IGas Energy Plc                            GEO0017

Written evidence submitted by GT Energy

GT Energy (GTE) is delighted to submit a response to the above call for evidence.  GTE, now part of IGas Energy plc, is leading the way in the generation of geothermal heat for both business and domestic users. We identify, plan, develop, build, finance and operate deep geothermal heat generation plants in the UK.

In 2021, in association with the industry body for Renewable Energy & Clean Technologies (REA), we commissioned a new industry report on the economic and environmental importance of UK deep geothermal resource by the ARUP Group.  The Report estimates that, with immediate government support, the UK could deliver 360 geothermal projects by 2050.  This would include an estimated 12 projects being operational by 2025 with 1,300 jobs created and c.£100 million of investment flowing into the UK economy.

The full report can be found at https://www.igasplc.com/investors/publications-and-reports

Compared to other renewable energy technologies, geothermal is unique as it provides a base-load alternative to fossil fuels based electricity generation, but can also replace those used for heating purposes.

In his book “Our Choice – A plan to solve the climate crisis” from 2009, former U.S. Vice President Al Gore, wrote about geothermal energy  as the “potentially largest – and presently the most misunderstood – source of energy in the U.S. and the world today.”

GTE has a “shovel-ready” flagship, integrated deep geothermal and District Heating Network (DHN) demonstrator project in Stoke-on-Trent.  The project can access the Green Heat Network Fund (GHNF) launched in March 2022 but beyond 2025 there is no dedicated support available for the deep geothermal sector.

1. What role can geothermal technologies take in the transition to net zero in the UK?

The Committee on Climate Change stated that only decarbonisation of heat in the UK could deliver the major reduction in emissions needed to meet the 2050 net zero target.  By delivering, on average, 12 heat projects per year over the next three decades, the UK could expect to generate up to 15,000 GW hours (GWh) of heat from geothermal annually by 2050, saving c. 3 megatons of carbon annually.

This significant decarbonisation of large-scale heat can only be achieved through Government support, as has been successfully demonstrated in other European countries. Heating and hot water make up around 40% of the UK’s energy consumption and nearly a third of UK greenhouse gas emissions. The Durham Energy Institute estimates that there is currently enough deep geothermal heat energy to supply all of the UK’s needs for at least 100 years.

Geothermal heat, has the potential to significantly contribute to the UK’s Net Zero goals within a larger portfolio of energy solutions while also addressing security of supply concerns.  Geothermal energy offers flexible and dispatchable heat and power. There are currently a variety of places across the UK (in Cumbria, Cheshire, Greater Manchester, Tyne and Weir, Staffordshire, Hampshire and Dorset, Humberside, and Cornwall) which have both good geothermal prospects and existing heat users.

The development of 10 to 12 projects over the next 5 years would lead to 500 to 600 GWh of heat per year providing heat to the equivalent of up to 50,000 homes with investment in the order of £10 million to £40 million for each project. Geothermal could also deliver heat decarbonisation for lots of urban areas where heat pumps might not be feasible due to the scale of the heat requirement.

Based on the UK Government’s methodology[1] for estimating carbon benefits, it is possible to achieve carbon savings of around 1 million tons per year by 2050 if 100 heat projects are operational. If 10 to 12 projects can be developed within the next 5 years, a carbon saving of up to 80k to 100k tons per year can be achieved.

The Stoke-on-Trent City Council District Heat Network will use deep geothermal heat energy to produce  more than 50 GWh a year, save over 10,000 tonnes of CO2 a year and lower energy costs by up to 10%. It is the UK's first ever low-carbon heat network system of this scale, and will help heat thousands of homes and businesses across the city to transition to a low-carbon heating solution.

The UK has considerable deep geothermal potential for heating and significant  opportunities for power. Geothermal energy can provide a baseload source of energy where the resource is suitable. Furthermore, deep geothermal offers dispatchable power offering flexibility. Geothermal is, therefore, one of the renewable low carbon energy technologies able to support the deployment of variable energy sources within a flexible energy system.

We should particularly note areas with the greatest potential for geothermal are in strategic levelling up areas where jobs and investment will be especially valuable. Indirect jobs will come from industries that supply materials and services to the developers of geothermal projects including:

●       Manufacturing

●       Drilling fluids and parts

●       Haulage

●       Civil Engineering

●       Utilities and district heating installation

●       Building retrofitting / upgrades.

●       Operations and maintenance

In the Netherlands, at least 2 to 3 indirect jobs have been estimated to be created for every direct geothermal job[2].

Geothermal projects create jobs throughout all stages of the supply chain. The number of jobs created is proportional to the size of the project.  In countries with developing/ mature geothermal markets (for example Germany) a geothermal heating project can create up to 30 direct jobs and an electricity project can create c. 100 jobs, many of which are highly skilled.

Experience and skills from the UK Oil & Gas sector are directly transferable, in particular in the areas of exploration, planning and development of geothermal projects. Therefore, this offers a direct opportunity for re-skilling and re-directing jobs to the renewable energy sector.

Direct and indirect employment will be created in areas such as exploration, construction, operation & maintenance, planning, and research. Whilst exploration and planning phases can be short term for a single project, deep geothermal projects are generally long running businesses due to long-term agreements between developers and purchasers. In addition, once the market becomes de-risked from an investor’s perspective, project development professionals will move from project to project (similar to the construction industry).

360 projects by 2050 could create over 10,000 jobs and a further 25,000 indirect jobs. Many of which could be transferred from the oil and gas sector from existing north and Midlands workforces.

A UK supply chain can be established quickly by utilising existing skills and experience from the oil & gas sector supplemented by  the construction and manufacturing  industry.

Many elements of the supply chain already exist in the UK and can accommodate new  deep geothermal projects. However, there are opportunities to facilitate skills transfer from the O&G sector and to increase the available supply.

Drilling is the most capital intensive element of a deep geothermal project. Until the first boreholes are drilled and project capacity can be proved. There are no current supply chain constraints for the development of UK deep geothermal resources. If required, technologies can be imported from countries with mature geothermal markets, however reliance on the use of overseas vendors could lead to a missed  opportunity in the UK for utilising existing knowledge/skill-set from the O&G sector and  developing and enhancing our own supply chain

2. What barriers (technological, regulatory, or otherwise) are there to deploying operational geothermal technologies in the UK?

Currently, the UK lacks an established route to market for geothermal technologies and projects.  The non-domestic RHI scheme was closed to new applications in March 2021.

While the industry welcomes the inclusion of geothermal as part of the GHNF to help kick-start the sector, we would like to see the introduction of a new, dedicated public support for the sector – until it is fully established when this can be withdrawn or changed.   We would like to see a new ‘Geothermal Development Incentive’ to support the first 30 projects, and then an ambitious support scheme for low carbon heating generally to replace the RHI.

The capital expenditure (Capex) for deep geothermal heating projects varies based on the number and depth of the boreholes.  Following initial feasibility and exploration (c. 10% of project capex), the highest costs are associated with the drilling and testing phases of the boreholes which comprises up to 65% of the total project cost.  The Capex for this phase can vary between £2 million and £4 million per MWth installed capacity of a deep geothermal plant [3].  The project development spend is therefore heavily front loaded in the early development phases until the boreholes are completed, tested and the resource of proven. Without financial support, the high Capex costs to kick-start the development of the sector can still be prohibitive.

The UK has a relatively lower heat gradient in the subsurface (compared to places like Iceland and Turkey). Deep wells (often > than 2,000m in the UK – similar to Germany) are therefore required to access deeper depth and higher temperatures compared to other locations to target not only geothermal fluids which are hot enough, but also reservoir areas that have adequate permeable conditions to sustain long term pumping and re-injection of these fluids thus guaranteeing the long term operation of the deep geothermal plant. The cost of the deeper wells increases exponentially with depth. Therefore, significant Capex is required at the early operational stages of the wells,  technical expertise at the design and completion of a successful drilling programme as well as support from the planning process.

As an industry we are willing to take on geological risk should the right long term government commitment be in place to support the industry as opposed to a small number of projects.

Growth in deep geothermal projects is expected to continue to be slow without government intervention / incentives, such as those used all over the world to accelerate growth for heat and electricity projects.  The Netherlands, Germany and France have all benefited from government financial support and risk-sharing to stimulate deep geothermal projects. The resulting project trends in these countries may provide an insight into possible UK growth with government support.

An additional issue presents itself with the impending introduction of the Energy Profits Levy (EPL). With the EPL, there is an opportunity to encourage investment into renewable and domestic energy projects. However, as announced, we will not be able to get relief against the EPL for investment in our geothermal business given it sits outside of the UK ring fence tax regime. As a result, if this is not amended, it will be mean that our transition will be slower than hoped given a reduction in available funds post payment of the EPL.

3. What is the scale of the potential market for geothermal energy sources and which geographic or other geological types are most suitable for exploitation of this natural resource?

The potential for geothermal heat is significant.  360 geothermal plants by 2050 could provide 15,000 GWh of  annual heat and carbon savings  of around 3 megatons annually. 

Heating and hot water make up around  40% of the UK’s energy consumption and nearly a third of UK greenhouse gas emissions.  The Durham Energy Institute estimates that  there is currently enough deep geothermal heat energy to supply all of the UK’s needs  for at least 100 years.

By delivering on average 12 heat projects per year over the next 30 years, the UK could  expect to generate up to 15,000 GW hours  (GWh) of heat annually by 2050. In addition,  around 400 GWh of electricity annually is  also feasible by 2050. In combination, this level of growth would provide a carbon saving  of up to 3 million tonnes annually; and would  represent a crucial contribution in meeting the  UK’s net zero ambitions (as outlined by the  Government’s Energy White Paper, Dec 2020).

Many hot sedimentary aquifers exist in the UK in the Mesozoic and Palaeozoic basins such as those in Cheshire, Staffordshire, East Yorkshire, Worcester and Wessex. These geological systems have had a long history of exploration and data acquisition since the 1970s making them are ideally suited for conventional, two well, deep geothermal heat projects.  The presence of productive Mesozoic aquifers, even at great depth, has been documented and tested since the 1980s. More recent exploration of Palaeozoic basins demonstrates that geothermal resources are accessible in more areas and at greater depths than previously estimated.  Many projects in the Netherlands and Belgium are successfully targeting such deeper Mesozoic resources as part of a government led initiative to kick start the sector[4].

New technology also being developed in the UK to remove the requirement for the presence of a reservoir allowing geothermal energy to be harnessed in a sealed, closed loop system.  This in turn increases the potential locations for geothermal heat generation significantly.

There would be significant economic benefits generating £1.5 billion of investment  and the creation of around 10,000 direct jobs and 25,000 indirect jobs. As we transition from fossil fuels to lower carbon alternatives, the core skills deployed in the oil and gas sector, such as sub-surface well engineering and drilling, are highly transferable to geothermal. In addition, the existing UK petroleum wellbore stock presents a good opportunity for immediate deep geothermal learning.

Potential markets for geothermal energy where suitable geothermal reservoirs are already identified, comprise a “low-hanging fruit opportunity” to develop geothermal resources. These include, but are not limited to, the following:

District heating

●       The heating of buildings presents a major decarbonisation challenge. Geothermal heat is a viable zero carbon alternative to heating as compared with gas and other fossil fuels. Further detail on case studies can be found in a 2018 publication by BEIS[5]. District heating networks linked to a deep geothermal plant could be utilised for:

○        Net-zero estates & retrofit – A 10 MWth capacity geothermal heat plant could provide heat to around 4,500 homes in a district heating network.

○        Hospitals, Schools, Universities – A 10 MWth capacity project would supply the majority of the heating requirements for a given site, in particular larger universities and hospitals.

Manufacturing

●       The manufacturing industry is increasingly interested in investigating the potential for geothermal to provide a sustainable, low carbon and cost effective alternative for heat and cooling, in a move away from gas powered heating. The Janssen Pharmaceutical plant in Beerse Belgium is an example of how geothermal heat production is feasible at an industrial scale with government support provided.

Process heating

●       Pre-heating for other processes and greenhouses.

Airports & Enterprise Zones

●       There are over 40 airports and 24 enterprise zones around the UK, some of which top the list of the busiest airports in Europe. With an increasing public focus on the carbon impact of the aviation industry there is an opportunity to offset carbon by incorporating geothermal projects into airports during retrofits or expansions. In addition, airports can consider  offsetting its carbon use through funding of  offsite geothermal projects for other end-users.

4. Are current government support schemes sufficient to grow geothermal energy deployment in the UK?

Not currently, no.

The UK’s existing Renewable Heat Incentive (RHI) had a dedicated tariff for deep geothermal heat. However, the application window for RHI ended in March 2021.

Whilst there is limited and short term access to the Green Heat Network Fund until 2025, there is currently no further support available for the deep geothermal sector leaving a gap in support for geothermal projects. This will likely have a significantly detrimental effect on the development of deep geothermal in the UK.

Experience in UK solar and wind markets along with the deep geothermal markets in Europe, has proven that government funding during early stages of market development is the main factor in stimulating new markets in the renewable technology sector. Early government support and risk sharing are instrumental for developing successful deep geothermal markets as these provide confidence to developers of deep geothermal energy and their investors. With increasing project delivery, market confidence grows as precedent is set and projects become more cost effective and sustainable requiring increasingly less government interventions as the market matures.

The BGS 2020 report provides detailed recommendations for policy and regulatory support for the UK geothermal sector.[6] However, government intervention is strongly recommended for the UK to accelerate growth of the deep geothermal industry. This will allow projects to point to a secure revenue stream. This will help to make projects ‘bankable’ and for private funding to be secured for the high risk/ high capital drilling phase of the project.

Geothermal Development Incentive (GDI)

●       A heat production incentive dedicated to deep geothermal projects (referred to as a geothermal development incentive, or GDI) could be structured such that it provides assurance to the geothermal market, but only provides funding for projects which successfully generate heat energy. Successful heat production incentives are typically in place for a reasonable time period, for example 20 years, to stabilise project finance conditions. The UK could control the long term cost by limiting the use of a GDI to the first 30 projects which meet application conditions. The GDI could be funded through a variety of sources, for example future carbon tax receipts.

●       A heat plant with a 10 MWth capacity may provide 44 GWh of heat annually. The heat plant would deliver a carbon saving of around 8,000 tons CO2 per year throughout its life. This would equate to c. 2,200GWh heat and saving 400k tons CO2 over its operational lifetime.

●       With a GDI of £55/MWh (in line with the existing RHI tariff) the cost per year would be £2.4 million for the first 20 years with potential CO2 emissions savings of £16 million (based on BEIS Carbon Valuation method[7] between 2025 and 2045, using central traded values).

5. What environmental concerns are associated with geothermal technologies, and are they appropriately accounted for in regulations?

Deep geothermal does have limited potential for some adverse impacts but these can be managed.  The potential for induced seismicity can exist but careful management during construction and operation minimises this risk as demonstrated by UK and many European projects. Nevertheless, it is important that geothermal projects are developed appropriately and transparently and in collaboration with local communities.

6. What risks are there to investors, operators, and consumers of geothermal energy? How can these be mitigated?

Deep geothermal projects have a higher risk in early project stages due to the need to prove the geothermal resource at a project level (largely related to accessing sufficient flow of fluid from the reservoir). As has been proven throughout the world, as the number of projects grows, the actual project risks are better quantified, leading to improved confidence for investors. Once this ‘critical mass’ of projects are in place, geothermal projects will increase at a rate appropriate to the market conditions.

Like all industries when they start to grow, the more projects develop, the greater the benefit from economies of scale. For example, the UK has limited deep drilling capability and most deep wells are drilled with rigs mobilised from continental Europe at a significant cost (circa 10% of Capex) to the projects. As the industry develops, additional drilling capabilities based in the UK will develop as a result of increased market demand, removing the need for the expensive mobilisation costs.

Government interventions have been successful in stimulating interest and growth of deep geothermal projects, as is highlighted in Europe4. Interventions are not necessarily long term commitments. As projects grow, so does the supply chain, costs will ultimately reduce and confidence in the potential of a project to meet financial goals will increase. Germany is an example of a very mature deep geothermal market which is now self-sustaining. The market in Germany has created more than 22,000 jobs and provided an economic stimulus of €1.5 billion in 20195.

July 2022