Business models for geoDHC

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Business models for geoDHC

31/10/2023

Philippe Dumas, Madeline Vander Velde 1,

1EGEC Geothermal, 2 place du champ de mars, Belgium-1050 Brussels

Traditional business models used for geothermal heating and geothermal power (including cogeneration) systems, are moving towards new models adapted to new market design regulations for energy sector integration.

For each geothermal technology, key factors influencing the business models include the core aspects of creating value for a company (public, private, mixed), and contributing to defining business strategies, including: upfront costs, running costs, core processes, infrastructure, organizational structures, selling options, and influencing regulations. The process of business model design is part of convincing clients in their business strategy.

It integrates the opportunities offered by a smart sector integration in the energy market. Geothermal energy provides renewable heating, cooling, thermal storage, minerals (such as lithium) and baseload electricity which are pivotal to decarbonising buildings, industry and mobility. Geothermal energy provides ample supplies of renewable heating and cooling which are key to displacing fossil fuel use in buildings, agriculture and industry. Geothermal energy is unique in that it provides baseload renewable electricity, making 100% renewable electricity systems and electro-mobility a reality. For industrial sectors such as chemicals and paper & pulp, geothermal plays a central role. It is able to provide heat at different temperatures to decarbonise their process emissions. The lucrative financial streams from geothermal lithium turn mitigation into a significant competitive advantage for these companies. The development of heat purchase agreements will offer new opportunities there.

The main actors are the project developers, the DH operators and the services companies. In order to define the business model of a geothermal DH project, the heat customers are a key element. The presence of one large heat consumer helps the economy of a project greatly. Local DH utilities with a need for renewable and flexible heat supply, as well as building owners with a need of heat supply are two interesting customer segments.

Generally geothermal DH offers the heat consumer the following:

• Stabile secure heat supply;

• Fixed, long-term prices (for production and depreciation);

• Lower need for maintenance (compared to other conventional heat sources);

• Lower risks (when in operation);

• Ease and comfort for the end-user.

Geothermal DH technology is a quite mature one (in use for 50 years) and geothermal DH installations are competitive. However, geothermal space and district heating systems are capital intensive, especially the drilling of wells. Operating expenses, nevertheless, are rather low and much lower than in conventional systems. Generating costs and selling prices are usually around 60€/MWh thermal, within a range of 20 to 80€/MWh thermal. There are three frequently used financing models:

1. Firstly, public investment undertaken by the local or regional authority (usually at municipal level); this model is usually driven by municipal authorities (France) or local utilities (Germany), and is beneficial to local business building blocks or residential networks, and is very common in France and Germany.

a. An example would be Freiham’s (Munich, Germany) district heating and cooling. Stadtwerke München (SWM), Munich’s municipal utilities company, has been heating the Freiham district and neighboring districts in the west of Munich since Autumn 2016

2. Secondly, private sector investment which, in turn, is granted the opportunity to sell the heat directly to the grid-connected subscribers over long duration (20 to 30 years contracts);

3. Finally, a ‘mixed’ solution, which entails the creation of companies dedicated to the development of the geothermal with capital investment shared by both public and private entities.

Past these core traditional models is where there has been great development. In recent years, a slew of new business models have been created on the grounds of optimizing the implementation of the geothermal projects around which they are structured. Consequently, many new types of public private partnerships (PPPs) have come about, as well as various privately structured models, and different kinds of decoupled models.

Finally, specific attention should be paid to multi-purpose uses. It is sometimes presented as an obvious solution for improving the economy of (notably) CHP, but it seems less and less easy to develop them. Today only a few examples exist all over Europe.