| Keywords |
LCOH, economic, pricing, strategy, district heating, levelised cost of heat, Europe, competitivness, worldwide application, policy, legal, sustainability |
| Abstract |
To reach the EU’s climate goal of reducing emissions by 95% by 2050, an immense proportion of the district heating and cooling sector will rely on a steady supply of renewable base-load energy that only geothermal energy can provide in a sustainable way. Accounting for the majority of primary energy use in most countries, even before the electricity and transportation sectors, the heating sector harbours an immense potential to realise these climate goals. In contrast to other renewable base-load energy source like hydro power and biomass, geothermal energy can be used both on a large scale and in a considerable number of locations around the world. The thermal energy stored within 3 km of the Earth's crust is estimated at 43 x 106 EJ worldwide, more than 70,000 times of the world's primary energy consumption in 2012. Presently, however, there is a huge discrepancy between this huge potential of geothermal energy and the current state of development: There are numerous regions around Europe that are suitable for economically viable exploitation of geothermal energy for district heating for both residential and industrial applications but out of the more than 5,000 district heating systems in Europe, a mere 240 are powered by geothermal energy. This is despite the fact that the geothermal resource is very accessible: In Eastern Europe, for instance, there are a number of district heating systems that are located above hydrothermal reservoirs of 90°C and more at only 2,000m depth but which continue to run on natural gas imports, a commodity that is not only characterised by fluctuating prices but also by politically motivated artificial supply shortages. The geothermal resource below their feet could be used in existing heating systems with very little effort but project development continues to stagnate. The single most important reason for this less-than-stellar level of development so far is a lack of awareness among potential investors that geothermal heat and electricity projects are profitable. It is thus paramount for the industry to prove that geothermal energy is not only environmentally prudent and technologically feasible but that it is, most importantly, economically sound and thus preferable among all heat generating technologies. One economic measure to compare different heat generation technologies that naturally incur very different costs is the levelised cost of heat (LCOH). The LCOH assesses the average total cost of a heating technology over its entire lifetime per MWh, factoring in capital, operating expenditure and income as well as the discount rate. The LCOH may therefore also be considered the average minimum price the heat must incur over its lifetime in order to break even. An LCOH analysis among all heat generating technologies proves that geothermal energy is the best option for district heating for both residential and industrial applications. Although our analysis showcases projects in Europe as the continent leads the world in installed geothermal capacity by region, the study at hand has applications for the rest of the world. Indeed, the economic case for geothermal district heating must be made outside Europe as well to accelerate development in other regions of the world, particularly in light of the ever-increasing need to decarbonise the energy sector worldwide. N.B. We prefer to deliver an oral presentation on this topic rather than present it on a poster. Our reason for this is that a poster presentation does not do the importance of economic aspects of deep geothermal projects justice. Securing sufficient funding is the single biggest obstacle to more widespread deep geothermal energy development worldwide to date. Yet, economic topics like financing have been playing a surprisingly small role at conferences worldwide over the past few years. For the future progress of the technology, however, we consider it essential to attract investors who are willing to invest the substantial sums necessary for geothermal development by making the economic case for deep geothermal energy projects and presenting case studies. Their interest and motivation can, however, only be stirred if the topic of deep geothermal energy is presented in terms they understand and can act upon. In our humble opinion, the industry as a whole should place equal importance on the technology itself and on its economic realities. Neither aspect can be ignored if we want to accelerate deep geothermal development. We believe that placing equal emphasis on the economic aspects of deep geothermal energy, especially funding and attracting investors, as has been placed on the intricacies of technical aspects in the past is necessary for the technology to develop to the extent and within the timeframe that we all envision. As the leading professional services firm in the deep geothermal energy industry worldwide, we are well versed in arbitrating between investors and developers. Calculating a variety of investment and exit scenarios as well as cooperating with investors on behalf of developer companies on a daily basis gives us profound insight into the investor mindset and the kind of information that motivates them to invest in deep geothermal energy technology. Thank you for considering the above topic for an oral presentation. |