As many governments race to meet renewable energy goals of 2020, they are revisiting the geothermal energy sector which promises to contribute electricity as a base-load power while severing dependence on foreign oil and gas.
Frost & Sullivan expects the geothermal industry to steadily gather steam in the coming years, despite the current economic situation and restraining factors such as high initial investment costs.
Frost & Sullivan finds that the European geothermal energy market reached installed capacity of 1558 MW in 2009 and estimates this to reach close to 4 GW in 2016 once drilling costs are reduced and become more independent of the oil and gas industries.
Growth rates are expected to pick up in the next few years, with a CAGR of 13% between 2010-2016, with established countries such as Italy and Iceland continuing to invest in geothermal power and new countries such as Germany and France exploring their opportunities.
The European geothermal energy market emerged relatively unscathed from the financial crisis compared to other renewable energy sources, and today the largest European markets for geothermal energy are: Italy, Iceland, Turkey, Germany and France, followed by Portugal, Austria, Spain, Hungary and the UK. While for some countries like Iceland, geothermal is the main electric power or energy resource, for others including Italy, Turkey and Germany, geothermal will complement other energy sources, Frost & Sullivan says.
“Recession has slowed-down and will slow-down the sector until the end of 2010, but this market has not been as hard hit as other renewable energy sectors such as wind and solar. Continued government support will bolster growth rates, while falling costs due to economies of scale in countries like Italy and Iceland will eventually eliminate high initial investment costs,” says Frost & Sullivan Industry Analyst Gouri Kumar who has just published a study on this market.
“Established countries will continue to invest in geothermal power and new countries such as Germany and France will explore opportunities. This will lower initial capital costs and attract drilling and other companies to invest in the sector.”
Improved information regarding resources in emerging markets will allow more companies to enter the geothermal industry, especially those with multiple synergies with the geothermal industry such as oil and gas service companies. Drilling companies in the oil and gas sector have diversification opportunities in the drilling and exploration phase of geothermal energy projects. There are also a number of techniques and expertise that can be transferred from oil and gas to geothermal and therefore better co-operation between the sectors is necessary.
As with other renewable energy sources, individual countries and Europe as a whole need a geothermal electricity target to spur governments to achieve them. The growth in new technologies must be complemented with government support, Frost & Sullivan says.
“As suggested by some market participants, clustering of wells leading to bigger power plants will help reduce costs and thus make geothermal power a more competitive source both with conventional and other renewable energy sources,” concludes Gouri Kumar.
“As in most electricity markets, grid is key. Countries need to research, invest and build new grid infrastructure to accommodate higher loads. Large scale investment should be earmarked for infrastructure, drilling and resource exploration. Society and investors should be educated about the benefits of geothermal energy”.