Insurance Initiative to Facilitate Geothermal Drilling in Germany

The German government is taking steps to mitigate the financial risks associated with geothermal drilling in municipalities, a vital part of the country's energy supply strategy. The initiative, termed the 'Findability Insurance,' aims to alleviate concerns over costly drilling failures that can lead to significant financial losses for local governments.

This insurance scheme, a collaboration between the state-owned development bank KfW and the reinsurance giant Munich Re, is currently under discussion in the federal budget. A spokesperson from the Federal Ministry of Economics has indicated that the implementation of this initiative is contingent upon the approval of the federal budget.

Geothermal energy, which harnesses hot water from deep underground, is set to play an increasingly prominent role in Germany's energy landscape. The government aims to tap into a geothermal potential of 10 terawatt-hours by 2030 and significantly increase the contribution of geothermal sources to district heating systems. This initiative, along with a proposed Geothermal Acceleration Act, is a continuation of efforts from the previous coalition government.

According to Matthias Tönnis, a geothermal expert at Munich Re, generating electricity from geothermal sources requires a flow rate of 80 to 90 liters per second with water temperatures of around 110°C. For heating applications, lower flow rates and temperatures of 60 to 70°C are sufficient. Key areas identified for geothermal exploration include the Bavarian Molasse Basin, the Upper Rhine Graben, and the North German Basin.

However, the path to successful geothermal drilling is fraught with challenges, including high costs and bureaucratic hurdles. Tönnis notes that the preparation phase for a project can take up to five years, with daily drilling costs reaching approximately EUR80,000. Municipalities may face upfront costs ranging from EUR20 million to EUR30 million before even commencing drilling, and unsuccessful attempts can result in lost investments and the need to seal abandoned wells, which can cost an additional EUR1.5 million.

Unlike mining or energy companies that can absorb losses from unsuccessful drilling, municipalities are less able to tolerate such risks. Tönnis points out that while companies in the oil and gas sector may have one successful drill out of ten attempts, municipalities cannot afford a single failure.

The new insurance program is designed to cover part of the financial risk associated with unsuccessful drilling efforts. Tönnis explains that if a drilling attempt yields no results, the insurance will provide compensation, with KfW covering the remainder of the costs. The pilot phase of this program is expected to last for three years, with an allocation of nearly EUR50 million in the current federal budget to support approximately 65 projects, which are estimated to require investments totaling between EUR2 billion and EUR3 billion.

Gregor Dilger, the managing director of the Geothermal Association, has expressed cautious optimism regarding the new insurance model, emphasizing that it must remain affordable. He stresses the importance of the terms negotiated between Munich Re and the policyholders, as well as the need for projects across Germany to be eligible for coverage.

In addition to financial concerns, bureaucratic obstacles also hinder geothermal development. The approval processes for drilling can take several years, necessitating a mining concession for deep drilling. The proposed Geothermal Acceleration Act aims to streamline these procedures, potentially instituting maximum timeframes for decision-making, such as requiring authorities to make a determination within one year.

Overall, these initiatives aim to enhance the viability of geothermal energy in Germany, promoting a transition to more sustainable energy sources and supporting local governments in their efforts to harness this potential.