Last week, Fervo Energy became the first next-gen geothermal company to go public. Raising $2.17bn and reaching a $10bn valuation on its debut day, it also marks the largest cleantech IPO in history.
Next-gen geothermal is in many ways a North American-grown energy technology, developed largely in the western United States. However, Fervo’s IPO is a reminder of the technology's potential to reach global scale.
But for Europe to rise with the tide, and replace natural gas with a reliable alternative, it needs to be visionary.
Why America dominates in next-gen geothermal
The promise of geothermal energy is to deliver 24/7, carbon-free secure energy that is rivalled only by nuclear and hydropower in its reliability.
While cheap geothermal has long been limited to volcanic areas with aquifers, Fervo is pioneering “hot dry rock” 2nd generation geothermal with their enhanced geothermal system. Although Fervo is the first to scale commercially, there are today several competing hot dry rock developers, including closed-loop developers, that are using the picks and shovels from the oil and gas industry.
Further back on the development curve are the "superhot rock" third-generation geothermal developers, who are targeting modular power plants that can be built in virtually any geology. In Europe, GA Drilling is a leading technology provider working to enable this. In Iceland, Reykjavik Energy is leading a consortium that will later this year drill the IDDP-3, reaching depths of 4000-5000 metres and temperatures of 400°C.
North America has dominated next-gen geothermal development, raising 75% of the budding industry’s total funding. Major backers include billionaires such as Bill Gates and Jeff Bezos, oil majors like Devon Energy and Liberty Energy, and tech giants including Meta, Google, and Amazon.
North America has led the charge for a few different reasons.
The existing drilling supply chain for oil and gas and the know-how developed in the shale boom has created a tool-kit for geothermal project developers to pioneer the clean energy sector.
The workforce is more or less the same, and about 45% of all geothermal startups have a founder from the oil and gas industry. The industry enjoys rare bipartisan support for tax credits and lean permitting processes, and grant programmes worth $215m for technology development were established in the last 24 months.
Combined with deep capital markets and hyperscaling data centers, first-of-a-kind geothermal projects and technologies have been able to attract risk capital, which is driving down costs, and which is increasingly making projects bankable.
In comparison, Europe is lagging behind in the geothermal race.
Europe’s geothermal opportunity
Europe has a comparatively immature geothermal tech ecosystem compared to the US for a number of reasons.
One of them is hard to do anything about: Europe today simply does not have the same preconditions for geothermal energy as the United States does. This is partly due to geography and legacy supply chains from the oil and gas industry.
The kind of enhanced geothermal that Fervo Energy pioneers would also be very difficult to scale successfully in Europe. The main reason being that the company relies on fracking to create subsurface heat exchangers, a practice which is severely restricted under most European national regulations.
The near term opportunity for Europe is to immediately drill thousands of wells to replace natural gas in district heating networks, residential heating, and industrial direct heating – without overly burdening the electricity grid.
Long term, Europe should coordinate deployment of capital across the 3rd generation or “superhot” geothermal – which sidesteps near-surface fracking altogether and can harness heat from much greater depths.
But the slow development of geothermal in Europe is also due to hurdles related to project permitting, capital markets, government support, and industrial strategy. And without reform in these areas, the continent will likely still struggle to nurture a thriving geothermal ecosystem.
How Europe can make its own Fervo
Europe is in a period of intense geopolitical turmoil, which has pushed energy sovereignty and security to the top of the agenda. It should not let a good energy crisis go to waste.
The most urgent fix is permitting. The five-to-seven-year project approval cycle in France or Italy, versus 12 to 24 months in parts of the western US, is one of the biggest IRR-killers in European geothermal. Germany has recently moved to streamline this, but the gap across the continent remains damaging. Smart environmental assessment is necessary – but not at a pace that makes projects unbankable.
Capital markets need to follow. More than 70% of geothermal funding in Europe comes from government and corporations, compared to around 35% in North America. That ratio reflects a smaller risk-capital pool with limited subsurface fluency. Europe needs bigger pools of risk capital and fund structures that align investor incentives with project success by having skin in the game.
Government support to reduce exploration risk early in geothermal project cycles is the best ROI for public money. A government-subsidised insurance program that covers the downside risk of failed exploration wells, if they drill into unfavourable geology, would unlock private capital several times over. The Netherlands is a positive case here but more need to follow.
Supply chain is where Europe has a genuine opportunity to leapfrog. With the engineering talent available on the continent, there is a credible path to developing superhot rock geothermal systems with tools designed specifically for geothermal, rather than repurposed oil and gas technology. But that ultimately requires direct investment in domestic drilling capacity: rigs, completions equipment, downhole tools, and the training pipelines to operate them.
Finally, industrial strategy needs to reframe the opportunity. The immediate case for geothermal in Europe is heat, not power. A 150–180°C well is already economically viable for industrial heat at current gas prices. Vulcan Energy's 2,500 GWh per year heating supply agreement with BASF illustrates what is possible when project pipelines combine geothermal heat and lithium production. The climate and security case for replacing natural gas with geothermal is already there. The economics are catching up fast.
Fervo's IPO will not be the last headline this sector generates. The question is whether Europe builds the conditions to produce the next one – or watches it happen again from the other side of the Atlantic.