The Loans Program Office looks like it’s now open for business for new geothermal project developers.
The need for clean, firm zero-emission power is growing as energy demand in the US begins to rise thanks to the nation’s re-industrialization and new sources of energy demand coming from artificial intelligence, data centers, electric vehicles, industrial electrification, and cryptocurrency mining.
To meet this demand, private capital and public financing are warming up to the prospects in geothermal energy development using new enhanced geothermal systems.
The US already leads the world in geothermal power production with nearly 70 power plants producing over 4 gigawatts of power. But that’s been a happy accident of geology. Traditional geothermal power production relies on specific subsurface conditions where the heat, available fluids, and the permeability of the geology all contribute to naturally occurring geothermal power that can be converted into electricity or industrial heat.
The latest advances in the technology, known as Enhanced Geothermal Systems and Advanced Geothermal Systems, largely untether geothermal power production from its limited geographic scope. In the long-term, advances in these technologies — and the development of super hot rock geothermal — could enable an expansion of geothermal power production to nearly everywhere in the world. For now, the latest US government estimates believe up to 5 gigawatts of new geothermal capacity needs to be deployed to get the technology ready for commercialization. That development comes with a $25 billion price tag, which is spending that the LPO is happy to support.
“The U.S. Department of Energy’s (DOE’s) Loan Programs Office (LPO) is prepared to help drive the industry’s commercial deployment of next-generation geothermal technologies to help meet the Biden-Harris Administration goal of a carbon-free electric sector by 2035,” wrote Michael Reed, the Director of the Technical and Environmental Division (TED) and Chief Engineer for the Department of Energy’s Loan Programs Office (LPO), in a piece earlier this month.
WHY NEXT-GENERATION GEOTHERMAL?
These next-generation geothermal technologies are already having a moment. Borrowing expertise from the oil and gas industry allows geothermal developers to create power resources where none previously existed. Directional drilling, hydraulic fracturing, new resource identification technologies and others can enable the development of up to 90 gigawatts of installed capacity by 2050, according to the Enhanced Geothermal Shot™ analysis.
Two approaches to next-generation geothermal, EGS and closed loop geothermal systems, have both completed successful pilot projects, with Fervo Energy developing a successful pilot of its enhanced geothermal system and Eavor developing closed-loop geothermal technologies.
Both approaches promise lower cost and greater opportunities for development. And there are several other technology providers working on developing novel approaches.
For companies with successful pilot projects, the Loan Programs Office can be an accelerant for the development of commercial-scale projects.
How LPO Helps
As the office itself lays out, the LPO can provide debt financing for commercially ready, innovative geothermal projects in order to help them cross the bridge to bankability. And once these projects demonstrate their technology functions on a pilot scale, LPO can finance the first commercial deployments through the Title 17 Clean Energy Financing Program, which was expanded by President Biden’s Inflation Reduction Act (IRA).
The Different Funding Pathways LPO Offers
LPO can finance next-generation geothermal energy projects through several avenues under what’s called Title 17 Clean Energy Financing Programs.
Through the “Innovative Energy and Innovative Supply Chain Projects” funding opportunity, financing is available for clean energy projects that use innovative technologies or processes not yet widely deployed in the US. Through “State Energy Financing Institutions”, developers can work with qualifying state institutions for investment — these projects don’t need to be innovative, necessarily, but they do have to qualify as a renewable energy system, or fall within another eligible funding category. Finally, there are the “Energy Infrastructure Reinvestment Projects”, which provide funding to retool, reposer, repurpose or replace energy infrastructure that has been decommissioned or enable existing energy infrastructure to avoid, reduce, use or sequester air pollutants or greenhouse gases.
These funds represent the potential of billions of low-cost, long-term loans with a partner organization staffed by hundreds of scientists and researchers who are experts in their field.
Working with the LPO is an incredible opportunity for the companies that qualify, but it is important to remember that these loans are only available for projects ready for large pilots or at commercial scale. For other financing opportunities, alternative programs within the Department of Energy, the Department of Agriculture, or even state funding opportunities may be a better fit.
To find out how Energy Transition Finance helps companies navigate the LPO and other non-dilutive financing opportunities, reach out to us here.