Misunderstood and Manageable

Next-generation geothermal technologies have fundamentally changed the risk profile of geothermal investment, and capital markets have not caught up. The mismatch between how investors currently price geothermal risk and current technological capabilities is creating a bottleneck to scaling the geothermal industry. This paper proposes a structure to help investors and policymakers understand and shift their risk frameworks and also provides examples of targeted, revenue-neutral public/private drilling insurance programs that can help accelerate that shift.

For decades, geothermal investment has been held back by the binary nature of subsurface resource risk: geothermal projects either identified an economic resource and succeeded, or did not, and failed. While this binary risk characterization was true for the early technologies deployed in the geothermal and oil and gas industries (Robertson-Tait et al., 2008; Rose, 2001), it is now an outdated view. Next-generation geothermal technologies represent a fundamentally different type of investment than those pursued previously in the industry. They nearly guarantee that a resource (heat) will be found, and instead face a non-binary uncertainty on whether that heat can be economically extracted. That financial structure is much more similar to unconventional oil and gas, or even wind and solar, than conventional geothermal.

The last two years have demonstrated that capital markets have not yet adopted this updated, non-binary risk framework. Fervo’s pre-IPO journey illustrates these difficulties. The first commercial-scale EGS project – Fervo’s Cape Station – took less than 18 months to secure more than $1 billion in development capital, including more than $400 million in non-recourse project debt. However, it first took Fervo nearly six years to raise the $100 million needed to perform the appraisals necessary to unlock that capital. Today, other next-generation geothermal developers are facing similar fundraising challenges – of the approximately $2 billion invested in the six leading next-generation geothermal developers in the US, more than 70% of it is committed to Fervo’s Cape Station (Akindipe et al., 2025). 

The geothermal industry can rapidly provide tens to hundreds of gigawatts of clean, firm power to the grid if appraisal capital becomes widely available. Existing supply chains and workforce, combined with rapidly-improving permitting timelines on federal land, enable geothermal developers today to achieve commercial operation dates (COD) in as few as three years for 100 MW deployments - and as few as 4 years for 500 MW deployments (M. Smith, 2026). The Department of Energy’s Earthshot study found that with rapid deployment, the effect of learning by doing can bring down the cost of geothermal energy to 45 $/MWhr.

This is among the fastest paths to power across any technology area. Developers cannot achieve these timelines, however, if they are capital-constrained. In order for early investments to develop a pipeline of projects, capital markets will need to shift their risk understanding from a binary resource risk framework to non-binary appraisal uncertainty. In particular, traditional renewables investors who are likely unfamiliar with subsurface risk will need to understand its components and mitigants to manage and price it. In addition, the public and private sectors can strategically leverage novel capital solutions to help derisk appraisal drilling for geothermal developers, encouraging new commercial deployment of geothermal power and facilitating the industry to scale at the speed of rising power demand.

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