Another Year of Progress
Most developments over the last year have come from one company, Fervo, the enhanced geothermal startup. There have been improvements and derisking in reservoir creation and drilling. The latest project in Utah, Cape Station, could grow to produce hundreds of megawatts of electricity. The company is reducing costs and solving most issues, though questions about fluid loss remain.
Last year, I wrote about closed loop systems and Eavor several times due to the start of their Germany project and signing several sales contracts. The company has been quiet about progress, so no updates there.
Emulating Fracking Cost Declines and Performance Improvements
The two main engines of improving productivity for shale wells have been faster drilling and increased completion intensity. Fervo has been able to latch onto both trends in its geothermal projects.
A quick summary of shale drilling improvements is that the cutters on the PDC bits became much better, the design of the bits could become more aggressive without them breaking, drilling rigs got better auto drillers and bigger pumps, and the horizontal length of the wells increased several times to get more out of each well.
Fervo is pursuing a similar path. The new wells at the Cape Station project have longer laterals than its Project Red test wells. Optimizations in the drilling process reduced drilling time to under 20 days from over 70 days for their first test well. The on-bottom drilling speed is fast enough that non-productive time like running casing, cementing, or making connections becomes most of the time spent. There are still incremental improvements available, and lateral length should increase. Geothermal wells may not get as much benefit from longer laterals because they need to move so much fluid, but the returns are probably still positive.
Increasing completion intensity led to significant productivity gains in many shale plays. Pumping more fluid and sand tends to unlock more oil and gas reserves until eventually hitting diminishing returns. Every reservoir hits that point at different times, and it's hard to know where it will be ahead of time. Drilling gains have a very high probability of happening, while completion improvements can be hit and miss, especially in fractured reservoirs like the granite basement geothermal companies need to target to reach global scale.
Fervo did increase completion intensity and saw positive results. Each of their wells can produce more heat per completed foot. The company also plans to stack wells on top of each other, another common shale tactic that improves resource recovery. These improvements help the economics, and there may be more if the reservoir responds positively to further intensity increases.
Traditionally, proper connectivity between enhanced geothermal well pairs is a challenge. Either there is no connection at all, or there are short circuits that hurt productivity. Creating a reservoir and connectivity in multiple locations is an achievement.
The company claims these improvements mean they have beat the Department of Energy's 2030 goals for geothermal years early.
The Question of Fluid Loss
One concern in the Project Red test was that 10%-20% of the fluid pumped did not return to the surface. That number is much better than many legacy enhanced geothermal projects but needs improvement. Costs increase and site locations narrow to those with excess cheap water. It could also increase induced seismicity risk over time.
The latest results released for Cape Station do not include the fluid loss number, so we don't know if it improved. Options remain even if it didn't, like reducing fluid throughput. That would hurt productivity, but further gains from drilling and completion intensification could compensate.
These results reduce my skepticism of enhanced geothermal. The fluid loss issue is the last domino that needs to fall.
The Closed Loop Backup
Hopefully, Fervo will succeed with enhanced geothermal, but their drilling improvements mean a closed-loop fallback plan is more viable.
A quick recap of closed-loop is that it is simpler and performs better on every economic and risk metric, except it requires dramatically more drilled footage. It becomes more attractive if drilling productivity increases relative to reservoir productivity.
I favor a stripped-down architecture compared to what Eavor is pursuing - no fluid loss mixtures, open hole sidetracks instead of whipstocks, and a much simplified magnetic-ranging architecture. I'm not running a geothermal startup, so those are only words, but it wouldn't surprise me if someone eventually adopts the simplification mentality.
If I do cost estimates on this with Fervo's drilling improvements, then the number for the drilling side, not including the power plant, is somewhere around $5000-$10,000/kWe. Ten years ago, it was a fun achievement when I could consistently drill moderately challenging sedimentary wells of similar footage to Fervo's in under 20 days. Drilling in granite, like the Cape Station wells, would take thousands of days. Another doubling in on-bottom drilling performance that puts closed-loop into competitive pricing isn't out of the question. One might even expect it!
The Current Place
The last year has been encouraging. Bits and motors are getting better. Drilling is faster. Completion intensification might have legs. However, geothermal still has a long road to reach 10% of the electricity supply.
We have two companies with viable business models trying to scale. They have contracts that provide a chance of generating cash while pushing further iteration. Execution is what matters. The industry will hurt if they fall flat because there are few high-potential startups. Any company that can execute at a high level can survive because multiple strategies are available. Drilling is more like construction than factories - designs can change on a whim. Other technologies like solar, batteries, and shale gas will keep improving.
My estimate of geothermal exceeding 10% of electricity supply has only slightly ticked up, but the chances of it having a niche >1% have increased.