1/There has great analysis on what the oil price crash means for renewables, but I haven’t seen anything on the most impacted renewable: geothermal.

Now that WTI is flirting with $20, a quick THREAD on why this is a major positive development for geothermal development costs:
2/Geothermal involves drilling deep wells into hot areas to directly produce steam, which means it’s supply chain overlaps significantly with oil and gas. As much as 50% of the cost of geothermal comes from drilling, so a plunge in oil prices can drop costs dramatically.
3/The oil price crash has been far, fast and unprecedented. This chart from @javierblas shows how the 2020 crash has been faster than any in modern history, which means the impact on the services costs will likely be greater than ever before. https://pbs.twimg.com/media/ETbSB0hXsAAAAqx?format=jpg&name=medium
4/Rig count is a good measure of activity, which also means it's a good proxy for cost impact. In the last crash US Rig Count fell rapidly to below 400. This one will be even deeper. As a result, oil field services costs will likely drop 20-40% or more.
6/Most new geothermal has been signed in the $65-75/MWh price range. Because it is 24/7 and carbon free, it’s been attractive for customers even at that price. The drop in oil field services costs alone may send geothermal costs lower by 20% or more.
8/And interest rates have dropped globally by ~2% this year. Since geothermal, like all renewables, substitutes Fuel with Capital, lower financing costs make a huge difference on costs. See Lazard:
9/So the impact of drilling cost decline, PTC extension, and lower interest rates probably lead to a 20-30% decline in geothermal from the $65-75/MWh at the start of the year.
We may see geothermal <$60 soon, and maybe even <$50 if it gets equal ITC treatment.
10/Because geothermal is 24/7, it holds a lot of value to deep decarbonization in cleaning up the last 20% of the electric grid. The 2019 GeoVision study from the DOE found that we could get 120 GW of geothermal by 2050. https://twitter.com/TimMLatimer/status/1136749191592628226?s=20
11/Quick thought experiment: 120 GW at 4 MW/geothermal well is 30,000 new wells, or 1,000 wells/year for 30 years. At drilling rates of 8 wells/rig/year, it would take 100+ rigs to hit that goal. Recall the rig count from earlier:
12/This downturn will likely send the rig count into the 200s, so geothermal development at 100+ rigs could put as much as a third of the oil field sector back to work developing a 24/7 clean energy resource.
13/SUMMARY: The oil price crash drives geothermal costs dramatically lower. If we continue to prioritize decarbonization through actions like extending the geothermal ITC, 100% clean energy just got a lot more possible in a way that will also put the oil field back to work. END
You can follow @TimMLatimer.
Tip: mention @twtextapp on a Twitter thread with the keyword “unroll” to get a link to it.

Latest Threads Unrolled: