Deep geothermal energy – a clear-cut winner of the revised EEG in Germany

published on 20th May 2021

After commissioning the first large-scale deep geothermal electricity and heat generating station nearly two decades ago in Unterhaching and hitting the rock bottom in the past years, the deep geothermal energy sector has enjoyed a huge upswing and a large increase in projects since the revision EEG was resolved. Most projects offer very attractive financial prospects yet they are subject to complex technical and business requirements. This form of energy is attractive as it does not need much area, creates an added value for the local community, is independent of imports, and enables producing heat and electricity at the same time on a CO₂free basis.

Direct use and/or production of electricity

Currently (as of 2020), there are 36 active deep geothermal stations in Germany, 25 of which (as of 2019) are located in Bavaria. With an installed capacity of 350 MW for thermal energy and 47 MW for electricity, deep geothermal energy has contributed a small yet growing share to the supply of energy from renewable sources in Germany.

There is still a lot of potential to unlock. The three most interesting areas for the use of hydrothermal deep geothermal energy in Germany are found in the North German basin, the Upper Rhine Plain and the Molasse basin (see Fig. 1).

The area offers temperatures of 60 °C to over 100 °C at a depth of a few kilometres. Depending on the temperature and flow rate, geothermal power plants can be used either for the pure production of heat or for the combined use of electricity and heat. Also several projects involving the pure production of electricity have already been implemented.

The hydrothermal deep geothermal energy extraction technology, which has so far been the only one used in Germany, uses natural water-bearing rock strata (the so-called aquifers) to extract the water from deep underground layers via the extraction well, extract the heat via a heat exchanger, and return the cooled water to the drilled-through deep layers of the earth a few kilometres away via a second well. As a rule, energy for the generation of electricity can be used in an economically viable way for thermal water temperatures of over 100 °C in low-temperature processes (Kalina or Organic Rankine Cycle).

Fig. 1: Deep geothermal energy projects in Germany 2019 (source: The German Geothermal Association (BVG))

Objectives of EEG 2021

At the turn of the year 2020/2021, the amended Renewable Energy Sources Act (EEG 2021) came into force. Due to the large number of objectives set, the amendment was very extensive. EEG 2021 is intended to bring the Federal Republic of Germany closer to achieving the planned greenhouse gas neutrality in 2050. An important milestone is the implementation of the Climate Action Programme 2030, according to which renewable energies are to cover 65 per cent of German electricity consumption in 2030. At the same time, by capping the EEG surcharge and using public budget funds, the legislator wanted to reduce costs to be borne by the general public despite increased statutory targets for expanding EEG power plants. In addition to strengthening the grid and market integration for renewable energies, another objective includes moving into the „post-subsidy era” by introducing a new subsidy for power plants whose funding has already expired.

In order not to lose sight of renewable energy sources that are less in the media spotlight given the above-mentioned major objectives, below we discuss the changes awaiting power plants generating electricity from geothermal energy.

Geothermal energy is a „renewable energy” within the meaning of EEG 2021. The amended EEG continues to promote electricity generation using geothermal energy for a period of 20 years plus the remaining year of commissioning, as was the case with previous versions of EEG. For geothermal power plants, direct marketing funded based on a market premium in accordance with Articles 19(1) no. 1 and 20 of EEG 2021 is likely to remain the appropriate form of marketing in the future as their installed capacities amount to more than 100 kW.

Changes for geothermal power plants arising from EEG 2021

Geothermal power plants will benefit from the changes envisaged in EEG 2021. On the one hand, the degression regulations under Article 45 (2) EEG 2021 have been amended, which means that the generation of electricity from geothermal sources will remain attractive in the long term for suitable locations. The statutory price of 25.20 ct/kWhel will initially continue to apply and, according to EEG 2021, will only be reduced later than provided for so far and to a much lesser extent.

According to EEG 2017, the degression should already begin in 2021 and amount to 5 per cent annually. The revised Article 45 (2) EEG 2021 now provides for a reduction in the statutory price only from 2024 and only of 0.5 per cent per year. Only if geothermal power plants reach the expansion target of 120 MW of newly installed capacity will the reduction be 2 per cent per year. This is based on the assumption that the knowledge gained from a large number of implemented projects will help decrease the costs. In order to keep (potential) operators of geothermal power plants up to date on the status of the expansion, the new Article 45 (3) EEG 2021 requires the Bundesnetzagentur (Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railway) to publish the total installed capacity of all commissioned geothermal power plants every year immediately after 15 December.

As regards the amount of funding, Article 53 (1) no. 1 EEG 2021 should be observed at all times, as it reduces the statutory price by a further 0.2 ct/kWh.

A particularly positive feature is that the legislator has held on to his decision not to switch to an auction system in the case of geothermal energy, as opposed to electricity from PV power plants and wind turbines, for which the auction system has been in place for many years now.

While in recent years the world has become more complex for energy sources such as wind and solar due to the introduction of auctions and various changes in EEG, deep geothermal energy enjoys and offers investors stability given a reliable legal framework and an economically attractive funding system for appropriate projects. As of today, in all advantageous regions of Germany, there are still available sites for utilities and investors interested in implementing projects.