The U.S. Department of Energy is making its biggest geothermal push in decades. In February 2026, the DOE's Office of Geothermal (formerly the Geothermal Technologies Office) announced up to $171.5 million in funding for next-generation geothermal field tests and resource characterization drilling. That announcement follows a January 2026 initiative targeting 13 states for expanded use of geothermal power on the U.S. grid.
Together, these moves signal that the federal government sees geothermal energy — both for power generation and residential/commercial heating and cooling — as a critical piece of the clean energy transition. Here's what you need to know.
The $171.5 Million Funding Opportunity
On February 25, 2026, the DOE's Office of Geothermal announced a funding opportunity of up to $171.5 million targeting two key areas:
1. Next-generation geothermal field tests — funding for demonstration projects that test enhanced geothermal systems (EGS) and other advanced geothermal technologies in real-world conditions.
2. Characterization and confirmation drilling — funding to help developers de-risk geothermal projects by supporting the expensive early-stage drilling that confirms whether a geothermal resource is commercially viable.
Why This Matters
Drilling is the single biggest cost and risk in geothermal development. A typical exploration well costs $5–$10 million, and there's no guarantee of finding a viable resource. This funding directly addresses that "valley of death" — the gap between identifying a promising geothermal site and confirming it can produce energy economically.
For the residential geothermal heat pump industry, this funding is indirectly significant:
- Technology spillover. Advances in drilling technology and techniques developed for deep geothermal power plants eventually reduce costs for the shallow drilling used in residential ground-source heat pump installations.
- Industry growth. More geothermal power projects mean more trained drillers, more equipment manufacturers, and a larger workforce — all of which benefit the residential market.
- Public awareness. Major federal investments raise geothermal's profile, driving consumer interest in heat pump systems.
Context: DOE's Geothermal Budget Trajectory
This $171.5 million announcement is part of a broader pattern of increasing federal investment in geothermal energy:
| Year | Notable DOE Geothermal Action |
|---|---|
| 2022 | $84M for Enhanced Geothermal Shot initiative |
| 2023 | Utah FORGE project achieves key milestones; $74M in new awards |
| 2024 | $60M for community geothermal heating/cooling projects |
| 2025 | $1.5B private investment in geothermal sector (DOE market report) |
| 2026 | $171.5M for next-gen field tests + 13-state expansion initiative |
Note: Budget figures are approximate and represent announced funding opportunities, not necessarily final disbursements. We could not independently verify the 2024 community geothermal figure — it is sourced from DOE press materials and the exact amount may differ.
The 13-State Geothermal Expansion Initiative
On January 7, 2026, the DOE announced a separate initiative supporting 13 states interested in expanding firm, flexible geothermal power on the U.S. electrical grid.
While the specific states participating haven't been independently confirmed in our reporting, the initiative focuses on states with geothermal resource potential that haven't yet developed significant geothermal power capacity. The program aims to help state energy offices, utilities, and developers evaluate geothermal opportunities and integrate geothermal into state energy planning. We covered the state-level push separately in DOE's 13-state grid initiative.
"Firm and Flexible" — What That Means
The phrase "firm, flexible geothermal power" is significant. Unlike solar and wind, geothermal can provide:
- Baseload power — running 24/7 with ~90% capacity factor (vs. ~25% for solar, ~35% for wind)
- Dispatchable power — some geothermal plants can ramp up and down to balance intermittent renewables
- No fuel cost volatility — the heat underground doesn't fluctuate with global markets
As states add more solar and wind, they need "firm" clean energy sources that can fill the gaps when the sun isn't shining and the wind isn't blowing. Geothermal is one of the few renewable options that fits that role. The DOE is positioning geothermal as the clean baseload complement to variable renewables.
What This Means for Homeowners
If you're considering a geothermal heat pump for your home, federal investment in geothermal energy is good news in several ways:
The 30% Residential Tax Credit Has Expired
This is the one place where the news is not good. The 30% federal credit under IRC §25D applied to systems placed in service through December 31, 2025. It is not available for property placed in service after that date (One Big Beautiful Bill Act, P.L. 119-21). The Inflation Reduction Act had set a 30% rate through 2032 with step-downs to 26% in 2033 and 22% in 2034 — that schedule was repealed before any of those years arrived, so it never took effect.
Federal support for geothermal at the grid and commercial scale — including the funding described in this article and the commercial investment credits under §48/§48E — is a separate matter and was not repealed. But for a homeowner installing a residential ground-source heat pump, there is no federal credit today.
What that means for a residential installation:
| System Cost | 30% Federal Credit (expired for post-2025 installs) | Your 2026 Out-of-Pocket |
|---|---|---|
| $20,000 | $6,000 | $20,000 |
| $28,000 | $8,400 | $28,000 |
| $35,000 | $10,500 | $35,000 |
| $45,000 | $13,500 | $45,000 |
State and utility incentives are unaffected by the federal repeal and now carry more of the load. See our complete federal tax credit guide for the full history and what still applies.
Drilling Costs May Decrease
DOE-funded research into advanced drilling technologies — polycrystalline diamond compact (PDC) drill bits, millimeter-wave drilling, and other innovations — is pushing drilling costs down. A May 2025 DOE report highlighted how PDC drill bits are already improving the geothermal drilling process.
For residential installations, drilling typically represents 30–50% of the total system cost. Even a 10–15% reduction in drilling costs (plausible over the next 5–10 years as these technologies mature) would meaningfully reduce the price of a residential geothermal system.
More Installers, Better Training
Federal investment creates jobs. The DOE's geothermal workforce initiatives are expanding training programs and certification pathways. More certified installers means more competition, which tends to drive better pricing and quality for consumers. See our IGSHPA certification guide for the current installer landscape.
What This Means for Contractors
For HVAC contractors and geothermal installers, the DOE's 2026 push signals a growing market:
Industry Growth Trajectory
The 2025 U.S. Geothermal Market Report documented 3,969 MWe of installed capacity (up 8%), 26 new power purchase agreements, and $1.5 billion in private investment. The residential ground-source heat pump market has been growing at 10–15% annually since the IRA's passage in 2022.
Opportunity Areas
- States with new geothermal awareness. The 13-state initiative means state energy offices will be educating residents about geothermal. Markets in those states may see increased demand.
- Workforce gap. There aren't enough certified geothermal installers to meet growing demand. Contractors who get certified now position themselves ahead of the curve.
- Technology upgrades. New drilling technologies may enable cost-effective installations in areas where geology previously made geothermal prohibitively expensive.
For contractors considering adding geothermal to their services, see our guide on adding geothermal to your HVAC business.
The Bigger Picture: Why 2026 Is a Turning Point
Multiple trends are converging to make 2026 a pivotal year for geothermal energy:
Federal investment is at historic highs. The $171.5M funding opportunity is one of the largest single geothermal funding announcements in DOE history.
Technology is advancing rapidly. Enhanced Geothermal Systems (EGS) — which can create geothermal resources in locations without natural hydrothermal reservoirs — are proving commercially viable. The Utah FORGE project demonstrated a 65% reduction in drilling time using new techniques.
Data centers need clean power. The AI-driven data center boom is creating massive demand for 24/7 clean electricity. Geothermal's high capacity factor makes it ideal for this application, and tech companies are signing power purchase agreements with geothermal developers. Google, Meta, and Microsoft have all invested in geothermal projects.
The federal incentive picture split in two. The IRA's 30% residential credit was supposed to run through 2032, but OBBBA ended §25D for property placed in service after December 31, 2025. Commercial and utility-scale investment credits under §48/§48E were not repealed, so developers and businesses still have a federal framework to plan against — homeowners no longer do.
State-level momentum is building. Multiple states have added or expanded geothermal incentives. States like Massachusetts, New York, Connecticut, and Vermont offer substantial rebates. Note that the frequently cited "40–60% cost reduction when stacked" figure included the now-expired federal credit — the state-only portion is smaller. Verify current amounts with your state energy office or utility.
What Comes Next
The DOE funding opportunity likely has an application deadline in mid-to-late 2026 (unverified — specific deadline not confirmed). Awards would be announced afterward, with projects beginning in 2027. The residential and commercial impact of these investments will play out over 3–7 years as technologies mature and filter down to the installer level.
For homeowners, the practical takeaway is mixed. The technology and the installer base are getting better and the federal government is investing heavily at the grid scale — but the residential side just lost its 30% federal credit, so a system placed in service today costs meaningfully more out of pocket than the same system placed in service in 2025. Price your project at full cost, then see what your state and utility still offer on top.
This article is based on information published by the U.S. Department of Energy's Office of Geothermal. Items marked (unverified) are based on summary listings that we were unable to independently verify through the original DOE press releases at the time of publication. We'll update this article as additional details become available. Source: DOE Office of Geothermal.