Tim Latimer on Solving the Financing Problem for Geothermal

Geothermal is a promising technology to provide clean, low-cost, baseload power to the electricity grid. It works by getting heat from deep in the ground, using technology that is similar to that used in fracking. Despite this potential, however, geothermal still remains a very small percentage of the US power mix. So what will it take for it to scale up? One big challenge is the core problem of financing. Firms need customers in order to get financing. But customers don't want to sign up for projects unless firms can finance them and get them built. On this episode, recorded live onstage at the Department of Energy's Deploy24 conference in Washington DC, we speak with Tim Latimer, the founder and CEO of geothermal company Fervo Energy. Tim was previously in the fracking industry. He explained to us how geothermal works, what's being built, and what it will take from private and public actors in order to scale it up. Read More:A Green Reason to Drill, Baby, Drill: Renewable Energy That’s Always On Become a Bloomberg.com subscriber using our special intro offer at bloomberg.com/podcastoffer. You’ll get episodes of this podcast ad-free and exclusive access to our daily Odd Lots newsletter. Already a subscriber? Connect your account on the Bloomberg channel page in Apple Podcasts to listen ad-free. See omnystudio.com/listener for privacy information.

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• 0:59Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, we're recently down in Washington DC. I know, I really like DC. It has sort of like old school vibe. Yeah. Lots of power lunches. I like it. It seems like a good city for power lunches. It's also, did you know, not to sidetrack too much, they basically all the big fast casual innovation is from DC. As far as I can tell, so Sweetgreen, I think was founded. Kava, we talked to one of their executives. I did not know that. Both of those companies are from DC. And it, I'm not going to lie, when I think of this sort of modal worker in DC, I think of someone who eats a lot of like fast casual lunches at their desk.

• 1:44Joe Weisenthal?

  Yes, okay. Which is no judgment, because that's what I, how I eat my lunch. So I just want to make that clear, there's not a judgment on anyone.

• 1:50Tracy Alloway?

  Right, but we are not actually here to talk about casual dining and takeout lunches. We were in DC for a very particular event, something very special. We were over at the Department of Energy's Deploy 24 Conference.

• 2:06Joe Weisenthal?

  That's right. So, regular listeners will have heard, we've done multiple episodes in the past with Jigar Shah, who is the head of the Loan Programs Office at the DOE. It was the LPO, part of the DOE, that put on this conference. And of course, the big theme that, you know, when you think about the Loan Programs Office, is this impulse to figure out a way to solve the financing problem for early-stage energy, in which there's some sort of proven technology out there, but the funding ecosystem, for various reasons, unfamiliarity, risk, et cetera, doesn't exist. And so, a lot of the conversations are like, how do you solve that chicken and egg problem in energy finance?

• 2:43Tracy Alloway?

  Absolutely. And we do indeed have the perfect guest. We spoke with Tim Latimer, the CEO of Fervo Energy, which is that big geothermal startup that is doing some interesting things with fracking technology. So, take a listen.

• 2:58Joe Weisenthal?

  Hello, and welcome to a live episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 3:04Tracy Alloway?

  And I'm Tracy Alloway.

• 3:05Joe Weisenthal?

  And we are joined here by Tim Latimer, co-founder, CEO of Fervo Energy, Advanced Geothermal. What is that? And when we think about America's energy mix, or America's energy portfolio, how big can Advanced Geothermal be?

• 3:22Speaker 04

  Very big. That's the, that's the short answer. So, first off, great to be with y'all. I'm a regular Odd Lots listener, so it's a treat to be with y'all. Geothermal, what is geothermal and what is advanced geothermal? It's a great question. So, geothermal isn't new, and even power generation from geothermal isn't new. The first power plant for geothermal came online, actually, over 100 years ago in Italy. So, it's been something that's been around for a long time. But historically, even though it has really everything you want in an energy resource, it's carbon-free, low environmental footprint, it works 24/7, it's been very limited to very specific geology. So, up until very recently, the story of geothermal... Geothermal is you either have the geology of Iceland where steam is literally coming

• 4:04Speaker 04

  out of the ground or certain hotspots like Northern California or New Zealand, or you don't have geothermal and those were kind of the only two options. So those places blessed with it had a great energy resource, but it certainly wasn't widespread. Advanced geothermal or enhanced geothermal systems is really the whole concept that you could use new technology to go to deeper resources or impermeable rock where the hot water or the steam wouldn't flow on its own and still make geothermal work. And so in enhanced geothermal systems, oftentimes you're going deeper. In many cases, you're doing something to create permeability in the reservoir so it can work in more places. And the key there is you get all the positive attributes of geothermal, but you're not limited to just doing it in places like Iceland's geology. So the opportunity is huge.

• 4:46Speaker 04

  In the US today, geothermal only accounts for about 3 gigawatts of power, so less than 1% of the US electric grid. But the resource potential is massive. You know, we just worked on a paper that was published as a collaboration with Princeton that actually showed pathways to get up to 750 gigawatts of geothermal power by mid-century. So if we unlock it with the right technology, this could be an enormous resource.

• 5:08Tracy Alloway?

  So you're a fracking guy. What's the technological overlap between fracking for oil and gas in like the Permian Basin or somewhere like that versus doing fracking for geothermal in Utah or something like that? And I have to admit here, my only knowledge of drilling comes from like Bruce Willis and Armageddon, which I assume was an accurate depiction of the industry. But you tell me.

• 5:31Speaker 04

  That's right. Yeah, Armageddon, actually, I thought it was a documentary the first time I saw it.

• 5:35Tracy Alloway?

  Great.

• 5:36Speaker 04

  And you're right, I actually started my career as a drilling engineer in the oil and gas industry. And there's a lot of technology overlap between oil and gas and geothermal. And that's why the shale revolution and all the technological development that's happened as a result of that has had spillover effects that have moved the needle on geothermal technology. But there's also a lot that's different. And actually, the origins of Fervo, I got the ideas for this when I was drilling in the Eagle Ford shale in South Texas. And the Eagle Ford had been a resource that people had known about for over 100 years, but it lacked the permeability to produce economic quantities of oil. And so it was ignored really in Till the late 2000s and really it was the process of horizontal drilling where you could drill deep and then horizontally across the shale layer and the hydraulic fracturing process to

• 6:19Speaker 04

  create permeability that allowed those wells to be economic and kind of launch the shale boom. And I was looking at what I was doing in my career as a drilling engineer there and I learned what geothermal was at the time and I got really excited because I realized that the technological gap of getting high flow rates out of low permeability formations really was the exact same whenever you looked at geothermal. That's what held shale back. That's what was holding geothermal back. And the fact that these new technologies had opened up oil and gas meant it could be done for geothermal too. But the process of taking that technique and applying it to geothermal has involved an enormous amount of technical work because there's a lot different between oil and gas and geothermal. The first thing that's probably pretty obvious is we look for much higher temperatures. So, you know, the Eagle Ford, when I was drilling

• 7:02Speaker 04

  in South Texas, is actually considered very hot for an oil and gas basin onshore, but it's only like 300 degrees Fahrenheit. That's considered cold for geothermal. And so, we needed to figure out how to develop the tools and techniques to go much higher temperature than that. We're now doing products up to 440 degrees Fahrenheit in our drilling and that has taken an enormous amount of tech development to make that happen. And it's also turns out that the places that are hot geologically overlap very often with granite, which is a much harder rock type than shale. So, in order to take these technologies from oil and gas and make them work in geothermal, we had to develop techniques to deal with the fact that the geology is different and it's much harder, oftentimes a much more challenging engineering environment. And so, our company's been around for seven years now and a lot of that work has been trying to figure out what are

• 7:47Speaker 04

  now solve problems in oil and gas. How do you solve them in a completely different context, oftentimes where the rock is harder and the temperatures are hotter and the operation of the reservoir is very different?

• 7:56Joe Weisenthal?

  What do you have today in operation such that you can say these tech problems are provably solved? Because obviously, as you think about the future, there are many things. You have to get the financing right. You have to get the customers lined up. You have to figure out how to scale it. But just in terms of like, okay, where we are December 2024, what can you show us if we were on a site that say, okay, we've shown that we can solve the tech?

• 8:20Speaker 04

  So the gold standard for new tech deployment is actually an operating project, right? So since this is a deploy tech focused conference, I'll say T R L nine, technology readiness level nine, the the final hurdle along that way, which is actually the project working in its intended environment and operating conditions. And that's something we achieved with Enhanced Geothermal Systems, actually just over a year ago, when we brought our first project online. So going back to 2021, we created a partnership with Google as part of their 24/7 Carbon Free Energy Initiative. And we actually selected a site in northern Nevada where there was an existing producing geothermal power plant there, but it had been troubled by the same challenges that had held back geothermal for decades, principally what we call dry hole risk. They'd actually drilled a bunch of wells. Some of the wells were successful. A lot

• 9:05Speaker 04

  of the wells weren't. And so as a result, the power plant wasn't producing as much as it could based off its capacity. So we actually partnered with the operator there and we drilled a set of new wells, including the first two horizontal well pair for geothermal. And we actually created that project and brought that power online in late 2023. And so we really needed to prove a few things. One, that we can actually drill and deliver those wells, even though it was through granite and much higher temperature. Two, that we could get highly productive flow rates out of those wells. And the important one, and the one that's harder to prove because it takes time, is that the temperature profile and the production profile of those wells would stay constant over time. So one of the really exciting things for Fervo, in October, we actually hit the 12 month mark, where not only did we achieve all the technical objectives

• 9:48Speaker 04

  of the project, but it was actually producing geothermal energy connected to the grid, producing electrons for over a year, and we saw no evidence of production decline in that year. So we can say with a lot of confidence now, this is a completely proven technology, mainly because we've actually done it. We have a product that's producing electricity for the grid today.

• 10:06Tracy Alloway?

  So what's your funding mix like at the moment? Because I imagine part of the reason you want a working project that you can show everyone is so that you can issue more debt, like sort of more traditional energy companies, older energy companies, and maybe move away from equity.

• 10:20Speaker 04

  Yes, that's exactly right. And we've had an interesting funding journey that's probably very similar to many of the companies here at Deploy. You know, early on, we were backed from many grant contributions from the Department of Energy. We partnered on many aspects of new geothermal technology development. We actually were part of the Activate program at the Lawrence Berkeley National Labs. So we were, back in 2018, got kind of our start through some DOE research programs and grant funding. And on the private side, it was really venture capital funding. So funds like Breakthrough Energy Ventures and Congruent Ventures stepped in and got us up. Early on, you know, those funds that specialized in looking at companies that were so early in their development that it was really just an idea or a PowerPoint slide, but would sit in and understand the technology with

• 11:01Speaker 04

  you. And then as we expanded, what we've brought in is a lot more institutional investors. We've actually gotten investment from the oil and gas industry now. We raised a Series D round in February of this year. That was a $244 million Series D. And that was actually led by Devon Energy, one of the leading independent oil and gas producers out of Oklahoma City, with $100 million investment. So the investment mix has changed over time. But for a lot of new technologies, there's this crossing the chasm level where, you know, a venture capitalist or a DOE grant writer will sit with you and understand the ins and outs of your technology. And they'll see, is this feasible or not? And you can actually have a good conversation around that. Institutional money that wants to do project debt, they don't really want to understand how your technology works. They just want to see that

• 11:43Speaker 04

  you've done it many, many times before. And that kind of gets to the chicken and egg problem that's with this funding. You know, so often when we approach those larger infrastructure sources of funding, the answer is, well, bring us 12 months of data, or bring us an independent engineering report that says 0% chance this will ever, ever fail. And that's kind of a big hurdle to jump. So we finally crossed that chasm earlier this year. Because we brought that project online, we announced in July, $100 million construction loan from Excalibur Rural Capital. That was the first time we brought in project finance. You know, so we're finally moving away from the expensive venture capital sources of funding and down into the more sustainable, long-term infrastructure style of funding. But it took us seven years from inception, an operating, fully successful project, and

• 12:28Speaker 04

  a lot more work to finally cross over that funding mix barrier.

• 12:47Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 13:02Speaker 05

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service institutional clients.

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• 14:24Joe Weisenthal?

  So obviously, we want to talk more about the chicken and egg problem because in a way, I mean, that's the entire premise of all of this. But just before we dive more into that, you know, you mentioned shale and there is this story that people tell, and I only maybe like 50% believe it or 60% believe it, that the shale boom was like partly a tech story and partly a low interest rate story or that a funding story. And there are various theories about how the Fed helped cause the shale boom. Again, not totally sure if I buy it. That being said, for any sort of renewable or clean energy project, or anything that has a lot of upfront capital costs, the rate conditions in the beginning matter quite a bit to the math. And I imagine here in 2024 versus when you're seven years ago, that picture looks very different. Talk to

• 15:09Joe Weisenthal?

  us about the sort of, I guess, mathematical implications of where we are with interest rates in terms of making geothermal projects pencil out.

• 15:16Speaker 04

  Yeah, it's a great question. And the fact that we've gone through such a big movement in interest rates over the last five years has meant we've kind of gone through multiple business cycles in this sector in a very compressed period of time. You know, as interest rates started to rise a couple of years ago, there were two sectors or areas that sort of bubbled to the surface as being challenged by a high interest rate environment. That was number one startups that were based on very long-term growth, and number two, capital intensive businesses, where it's a lot of capital upfront with a long payback period. That was a double whammy because we were running a capital intensive startup. And so the interest rate environment was very challenging to try to get new capital to come into the space as those interest rates went up. And you know, one of the things about renewable energy, and this is true about solar and wind, but also true about geothermal, is

• 16:00Speaker 04

  these are oftentimes high capex but long payback period projects. And they're also projects that are interesting because you end up with a different profile than a lot of other energy infrastructure projects. Because, you know, all of our projects we build, we have 15-year offtake agreements with locked-in pricing. So we don't have to worry five years from now, what, you know, is the price of our product going to go up or down? We also don't have any fuel cost. And so we're not exposed if there's a big run-up in fuel costs. And so we eliminate a lot of that volatility. So as a result, renewable energy projects like geothermal have always been viewed as historically much safer investments, because you're not exposed to a lot of the volatility mix that impact other infrastructure investments. That's a good thing in general, because it means you can bring low-cost capital in the space, because it's perceived as safer investments.

• 16:44Speaker 04

  But it also means your spread off the risk-free rate is a lot tighter than if you were talking about a fossil fuel project or a project with more risk in it. And so when those rates move, the sort of relative impact for something with a low spread is a lot bigger. And so the interest rate environment, it hits startups and it hits infrastructure projects, particularly renewable infrastructure projects in a big way. And that's one of the things that companies are navigating now. There's so many tailwinds. Looking for more and more power. We need more reliable power. We need more power, period. Everything from data centers to industrialization to onshore manufacturing to, I mean, the AI world is what's driving so many of our conversations right now. There's all these tailwinds helping the sector out, but the headwind, that interest rate environment,

• 17:27Speaker 04

  is still something that's limiting both deployments of new innovation and also broadly the renewable sector overall.

• 17:32Tracy Alloway?

  I mean, presumably, this is when someone like the DOE could step in and potentially help. What kind of support have you seen from the DOE so far?

• 17:42Speaker 04

  Yeah, so we've gotten great support from the DOE. As I mentioned, we've gotten multiple grants over the years to work on anything from high-temperature tools to novel data sensing methods. Earlier this year, you know, there was a provision in the bipartisan infrastructure law where there was $84 million earmarked for geothermal energy development. FERVO was actually the recipient of the largest grant of that, which was a $25 million grant. And so that kind of early demonstration funding can be very critical for a technology that's just taking off. I don't want to make any enemies, and there's a lot of different technologies out in the audience here, but if you read the Department of Energy's commercial liftoff report for geothermal, they've got a nice chart in there where it almost looks like a data error because they put the $84 million that geothermal got up against the

• 18:26Speaker 04

  $10 billion for nuclear and the $9 billion for carbon capture and the several billions for long-duration energy storage and other things. So I think other technologies benefited far more than geothermal did, but even that kind of move was sort of catalytic to get things off the ground. And then, of course, the DOE has a big message and a big audience that reads these things. Actually, this liftoff report that came out earlier this year changed a lot of people's minds because one of the problems with the chicken and egg problem is there's so many investor meetings that we don't even get to have because we reach out and they say, "Geothermal, I know geothermal. We're not looking at that," and the meeting never even happens. And you have something like the geothermal liftoff report come out that's got the DOE logo on it. They know it's been well-vetted, well-researched work,

• 19:09Speaker 04

  and all of a sudden, it may be there's some investors who may have written off geothermal that say, "Well, maybe there's a new shot here. Maybe there's new data that we weren't aware of." And so that kind of awareness and technology validation is pretty critical as well.

• 19:20Joe Weisenthal?

  One of the obviously nice things about your technology is that it's clean, it's carbon free. There are some people that don't care about that particularly much. They don't rank that particularly highly. You know, for some people, the biggest priority is cheap energy. When you think about the future, how important is it that either the public sector or private sector actors who've made various commitments over the years about net zero, other sounding things? How important is it that those priorities stay firm? Or if they're sort of changing moods, we're in the private sector. This is not as important to us as it was a few years ago. How does that affect your outlook?

• 19:57Speaker 04

  Yeah, it's a good question. And honestly, my view on this is I don't think people actually, there's not really that much of a divide, I think, in what people actually want out of their energy resources. I think it could get politicized and there's a lot of food fights and political fights in this. But people want three things out of their energy resources. They want the energy to be cleaner. They want the energy to be more affordable and they want the energy to be more reliable. And

• 20:21Joe Weisenthal?

  Does everyone really want it to be cleaner? I mean, just to be serious, because like I get totally cheaper and reliable seem unambiguous. When it comes to cleaner, I could have made it, oh, like, I could see if I were anyone. I don't know. It's less important.

• 20:36Speaker 04

  I do think everybody wants it to be cleaner. And that's true. If you talk to people on both sides of the aisle, I don't think it matters where it is. I think where a lot of the debates come up is where is the trade off between clean and affordable and reliable? But I think you'd be hard pressed to find anyone other than maybe some very fringe people who are just trying to instigate.

• 20:54Tracy Alloway?

  Joe, you stand alone on that one.

• 20:55Joe Weisenthal?

  No, I don't have, I don't have an opinion here.

• 20:58Speaker 04

  No opinion. You're the one out there that doesn't want cleaner energy.

• 21:01Joe Weisenthal?

  I'm a journalist.

• 21:02Speaker 04

  All right, journalist. I like it. But I think that what happens is that depending on where people are coming from, you know, which side of the aisle they're on, what their priorities are, they may rank those three things differently. And then there's a lot in the macro environment where those things get ranked differently. Like very clearly affordability is top of mind for everyone right now. And so what you see is over time, depending on what's going on in the geopolitical environment, the macro environment, the political environment, those orders may get flipped. But I think what most people here are working on Is something that is cleaner, is reliable, and is more affordable. And the thing is, it's not going to get there overnight. But everybody's working on technologies that are on a path to achieve one of those three things on a better dimension. And I think one of the things about geothermal is we emphasize it checks all three boxes.

• 21:46Speaker 04

  It's cleaner, it's reliable, and we're on a cost trajectory where this is going to become one of the most affordable ways to get energy in the near future. It doesn't matter if you're talking clean or dirty or intermittent or baseload or whatever jargon you want to put on it. Geothermal, the cost trajectory is moving so quickly that we're going to get a great answer on the affordability very, very soon. And so I think emphasizing that we do those three things, and it doesn't matter what is going on in the macro environment, those three things are still the things that matter is kind of how we stay resilient through the different cycles.

• 22:17Tracy Alloway?

  So you make a very convincing pitch. And I guess I'm kind of wondering, when you go to talk to potential offtake customers and you say, well, we have cheap, clean, and reliable energy that ticks all the bosses' boxes, excuse me, do they immediately jump and go like, yes, we'll take it? I imagine that can't be the case, right? Because this is still new technology. They probably presumably don't have geologists on staff who can review all this stuff. What are those conversations actually like? And what are, I guess, the sticking points to everyone becoming your customer?

• 22:51Speaker 04

  Yeah, you know, I mentioned this a little bit before where it's a chicken and egg problem. This is a lot, in a lot of ways, entrepreneurship, particularly if you're doing a real hard tech development, like what we're doing at Fervo, is trying to solve dozens of simultaneous chicken and egg problems all at once, you know? Because you've got to get the financiers to believe in it. You've got to get the customers to believe in it. And it's fascinating, and I can talk through our journey. You know, our first offtake agreement was with Google, and that went back all the way into 2021 that we announced that deal. And it wasn't an accident that it was Google that did that. You know, they'd put out a white paper in 2018, and nobody was paying attention to geothermal back then. It was written off as a dead sector. But they put out a white paper in 2018 that said they'd actually achieved their 100% renewable energy goal.

• 23:33Speaker 04

  And so they were looking at what is the next target we want to get to? And they came up with a new concept of 24/7 carbon-free energy, which is actually Actually hourly matching the concept of 100% renewable energy. It's more of an accounting exercise where you add up how much energy you use for the year. You add up how much energy you source for the year. And if those numbers are equal at the end of the year, you can consider it 100% renewable energy. A much more stricter standard is 24/7 carbon free energy. And that's looking at, okay, where I'm actually building these facilities and when they're actually using energy. Am I sourcing that electricity from clean areas? And what they were making the point on is that wind and solar have been phenomenal technologies to move the future of low carbon forward. But that we were going to need a new toolkit from storage to nuclear to hydrogen to geothermal to get there.

• 24:17Speaker 04

  And I can tell you that the biggest point of market validation we had when we were raising our series A was in this 20 page paper that Google wrote, they mentioned geothermal one time and we're like, see what's we're on the map. People are talking about it. And actually that caused us to reach out to them and we started this relationship that turned into our first development agreement with Google as an off taker and they've now become a large customer of ours and we've announced several more deals there. But it was interesting it took a company like Google to get there because, you know, in a lot of ways, the same way that financiers want to see a track record, utilities want to too. And I don't fault the utilities for this. They have a incredibly important job where they are the ones that are responsible for keeping the lights on. And so they need to make sure that if they're going to invest the time

• 24:58Speaker 04

  to prepare the grid and go through all the work to get an energy resource to come online, that it needs to get there. And so most utilities won't even look at something until it has a multi-year development track record. And the utilities are the big power buyers. And so this is why it's a chicken and egg problem. How do you get a new tech to market? When your customers require a multi-year track record to develop it, but how do you get a multi-year track record until you develop it? And so it was a very difficult thing to overcome in the beginning. And you're right, not everybody has geologists sitting around, but a company like Google that has access to the resources and the technical expertise that they had was able to work with us over a multi-year period to learn how our technology work, get excited about it. And that's what kind of unlocked that first operation for us. You know, now we've actually announced multiple utility deals because we've sort of crossed that chasm.

• 25:43Speaker 04

  But it was incredibly difficult to get there in the beginning.

• 25:46Joe Weisenthal?

  Part of the premise of the loan programs office, I take it, is that there's proven technologies that exist in the world, but a lot of traditional sources of debt financing do not have the expertise to evaluate them or evaluate the risks. What happens today, or maybe two years ago or something, because now you're known, you've been around for a while, you walk into a normal bank, you walk into a Wall Street bank, and you try to explain the case for a project financing for geothermal. Does that expertise exist, or is it, we just don't know about this? Like, what happens if you try to walk in the door, pick up a phone call to them?

• 26:21Speaker 04

  You know, now it's changed, because the perception of geothermal has changed. But I can tell you anecdotes from my years of this. As we move forward, one of three things would happen, actually, as we went and approached investors to talk to them about geothermal. One is they would ignore us. I actually literally had, one time, I was at an investor conference, and I walked up to somebody who was actually a corporate venture capitalist for a large oil company, told him I was doing geothermal, had a startup doing that, and he literally puts his hand up and says, "Let me stop you right there. We've looked at geothermal, not going to work. Let's save both of our time, I'll see you later."

• 26:53Tracy Alloway?

  Wait, how many people think, when you say geothermal, it's like putting the heat stuff in your basement?

• 27:00Speaker 04

  I'm actually glad that you asked this.

• 27:02Tracy Alloway?

  Yeah, but let's be very clear, this is different.

• 27:04Speaker 04

  This is deep geothermal, I should say this. First off, I'm a big fan, geothermal heat pumps or ground source heat pumps, really cool technology, but has nothing to do with what we do. So those are, you know, good for home heating, cooling, or larger buildings, shallower wells where you're using the ground as a heat exchange. To be clear, we drill wells that are thousands of feet deep, and-

• 27:24Tracy Alloway?

  So they won't go in our basements?

• 27:26Speaker 04

  Exactly. They're not going to go in your basement, and then we reach rock that's 400 degrees Fahrenheit, and then we produce energy from that. And what we're doing is actually recirculating that geothermal brine through the reservoir, and then capturing the heat at the surface through an organic Rankin cycle system to produce electricity by spinning a turbine. And so, we're not going to go in your basement, because, for an example, the project we're building in Utah right now is a 400-megawatt project, and this is enough power to power, you know, a city-sized energy demand. So, it wouldn't go well in your basement. Glad you asked that because actually I can tell that the tide is turning because up until maybe a year ago, the most common website request we got was, hey, can you do this in my backyard? Because people don't think of geothermal power. It's a quirk of history that they're that they're named the same way.

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• 29:04Tracy Alloway?

  One other thing we definitely wanted to talk to you about is permitting reform.

• 29:08Speaker 04

  Yeah.

• 29:08Tracy Alloway?

  So, you know, when Donald Trump says he's going to make everything easier in terms of regulation, or when Elon Musk says that nowadays, what do they mean exactly? What does that mean from your perspective, making things easier?

• 29:20Speaker 04

  Yeah, permitting is definitely the long pole in the tent, not just for geothermal, but transmission, which is really important to hardening the grid and bringing new resources online and a whole host of other things. I'm not as much of an expert in those things as I am in geothermal, so I can speak to some of the challenges we have in geothermal. One thing is through, you know, a quirk of history, the best geology for geothermal is located in the Western United States. The Western United States is predominantly owned by the US federal government. It's not private landowners. It's actually the US government that owns most of the land. And so that puts us by default into a federal permitting regime on pretty much every project that we do in a way that isn't true of necessarily other energy resources. And so we've had to go through, you know, multi-year NEPA approval processes for everything we've developed.

• 30:03Speaker 04

  We also simultaneously have to go through the transmission and interconnect- Process for that and there's a whole host of other things that are there as well. I'll be very clear, I think these are good things. We need to be doing projects with the right environmental standards. But whenever you look at how these things have been implemented over time, there's a lot of things that are redundant or a lot of times there's just offices that are not staffed well. So you submit permits and you just never hear back. So typical time for permitting the geothermal project in the Western United States is about six to eight years to permit to be able to start the project. And so that's not really commensurate with, you know, the data center companies that are banging down our door, asking if we can bring in power by next year. I say, well, once we get through the eight-year permitting process, we can get there. So there's things that we're trying to do to improve that. One of the funny things about geothermal is even though we're drilling wells,

• 30:48Speaker 04

  just like the oil and gas industry is, we haven't always benefited from the same permitting.

• 30:52Tracy Alloway?

  Yeah, they have some exclusions.

• 30:53Speaker 04

  That's right. So in one example, you know, there's certain early activities in the expiration phase or just doing extensions to existing projects that don't really have a huge impact, don't really change the scope of the project itself. And so if you were an oil and gas company, there's legislatively developed categorical exclusions where there's a whole category of things that if you're drilling an oil well, you don't have to go through the full process for the environmental reviews, for certain kind of redundant routine things. The law that was passed in 2005 that granted that didn't just say drilling, it said specifically oil and gas drilling. So that's been interpreted to say geothermal is not included in that. So there's actually a lot of examples of places where the permitting structure,

• 31:36Speaker 04

  even though geothermal is a lower impact resource, it's a low emission resource. It actually has a much more extensive permitting program than a lot of oil and gas drilling on federal.

• 31:46Joe Weisenthal?

  Permitting reform bill that's currently being talked about, would that change it to what would be ideal for you? And what would, under, let's say this bill passes at some point, what does the timeline then look for a project?

• 31:55Speaker 04

  Yeah, it's, it would make a big difference. You know, there's many bills that have passed, actually. This is one of our big success cases in geothermal. I used to joke that we were bipartisan in the sense that both parties ignored geothermal. Now I can say we're bipartisan because I think both parties recognize the huge opportunity there is for geothermal. So there's actually been five bills passed in the House this year for geothermal permitting reform. And The current Manchin-Boraso bill that's in discussion in the Senate has a bunch of provisions in there around geothermal. And this is truly bipartisan. There's groups on both sides of the aisle that have sponsored these bills and it's gotten great votes. And so it depends on which bill we're talking about.

• 32:30Joe Weisenthal?

  Okay.

• 32:31Speaker 04

  But generally, it does provide parity on these things. And it does actually remove a lot of the redundant permitting. And there's been good studies out there by NREL, the National Renewable Energy Laboratory, that says these reforms can probably take the permitting process from six to eight years down to two to four years. And so it's not like, again, it's not like we're doing these projects with no environmental review. But I can tell you, when I go out in the market and try to raise capital to do a new project, I say, hey, give me the money today. We'll start drilling in 2031. That's a little bit less of a compelling pitch than give me the money today.

• 33:00Joe Weisenthal?

  Meanwhile, you're paying, you know, sofa plus whatever for all those years.

• 33:03Speaker 04

  Exactly. So these changes, because it's not just when the projects come online, but it's the investment horizon that you have to burden these projects with. Moving it from seven years to three years can make the difference between a project being investable or not being investable. So it's a massive difference.

• 33:21Tracy Alloway?

  This might be an unfair question, but if you were going to sort of like choose the biggest impediment to scaling up geothermal at the moment. I mean, there's financing, which we talked about. There's getting customers on board. Presumably, there's some aspect of the technology that could be improved as well. Give us that hierarchy. Like, what's number one in terms of impediments?

• 33:42Speaker 04

  Oh, it's a good question because I feel like over the seven years since we started Fervo, the answer's been different every year, which I think is the right thing. There should be an impediment. You should be knocking it down and getting on to the next one. So the early days, there was fundamental questions on if this would even work. And that took us several years to address. And thankfully, the answer is yes. If you would have asked me a few months ago, I would have said funding was the big barrier because you still ran into that situation where people thought they knew geothermal and thought it was yesterday's news and so didn't even want to look at it. But that's shifted dramatically. We see a lot of interest from capital providers into geothermal now. And then we've actually had a lot of success on improving the permitting even before these bills passed through. So if you would have asked me a few months ago, I would have said transformers and high voltage electrical equipment.

• 34:24Joe Weisenthal?

  Oh, yeah. It always comes back to transformers.

• 34:26Speaker 04

  It does always come back to transformers. I would have said permitting and I would have said funding. Funding is becoming a much more solved issue. Permitting is something that I think we've made a lot of administrative progress on and we're anticipating legislative progress on. So now I think about supply chain, you know, because I think we've got the money. We've got the off-take agreements. We've got everything there. You are thinking about how do we get the supply chain in place for this? Transformers being a big part of that, but there's also other pieces of equipment that are important as well.

• 34:53Tracy Alloway?

  Joe, it's so crazy that we basically had four years of transformer shortages.

• 34:57Joe Weisenthal?

  As of the most recent ISM manufacturing report, electrical components have been in shortage for 50 straight months. So four years and two months. I actually would love to talk more about that. Just on private sector financing specifically, what is the ecosystem that's emerged? That wasn't in place. If you said, okay, a year ago or two years ago, that would have been the big thing. What does it look like today on the private sector side such that you can raise capital for these projects?

• 35:22Speaker 04

  Yeah, yeah. I mean, there's been big changes in the last year or two. I think some of that is change in investor sentiment around geothermal. But some of it is that the ecosystem is changing. You know, if you think back, a lot of times-

• 35:32Joe Weisenthal?

  Is it banks? Is it private capital?

• 35:34Speaker 04

  It's banks, it's private capital. It's really all of the above. You know, if you think back 15 years ago into the, what they call the clean tech 1.0 bust. I think that one of the failure modes there was a bunch of venture capital went into technologies that took a long time to develop. And there wasn't really a pass the baton of who was the next source of capital that was going to keep these technologies going. And that's what really led to the bust. But that bust also, I think, created a bunch of people who learned hard lessons about what that was like. And a lot of them have gone out and created the ecosystem that's there. So, you know, for example, that activate program that was at the Lawrence Berkeley National Lab that let us have two years to get our feet under us before we really got going as a company, didn't exist in the first one. So that was really important. What we've seen is we get bigger and bigger, you know, people have talked about the missing middle or the valley of death.

• 36:18Speaker 04

  And that's one of the things that the LPO is very instrumental in filling. But, you know, market inefficiencies, if there's money to be made, don't last for long. And so what we're seeing right now is there's a bunch of venture capitalists who historically would have only played in the series A, B, C range, who've recognized that there's a capital gap for second of a kind, third of a kind deployment. And a lot of them have raised continuity or growth funds to piggyback off their successful companies. Meanwhile, those like traditional companies that infrastructure investors that only wanted to do the 10th project realized that if they actually wanted to sell their LPs on getting a differentiated return, they needed to do something that was differentiating and step into projects earlier. So a lot of them have raised funds that will come in one click earlier. And so that valley of death is closing from both sides

• 37:04Speaker 04

  because you're seeing traditional private equity and growth equity and infrastructure investors create new vehicles to come in one click earlier. And you're seeing the venture capitalists create continuity investments and growth estimates to carry you one click forward. And so there used to not really be capital between like the Series B and the infrastructure side. And now there's still a gap, but it's getting converged on from both sides.

• 37:26Tracy Alloway?

  I want to talk more about transformers, actually.

• 37:27Speaker 04

  Yeah.

• 37:28Tracy Alloway?

  Where are you getting those from? Because I imagine as a relatively new company with at least heretofore limited funding, it might be hard to like get on the waitlist for this very desirable equipment. And I get the sense that big utility providers are probably, you know, number one in the line or they already have a lot of existing transformers that they can kind of move around. How are you actually sourcing those?

• 37:50Speaker 04

  It's a good question and you're right. It's highly competitive to get to and the lead times can be multi-year, especially for the larger transformers. You know, I was in an investment meeting a couple of months ago where somebody walked in, very experienced investor and said, first question out of their gate, have you sourced your GSU transformers yet? We said, yes, we have. And he says, four out of five times the answer, that's no. And I don't have to take the rest of the meeting. It is a good disciplined investor. They knew the right question to ask. And it's also an irony too, because data centers are growing. Everybody's trying to figure out the equipment for that. And then everybody's trying to get the grid going. Everybody's trying to get the generation going. Oftentimes what we hear from the transformer suppliers is the slots are taken by the data center companies that we're trying to sell the power to. So it's a bit of a circular problem there, which is interesting.

• 38:34Speaker 04

  We didn't have a really creative solution other than ordering early. So we found a couple of US-based manufacturers. We're sourcing a couple of our transformers from Taiwan as well. And there's not really a creative answer other than get in line three or four years in advance.

• 38:47Joe Weisenthal?

  Is any more manufacturing capacity being built anywhere?

• 38:52Speaker 04

  It's being talked about, and this is one that I think is something that I just sort of expected people to look at three, four, or five-year lead times and say, there's money to be made here, we're going to expand. But I think the transformer companies have gone through a lot of boom and busts before, so they're quite reticent there. You know, this isn't quite my area of expertise. I don't know how many new facilities are being built, but what we're hearing from our suppliers is they're doing the low-hanging fruit of adding new lines, adding extra shifts, adding extra hours. So you're starting to see the supply come up a little bit, but is it going to be enough to meet the unprecedented demand coming from all different sources that need this clerical electrical equipment? I don't know. I still think that's going to be one of the long poles in the tent for a while.

• 39:32Tracy Alloway?

  If Joe and I started making transformers because it's so easy, could we exchange transformers for equity in up-and-coming power companies and solve the chicken-and-egg problem?

• 39:43Speaker 04

  I think you would. I think you would. When you're running a startup, a lot of times you're trying to solve the problem of the day, and you also don't have the balance sheets to put down long-term orders. Not a lot of startups out there that are ordering things four years in advance, so definitely a missing part of the market.

• 39:57Joe Weisenthal?

  This is a really good idea.

• 39:58Tracy Alloway?

  Yeah.

• 39:59Joe Weisenthal?

  What about the labor component? How much skills transfer is there? We talked about the tech transfer from shale to geothermal. Is there a labor transfer as well?

• 40:10Speaker 04

  Yes, yeah. And in fact, just as an example, the drilling rig that we're using for our site right now is a Helmer Campan HMP Flex 3 rig. I'm actually wearing HMP socks.

• 40:19Joe Weisenthal?

  I noticed your socks. Those are really cool socks.

• 40:21Speaker 04

  That's right.

• 40:22Joe Weisenthal?

  I need to get a pair of those socks.

• 40:24Speaker 04

  So this is actually what the rig looks like, if you can see. No, but if you call them, I'm sure they'll give them to you. So, yeah, and it's actually the same exact style of drilling rig. It's the most technologically sophisticated drilling rig that you can get for onshore drilling, and it's the same exact style of drilling rig that I used when I started my career over a decade ago in South Texas. And I was insistent on that because I wanted to use the best technology. And the crews there, they were just before we picked up that rig a year and a half ago, they were drilling in the Bakken in North Dakota. And so people really were drilling oil wells one day, and they were drilling geothermal wells the next. And there's differences there, but the skills and the workforce is there. And this is one of the things that I think makes geothermal Quite scalable. Today, there's roughly 600 drilling rigs operating in North America.

• 41:06Speaker 04

  We're growing at a huge rate. You know, we're going to bring on 100 megawatt projects in just 18 months from now. We're doing that with just one drilling rig. And so, you know, we can 10x our growth and still only be a single digit percentage of the oilfield services market because we have such overlap with them. So among the many things that I think has advantaged geothermal, among the different options you have for emerging technologies, is the fact that there's such a ready supply chain and workforce of skilled people who know how to execute on these projects. And we can 10x our growth rate or 100x our growth rate and not run into workforce issues because there's already such a deep bench of technical talent and technician talent that that control these wells.

• 41:48Tracy Alloway?

  So if they remade Armageddon, Bruce Willis would be a geothermal driller instead of an oil rig driller.

• 41:54Speaker 04

  That's right.

• 41:55Tracy Alloway?

  Excellent.

• 41:56Joe Weisenthal?

  Tim Latimer, that was fantastic. Thank you so much.

• 41:59Speaker 04

  Thank you for having me.

• 42:14Tracy Alloway?

  So that was our conversation with Tim Latimer, the CEO of Furvo Energy, recorded live at the DOE's Deploy 24 event. I'm Tracy Alocke. You can follow me at Tracy Alocke.

• 42:25Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest, Tim Latimer. He's at Tim M. Latimer. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashil Bennett at Dashbot, and Cale Brooks at Cale Brooks. Thank you to our producer, Moses Andam. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have transcripts, a blog, and a newsletter. You can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 42:53Tracy Alloway?

  And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is connect your Bloomberg account with Apple Podcasts. In order to do that, just find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 43:41Speaker 07

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