A renewable, reliable source of heating, geothermal technology has been around for decades, but its heyday may be just around the corner, says the market analyst. Due to its high development costs versus other energy sources, and risks surrounding subsurface conditions and drilling success rates, widespread adoption has been relatively limited to date. However, a recent influx of new players in the geothermal market, many of which come from the oil and gas industry, is seeing companies pushing on with pilot projects aimed at solving the industry’s challenges.

Daniel Holmedal, Senior Analyst, Rystad Energy, comments: ‘Geothermal is a virtually unlimited source of consistent energy that could play a crucial role in addressing energy security and affordability in the decades to come. As European countries move to decarbonise their power mix and chase secure sources of heating for the winter months in light of geopolitical tensions, investments in geothermal projects will skyrocket.’

Geothermal heating has a long history in Europe, with the industry historically led by Iceland, France and Hungary. Since 2010, however, more countries have joined the action, with Germany and the Netherlands showing growth plans towards 2030 that would see them lead the charts in terms of installed capacity.

Riled by energy insecurity in light of the sudden drop in Russian gas flows following Russia’s incursion into Ukraine, Germany is pouring money into geothermal projects and is expected to spend more than $1.5bn by 2030. In the last 10 years, installed capacity in the country has doubled from 200 MW thermal (MWt) in 2012 to 400 MWt today. By 2030, capacity is set to double again and approach 850 MWt, according to Rystad Energy. The only country to install more capacity between 2022 and 2030 is expected to be the Netherlands, which is forecast to have more than 1 GWt capacity by the end of the decade, spending $1.1bn in the process.

Countries that were early adopters of geothermal heating, such as Iceland, France and Hungary, are also expected to increase their capacity installations, but at a slower rate. The UK is somewhat late to the party, with more focus on geothermal power projects and only 20 MWt of geothermal heating capacity today, but that total is expected to top 100 MWt in 2030. The UK government is expected to spend more than $470mn on geothermal heating by the decade’s end.

Drilling success, but development costs remain a concern 
It is not all good news for the industry, however, as challenges surrounding drilling success rates and the cost of developing large-scale projects persist, Rystad’s research shows. The heating network is generally the most significant cost component for geothermal district heating projects. Since heating networks are installed at a local level, these networks are typically funded by local authorities or have already been built out. In this analysis, expenditure was excluded on these networks. Following that exclusion, drilling cost becomes the key driver of project costs.

Depending on subsurface temperatures at the project location, well depths range from a couple of hundred metres to a couple of thousand metres. The average drilling length for European geothermal district heating projects is around 2,000 metres, but some recent ultra-deep projects, including those in the UK and Finland, have surpassed 5,000 metres. The contribution of drilling costs to total project costs tends to decrease as projects get larger, but well depth and drilling success rates are two other important factors.

Analysing the levelised cost of heating (LCOH) for geothermal projects compared with other sources is a helpful benchmark when evaluating its long-term validity. LCOH is the cost of producing 1 MWh of thermal energy in US dollars.

The LCOH of geothermal projects can vary widely, impacted by the project size, well depths and the ground-level temperature – a colder location puts more stress on the system and will have a lower levelised cost over its lifetime. The average capacity weighted LCOH for Europe (excluding Iceland) is $39/MWh. However, levelised cost varies widely between countries. France has one of the lowest average costs weighted by capacity per project at around $26/MWh, whereas Switzerland’s LCOH clocks in at $64/MWh.

*This analysis includes district heating (full or partial), aquaculture, horticulture and agriculture. Other geothermal use cases and projects using shallow wells or heat pumps are not included.