Geothermal Energy Over the Next 5 Years

Over the next 5 years which companies are best positioned to benefit from increased geothermal energy production and why? What are the biggest risks involved in investing in geothermal as a viable energy source? How does geothermal capital and technical risk compare to other renewables?

Some of the best-positioned companies in this space are as follows: Calpine is the largest in the United States and probably best positioned and then followed by Ormat Technologies, which has production in both the US and other countries, such as Kenya. Some others include Berkshire Hathaway, Northern California Power Agency, and Enel. Enel is one of the largest operators in the world, with plants in both the developed and developing world. One of the biggest in Kenya is KenGen. Several Japanese companies, such as Fuji Electric, Toshiba & Mitsubishi Heavy Industries, are also well-positioned as operators and equipment suppliers. Some risks are as follows: capital risk on the front-end, exploration risk, drilling risk, and power plant EPC risk. Geothermal is relatively small comparing with other renewables, especially wind and solar. This is due to its higher cost and higher risk.

I am based in Singapore and can give a Southeast Asia perspective. I am working with a client company in the Philippines that has geothermal assets alongside other renewable energies. These 9-10 assets/1GW+ are the majority of the geothermal assets in the country. There are good examples in the volcanic ring of fire regions of Southeast Asia, including the Philippines. The Philippines and Indonesia are the second and third-ranked countries behind the United States. For example, Chevron exited its geothermal in the Philippines and Indonesia a few years ago to rationalize its overall assets in the region. Key beneficiaries will be those who supply the kit to sit on top of the steam, e.g. Siemens.

Geothermal is the most environmentally friendly and has the highest year-round availability compared to wind, solar, and biomass. Much less GHG emissions and is an infinite energy source. Drilling complexities and high capex made it less attractive in the past. Advances and innovations have made ROI very lucrative for consumers as well as investors. Capital costs of installation have gone down rapidly, and innovative drilling techniques made it very competitive, which is why it’s attracting individuals like Bill Gates, Google, BP, etc., to invest. Ormat tech (EGS) can benefit the most, Dandelion energy (residential geothermal) will grow rapidly. AltaRock (EGS) and Greenfire (closed-loop) have great potential as they ramp up. Quaise Energy, is another that I think can be the most interesting and promising play in the geothermal sector.

Geothermal energy usually has limited power, and it works at medium tension: it needs to be close to users while matching the geological requirements. It can lead to toxic leakage (arsenic, ammonia, mercury). It has longer paybacks compared to solar or wind. It is best if it also provides primary energy via district heating. It works 5-6k hours/year. EPC takes 30-50% longer, with higher Cap&OpEx. Italy (Enel Green Power) and Japan (J-Power, KEP) hold uncapped geological potential and have manifested intentions to increase capacity in support of the green transition: Italy with a few new big plants (100s MW), Japan keen on a distributed network of smaller plants (5-10 MW). Italy has lagged on renewables and has to meet the 2030 EU targets, while Japan has increasing demand not served by nuclear anymore.

In Kenya, the state has developed geothermal for decades and is now providing 50% of total power generation with an installed capacity of 828 MW. The key benefit of this technology is that it allows for baseload electricity, contrary to wind or solar (which are intermittent sources of energy). In theory, a country’s mix could be 100% geothermal. Regarding the companies involved, I would expect state entities to remain predominant on the generation side, as the geothermal development process is quite long and necessitates many land and environment permits. The risks involved in exploration and development are too high for the private sector. Offtakers should remain state T&D entities (power to be injected into the grid, not to be directly sold to consumers, due to projects’ large capacity).