This article was published by the International Energy Agency on Jan. 23, 2026.
By Rebecca Schulz, Senior Oil Market Analyst
Martina Lyons, Energy Analyst
Deniz Ugur, Consultant
Simon Bennett, Energy Technology Analyst
Courtney Turich, Energy Analyst
Next-generation geothermal is seeing a burst of financing, innovation and new supply agreements
Geothermal energy harnesses naturally occurring heat found beneath the Earth’s surface to provide heating and cooling, electricity and energy storage. As global electricity demand rises and power systems place a growing premium on firm supply, geothermal energy’s ability to provide an around-the-clock, low-emissions source of power is attracting renewed attention. However, easy-to-access conventional geothermal resources are relatively rare and mostly confined to a small number of shallow geothermal hotspots globally, accounting for only about 1 per cent of global electricity demand today.
Next-generation geothermal technology developers are seeking to overcome these limits by drilling deeper and harnessing heat from hard-to-reach reservoirs. Operators can either circulate fluid through fractures that have been induced (through what is known as enhanced geothermal systems) or transfer heat to the surface through closed-loop circuits. These technologies are advancing quickly, potentially enabling economically-viable geothermal development nearly anywhere in the world. The IEA’s Future of Geothermal Energy report, published in late 2024, estimated that with continued technology improvements and reductions in project costs, next-generation geothermal could meet up to 15 per cent of global electricity demand growth to 2050.
Next-generation geothermal technology remains at an early stage of development. In general, geothermal projects remain among the most capital-intensive in the energy sector, with drilling and well costs often representing up to 80 per cent of total costs. Yet the past year has seen notable progress. Once considered prohibitively expensive, next-generation projects are now demonstrating measurable efficiency gains and more competitive drilling costs amid ongoing innovation, building investor confidence. These advances – arriving just as global electricity demand surges – have helped boost fundraising. Meanwhile, new supply agreements with data centre operators, along with the prospect of geothermal projects co-producing critical minerals such as lithium, are adding to the momentum.
Investment in next-generation geothermal has risen sharply
According to IEA analysis of new data – including exclusive data shared by Underground Ventures, a firm that invests in next-generation geothermal – financing for the sector reached nearly USD 2.2 billion in 2025, an 80 per cent increase year-over-year and up from just USD 22 million in 2018.
Mature conventional geothermal attracted strong investment as well. Funding for conventional geothermal power projects reached nearly USD 5 billion in 2025 – a four-fold increase from 2018 – while geothermal heating projects, such as those used for district heating, secured over USD 11.5 billion in 2025 alone.
In another sign of growing investor confidence in the sector, the global share of equity financing declined from 70 per cent between 2018 and 2020 to just over half between 2023 and 2025, as companies were increasingly able to secure debt alongside data centre power and critical mineral supply agreements. Debt-based financing now accounts for nearly 30 per cent, with financing terms expected to improve further as risks continue to fall.
While public funding is essential to incubate and reduce the financial risks of next-generation technologies, overall, its relative share in total financing is relatively low. Publicly-sourced grants are currently about 9 per cent of next-generation funding globally, down from 12 per cent between 2018 and 2020. The United States leads in the number of grants awarded, though the European Union provides the largest share of total public funding by value.
The crossover of oil and gas technologies and engineering advances continue to drive progress
The increase in financing has been underpinned by rapid technological progress, with new innovations and knowledge from other parts of the energy sector helping next-generation geothermal projects move closer to commercialisation. Recent advances in subsurface engineering – many of them driven by techniques pioneered in the shale oil industry – have been particularly important, helping to accelerate project development and reduce costs.
The US Department of Energy’s Utah Frontier Observatory for Research in Geothermal Energy (FORGE) has showcased the benefits of knowledge sharing from the oil and gas sector. FORGE drilled its first wells in 2021, and by 2024 had successfully demonstrated enhanced geothermal systems in practice, nearly doubling previous drilling rates from 8 meters per hour (m/h) to almost 15 m/h, with peak rates reaching nearly 26 m/h. FORGE collaborator Fervo, a US enhanced geothermal company that raised over USD 1 billion between 2022 and 2025, has achieved drilling rates of 30 m/h. Several companies have now demonstrated similar performance, including Mazama Energy’s recent high-temperature well construction demonstration at its 15 megawatt (MW) enhanced geothermal pilot in the US state of Oregon.
Resurgent demand for firm power, especially from data centres, is driving interest in geothermal
As technological advancements continue, geothermal’s ability to deliver reliable, around-the-clock baseload power is drawing growing interest. This is proving particularly attractive to the data centre industry, whose global electricity consumption is set to surge by more than 300% by the end of this decade – creating a group of long-term paying customers that are helping push financing to new levels.
Geothermal projects, whether producing heat or electricity, usually sell their output through long-term contracts. These include heat purchase agreements or power purchase agreements with utilities or industrial customers, which provide stable income to facilitate debt financing. Until 2023, most next-generation geothermal project developers could only secure electricity price guarantees equivalent to solar and wind projects, or about USD 30-60 per megawatt-hour. But as electricity demand grows strongly in major markets – including in the United States, where data centres are helping lift power consumption for the first time in two decades – geothermal developers have begun securing significantly higher contract prices, in some cases reaching about USD 130 per megawatt-hour.
In 2024, Google and NV Energy signed a power purchase agreement for electricity from Fervo’s 115 MW Corsac project, while Meta committed to sourcing 150 MW from Sage Geosystems starting in 2027. This shows that companies are willing to pay a premium for clean, dependable power that can operate continuously, even for the first projects that may have the highest unit costs.
Critical material supply chains offer extra revenue potential
Efforts to build out critical mineral supply are also giving next-generation geothermal a lift. Geothermal energy projects can serve as a source of lithium, demand for which is expected to grow strongly in the next decade under all IEA scenarios.
Lithium that is dissolved in geothermal brine can be obtained via a direct extraction method. This process has the potential to require less water, land and energy use than traditional hard-rock mining, while providing developers with an additional source of revenue.
Geothermal projects currently under development in the European Union and the United States could yield 47 kilotonnes of lithium per year by 2035, which would meet 5 per cent of global demand based on today’s policy settings. Vulcan Energy’s Phase 1 Lionheart project in Germany, which fully secured financing in 2025, not only has offtake agreements with local district heating and industry consumers for power and heat, but also with Glencore, Stellantis, LG Corp and Umicore for lithium. Similar integrated geothermal‑lithium developments are actively underway across Europe and the United States, demonstrating the potential for this model to bolster growth.
Policy support remains crucial for next-generation geothermal to bridge from promising pilots to large-scale deployment
Recent advancements in next-generation geothermal are promising and the potential they open is enormous, particularly as global electricity demand continues to grow. Combining new drilling and materials technologies with real-time downhole sensor data has cut well costs by up to 30 per cent and may extend asset lifetimes beyond 25 years. Further cost reductions are anticipated as developers gain experience through construction and operations and as multiple players continue to compete.
Even so, large-scale geothermal projects face major challenges that could stymie future progress. These include exploration and upfront financial risks, as well as those related to execution. In general, next-generation geothermal projects remain too big for venture capitalists alone and too risky for established corporate energy players. This “missing middle” – also known as the “the technology valley of death” – is where governments traditionally step in. While some energy customers, primarily data centres, are now willing to pay a premium to see if the technology can work at scale, this demand alone appears insufficient to move the technology towards widespread commercialisation.
Given this backdrop, government support remains vital to the sector’s ongoing development. By setting targets and roadmaps that raise awareness, pursuing permitting reform, implementing risk-mitigation schemes, and ensuring power-market designs that make it easier to sell on the electricity produced directly to offtakers, they can help next-generation geothermal move through this “technology valley of death.” Encouraging examples include the US Department of Energy’s geothermal R&D funding, Germany’s new accelerated permitting law combined with drilling risk-insurance, and risk-mitigation facilities in the Philippines, Germany and East Africa. The EU’s forthcoming Geothermal Action Plan is another welcome step towards giving geothermal the dedicated policy attention it has long lacked, and can realise its full potential only by covering both conventional and next-generation geothermal technologies.
Delivering on the promise of next-generation geothermal everywhere will also require economic conditions that make projects both viable and scalable, alongside supportive policies, strong market design and investment incentives. Additionally, growth in the sector – especially growth that supports new demand sectors and sparks fresh innovation – will be amplified if companies can share their learnings through government programs or industry organisations, such as Geothermal Rising, Project InnerSpace, Clean Air Task Force Superhot Rock Initiative and the European Geothermal Energy Council.
The IEA will continue to provide data and analysis to support these efforts, including through a forthcoming publicly accessible global database on geothermal projects. This will provide comprehensive, up-to-date tracking of conventional and next-generation geothermal, alongside the broader assessment of progress via the Races to First data tool.
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