Unlocking next‑generation geothermal: A state policy playbook for the American West

Across the West, states are confronting the same challenge: electricity demand is rising faster than planned, even as states work to maintain reliability and affordability while meeting climate and economic goals. Data centers, electrification, and industrial growth are putting pressure on power systems that were not designed for this pace of change.

Next‑generation geothermal offers governors and state legislatures a unique western solution. Conventional geothermal relies on rare sites where naturally occurring hot water sources (hydrothermal systems) are close to the surface. Next-generation geothermal, in contrast, targets deeper zones and utilizes advanced drilling techniques, stimulation, and fluid injection for power generation, direct heat, or industrial decarbonization.

These new technologies using drilling, stimulation and/or closed-loop designs are unlocking geothermal energy in regions and depths once thought impossible, creating the potential for abundant, always‑on, carbon‑free power. Unlike traditional renewables, next-generation geothermal can provide firm capacity that strengthens grid resilience and reduces exposure to fossil fuel price variability and shocks.

Recognizing this promise, western states have taken some important steps in recent years—updating statutes, launching pilot programs, and commissioning studies. But more can be done.

Bipartisan interest among western state policymakers lays the groundwork for state governments to support and accelerate next-generation geothermal deployment. CATF’s forthcoming state geothermal policy report offers a comprehensive, industry informed menu of state policy options states can use to accelerate deployment of next-generation geothermal projects.

The challenge isn’t ambition, it’s execution

Targeted state policy can help catalyze more deployment. Existing state funding programs are generally too small to materially reduce risk. Regulatory updates may clarify definitions without addressing the decisions that matter most to investors. Transmission and procurement frameworks rarely accommodate new clean firm resources. And early‑stage geothermal projects still face high upfront costs, long development timelines, and significant risk. Developers must raise capital before subsurface resources are fully characterized, often without clear answers on permitting timelines or transmission access. Predictably, private capital hesitates.

As a result, not enough projects are moving from paper to ground.

First movers will capture outsized benefits

Governors and state legislatures who move quickest to close these gaps now stand to gain disproportionately. Early projects create local jobs, generate new tax bases, and produce data that lowers costs for future development. Just as importantly, they position states as hubs for a growing industry that aligns with western strengths in geoscience, engineering, and clean energy innovation, often leveraging expertise and existing infrastructure from legacy energy sectors.

CATF research identifies five policy levers that consistently determine whether geothermal projects deploy: subsurface data availability, clear and consistent regulatory processes, early‑stage financing support, infrastructure access, and sustained innovation.

What state governments can do right now

1. Characterize: Invest in digitizing, compiling, and sharing existing subsurface data from various state agencies, academia, and industry to reduce early‑stage geothermal risk and unlock private investment, especially in underexplored regions. This is one of the most cost effectives strategies for state government could derisk and attract geothermal investment to its state.
2. Govern: Robustly staff agencies and create clear, coordinated permitting and regulatory frameworks, so developers and communities have predictable rules and timelines. State regulatory frameworks also need to reflect the differences between next-generation and conventional technologies.
3. Finance: Deploy targeted exploration and demonstration incentives at sufficient scale to bridge the financing gap for the first projects in new regions. State budgets are often limited, but targeted incentives (perhaps in partnership with neighbors or the federal government) can move the needle on geothermal deployment.
4. Integrate: Align next-generation geothermal deployment with transmission planning and utility procurement so clean firm power can interconnect and compete effectively. In interviews, industry identified this as the key bottleneck to unlocking more development. Workforce and supply chain elements are also critical enablers in any state.
5. Innovate: Sustain state support for applied R&D to lower costs, improve performance, and expand next-generation geothermal potential over time. States can coordinate with academia, industry, and the federal government to maintain innovation momentum.

Progress does not require reinventing energy policy. It requires pulling as many of these levers as possible to create the conditions for investment and project deployment.

A regional opportunity

Geothermal deployment is not a purely state‑by‑state issue. Transmission constraints, investor confidence, and supply chain development increasingly operate at a regional scale. This makes regional coordination essential. States can work with neighbors to share best practices and data, align approaches, and signal durable commitments to clean firm power like geothermal.

By increasing collaboration both in-state among agencies and stakeholders and regionally with other states, western state governments can overcome barriers to next-generation geothermal development and give investors the confidence they need to support more projects.