Series A Reflection: Why Zanskar?
Zanskar River Valley, India. Image credit: Sundeep Bhardwaj, CC BY 3.0, via Wikimedia
STUMBLING INTO STEAM
(August 26 2022) In 1948 a farmer in Animas Valley, New Mexico, drilled a water well to irrigate the dry desert landscape—they encountered boiling water at less than 100 feet depth.
In 1979 in eastern Oregon, Chevron Minerals was drilling deep exploration wells near the town of Vale in search of natural gas—they reported temperatures greater than 300 °F in a well less than 3,000 ft deep, when such temperatures aren’t typically expected until >10,000 ft.
In 2005-2006 Newcrest Resources, Inc. drilled twenty-three holes on the western edge of Edwards Creek Valley, Nevada, to test a gold prospect there—all were anomalously hot, some encountered steam, and subsequent holes found boiling temperatures as shallow as 200 feet depth.
Each was a serendipitous discovery—an accident. Each is now the location of an operating geothermal power plant that supplies carbon-free electricity, 24/7, year-round. And each will continue to do so for decades, if not centuries to come.
When you run the numbers on how many accidental discoveries have occurred versus how little of the land has been tested, it becomes clear that the vast majority of commercial-grade utility-scale geothermal resources are still undiscovered.
THIS IS WHAT KEEPS US UP AT NIGHT
The underpinnings of our energy future are just sitting out there.
Relying on luck would require decades to find them all; decades we don’t have.
So we’ve assembled a world class team with specialized expertise across geoscience, seismology, data science, and spatial statistics, and turned their focus entirely to reducing the risk of geothermal development and to discovering all of the imminently-developable commercial-grade geothermal resources in the USA within 5 years, expanding the pipeline of known resources so as to 10x geothermal development by 2030.
And thanks to scientific and technological breakthroughs, we’ve already begun to discover these hidden resources at a pace and scale that simply wasn’t possible before.
Carl, Joel, & local guide on Zanskar River, summer 2009
WHERE WE STARTED
In the late ‘00s, on a turquoise tributary of the Indus river, I held on to the edge of a raft, looking for the next geological outcrop. The high desert landscape in the rain shadow of the Himalayas was comfortingly like the western US Great Basin where I’d first trained to become a geologist. Yet even in Zanskar—one of the most stunning and remote mountain regions I’ve ever studied—the effects of climate change were on full display. At the base of retreating glaciers we pulled some final samples and prepared for our return.
Zanskar holds a hidden abundance beneath its desert veneer. Roiling hot springs at >14,000 feet elevation are just the tip of the iceberg, the other hot upwellings and reservoirs still hidden beneath the surface. It is those resources that may soon usher in a new era of natural abundance in that region—an energy abundance not dependent on imports nor on limited, carbon-emitting resources. These domestic geothermal resources could last for untold generations—a veritable Shangri-La. But, notably, Zanskar is not unique in this regard; it simply offers a vision of what abundance lies in wait across the globe, just beneath our feet, even in the most remote and surficially barren places.
It was on that trip that I met Joel Edwards, with whom, over a decade later, we would launch a company named after the region. In the intervening years we each had the privilege to work with some of the best geothermal and exploration researchers in the world, to watch and to participate in the development of new technologies that would improve geothermal exploration. Today, we’re continuing to build upon that research, inspired by the vision of Zanskar.
In tandem with announcing our Series A, we want to provide some context for our work, some insight into what motivates us, and an explanation of why our team is so hellbent on our mission of accelerating the discovery and development of geothermal energy around the globe.
THE PROBLEM
You may have expected me to lead with climate change here as the problem.
And a few years ago, I would have.
Except I’m confident now that we humans are going to solve climate change, one way or another. Likely in my lifetime. And it will be one of the most singular collective achievements of our species.
The buildout of the new energy economy is already occurring at an unprecedented pace, but it needs to go faster still. And geothermal is arguably the best way to accelerate this transition without the compromises that other solutions require, whether in land usage, metals mined, or in economic costs to the world’s most vulnerable.
THE NEED FOR 24/7 POWER, WITHOUT COMPROMISES
Solar and wind have made huge strides over the past decade, declining nearly 10x in cost and increasing more than that in deployment rates. But solar and wind alone will never suffice due to their intermittency and inherent geographic limitations. The latest modeling suggests that the US will still need ~1 TW of “firm” (i.e., always on) carbon-neutral generation capacity by 2050. The non-geothermal solutions to the firm capacity problem are limited and more costly: nuclear fission and fusion, fossil fuels with carbon capture and sequestration, hydropower, biomass, hydrogen, and long-duration storage technologies. Each of those alternatives has its own technical, land use, and/or geopolitical challenges to overcome.
”Conventional” geothermal resources, on the other hand, don’t require anything other than off-the-shelf technologies to utilize. And given their small footprint, the ready availability of the skills to develop them, and their low levelized costs, we could do so in just a few years time if we only knew where to drill the wells. The conventional resource potential is large enough by some estimates to more than double the total amount of renewable electricity generated in the USA (including from hydro, wind, solar, biomass, and geothermal combined) and sufficient to support full decarbonization of the grid when combined with solar and wind. And, importantly, a robust conventionals industry would serve as a springboard for investment in and unlocking of “unconventional” geothermal resources over the subsequent decade(s), which have the promise of nearly limitless energy abundance.
All this to say, geothermal has the potential to solve energy, forever. But if the industry can’t achieve meaningful growth within the next 5-10 years, it will be pushed aside in favor of more imminently scalable—but more environmentally and economically costly—forms of energy. This is geothermal’s moment.
THE OPPORTUNITY
Beyond providing power, these same resources can also be used to provide industrial-scale heat, or to accelerate the kinetics of geologic sequestration of carbon dioxide, or even, in some instances, to provide a source of critical minerals like lithium that can be extracted with less environmental impact than traditional mining methods.
Optimism that geothermal is at an inflection point has never been higher, as evidenced by the fact that we’ve seen more venture capital investment in the last 2 years than in the last two decades. However, despite this excitement, geothermal still represents only ~0.4% of electricity generation in the USA.
A major reason for geothermal’s still stagnant growth is that it is the only type of power development whose future output cannot be predicted with high confidence until after significant capital expenditure to drill test and confirmation wells into the resource—and in this sense, the capital and technical requirements are more akin to oil & gas and mining than to other power developments.
Even in spite of the industry’s presently low drilling success rates and its resultant high costs of capital, conventional geothermal development is already cost competitive with (and in many cases much cheaper than) fossil energy alternatives in many geographies. This means that even incremental improvements in exploration success can have a meaningful impact and be more readily commercialized, snowballing into bigger breakthroughs over time. If not for its real and perceived risk, geothermal would be, on an unsubsidized basis, amongst the cheapest forms of electricity generation currently possible, even when competing with wind and solar.
SUBSURFACE UNCERTAINTY’S HIDDEN COST
As you advance any geothermal project, you invest increasingly larger amounts of capital to decrease the risk of the resource to the point of feasibility. This work involves collecting new datasets, including drilling test and confirmation wells, as well as reservoir testing. Currently this work is led by experts who tell you which data to collect and where to drill—a bespoke process. Although they are excellent at what they do, it is nearly impossible for them to estimate the true uncertainty or risk of these decisions, making it difficult to rapidly scale development of new resources and to confidently allocate capital to the space.
Geothermal’s upfront risk, and its even greater perceived risk, has led to it having amongst the highest soft costs and costs of capital of any power development. Soft costs are all of the costs other than the direct equipment costs, which can include transmission studies, engineering reports, financing costs, etc. Recall that the decline in solar and wind costs this past decade was two-fold: first a decline in the equipment costs, but the final victory was really a significant reduction in soft costs.
The inherent risk of exploration and the fact that there are no guaranteed outcomes is the key driver of soft costs in geothermal. It leads to:
failed wells which are expensive but contribute nothing to power generation;
high costs of capital, especially in the riskiest phases of exploration and development;
longer project timelines, which are especially penalizing given the higher costs of capital.
Because of the high perceived risk, geothermal developers tend to only be able to access capital in the range of 10-20%, with smaller developers paying more. Compare this with weighted average cost of capital (WACC) of 3-6% for utility-scale solar PV and onshore wind range, depending on the region, and it becomes clear why geothermal has had a hard time competing. If geothermal development could be financed at 3-10% WACC’s it could generate electricity at significantly lower levelized costs of electricity (LCOE).
As a result, mitigating risk and increasing scalability in geothermal can have more impact on its overall cost to the consumer than decreasing drilling or turbine costs.
ZANSKAR’S MISSION & TECH
Zanskar’s mission is simple: to make geothermal power the most affordable form of widely-deployable, 24/7, carbon-free generation on the planet.
As part of doing so, and as mentioned earlier, we’ve set out to discover all of the imminently-developable commercial-grade geothermal resources in the USA within 5 years, so as to 10x geothermal development by 2030. We consider that the low-hanging fruit. But it doesn’t stop there.
We think our work will have a catalytic impact on the entire geothermal industry (see chart below):
Better exploration will lead to fewer dry wells and to the identification of far more high-grade resources, decreasing CapEx and increasing the potential scale of the industry.
Proving the repeatability of exploration successes and the ability to forecast power output earlier will lead to lower and lower WACC, a major component of soft costs.
As the US geothermal industry scales from 3 to 30 GW-equivalent, economies of scale kick in, combined with maturation of new drilling and power plant tech will lead to further CapEx declines, enabling the next scale-up from 30 to 300 GW-equivalent.
Modeled impact of WACC on geothermal LCOE
Simplified model for estimating unsubsidized levelized cost of electricity (LCOE, y-axis) as a function of weighted average cost of capital (WACC, x-axis) and CapEx intensity (in USD per MW, curved black lines) for a geothermal power development.
Conventional geothermal today tends to fall in the range of $4M-$6M / MW CapEx, while unconventional geothermal today tends to be >$10M / MW CapEx. Variables contributing to differences in capital cost per MW include the depth and complexity of drilling, temperature of the resource, permeability and connectivity of the reservoir, parasitic load, etc.
At Zanskar, we’re focused on the first 2 levers, which our models show have the greatest leverage on near-term LCOE. And, we’re excited by the progress we’ve already made across these three technology fronts:
Leveraging big data and predictive modeling to discover new resources.
Leveraging stochastic geo-modeling and decision science to optimize the exploration workflow for de-risking known resources.
Leveraging advanced seismic characterization technologies to reduce dry-hole risk when drilling and to better understand reservoir characteristics prior to operations.
A FUTURE OF ENERGY ABUNDANCE
We’re driven by a belief that our species is on the verge of solving energy forever—not just eliminating the carbon emissions part of it, but also ensuring that we never have to face running out of energy again. Geothermal has the potential to enable an energy future that is both carbon-free and near infinitely abundant. Which is why Zanskar is burning the midnight oil with an unprecedented urgency to ensure our lamps never need oil again. In short, we’re working to usher in an era of energy abundance, for everyone.
We’d love for you to join us.
FORWARD-LOOKING STATEMENTS
We’re shamelessly bullish about the future of geothermal, but we admittedly can’t see the future. Accordingly, please know that there are innumerable ways in which the industry and our company, Zanskar, may evolve differently than how I’ve forecast here. And if we ultimately fail, I hope it’s because someone else delivered better, cheaper, and sooner than we did; and not due to us having not given it our best shot. In any case, please don’t base any financial decisions on my statements nor consider this a solicitation to invest in Zanskar. If anything, consider it an invitation to grab a drink together next time you’re in Utah and to discuss solving energy together.