Geothermal energy is moving beyond its traditional niche

May 2026

What geothermal energy is

Geothermal energy is heat derived naturally from within the Earth. The heat originated when the planet formed, is sustained by the radioactive decay of minerals, and is redistributed by geological processes such as plate tectonics and related volcanism. It also takes advantage of the predictable increase in geologic temperature with depth below the Earth’s surface.

Because the engine that produces geothermal heat is the Earth itself, geothermal energy is renewable. It can be captured at depth and brought to the surface to provide residential and commercial heating, and to generate pollution-free electricity that operates 24 hours per day, 365 days per year. It is not influenced by weather like wind or solar energy, and does not rely on fragile and interruptible supply chains like fossil fuels.

Can geothermal become mainstream?

For more than a century, geothermal has been a niche source of energy in places with suitable volcanic sources of heat along a ring of fire, such as California, Indonesia, Iceland and New Zealand.

Now a new era of research and start-up companies is focused on expanding geothermal into a workhorse of the global energy system. By adapting advanced drilling and completion techniques from the US shale gas sector, developers hope to harvest the Earth’s natural heat flow in places where it has previously been inconceivable to do so. They are also tapping investor enthusiasm driven by concerns about energy security and the disproportionate share of fossil fuels in the global energy mix.

Although still on the lower slope of its growth curve, new era geothermal represents the fastest-growing category with the largest upside within the geothermal market. It is driven by reawakened demand for high-temperature resources suitable for utility-scale clean electricity generation.

Accessing greater geologic depths, and being able to ignore the need to search for hard-to-find reservoir rocks, will allow operators to exploit the energy potential of hotter, denser rocks at increasingly competitive cost. Expansion is already supported by private equity, grant funding, and research initiatives from organizations such as the US DOE, which aim to reduce the risks associated with deep subsurface drilling and well completion.

As pilot projects come onstream, technology improves, costs fall, developers grow in confidence and commercial attractiveness is proven, increased investment funds will become available to unlock what are effectively infinite energy reserves.

Primary and secondary uses of geothermal energy

Geothermal energy is used in ways typically categorized as either primary or secondary.

Primary geothermal refers to direct use without conversion into another form of energy. Secondary geothermal involves energy conversion, most commonly from heat to electricity through a series of intermediate steps.

Primary geothermal applications are common for lower-temperature resources. They include heating public facilities such as buildings and swimming pools, known as district heating; agricultural uses such as warming greenhouses and drying produce; aquaculture; wellness and spa tourism; and industrial heat for processing, drying or sterilization. In these cases, heat is input directly to achieve an industrial or commercial outcome.

Secondary geothermal refers to power generation, where geothermal heat serves as a feedstock to create electricity in a turbine and generator system. This process requires higher temperatures and specialized power plant infrastructure to transform heat into the kinetic energy of steam or vapor, which drives a turbine to generate electrical power for local use or to feed into a high voltage grid.

Primary uses

Direct-use geothermal energy is a versatile industrial input. It provides a steady, predictable, emissions-free and sustainable supply of heat that can replace fossil fuels in various processes.

These applications generally use lower-temperature geothermal resources, typically tapping into fluids between 20°C and 150°C. This makes them much more widely available than the hotter sites generally required for generating electricity.

Key industrial applications

• Food and agribusiness: One of the largest sectors for direct use. Applications include food dehydration for products such as mangoes, tomatoes and coffee beans. Geothermal heat is also used for growing mushrooms, milk pasteurization, cheese production and large-scale grain drying.
• Greenhouses: Geothermal heating allows for year-round cultivation of vegetables such as tomatoes and cucumbers, and tropical flowers in cold climates, and in Indonesia at high altitudes. It can sometimes reduce fuel costs by up to 80%.
• Aquaculture: Geothermal water is used to maintain precise temperatures in ponds to accelerate the growth of fish, shrimp and even crocodiles. Fish farms in Australia, for instance, use 28°C bore water to grow barramundi efficiently.
• Manufacturing and materials: Industrial uses include timber drying, pulp and paper processing, paint manufacturing and concrete curing. In the mining sector, geothermal fluids can assist in chemical extraction in general and gold mining operations in particular.
• District heating and cooling: Large-scale systems pipe hot water to heat entire residential or commercial districts, such as extensive networks in Europe and the US, and most famously in Reykjavik in Iceland. Counterintuitively, geothermal energy can also power absorption chillers to provide low-carbon cooling for data centres and warehouses.

The Lindal Diagram

The Lindal Diagram is a mainstay in the geothermal community for delineating the potential applications of geothermal fluids according to the temperature of the available resource. It is named for Baldur Lindal, an Icelandic chemical engineer who was a pioneer of the direct utilization of geothermal energy and first presented his system in a book on geothermal R&D published by UNESCO in 1973.[1],[2]

Engineers often use the Lindal Diagram to determine which industrial applications best fit a specific geothermal resource.

In most geothermal applications, water is used over a wide temperature range rather than at a particular temperature point. Many facilities use cascading systems, where the hottest water is used for a high-temperature process, such as drying, and the remaining warm water is reused for a lower-temperature process, such as hot springs or swimming pools, before being reinjected.

This applies to power generation as well, where steam may be used directly as the primary energy source, with lower-temperature waste fluids captured to generate extra power from binary systems before being reinjected.

The Original Lindal Diagram

Primary use case studies

1. District heating in Reykjavik, Iceland

Iceland is the global leader in direct-use geothermal energy, with approximately 90% of all households heated by geothermal systems.

• The system: Reykjavik operates the world’s largest municipal geothermal heating service. It primarily uses low-temperature geothermal water, below 150°C, sourced from wells within and near the city.
• Economic impact: Switching from fossil fuels to geothermal heating saves Iceland the equivalent of 3.5% of its annual GDP.
• Environmental benefit: The system has resulted in an estimated 433 million tons of CO2 saved to date compared to using fossil fuel fired electricity.
• Ancillary benefits: Beyond home heating, waste heat is often used to keep city pavements and car parks free of snow and ice during winter.
• New revenue sources: Some waste fluids from electricity generation are not reinjected but redirected to surface ponds, which have been developed as hot springs. For at least one power plant operator near Reykjavik, hot spring revenue now exceeds the revenue from the original purpose, power generation.

2. Barramundi farming in Australia

In Australia, geothermal energy is a key driver for sustainable aquaculture, specifically for temperature-sensitive species such as barramundi.

• Mainstream Aquaculture, Werribee, Victoria: This facility operates the world’s largest barramundi hatchery. It taps into pristine geothermal bore water from approximately 300 metres below the ground.
• The process: Barramundi require a consistent water temperature of 28-29°C to thrive. By using natural geothermal water at a constant temperature, the farm significantly reduces the energy required to heat large tanks, lowering its carbon footprint and operational costs.
• Sustainability: This method allows for year-round, high-volume production in a climate, Victoria, that would otherwise be too cold for the species. Similar successful aquacultural applications of geothermal include Robarra farming in Robe, South Australia and marron farming in Western Australia.

3. Community mushroom growing in West Java

At the Kamojang geothermal field in West Java, waste geothermal fluids are redirected to support local oyster mushroom farmers. The geothermal heat is used to sterilize mushroom cultivation media, replacing expensive and carbon-intensive LPG. This circular economy model dramatically lowers costs for farmers and has increased their production efficiency, yields and income.

Secondary uses and the advantages of geothermal power

The key benefits of geothermal electricity are that it:

• is safe
• uses a form of energy that is ubiquitous
• provides baseload power, meaning consistent electricity 24/7 that is unaffected by weather or supply chain disruptions
• is renewable and sustainable over long periods of time. The oldest geothermal power plant in the world, in Italy, has been producing electricity without a break for more than 120 years
• is cheap to operate, with an LCOE that is competitive with other forms of electricity
• has very high utilization rates, with geothermal plants often operating at more than 90% capacity
• produces virtually no carbon dioxide, methane or particulate matter
• is quiet
• can provide a significant economic boost to local communities, which can use low-cost waste heat for agricultural and industrial activities
• has competitive LCOE and the highest EBITDA ratios in the energy sector, making it an attractive investment that can deliver good cash flows and margins to owners even at relatively low tariff levels.

How geothermal resources are accessed

The general process of finding and proving exploitable geothermal resources involves drilling wells into the Earth, typically to depths of at least 1km, to access hot water or steam. That fluid then flows naturally back to the surface and is fed into a turbine and generator set to make electricity.

The drilling and completion equipment used is, for the most part, interchangeable with the oil and gas industry, so it is readily available in most countries. After the geothermal fluid is used to generate electricity, it is either directed to other purposes, cooled and recycled back into the reservoir, or both, to ensure that the resource is sustainable.

The four frontiers of geothermal resource development

After a successful well is completed, there are currently four ways of utilizing hot fluids encountered at depth and cycled back to the surface.

1. Hydrothermal, or conventional geothermal: The traditional method, used for more than a century and still predominant today. It relies on finding naturally occurring hot spots where heat, water and porous rock exist together. Once found, engineers tap into existing reservoirs of steam and hot water to bring them to the surface in much the same way that oil and natural gas are produced to the surface.
2. Enhanced Geothermal Systems, or EGS: Used when rock is hot but lacks water or natural fractures. EGS involves man-made reservoirs. Engineers inject high-pressure fluid to stimulate or fracture the rock, similar to fracking for hydrocarbons, but with heat as the prize. This creates a permeable network that allows injected water to circulate, pick up heat and return to the surface. Driven by fuel security concerns, a combination of VC, public infrastructure funding and hybrid pilot project funding for EGS reached almost US$2.5 billion in 2025, up 85% year-on-year and up from only US$22 million per annum spent from 2018-23.
3. Closed-loop systems, or AGS: Often called Advanced Geothermal Systems. These use hot rocks at depth by using piping that acts like a subsurface radiator. No fluids are injected into the rock itself. Instead, a sealed pipe system is inserted into deep wells. A working fluid circulates inside the pipes and picks up heat through conduction without touching the surrounding rock or brine, reducing risks such as fluid loss, seismic activity and aquifer contamination.
4. Superdeep and superhot: The moonshot of geothermal. By drilling very deep, typically 5-10km, to reach temperatures above 400°C, water enters a supercritical state in which it acts as both a liquid and a gas. This supercritical material carries vastly more energy than regular steam or water, potentially allowing a single superhot well to produce an order of magnitude more power than a standard hydrothermal well. The method has been held back by high costs, but newly developed drilling and completion technologies are rapidly bringing it into the realm of commercial viability.

How geothermal power plants work

1. Dry steam plants: The oldest and simplest technology. Steam is piped directly from underground reservoirs to turn turbines at the surface.
2. Flash steam plants: The most common type of plant. High-pressure hot water from reservoirs with temperatures above 180°C is pumped to the surface, causing it to flash into steam as pressure decreases up-hole.
3. Binary cycle plants: Suitable for lower-temperature water, historically above 120°C but below the temperatures needed to flash steam, although improved technology has lowered the minimum threshold temperature below 100°C in recent years. The geothermal water heats a secondary fluid, usually a hydrocarbon, with a lower boiling point. That fluid vaporizes and drives a turbine. Above ground, this is a closed-loop system in which the hydrocarbon is entrapped and continuously recycled, so the system produces virtually no emissions.

Environmental impact and sustainability

• Low emissions: Geothermal plants have very low greenhouse gas emissions, between 0 and 5% of thermal coal-fired plants.
• Small footprint: Geothermal plants are compact, requiring less land than many other power generation types.
• Low impact: Geothermal plants only emit steam and water, so they have minimal impact on local communities and ecosystems.
• Sustainability: If managed properly, geothermal energy is essentially inexhaustible.

Summary of key advantages and challenges

Economic comparison through LCOE

Geothermal costs vary significantly based on technology maturity, geological risk and social and environmental costs. While upfront CAPEX is high, at USD$3,000-6,000/kW, the offset is that geothermal plants have the highest capacity factors in the power sector, above 90%, and very low OPEX.

Future outlook

While currently lagging well behind solar and wind in total capacity, geothermal energy is poised for growth due to rapid advancements and cost reduction in enabling technologies such as binary plants, EGS and AGS.

In 2026, interest in geothermal has skyrocketed in proportion to growing concerns about energy security, with large increases in research spending and new policy initiatives in many countries. Multi-lateral organisations such as the International Energy Agency and the International Renewable Energy Agency are promoting geothermal as a sleeping giant that is in the process of transitioning from a niche resource to a high-potential, high value global asset.

• Projected capacity: Under net-zero pathways, the IEA estimates that geothermal could meet up to 15% of total global electricity demand growth by 2050. This would require scaling from today’s approximately 16.8 GW to 800 GW of installed capacity.
• Generation potential: 800 GW of capacity could produce 6,000 TWh per year, equivalent to the current combined electricity demand of the United States and China.
• Technological shift: While conventional hydrothermal potential is capped at between 70-200 GW, the consensus is that Next-Generation Geothermal, focused on EGS and AGS, will unlock vast potential by making geothermal viable in most countries and geologic settings.
• Cost reduction: Current EGS costs range from $70-$130/MWh and are not yet consistently competitive for most customers. Aggressive policy de-risking and breakthroughs in new drilling technologies such as microwave and plasma drilling are on trajectory to drive costs down to $45/MWh by 2035.
• Demand side requirements: Growth of the cyber economy and AI has led to a rapid proliferation of data centres. Large data centre developers and operators need hyper-reliable power supply that has zero emissions. These requirements are incompatible with the world’s current reliance on emissions-intensive thermal sources of power that can be held hostage to fuel shortages. Clean and self-fuelling geothermal is well positioned to be a solution.

Achieving the growth goal

Success in achieving the 800 GW target for geothermal by 2050 depends on innovation by policy makers and regulators on one hand, and engineers developing new technologies on the other.

Policy incentives and de-risking

Government support frameworks for geothermal are shifting from subsidies and financial guarantees to de-risking the expensive exploratory drilling phase.

• Tax credits and appropriations: In the US, the Inflation Reduction Act and proposed Defence Geothermal Resilience Funds, proposed to be $100-$300 million annually from 2026-2030, provide targeted funding for EGS and AGS.
• Accelerate EU Plan: Launched in April 2026, this European initiative aims to triple the contribution of geothermal to the primary energy mix by 2030. It includes an EU-wide database for geological data and insurance schemes to cover the risk of drilling unsuccessful wells, modelled on the International Finance Corporation, which has been providing drilling insurance to geothermal developers in Asia for more than a decade.
• De-risking exploration: Some jurisdictions, including Indonesia, have implemented schemes under which the Government takes on the initial exploration drilling risk for certain pre-tender geothermal projects to prove their technical feasibility before they are tendered to potential developers. This is designed to bridge the huge gulf between project concept and bankable project phases that has held back the sector.
• Regulatory reform: New permitting regimes are being created to treat geothermal projects more like utility infrastructure than mining, potentially cutting decade-long development times in half.

New drilling and completion technologies

Cost reduction for large-scale geothermal take-up is largely a drilling speed problem. Between 50-80% of project investment is typically related to exploration, with much of the technology borrowed or adapted from oil and gas expertise.

Advancements in drilling, hydraulic stimulation and reservoir engineering have the potential to fundamentally change the market and allow geothermal to compete with solar and wind. They leverage techniques learned in the past 20 years from the US shale gas revolution and carried over almost intact from the oil and gas sector.

By using directional drilling and fibre optic sensing, developers can now create permeable fracture networks in hot, dry, impermeable rocks that previously lacked the fluids and connectivity necessary for traditional power generation. This technological convergence enables precise control over reservoir creation and allows geothermal fluids to be produced to the surface, facilitating electricity generation in areas lacking naturally occurring hydrothermal resources and significantly improving heat extraction efficiency and predictability.

The new technologies are still in their infancy, but successful projects in Utah, California and Germany have provided early technical validation that engineered systems can maintain the stable thermal flows required for baseload electricity.

At the same time, a surge in new era geothermal power purchase agreements is driving commercial adoption. Major tech corporations including Google, Microsoft and Meta are already starting to bypass fossil fuels and intermittent renewables in favour of firm geothermal power to energize power-intensive data centres. That demand signal provides the long-term revenue confidence required to finance front-ended, capital-intensive projects such as geothermal.

New technologies close to commercialization and on track to create a major reduction in project costs include the following.

1. Millimetre-wave drilling

This technology, pioneered by MIT and commercialised by Quaise Energy, uses high-power electromagnetic microwave beams to vaporise rock ahead of the drill bit.

• The process: A surface-based device called a gyrotron fires a beam through a pipe, known as a waveguide, into the borehole. The rock face is heated to over 3,000°C, causing it to melt and vaporise into a fine ash.
• Key advantage: The process creates a vitrified, glass-like lining as it drills, which naturally seals the borehole and in theory precludes the need for traditional and expensive steel casing.
• Latest status as of May 2026: Quaise has recently achieved a 1000-meter drilling milestone in granite at speeds 10x faster than previous trials. It is now breaking ground on a 50 MW superhot pilot plant in Oregon, targeted for commercial operation by 2030.

2. Plasma drilling

Developed by GA Drilling, which is headquartered in Slovakia with branches in the UAE, UK and USA, this method uses a high-energy plasma arc to fracture and disintegrate rock ahead of the drill bit.

• The process: A rotating plasma torch creates a high-temperature field that weakens the rock through thermal stress, making it fall apart into tiny pieces that are easily flushed out of the hole.
• The hybrid approach: In early 2026, GA Drilling secured $44 million to deploy a hybrid system that combines mechanical drilling with plasma-assisted rock weakening to maintain compatibility with existing oil and gas rigs while increasing speed and reach.
• Indonesian trial: Numada has put together a consortium that included Geodipa, Pertamina Geothermal, ITB, the Indonesian Geothermal Association and the Geothermal Sustainability Institute to trial GA’s plasma drilling technology at the Dieng Plateau in Java.

3. Other emerging technologies

• Laser drilling: Researchers at ETH Zurich and various startups are testing high-powered directed-energy lasers to vaporise rock without physical contact, similar to millimetre-wave drilling but using shorter wavelengths for potentially higher precision.
• Hydro-jet and percussive hybrid systems: These systems use high-pressure water jets or particle-impact technologies to assist conventional mechanical bits, reducing wear-and-tear in hard basement rock.
• Integrated field trials: A new commercialisation initiative from Quaise, announced in 2025/2026, focuses on integrated field trials to transition from microwaves in the ground to megawatts on the grid.
• Horizontal drilling and fracking: Techniques honed in the US shale oil and gas industry are being repurposed. By drilling horizontally through hot rock and using hydraulic stimulation, operators can create hundreds of times more surface area for heat exchange, significantly increasing flow rates and reducing cost.
• Autonomous drilling using micro-drill bits: Startups have developed compact, autonomous drills that fit inside the borehole, reducing surface footprints and emissions by up to 86%, making them suitable for drilling in urban and near-urban settings.

Challenges

The substantial upfront capital expenditure associated with deep drilling and reservoir creation is a primary impediment to the expansion of the global new era geothermal market. Unlike solar or wind projects, where costs are largely tied to surface equipment, new era geothermal requires immense initial funding before any energy generation capability is confirmed.

This front-loaded financial structure creates the same high-risk investment profile that has historically deterred traditional hydrothermal project financing. Institutional investors view extended payback periods and geological uncertainties as prohibitive, restricting the capital flows necessary for commercial-scale deployment.

The economic burden of establishing EGS fracture networks or constructing closed loops at depth represents a significant proportion of total project expense, making the barrier to entry particularly acute. According to the US DOE, drilling and wellfield development activities account for approximately 50% of the total capital expenditure required for next-generation geothermal power projects.

Such heavy front loading of cost in the preliminary phase exacerbates financial risk, as developers must secure vast liquidity a long time before revenue commences. This financial hurdle limits market participation at present to entities with substantial balance sheets and pre-feasibility grant funding, which inevitably slows the global adoption rate of new era technology projects, at least until the earnings potential of a critical mass of projects is confirmed by bringing them into operation.

Regional insights for reaching the 800 GW global target

To reach the IEA and IRENA global target of 800 GW of geothermal generation capacity by 2050, geothermal energy must shift from being a very localized, geologically restricted resource to a globally distributed one. According to the IEA, just three countries, China, the United States and India, are projected to account for 75% of R&D and new capacity additions between 2026 and 2050.

North America leads the global EGS market, driven primarily by robust government initiatives and strategic investments in the US. The region benefits significantly from US DOE funding, which supports critical demonstration projects such as the Frontier Observatory for Research in Geothermal Energy, or FORGE, in Beaver Co. Utah.

Strong regulatory backing mitigates the risks associated with technology development and gives confidence to private capital, fostering innovation. The combination of federal support and commercial interest is enabling North America to accelerate the deployment of advanced geothermal solutions ahead of other global regions.

Regional breakdown of projected 800 GW expansion

What is driving these regions

1. Transitioning coal economies: China and India both require massive amounts of reliable 24/7 power to replace coal without destabilizing their grids.
2. Data centre demand: In the US and Southeast Asia, the explosion of AI data centres is creating a willingness to pay a significant green premium for reliable emissions-free electricity. Long-term power purchase deals have been done recently by Microsoft, Meta and Google with power suppliers at tariffs of up to $130/MWh, with one outlier at $170/MWh.
3. Industrial synergies: The US, Canada and Australia are leveraging mature oil and gas workforces to solve the drilling and fracturing challenges of next-gen systems.

Where the sector stands

Geothermal energy is a baseload renewable resource that provides 24/7 emissions-free power. By 2050, it is projected by the International Energy Agency to meet 15% of global electricity demand, with a global capacity goal of 800 GW up from 16.5 GW in 2026.

The technical pillars of utilization are:

1. Hydrothermal: natural heat and water
2. EGS: man-made reservoirs
3. AGS closed-loop: self-contained subsurface heat exchange
4. Superhot and superdeep: unprecedented temperatures at unprecedented depths

Geothermal is also an under-utilized source of heat for industrial, agricultural and aquaculture applications; district heating and cooling; ecotourism; and wellness.

Next-gen geothermal targets an achievable sector-wide LCOE of US$45/MWh by 2035, driven by risk-reducing policy initiatives and drilling technology breakthroughs.

Total global investment in direct and indirect geothermal in 2025 was approximately US$20 billion, with a CAGR of 6%. Current development spending on geothermal represents less than 1% of total global clean energy capital flows of US$2.2 trillion in 2025. As of mid-2026, a combination of geopolitics and research breakthroughs is giving real momentum to the geothermal sector.

Rough scale of 2025 hydrothermal versus next-generation geothermal investment:

EGS and AGS are the most scalable forms of geothermal and have the widest geographic spread. New era geothermal technology is now probably where:

• solar was in the early 2000s; or
• of more direct relevance, where shale gas was in the early 2000s.

How EGS compares with other energy technologies in 2026

EGS and AGS are therefore:

• still very early-stage
• a dark horse, larger than many people realize
• beginning to attract capital and grow at startup-like rates.

Many early EGS and AGS projects will fail economically or commercially. But if drilling and completion costs keep dropping as they have been, geothermal could become one of the most attractive clean-energy investment targets because its value proposition includes:

• reliable power 24/7, with no intermittency and no reliance on weather
• exceptionally high utilization rates
• no pollution
• low ongoing sustainability costs after initial capital is spent
• minimal impact on land, communities and environment
• grid stability
• near-universal geographic spread.

The biggest uncertainty is whether:

• horizontal drilling and fracking technologies improve fast enough to keep investors interested; and
• induced seismicity and water-management issues are manageable.

If these prerequisites are satisfied, the industry could scale extremely fast in the 2030s.

The inflection point

Thanks to EGS and AGS as disruptive technologies, the geothermal sector is at an inflection point.

In the past 18 months, EGS has gone from an interesting academic idea to something major utilities, oilfield service companies and hyperscale tech firms are seriously watching. It is dragging the geothermal sector in general along with it, transforming it from a high risk E&P play to a low risk manufacturing investment.

One of the most interesting signals is that much of the expertise now driving geothermal comes from the shale industry:

• directional drilling
• bitless drilling
• making, rather than exploring for, good reservoir character
• reservoir stimulation
• high-temperature materials
• subsurface imaging
• drilling automation.

That means EGS and AGS can build on and benefit from decades of oil and gas learning curves instead of starting from scratch.

<a id="footnote-1"></a>1. Lindal, B. 1973. Industrial and other applications of geothermal energy. In Armstead, HCH (Ed) Geothermal Energy: Review of research & development. UNESCO, Paris pp 135-148 ↑

<a id="footnote-2"></a>2. Gundmundsson, JS. Et al 1985. The Lindal diagram. Geothermal Resources Council Trans 9, pp 15-19 ↑