Geothermal power production in future electricity markets—A scenario analysis for Germany

Abstract

Development and diffusion of new renewable energy technologies play a central role in mitigating climate change. In this context, small-scale deep geothermal power has seen growing interest in recent years as an environmentally friendly, non-intermittent energy source with large technical potential. Following the first successful demonstration projects, the German geothermal industry is currently experiencing an internationally unparalleled growth. In this study we explore the factors driving this development, and the role geothermal power production could play in the future of the German electricity market. For this, we apply the scenario technique, based on literature analysis and interviews with companies operating actively in the field. Our findings highlight the importance of political support and framework conditions in the electricity market, with the best prospects in a decentralised energy system based on renewable energy sources, where high investment costs and the risk of discovery failure are balanced by the benefits of low-carbon base load power.

Introduction

Climate change mitigation, ageing generation capacities, the question of a nuclear phaseout—the German electricity market is currently facing considerable challenges which can only be met sustainably if profound structural changes are initiated. Today, the market is still dominated by fossil fuels, with 43% of 2009s gross electricity production supplied by coal, 13% by natural gas and 23% by nuclear power (BMWi, 2010). However, political support and technological progress have led to an unprecedented growth in renewable energy shares, increasing from 4.7% in 1998 to 15.9% in 2009 (BMWi, 2010, BMU, 2010). In addition, a new renewable energy source (RES) appeared in 2003, when Germany’s first geothermal power plant was commissioned. While deep geothermal energy has occasionally been used for heat production – covering only 0.02% of 2009s heat demand – the potential of geothermal power generation is still largely undeveloped (BMU, 2010). Its estimated potential is immense: studies suggest that geothermal power could provide up to half of Germany’s electricity demand (Paschen et al., 2003, Jung et al., 2002). Unlike many other renewable energy technologies, geothermal power is non-intermittent, making it an attractive potential component of future electricity markets.

The most comprehensive studies of the current situation and future potential of geothermal energy in Germany have been undertaken by Jung et al. (2002), Paschen et al. (2003), Sanner and Bussmann (2003) and partly by Kayser and Kaltschmitt (2000), who focus on geothermal heat. However, the geothermal power sector saw its major boost after 2003. Moreover, these studies did not address in depth the factors and motives for investment that have been driving this development, which could provide important insights for the design of future political support. Applicability of experiences from abroad is also limited: most installations in the 24 countries that currently use geothermal energy for electricity production are large scale plants at geologically advantageous sites (GtV, 2010a, Bertani, 2005). Besides the European research site at Soultz sous Fôrets (France), only Australia and Austria have recently set up small scale projects under geological conditions similar to those in Germany; their installed capacity, however, remains below 1.5 MW_el (GtV, 2010a, Bertani, 2005). While several Australian companies are now active in researching Enhanced Geothermal Systems (Fridleifsson et al., 2008), the recent rapid growth of the German geothermal power industry remains internationally unparalleled.

The German Renewable Energies Act (Erneuerbare-Energien-Gesetz, EEG) has been a major driver of this development. However, since decision-making in the power sector is far from being purely economics-based (Pahle, 2010, Barth and Siebenhüner, 2010), the drivers and mechanisms at work in the geothermal power sector may be unique and thus require individual assessment. Experiences from the recent geothermal boom in Germany can then play an important role in unlocking the large geothermal energy potential of less favourable geological sites that prevail in Europe (Kaltschmitt, 1999).

Our study aims at providing a first step in this process. Starting out from a thorough review of the existing literature we identify factors that influence the development of geothermal power generation in Germany. We then use the results of two expert interviews we conducted with executives of two of the first companies to invest in geothermal power production in Germany to validate and augment the initial set of drivers. As a third step, we apply the scenario approach (Reibnitz, 1992) to determine interactions and dependencies between the key drivers by means of an interaction matrix. From these insights we construct three possible pathway scenarios, showing how geothermal power might evolve within the German power sector. Of course, these scenarios are not intended to predict the future but rather to highlight the structural interrelations of the key factors and their interaction in producing different futures. Since heat and electricity markets are governed by fundamentally different conditions, geothermal heat production is only considered if it is relevant for power generation.