Google's Historic 396 MW Clean Energy Deal Just Changed the Game for 1 AI Power Play

The incredible advancements in artificial intelligence (AI) have spurred an investment supercycle, and technology companies are spending cash like never before to build data centers. However, they're hitting roadblocks, notably power. With grid connections lagging and residential customers wary of footing the bill for soaring energy costs, these tech giants are hunting for innovative power solutions to keep their data centers humming.

Google, a subsidiary of Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), has teamed up with Fervo Energy (NASDAQ: FRVO) in a groundbreaking partnership to harness clean geothermal energy. After launching a pilot project a few years ago, they're taking things to the next level with a 396-megawatt (MW) power purchase agreement.

This deal helps ensure that Google's power needs are met with reliable, clean energy and puts Fervo Energy on the map. Here's why it could be a game changer for Fervo, and what comes next for the energy stock.

Fervo and Google have been working together for a few years on geothermal power

Google and Fervo's partnership goes back to 2021, when the two companies collaborated on Project Red. This was Fervo's commercial proof-of-concept pilot, which successfully demonstrated the efficacy of its Enhanced Geothermal Systems (EGS) technology.

In June 2024, Fervo entered into a 115 MW power purchase agreement (PPA) with Google and NV Energy, enabling Google to bring new geothermal capacity online while shielding ratepayers from the costs. The partnership expanded further when Fervo committed to developing 3 gigawatts (GW) of geothermal projects.

On Sept. 1, Fervo signed a 396-MW PPA with Google, the largest enhanced geothermal PPA to date. Fervo will supply energy from its Cape Station development in Utah and aims to deliver power by 2028. Google also has an agreement to expand its offtake by 600 MW, bringing the agreement's total potential capacity to roughly 1 GW by June 2030.

How Fervo's EGS technology works

Central to this agreement is Fervo's EGS technology. Traditional geothermal energy relies on finding naturally occurring sites with all the ingredients needed to produce it. These are hard to find and generally only exist near active tectonic boundaries and volcanoes. Fervo's EGS uses horizontal drilling technology to generate geothermal energy wherever you can drill deep enough to reach hot rock.

The agreement with Google validates Fervo's EGS technology and demonstrates its readiness to meet the 24/7 baseload power demands of AI data centers. It brings the company's total contracted power sales to about 1.1 GW and provides visibility into future earnings from contracted revenue.

Image source: Getty Images.

What's next for Fervo?

Fervo still has a lot of heavy lifting to do. As part of Phase I, the company aims to deliver around 100 MW of power, with commercial operations beginning later this year or early 2027. In Phase II, the company will deliver another 400 MW. To do so, it will use its GeoBlock architecture to build eight self-contained 50 MW generation blocks.

By using 50 MW modules, Fervo can design and engineer one block and mass-produce the remainder. This lets it reduce manufacturing costs and build Phase II simultaneously, so it can deliver power in about two years. Commercial operations for Phase II are projected to begin in 2028.

Does this news make Fervo stock a buy?

Fervo is a newly public company, having made its stock market debut on May 12. In the process, the company raised about $2.2 billion. This capital is crucial, as it will help the company fund its expansion without tapping high-yield debt markets.

Management projects the company will incur $850 million to $900 million in capital expenditures over the next 12 months. They also project that the company will post net losses over the next several years as Fervo invests in and expands its infrastructure.

Fervo's deal with Google is a big step forward and brings it closer to operating commercially. That said, the company will continue to burn cash as it scales operations to meet the agreement's terms.

Investors will want to watch Fervo to see whether it can deliver initial power from its Phase I on time, which could be a huge catalyst for the stock. Until then, most investors are best off keeping Fervo Energy on a watch list and monitoring its progress in the coming months before buying.

Courtney Carlsen has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.