Geothermal Energy Systems Assessment - A Strategic Assessment of Technical, Environmental, Institutional and Economic Potentials in Central and Eastern European Countries
2. The Retrospective Analysis
2.1 DEPA Gepthermal Project Activities in the CEECs
An integrated part of the DANCEE programme support is to promote transfer of environmental knowledge and environmental protection technology from Denmark to CEECs. The effort and experiences generated by Danish geothermal experts have proved very useful in several CEECs, where GE sources have been integrated into CEEC district heating systems. Know-how and expertise from the Danish district heating sector has successfully been transferred to demonstrate new technologies and more efficient heating systems, - including geothermal energy technology for heating purposes.
In total, DEPA has invested more than USD 9 mill. in geothermal projects in the CEECs (see table 2.1-1). This investment, in turn, generated cofunding from international finance institutions and national sources adding up to a total of USD 148 million. From an environmental point of view, these geothermal projects create large potentials for reduction in emissions, - of CO2 in particular -, from substituting heat generated at coal fired plants.
Table 2.1-1
DEPA Investments in Geothermal Project Activities 1992-2001
2.2 Summing Up the DEPA Project Experiences
Visits to project sites and interviews with project stakeholders have produced a series of valuable lessons learned from the DEPA projects implemented so far. The main lessons are summarized below (for a more project specific and comprehensive list of lessons learned, please see the Main Report, Volume I, and the Case Studies in Volume II).
2.2.1 General Lessons Learned
From the consultants' visits to geothermal project areas, it has been clearly demonstrated that preparedness and motivation for the geothermal projects vary considerable, both within countries and between regions. The most successful projects are typically implemented in regions where local people were aware of GE and its potential prior to project implementation and did support the general project idea.
A second general point to be made, is that due to the great complexity of geothermal projects some flexibility may be needed in order to carry out a geothermal project in the most adequate way. This can be done through a division of the project into phases, as it has already been done in some of the projects.
2.2.2 Economic Lessons Learned
The need for new drillings often represents a significant economic risk for the projects, particularly if the quantity and quality of the geothermal water resources identified by the drillings shows up to be well below the expected levels. The most suitable markets for GE are where district heating applications - including horticulture and fish farming - are situated near by the reservoirs and plants. The use of geothermal Cascade Systems may further improve the economic efficiency of geothermal plants.
The existence and availability of national co-funding mechanisms helps to attract international project financing. However, small projects, ranging typically between USD 1 and 5 million, are often very difficult to obtain funding for since they are currently considered to be too big for local financing only and too small for major IFIs and donors to get involved.
CEEC stakeholders generally considered IFIs to be bureaucratic to cooperate with, and the process of obtaining IFI loans/grants is deemed to be extremely time consuming and a rather complex task. In this context, DEPA funding is praised for being much more flexible and "user-friendly".
Relative low cost of fossil fuels in general, and natural gas in particular, means that currently only the "best" geothermal resources can compete economically with existing, conventional, energy sources. The loss of hydrocarbon reserves and the emission of CO2 from burning of gas and/or other hydrocarbons, is not a prioritised environmental problem in all CEECs and, consequently, clear economic incentives for GE are lacking. In such CEECs it may be difficult to obtain significant private/national financial support for geothermal plants and international funding (donors, IFIs) is therefore needed in order to demonstrate opportunities for cost efficient CO2 reductions from geothermal plants.
2.2.3 Institutional and Policy Lessons Learned
National CEEC policies generally have not been much concerned about realising national GE potentials. Regions with proven geothermal resources, however, often demonstrate strong political interest in favour of GE. It is therefore deemed essential that local and regional levels will be involved early in the project process through financial and political responsibility and commitment by local authorities, institutions and consumers. The establishment of geothermal shareholder companies has shown to be an effective way to obtain project commitment and sustainability.
It is important to clarify institutional structures and ownership rights prior to project implementation between state, regional/local authorities and private companies to minimize risk for disputes and disagreements after the project has begun. In the field of environmental protection and renewable (geothermal) energy, responsibilities often overlap between Ministries and public institutions in the recipient country.
DEPA (DANCEE), and the Danish experts contracted, is well regarded in the CEECs, - as well as among local stakeholders and other international geothermal "players"- , due to previous involvement in geothermal project activities. In this regard, the Danish support on project management/organizational issues is considered essential in creating sustainable local capacity, but also in securing smooth project implementation on all levels. Additional focus is however required on how to establish a supportive relation between the local project office (project plant) and foreign firm(s) contracted for project management/organizational support.
2.2.4 Environmental and Technical Lessons Learned
Not all of the DEPA-funded geothermal projects are fully operational yet, but significant reduction in emissions of SO2, particles, and CO2 in particular has nevertheless already been obtained. Geothermal projects have therefore so far shown to be good investments from an environmental point of view.
On the technical side, it has been found that problems related to drilling and project equipment can delay project implementation significantly. In the case of demonstration projects, this can seriously affect local confidence in GE. Moreover, it is of crucial importance that geothermal plants will be dimensioned on the basis of expected future energy demand, taking possible implementation of energy efficiency and energy saving measures into consideration. Some geothermal plants today operate with excess capacity because they were dimensioned based on base-line rather than prospected energy demand.
Inputs from Danish sector experts have been an important factor in achieving successful geothermal project results so far. However, it must also be recognized that the CEECs have demonstrated high and increasing capacity to support project planning and implementation. It has also been found that comprehensive geological data for geothermal energy development is available in the CEECs, and much technical research has been done.
2.3 Other Project Experiences
In addition to the DEPA projects, two other geothermal projects in the CEECs involving other sources of financing were visited and assessed in this study, namely the Galantaterm (Slovakia) project and the Mszczonów (Poland) project.
The Galantaterm case study demonstrates that exploiting GE in Slovakia is indeed feasible, given the proper conditions. But Galantaterm does suffer a poor socio-economic condition and development affecting the Slovakian energy sector in general. This includes a situation where local consumers are currently not willing, - or able - , to pay their heating bills.
The Mszczonów project has demonstrated important lessons with regards to the use of closed wells, and how to obtain local project financing and anchoring for small scale geothermal projects in Poland. Regional socioeconomic conditions as well as national energy price policy has however affected the economic fundament of the project to some degree. But as for other CEECs, do the prospects of EU integration and further market liberalizing give promise of positive perspectives for future relative energy prices.
2.4 Best Practice Project Design
Following the experiences from the 8 geothermal projects assessed by this study, a best practice or ideal project design can be developed for geothermal project implementation in the CEECs (see below). The list of components should not be considered exclusive and other criteria might be relevant as well, depending on the specific project context. However, the criteria included in the categories below represent a minimum set of criteria to be applied.
Best Practice Project Design
- Economic Issues:
 | National energy prices are liberalized, - or clearly in the process of being so. |
| Co-funding is available, - nationally and/or internationally. |
| A market for heat exists and is accessible, and up-dated market surveys are available. |
| Local, financial project commitment is in place. |
| Feasibility studies have been or are being prepared. |
| State guarantees are provided. |
| State funding programme(s)/mechanisms in support of renewable (geothermal) energy development are approved and in operation. |
| Soft/low interest project loans can be obtained through national banks. |
| Environmental and other hidden costs are explicitly accounted for in project proposals, - including costs relating to alternative projects based on conventional energy. |
- Institutional Issues:
| National legislation is in place and support GE development. |
| National legislation and regulations on (foreign) investment and trade are generally in support of GE development. |
| Clear policies and strategies in support of renewable (geothermal) energy are in operation, or are to be implemented shortly (nationally/regionally). |
| A suitable project management set-up is proposed. |
| Project ownership is clearly defined. |
| Capacity for project implementation exists at all critical levels, or can be created without major difficulties. |
| GE is accepted and supported locally as an alternative energy source. |
| Decentralization of responsibilities from state to the regions is in place, - in particular concerning energy and environmental issues. |
| Information channels between regions and government are well established. |
| Clear division of responsibilities of GE issues between ministries and public institutions as well as between national/regional/local political levels. Preferably, there is only one institution/organization responsible for project preparation/implementation in the recipient country. |
- Technical Issues:
| A heat distribution network is in place and of a good quality. |
| Boreholes are available and functioning, - or: |
| Good quality geothermal data is available, reducing risks for making futile boreholes. |
| Water temperature should be high, - preferably above 45º C. |
| Reservoir type and size is adequate to the expected market demand. |
| Flow rate and TDS are acceptable. |
| Local technical capacity is adequate for management and implementation of GE projects. |
| Up-dated heat demand analysis and prognoses are available. |
- Environmental Issues:
| Significant environmental impacts locally/regionally and nationally/globally, due to substitution away from polluting energy sources (coal, fuel oil) plus efficient distribution and use, have been foreseen. |
| Implementation of national policies in recipient countries is devoted to reduction of greenhouse gasses and other pollutants. |
| Geothermal systems are in accordance with local/regional principles of sustainability. |
| There is co-ordination with other energy/environmental projects/programmes in order to increase environmental impacts of investments. |
The specific contents of the preconditions depends on the project context and should be qualified in accordance with this.
After this summation of the outcome of the retrospective analysis, the next chapter will focus on the prospects for future geothermal project implementation in the five DANCEE focus countries (Russia, Poland, Romania, Ukraine and Slovakia).