In the early 2000s, Ormat Technologies, one of the world’s biggest conventional geothermal companies, had a problem. Temperatures were decreasing in the underground reservoir at its Geysers project in Northern California, the largest geothermal power plant on earth.
In order to up the heat, the company had to turn to a relatively new technology at the time: Hydraulic fracturing, more colloquially known as fracking. And luckily, it worked; the company successfully fracked down into the well to tap into more heat.
But their experiment in fracking stopped there. Ormat — a Nevada-based company, originally founded in Israel, with a bit of a conservative reputation — focused on getting more out of its existing, conventional wells.
In recent years, though, a handful of startups have used a similar, fracking-based approach to launch the next generation of geothermal technology. Instead of extracting steam from existing underground reservoirs, so-called enhanced and advanced geothermal companies (the terms denote slightly different technologies) raised the possibility of drilling at least four times deeper than conventional wells to create artificial reservoirs in dry hot rocks.
In other words, next-generation geothermal comes with the promise of vastly expanding the locations where the earth’s molten heat could be used to generate electricity. And now, Ormat is getting back in the race.
On Thursday, the company signed a strategic partnership with Houston-based Sage Geosystems, licensing the technology of one of the most significant players in the next-generation geothermal industry.
“Ormat’s chosen a winner,” Yakov Feygin, a researcher at the Center for Public Enterprise who co-authored a report on next-generation geothermal, told Latitude Media.
Of the 163 geothermal companies operating in the U.S., just 48 startups are funded and 31 have secured Series A financing, according to the venture capital data site Tracxn. Among those, Sage — boasting a CEO who spent four decades in Shell’s fracking division and a unique technology that promises to both generate geothermal power and provide energy storage — has stood out as one of the top players, alongside companies such as Fervo Energy, XGS Energy, Eavor, and Quaise. The deal with Ormat is likely to vault Sage near the front of the pack.
As part of the deal, Sage will build its first commercial plant at one of Ormat’s existing power stations in the U.S. West. As many as three locations are currently under consideration in Nevada and Utah, Sage CEO Cindy Taff told Latitude. Rather than replicate what Ormat did 20 years ago, Sage plans to drill below the underground reservoir that services one of these existing power plants, building an entirely new well to expand the facility and extract previously untapped heat.
Taff said that first location could come online by next year — roughly two years ahead of what Sage might have been able to pull off if it had to permit a new site, build a power plant, and hook up to the grid from scratch.
“Ormat has been very innovative in what they’re doing in conventional geothermal; they’ve been a leader in driving costs down,” Taff said. “Conventional geothermal, where you’re looking for heat and water and permeability, is a very different animal than hot, dry rock geothermal.”
And Sage is finding creative ways to use its technology beyond just reaching deeper, drier sources of heat. Its secondary business — building underground wells that can store energy generated from variable wind turbines and solar panels via pressurized water deep underground for up to 10 hours — made a deal to sell electrons to the Texas grid last year.
Mutual benefits
Via this deal, Sage benefits from fast-tracking its first power plant to a market when demand is hot — especially in light of load growth and demand for clean firm power from data centers specifically. The Texas-based company will also be gaining access to Ormat’s vast number of other locations where the next-generation technology could be deployed.
Ormat, meanwhile, is securing a way to “jumpstart and get into the next-generation geothermal” business, Taff said. Ormat CEO Doron Blachar echoed her assessment in his own statement:
“This agreement marks a significant milestone for Ormat, as it aligns with our commitment to advancing geothermal energy solutions and reducing our time to market,” he said. “We look forward to utilizing Sage’s expertise to enhance our existing power plant capabilities, facilitate future developments and accelerate our growth.”
As for whether the deal could presage an acquisition? Well, for now the deal isn’t exclusive, and Ormat did not respond to a question about plans for deepening the connection between the two companies. .
And Taff was coy: “We’d love for the partnership to blossom,” she said. “We’ll see what’s in the cards.”
For now, though, Feygin said a merger may not be advantageous for either company just yet. “There’s a lot of risks for Ormat, and a lot of lost value potential for the shareholders of Sage,” he said.
But he added that “Ormat is well-capitalized,” and could help supercharge next-generation geothermal’s growth on its existing portfolio of land tracts.
The company has power purchase agreements at a variety of sites, and it’s already a big player in the power plant equipment space, which is strategically useful because turbines for geothermal energy in particular have been “such a pain point” for the industry, Feygin noted since the hot, mineral-laden steam can be corrosive to the hardware.
For Sage, he said, bringing that experience to bear is “a really good thing to take to a loan committee” when the company raises its next funding round. That’s particularly helpful for a company at Sage’s stage of capitalization. The company’s flagship deal to sell power to Facebook-owner Meta’s data centers did not include upfront capital to fund the initial power plant; it’s possible that the partnership with Ormat could attract the investment necessary to complete the first few power stations.
Whether Sage finds a buyer or ultimately debuts on the stock market, Taff said, for now the company is focused on “getting the technology built, stewarding the technology, then building it at scale so we’re able to show everybody how it works and where it’s applicable and how powerful it can be.”
