Summary

  • Columbia Business School economist Gernot Wagner frames next-generation geothermal energy as an engineering technology subject to learning curves rather than a depleting commodity.
  • US legislators and technology companies reduce regulatory risk premiums through bipartisan research acts and anchor power-purchase agreements.
  • Enhanced geothermal operators rely on existing oil and gas supply chains to scale hydraulic fracturing while navigating structural seismic permitting friction.
  • Drilling innovators at Quaise target subsurface physical constraints with millimetre-wave technology but face multi-year commercialization delays.

Next-generation geothermal energy deployment in the United States is advancing through a confluence of bipartisan legislative support, anchor demand from major technology companies, and iterative drilling innovations, though the sector remains constrained by high upfront capital costs and complex subsurface engineering challenges. The analytical consensus emerging from industry officials and economic analysts characterizes geothermal not as a depleting commodity but as an engineering technology subject to the same cost-reduction learning curves that have historically driven down the price of other energy systems. This structural distinction shifts the commercial focus from resource scarcity to drilling efficiency, positioning the sector’s near-term viability on whether capital-intensive reinforcing loops in policy and demand can outpace the physical and regulatory friction inherent in accessing deep-earth heat.

The structural distinction of geothermal as a technology

The case for next-generation geothermal rests on a structural distinction the source material highlights: the classification of geothermal as a technology subject to engineering learning curves, rather than a commodity subject to depletion and geopolitical rent. Columbia Business School climate economist Gernot Wagner stated that “geothermal is a technology,” contrasting it with fossil fuels that are vulnerable to political disruption. This distinction shifts analytical focus from resource scarcity to drilling engineering, suggesting that cost trajectory will be governed by iterative cost-reduction dynamics that have historically driven down the price of other energy technologies.

Fervo Energy made this case directly in its initial public offering filing. The company noted that, unlike fossil fuel plants, it has no ongoing fuel costs, and articulated its commercial ambition: “Over time, our goal is to achieve scale and drive down prices such that we’re able to outcompete gas.”

The load-bearing element of this steelmanned position is that enhanced geothermal systems utilize hydraulic fracturing techniques. This approach relies on the premise that existing oil and gas supply chains, labor pools, and drilling equipment can be directly redirected to geothermal deployment. Wagner stated that enhanced geothermal uses “the same techniques” and is “up to a point it’s the same industry as well” as fossil fuels.

To reach hotter rock at greater depths and overcome the physical constraints of conventional drilling, companies are developing advanced drilling technologies. Harry Kelso, communications manager for the Massachusetts Institute of Technology-rooted company Quaise, stated that “Millimetre wave drilling really enables you to access super-hot geothermal just about anywhere in the world.” Kelso attributed the engineering constraint to conventional drill-bit failure in hard rock, noting that millimetre-wave drilling sends electromagnetic waves in the microwave spectrum to melt and vaporise rock rather than using a physical bit.

Who benefits from early-stage deployment

The short-term benefits of the current system are concentrated among capital-intensive buyers and politically aligned coalitions. Fervo Energy’s 2021 power-purchase agreement with Google anchors an early-stage offtake market for electricity that technology companies need to power vast data centres. The company also received backing from Breakthrough Energy, a venture founded by Microsoft co-founder Bill Gates.

Capital markets have responded to this anchor demand. In May, Fervo Energy became the first next-generation geothermal company to go public on the Nasdaq, with an initial valuation of about $7.7bn, and shares traded up roughly 18% from the initial public offering price. Fervo quotes a construction cost of $7,000 per kilowatt of electricity for its Utah plant, a figure comparable to traditional nuclear power.

The political coalition benefiting from this deployment is anchored in US legislative action. Senators from both parties introduced the Next-Generation Geothermal Research and Development Act in April, which directs the Department of Energy to support the development and commercialisation of next-generation geothermal energy systems. The legislation reflects a rare area of bipartisan agreement on energy policy: low greenhouse gas emissions appeal to Democrats, while energy independence and the use of familiar oil-and-gas drilling technology appeal to Republicans. This bipartisan introduction reduces the US regulatory-risk premium that has historically depressed investment in capital-intensive clean energy.

However, this coalition structure carries structural risks. The reliance on familiar oil-and-gas technology risks structurally binding the geothermal sector to the regulatory and institutional frameworks of the fossil fuel industry. Furthermore, while the US-specific policy framework reduces domestic regulatory risk, deployment outside the US will require navigating non-bipartisan international permitting regimes, a scope the source material does not address.

How the sector is being framed

The source material frames next-generation geothermal through two principal lenses. The first is the bipartisan energy-policy story, where Democrats focus on emissions and Republicans focus on energy independence and familiar oil-and-gas technology. The second is the technology-learning-curve story, anchored by Wagner’s assertion that “geothermal is a technology” and Fervo’s public market disclosures. Both frames privilege the cost-down narrative and the demand-pull anchor provided by the Google power-purchase agreement and Breakthrough Energy backing.

The source material also surfaces structural counterweights to these optimistic frames. The International Energy Agency has assessed that datacentre projects alone will not be enough to move the needle on overall energy deployment. Additionally, the climate solutions organisation Project Drawdown noted that early projects carry significant risk of cost overruns.

Despite these counterweights, the prevailing analytical voice remains optimistic about the technological trajectory. Wagner emphasized that geothermal energy is fundamentally different from fossil fuels because oil, gas and coal are commodities vulnerable to political disruption, whereas geothermal is more secure. He characterized the technology as having achieved liftoff, asserting it will only get better and cheaper over time.

System dynamics and structural constraints

In systems dynamics frameworks developed by scholars including John Sterman and Donella Meadows, the configuration of next-generation geothermal deployment is characterized as a reinforcing-loop structure, a pattern in which aligned mechanisms compound one another’s effects over time. Three independent reinforcing mechanisms align in the same direction:

The cost-down loop operates such that each additional well drives incremental learning in drilling, well design, and subsurface engineering. The demand-pull loop is driven by electricity demand from data centres, exemplified by Fervo’s 2021 power-purchase agreement with Google, which provides an anchor offtake market willing to commit at early-stage prices with additional backing from Breakthrough Energy. The US-specific policy-stability loop, driven by the bipartisan introduction of the Next-Generation Geothermal Research and Development Act, reduces the US regulatory-risk premium that has historically depressed investment in capital-intensive clean energy.

These reinforcing loops are in tension with two balancing constraints and one long delay.

The first balancing constraint is the drilling-cost ceiling. Conventional drill bits degrade rapidly in the hard, hot rock that defines the deep resource. Quaise is developing millimetre-wave drilling that vaporises rock rather than cutting it to overcome this ceiling. Quaise plans to use some conventional drilling at a project site in the interim, with the aim of full millimetre-wave operations by 2030. Until the millimetre-wave approach is demonstrated at scale, the drilling-cost ceiling constrains how fast the cost-down loop can spin.

The second balancing constraint is seismic-permitting friction. Enhanced geothermal systems use hydraulic fracturing, in which pressurised fluid is pumped into one well to create underground cracks, and steam or hot water is collected from another. The source material notes that proponents argue the climate benefits outweigh seismic risks. Wagner said the risk of seismic activity from creating underground cracks is outweighed by the benefits of a renewable, always-on, large-capacity energy source. However, the friction is structural rather than technical. It operates through state-level regulation and the political legacy of fracking-related opposition, and it can lengthen the time between demonstrated capability and deployed capacity, regardless of how quickly the underlying technology matures.

The third structural element is the research and development to deployment delay. The April legislation directs the Department of Energy to support commercialisation, but commercialisation of millimetre-wave drilling and deep enhanced geothermal systems is a multi-year programme, not a procurement cycle. Quaise’s 2030 target implies roughly a four-year runway from the June 2026 reporting.

In the systems dynamics vocabulary developed by Sterman, Meadows, and others, this is a configuration in which reinforcing loops accumulate only as fast as the opposing balancing constraints release, and the connecting delay determines how slowly the imbalance propagates through deployment.

Quaise’s commercial trajectory aims to accelerate this dynamic by targeting reservoir temperatures between 300°C and 500°C. Kelso stated that achieving these temperatures will allow the company to extract 10 times more energy per well, which would improve the underlying economics. However, Kelso acknowledged the present disadvantage: “Geothermal today is still more expensive because you are not getting as much power out of the well as you would if you were using that well for fossil fuel.”

What happens next

Reading the three reinforcing loops together, the strongest charitable inference is that next-generation geothermal does not have to win on cost against incumbent renewables at the moment of deployment. Instead, it has to win on system value—always-on availability at low marginal cost—over a learning curve, while anchor customers absorb early-stage premiums. If the 10x energy-per-well gain from the 300°C–500°C targeting materialises, the per-kilowatt calculation that today puts geothermal above gas could shift substantially before the end of the decade.

The International Energy Agency’s assessment and Project Drawdown’s caution indicate that the demand-pull loop is necessary but not sufficient on its own. The empirical question on which the technology’s near-term climate contribution turns is whether the timing alignment holds. Specifically, the question is whether the three reinforcing loops—cost-down, demand-pull, and US policy-stability—accumulate faster than the two balancing constraints—drilling-cost ceiling and seismic-permitting friction—bind, given the multi-year research and development to deployment delay.

Analytical techniques used in this piece

This analysis applies the methods below. Each links to a short, plain-English explainer you can read and reuse.

Steelman Construction
Builds the strongest possible version of a position before judging it.
Systems Dynamics (Structural)
Maps a system’s structure — stocks, flows, and the architecture that shapes its behavior.
Creative Destruction
Innovation that grows the economy by dismantling the incumbents it displaces (Schumpeter).