Geothermal heating projects can attract conventional debt and private equity when geological risks, long-term revenues and project ownership are sufficiently understood, investors told the European Geothermal District Heating & Cooling Days in Dublin.
The discussion on 3 September brought together the European Investment Bank (EIB), infrastructure investors Kyotherm and Pioneer Point Partners, and finance specialists to examine what turns geothermal from a technically viable project into investable infrastructure.
The central message was that geothermal does not need to be risk-free to attract capital. But risks need to be identified, allocated and reflected in a business model that gives investors confidence in future revenues.
From geothermal project to bankable infrastructure
For investors, one of the first requirements is clarity over who owns the asset, who will receive funding and who will ultimately pay for the heat.
Daniela Bachner, Energy Sector Expert at the European Investment Bank, said successful projects tend to have clear asset ownership, established consortium structures where several parties are involved, and at least a preliminary business case.
Anchor customers and an early indication of the expected heat price can provide an important starting point.
The first layer of technical uncertainty also needs to have been addressed.
For shallow geothermal projects this risk can be relatively limited, while deeper geothermal development requires substantially more information on the subsurface.
Elise Heath, Investment & Business Development Manager at Kyotherm, said the investor typically becomes actively involved once a project has reached a sufficiently mature stage.
Kyotherm does not act as the project developer. Initial feasibility work and, where relevant, exploration therefore generally need to be advanced before the company can take an active investment role.
The distinction is important for developers seeking capital. Investors can help with financial modelling, legal structures and risk allocation, but finance does not substitute for early-stage project development.
Long-term heat contracts create revenue certainty
A recurring theme during the presentations and subsequent panel discussion was contracted revenue.
Long-term heat supply agreements can give investors visibility over the income generated by a geothermal asset, while giving customers greater certainty over future heating costs.
Panel moderator Terence McGovern, Director at KPMG Ireland, pointed to heat offtake agreements of 15 to 25 years as one way of establishing a minimum level of contracted income.
Julius McGillivray, Principal at Pioneer Point Partners, said volatile gas prices can strengthen the proposition for customers.
A geothermal provider able to offer a fixed heat price over 15 years can remove part of the uncertainty associated with future fuel costs.
That revenue stability also changes how investors assess a geothermal asset. Rather than relying solely on expectations about future energy prices, they can assess a contracted stream of payments from identified heat customers.
This echoes a wider theme heard during the Dublin event: geothermal heating can create value not only through lower energy consumption, but also through reduced exposure to energy-price volatility.
Debt is already available for mature geothermal markets
Deep geothermal remains capital-intensive, but the panel offered examples showing that conventional project finance is already available where the technology and geology are sufficiently established.
McGillivray pointed to projects in the Netherlands where local banks, including lenders familiar with the agricultural sector and geothermal heat, are willing to provide project finance.
He cited structures of approximately 30% equity and 70% debt for individual geothermal projects.
The example is not a standard financing structure for every geothermal project. It demonstrates, however, that geothermal can reach conventional infrastructure-finance markets once lenders understand the resource, revenue model and project risks.
Kyotherm has taken a similar approach on some deep geothermal projects in France.
Heath said debt financing can be secured even through the construction phase when risks have been structured and allocated appropriately.
“Structuring a project is not eliminating risk,” she said. “It’s really mitigating them, understanding them and finding how you can reduce the risk of exposure.”
Aggregation can unlock cheaper capital
The financing challenge is different for smaller geothermal heating projects.
Individual assets can be too small to justify conventional project-finance structures, making portfolio aggregation an important route to larger-scale investment.
Pioneer Point Partners has used this approach in shallow geothermal and low-carbon heating, initially financing smaller projects with equity while building a portfolio large enough to attract lenders.
McGillivray described a strategy of reaching approximately EUR 50 million to EUR 60 million of investment and EUR 15 million to EUR 20 million of EBITDA before seeking financing at portfolio level.
At that point, diversification across numerous projects can make the portfolio more attractive to lenders than any individual installation.
The model could become increasingly relevant as geothermal heating moves into housing, commercial property and other markets characterised by relatively small individual projects.
Rather than financing each borehole field or heating system separately, developers and investors can build portfolios of contracted heat infrastructure.
Policy influences where investors deploy capital
The panel also made clear that investment decisions are shaped by national energy and regulatory frameworks.
For shallow geothermal, electricity prices can materially affect the competitiveness of heat-pump-based systems against alternatives such as gas boilers or air-source heat pumps.
For deep geothermal, investors place greater emphasis on geological knowledge and mechanisms that reduce exploration risk.
Heath pointed to France and the Netherlands as markets where exploration-risk insurance helps support deep geothermal development.
Projects can still be considered in countries without such schemes, she said, but investors will look for other factors that reduce risk, including good subsurface data, grants or other forms of public support.
McGillivray similarly highlighted the intersection between supportive policy frameworks and the ability to achieve suitable investment returns, citing markets including the Netherlands, Germany and the UK.
The discussion is particularly relevant for Ireland, where geothermal deployment remains at an earlier stage.
Earlier sessions at the Dublin conference highlighted Geological Survey Ireland’s work to improve subsurface data and reduce exploration uncertainty, while the second day of the event is focused specifically on making geothermal projects investable in the Irish market.
What return do investors expect?
An audience question also brought the discussion directly to expected investment returns.
McGillivray said the required return varies according to geology, heat prices and the risk profile of individual projects, but indicated that returns above roughly 10% on an unlevered basis can be sufficiently attractive.
With debt financing, that could translate into levered returns in the range of around 15% to 20%, depending on the project.
Heath similarly stressed that return requirements depend on risk.
Shallow geothermal is generally viewed as a lower-risk technology, while expectations for deep geothermal vary according to location, subsurface knowledge and whether exploration-risk mechanisms are available.
These figures should therefore not be treated as universal benchmarks. They illustrate how investors compare the risk and return profile of geothermal projects with other infrastructure opportunities.
Cooling adds another potential revenue stream
The panel also discussed an increasingly important part of the geothermal business case: cooling.
Heath said Kyotherm is seeing growing customer interest in projects that provide both heat and cooling, with some contracts charging separately for the two services.
The economics can differ because the alternative heating technology may be a gas boiler while the alternative cooling technology is usually electricity-based.
Bachner added that some of the latest projects followed by the EIB combine heating and cooling through low-temperature or ambient-temperature networks supported by heat pumps.
Providing both services can improve asset utilisation and strengthen the long-term business case.
This could become increasingly relevant as European cooling demand rises and investors begin to view geothermal systems as thermal infrastructure rather than simply heating assets.
Making geothermal easier to finance
The Dublin discussion ultimately pointed to a relatively conventional set of investor requirements.
Projects need credible customers. Revenue needs to be visible over the long term. Geological and construction risks need to be understood. Ownership and contractual structures need to be clear. And smaller projects may need to be aggregated before institutional finance becomes economical.
Public support still has a role, particularly in reducing early-stage geological and development risks.
But the examples presented in Dublin also showed that geothermal heating can move beyond grant-dependent demonstration projects.
Where risks are sufficiently understood and long-term heat revenues are secured, geothermal can increasingly be financed as infrastructure.
