Geothermal has big potential. Here’s how states can help realize it.

Unlike traditional geothermal plants, next-gen projects use innovative underground techniques to produce power wherever rocks are sufficiently hot, making it possible to harness heat in more locations. The energy source could provide hundreds of gigawatts of clean electricity around the clock, up from just 4 GW nationwide today.

Amid ballooning energy demand from data centers and electrification, western states are increasing their support for the industry, using tools like direct investment and permitting reform. These state-level efforts are supporting a wave of pilot projects and first-of-a-kind systems across the region, where heat is accessible at relatively shallow depths.

Still, states will need to adopt more sweeping and coordinated policies to help companies secure the kind of large-scale financing necessary to scale up next-gen geothermal, said Ann Garth, policy manager for superhot rock geothermal at the nonprofit Clean Air Task Force.

Garth is the lead author of a new report, shared first with Canary Media, that describes how states can ​“de-risk” geothermal for infrastructure investors, who typically pick up where venture-capital funds and federal research programs leave off.

Geothermal’s high upfront drilling costs, the slow trickle of investment returns, and the uncertainty around project development — like how long permitting will take or how profitable the resource will be — are major stumbling blocks for project financiers. Whereas some investors can stomach any two of the factors, ​“the three in combination will make financing very difficult,” Garth said.

Many western states have made some policy changes to address these challenges, though none have put all the pieces together yet. In its new report, Clean Air Task Force outlines what the states should focus on and highlights which steps they’re already taking.

Perhaps the most meaningful move that states can make is to create demand for utility-scale geothermal.

Take California, as an example. In 2021, the California Public Utilities Commission adopted a procurement order calling on utilities to add at least 1 GW of ​“clean firm resources,” such as geothermal, to meet the state’s long-term climate goals and grid reliability requirements. The mandate is largely responsible for the rise in power purchase agreements for next-generation projects — including Fervo Energy​’s Cape Station in Utah. Southern California Edison has agreed to buy 320 megawatts of power from the 500-MW project, which is set to come partially online this fall.

“That has been an incredibly important driver of the growth in the geothermal industry,” Garth said. ​“Seeing those PPAs come in has given a lot of confidence [to investors].”

California itself has installed almost 2.9 gigawatts of conventional geothermal capacity, making it the nation’s leader. Colorado, by contrast, is working to land its first geothermal power plants of any kind.

In June, Colorado’s legislature passed a bipartisan bill that requires investor-owned utilities to solicit proposals for the development of large geothermal projects greater than 25 MW, as well as smaller systems. The state also awarded $494,000 to Fervo to evaluate the potential for developing geothermal power projects in two regions of the state.

New Mexico, meanwhile, is backing the commercial deployment of a novel geothermal system through its $75 billion sovereign wealth fund that draws on oil and gas royalties. Through the fund’s venture-capital investments, the state is supporting the startup XGS Energy as it develops a 150-MW closed-loop system in New Mexico along with Meta.

However, before developers get to the point of proposing projects, they need to scour geologic data to understand what rock formations are like, and how hot they are at certain depths. Many states already have this information from earlier oil and gas development, but the files aren’t easy to access.

Some states are working to make geological records more readily available. North Dakota has scanned and digitized the bulk of its historic data, which it provides to academics for free and to companies for a fee. Earlier this year, Arizona invested $1 million in the state’s geological survey to integrate historic subsurface data with new information, gathered using airborne and laser-based imaging, to bring geothermal development to Arizona.

Washington state, which also doesn’t produce geothermal power, passed a bipartisan law in 2024 that directs the state’s geological survey to compile a public database of subsurface information. It also creates grant programs for companies to do deep exploratory drilling in areas with high geothermal potential.

State permitting agencies, meanwhile, are still wrapping their heads around next-gen geothermal.

As a result, permitting can be a slow and unpredictable process — and a source of anxiety for investors. ​“The longer you have to wait before you can actually start generating revenue, the more expensive it gets,” Garth said.

Nevada devised a solution to this problem in 2008 to support its conventional geothermal sector. The state’s environmental protection and minerals divisions entered a cooperative agreement to clarify which agency has jurisdiction over certain aspects of drilling and operating geothermal wells, avoiding confusion and delays. Nevada has installed 892 MW of conventional geothermal capacity, making it second to California, and Fervo is developing a 115-MW ​“enhanced geothermal system” with Google in the state.

Texas, which is home to several test projects but no commercial geothermal, resolved a bureaucratic conundrum that had slowed next-gen development. In 2023, lawmakers passed a law to clarify who owned the geothermal resources on a given property: the surface landowner, not the owner of subsurface oil, gas, and minerals.

Another major barrier to scaling next-generation geothermal is access to transmission lines. This plagues every energy source in the U.S., and it can’t necessarily be tackled by individual states.

Connecting rural geothermal plants over long distances to pockets of demand requires coordinated, long-term efforts within regions, and that work has hardly begun in the West, according to Clean Air Task Force.

The group also recommends creating innovation test beds as a way for states to reduce project risks in specific areas. For example, the federally funded Utah Forge is an underground field laboratory in Beaver County, Utah, that has developed and refined enhanced geothermal using oil and gas techniques. Fervo said it built Cape Station next door so the company could collaborate with researchers who have extensively explored the area’s geology.

So far, states have adopted ​“an interesting hodgepodge of efforts” to attract geothermal investment, Dan West, senior Western regional policy manager at Clean Air Task Force, said by phone.

But ​“no state has checked all the boxes and pulled all the policy levers yet,” he said.