August 15, 2013 Drivers and barriers to deep geothermal energy in the Netherlands: what are the implications of government policy? Dissertation for the completion of MSc Integrated Resource Management C. M. Kraan Supervisor: R. Bellingham [email protected] University of Edinburgh School of Geosciences Institute of Global Change Crew Building, King's Buildings Edinburgh, Scotland http://www.geos.ed.ac.uk Abstract This dissertation looks into the drivers and barriers to geothermal energy and what the influence is of the governmental support for geothermal energy in the Netherlands. The main drivers of geothermal energy are its independence from fossil fuels and with that its environmental friendliness. However, the existence of natural gas as an established and less costly fuel and the high investment costs combined with the risk profile for geother- mal energy constrain the growth of this energy source. The government has introduced different policy measures, such as the SDE+ subsidy scheme, the SEI guarantee scheme, and the licencing structure for exploration and production that have an influence on the growth geothermal energy. The implications of these policies for the geothermal industry will be discussed. Based on the remaining barriers to geothermal energy the potential ef- fect of possible new policies aimed at lowering those barriers will be studied. The policies considered are building plants with public money, the set up of a research fund, a change in the way gas is currently priced for industrial consumers and the introduction of a long term guarantee scheme. As the geothermal energy industry is still in the infancy stage, it remains to be seen whether the existing and possible future policy measures can help overcome the barriers to geothermal energy. 3 Acknowledgements I'd like to express my gratitude to all those who have helped and supported me in this final project of my masters degree. There are a few that deserve specific mentioning. First of all, Richard Bellingham, for being my supervisor and guiding me through the process of writing a dissertation. A special thanks to Victor van Heekeren of Platform Geothermie for all his insights in the Dutch geothermal industry, his help with the content of my work and who introduced me to ECN. Then I'd like to thank Sander Lensink of ECN for inviting me to several meetings which gave me a deeper understanding of the SDE+ subsidy scheme and who was willing to gave his insights on that chapter. Furthermore, a thank you to the operators of geothermal plants and others related to the industry that were willing to share information with me. The personal contact with all of these people provided valuable information that led to an understanding that could not have been gained if written documentation alone would have been used, for which I am very grateful. Carolien Kraan 4 Statement of Originality I hereby delare that this dissertation has been composed by me and is based on my own work. Carolien Kraan 5 Contents 1 Introduction..........................................................2 1.1 A description of geothermal energy in the Netherlands.................2 Definition of geothermal energy.....................................2 Geothermal energy technologies.....................................3 Geothermal energy in the Netherlands...............................4 1.2 My research......................................................7 Research question.................................................7 Methodology.....................................................8 Structure........................................................8 2 Part I: The drivers of and barriers to geothermal energy.................... 10 2.1 What are the advantages and disadvantages of geothermal energy?...... 10 Environmental Friendliness......................................... 10 Technology....................................................... 10 2.2 Cost and risk..................................................... 12 2.3 What influences the demand for geothermal energy?................... 14 Alternatives to geothermal energy................................... 14 Greenhouses...................................................... 15 District heating................................................... 17 Electricity production............................................. 17 2.4 What drives the production of geothermal energy?.................... 18 Greenhouses...................................................... 19 District heating................................................... 19 Electricity production............................................. 19 3 Part II: The effects and limits of existing policy........................... 21 3.1 What policies regarding geothermal energy exist?..................... 21 Reasons for governmental support................................... 21 Current policy measures........................................... 22 3.2 SDE+........................................................... 24 Calculation of the subsidy amount.................................. 24 Reference cases................................................... 25 Budget and phases................................................ 26 Payment......................................................... 28 The capacity maximum............................................ 29 Alternatives...................................................... 30 Conclusion....................................................... 31 3.3 Guarantee scheme................................................. 33 3.4 Licences......................................................... 37 Exploration Licence............................................... 37 Production Licence................................................ 39 Conclusion....................................................... 41 3.5 The effect of existing policy on barriers.............................. 42 4 Part III: The implications of supporting policy............................ 44 4.1 What policies could potentially increase the growth of geothermal energy? 44 Government builds plants.......................................... 44 6 Fund for research................................................. 45 Gas pricing system................................................ 46 Long term guarantee scheme....................................... 48 5 Conclusion........................................................... 50 6 Nomenclature......................................................... 52 List of Figures 1.1 Model of the Earth....................................................2 1.2 Geothermal Doublet...................................................4 1.3 Temperature at 2000 m depth..........................................6 2.1 Bird's eye view of construction site...................................... 11 2.2 Uncertainties in the preparatory phase and their impact................... 12 2.3 Cost-risk structure of a geothermal project............................... 13 2.4 Historical and predicted future gas production............................ 15 2.5 Gas prices for industrial users.......................................... 16 3.1 Probability of Well Capacity Exceedance................................. 34 3.2 Geothermal Licences.................................................. 38 3.3 Annual number of exploration licences granted............................ 40 4.1 The degressive gas price............................................... 47 4.2 Gas prices for industrial consumers within Europe........................ 47 1. INTRODUCTION 1 Introduction 1.1 A description of geothermal energy in the Netherlands Definition of geothermal energy The adjective geothermal is derived from the Greek nouns γη (ge) meaning Earth and θρµη (therme) meaning heat, as geothermal energy is energy derived from the heat that is stored in the interior of the Earth. Our planet is generally modelled as a sphere made up of a rocky mantle around a hot iron core and covered by a thin crust, see figure 1.1. While the crust is relatively cool, the temperature at the core has been estimated to reach approximately 5700 K [87][7]. The heat stored in the Earth has two sources; part of it is the primordial heat that is left over from the planet's formation, and the other part is caused by ongoing radioactive decay of the unstable isotopes 40K (potassium), 232Th (thorium), 235U and 238U (uranium). The relative share of each of these heat sources is hard to determine and quite controversial, with the percentage of decay heat estimated to be ranging from 18% to 80% [44]. Fig. 1.1. Model of the interior of the Earth including the core, the mantle, and the crust. Source: [80] Convection and conduction in the mantle and crust enable heat transfer to allow planetary cooling. The Earth's crust is between 5 and 10 km thick underneath the oceans, while under the continental shelves it reaches a depth of 30 to 50 km. Thus far, it has not yet been possible to reach the mantle, because of the high temperatures and pressures deep within the crust. In fact, the deepest artificial point on Earth can be found at the bottom of the Kola Superdeep Borehole in Russia, which has a depth of 12,262 m, but reaches down no further than a third of the Baltic continental crust [11]. 2 1. INTRODUCTION Worldwide the geothermal gradient has an average of 25◦ C/km, meaning that for every km depth the measured temperatures will be 25◦ C higher. This world average can be much higher in hotspot areas though, such as Iceland where geothermal gradients of 200◦