A leak of the planned revision for Europe’s key renewable energy legislation bodes well for geothermal energy, but it still does not go far enough to support a full rollout of the technology, according to the industry.
The European Commission is revising the renewable energy directive – last updated in 2018 – to bring it in line with its more ambitious climate agenda. That includes updating the targets for the amount of renewables in the EU’s energy mix to meet Europe’s new climate ambition.
It also includes a focus on heating and cooling, which is responsible for half of the energy Europeans consume. Many renewables, like solar power and wind energy, focus on electricity production, but geothermal, which utilises underground heat for energy, is also a key player in renewable heating and cooling.
However, the technology is expensive to install because of exploration and drilling costs.
“Nothing will change unless policymakers remove the barriers,” said Sanjeev Kumar, head of policy at the European Geothermal Energy Council, an industry association.
“It’s great that the Commission is seeking to address these,” he told EURACTIV.
Two parts of the draft renewable energy directive could hold the answer to at least partially overcoming these barriers. It emphasises the role of derisking measures and heat purchase agreements, both of which help tackle high costs.
“We have large upfront technological costs and there’s a risk associated with them. If these are addressed, it will mark the point at which the geothermal market takes off, and consumers reap the benefits of ultra low-cost heating, cooling and baseload electricity,” said Kumar.
The draft suggests that EU countries use a “risk mitigation framework to reduce [the] cost of capital for renewable heating projects”.
However, the industry would prefer derisking schemes to be Europe-wide, both because scale could bring down the cost and because it would create a level playing field between EU countries.
“Risk sharing between member states and exploitation of cost-effective potentials drives down costs,” according to the leaked impact assessment, referring to how regional cooperation can help mobilise larger and riskier projects.
Some EU countries already have derisking schemes. For instance, France has run several over the past few decades and saw a boost in geothermal projects whenever they were in place.
However, other countries may not have the financial expertise for these. Slovakia, for example, has a disconnect between its ambition in its national energy and climate plan, which is positive towards geothermal, and the number of projects realised, said Kumar.
Heat purchase agreements
The draft also addresses the need to support heat purchase agreements to boost the use of geothermal in Europe and to solve the infrastructure gap between geothermal and those who wish to use the energy.
Power and heat purchase agreements are used across renewable technology and work by the developer installing and maintaining the technology for free. The consumer agrees to pay the developer for the energy produced for the length of the contract, normally a couple of decades, after which they can either buy the technology, extend the contract or have it removed.
While power purchase agreements were dealt with in the 2018 renewable energy directive, this is the first mention of agreements specifically for heat.
The 2018 directive says EU countries “shall assess the regulatory and administrative barriers to long-term renewables power purchase agreements, and shall remove unjustified barriers to, and facilitate the uptake of, such agreements”.
However, this has not been enough because the legislation “does not provide explicit additional guidance” on power purchase agreements, according to the leaked draft of the updated directive. Indeed, “only 8 out of the 27 member states have described any measures to facilitate the uptake of PPAs,” according to the national energy and climate plans submitted by EU countries so far.
Now, heat purchase agreements are listed in the draft as a way to increase the amount of renewable energy in buildings. They can be “an important tool to support the creation of heat markets and are currently used much less frequently than power purchase agreements,” the draft says.
Targets are not enough
Alongside this, the draft proposes to make the existing 1.1 percentage point increase “baseline” binding, but this needs to be much higher, according to Kumar.
The baseline projection is based on the EU’s former renewable energy target for 2030, which will need to be increased from 32% to 38-40% in order to reach the bloc’s new climate ambition.
“The draft impact assessment that went with this document clearly shows that at least 40% renewable heating and cooling by 2030 is required” to meet the EU’s more ambitious climate target for 2030, warned Kumar.
“The EU is expected to achieve about 20% under the 2020 targets, so the 1.1 percentage point target needs to be doubled to meet the Commission’s own modelling,” he added.