Germany’s Federal Ministry for Economic Affairs and Energy has teamed up with insurance giant, Munich Re, and KfW, the nation’s development finance institution, to launch a new financing package to promote geothermal energy for municipal and industrial heating.
Munich Re said in a statement that with the new Geothermal Acceleration Act, the Ministry had created the “necessary conditions” to make it possible.
The innovative programme is intended to promote interest in deep geothermal energy, with low-interest loans to finance drilling, combined with risk cover for insufficient geothermal energy sources.
The aim is for Munich Re, KfW and the Ministry for Economic Affairs and Energy to solve the financing dilemma for deep drilling through the cooperation pact.
“When it comes to deep geothermal energy, we have to work with a high default risk and high risk requirements,” said Thomas Blunck, a member of the Board of Management at Munich Re.
“As such, we take a close look at each project on the basis of the relevant data. Under these conditions, Munich Re can, in principle, offer exploration insurance for geothermal projects in promising areas throughout Germany. But it’s essential that we be involved in these projects from the outset, that we have access to the relevant measurements and calculations, and that the data be reliable.”
Geothermal energy sources are expected to cover a large percentage of Germany’s heating needs in the future, the Munich Re statement noted.
However, the exploration and development of hot springs at depths of thousands of metres often costs tens of millions of euros. If the well does not yield hot or sufficiently hot water, in the worst-case scenario the investment is “lost”, it added.
“This risk often deters investors and their banks, making it more difficult to realise geothermal energy projects.”
As such, a tailored product is now being offered that will boost geothermal interest.
Munich Re checks whether the project is feasible and insurable on the basis of the available data, defines the insurance parameters and premium and, if the data matches the criteria, insures 30- 70% of the loan amount.
In the event of a claim – for example, in the case of unsuccessful exploration – KfW grants a partial debt waiver under the same conditions as in the insurance contract. Accordingly, project sponsors can secure up to 100% of the loan amount.
Germany is expecting significant growth in geothermal energy by 2030, according to Melanie Kehr, the KfW Executive Board member responsible for domestic promotional business.
“Deep geothermal energy has the potential to make a substantial contribution to climate-neutral heating in Germany – efficiently and independently of fossil fuels,” said Kehr.
“Our new solution tackles a key obstacle to expansion and addresses the high financial risk of drilling. Together with the Ministry for Economic Affairs and Energy and Munich Re, we are providing new impetus for the energy transition and thus strengthening Germany’s economic sovereignty.”
The insurance developed by Munich Re is part of a Ministry for Economic Affairs and Energy geothermal energy initiative.
The aim of this initiative is to implement at least 65 further geothermal energy projects by 2030, which would increase the percentage of energy from geothermal sources used for heating to 10 times its current level.