Geothermal power U.K. with more government support

London, June 15, 2012 — Deep geothermal resources in the U.K. have the potential to provide around 83 TWh of electrical energy annually, which is around 20 percent of the nation's annual electricity consumption, and 875 TWh of heat energy each year, which is more than sufficient to supply the total current space heating and water heating requirements in the country.

The energy used for heating in the U.K. each year amounts to around half of its total energy consumption. The energy demand for space heating in the U.K. is about 400TWh each year, and the annual water heating demand is around 105 TWh.

The new report, "Geothermal potential in Great Britain and Northern Ireland" (May 29, 2012), is the first thorough study of the potential for geothermal energy in the U.K. since the 1980s. Deep geothermal hotspots are well distributed around the U.K. in Cornwall, Weardale, the Lake District, East Yorkshire, Lincolnshire, Cheshire, Dorset, Worcester, Hampshire, Northern Ireland and Scotland.

Although the identified hotspots contain enough energy to supply much of the space and water heating requirements in the U.K. through a series of commercial projects, technical complications surrounding large-scale projects are likely to limit the effective use of geothermal heat to the communities closest to the hot spots, covering less than a quarter of the U.K. population for a level of demand that will vary seasonally.

Geothermal electricity may be more widely distributed than heat and does not face the same constraints as heat transfer, which allows for a greater proportion of the generation potential to be realized. In order to increase the amount of geothermal energy produced in the U.K., government support needs to be increased to stimulate investment in the under-developed industry.

Investment in the U.K.'s geothermal industry needs to be internationally competitive if it is to succeed. In Europe, Germany is offering the most appealing investment opportunities, with its current support for geothermal electricity generation being the equivalent of around GBP300/MWh or five U.K. Renewables Obligation Certificates (ROCs), while U.K. support has recently been proposed to remain at two ROCs, or around GBP130/MWh.

The Renewables Obligation banding review is due to be announced imminently, and will determine government support until 2017. The geothermal industry hopes that support will be increased to five ROCs when the new support levels come into effect in April 2013, bringing the level of support in line with that for wave and tidal power, which is considered to be in a similar state of infancy. The low number of initial projects for geothermal power would result in a relatively low extra cost to the government of around GBP11m per annum.

Geothermal heat is less costly than geothermal electricity generation, but it also needs a competitive tariff in the second phase of the renewable heat incentive scheme in order to progress. This is due to come into effect in September 2013, and the suggested rates for stimulating growth in the sector are GBP30/MWh for combined heat and power projects, GBP50/MWh for direct heat projects of over 5 MW, and GBP70/MWh for low level heat projects of under 5 MW.

These tariffs would be expected to increase the cost of the RHI scheme by GBP1.3m per year, but considering the contribution that deep geothermal energy may make to the U.K.'s energy supply, this is one of the most economical ways for the government to substitute the consumption of fossil fuels with renewable energy and reduce emissions.

Costs for deep geothermal heat and power have been considerably reduced since 2009 and are predicted to continue to fall. Techniques for fracturing granite and extracting energy have improved; along with improved surveys, this has shown that greater energy resources exist in the U.K. than had been previously thought.

Government support is definitely needed to improve the bankability of geothermal heat and power in the U.K., with a greater level of support required to make electricity generation economically viable if the resource is to be exploited. As well as determining the most suitable levels of financial support, the best methods of providing support are also going to be crucial to the success of any government backing.

However, there is also a considerable level of uncertainty in the data provided by recent surveys in terms of temperature gradients and the permeability of hot rocks, which cannot be ignored when making these decisions. Although some test wells have proven data, there is a high capital cost of exploration for new projects and start-up wells, and the risk of drilling unsuccessful wells remains high.

A level of risk insurance would go a long way to stimulating investment in the U.K.'s geothermal industry, and the imminent announcement of the government's renewables obligation banding review will be crucial in determining the future of the U.K.'s deep geothermal industry. Unless support for the industry increases dramatically, a huge renewable energy resource in the U.K. will remain unexploited.

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