Exploring Investment Potential of Oil Companies in Geothermal Power

As Texas navigates an era of rapidly rising energy demand, the quest for clean, reliable, and affordable energy sources becomes increasingly critical. Among the many options, there's one resource that hasn't received nearly enough attention: geothermal energy, specifically enhanced geothermal systems (EGS).

EGS differs from conventional geothermal energy, which relies on specific geographic conditions found in places like Kenya, Iceland, or the Western United States. Instead, EGS creates permeability and a reservoir deep within the earth using advanced drilling and fracturing techniques. Texas, with its abundant heat and advanced drilling technology, is uniquely positioned to harness this innovative energy source.

This week’s guest, Cindy Taff, the CEO of Sage Geosystems — a pioneering enhanced geothermal energy and storage company based in Houston — is the perfect expert to demystify EGS. Sage Geosystems is at the forefront of leveraging technology and expertise from the oil and gas industry to tap into the vast geothermal potential beneath our feet.

I was particularly excited to speak with Cindy for two key reasons. First, Sage's geothermal energy storage systems represent a groundbreaking approach to long-duration energy storage. Second, Cindy’s extensive background in the oil and gas industry, combined with her current leadership in geothermal, underscores the significant potential of geothermal energy in Texas. Our skilled workforce is already adept in the necessary processes for developing and managing enhanced geothermal systems, making it a natural extension of Texas’ existing energy expertise.

In our conversation, Cindy breaks down the different types of geothermal technologies, explains how Sage’s enhanced geothermal power and storage systems operate, and identifies regions in Texas with the greatest EGS potential. We also explore how the oil and gas industry’s knowledge and investment can support enhanced geothermal systems, the economic benefits of geothermal energy, the steps needed for geothermal to become cost-competitive at a commercial scale, and much more.

I look forward to hearing your thoughts on this episode and on geothermal energy. Thank you for listening and for being a subscriber!

Timestamps

3:01 - About Sage and the different types of geothermal

6:43 - Benefits of enhanced geothermal systems (EGS); the limits of traditional geothermal 

9:31 - Sage’s Geothermal energy storage systems, explained

18:28 - Parts of Texas that are particularly well suited for geothermal

20:01 - Induced seismicity is low risk for geothermal; availability of public data

22:30 - Low water use from geothermal

23:30 - Where Sage is deploying and projects they’re focusing on in the near future

27:46 - Intersection of geothermal with oil and gas industry in terms of workforce and business 

31:15 - Organic Rankine cycle, explained

32:48 - Potential for greater investment in geothermal by oil and gas, as compared to other renewable forms of energy

36:01 - Current costs for geothermal power and timeline for reducing its cost curve

38:41 - Geothermal and land use; benefits for landowners

41:23 - Texas Energy Fund and geothermal

44:22 - Power needs for geothermal production and interconnecting operations to the grid

47:22 - Major policy and regulatory issues for Sage and geothermal

50:22 - The Inflation Reduction Act and geothermal 

53:25 - Cindy’s thoughts on where geothermal will be in 10 years

Show Notes

Sage Geosystems

The Future of Geothermal in Texas report

Texas Geothermal Energy Alliance (TXGEA)

Southwest Research Institute

Bedrock Energy unveils geothermal project that will heat, cool Penn Field office building

TexNet Earthquake Catalog

Transcript

Doug Lewin

Cindy Taff, thanks for being with us and welcome to the Energy Capital Podcast.

Cindy Taff

Thank you, Doug. I appreciate you having me.

Doug Lewin

So excited to talk about geothermal. This is a topic I love talking about, very bullish on the sort of suite of technologies and particularly excited about Sage Geosystems and keep seeing lots of good news coming out about your company. So excited to dive in, but why don't we just start there actually a little bit. Tell us a little bit about Sage Geosystems. And if you would, Cindy, just kind of explain for the audience, I want to kind of start at a high level about what exactly is enhanced geothermal as it's often called. There's different names for it, but enhanced geothermal systems versus sort of traditional geothermal and there's even like geothermal heating and cooling. Could you just kind of unpack a little bit the different flavors of geothermal and then explain to us kind of where Sage is situated within that?

Cindy Taff

Yeah, no, great, Doug. I appreciate that opportunity. So, Sage, let me start with Sage. Sage is a startup company. We're doing energy storage and geothermal deep in the earth. But to your point, if you look at geothermal generation around the world, which is about 16 gigawatts, it is all from traditional, what they call hydrothermal geothermal. So think Iceland, the geysers of California.

So these are manifestations of heat and water and or steam very close to the surface. In fact, sometimes you'll see them at the surface without even drilling a well. But the challenge is it only represents about 2% of the energy, or the geothermal energy resources, around the world because you have to be close to a volcano or close to the ring of fire. 

So what the industry is now going after, and you mentioned enhanced geothermal systems as a technology, is what's called hot dry rock. So it's geothermal that's deeper, it's rock that is hot, but it doesn't have that entrained water which can bring the heat to the surface. So you have the heat, but of course you need to be able to bring it to the surface. So what enhanced or engineered geothermal systems, the approach that we use, is that we create an artificial reservoir in that hot rock by which then we pump water from the surface, into that reservoir, harvest the heat, and then use that water to bring the heat to the surface, which then you can use for either direct heat applications or to generate electricity. So the industry, when you hear next generation geothermal, that's what we are going after as an industry is that hot dry rock. 

And then you also mentioned what I would call a heat pump. So there's HVAC systems that use the concept that if you dig into the earth, I think, I can't remember the depth, but it's like a hundred feet, you hit a temperature that is always constant. And so what those systems do is to heat and cool buildings or houses, they use that constant temperature to basically reduce the energy load needed to either heat or to cool, depending on of course the time of the year. 

So Sage is focused on commercial utility scale, the deep geothermal, and I will add, you know, again, energy storage as well deep in the earth.

Doug Lewin

Yeah, and there was, and we can put a link in the show notes,there was a little demo the other day in Austin of a company called Bedrock. And they're doing, I think it's like 6 or 800 feet and it's sort of for commercial property. So this is great. Thanks for that overview. I think it gives the audience a good sense of, there's a lot of different things that are geothermal. They're sort of the suite of technologies. It's not one thing. 

But perhaps, and I don't know whether this is true or not, but I'll suggest and you can correct me if it's true or not. Perhaps the biggest potential, certainly from the power generation side is on this enhanced geothermal, because like you said, you're really limited with the more traditional geothermal to, we've got like 16 gigawatts, we could grow some from there, but it's pretty limited by the geology and you have to be in kind of a special area, Western United States, Kenya, Iceland, but you have very specific geographies. This is much more widespread. Although the temperature will vary. And so there are certain geographies that are better. 

Can you talk about that a little bit? I know you guys are doing a lot of work in Texas and Texas seems to have a pretty good resource and even that is not uniform, right? There's areas of the state where there's gonna be better resource than others, right?

Cindy Taff

Yeah, so in general, hot dry rock technology will be targeting a formation temperature of 150 degrees C, which is about 300 degrees F. And I would say that most of the companies out there are targeting depths where existing oil and gas equipment can drill. 150 degrees C and most drilling rigs can go down to 20, 21,000 feet. When you get deeper than that, you can still find the heat, but now you're limiting the number of drilling rigs that are available to drill to those depths. 

The other thing I would mention also, Doug, is when you think about traditional hydrothermal geothermal, you're looking for heat, you're looking for water, you're looking for permeability. And so your expiration risk is actually higher. When we're looking, when we're going after hot, dry rock, and it depends on the technology, there's different, there's closed loop technology, there's enhanced geothermal technologies, and we call our technology geopressure geothermal system technologies or GGS, but you're looking for heat. Some of the geothermal technologies actually look for permeability, ours it does not. And then some geothermal technologies look for natural fractures and ours do not. 

So the less of the specific and unique formation characteristics that you need, then of course the lower your exploration risk. So that's what excites me. You mentioned, you're exactly right. The being around a volcano, a ring of fire again, is just a limited geothermal resource. So hot dry rock expands that resource. But then I do also think it lowers the exploration risk because you can pretty much predict where the heat is going to be a lot easier than predicting where the heat and the water and you know, high permeability is going to be and the volumes of water that you would need over 30 years.

Doug Lewin

So I'm particularly interested in what you've called earthen battery systems. So I believe you've been talking about the technology that y'all are using as sort of a form of long duration energy storage. Can you just talk about that a little bit? Because there is this big emphasis in Texas as most or all of our listeners will know on dispatchability, on having dispatchable resources on the system. And it sounds like what you guys are setting up is a… It's really fascinating because it's a renewable resource that requires a lot of oil and gas expertise that is dispatchable. So I think it's, it's confusing to people. It gives people cognitive dissonance, but this is fun. I love this. So talk a little bit about the dispatchability and the long duration energy storage aspect.

Cindy Taff

Yeah, if you don't mind, let me give you a little bit of background on where we basically discovered this technology. So we went to the field very quickly because with our oil and gas background, we knew after we got the funding, we needed to go to the field and basically demonstrate our gravity fracking technology. And then we spent about five months trying to figure out how best to harvest the heat out of that fracture without expending a lot of energy. So that's one of the things that really challenges the two well DOE EGS system is that you've got to push water not only down the well, but through a closed fracture or a propped fracture. As you can imagine, if you're trying to suck water through a straw, if it's full of sand, it's gonna be really high friction.

So when we were doing this five months of testing again on how to get the heat out of the fracture, we started operating the fracture like a balloon. And it's very similar to something in the oil and gas industry, what your listeners would know about called huff and puff. So we're using this fracture like a balloon, the fracture is always open, and then we cycle just a small volume of the water in that fracture, about 10 percent, so that the fracture is always open and it never closes and that friction pressure stays low. And it was during this testing that we recognized that not only was it a way to get the heat out of the ground more effectively without expending a lot of energy, which kills the net output, but it was also the perfect energy storage solution. 

So we all think about lithium ion batteries when we think about storage, but in reality, pumped storage hydropower, so when you pump a lake up a mountain and then let the water rush down when the demand is high, represents like 90% of the storage around the world. So what we're doing is pumped hydro, but it's upside down. One of the reservoirs is in the earth and then the other reservoir is on the surface. 

And so we went back to our well last year, about a year ago, and we did about five weeks of an energy storage demonstration where we did about 50 or 60 of these cycles. And what we showed is that we can do, to your point, long duration storage, so four hours to 24 plus hours. If the formation permeability is really low, you can actually, once we shut the well in and we left the well, I think it took about three months for that fracture to really completely close.

So you can do weekly cycling, you can do seasonal cycling, if there's a market for it, but the market that we're targeting would be longer duration, so four to 24 hour duration, versus we're not trying to compete with lithium ion batteries. Lithium ion batteries will be more cost effective than us for two to three hours, but for durations greater than four hours, then we can beat the cost of lithium ion batteries.

Doug Lewin

And are you, to create that storage resource, I'm not sure I fully understand the operating as a balloon and the huff and puff aspect. So is what you're doing like, as I've heard it described before from some enhanced geothermal systems, you're sort of building up pressure underground with the steam and holding it and then releasing it over a longer period of time? Or no you’re actually moving, you're moving water up and down or what am I missing?

Cindy Taff

Yeah, no, no. And we do use fracking similar to EGS, but we don't operate our fractures like EGS. So we create a fracture in the subsurface. And believe it or not, rock has elasticity. So if you could imagine a fracture that's 3,000 feet vertical, it looks like a butterfly. It has a wingspan of 500 feet. And it's open maybe an inch.

So what you're doing is you're pumping the water into that fracture and you're moving against mother nature to keep that fracture open so you build a pressure in that system. And then, so what you do is you pressurize it, then you shut in the wellhead valve and you trap that pressure. And then when the energy demand increases, you open that wellhead valve. And what I like to say is we're working with mother nature instead of against her. That fracture is wanting to close naturally, and when it does, it jettisons that water to the surface under a great deal of pressure. You put it through a Pelton turbine. A Pelton turbine is very much like a kid’s pinwheel. It spins the Pelton turbine, and then you generate electricity through a generator. So it's the elasticity of the rock that is basically jettisoning the water back to surface without having to pump the water because Mother Nature is sending it back to you.

Doug Lewin

So you could operate it as sort of a steady Eddie baseline, like here's the just sort of controlled output and it's just a it's kind of a flat line, but you also have the ability to store that pressure and relieve it and release it rather in bursts depending on when the energy is needed, correct?

Cindy Taff

That's correct, Doug. So the phenomena of what happens is when that fracture starts to close, the pressure will decline. And then what you do is you use a choke to open the flow because the power output is basically pressure times flow. So you offset the pressure decline with increased flow and that's how you basically generate the electricity. But to your point, we've also tested where you can release that water all within an hour if you have a say an energy emergency of sorts. And so we can release that water and generate electricity for one or two hours if there's a need for that. But our target really is that longer duration of, like what you're saying, produce the energy over a four plus hour duration.

Doug Lewin

And how, like, how big can these systems get? I know you're kind of in the maybe pilot or more accurately, I guess, demonstration phase. So they're smallish systems, I believe, like on the single digit megawatts, but like, how big can these go? I guess it depends what kind of a power generation unit or turbine or whatever you're putting above the ground, right?

Cindy Taff

Yeah, so for energy storage, if we're using 9 ⅝ inch inch casing, which is standard oil and gas casing size, we can get a three megawatt capacity per well. And then the duration is in proportion to the volume of water that you put into the fracture. But for 9 ⅝ inch casing, again, three megawatts, if we put in a larger casing size, say 13 ¾, then we can get up to five megawatt capacity per well.

Doug Lewin

And again, you said it could go up to about 24 hours is sort of how you're building these?

Cindy Taff

Yeah, to be honest with you, Doug, there's probably not a market right now for 24 hours. 

Doug Lewin

Correct, right, right.

Cindy Taff

So we're targeting the six to ten hour range. But, you know with wind and solar coming on so strong, you know, I know utility companies are looking at the future of you know, what kind of energy storage durations they're needing. And they're very interested in this, you know, six to 10 hour duration. And at some point, I mean, we've talked to different entities, say in Alaska, where storing energy in the summer might make sense and then producing it in the winter when it's so cold and you need to heat buildings. But yeah, our focus would be the six to 10 hour range at this point.

Doug Lewin

And we could put a link, there's a report at UT about geothermal in Texas, and it's got a map on there, so we could put a link so people can see the visual. But can you just talk about the areas of the state of Texas where there's particularly good resources?

Cindy Taff

So let me just start with energy storage because I want to make sure I don't confuse anybody. So energy storage because we're not looking for heat, we can do energy storage just about anywhere. We would want to avoid major faults. So if you look at the state of Texas, as long as we're not near a major fault, we can do energy storage because again we're targeting eight to twelve thousand feet.

Now, as far as geothermal, now you're wanting to hit these formation temperatures of, at least for Sage, 150 degrees C or greater at a depth of 21,000 feet or shallower. So then you start to limit that geographic availability of the heat. And so when I'm thinking about, let's just stick with the state of Texas, when I'm thinking about the state of Texas, there's a lot of heat along the Gulf Coast. In fact, the DOE did studies back in the 1970s that estimated about five gigawatts of geothermal power in the Gulf Coast states of Louisiana and Texas. And that's in the 1970s when the geothermal technology was dated. So I would suspect that that's higher. And then if you go out to West Texas, so El Paso, and of course into New Mexico, there's geothermal potential there. And it's not to say, I mean, there's some hotspots, of course, in East Texas, around Dallas, there's some other hotspots in the state. It just depends, when I'm thinking about the map at 18,000 feet, those are the areas where you can see the geothermal potential.

Doug Lewin

And you talked about not being near major fault lines. It’s a question that comes up all the time and I think it's important to ask, seismicity, right? People worry about if there's going to be any seismic activity, earthquakes, even very low ones, but sometimes those are enough to cause problems. How much of a concern is that in this industry and if it is a concern, how are you dealing with it?

Cindy Taff

Yeah, Doug. So we do not expect induced seismicity or earthquakes and tremors with our technology. However, we take it very serious because, as you said, people worry about it. So we're actually working with the University of Texas Bureau of Economic Geology to put induced seismicity monitoring stations on all of our projects. So our well in Starr County, which is our test well we've been measuring for earthquakes and tremors since 2021, and it's still measuring, and all of that data is available to the public online.

But, and I'm not a geoscientist, but this is what the geoscientists have basically taught me is that induced seismicity is caused by water and/or fluid movement, whether you're pumping in or producing across a major fault because it'll act to lubricate that fault and make that fault slip. And so the reason why we think our technology is going to be very low risk is because if we actually intersect a fracture, that fracture would naturally take water away from our system and it would cause our efficiency to be very, very low.

And so I mentioned earlier, we're looking for low permeability formations. We're actually wanting to avoid natural fractures. And then when we operate that well as a balloon, we have a set volume of water that we're putting into that fracture. And then we're cycling just 10% of that volume. So we're not, you know, unlike say, water disposal operations where you, you know, really need to pump water for a long time, large volumes of water, we're cycling the same volume of water in and out. So we do think that the risk for induced seismicity is low because of those two reasons. We're not intersecting faults or fractures because that would actually be detrimental to our technology. And then we're cycling a set volume of water that we only lose about 2% of that water. And so there's just not a huge volume of water to be pumped across those faults to lubricate them.

Doug Lewin

Got it. So you guys are reusing the water in the process?

Cindy Taff

Correct.

Doug Lewin

Yeah. Okay. That's obviously another concern that gets brought up all the time is how much water we actually are using through this, but it kind of pales in comparison to what a lot of other power sources or oil and gas operations or any number of different energy activities are using, right?

Cindy Taff 

Correct, and we actually have looked into using produced water from oil and gas. We've looked at using greywater from communities and all of that… you can use sea water. We've talked to companies in the Middle East about using sea water. We can use all different types of water for our energy storage. It's just a matter of then designing your well and your surface facilities for the materials that you would need to avoid corrosion from those type of water sources.

Doug Lewin

Got it. Can you talk just a little bit about some of your initial projects? I think there might be a demonstration or two with different branches of the military. Yeah, anything you can share at this point about where you're deploying?

Cindy Taff

Yeah, absolutely. Let me maybe share what we're focused on in this year and next year. So I'll start with energy storage. We're going to build and commission our first commercial three megawatt energy storage facility here in Texas. We haven't announced the exact location because we're still working with a utility on all of the agreements and we're doing a feasibility study to interconnect to the grid, but it'll be in the San Antonio area, but again, three megawatt, a full commercial facility, and we'll be commissioning that in December of this year. 

And so one thing I do wanna mention is, when we commission that, because we use some of the same technologies, it'll allow us to learn about 80% of what we need for geothermal. It's just for geothermal, you're drilling the well deeper into that hot rock. And then of course, instead of the Pelton turbine in the power plant, you would have a binary cycle turbine for the heat instead of the pressure. 

So then our geothermal projects, we're gonna be doing a feasibility study for Fort Bliss, which is really a paper exercise to begin with. It may culminate into a prototype well in the, you know, after the study is done. But as a continuation of a feasibility study that we actually did for the US Air Force in 2022, they're looking at having us go back to our Starr County well and doing a geothermal demonstration in that well. And so because we're wanting to move quickly to demonstrate that we can generate electricity, we'll be renting a small, I call it a micro-geothermal organic Rankine system, off the shelf. And so we can get that in a matter of months versus, the well would produce about three megawatts, but if we rent these smaller systems, we can get those in a matter of months versus, you know, two years to get a full scale organic Rankine cycle system. 

And then I would mention one other project that we're working on in Texas is we're working with the Southwest Research Institute, we've built with them, designed and built with them, a supercritical CO2 turbine. It uses some of the same technologies that they're working for the US Department of Energy for concentrated solar and nuclear, but the DOE turbine is like 600 degrees C and much higher pressure. So we basically went to SWRI and said, hey, dumb that down, build us a turbine for geothermal. 

So the turbine is built. We actually are doing a spin test either today, most likely Monday. And then the spin test is just spinning the turbine without generating electricity. But at the end of the month, we'll be doing a load test where we'll be generating electricity. And the advantage of the supercritical CO2 turbine is not only is it smaller, so it's gonna be cheaper to build, but it uses a different thermodynamic cycle than the organic Rankine turbines that are used in geothermal today. So you actually get more electricity per unit heat that you put through the system. So ORC turbines are 8 to 10 percent efficiency of turning heat to electricity. Our turbine is being modeled to deliver 15 to 20 percent efficiency. So we'll be testing that at the end of the month, that efficiency.

Doug Lewin 

Super exciting and there's so much good work that goes on at Southwest Research Institute. I think it's a not nearly appreciated enough research institute within the state of Texas in the San Antonio area, kind of a great kept secret. People in this world know about it, but like, you know, I just don't, I don't think they get enough credit, a lot of good work going on down there. That's great. 

Let's talk a little bit about, so you're career, you've spent most of your career in the oil and gas industry, correct? Can we talk a little bit about the intersection here between the oil and gas industry and geothermal? I mean, there's a huge, it's not one to one, obviously, but there's a huge overlap between the skill set needed for geothermal power and storage and for oil and gas, right?

Cindy Taff

Absolutely, Doug. I mean, let's start with the subsurface characterization, geologists, geophysicists, reservoir engineers. You need all of that for either energy storage deep in the earth or geothermal. Then you go to drilling the well. So you need the drilling engineers, the completion engineers. And then I would even argue the power plant engineers, even though the power plants may be different for oil and gas, you still have that project management mentality. So it's the specific technical skills. The other thing that I think maybe is not talked about enough is the oil and gas industry is great at project management, driving performance by either reducing cost or increasing efficiencies. And if you just look at the unconventional revolution of driving that unit cost per MMBtu that you're getting out of the ground, the oil and gas industry are experts at that. And I would say that is what's going to make the largest impact on geothermal and energy storage is that skill set.

Doug Lewin

The skill set of really just driving down cost by doing things over and over, driving those efficiencies in the process, the project management, you referenced?

Cindy Taff

Yeah, that and if you look at the way oil and gas, they do an integrated system approach for performance. So not only do they look at the way, I was taught this at Shell in the oil and gas industry, not only are you looking at how to drill the well, but you're looking at the power plant design and you're looking at it in parallel. Because if you make a change in the well that negatively impacts the power plant economics or vice versa, then you're negatively impacting the overall economics. So that's the other thing the oil and gas industry does. And that's what influenced us not to only look at the well design when we're looking at geothermal, but the power plant design, because we really need to get this hot, dry rock to move to where it's cost competitive and can compete with the wind and solar and natural gas fuels of the world. So I think that's another strength that the oil and gas industry has.

And then if you just layer on the service companies, the equipment, the technology, you know, the HP, the high pressure or high temperature technology, the oil and gas industry can drill geothermal wells right now with all of the technology being off the shelf. We do not need any new technology. So our view is the challenge for geothermal really is the thermodynamic and the geomechanic aspects. And then of course the efficiency of turning that heat into electricity, because it's such a small efficiency right now with organic Rankine turbines. Although, to be honest with you, ORC turbines have done a great job of really squeezing out efficiencies of their systems over the last 50 years.

Doug Lewin

Can you describe the organic Rankine cycle? You've said that a few times and I remember I looked it up once, but I don't remember. Describe what an organic Rankine cycle is.

Cindy Taff

Doug, I'm a mechanical engineer and I'm embarrassed to say that I wouldn't be able to describe it as well as our Russian rocket scientist Lev Ring, who's got a…

Doug Lewin

Talk to me like I'm an average to smart fourth grader. Just give me the basics.

Cindy Taff

Yeah, so from what I understand, and I'll talk about maybe the difference between organic Rankine cycle and the Brayton cycle. So the organic Rankine cycle, from what I understand, uses mainly the heat of the fluid to… You're going through the turbine. You're letting that heat, the heat and the fluid basically expand, which is what turns the blade or the wheel of the turbine, which then you can use to turn a generator.

From what I understand, in our turbine with the CO2, we're using something called a hybrid Brayton cycle. And there's a pressure component that actually is what increases that efficiency to 15 to 20%. So organic Rankine cycle turbines again, are eight to ten percent efficiency, whereas our turbine is gonna be 15 to 20%.

Doug Lewin

But these are basically like combustion turbines. These are like, they're like a jet engine sort of a situation? Is that what we're if you're picturing or not really?

Cindy Taff

They're like an expander. That you're allowing the fluid to expand through the turbine. Yeah.

Doug Lewin

Okay. Okay. So let's come back to oil and gas. Do you expect, well, I guess, are you seeing it so far and to what degree do you expect that we would see investment from oil and gas? I just think a critical thing as we're dealing with trying to reduce emissions to deal with climate change, trying to reduce emissions to deal with all sorts of other pollutants, sort of the energy transition, if you think about it from the grandest scale, there is a real problem of where we don't yet have the scale of investment that we need. And I think it is very hard. In fact, like a lot of oil and gas companies have sort of started and stopped and started and stopped with things like solar and wind. But solar and wind is just so different from what they do as companies. It seems like with this, there's just such a tighter connection.

The hopeful part of me, and maybe this is Pollyanna too hopeful or naive or something, is that this is a real area where oil and gas companies could look at this and say, yeah, I'm not dealing with photovoltaics. I'm dealing with drilling and fracking and the heat of the earth and geology. This is all stuff I know, and I have a workforce that can deal with it. So I guess the question is, should we expect that oil companies, or is it realistic to hope that oil companies, would put more of their balance sheets behind this kind of clean technology than they might with others?

Cindy Taff

Yeah, you know what, Doug? That was actually the exact reason I went into geothermal is because I wanted to be in renewables and wanted to use my skill set. But to your question, what we have found is that it seems like the service companies are very interested because they see a direct application of current equipment and personnel. So Neighbors is one of our investors, Geolog, who is a subsurface characterization company out of Italy, is one of our investors. 

With that being said, Chesapeake just invested in Sage in December, so an integrated oil and gas company. We have talked to the larger oil and gas companies, and I do think they have an interest, but I think they also recognize that as an industry, the next generation geothermal industry, we’re still early and which horse is going to win the race so to speak with which technology still remains to be seen. And so we get the feeling that they are more watching and waiting and trying to understand not only the tech that will make sense but what the economics will look like. And so we haven't really seen them deep dive into the investments as much as we would have expected I guess.

Doug Lewin

Interesting, interesting. That'd definitely be something to monitor. And I think as these start to be proven more and show they can hopefully come down the cost curve, I wonder if there’ll be more interest. 

Let's talk about costs for a minute. You did mention earlier, trying to get to the point where these technologies are competitive with other generating resources. Can you talk a little bit about where on the cost curve these are? I know you can't get super specific about it, but just in generalities, you know, how close is it and what's sort of the range into the future where we might actually see a crossover where it really is cost competitive with other kinds of generation.

Cindy Taff

Yeah, actually we do a lot of work in this area, so I can be pretty specific. So let me, if you don't mind again, start with energy storage. And I think this is a great… some modeling that we did just a couple of weeks ago for one of the companies that we're working for in the Middle East is they wanted to understand what is the blended levelized cost of energy for solar combined with your energy storage. And so if you produce, if you think about it, produce solar eight hours a day, use our energy storage to make up the other 16 hours a day so you can have 24-7 electricity. So assuming a cost of 2 cents per kilowatt hour for solar, which is about average, and at 100 megawatt scale, and then using our energy storage, the blended levelized cost of energy is about 5 cents per kilowatt hour, which is very exciting because that can be competitive in Texas where wholesale prices are five, five and a half cents. We can definitely be competitive in places like Germany and California where the electricity costs are very, very high, but we want to be also cost competitive in Texas. So that's energy storage. 

Geothermal, pre-scale, you're looking at about nine cents a kilowatt hour. And then, so $9 million per megawatt capital. And then as we scale, using multi-well pad drilling, like the unconventionals and oil and gas, using that supply chain, leveraging supply chain where you can obviously order a lot of equipment upfront, we can drive that down to about five to six cents per kilowatt hour. We do see being able to drive that down further, but right now with inflation, it would just be tough to do. So, but again, you need scale. So, again, pre-scale, 9 cents a kilowatt hour, at scale, 5 to 6 cents a kilowatt hour. So the 9 cents a kilowatt hour will not be cost competitive in Texas, but it would be cost competitive in California.

Doug Lewin

Yeah. And you know, with the amount that power prices are going up for a variety of reasons, but including the way that the market in ERCOT is being operated with these conservative operations and all these ancillary services and all these kinds of things. Yeah, five, six cents is probably not out of the ordinary, not out of where somebody, particularly if you're looking to build a resource that is going to be around, as I assume these projects would be, tell me if they wouldn't, but for 20 to 30 years, that's probably a damn good price and nine isn't, it's a little high, but yeah, not crazy high, given some of the stuff we're seeing going on in the market at this point.

Cindy Taff

Yeah, that's right. And you know, you're right, 30-year life is what we're looking at. So, and, you know, we expect the same thing as you are. When these data centers come online, I mean, they're 200 megawatts per data center. And then when you talk to these big tech companies, if they have AI capabilities, it's five times that. So it's just, I was told the other day, the Nvidia chip that just came out uses the same electricity as a typical US household. That's just incredible. One chip uses that much energy. So yeah, as you said, people talk about energy transition. Somebody introduced me to the concept of energy expansion and that's just really...

Doug Lewin

…Our friends at Texas 2036, Jeremy Mazur, we're giving you a shout out right now. Yeah I think it's a great way to think of it. Cause we, it is expanding. I mean, there's just no doubt about it. The grid is going to need to expand, the varieties of things we're going to need electricity for is growing at an astounding rate. And yeah, AI is a big one, but it's certainly not the only one. You look at all the chips, right? The semiconductors that are, that are coming here to the Silicon Hills we're calling Central Texas, I think.So, you know, they've got to have power, at least some amount of it. I think there will be some flexible demand in that, but like with semiconductors, there's not, right? I mean, that's just, it has to be a 24/7. And so a lot of them are looking at nuclear, but there's no reason why they shouldn't be looking at enhanced geothermal and various geosystems that are storage paired with solar. That's really, the five cents for the solar, paired with, how are you referring to the storage, geostorage, or what are you calling?

Cindy Taff

Yeah, our trade name is EarthStore.

Doug Lewin

EarthStore. So, you know, those two things together at five cents, because again, it's not, you can't look at that price of power in a vacuum. It's that's, that's a steady supply of power. That's very valuable. Interesting. Anything else you want to say on cost or price? I was going to ask another question, but definitely don't want to cut that short. Anything else you wanted to say on that topic? 

Cindy Taff

No, I think I do think that covers it. One thing we haven't talked about Doug is footprint. So when I think about EarthStore with solar, our footprint for our solar, I'm sorry, for our storage is pretty small. You're looking at, say for a 50 megawatt storage facility about 15 acres, that includes footprint for the wells, the pump, the Pelton turbines, but you also need a water storage facility, and that would be about 10 of those 15 acres. 

And so, and then geothermal, because you don't need the surface water storage facility, you're looking at about five acres. So we do have a relatively small surface footprint as well, which, you know, with the ranchers that we're working with, they really like that because they can still run cattle and have a source of income from either storage or geothermal.

Doug Lewin

And that ends up being a lease payment similar to what like a wind and solar farm would have?

Cindy Taff

Correct. And then I think you know this, but you know, the Texas legislature last year passed a bill that makes it very clear that landowners actually own the heat. And so, yeah, the landowner would benefit from any kind of geothermal resource development in Texas.

Doug Lewin

Do you think that these projects would qualify, the storage projects, would qualify for the Texas Energy Fund? I don't know if you've looked at that. Because it rules out storage, but it actually says electric storage in the bill, and you're not electric storage.

Cindy Taff

That is still being debated. So, you know, the hope is that it will, but that's the exact question that everybody's trying to get answered because it isn't electric. It's not a battery, right? It is a different type of storage. So that still remains to be seen.

Doug Lewin

Yeah. And it's long duration. It does what, what is the intent of that, at least as I understand it, of the Texas Energy Fund, which is to make sure that we're getting dispatchable source resources that can last for a long time that haven't, you know, the ability to have an on/off or up/down, and this checks all those boxes.

Cindy Taff

You know, another thing, Doug, I'm not a power expert by any means, but we were, you know, we get taught by some of the best people that we're working with, that these utility companies. The other thing is as you start to take coal plants and, you know, I guess at some point gas, combined cycle gas plants off the grid, you're losing what's something called inertia. Inertia is what pushes the electricity, you know, down the lines.

And you need rotating equipment to create inertia. So if you think about wind, maybe a little inertia, solar, no inertia, and then of course, lithium ion batteries don't have inertia. So that's the other thing that we have to be cognizant of is replacing that inertia so that our grid stability remains high.

Doug Lewin

Got it. I want to ask you about, and I don't know whether this is a relevant question or not, just tell me if it's not, but there's a lot of discussion in the oil and gas world these days about connecting to the grid for their operations out in the field. So this was kind of a hot topic at CERAWeek, but not just at CERAWeek. There was a bill passed during the legislature that has the PUC right now, you know, throughout the spring and the summer producing a report about transmission needs for oil and gas. And six of the majors Exxon, Chevron, Diamondback, Pioneer, Oxy, I think was in there, did a study that, they hired S&P and they said, you know, how much power demand is going to be needed for the level of oil and gas production going on. They've got like four gigawatts grid interconnected now if I've got that right. But they think that by the end of the decade, they might want to connect somewhere around 14. So we keep hearing all this discussion again of AI and all that, but that's just one load that's coming. Oil and gas is another one. 

But of course there's, it's difficult. It's, you can't just say, great. Now just run an extension cord and now we're connected. So most oil and gas is happening with diesel generation. I assume for what you're doing, you have a lot of, you are drilling, you have a lot of big power needs. How are you meeting that? Are you trying to interconnect? Is interconnection a problem at all?

Cindy Taff

Yeah, so we would have definitely power needs during the construction phase, but then, and then of course for energy storage, we need a power generation source. I wouldn't say, so most drilling rigs as you know, are diesel generation, although you know, if you're close enough as you say to an electricity source, you can hook up to the grid. 

But to your point, you know, not only is the oil and gas industry, I guess, has the challenges with power and remote locations. We're working with like a mining company that literally wants to start their mining operations in 2026 in Arizona and they can't get electricity. So they're gonna be using a huge amount of diesel generation. I think they have a 26 megawatt. So using behind the meter, whether it's geothermal or storage combined with solar could be a solution for that.

But to your direct question, we haven't had that problem yet with powering the rigs. But once the construction phase is done, then especially for geothermal, we're pretty independent of the grid except for wanting to sell the power. 

And to your point, you know, interconnection to the utility grid takes probably one and a half to two years in Texas. And I'm told Texas has one of the quickest interconnection timelines, you know, anywhere in the country. So it's still a challenge, but I think hopefully, as we get better at it, we're gonna be able to knock that timeline down.

Doug Lewin

Yep. So kind of related to that, or there are other sort of, what are the major policy regulatory issues y'all look at? Is that, is that a big one is just speed to interconnection? Are there others that are kind of top of mind for you?

Cindy Taff

Yeah, I mean, if we focus on Texas, Texas has great permitting. You know, everything is now under the Texas Railroad Commission. Any state really, including Texas, that has permitted oil and gas drilling, we find it to be advantageous because they understand, you know, how do you drill a well? How do you make it safe? How do you protect groundwater? And all those regulations actually help us as an industry. And we want to follow the same stringent regulations that the oil and gas industry follow.

I would say, maybe going back to your last point, I think the place that we need the help the most in Texas is to streamline those interconnection timelines. And I can't help but think because, you know, Texas has ERCOT, you know, we're kind of self-contained, that there can't be policies and/or at least activities on how we can, you know, order long lead equipment as a state and actually just figure out how to… We want to make sure that the feasibility studies are done because you want to protect the stability of the grid. And that's what these feasibility studies do is it looks at the technology, it makes sure that whatever is going on in the grid does not disrupt the grid. So we don't want to we definitely don't want to go around that. But there's got to be ways to streamline it so that we can shorten those timelines.

Doug Lewin 

There was a lot of discussion at the PUC. It was probably a year or two ago about speeding interconnection for dispatchable resources. I don't know if they ever implemented that, but I think they were working on it. I don't know if you've heard anything about that. Maybe we can follow up after.

Cindy Taff

Yeah, I haven't, but Doug, I'm part of the Texas Geothermal Energy Alliance and Barry Smitherman, who is, you know, him and Matt Welch run that. Barry used to be the Commissioner, and we've talked about, you know, what are we going to tackle? I'm on the policy committee. I run the Policy Committee for TXGEA. You know, what do we want to tackle in 2025? And that would be one of them. And Barry has some, because of his knowledge and his past experience on the PUC, he's got some ideas. So I'm not sure if any of those have advanced, but I'm hoping that we can do something in the legislative session next year.

Doug Lewin

Yeah. And a great shout out to Texas Geothermal. Anybody who's with a geothermal company or even a company adjacent to geothermal, if you're not already a member, look into that. Matt and Barry both are doing great work. And yeah, as you say, so Barry Smitherman has the rare distinction of being both the Chair of the PUC and the Chair of the Railroad Commission in his past. I'm not sure anybody else has that maybe, maybe somewhere in the history books.

All right, I want to ask about the Inflation Reduction Act. Has that made a difference for you all? Was geothermal… geothermal can now get Production Tax Credit and Investment Tax Credit where it couldn't before, is that correct?

Cindy Taff

That's correct. The IRA is kind of a dream bill. It’s put geothermal on equal footing with wind and solar. So there's an investment tax credit base of 30%. You have adders like 10% if you're in an energy community, 10% if you're in an underserved community, and then 10% if you're made in the US. And so it's definitely out there. We are right now navigating the process on how do you apply for it and what are the, you know, what's the paperwork that's needed you know, you have to show prevailing wage and other types of training programs which I think are all good. But I will say you know, typical to a lot of government bills, it's got a lot of paperwork involved. So it's going to be a bear to get through it, but very good tax incentives.

Doug Lewin

So real opportunity for, I mean, any number of different companies, but I really hope if anybody is listening from the oil and gas industry, this is an opportunity to, you know, there's always a lot of complaints wind and solar are so heavily subsidized. Of course, the oil and gas industry has had a lot of subsidies over the generations and even over a century in some cases. But this is a way to, because if I understand the language of the IRA, it basically said, if you're emission free or, you know, greenhouse gas neutral, carbon neutral, that kind of thing, then you're eligible for it. So nuclear is in there, you know, gas with carbon capture, but the geothermal would be one of those things we're using that, as we were talking about earlier, you know, drilling experience and skillset can also access these federal tax credits, right?

Cindy Taff

Energy storage as well. So the energy storage that we're doing also qualifies. So yeah, very good incentives.

Doug Lewin

This has been great. So I want to wind down by asking you two questions, one of which is, is there anything I should have asked you that I didn't, that you want to speak to? And while you're thinking of that, the other question is I want you to kind of describe if you're looking at a newspaper in 10 years and there's a feature about geothermal and how successful it's been. What do we see in that story? How much power is coming from geothermal? How big is this industry? How many people are employed? Where do you see all this going in a 10-year horizon?

Cindy Taff

Yeah, first I would like to comment before I answer the second question that, you know, Texas is a really great place to install geothermal. You've got the, again, the Railroad Commission that's being very proactive. We actually had a, what I call a permit well on paper exercise with them through TXGEA, a couple of weeks ago, they're wanting to learn more about geothermal. So, Texas is a great place to be.

In 10 years, what do I want to see? And I always overshoot this, Doug, I guess because I'm so passionate about what we do and excited about what we do, but I would love to see geothermal having a larger, hopefully a large piece of the pie when you look at the energy mix. Right now, when you look at the pie, you usually don't even see geothermal because it's like less than 1% of US generation. 

So I'm hoping it's more in the 20 to 25% range. But it will be all about, again, cracking that code on driving the cost down and making it commercially viable. Once we do that, I do think it's going to definitely have a bigger piece of that energy mix pie.

Doug Lewin

It's a great vision. Let's dream big. And I would imagine we could probably get to the point where, I mean, you know, you say it barely shows up. That's, it's like solar was 10 years ago, right? These things have a tendency to move fast once a great technology suited to the needs of the moment and I think geothermal is. Is it realistic or overly optimistic to think we might have tens of thousands of jobs in this space?

Cindy Taff

No, I think it's very realistic. And again, if you look at the oil and gas capability and the number of wells the oil and gas industry can drill in a year. So the oil and gas industry in the US alone could probably drill 35 to 40,000 wells. And so if you're looking at, say, three megawatt average net output per well, you can deliver a lot of electricity just with the oil and gas industry skills and equipment. So I think there are a lot of jobs. I think it's a nice, I guess, addition to the oil and gas jobs that are out there.

Doug Lewin

Great. Cindy, thank you so much for doing this. It's been a pleasure. I've learned a ton. Looking forward to learning more about this. I think this is an area we're really going to see a lot of growth in Texas. Super exciting. Thank you.

Cindy Taff

Yeah, thanks, Doug. I appreciate the time and appreciate the invite.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe