Geothermal Energy

Industry Outlook and Investment Opportunities 7 February 2021

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Introduction

Traditional technologies, like solar and wind, are well-established and have received significant amounts of attention from the media and investors. Although it’s been around for decades, is less known, yet due to technological advancements, is increasingly viable with a potential to play a role in energy transition. To help shed light on the technology, we’re taking a deep dive into what geothermal energy is, the current state of the technology and its growing potential.

There are four types of geothermal systems: hydrothermal, hot dry rock, geopressured and magmatic. Only hydrothermal systems are currently used, as the latter three lag behind technologically. However, there have been recent developments in hot dry rock geothermal systems, commonly referred to as enhanced geothermal systems (EGS), but these are not yet used commercially. Geothermal energy is available in many places, but it’s easier to harness in some geographical locations as compared to others. It can be used in two primary ways: for heating (houses, buildings and industries for example), or for creating electricity.

Highlights

• Geothermal energy is a form of renewable energy with very low C02 emissions. Compared to natural gas, current deep geothermal projects have seen on average an 88% decrease in CO2 emissions. • The top three countries in the world for geothermal energy production are the US with 3.4 GW capacity, the Philippines with 1.8 GW and Indonesia with 1.6 GW. • The International Energy Agency (IEA) expects global capacity to reach more than 17 GW by 2023, with an average compounded annual growth rate of 4.7%. • Geothermal energy investment increased by 10% in 2018, with a total investment volume of $1.8 billion. • Levelized electricity costs from geothermal electric plants are relatively low, ranging from 5¢ to 95¢ per kWh. • Geothermal energy production is independent from local weather circumstances, and can provide heating and electricity throughout the year, whereas wind and have seasonal fluctuations. • The University of Texas at Austin, with the help of a US Department of Energy grant, has become a national hub for geothermal energy startups and expertise.

Geothermal Heat Pumps

Geothermal heat pumps are a direct way to use geothermal energy. Systems are typically close to the surface (at a depth of 30-165 feet). Heat pumps push water through a closed underground network, and, depending on the season, the water is either warmed or cooled by a relatively stable temperature within the subsurface. This water can be used for heating or cooling buildings. Heat pumps can be used for space heaters, small greenhouses, aquaculture, and commercial and industrial processes requiring low temperatures. • The US Environmental Protection Agency has called geothermal heat pumps the most energy- efficient, environmentally clean, and cost-effective methods for heating and cooling buildings.

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• Between 2019 and 2025, the geothermal heat pumps market is expected to grow at a CAGR of 10.7% and reach a market value of $7.4 billion. • Each year roughly 50,000 geothermal heat pumps are installed in the US. • The expected payback time for consumer investments into geothermal systems is between five and ten years. Meanwhile costs of oil and natural gas heating are predicted to rise in the future. • For every 100,000 US homes using geothermal heat pump systems, foreign oil consumption is reduced by 2.15 million barrels, and electricity consumption by almost 800 million kWh a year. Whereas subsurface heat pump systems are usually meant for small-scale applications, heat derived from deeper geothermal wells can be used for heating industries as well as entire city networks. These geothermal wells range from 1,640 to 13,100 feet deep, and often involve much higher temperatures and pressures compared to more shallow geothermal systems. At deep geothermal energy projects, a well is drilled into a hydrothermal reservoir which provides a steady stream of hot saline . Through a heat-exchange process, the groundwater can then be used for heating purposes.

IPCC — Geothermal Energy Potential

Geothermal Power

Based on data from the Intergovernmental Panel on Climate Change and the IEA, there’s great potential for geothermal applications worldwide. Perhaps most significantly, creating electricity through ultra-deep geothermal (UDG) projects is seen as the future of geothermal energy. UDG projects have reservoirs that are a minimum of 13,100 feet with temperatures of at least 250°F. And while there are a number of worldwide possibilities for creating clean electricity through UDG ventures, currently, due to technical issues, only a few UDG power plants exist. Naturally occurring hydrothermal reservoirs are rare at such depths because the density of the rocks doesn’t allow water to get through. One solution, that many startups and investors are looking at, is enhanced geothermal systems (EGS). These systems work similarly to regular or deep geothermal systems, only with EGS the reservoirs are man-made.

• EGS are promising techniques as they enable geothermal power plants to be constructed almost anywhere, without the constraints of surface heat, or (since they are man-made) naturally occurring hydrothermal reservoirs. • Multiple consortiums are currently being formed worldwide, with the idea of exploring EGS for full- scale operations.

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• Geothermal power plants using enhanced geothermal systems are predicted to be able to compete with other forms of renewable energy production, in terms of costs per kWh. • EGS processes create the potential for 100 GW of geothermal energy in the US, representing some 10% of the current US electricity capacity.

Emerging Geothermal Technology Companies

• AltaRock Energy AltaRock is a Seattle-based company that has developed patented EGS technology that enables owners to optimize their efficiency. It does this through the usage of the heat from geothermal sites to heat water in above ground reservoirs, artificially creating geothermal energy. Their process is able to reduce dry-hole risk and increase the capacity of individual geothermal sites, thus increasing overall profitability by operators. AltaRock has partnered to Cyrq to bid on a contract to drill at Mt. Baker in Washington state to dry and achieve new depths of geothermal drilling. They developed a new technology creating multi- zone EGS reservoirs. This increases the amount of heat that can be accessed from a single well, thereby increasing geothermal power plant output. In a Series B funding round from 2008, AltaRock raised $26.3 million. • Eavor Technologies Inc. Eavor is an Alberta, Canada based company whose technology is focused on scaling geothermal energy. Their technology involves the use of a 2.4 kilometer deep pipe, with multiple horizontal pipes to increase surface area, and allows for a heat exchange between transported water and the surrounding rock. This heated water and its subsequent energy are then utilized. A single Eavor-Loop has the potential to power 16,000 homes. In May 2020, Eavor entered an agreement to build an Eavor-Loop in Geretsried, Germany, with construction expected to begin in early 2021. In September 2019 Eavor raised CA$15 million in Series A funding led by Vickers Venture Partners. • Fervo Energy Fervo is a California based company that has developed a novel approach to geothermal drilling that lowers geothermal development costs while increasing a well’s productivity by a factor of four. In July 2019 Fervo raised $11 million in Series A funding from Congruent Ventures. • Loki Geothermal Loki is an Icelandic company that has created geothermal equipment that is more reliable and better- suited for high-temperature geothermal wells (often ultra-deep wells) compared to other geothermal processing methods. Their main product are expanded gate valves that are able to withstand and operate under more extreme temperatures and more harsh chemicals. • HyperSciences HyperSciences is a Spokane, Washington based company that has developed advanced drilling technology, greatly increasing the ability to reach geothermal energy deposits. Through their partnership with Shell they have developed the HyperDrill which has the ability to penetrate soil up to ten times faster than other drilling technologies. In March 2019 HyperSciences raised $9.6 million from equity crowdfunding.

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• Dandelion Originally an offshoot of Alphabet’s X lab, Dandelion is focused on providing geothermal heating directly to homeowners. In Series A funding in January 2020, Dandelion raised $12 million. In their current operating phase which is focused in the Northeast United States, homeowners in upstate New York have the opportunity to save up to twenty percent in energy costs.

Impact Measurement

• Between 2016 and 2018 Turkey doubled its geothermal energy capacity to 1.3 GW and plans to have more than 7 GW of geothermal capacity by 2025, which will provide and heating for millions of households. • In 2015, the Dutch Ministry of Economic Affairs and Climate Policy stated that geothermal energy can be seen as a promising technology to supply the country with a renewable form of heating and decrease its dependence on natural gas. Several ultra-deep geothermal pilot projects are planned in the Netherlands, as well as several other European countries. • The IEA estimates that geothermal power will account for 3.5% of global electricity production by

2050, offsetting 760 million tons of CO2 emissions annually.

• The current use of geothermal heat pumps in the US alone has cut CO2 emissions by 5.8 million metric tons annually, the equivalent of 13.5 million barrels of oil consumed.

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Investment Outlook

Investors can accelerate the spread of geothermal energy use across several directions (heating via heat pumps from deep geothermal projects, electricity generation from ultra-deep initiatives and potentially from projects involving EGS) by financing emerging technologies that either improve current geothermal systems or bring new approaches to solving the technical obstacles. Another option, in order to lower risks and high initial investment costs, is to partner with geothermal research hubs. Providing growth- stage capital for private companies is one way to support technological and operational innovations. Venture capital investments in geothermal energy technologies can offer additional exposure.

The industry is developing new methods to harness the earth’s heat for applications like heating-and- cooling, electricity generation and combined heat and power projects. Further development of geothermal electricity production presents a promising low-carbon renewable energy source that not only has a steady power baseload, but also overcomes intermittency problems associated with solar and wind energy.

Geothermal solutions revolve around several themes:

• Risks of EGS networks. • Increasing the lifetime of geothermal wells (currently at ± 30 years). • High costs of drilling and initial investments.

Venture Capital Funds

• Breakthrough Energy Ventures Breakthrough Energy Ventures is an investor-led fund guided by scientific and technological expertise. It invested $12.5 million in Baseload Capital, which provides funding for geothermal power plants. • Morando Geoterm Invest Ltd., owned by Morando, bought a majority stake in a geothermal project in Hungary. • Vickers Venture Partners Vickers Venture Partners is a venture capital firm focused on angel investments, primarily in Asia. The firm invested $15 million CAD in the geothermal start-up Eavor, mentioned above. • Comcast Ventures Comcast Ventures is the venture arm of the Comcast Corporation and is focused on consumer, enterprise, and frontier technology. Led the latest investment round in emerging technology company Dandelion, mentioned above.

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