A new report from the International Renewable Energy Agency (IRENA)—the Abu Dhabi-headquartered intergovernmental organization that engages more than 180 countries on their respective transition to renewable energy sources—says that clean energy transition efforts focused on heating and cooling (which account for almost half of total global energy consumption) could yield significant cost savings and socioeconomic benefits. As one part of a suite of energy policy recommendations, IRENA suggests tapping into a small-but-growing subsegment of renewable energy mix: geothermal energy—thermal energy stored in rocks or below the earth’s surface—for heating.
The report, Renewable Energy Policies in a Time of Transition: Heating and Cooling, released on Monday, was produced jointly by IRENA, the International Energy Agency(IEA) and the Renewable Energy Policy Network for the 21st Century (REN21).
IRENA and its partners noted that specific, local strategies to renewable-based, energy-efficient heating and cooling might follow several possible pathways, based on demand, resource availability, and country or regional priorities. Broad options include electrification with renewable power, renewable-based gases (including “green” hydrogen), sustainable bioenergy use, and the direct use of solar and geothermal heat.
A Case for Geothermal
“Geothermal solutions can provide a stable heat supply and be cost-competitive with fossil fuel alternatives,” IRENA stated in the report. They noted that in France, geothermal district heating costs are as low as EUR 15/megawatt hour (MWh), 70 percent lower than fossil gas (EUR 51/MWh) (EGEC, 2020). And they cited data from NREL projecting that in the United States, using geothermal heat for home and commercial operations could save up to 80 percent of costs compared with fossil fuels In Canada, direct geothermal use for district heating and snow melting could also generate cost benefits.
Although on the rise, they note, geothermal energy is currently the smallest renewable heat source with around 30 gigawatts (GW) of direct geothermal use applications installed as of the end of 2019. Direct geothermal use is nonetheless projected to increased more than 40 percent globally by 2023, more than two-thirds of the gain expected to occur China alone.
The top four countries with the most geothermal heat consumption are China, Iceland, Japan and Turkey. Together, these four accounted for 75% of global geothermal heat consumption in 2019.
Speaking with Investable Universe ahead of a virtual trade and investment expo this week, Iceland’s Foreign Minister Guðlaugur Þór Þórðarson touted the promise of geothermal energy for global markets—noting that while Iceland’s geological formation as an active volcanic island made the country well-suited to geothermal energy, which (IRENA notes) is used directly in areas like space heating, fish farming, snow melting, swimming pools, greenhouses and industry, other countries from China to parts of sub-Saharan Africa could also develop these energy applications.
“If everyone would use the opportunity for geothermal heating, the, the climate problem would be out of the way,” he said.
IRENA notes that in China—where Iceland has helped to spearhead broader option of the energy source—geothermal has been providing heat for over 50 million square meters (m2) of buildings in the Northern China region.
Similarly, New Zealand uses a significant amount of geothermal heat for industrial and agriculture uses, including pulp and paper processing, wood curing, dairy processing and greenhouse heating.
Investment barriers
IRENA cautions, however, that wider adoption of geothermal energy applications is restricted by multiple barriers: these include high upfront investment cost, risks related to the appraisal of geothermal resources and securing adequate funding for surface exploration and drilling operations, subpar policy and regulatory frameworks and shortage of a qualified workforce.
In addition, transporting geothermal heat for long distances from geothermal wells may not be economically viable. As a result, the financial bankability of geothermal direct-use projects may be limited by the need to find customers nearby (either a single large customer or several smaller ones) that have a demand for heat matching the temperatures of the geothermal resource.
Solutions
IRENA recommends various approaches to surmounting these challenges. Collecting and sharing detailed and comprehensive data on geothermal resources can help attract investors to increase the chances of successful exploration. The European Union has already supported geothermal resource development through programs like the GeoDH (Geothermal District Heating) project and the VigorThermosGIS code. The GeoDH project explored the potential for geothermal district heating in 14 countries, while the VigorThermos GIS code allows prospective developers to assess the technical and economic feasibility of geothermal projects.
Secondly, they said, dedicated loan guarantees and grants can help de-risk geothermal exploration, especially in regions with large potential that are financially constrained, such as Latin America and Southeast Asia. Development banks and other types of concessional finance can help unlock investment in geothermal heating in these regions. In 2018, for example, the Inter-American Development Bank approved a $109 million loan to stimulate private investment in geothermal energy in Mexico.
Finally, IRENA writes that risk insurance funds can ease the risk of geothermal investors and developers. Most current insurance systems are focused on covering short-term risk, namely of drilling. Risk insurance funds for geological risk have been set up by some European countries, including France, Germany, Iceland, the Netherlands and Switzerland.
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