Technological Innovations and Climate geothermal technologies I am writing to you following the Environmental Audit Committee’s evidence session on Geothermal Technologies as part of its Technological Innovations and Climate Change inquiry. The Committee’s call for evidence on this topic attracted 34 written submissions.1 The Committee held an oral evidence session on 7th September 2022, hearing from the British Geological Survey, the Association for Renewable Energy and Clean Technologies, the Coal Authority, and Geothermal Engineering Ltd. Committee greatly appreciates the contributions of all who assisted it in this inquiry. The evidence received by the Committee was clear and the UK has significant geothermal resources which can contribute to both the UK’s energy security and its transition to net zero. The Committee is disappointed to find that the current policy, funding, and regulatory landscape does not appear to be conducive to optimising the potential contribution of geothermal to these policy goals. The term “geothermal energy” refers to the energy stored beneath the surface of the Earth. Such energy from a variety of sources which can replenish heat abstracted to 3 In what follows, “deep geothermal resources,” generally refers to geothermal energy at a depth greater than 500m from the “shallow geothermal resources” refers to those at a depth less than 500m from the surface. 1 The written evidence taken by the Committee in the course of its inquiry is published at technologies/publications/. Individual evidence submissions are referenced below with the prefix GEO. 2 The transcript of oral evidence taken by the Committee on 7th September 2022 is published at . 3 Abesser and Walker, “Geothermal Energy”, POST Brief 46, 2021 Secretary of State for Business, Energy and Industrial Strategy Department for Business, Energy and Industrial Strategy

A. The scale of the resource and the Government’s ambition geothermal resources in the UK are considerable. The quantity of heat potentially accessible has been estimated between 100% 4 and 200%5 of the UK’s annual heating demand. The geothermal resources suitable for generating power are smaller, but still significant, representing 1.5 per cent of the UK’s annual power consumption. When operating without venting gases, and from a decarbonised power supply, geothermal technologies are zero-emission technologies. Different geologies lend themselves to different geothermal applications. For example, areas with radioactive granite deposits are suitable for geothermal power generation, as the radioactive decay heats the rock to suitable temperatures. Indeed, such granite deposits are the only geology in the UK suitable for such use. Areas of the UK with these granite deposits include Cornwall, Aberdeenshire, and the North of England. Other deep geological formations contain geothermal resources which can be exploited for use in district heating applications, as well as horticultural and agricultural applications. Typically, these formations are deep sedimentary aquifers— porous rocks saturated with groundwater—which can be found across England. The Committee has also received evidence on emerging deep closed loop technologies, where a heat carrier fluid is injected, heated, and abstracted without 8 Such technology may be able to bring new life to oil and gas wells at the end of exploration or production.9 Shallow geothermal resources are only suitable for the production of heat when combined with a heat pump. Closed-loop technologies can be deployed at a small scale anywhere in the UK, and open loop technologies can be installed exploiting groundwater in shallow aquifers.10 4 Gluyas et al., Keeping a review of deep geothermal potential of the UK , 2021 6 British Geological Survey, GEO0021 8 Geothermal Energy Advancement Association, GEO0009 10 British Geological Survey, GEO0021

A further, unconventional geothermal resource available in the UK is in flooded, disused mine workings.11 Many towns and cities in the UK sit above former coal mines, and many of these settlements are on the Government’s priority list for Levelling Up funding.12 The Coal Authority is currently working with Gateshead Council to provide geothermal heat from mines below the town at a price cheaper than that The Committee has heard that geothermal projects can offer considerable economic benefits. For example, the Renewable Energy Association and Arup have estimated that the development of deep geothermal projects could bring around as many 10,000 direct and 25,000 indirect jobs by 2050. 14 The North East Local Enterprise Partnership estimates similar employment 4500 direct and up to 11,000 indirect jobs if 42 mine water heat schemes are developed in conjunction with the Coal 15 It has also been noted that drilling skills and subsurface knowledge from the oil and gas industry are extremely well suited to the geothermal industry’s needs. Geothermal therefore offers a potential green transition to the current oil and gas The geothermal resource in the UK is significant and multifaceted, and is co-located with heat, power, and investment demand. Exploiting this resource can support Britain’s energy security and transition to a net-zero society, as well as create jobs and drive investment across the country. The Committee therefore finds it disappointing that the exploitation of this resource has not been explicitly addressed either in the British Energy Security Strategy the Net Zero Strategy.18 The lack of formal recognition of the potential for geothermal in Government energy and decarbonisation strategies, and the lack of explicit targets for generation of heat and power, clearly inhibits stakeholder and investor this in turn prevents the industry from growing.
11 The Coal Authority, GEO0032 12 Department for Levelling Up, Housing and Communities, Levelling Up fund round 2: list of local authorities by 13 Gateshead Council, Zero Carbon Heat for Gateshead, 2021 14 Energy Association and ARUP, Deep Geothermal Economic Decarbonisation Opportunities for the 15 North East Local Enterprise Partnership, The Case for Mine Energy – Unlocking Deployment at Scale in the UK, 16 European Geothermal Energy Council, GEO0024 17 Department for Business, Energy and Industrial Strategy, British Energy Security Strategy , 2022 18 Department for Business, Energy and Industrial Strategy, Net Zero Strategy, 2021

Please set out what consideration was given to (a) including detailed geothermal heat and power in the British Energy Security Strategy and the Net Zero Strategy and (b) setting generation targets for these zero- B. Support for geothermal power generation under Contracts for Difference Geothermal power generation projects are eligible for the Contracts for Difference (CfD) scheme and can bid for funds from Pot 2. In Allocation Round 4, the administrative strike price (in 2012 prices) was £132/MWh. guaranteed minimum allocation to geothermal power projects. This appears to have led to at least one geothermal project losing out on funding despite bidding at a lower strike price than that agreed for successful tidal projects, which do have a guaranteed The situation has led geothermal power project developers to conclude that the strike price under the scheme is “effectively meaningless” 21 because the likelihood of a bid being successful is so low. Difficulty in obtaining a CfD strike price harms investor confidence, which makes it difficult for developers to raise sufficient capital to meet the high expenditure during the exploration and commissioning phases of the project. Will your Department consider the creation of a ringfenced pot for geothermal power projects under the Contracts for Difference scheme? C. Licensing of heat from geothermal technologies Presently, heat is not classed as a natural resource in the UK. licensing regime for geothermal heat; no one ‘owns’ heat, and no one can secure exclusive rights to exploit the resource. For a company, this raises the issue that they could incur significant capital expenditure in proving the existence of a resource, only to have another company set up nearby and exploit the same resource. This is a fundamental issue faced by the geothermal industry, but not one faced by the fossil fuel and mining industries are able to secure the right to explore and 19 Department for Business, Energy and Industrial Strategy, Contracts for Difference, Allocation Round 4: Budget 20 Eden Geothermal Ltd, GEO0020 21 Geothermal Engineering Ltd, GEO0018 22 Abesser and Walker, “Geothermal Energy”, POST Brief 46, 2021

exploit their respective resources.23 Indeed, the lack of a licensing regime in the UK makes it an outlier when compared to other neighbouring economies. Denmark, Germany, France and the Netherlands all regulate heat as a natural resource.24 In Switzerland and Belgium, these regulations are set by some regional administrations in the absence of national legislation.25 The Coal Authority is the only body in the UK to issue licenses specific to geothermal heat. They issue licenses to abstract heat from ‘blocks’ of interconnected mines.26 This was introduced partly to address the issue of thermal interference, where the operation of several geothermal installations can reduce the temperature of the reservoir enough to affect the efficiency of the installations. Will your Department undertake to investigate and to implement an appropriate licensing regime for geothermal projects in the UK? D. Support for accessing geothermal heat In the written and oral evidence received by the Committee it was made clear that the closure of the Non-Domestic Renewable Heat Incentive (RHI) has posed a significant problem to the geothermal industry. The RHI offered a feed-in tariff for heat paid over 27 It has been replaced by the Green Heat Network Fund.28 While this scheme is generally useful, the short-term nature of the support it provides does not appear conducive to growth in the UK’s geothermal industry. The Renewable Energies Association has called for existing support to be supplemented by tailored long-term support for geothermal projects.29 According to the REA, there are at least a dozen projects waiting for funding that are otherwise Will your Department give consideration to longer-term support for geothermal heat, and other forms of renewable heat? 23 North Sea Transition Authority, Types of Licence, 2022 24 British Geological Survey briefing paper, August 2022 27 Ofgem, Non-domestic Renewable Heat Incentive, 2021 28 Department for Business, Energy and Industrial Strategy, Green Heat Network Fund , 2022

The risk profile of geothermal projects a considerable barrier to the industry. In an immature industry, there is great uncertainty in accessing the resource; projects tend to undertake an exploration phase of drilling test wells to achieve the necessary flow 30 This means that projects have a high capital expenditure and high risk in these early stages. In less mature markets in continental Europe, this risk is typically shared with the public through risk-sharing schemes. These schemes tend to be public insurance schemes, loans, or grants. As the industry matures, and knowledge of the resource improves, the risk declines. As a result, private insurance tends to emerge, rendering public risk-sharing no longer necessary.31 Please set out what plans your Department has to ensure that appropriate risk-sharing mechanisms are in place for the geothermal industry, and what models, if any, are under consideration. On the basis of the evidence before it, the Committee considers that geothermal technologies present exciting opportunities which, if supported and developed, can assist in addressing significant current policy challenges. The Committee looks forward to receiving your considered response to the questions and observations above. I am copying this letter to the Chairs of the Business, Energy and Industrial Strategy Committee and of the Science and Technology Committee. The letter will also be published on the Committee’s website. Chairman of the Environmental Audit Committee 30 British Geological Survey, Unlocking the potential of geothermal technology in the UK , 2021 31 GEORISK, Report reviewing existing insurance schemes for geothermal, 2020