In this five-part “Geothermal Mythbusters” series, Fervo will debunk common misconceptions associated with the geothermal industry.
Since Russia’s invasion of Ukraine destabilized energy markets, affordability has become a growing priority for both wholesale power buyers and retail customers. This shift in market dynamics has inspired discussion on the cost of different types of energy, including geothermal.
Because geothermal development is capital-intensive, some observers assume that geothermal is too expensive to compete with other sources of power. In actuality, geothermal is already cheaper than similar forms of electricity generation. With innovations from companies like Fervo and support from the Department of Energy (DOE), costs will continue to decline over this decade.
Geothermal Can Compete With Other Sources of 24/7 Firm Power
Geothermal skeptics often ask why offtakers would purchase geothermal over solar or wind. In October 2020, the International Energy Agency categorized solar power as the “cheapest electricity in history.” With utility-scale solar and onshore wind hovering around $35/MWh, geothermal power slotted around or above $70/MWh might seem unfeasible.
Comparing geothermal with wind and solar, however, is misleading; solar and wind produce power intermittently depending on when the sun and wind are available, while geothermal provides around-the-clock electricity. When taking reliability into account, geothermal is more similar to nuclear or coal- and gas-fired power plants. Geothermal does not need to undercut wind and solar because it plays a different role in utilities’ portfolios.
Juxtaposed with nuclear, gas, and coal generation, geothermal can already compete. According to Lazard’s levelized cost of energy (LCOE) research, the LCOE of geothermal on a per MWh basis ranges from $61-$102. By contrast, the MWh LCOE of nuclear power ranges from $141-$221, while coal spans from $68-$166 and gas peakers range from $115-$221. This analysis underscores the promise of geothermal — it is half the cost of nuclear, the other major source of carbon-free, firm power, and both cheaper and cleaner than coal and gas peaking.
Innovation and Learning Curves Will Continue Reduce Costs
The next-generation geothermal industry still has major opportunities to cut costs through technological innovation and learning curves. With a poor historical drilling success rate, geothermal projects have remained mostly one-off, allowing for none of the learnings that come with ongoing development.
With new technology innovation and a robust demand for 24/7 carbon-free energy, geothermal operators like Fervo have, for the first time, real certainty that they will be able to continuously develop productive basins. Such continuous operations will drive efficiencies and associated cost reductions in drilling, reservoir management, supply chain, facilities construction, and financing.
For an industry that can already compete on cost, the prospect of tracking a similar trajectory of other sources of renewable energy provides real upside and optimism for the future.
Government Support Will Catalyze Further Cost Reduction
Through the Enhanced Geothermal Shot, the DOE will provide additional momentum to cut the cost of geothermal. The DOE aims to reduce the cost of geothermal by 95% by 2035, investing in next-generation geothermal research, development, and deployment. Recent analysis from the National Renewable Energy Laboratory substantiated the DOE’s goal, explaining how the LCOE of geothermal can come down to $45/MWh in a little over a decade.
The DOE has already begun to execute the earthshot. In early February, the agency announced a $74 million funding opportunity for enhanced geothermal demonstrations. Though this funding falls short of DOE support for hydrogen, direct air capture, and other climate solutions, it is a great first step to catalyzing private sector growth needed to drive down costs.
Geothermal energy can already meet the needs of offtakers – Fervo alone has signed three power purchase agreements with load serving entities to date. With continued innovation and public sector backing, geothermal will become an even cheaper form of 24/7 carbon-free energy.