One of the main challenges of scaling geothermal power production is the fact that there are relatively few investors willing to finance exploratory drilling. This is because the exploratory drilling phase can cost up to $30 million and has historically had a success rate of only about 60%, which is a high degree of risk for such a large upfront investment.
With the recent growth in geothermal popularity, however, this investor reluctance is easing. Last week, the AI-enabled geothermal company Zanskar announced it closed a $40 million development capital facility to finance the pre-construction phase of its greenfield power plants. Zanskar uses AI tools trained on vast amounts of geophysical and geologic data sets to make geothermal exploration cheaper and more efficient.
The capital comes from a syndicate of investors, including Just Climate and Spring Lane Capital; the latter also led Zanskar’s $115 million Series C round last January.
Diego D’Sola, vice president of finance at Zanskar, says the financing is a promising sign for geothermal development.
“This facility is charting a new course, not only for Zanskar, but potentially for the industry at large, because historically the risk of getting a dry hole was perceived as too high,” D’Sola said. “So, a bank would come in and say: ‘This is a binary type of risk. If you drill a successful well, that’s great, but if you drill a dry hole, then how do I recover my capital?’”
Until now, most geothermal developers have been funding this exploratory phase using dilutive equity and venture capital from their own balance sheets, which is an expensive option that makes it challenging to scale.
Enhanced geothermal company Fervo Energy, for example, mostly leveraged capital from some of its large venture rounds for its initial drilling and pilot operations, before securing $421 million in project financing for the construction of its Cape Station project in Utah in March, which was a sign that institutional lenders are finally comfortable enough with the technology to finance a power plant construction. The company officially filed for a long-anticipated IPO last week, after starting the process in January, and disclosed it has 3.65 gigawatts of power plant capacity in development, which is little less than the total geothermal power nameplate capacity in the U.S. as of 2024.
Now, Zanskar’s facility suggests that the riskier pre-construction phase may finally be eligible for debt as well.
Inside the credit facility
Zanskar’s $40 million development capital facility is revolving, non-recourse, and designed to expand to $100 million.
The revolving structure means that, within the loan’s undisclosed term, Zanskar can “recycle the development capital dollars” multiple times, D’Sola explained. For example, if the company uses the facility to fund exploratory drilling for a project and that drilling is successful, Zanskar is then likely to secure a construction loan from institutional investors for the next phase. That new capital would be used to repay the initial pre-construction loan, replenishing the facility’s pool so it can be deployed to kickstart exploratory drilling at a new site.
The $40 million will initially be used to finance the exploratory phases of “at least three projects,” D’Sola said.
And the non-recourse structure means that the loan is not tied to Zanskar’s balance sheet or intellectual property, which protects the company even if the exploration fails. Instead, D’Sola said, “it’s collateralized only by the assets that are being developed.”
As the company advances the assets’ development, spending money on them and going through the milestones towards commercial operations, these assets appreciate in value.
“The intrinsic value of the collateral pool [of projects] is what supports the borrowing base,” D’Sola said. “So it’s not only that the projects are advancing… but that’s what will trigger the accordion feature of this facility, from $40 to $100 million, and then potentially bigger than that.” In a credit facility, an accordion feature is what gives the option to increase the credit line.
The resulting flexibility is attractive to a company like Zanskar, which is still in its startup phase and is getting ready to build its first greenfield power projects, after repowering the Lightning Dock geothermal power plant in New Mexico.
The latter, according to D’Sola, is part of the reason why the lenders got comfortable extending the credit facility. “By leveraging Lightning Dock as a prime example, we were able to [say] ‘If it worked at Lightning Dock, it’s very likely to work elsewhere,’” he said.
Granted, the lenders are not your average institutional investors. Spring Lane Capital, in particular, is a fund that specializes in providing non-dilutive capital to startups building first-of-a-kind facilities. Because Spring Lane also led Zanskar’s $115 million Series C in January 2026, they were already intimately acquainted with the company’s inner workings. “They were able to see under the hood of our technology,” D’Sola said, explaining why the lender felt comfortable taking on risks that others would avoid.
But their first move could get more lenders, and maybe even institutional ones, comfortable getting into the sector.
“Some institutional lenders are going to have the risk appetite to go maybe earlier and earlier in the development process, while others more risk-averse lenders are probably going to want to see the project enter the construction phase first,” D’Sola said. Many middle market infrastructure investors that have solar and wind experience but no clean, baseload power in their portfolio are looking at geothermal as an option, he added.
“We see that as probably the sweet spot where this development capital market is going to develop,” D’Sola said. “But I would not be surprised if bigger lenders with high risk appetite also enter the space.”
