On Soulmates & Disruption: A Geothermal Love Story
Updated: Nov 30, 2020
By Malcolm Ross
Let’s talk about disruption. And we can add in a bit of romance later to keep things exciting. I’ll explain.
I recently joined the GEO team because I have concluded that the geothermal industry with the help of big oil, may well be if quickly and radically disrupted, the most game changing and civilization altering example yet of the power of innovation and out-of-the-box thinking forcing abrupt and positive changes in entrenched industries. And in this case, if successful, we solve energy.
I spent five years on the Shell GameChanger team, scouring the globe for startups that would fundamentally change the energy landscape, and helped fund the best of them. As a part of that effort, I helped design, advise, and judge the Ocean Discovery XPRIZE, which brought together an international team of disruptors seeking to solve ocean mapping-related challenges. More recently, I served on the New Energies Research and Technology Team at Shell, where I held the title “Black Swan Detector” – a title that I have kept in my move to GEO. It was in this role as Black Swan Detector at Shell that geothermal caught my eye.
The geothermal industry in its present form does not appear ready to adopt the (radical) changes needed to accelerate growth, and accelerated growth is required to keep pace with the adoption of geothermal's primary clean energy competitors, wind and solar. If the geothermal industry doesn’t rapidly evolve, it will be left behind and starved for the capital it needs to grow. If you value the opinions of acclaimed solar and wind proponents, take Amory Lovins of the Rocky Mountain Institute as an example, they believe that geothermal has just about already lost the cost race to its renewable competitors. The nails are in the coffin, ready to be driven home, so to speak. Good luck with that, geothermal.
But not so fast. There’s a dark horse here in this race for renewable energy market share. Geothermal is the perfect clean and green business model for the oil and gas industry - a lean, efficient, and already global behemoth that can reduce costs and scale geothermal much faster than most realize. We aren’t starting from scratch, folks. Geothermal may very well be starting from behind, lacking the decades of government subsidy and support that solar and wind have received. The critical point here is that there is an existing, well-oiled and global machine, with the competencies, workforce, assets, expertise and technologies needed to be successful in geothermal, ready to go. And with geothermal squarely within the core competencies of oil and gas entities, major industry players are waking up to this opportunity. As GEO’s Executive Director opined in a recent article about the implications of this oncoming oil and gas entry onto the geothermal scene, hold onto your hats folks.
But yes - the oil and gas industry is huge – heavy – resistant and slow to change. A similar resistance to change that one finds in the incumbent geothermal industry, albeit for different reasons. When the oil and gas industry moves into this space, while immense in eventual impact, the speed might look like the movements of a sloth compared to a smaller more nimble entity. So what better way to quickly infuse innovation into that industry than with agile, fast-moving, visionary, and energetic startups?
Enter GEO, with a focus on supporting geothermal startups to implement that rapid change.
GEO’s mission is to disrupt the geothermal industry using startups, just as the taxi industry was disrupted by ride-sharing, brick and motor by Amazon, and dating by Tinder and Bumble. Of course, the difference is that if successful, this disruption has existential implications for climate change, energy poverty, and humans’ relationship with energy. Engaging with startups over the years, I’ve come to roll my eyes at overuse of the word ‘game-changer,’ but this is one of those circumstances that merits use of the term.
So why can’t the current geothermal industry simply ramp up its internal organic growth instead of being disrupted by external forces, you may be wondering? Because rapid growth requires attracting new investors and capital to pay for that growth. And investors seek returns equal to or greater than the returns they can get from other similar investment options (think wind and solar). While some may argue that geothermal is already competitive with other renewable sources when intermittency, resilience, the value of baseload, flexible output, and other benefits are included into value calculations (for right or wrong, typically, they aren’t), evidence suggests that the geothermal industry is losing that argument. Geothermal energy accounts for ~0.1% of global energy output, and that percentage is dropping due to the rapid growth of clean energy competitors. As the world leader in geothermal development, the US develops a ‘whopping’ 15 geothermal projects per year currently. Compare that to the fact that nearly 40% of all new generating capacity added in the USA in 2019 was solar/PV, or to the investment of nearly $14 billion in new wind projects totaling 9,137 MW in the US. A strict capitalist would say the markets have spoken, and geothermal has lost. As the saying goes, “Speed has never killed anyone. Suddenly becoming stationary – that is what gets you.”
But let’s not pick only on the geothermal industry for being slow and resistant to change. How about oil and gas? The hydrocarbon industry has been tinkering with the idea of radically transforming itself for decades at this point, but they haven’t quite figured out which way to go. Over the past years, this internal angst has developed in a way that could be fairly described as an existential crisis, which COVID multiplied 100X. Should they become solar and wind producers! Utilities! Biofuel producers! Keep drilling for hydrocarbons - but carbon capture! Green Hydrogen! Blue Hydrogen! Let’s produce electrons! All of the above?
A reality check on big oil: there is an anti-climactic set of facts to contend with in any attempt at radical self-transformation within an industry as large and entrenched as oil and gas. Research budgets and based on calendar years and are set 6-9 months before projects start. So if you come up with an idea in August, you have to wait for the following June for it to be considered. Projects run 2-3 years, with milestones along the way, and failure to reach milestones is met with punishment. This obviously discourages disruptive innovation or changes in direction internally. Given these dynamics, if an opportunity arises no matter how exciting, absent an aggressive top down push to move quickly, it could take an oil and gas entity 2-4 years to act on it - likely long after a smaller and more agile player has grabbed the ball and started running.
Alright - Now for the love story.
It’s perfectly clear to all of us here at GEO that geothermal and the oil and gas industry are soulmates. Oil and gas has the pesky problem of executing their own carbon neutrality commitments with no clear plan – and is out frantically searching for its better, greener half. The geothermal industry needs fast infusion of innovation and cost reduction, and a vehicle for fast global scale. One completes the other - queue Jerry Mcguire. Startups will play the role of match-maker in this budding romance.
So while oil and gas takes its time in its multi-year process of deciding to pop the question to geothermal, we are going to help geothermal startups run the sprint. Their operational model and cadence are agile – opportunities arise, and resources are reallocated with response times of months, not years. And by the time oil and gas realizes that geothermal is their future, there will be plenty of successful startups ripe for engagement with industry players via joint ventures, acquisitions, etc.
By supporting a robust ecosystem of disruptive startups, buoyed by oil and gas expertise to move quickly into geothermal, we create an irresistible pull for the oil and gas industry to engage en masse as those startups de-risk scalable geothermal concepts and technologies. What do we get as a result? Geothermal energy at oil and gas scale - an eye popping proposition in terms of climate impact that makes 2050 look lazy.
I’ve had the honor of working with many disruptive startups in my career, and during my first few weeks on the ground here at GEO, I’ve interacted with faculty and researchers pursuing incredibly promising solutions to geothermal challenges, leveraging legacy oil and gas, defense, even aerospace expertise. You’ll start hearing about some of those faculty members in later blog posts, so stay tuned.
Since the readership of this blog is squarely oil and gas, here’s a call to action for entrepreneurial industry folks. We’re on the lookout for the matchmakers who will help bring the two love birds together, and who are ready to run the sprint over the next few years while big oil is ring shopping. Bumble, step aside. Bring on the geothermal black swans.
Malcolm Ross is Black Swan Detector at the University of Texas at Austin Geothermal Entrepreneurship Organization (GEO). He can be reached at firstname.lastname@example.org.