Geothermal Energy Gains Steam with Boosts and Clarifications from Texas Legislature

SB 1762: Geothermal Energy Eligible for TEF as Dispatchable Energy Generation, Not Considered Battery Energy Storage Resources
The bill provides critical clarification to ensure that both geothermal energy generation and geothermal-based energy storage are eligible for funding under the Texas Energy Fund (TEF)—a key financing mechanism for dispatchable electricity infrastructure. The TEF statute has long supported dispatchable generation projects but excluded “electric energy storage facilities” from eligibility. This created uncertainty around how geothermal technologies—which can both generate power and store thermal energy—fit into the framework.

SB 1762 directly addresses two key points:

- Geothermal energy qualifies as dispatchable under TEF guidelines, as it can reliably supply electricity on demand.

- Geothermal storage is distinct from battery storage and therefore is not excluded from eligibility.

These clarifications resolve prior ambiguity and ensure geothermal projects are fully recognized under the TEF program. Particularly, SB 1762 also amends the Texas Natural Resources Code to define geothermal energy conservation wells as “wells used for the retention of energy that may be used to provide a dispatchable generation of electricity for the power grid.” This is the commonsense conclusion the geothermal industry was hoping to clarify—geothermal power will be treated as a fully dispatchable energy resource under Texas law, including when used for storage.

Additionally, this classification places geothermal wells within the scope of the Texas Utilities Code provisions that require electricity generators to be dispatchable during periods of low grid reserves. For developers, this means geothermal projects must meet certain operational standards for grid reliability, requirements that geothermal energy is naturally suited to fulfill. While this may modestly raise compliance obligations, it also streamlines project approval, reinforces the resource’s value as a firm generation asset, and aligns geothermal development with the state’s broader reliability and grid stability objectives.

With statutory language now supporting both geothermal generation and storage, developers are in a stronger position to pursue TEF support and navigate regulatory requirements with greater certainty. While the loan application window under the TEF closed in July 2024, the completion bonus program remains active, offering:

- $120,000 per MW for projects interconnected before June 1, 2026; and

- $80,000 per MW for projects interconnected between June 1, 2026, and June 1, 2029.

As grid reliability becomes a higher legislative and regulatory priority, geothermal’s inclusion under the TEF positions it as a pivotal zero-carbon, dispatchable energy resource for Texas’ future.

This bill was signed by Gov. Abbott and takes effect immediately.

HB 4370: Geothermal Facilities Can Now Be Considered Public Improvement Projects.
House Bill 4370 amends the Texas Local Government Code to designate geothermal water conveyance facilities as Public Improvement Projects. This important classification opens the door for cities, water districts and local special-purpose districts to develop, operate and maintain geothermal infrastructure, and, more critically, to finance such projects through public bonds.

By granting geothermal facilities the same status as traditional public infrastructure, HB 4370 enables expanded public-private partnerships and provides new mechanisms for local governments to invest in geothermal energy systems, including thermal energy networks (TENs). These changes lay the foundation for a broader market for geothermal development in Texas, encouraging new investment in clean, dispatchable energy resources.

The legislation positions local communities to play a more active role in the state’s growing geothermal sector by giving them tools to plan, fund and manage geothermal projects at scale.

This bill was signed by Gov. Abbott and will take effect on September 1, 2025.

SB 879: Regulatory Relief for Closed-Loop Geothermal Projects
SB 879 delivers targeted regulatory relief for closed-loop geothermal systems, helping reduce development costs and simplifying permitting. The bill removes several oversight and fee requirements that previously applied to geothermal injection wells, further supporting geothermal’s role as a firm, dispatchable energy source in Texas.

Particularly, under SB 879, closed-loop geothermal wells are now exempt from certain Texas Railroad Commission regulations, reflecting their lower environmental and operational risk. In addition, reporting requirements for geothermal injection wells have been reduced, and injection well application fees have been eliminated.

These regulatory updates lower administrative and financial hurdles for developers, helping accelerate deployment of geothermal systems that provide reliable, dispatchable electricity. By easing the burden on closed-loop technologies, Texas continues to position itself as a leader in geothermal innovation and grid resilience.

SB 879 has been signed into law by Gov. Abbott and take effect September 1, 2025.

Taken together, these bills reflect a growing bipartisan commitment to unlocking Texas’s geothermal potential by lowering barriers to development, expanding financing tools, and clarifying regulatory treatment. With geothermal now formally recognized as a dispatchable energy source eligible for TEF incentives, and local governments empowered to treat geothermal infrastructure as public works, the stage is set for broader deployment of this clean, firm power source. While larger structural reforms remain on the horizon, the 2025 session delivered meaningful progress—offering developers greater certainty and signaling to investors that geothermal has a firm foothold in Texas’s evolving energy mix.

Conclusion
As Texas moves to position itself as a leading player in geothermal energy development, understanding the nuances of these laws is crucial for developers, investors and operators in this sector. Pillsbury’s multidisciplinary team possesses deep experience on the legal issues facing all phases of geothermal energy projects and investment, from initial site acquisition and permitting to financing, regulatory compliance and operational considerations. Our attorneys are well-equipped to provide strategic counsel on the implications of these legislative changes, ensuring that clients are positioned to effectively navigate this evolving legal landscape.

(This alert is the first in our Texas Legislative Session 2025 in Review series, designed to help readers navigate the evolving legal landscape and prepare for what lies ahead. In it, Pillsbury’s multidisciplinary team of attorneys offers in-depth analysis of the most consequential developments—what passed, what stalled and what it all means for stakeholders across key industries.)