Periodic Reporting for period 2 - GEORISK (Developing geothermal and renewable energy projects by mitigating their risks.)
Reporting period: 2020-01-01 to 2021-09-30
Geothermal energy faces a range of technical, economical, commercial, organisational and political risks. Some of the risks can and should be borne by the project owner, some are routinely transferred to bodies that are better suited to carry specific risks, yet other risks can be high enough to be – in the absence of a risk transfer mechanism – a show-stopper.
This resource risk (also called geological risk) associated to geothermal project development is unique. It includes:
- The short-term risk of not finding an economically sustainable geothermal resource after drilling;
- The long-term risk of the geothermal resource naturally depleting rendering its exploitation economically unprofitable.
Some countries in Europe have already established public insurance schemes (e.g. geothermal guarantees, risk insurance funds, capital grants) that allow project developers to transfer some of the geological risk to public bodies. Risk mitigation schemes for geothermal have been recently launched by National and Multilateral funding agencies and banks in Latin America, Mexico, Chile, Eastern Africa.
In the framework of the H2020 programme, the GEORISK project, started in October 2018 for 36 months, aimed at establishing such risk insurance schemes all over Europe and in some key target third countries to cover the resource and the technical risks.
The project ended successfully. During the duration of the project, the main impact was the establishment of sustainable Risk Mitigation (RM) scheme covering the geothermal resource and technical risks, in the partners’ countries:
Switzerland: A supplementary risk guarantee has been developed to complement the existing financial grants of 60 % in the future. The proposal has been sent to the government. For this, however, the energy legislation (for the RMS for electricity projects) resp. the CO2 legislation (for the RMS for geothermal heat projects) must be adapted. Due to the complex and lengthy political decision-making processes, the decision is still open.
Germany: A New funding scheme for Renewable heat networks is about to be launched with 40% subsidies (max 50 €mio per project).
France: A new RM scheme with 3 zones together with an export fund is about to be published. Current fees are around 3%, new fees will be between 5% to 10%. Coverage will remain of 90% also outside the dogger area. For DH infrastructure, the Heat Fund continues to give subsidy: 25%-30%
Turkey: TSKB and the World Bank launched a 1st call for RM in 2018. With GEORISK inputs, a 2nd call was launched in 2020.
Poland: Poland proposed to include the establishment of a risk insurance fund into Geothermal road map by 2040 (initiated by the Ministry of Climate and Environment in 2021 (under elaboration). The paragraphs and provisions were indicated in the existing legal and regulatory documents which may facilitate the RMS establishment.
Greece: An initial proposal has been developed and has been submitted to the Ministry of Environment and Energy; the proposal is available in Greece
Hungary: In 2021, a new geothermal derisking scheme has been set up in Hungary to promote new developments in the country, with a specific focus on district heating and cooling. An Hungarian Geothermal Platform was also set up to provide easy access to geological data relevant to geothermal project development, in line with the principles edited by the GEORISK project . From Geoelec project (Altener 2010), a law in 2017 mentioned risk insurance
At EU level: In the updated version of the RES directive proposed on 14th of July 2021 by the European Commission, new provision are included. For renewable heating and cooling, article 23 suggests to member States to establish:
4. To achieve the average annual increase referred to in paragraph 1, first subparagraph, Member States may implement one or more of the following measures: e) creation of risk mitigation frameworks to reduce the cost of capital for renewable heat and cooling projects;
This resource risk (also called geological risk) associated to geothermal project development is unique. It includes:
- The short-term risk of not finding an economically sustainable geothermal resource after drilling;
- The long-term risk of the geothermal resource naturally depleting rendering its exploitation economically unprofitable.
Some countries in Europe have already established public insurance schemes (e.g. geothermal guarantees, risk insurance funds, capital grants) that allow project developers to transfer some of the geological risk to public bodies. Risk mitigation schemes for geothermal have been recently launched by National and Multilateral funding agencies and banks in Latin America, Mexico, Chile, Eastern Africa.
In the framework of the H2020 programme, the GEORISK project, started in October 2018 for 36 months, aimed at establishing such risk insurance schemes all over Europe and in some key target third countries to cover the resource and the technical risks.
The project ended successfully. During the duration of the project, the main impact was the establishment of sustainable Risk Mitigation (RM) scheme covering the geothermal resource and technical risks, in the partners’ countries:
Switzerland: A supplementary risk guarantee has been developed to complement the existing financial grants of 60 % in the future. The proposal has been sent to the government. For this, however, the energy legislation (for the RMS for electricity projects) resp. the CO2 legislation (for the RMS for geothermal heat projects) must be adapted. Due to the complex and lengthy political decision-making processes, the decision is still open.
Germany: A New funding scheme for Renewable heat networks is about to be launched with 40% subsidies (max 50 €mio per project).
France: A new RM scheme with 3 zones together with an export fund is about to be published. Current fees are around 3%, new fees will be between 5% to 10%. Coverage will remain of 90% also outside the dogger area. For DH infrastructure, the Heat Fund continues to give subsidy: 25%-30%
Turkey: TSKB and the World Bank launched a 1st call for RM in 2018. With GEORISK inputs, a 2nd call was launched in 2020.
Poland: Poland proposed to include the establishment of a risk insurance fund into Geothermal road map by 2040 (initiated by the Ministry of Climate and Environment in 2021 (under elaboration). The paragraphs and provisions were indicated in the existing legal and regulatory documents which may facilitate the RMS establishment.
Greece: An initial proposal has been developed and has been submitted to the Ministry of Environment and Energy; the proposal is available in Greece
Hungary: In 2021, a new geothermal derisking scheme has been set up in Hungary to promote new developments in the country, with a specific focus on district heating and cooling. An Hungarian Geothermal Platform was also set up to provide easy access to geological data relevant to geothermal project development, in line with the principles edited by the GEORISK project . From Geoelec project (Altener 2010), a law in 2017 mentioned risk insurance
At EU level: In the updated version of the RES directive proposed on 14th of July 2021 by the European Commission, new provision are included. For renewable heating and cooling, article 23 suggests to member States to establish:
4. To achieve the average annual increase referred to in paragraph 1, first subparagraph, Member States may implement one or more of the following measures: e) creation of risk mitigation frameworks to reduce the cost of capital for renewable heat and cooling projects;
The GEORISK project ran from October 2018 to September 2021, and for a duration of 36 months, following an amendment extending the project duration for 6 months. The aim was to support the establishment of risk mitigation schemes in order to overcome with financial tools the risk associated with the development of a deep geothermal project.
By first providing an overview of the main risks, both in terms of resource (geological), technical and environmental, associated for the development of deep geothermal projects, the project aimed to help comparing the risk of geothermal development with the risk of other renewable energy sources. This knowledge helped to better understand the risks for the project developers but also the financiers and the decision-makers, and thus find the best financial solutions.
Secondly, the project developed tools to help the actors of the sector to better identify and mitigate the risks.
By providing an overview, assessment and comparison of the different types of financial instruments – established or innovative – dealing with risk-mitigation, the GEORISK project established a set of criteria on how to best apply a given risk mitigation scheme, and which specific type of instrument is best suited to a given market.
In addition, the project set a blueprint for allowing geothermal resource risk mitigation schemes to evolve along with the increase in maturity of the geothermal sector, in order to be best suited for the optimal coverage of the resource risk, without hampering market development.
A proposal to establish or to reform the RSM was done in France, Germany, Switzerland, Greece, Poland, Turkey and Hungary.
The experience acquired was finally replicated to other European target countries (Denmark, Netherlands, Belgium, Croatia, Slovenia) and outside Europe (Kenya, Chile, Mexico, Canada).
By first providing an overview of the main risks, both in terms of resource (geological), technical and environmental, associated for the development of deep geothermal projects, the project aimed to help comparing the risk of geothermal development with the risk of other renewable energy sources. This knowledge helped to better understand the risks for the project developers but also the financiers and the decision-makers, and thus find the best financial solutions.
Secondly, the project developed tools to help the actors of the sector to better identify and mitigate the risks.
By providing an overview, assessment and comparison of the different types of financial instruments – established or innovative – dealing with risk-mitigation, the GEORISK project established a set of criteria on how to best apply a given risk mitigation scheme, and which specific type of instrument is best suited to a given market.
In addition, the project set a blueprint for allowing geothermal resource risk mitigation schemes to evolve along with the increase in maturity of the geothermal sector, in order to be best suited for the optimal coverage of the resource risk, without hampering market development.
A proposal to establish or to reform the RSM was done in France, Germany, Switzerland, Greece, Poland, Turkey and Hungary.
The experience acquired was finally replicated to other European target countries (Denmark, Netherlands, Belgium, Croatia, Slovenia) and outside Europe (Kenya, Chile, Mexico, Canada).
The GEORISK project worked to mitigate the risks in geothermal projects by implementing an optimal and proven financial schemes. While the GEORISK project had an overarching objective to establish a risk mitigation scheme throughout Europe, the project had some intermediary objectives with a specific focus on key geothermal energy markets.
The project objectives were to develop insurance schemes in Hungary, Greece and Poland. It was also support the establishement of risk mitigation schemes in Belgium, Serbia, Slovenia, Denmark and in third countries: Chile, Kenya, Mexico and Canada. It was finally proposing a perspective on the transition of existing schemes in France, Germany, Turkey and Switzerland. This was notably pursued through:
- A definition of market maturity stages;
- Creation of a legal, financial and a technical model in target countries to adapt the scheme to the state of the market;
- Simulation of the financial sustainability of the scheme.
Over the duration of the GEORISK project, 54 deep geothermal projects were commissioned. There were also more than 10 new geothermal power plant projects initiated since 2018, and at least 49 geothermal heating and cooling. This exceeds the objective of 50 geothermal projects being initiated throughout the period.
Geothermal industry has had an increasing turnover in the European Union: from 1,918 million euros to 2,714 in the last four years.
One impact of GEORISK project was to have jobs creation in the deep geothermal sector with a total number of employees higher than 25 000 people.
The project objectives were to develop insurance schemes in Hungary, Greece and Poland. It was also support the establishement of risk mitigation schemes in Belgium, Serbia, Slovenia, Denmark and in third countries: Chile, Kenya, Mexico and Canada. It was finally proposing a perspective on the transition of existing schemes in France, Germany, Turkey and Switzerland. This was notably pursued through:
- A definition of market maturity stages;
- Creation of a legal, financial and a technical model in target countries to adapt the scheme to the state of the market;
- Simulation of the financial sustainability of the scheme.
Over the duration of the GEORISK project, 54 deep geothermal projects were commissioned. There were also more than 10 new geothermal power plant projects initiated since 2018, and at least 49 geothermal heating and cooling. This exceeds the objective of 50 geothermal projects being initiated throughout the period.
Geothermal industry has had an increasing turnover in the European Union: from 1,918 million euros to 2,714 in the last four years.
One impact of GEORISK project was to have jobs creation in the deep geothermal sector with a total number of employees higher than 25 000 people.