A service of

Infralogic Insights: Geothermal heating up but not quite steaming ahead

Growth of global geothermal energy capacity will remain slow, but steady, in coming years despite a robust project pipeline because of a myriad of challenges facing the renewable energy technology, according to several sources. 

Overall, there are currently 58 geothermal plants under development in the US, and 93 in operation. Leading Europe, Turkey’s geothermal pipeline consists of 12 projects with the potential to add 4 GW to its capacity of 1.6 GW. 

The pipeline of greenfield geothermal deals that meet Infralogic’s inclusion criteria includes 28 transactions: 

The growing interest in geothermal is being driven by governments globally, seeking to wean themselves off of fossil fuels and meet net-zero carbon emission targets. Geothermal plants produce energy by tapping steam from natural reservoirs of hot water found miles beneath the Earth's surface to rotate turbines. 

The technology has some advantages over other renewables. Geothermal plants are mostly located underground and out of sight, unlike solar and wind farms that are often hamstrung by public opposition to their use of land or appearance. And geothermal isn’t dependent on weather conditions. An operational geothermal plant can produce energy for 8,600 hours a year, compared to 2,000 hours for a typical solar PV plant, according to developer Enel Green Power. 

Limiting factors 

While interest in geothermal is high, installed capacity and new development lags that of solar PV and wind — which are currently more cost effective and perceived as lower risk. 

The initial exploration phases of geothermal projects are expensive and uncertain. Drilling for geothermal is not like drilling for oil. It is a long process, and there is no guarantee at the end that exploratory wells will find a useable energy source, according to a source active in the development and financing of geothermal projects. For instance, in Turkey, three wells drilled for two projects over a 2 ½ year period were unsuccessful. 

For these reasons, commercial lenders will not finance geothermal exploration, according to the source active. Exploration financing comes in the form of equity from developers with deep pockets, or government or multilateral guarantees. To encourage exploration, the World Bank has schemes in place in Indonesia and Turkey to help with initial exploration costs — and to provide technical expertise. 

Another challenge with geothermal is that viable well locations are often far from existing transmission grids, according to a lawyer active in the market. Adding to the difficulties, complex technology is needed to develop geothermal plants. 

Novel technology advances could drive down geothermal’s LCOE, said a developer active in the market. Policy changes and government support would also help, the developer said. Currently geothermal has a high LCOE of between USD 56 and USD 91 per MWh, compared to solar PV at USD 28-USD 41 per MWh, and a LCOE of USD 26-USD 50 per MWh for onshore wind, according to Lazard. 

“Innovation, policy and partnership will all contribute to driving costs down and unlocking the potential of geothermal,” the developer said. 

Geothermal is attractive to private investors — when the plants are located in the “right” location near transmission grids or end users — a factor that also reduces a plant’s LCOE, according to the lawyer. 

Geothermal’s growth “will be slow and require careful due diligence and siting and, especially outside of the US, a governmental regulatory scheme designed to promote geothermal development, as has been done in Kenya, Tanzania and a number of other jurisdictions,” said the lawyer. 

Development pipeline - Indonesia 

Indonesia is the second largest market in geothermal capacity, behind the US, with 2.28 GW installed. However, the nation has significant potential, as it contains 40% of the world’s geothermal resources — an estimated potential capacity of 23.7 GW across 300 different sites — according to ASEAN. 

Indonesia’s government is targeting 5 GW of installed capacity by 2025, and 7 GW by 2030 under its General Plan for National Energy (RUEN). 

Hurdles facing geothermal development in Indonesia include location issues and the fact that one state-owned enterprise controls most of the potential development locations. Most geothermal resources in Indonesia are located in remote areas where there is a lack of infrastructure. At the Glasgow COP26 conference in 2021, PGE announced that Sumatra (with an installed capacity of 0.7 GW of a potential 9.1 GW), Java (with an installed capacity of 1.3 GW of 9.1 GW potential), and Bali (with an installed capacity of 0.01 GW of a potential 1.7 GW) have the most potential. 

Of the three large state-owned developers that control Indonesian geothermal — PT Pertamina Geothermal Energy (PGE), PT PLN Gas and Geothermal and PT Geo Dipa Energi — PGE holds 82% of the country’s resources. That hinders development of the market by making it difficult to attract international investors, according to an ASEAN report. 

However, the government is now trying to attract more foreign investors into the sector by giving them a tax allowance. 

East Africa 

In East Africa, aside from Kenya and Tanzania, Ethiopia has two planned projects: The Tulu Moye backed by a Meridiam-led consortium, which began drilling in 2020, and the Corbetti
project, backed by Reykjavik Geothermal and Africa Renewable Energy Fund (AREF), a fund managed by asset manager Berkeley Energy. The schemes are among the first DBFM projects in Ethiopia to have attracted significant international interest. 

In March, Ninety One-managed Emerging Africa Infrastructure Fund (EAIF) joined five other development finance institutions (DFIs) already in talks to finance the Tulu Moye DBFOM. The other lenders in talks with the project’s sponsors are the EIB, the Africa Development Bank (AfDB), France’s Proparco, Germany’s DEG and the Netherlands’ FMO. 

The current financing is for the first phase of the scheme, which involves drilling 10 wells in total, for 50 MW of capacity. Its capex is close to USD 200m, to be financed under a debt/equity split between 75:25 and 70:30. The project’s second phase, which aims to add a further 100 MW of capacity, will begin once the financing and well drilling of the first phase are completed. The cost estimate for the overall 150 MW scheme is USD 800m. 

Kenya also plans to reach an installed capacity of 3 GW of geothermal by 2030, having started drilling for its first well in the 1970s. An SPV backed by Danish renewable developer Frontier Energy, local financial investor Centum Investment Company and two other groups is planning to develop a 140 MW project called Akiira Geothermal, to be developed in two phases and using steam resources in the Kenyan Rift Valley. Kenya Power and Lighting Company (KPLC) will purchase the electricity from the SPV under a 25-year power purchase agreement. 

Kenya Electricity Generating Company (KenGen) shortlisted five firms for its planned 140 MW Olkaria IV Geothermal PPP project in 2020. The bidders include Enel Green Power, an Engie-led consortium, Japan’s ITOCHU Corporation and Sumitomo Corporation, and US-based Ormat Technologies. The project has yet to advance. 

The US 

The US has the highest geothermal power capacity in the world, with 93 plants in operation that have a combined capacity of 3.67 GW. Most, 51, are in California, while Nevada has 28 plants. The market is dominated by two developers, Calpine and Ormat, which own most of the plants.  

Of the 58 plants under development in the US, nine have secured power purchase agreements, or PPAs, including one in Hawaii, one in Utah, one in Alaska and six in California. Thirty nine of the projects belong to Ormat. 

The pipeline indicates that the US geothermal sector will grow modestly in coming years, according to a report by the US National Renewable Energy Laboratory. The sector will be helped by the Consolidated Appropriations Act, passed at the end of 2020, which facilitates access to federal land for wind farms, solar projects and geothermal development. 

Government support has been a big factor in the US. “Recently, US Energy Secretary [Jennifer] Granholm touted the potential role of geothermal at an announcement in Houston...which should be seen as a testament to its potential, and how continued DOE support can help drive technology advancements and achieve a lower LCOE,” said an active geothermal investor. 

The US market has been very quiet since 2015, with only seven plants becoming operational in that time, while 11 ceased operation. Growth has been “fairly modest and over a relatively small base,” according to the lawyer. Barriers to faster expansion will sound familiar: a “lack of site flexibility (the best sites are often away from transmission grids and urban load centers), complex technology and variable steam quality and quantity,” he said. 


Turkey is Europe’s biggest geothermal market, and the world’s fourth largest, with 1.6 GW installed. The country’s first project became operational in 2016. Turkey has more than 400 known geothermal fields with a total potential capacity of 60 GW. Geothermal electricity production in Turkey grew to 1,665 Mwe at the end of 2021 from 30 Mwe in 2008, according to a World Bank report. 

Geothermal has been very quiet in Turkey recently, with no financing taking place for over a year and a half. But there are currently 12 projects under review, several of which will come to fruition in four-five years, according to the source active in development and financing of geothermal projects. 

To help finance initial stage exploration of geothermal in Turkey, the World Bank has agreed to provide 40%-60% of the costs once drilling has started as a reimbursement in case exploration is unsuccessful. Credit lines are also provided by two Turkish development banks — Türkiye Sinai Kalkınma Bankası (TSKB) and Türkiye Kalkınma ve Yatırım Bankası (TKYB) — for post-exploration phase drilling and construction. TSKB has set up a credit line of USD 150m, and disbursed USD 128m to four projects, and TKYB has a credit line of USD 100m which has provided financial support to four projects. 

Most geothermal investment in Turkey comes from local players with significant expertise in the sector and equity at their disposal to fund the high upfront costs of initial exploration, according to the source active.