Geothermal startups are suddenly raising a lot of money

After decades of stagnation, geothermal is getting renewed attention from venture capitalists excited about the promise of new technologies.

• The top line: The advanced geothermal company XGS Energy announced today that it closed a $20 million additional Series A financing round. XGS has developed a closed-loop system that allows it to reuse water in injection wells for enhanced geothermal projects. This comes a few weeks after the artificial intelligence-powered geothermal exploration company Zanskar Geothermal & Minerals announced a $30 million Series B raise of its own. 
• Market grounding: At least six enhanced geothermal companies have announced funding rounds in the last six months. The size and stage of the financing vary -– ranging from nearly $25 million in venture funding raised by XGS itself earlier this year, to the $244 million Series D raked in by Fervo Energy in February. As zero-emissions firm power becomes more important for meeting rising electricity demand, investors are increasingly interested in the space.
• Current take: Andrew Beebe, managing director at Obvious Ventures, which led Zanskar’s latest round of funding, says the new technologies that are being developed have the promise to make geothermal predictable and cost-effective. “All of these companies, in some cases in complementary ways, are giving great hope to the belief that geothermal can be a very rapidly deployable, baseload clean power, the likes of which we just don't have today,” he told Latitude Media. 

Commercial geothermal plants have been in operation for over a century, but it’s still a fairly niche technology. In 2023 there were still just roughly 2,670 megawatts of geothermal capacity in the United States, according to the International Renewable Energy Agency, as compared with around 140,000 MW of solar capacity. 

That geothermal footprint translates to just 0.4% of the country’s electricity generation, though the Department of Energy estimates that the U.S. has the potential to provide 8.5% by 2050. A big reason for the lack of progress: it's very costly and risky to find new resources.

Zanskar uses predictive modeling to discover new heat resources faster, and to analyze a reservoir to reduce the drilling risk.

“Geothermal has been maybe appropriately neglected, because it's proven to be either too expensive or too small in scale whenever it is found and exploited,” Beebe said. “Finding geothermal resources successfully on any kind of scale has been too expensive, and in places where we know it exists, it’s either very deep, or it’s present in diffuse ways, which would require super-deep drilling or fracking.”

Technical innovations in drilling, well design, and exploration are suddenly making the space attractive for investors. Is the industry finally headed toward real growth?

For instance, Fervo Energy has seized headlines — and raised hundreds of millions — using fracking methods to access hot rocks underground and pump water into the well to create steam. Meanwhile, Quaise Energy is using high-power microwaves to vaporize rocks and drill deeper than traditional methodologies would allow. Both of these approaches allow the companies to create geothermal wells without having to worry about the site’s natural permeability.

XGS, which is backed by investors such Valo Ventures, Constellation Technology Ventures, and Anzu Partners, among others, has $40 million in total funding to date. The company’s approach is to drill a single well, then pack it with “proprietary thermally conductive material” that “pulls” heat to the well, allowing it to theoretically be used for 30 years or more. It uses water recycled through a “closed-loop system” in order to avoid restricting its sites to those with ample nearby water.   

Zanskar, meanwhile, is building an AI software to make it easier to find new geothermal sources, potentially saving companies on costly exploratory drilling. In addition to Obvious Ventures, the company’s backers include Munich Re Ventures, Union Square Ventures, and Lowercarbon Capital. The company said ​​its early-stage field data program allowed it to make more greenfield geothermal discoveries than the whole industry over ten years. 

Other companies that have recently raised money include Eavor Technologies, which is based on a new closed-loop geothermal technology, and Sage Geosystems, which is exploring geothermal energy storage.

Beebe emphasized that the fact that many of these technologies are complementary makes the whole sector even more appealing to potential investors, raising hopes that it will evolve and mature organically.