Geothermal Energy: The Underexplored Renewable
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“Defoes steps away from the usual wind‑solar‑nuclear triangle — arguing that 24/7, location‑tethered heat beneath our feet makes geothermal one of the most underpriced, under‑allocated pieces of the clean‑baseload puzzle.”
Geothermal is the outlier in the clean‑energy transition: a renewable that can run around the clock like a conventional plant, yet still accounts for only a sliver of global generation. REN21 estimates that geothermal electricity reached around 15.1 gigawatts of capacity and roughly 97 terawatt‑hours of output in 2023, while direct geothermal heat supplied about 205 terawatt‑hours — meaningful, but tiny next to wind and solar. At the same time, system planners and investors searching for low‑carbon baseload are rediscovering geothermal’s key attributes: constant, predictable output and the ability to complement intermittent renewables without the same land footprint or fuel‑price risk. From a Defoes perspective, the bullish stance is that geothermal sits where nuclear was a decade ago in many portfolios — structurally important to net‑zero maths, but structurally under‑allocated.
Baseload, without the usual baseload baggage
The strategic appeal is straightforward. As Nefco’s case work on Swedish developer Baseload Capital notes, geothermal plants provide “stable and predictable baseload energy” that is available 24/7 and not exposed to wind or solar conditions. Unlike coal, oil or gas, geothermal has no combustion emissions once built, and unlike many large hydro projects it does not require significant land inundation. A review of global deployment finds that 24 countries now generate baseload electricity from geothermal, and five — including Iceland and Costa Rica — obtain 15–22% of national power from it, demonstrating that the technology can scale beyond niche pilot projects in favourable geology. In power systems increasingly dominated by variable renewables, that kind of firm, low‑carbon output is at a premium.
At the same time, geothermal is not constrained to electricity. REN21 and the IEA highlight its role in district heating, industrial process heat, and hybrid configurations such as geothermal‑solar or geothermal‑wind systems that smooth portfolio output. This versatility creates an investment universe that spans regulated utilities, heat‑network operators, and behind‑the‑meter industrial users — a broader landscape than many investors currently model. In practical terms, geothermal can reduce exposure to volatile gas prices in heating, not just in power, thereby touching a larger share of the energy spend in advanced and emerging markets alike.
Technology shifts: from “hot spots” to engineered resources
Historically, geothermal’s limitation has been location: the most economical projects lie along tectonic plate boundaries, which is why early deployment clustered in places like Iceland, California, the Philippines and the East African Rift. That is now shifting. Enhanced geothermal systems (EGS) — which create or stimulate permeability in hot rocks at depth — are moving from concept to field‑tested technology, allowing developers to tap heat in areas that lack conventional hydrothermal reservoirs. NREL’s 2024 Annual Technology Baseline notes continuing cost reductions in EGS as a package of drilling, reservoir‑engineering and power‑conversion technologies is demonstrated, with near‑term levelised costs projected to fall as learning effects accumulate.
Recent technical work characterising baseload and flexible EGS resources across the continental United States finds that, under realistic cost assumptions, EGS could supply substantial low‑carbon power and ancillary services, competing with or complementing other firm resources. Columbia University’s assessment of EGS potential concludes that, with supportive policy, next‑generation geothermal could attract billions of dollars of investment by the 2030s and provide a non‑intermittent complement to wind and solar in high‑renewables grids. These findings support the bullish view that drilling and subsurface know‑how from oil and gas can be repurposed at scale, expanding the accessible geothermal resource from geologic curiosities to a mainstream infrastructure opportunity.
Capital is starting to notice, but slowly
Investment flows remain small relative to other renewables, which is precisely what makes geothermal interesting from a contrarian‑within‑consensus perspective. REN21 data show that geothermal capacity additions have averaged roughly 80 megawatts per year over 2019–2024 — far below wind and solar — although 2024 saw an uptick of at least 400 megawatts of new capacity. At the same time, Wood Mackenzie reports that North America’s geothermal sector drew about 1.7 billion US dollars of public funding in the first quarter of 2025 alone, an 85% jump relative to the whole of 2024, as “breakthrough technologies transform vast untapped resources into commercially viable clean energy projects.” That combination — low installed base and accelerating funding — is characteristic of a sector transitioning from proof‑of‑concept to early growth.
The project‑finance story is evolving in parallel. Baseload Capital’s experience, backed by Nefco, Breakthrough Energy Ventures and infrastructure funds, shows one emerging model: specialised developers aggregating small‑ and mid‑scale projects into portfolios, blending concessional and commercial capital through successive stages of growth. In parallel, policy‑driven capital — from national green investment banks to multilateral lenders — is beginning to view geothermal as baseload infrastructure in markets where coal or diesel remains the marginal provider. If that trend holds, geothermal’s cost of capital is likely to drift closer to that of established renewables and regulated assets, rather than being priced as high‑risk exploration.
Underexplored, not risk‑free
The underexplored label does not mean risk‑free. Exploration uncertainty, drilling cost overruns, induced seismicity concerns and long development timelines have all slowed projects in the past. In some jurisdictions, regulatory frameworks built for oil, gas or mining do not translate neatly to geothermal, complicating licensing and stakeholder engagement. There is also a genuine question about how quickly EGS can move from pilot wells to reliable, repeatable commercial projects across different geologies.
Yet the structural drivers are clear. Power systems need more firm, low‑carbon supply; heat systems need non‑fossil baseload; and investors are seeking long‑duration, infrastructure‑grade cash‑flows that are not correlated with gas prices or intermittent generation. Geothermal — especially when broadened to include engineered resources and low‑temperature heat — sits at that intersection but is still priced and discussed as a niche. From a Defoes standpoint, the bullish stance is that as drilling technologies mature and more portfolios like Baseload Capital’s scale up, geothermal will shift from exotic to expected in the baseload decarbonisation mix — and that investors who build a framework for assessing geothermal risk now will be better positioned as policy and capital flows catch up to the resource’s quiet, consistent potential.