How far has geothermal progressed beyond demonstration?

  • Fervo announced on 1 October 2026 that the first 33MW unit in Phase I of Cape Station had begun commercial operation, connected to the grid and was generating revenue under a power purchase agreement. On that basis, Bernstein sees 2026 as the year of commercial validation, expects industrial replication in 2027 and large-scale deployment to begin in 2028.
  • Global installed geothermal capacity was approximately 16.5GW in 2025. Ormat estimates potential capacity at up to 165GW; the IEA suggests that up to 800GW could be economically deployed by 2050, provided technology continues to advance and project costs fall substantially. Development and construction still stand between the potential market and operating capacity.

What constraints have the new technologies overcome?

  • Conventional geothermal requires heat, natural fluids and rock formations through which fluids can flow, greatly limiting suitable sites. Enhanced geothermal systems (EGS) use hydraulic fracturing to create flow pathways, while closed-loop systems absorb heat through fluids in sealed underground pipes, extending development beyond natural hot-water reservoirs.
  • The bottleneck consequently shifts to construction and long-term operation: beyond accessing hot rock, developers must create a stable circulation network and maintain flow and temperature over 20—30 years. Fluid loss, overly rapid heat depletion, induced seismicity and high-temperature corrosion can all affect output or require additional investment.

How far have costs fallen, and who is willing to pay a premium?

  • Fervo’s capital cost per unit of installed capacity fell from about 15,000 dollars per kilowatt for Project Red in 2022—2023 to about 7,000 dollars for Phase I of Cape Station. The Phase II target is about 5,500 dollars in 2028, and the target at scale is about 3,000 dollars. The latter is below gas-fired generation with carbon capture, but still above newly built conventional gas and solar photovoltaic capacity; these comparisons measure construction investment.
  • Geothermal’s selling point is round-the-clock clean power. The report lists recent geothermal power purchase agreement prices as typically 100—130 dollars per megawatt-hour, above about 62 dollars for North American solar and 74 dollars for wind. Google has contracted with Fervo for 396MW, with options for approximately another 600MW; long-term contracts provide projects with revenue visibility.
  • Financing remains constrained at the early stage: before flow tests confirm the resource, funding comes mainly from equity or public risk capital. Fervo obtained 421 million dollars in non-recourse project financing in March 2026, a step toward making its development model bankable infrastructure.

Why can oilfield services and high-end tubular products capture more spending?

  • Next-generation geothermal shifts the investment focus underground: drilling and completion account for 40% of project investment in conventional geothermal, rising to 57% for EGS and 65% for closed-loop systems. This directly translates into demand for drilling services, completion equipment and tubular products.
  • The opportunity for tubular products also comes from greater usage per unit of installed capacity and more demanding technical requirements. A conventional well typically supports 10—20MW, an EGS well 5—10MW, and a closed-loop well only 0.5—1.5MW; more wells are needed for the same installed capacity. Deeper, hotter and corrosive environments also raise requirements for steel and connections, leading Vallourec to see opportunities for revenue per megawatt and profit per tonne.

When will suppliers benefit, and whose revenue is more sensitive?

  • Bernstein expects developers to benefit first in 2026—2027, with suppliers following mainly in 2028—2029; Vallourec could benefit as early as the second half of 2027. The bank estimates that geothermal will account for about 6% of Vallourec’s revenue in 2027, and about 1% each for SLB, Tenaris and Viridien, showing clear differences in near-term earnings sensitivity.
  • Vallourec has signed a five-year agreement with Fervo worth up to 800 million dollars. Subsequent growth depends on execution of customers’ drilling plans and whether well costs, sustained flow rates and decline rates can support repeat construction; after the success of the first unit, the key in 2027—2028 is to replicate the same performance across more wells and projects.