March 2024 Newsletter

VoLo Earth Community,

Welcome to our March 2024 newsletter!

The beginning of spring is shining a spotlight on geothermal energy. At S&P’s annual CERAWeek last week, the Clean Air Task Force (CATF) released findings that “tapping into just 1% of the world’s superhot rock energy potential could generate 63 terawatts of clean firm power, or enough to meet global electricity demand in 2021 nearly eight time over.” These results derived from the CATF’s newly-released, first-of-its-kind (FOAK) modeling tool. While FOAK in its own right, new tools are emerging from various directions to explore geothermal’s vast potential, many spanning beyond just computer simulations. As one example, an article last week detailed how “Urban Vibro Trucks will thump city streets for geothermal options.” 

On that note, we’re excited to announce that VoLo Earth has recently finalized one of our first investments from Fund II in a pioneering closed-loop enhanced geothermal technology, XGS Energy! The investment stems from a long-held conviction in the high market value of dispatchable power that is easy to site. Our recent investment actually worked backwards from this conviction - with a company whose technology rendered closed-loop geothermal as a candidate for this goal (easily-siteable dispatchable power). Novel technology differentiation, a world-class team, and unprecedented scalability were also compelling plusses for the investment case ;). Stay tuned for more details and news on XGS!

The next few paragraphs will attempt to answer the following few questions as briefly as we can in this short read: 1) What is up with the geothermal hype?, 2) Why now?, 3) Why is “easily siteable dispatchable power” top of mind for VoLo Earth?, and 4) Why did we place our bet on closed-loop geothermal specifically?

As VoLo Earth’s Joe Goodman described it, geothermal is "the sleepy-giant energy resource which, once awakened, can power the world alongside wind and solar." Geothermal represents a virtually inexhaustible resource with an estimated petawatts of thermal energy residing beneath our planet's surface. Note, a petawatt is 10^15 watts, which exceeds the US electrical power generation by over 1,000 times, and also happens to be equal to the estimated heat flux transported by the Gulf Stream.

We know that the global energy landscape is undergoing a seismic transformation. In parallel, energy demands are transitioning from a flat to a growth period (check out this piece on some of the drivers "How Geothermal is Heating Up to Power the Electrification of Everything” from our friend Andrew Beebe at Obvious Ventures. Hint, the impacts of AI really cannot be escaped). 

While solar and wind are increasingly establishing themselves as low-cost, variable energy suppliers, the grid's transition towards a net-zero future necessitates a complementary, dispatchable and renewable baseload energy source that can provide uninterrupted, 24/7 power. Baseload energy refers to the minimum level of power demand that must be continuously supplied to meet a region’s energy needs, while dispatchable energy refers to electricity which can be altered on demand by grid operators in response to market needs. While the ability for non-dispatchable, variable renewable energy sources like wind and solar to provide uninterrupted power will grow alongside the maturation of energy storage and grid optimization software (two additional sub-markets of VoLo Earth focus), the criticality of establishing a renewable baseload energy source for the energy transition cannot be overstated. No single technology has yet emerged as the clear frontrunner, with gas turbines, fuel cells, stationary storage, and nuclear all vying for dominance, each with its unique set of challenges. Until recently, geothermal has faced similar constraints.

Despite vast promise, only about .4% of total U.S. electricity generation was derived from geothermal energy in 2023. Widespread adoption has been historically plagued by numerous obstacles. Conventional hydrothermal and Enhanced Geothermal System (EGS) methods require not only high temperatures but also specific rock and water resources. This requires extensive, high-risk, high-cost development processes to characterize not only a heat source but also permeability and fluid geochemistry (enter: Zanskar, we hope). As a result, only one out of every three wells drilled proves productive (measured via LCOE, if the well even can operate). Furthermore, the long-term performance of these wells depends on consistent water supply and stable geo-mechanic conditions, attributes that are challenging to underwrite. These constraints combine to deter industry investment and growth. 

Technology is now advancing rapidly to overcome these obstacles, from new modeling tools introduced above to actual drilling improvements yielding step changes in efficiency. For example, advanced geothermal drilling is 70% faster and 50% cheaper than 2022. New frontiers of geothermal energy are now “investable” to a more diverse and earlier set of capital partners: 

Closed-Loop Geothermal (CLG) is a next evolution beyond enhanced geothermal, and received the majority of 2023 attention (we anticipate by EOY 2024, there will be far more orange on that chart). Unlike traditional hydrothermal systems, closed-loop geothermal systems do not rely on naturally occurring reservoirs of hot water or steam. By eliminating the need for water, closed-loop systems enable flexible project sizes and massively expanded geographical and geo-mechanic viability. 

XGS Energy, VoLo Earth’s recent investment and foray into geothermal, takes CLG to new depths (pun intended) with a proprietary Thermal Reach Enhancement (TRE) system which allows the company to leverage materials 50x more conductive than native rock, while conducting both fluid injection and extraction within a single closed-loop well. This is important because closed-loop geothermal operation relies on conductive heat transfer from the rock to the pipe wall and natural conductive heat transfer coefficients are insufficient for cost-competitive operation. XGS’ TRE cracks open (pun also intended) the opportunity to generate geothermal energy from a far broader range of geologic conditions. This capability, combined with elimination of a need for water, has enormous implications for scalability. As Business Wire quoted, “XGS’s technology can be employed anywhere in the world”.

VoLo Earth is joined in this financing by Constellation Technology Ventures, the venture arm of Constellation Energy, the US’ largest producer of clean energy. As Jorge Acevedo, SVP of Commercialization and Development at Constellation described, “Similar to nuclear, geothermal energy offers a potential source of 24/7, zero-carbon power, and XGS is positioned to help address the need for exactly that.” 

However, Constellation is not the only major energy or utility incumbent getting on board to power the potential of geothermal. Emerging advanced and closed loop geothermal technologies also generally bring an eye towards leveraging existing deep drilling and even fracking infrastructure. This includes utilizing analytics from the Chevrons or Chesapeake Energy’s of the world, or actually retrofitting existing, abandoned wells. While there are contentious aspects of this growing relationship between Oil & Gas incumbents and geothermal, there are distinctive benefits to enhancing the technology’s wide-scale commercial viability; from reducing capex through existing infrastructure, accelerating project timelines and success rates with drilling expertise, or filling gaps in the climate capital stack typical of a technology’s awkward tween years. For example, as announced just weeks ago, Devon Energy led Fervo’s $244M growth round, with Devon leadership describing; “Fervo’s approach to geothermal development leverages leading-edge subsurface, drilling, and completions expertise and techniques Devon has been honing for decades”. Or, as Canary Media put it, “next-generation (geothermal) technologies include several different approaches, all of which rely to some extent on the expertise and deep pockets of another subterranean energy industry: oil and gas.”

These various factors render geothermal a relevant use case for the need of systems-level thinking when it comes to the Energy Transition. Dynamic interdependencies with complementary renewable energy sectors like solar, wind, or even emerging technologies like nuclear, are compounded by the interdependencies of these energy sources on equally complex and rapidly changing factors like energy storage or grid management. These factors are heightened by shifting and fragile socioeconomic realities, such as the contributions and consequences of Oil & Gas or implications on workforce development. And, of course, all of these factors are inextricably tied to moving political landscapes.  

We often use the following visual as a simplified representation for this kind of systems-level thinking, where we seek to create a flywheel across our portfolio which encompasses the supply (electricity) and demand (mobility, buildings, and industry) of the Energy Transition:

Geothermal energy, and particularly distributed geothermal energy, is a prime example of a technology that will enable a systems-level approach to decarbonization across the Energy Transition. The vast supply and potential of the earth’s heat, coupled with geothermal's ability to provide consistent, renewable baseload power, positions it as a critical enabler of the next-generation, cost-competitive, and net-zero grid. We believe that this momentum is reflective of geothermal energy awakening from its slumber. We’re excited to share more about our investment in XGS soon and will certainly be monitoring closely as this promising frontier continues to unravel.

PORTFOLIO

 Skyven receives $145M investment by the U.S. Department of Energy for industrial heat decarbonization 

This is a really big deal, and not just for the Skyven team or VoLo Earth portfolio. Industrial heat comprises up to two-thirds of industrial energy demand and almost one-fifth of global energy consumption. Process heat is a central component of manufacturing across sectors and is notoriously hard to abate, with industrial processes known as the last bastion of fossil fuels. 

As CleanTechnica described it, the “Department of Energy has been on the prowl for a solution and it has just made a $145 million bet on a new breed of steam-generating heat pumps aimed like a dagger at the heart of fossil-fueled boilers.”

And indeed they are: the expected offset for the facilities enabled by DOE funding are projected to reach 400,000 metric tons of CO2 abatement annually. It’s pretty good imagery too - thanks CleanTechnica.

Skyven achieves this outcome by turning industrial plants into their own heat sources, with a Thermal RE-injection solution which captures high-value, low-temperature heat rejected from process equipment and re-injects it back into the facility to displace fossil fuels. Skyven’s steam-generating heat pump, named Arcturus, operates at triple the efficiency of gas boilers, while matching performance on temperature, pressure, and quality. This efficiency gain is complemented by an innovative heat-as-a-service business model which eliminates the up-front cost of replacing conventional gas boilers for manufacturing. Together with various other strategic factors (check out the article!), Skyven has positioned itself to compete against gas costs and to drive widespread adoption across market sectors. 

This DoE funding is a result of an extensive and highly competitive process, and represents a massive validation of Skyven’s breakthrough technology. We could not be more excited for the team (and the planet).

READING

Yes, Heat Pumps Slash Emissions Even if Powered by a Dirty Grid

@VoLoEarth: The question of moving to electrified-everything despite 60%+ of the grid remaining dirty can be a complicated one (for some). New data from the National Renewable Energy Laboratory, which utilized six different future scenarios for the grid, found that heat pumps lower household annual energy emissions on average by 36% to 64% - or 2.5 to 4.4 metric tons of CO2 equivalent per year per housing unit (depending on the scenario and level of efficiency). For context, this is equivalent to the average American not driving for half a year.

Meanwhile, once electrified, this asset only becomes more renewable as the grid does, in parallel - demonstrating how grid improvement can bring exponential impacts on carbon abatement. Even further, heat pumps are more operationally efficient and still have a lot of room for improvement, with residential air-source units seeing coefficients of performance (COPs) approaching 3 (for reference, a natural gas furnace has a COP of 1). Heat pumps serve a compelling use case for the ‘everything, all at once’ answer to the dirty grid x electrification question.

Scientists Just Gave Humanity an Overdue Reality Check

@VoLoEarth: The Anthropocene does have a nice ring to it, given that in the current moment humans seem to be one of the most dominant species on this planet (second to ants, of course). However, our own LP Stephen Lezak makes a great point here: humans, and their anthropogenic changing (destruction?) of Earth’s climate, on the geologic timescale, is likely to be more of an event rather than an epoch. At least we hope that to be the case (obviously time will tell). In the meantime, it’s probably not fair to throw the entire species under the bus with a label like the Anthropocene, nor would it be fair to Earth’s natural, more time-intensive geologic processes. Tell us your thoughts? Happy reading! 

Step Aside, ESG. BlackRock Is Doing ‘Transition Investing’ Now

@VoLoEarth: The past few years have seen growing politicization of ESG. Definitions, representations, and concepts of ESG differ by organization, person, context. In parallel, many aspects of climate change, climate risk and energy affordability has become increasingly real while understandings of the factors involved have become increasingly standardized. A common measurable language is allowing for the “E” in “ESG” to gain prominence. And this departure is important and necessary: there is an extraordinary urgency to keep the Energy Transition not just bipartisan - but actually just apolitical. Narratives which speak to and include the broadest range of stakeholders will be critical for the collaboration we need. After all, weather patterns, pollution, toxins don’t see gerrymandering lines (let alone borders).

Another Day Another Suspect Ocean Carbon Capture Technology

@VoLoEarth: The author highlights electricity usage, supply chain, and potential negative biological effects as concerns for the scaling of ocean based carbon capture. These are key areas that VoLo Earth investigates when evaluating startups in the carbon capture sector. Electricity usage particularly important; normally, the largest OPEX driver for carbon capture technologies and typically the limiting factor in reducing the price of carbon credit to a cost that will allow for scaling in the sector. One of VoLo Earth’s major concerns around the ocean based capture sector that the author does not mention, but we feel should be acknowledged, is the lack of alignment around the Measurement, Reporting and Verification (MRV) of ocean based carbon capture. Without an agreed-upon standard in the industry we believe it will be difficult for the broader market to adopt these credits with the same trustworthiness as in other carbon capture sectors.

Summer 2024 Will Be More Volatile Than ERCOT Thinks

@VoLoEarth: Gaiascope’s models, powered by artificial intelligence, provide a deeper level of analysis of predicted (net) peak loads compared to ERCOT, which relies on historical weather from 2006-2020. At VoLo Earth, we believe that combining higher-fidelity quantitative data with industry experts allows us to ask deeper diligence questions and make better investment decisions. Similarly, Gaiascope rigorously monitors and models renewable generation, load, net load, as well as many other variables, in order to maximize the value of every MW in its clients’ solar, wind, and battery projects. Let’s go Gaiascope!

FUND

VoLo Earth selected as a global 50 top-tier fund by premier organization, ImpactAssets