Economic Update

Published 11 Apr 2023

– Emerging markets have ambitious plans to scale up geothermal capacity

– New technologies could facilitate geothermal generation anywhere

– Foreign investors are looking to emerging markets with established geothermal production

– Fossil fuel infrastructure and knowledge transfer aiding growth

As countries around the world look to increase baseload power generation, reduce energy imports and decarbonise their economies, emerging markets are boosting geothermal power generation with the help of new technologies and expertise.

A new drilling technology developed by Quaise Energy, a US geothermal start-up spun out of the Massachusetts Institute of Technology that uses gyrotron-powered millimetre waves to vaporize rock, could allow for producers to drill as far down as 20 km compared to the average drilling depth of 10 km accessible with conventional technology – thus unlocking higher levels of production.

Geothermal power is generated by steam emitted from the heat of the earth’s core. It has traditionally been harnessed in volcanic regions or near tectonic plates, such as the Ring of Fire that encircles the Pacific Ocean, as well as in the Mediterranean and East African fault lines, where existing cracks in the core allow steam to form close to the surface.

However, Quaise Energy’s new technology could theoretically allow producers to drill closer to the earth’s core and thus generate more power. This, in turn, could help bring geothermal to countries that do not have the requisite topography.

Quaise aims to deploy its technology by 2024 and to bring its first plant on-line in 2026. The start-up received an additional $12m in funding in last June to increase its Series A financing round to $52m, with a total of $75m raised to date.

Accelerating ambitions

More than 80 countries around the world generate geothermal power and emerging markets are among the top producers. Indonesia was the second-largest producer in the world in 2022, with 2356 MW, followed by the Philippines (1935 MW), Turkey (1682 MW) Mexico (963 MW) and Kenya (944 MW).

Technological breakthroughs could herald a new era for geothermal in emerging markets and dovetail with the ambitions of producers to scale up generation in the coming decades.

Indonesia, which relies on coal for over 60% of its electricity generation, is seeking to leverage geothermal to meet its goal of generating 23% of its power from renewable energy by 2025. To this end, it has allocated to government-owned geothermal developer Pertamina Geothermal Energy (PGE) a $250m capital expenditure budget for 2023 that will grow to $1.6bn by 2027. This funding will be used to increase the company’s geothermal capacity from roughly 700 MW to 1300 MW.

The Philippines is also looking to geothermal to accelerate its target of renewables comprising 50% of its energy mix by 2040. The country aims to increase its geothermal capacity by 75% during this period and is currently drafting a policy to develop the segment. In November 2022 Philippine Geothermal Production Company, a public entity owned by local conglomerate SM Investments, announced plans to develop five new geothermal projects that will add 250-400 MW of capacity.

In December the government issued a new policy that allows foreign companies to hold 100% of renewable energy projects, removing a 2008 regulation that required local ownership of such assets.

Kenya, home to the first geothermal power plant in Africa, generated 48% of its electricity from geothermal during the 2020-21 period – a higher percentage than any other country in the world – and aims to expand its current 944 MW of capacity to 1600 MW by 2030 to help meet its green development goals.

Partnership building

In addition to incorporating new technologies, emerging markets are looking to deepen partnerships with foreign companies to increase geothermal capacity.

For example, Mitsubishi Power was enlisted by PGE in December to construct a 55-MW unit at the Lumut Balai Unit 2 station, a project partly financed by Japan’s International Cooperation Agency that is slated to begin operations in 2024. Mitsubishi has six systems in Indonesia with a combined output of roughly 400 MW, or 17% of Indonesia’s total. Other companies including Japan’s Inpex and Singapore’s Start Energy are also deploying geo-thermal-related investments in Indonesia.

Last month PGE and Italy’s Exergy also signed a memorandum of understanding to study the joint development of geothermal in the country.

Kenya has also recently been courting investment from Italy – the European country was the world’s eighth-largest geothermal producer in 2022, with 944 MW – to scale up its geothermal capacity, hosting the Italy-Kenya Business and Investment Forum on Geothermal last month. In this context, the Kenyan government announced a new longer-term goal of generating 10,000 MW of geothermal by 2037, which would be a 10-fold increase from its current capacity.

To help support these efforts, in March Kenya signed a deal with Australian renewable energy company Fortescue Future Industries to invest in green energy and manufacturing, which includes a 300-MW green energy and fertiliser facility in Naivasha that will be powered by geothermal. A month earlier it had announced that independent power producer Globeleq would begin construction on the 35-MW Menengai geothermal power project.

Meanwhile, the International Renewable Energy Agency created a platform called the Global Geothermal Alliance to kick start knowledge sharing and coordination among geothermal producers around the globe.

Transferring assets and knowledge

One of the most notable aspects of geothermal is that it could leverage existing fossil fuel infrastructure to build out capacity, similar to how hydrocarbons infrastructure can be repurposed to generate and transport green hydrogen.

For example, Quaise Energy plans to convert shuttered coal-fired power plants, which already have large capacities to convert steam into electricity and are connected to the grid, into baseload centres of geothermal power generation.

Tapping retired hydrocarbons fields offers another potential avenue for emerging markets to generate geothermal rather than drilling entirely new projects. Last summer India’s Cairn Oil & Gas, which produces about 25% of the country’s hydrocarbons, signed a deal with US oilfield services giant Baker Hughes to produce geothermal from its fields in Rajasthan.

In this way, the knowledge that hydrocarbons companies have acquired about subterranean exploration over decades can advance future geothermal projects. To this end, the US Department of Energy announced last summer that it would invest $165m in the Geothermal Energy from Oil and Gas Demonstrated Engineering initiative.

Indonesia is developing partnerships with companies in the UAE with this in mind. In February the UAE’s clean energy giant Masdar bought an undisclosed number of shares in Indonesian PGE’s initial public offering, marking Masdar’s first investment in geothermal.

Masdar is already active in renewable energy projects across Asia, including a 1200-MW solar power field in Indonesia, in partnership with France’s EDF Renewables, Singapore’s Tuas Power and local PT Indonesia Power, that will export power to Singapore.