Geothermal energy poised for transformation: Wood Mackenzie explores emerging next-gen technologies

Next-generation geothermal technology could transform the energy sector, offering abundant, round-the-clock low-carbon power and heat, according to Wood Mackenzie.

"Geothermal is emerging as a promising contender in the energy transition landscape, driven by the datacentre sector's growing demand for clean power”, Gavin Thompson, vice chairman, of energy at Wood Mackenzie. “While cost reduction remains a critical hurdle, technological advancements could make geothermal energy production viable almost anywhere. The recent legislative changes in countries like Germany signal a shift towards more favourable policy environments, potentially accelerating geothermal adoption. As the industry evolves, we expect geothermal to play an increasingly significant role in the global energy mix, offering a reliable, clean alternative to traditional power sources.”

Key insights into why Wood Mackenzie expect confidence in the sector to keep rising:

1. Next-gen geothermal rose five places on Wood Mackenzie's technology leaderboard in 2023, driven by growth in announced projects and advancements in financing and regulation.
2. Enhanced Geothermal Systems (EGS) and Advanced Geothermal Systems (AGS) are the most advanced next-gen technologies. EGS increases permeability in hot, dry rocks, while AGS uses a closed-loop system to repurpose end-of-life oil and gas wells. Both technologies could double output per well compared to conventional geothermal, potentially creating almost limitless baseload low-carbon energy.
3. Drilling wells accounts for a significant portion of capital spend. Next-gen geothermal capex needs to fall by up to 60% to compete with nuclear in the baseload clean power market. Co-locating geothermal plants with other low-carbon technologies and extracting critical minerals from geothermal fluids could improve project economics. Pilot lithium extraction plants are already established in Germany, New Zealand, North America and the UK.
4. Governments are slowly recognising the potential of geothermal. Financial support is increasing, with more than US$2 billion allocated to geothermal energy initiatives in 2024 – though the majority has gone to conventional projects.
5. The promise of clean, 24/7 power is attracting Big Tech to geothermal. Meta, Microsoft and Google have signed significant geothermal power agreements, demonstrating increased interest from technology giants.

“Next-generation geothermal technologies are poised to revolutionise the energy landscape”, adds Annick Adjei, senior research analyst, subsurface (new energies). “While conventional geothermal has been limited by geological constraints of high-temperature and high-permeability rocks, emerging technologies like EGS and AGS could unlock vast reserves of low-carbon baseload energy. This potential, coupled with growing government support and Big Tech interest, positions geothermal as a key player in the future energy mix. As these technologies mature, we expect geothermal to overcome its traditional limitations and contribute significantly to the global clean energy transition."

Wood Mackenzie notes that while oil and gas majors are showing interest through strategic partnerships signed by BP, Equinor and Chevron with project developers, progress may slow. While the opportunity to leverage skill sets in subsurface and drilling is an attraction, the demotion of low carbon in capital allocation may slow progress down.