Renewed Interest?
Once considered a promising renewable energy source, steep drilling costs hampered geothermal energy development. The energy source, however, is now poised for a breakout and could play a critical role in the Bidenadministration'splans for a clean energy transition. Interest in the energy source is gaining traction as the Biden administration looks to decarbonize the electric grid, technological innovation lowers geothermal drilling costs, and federal funding helps make expensive geothermal projects more economically viable.
What Is Geothermal Energy?
According to the U.S. Energy Information Administration, geothermal energy taps into heat within the Earth's subsurface from the decay of naturally occurring radioactive isotypes. After drilling miles below the Earth's crust to access high-temperature water reservoirs, geothermal energy is extracted from the subsurface in the form of naturally occurring hot water and steam and used to generate electricity. Because higher temperatures are required to produce electricity, and drilling to the required depth is expensive, most geothermal projects are usually located near tectonic plate boundaries where subterranean heat and hot water can be found at shallow depths.
Geothermal plants typically emit low carbon emissions when generating electricity, releasing primarily excess steam and small amounts of carbon dioxide and sulfur dioxide. In comparison to similarly sized fossil fuel power generation facilities, geothermal facilities emit fewer carbon emissions. In some cases, the difference can be 99% less. The environmental effects and carbon emissions of geothermal energy, however, largely depend on how the energy is extracted or converted into power. Some newer geothermal technologies are designed to reinject the produced steam or water into the geothermal reservoir to mitigate carbon emissions. Other emerging geothermal technologies, such as closed-loop geothermal power plants, emit no carbon emissions.
Outside of being an energy source, some geothermal facilities produce solid materials and brines containing critical minerals, including lithium, zinc, sulfur, and silica. Critical minerals are in high demand throughout many industries and essential to many emerging clean energy technologies. Extraction and resale of these minerals can increase the cost-effectiveness of geothermal production and also provide the critical mineral sector with a more sustainable supply option.
Geothermal energy production requires relatively low water and land usage. By 2050, the U.S. Department of Energy ("DOE") estimates that the energy source could amount to 8.5% of electricity generation in the United States but only 1.1% of power-sector water withdrawals. Additionally, many of these water withdrawals could use non-freshwater sources. When it comes to land use, geothermal power plants have a smaller footprint compared to other energy sources.
Current State of Geothermal Energy
Despite leading the world in geothermal electricity generation, only seven states in the United States had operational geothermal power plants in 2022, and they produced less than 1% of the country's total utility-scale generation. Interest in geothermal energy, however, has seen a resurgence, especially from the oil and natural gas industry.
Although geothermal development still faces many obstacles, such as environmental-,
permitting-, and capital-related challenges, innovation in drilling technologies and methodologies, largely attributable to the recent U.S. shale boom, has softened the high cost of accessing deeper, hotter rock. Drilling expenditures can amount to more than half of a geothermal project's total cost, and leveraging the petroleum sector's experience will aid the energy source's expansion. While both sectors use similar concepts and techniques to extract energy from the subsurface, there are still major differences in their drilling operations, such as temperature, flow rates, and recovered products.
Where gaps still exist in geothermal exploration and drilling, the federal government is trying to facilitate solutions. The Biden administration wants to exploit geothermal energy and believes it could support the United States in achieving the administration's climate goals. As a result, the DOE is prioritizing the energy source, aiming to reduce the cost of geothermal energy 90% by 2035. This year, DOE announced a funding opportunity of up to $74 million for up to seven pilot projects testing the scalability of enhanced geothermal systems and a $13 million initiative to develop community geothermal heating and cooling systems. Last year, DOE set aside $165 million for geothermal energy deployment, $15 million to improve geothermal drilling rates, and $44 million to advance enhanced geothermal systems. Moreover, Congress passed the Biden administration's Inflation Reduction Act ("IRA"), which includes increases to geothermal federal tax credits.
Geothermal Provisions in the IRA
Geothermal energy projects are eligible for the investment tax credit ("ITC") or the production tax credit ("PTC"). The ITC equates to a percentage of the cost of a project placed into service during the tax year, and the PTC is a per kilowatt-hour tax credit for electricity generated by a qualifying technology. Geothermal electric, direct-use, and heat pump technologies are eligible for the ITC, whereas only geothermal electric technologies qualify for the PTC. The IRA extends the construction commencement deadline for ITC- and PTC-eligible geothermal facilities, allowing tax credits for projects where construction starts before January 1, 2025. If the IRA's requirements on wages and workforce are met, eligible geothermal facilities may qualify for an ITC or PTC that is five times the base credit amount. Geothermal projects may also qualify for additional tax credits if they are constructed in energy communities (e.g., areas with significant fossil fuel-related employment) or in accordance with the IRA's domestic content requirements (including certifying that the project's steel, iron, and other manufactured projects are domestically produced).
In addition to extending the ITC and PTC, the IRA created two additional new federal tax credits, the Clean Electricity Investment Credit ("CEIC") and the Clean Electricity Production Credit ("CEPC"), for projects placed in service after 2024. Although these new tax credits are similar to the ITC and PTC, they are technology neutral and apply to any eligible electricity generation facility. The CEIC applies to investments in eligible zero-emissions electricity generation facilities, and the CEPC applies to eligible electric generation facilities with anticipated emissions rates that do not exceed zero. These tax credits are subject to a phase-out schedule starting in 2032 or when the U.S. Treasury Secretary determines that the country's greenhouse gas emissions from electricity generation are equal to or less than 25% of 2022 levels.
Under the IRA, renewable energy developers may monetize these energy tax credits by transferring them to an unrelated party in exchange for cash compensation. One sale of the tax credits is allowed, and the buyer and seller have no deduction or taxable income. The transferability of these energy tax credits not only benefits existing renewable energy project developers, who often cannot utilize these large income tax credits, but makes renewable energy project development more attractive to unconventional project developers and new market participants. As a result of these changes, geothermal project financing could swell. For additional information on tax credit provisions in the IRA, see Jones Day's White Paper.
Read the full Climate Reporthere.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.
FAQs
Is geothermal energy enough? ›
It's clean, offering energy that can be extracted without burning fossil fuels such as coal, gas, or oil. Using geothermal for electricity produces only about one-sixth of the carbon dioxide of a natural gas power plant, and little—if any—nitrous oxide or sulfur dioxide.
Is there a future of geothermal energy? ›The reason that geothermal is expected to play an important role in the future is that we're getting better and better at doing this: we're now drilling geothermal wells with increasing efficiency, allowing more energy to be captured in each plant.
Is geothermal energy becoming more popular? ›In 2016, there were 3,812 MW of geothermal electricity plants in operation in the U.S.—the most of any country—and development has been growing at a rate of 2% per year. Electricity generated from geothermal plants is projected to increase from 16 billion kWh in 2021 to 47.7 billion kWh in 2050.
Is the use of geothermal power increasing or decreasing? ›Lesser Known Than Some of Its Renewable Energy Cousins, Geothermal Energy Is Now on the Rise Thanks to Its Ability To Provide 24/7 Power, Heat, Cooling, Critical Minerals, and More.
Has geothermal energy been successful? ›Geothermal energy has already been an effective way of generating power for decades, but it is currently limited to a handful of regions with active volcanoes, hot springs and geysers. DOE's funding is aimed at accessing heat buried deep inside the planet, which is in theory available everywhere.
Why aren't we using geothermal energy? ›Putting geothermal everywhere does run into some challenges, however. The main one is physical space. The most efficient and cheapest way to extract geothermal energy is through heat pumps, which tap into the constant flow of heat from Earth's core to the surface through boreholes drilled into the ground.
How long will geothermal last? ›Geothermal heat pumps last significantly longer than conventional equipment. They typically last 20-25 years.
How long until geothermal energy runs out? ›Geothermal energy is a renewable resource. The Earth has been emitting heat for about 4.5 billion years, and will continue to emit heat for billions of years into the future because of the ongoing radioactive decay in the Earth's core.
Can geothermal energy be renewed? ›Yes. Geothermal energy is renewable because its source is natural heat generated and stored deep within the Earth's core. The Earth's core contains an incredibly vast amount of thermal energy and some of this energy is accessible near the crust.
Is geothermal energy widely accepted today? ›As a renewable resource, geothermal covers a significant share of electricity demand in countries such as Iceland, El Salvador, New Zealand, Kenya and the Philippines, and meets more than 90% of heating demand in Iceland.
Why should we use geothermal energy in the future? ›
Geothermal energy is a source of renewable energy that will last until the Earth is destroyed by the sun in around 5 billion years. The hot reservoirs within the Earth are naturally replenished, making it both renewable and sustainable.
Is geothermal getting cheaper? ›Geothermal units haven't come down in price much over the past few years. They still cost between $20,000 and $25,000, on average, which is about 30% to 40% more upfront than a traditional furnace and air conditioner. This doesn't mean that choosing renewable energy for your home heater isn't worth it.
What is the biggest problem with geothermal energy? ›Air and water pollution are two leading environmental issues associated with geothermal energy technologies. Additional concerns are the safe disposal of hazardous waste, siting and land subsidence. Most geothermal power plants require a large amount of water for cooling or other purposes.
What is the trend in geothermal energy? ›The global geothermal energy market size was valued at USD 59.40 billion in 2021 and is projected to reach USD 95.82 billion by 2029 from USD 62.65 billion in 2022, growing at a CAGR of 6.3% during the forecast period. Based on our analysis, the global market exhibited an incline of 1.1% in 2020 as compared with 2019.
How fast is geothermal energy growing? ›Current geothermal contribution to U.S. energy capacity is less than 1%; however, the potential is more than 8% by 2050. Geothermal heat pumps maintain approximately 3% annual growth in the U.S., with current installations exceeding 1.7 million units.
Could the US use geothermal energy? ›Geothermal electricity generation requires water or steam at high temperatures (300° to 700°F). Geothermal power plants are generally built where geothermal reservoirs are located, within a mile or two of the earth's surface. The United States leads the world in geothermal electricity generation.
Why is geothermal energy overlooked? ›One reason geothermal energy is often underutilized is a lack of knowledge among residential and commercial energy customers. While solar panels and wind turbines are highly visible, underground geothermal systems are not.
Can geothermal energy stop global warming? ›Unlike fossil fuels, geothermal energy is a renewable resource that does not emit the greenhouse gases that cause climate change.
Will geothermal cool the earth? ›The simple answer is no-geothermal does result in cooling, but the impact is insignificant. Some 42 million megawatts of energy reach the surface continually and are radiated into space as the earth cools from its initial molten state more than 4 billion years ago.
Will geothermal pay for itself? ›In general, if you live in an area with high energy prices, you can expect a shorter payback period with geothermal. It's safe to assume that most ground source heat pump systems will pay for themselves in somewhere between four and fifteen years.
Could geothermal power cool the earth? ›
Geothermal energy—energy derived from the heat of the earth—can be harnessed both as a source of renewable electricity as well as directly for heating and cooling applications.
Can geothermal energy be pumped back into the ground? ›It is pumped back underground where it heats up once more, starting the process again. On a hot day, the system can run in reverse. The water or refrigerant cools the building and then is pumped underground where extra heat is transferred to the ground around the pipes.
What is the future of geothermal energy in the United States? ›Investing in the Future
The U.S. Department of Energy Geothermal Technologies Office's (GTO) GeoVision analysis found that geothermal electricity generation has the potential to increase at least 26-fold by 2050.
Most of the geothermal power plants in the United States are in western states and Hawaii, where geothermal energy resources are close to the earth's surface. California generates the most electricity from geothermal energy.
What state uses the most geothermal energy? ›California is home to the greatest number of geothermal power plants in the United States.
What will most geothermal power plants be in the future? ›Binary power plants are expected to be the most commonly used type of geothermal power plant in the future, as locations outside of the known hot spots begin to use geothermal energy. This is because binary cycle plants can make use of lower temperature water than the other two types of plants.
Is solar or geothermal better? ›Start Up Cost
It requires digging in the ground, sometimes a lot of digging and installing all the equipment needed to get running is expensive and time consuming. Solar energy is much cheaper and easier to install. If the up-front cost of your energy solution is important, solar is the better option in this case.
Introduction – Geothermal vs Natural Gas
While geothermal and gas are both viable options, there are some pros and cons to consider with each of them. Very briefly, geothermal has a very high initial fixed costs but lower operating costs compared to natural gas, and then over a period of 9 years the two converge.
| Pros of geothermal energy | Cons of geothermal energy |
|---|---|
| Reliable source of power | Location dependent |
| Small land footprint | High initial costs |
| Usable for large and small-scale installations | Can lead to surface instability |
| The geothermal energy industry is expanding |
For a vertical system, holes (approximately four inches in diameter) are drilled about 20 feet apart and 100 to 400 feet deep.
What is the negative effect of geothermal plant? ›
Land subsidence, a phenomenon in which the land surface sinks, is sometimes caused by the removal of water from geothermal reservoirs. Most geothermal facilities address this risk by re-injecting wastewater back into geothermal reservoirs after the water's heat has been captured.
Why is geothermal not more popular? ›The relatively low temperature of available geothermal resources limits the efficiency of power plants built to utilize it even though the heat itself is commonly thought of as “free”.
Is the geothermal industry growing? ›Since 2000, the geothermal sector has grown at an average rate of around 3.5% annually to reach an installed capacity of 16 gigawatt electrical in 2021.
Is geothermal energy expensive? ›The type of the geothermal system has a bearing on the cost of the system, whether horizontal or vertical loop systems and open or closed loops: Horizontal loop system: $15,000 to $30,000. Vertical loop system: $25,000 to $40,000. Open loop system: $10,000 to $30,000.
What is 1 disadvantage of geothermal energy? ›The largest single disadvantage of geothermal energy is that it is location specific. Geothermal plants need to be built in places where the energy is accessible, which means that some areas are not able to exploit this resource.
Can geothermal energy power a house? ›What is geothermal energy used for? Geothermal energy is largely used in two distinct ways – to heat homes and other buildings or to create electricity.
Is geothermal more efficient than solar? ›With geothermal, the energy you generate will not replace the electricity you use, but it can lower your heating and cooling bills over the long term. Solar energy on the other hand can add to or even eliminate your electricity usage and save you tons on your power bill.
What are 3 pros and cons of geothermal energy? ›| Pros of geothermal energy | Cons of geothermal energy |
|---|---|
| Reliable source of power | Location dependent |
| Small land footprint | High initial costs |
| Usable for large and small-scale installations | Can lead to surface instability |
| The geothermal energy industry is expanding |
Environmentally Responsible, Green Technology - geothermal systems eliminate the combustion of fossil fuels on site and dramatically lower the need to generate power - significantly reducing the emission of greenhouse gasses and the environmental damage associated with nonrenewable resource extraction.
Are geothermal systems worth it? ›Significant heating and cooling cost savings
According to the Environmental Protection Agency (EPA), property owners who install geothermal heat pumps can save up to 70 percent on heating costs and up to 50 percent on cooling costs, which can add up to more than $1,000 in savings every year.
What is the lifespan of geothermal energy? ›
The lifespan of a geothermal system is usually greater than 24 years. A conventional furnace will last 7-10 years with regular maintenance.
What is better than geothermal? ›Air source heat pumps are far more flexible in terms of installation location. Unlike geothermal systems, which need an outdoor space for the underground component, air source heat pumps can be installed just about anywhere.
Is geothermal cheaper than electric? ›A natural gas furnace, obviously, uses natural gas. A geothermal heat pump uses electricity. In a lot of areas around the country, natural gas costs are very low. It is much cheaper to operate a natural gas furnace than to rely on an electric furnace.
Does geothermal use more electricity? ›Geothermal heat pumps are more efficient and use less electricity for cooling than even hyper-efficient central AC systems.