Is Geothermal Energy Expensive Compared To Fossil Fuels?

Geothermal energy is defined as heat energy generated and stored within the Earth (https://www.eia.gov/energyexplained/geothermal/). It is considered a renewable energy source as the heat is continuously produced inside the Earth. Comparing the costs of geothermal energy to fossil fuels like coal, oil, and natural gas is important to understand if it can serve as a viable and cost-effective alternative. Fossil fuels currently make up a majority of the world’s energy production, but they have significant environmental downsides from greenhouse gas emissions. Evaluating the costs of geothermal can determine if it could replace fossil fuels for energy generation and provide environmental benefits.

Geothermal Power Plant Costs

The main costs associated with geothermal power plants are drilling, plant construction, and ongoing operation and maintenance. Drilling geothermal wells is the most expensive component, accounting for 30-50% of the total project cost. According to Statista, the average drilling cost for geothermal wells is $2,700-5,600 per installed kW of capacity^[1]. Drilling a single 2.5 mile (4 km) well can cost around $5 million, and deeper wells over 6 miles (10 km) can be $10 million or more^[2].

The plant construction costs, including the turbine, generator, cooling system, and other components, make up another major portion of the project budget. Ongoing operation and maintenance costs are relatively low, around 2-5% of initial capital costs per year. However, wells may need to be replaced or enhanced every 20-30 years to maintain productivity, incurring additional drilling expenses.

Fossil Fuel Power Plant Costs

Fossil fuel power plants, especially those powered by coal, are very expensive to construct. According to the U.S. Energy Information Administration, the overnight capital costs (construction costs excluding financing) for a new coal plant in 2019 were estimated at $3,546 per kW, significantly higher than other types of power plants (EIA).

A 2018 report by David Schlissel provides a detailed breakdown of coal plant construction costs (Schlissel, 2018). For a typical 500-600 MW coal plant, construction costs ranged from $2-3 billion. This equals $3,333 – $5,000 per kW. Costs have risen dramatically from the early 2000s, when new coal plants could be built for $1,000 – $1,300 per kW.

Natural gas power plants are cheaper to build, with overnight capital costs of $1,021 per kW. But the fuel costs for natural gas plants are higher compared to coal. Oil-fired power plants are the most expensive fossil fuel plants.

The high upfront construction costs for coal and other fossil-fuel plants present a major barrier compared to renewable energy sources like solar and wind, which have lower fixed costs but higher variable costs.

Fuel Cost Comparison

Geothermal energy has become cost competitive with fossil fuels like coal, natural gas and oil. According to a 2009 report from Credit Suisse, the cost per kilowatt-hour (kWh) for geothermal power was 3.6 cents, compared to 5.5 cents for coal, 6.5 cents for natural gas, and 10.4 cents for oil.

More recent data from 2016 shows geothermal electricity ranging from 7.8-22.5¢ per kWh, while coal was between 3.2-3.8¢, natural gas was 3.8-6.6¢, and petroleum liquids were 8.7-15.7¢ per kWh (UMich). So geothermal is cost competitive with fossil fuels, though coal remains marginally cheaper currently.

For home heating and cooling, geothermal heat pumps can provide dramatic savings compared to fossil fuels. Estimates show geothermal costing $583 annually for heating vs. $1,003 for natural gas and $1,864 for propane. For cooling, geothermal was $129 vs. $157 for both natural gas and propane (MNGHPA).

So while geothermal has higher upfront installation costs, the ongoing costs for electricity are competitive and can provide significant lifetime savings over fossil fuel alternatives.

Carbon Emissions Impact

Geothermal power plants emit far less carbon dioxide than fossil fuel power plants. According to the U.S. Energy Information Administration, geothermal plants emit just 3% of the carbon dioxide of a fossil fuel plant per kWh of electricity generated (Source: https://www.eia.gov/energyexplained/geothermal/geothermal-energy-and-the-environment.php). This is because geothermal plants do not actually burn any fossil fuels to generate electricity. The heated water from underground is used directly to spin turbines and produce power. The greenhouse gas emissions from geothermal come mainly from trace amounts of carbon dioxide dissolved in the hot water extracted from underground. Overall, geothermal energy is considered a very clean and sustainable energy source.

In contrast, burning coal, natural gas, and other fossil fuels to produce electricity releases tremendous amounts of carbon dioxide per kWh generated. Coal emits between 0.9 and 1 kg of CO2 per kWh, while natural gas emits between 0.4 and 0.5 kg per kWh (Source: https://www.eesi.org/topics/geothermal/description). This directly contributes to climate change and global warming. By utilizing geothermal instead of fossil fuels, power plants can dramatically reduce their carbon footprint and emissions.

Government Incentives

The U.S. government provides incentives for residential and commercial geothermal heat pump systems to encourage adoption of this renewable energy technology. The main incentive is a federal tax credit that covers 30% of the total system cost for installations completed before the end of 2032 (source). The tax credit amount will decrease annually starting in 2033. To qualify, the geothermal heat pump must meet Energy Star efficiency requirements and be installed in the taxpayer’s primary or secondary residence in the U.S. (source). The credit can be claimed on annual tax returns for the year the system was installed.

Some states and utilities offer additional financial incentives such as rebates, grants, and tax credits to further reduce the upfront cost of a geothermal system. For example, a homeowner in Texas can receive up to $15,000 in rebates from the State Energy Conservation Office (source). There are also special incentives for commercial geothermal installation in hospitals, schools, and other public buildings.

Total Lifetime Costs

When comparing the total costs of geothermal and fossil fuel power plants, it’s important to look at the costs over the entire lifespan of the plant. Geothermal power plants have very high upfront construction costs, which can be 2-5 times higher than a fossil fuel plant. However, geothermal plants have very low operating costs compared to coal or natural gas plants. According to the Scientific American article, geothermal plants can produce electricity for between 1 and 8 cents per kWh, versus 3-15 cents per kWh for fossil fuel plants.

The lower operating costs for geothermal plants mean that over a typical 30-40 year lifespan, geothermal can become cheaper than fossil fuels. According to the Lafayette College site, the operating costs for geothermal range from 0.01 to 0.03 cents per kWh, significantly lower than fossil fuels. So while geothermal has higher upfront costs, the low maintenance and operation costs mean the total lifetime costs can be competitive with or even lower than fossil fuel plants.

Cost Trends

The cost of geothermal power plants has declined over the past decade. According to research, the global average installed cost for geothermal energy decreased from $4,400 per kW in 2010 to $2,700 per kW in 2022. This represents a 39% drop in capital costs over 12 years.

Several factors have driven down geothermal costs. Improvements in drilling techniques and geoscience modeling have made exploration cheaper and more accurate at finding viable sites. Economies of scale from larger plants and standardized manufacturing have also lowered capital spending. In addition, enhanced geothermal systems (EGS) could further reduce costs by expanding suitable locations. The Department of Energy has set a goal to cut EGS costs by 90% to around $300/kW by 2035 through research and development efforts.

With continued technology improvements and scale, experts predict geothermal will become even more cost competitive with fossil fuels in the years ahead. This trend is vital for displacing carbon-emitting sources and enabling wider adoption of renewable energy.

Limitations of Geothermal

While geothermal energy has many advantages, it also has some drawbacks that limit its wider adoption. Here are some of the main limitations of geothermal energy:

Geographic constraints – Geothermal power is restricted to areas with adequate underground heat and water resources to allow extraction and circulation through the power plant. This limits geothermal plants to certain locations like Western states in the U.S., areas near tectonic plate boundaries, and rift zones like in Iceland and East Africa. [1]

Upfront costs – Constructing a geothermal power plant requires significant upfront capital investment, estimated between $3-5 million per megawatt of capacity. Drilling geothermal wells thousands of feet into hot rock and building above-ground power plants is expensive compared to conventional power options. This can deter investment in geothermal.

Risks – Exploratory drilling may find little to no geothermal resources, wasting time and money spent in site exploration and development. Managing the resource properly is important, as overdrawing steam and water can deplete the reservoir. Induced seismicity from fracturing rock is another concern. These risks add uncertainty.

Conclusion

When comparing the costs of geothermal and fossil fuel power plants, geothermal plants have significantly higher upfront construction costs but have minimal ongoing fuel costs. Fossil fuels like coal and natural gas have lower initial construction costs but require continual expenditures on fuel. Overall, geothermal energy averages around $0.04-0.07 per kWh while coal averages $0.03-0.06 per kWh and natural gas averages $0.04-0.07 per kWh. However, geothermal offers additional benefits like zero emissions and energy independence that are not factored into these costs. While geothermal can have higher upfront costs, the lifetime costs and societal benefits make it competitive with and often cheaper than fossil fuels for utility-scale power generation.