Geothermal Is Heating Up. Can The Grid Keep Up?

The AI data center boom that has lifted power sector players like geothermal company Fervo Energy could also threaten to sink them.

Fervo, whose shares launched on the NASDAQ in May, is caught up in headwinds facing clean tech and AI as they struggle to navigate long waits to connect to the power grid, rising interest rates and questions about tech companies’ ability to meet their massive cash needs. That’s pinched Fervo, the high-profile next-generation geothermal company hoping its round-the-clock clean power will draw strong interest from environmentally minded tech giants.

"What you're seeing right now is a broader pullback in the market that is impacting the entire AI infrastructure and cleantech sector," Fervo Energy CEO Tim Latimer told the POLITICO Energy podcast. "We're caught up in that pullback as well."

Those challenges have crimped Fervo Energy’s stock price. It went public in May at $27 per share, but closed Friday at $8.28.

“We're very confident that our continued execution is going to deliver on the results that we promised and that we're going to continue to scale up,” he said. “But it's been a very challenging financing environment broadly for innovative technologies, especially in the clean energy space, and we haven't been immune to that.”

Geothermal energy, which harnesses heat from thousands of feet underground to power electricity turbines, has been around for years, but new technology aims to turn the power source from a niche into a major power contributor in parts of the West. It has achieved rare bipartisan backing for its ability to provide zero-emitting power to support energy-intensive industries, winning financial backing from both the Biden and Trump administrations through federal grants.

While geothermal is becoming competitive with other new builds of other energy sources, according to asset management firm Lazard, the enhanced designs that inject fluids deep underground like Fervo are typically more expensive. Those cost curves are falling, helping Fervo attract customers like AI operators that want power quickly instead of waiting for space on the bulk electric grid, Latimer said.

“Our customers are not doing charity with us,” Latimer said.

Geothermal currently provides 4 gigawatts of U.S. electricity generation, about the same as four nuclear reactors, or enough to power 3 million to 4 million households. Latimer said geothermal is poised for growth, thanks in part to drilling techniques borrowed from the oil and gas fracking boom that have made it easier to tap deep underground rock masses for power. Energy Department estimates enhanced geothermal like what Fervo produces could soar to 90 gigawatts of electricity by 2050.

AI figures to play a key role. The tech sector has not given up on its climate goals, even if AI is increasingly making those targets unrealistic as companies turn to natural gas to fuel non-stop operations. The pitch for geothermal is it can provide uninterrupted power without greenhouse gas emissions.

“Our customers have a deep need for reliable, carbon-free electricity and want to sign contracts with us for that reason,” he said.

While Fervo has won contracts from utilities like SoCal Edison and Shell Energy North America, its biggest deal is with Google, which agreed to buy 396-megawatts of power from the Cape Station facility that began commercial production in September in Utah, with an option to expand to 1 gigawatt.

Fervo has also sought tech customers by necessity because third-party transmission operators have limited the company’s access to the high voltage wires that would send its power far and wide. Latimer said Fervo is pursuing so-called behind-the-meter agreements to avoid long waits to connect to the grid – though tech companies are increasingly pushing for grid access.

Latimer said passing the bipartisan Senate permitting bill would be “transformative” for geothermal by solving hurdles for building new transmission projects.

“Particularly in the U.S. West, it is very challenging to build out new transmission and interconnection timelines have been very extended,” he said.

Yet Fervo has also attracted skepticism about its business.

A short-seller named Morpheus Research is betting against Fervo shares, claiming the company’s Nevada pilot site failed to draw enough steady heat from the earth to produce power and that it lost water from its system at a rate that would violate a permit if repeated at its Utah project.

Latimer dismissed Morpheus’ claims as selective and said they were issued without proper fact checking. He did not outright deny that its Project Red pilot site in Nevada experienced what is known as “thermal decline” at a rate of 24 degrees Fahrenheit in one year, but remarked such findings are an inaccurate “snapshot” of its performance.

Fervo noted Project Red recaptured 70% percent of its water. Latimer said Fervo’s goal to retain 99% is achievable at its Utah project, which he said complies with a state permit forbidding it from diminishing aquifers.

“We have addressed most of the concerns in many prior disclosures. We have enormous amount of data out there,” he said

Separately, law firm Hagens Berman is exploring a potential shareholder lawsuit over whether Fervo failed to appropriately disclose that it could face transmission curtailments that would materially affect its business.

Latimer said those challenges with gaining transmission access are not a secret given the nation’s struggle to add new power sources to meet surging demand.

“It's a well-known problem, it's been disclosed by us and by many people for a long time,” he said.