Veteran specialist investment firm EIG Global Energy Partners is betting on the nascent geothermal sector with plans to raise as much as $225 million for a new fund to help project developers implement new methods to extract hot fluid from subterranean depths and turn it into power.

The Washington-based energy-infrastructure firm, which so far has raised roughly $150 million for EIG Geothermal Catalyst Partners, has already backed its first deal from the fund. In August it invested in Power Planet, which is developing the Star Peak geothermal project in Nevada.

The firm has backed a handful of geothermal developers during the past 15 years, and decided to create a dedicated strategy in response to a request from a group of investors interested in expanding their holdings across the sector, said Chief Executive Blair Thomas. EIG ended June with $27.1 billion in assets across both renewable and fossil fuel-related energy sectors.

"We created the vehicle specifically for those clients," Thomas said. "But now that it exists, we'll look to expand it and bring in other investors."

For decades geothermal developers focused mainly on drilling wells to tap the world's few natural sources of subsurface heat, such as geysers in Northern California, and use those sources to produce electricity.

In recent years, a number of startups adapted hydraulic fracturing and directional-drilling methods from the oil-and-gas industry to develop so-called enhanced geothermal systems.

Such projects typically involve pumping water under pressure into miles-deep wells to crack open rocks and absorb their heat before driving it back up through another, nearby well. Once at the surface, the oven-hot liquid provides enough heat to drive a power generator.

Those new technologies could significantly increase potential geothermal sources across the U.S. and help the country meet surging electricity demand from new factories and data centers running artificial-intelligence systems, industry analysts said. Geothermal projects accounted for only 0.4% of the nation's utility-scale electricity last year, according to the U.S. Energy Information Administration. Most projects tapping underground heat with new technologies are in states such as Nevada, Oregon and Utah.

"There is plenty of hot dry rock underground in the American West. If you can make this work, the magnitude of that resource is enormous," said Joseph Osha, a senior managing director and equity research analyst at investment bank Guggenheim Securities. He focuses on energy-technology sectors.

Geothermal companies are increasingly appealing to investors, Osha said, citing Fervo Energy's $1.89 billion initial public offering in May.

Like other enhanced-system developers in the U.S., Fervo initially was backed by venture-capital investors and federal grants, as the technology was considered too risky for traditional private-equity firms, according to industry analysts. Fervo's IPO changed that perception, indicating to the market that the company's technology gives it the potential to expand and helping draw more risk-averse investors to the sector, the analysts said.

Other recent deals also illustrate geothermal's growing appeal, including a recent $135 million growth investment in Mazama Energy led by family offices Centaurus Capital and Doerr Capital. Also, there was the $180 million investment last month in Quaise Energy by investors that included oil and gas-drilling company Nabors Industries, as well as Japanese power producer Jera and refinery operator Idemitsu Kosan.

Energy drawn from the ground can provide the round-the-clock power supply that data centers require, giving geothermal an advantage over weather-dependent solar and wind sources, while the sector can also benefit from continuous improvements in shale-drilling technologies, Osha said. Many geothermal companies are staffed by former oil-and-gas professionals, including Tim Latimer, Fervo's CEO and co-founder.

"What's interesting about geothermal-energy businesses is that they are kind of riding this cost-reduction curve provided by the oil-and-gas sector," Osha said.

Geothermal operators still must prove that they can be cost-competitive with natural gas-fired power plants, which increasingly supply data centers, Osha added. He pointed to the technical difficulties of drilling pairs of deep, hot wells in parallel for injection and production.

Fervo also has been plagued by other hurdles, such as power-transmission bottlenecks, that have helped push its shares down about 40% in the months since its IPO.

"This industry will rise or fall based on its ability to get these drilling costs down," Osha said about geothermal power producers.

The new geothermal fund from EIG somewhat departs from the firm's strategy of backing traditional energy businesses that use proven technologies. That's one reason why, at least for now, EIG will keep the new pool much smaller than what it typically raises for its other strategies, according to Thomas. Earlier this month, EIG wrapped up a $4 billion fundraising for a credit strategy backing energy infrastructure.

"I do think that, in this space, we are a little bit earlier in the life cycle," he said, referring to geothermal businesses. "There is a little bit more probing of what's the best technology."

Thomas added, however, that EIG is confident it can use its knowledge of both oil-and-gas drilling and electricity markets to help geothermal businesses expand.

"There's a lot of experimentation happening right now about ways to enhance recovery and make these projects more scalable and more economic. We are looking at all of those," he said. "Once we get conviction, we can put larger amounts of capital behind it and really try to scale it."