| Abstract |
This paper aims to highlight the main financial barriers to, and the needs for the development of geothermal technologies, and to propose innovative and differentiated tools for funding both geothermal heat - which has received less attention to date - and geothermal electricity. To this end, this document puts forward key recommendations for designing new and improving the functioning of existing public support schemes. • Support schemes are crucial tools of public policy for geothermal to compensate for market failures and to allow the technology to progress along its learning curve. By definition, they are temporary and shall be phased out as this technology reaches full competitiveness; • Market failures and unfair competition prevent full competition in the electricity and heat markets, while the current capital crunch obstructs the necessary private financing mobilisation to realise the enormous geothermal potential; • Geothermal technologies hold significant potential for cost reduction. This document details specific aspects and recommendations on how to reduce costs; • Innovative financing mechanisms (Figure 14) should be adapted to the specificities of geothermal technologies and according to the level of maturity of markets and technologies; • A European Geothermal Risk Insurance Fund (EGRIF) is seen as an appealing public support measure for overcoming the geological risk. As costs decrease and markets develop, the private sector will be able to manage project risks with, for example, private insurance schemes, and attract private funding; • While designing a support scheme, policy-makers should take a holistic approach, which goes beyond the LCoE and includes system costs and all externalities. As an alternative, there is the chance to offer a bonus to geothermal for the benefits it provide to the overall electricity system: flexibility and base-load; • Geothermal heat technologies are heading for competitiveness, but support is still needed in certain cases, notably in emerging markets and where a level-playing field does not exist. In addition, there is a need for an in-depth analysis of the heat sector, including about the best practises to promote geothermal heat, the synergies between energy efficiency and renewable heating and cooling, and barriers to competition. • Given the level of maturity of innovative geothermal technologies and the negligible support received so far, it seems premature to talk about the need for more market-based mechanisms or even phase-out financial support for geothermal. |