News

Interview – Accomplishments, challenges, and opportunities of the Hungarian geothermal sector

Interview – Accomplishments, challenges, and opportunities of the Hungarian geothermal sector Interview with Deloitte's Miklós Zaránd and Tamás Pazsiczky for the Budapest Geothermal Energy Summit
Carlo Cariaga 23 May 2023

In this interview, Miklós Zaránd and Tamás Pazsiczky from Deloitte discuss the challenges and opportunities for geothermal development in Hungary.

On the 5th of June 2023, the first Budapest Geothermal Energy Summit will take place in Budapest, Hungary. The event seeks to bring together policymakers, industry experts, corporate leaders, technology pioneers and sustainable leaders from the region and beyond to discuss the potential of geothermal energy. ThinkGeoEnergy is a proud media partner of the Budapest Geothermal Energy Summit.

Registration for the Budapest Geothermal Energy Summit is ongoing and available via this link.

To give us a brief preview of what to expect from the Budapest Geothermal Energy Summit, we interviewed Miklós Zaránd and Tamás Pazsiczky from Deloitte, the Platinum Sponsor of the event.

Miklós Zaránd is the consulting partner responsible for Deloitte’s Core Business Operations portfolio, including the Energy Advisory offering. He graduated as an electrical engineer from the Budapest University of Technology and Economics, gained his experience in systems integration and business transformation at Deloitte, PwC and Accenture.

Miklos has led several projects in Hungary and abroad in IT and business transformation, most recently in geothermal strategy development, energy service portfolio development, electricity procurement opportunities, and renewable energy projects.

Tamás Pazsiczky is has more than 17 years of experience in consulting, and he is a director at Deloitte’s Energy and Resources team. His key service areas are strategic consultancy, operation development and transaction advisory. Tamás has valuable industry-specific experience in the fields of electricity, natural gas and district heating. In renewable energy projects, he led various solar power plant transactions, assisted his clients in financial, taxation, commercial, technical, environmental and legal decisions.

In your opinion, what are the biggest milestones that Hungary has accomplished in developing its geothermal sector?

Miklós Zaránd: The energy crisis has highlighted the complex role of the energy sector in the economy and society, while revealing the importance of energy independence and the security it provides. On this basis, there has recently been a great deal of public interest in exploring the potential of geothermal energy, which could help to reduce domestic dependence on natural gas.

The government’s intention to promote geothermal energy is already reflected in concrete measures, such as the amendments to the legislation that came into force in March this year, simplifying the licensing procedures for geothermal investments, or the establishment of the Geothermal Cluster. During the first research licensing tender in March, 60+ license applications were received, indicating a record number of interest in geothermal heat and power. We believe that geothermal energy can play a significant role in the energy transition among renewables.

 

What makes the Hungarian energy market attractive for investing in geothermal?

Tamás Pazsiczky: First, the potential for the use of geothermal energy is crucially influenced by geology. Hungary has outstanding geodynamic history in Europe favorable to geothermal energy, therefore the geothermal potential is above the continental average.

Second, the domestic geothermal potential is still untapped, so there is enormous potential for business development. The total annual geothermal potential at current technology levels is estimated by experts at 127.6 million GJ. For comparison, the total amount of heat produced by domestic district heating in 2021 was ~30 million GJ, with only ~10% of this produced from geothermal sources. The geothermal profile of the area is primarily for heat generation, and secondarily for combined heat and power generation.

Third, geothermal energy is a low-cost alternative to natural gas for district heating, for which there is a significant demand. The district heating network is expanding and being upgraded, which may also support the uptake of further geothermal projects. The favorable government policy on geothermal energy in the context of the energy crisis and the huge potential of geothermal energy provides a good basis for further geothermal energy deployment, especially in district and industrial heating.

Fourth, governmental subsidies and other financial incentives are also driving forces for investments.

 

What are the biggest challenges of developing the geothermal industry in Hungary?

Tamás Pazsiczky: The challenges associated with geothermal projects are complex. Hungary has a significant dependence on natural gas and low historical prices have not incentivized the development of sufficient geothermal capacity.

Although geothermal energy has several advantages in comparison with other renewable energy sources (like solar, or wind) the exploitation of geothermal energy potential is highly research intensive, which means that the biggest risk in geothermal projects is the success of the drilling phase once the right location has been identified. This makes it more costly and therefore riskier at the beginning. Consequently, the geological risks involved in financing such projects may challenge commercial banks and other investors to provide financing. This is a challenge for the government also – how to increase the willingness of companies to take these risks.

Miklós Zaránd: Another challenge is that the awareness of geothermal energy among industrial consumers and district heating companies is relatively low and therefore the market needs education.

At the moment there are only a few players in the domestic geothermal construction market. International technological developments are incorporated into domestic solutions with delays or not at all. Also, the capacity of companies with the right construction capabilities is fragmented, giving priority to oil and gas extraction needs.

 

Are there any specific policy changes or emerging technologies that you believe will help accelerate the growth of the Hungarian geothermal sector?

Miklós Zaránd: On the public side, the legislative changes already mentioned will speed up the initial stages of investment by reducing and simplifying licensing and other administrative procedures and will provide greater security for investors. However, there is a potential to improve the existing regulatory environment. In particular, the district heating tariff system is not attractive enough and the current high interest rates might deter foreign-based investments. In general, building a favorable financial climate for investments, establishing simple and transparent financial schemes are important

Tamás Pazsiczky: From a technological point of view, it is important to note that there are closed-cycle heat exchange solutions that can ensure the sustainability of geothermal energy or the use of former barren wells. This is important because there are currently 2-3 thousand barren wells in Hungary, drilled by the predecessor of MOL, the previous national oil and gas company, in the 1970s and 1980s.

One great example is the WeHeat technology (Wells for Heat Exchanger Advanced Technology), which is a Hungarian developed DBHE (closed loop & deep borehole heat exchanger) technology for the exploitation of idle wells. It would be also necessary to focus on increasing the efficiency of geothermal energy use and building suitable cascade systems for multi-layered utilization.

 

How important will the upcoming event be to the Hungarian geothermal industry?

Miklós Zaránd: The Geothermal Energy Summit can attract more international investors to Hungary and the region, thereby bringing closer the strategic goal of increased geothermal energy usage. The next period could be key for the future of geothermal energy, and with the right support and cooperation, it could lay the foundations for large-scale geothermal investments. This would be a significant step towards achieving both national energy independence goals and international
and domestic sustainability ambitions.

Tamás Pazsiczky: A comprehensive approach to geothermal deployment is a key aspect to help creating a win-win partnership between public interests, investors, service providers and consumers. For this reason, it could play a vital role in the future to continue and deepen the dialogue between the relevant actors and stakeholders. The Budapest Geothermal Energy Summit will provide a great opportunity to market players, technological experts, investors, and the public sector to exchange ideas and use the synergies of cooperation.