Geothermal has been the next big thing for a long time. Three big cycles since the 1970s, but it never really broke through. We're at a structurally different energy landscape now, so what makes it different this time? Is it the AI demand, the drilling technology coming from shale, the PPAs from the hyperscalers, or something else?
Geothermal has always been the cleanest, zero-emission technology that can be developed. However, it was a niche. We've been developing geothermal for many years and we're the largest operator and developer, with clear targets to bring on new projects continuously. What's interesting now is that demand from AI and data centers has pushed PPA pricing significantly higher. Today every PPA we sign is above $100, which allows us in traditional geothermal to invest more in exploration to find more resources and bring more electricity. That's the basis of the contract we signed with Google, up to 150 megawatts between 2028 and 2030, and it covers only new projects. Having that contract takes away some of the risk of developing new resources.
The bigger shift is that new geothermal technology is becoming close to realistic. It's referred to as EGS, Enhanced Geothermal System, also called AGS or Pressurized Geothermal System. With EGS you're not looking for a reservoir in the ground anymore. You drill wells three to four kilometers down, continue horizontally for another mile, do fracking in that area, inject water through one well and bring it up from a second deeper well. Ormat did this 21 years ago, but it was too costly. Over the past two decades, the oil and gas industry became much more familiar with fracking, drilling costs came down significantly, and at the same time PPA pricing went up. So today it's getting close to being economical. There are still technical questions, how much water you need, how much you lose, and how long the structure stays hot enough before you have to duplicate it elsewhere, but if all of these issues are solved economically, you can do geothermal in multiple places globally, and it stops being a niche solution.
The US DOE is very ambitious. They talk about 100 to 300 gigawatts of EGS by 2050. You're set to deliver around three gigawatts by 2028. Do you think the DOE numbers are credible? What does your internal modelling say is a realistic ceiling for geothermal in the US mix?
Our targets from a couple of years ago talked about traditional geothermal. EGS didn't exist two years ago, and PPA prices weren't where they are today. I can't give you a number now. We have an analyst and investor day in September, just after Labor Day weekend in New York, and we will give our targets through the end of 2030 then. If the technology is successful, and I believe it will be, I think the geothermal industry can develop a gigawatt of energy. As for 2050, the DOE probably did its analysis, but I'll be 83 then, so I don't have focus that far out.
What I can say is that the scale changes completely. In traditional geothermal, we just started a Greenfield project of 30 megawatts. In EGS, you're talking about hundreds of megawatts per site, because if you have water and you solve the cooling issues, you can build many wells over an agreed area, all flowing into one power plant. The power plant above ground is exactly the same as we have today. So Ormat, as a manufacturer and as an MEPC player on top of being an operator, has a huge opportunity here, and the sites will probably be much bigger. We have a 50 megawatt turbine today. At the World Geothermal Conference in June we'll be announcing our new turbine, which will be bigger and simpler, because unlike a natural resource where you don't know the exact temperature, pressure or chemistry, with EGS you know the temperature, you know the pressure, and you know what water you're putting in.
The headline of 2026 is the 150 megawatt PPA with Google. Is this a repeatable template that can scale to other hyperscalers like Microsoft and Meta, or is each hyperscaler still custom-built when it comes to PPAs?
We are negotiating with all the names you mentioned, Amazon, Meta, Microsoft, Google. Once we know where the new technology stands, we will sign the contracts. Ormat is six years in the company, 20 years on Nasdaq, and we follow public company rules, so I won't go further than that. The structures of these PPAs are actually quite similar across the different hyperscalers, not very different from one another. All of them are subject to technology being successful, but these are very large PPAs. An EGS PPA in particular would probably be a very large PPA.
The real issue at that point becomes transmission, how you interconnect to the grid and transfer the electricity to the data center. I believe that in some cases the agreements will be behind the meter, a direct connection between the power plant and the data center, not through the utility. In that case the data center has to make sure it has enough redundancy of electricity, because it cannot rely on one single source. I think it's going to be some kind of mix between behind-the-meter arrangements and traditional grid-connected PPAs.
You have a joint venture with SLB on EGS, and there's a lot of confusion about who owns what. Five years from now, if EGS is widely commercial, which side captures more value and how is Ormat positioning itself?
Let me correct one thing first. It's not that SLB owns the subsurface and we own above the surface. We have a 50-50 joint venture with SLB. Whatever technology is developed through that joint venture, Ormat can utilize and build out. We can use SLB as the subsurface company, or we can do it ourselves. SLB is a service provider that supplies drilling services. Ormat is a developer and an operator. Our view is that the outcome of this pilot is that we'll be able to build and operate power plants based on this technology in the US or anywhere else we choose to.
The uniqueness of the collaboration is that they are experts in oil and gas drilling, fracking and subsurface technology, while we are experts in geothermal, in how to manage the fluids and the water rather than oil and gas. The combination brings two leading companies in their respective industries together to build the optimal solution for EGS. The pilot is planned for 2027, with the first well drilling starting towards the end of 2026. We're also working in parallel on a second technology with Sage Geosystems, where we have a license agreement rather than a joint venture. They use one well for both injection and production and then transfer to a second well, passing through the power plant on the way. Their pilot is also targeted for 2027. So 2027 will be a very important year for us on these pilots.
Competition is rising. Fervo, Eavor, XGS, the oilfield services majors. If you had to bet, which competitors are more likely to be a serious threat to Ormat in 2030, and which are more likely to be a footnote?
When it comes to the oil and gas companies, all of them are speaking with us as well, because they know how to deal with the subsurface but are not familiar with the above-surface part. I don't know exactly where they will want to play. Do they want to be power producers like Ormat, or do they want to be owners of the subsurface and sell the heat to somebody else who buys the heat and generates electricity and signs PPAs? Both models are possible.
When you look at the demand for electricity in the US, I don't think that in 2030 or 2035 there will be any issue finding buyers for the electricity. It's a very bullish environment. There's a lot of money going into this space, dozens of companies. Some compete with us on land, some are speaking with us on the product side, some are exploring joint ventures with us. I can't tell you for sure that EGS will be successful, because it's still a technology being developed, but if I had to guess I think it will be.
Storage is a different question. Over-reliance on Chinese technology is one of the main contention points in the new energy landscape. What is Ormat's pathway to a compliant non-Chinese supply, and is energy storage a core leg for you or a hedge against execution risk on the geothermal side?
When we entered the energy storage market, we had internal discussions about whether to duplicate the vertically integrated geothermal model and develop battery technologies. We decided not to. Competing with the Chinese on a commercial commodity doesn't have much potential to succeed, as we see in many industries. And with so many alternative storage technologies being worked on, we didn't think that was where we should focus. We decided to focus on the developer and operator side, which is where we invested.
Today we have about 1.4 gigawatt hours of operating assets and another 1.5 gigawatt hours under construction, all in the US. We buy mostly from CATL and Gotion, but also from Tesla and from Powin, which buys cells from CATL. If there's a limitation on buying batteries from China, US manufacturers will find ways to build non-Chinese batteries and we'll buy from them. Ormat has safe-harboured most of the projects we plan to build in the next few years, so we already bought transformers and started construction to stay within the previous regulations. We're not going to build a battery manufacturing facility ourselves, not for chemistry and not for any other technology. We want to remain flexible to move technologies if a superior one comes into play.
Going from electrons back to molecules, Europe did a relatively good job on electricity, but the hard problem is what happens outside electrification, with aviation, transport, heavy industry. Geothermal is one of the few clean technologies that can compete directly with gas. Should the industry reframe itself as a fossil fuel replacement story rather than a renewable story?
Traditional geothermal, I would say no. But if any of the EGS technologies, what we're developing with SLB, or Sage, or what Fervo is doing, or what Eavor is doing, becomes economical, then I think it can definitely replace fossil fuel. It can be a zero-emission technology, it can be developed in multiple places rather than only where natural resources exist, and there are parts of Europe where water exists and where it might even be easier to develop than in the US.
That said, from our perspective Europe would be a second phase. It's far easier to work in the US with one regulator and one administration than across multiple countries, and with the pricing we see today, the US is where we focus first. Whether all of this becomes economical is the central question. My view, based on what I know today, is that it will. I don't want to commit to 2027 or 2028, and I think the DOE's 2035 focus is too long.
With demand and PPA pricing where they are, and costs continuing to come down, EGS will become technologically and economically feasible somewhere in between. That's the bet, and it's the bet the whole industry is making.
