Geothermal finds rare political sweet spot amid AI boom

Geothermal energy, powered by the Earth's natural heat, is gaining bipartisan support in the United States as it aligns with surging electricity demand from artificial intelligence (AI) and the oil and gas industry's technological advancements. This convergence of trends is fueling investment in a niche energy source that has yet to prove its ability to scale at the necessary level.

The bipartisan appeal of geothermal energy is highlighted by its inclusion in a recent Senate bill designed to expedite infrastructure permitting, with support from lawmakers with diverse ideological backgrounds. The House of Representatives also recently passed a package containing several geothermal provisions, underscoring the growing interest in the technology across party lines.

Several factors are driving the renewed interest in geothermal energy. First, adaptations from the oil and gas industry, such as fracking, are enabling access to heat sources beyond far-flung hot springs and volcanoes. Second, tech companies are seeking reliable electricity to power data centers, willing to pay a premium for next-generation geothermal solutions. Lastly, investment in geothermal energy is surging as companies strive to scale a renewable energy source capable of generating power around the clock.

The Senate bill offers more comprehensive geothermal-specific provisions than previously offered to other renewable energy sources, such as wind and solar. These provisions aim to facilitate geothermal developers' exploration and leasing of federal land, expedite drilling permits, and exempt certain activities from environmental reviews. Geothermal energy also retains federal clean-energy tax credits, despite wind and solar facing an accelerated phaseout in the recent Republican tax law.

Fervo Energy, an advanced geothermal company that went public this year, is at the forefront of this convergence. Founded by Tim Latimer, a former drilling engineer in the oil and gas industry, Fervo's IPO proceedings reflect the capital raised at the time of its listing, not its current market value. Latimer attributes the company's success to the AI boom, which has significantly accelerated their business.

Geothermal energy's appeal transcends traditional political divisions, as its renewable characteristics resonate with Democrats, while its reliance on drilling expertise and overlap with the oil and gas industry appeal to Republicans. Additionally, its ability to provide stable, carbon-free electricity makes it attractive to utilities and tech companies.

However, despite the current political consensus and investment boom, geothermal energy's commercial reality remains challenging. The technology is expensive, and questions persist about its long-term reliability in generating electricity. Geothermal currently generates less than 1% of U.S. electricity, and the high lease bids are for exploring potential sites, not for active geothermal wells.

While Fervo Energy's stock has fallen nearly 70% since its IPO, government affairs and policy manager Tom Erb asserts that construction costs at their flagship project in Utah are about half those of new nuclear plants. He acknowledges that underground heat may diminish over time, necessitating additional drilling, but notes that these costs are already accounted for in company projections.

Geothermal's current momentum still hinges on state policies promoting clean electricity and the willingness of tech companies to pay a premium for geothermal solutions. Nevertheless, the persistent opposition to geothermal energy, particularly over water usage, remains a potential friction point. The industry's success now depends on maintaining this political consensus as it grows and faces further challenges.