Industrial Heat Offtake: The Underpriced Variable in Geothermal Economics

When most people think about geothermal economics, they think about electricity. MWh per year, LCOE in dollars per megawatt-hour, capacity factor, PPA rate. These are the right metrics for a utility-scale geothermal plant selling into a wholesale electricity market. They are not the right primary metrics for a modular geothermal unit serving a mid-size industrial site with significant process heat demand. In that context, direct heat offtake is often the economic variable that makes the project work, and it is consistently underpriced in feasibility models.

What Industrial Heat Offtake Is

Industrial heat offtake refers to the direct use of geothermal thermal energy for industrial process applications, as distinct from using it to generate electricity. The thermal energy in a geothermal working fluid can be transferred to a facility's process heat circuit through a heat exchanger, without conversion to electricity. The energy transfer is direct and the losses are low, typically 3 to 8 percent in a well-engineered heat exchanger system.

Industrial process heat applications in the 60 to 160 degree Celsius range are common across a wide range of manufacturing sectors. Food and beverage processing requires steam and hot water at 80 to 130 degrees Celsius for sterilization, pasteurization, and cooking processes. Chemical processing and polymer manufacturing often requires heat in the 100 to 160 degree Celsius range for reaction control and product conditioning. Lumber drying kilns operate at 60 to 90 degrees Celsius. Greenhouse agriculture uses low-grade heat at 40 to 60 degrees Celsius for building heat and soil warming. Aquaculture and fish processing require controlled water temperature in the 15 to 35 degree Celsius range for species-specific operations.

The temperature requirement of the application determines the depth and formation temperature requirement for the geothermal resource. A direct-heat aquaculture application can be supplied from a formation at 30 to 40 degrees Celsius, accessible at 500 to 800 meters in favorable gradient zones. A polymer extrusion process requiring 140 degrees Celsius needs a formation at 160 to 180 degrees Celsius at the wellbore, typically requiring 3,000 to 4,000 meters of depth in Basin and Range geology.

The Economic Structure of Combined Heat and Power

A geothermal binary ORC system converts thermal energy to electricity at approximately 8 to 14 percent gross efficiency at inlet temperatures in the 120 to 160 degree Celsius range. The remaining 86 to 92 percent of the thermal input is rejected from the ORC condenser as low-grade heat, typically at 50 to 80 degrees Celsius. In a conventional power-only configuration, this heat is rejected to the atmosphere through cooling towers or air-cooled condensers. It is a waste stream.

In a combined heat and power (CHP) configuration at an industrial site, the condenser reject heat can supply the site's low-temperature process heat load. At a site with a process heat demand in the 50 to 80 degree Celsius range, the entire ORC condenser reject stream may be usable, effectively bringing the total thermal energy utilization of the system from the ~10 percent gross power generation efficiency to something approaching 75 to 85 percent of the input thermal energy. That is a fundamentally different unit economics calculation.

For a site with a higher temperature process heat requirement, above what the condenser reject can supply, the system configuration changes. Part of the geothermal thermal stream bypasses the ORC turbine and goes directly to the process heat exchanger, while the remainder goes through the power generation stage. This is a cascaded configuration, and the split between the power generation path and the direct heat path is an optimization decision that depends on the relative economic value of electricity versus process heat at the specific site.

Why Feasibility Models Underprice Process Heat

Geothermal feasibility models for industrial applications tend to be built by analysts with a power generation background, where electricity in megawatt-hours is the natural unit of account and process heat is treated as a secondary consideration if it appears at all. The result is that process heat value is often either omitted from the model or valued at the cost of the natural gas that would otherwise supply it, which understates the true economic value.

The natural gas replacement value is straightforward: if you are currently burning natural gas to supply process heat at $7 to $10 per MMBtu (illustrative current range for industrial natural gas in the Western US), the geothermal heat displacing that gas is worth $7 to $10 per MMBtu at the wellhead equivalent. This is the floor of the process heat value.

But there are several additional value components that a natural gas replacement calculation misses. Geothermal heat has zero fuel price volatility over a 20-year contract period, which has real option value for a manufacturer whose production costs are sensitive to natural gas price spikes. Geothermal direct heat has zero carbon content, which matters for manufacturers with Scope 1 carbon commitments covering process fuel combustion. And for manufacturers in regions with natural gas supply reliability constraints, geothermal process heat provides supply security that has economic value beyond the commodity price.

Depth Reduction From Heat Offtake

The headline in this article's title, that heat offtake can make the unit economics work at half the well depth, refers to a specific and important scenario. Consider two configurations at the same industrial site with a combined electrical and process heat demand profile.

In a power-only configuration, you size the geothermal unit to meet the electrical demand and reject all condenser heat. The required formation temperature for the electricity generation target determines the required drilling depth.

In a combined heat and power configuration, the process heat load is supplied partly from the direct geothermal heat stream and partly from condenser reject. The electrical generation component can be smaller because the total economic value of the unit includes both power and heat. A smaller electrical generation target, combined with a lower temperature threshold for the heat offtake application, means the required formation temperature is lower. A lower required formation temperature means a shallower well. In the right combination of site parameters, this can reduce the required drilling depth by 40 to 60 percent.

Half the well depth is not a general claim. It is the outcome in specific scenarios where the process heat application temperature is in the 70 to 100 degree Celsius range and the electricity generation share of the total value is relatively small. For sites where the electricity value dominates, the depth reduction from heat offtake is smaller. But the scenario is real and common enough in industrial applications that it should be the standard starting point for feasibility analysis at industrial sites, not an afterthought.

Contracting the Heat Offtake

The commercial structure for industrial heat offtake in a geothermal CHP arrangement is less standardized than power purchase agreements, which have decades of transaction history and established legal frameworks. Heat supply agreements are less common and tend to be more site-specific in their terms.

The key commercial questions are: what temperature and flow rate is the heat delivered at, who bears the risk of formation temperature decline over time, how is the heat supply obligation structured relative to the power supply obligation, and what happens if the site's process heat demand changes over the contract term due to production changes or process modifications. These are not unanswerable questions, but they require more careful contract drafting than a standard PPA.

We have worked through the contracting framework for CHP arrangements and have standard term sheets that address these questions. The point is not that the contracting is simple but that it is manageable and worth the effort for sites where the heat offtake substantially improves project economics. Industrial buyers who have experience with long-term natural gas supply agreements will find the conceptual structure familiar even if the specific mechanics are different.

Starting the Right Way

For industrial buyers beginning a geothermal feasibility assessment, our recommendation is to document the full thermal energy demand of the facility, not just the electrical demand. Many energy managers have detailed knowledge of their electricity consumption but less precise knowledge of their process heat consumption, particularly if it is served by multiple smaller fuel combustion units rather than a central boiler system. A complete thermal energy audit, covering both electrical and thermal demand by temperature range, is the input that allows a combined heat and power feasibility analysis to produce a meaningful result rather than a power-only approximation that misses a significant fraction of the economic case.