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Iceland Geothermal Conference
Financing Challenges for
Geothermal Power in Europe
Philippe DUMAS - Manager
European Geothermal Energy Council, Brussels
7.3.2013, Reykjavik
WHAT ARE THE CURRENT FINANCING
CHALLENGES ?
1) Economical and Financial situation in Europe: what
about investment in clean energy ?
2) Why public funds should be used to support
geothermal industry ?
3) What are ?
- Geothermal technologies and costs in Europe
- Financial barriers and needs
- Innovative financial incentives
Financial crisis in the EU means…
• Decline 2012 in Clean energy investment
• But situation country by country is different
• Financing geothermal has become more difficult
both for capital investment and risk insurance
Global total new investment in clean energy
2004-2011 (USD Bio)
Source: Bloomberg New Energy Finance
Total new investment in clean
energy 2010-2011 (USD Bio)
Source: Bloomberg New
Energy Finance
Financial crisis in the EU means…
European stock markets still uncertain
Banks look for zero risk, ECB intervention (by
lending €530bn to 800 banks).
 Need non traditional investors:
- Pension funds
- Insurance companies
- Sovereign funds
 Need innovative tools:
- pool of developers, etc.
> Public Financing to
Leverage Private Capital
> For helping market
development
Geothermal Electricity installed
capacity per Country
Looking to next 5 years…
Geothermal District Heating Systems
in Europe
Why public funds should be used to
support the geothermal industry and
interfere with the market?
1) to compensate for market failures and unfair
competition
2) to favour the deployment of a given technology
 support schemes should be phased out when
technology reaches full competitiveness…
 in an open internal market where a level playing
field is fully established !
Geothermal resources in Europe
high enthalpy (el. power)
high temperature basins
(el.power, district heating)
medium temperature basins
(district heating)
everywhere:
EGS, shallow geothermal
Geothermal technologies and costs in
Europe
LCoE of Geothermal electricity
- R&D, Innovation
- Deployment
- Implement SRA
- Towards a GT Industry
initiative
Geothermal technologies and costs in
Europe
LC of Geothermal heat
• Project financing
• Risk Insurance
• Research & Development & Deployment
• Public financial incentive schemes
Financial barriers & needs
Project financing
Example: € million, based on a 20 MWe conventional high temperature plant
Year 1 Year 2 Year 3 Year 4 Year
5
Year
6
Year
7
Year
8
Seed capital
Venture
capital
Private
equity
Mezzanine
debt
Bridge debt Construction Project
financing
(+ R&D) Grants Risk
insurance
FiT or FiP
1-2
20-30
30 50-60
30-60 80-120
Site scouting
and
geophysical
exploration
Exploratory
drilling
Drilling Field
development
Power plant
construction
TOTAL
EXPENSES
Private
Public
 Cover the geological risk : Towards an European Geothermal
Risk Insurance Fund (EGRIF)
Risk Insurance
Example: € million, based on a 20 MWe conventional high temperature plant
1-2
20-30
30 50-60
30-60 80-120
Site scouting
and
geophysical
exploration
Exploratory
drilling
Drilling Field
development
Power plant
construction
TOTAL
EXPENSES
- upfront costs for exploration
- exposure to risk of failure
Research & Development, and Deployment
Operational support to geothermal
electricity
0
2
4
6
8
10
12
Belgium
(Flandres)
Romania UK
Price kWh from geothermal in Quota
systems
Green
Certificate
Approx.
average price in
2011/12
(€ct/kWh)
0
5
10
15
20
25
30
35
Feed-in tariff systems (€ct/kWh)
Feed-in Tariff
Max. (€ct/kWh)
Feed-in Tariff
Min. (€ct/kWh)
0
2
4
6
8
10
12
14
16
Estonia Italy Netherlands Slovenia
Feed-in premium systems (€ct/kWh)
Feed-in
Premium
(Max.)
Feed-in
Premium
(Min.)
+ electricity price
Geothermal technologies and costs in
Europe
Support scheme levels should be based on LCoE:
LCoE = Investment costs + O&M + Commercial costs
But
Full Production cost = LCoE + Systems costs +
Externalities
= Costs for the society !
Recommendations for financing
mechanisms for geothermal
• Towards an European Geothermal Risk
Insurance Fund (EGRIF)
• Recommendations over support schemes
• Innovative support schemes for Geothermal
electricity
Recommendations over support
schemes
• A balanced approach among RES technologies;
• Predictable in the long term to encourage investments (No stop & go
policy – see Moratorium in Spain);
• Simple and transparent in design and implementation, implying low
administrative burden and costs;
• The base-load charachter of Geothermal and its contribute to grid stability
should be rewarded;
• Regional and local benefits should be taken into account;
Innovative support schemes for
Geothermal electricity
Market Maturity Juvenile Intermediate Mature Competitive: at the
Horizon 2020
criteria 0-6 deep
geothermal wells
are existing
< than 3 plants are
operational
6-60 deep
geothermal wells
exist
< than 10 plants are
operational
Both geoelec &
geoDH systems are
developed all over
the country
Costs reach grid parity
with around 10 €ct/kWh
Level of risk Very high high medium Low
Costs:
High temperature
Low temperature
EGS
na
18
25
7
16
25
6
15
25
5
10
12
Support schemes (repayable) Grants
for seismic
exploration,
slimholes, and the
1st well
Feed-in Tariff Feed-in Premium Grid premium
Flanking measures Public Risk
insurance
Public or Private
Risk insurance
Public & private Risk
insurance
Private Risk insurance
CONCLUSIONS
• Demand for energy / electricity will increase
• Costs of fossil fuel energy will rise
• Ensuring Access to Affordable Energy for All
> Geothermal electricity will be key
…and needs more support now !
More information
Visit www.geodh.eu
Visit www.geoelec.eu
Visit www.egec.org
Thank you very much for your attention

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Financing Challenges for Geothermal Power in Europe

  • 1. Iceland Geothermal Conference Financing Challenges for Geothermal Power in Europe Philippe DUMAS - Manager European Geothermal Energy Council, Brussels 7.3.2013, Reykjavik
  • 2. WHAT ARE THE CURRENT FINANCING CHALLENGES ? 1) Economical and Financial situation in Europe: what about investment in clean energy ? 2) Why public funds should be used to support geothermal industry ? 3) What are ? - Geothermal technologies and costs in Europe - Financial barriers and needs - Innovative financial incentives
  • 3. Financial crisis in the EU means… • Decline 2012 in Clean energy investment • But situation country by country is different • Financing geothermal has become more difficult both for capital investment and risk insurance Global total new investment in clean energy 2004-2011 (USD Bio) Source: Bloomberg New Energy Finance Total new investment in clean energy 2010-2011 (USD Bio) Source: Bloomberg New Energy Finance
  • 4. Financial crisis in the EU means… European stock markets still uncertain Banks look for zero risk, ECB intervention (by lending €530bn to 800 banks).  Need non traditional investors: - Pension funds - Insurance companies - Sovereign funds  Need innovative tools: - pool of developers, etc. > Public Financing to Leverage Private Capital > For helping market development
  • 5. Geothermal Electricity installed capacity per Country Looking to next 5 years…
  • 6. Geothermal District Heating Systems in Europe
  • 7. Why public funds should be used to support the geothermal industry and interfere with the market? 1) to compensate for market failures and unfair competition 2) to favour the deployment of a given technology  support schemes should be phased out when technology reaches full competitiveness…  in an open internal market where a level playing field is fully established !
  • 8. Geothermal resources in Europe high enthalpy (el. power) high temperature basins (el.power, district heating) medium temperature basins (district heating) everywhere: EGS, shallow geothermal
  • 9. Geothermal technologies and costs in Europe LCoE of Geothermal electricity - R&D, Innovation - Deployment - Implement SRA - Towards a GT Industry initiative
  • 10. Geothermal technologies and costs in Europe LC of Geothermal heat
  • 11. • Project financing • Risk Insurance • Research & Development & Deployment • Public financial incentive schemes Financial barriers & needs
  • 12. Project financing Example: € million, based on a 20 MWe conventional high temperature plant Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Seed capital Venture capital Private equity Mezzanine debt Bridge debt Construction Project financing (+ R&D) Grants Risk insurance FiT or FiP 1-2 20-30 30 50-60 30-60 80-120 Site scouting and geophysical exploration Exploratory drilling Drilling Field development Power plant construction TOTAL EXPENSES Private Public
  • 13.  Cover the geological risk : Towards an European Geothermal Risk Insurance Fund (EGRIF) Risk Insurance Example: € million, based on a 20 MWe conventional high temperature plant 1-2 20-30 30 50-60 30-60 80-120 Site scouting and geophysical exploration Exploratory drilling Drilling Field development Power plant construction TOTAL EXPENSES - upfront costs for exploration - exposure to risk of failure
  • 14. Research & Development, and Deployment
  • 15. Operational support to geothermal electricity 0 2 4 6 8 10 12 Belgium (Flandres) Romania UK Price kWh from geothermal in Quota systems Green Certificate Approx. average price in 2011/12 (€ct/kWh) 0 5 10 15 20 25 30 35 Feed-in tariff systems (€ct/kWh) Feed-in Tariff Max. (€ct/kWh) Feed-in Tariff Min. (€ct/kWh) 0 2 4 6 8 10 12 14 16 Estonia Italy Netherlands Slovenia Feed-in premium systems (€ct/kWh) Feed-in Premium (Max.) Feed-in Premium (Min.) + electricity price
  • 16. Geothermal technologies and costs in Europe Support scheme levels should be based on LCoE: LCoE = Investment costs + O&M + Commercial costs But Full Production cost = LCoE + Systems costs + Externalities = Costs for the society !
  • 17. Recommendations for financing mechanisms for geothermal • Towards an European Geothermal Risk Insurance Fund (EGRIF) • Recommendations over support schemes • Innovative support schemes for Geothermal electricity
  • 18. Recommendations over support schemes • A balanced approach among RES technologies; • Predictable in the long term to encourage investments (No stop & go policy – see Moratorium in Spain); • Simple and transparent in design and implementation, implying low administrative burden and costs; • The base-load charachter of Geothermal and its contribute to grid stability should be rewarded; • Regional and local benefits should be taken into account;
  • 19. Innovative support schemes for Geothermal electricity Market Maturity Juvenile Intermediate Mature Competitive: at the Horizon 2020 criteria 0-6 deep geothermal wells are existing < than 3 plants are operational 6-60 deep geothermal wells exist < than 10 plants are operational Both geoelec & geoDH systems are developed all over the country Costs reach grid parity with around 10 €ct/kWh Level of risk Very high high medium Low Costs: High temperature Low temperature EGS na 18 25 7 16 25 6 15 25 5 10 12 Support schemes (repayable) Grants for seismic exploration, slimholes, and the 1st well Feed-in Tariff Feed-in Premium Grid premium Flanking measures Public Risk insurance Public or Private Risk insurance Public & private Risk insurance Private Risk insurance
  • 20. CONCLUSIONS • Demand for energy / electricity will increase • Costs of fossil fuel energy will rise • Ensuring Access to Affordable Energy for All > Geothermal electricity will be key …and needs more support now !
  • 21. More information Visit www.geodh.eu Visit www.geoelec.eu Visit www.egec.org
  • 22. Thank you very much for your attention