Geothermal has several coveted characteristics. Unlike wind or solar, it can provide constant baseload power. It is clean, has a low land footprint and can be used directly for heating/cooling buildings. However, despite these advantages, geothermal growth has lagged wind/solar and currently contributes only 0.3% of global electricity generation. Current installed power generation capacity is 15.4GW and overall worldwide potential based on current estimates is 10x of current capacity. Also, US EGS (Enhanced Geothermal System) potential is 4.7x total US utility-scale electricity generating capacity as per the US DoE.

Risks: Front loaded capex. The bulk of capex in a geothermal plant is spent upfront which raises the risk profile though maintenance expenses over the life of project are relatively low. Technology – The cost of initial set-up is still high and EGS requires drilling at a depth as well as high temperature – necessitating the use of specialised drills/instruments and a trained workforce. There is also the risk of earthquakes

…but they can be mitigated: Several of these geothermal risks are similar those faced during oil exploration and can be addressed. The risk of earthquakes can be decreased with proper planning/execution as per the US DoE. There have been significant productivity improvements – with electricity production per well rising steadily over the years. The technology required for an EGS system is not dissimilar to shale fracking and there should, in our opinion, be similar scope for cost cutting. Opportunity for Oil Services: The main opportunities are in drilling and maintenance of

production and injection wells. Rystad Energy expects well drillings to increase from a run rate of 223 in 2019 to 380 by 2025 with a total investment of USD25bn. This translates to revenue potential of more than USD10bn for oil service companies (well capex usually accounts for c40% of the total investment) over the next 5 years. SLB, HAL and BKR are the most likely beneficiaries of this investment. But we think there will be no material impact in the near to medium term as revenue from geothermal won’t be meaningful in comparison to their overall revenues.