Alphaxioms Interviews Rystad Energy: Geothermal's Inflection Point, Policy, and Drilling Breakthroughs

Geothermal at an Inflection Point: Why Policy, Conventional Resources, and Drilling Breakthroughs Will Define the Next Decade

This interview was conducted by Robert Buluma on behalf of Alphaxioms,  responses delivered by Alexandra Gerken

Product manager, Geothermal solution at Rystad Energy 

Introduction: The Strategic Crossroads for Geothermal

Geothermal energy is entering a decisive phase. After decades of steady but regionally concentrated development, the sector now faces a confluence of technological innovation, policy ambition, and market demand that could either unlock global scale or confine geothermal to niche applications. Alexandra Gerken, Product Manager for Geothermal Solutions at Rystad Energy, offers a clear-eyed assessment of where the industry stands, which technologies will drive near-term growth, and what must happen for geothermal to become a globally significant source of firm, low-carbon power.

Her analysis emphasizes three pillars: the immediate priority of developing conventional hydrothermal resources, the critical role of stable and holistic policy frameworks, and the transformative potential of a drilling breakthrough that would unlock ultra-deep, high-temperature resources at scale. For investors, developers, and policymakers, Gerken's insights provide a roadmap for navigating the opportunities and pitfalls that lie ahead.

East Africa's Priority: Build on Conventional Strengths

For East Africa, the path forward is clear. "Currently, East Africa should continue to focus on conventional geothermal as this remains the cheapest geothermal source so far," Gerken states. This recommendation is grounded in both economics and practicality. Conventional hydrothermal resources,where naturally occurring hot water or steam can be tapped with established drilling and power plant technologies,offer the lowest levelized cost of electricity among geothermal options. They are bankable, technically mature, and already proven at scale in countries like Kenya, where geothermal provides a substantial share of national electricity generation.

Beyond cost, East Africa still possesses significant untapped hydrothermal potential that can be developed in the near term. This contrasts sharply with the United States, where much of the easily accessible hydrothermal resource base has already been developed, leaving hot dry rock (HDR) and enhanced geothermal systems (EGS) as the primary growth avenues. For East African nations, the opportunity lies in replicating Kenya's success in neighboring countries with similar geological endowments.

Gerken underscores the importance of regional knowledge transfer. "The supply chain and the know-how are not built up in this region. Thus, experiences from Kenya are best applied to Tanzania and Ethiopia to have successful project execution, proving that geothermal energy can support their power systems and thus leading to further governmental and communal support." This point is critical: geothermal development is not just about geology,it is about building local capacity, supply chains, and institutional knowledge that enable repeatable, cost-effective project delivery.

Kenya's Olkaria field, developed over several decades with support from international partners and sustained government commitment, offers a template. By applying lessons from Olkaria,ranging from reservoir management to community engagement

Tanzania and Ethiopia can accelerate their own geothermal programs while avoiding costly mistakes. Early successes in these countries would, in turn, generate political and social momentum, making it easier to secure financing, permits, and public acceptance for subsequent projects.

Geothermal Heating: Europe's Quiet Revolution

While much of the global conversation focuses on geothermal electricity, district heating is emerging as a parallel growth driver, particularly in Europe. "Geothermal district heating in Europe is gaining significant momentum based on high natural gas prices and its volatility," Gerken notes. The war in Ukraine and the resulting energy crisis accelerated Europe's push to decarbonize heating networks, and geothermal has become a key component of that strategy.

The structure of the district heating market differs markedly from power generation. "One of the major differences is that the number of projects/plants is significant, however so is the number of individual developers, meaning that the average project size is relatively small compared to power projects where often only a doublet is drilled," Gerken explains. Whereas a geothermal power plant might involve a single developer drilling a doublet (one production and one injection well) to serve a large grid-connected facility, district heating projects are often smaller, distributed systems serving municipalities or industrial clusters.

Despite their smaller scale, these projects are attracting significant policy support. "The market is interesting as policymakers increasingly see the importance to decarbonize their district heating networks and provide vast financial support for geothermal projects," Gerken says. Countries like the Netherlands, Denmark, and Germany have introduced subsidies, low-interest loans, and risk-sharing mechanisms to encourage geothermal heating deployment. For investors, this represents a diversification opportunity: while geothermal power remains concentrated in a handful of countries, district heating is spreading across Europe, creating a broader base of investable projects.

The Single Biggest Bottleneck:Policy Uncertainty

When asked to identify the single greatest barrier to global geothermal scale-up, Gerken points squarely at policy. "I would say it is policy, in the case that holistic long-term policies are put in place, this can create a stable framework for national and international companies to invest in such assets which require long-term financing." This is a crucial insight: geothermal projects are capital-intensive, with long lead times and payback periods that span decades. Investors need confidence that the policy environment will remain stable over the life of the project.

Technical risks, by contrast, are increasingly manageable. "Aspects such as subsurface risk as an example can already be effectively mitigated through exploration risk mitigation programs which are already adopted by many countries," Gerken notes. Countries like Iceland, Kenya, and Indonesia have implemented government-backed exploration drilling programs that reduce the risk for private developers. Insurance schemes and public co-financing of exploration wells further derisk early-stage development.

However, policy volatility can undo these gains. "The potential of changing such policies or the talk of expanding subsidy programs may lead to stalling behavior," Gerken warns. "We have seen this in many places such as Turkey, Indonesia, or Hungary." In Turkey, for example, shifts in feed-in tariff structures and licensing requirements have caused developers to pause projects while awaiting clarity. In Indonesia, changes to geothermal law and land-use regulations have delayed project timelines. Hungary's experience with retroactive subsidy cuts serves as a cautionary tale for investors: policy credibility matters as much as policy generosity.

Technology Outlook to 2030: Hydrothermal Dominance

Looking toward 2030, Gerken expects conventional hydrothermal geothermal to remain the primary source of growth. "The strongest growth will come from hydrothermal geothermal. Most countries are building out conventional resources while closed-loop systems are beginning at a pilot plant stage and for EGS only Fervo's assets are expected to come only within this time horizon in a large-scale fashion."

This assessment reflects the maturity gap between conventional and next-generation technologies. Closed-loop systems, which circulate fluid through sealed pipes in hot rock without requiring natural fractures or permeability, are advancing rapidly but remain at the pilot stage. Companies like Eavor and GreenFire have demonstrated proof of concept, but commercial-scale deployment is still years away.

EGS, which involves creating or enhancing fractures in hot dry rock to enable fluid circulation, has made progress but faces cost and technical hurdles. Fervo Energy, which uses horizontal drilling and hydraulic fracturing techniques adapted from the shale industry, is the standout exception. Its projects in Nevada and elsewhere are expected to reach commercial scale within the 2030 horizon, but widespread EGS deployment remains unlikely before then.

Superhot-rock (SHR) geothermal, which targets temperatures above 400°C at depths of 10 kilometers or more, is even further from commercialization. "SHR assets are also still in a more pilot or research project stage as many of the subsurface technologies required for long-term well viability  power production are not mature enough to be relevant for significant production until 2030," Gerken says. Materials that can withstand extreme temperatures and pressures, drilling fluids that remain stable at ultra-high temperatures, and well designs that prevent rapid degradation are all areas of active research but not yet ready for widespread deployment.

What Investors Should Watch: Milestones That Matter

For investors evaluating geothermal projects, Gerken recommends focusing on concrete technical and operational milestones. "Investors should watch out for news such as geothermal exploration resources being confirmed through exploration drillings as this derisks the project significantly, which is mainly important for conventional hydrothermal assets." A successful exploration well that confirms temperature, permeability, and resource size transforms a prospect into a bankable asset. This is particularly true for conventional hydrothermal projects, where resource confirmation is the single largest risk reduction step.

For emerging technologies, the bar is higher. "For new technologies, the successful building and operation of a pilot plant is the best indication of a technology. Only then the technology, including all of its data collected through the process, can be compared to conventional hydrothermal resources." Pilot plants provide real-world data on performance, costs, and operational challenges that cannot be replicated in laboratory settings. Investors should look for transparency in reporting: companies that publish detailed performance metrics, cost breakdowns, and lessons learned are more credible than those that offer only promotional claims.

Gerken also highlights the role of analytical tools in project evaluation. "Our asset-level economics tool can further help to evaluate geothermal projects for investors." Rystad Energy's models allow investors to compare projects across regions, technologies, and policy environments, providing a standardized framework for assessing returns and risks.

Policy Mechanisms That Accelerate Deployment

Which policy tools have the greatest impact on geothermal deployment? Gerken advocates for a targeted mix of risk mitigation and revenue support. "Generally, a mix out of exploration risk insurance, either an offtake support (FiT) or a capex support, is advisable in order to reduce the risk of an asset to make it debt financeable." Exploration risk insurance protects developers against the possibility that exploration wells fail to find commercially viable resources. Feed-in tariffs (FiTs) or other offtake mechanisms guarantee a price for electricity or heat, providing revenue certainty. Capex support, such as grants or low-interest loans, reduces upfront capital requirements.

Permitting is another critical factor. "Beyond that, permitting processes should be easily comprehensible and open for all international and national players to take part in." Complex, opaque, or discriminatory permitting processes deter investment. Countries that streamline permitting, provide clear timelines, and ensure equal access for domestic and foreign developers are more likely to attract capital.

Gerken also warns against poorly designed policy changes. "Moreover, the introduction of new policies should be done very carefully as this may lead to negative effects on the geothermal project pipeline." Sudden changes to subsidy levels, tax incentives, or land-use rules can freeze investment as developers wait for clarity. Policymakers should prioritize stability and predictability, even if it means slower initial growth.

The Breakthrough That Would Change Everything: Ultra-Deep Drilling

What would it take for geothermal to become a globally significant source of firm, low-carbon electricity rather than remaining a regional technology? Gerken's answer is unequivocal: a drilling breakthrough. "A significant breakthrough in drilling technology would need to happen to drill down very quickly to ultra-deep depths where very high temperatures can be accessed for cheap."

Current drilling costs remain a major barrier, particularly for EGS and superhot-rock projects that require depths of 5 kilometers or more. Conventional rotary drilling is slow and expensive at these depths, with costs escalating rapidly as temperature and pressure increase. New technologies,such as plasma drilling, laser drilling, or advanced hard-rock PDC bits,could dramatically reduce costs and timelines. If drilling to 10 kilometers could be achieved in weeks rather than months, at a fraction of current costs, the economic case for geothermal would transform.

Such a breakthrough would unlock vast resources. The U.S. Department of Energy estimates that enhanced geothermal systems could provide over 100 GW of capacity in the United States alone by 2050, but this assumes significant cost reductions in drilling and reservoir stimulation. Similar potential exists globally, particularly in regions with high heat flow but limited conventional hydrothermal resources.

The Double-Edged Sword of Government Intervention

Finally, Gerken identifies an underestimated factor in geothermal's trajectory: the dual nature of government intervention. "I believe it is the positive and negative effect of government interventions. The increasing will of governments to decarbonize their energy systems is a strongly positive signal but in certain cases it may also create frictions in that participants have a wait-and-see approach hoping for even more favorable governmental support in the future."

This dynamic is already visible in several markets. In the United States, the Inflation Reduction Act's tax credits for geothermal have spurred investment, but some developers are delaying projects in anticipation of additional state-level incentives or grant programs. In Europe, generous subsidies for geothermal heating have accelerated deployment, but uncertainty about future funding levels has caused some developers to pause.

The lesson for policymakers is clear: support must be credible, sustained, and predictable. Announcing ambitious targets without delivering concrete mechanisms can backfire, creating a "wait-and-see" mentality that stalls investment. Conversely, well-designed, long-term policies that balance risk and reward can unlock private capital and accelerate deployment.

Conclusion: A Pragmatic Path Forward

Alexandra Gerken's assessment offers a pragmatic roadmap for geothermal's next decade. Conventional hydrothermal resources remain the foundation, particularly in regions like East Africa where untapped potential and proven technologies converge. Policy stability is the linchpin: without holistic, long-term frameworks, even the most promising projects will struggle to secure financing. And while next-generation technologies hold immense promise, they remain years away from commercial scale,making drilling breakthroughs the wildcard that could redefine geothermal's global role.

For investors, the message is to focus on derisked conventional assets while monitoring pilot projects for emerging technologies. For policymakers, the priority is to create stable, transparent frameworks that encourage investment without creating dependency. And for the industry, the task is to build on proven successes while pushing the boundaries of what geothermal can achieve.

The inflection point is here. The question is whether the industry, investors, and governments will seize it.

Related: Geothermal Innovation, Superhot Systems, Social License, and the Future of Global Geothermal Energy

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