Investing Beyond Wind and Solar PV? Look Out for Geothermal (Renewable Energy Focus)
A number of technologies other than wind and solar are now reaching maturity and, in many cases, enjoy strong commercial drivers that are independent of direct Government support. Investment in them brings the benefits of diversification and risk reduction across the portfolio.
On the energy generation side, one exciting area is geothermal. While this is not a new technology, and has been widely deployed globally, it remains underexploited in some geographies and in certain applications.
Turquoise, a group of independent British companies with a common focus on Corporate Finance and Investment Management for Energy and Environment, has been involved in raising funds for a project developer targeting deep hot water reservoirs for combined heat and power in southern Germany, where there are significant proven geothermal resources yet to be developed and an attractive tariff.
In addition, the Low Carbon Innovation Fund is finalizing an investment in a developer of geothermal heat projects in the UK, targeting medium-depth hot water resources to feed district heating networks to be built out by a leading utility and benefiting from the Renewable Heat Incentive. Although both business models do depend to a large extent on public subsidy, they are operating in niche areas where the total cost to the relevant Government is very limited, making radical change unlikely.
There is a perception among some investors that geothermal is a high-risk activity because of the need to drill wells. This ignores the vast pool of expertise that exists within the oil & gas industry, as well as specialist geothermal service providers, which substantially de-risks what are, by oil & gas standards, technically straightforward wells (being onshore and not excessively deep).
Moreover, the insurance industry is able to provide a range of risk mitigation options for drilling. Lastly, for heat applications, there is less resource risk as heating networks can function with lower water temperatures than are required for electricity generation.