. Private-sector investment dramatically accelerated commercialization of shale drilling, and that investment led to a productivity boom that we’re still experiencing. Although the profit and productivity gains came well after the substantial investment, they wouldn’t have occurred without it. As we look to commercialize new energy technologies like geothermal, it’s worth exploring what drove a long period of sustained investment in the energy sector’s recent past. Many factors contributed to the boom, but specific policy decisions facilitated investment. The same policy tools that enabled the shale revolution can supercharge new clean energy technologies like next-gen geothermal.
Part III: Barriers to Next-Gen Geothermal
Aidan Mackenzie, Ashley George, and Arnab Datta review the technological, capital, and regulatory challenges making it difficult for the industry to commercialize innovations. Permitting adds a large uncertainty cost to geothermal development. Developers need to raise capital early in the planning process. But because of how long and uncertain the permitting process is, companies cannot provide investors assurance or even a final project plan until years into the project. Developers do not know when their project will come online, forcing them to factor in the potential loss of revenue and costs from permitting litigation. Permitting uncertainty gets stacked on top of the technological uncertainty that is inherent to companies pioneering next-gen technology. The result is that investors often shy away from making financial commitments, or significantly raise the price of capital.
Part IV: The Policy Interventions that Could Boost Geothermal
Ashley George and Arnab Datta describe legislative and executive proposals that could support the commercialization of next-gen geothermal. Specifically, they propose two targeted reforms: providing a grant to the Office of Clean Energy Demonstrations (OCED) to support next-gen geothermal; and creating a categorical exclusion for geothermal exploration to reduce resource risk.
Given the uncertainty in our path to decarbonize, it is imperative that federal policy incentivize more shots on goal. Next-gen geothermal is a great place to start.
We spoke with geothermal energy companies during the research process for this series, to better understand both the underlying technologies and the constraints facing the industry. Neither of our organizations has ever received donations from corporations with any financial interest in this topic.
