Geothermal is one of those energy sources that you know is there, but you don't hear about much. Until it comes rushing to the surface, as it did with this week's announcement that AltaRock Energy has closed a second round of financing worth $26.25 million, bringing the geothermal firm's total venture funding to about $30 million. The new investors are Paul Allen's Vulcan Capital, Google.org, and Massachusetts-based Advanced Technology Ventures, which joined existing heavy hitters Khosla Ventures and Kleiner Perkins Caufield & Byers.

I caught up with AltaRock CEO Don O'Shei yesterday to get his take on the deal. (Vulcan declined to comment for this story.) AltaRock "could not be more excited about what this financing, being made by such a knowledgeable group of investors, means for us and for the future of renewable energy," said O'Shei. As he explains, "It's about the transformative nature of engineered geothermal systems. Google, ATV, and Vulcan are very savvy investors, pretty good at sorting out what are smart bets and what are unattractive bets. It confirms what we think about the market...and it shows a general acceptance of the need for renewables by the broader financial markets."

AltaRock is based in Sausalito, CA, but was founded in Seattle last year and has its technology development office here. The startup focuses on engineered geothermal systems, which differ from conventional geothermal in that the reservoirs of hot, subterranean water are created artificially instead of having to be discovered. Cold water is pumped down two or three miles below the surface of the earth, fracturing the rock and creating fissures into which the water flows and gets heated under intense pressure. As the hot water rises to the surface, its heat is extracted as steam, which turns a turbine and produces electricity.

Geothermal is still a small piece of the energy pie, but that could change. A 2007 study led by the Massachusetts Institute of Technology estimated that engineered geothermal could provide up to 10 percent of the United States' electricity needs within 50 years, at costs that are competitive with fossil-fuel plants - provided there is enough investment and improvements in the technology. The latest investment in AltaRock seems to be a solid step in that direction.

For instance, to bring down the cost of geothermal power, O'Shei says, companies like AltaRock will try to increase the volume of rock they can fracture to increase their energy yield, as well as make the electricity-generating equipment on the surface more efficient - if and when geothermal becomes a large-scale market. What's more, AltaRock got an exclusive license this year from Los Alamos National Laboratory for geothermal technology that uses liquid carbon dioxide instead of water. That might help sequester carbon, as well as save water - important factors for down the road.

But some challenges of geothermal energy production remain. Besides water becoming scarcer, there are the high costs of construction and drilling, and chemical emissions from geothermal plants. O'Shei addressed each of these points. "We require water upfront to do the fracturing, but that lasts for a week or 10 days." Once the plant is operating, he says, 98 to 99 percent of the water in the reservoirs is recycled - which should work out to less water used per unit of power than a typical fossil-fuel facility. As for costs, O'Shei says, "[Engineered geothermal] is capital intensive, but you're buying upfront the lifetime cost of your plant. Geothermal is considered non-cost-volatile, so utilities are very positive and receptive to it." Lastly, he explains that although minerals and gases tend to be emitted from the geothermal energy-extraction process, the water in systems like AltaRock's has not been in the earth accumulating chemicals for thousands of years, as is the case with conventional geothermal plants. "We're putting basically potable water in the ground," he says.

The latest funding round should last AltaRock through the end of next year, says O'Shei. Before then, the company plans to test its engineered geothermal system at an undisclosed site in the western U.S. There, O'Shei says, AltaRock will drill a pair of wells in the earth, fracture the rock between them, and aim to produce steam at the well heads. The engineering team will try to demonstrate that a given amount of fracturing can produce around 3 Megawatts of electricity - and it will look to develop technologies to create multiple fractures over a larger volume of rock, to raise the power output.

All of this is ultimately necessary, O'Shei says, "to make geothermal the ubiquitous problem solver it can be, to become the approach of choice for baseload power." And that, ultimately, is what some smart investors are betting on.