Geothermal Energy Systems Assessment - A Strategic Assessment of Technical, Environmental, Institutional and Economic Potentials in Central and Eastern European Countries
7. The Prospective Analysis
7.1 Geothermal Energy in the CEECs - Towards a Renaissance
Less than a generation ago, most CEECs had extensive budgets for geological research with a view to use geothermal energy. Many geothermal reservoirs were identified and exploitable reserves evaluated - though often with a view to recreational use. Wider applications of the underground hot water resources as an energy source for district heating were not considered, both due to high investment costs and artificially low energy prices.
The development of existing GE reserves in CEECs is still relatively modest. Comparing practical GE accomplishments in the last seven years across the CEECs, Cohut and Bendea (1999) conclude that these accomplishments were modest, and that despite assistance from West European countries - Denmark, France and Iceland and the EU - the projects took a long time and great effort. Importantly, however, Cohut and & Bendea also identified the major cause: the legal and financial changes experienced by the countries with their economy in transition.
While some new installations have been made recently in the CEECs, as the period of transition is gradually completed and taken over by an advanced degree of European integration, most existing district heating systems and plants still use older technologies. Most towns in CEECs are heated by district heating systems, based on coal or other fossil fuels, but the DH systems are often presented with major problems, including difficulties in attracting capital investments.
From a point of view of GE prospects the existing heating infrastructure in the CEECs is an advantage but the current physical conditions of the DH systems often make GE project implementation less attractive. The CEEC district heating systems operate with relatively high temperature levels compared to, for instance, the temperatures used in the Danish DH systems. A major, and related, challenge to GE implementation in the CEECs is therefore to improve the local DH systems in order to be able to make efficient use of the existing low-temperature geothermal resources.
Indications are that geothermal energy for heating in the CEECs may be facing a renaissance. The reasons for this are many, here only a few main factors will be mentioned.
First, the ongoing process of transition in the CEEC from planned to market economies and the parallel enlargement process of the European Union have great implications for structural reforms within the energy sector, harmonization of environmental standards, energy prices and policies within the CEECs. The direction should be towards more favourable conditions for renewable energy development, including geothermal energy. At an indication of the scope of this potential it is the EU objective to double the share of renewable energy in energy supply during this decade.
Secondly, the past decade brought new environmental treaties and legislation affecting energy production and use. Consequently, renewable forms of energy are increasingly perceived as competitive compared to conventional sources of energy. The implementation of the Kyoto protocol is expected to influence the cost benefit equations of the energy sector strongly, as environmental externalities that used to be invisible in the conventional economic regimes, are now accounted for.
Thirdly, new technological developments have increased the number of countries, regions and locations with real potential for GE development. These advances influence the competitiveness of geothermal energy and may open up new applications for the same.
Fourthly, greater awareness and acceptance of GE by political decision makers, in particular at regional and local levels, are opening up new and stronger institutional support mechanisms for geothermal energy development.
These factors have renewed the focus on geothermal energy in the CEECs. Some additional traits making geothermal heat an attractive and competitive source of energy for the CEECs is revealed in box 7.1-1.
Box 7.1-1:
Some Virtues of Geothermal Energy
|
In the following, a brief summary is given of the analysis undertaken of the five DANCEE
focus countries (Russia, Ukraine, Poland, Romania and Slovakia) regarding their capacity
and potential for geothermal project development (Volume II of this study contains a more
comprehensive profile of each focus country). First, in section 7.2, an overall overview
of some central energy and environmental aspects is presented for the five focus
countries. The sections 7.3-7.7 contain a more specific assessment of technical, economic
and institutional factors determining geothermal capacities and potentials within each
focus country. Finally, in section 7.8, a comparative assessment of the five focus
countries is undertaken in order to compare technical, environmental, institutional and
economic components related to geothermal energy development within these countries.
7.2 The Energy & Environmental Situation in CEECs - An Overview
The following section is based on energy and environmental data from the Country Profiles, Volume II. The data covers the period 1990-99, which are the years from which the last official EIA figures were available, covering all countries in question. Even though some changes may have occurred since, the presentation here may still give a rough picture also of current conditions.
CO2-Saving Potential - Fossil Fuel Analysis
In view of the Kyoto Protocol and related carbon reduction initiatives, CO2 emissions have moved to the front line of energy and environmental projects and programmes.
Figure 7.2-1 shows the level of CO2 emissions (tonnes CO2 based on emissions from consumption and flaring of fossil fuels) per used energy unit (tonnes oil equivalents - TPES).
Figure 7.2-1
CO2-Saving Potential - Tonnes CO2 per Tonnes Used
Energy (Toil Equivalents)
Sources: IEA, International Energy Agency, EIA, Energy Information Administration,
http://fossil.energy.gov/international/romnover.html
Note: Data on CO2 emissions are, in the case of Romania, collected from a
different source than the other countries
When looking at the five focus countries in figure 7.2-1, three clusters can be identified; Poland as one cluster in the high end, Romania, Ukraine and Russia placed close together in a cluster in the middle range, and then finally Slovakia placed significantly lower than the other countries.
Based on figure 7.2-1 alone, it is not possible to determine what causes this difference in CO2 saving potential between the countries in question. It can either be due to a relative high/low level of CO2 emissions per used energy unit or to a high/low level of energy use (TPES). Therefore, a closer look at the energy use and its composition will give a better insight in this issue.
Figure 7.2-2
Annual Energy supply per Capita (toe per capita)
Source: IEA, International Energy Agency
Figure 7.2-2 shows that concerning annual energy supply per capita, Russia is placed in the top end and Romania at the bottom. In relation to figure 7.2-1, it is interesting to note that Poland turns out to have the second lowest energy supply per capita of the five focus countries. It is also important to note that a high national energy supply can be caused by a high energy consumption, as well as by a poor technological state of the 'energy system'. From figure 7.2-5 (energy efficiency) an indication of the technological stage on an aggregated level is given.
Figure 7.2-3
Kg CO2 Emissions per Capita9
Source:
IEA, International Energy Agency
EIA, Energy Information Administration
http://fossil.energy.gov/international/romnover.html (Romania)
Figur 7.2-3 shows that Russia has by far the highest CO2 emission per capita and Romania the lowest. This follows the trend from figure 7.2-2. However, it should be noted that Poland and Slovakia has changed position, which means that even though Slovakia has a significantly higher annual energy use per capita than Poland, CO2 emission per capita in Slovakia is much lower than in Poland.
Levels of CO2 emissions per capita are determined by how large a share of the energy supply comes from fossil fuels (coal, oil and gas) and the mix and quality of the fossil fuels used. Energy source composition for the five focus countries for the years 1992 and 1998 is shown in figure 7.2-4.
Figure 7.2-4:
Energy Sources* 1992-1998
Source: IEA, International Energy Agency
* Energy sources other than that of coal, oil and gas are based on 'production' numbers
and not 'primary supply'.
Figure 7.2-4 shows that Poland is the country with the largest share of energy supply based on fossil fuels, followed by Russia. Moreover, Poland is by far the country that depends most heavily on coal as fuel source. This partly explains the relatively high CO2 saving potential in the country compared to the other focus countries. Another important factor is the 'purity' of fossil fuels. There exists, within the same type of fossil fuel (coal, oil and gas), significant differences between energy effect and related emissions (CO2, SO2, NOx etc.).
Slovakia is the country with the greatest share of nuclear energy, which can be related to a relatively low level of CO2 emission rates, but Slovakia has also experienced an increase in energy supply based on gas and a decrease in coal which supports the link between a lower use of fossil fuels and a lower emission rate of CO2.
Energy Efficiency
Energy Efficiency can be used to give an indication of how efficient a country is when extracting, converting, handling and distributing energy. The greater loss of energy 'along the way' the higher the ratio, and thus a more inefficient 'energy system'. Factors that influence this ratio are country size and population density (clusters), since these factors, among others, determine the applicability of district heating. But available technology and present available energy sources are also of importance.
Figure 7.2-5
Energy Efficiency
Source: IEA, International Energy Agency
Note: For OECD countries, TPES and TFC figures are collected from table II.267 and II.291
respectively.
For non OECD countries, TPES and TFC figures are collected from table II.295 and II.361
Respectively.
From figure 7.2-5 it is seen that the most energy efficient country is Slovakia - also being the smallest country with the biggest share of nuclear energy. Romania and Ukraine are categorized as being the most energy inefficient of the countries - in both countries it is characteristic that the energy distribution network is of very poor quality.
Among non focus countries, it should be mentioned that both Lithuania and Bulgaria experienced a worsening in energy efficiency throughout the decade of the 1990s, leaving both countries at an energy efficiency ratio of about 2.0 in 1998, or significantly higher than the focus countries. In comparison, the 1998-figure for Denmark was 1.3 while for the European Union countries as a whole the average value in 1998 was 1.4.
Energy Supply vs. Economic Growth
The current transition process in the CEECs, creating expectations of strong economic rebounds from these countries, increases the attention on the coupling between the economy (GDP) and the energy use - the energy intensity. The more energy intense a country is, the stronger incentives there should be to implement technologies and energy forms that will reduce negative environmental effects from expected increases in energy use.
Although, it should be kept in mind that for the CEECs, part of the energy structure is determined by the national industrial structures and therefore also subject to other policy decisions and considerations.
Ukraine is, according to figure 7.2-6, by far the most energy intensive among the five focus countries. Poland is together with Slovakia placed as the least energy intensive countries. Russia and Romania are also placed much lower than Ukraine, but at a significant higher level than Poland and Slovakia.
Figure 7.2-6
Energy Supply in Relation to Generation of GDP
Source: IEA, International Energy Agency
7.3 Country Profile Summary - Poland
7.3.1 Energy Policy and Strategy
In April 1997, the Polish parliament adopted a new Energy Law, defining principles for developing the national energy policy. The law went into effect in December 1997 and intends to ensure an efficient and rational use of fossil fuels in the country, taking into consideration environmental protection requirements.
The Government Economic Committee was required to pass "Guidelines on Poland's Energy Policy Through 2020." This document was adopted in February 2000 and spells out long term energy forecasts and action plans for the Polish government. The key objectives include: increased security of energy supplies, requiring diversification of sources, increased competitiveness for Polish energy sources in domestic and international markets, environmental protection, improving energy efficiency and reducing energy-related emissions.
A strategy on renewable energy was endorsed by the Polish Council of Ministers in September 2000 and it sets a target of 7.5 per cent of primary energy to come from renewable sources by 2010, compared to a level of 2.5 per cent today. The renewables taken into account in this Strategy are biomass, wind, solar, geothermal and hydro. The general impression and response from specialists and institutions involved in the renewable energy sector in Poland is that the strategy document is a good initiative from the government, but with regard to the detailed predictions and assumptions it needs to be not only corrected, but completely re-worked or even reprepared.
7.3.1.1 State-Owned Energy Enterprises - Privatisation and Regulation
Although ongoing, the process of restructuring, including privatisation, of the Polish energy sector has been slow due to political obstacles from trade unions and other groups. Some state-owned companies have been transformed into state-owned joint stock companies (Polish law does permit 100 per cent foreign ownership of most corporations). However, the Polish state has intended to maintain a key role in certain strategic sectors such as energy and transportation.
The government wants to complete the privatisation of the 17 power plants, 19 power and heating plants and 33 energy distribution firms by the end of 2002 (by March 2001, two power plants and six power and heating plants have been sold). Coal and steel industry restructuring is expected to be completed by the end of 2001 and the energy sector will be open to competition by about 2004.
7.3.1.2 Energy Prices - Level of Control
One of the objectives of the Energy Law was to free energy prices and make the market fully competitive. Currently, the Energy Regulation Agency controls energy prices and acts to protect consumers from excessive price rises until the market becomes fully competitive. This arrangement has been criticized from various sides since it does not permit prices to rise to reflect real costs and is thereby functioning as a subsidy for some (polluting) energy forms, such as coal.
7.3.2 Geothermal Energy in Poland
Poland has already obtained important experiences from geothermal project implementations in the country. Generally, those experiences are of a positive nature and certainly act as a catalyst for further geothermal project implementation in the country.
After having passed the demonstration project phases with significant financial project support from donors and international financial institutions, a main challenge is now how to proceed with projects, financed only through national (Polish) funding and/or from private investors.
Even though the feasibility of geothermal energy has now been demonstrated in Poland, barriers still remains for private capital to flow in. The main financial barrier identified is the one related to financing the first drilling, which can be a highly risky business. Today no insurance system exists for such drilling risks in Poland.
7.3.2.1 Geothermal Areas and Projects
Three main geothermal provinces built of sedimentary basins with numerous geothermal aquifer can be identified within the country.
Carpathian Province
The Carpathian Province consist of five sub-basins, whereof the most important is the Podhale sub-basin with an area of app. 475 km2. The water temperature in the Podhale sub-basin range from 36 to 86 °C and the mineralisation is very low (0.1-100 g/l). The main artesian aquifer occurs in a depth of 2-3.5 km.
The geothermal water occurs in the Eocene Epoch and Mesozoic Era geologic formations, which are characterised by layers of carbonate wherein the water is contained. Fractures in the carbonates increases water circulation, which conditions a high well production.
The Banska-Bialy Dunajec Plant (the Podhale Region) was built in 1987- 1990. After a 3-year trial exploitation period it was used in a geothermal heating network for Banska Nizna and Bialy Dunajec. The BanskaBialy Dunajec Plant has now been linked to the central peak heating plant in Zakopane (transmission pipeline - 14 km.) Heat supply will then be based on geothermal energy and gas boilers in peak periods.
Fore-Carpathian Province
The Slomniki Plant is a relatively new project and is situated 30 km. north of Cracow. Four wells has been bored and documented the existence of 2 water bearing layers at a depth of 150-240 m. (Cenomanian horizon) and 600 m. (Dogger horizon). In both layers low temperature geothermal water (20 °C) occurs. The TDS is variable up to approx. 100 g/l. and water resources are estimated at around 100 km3 with a thermal energy equal to 1.555 Mtoe. Experiments with cascade use of GE will also be carried out.
Lowland Province
The Lowland Province (Central Europe) consists of seven regions and has two on-line geothermal plants, the Pyrzcyce plant and the Mszczonów plant. The Pyrzcyce plant is situated in the Szczecin-Lodz region in Pyrzcyce town and the Mszcznów plant is situated in the Gruziadz-Warsaw region.
The Pyrzcyce plant operates as an integrated system with both heat exchangers-absorbtion and heat pump gas-boilers. The plant supplies approx. 12 000 domestic customers, and replaces 68 traditional heating plants (20 000 tonnes of coal/yr.).
The Mszczonów geothermal plant lies at the central area of Grudziadz Warsaw region. The plant is based on reconstruction of a single, out closed well. The well is extracting water from the lower Cretaceous layer. Due to the relatively small size of the geothermal plant and since it has not been necessary to construct new wells for this project, the investment needs have been relatively limited compared to other geothermal projects.
In Stargard (75 000 inhabitants), a geothermal project is currently under implementation. Through the project, a geothermal base-load heating plant with a capacity of about 10 MW will be established in order to supply 310 TJ per year (or around 36 per cent of total annual heat demand in Stargard). The total budget for the project is USD 8.5 million, including a DEPA grant of USD 450 000. Other financial contributors will be the World Bank, GEF, NEFCO and, from Poland, National Fund and EcoFund.
A geothermal project in Kolo (20,000 inhabitants) is currently under consideration by DEPA for co-financing. The total project budget is USD 6.3 million and the remaining project funds are expected to be provided by national Polish funding and PCF/GEF grant.
Other project proposals for geothermal water utilization for heating purposes have been elaborated in Skierniewice and Zyrardow. In the PragaPoludnie district, a preliminary project has been evaluated.
7.3.2.2 Organisations Responsible for Geothermal Energy Development in Poland
Governmental Institutions
In Poland, the energy sector falls administratively under the supervision of the Ministry of Economy, while environmental responsibility is an issue of the Ministry of Environment. The task of creating and monitoring rules governing the energy sector, such as price and tariff control and the development programmes, is turned over to the Energy Regulatory Authority (it covers the electricity, the gas and the heat subsectors).
In May 1997 a new constitution in Poland was approved by a national referendum and brought about the creation of 16 Voivodeships - regional policy bodies - reorganised from 49 former Voivodeships. The Voivodeship authorities are responsible for the civic, social and economic development of their respective region. Implementation of environmental policy is entrusted to the regions (Voivodeships), counties and municipalities. The Voivodeships are therefore responsible for activities, which are particularly harmful to the environment.
The Voivodeships could be a crucial institutional factor for future geothermal energy development in Poland. Currently, the Voivodeships are elaborating Regional Development Strategies with strong focus on how to integrate economic and environmental concerns in regional policies. The strategy of the Voivodeship Malopolskie (Southern Poland), which was the first of these regional strategies to be concluded and approved, pays particular attention to the geothermal potentials of that region and how GE could support regional energy supply and environmental priorities.
Private Sector
From the private sector, an outstanding case is the company Geotermia Podhalaska S.A., which has been capacitated through DEPA project support, and is now responsible for the Podhale geothermal project.
Geothermal Podhalanska S.A. has turned into a well-managed and structured geothermal company with a competent staff where management is focussed on further improving the efficiency of the company.
Universities and Other Research Institutions
Poland has a long scientific tradition related to geological science, including geothermal science, and maps and data collection have been carried out for the whole country.
A central institution for geothermal science is the Mineral and Energy Economy Research Institute within the Polish Academy of Science in Krakow (PAS MEERI). Within PAS MEERI, a geothermal laboratory has been established in Banska Nizna in the Southern Poland. The Laboratory has played an important role in relation to the Podhale geothermal project, in demonstrating the functioning of geothermal water for heating purposes. Moreover, the scientists working with the Laboratory have supported the development of and proposals for other geothermal projects in the country.
7.3.2.3 Institutional Factors Governing Geothermal Energy in Poland
Laws and Regulations Concerning Geothermal
There is a concession law in Poland, by which rights and conditions for concession to geothermal resources are defined. The duration of concessions is variable and could be a few years up to 20 years. It depends on what the subject of concession is and other circumstances, such as the agreement of local/regional self-governments, etc.
National Funding Sources for GE in Poland
The main sources of Polish government funding for environmental investments are the National Fund for Environmental Protection and Water Management (NFEP), the EcoFund and local and provincial environmental protection funds.
The NFEP (see below) and local and provincial environmental protection funds collect environmental taxes, fees and fines levied against polluters. It is estimated the combined revenue of these funds will amount to USD 500 million annually until 2010. EcoFUND (see below) is expected to raise USD 571 million in the period 1992-2010.
National Fund for Environmental Protection and Water Management
The main objective of the Fund is to provide subsidies and/or preferential loans for projects, which serve the protection of the environment. Special attention is given to ecological activities adapting Poland to the European Union standards. The National Fund for Environmental Protection and Water Management is the largest institution financing environmental protection projects in Poland.
The most important sources of income for the Fund are fees and penalties for the use of the environment. Fees are collected on the basis of the "Protection and Shaping of the Environment Act" for legal activities, while penalties are applicable for activities exceeding legal limits. Fees and penalties are imposed for the following: Draining sewage, air pollution, storage of waste, mining of minerals, cutting down trees and shrubbery, use of farm and forest areas for non-designated purposes. Fees for use of environmental services are collected by Voivodeship Marshal Offices and penalties are collected by the Voivodeship Environmental Protection Inspection Office.
EcoFund
The Polish EcoFund is a foundation established in 1992 by the Minister of Finance. The purposes of the fund are to effectively manage funds obtained through the conversion of a part of Polish foreign debt with the aim of supporting environmental protection-related endeavours (so-called debt-for-environment swaps).
The ECOFund provides financial support in the form of preferential loans and/or non-refundable grants. Such grants may be provided exclusively to investments related directly to environmental protection (in the implementation phase), as well as to non-investment projects in the area of nature conservation. The following five sectors are listed as priorities in the
ECOFund Statutes: Reducing the emission of gases causing global climate changes; limiting cross-border sulphur dioxide and nitrogen oxides transportation, and eliminating all low emission sources of the above gases; limiting the contamination flow into the Baltic Sea, and protecting drinking water resources; protecting biological diversity; waste management and contaminated soil reclamation.
7.3.3 Summing Up - Poland
Opposite most other CEECs, Poland experienced a period characterized by a positive economic development process and restructuring of the national political and economic system throughout the 1990's. The fast "pick-up" and the introduction of a market based and liberalized economy in Poland has gone hand in hand with substantial financial support from the EU as well as from international financial institutions and bilateral donors. However, within the energy and environmental sector, Poland still needs to complete and operationalise a list of reforms and initiatives.
Poland possesses important geothermal resources, which could be used as heating sources to replace some of the highly polluting, coal-based heating systems currently used in many Polish cities and towns. Through the implementation of geothermal projects in Poland from the early 1990's, important project experience is now available. This draws a general picture of a country highly suitable for these kinds of project implementations. In this overall positive picture, the existence of important national project funding mechanisms should also be noted, since it is seen as important factors in the attraction of substantial external project funding.
Following the successful implementation of individual projects, it is now the impression that Poland could shortly be in a position to simultaneously develop several potential geothermal project sites with own sources of finance and project planning. In that respect, it is interesting to notice the interest and involvement of the Voivodeships (regions) in supporting and formulating plans for regional renewable energy development, including geothermal.
This opens up for a rethinking of how acceleration of geothermal development programmes in Poland could most efficiently be supported through regional programmes. In order to promote such simultaneous project implementations, two main obstacles can be identified: 1) The risks related to the first drilling (financial obstacle) and 2) Lack of institutional experience/capacity by regional/local authorities to manage and operate geothermal programmes (institutional problem).
Of particular importance for future geothermal project implementation in Poland, will therefore be the creation of a risk insurance system to cover financial risks concerning the first drilling. This is currently the main technical/financial barrier for further project implementation in the country.
Furthermore, emphasize should be put on how to support existing institutional capacity at regional and local levels in order to coordinate and support implementation of regional geothermal development policies. This may include elaboration of financial plans and institutional support mechanisms as well as further analysis of different ways to encourage the use of environmental friendly energy sources such as geothermal.
Therefore, in addition to considering the promising project proposals, which have already been prepared for implementation in Poland, it is recommended that initiatives will be taken to support the two issues raised above, namely risk insurance and institutional strengthening.
7.4 Country Profile Summary - Romania
7.4.1 Energy Policy and Strategy
A medio-term "National Strategy for Energy Development in Romania, 2001-2004" was approved by the Romanian government in July 2001. According to the strategy, within the area of efficient energy use and utilization of renewable energy, the projects to be launched during the period will include the following:
 | Establishment of a National Energy Observatory having as their main task the synthesis of energy consumption data, evaluation of energy indices, based on a unified, trustworthy and efficient database as well as correlation of national and international data concerning energy consumption. |
| Improvement of energy management targeting the establishment of necessary conditions for imposition of authority to qualified persons in energy management of industrial consumers. |
| Completion, in co-operation with EU, of the national programme for regulation and metering of thermal energy consumption for urban district heating system connected users. |
| Establishment, in co-operation with GEF and WB, of the Romanian Fund for Energy Efficiency with the scope to support investments and promote reduction of domestic users' thermal energy cost through programmes in mountain areas targeting replacement of liquid fuel with biomass. |
| Extension of investment programmes started in co-operation with EBRD targeting rehabilitation of centralised district heating systems. |
7.4.1.1 State-Owned Energy Enterprises
To date, Romania's energy sector reform process has been relatively slow and incomplete, and the lack of execution in restructuring and privatisation has meant that Romania has experienced only limited progress.
According to the Romanian Medium Term Energy Strategy for 2001-04, privatisation shall provide sufficient income for the chosen energy companies, consolidation of energy safety and fulfilment of post-privatisation objectives (competition, infrastructure modernization, strengthening of financial viability and market competitiveness capability of the energy companies) as well as social protection. Distribution may be entirely privatised, however production in thermal power plants may be only 25-40 per cent privatised.
Based on accurate financial analysis of cost, centres in electricity and heat production services that produce losses and do not show any recovery prospects, will be released. The Romanian and foreign investors will be attracted to create joint venture companies with the existing energy companies each participating with shares accordingly. Some co-generation and thermal power plants will be transferred to the local administrations and will be converted into commercial companies. There is a plan to privatise two such companies each year.
7.4.1.2 Prices and Regulation
Since 1997, energy prices in Romania have increased considerably and the prices are now getting closer to market prices. This is mainly a consequence of the implementation of IMF and World Bank loan agreements, where transparency and price deregulation have been main objectives for the energy sector.
However, alignment of legislation to the European legislation requires further amendment of tariffs according to external costs (that mainly reflect the impact on the natural and economic environment) and introduction of simulative options for energy efficiency projects or utilization of renewable energy.
The electricity tariff for domestic users will be uniform throughout the country mainly because of social cohesion reasons. The completion of the reforms regarding market mechanisms beyond 2004 will require revision of this principle and introduction of differentiated tariffs for end users. Local tariffs for heat will be generalised, differentiated by the utilization duration of the maximum power for corporate users, in such way that if there are changes in the technological process, significant deviation from the average price shall not occur. Cross-subsidies between industrial and domestic households have been completely removed by now.
The real cost of energy in Romania is high partly as a consequence of a highly inefficient energy supply system in the country, where obsolete and damaged generation and distribution systems are operating at high costs and with significant energy losses, and partly because of financial problems related to non-payments of energy bills by consumers. The energy supply today is therefore often a costly affair for the supplier (in the case of heating it is often the municipalities) and much attention is therefore currently given to alternative energy supply mechanisms in order to get rid of a weighty item of expenditure on the budget.
7.4.2 Geothermal Energy in Romania
In Romania, exploration of geothermal resources started back in the 1960's. Romania, like other CEECs, possesses considerable low-enthalpy geothermal resources (40-120º C). Today, more than 200 drillings (800-3 500 metres) have been carried out. From 1995-99, 14 new geothermal wells were drilled in Romania. The drillings (1 500-3 500 metres) were financed through national funding and were rather successful; only two drillings showed to be nonproducers.
Although significant geothermal resources have been identified in Romania, direct utilization of the heat is rather underdeveloped. Total capacity of the existing wells in Romania is about 480 MW. However, currently only 152 MW is used, from 96 wells, producing hot water in temperatures ranging from 45º C to 115º C. More than 80 per cent of the wells are artesian producers and only six wells are reinjection wells. Main direct use of geothermal energy is for district heating (37 per cent), bathing (30 per cent) and greenhouse heating (23 per cent).
In comparison to other renewable energy sources existing in the country, geothermal energy may in the short run have the advantage of previous experience and applications. In Romania, the industry can manufacture most components used for geothermal projects and national companies are highly experienced in drilling, exploration and equipment of wells (see below).
A 1996 Phare-study, promoting a "Strategy on Renewable Energy Sources in Romania", concluded that "..geothermal energy is already competitive in most of the cases with natural gas and always with fuel oil" and that regarding economic potentials, top priority should be given to the use of geothermal sources for thermal applications in the existing DH supply system (in the cities near the geothermal fields and in new DH schemes for smaller towns and large villages) and for industrial or agricultural use.
7.4.2.1 Geothermal Areas and Projects
Proven geothermal resources in Romania have been identified mainly in the Western Plain (including Oradea and Bors), in the Southern Plains (near Bucharest) and in the Olt Valley. Further description of the geothermal potentials in the named regions can be found in the Romania Country Profile (Volume II).
The Western Plain
The main geothermal reservoir in Romania is located in the Western Plain along the Hungarian-Romanian border, 2 500 km2 from Satu Mare in the north to Timisoara in the south. Out of a total potential geothermal energy production of about 5 300 TJ/year in Romania, more than 80 per cent of the potential is located in the Western Plain and a total of 88 wells have been drilled in the area.
Southern Plains
In the southern plain, north of Bucharest, 11 wells have been drilled at a depth of 1 900 -2 600 metres and 5 of the wells are currently active. The reservoir is located in fissured limestone and dolomits. Wellhead temperatures range from 58-90º C, highest in the northern part of the reservoir. TDS is around 2.2 g/l. The total installed power is 32 MW and main heating uses are for space heating and sanitary hot water.
Olt Valley
The Cozia-Calimanesti reservoir produces artesian geothermal water and is located in fissured siltstones at depth of 1 900-2 200 metres. Wellhead temperature is 90-95º C and the TDS of the water is 14 g/l.
7.4.2.2 Organisations Responsible for Geothermal Energy Development in Romania
Government
Within the government the overall responsibility for energy development lies within the Ministry of Industry. The Ministry has a special department for geological and mining issues.
The National Agency for Mineral Resources (NAMR) was established in 1993 as an independent advising agency to the government. The President of the Agency is appointed by the Prime Minister. NAMR is the central institutional body in relation to development of geothermal energy projects, since the agency is controlling and administrating the use of underground resources in Romania. In order to obtain a concession for geothermal energy development, an application should be passed to NAMR who will submit their recommendations to the Ministry of Industry for approval.
Private Sector
Two companies, TRANSGEX and FORADEX, have historically and presently been responsible for geothermal drillings and exploitation in Romania.
TRANSGEX, the smaller of the two companies, was privatised last year. The company has around 180 employees, including around 60 persons working on geothermal energy. The company is mainly represented in the western part of the country in the regions of Satu Mare, Bihoor, Salaj and Cluj.
FORADEX is still a state-owned company and has around 900 employees. 50 persons are working on geothermal energy, the remaining staff is engaged in the company's activities in oil, gas, water and diamonds. It is planned that FORADEX should be privatised sometime in the near future in order to allow a restructuring and modernization of the company. FORADEX is mainly operating in the area around Bucharest, the southern part and the southwestern part of the country.
Universities And Other Research Institutions
The University in Oradea is the centre for geothermal research in Romania with its own geothermal department and geothermal plant. In the department computer models have been set up to simulate effects from geothermal energy projects.
In Bucharest, the Geological Survey Institute is carrying out research and mapping of existing geothermal resources in the country. Currently, the Geological Survey is working on an update of the national geothermal map.
7.4.2.3 Institutional Factors Governing Geothermal Energy in Romania
Laws and Regulations
The National Energy Regulatory Authority (NERA), an autonomous institution in the process of issuing the secondary legislation in the field, carries out the regulation, authorization and control in the field of electric and heating energy. The main responsibilities of NERA include issuing of regulation and licenses for operators within the energy sector, price and tariff establishing and approval of framework and contracts.
NERA establishes power prices and tariffs using a methodology approved beforehand by the Competition Office and based on principles of consumer protection, economic and financial feasibility of the operators, economic efficiency and attraction of investors.
Rules Directly Affecting GE
The approval and implementation of the new "Mineral Law" in 1997 has been of particular relevance and importance to the development of geothermal energy projects in Romania. With this new law, a company (private/public, national/international) can now obtain concession for geothermal exploitation for a period of 20 years from the state (earlier it was only one year). The Mineral Law has therefore opened effectively up for private and foreign investments in geothermal energy projects.
Moreover, implementation of the electricity and heating law, adopted in 1998, has started. The law opens up for more flexible consumer-supplier relations within the energy sector and makes it possible for consumers to buy energy from private suppliers.
7.4.2.4 National Funding Sources for GE development
The Romanian state budget has since the 1960s financed the drillings of more than 200 wells for geothermal exploitation. However, governmental funding for geothermal investments have been decreasing from 32 Million USD in the period 1985-89 to 24 million USD in the period 1995-99.
It is mainly the public research and development (R&D) activities that have been cut down (from 21 million USD in the period 1985-89 to 8 million USD in the period 1995-99). Field development activities have increased from 5 million USD (1985-89) to 10 million USD (1995-99).
Currently, the state budget is financing 1-2 new drillings per year and this activity level cannot be expected to increase in the near future. First of all because the state budget is currently under pressure and, secondly, because the Romania government is now awaiting that more of the already identified geothermal sites will be exploited further. Since wells are now already existing on several geothermal potential project sites in Romania, project costs, and risks, will be lower compared to projects where no drillings are made.
Finally it should be mentioned that a framework establishing an environmental fund was adopted in May 2000. The fund is intended to act as an economic instrument to support the development of major public investments within the environmental sector. However, the law remains very general and will probably require a secondary legislation in order to become operational.
7.4.3 Summing Up - Romania
Romania has during the last few years entered a more dynamic process of structural changes and economic reforms and after years of economic recession the growth rate have again turned positive. This recent development process has gone hand in hand with increasing economic support from the main international financial institutions (IMF, World Bank and EBRD) and opening up of the EU accession negotiations.
The energy sector in Romania has traditionally been run 100 per cent by the state, and reforming this sector is of high priority for the international community. Even though some initiatives have recently been taken by the Romanian government, reforms are processing slowly and the Romanian government maintains high influence in the national energy sector.
What concerns geothermal energy development in Romania, the country possesses large proven geothermal resources and economic feasibility studies of geothermal projects show that use of geothermal energy for heating purposes is economically profitable compared to existing heating systems using liquid fuel oil.
Within the last few years, the implementation of new laws in Romania on energy and concession rights has improved the conditions for geothermal project investors considerably. The new laws have lowered the investment risks and opened up for more market-based competition between private and public energy suppliers.
On the other hand, does the Romanian government not have in operation any effective programmes or economic support mechanisms (funds, eco taxsystems etc) for geothermal energy development. This may however change soon, since Romania is in urgent need of harmonizing with EU rules and regulations within the sectors of energy and environment.
Credited is due to the Romanian government for having financed more than 200 geothermal drillings in the country since the 1960s. In that sense, it can be argued that the government has paved the way for further development of the geothermal potentials in the country for other actors, private and public.
Until now, the Romanian municipalities have been reluctant to commit themselves financially to geothermal project investments. One reason for this is that these kinds of energy projects traditionally have been considered as long-term investments, which do not fit into the short-term planning practiced by many municipalities.
Another factor in explaining why Romanian municipalities, as well as other potential investors, have not brought more money into geothermal projects is that the financial markets for this kind of energy investments still do not function adequately in Romania. Banks and lending institutions in Romania often consider their risks and costs related to geothermal project investments too high, mainly because the banks do not know or recognize the real economic potential for these projects.
In order to bring about a "take off" situation for geothermal energy project development in the country it will be of great importance to be able to present a geothermal "success-story" in Romania. Concerning co-financing options for projects, the timing is good right now since external financial support to Romania is increasing dramatically in these years and most IFIs and donors give high priority to energy and environmental projects. Moreover, Romanian municipalities are struggling economically in these years with the existing old district heating systems, and the same municipalities do have clear economic, if not environmental, incentives to change heating systems.
7.5 Country Profile Summary - Slovakia
7.5.1 Energy Policy and Strategy
The 1999 Slovak Energy Policy focuses on preparations to enter the open EU energy market, and further defines safety of supply and sustainability as basic principles to follow. This means that the energy chapter of National Programme for Implementation of the Acquis Communautaire is a central instrument. This in turns focus on market liberalization, including a schedule for energy price adjustment and tariff modifications as well as regulation of monopolies and establishment of an independent regulatory body.
Further, Slovakian energy policy addresses energy conservation and announces a programme for energy efficiency, wider use of Renewable (and domestic) Energy and R&D, and even a law on rational energy use. Finally, a programme of "regulated energy price adjustment" is part of the policy. In general, renewable energy (RE) has been included in the "State Energetic Conception of the Slovak Republic", according to which RE has a potential at 4 per cent of the primary energy resources available for the 2005-2010 period - equivalent to 40,000 TJ/year.
GE ranges as the second most important source of renewable energy to be relied upon to fulfil this strategy of partly substituting fossil fuels. Still, the considerable potential of alternative fuels may not be realized, in the absence of direct or indirect support through energy legislation. It is planned, however, to establish an "Energy Saving Fund" and make some amendments to the tax regulation, increasing the "excise tax" on fuels and energy and exempting "non-traditional" energy sources and CPH from costumes regulation.
7.5.1.1 State-Owned Energy Enterprises
Privatisation of the Slovak Gas Company (SSP), which make it a jointstock company where 51 per cent of shares remain with the state, has been approved. The national electricity company (SE) and oil company (Transpetrol) are being privatised as well, together with the distribution sector.
7.5.1.2 Prices and Regulation
By 2000 the Slovak Government approved price increases for electricity averaging 40 per cent for households and 5 per cent for businesses, and increases of natural gas prices and heating price ceilings as well. Tariffs display a progressive rate, price decreasing with increasing consumption. Preparations are made for further opening up of the domestic energy market. Steps towards an independent regulatory authority have been taken.
7.5.2 Geothermal Energy in Slovakia
The Slovak Republic has a long historical and cultural tradition for the use of GE and it is one of the few CEEC countries where installed capacity is over 100 MW.
The use of GE in Slovakia today is for multiple purposes, including 13 agricultural farms (about 27 ha of greenhouses and some soil heating), fish farming, space heating and recreation purposes. The effectiveness and technological level is fairly low, due to seasonal use and low efficiency of the technical installations.
7.5.2.1 Geothermal Areas and Projects
Today, 26 prospective areas and structures with exploitable geothermal energy potential have been identified. The potential resources represent 5 538 MW and are located at depths between 200 and 5 000 metres, with water temperatures ranging from 20º C to 240º C.
In 14 of the prospective areas, further explorative work has been made. While the remaining 12 areas still await verification by drilling, 6 of these have been geologically assessed. (See also Slovak Country Profile, Volume II, and Strategic Action Plan, Volume III). At the regional level the most intense use of geothermal energy is in the town of Galanta, where geothermal energy is the primary energy source for district heating.
The geothermal energy potential does in many areas fulfil the technical criteria for geothermal water exploitation. High temperatures and high heat flow are typical characteristics of both the so-called Neogene basins and the volcanic mountain ranges of the inner Carpathians. The total amount of geothermal energy utilized in 36 localities represents thermal power of 130 MW and 846.4 l/s of geothermal water.
7.5.2.2 Organisations Responsible for Geothermal Energy Development in Slovakia
Government
At the level of government, the Slovak Ministry of Economy is the government regulatory and policy agency with overall responsibility for development and implementation of the energy policy in Slovakia. The ministry issues licenses for operation in the energy sector, approves construction, renewals and decommissioning of energy plants, or the change of their fuel basis, etc.
Capacity-wise the ministry is challenged, at least in the area of electricity, where it's role as regulator is changing. It is the Ministry of Finance, however, who regulates the energy prices. In contrast to the Czech Republic, Hungary and Poland, do Slovak household electricity prices not even (as of early 2000) cover production costs yet. However, an independent regulatory body is scheduled to take over energy price regulation by 2003. The Slovak Energy Agency assists the Ministry of Economy in developing and implementing the energy policy in the country.
The Ministry of Environment is not only a regulatory agency for geological resources, but also a focal point for implementation of geothermal projects in Slovakia. Through one of its offices for international collaboration and EU accession, a local (DANCEE) project coordinator has had, and will continue to have, a pivotal role in coordinating geothermal initiatives (involving Danish funds) in the future.
Private Sector
The two most important private sector players in the geothermal energy field in Slovakia is Slovgeoterm and Galantaterm. (See also case studies of Kosice and Galanta).
The Energy Centre Bratislava is a semi-official NGO operating in the field of energy and has already implemented and managed several energy projects and studies.
The Geological Survey is carrying out studies, investigations and research on geological resources of the country, including geothermal resources. The Atlas of Geothermal Energy of Slovakia, from 1995, is available from the Survey.
Based on analysis of this organisational "landscape" of organisations with capacity and experience in the field of geothermal energy planning, there are good reasons to assume that in the case of geothermal energy, the prospects for efficient collaboration in Slovakia, between the central and local governments and the private and non-governmental sector, are relatively good.
7.5.2.3 Institutional Factors Governing Geothermal Energy in Slovakia
Laws and Regulations
In Slovakia, there are some effective legislative, economic and fiscal instruments in place (see below) to influence energy consumption and to reduce the energy intensity of the national economy (ECB 2001). Moreover, the "Air Protection Law" will indirectly give GE a relative comparative advantage over other - more polluting - technologies. The law is founded on the principle of "best available technology" and determines emission quotas. These principles not only apply to newly built sources of air pollution, but existing sources have also assigned terms to fulfil stricter criteria and regulatory standards. According to a new law from 1998, heat suppliers and electricity distribution companies are obliged to buy heat and electricity from environmentally justifiable sources (Law # 70 from 1998, § 33).
Policy Instruments In Place Directly or Indirectly Promoting GE
In Slovakia, the following instruments are in place to promote renewable, including geothermal, energy:
| The 1999 Ministry of Economy programme for the Support of Energy Efficiency and the Use of Alternative Energy Sources. |
| The Ministry of Agriculture programme for supporting RE sources use. |
| Programme for insulation of domestic housing |
| State fund for environmental protection, which is based on green taxes and from which municipalities can apply for funds. |
Further, the concept of Energy Performance Contracting (EPC) has been introduced as an innovative financing mechanism. Finally, joint implementation or allowance trading is included in the instrumentation. The funds allocated in the state budget for support of improved energy efficiency are relatively smaller, however, than in Europe at large. Energy efficiency in Slovakia remained, by large, unchanged from 1990 to 1999. The mix of instruments above may be too moderate to induce energy efficiency as a feasible alternative to adjusting fuel and energy prices to market levels. However, numerous acts and directives does illustrate the increasing understanding of the necessity to be energy efficient.
National Funding Sources for GE Development
As for GE in particular, the Ministry of Environment and the Ministry of Economy jointly prepared a "Conceptual proposal of geothermal energy utilization in the Slovak Republic" in 1996. In response to this proposal the Government accepted a "Resolution" obliging the Minister of Environment to evaluate GE use in Galanta, the Poprad Basin, the Liptov Basin and the Skorusina Depression as well as undertaking a hydro geothermal evaluation of the Ziar Basin and study the feasibility of the so-called "hot dry rock" approach in Slovakia.
Between 1985 and 1999 Slovakia invested significantly in geothermal energy, with a highly significant shift from public to private funding after 1995. The majority of the funds were used for R & D including surface exploration and explorative drilling (see Slovakia Country Profile). Today, the following sources for funding of renewable energy exist in Slovakia:
| Programme for support of energy savings and exploitation of alternative energy sources by regional offices of Slovak Energy Agency |
| Support from the State Environmental Fond |
| Support from National Agency for Development of SMEs, including a Supporting loan programme and a micro loan programme |
7.5.3 Summing Up - Slovakia
This analysis confirms that in Slovakia, actions are well underway that are already restructuring the formerly state-owned, now partly privatised energy sector and implementing long-term policies as well as providing more oversight and coordination of the sector. As a result, one may expect that within the next few years and certainly by the end of 2005 energy prices in the Slovak republic will have reached levels very close to the average European (EU) level along with harmonisation of the Slovak energy legislation with the EU energy strategy will have been completed.
Slovakia has an energy supply, which for heating and electricity production is mainly based on fossil fuel and nuclear energy. While total primary energy supply has decreased, GDP has increased, which signals that the Slovak Republic is in the process of decoupling energy use and GDP and thus moving toward a post industrialised society with generation of GDP from the tertiary sector and other less consuming businesses.
Thanks to current overcapacity and close integration with the European grid as well as a high density of gas network coverage, Slovakia will be in a position to meet the future demands for heat. Slovakia, however, does have an ambition that future demand should be met, increasingly, with less environmental costs and featuring an increasing share of renewable and environmentally sustainable energy sources.
An official policy goal in Slovakia is to have 6 per cent of PE production covered by renewables (4 per cent by 2005). If that goal is to be reached, then geothermal energy is bound to play a critical role. Because of the administrative and other difficulties in providing state support for renewables, foreign technical and financial assistance seems an essential prerequisite for development and dissemination of RE in general and GE in particular.
Slovakia has a very significant and well documented technical potential for exploitation of geothermal energy. Slovakia also has a very high capacity for implementation of geothermal projects. The capacity to work successfully with international investors and donors is noteworthy as proved in the case of the Galanta project and the efforts by Slovgeotherm to secure funding from the EU ISPA programme and international finance institutions.
Further to possessing a high volume and quality of proven geothermal resources, economic feasibility studies of the Galanta geothermal project show that while use of geothermal energy for heating purposes may not yet be very profitable per se, they may do well compared to existing heating systems using liquid fuel oil.
Within the last few years, the implementations of new Slovakian energy laws have indirectly improved the conditions for geothermal project investors. The new laws have opened up for more market-based competition between the different energy sources, removing some of the indirect subsidies that were beneficial towards fossil fuels relative to renewable energy.
With the earlier (historical) investment in geothermal drillings in the country, Slovakia is well posed in terms of geothermal potentials in the country being developed by new actors, private and public.Traditionally, the Slovakian municipalities have committed themselves financially to geothermal project investments. The municipalities are however struggling economically in these years with the existing, old district heating systems, and the same municipalities do have clear economic, if not environmental, incentives to change heating systems. In order to bring about a "take off" situation, external financial support and investments are needed. Since the existing government programmes and economic policy instruments (green taxes) are insufficient to trigger geothermal energy development, without such investments from outside Slovakia.
7.6 Country Profile - Russia
7.6.1 Energy Policy and Strategy
Russia’s long-term strategic energy objectives may be described briefly as:
| Increased efficiency in the use of fuels and energy resources. |
| Improving the conditions for transition to energy efficient development. |
| Reduction of the environmental impacts of the energy complex |
| Increased volume and potential for energy export. |
| Ensured Russia's independence and security in energy supply |
In the process of fulfilling and making these goals more concrete it is noticed that Russia is planning a long-term use of nuclear power in order to replace the conventional energy sources gradually. At the same time it is noticed that the country's nine existing plants all are old, and in a matter of few years they will exceed their "life expectancy". The nuclear plant in St Petersburg is though - like the other plants - expected to have its "life expectancy" prolonged using additional investments in safety equipment.
A number of the goals mentioned above have already been met. The decrease in production of oil and gas during the recent years has now been stabilized, helped by the prices on oil, which have been high since 1999. Institutional reforms have been carried out, including privatisations, however in such a way that the Russian state still has great influence on the development and has a number of regulatory instruments at it's disposal. The coal industry is among the industries in which a restructuring has been initiated. The goal is to obtain a higher cost efficiency. Still it is expected that coal (together with slate oil, peat and wood) will continue to be a cheap source of energy in Russia for a long time. Concerning development and extension of the market conditions on the home energy market, there has been taken a number of important legal and regulational steps, including in the area of taxes, investments and price policies.
Among the strategic goals which, despite the signs of economic recovery, have not been fulfilled yet, it is especially noteworthy that the output of the energy sector has not gone up as expected; that the discoveries of oil and gas have not increased; and that the investments in the sector have decreased on account of the economic and political changes (including the crisis of 1998). Most importantly, and most surprisingly, is maybe that the energy intensity of the country has not decreased as desired. In fact, it has increased by 20 per cent compared to the period before the reform.
7.6.1.1 Prices and Regulation
Traditionally, Russian heat consumers have been used to perceive heat as a free good and this legacy, - along with incomplete enforcement of dept collection - , make domestic energy very cheap. The Russian government, however, has decided that during the next 3-4 years, electricity prices must reach a level covering at least production cost. Current subsidies to for heat and hot water given by local governments, is thus scheduled to disappear by 2003. In a 10 year perspective, it is expected that electricity prices will approach those of the European union. CHP covers 65 per cent of the heat demand in most areas of Russia, and heat and electricity prices are therefore closely interdependent.
7.6.2 Geothermal Energy in Russia
In Russia, geothermal energy is part of a cultural and historical legacy dating back further than antiquity. Significant GE resources are available and identified, and Russia does have a record for GE use. Compared to the conventional energy sources, however, the contribution by GE to Russia's total energy supply is small. At 300 MW installed geothermal (direct heat) power, GE in Russia is dominated by direct use, - primarily in six towns and a number of settlements in Northern Caucasus, where GE space and district heating supplies a total of 220 000 people. In addition, GE heat up 465 000 m2 of greenhouse space.
The case of Russia illustrates well the multiple direct uses of GE: Greenhouses, soil heating, fish and animal farming, cattlebreeding, manufacturing (such as wool washing, paper production, wood drying and oil extraction), various recreational uses, and finally space heating of course.
Combining a technical and contextual point of view, the following areas to be the most promising for geothermal energy utilization in Russia10:
| The European part of Russia, including Northern Caucasus and Dagestan |
| Kaliningrad |
| Lake Bajkal |
A map of all geothermal regions are found in Country Profile - Russia (Volume II). In the following, only the prospects for GE in the European part of Russia and Kaliningrad is described and analysed.
7.6.2.1 Areas and Projects
Northern Caucasus is the largest region for development of geothermal energy in Russia (Povarov 2000). The geothermal potential of the region (Krasnodar and Stavropol in particular) is stressed by various sources, including Martinot 1998 and 1999. Most of the interesting areas are located in the Dagestan Republic, including two potential sites with a Russian share of the population of 90 per cent (Stavropol and Krasnodar) and 50 per cent (other areas in the North of the region) respectively. In total, the Dagestan republic has 180 existing wells, with geothermal potential at depths from 200 to 5 500 metres. The total amount of resources has been estimated at 4 million m3/day. In contrast, the annual volume used today is 7.5 million m3, only. One project, the Pilot Kayasulinskaya GEOPP, seems to be moving ahead11.
There are several factors favouring geothermal investments in the European parts of South Russia. For instance, compared to the 300 000 living in the Kamchatka region, South Russia has a population of 20 million people. In South Russia, no additional drilling is necessary, since a lot of now abandoned oil and gas wells have already been drilled during the era of exploration after fossil resources, which are now largely exhausted. Since drilling often amount to 50 per cent of project costs, this investment may be considered having been made, already.
Nevertheless, existing geothermal firms in Russia face a difficult situation with GasProm concentrating on gas production only, and the government ministries no longer able to take an active economic role. An additional - technical - problem is that despite the long regional experience in using geothermal energy to heat buildings and greenhouses, the current - old - technology, with mineralised thermal water, results in rapid corrosion of heat pipes and heating devices.
Because the oil reservoirs in Northern Caucasus generally are exhausted, a high number of wells can be used for geothermal purposes. In the Krasnodar region, the geothermal reservoir is of a confided type with artesian conditions, and these conditions may lower exploitation costs significantly. In this area, geothermal heat is used in Mostovskoi town, where water of about 80º C is already used for heating greenhouses and cattle farms. A second main geothermal reservoir is confined in the Alpine fore deeps of the Northern Caucasus, in the Khankala, Makhach-kala, Kyasula and Tarumovka areas.
7.6.2.2 Organisations Responsible for Geothermal Energy Development in Russia
At the central level, the Ministry of Fuel and Energy of the Russian Federation - the Department of Strategic Development and R&D has a broad expertise on energy planning in Russia, - including the role of renewables such as GE.
The Ministry of Natural Resources may also play a role in geothermal projects, as mineral water and other relevant natural resources are under the control of this ministry.
In Central Moscow Region (Krzhizhanovsky), the Russian Power Engineering Institute (ENIN) has a long and eminent history as the leading power engineering institute in Russia. Today, ENIN is also known for its extensive expertise on renewable energy technologies. In Moscow, international and joint venture projects may be coordinated in collaboration with the Centre for Preparation and Implementation of International Projects (CPPI).
Local and regional authorities and state or municipality-owned utilities and companies generally lack financial strength. Weak cash flow generation and regulatory risk outside their control, limit creditworthiness.
In recent years a number of private stock companies have become involved in exploration and utilization of GE in Russia. In addition, semipublic enterprises also play a role in the development of GE. NonGovernmental Organisations (NGO) advocating for development of GE in particular, hardly exist in Russia. Several universities and other research institutions, however, does work to promote GE. Also in Russia, an "Energy Carbon Fund" (ECF) has been set up, under the auspices of the Unified Energy System of Russia (UESR), providing legal and methodological support to JI project developers in Russia, and several other functions meant to operationalise the Kyoto Protocol. (See Russia Country Profile in Volume II).
7.6.2.3 Institutional Factors Governing Geothermal Energy
The link between the Russian economy and the regulatory environment is highly complex. It is evident that the conventional "medicine" of privatisation and subsidy elimination, so often prescribed by international IFI´s, does not seem to work in the case of Russia. One reason is inadequate legal and market institutions and a need for broad institutional reforms. An institutional (economic) view of Russia and developments there is consequently required. For instance, the many institutional weaknesses means dependence on other means of transaction and regulation, such as third-party arbitration, emphasis of personal trust and long-term relations. Joint ventures is one important means for overcoming such institutional barriers.
Laws and Regulations
As most other investments, the feasibility and attractiveness of GE-investments do in addition to other things depend on how relevant legal and regulatory rules are being observed and enforced. In general, the Russian state administration still is said to be in the early stages of adjusting to the needs of a market economy and the legal situation can still best be characterised by an "enforcement gap". On the whole, however, the Putin government is seen as actively and rather successfully rebuilding the authority of the state and revitalising Russia's transition to a market economy.
Rules Directly and Indirectly Affecting GE
Directly affecting the economic feasibility of GE projects, the programme for economic and social reforms in Russia for 2002 includes reduction of government subsidies for heating, and a reform of the state monopolies in the sectors of electricity, gas and transport. In addition, measures to remove inconsistencies between federal and regional regulations have been announced.
The Russian law "on energy efficiency" broadly addresses energy policies and regulation, including metreing and billing, energy audits, building codes and education. It also allows for independent energy production in Russia and should therefore make RE more feasible. The law, however, stops short of detailing the implementation mechanisms needed to allow the kinds of market transactions - such as public power utilities being obliged to buy from small (private) producers. Federal and regional government energy efficiency funds are financed via taxes on energy sales, and is responsible for allocating funds to investment projects. By 1995 a few such projects operated successfully.
7.6.2.4 National Funding Sources for GE Development
The budget for the Russian Federation includes a chapter on South Russia, where a 2002-2004 scheme - by Decree of the Government of the Russian Federation, dated August 8. 2001, # 581, is earmarked for development of renewable energy (Table 4.6.8 of the budget annex). The allocation is 6 million roubles (200 000 USD). In addition, funds from international organisations are envisioned, - including support from the GEF.
7.6.3 Summing Up - Russia
Following the 1998 economic crisis, Russia entered into a process of structural changes and economic reforms. While the Russian government still has significant influence, the formerly state-owned energy sector is progressing towards market conditions. The implementation of new energy laws in Russia have indirectly improved, if not the immediate conditions for geothermal project investors, then at least set in motion a long term process that will eventually do so. The new laws have opened up for more marketbased competition between different energy sources and will remove some of the indirect subsidies that currently distorts the market and disfavours renewable resources.
The technical potential for GE in Russia is much greater than realized at present. Geothermal studies have been performed in a large number of Russian cities, involving a high number of scientific institutes and a handful of universities and project implementation agencies. Also the human resource base in Russia is well developed in terms of qualified thermal engineers and geologists. Clearly, a number of potential geothermal sites have been identified, with favourable characteristics in terms of high water temperatures at relatively shallow depths.
In Kaliningrad and St. Petersburg, the geo-technical is currently not as convincing as in other Russian regions with geothermal potential. Kaliningrad, however, is in a special situation with a large regional energy deficit and more in-depth studies on the hydro-geology of the region might be relevant, focusing on Kaliningrad City and the City of Sovetsk.
In the Northern Caucasus regions, a majority of the technical potential exists in areas, where no drilling is needed due to existing boreholes left over from oil and gas exploration. Further, such conditions exist in some of these areas that makes it possible to avoid reinjection costs. The same region features some cities with long term experience within geothermal energy heating applications, and the whole region - as most of Russia - has existing district heating systems. In general, the Northern Caucasus region is striving to develop and introduce more renewable energy, particularly in nature parks and reserves in the mountain region.
One potential barrier to GE in Northern Caucasus (as in Russia in general) is the bad shape of existing District Heating Networks. Another barrier to GE - and RE in general - is the historically low energy prices, which as still relatively (and perhaps artificially) low despite recent price hikes and exhaustion of the regions fossil resources.
In Russia, the work on joint implementation for GHG emission reductions is progressing fast towards signing of an intergovernmental MOU featuring agencies mandated for joint working group cooperation, an internationally recognized system for reporting to the UNFCCC and implementation of JI projects and programmes.
Russian municipalities are struggling hard in these years with the existing old district heating systems. It is unclear to what extent the municipalities of fx the Krasnodar and Stavropol (Northern Caucasus) regions are able to commit themselves financially to geothermal project investments.
In the process of supporting geothermal energy in Russia, it is important to acknowledge that the current privatisation of the residential sector does not lead to automatic energy savings, - as some international finance institutions sometimes seem to believe. Even where heat and hot water are metered and most residential apartments are privatised, residents may not be neither dejure or de-facto responsible for maintenance of the buildings, let alone energy efficient investments. In the very long term, of course, it is possible that future home owners associations will form and assume such responsibilities. Meanwhile, incentives and responsibility for district heating distribution losses, remain institutionally mismatched, as payments are based on the heat leaving the plant rather than what reaches consumers buildings.
7.7 Country Profile Summary - Ukraine
7.7.1 Energy Policy and Strategy
The Government of Ukraine is increasingly concerned about the problems related to the energy sector and is aware that one possible way to meet the future challenges is through increased used of renewable and nontraditional energy sources. The government is currently financing three important national programmes all aiming at supporting the renewable and nontraditional energy sectors in the country:
1) Renewable Energy Development Programme
The National Academy of Science in Ukraine has recently, on request from the Ukrainian government, elaborated a long-term development plan for utilization of non-traditional and renewable energy resources in the Ukrainian territory. The plan considers the potentials for each of the 24 administrative regions in the country and can as such be used as a regional energy planning tool. Various regions show impressing potentials for geothermal energy development, where more than half of the local energy demand could be covered by geothermal.
2) Wind Power Engineering Development Programme
This programme is financed through a kind of "ecological" tax on electricity consumption. 0.75 per cent of the revenue collected from electricity consumption in Ukraine (10-12 million USD per year) is dedicated to develop wind power in Ukraine, both in relation to production techniques and for scientific work. The programme is implemented within the Ministry of Industrial Policy.
Today, the wind power business in Ukraine is benefiting not only from large governmental support programmes, but also from the existence of several abandoned, old military factories which are now producing equipment for wind power. From a rational point of view it may be difficult to justify this strong support to wind energy. The real explication behind this strategy seems to be more of political character than based on real strategic decision making.
3) Ecologically Clean Geothermal Power Engineering in Ukraine
In 1996, a 5-year programme was approved by the Cabinet of Ministers in Ukraine to support scientific geothermal activities in the country. The Institute of Engineering Thermophysics (IET) at the National Academy of Science in Ukraine was appointed the leading institution of the programme, which has been implemented through the Ministry of Science. The programme will be concluded by the end of this year and due to great satisfaction with the results obtained so far, an extension of project activities for another 5-year term will most probably be approved. The annual IET programme budget is around 200 000 USD.
The real challenge for these three programmes will be to establish a close relation between policy recommendations and real political action. This will again be closely related to how, and to what degree, renewable and nontraditional energy forms will find their own market in Ukraine.
What is obviously needed in order to make these governmental programmes and initiatives truly operational in Ukraine, is the development of complementary implementation plans (business plans), which will integrate financial, political/institutional as well as technical issues into coherent and concrete operational activities. As identified in the governmental Renewable Energy Development Plan, various regions present very encouraging and interesting future energy scenarios, which should be developed further.
7.7.1.1 State-Owned Energy Enterprises
In 1994 the Ukrainian government initiated a reform of the power sector aimed at improving commercialisation and competition within the sector. Progress has been achieved, however, the government is still interfering excessively with the regulatory environment.
In early 1998, Naftogaz Ukrainy was created, - a company formed by uniting former state-owned oil and gas companies into one single state-owned oil and gas company. Naftogaz Ukrainy controls oil and gas production and marketing as well as the national oil and gas pipeline network, one of the country's largest sources of revenue. Among the future plans is to privatise Naftogaz Ukrainy, however, when and which model to be used has still not been decided.
Even though the outlook from an investors point of view for Ukraine may now look more positive than a couple of years ago due to recent successful implementation of political and economic reforms in the country, it will probably take some time to convince investors to put money into the energy sector. Concrete results need to be seen and this should be based on coherent, integrated and sustainable energy planning, addressing as well financial, political, institutional and technical issues.
7.7.1.2 Prices and Regulation
Although improvements have been made over the last couple of years, energy prices in Ukraine do still not reflect related costs. The electricity prices are set for the country as a whole, while heat price settings are based on municipality price calculations, approved by a national regulatory commission. Heat prices may therefore vary between regions and municipalities.
Heat prices have only increased modestly over the last couple of years. A reason for this is that Ukraine does not have an efficient subsidy system in function and sharp heat price increases may therefore create serious problems and conflicts among the already poor Ukrainian population.
Moreover, the heating sector is plagued by lack of payments, in particular from the industry. The heat tariffs for industry in Ukraine are around three times higher than for households. All this together has left the heating sector with big losses and deficits.
However, energy prices in Ukraine will soon have to edge up with production costs in order obtain a functioning, market based economy, as required by the international financial institutions. New economic attractive and sustainable solutions to the heating sector are therefore urgently required in the country.
7.7.2 Geothermal Energy Ukraine
7.7.2.1 Geothermal Areas and Projects
Around 40 per cent of the Ukrainian territory represents promising geothermal sites with water temperatures between 60º C and 130º C. The most promising areas are found in the Western part of the country (Zakarpatsky) and on the independent peninsula of Crimea.
Currently 10 geothermal projects are implemented, however in practice only 5 smaller plants (1-5 MW) with a total installed capacity of around 12 MW are in operation, mainly in the Crimea Peninsula. The IET has assisted in the implementation of these projects, however it has until now proven to be difficult to maintain a continuous operation of the plants after the IET staff has left the project site.
More than 100 wells drilled in Ukrainian territory during the last decades could be used for geothermal energy development. However, currently less than 20 are in use. This is mainly due to lack of capital for project implementation but also related to the fact that many of the drillings are not placed in urban areas where they could benefit from existing distribution systems.
The assessment of geothermal potential for the whole territory of Ukraine has been going on for several years now, supported by the governmental scientific programmes (see also 7.7.1). Through this research work priority sites for commercial use and for construction of demonstration plants have been identified. Moreover, operational reserves to a depth of 3 500 metres have been explored and evaluated and it has been estimated that geothermal heat supply systems with a total capacity of up to 50 000 MW could be constructed in the country.
Geothermal fields with water temperatures up to 100º C are, at present, deemed to be most prepared for commercial utilization. Moreover, feasibility studies made by the IET, based on 12 scenarios of heat capacity and water temperature, have shown that geothermal heating systems are economically attractive and profitable for capacities higher than 6.0 MW and water temperatures exceeding 80º C.
The existence of high temperature geothermal water in the Ukrainian underground creates realistic possibilities and potentials for generation of electricity. This may be the case in the regions of Zakarpatsky, Kharkivsky and Crimea. Moreover, in Crimea, the geothermal water contains dissolved gas which make also make it feasible to produce electricity from lower temperature water. The potential for electricity production, and related costbenefit estimations, have not yet been fully investigated.
7.7.2.2 Organisations Responsible for Geothermal Energy Development in Ukraine
Government
In Ukraine, there is not one particular ministry responsible for geothermal energy development. Instead, responsibilities and support to geothermal activities in the country are spread out between different ministries and governmental related programmes and committees.
The Ministry of Energy in Ukraine, although being responsible for overall energy development in the country, is in practice mainly concerned with the "big" energy issues, such as those related to the power sector, including politics on nuclear and electrical power and power generation plants.
The Ministry of Science is responsible for, and financing, the scientific 5-year programme, implemented through IET, on Geothermal Power Engineering (see 7.7.1).
The Ministry of Industrial Policy is responsible for the development of the governmental Wind Power Programme, financed through the eco-tax on electricity consumption, which in theory should also provide some funds for industrial and scientific activities related to other renewable energy forms such as geothermal. However, in practice the eco-tax is functioning as a direct state support to the wind power sector.
The Ministry of Environment, through their geological department, is involved in drilling and underground activities, also involving those of geothermal concern.
Moreover, geothermal energy development in Ukraine has until now been supported from various governmental programmes and committees established for specific purposes.
A clear future challenge in Ukraine will be to coordinate and integrate the geothermal support activities carried out between the different ministries and institutions. A clearer institutional set-up for renewable energy development, including geothermal, will probably be needed in order to make more efficient use of the funds designated for these purposes.
Private Sector
Within geothermal energy development, the private sector has not yet played a very visible role. This is mainly related to the fact that geothermal energy projects have not yet reached the "commercial acceptance" compared to other energy sources, as for instance wind power.
For the wind energy sector, a coherence has been established between scientific and commercial level through the Wind Power Programme. Equipment for wind energy projects is produced locally in the factories earlier used for military equipment production. These factories could, however, as well be used for production of equipment for geothermal energy products and is thereby representing an important capacity resource for the country when looking further into the future potential for geothermal energy implementation in the country.
Universities and Other Research Institutions
The centre for geothermal research and science in Ukraine is the Institute for Engineering Thermophysics (IET), placed in Kiev. Within the institute two departments are working on geothermal issues; the Department of Technology of Geothermal Energy Production and the Department of Thermal Energy Utilization. The technical capacity in the institute is very high and would provide a strong backup support in relation to future geothermal project implementation in Ukraine.
In year 2000 the Ministry of Education was merged with the Ministry of Science in order to create a stronger coherence between the scientific and educational environments. What regards geothermal energy, the merge has resulted in a stronger interaction between the IET and the Polytechnical Institute in Kiev, thereby improving conditions for creation of a future, wellcapacitated geothermal resource base in the country.
7.7.2.3 Institutional Factors Governing Geothermal Energy in Ukraine
Laws and Regulations
An existing law on concession rights in Ukraine permits companies to obtain a 10-15 years license right to exploit geothermal underground resources.
On the other hand, the Ukrainian legislation does not permit penetration of potable water reservoirs. In practice, this will impede realization of some potential geothermal projects where the geothermal reservoir is placed under such water reservoir.
7.7.2.4 National Funding Sources for GE Development
At present, no national funding mechanism is used to support geothermal project implementation.
However, the Ukrainian government does have in operation a couple of funds which could apply in a higher degree also to geothermal projects. One example is the "ecological" tax on electricity consumption (0.75 per cent), mainly dedicated to the developing of wind power in Ukraine. Another example is a fee system, although not very operational, implemented by the Ministry of Environment, that levies taxes on air and water emissions and solid waste disposal. These revenues are channelled to environmental protection activities.
7.7.3 Summing Up - Ukraine
Ukraine has just recently started recovering after nearly a decade of recession and struggling through a difficult transition process to a more liberalized political and economic system. Although still in a premature phase, the ongoing process is directed towards the EU requirements. Recent development trends in Ukraine have been recognized by the international financial institutions, which have credited the country by increasing their loan portfolio significantly.
Ukraine has traditionally been very dependent on Russia on energy import, mainly on gas and oil. The wish to become more independent, together with recent increases in national energy consumption and energy intensity, has motivated the Ukrainian government to consider more intensive use of alternative energy sources.
Ukraine possesses significant high-temperature geothermal resources, which could cover a large part of the energy supply within several regions of the country. The geothermal resources have been scientifically investigated and feasibility studies and data material have been developed. However, so far geothermal project implementation in the country has been very limited, and only at small-scale, mainly due to financial constraints.
The Ukrainian government is currently supporting development of renewable energy sources, including geothermal, through three programmes. Wind power is, however, the renewable energy form receiving by far most political and economic support in Ukraine.
Geothermal energy in Ukraine will need to demonstrate its economic and commercial feasibility in practice in order to activate a dynamic politicalprivate sector support in the country, as it has been the case, for instance, within the wind power sector. Production capacity for equipment is available in Ukraine as well as technical engineering geothermal expertise. Moreover, the government has demonstrated its competence and willingness to introduce eco-tax'es on energy production (for the Wind Energy Programme) in order to support development of renewable energy forms.
With a view to current conditions and situation in Ukraine, it is therefore recommended that support will be given to assist ongoing efforts to implement geothermal demonstration projects in the country. However, taking into consideration the government's current fragmented support mechanism for geothermal energy, together with an actual process in the country characterized by political and economic reforms and sharply increasing inflow of foreign capital, it is also recommended that practical project implementation should be complemented by development of coherent (business) strategies and plans for regions where particular encouraging geothermal potentials have been identified.
The regions identified as being the most prospective concerning geothermal energy development are Crimea and Zakarpatsy. These regions have rather different characteristics and should therefore be analysed separately in order to assess their potential in relation to potentials, sustainability and demonstration effects of project implementation.
7.8 Geothermal Energy Potentials in the CEECs - a Comparative Analysis
In what follows, a comparative synthesis of the five focus countries is presented, based inter alia on the conclusions from the country profiles in volume II. Some of the countries share characteristics and conditions on some components, but important differences can also be registered.
The five focus countries may be conceptualised in two groups:
| Group I consists of Slovakia and Poland, which are already both highly integrated into the EU. |
| Group II consists of Romania, Russia and Ukraine with economies and political systems which are not strongly integrated into the European Union. |
7.8.1 Economic Potentials
The main barrier for geothermal project implementation in all five focus countries is the lack of funds. However, the point of departure differs between these countries. Poland and Slovakia are relatively more advanced in more or less all economic and political areas and these countries currently represent other opportunities and securities to potential investors than do Russia, Ukraine and Romania.
Poland and Slovakia now face EU accession soon and have through the last decade profited from strong economic support from EU countries and international financial institutions, which has in turn created optimal conditions for economic growth and restructuring of the country. While full and final integration with the EU energy and environmental chapter is still pending, major steps towards liberalization of energy prices have brought price levels and settings closer to EU levels.
Geothermal energy development has now proven to be economically feasible under present conditions in both Poland and Slovakia. This has attracted more interest from municipalities as well as from private investors to take part in geothermal projects in these countries. However, where new drillings are needed, the obtaining of funds to finance the first drilling remains a critical barrier since this drilling is always related to certain risks regarding the quantity and quality of the geothermal water.
In the view of this, it is deemed to be crucial for future geothermal development that some kind of insurance system will be defined and implemented in order to attract required private and/or national project capital. The fact that financial support from IFIs and bilateral donors to, in particular, Poland is now decreasing as a consequence of the country's increasing ability to act financially independently, is further strengthening the importance of this issues.
The economies of both Russia, Romania and Ukraine experienced the similar kind of serious difficulties throughout the 1990's and the transition process in these countries has been and, to some extent, still is a difficult task. The challenges have first of all focused on economic recovery and then, afterwards, on concerns for the establishing of transparent rules and regulations, also within the environmental and energy sector. However, the countries have now passed important steps in their development and are now receiving increasing financial support from the EU and the international financial institutions.
Energy prices in the CEECs have increased substantially over the last few years, however, price subsidies, in-transparent price calculation mechanisms and neglecting of negative environmental effects are still, in some degree, characteristic for energy price settings in all countries in question. This, in turn, is highly favouring some (polluting) energy sources over renewable, environmentally friendly energy forms, such as geothermal. A particular sensitive issue in Ukraine and Romania, and to some extent also in Poland, is related to coal price subsidies. Coal has a particular socioeconomic importance in these countries, which makes it highly difficult for the government to eliminate existing coal subsidies.
While Russia, Ukraine, Slovakia and Romania do not have any efficient national funding mechanism in operation to support geothermal project development, in Poland there are two funds (Eco Fund and National Fund for Environmental Protection), which have both contributed with significant funding for the geothermal projects implemented so far in Poland. Moreover, the contributions from these Polish national funds have become important instruments in order to attract international funding for the projects. It is therefore considered a strong positive factor for Poland to have these funds in operation.
In fact, Ukraine also has an "ecological tax" (on electricity consumption), however this tax revenue is dedicated to wind power development. In case geothermal will be able to demonstrate its profitability in Ukraine, this ecotax modality may well be extended to include geothermal industry. Russia is well advanced in operationalising and - together with the Energy Carbon Fund - institutionalising the concepts of joint implementation and carbon credits. As to committing to renewable energy, allocations made in august 2001, in the federal budget, for renewable energy initiatives in South European Russia are noteworthy.
While in Poland loans for geothermal projects can be provided with subsidized interest rates, this is not the case in any of the other four focus countries. High interest rates and short repayment terms in these countries impede therefore to a large extend large scale project implementation. This, again, is directly related to the fact that in these countries geothermal investments are still considered a highly risky business, which requires a high "risk premium".
Another feature to be considered is the variety in socio-economic conditions between countries and regions. Even within the same country, socioeconomic conditions may differ considerably and may present very distinctive contexts for implementation of geothermal projects. In Poland, for instance, it is obvious that the richer, southern part of the country represents a total different geothermal outlook than for instance other regions. This same picture was also found in Russia and Ukraine, countries which both contain various, dispersed regions with high geothermal potentials.
7.8.2 Institutional and Political Potentials
A general picture of all five focus countries is that responsibility for geothermal energy development is divided between different Ministries and public institutions, thereby making it difficult to identify a coherent, national approach. Although different support programmes exist, mostly related to scientific work, it is also characteristic that none of the five focus countries have a clear and operational policy on renewable energy, including geothermal.
Even though comprehensive reforms have been undertaking within the energy sectors during the transition period, geothermal energy has to a large extent been neglected in this process. Most countries have developed medium and long term so called "strategies" for renewable energy, indicating goals and potentials. These strategies, however, in general do not include much description on how to achieve these goals and, in particular, concrete information on how to finance related activities and projects.
In order to pave the road for future geothermal development in these countries, it will therefore be necessary to complement these very general strategies with concrete, realistic and operational action plans with particular focus on geothermal. The developing of such plans ("Business Plans") should in particular address issues of institutional, financial and socioeconomic character, all elements which are of utmost importance to project sustainability and impact, but is not generally included in sufficient degree in existing technical geothermal (feasibility) studies. Such comprehensive plans would be a major tool for future sustainable advance within the geothermal field and would naturally integrate the need for stronger coordination of donor funding and loans.
Another important and related feature identified within the institutional context is the division of responsibility between the national (governmental) level and the regional/local level. The current tendency in all countries is to delegate more autonomy to decentralized levels, including issues of energy and environmental concern. However, these political intentions are generally not followed by similar and sufficient increases in the transfer of resources (human and/or economic) from the state. Moreover, as it is particularly the case within the energy sector, the state wants to maintain "certain influence" and only delegate some limited responsibility and autonomy. All together, these circumstances add to paint a picture of a very complex institutional environment within these CEECs. Geothermal energy development is certainly affected by this situation and it must therefore be considered a high priority to clarify and map these issues, including ownership rights, as part of a general approach to improve the institutional environment for geothermal investments.
In Romania, Ukraine and, to some extent, in Russia, geothermal energy projects still need to prove their profitability before it can be expected that significant national (private/public) capital will be allocated to such projects.
This is mainly due to two factors: Firstly, due to scarce resources in the national budgets, in general not much funding is channelled to environmental/renewable energy purposes, unless there is a very clear indication of "good business". Secondly, even though much reforming has already taken place within the political environments in these countries, real transparency and rational political decision making is still lacking. This is the case for the energy sector where the oil and gas business (import/export) traditionally has been considered an attractive business for some politically influential groups in these countries. It is therefore difficult to change the existing energy structures over the night, even though it from the outside would seem obvious to do so. Again, what will be of crucial importance to geothermal energy development in these countries will be to show good demonstration projects, governed by realistic business plans.
Although no particular geothermal legislation exists, laws on concession rights for underground resources are now applicable for geothermal resources in all countries. In Romania, the Mineral Law from 1997 represents a major progress in this field, since it opened up the possibility to obtain license for up to 20 years (earlier it was only one year and thereby a serious problem in relation to attract private investment capital for geothermal projects). Also Ukraine has recently modified their law on concession rights, which makes it more attractive for private companies to invest in such projects.
However, from a Western perspective, institutional shortcomings in the countries in question, including legal enforcement gabs, lack of information sharing and market institutions (enforceable contracting and property rights) generally represent an important barrier for large scale foreign investment, in particular with respect to Russia, Ukraine and Romania. In this context, joint ventures may be an attractive way for prospective investor to overcome such institutional insufficiencies.
7.8.3 Technical Potentials
Data material and significant research work on geothermal energy already exists in all focus countries. Moreover, relevant human resource capacity is available to support future geothermal development. Within all countries there are small scientific groups of geothermal specialists with several years of experience, but it is also characteristic that young geothermal scientists are currently being educated through special courses on the universities and practical working experience.
In Russia, Ukraine and Slovakia the scientific capacity and the centre for geothermal research are placed in the capitals (respectively, Moscow, Kiev and Bratislava), far from the most potential project sites. All three countries are characterized by having not only one, but several very promising geothermal regions. In Romania, the geothermal centre is placed in the city of Oradea, in the area which is by far the most promising from a geothermal point of view. In Poland, the geothermal centre is in the Southern region (Podhale), where also main geothermal project activities are ongoing. The presence of geothermal scientific expertise and activities close to project sites is deemed to be a positive factor in relation to project sustainability and local support.
In all five focus countries, several boreholes already exist, drilled in the past for gas and oil purposes. These wells could in principle be used for geothermal purposes also, and the first such project has successfully been implemented in Poland (Mszczonów, see case study, Volume II). In Poland more such projects build on existing drillings are foreseen and also in Romania, Slovakia, Ukraine and Russia this concept could be further developed. However, in some areas it seems to be more problematic to include existing wells for geothermal purposes, since many of them are not placed close to towns with heating networks. From a point of view of geothermal energy use, it is an important (economic) advantage if district heating networks already exist, however, the existing district heating infrastructure is often in very bad condition, requiring new investments in order to rehabilitate or change the existing network.
7.8.4 Environmental Potentials
Even though some improvements took place in environmental legislation and energy policy, as well as in CO2 emission levels, all five focus countries continue to have serious environmental problems directly related to the use of polluting energy sources.
The district heating sector emit a significant part of the total CO2 emissions, and the sector is stuck in a vicious circle: Prices are raised I order to create income to improve the existing networks, which often are in poor condition and the owners (often municipalities) do often not have economic opportunities to improve the systems. But there is a tendency for frustrated consumers to disconnect from the district heating systems, when the price go up without any notable short term improvement in the service. Such disconnections in turn leads to even higher prices for the remaining costumers, - thus the vicious circle. The increasing inefficiency of the heating systems is reflected in the increased national energy inefficiency in all five focus countries throughout the 1990's, - except from Poland and, to a lesser extent Slovakia.
Geothermal heating plants represent an opportunity to break this vicious circle. GE is an attractive vehicle for improvements in the energy system, because each project brings with it opportunities to take a holistic or systemic view of the district heating system, in which the project is to be integrated. In the process, new technologies, insulation materials and standards can be introduced, potentially leading to systemic change saving energy and increasing efficiency beyond the geothermal unit.
As a positive remark, it should be noted that all countries in question now by law require assessments of the environmental impact of geothermal projects prior to project approval, as well as for other project types.
7.8.5 Overall Assessment
To sum up the comparative analysis, table 7.8-1 gives an overview of the potentials for each of the five focus countries within different categories. It should be noted that each category contains a range of factors, for instance does technical potential include geothermal resources as well as human capacity, and is as such a weighted mix of all these factors.
Table 7.8-1
Geothermal Potentials in CEECs
|
Economic potential |
Institutional/policy potential |
Technical potential |
Environmental potential |
Poland |
|
|
|
|
Russia |
|
|
|
|
Romania |
|
|
|
|
Slovakia |
|
|
|
|
Ukraine |
|
|
|
|
(
= maximum score; = minimum score)
As it can be seen from table 7.8-1, the technical potential is considered to be very high for all countries included. This is an important point of departure, since the technical potential will be the first thing to look for when considering geothermal project implementation within the CEECs.
It should also be noted that the environmental potential is considered to be high in all countries, with some variation in scale between the countries. Based on the current situation and future outlook, Ukraine is considered to present the case of most significant environmental benefits, while Slovakia already has a much more energy efficient structure in place and does therefore, at the aggregated level, present less environmental potential.
The economic potential varies more between the countries and does to a certain degree reflect the countries' current capacity to present an attractive climate for geothermal project investment, including through national funding mechanisms and programmes. The institutional/policy potential refers to the central issues described in 7.3.2 and on to what degree the countries are currently institutionally organised and structured to support geothermal development. As it is the case with the economic potential, the institutional/policy conditions also vary considerably, - mostly reflecting different stages of the transition process and EU approximation.
In conclusion, it shall be emphasized that all five countries represent interesting cases for geothermal project implementation. From a technical and environmental point of view it is evident that all countries have clear potentials. The generally lower scores on the economic and institutional/policy components should be interpreted in the way that the five countries, at this point of time, need additional support on these issues in order to make geothermal project development sustainable. Moreover, even though the four components have been treated separately here, they should in real cases always be integrated in order to obtain a holistic judgment of project effectiveness, impact and sustainability.
Finally, an important factor, which is not really integrated into the above assessment, is the demonstration effect of geothermal projects. In Poland and Slovakia, and to some extent in Russia, GE plants and their potentials are now well-known. However, in countries such as Ukraine and Romania this is not the case and the demonstration effect from GE projects is a crucial parameter, which should be taken into consideration when assessing potential project proposals.
| 9 | Data for Romania are collected from a different source than for other
countries. For 3 years data from the two sources overlapped and these years have been
checked for comparability. |
| 10 | From a technical point of view several regions are promising for direct
use of geothermal resources. Some of these, however - like Western Siberia - are also very
rich in natural gas and oil and this hampers development of GE in such a region. Others -
like Kamchatka and the Kuril Islands - are very remote, seen from a Danish perspective. In
Kamchatka, two existing geothermal power stations adding up to 23 MWe generate electricity
for the region of Mutnovka. Two more are under construction in the same geothermal field
(totaling 50 MWe and with a final potential of 300 MWe). Finally, in the Kuril
Archipelago, a 30MWe Island GE power is projected. GE is well developed in Siberia and
International Finance Institutions such as the EBRD support GE projects in some of these
"remote" areas of Russia. In Russia's central region - the Moscow Artesian Basin
- the Moscow "syneclise" is a depressed structure of the East-European platform
located between the Baltic Shield, Voronezh and the Volga - Ural anticlines. The potential
of this area is not clear, but may appear sufficiently promising for further studies to be
made. |
| 11 | Letter of intent send to the world bank, from the Russian joint stock company of energy and electrification "EES Rossii" and the so-called "branch open joint stock company"; Stavropolenergy". |