The One Big Beautiful Bill Act preserved key tax incentives for geothermal power while scaling back support for other renewables like wind and solar. These incentives, specifically the 48E Investment Tax Credit and 45Y Production Tax Credit, are critical for developers, helping them raise capital and attract major customers. The bill also sets a clear phaseout schedule, giving geothermal projects until 2033 to begin construction and still qualify for full credits.
Beyond tax credits, the Bipartisan Infrastructure Law has committed $84 million to support four pilot projects for Enhanced Geothermal Systems (EGS), with the goal of unlocking geothermal’s potential across diverse geologies in the U.S.
This policy certainty has been helpful for the several geothermal start-ups that have emerged in recent years (see Exhibit 1). Eavor Technologies has raised $182 million for its closed-loop system, which avoids fracking and seismic risk. Fervo Energy has secured $244 million to scale its enhanced geothermal systems using horizontal drilling. XGS Energy is developing water-independent systems with over $40 million in funding, while GreenFire Energy is aiming for 150 MW of capacity by 2030 with backing from Baker Hughes and Vallourec. AltaRock Energy, while less commercially active, remains engaged in research and development with around $40 million raised to date.
Exhibit 1. Illustrative list of geothermal start-ups.
ADI Analytics has been studying geothermal energy for over 15 years, starting with a project commissioned by the U.S. Department of Energy’s Geothermal Technologies Office in 2010 (see Exhibit 2). That was during the first geothermal gold rush, facilitated by substantial government and private funding (including from Google’s philanthropy program), which backed numerous start-ups and demonstration projects that ADI had carefully evaluated. That work focused on EGS and drew on cost modeling, analysis of more than 6,000 patents, and expert input to assess how oil and gas (O&G) exploration and production technologies could reduce costs and accelerate the commercialization of EGS and other advanced geothermal technologies.
Exhibit 2. ADI’s expertise and experience in geothermal includes serving U.S. DOE on EGS costs, economics, and analytics since 2010 (Source: ADI reports to U.S. Department of Energy, see ADI Plus).
This deep technical and economic analysis continues to inform ADI’s perspective, highlighting both the promise and the persistent challenges facing today’s geothermal innovators. While geothermal is a critical technology with many advantages, this blog focuses on the challenges involved in presenting a realistic view of a sector that is currently receiving significant attention.
Challenges in applying oil & gas technology to geothermal
Geothermal projects can utilize many of the drilling and completion technologies developed and matured in the O&G sector. While this is a logical approach, a primary critique is the fundamental difference in operational goals. O&G focuses on high-pressure, short-lived extraction from permeable rock. In contrast, geothermal requires sustained, high-volume fluid circulation through engineered reservoirs over decades. The adapted O&G technologies, especially for well stimulation and completions, may not be suitable for the deep, hot geothermal environments.
A significant challenge is parasitic load, which is the energy consumed by the pumps needed to circulate fluid. Pumping requires significant power, especially for wells with lower enthalpy fluids. Some geothermal operations have reported that up to 50% of the gross power generated is used to run these pumps. For a well producing 2 MW, the injection pump alone can consume 750 kW. This high parasitic load reduces the net energy output and economic viability.
Another key issue lies in the operational environment. Geothermal formations are typically composed of harder igneous and metamorphic rocks, whereas O&G wells are drilled into softer sedimentary rocks. Geothermal rocks also tend to be rich in abrasives like quartz and have natural fractures, which can cause wear on drilling equipment and lead to vibrations. The high temperatures in geothermal reservoirs (120°C to 350°C) also tend to exceed the operating limits of O&G equipment, which is typically rated for temperatures no higher than 150°C. This can cause elastomer seals and lubricants to degrade, leading to equipment failure and “non-productive rig time.”
High-temperature obstacles
A key selling point for advanced geothermal is the ability to tap into very high temperatures, where the enthalpy (heat energy) of the fluid is significantly greater. For example, the enthalpy at 375°C is three to four times greater than at lower temperatures.
However, this presents technical obstacles. The materials used in O&G, such as viscosifiers, elastomers, and proppants, were developed for lower temperatures and are not suitable for the extreme heat in deep geothermal wells. O&G proppants can dissolve and form clays at temperatures above 200°C, blocking the very fractures they were meant to keep open. Elastomers, commonly used in seals and other components, begin to degrade above 200°C to 225°C, leading to equipment failure. These limitations persist largely because there has been little incentive within the O&G sector to improve the temperature tolerance of these materials, as such extreme conditions are rarely encountered in conventional O&G operations.
Cost and efficiency concerns
The high cost of stimulation and well completions remains a barrier. While some reports suggest drilling costs are falling, the costs associated with completions and cementing are not keeping pace. Drilling costs increase exponentially with depth, with deep EGS projects (5,000 meters) estimated to cost as much as $1 billion for a full-scale, 50 MW plant. This reliance on expensive stimulation and O&G-derived technologies, which may not be effective at high temperatures, creates a challenging economic model.
The high cost of deep EGS is reflected in its Levelized Cost of Electricity (LCOE). ADI estimates the baseline LCOE for a deep EGS plant at 32-34 cents per kilowatt-hour (c/kWh), which drops by nearly half for a near-field EGS plant (17-22 c/kWh) that uses existing O&G wells and infrastructure. However, this is still far more expensive than gas-fired generation with carbon capture and storage, which is estimated at 6-13 c/kWh. This cost disparity shows the extent of the cost reduction needed for EGS to become competitive. Furthermore, even with binary power plants, the net thermal efficiency of some geothermal systems is around 20%, which is half the efficiency of a typical coal plant.
The reliance on O&G technologies is also concerning due to a lack of innovation in key areas. Patent analysis shows that while drilling and power plants dominate geothermal patents, there has been little patenting activity in exploration, completions, and reservoir stimulation. This suggests critical technology gaps in creating new fractures, controlling fluid flow, and isolating reservoir zones, which are all essential for a viable EGS operation.
Conclusion
Geothermal energy holds significant promise as a clean, consistent power source, attracting new companies and investment. However, its growth faces key hurdles as we have discussed in prior ADI work and blogs. The industry’s heavy reliance on technology borrowed from the oil and gas sector is a double-edged sword: while it provides a starting point, these tools often struggle with the unique, high-temperature, and abrasive conditions of geothermal environments. This contributes to higher costs and reduced efficiency, alongside other technical and economic challenges. For geothermal to reach its full potential—the focus of our multi-client study on geothermal—sustained innovation is needed to develop technologies specifically for its unique demands, rather than relying solely on adapting existing ones.
– Uday Turaga
About ADI Analytics
ADI is a prestigious, boutique consulting firm specializing in oil and gas, energy, and chemicals since 2009. We bring deep expertise in a broad range of markets where we support Fortune 500, mid-sized and early-stage companies, and investors with consulting services, research reports, and data and analytics, with the goal of delivering actionable outcomes to help our clients achieve tangible results.
We also host the ADI Forum that brings c-suite executives together for meaningful dialogue and strategic insights across the oil & gas, energy transition, and chemicals value chains. Learn more about the ADI Forum.
Subscribe to our newsletter or contact us to learn more.
