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Thank you for reading the Brainwaves newsletter. I’m Drew Jackson, your content curator, and today I’m writing about geothermal energy and the economics behind it. Let’s dive in.

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Credit Wikipedia

Thesis: Geothermal energy continues to become more and more cost-effective as public and private entities continue to innovate and improve geothermal energy economics and efficiency. Without any of the climate downsides, countries are beginning to transition away from fossil fuels to geothermal energy. Why? Are they justified?

Geothermal Energy

In our search for the optimal energy source (or sources) for humanity’s future, we’ve discussed solar, nuclear, hydropower, and wind, and now we’re diving into the innovation of geothermal energy. Our goal is to answer the question: “Is geothermal energy going to be a large part of our future solution?”

To begin, let’s give some helpful general education to people who aren’t familiar with geothermal energy.

Credit Phys.org

What is geothermal energy?

Geothermal energy comes from heat produced in the Earth’s core. This energy is considered renewable because the Earth’s core continuously produces heat and is expected to continue producing this energy for thousands (if not millions) of years.

To get into the finer details, we first have to remember what the Earth’s core/layer makeup is (reference the image above):

• The innermost layer is an inner core of solid iron, around 1,500 miles in diameter
• The next layer is an outer core of hot molten rock (magma), around 1,500 miles thick
• The 3rd layer is a mantle of magma and rock surrounding the outer core, around 1,800 miles thick
• Finally, the outermost layer is a crust of solid rock that forms the continents and ocean floors, around 15-35 miles thick under the continents and 3-5 miles thick under the oceans

Through these layers, there is a slow decay of radioactive particles/isotopes (such as potassium-40 and thorium 232) that produce geothermal energy. Yet, geothermal energy isn’t easily accessible just anywhere.

If you remember back to your geography classes, you’ll remember that the Earth’s crust is broken into tectonic plates (usually associated with fault lines and earthquakes). On the edges of these plates, magma (hot plasma from Earth’s core) comes close to the surface, sometimes forming volcanoes. For the places where there isn’t a volcano forming to bring the heat through Earth’s surface, rocks and water underground absorb heat from this magma.

It’s through a combination of these sources that we can harness geothermal energy. Geothermal energy sources come in a variety of shapes and sizes:

• Volcanoes and Fumaroles (holes in the Earth where volcanic gasses are released)
• Hot Springs
• Geysers
• Steam Vents
• Underwater Hydrothermal Vents
• Mud Pots
• Human-Drilled Wells

Similar to other sources of energy (coal or nuclear come to mind), geothermal energy is harnessed from these sources through the use of steam generators. See the below diagram:

Credit Greenesa

Geothermal energy is produced using a pretty simple process: some heat sources (hot water, magma, hot rocks) are used to heat water into steam, and the pressure from the steam pushes a big fan, powering a generator which creates transferable electricity.

How long has geothermal energy been around?

Hot springs have been used for bathing since before the Paleolithic times (around 10,000 BC). In the first century AD, Romans used hot springs to supply public baths and underfloor heating. The world’s oldest geothermal district heating system in France has been operating since the 1400s.

In 1892, the United State’s first district heating system in Idaho was produced using geothermal energy. The world’s first known building to utilize geothermal energy as its primary heat source was the Hot Lake Hotel in Oregon. A geothermal well was used to heat greenhouses in Idaho in 1926, and geysers were used around that time to heat greenhouses in Iceland and Tuscany. Charles Lieb developed the first downhole heat exchanger in 1930 to heat his house. Geyser steam and water began heating homes in Iceland in 1943.

A little earlier, in 1904 Prince Piero Ginori Conti tested the first geothermal power generator, lighting 4 light bulbs, becoming the world’s first commercial geothermal power plant. This was the only geothermal power plant until 1958 when New Zealand built their first plant.

Geothermal Use Cases

Currently, the most active geothermal resources are usually found along major tectonic plate boundaries where most volcanoes are located. Here’s a map showing the geothermal hot spots around the world (where there is the most potential for energy production):

Credit Energy Education

If you take that map and look at where geothermal energy is already installed across the world, you can see similarities:

Credit Our World in Data

Wikipedia and Our World in Data give a good breakdown of the installed geothermal energy capacity across the world:

The United States is the largest producer of geothermal energy in the world. Yet, there is still an enormous untapped potential for geothermal energy. The Department of Energy reports that there are significant geothermal resources found nationwide and can represent a large domestic energy source.

A 2019 report by the Department of Energy estimates that the United States has the capability to increase capacity by 26x what it currently is—up to 60GW in energy, which would be able to provide around 8-10% of all United States electricity generation. A subsequent report in 2022, expanded upon this estimate, instead estimating that we could produce up to 90GW of energy from geothermal (a 50% increase from the previous estimate).

The United States isn’t the only country with plans to grow its geothermal energy capacity. The International Renewable Energy Agency, in its 2017 report, explains the planned capacity additions for geothermal power by country:

Credit IRENA

This energy capacity comes from a variety of different sources and types of geothermal energy plants and energy uses:

• Direct Use & District Heating Systems
• Geothermal Heat Pumps
• Low-Temperature Geothermal Energy
• Co-Produced Geothermal Energy
• Dry-Steam Power Plants
• Flash-Steam Power Plants
• Binary Cycle Power Plants
• Enhanced Geothermal Energy Systems

Direct Use & District Heating Systems

Direct use or district heating systems directly utilize hot water or steam extracted from the Earth to heat buildings, industrial facilities, and greenhouses. The hot fluid is pumped through a network of pipes to deliver heat to various locations. These systems are very similar to geothermal heat pumps.

Heat is generated at a central location, often a power plant or geothermal well, and distributed through a network of pipes to multiple buildings. These systems are suitable for heating entire neighborhoods or cities, requiring significant upfront infrastructure investment.

Geothermal Heat Pumps

Geothermal heat pumps drill around 3-90 meters deep, reaching a heat source. A pipe is connected to create a continuous loop that takes heat from below ground and circles it above ground. The liquid in the pipe absorbs underground geothermal heat, then carries that heat above ground and gives off warmth. These heated pipes can be run through hot water tanks and offset water heating costs. These systems can also work the opposite way. In the summer, heat from above ground can be run underground to cool the above-ground facility.

Each building will have its own geothermal heat pump system. This is typically used for heating and cooling individual homes or small businesses. Installation costs are generally lower than district heating systems.

Low-Temperature Geothermal Energy

Low-temperature geothermal energy is obtained from pockets of heat about 150 degrees Celsius. Most pockets of low-temperature geothermal energy are found just a few meters below ground. This low-temperature energy can be used for heating greenhouses, homes, fisheries, and industrial processes.

Co-Produced Geothermal Energy

Co-produced geothermal energy relies on other energy sources. This form of geothermal energy uses water that has been heated as a byproduct in oil and gas wells. Prior to the development of this technology, this hot water byproduct was simply discarded. Now, it’s used to produce steam that generates electricity to funnel into the grid.

Newer technology has allowed these co-produced geothermal energy plants to be portable. Although these technologies are still in their experimental phases, these mobile power plants have a large potential for isolated or rural communities.

Credit Energy Education

Dry-Steam Power Plants

Dry-steam power plants use natural underground steam from underground reservoirs to create electricity. Dry steam is the oldest type of power plant to generate electricity using geothermal power.

There are only two known sources of underground steam in the United States: Yellowstone National Park and The Geysers in California.

Flash-Steam Power Plant

Flash-steam power plants are the most common type of geothermal power plants. Flash-steam power plants use naturally occurring sources of underground hot water and steam, pumped into a low-pressure area to power a turbine and generate electricity. Iceland, a volcanically active island supplies nearly all of its electrical needs through flash-steam power plants.

Binary Cycle Power Plants

Binary cycle power plants use water heated underground and then piped above ground to heat a liquid compound, creating steam which flows through a turbine and powers a generator. The water is then recycled back to the ground.

Enhanced Geothermal Systems

Enhanced geothermal systems use a combination of drilling, fracturing, and injection to provide fluid and permeability to areas that have hot—but dry–underground rock. Water is pumped in and absorbs the rock’s heat and is piped back to the Earth’s surface to evaporate another liquid into steam and power a turbine.

Credit WIRED

Geothermal Economics

Geothermal plants are very capital-intensive to construct, however they have very low and predictable operational costs.

To explain, let’s discuss each main stage of geothermal power deployment:

• Exploration drilling
• Drilling of production and injection wells
• Field infrastructure, geothermal fluid collection and disposal systems, and other surface installations
• The power plant and its associated costs
• Project development costs
• Grid connection costs

Exploration Drilling

Exploration drilling involves drilling shallow wells to assess the geothermal potential of a site. Costs include drilling expenses, geological surveys, and data analysis.

Geothermal exploration drilling costs can vary significantly based on several factors:

• Depth of the well
• Geological conditions
• Location
• Drilling Technology

Claude AI (by Anthropic) estimates that exploration drilling costs typically could range from $1M - $8M per hole, usually involving smaller diameter wells (6-8 inches), with depths ranging from 1,000 to 3,000 meters deep. There is a high risk associated with these costs as it’s uncertain as to whether or not you will hit the resource.

Drilling of Production and Injection Wells

Drilling of production and injection wells involves drilling deeper wells to extract geothermal fluid and re-inject it into the reservoir. Costs include drilling expenses, well casing, and cementing.

For those types of geothermal technology that use deep wells, many experts estimate that the most expensive part of geothermal energy is drilling the wells. The Department of Energy estimates the cost to drill one 2.5-mile well is around $5M (or around $378 per foot).

In a 2022 report, experts estimate that drilling costs can account for up to 50% of the capital cost of a 50MW+ geothermal plant.

Credit Air Force Civil Engineer Center

Field Infrastructure, Geothermal Fluid Collection and Disposal Systems, and Other Surface Installations

Field infrastructure costs, geothermal fluid collection and disposal systems, and other surface installations are necessary to collect, transport, and dispose of the geothermal fluid. Costs include pipes, valves, separators, and disposal facilities. Surface installations refer to buildings, roads, and other infrastructure required for plant operations. Costs include construction materials, labor, and permits.

The specific cost breakdown could include a variety of costs, some of which are projected by Claude below:

• Pipelines: $250k - $1M per kilometer
• Insulation: $100k - $500k per kilometer
• Separation Systems: $3M - $10M for the standard system
• Roads & Well Pads: $500k - $2M for average roads and well pads
• Other Costs: $1M - $10M+

Power Plant Costs

Power plant costs include plant equipment (turbines, generators, heat exchangers, and other equipment necessary for electricity generation) and control systems (systems to monitor and control plant operations). Costs vary depending on the type of plant and could include hardware, software, and installation.

The specific cost breakdown could include a variety of costs, some of which are projected by Claude below:

• Turbine-Generator Sets: $700 - $1,500 per kW
• Condenser: $200 - $400 per kW
• Heat Exchangers (for Binary Cycle Plants): $300 - $600 per kW
• Pumps: $50 - $150 per kW
• Control Systems: $1M - $6M+
• Electrical Systems: $1M+

Project Development Costs

Project development costs include engineering and design (feasibility studies, detailed engineering plans, and environmental impact assessments), permits and licensing (obtaining necessary permits and licenses from regulatory authorities), and land acquisition costs (acquiring the land for the plant and associated infrastructure).

Costs vary depending on the project's complexity, application fees, environmental studies, purchase price, property taxes, and legal fees.

The specific cost breakdown could include a variety of costs, some of which are projected by Claude below:

• Engineering Feasibility Studies: $500k - $2M
• Environmental Impact Assessment: $500k - $3M
• Resource Modeling: $250k - $1M
• Permitting: $500k - $5M
• Land Acquisition $1M - $10M
• Project Management: 5-10% of project cost
• Financing Costs: 10-20% of project cost

Grid Connection Costs

Grid connection costs include connection equipment and the fees levied by grid operators for interconnection. Costs can vary depending on the grid connection point and the amount of power to be injected.

The specific cost breakdown could include a variety of costs, some of which are projected by Claude below:

• Transmission Lines: $500k - $2M per mile
• Plant Substation: $5M - $20M

____

The previous list summarizes many of the capital expenditures associated with geothermal plant development and construction. The below chart breaks down this cost per kilowatt and projects the costs into the future, showing how they change over time:

Credit IRENA

So, for a 50MW plant (50,000 kW) in 2020, capital expenditures could be anywhere from $125M - $400M.

Operation & Maintenance Costs

Operation and maintenance costs range from $0.01 to $0.03 per kWh. The United States Department of Energy estimates that modern geothermal power plants have a capacity factor of 90-95% (meaning that they run almost all the time). So, with around 8,760 hours in a year at a 90% capacity factor, a 50MW plant (50,000 kW) would be $3.9M to $11.8M per year.

The combination of capital costs, operation costs, and maintenance costs makes up the total costs associated with creating and maintaining a geothermal plant. These costs are summarized by plant (from 2007 to 2020) in the International Renewable Energy Agency’s report:

Credit IRENA

From 2007 to 2020, it seems as though the average cost per kW of many geothermal plants majorly ranged from $2,000 - $5,000 per kW. For a 50MW plant, this would mean around $100M to $250M per plant. With expected lives of around 20 to 30 years, this cost spreads nicely over the expected useful life.

Geothermal Costs in Comparison

Lazard, a prominent financial advisory and asset management firm, estimates the levelized cost of energy (LCOE) each year for each of the major energy sources. Here is the updated data:

Credit Wikipedia & Lazard

As you can see, geothermal energy (denoted in red), has costs very similar to that of natural gas, solar, and wind. These other sources of energy have experienced exponential decreases in costs as they’ve become mass-produced and experienced economies of scale through this process.

Geothermal energy, on the other hand, hasn’t experienced this exponential gain in popularity that leads to a vast decrease in costs. This means there is potential that as geothermal energy increases in popularity, the learning curve may lead to decreases in costs.

Yet, there are many ways of comparing these costs. Here’s another graph from Fervo Energy, detailing the LCOE without subsidies:

Credit Fervo Energy

Lastly, researchers examined the change in costs from 2010 to 2017 of utility-scale renewable power generation technologies:

Credit ResearchGate

As you can see, geothermal energy, as it stands now, is very comparable in costs to other sources of renewable energy, a great feat.

Pros of Geothermal Energy

#1: Environmentally Friendly Source of Energy

Geothermal energy is more environmentally friendly than many sources of energy. In addition, the carbon footprint of a geothermal power plant is low.

#2: Reliable Source of Energy

Geothermal power plants are very predictable and reliable sources of energy, especially in comparison to other renewable energy sources. Geothermal plants have a consistent power output no matter the time of day or season. This makes them a great candidate to meet baseload energy demand.

#3: Small Footprint

Unlike solar plants or wind plants, geothermal plants have a relatively low land footprint. National Geographic estimates that a geothermal power plant capable of producing one GW hour of electricity would need around 404 square miles of land, whereas a wind farm would need 1,355 square miles and a solar farm would need 2,340 square miles.

#4: Deployable for Small- and Large-Scale Installations

Geothermal isn’t just made for large power plants, it’s also a great source of technology for individual homes and commercial buildings through geothermal heat pumps. Geothermal plants can use high-heat and low-heat environments and are very versatile.

#5: Industry Expansion Promotes Lower Costs and Technological Innovation

The geothermal industry is relatively young and growing quickly through the development and deployment of new technology powering an influx of new projects. These enhancements in the industry are making geothermal energy more accessible, efficient, and cost-effective.

#6: Longevity of Geothermal Plants and Infrastructure

Geothermal energy plants have a long lifespan in comparison to other types of renewable energy, ranging from 20 to 50 years. This helps spread the extreme up-front costs over a longer lifespan, decreasing the average cost of energy.

#7: Heating and Cooling Potential

Geothermal technology can be used for heating and cooling residential and commercial structures. These technologies use temperature differences between the surface and a ground source to heat and cool buildings.

Credit Greener Ideal

Cons of Geothermal Energy

#1: Location Dependent

As discussed previously, geothermal power plants can only be built at specific sites where there are already underground geothermal reservoirs. This limits the size and scope of geothermal energy implementation.

#2: High Up-Front Costs

As previously explained, it’s extremely expensive to build a geothermal plant, in comparison to other types of renewable energy. These high up-front costs can preclude many developers from entering the industry as it’s difficult to finance these plants over their long lifetimes.

#3: Can Lead to Surface Instability

Geothermal power plant construction can involve drilling large holes deep into the Earth to release hot steam or water. This process can cause instability underground which can lead to earthquakes at the Earth’s surface.

#4: Sustainability Relies on Reservoirs Being Properly Managed

Studies show geothermal reservoirs can be depleted if the fluid is moved faster than replaced. Efforts can be made to inject fluid back into the geothermal reservoir after the thermal energy has been utilized, but this process needs to be properly managed in order to be effective.

Credit The Emerald Review

Geothermal is a Great Energy Source

Geothermal energy has proved to be a great source of energy. Countries have invested in and continue to plan future investments in the development of geothermal energy. It provides a good resource for a variety of reasons, summarized below:

• Mitigating climate change: To accomplish recent climate pledges, geothermal energy has been utilized as a non-carbon-producing energy source in many countries and continues to be utilized as climate goals become more stringent.
• Improve energy security: Locally generated geothermal energy reduces dependence on important fossil fuels. Geothermal energy can help provide energy autonomy.
• Health benefits: Expanding geothermal energy production curtails the use of fossil fuels (and the subsequent production of CO2) which drastically improves public health outcomes now and in the future.
• Reliability: Geothermal power plants have a large capacity factor, making it a great source of reliable base energy.

This combination of environmental, economic, and technical innovation is driving more countries to embrace geothermal energy as a major pillar of their national energy plans and future commitments.

Currently, geothermal energy is a great solution that’s experienced large-scale innovation and development, and through continued improvement in unit economics and increased deployment, geothermal energy may become a large energy solution.

See you Saturday for The Saturday Morning Newsletter,

Drew Jackson

Twitter: @brainwavesdotme

Email: brainwaves.me@gmail.com

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