Policy recommendations for more geothermal energy production in Europe


In the European context and as a clean technology, geothermal energy falls within the ambit of the EU energy policy. During 2019 and 2020, the EU has signalled its intent to become a net-zero bloc by 2050 by launching several large strategic initiatives intended to decarbonise all aspects of life. The 2020 pandemic has accelerated the implementation of these measures, with the EU seeing decarbonisation as the means not only of economic recovery, but also of sustainable growth thereafter.

The policies relevant to geothermal are:

  • European Green Deal (European Commission 2019)
    • Includes the European Green Deal Investment Plan (EGDIP) which is the main conduit for funding for enterprises and communities transitioning to carbon neutrality
  • European Recovery plan (European Commission, 2020a)
    • Covid stimulus package reinforces 2050 goal as the key to growth
    • Ties to the European Green Deal.
  • Energy System Integration (European Commission, 2020b)
    • Reforms to integrate generation and consumption in pursuit of 2050 goals.
    • Market interventions and reform, infrastructure development

S4CE study has observed that geothermal’s potential to contribute a larger proportion of the EU and global generation mix continues to be inhibited by the following factors.

High capex acts as a deterrent for developers. Capital expenditure and therefore risk is concentrated at the front end of deep geothermal projects, specifically in exploration and drilling operations. Up to 50% of the total cost of a deep geothermal project is generation. This has a deterrent effect. Policies and incentives introduced to encourage investment in geothermal specifically have met with varying degrees of success e.g. many have ignored the major commercial risks in the exploration and drilling phases in favour of supporting the operational phase of a project. Latterly, this has been corrected with policy instruments such as loan guarantees and drilling failure insurance exerting a more positive influence. However, concerns persist about the administrative efficiency of permitting, licencing etc.

Predominance of application and site-specific plant. Custom-built components lead to bespoke manufacturing processes that raises costs. Furthermore, many turbines are design-optimised for electricity production to the detriment of heating, cooling or combined heat and power (CHP) applications.

High materials costs. Due to the aggressive nature of geothermal fluids and environments (which can lead to scaling, corrosion and erosion) advanced corrosion resistant alloys and non-metallic materials are required for geothermal plants, driving costs up.

Insufficient public funding for demonstrator plants. Demonstration facilities are critical for taking high Technology Readiness Level (TRL) innovations into industry successfully.

Inflexibility/inefficiency of power plant operation. Current installed geothermal generating capacity lacks the flexibility to respond quickly to the fluctuating output of renewable generation technologies such as wind and solar.

The European Green Deal and EGDIP have the potential to be transformative for the geothermal industry. A positive indication of this is the approval this month of a €150M investment in Romania to construct or upgrade a series of district heating generation and distribution systems to be powered by renewables, including geothermal. In parallel, the European Geothermal Energy Council (EGEC) has launched its ‘Geothermal Decade’ initiative, which aims to facilitate the rapid expansion of geothermal growth over the next ten years. Other funds linked to the Green New Deal that geothermal is suited to Clean Energy for EU Islands, Coal Region Transition, Just Transition Fund, and the Innovation Fund.

As well as direct development funding of geothermal programmes, policy interventions to reform European wholesale energy markets are being called for. The geothermal industry via the EGEC and others is growing increasingly vociferous in its criticism of the European Green Deal for allegedly disregarding the decarbonisation of heating and cooling (a geothermal strength) as well as electricity generation.

Heating and cooling is claimed to represent 50% of the total energy demand in the EU and is produced largely by gas-fired power plants. Creation of a competitive and transparent European wholesale heat market is the ideal way forward. This would replace the current gas market with its perceived ‘direct and indirect subsidies’ that impede the development of geothermal as a viable renewable generation technology. It is observed that the gas is unduly favoured in other areas of EU energy policy too, such as the EU’s Hydrogen Strategy with its perceived reliance on ‘blue’ hydrogen (i.e. derived from methane) as an interim technology while ‘green’ hydrogen scales up.

Any policy recommendations should factor in the effect of pandemic as well. The S4CE study observed that Covid-19 has had a limited and short-term effect on geothermal energy with neither operations nor new build significantly affected. This is in common with the whole renewable sector. The pandemic none withstanding, geothermal is set to grow by 7% by 2022, with most growth seen outside the EU. Significant growth within the EU is inhibited less by Covid and more by challenges concerning project risk, and operational efficiency and flexibility. The firm direction the EU has set out on in pursuit of a net zero bloc by 2050 presents opportunities that could advance geothermal significantly. The study recommends that reform of wholesale markets to accommodate renewables may be needed to realise geothermal’s potential.

Author: Dr Vipin Pillai, TWI Ltd, Cambridge, UK