Austria Plans Funding Help to Encourage More Geothermal Drilling

(Bloomberg) -- Austria is drawing up incentives for companies to increase drilling for geothermal heat, as part of efforts to secure clean and long-term energy supplies to replace Russian gas flows.

Geothermal power is an abundant energy source that can provide clean electricity and heat crucial for meeting net zero goals. But the huge upfront costs needed for drilling can often exceed future returns if a project fails, something which has held back the industry’s expansion.

Austria’s new government is in the process of creating funding measures to help firms curb development costs and drilling risks for projects, the Infrastructure Ministry said in response to questions from Bloomberg News. That could benefit companies such as energy producer OMV AG and equipment maker SBO.

Advances in geothermal technology have already allowed miners to drill faster and deeper below the Earth’s surface. While shallow wells have been used for centuries to heat homes and thermal baths, newer technologies can generate boreholes more than 5 kilometers (3.1 miles) deep, where temperatures higher than 200C (392F) can be tapped — enough heat to spin turbines or feed industrial processes used to make products like chemicals and paper. 

“Geothermal technology’s come a long way,” said Klaus Mader, chief executive officer at Austria’s SBO, which makes directional drilling gear for the US fracking industry. “It’s become an attractive industry we’re diversifying into.”

• Listen to this podcast on solving geothermal’s financing problem.

The International Energy Agency says that compared with other renewable sources, geothermal’s potential for power capacity trails only solar, as more economies invest in renewable resources that aren’t dependent on weather. Unlike solar and wind generation, geothermal heat is available around the clock. It also features in the US government’s “drill, baby, drill” policy, so oil and gas workers can potentially redeploy their skills toward the sector.

Austria’s efforts to accelerate geothermal development have become more important as it seeks alternatives to Russian gas that it long relied on. To help find a replacement, the government wants to mitigate some of the high upfront costs of geological studies and test wells. 

“Geothermal energy plants have an increased risk component,” a spokesman for Infrastructure Minister Peter Hanke said. “Measures to avoid stranded costs and minimize risks are needed.”

Engineers at Vienna’s first deep-geothermal plant, a joint venture between OMV and utility Wien Energie, are using horizontal drilling gear supplied by SBO to tap a boiling-hot water reservoir 3 kilometers below the Austrian capital. The site is scheduled to begin generating heat for 20,000 homes by 2028. 

The project began only after the federal government covered about 15% of the its €90 million ($97 million) cost. In Germany, the European Union’s Innovation Fund covered almost a quarter of the €350 million project cost of a Bavarian site being developed by Canada’s Eavor Technologies Inc. 

“Deep geothermal energy projects will always strongly depend on the existence of a solid and appropriate regulatory framework,” said OMV, which owns a 6.5% stake in Eavor and is looking at increasing Vienna’s geothermal generation 10-fold over the next decade. More “tailor-made funding instruments” are needed to move forward, it said.

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