Odd Lots Podcast Summary: Tim Latimer on Solving the Financing Problem for Geothermal
Release Date: December 13, 2024
Host/Author: Bloomberg's Joe Weisenthal and Tracy Alloway
Guest: Tim Latimer, CEO and Co-Founder of Fervo Energy
Introduction to Advanced Geothermal Energy
In this episode of Odd Lots, hosts Joe Weisenthal and Tracy Alloway delve into the burgeoning field of advanced geothermal energy with Tim Latimer, CEO of Fervo Energy. The discussion centers on addressing the financing challenges that have historically hindered the expansion of geothermal energy as a viable component of America’s energy mix.
Understanding Advanced Geothermal
Tim Latimer provides a comprehensive overview of geothermal energy, differentiating between traditional geothermal systems and advanced geothermal or enhanced geothermal systems (EGS). He explains that while conventional geothermal power has been around for over a century, its expansion has been limited to geologically favorable regions like Iceland and certain parts of the United States.
“If we unlock it with the right technology, this could be an enormous resource.”
— Tim Latimer [05:27]
Advanced geothermal aims to overcome these geographical limitations by using new technologies to access deeper and less permeable rock formations, thereby exponentially increasing the potential for geothermal energy production across diverse regions.
Technological Overlaps and Challenges
Latimer draws parallels between geothermal drilling and oil and gas fracking, noting significant technological overlaps that have been instrumental in geothermal advancements.
“The process of taking that technique and applying it to geothermal has involved an enormous amount of technical work...”
— Tim Latimer [05:55]
However, challenges remain, particularly due to the higher temperatures and harder rock types encountered in geothermal sites compared to typical oil and gas formations. Fervo Energy has developed tools capable of drilling at temperatures up to 440 degrees Fahrenheit, a substantial improvement necessary for effective geothermal operations.
Current Operations and Milestones
Fervo Energy recently celebrated a significant milestone by bringing their first enhanced geothermal project online in late 2023. This project, developed in partnership with Google under their 24/7 carbon-free energy initiative, demonstrated the viability of EGS by maintaining consistent production rates without decline over a twelve-month period.
“In October, we hit the 12-month mark where... it was actually producing geothermal energy connected to the grid, producing electrons for over a year.”
— Tim Latimer [08:39]
This achievement marks Fervo Energy's technology as Technology Readiness Level 9 (TRL 9), indicating that it operates successfully in its intended environment.
Funding and Investment Landscape
Latimer discusses the evolution of Fervo Energy’s funding strategy, highlighting the transition from venture capital and DOE grants to more substantial institutional investments. A pivotal moment was their Series D funding round in February 2024, which raised $244 million led by Devon Energy.
“We finally crossed that chasm earlier this year because we brought that project online.”
— Tim Latimer [10:40]
This shift towards project-specific debt financing signifies increased confidence from traditional energy investors and aligns with Fervo’s proven operational track record.
Impact of Interest Rates on Geothermal Financing
The conversation shifts to the macroeconomic factors affecting geothermal project financing, particularly the impact of rising interest rates. Latimer explains how higher rates pose significant challenges for capital-intensive, long-term energy projects like geothermal.
“The interest rate environment, it hits startups and it hits infrastructure projects, particularly renewable infrastructure projects in a big way.”
— Tim Latimer [15:29]
Despite these challenges, geothermal projects benefit from stable long-term agreements and lack of fuel costs, making them attractive for investment even amid fluctuating interest rates.
DOE Support and Permitting Reforms
Latimer emphasizes the crucial role of the Department of Energy (DOE) in advancing geothermal technology through grants and partnerships. He highlights the recent $25 million grant Fervo received under the bipartisan Infrastructure Law, aimed at geothermal development.
“The DOE has a big message and a big audience that reads these things... that kind of awareness and technology validation is pretty critical as well.”
— Tim Latimer [19:32]
Furthermore, Latimer discusses ongoing permitting reforms aimed at reducing the typical six to eight-year approval process down to two to four years, significantly enhancing project feasibility and attractiveness to investors.
Market Acceptance and Overcoming the Chicken and Egg Problem
The dialogue addresses the inherent chicken and egg dilemma in geothermal energy: securing financing requires a proven track record, while establishing such a track record necessitates initial investment. Latimer narrates how partnerships with forward-thinking companies like Google have been instrumental in overcoming this hurdle.
“How do you get a new tech to market when your customers require a multi-year track record to develop it?”
— Tim Latimer [23:03]
These strategic collaborations have gradually paved the way for broader market acceptance and subsequent utility partnerships.
Supply Chain Challenges: The Transformer Shortage
A significant impediment discussed is the shortage of transformers, critical for geothermal power generation. Latimer explains how high demand from data centers and the grid infrastructure has led to prolonged lead times for transformers, complicating project timelines.
“We're going to get something that's going to power a city-sized energy demand.”
— Tim Latimer [27:38]
Fervo Energy is addressing this by sourcing transformers early and exploring international suppliers, though the industry-wide shortage remains a pressing issue.
Labor Transfer and Scalability
Latimer points out that the geothermal industry benefits from a readily available skilled workforce, largely due to the overlap with the oil and gas sector. This labor transfer facilitates scalability without significant workforce constraints.
“There's already such a deep bench of technical talent and technician talent that control these wells.”
— Tim Latimer [41:02]
Conclusion and Future Outlook
As the episode concludes, Tim Latimer remains optimistic about the future of geothermal energy. With technological advancements, improved financing mechanisms, and supportive policy reforms, geothermal is poised to play a substantial role in the transition to a sustainable, low-carbon energy future.
“Geothermal, the cost trajectory is moving so quickly that we're going to get a great answer on the affordability very, very soon.”
— Tim Latimer [21:10]
Key Takeaways:
- Advanced Geothermal: Unlocks vast energy potential beyond traditional geothermal hotspots through enhanced drilling technologies.
- Proven Technology: Fervo Energy’s successful project demonstrates the feasibility and reliability of EGS.
- Funding Evolution: Transition from venture capital to institutional financing marks increased investor confidence.
- Permitting Reforms: Legislative changes are critical in accelerating project timelines and reducing costs.
- Supply Chain Constraints: Transformer shortages remain a significant barrier to geothermal scalability.
- Workforce Availability: Existing skills from the oil and gas industry facilitate rapid scaling of geothermal projects.
For those interested in the intersection of finance, technology, and sustainable energy, this episode provides valuable insights into overcoming the financing challenges inherent in scaling geothermal energy.