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Geothermal Startups See Growth as AI Demand Rises but Face Rivalry from Natural Gas

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Geothermal energy is gaining traction as a sustainable solution to power the energy-hungry AI data centers of major tech companies like Meta and Google. However, the path forward remains uncertain due to stiff competition from natural gas and the high upfront costs of geothermal projects.

The Rise of Geothermal for AI Energy Needs

Big Tech firms are partnering with geothermal startups to supply clean energy for their data centers. These partnerships are part of a broader push to meet the growing energy demands of AI technologies while accelerating investments in renewable energy.

Trey Lowe, Chief Technology Officer of Devon Energy, a shale gas producer and investor in geothermal startup Fervo Energy, highlights the potential: “We believe geothermal, along with abundant natural gas, can be part of the all-of-the-above energy mix we need to meet the demand.”

Geothermal energy offers advantages such as faster carbon-free electricity generation compared to nuclear energy and reliability over intermittent sources like wind and solar. Despite these benefits, challenges like high drilling costs and lengthy project approvals have tempered initial enthusiasm.

Investments and Industry Shifts

Since 2020, geothermal projects have attracted an estimated $700 million in funding. While startups like Sage Geosystems and Gradient Geothermal are pushing forward with innovative approaches, larger oil majors like Chevron and Exxon Mobil remain focused on natural gas, often coupled with carbon sequestration to lower emissions.

Sage Geosystems, for instance, recently raised $30 million and is planning a Series B funding round in January. Gradient Geothermal is leveraging existing oil and gas infrastructure to generate geothermal energy, a cost-effective strategy gaining interest among mid-sized energy firms.

Geothermal energy’s cost competitiveness is a key factor driving its appeal. The average levelized cost of electricity (LCOE) for geothermal projects in the U.S. stands at $64 per megawatt-hour (MWh), lower than combined-cycle natural gas ($77/MWh) and significantly cheaper than nuclear energy ($182/MWh).

The Texas Geothermal Boom

Texas is emerging as a hub for geothermal development, thanks to its abundant resources, streamlined permitting process, and regulatory certainty. Ten of the 22 geothermal startups launched in the U.S. between 2016 and 2022 are headquartered in Texas.

According to Matt Welch of the Texas Geothermal Energy Alliance, “Texas is becoming the ‘place to be’ for geothermal exploration and development across the board.”

Legislative and Market Support

Lower commodity prices are pushing shale companies to diversify revenue streams, with geothermal becoming a viable option. Bipartisan legislative interest, such as the recently passed CLEAN Act and HEATS Act, could further simplify the process of setting up geothermal projects in the U.S., boosting the sector’s growth.

Trey Lowe of Devon Energy notes that government incentives and the stability of geothermal investments are attracting more private capital: “A combination of a low decline asset with high certainty on pricing piques the interest of many investors.”

Challenges and Outlook

While geothermal energy has significant potential, its growth is clouded by competition from natural gas and the reluctance of major oil companies to commit fully. For geothermal to become a cornerstone of the energy mix, continued investment, innovation, and supportive policy frameworks will be essential.

 

Dominion Energy Explores Small Nuclear Reactors Following Amazon Agreement

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Dominion Energy is engaging in discussions with various technology companies about the development of small modular nuclear reactors, following a recent agreement with Amazon aimed at advancing this next-generation technology.

During the company’s third-quarter earnings call on Friday, Dominion CEO Robert Blue expressed optimism about the collaboration, stating, “It’s very encouraging to see large power users, including technology companies, express a willingness to invest, partner and collaborate to bring this exciting base load carbon-free technology into fruition.”

Dominion and Amazon have established a memorandum of understanding to investigate the feasibility of developing a small modular reactor at the utility’s North Anna nuclear station in Louisa County, Virginia. This reactor is expected to generate 300 megawatts of power, contributing significantly to the state’s energy supply.

Virginia is recognized as one of the most supportive states for nuclear energy, enjoying robust bipartisan backing for initiatives focused on next-generation nuclear technologies. Blue noted that the utility’s reputation as a reliable nuclear operator makes it an attractive partner for large customers interested in collaborating on these innovations.

In addition to Amazon, Dominion is in talks with other tech firms, reflecting a growing trend among technology companies to invest in nuclear power. These companies are seeking carbon-free, dependable electricity to meet the rising energy demands of their AI-driven data centers. Notably, Dominion serves the largest data center market in the world, located in northern Virginia.

Earlier this year, Amazon made headlines by acquiring a data center campus from Talen Energy, which will be powered by the Susquehanna nuclear plant in Pennsylvania. Additionally, Microsoft has secured a power purchase agreement from Three Mile Island, as Constellation Energy plans to restart the plant by 2028. In a similar vein, Alphabet’s Google recently agreed to purchase power from Kairos Power, a startup focused on small modular reactor development.

Small modular reactors are touted for their potential to lower capital costs and expedite the construction of nuclear facilities. Their compact design allows for easier site selection, and they promise a streamlined manufacturing process. However, the technology has faced challenges in reaching commercial viability, with no operational small modular reactor currently in the United States.