The key to Europe's district heating lies deep under the ground

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In a nutshell:

As a CO2-free baseload renewable energy source with the greatest potential, but also one of the largely misunderstood climate-friendly energy sources, deep geothermal energy has huge potential for revolutionising the energy industry all over the world and making it future-proof. Especially in Eastern Europe, deep geothermal energy could supply the existing heating systems with electricity in a climate-friendly way and independently of fossil fuels, stabilise heating prices and create an added value on a regional level.

Geothermal energy is heat stored in rock layers deep beneath the Earth's surface. Part of the heat comes from the Earth's hot core, while most of it originates from radioactive decay of natural elements in the Earth's mantle. The deeper the rock layer, the higher the temperature. Importantly, at a temperature of 20-40°C, it is already possible to generate heat for use in residential heating systems.

 

Near-surface geothermal energy covers drillings at depth of about 400 m and temperatures of up to 25 °C and is used solely for generating heat. Deep geothermal energy, however, uses heat originating from much deeper rock layers part of which have a temperature of over 100 °C and are thus also suitable for generating electricity. This article, however, will focus only on generating heat from deep geothermal energy. Deep geothermal energy can be stored either in water-bearing layers located deep in the earth, the so called aquifers (hydrothermal systems), or in hot dry rock (petrothermal systems). Due to their nature, hydrothermal systems are easier to exploit in technical and economic terms, because the warm water can be pumped directly to the surface (production well), where it heats up – by means of heat exchangers– another medium (e.g. water) which is then used for district heating or for generating electricity. The cooled thermal water is then pumped back into the water-bearing layer (reinjection well), where it heats up again and can be used again. In petrothermal systems, however, water must be first pumped into the hot dry rock layer where it heats up and can be used then. This system is also called EGS ("enhanced geothermal systems"). As long as the geothermal energy resources are exploited wisely, they are – as far as possible to tell– a limitless source of energy.

 

 

Figure 1: Procedure for exploiting geothermal deposits at various depths (source: Bavarian State Office for the Environment) (Source: LFU Bayern)
(Click to enlarge)

 

Although, unlike hydrothermal systems, petrothermal resources technically can be deployed for universal purposes, their economically viable use is currently limited only to a first pilot geothermal power plant in France's Soultz-sous-Forêts (50km north of Strasburg). The majority of projects in Europe, however, are implemented in form of water- and vapour-dominated geothermal systems.

 

 

Advantages of deep geothermal energy

In addition to the fact that geothermal energy is completely emission-free and thus climate-friendly, one of the prominent advantages of this source of energy lies in its base load and controllable nature. As opposed to other renewable energy sources such as wind and solar, which can be used only periodically if not stored, it is possible to produce heat from deep geothermal energy at any time depending on the level of demand. This enables deep geothermal energy to supersede regional base load power plants which are currently still oil- and gas-powered. Thanks to the controllable nature of this form of energy generation, no daily or seasonal storage is necessary. As far as possible to tell deep geothermal energy is available limitlessly, which is advantageous both for suppliers and for consumers, because there are usually no bottlenecks in the power supply and thus stable supply can be ensured.

In addition, geothermal power plants take up much less space than for example solar power plants offering the same supply levels. Thus, also in terms of land use deep geothermal energy is a quite promising form of energy for the future.

 

Not least, the local use of deep geothermal energy also creates an added value on a regional level: From creating new jobs and exploring new energy sources and opportunities for exporting know-how to increasing the standard of living thanks to low-emission heating technology – deep geothermal energy is beneficial both to the region and to the entire country in the long term.

 

In Germany, exploitation of geothermal energy is subject to the Federal Mining Law. This legal framework is very investor-friendly and guarantees that the investor retains ownership of the resource. In addition, when it comes to feeding in the generated electricity, electricity projects enjoy a preferential treatment and fixed tariffs over a period of 20 years. In the area of heat, the minimum term of agreements is usually 10 years.

 

Challenges

Naturally, energy projects involve a range of challenges. As is the case for most renewable energy projects, the largest part of the costs is incurred for the construction of the power plant. When it comes to deep geothermal energy, the high start-up investment costs arise from the cost-consuming exploration and drilling phases. Here, investor consortia can become involved in order to acquire the required capital and enable developers to generate the desired rate of return.

 

In addition, it is necessary to conduct a range of preliminary surveys such as e.g. seismic tests, which will help initially assess where to explore deep geothermal energy resources in as risk-free as possible a manner; such surveys are a prerequisite for preliminary geological research and for obtaining permits.

 

Despite the surveying activities, it cannot be ruled out that a borehole turns out to be “dry”, that is, that it will not be possible to exploit enough energy from there. Even if, for example, in Bavaria, only 2 out of 37 boreholes turned out to be unsuccessful, then –at the level of an individual project– this would mean hefty losses. Naturally, investors prefer therefore projects ensuring professional and independent risk management. Informed risk identification helps to take measures necessary for either completely avoiding or limiting, mitigating or transferring such risks. As shown on figure 2, risk policy measures enable mitigating the general financial risk, leaving the residual financial risk at an acceptable level – something that project developers can take.

 

 

Figure 2: Risk management phases 

(Click to enlarge)


Another challenge is the fact that a relatively high amount of venture capital will be tied up in the investment over a relatively long term. In terms of particularly financially attractive electricity projects, this means a venture capital requirement running to the tune of tens of millions of euros per project. In the case of heat projects, the share of drilling costs is lower.

 

In addition, geothermal energy is subject to a host of court rulings from different areas. Depending on the country, geothermal exploration activities are subject to mining law, while hydrothermal resources are governed by water law. In this context, it is necessary to obtain, for example, permits for the exploration of heat in a specific geographical area, or drilling and construction permits, or to conduct environmental impact assessments (EIAs). Well-founded project management which takes into account appropriate time expenditure and workload for such activities, and appropriate legal consulting can be valuable instruments in the project implementation here.

 

Currently, geothermal energy is being accused by the heat sector of not being competitive with heat obtained from conventional energy sources, such as gas or crude oil, because their prices are currently record-low. But because these prices will increase again in the long term due to the more and more costly exploration and limited availability, as well as measures regarding the price of CO2 certificates, geothermal energy will have a significantly greater competitive edge in the future than conventional energy sources. Professional project management can also be a tool to ensure that the most attractive heat clients are bound by long-term agreements already before the start of the drilling phase.

 

Current status: Geothermal energy in Europe

Currently, there are over 5,000 district heating networks in Europe, located mainly in Western and Central Europe and in Scandinavia, out of which only 280 are powered using geothermal energy. But the potential for geothermal district heating is much greater.

 

From all European countries, Iceland was the country to produce by far the largest volume of geothermal-sourced district heat in 2015 (6,421 GWh). Iceland completely outpaced France, which took the second place (1,335 GWh) and significantly outdistanced Germany (662 GWh).

 

 

Table 1: Top 7 countries heat generation in 2015 (source: EGEC, 20171)

 

Potential for future development of deep geothermal energy especially in Eastern Europe

The potential of geothermal district heating is still largely untapped in Europe, given the fact that this technology has the potential for becoming a solution for supplying Europe with heat in the long term independently of fossil fuels and sustainably in a CO2-free manner. Western Europe is already prepared for advancing this trend, but Eastern Europe, where there are abundant geothermal resources, is still lagging behind.

 

Especially the Pannonian Plain is a relatively good site to explore the geothermal potential because there are hydrothermal reservoirs with temperatures of 90 °C and more at only 2000 metres under the ground. The following figures illustrate the distribution of the resource in this region:


Figure 3: Water-bearing permeable rock layers in the Pannonian Plain (source: http://geodh.eu/)
(Click to enlarge)

 

 

Figure 4: Temperature distribution map at depth of 2000m in the Pannonian Plain (temp. > 90°C)
(Click to enlarge)

 

A detailed analysis of data concerning geoDH2(a study which analysed the potential and market conditions for geothermal district heating in overall 14 European countries) shows that there are over 120 district heating networks of this kind in Hungary, Slovenia, Croatia and Slovakia alone, which are currently fuelled using fossil fuels while being located close to geothermal resources with temperatures of over 90 °C at only 2000 metres under the ground, which are perfectly suitable for exploiting deep geothermal energy for district heating purposes. The figure below shows the distribution of those networks in the said four countries.

 

 

Figure 5: Number of district heating networks close to areas with high deep geothermal energy potential in Hungary, Slovenia, Croatia and Slovakia (total: 121

 

These countries offer in particular the opportunity for switching from ageing fossil-fuelled district heating systems to deep geothermal. This enables district heating network operators to operate their heating systems not only in a more consumer-friendly manner but also independently of fossil fuel imports, and at the same time create an added value for the region due to the climate-friendly supply of heat.

 

In terms of figures, the switch to geothermal for those 121 heating systems alone would enable saving over 119 million tons of CO2 equivalent. Because currently the majority of district heating networks in Hungary, Slovenia, Croatia and Slovakia are powered using natural gas3, the following sample calculation assumes that only natural gas is used for the entire energy generation: Assuming that a geothermal power plant for one of such networks has an average installed base load capacity of 15 MWth and operates all year round (8760 hours per year), all power plants can generate 16 TWh in consumable heat per year4. ccording to the following table, this represents about 4 million tons of CO2 equivalent per year.

 

 

Table 2: Greenhouse emissions for heat generation using 100% gas
(Source: GEMIS, available from: http://iinas.org/gemis-download-121.html)

 

In a horizon of over 30 years, this means CO2 equivalent emissions savings of over 119 million tons alone in these four countries, which is more or less equal to the level of annual emissions produced by all cars in Germany, Croatia and Hungary altogether. In financial terms, these avoided CO2 emissions mean savings of nearly EUR 916 million in der region over the said 30 years.

 

In financial terms, these 119 million tons of CO2 equivalent emissions savings translate to savings in the CO2 avoidance cost in the region. Apart from the four discussed countries, there are numerous other district heating networks all over Central and Eastern Europe in close proximity to geothermal resources which are also perfectly suitable for the supply of heat.

 

The option to switch the already existing district heating networks to geothermal DH systems instead of constructing completely new geothermal district heating networks could be a reasonable way of furthering the topic of producing heat from deep geothermal energy in the region. First of all, this technology enables saving costs which would be otherwise incurred for the construction of completely new district heating networks and helps learn more about technologies of exploring deep geothermal reservoirs. This experience and finding can be then used for implementing projects with significantly greater scopes.

 

In some cases, it will even be difficult to switch the existing district heating networks completely to deep geothermal energy at once; here, the first step could involve partial integration with deep geothermal energy. Depending on the size of the network, for example, 30% or so of the network could be first switched to the new technology. A deep geothermal power plant with 10MWth capacity alone can replace nearly 88 GWh p.a. of heat from fossil fuels.

 

Deep geothermal energy is developing into one of the most important sources of renewable energy alongside wind and solar power: In 2017, geothermal capacity of 792 MW was installed worldwide for use in electricity, which increases the capacity to a total of 14,060 MWel5. For this electricity production, thermal capacity of over 140 GWhth is constantly required. The key to Europe's long-term climate-friendly supply of heat lies in deep geothermal energy, and manifold opportunities for implementing various heat projects are opening up to investors and contractors implementing deep geothermal energy projects.

 

Challenges of deep geothermal energy development in Eastern Europe

Potential deep geothermal energy project developers in Central and Eastern Europe currently see themselves faced with a number of barriers whose complexity and scope vary from country to country. For example, in Slovenia, the district heating market is partially closed to market newcomers, or gas prices are regulated and the connection to the gas grid is mandatory. The last barrier is also present in Bulgaria, the Czech Republic, Poland and Hungary, which naturally strongly hinders competition in the heat sector. Countries such as Poland and Slovakia barely support deep geothermal energy endeavours; but Slovakia’s Energy Minister László Sólymos is currently considering phasing out coal power and transitioning to renewable energy sources, as part of which the region around the city of Nitra in Western Slovakia could switch to the deep geothermal energy technology.6

 

The lengthy and burdensome administrative procedures in Slovenia and Hungary or regulatory gaps (such as e.g. lack of regulatory law on the exploitation of deep geothermal resources) in the Czech Republic are another factor hindering the development of the deep geothermal energy sector.7 

 

These barriers are the reason why the existing deep geothermal energy resources are not exploited yet in some (Eastern) European countries despite their large potential for use in heating systems. 

 

In order to untap the immense technical and financial potential for deep geothermal heating, the geoDH study8 identified the following key factors that should be included in a comprehensive framework enabling the development of this technology:

  • National and regional rules must include a definition of geothermal energy resources and related terms in line with Directive 2009/28/EC.
  • The rules concerning the authorisation and licensing procedures must be proportionate and simplified, and transferred to regional (or local, if appropriate) administration level. The administrative process must be reduced.
  • Information on geothermal resources suitable for district heating networks should be freely available and easily accessible.
  • Ownership rights should be guaranteed.
  • Rules for district heating (DH) should be as decentralised as possible in order to be adaptable to the local context; in addition, the minimum share of renewable energy sources in the total energy consumption should be determined in line with Article 13.3 of Directive 2009/28/EC.
  • In line with Article 13 of Directive 2009/28/EC, administrative procedures for geothermal licensing should be simplified as far as possible and the burden on the applicant should reflect the complexity, cost and potential impacts of the geothermal project which the license or authorisation is being applied for.
  • A unique authority issuing permits for geothermal energy exploration projects should be established.
  • Policy-makers and civil servants should be well informed about geothermal energy.  
  • Technicians and energy service companies should be trained in geothermal technologies.
  • Legislation should aim to protect the environment and set priorities for the use of underground resources: for example, deep geothermal energy should be given priority over other uses (e.g. over fossil fuels, CO2storage, or nuclear waste repositories).
  • The public should be well informed about geothermal energy and consulted about geothermal project development in order to build greater public acceptance for geothermal projects.

 

In Africa and Latin America, the following funding initiatives have been successfully implemented so far to support geothermal projects: The Geothermal Development Facility (GDF) fund in Latin America offers investment grants at all project implementation stages from the research phase through to drilling and construction to creating a forum in order to encourage the dialogue with political decision-makers and partnering governments. As the first climate initiative in the Latin American region, financed by multiple sponsors such as KfW Entwicklungsbank, Central American Bank for Economic Integration, CAF – the development bank of Latin America, and Inter-American Development Bank, the GDF initiative plays a pioneering role in this concept developed by Rödl & Partner. Similarly as the GDF, the Geothermal Risk Mitigation Facility (GRMF) fund of the African Union Commission (AUC) and KfW Entwicklungsbank, where Rödl & Partner acts as the fund manager, supports geothermal projects in East Africa by providing funds contributed by the German Federal Ministry for Economic Cooperation and Development, the EU-Africa Infrastructure Trust Fund, and DFID (UK). To considerably encourage the development of deep geothermal energy in Eastern Europe, a comparable fund would be a perfect solution for the above-mentioned reasons to support the market in Eastern Europe. The EGEC / IGA associations are already in talks with the EU Commission about it.

 

Although a geothermal project is economically viable also without financial support, it is nevertheless important that municipalities with district heating networks close to deep geothermal resources do not cease to insist on obtaining support, both financial and regulatory, for the exploration of those deposits from both their national and the EU government.

 

Rödl & Partner has wholly owned offices or reliable associates in nine of the ten countries with the largest installed geothermal capacity. We have long experience in all phases of implementing geothermal projects, from risk and capital raising, through to feasibility studies, to well-founded project management and optimal coordination of geological, technical, financial, legal and organisational aspects of the project.

 

__________________________

1 EGEC, 2017. Geothermal Market Report 2016: Key Findings.
2 Geo = geothermal; DH = district heating

3 Mikulandric, R., Krajacic, G. (UoZagreb): Faculty of Mechanical Engineering: „Perspectives of district heating systems in Eastern Europe” [PDF] (24 – 26 March 2013)
4 15 MWth installed capacity x 8760 h p.a. x 121 power plants = 15.8 TWh
5 Richter, 2018. Top 10 Geothermal Countries based on installed capacity – Year End 2017. [Website] Think Geoenergy

6 Richter, 2018. Geothermal energy could help in transition from coal to Slovakia. [Online Articel]
7 geoDH, 2015. Developing geothermal district heating in Europe. [PDF]

8 ibid

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