The Exchanges

Q nuclear. Like we built a lot of it decades ago, and then we stopped building new stuff in the US. I think A lot of people don't appreciate that the same thing is true of geothermal, and actually, interestingly, on, like, a roughly similar timeline, which I find kind of intriguing, not exactly the same, but, but similar kind of story. So what happened? Like, why did it stall out?

A Well, I think there were a couple of things that happened in the early days. The early technologies could really only work with very high temperature steam, and so they were looking for exceptional locations in the Earth's crust, where this was 200 Celsius and often higher, and it turns out those were relatively rare. And the further down in temperature you go, the more abundant they become. But the other part of it was that we had so many failures in trying to drill into these resources where there was a hot spring or geyser at the surface. They thought this was a no brainer. And when they come in and start drilling those deeper wells, they would not find the resource they were expecting. And so this is what we call exploration risk, uh, or dry hole risk in geothermal. And it led the industry to start having enough failures to scare capital investors. To say, whoa, should we really be throwing more money after this? And this kicks off really a race, a lot of it funded by the Department of Energy, to solve the problem in one of two ways. We were either going to get better at finding these systems, so better exploration methods and data types, or we were going to avoid the exploration problem altogether by just engineering in place the things that we needed to make that system work. And so you see the beginnings of both the unconventional enhanced geothermal industry starting at…

AI assessment note: “And it led the industry to start having enough failures to scare capital investors.”

Q Can you just give a little bit more detail on the difference between a conventional or hydrothermal field and an EGS field? What are you, what are you looking for in each?

A Yeah, in a conventional geothermal field, you need to find the temperature. So it needs to be hot enough to boil water or working fluid. You need to have porosity or permeability in the rock so that that fluid can circulate through, extract heat. You'll bring it out at the surface, then you'll re-inject it so it can circulate again. And you need water, so that working fluid that's going to sweep that heat through the system. And in the conventional field, all of those exist naturally. That's what we call a hydrothermal system. EGS was based on that early recognition that we drilled a lot of holes or wells that were hot, but didn't necessarily have the water or the porosity and permeability to be able to circulate the water. And EGS was this hope that we could stimulate or engineer the rocks to have that permeability and maybe even add the water in some cases. And so, this in many ways I think is analogous to what you see in oil and gas, the division between conventional oil and gas and unconventional. Is the ability to just drill a well and have what you need versus needing to modify the subsurface in some way.

AI assessment note: “in the conventional field, all of those exist naturally. That's what we call a hydrothermal system.”

Q Can you describe what, I, I know I brought up decline rate, but I realize we didn't describe what causes it. What causes the decline? Like, you could imagine a scenario where, look, it's hot underground, you just keep recirculating water, and it should work infinitely. Why doesn't it?

A Yeah, so you are pulling heat out of the system, right? You're taking that to the surface, you're extracting it either through your turbines or through heat exchangers, And when you re-inject it, the water's gonna be a little bit colder, or quite a bit colder. And because of that, it needs to extract more heat from the rock before it returns to the production well. And you can think of these two wells. If your injection well is too far away, it actually might not ever return, and you can start to draw down the pressure in the, in the reservoir. If it's too close, where it maintains good pressure in that reservoir, it might return too quickly, and you could think of that as them not having enough time to recharge in temperature, and part of the challenge was finding that optimal distance where it has enough time to fully recharge while also maintaining pressure in your system.

AI assessment note: “you are pulling heat out of the system, right? You're taking that to the surface”

Q Okay, so let's say you drill your temperature gradient hole, you confirm, you see what you're looking to see, and at least your interpretation is positive there. What's the next step?

A At that point, you're going to need to put together, if you haven't already, a pretty detailed conceptual model or understanding of what might be driving this system. Is it a volcanic system? Is it a sedimentary system? Is it a fault-hosted system? And that's going to give you a better predictive ability to go deeper into the resource, at least with classical methods here, and, and you're ultimately going to then want to say, okay, if I've proven temperature, now I need to prove permeability, or the ability to flow water through the wells that I would drill here. And so you're going to step up in size and complexity of your drilling program and drill slim wells, or small, think of them as mini production wells that are going to be able to allow you to pull water out of the system.

AI assessment note: “you're going to step up in size and complexity of your drilling program and drill slim wells”

Q to get anything fast. The fastest thing you can get maybe is renewables, but even that is gummed up by supply chain challenges and all sorts of tax credit issues and so on. But like, you know, gas turbines are back ordered for five years and nuclear takes nuclear timeframes. What is the timeframe of exploration and development for geothermal historically and how much opportunity is there to compress it?

A Historically, it was also a fairly long lead time type development. Uh, historical projects took usually over five years and oftentimes as much as 10 years from start to COD. Uh, and major part of that is the slow decision making. As I mentioned, the sort of incremental de-risking of a resource. We collect data, go back to the drawing board, decide if we're going to move forward. Um, but another part of it was the permitting timelines. Is that a geothermal development project We'd have to go through five NEPA reviews if on federal lands, and the ability to accelerate a lot of that permitting is another area where we're seeing a lot of progress in the industry. Geothermal was recently given a categorical exclusion for the exploration activities of confirming and verifying a resource, and there's potentially still permitting reform ahead for the construction stage of the project. If you just take it down to the bare bones of you need about one to two years to explore and confirm the resource, and about One and a half to two years to construct that power facility and tie it into the grid. So the ideal scenario would be three to four years is realistic, and we're now seeing that as a possibility in certain locations in certain states where the regulatory frameworks are clear enough. And an example, not necessarily of a greenfield build, but of at least being able to come in and do …

AI assessment note: “historical projects took usually over five years and oftentimes as much as 10 years”

Q in that case, or is that just such a good resource that, you know what I mean? Like, I guess what you're saying is that most of the good resources do not Show at the surface. And many of the things that show at the surface are not actually good resources. Is it just that, that first time around in, in the geysers, it just happened to be the overlap?

A I think that's exactly right. And so the first pass, and this is true for almost all natural resource industries. The first pass is the low hanging fruit, the really obvious stuff at the surface. There's copper, there's gold, there's steam, uh, there's oil seeping out, let's drill there. And the geysers was just one of those world-class resources. And there may be more of those around the globe yet to be developed, But at least here in the United States, it's unlikely that there's another gigawatt-scale conventional geothermal resource to be discovered of that type. But there, you're right, there were geysers at the surface, fumaroles. Um, in fact, the early explorers, a lot of them came from oil and gas. Uh, you had Chevron, Unical, Phillips, Hunt, and others that entered into the space in the late seventies and early eighties, and they actually spent hundreds of millions of dollars going out and drilling test holes, looking for more geysers-like fields. And the geysers was such a unique field in terms of its size and scale. They thought, oh, we just have to drill every few miles and we'll see something like that if it's out there. And it turns out they didn't find anything like that in all of their searching. But in the process, they did find some of these other geothermal systems, some of which are now being turned into EGS fields and some of which are being developed for co…

AI assessment note: “I think that's exactly right. And so the first pass”

Q Before we talk about the process of exploration and development and so on, From a technical standpoint, what, what is happening there? Like, what are the, what, what is going on when you have steam at the surface, what looks like it should be a perfect resource, and then you drill down and it's a dry hole? Like, what's actually going on under, in the subsurface?

A Yeah, so, at kind of the geology or geothermal one-on-one level, everywhere on the planet, as you go deeper, it gets hotter, usually. Or at least in general. And in most places, that's at, say, 25 Celsius per kilometer. So you'd have to go four or five kilometers or so to get to where you'd have steam temperatures. Um, but in certain locations, that temperature is actually elevated, either because of magmatic or volcanic processes that may have brought heat closer to the surface, or in many places in the western United States, even in the absence of volcanism or magmatism, You can have fractures or permeable zones within the earth that will allow it to start convecting hot water from greater depth to closer to the surface. And hot springs are usually that kind of manifestation where there's hot water circulating, often in a convective nature, to bring that water to where you see it. What we've since learned in the decades since is that where you see hot springs at the surface, those are kind of the outliers. That's the tip of the iceberg. Most of these convective cells of hot water underground Are not coming to the surface, and we now know that the majority of them are actually what we call blind. There's no hot spring, no volcano, and you wouldn't have even known they existed had you not, in most cases, drilled into them accidentally.

AI assessment note: “You can have fractures or permeable zones within the earth that will allow it to start convecting”

Q Okay, so you, you drill your first well, which is your temperature gradient hole. You, it, how easy is it? Is it, how, is it binary? I assume it's not binary, but like, what, what is the, so how much, uh, art versus science is there in the interpretation of, of that data? Is it easy to determine go, no go, or do you have to do something sophisticated?

A In the early days, there was a lot of uncertainty. There really just weren't enough success cases or even failure cases to help them Understand what some of these data types meant, and so they often use very high thresholds. If it's not boiling, I'm not interested, but increasingly over time, our experience has taught us, like you said before, that even kind of a semi-anomalous or readings at a shallow level might indicate that it's worth drilling deeper, and so it's often an estimation of, given what I know now, is it worth investing additional capital to drill into that resource at greater depth to gain greater confirmation, and so You can start with some probability distribution of possible outcomes, and the deeper you go, and the more capital you invest in the project, the tighter that distribution of outcomes becomes, and the higher your confidence is in what kind of resource you're working with.

AI assessment note: “You can start with some probability distribution of possible outcomes”