Business models for geoDHC31/10/2023
Philippe Dumas, Madeline Vander Velde 1,
1EGEC Geothermal, 2 place du champ de mars, Belgium-1050 Brussels
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
Generally geothermal DH offers the heat
consumer the following:
• Stabile secure heat supply;
• Fixed, long-term prices (for production and
• 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:
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.
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
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);
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.
GEODH, GeoDH Final Report, (2014),
available at www.geodh.eu.
GEOELEC, Geoelec Final Report, (2013),
available at www.geoelec.eu.
EGEC: EGEC Market report (2021)
EGEC: EGEC paper
on Financing (2021)