Geothermal Might Be Heating Up, But Still Tepid for Investors

Geothermal power projects are “heating up” reports Jenn Kho due to increased backing from the U.S. government and new business models bringing projects online more quickly than in previous years. Kho cites numbers from the Geothermal Energy Association that says U.S. geothermal power projects grew 46 percent in 2009, up from about 30 percent in 2008, and geothermal projects represent 3.15 GW of installed capacity in the U.S., and more than 10 GW globally.

But while the stimulus package has allocated $400 million for the U.S. Department of Energy’s Geothermal Technologies Program, venture capitalists and private equity investors are still largely keeping this technology at an arms length. Kho penned a report for our GigaOM Pro subscription service this week, Cleantech Financing Trends 2010 and Beyond that explains that conventional wind and solar projects by far account for the largest amount of renewable energy projects getting backed by investors. “According to private equity firm U.S. Renewables Group solar and wind projects made up 75 to 80 percent of the clean energy projects getting financing in the U.S,” Kho writes.

Venture capitalists investing in new geothermal technology have also been few and far between. Greentech Media reported last year that in 2009 venture capitalists invested $35 million into two companies building geothermal heat pumps, EnLink and Nobao. In comparison in 2009 solar startups brought in around $1.2 billion in venture capital funding.

One of the most high profile backers of advanced geothermal tech has been Google. In 2008 Google invested $10.25 million into AltaRock Energy, Potter Drilling, and the Southern Methodist University Geothermal Lab, which are all developing “enhanced geothermal system” technology — an approach that cracks into hot rocks, circulates water through the system and uses the steam to power a traditional turbine. AltaRock has also been backed with $26.25 million from Khosla Ventures, Kleiner Perkins, and Vulcan Capital.

But the AltaRock investment is an example of one of the issues for venture capitalists — the new technology can be risky. An AltaRock project was put on hold indefinitely last year after it faced problems with drilling — a drill bit snagged — and also faced concern over if its drilling could cause earthquakes similar to the ones that occurred in Basel, Switzerland. As Eric Wesoff put it last year: “Venture Capitalists are used to technology risk, market risk, and policy risk. However they are not accustomed to seismic risk.”

One of the newer geothermal startups that I’ve encountered recently is Foro Energy, and given all the negative attention the AltaRock project has received, the company is not surprisingly taking a low-profile approach. Foro Energy is developing a thermal drilling technology, which the company says will significantly lower drilling costs for geothermal energy wells and received one of the largest of the Department of Energy’s coveted ARPA-E grants with $9.1 million. Foro will have to match those funds at 50 percent cost share over time as they are used, but the company is already backed by North Bridge Venture Partners and CMEA Capital. Foro Energy plans to stay in stealth for the time being.

Image courtesy of Geothermal Energy Association.