By Michael Johnson and Ben Ratner
As technology companies and others grapple with baseload electricity needs amidst the age of AI, data centers, and electrification, one of the most promising solutions just requires looking down – straight to the Earth’s core.
Next generation geothermal energy harnesses heat from deep underground in new ways to produce zero-carbon electricity at the surface, complementing traditional renewables. This approach represents 24/7 baseload power that is clean and reliable, making geothermal energy an ideal fit for data centers that require a continuous power supply to ensure uptime and reliability.
American entrepreneurs are leading a wave of geothermal innovation that could fill a missing piece in the energy transition puzzle, alongside advancements in nuclear energy and other zero-carbon solutions. The U.S. Department of Energy (DOE) estimates that geothermal power in the U.S. could expand over 20-fold from its current installed capacity, potentially contributing 90 GW of clean, firm energy nationwide by 2050.
While geothermal power has a long history and currently produces about 15 GW of power globally, it has only existed in certain locations where the Earth’s heat occurs near the surface, like the steam-rich Geysers geothermal field in California. Promising next generation technology, just now proving to be commercially viable, taps into deeper geothermal resources which are available across much of the planet—a game-changer for geothermal power growth.
Geothermal power is set to expand in the U.S., contributing 90GW of clean, firm energy by 2050. Early-stage investments in geothermal power are gaining momentum, with fundraising reaching $700M+ since 2020. Tech companies see geothermal power as a way to support the growth of AI and data centers. Globally, 16GW of geothermal power is produced.
Key factors for success in geothermal’s era of innovation, investment, and industry-building include:
Harnessing American industrial know-how
When the U.S. faced a natural resource shortage at the start of this century, industrial innovation delivered answers that may also point the way for breakthroughs in meeting the growing electricity crunch.
In 2000, when natural gas supply dwindled and prices were up more than 35%, oil and gas entrepreneurs combined innovative new methods for drilling and producing that unlocked huge new reserves at competitive prices. Private sector innovation with DOE technical support led to natural gas outcompeting coal, enabling a rebound of American industry activity, energy independence, and reduced CO2 emissions.
While today’s geothermal sector provides less than 0.5% of electricity on the U.S. electric grid, new approaches like enhanced geothermal systems (EGS) can translate the innovations of fossil fuel development in the 2000s into zero-carbon electricity production in the 2020s and beyond. Geothermal also has the potential to provide direct heat for various industrial applications that are tougher to electrify.
The power of creative business partnerships
In these early days of geothermal’s next chapter, creative partnerships between businesses in different sectors are sparking new possibilities. For example, J.P. Morgan advised the Oklahoma-based oil and gas producer Devon Energy on investing in the Houston-based startup Fervo Energy. Fervo broke ground in 2023 for a Utah project aimed at delivering 400 MW of 24/7 electricity through full scale production in 2028, and has since reached critical commercial milestones.
Next generation geothermal is a unique opportunity for oil and gas management teams to lean into their expertise while tapping into an emerging technology. In parallel, technology firms including hyperscalers looking to reconcile multiplying energy procurement needs with ambitious climate commitments may add geothermal to the management agenda for offtake agreements, M&A activity, and other creative ways to convert free cash flow into carbon-free electricity before 2030.
"Next generation geothermal is a unique opportunity for oil and gas management teams to lean into their expertise while tapping into an emerging technology."
The importance of policy support
With strong potential to enhance energy security and provide new opportunities for oil and gas workers all while delivering zero carbon energy, advancing next generation geothermal can become a bi-partisan priority during turbulent times.
Support from federal and state policy makers has been instrumental for leading edge geothermal companies and projects thus far. For example, California has mandated that 1 GW of new capacity must come from zero-emitting, renewable resources with at least an 80% capacity factor1, creating demand for next generation geothermal energy. Going forward, fostering geothermal market development deserves increased attention on policy maker agendas, building on prior support for permitting and research. Key issues include how government resources can best be leveraged to de-risk first-of-a-kind (FOAK) projects and attract private capital, and how approval timelines can be shortened for connecting clean, baseload 24/7 generation projects to the grid.
Furthermore, over time American know-how can offer a model for international markets to develop geothermal resources and decarbonize their energy systems.
Outlook for financing
There is momentum in early-stage investments, with cumulative fundraising in geothermal surpassing $700 million since 2020 according to Sightline Climate—a tenfold increase over the past three years. Access to capital will be a critical enabler for geothermal start-ups to speed their learning and optimization, drive their technologies down the cost curve, and help the nascent industry deliver carbon-free electricity at gigawatt scale.
With high interest rates compounding challenges in the “valley of death”, traversing this phase requires bringing together partners that can help to collectively drive scale, such as patient capital, guaranteed offtake, and valuable experience and expertise in oil and gas, and power.
J.P. Morgan has fostered innovation in electrification since John Pierpont Morgan backed Thomas Edison’s world-changing experiment to bring lighting to the masses. We look forward to working with leaders across the private and public sectors to bring next generation geothermal from pilots to the public.
"There is momentum in early-stage investments, with cumulative fundraising in geothermal surpassing $700 million since 2020 according to Sightline Climate—a tenfold increase over the past three years."
References
Capacity factor: The ratio of the electrical energy produced by a generating unit for the period of time considered to the electrical energy that could have been produced at continuous full power operation during the same period. (U.S. Energy Information Administration)
Related insights
-
Investment Banking
Center for Carbon Transition
J.P. Morgan’s center of excellence that provides clients the data and firmwide expertise needed to navigate the challenges of transitioning to a low-carbon future.
-
Investment Banking
The Future of Water Resilience in the U.S.
October 28, 2024
Explore the critical challenges and opportunities in the U.S. water sector, from investment needs and strategic planning to innovative solutions for sustainable water management.
-
Banking
Financing a more sustainable future for El Salvador’s Lempa River
November 19, 2024
J.P Morgan played an integral role in the world’s largest debt-for-nature transaction aimed at supporting river conservation.
This material (including market commentary, market data, observations or the like) has been prepared by personnel in the Investment Banking Group of JPMorgan Chase & Co. It has not been reviewed, endorsed or otherwise approved by, and is not a work product of, any research department of JPMorgan Chase & Co. and/or its affiliates (“J.P. Morgan”).
Any views or opinions expressed herein are solely those of the individual authors and may differ from the views and opinions expressed by other departments or divisions of J.P. Morgan. This material is for the general information of our clients only and is a “solicitation” only as that term is used within CFTC Rule 1.71 and 23.605 promulgated under the U.S. Commodity Exchange Act.
RESTRICTED DISTRIBUTION: This material is distributed by the relevant J.P. Morgan entities that possess the necessary licenses to distribute the material in the respective countries. This material is proprietary and confidential to J.P. Morgan and is for your personal use only. Any distribution, copy, reprints and/or forward to others is strictly prohibited.
This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute investment, legal or tax advice, nor does it constitute an offer or solicitation for the purchase or sale of any financial instrument or a recommendation for any investment product or strategy.
Information contained in this material has been obtained from sources believed to be reliable but no representation or warranty is made by J.P. Morgan as to the quality, completeness, accuracy, fitness for a particular purpose or noninfringement of such information. In no event shall J.P. Morgan be liable (whether in contract, tort, equity or otherwise) for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction. All information contained herein is as of the date referenced and is subject to change without notice. All market statistics are based on announced transactions. Numbers in various tables may not sum due to rounding.
J.P. Morgan may have positions (long or short), effect transactions, or make markets in securities or financial instruments mentioned herein (or options with respect thereto), or provide advice or loans to, or participate in the underwriting or restructuring of the obligations of, issuers mentioned herein. All transactions presented herein are for illustration purposes only. J.P. Morgan does not make representations or warranties as to the legal, tax, credit, or accounting treatment of any such transactions, or any other effects similar transactions may have on you or your affiliates. You should consult with your own advisors as to such matters.
The use of any third-party trademarks or brand names is for informational purposes only and does not imply an endorsement by JPMorgan Chase & Co. or that such trademark owner has authorized JPMorgan Chase & Co. to promote its products or services.
J.P. Morgan is the marketing name for the investment banking activities of JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC (member, NYSE), J.P. Morgan Securities plc (authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority), J.P. Morgan SE (Authorised as a credit institution by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB)), J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066 and regulated by Australian Securities and Investments Commission) and their investment banking affiliates. J.P. Morgan Securities plc is exempt from the licensing provisions of the Financial and Intermediary Services Act, 2002 (South Africa).
For Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com
For Australia: This material is issued and distributed by J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/ AFS Licence No: 238066) (regulated by ASIC) for the benefit of “wholesale clients” only. This material does not take into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of J.P. Morgan Securities Australia Limited.
© 2024 JPMorgan Chase & Co. All rights reserved.