20120925 Cornwall Geothermal Options Report ISSUE 2...with the Rosemanowes ‗hot dry rocks‘ project in the 1970s and 1980s. However, the deep geothermal resource is not ‗conventional‘

Cornwall Council

20120925_Cornwall Geothermal Options Report_ISSUE 2.docx

Options Study

REP/225440/ISS1

Issue 2 | 25 September 2012

This report takes into account the particular

instructions and requirements of our client.

It is not intended for and should not be relied

upon by any third party and no responsibility

is undertaken to any third party.

Job number 225440

Ove Arup & Partners Ltd

13 Fitzroy Street

London

W1T 4BQ

United Kingdom

www.arup.com

Cornwall Council 20120925_Cornwall Geothermal Options Report_ISSUE 2.docx

Options Study

REP/225440/ISS1 | Issue 2 | 25 September 2012

J:\220000\225440-00 CORNWALL DEEP GEOTHERMAL\60_OUTPUT\1_REPORTS\20120925_CORNWALL GEOTHERMAL OPTIONS REPORT_ISSUE 2.DOCX

Contents

Page

1 Introduction 5

1.1 General 5

1.2 Scope of the Report 5

1.3 This Report 6

1.4 Options Study Methodology 6

2 Deep Geothermal Resources 8

2.1 Introduction 8

2.2 Geothermal Terminology 8

2.3 History of HDR development 10

2.4 Recent Developments in Deep Geothermal Worldwide 12

2.5 Recent Developments in Deep Geothermal in Cornwall 13

3 Barriers to Development of Deep Geothermal in Cornwall 15

3.1 Introduction 15

3.2 Geological Issues 15

3.3 Technical Issues 18

3.4 Environmental Issues 20

3.5 Political Issues 25

3.6 Economic Model 28

3.7 Discussion of Opportunities and Barriers to Development of Deep Geothermal in Cornwall 32

4 Investment Strategy for Cornwall 34

4.1 Introduction 34

4.2 Types of Investment 34

4.3 Investment Mechanisms 40

4.4 Constraints to Investment 44

4.5 Benefits to Cornwall 45

4.6 Discussion on Investment Strategy 48

4.7 Development Options 49

5 Enterprise Zone 52

5.1 Introduction 52

5.2 Cornwall Deep Geothermal Enterprise Zone 52

5.3 Newquay Aerohub 52

5.4 Timing of Establishment of Enterprise Zone 53

5.5 Secondary Industry Types 53

6 Case Studies of Funding Approaches 54


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6.1 Introduction 54

6.2 Australia 54

6.3 Germany 55

6.4 Comparison of Case Studies 56

7 Summary and Recommendations 58

7.1 Summary 58

7.2 Recommendations for Next Steps 59

References

Tables

Table 1 Comparison of the geology of selected deep geothermal systems

Table 2 Grant funding secured by deep geothermal developers in Cornwall

Table 3 Principal geological risk factors affecting deep geothermal in Cornwall

Table 4 Principal technical risk factors affecting deep geothermal development in Cornwall

Table 5 Land usage for different electricity generation technologies (MIT, 2006 Ref. [2])

Table 6 Principal environmental issues affecting deep geothermal in Cornwall

Table 7 UK subsidies for deep geothermal electricity and heat generation (After Ref. [6])

Table 8 Different financial model scenarios

Table 9 How the UK compares with some Countries in Europe where deep geothermal development is going ahead

Table 10 The most commonly employed methods of stimulating deep geothermal development

Table 11 Existing geothermal exploration risk insurance schemes (After Ref. [3])

Table 12 Jobs created by energy production type (Deloitte Consulting for US DoE)

Table 13 Jobs created during a typical 50MWe geothermal development (DoE)

Table 14 Summary of potential investment strategies

Table 15 Comparison between German and Australian development programs.

Figures

Figure 1 Terminology for geothermal systems (after GreenRock energy)

Figure 2 Heat flow in the UK (after BGS)

Figure 3 Summary of responses to questionnaire and interview related to drilling


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Figure 4 Summary of responses to questionnaire and interview related to reservoir development

Figure 5 Summary of responses to questionnaire and interview related to induced micro-earthquakes

Figure 6 Summary of responses to questionnaire and interview related to induced microseismicity

Figure 7 Summary of responses to questionnaire and interview related to ROC‘s

Figure 8 Summary of responses to questionnaire and interview related to lack of a licensing regime in Cornwall

Figure 9 Cash flow during development and operation of a deep geothermal project

Figure 10 Total annual and cumulative expenditure and assumed risk during deep geothermal project development stage (years 1-5)

Figure 11 Summary of responses to questionnaire and interview related to other incentives to aid development of deep geothermal development in Cornwall

Figure 12 Summary of potential outcomes for deep geothermal development options 1, 2 and 3 in terms of estimated power production and employment

Figure 13 Next steps recommended for development of the deep geothermal sector

Appendices

Appendix A

Glossary of Terms

Appendix B

Interviews

Appendix C

Induced Micro-seismicity

Appendix D

Risk insurance example (France)

Appendix E

Geothermal Employment Data

Appendix F

Australian geothermal framework


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Executive Summary

Cornwall offers a promising potential deep geothermal resource due to the particular geology underlying the region. The resource is already partially proven with the Rosemanowes ‗hot dry rocks‘ project in the 1970s and 1980s. However, the deep geothermal resource is not ‗conventional‘ – there are no hot fluids circulating in a geothermal reservoir. Instead, the heat resource is contained within granite rocks and the reservoirs must therefore be ‗engineered‘ by fracturing the rock and circulating water in the reservoir.

Understandably, Cornwall Council is keen to better understand the potential of this resource and if appropriate to support the development of this sector in line with the renewable ‗green‘ energy generation aspirations of the County. Arup has been appointed by Cornwall Council to undertake an options study to investigate the development of the deep geothermal energy sector in Cornwall. The findings of the Arup options study are presented in this report.

This options study has comprised the investigation of technical, policy and commercial considerations that could limit development of the deep geothermal sector. Simple economic analyses have been undertaken to better understand the commercial requirements. Best practice has been examined in other countries that already have developing deep geothermal industries. In order to canvas a broad range of opinion on these issues, a questionnaire was prepared and distributed and interviews undertaken with a range of relevant stakeholders who responded to the questionnaire.

Our review of the technology, policy and commercial considerations that impact the sector in the United Kingdom has indicated that there are opportunities for development of deep geothermal sector in Cornwall under the right economic circumstances. However, there are some specific reasons why the sector has been slow to take off in Cornwall to date.

The principle reasons for the slow take off are considered to be:

1. The ‗front end‘ cost associated with deep geothermal developments is high. The largest cost is associated with drilling of the deep wells. A minimum of two wells are required at a cost of approximately £15 to 20 million.

2. There is currently insufficient short to medium term commercial return from the current value of electricity and heat and the current subsidy regime in the United Kingdom given the level of technical and commercial risk associated with deep geothermal developments.

3. There is insufficient public funding to cover the ‗front end‘ cost and currently no exploration / development risk insurance scheme to manage the risk and encourage private capital to invest in potential geothermal projects.

4. There is a lack of political will at a national level to support the industry at this early stage of its development through subsidises or other financial incentives.

With these issues in mind, there are a series of steps that Cornwall Council could take to stimulate the deep geothermal sector and begin to overcome these barriers to development:


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1. Cornwall Council could establish a ‗drilling fund‘ to enable at least two deep wells to be drilled and tested in Cornwall.

2. Cornwall Council could prepare now, in order to facilitate future public sector (e.g. ERDF or other) match funding, for one or more appropriately selected exemplar Cornwall deep geothermal projects (post-drilling).

3. Cornwall Council could lobby DECC at the appropriate level to establish a deep geothermal risk insurance scheme for Cornwall.

4. Cornwall Council could lobby Government to develop a deep geothermal licensing system.

5. Cornwall Council could establish a micro-seismicity strategy for the geothermal sector. The micro-seismicity strategy could be based on legislation being developed for the shale gas industry and could include setting trigger and action limits for the magnitude / ground vibration amplitude of allowable induced earthquakes using a traffic light system.

6. Cornwall Council could further encourage the introduction and continued investment of private capital into the industry.

7. Cornwall Council could establish a ‗Cornwall Deep Geothermal Enterprise Zone‘ to encourage the development of secondary industries around the deep geothermal projects.

Introducing a ‗drilling fund‘ is considered to be the best way of kick starting the deep geothermal sector in Cornwall. We estimate that to drill and test two deep wells (in different locations) will cost around £20million. Given that the two projects ready to drill in Cornwall (those run by Geothermal Engineering Ltd and EGS Energy Ltd) have already raised initial funding, the required additional funding would, in reality, be in the order of £15million – still a substantial amount of money. Ideally, the ‗drilling fund‘ would be introduced and allocated (subject to technical due diligence) in 2012-13. There are a number of sources of funding that Cornwall Council could use to establish the ‗drilling fund‘. These sources include Cornwall Council, ERDF through the Convergence Programme, DECC and ETI. Action with regard to securing funding should be taken as soon as possible to ensure the Council is in a strong position to help to develop this sector.

Our economic analysis has shown that, with the current levels of subsidy, an early stage deep geothermal project in Cornwall will have a return on investment of well less than 10%. Given the level of technical and commercial risk, such projects will be unattractive to commercial investors unless high levels of other match funding can be provided. Allocating a high level of public sector match funding to the two current projects proposed for Cornwall would equate to at least £60million. Given this level of expenditure, it would be prudent to allow both projects to drill ‗proof wells‘ (using the ‗drilling fund‘) and report on the data before allocating any match funding to the remainder of a project. The only appropriate public source of funding identified for this match funding would be the next round of the ERDF in 2014. Cornwall Council should therefore be preparing to facilitate this funding now.

To encourage long-term private investment into the sector and to see the development of multiple projects in the future, it is strongly recommended that Cornwall Council lobbies DECC and other Whitehall departments to introduce a


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risk insurance scheme. The risk insurance policies can effectively be copied from the existing schemes in Europe including France, Germany or Switzerland. This may only be introduced once the results from the initial wells have been obtained. Funding for such a scheme may potentially come from DECC until sufficient data is obtained for a private sector insurance scheme to operate.

Cornwall Council could lobby Government to set up a licensing scheme. A licensing scheme would require specialist legal advice and it is anticipated that introduction of legislation would take a number of years to be implemented.

The establishment of a ‗Cornwall Deep Geothermal Enterprise Zone‘ will encourage the development of secondary ‗spin-off‘ industries around the deep geothermal projects. These secondary industries are necessary for the intermediate and longer-term development of the geothermal sector and will provide significant socio-economic and associated employment opportunities for the county. Cornwall Council has experience of successfully initiating an Enterprise Zone therefore it is in a great position to lead this activity.

Given the above recommendations / policy options, we have outlined three options for development and estimated how the industry might develop as a result:

Option 1 – Cornwall Council does nothing. It is unlikely that any deep geothermal projects will proceed in Cornwall. If short-term commercial gain were the only consideration – this option would be the right thing to do. However, Cornwall Council has made it clear that their focus is rightly on medium to longer term sustainable development with associated employment opportunities for the region and therefore short-term commercial gain is not seen to be a driver. Option 1 is not recommended.

Option 2 - Cornwall Council introduces a ‗drilling fund‘. Match funding for one or more selected early stage projects is facilitated following due diligence and an Enterprise Zone is established when the time is right. The ‗drilling fund‘ will allow drilling of single wells to proceed at two locations, i.e. two projects. This will raise the profile of deep geothermal and its association with Cornwall and provide a positive basis to facilitate future match funding and to encourage the introduction of private capital. Match funding will result in a real commercial geothermal project or projects. An Enterprise Zone will encourage the necessary secondary industries to establish around the real projects.

Option 3 - Cornwall Council introduces a drilling fund, match funding for early-stage projects is facilitated, a risk insurance scheme starts and a geothermal licence scheme is established. This option would allow the deep geothermal industry to develop and continue sustainably for the long term.

It is our opinion that, Option 2 will be sufficient to kick start the deep geothermal industry in Cornwall. The policies in Option 3 will then need to be planned and introduced over time before the industry can develop fully and raise significant levels of private capital to continue and be independently sustainable in the medium to long term. We estimate that if Cornwall Council implements Option 3 it could result in the deployment of approximately 105MW of electricity, provide heat to a range of secondary industries, and result in the order of 2,000 direct jobs over the next 20 years.

The risk associated with induced micro-seismicity / micro-earthquakes associated with deep geothermal developments remains a concern for the public. This issue is


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predominantly one of public perception. Technical experts advise that the risk associated with induced earthquakes by engineering of deep geothermal reservoirs is very low. The vast majority of these micro-earthquakes will not be felt. However, there remains a risk of felt earthquakes and it is important that Cornwall Council develops and communicates a robust policy. Recommendations on this issue are provided in Appendix C of this report. The key recommendations for managing the perceived risk issues associated with the unfavourable perception surrounding induced micro-seismicity / micro-earthquakes are as follows:

Cornwall Council should develop a strong policy on induced micro-seismicity and micro-earthquakes.

Cornwall Council should have an open well informed debate and active engagement with the public on this issue.

Cornwall Council should contextualise the induced micro-seismicity due to deep geothermal reservoir development by comparing the vibration levels of induced seismicity from deep geothermal reservoir development with the vibration levels of known acceptable man-made sources such as construction plant and truck movements which the public generally find acceptable and at worst might find an annoyance.

Cornwall Council should prepare a strategy to monitor micro-seismicity at depth for a set period of time prior to reservoir enhancement to establish the level and frequency of background micro-seismicity. The strategy should include realistic warning and action levels for micro-earthquake magnitudes.


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1 Introduction

1.1 General

The increasing demand for renewable energy and low carbon technologies in the United Kingdom presents a real opportunity for the commercial production of energy from deep geothermal sources in Cornwall and the Isles of Scilly. A significant proportion of the accessible deep geothermal resource in the United Kingdom is located in Cornwall due to the underlying granite geology.

In the 1970s / 80s, academic and industrial expertise related to deep geothermal was developed in Cornwall through the Department of Energy, Hot Dry Rocks project at Rosemanowes Quarry at Penryn. World leading expertise was developed at the Camborne School of Mines. More recently, this knowledge base has continued through the clean tech research at the Environmental Sustainability Institute in Cornwall.

Understandably, Cornwall Council is keen to better understand the potential of the deep geothermal resource and if appropriate to support the development of this sector in line with the renewable ‗green‘ energy generation aspirations of the County. Arup has been appointed by Cornwall Council to undertake an options study to investigate the development of the deep geothermal energy sector in Cornwall.

The potential socio-economic benefits that the deep geothermal energy sector can deliver to Cornwall are considered to be significant. International experience suggests that a geothermal power plant can generate 10 to 11 times as many jobs as a comparable natural gas plant. The deep geothermal sector is also generally found to attract significantly higher salaried workers.

When considered alongside the attraction potential for ‗spin-off‘ industry generation (e.g. in agriculture, leisure, manufacturing) and the associated employment opportunities, a picture emerges of an industry that could trigger developments in technology, private enterprise, education and skills and wider economic growth in Cornwall.

1.2 Scope of the Report

The scope of work for the study is described in the Consultancy Agreement for Preparation of an Options Study on Deep Geothermal in Cornwall (Contract Reference 2009.45F) and includes the following tasks:

1. Undertake an analytical examination of the technical, policy and commercial barriers to development of the industry in Cornwall.

2. Development of a strategy to address the barriers and accelerate delivery of deep geothermal investment in Cornwall.

3. Explore the potential drivers for a Geothermal Enterprise Zone in Cornwall.

In addition, to these tasks Arup proposed to investigate international good practice for development of the deep geothermal energy sector with particular reference to the situation in Australia and Germany.


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1.3 This Report

This Options Study Report is divided into seven sections:

Section 1 is the introduction.

Section 2 provides background to the study including a brief summary of the history of deep geothermal energy resource development.

Section 3 describes the particular barriers to development of the deep geothermal sector in Cornwall.

Section 4 outlines an investment strategy to facilitate the development of the deep geothermal sector in Cornwall.

Section 5 describes the potential drivers for establishment of a Deep Geothermal Enterprise Zone to encourage the development of the deep geothermal sector in Cornwall.

Section 6 describes international good practice for development of the deep geothermal energy sector with particular reference to the situation in Australia and Germany.

Section 7 provides a summary of key issues and recommendations for the next steps in the way forward for the development of the deep geothermal sector in Cornwall.

1.4 Options Study Methodology

The options study methodology has comprised the following:

Desk Study

Desk study research and literature review to understand the status of the deep geothermal industry world-wide and specifically in Cornwall. The desk study also involved the investigation of technical, policy and commercial considerations that could limit development of the deep geothermal sector in Cornwall. Best practice has been examined in other countries that already have developing deep geothermal industries.

Questionnaire and Interviews

In order to canvas a broad range of opinion on deep geothermal issues, a questionnaire was prepared and distributed and interviews undertaken with a range of relevant stakeholders. The results of the interviews and completed questionnaire are provided in the Appendix of this report. We received 10 responses (5 full responses and 5 partial responses), 5 individuals declined to comment and we received no response from 5 individuals. Although we have accurately reported the range of responses to the questionnaires and the interviews, it should be noted that interpretation of the interviews and questionnaires results within this report are the views and recommendations of Arup based on the responses and are not necessarily the views of the responders.

Economic Modelling

Simple economic analyses have been undertaken to better understand the commercial requirements for development of a deep geothermal project in


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Cornwall. It is beyond the scope of this study to prepare detailed economic models. Reasonable assumptions have been made and these assumptions are provided in the report.


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2 Deep Geothermal Resources

2.1 Introduction

Development of geothermal power and heat resources has, over the last ten years, experienced something of a renaissance. Reports suggest that Worldwide, power production is set to double over the next ten years (Ref. [2]). The use of geothermal energy for heat only projects (direct heating) is also set to increase significantly in Europe (Ref. [3]) in response to both rising energy prices and the need to reduce carbon emissions. In theory, because the Earth becomes hotter with depth almost universally, the potential deep geothermal resource is vast, many times larger than current global electricity and heat demands (Ref. [2]). There are therefore a large number of developers working Worldwide to prove that these deep geothermal resources can be reliably and repeatedly developed.

Cornwall is well known for its deep geothermal resource, primarily because of the Hot Dry Rock research programme that was run in the County during the 1970s/80s. Given the current global interest in deep geothermal resources and the existing knowledge base in Cornwall, Cornwall Council rightly wants to understand how best to spur the development of the resource in the region.

2.2 Geothermal Terminology

In general terms, geothermal energy derives from the thermal energy stored in the Earth‘s crust and the upward conduction of heat from the Earth‘s mantle, locally from recent igneous activity and from heat generated by the decay of radioactive elements in the crust. Local and regional tectonic and geologic phenomena play a major role in determining the location (depth and geographic position) and quality (temperature and fluid chemistry) of a particular geothermal resource. Regions with higher than normal heat flow are often associated with tectonic plate boundaries and with areas of geologically recent igneous activity and/or volcanic events – these are the ‗conventional‘ hydrothermal resources. This is why people typically associate geothermal energy only with places where there has been geologically recent tectonic or volcanic activity such as New Zealand, Japan or Iceland - all regions on tectonic plate boundaries with recent volcanic activity. However, geothermal resources comprise a wider range of heat sources from the Earth, including not only the more easily developed, currently economic, ‗conventional‘ hydrothermal resources; but also the Earth‘s deeper, stored thermal energy – the deep geothermal resources.

There are a variety of terms applied to deep geothermal development; targeting resources that are between 2 and 5km below the ground‘s surface. The most widely used acronyms are:

1. EGS – Engineered or Enhanced Geothermal Systems. This term is applied to systems that ‗engineer‘ or ‗enhance‘ local geological conditions to create a viable geothermal reservoir. The ‗enhancement‘ or ‗stimulation‘ usually involves fracturing of the rock by injecting water under very high pressure. The term EGS is applied to what would previously have been called Hot Dry Rock projects. That is to say, resources where little natural fluid is present within the rock. This terminology is applicable to the Cornish resource.


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2. HDR – Hot Dry Rock. This description is gradually being replaced by the term EGS, as noted above. The original research projects in the USA, the UK and at Soultz (Section 2.3) were all termed HDR projects. The definition was intended to make a distinction between conventional resources, such as Iceland, where hot geothermal fluids were already present beneath the ground and HDR projects where little or no geothermal fluids were present, but the rocks were hot. Again, the reservoir would have to be ‗engineered‘. This terminology is applicable to the Cornish resource.

3. HFR – Hot Fractured Rock. This term is a variation on the HDR theme. In the case of HFR systems, there is, in theory, a natural fracture system at depth, within a hard rock like granite, which already contains a quantity of geothermal fluid. Hot Wet Rock is also used to describe this type of geology/ system. This terminology may apply to parts of the Cornish resource.

4. HSA – Hot Sedimentary Aquifer. This term is applied to relatively deep geothermal resources that consist of an existing ‗aquifer‘ that contains geothermal fluid. An aquifer in this sense is a rock type such as sandstone or limestone that already contains sufficient quantities of geothermal fluid for commercial exploitation. This terminology would not apply to the Cornish resource.

Figure 1 shows the distinctions between these systems in graphical form. In Cornwall, the dominant resource is HDR, HFR or EGS. It is important to understand therefore that in Cornwall, the rocks are hot at depth but contain very little natural fluid. The rocks will therefore have to be ‘engineered’ to create economically viable reservoirs. This concept was first attempted in the 1970s and 1980s and is discussed in the next section.

Figure 1 Terminology for geothermal systems (after GreenRock energy)


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2.3 History of HDR development

2.3.1 HDR project – UK (1976-1991)

The Hot Dry Rock project was commissioned by the then Department of Energy in response to the 1970s oil crisis. It was later funded by both the Department of Energy and the European Commission. The project‘s main goal was to prove that an artificial reservoir could be manufactured in a previously un-fractured volume of hot dry rock (granite). A reservoir in this sense is a volume of granite that would permit water to flow through it and absorb heat at sustainable operating pressures. The project drilled three deep wells into the granite (between 2km and 2.6km) and successfully circulated water between two of the wells. This was an important breakthrough at the time. The temperature of the water was approximately 80 to 90°C. For commercially competitive power production in that era, the temperature needed to be much higher and it was proposed to drill a well to 6km. The Department of Energy decided that this would be too expensive and subsequent work was transferred to a central European site at Soultz-sous-forets in France (Section 2.3.2).

A lot of the techniques and the science pioneered in The Hot Dry Rock project were actually transferred to the oil and gas industry. The legacy of the project is still present in Cornwall with a number of businesses actively involved in the geothermal and oil and gas business, most notably Geoscience Ltd and Calidus Engineering Ltd. In addition, at least one of the wells drilled at Rosemanowes is at least still partially open and being used for research and as a testing facility.

In summary, the Cornish geothermal resource is a ‗Hot Dry Rock‘ or ‗Engineered Geothermal System‘ that has granite as the target rock. The temperature proved by the Rosemannowes boreholes was around 85

°C at approximately 2,000m depth

(Ref [17]).

2.3.2 Soultz – France (1987-)

The Soultz HDR project followed directly on from the HDR project in the United Kingdom. There are now three deep wells (approximately 5km in depth) at the site and circulation between the wells has successfully been achieved. In 2008, a 1.5MWe power plant was added to the site and power production achieved. The project is now run by a consortium of companies, including EDF, the French utility company. Although the project took a long time to develop (20 years) it is considered to be the first successful HDR / EGS demonstration system. As the project was, to a great extent funded by R&D grants, it cannot be considered as a commercial success. However, the continued development and results from the project have proved to be very useful for the deep geothermal industry at large.

The Soultz project, like Cornwall is a ‗Hot Dry Rock‘ or ‗Engineered Geothermal System‘, and like Cornwall, has granite as the target rock. The temperature proved by the Soultz boreholes was 200

°C between 3,300-5,000m depth (Ref [17]).

2.3.3 Fenton Hill – USA (1974-1992)

The Fenton Hill HDR project was located at Los Alamos, New Mexico. It was the first project to drill and develop the HDR concept. The geothermal gradient (the temperature increase with depth) was almost twice as high as the


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Rosemanowes site in the UK. The project aimed to drill a well into hot crystalline rock and use water under pressure to create a large vertical fracture. A second well would then be drilled to access that fracture at some distance above the first wellbore. Water would then be circulated between the two wells. The first well was drilled to nearly 3km with a temperature of approximately 180 degrees C. A second well was then drilled to a slightly shallower depth but it proved to be difficult to establish meaningful levels of flow between the two wells. Further wells were then drilled to 4.4km and, after many attempts, greater flow rates were achieved. The flow rates were still too low to generate commercial levels of power but the project proved that reservoirs could be established within granite at significant depths. A lot of the knowledge gained from this project was also transferred to the Soultz project in Europe and the lessons learned are applicable to the situation in Cornwall.

The Fenton Hill project, like Cornwall was a ‗Hot Dry Rock‘ or ‗Engineered‘ Geothermal System, and again like Cornwall has granite as the target rock. The temperature proved by the Fenton Hills boreholes was 320

°C between 2,800-

4,200m depth. [Ref 2]

It is interesting to note that the geothermal gradient (the temperature increase with depth) was almost twice as high at Fenton Hills as it is at the Rosemanowes site.

2.3.4 Basal – Switzerland (1996-2006)

It was decided that the first Enhanced Geothermal System in Switzerland was to be sited in Basel near the border with France and Germany. The main reasons for the locating the project in Basal include; ―a highly developed urban area, with numerous heat consumers, existing heat distribution networks and a strong policy towards renewable energies‖ (Ref [18]). The initial well was terminated at 1,537m BGL due to technical difficulties and a second well was drilled to 2,755m BGL. During resource enhancement (hydrofracking) in 2006 a magnitude 3.4 earthquake occurred that caused damage to buildings in the city and eventually led to the abandonment of the project.

The Basal project, like Cornwall was a ‗Hot Dry Rock‘ or ‗Engineered Geothermal System‘, and again like Cornwall, has granite as the target rock. The temperature proved by the Basal boreholes was 200

°C at around 2,200m depth

(Ref [17]). The geothermal gradient is estimated to reach 40°C/km (Ref [18]).

2.3.5 Selected Hot Fractured Rocks (wet) and Hot Sedimentary Aquifer Geothermal Systems

In addition to the HDR projects discussed above the following projects provide an example of Hot Fractured Rocks geothermal system and a Hot Sedimentary Aquifer geothermal system to enhance the comparison of other geothermal projects to Cornwall.

Cooper Basin, Australia (2003-present)

One developer (Geodynamics Limited) has drilled three deep wells (to > 4,000m) one at each of their Habanero Savina and Jolokia sites in the Cooper Basin in South Australia. All these wells penetrate the deep geothermal resources. At present the boreholes are being enhanced and the data analysed. Geodynamics is


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due to make an investment decision to build an operational power plant by early 2015 (after Ref [19]).

The Cooper Basin projects, unlike Cornwall are Hot Fractured Rocks (wet) geothermal systems and actually have extremely high fluid pressures. This high fluid pressure is a positive feature for these projects as it means that wells will self-discharge and no fluid has to be added. The in situ permeability of the rock in the Cooper Basin was also found to be reasonably high (after Ref [19]). However, like Cornwall, the Cooper Basin has granite as the target rock. The temperature proved by the Cooper Basin boreholes is 240

°C at around 4,200m depth (Ref

[17]).

Neustadt-Glewe, Germany (1995-present)

The Neustadt-Glewe geothermal heating plant is located in northern Germany and was originally commissioned in 1995 as a district heating plant. It was later developed (2003) to provide power as well as heat, (Ref [20]).

The Neustadt-Glewe project, unlike Cornwall is a Hot Sedimentary Aquifer geothermal system. The target rock is sandstone and therefore different geologically to the granites of Cornwall. The temperature proved by the Neustadt-Glewe boreholes is 98°C at 2,100m depth (Ref [17]).

2.3.6 Summary of Geothermal Projects

Table 1 below summarises the main features of the geothermal systems discussed in sections 2.3.1 to 2.3.5 above allowing the main geological characteristics of the geothermal systems to be compared and contrasted. It can be seen that granite is a common target rock type.

Geothermal Project Geothermal System Geology Temperature

(Ref [17])

Cornwall, UK Hot Dry rocks / Engineered Geothermal System

Granite 85°C at 2,000m

Soultz, France Hot Dry rocks / Engineered Geothermal System

Granite 200°C at 3,300-5,000m

Fenton Hill, USA Hot Dry rocks / Engineered Geothermal System

Granite 320°C at 2,800-4,200m

Basal, Switzerland Hot Dry rocks / Engineered Geothermal System

Granite 200°C at 5,000m

Cooper Basin, Australia

Hot Fractured Rocks (wet) Granite 240°C at 4,200m

Neustadt-Glewe, Germany

Hot Sedimentary Aquifer Sandstone 98°C at 2,100-2,300m

Table 1 Comparison of the geology of selected deep geothermal systems

2.4 Recent Developments in Deep Geothermal Worldwide

Due to the historically low oil price, development of the geothermal sector, particularly deep geothermal, remained largely dormant in the 1990s. However,


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with growing concerns about climate change there has been a renewed interest in deep geothermal development Worldwide. The publication of a report by MIT (2006) entitled ‗the future of geothermal energy‘ (Ref. [2]) also did much to stimulate interest in developing deeper resources. The report highlighted the very large scale of the potential for deep geothermal power generation in the US (many times the current US total electricity demand). Following on from this study there were notable deep geothermal developments around the World, particularly in Australia and Germany, described in this report.

Despite all of the recent activity, there has been very little electricity actually produced from EGS/HDR projects around the World. In Australia, power has yet to be generated from any projects of this type, despite approximately Aus$500m having been spent to date. In Germany, electricity and heat projects in Hot Sedimentary Aquifers (HSAs) have been successful but again, EGS/HDR power production has been limited. The lack of routine success of HDR/EGS systems would suggest that the majority of projects currently being undertaken should be classified as either Research or Demonstrator projects. We therefore believe that there are still some significant hurdles to overcome before this technology can be routinely rolled out.

2.5 Recent Developments in Deep Geothermal in Cornwall

Two UK based companies were formed in 2008 to develop deep geothermal projects in Cornwall: EGS Energy Ltd plans to develop a 4.5MWe power plant at the Eden Project and Geothermal Engineering Ltd plans to develop a 10MWe power plant at the United Downs Industrial estate. Heat from the EGS Energy plant would also be used at the Eden Project. Both projects received planning permission in 2010 (Geothermal Engineering Ltd in August 2010, EGS Energy in December 2010). Both of the projects plan to drill to 4.5kms, with two wells at Eden, and three wells at the United Downs. The United Downs project aims to develop a HFR system, the project at Eden appears to be more of a HDR/ EGS system. The projects have been successful in raising the profile of deep geothermal in the UK and have helped to shape the evolving legislation and subsidy regime. The projects have also been relatively successful in receiving Government funding, see Table 2 below.

Company Year Source Amount

EGS Energy Ltd 2009 DECC (Deep Geothermal Challenge Fund)

£2.011m

Other Funding TBC ----

Geothermal Engineering Ltd

2009 DECC (Deep Geothermal Challenge Fund)

£1.475m

2011 BIS (Regional Growth Fund) £6.050m

Table 2 Grant funding secured by deep geothermal developers in Cornwall

Despite this relative success, neither project has, to date (August 2012) drilled a

single well. In both cases, this appears to be due to the difficulty of raising private

funds for the projects. The difficulty both companies have had in raising funds

could be for a variety of reasons. This report aims to discuss what these reasons


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might be and what Cornwall Council could do to move the development of deep

geothermal industry forward in Cornwall.


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3 Barriers to Development of Deep Geothermal in Cornwall

3.1 Introduction

Cornwall has a relatively attractive deep geothermal resource and there is a broad depth of experience and high quality data in the region gained from the HDR project at Rosemanowes. The resource would generally be classified as HDR or EGS. That is to say that a reservoir must be engineered at depth. Recent estimates have suggested that the temperature resource in Cornwall at a depth of 5kms could produce as much as 4GW of electricity (Ref. [3]). This is slightly under 5% of the total UK average electricity demand and is based on a 2% recovery factor (Ref. [3]). As a bi-product of this electricity generation, at least three times as much renewable heat could also be supplied from this resource. This is much more electricity and heat than Cornwall currently actually consumes and therefore Cornwall could potentially become a net exporter of electricity. Heat is difficult to export so is only suitable for a local market.

Despite having a relatively sizeable resource, deep geothermal development in Cornwall has been limited when compared to other countries with similar resources; most notably Australia, Germany and France. It is logical to assume therefore, that there must be some additional barriers preventing or delaying development of the geothermal energy sector in Cornwall. We have split potential barriers into five main categories; geological, technical, environmental, political and commercial – and discuss each in turn.

3.2 Geological Issues

Due to the region‘s history of mineral exploitation, and the HDR research programme, the geology in Cornwall is well mapped and relatively well understood. In terms of the geothermal resource, there is good data on heat flow, heat production, gravity profile (which enables the shape of the underlying granite to be mapped) and the underlying in situ stress regime. The British Geological Survey have produced a well distributed map on the heat flow in the UK (Figure 2) which shows that Cornwall is a relative ‗hot spot‘ compared to other parts of the UK. The temperature proved by the Rosemannowes borehole was 85

°C at

approximately 2,000m depth (Ref [17]).

The geology associated with Cornwall‘s geothermal resource is granite. The granites can generally be described as medium to coarse grained crystalline light coloured igneous rocks composed of quartz (20-60%), feldspar (10-90%), mica (5-20%) and other minerals (5-10%), (after Ref [16]).

Despite this relative wealth of data, there is no actual drilling and geological data from 2.6kms depth onwards in Cornwall. As the target depth of the deep geothermal resource in Cornwall is now around 4.5km deep it is worth noting that very little is actually known about the Cornish granite at this significant depth.

Even with good theoretical knowledge of the resource, there will always be three principal areas of geological risk for a geothermal project: temperature, flow rate (permeability) and long term reservoir sustainability.


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3.2.1 Temperature

The temperature of a geothermal resource is what would be termed a ‗walk away‘ point for a geothermal developer as it cannot be enhanced or engineered. If the temperature of the resource is not sufficient at an economic depth, the project will be abandoned. Therefore, a priori knowledge of the temperature at the target depth is important.

In Cornwall, because of the deep wells drilled at the HDR Rosemanowes project, the temperature gradient to a depth of approximately 2.5kms can be predicted with some degree of certainty. There is no geological reason to expect temperatures not to continue to increase further down to 4.5kms (the proposed target depth of both the EGS Energy project and the Geothermal Engineering project) and beyond. However, until a deep well is actually drilled, there will still be some degree of uncertainty. The first deep well drilled at Soultz showed that the predicted increases in temperature with depth were not as good as predicted and temperatures less than anticipated were encountered at depth (Ref. [2]). For improved confidence in the temperature of the deep geothermal resource in Cornwall at 4.5kms, at least one and preferably two wells need to be drilled and tested.

Figure 2 Heat flow in the UK (after BGS)


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3.2.2 Flow Rate (Permeability)

The rate at which water can be injected into and abstracted from a geothermal reservoir is extremely important. The higher the flow rate, the more power can be generated. The flow rate is dependent upon the ‗permeability‘ of the rock, that is to say, the ease with which water can move through the rock mass. Granite, which is the primary target rock for deep geothermal development in Cornwall, typically has a low natural permeability (it is difficult to push water through the rock). The extent to which the granite in Cornwall can be ‗engineered‘ to achieve commercial flow rates at 4.5kms has yet to be proven. There is no permeability data for the granite at a depth of 4.5kms in Cornwall. Given the difficulties some projects have had Worldwide in developing engineered permeability in granite (most notably in Australia) this has to be flagged as a significant risk to a project. If sufficient permeability cannot be ‗engineered‘ then a project will not be commercially viable. It is our opinion that proof of the ability to engineer a commercially viable geothermal reservoir in the granite in Cornwall needs to be obtained before significant private investment will follow.

3.2.3 Long Term Reservoir Sustainability

Despite the significant research that has been undertaken on HDR/ EGS systems over the last 30 years, the first power plant only became operational in 2008 (at Soultz in France). There is therefore insufficient data to predict how any HDR/EGS reservoir developed in granite will behave over 20 to 25 years. The reservoir may improve over time or, conversely, a preferential pathway may develop between injection and abstraction wells. A preferential pathway is a channel that allows the water to move quickly between injection and abstraction wells. The water moves too quickly to absorb much heat from the reservoir and the temperature of the abstracted water starts to approach that of the injected water. Effective power production then reduces and eventually ceases. Techniques are available to close this preferential pathway but his additional engineering would come at a cost to the project. The extent to which HDR/ EGS power projects can maintain good, reliable levels of production over a 20 to 25 year lifespan is therefore uncertain. This lack of long term performance data will make it very difficult for project developers to raise funding from debt markets for these types of projects.

3.2.4 Summary of Geological Issues

The geological risks for the development of a deep geothermal project in Cornwall have been summarised in Table 3.

Risk Rating Commentary

Temperature not sufficient for commercial production

Low Good deep temperature data from the HDR project.

Flow rate not sufficient for commercial production

High Very few EGS/ HDR projects worldwide have successfully achieved commercial production

Long term production Medium There is no long term operational data (>10years) available for any EGS/ HDR power plants

Table 3 Principal geological risk factors affecting deep geothermal in Cornwall


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3.3 Technical Issues

3.3.1 Drilling

Drilling techniques and drilling rigs continue to improve. There are now many types of rigs available that can routinely drill to 5 and 6 km, even in hard rock such as granite. Further to this, with the increasing automation of rigs, safety records have improved, and noise levels have been reduced. Although there will always be some technical problems associated with drilling deep wells (stuck drill bits, lost/ jammed testing equipment, broken drill strings etc), the technical risks continue to decrease with time.

Advanced drilling techniques are also being developed to speed up the process of drilling in hard rocks. Some of these technologies, most notably spallation drilling are at the field trial stage. A full analysis of these technologies is beyond the scope of this report but it is likely that drilling times, costs and risks will come down over time as some of these new technologies prove to be successful.

We asked a range of stakeholders whether they considered the risks associated with drilling deep investigation and production wells, (such as loss of tools or equipment down the hole and loss of control of direction of well), and represented a barrier to the development of deep geothermal in Cornwall. The responses (refer to Figure 3) generally indicate that drilling is not seen to be a significant technical risk – but a risk insurance scheme to cover the commercial risk associated with drilling is perceived to be important.

Figure 3 Summary of responses to questionnaire and interview related to drilling

3.3.2 Reservoir Development

The successful development of a reservoir within granite has been the subject of extensive research and commercial development over the past 30 years (Section 2.3). The principal method of reservoir development referred to as ‗engineering‘ or ‗stimulation‘, is the injection of water under high to cause fracturing of the rock. Stimulation control techniques have improved over time and further

Borehole Drilling

Insignficant

Minor

Moderate

Significant

Severe

N/A

Do the risks associated with drilling investigation and production

wells represent a restriction to the development of deep geology in

Cornwall?


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techniques are being explored. However, the results of various engineering of stimulation programmes Worldwide have been mixed.

The project at Soultz is one example of a successful reservoir development, although a large proportion of the water used for power generation (70%) is not actually coming from the water injected into the reservoir. A commercial project at Landau, Germany, has also successfully developed a reservoir, although production was limited for a period of time due to concerns about micro-seismicity. Australian projects have not fared as well, indeed, power has yet to be produced from a reservoir that has been engineered in Australia. Techniques for developing reservoirs are becoming more sophisticated but routine, successful reservoir development has not yet been achieved for EGS/HDR projects. Successful reservoir creation therefore has to be flagged as a significant risk to the development of a deep geothermal project in Cornwall.

We asked a range of stakeholders whether they considered the risks associated with reservoir manufacture represented a barrier to the development of deep geothermal in Cornwall. The responses (refer to Figure 4) vary from insignificant to severe but generally indicate that reservoir development is considered a significant technical risk.

Figure 4 Summary of responses to questionnaire and interview related to reservoir development

3.3.3 Energy Conversion

Conversion of the deep geothermal heat to power is an established technology and power plants are produced by a variety of manufacturers Worldwide. The most common type of power plants in Europe are of a ‗binary‘ type. That is to say that the geothermal fluid is always kept within a closed circuit and never comes into contact with the atmosphere or the moving parts of the turbine. For a typical binary deep geothermal power plant, efficiencies of conversion to electricity are still less than 15%. It is for this reason that the most economically successful projects also sell the heat which is 85% of the energy available and is effectively a bi-product of the electricity generation. As the technology for power generation is well proven, there are very few risks associated with the generation technology.

Reservoir Manufacture

Insignficant

Minor

Moderate

Significant

Severe

N/A

Do the risks associated with the manufacture of deep geothermal

reservoirs in the Cornish granite represent a restriction to the

development of deep geothermal in Cornwall?


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3.3.4 Summary of Technical Issues

The principal technical risks associated with EGS/HDR development in Cornwall have been summarised in Table 4.

Risk Rating Comment

Drilling risk Low to medium There are often unforeseen problems with any deep drilling project. Deep geothermal is no exception.

Reservoir development High A low percentage of EGS/HDR projects have successfully developed a commercially viable reservoir.

Energy conversion Low Technology is well proven.

Table 4 Principal technical risk factors affecting deep geothermal development in Cornwall

3.4 Environmental Issues

3.4.1 Induced Micro-Seismicity

The management and monitoring of micro-seismicity (or micro-earthquakes) would justify a report in itself. A brief summary of key issues is provided here (additional information is provided in Appendix C). The association of shale gas extraction in recent years with micro-seismicity has raised public and governmental awareness of the issue. It is important to emphasise that the micro-earthquakes caused by deep geothermal projects are likely to be small and very unlikely to cause damage. The majority of events will not be felt; a minority will be heard rather than felt and a smaller minority will be felt as a short vibration that will last for approximately a second or two. Micro-seismic events are routinely caused by mining activities, oil and gas abstraction and storage, carbon capture and sequestration, geothermal power production and stimulation as well as any other industries that inject or abstract liquids at significant depths. The micro-seismic events are normally caused by changes in natural in situ stresses that exist in the Earth, due to pressurised fluid injection. In general, the micro-seismic events associated with geothermal power production are too small to be felt. However, there have been notable exceptions such as in Basel, Switzerland 2006 (Ref. [2]) which had a magnitude ML= 3.4 and caused minor damage to buildings.

In some senses, micro-seismic events are a double-edged sword for deep geothermal developers. The fracturing of the rock is required to ‗engineer‘ or ‗stimulate‘ the reservoir. Each fracture causes an earthquake and also causes changes in stress in the ground that induce additional fractures and earthquakes. The monitoring and interpretation of micro-seismic events is also an essential tool used to understand the development and extent of a reservoir. On the other hand, public perception and, in rare cases, actual minor damage resulting from earthquakes could potentially cause public alarm that would require authorities to limit development of deep geothermal projects in Cornwall.

The size of a micro-earthquake event (given by its magnitude at the source) and the surface acceleration (how the event is measured at the surface) are influenced by local geology. It is a general rule that a deep geothermal project cannot cause an event larger than that which would have occurred naturally at some time. In


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Cornwall, the geology is relatively stable. However, natural earthquakes do occur and will occur in the future. A deep geothermal project will cause earthquakes and could potentially cause an event that would be felt at the surface. The sudden fracturing of rock caused by the injection of water into the reservoir zone is the cause of the earthquakes. This was the case during the HDR project at Rosemanowes. The HDR project itself caused thousands of micro-seismic events but only 2 were felt and no damage was caused (Ref. [4]). In Basel an event was caused by a deep geothermal project that was large enough to be felt and cause minor damage to buildings. The deep geothermal project was stopped. It was predicted at the time that the Basel event would halt deep geothermal development in Switzerland. Instead, the Swiss decided that the best approach would be to develop an inclusive policy and involve and inform the local population. The involvement of the local community has lead to a number of new deep geothermal projects now being developed (Ref. [2]).

Given the extent to which micro-seismicity has caused both media reaction and severe delays to the shale gas project near Blackpool recently in the UK (Ref. [5]) it may be expected that something similar would occur when deep geothermal projects start drilling and running stimulation programs in Cornwall. It would be sensible for Cornwall Council to start thinking about public consultation policies well in advance of this.

The Government has not yet set out its position on the management of micro-seismicity. DECC (which seems to have taken the position of the regulator) has published some draft guidelines but these are currently subject to consultation and are focused primarily on the shale gas industry. DECC are proposing to introduce what is known as a ‗traffic light system‘ which was originally developed by the deep geothermal industry. The system effectively sets limits of acceptable seismic activity above which ‗stimulation‘ or ‗fracking‘ should be reduced or stopped.

It is expected that final guidelines will be in place before any of the deep geothermal projects start drilling in Cornwall. However, as the guidelines have not yet specifically mentioned deep geothermal drilling or stimulation, it may well be the case that deep geothermal projects remain outside of legislation until an event occurs. Without established guidelines and regulation there is a risk that a felt micro-seismic event could cause unnecessary alarm to the public and result in preventable delays to a deep geothermal project in Cornwall whilst policy is being developed.

We asked a range of stakeholders whether they considered the risks associated with induced micro-earthquakes represented a barrier to the development of deep geothermal in Cornwall. The responses (refer to Figure 5) indicate that the potential for damage from induced micro-earthquakes is seen as significant technical risk and represented a barrier to the development of deep geothermal in Cornwall.


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Figure 5 Summary of responses to questionnaire and interview related to induced micro-earthquakes

We asked a range of stakeholders whether they considered the risks to reputation associated with induced micro-seismicity represented a barrier to the development of deep geothermal in Cornwall. The responses (refer to Figure 6) generally indicate that reputational damage from induced micro-seismicity is generally seen to be a moderate to minor risk. This is a surprising result but we interpret this to mean that the stakeholders did not feel Cornwall Council‘s reputation would be damaged. However, it is Arup‘s view that induced micro-seismicity is a significant risk for the reputation of the deep geothermal industry.

Figure 6 Summary of responses to questionnaire and interview related to induced microseismicity

The key to mitigating the issues associated with induced micro-seismicity and micro-earthquakes include; an open and well-informed debate and active engagement with the public on the issue of induced micro-seismicity, preparing a strong policy document, and long term independent monitoring. Appendix C discusses the issue of induced micro-seismicity further.

Damage from Microearthquakes

Insignficant

Minor

Moderate

Significant

Severe

N/A

Does the perceived potential for damage to adjacent structures from

induced seismicity pose a risk to the development of deep

geothermal in Cornwall?

Reputational Damage from

Induced Microseismicity

Insignficant

Minor

Moderate

Significant

Severe

N/A

What do you understand the risk to your reputation is when

developing deep geothermal reservoirs in Cornwall?


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3.4.2 Water Use and Pollution

Deep geothermal power plants in Cornwall will use water to inject into the reservoir that has been manufactured in the granite. Fresh or saline water can be used during the stimulation or engineering phase of any project. The amount of water used during the stimulation phase could be very significant. At Rosemanowes, 8,640 m3 per day was injected during the height of the stimulation program (Ref. [2]). In theory, during the operation of any EGS/ HDR power plant, very little water should actually be lost from the reservoir itself, therefore total water usage should be small once the power plant is operational. If the power plant is air cooled then ongoing water demands will be low. If the power plant is water cooled, then ongoing water usage will be higher.

As discussed in the section on energy conversion, the geothermal fluid will not come into contact with the atmosphere during power generation. Therefore, there is no possibility of any air pollution from the geothermal fluid. The geothermal wells will be cased with more than one layer of steel to a defined depth and sealed with a cement grout to prevent any leakage and therefore, if the wells are constructed properly, there also should be no leakage of geothermal fluid to a near-surface aquifer. Risks of water pollution (from either drilling fluids or water affected by circulation at depth e.g. irradiated water) are therefore very low. However, it is important that these issues are regulated and enforced.

3.4.3 Gas and Solids Emissions

As the geothermal fluid will not come into contact with the atmosphere during power generation, gaseous emissions will be negligible. Solid emissions will be limited to the drilling phase. During the drilling phase, for each well, approximately 4m

3 of material will need to be disposed of each day for at least 45

days. As with any deep drilling operation, a waste management plan will have to be in place. No company has yet drilled to 4.5kms in the Cornwall granite, it is therefore difficult to predict the precise nature of the material that will be brought up during drilling. It is possible that the material will be slightly more radioactive than normal surface material. This sort of material will therefore need to be disposed of according to the established guidelines but this is not seen as a significant risk as the levels of likely contamination are not likely to be at such a high level as to be beyond what existing landfills can handle.

3.4.4 Noise and Visual Impact

There will potentially be concerns about the visual and noise impact from deep drilling units. Such units normally have a height of between 40 and 50 metres and drilling is maintained for 24 hours a day. They can cause noise and the lights are on all night and therefore attract attention.

Improvements in rig design to suit urban areas should improve noise levels. However, night-time noise levels will always need to be correctly assessed and managed. The visual impact of a deep drilling unit will be significant, albeit temporary. Provided that the local residents are correctly informed during the drilling operations and that the developer chooses the correct sites, the noise and visual impact during the drilling phase should not be a significant risk to a project. Once operational, the power plant has minimal noise and visual impact and should be no different to a light industrial or manufacturing facility.


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3.4.5 Land Use and Disturbance of Habitat and Scenery

Geothermal power plants are relatively small units, when compared like for like with wind, solar and other power plants (Table 5). The environmental impact on habitat and scenery is therefore far less than for other generation technologies and it is important that this is taken into consideration in any cost-benefit assessment.

Technology Surface land use per unit electricity (m

2/ MW)

Surface land use per unit heat (m

2/ GWh)

Geothermal (binary plant) 1,500 170

Nuclear (plant only) 10,000 1,200

Wind farm 16,000 7,300

Solar thermal (Mojave desert) 28,000 3,200

Coal (including strip mining) 40,000 5,700

Solar PV 66,000 7,500

Hydroelectric (reservoir only) 1,200,000 250,000

Table 5 Land usage for different electricity generation technologies (MIT, 2006 Ref. [2])

However, if a power plant is cooled with water, the steam plume from the cooling towers will be visible and may impact upon local scenery depending on wind calculations. If plants are air cooled, this visual impact is eliminated.

3.4.6 Summary of Environmental Issues

The environmental risks have been summarised and listed, according to relative impact in Table 6.

Risk Impact Comment

Induced seismicity High This is a perceptual / reputational risk. Based on existing geothermal projects it is unlikely that actual damage will occur but incidents may cause project delays without clear legislation.

Noise Low to moderate

Potential problems with noise from drilling rigs during 24 hour drilling.

Water use Low Water usage may be high during development/ stimulation but once projects are up and running, water use should be minimal.

Gas and solids Low Potential risk of low level radioactive solids during drilling.

Land use Low Geothermal power generation uses the smallest amount of land per unit power of any generation technique.

Table 6 Principal environmental issues affecting deep geothermal in Cornwall


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3.5 Political Issues

3.5.1 Subsidy Regime

Within the United Kingdom there are a number of different subsidy regimes for renewable energy generation technologies. The Renewable Obligation (RO) system is the main support mechanism for renewable electricity projects with smaller scale generation also being supported through the Feed-In Tariff scheme (FiTs). Table 7 compares the different subsidy regimes and how they apply to deep geothermal heat and power generation. All of the current subsidy regimes, including those that apply to deep geothermal electricity generation, will be replaced as part of the Electricity Market Reform (EMR) bill which will apply to power projects that are commissioned from April 2017 onwards.

Subsidy Equivalent £/MWh

Duration Comment

2.0 Renewable Obligation Certificates (ROCs) decreasing to 1.9 in 2015/16 and 1.8 in 2016/17

84 now

80 in 2015/16

76 in 2016/17

20 years Scheme closes to new entrants after 31st of March 2017. New projects will then be under the EMR.

Levy Exemption Certificates (LEC)

5 20 years Unclear what role post EMR.

Feed in Tariff (FiT) N/A 20/ 25 years (technology dependent)

Deep geothermal was never included within the FiT regime.

Renewable Heat Incentive

30 20 Awaiting Government Review in September 2012.

EMR Unclear Unclear Awaiting Government updates and ‗strike price‘

Table 7 UK subsidies for deep geothermal electricity and heat generation (After Ref. [6])

3.5.1.1 Renewable Obligation (RO)

The Renewable Obligation (RO) scheme (Ref [6]) came into effect in 2002 in England and Wales and in 2005 in Scotland and Northern Ireland. It places an obligation on UK electricity suppliers to source an increasing proportion of electricity they supply from renewable sources. Renewables Obligation Certificates (ROCs) are certificates issued to operators of accredited renewable generating stations for the eligible renewable electricity they generate. Operators can then trade the ROCs with other parties, with the ROCs ultimately being used by suppliers to demonstrate that they have met their obligation. A ROC therefore does not have a fixed value. The Government guarantees a minimum value for a ROC which is currently £38.69 for 2011/12. ROCs are currently trading at around £42/MWh (in mid 2012). A renewable technology is allocated a specific number of ROCs depending on the stage of development and cost of generation. Under the current RO Banding (July 2012) deep geothermal electricity producers would receive 2.0 ROCs for net electricity generated from a power plant that was currently operational. If the plant becomes operational in 2015/16 then it would be eligible for 1.9 ROCs decreasing to 1.8 ROCs if it is operation in 2016/17.


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Given that a power plant will take at least 4 years to develop, any deep geothermal power plant can only claim 1.8 ROCs.

In addition to ROCs, the energy producer can also claim the wholesale price of electricity for the net electricity produced from the power plant. The price would be negotiated as part of a Power Purchase Agreement (PPA) with an electricity supplier. For a 3 to 5 year contract, the current value of a PPA is approximately £45/MWh.

The RO system is now being phased out and the last date for a claimant to register for ROCs will be April 2017.

We asked a range of stakeholders the number of ROC‘s required to stimulate development of the deep geothermal sector in Cornwall. The responses (refer to Figure 7) generally indicate that 4 or 5 ROC‘s would be required to stimulate development of deep geothermal in Cornwall. This level is considerably higher than the current 2.0 ROCs declared by Government.

Figure 7 Summary of responses to questionnaire and interview related to ROC‘s

3.5.1.2 Feed in Tariff

In April 2010, the Government introduced a Feed in Tariff (FiT) (Ref [7]) structure for small scale renewable electricity generation (5 ROC‘s

N/A

What level of Renewable Obligation Certificates would you

consider sufficient to stimulate deep geothermal power production

in Cornwall?


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suppliers and LECs are evidence of that supply. LECs are then redeemed by suppliers from HM Customs and Excise to demonstrate the amount of renewable energy that had been supplied to non-domestic customers in a given period. In April 2012 the Chancellor of the Exchequer announced that the CCL would rise with inflation from April 2012 to £5.09/MWh.

3.5.1.4 Renewable Heat Incentive

The Renewable Heat Incentive (RHI) (Ref. [13]) was introduced in 2012 to provide an incentive for the generation and uptake of renewable heat. The subsidy is provided to a generator for every MWh of metered heat that is ‗usefully deployed‘. The subsidy is index linked and guaranteed for 20 years. Heat from deep geothermal sources will currently receive £43/MWh for systems under 100 kWth or £30/MWh for systems over 100kWth. Given the likely scale of deep geothermal heat projects, it is extremely unlikely that a system would be small enough to claim the higher tariff.

The RHI is new and relatively untested. The Government is therefore likely to review the uptake and level of subsidies at regular intervals. The next review is scheduled to be published in September 2012.

3.5.1.5 Electricity Market Reform

On the 12 July 2011, the Government published ‗Planning our electric future: a White Paper for secure, affordable and low-carbon electricity‘ (Ref. [6]). The reform bill will effectively establish a Feed in Tariff approach to low carbon electricity generation at all scales. This is likely to include from large nuclear power generation to small scale projects. The long-term contracts will be termed Feed-in Tariff with Contracts for Difference. The income of the generator will therefore be fixed, irrespective of changes in the wholesale price of electricity.

The levels of the ‗strike price‘ for each technology have not yet been decided. Indeed, the whole process is relatively unclear at present. It is therefore too early to state whether this will be attractive to deep geothermal developers and investors. The Government intends to introduce this incentive mechanism in 2014.

3.5.2 Licensing

Licences allocate the rights for geothermal exploration and exploitation to a specified surface area over a fixed period of time. Licensing regimes for geothermal development are well established in countries that have conventional high temperature geothermal resources (Iceland, Italy, United States etc). Licences are beneficial to the developer in that they both ensure that the resource is protected and can be treated as an ‗asset‘ to raise investment against. The principle of licences was established for the oil and gas industry and is well developed in most countries. The legislation has also been adopted in countries that previously had little or no geothermal development, e.g. Australia and Germany.

The United Kingdom does not currently have a geothermal licensing scheme. A licensing scheme of sorts was recently introduced by the Environment Agency (EA) in 2011 for Hot Sedimentary Aquifer development and is similar to that


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which the EA currently uses for shallow aquifer exploitation where groundwater is already present. However, this is not comparable to a full geothermal license scheme and will not apply directly to the type of resource in Cornwall.

The lack of a deep geothermal licensing scheme in the United Kingdom means that there is currently no legal clarity on who owns the heat that is exploited by and EGS/ HDR scheme. There is also no legal clarity on the rights of the owner of mineral rights if a deep geothermal system is developed within a mineral licence area. Without a ‗test case‘ that establishes ownership and development rights it is difficult to understand how a private investor could overlook this problem.

The current position from DECC is that they would support the introduction of a UK geothermal licensing scheme. However, as the deep geothermal industry is seen as being small, this task is not a priority. This seems unlikely to change until at least one deep geothermal project has actually drilled a deep well.

We asked a range of stakeholders whether a lack of a licensing regime represented a barrier to the development of deep geothermal in Cornwall. The responses (refer to Figure 8) indicate a split response with half the responders thinking it was a moderate or significant barrier and just under half thinking it was a minor barrier to the development of deep geothermal in Cornwall.

Figure 8 Summary of responses to questionnaire and interview related to lack of a licensing regime in Cornwall

3.6 Economic Model

3.6.1 Model Assumptions - Costs

To understand some of the potential opportunities and barriers to investment in deep geothermal in Cornwall, an economic model was constructed for a ‗typical‘ deep geothermal power plant. To this end, we developed a base case project consisting of two wells (one injection and one abstraction), each drilled to approximately 4.5kms. The capital costs are similar to those used in the most recent study undertaken on deep geothermal in the UK by SKM (Ref. [3]).

Lack of Licensing Regime

Insignficant

Minor

Moderate

Significant

Severe

N/A

Do you think the lack of a formalised geothermal licensing procedure in the

UK represents a risk to the development of deep geothermal in Cornwall?


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Unlike the recently published SKM (2012) report (Ref. [3]), we do not think that any debt funding will be available for early stage projects in Cornwall due to the perceived risk of developing a HDR/EGS project. We have assumed that projects will be 100% funded by equity. A key parameter therefore, is the acceptable ‗hurdle rate‘ for an equity investor. That is to say, the level of return on the investment that would be required by an investor. Traditionally, early stage investors in any project would be looking for a minimum Internal Rate of Return (IRR) of greater than 10%. With the lack of proof of concept and other risks associated with deep geothermal in Cornwall, we have assumed that a minimum IRR of 20% is required as a ‗hurdle rate‘. Models were therefore run with different potential funding scenarios to understand what conditions would enable the base case project to achieve the required IRR.

It has been assumed that, as the base case would be the first power plant in the UK, cost over-runs will occur. This overspend has been set at 25% of the total calculated budget. The development period of the base case has been assumed to take 5 years. Given that geothermal power plants can take between 5 and 9 years, this may be on the optimistic side.

It has been assumed that the two well system will produce 5MW gross of electricity of which 25% will be consumed in power required to run the plant (e.g. pumps and power plant cooling fans). Heat production (10MW) has been assumed to be approximately double the gross electricity production.

We have assumed a drilling cost of £8million per well, therefore £16m in total. This is slightly less than that used in the most recent study undertaken by SKM (2012) (Ref. [3]), partly because oil prices are on the wane and rig availability is directly related to the oil price. The power plant cost is based on typical costs for a standard, air cooled, binary power plant and is estimated to be £1.8m per MW electricity and therefore £9million in total.

Staffing costs are likely to be around £50,000 per head with 5 staff at commencement increasing to 15 during the development phase.

It is estimated that the total project development cost will be in the order of £45m. This development cost represents the major capital expenditure items that are primarily associated with drilling and the construction / purchase of the power plant.

During the lifetime of the power plant, there will be ongoing operation and maintenance (O&M) costs. This is a well documented figure for conventional geothermal power plants (DePippo, 2008) but there is no data for long term O&M costs of a deep geothermal power plant. The figure of £20 per MWh for conventional hydrothermal geothermal power plants has been adjusted upward to £30 per MWh to reflect potentially higher O&M costs of a deep geothermal power plant.

3.6.2 Model Assumptions - Revenues

We have assumed that revenue comes from three sources:

1. Subsidy for electricity (Renewable Obligation Certificates (ROCs), Ref. [6]),

2. Subsidy for heat (Renewable Heat Incentive, RHI), Ref. [13]), and


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3. Wholesale price of electricity.

We have ignored the Climate Change Levy as it is an order of m

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20120925 Cornwall Geothermal Options Report ISSUE 2...with the Rosemanowes ‗hot dry rocks‘ project in the 1970s and 1980s. However, the deep geothermal resource is not ‗conventional‘