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Government loans for geothermal exploration best incentive option – so Belgian study

Drilling rig on site at Balmatt, Flemish Region, Belgium (source: Facebook/ Balmatt-site)
Alexander Richter 8 Dec 2019

A study by the Royal Belgian Institute of Natural Sciences and the University of Antwerp looks at best policies to push geothermal development. The research points to government loans that are only repayble in case of a profitable project being best suited as policy measure.

Geothermal can help countries achieve the targets for renewable energy production, but the technology is expensive. Researchers from the Belgian Geological Survey, part of the Royal Belgian Institute of Natural Sciences, and from UAntwerp come to the conclusion that a government loan that is only recovered if the geothermal project turns out to be profitable is the most suitable policy measure.

Flanders is not achieving the renewable energy targets in 2020. Flemish energy minister Zuhal Demir recently admitted that. Among other things, the planned investments in geothermal energy production are lagging behind the development trajectory set out in the National Action Plans for Renewable Energy.

Costs vs. benefits

“Geothermal energy uses geothermal heat,” says geologist Kris Welkenhuysen (RBINS). “For example, extracting heat from the ground for driving a heat pump is a geothermal application. Deep geothermal energy is heat that is extracted from the earth at great depths. The technology is promising because it provides a constant source of sustainable energy, but requires high investment costs and is accompanied by various sources of geological uncertainties and market uncertainties. That deters investors. ”

Tine Compernolle, environmental economist at UAntwerpen, developed a model together with Kris Welkenhuysen and Kris Piessens, geologists at the RBINS, to investigate to what extent policy measures can reduce investment risk and increase profitability. Compernolle: “We investigated whether the public costs of the policy measures outweigh the private benefits.”

Repayable loan

The scientists took into account the fact that a geothermal project has several phases and that a project can be stopped based on information after the exploration phase. “Although most countries prefer an insurance scheme to reduce investment risk, our results show that such a scheme increases the chance of discontinuation,” Tine Compernolle explains.

“A loan that is only recovered if the project turns out to be profitable appears to be the most suitable policy measure,” said Kris Piessens (RBINS). “This measure increases the chance that a project will be further developed and that such a project is profitable. This measure also ensures an even distribution of support among the projects most in need. That is the best guarantee for developing a stable geothermal sector. ”

The study “The Impact of policy measures on profitability and risk in geothermal energy investments” was published in the Energy Economics, professional journal.

Source: Naturalsciences.be