Texas grid’s first geothermal deal will put clean-energy battery on coal facility land

Early next year, the Texas grid will get its first dose of clean power from underground — by means of a “battery” buried in the rock.

On Tuesday, the San Miguel Electric Cooperative announced a deal with Sage Geosystems, a company founded by former executives from oil and gas major Shell as part of the state’s broader boom in geothermal energy startups .

The deal, which will also see the pilot project lease space from a coal power plant, represents a microcosm of an energy transition in which utilities are often caught between polluting- but-constant and clean-but-intermittent energy sources.

It also marks the first step toward connecting Texas’s voracious power demands to a rich source of energy just beneath the state’s surface.

“If we’re successful — this is a game changer for energy,” Craig Courter, CEO of San Miguel, told The Hill.

A new approach to Texas’s geothermal hurdles

Texas is a national leader in geothermal potential, a recently released map shows, sitting atop the biggest reserves of subterranean heat outside the still-rising mountains of the West.

So far, however, the prospect of the state drawing on geothermal for a significant share of its energy still faces considerable technical, regulatory and financial challenges.

Sage Geothermal is experimenting with a custom turbine that executives hope will allow the company to efficiently generate electricity from the earth’s heat.

As the name suggests, geothermal energy typically relies on such heat, which can be used for industrial purposes or to create electricity.

But the project Sage is developing with San Miguel takes a different approach — one that is in many ways far more necessary for Texas’s increasingly renewables-powered grid.

Rather than seeking to tap underground heat, the project uses “earth storage” and a turbine built from off-the-shelf parts to trap cheap power from wind and solar and sell it back to the grid when it’s needed.

The technology is somewhat akin to an upside-down version of “pumped storage,” in which water is pumped uphill into a hydro dam reservoir when power is cheap and allowed to run back downhill when it is expensive — although in this case when the water gets tapped, it flows back up through the well.

“You give the earth the energy, and it gives it back like a balloon,” said Cindy Taff, CEO and co-founder of Sage.

Like pioneers at competitors like Fervo, Taff and her cofounders saw huge potential in the fracking toolkit, which upended the oil and gas business beginning in the early 2000s by largely eliminating the risk of “dry holes,” in which wells turn out not to have as much oil or gas as expected — a problem that still plagues conventional geothermal, which seeks underground systems of hot water.

With fracking and horizontal drilling, oil and gas producers gained the ability to effectively turn on oil and gas production at will — something geothermal pioneers hope fracking will bring to their industry as well.

But while geothermal advocates like Jamie Beard of Project Innerspace told The Hill that oil and gas is primed for a move to geothermal , so far the industry — with rare exceptions — has been reluctant to invest in such a shift.

That’s left the field to a handful of startups like Sage, which are seeking to develop the first wave of new geothermal projects — a process the Department of Energy hopes will begin a fast-rolling snowball of new drilling that will help to unleash an industry that could pick up a significant portion of U.S. power needs by midcentury.

But while the ultimate goal is tapping the earth for heat, the decision to use pressure in the San Miguel project offers significant advantages, Taff told The Hill.

First, techniques for harvesting pressure energy are several times more efficient than those for tapping geothermal heat, and the well-established turbine technology used to harvest it — a hydro-dam flywheel attached to a wind turbine — is simpler and more proven than that which Sage proposes using for geothermal.

The pump storage project will “allow us to demonstrate about 80 percent of what we need for geothermal,” Taff told The Hill — giving the company a chance to prove its ability to drill wells, store and tap power using established oil and gas technology before it moves on to the harder task of harvesting heat.

“Then for geothermal, you just drill the well deeper — and then of course, your power plant is different, in that you have a heat exchanger and then the binary cycle turbine,” which the company is currently testing.

An alternative to coal

San Miguel’s path to the project began amid a recent rise in costs, lawsuits and federal regulations.

The cooperative is a “mine-mouth” facility south of San Antonio that extracts lignite coal, burns it and sells the power into the markets run by the Electric Reliability Council of Texas, which controls Texas’s island grid.

One of only two companies in the state to receive new coal mining permits in the past decade , it has faced repeated lawsuits from local ranchers and municipalities concerned about water pollution, The Texas Tribune reported.

In a 2023 op-ed responding to reporting on the legal fight around its mine expansion, Courter argued that the cooperative’s storage of coal ash — a major source of local ire — “was authorized by state agencies after we demonstrated no significant adverse environmental and health impact.”

But the regulatory environment for coal is only getting more difficult as federal concern over its pollution grows — amid a broader rise in cheaper alternatives. San Miguel is subject to new Environmental Protection Agency (EPA) rules aimed at reining in pollution, particularly of the neurotoxin mercury, of which the plant is one of the United State’s biggest emitters.

Texas is among the states challenging those rules, but if they stand, meeting them will cost coal as a sector $1 billion per year, according to an analysis by law firm Sidley Austin LLP — threatening the industry’s already shaky economics.

The price of coal itself also soared starting last year — particularly compared to the falling price of gas and renewables

Two years ago, Courter and his board began looking for alternative energy sources to invest in. With coal’s costs high and growing, “I have a fiduciary duty to my members to make sure that I offer them the lowest cost power,” Courter told The Hill.

He saw an opportunity in the 2022 passage of the Inflation Reduction Act, which included nearly $10 billion in funding for the Empowering Rural America (New ERA) program, which sought to help rural electric cooperatives transition off coal.

Courter thought the cheapest option might be solar or batteries — which his research showed would beat gas on price once federal incentives are factored in.

But a contact with the federal government led Courter to explore geothermal, which ultimately led him to the test facility in Starr County — where Sage was experimenting with the new form of energy storage that would become the core of its project with San Miguel.

Geothermal advocates envision a more significant turn from coal to geothermal. They see many coal facilities as ideal candidates for retrofitting, because while they need to be decommissioned to create any hope of slowing climate change, they nonetheless sit at the center of webs of already-built transmission lines connected to grids that will still need to dispatchable power when they shut off.

And like San Miguel, many aging or soon to be decommissioned coal plants sit above very hot rock.

A potential bridge across renewables’ “duck curve”

For Courter, Sage’s project offered the potential for a new path for San Miguel, and for Texas as whole due to its geothermal potential.

“If we go with geothermal then we would be able to power Texas with geothermal,” Courter said.

The company’s earth storage plan — and ultimate geothermal ambitions — offered a solution that felt potentially ideal to him.

Despite being head of a coal company, Courter told The HIll he sees the value of renewables — but also is concerned by their limitations as he seeks a next chapter for his company.

“We want more renewables, don’t get me wrong — we know it’s a cleaner energy. But you get a cloudy day, guess what, you still gotta have natural gas, nuclear and coal to produce the power.”

In particular, utilities are plagued by what’s often called the “duck curve” — a dip in the late afternoon between declining solar production and rising electric demand, which (with some imagination) represents a crude line drawing of a waterfowl.

While utility-scale lithium-ion batteries can help smooth out that curve — and Texas is at the forefront of a boom in that technology — they can only store power for about four hours.

By contrast, earth storage — which promises 12 hours of reliable energy storage and recapture — helps bridge the six to eight hours between the duck’s back, when solar drops off, and its head, when nightime winds pick up.

The pilot project is very small — just 3 megawatts. But just as fracking has gotten increasingly good at packing dozens of wells onto a single drilling pad, Taff told The Hill, a complex of geothermal wells should be able to store more power as well.

She estimated that with about “10 to 15 acres of land you’ll have a 50 megawatt facility,” or less than 10 percent as much land as an equivalent solar farm .

That small footprint — both the ability to break even at a smaller size and the lack of pollution-belching smokestacks on the landscape — opens up new opportunities for the often-clogged American grid.

The U.S. power system has been traditionally characterized by 500- to 1000-megawatt gas, nuclear and coal power plants sending huge amounts of power down increasingly-clogged transmission lines.

One function of a smaller-footprint geothermal project is that many projects can be sited in areas of the grid with spare capacity that are “starved from not enough production,” and where clogged transmission lines from power producing areas make it hard to produce more power, Courter noted.

“Instead of a 1000 megawatt unit [like San Miguel], we could put twenty 50 megawatt units across South Texas,” Courter said.

What lies ahead

The project faces a lot of challenges, many of them related to the famously clogged interconnection queue, the line of companies waiting to get access to the grid.

Sage must wait months for an interconnection study, and only after that’s complete can it order the parts necessary to connect to the grid — which are themselves part of a larger, expanding backlog in crucial technology like transformers, which “step” power up or down from different voltages to avoid blowing up wires.

The U.S. has had a severe shortage in transformers since the beginning of the COVID-19 pandemic .

Then there is the problem of financing, which is a perennial issue for emerging technologies. (Until the technology is more proven, banks are often eager to be “first to go fourth,” said Gabriel Scheer of Elemental Excelerator, a nonprofit investment group at a geothermal launch in May.)

To get around that, Sage and San Miguel have taken another page from the oil industry playbook.

San Miguel isn’t paying anything for the Sage Geosystems project. “Those optics could ruin me” with the cooperative’s members, Courter told The Hill.

Instead, it’s structuring the deal using terms borrowed from the oil and gas industry, of which Courter, Taff and the rest of the Sage leadership are all veterans.

Like a clean-tech version of the oil and gas drilling operation it in many ways resembles, Sage is paying to lease the land, and will pay royalties to San Miguel from any electricity the company is able to sell back to the grid.

“We did it just like an oil and gas lease on our property: paying the same as any oil and gas company for our property,” Courter said.

If the project is successful, San Miguel will get paid a commission.

But the real benefit for the cooperative, Courter thinks, would come further down the line: a potential right of first refusal if Sage successfully manages to tap energy from heat.

The Department of Energy will not make New ERA incentives for storage projects like Sage’s available to coal cooperatives like San Miguel until those new technologies have passed a 1,000-hour runtime — something Sage now has space to do.

Over the longer term, Courter’s ambitions are higher: He hopes to eventually partner with Sage to build a 200 megawatt geothermal project with two turbines — one tapped into power stored in fractures underground, and the other able to produce on-demand electricity from the earth’s heat.

“At that point, you’re no longer a storage unit — you’re dispatchable power,” he said.

But even if Sage never makes geothermal electricity work, he added, the pressure storage alone could be a major addition to the market. “It could answer a lot of problems for battery storage,” he said.

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