As Geothermal Heats Up in US States, Key Policy Levers Can Advance Its Next Generation

Geothermal energy is a long-standing part of the U.S. power system. But it remains limited, supplying less than 1% of the country’s electricity.

That’s now on the cusp of changing. A new generation of geothermal technologies can tap Earth’s heat energy in places without conventional geothermal, producing consistently available clean electricity and heat across the country. Next-generation geothermal has already seen significant cost declines and well drilling improvements in the past five years, with projects beginning to come online and major deals signed with utilities and large clean energy buyers. Between 2021 and 2025, National Laboratory of the Rockies data shows that 1.6 gigawatt (GW) of new geothermal power purchase agreements were signed, 60% of which (almost 1 GW) were for next-generation geothermal projects.

Federal policy is a key lever for advancing these technologies. Recent federal actions include expedited permitting at the Department of Interior and ensuring continued geothermal eligibility in the technology-neutral clean electricity tax credits preserved through 2033.

State-level action has received less attention to date, yet states can be important drivers of geothermal through demand-side levers, environmental regulations and permitting, incentives and other measures. In fact, the resurgence in geothermal activity — and many of the developers and projects making headlines in recent years — have benefited from state policy.

Here are some of the key policy and regulatory levers that states can leverage to help enable next-generation geothermal.

Demand-Side Levers

States have significant authority to set generation mix targets and procurement requirements for utilities in their jurisdiction. These include state clean electricity standards (CES) and renewable portfolio standards (RPS) which require utilities to procure certain amounts of clean electricity based on emissions factors.

Although not part of a legislatively enacted RPS or CES, perhaps the most important state action for next-generation geothermal development and commercialization has been procurement orders from the California Public Utility Commission (CPUC). The first — the 2021 Mid-Term Reliability Analysis — was released in 2021 following a summer of brownouts in 2020. It called for load-serving entities to procure at least 1 GW of clean, firm resources (defined as a capacity factor of at least 80%) and 1 GW of long-duration storage (defined as providing eight hours of storage or more) between 2023 and 2026. The impact of this order on next-generation geothermal is substantial; for example, the major offtaker at Fervo’s Cape Station is Southern California Edison. In February 2026, the CPUC issued another procurement order, this time calling for 1.5 GW of additional clean, firm resources between 2029 and 2032.

Separate from these CPUC procurement orders for utilities, the California legislature has also authorized centralized state procurement of geothermal. AB 1373 was enacted in 2023 to centralize state procurement of critical clean, firm power resources, including up to 1 GW of geothermal by 2035. This is a notable development, as this centralized state procurement is what was used during California’s early 2000s energy crisis. The use of centralized procurement tools speaks to the importance of clean, firm resources like geothermal to long-term grid planning and reliability.

Some states and utilities are introducing tariffs to help bring next-generation geothermal and other long lead-time resources online while protecting ratepayers. A significant example is Nevada and the utility NV Energy, where the Nevada Public Utilities Commission approved a clean transition tariff in May 2025. This rate design allows a developer and large energy buyer to enter into an agreement in which the large energy buyer agrees to pay a price premium for a resource. This arrangement can play a critical role in securing clean, firm resources while protecting general ratepayers from cost increases. The clean transition tariff was first developed for use in Nevada between Fervo and Google, and in 2026 the conventional geothermal company Ormat announced it would also seek to use the clean transition tariff in a deal with Google.

These recent actions suggest that state procurement orders and utility planning will remain a significant demand pull for geothermal energy. Critically, recent examples show that next-generation geothermal projects have seen dramatically falling costs and quicker development timelines, and can be viable options for procurement timeframes.

Environmental Regulations and Permitting

States can also modernize environmental regulations and permitting requirements. State regulatory regimes for geothermal may be nonexistent or decades old, and reflective of conventional geothermal for electricity production, rather than new technologies that use advanced drilling techniques. Critical issues at the state level include resource definitions, permitting and leasing, and underground injection control requirements.

Some states are already making progress. Notably, both Texas and Colorado updated geothermal definitions and regulatory jurisdiction across agencies. For example, Texas enacted SB 785 in 2023, which clarified geothermal resources as belonging to the surface owner as a property right. The regulatory authority, the Texas Railroad Commission, subsequently updated regulations in 2025 for shallow geothermal (such as ground source heat pumps used for heating and cooling, not electricity generation). And it is currently updating regulations for deep geothermal (used for electricity generation), with expected release this summer. As more states look to enable geothermal energy, these early movers offer examples of how existing regulatory structures can be adapted to a rapidly innovating industry.

California is an example of a state that has attempted to reduce permitting timelines in recent years. It is the nation’s largest geothermal electricity producer, with 72% of U.S. installed geothermal capacity and the largest generating facility in the world. However, permitting and interconnection barriers have hindered California’s advancement of next-generation geothermal. One major piece of legislation, AB 527, made it through the legislature in 2025 with nearly unanimous support before being vetoed by Gov. Gavin Newsom. AB 527 would have provided geothermal exploration wells with a California Environmental Quality Act (CEQA) exemption under certain conditions. It also would have required updated regulations on environmental issues such as seismicity and hydraulic fracturing fluid disclosure. The California Geologic Energy Management Division already has a longstanding open regulatory docket on updated geothermal rules. The bill would have required the division to promulgate final regulations on enhanced geothermal systems that includes updated seismic analysis and hydraulic fracturing fluid disclosure.

Funding and Financing Programs

States can offer grants, loans, tax credits and other incentives to encourage geothermal energy development. While many states have consumer tax credits for geothermal heating and cooling systems, like ground source heat pumps, state support for geothermal electricity generation is newer.

Colorado is one state that has led on geothermal-focused investment programs, with both tax credit and grant programs. As of this month, the state has issued four rounds of funding under both the geothermal energy grant and tax credit offerings. These projects include thermal energy networks, direct use and electricity projects. They highlight the diversity of geothermal heating and electricity projects and include drilling projects at a dairy farm, a former oil and gas site and feasibility studies with leading next-generation geothermal companies like Eavor and Fervo.

Innovative public-private partnerships can be a key financing tool to scale next-generation geothermal. This is especially true of programs that help reduce risks in exploration drilling. Well-designed loan and insurance programs can help provide much-needed certainty and crowd in private capital during the early stages of long-lead time projects.

What to Watch

Geothermal energy will likely remain a hot topic at the state level due to increasing electricity demand, particularly from data centers. One study estimates that geothermal energy could economically meet up to 64% of new data center electricity demand by the 2030s if the industry is able to scale rapidly (although forecasting this demand is a notoriously tricky exercise).

Meeting the needs of large loads and maintaining reliability will be a key challenge for state policymakers and regulators in the years ahead. Some, including Utah and Texas, are already looking to define geothermal as dispatchable resources that can help meet reliability challenges.

As state interest in geothermal increases — especially among states that lack conventional geothermal but may be suitable for next-generation technologies — early steps can include incorporating geothermal into state energy strategies and conducting updated geothermal resource assessments.

State legislative sessions are in full swing, and we’re already seeing progress this year. This includes actions from hotbeds of next-generation geothermal activity, like Utah, as well as eastern states like New York, Pennsylvania and West Virginia that haven’t seen significant activity to date. More than 30 geothermal bills introduced so far cover topics including high-level planning, mapping and resource assessments, clarifying regulatory jurisdiction among state agencies, utilization of oil and gas wells for geothermal energy and financial incentives, among other topics. Below is a snapshot of some of the current legislation relevant to next-generation geothermal power, highlighting the diversity of approaches state legislators are taking.

Select Geothermal Electricity Bills in State Legislatures, 2026