Hungary plans to double its use of domestic geothermal energy sources by 2030, saving some 500 million cubic meters of natural gas annually, thereby boosting the country’s competitiveness and increasing energy sovereignty, State Secretary for Energy and Climate Policy Attila Steiner declared in his opening address to the summit.
Noting that geothermal energy is “undoubtedly one of the largest potential means” of progressing along the decarbonization path, Steiner assured attendees that the government is encouraging its utilization with various means of support, not least because, unlike other renewables, namely solar and wind power, it is independent of weather conditions and available for base-load needs.
As the current holder of the rotating presidency of the European Union, Hungary has put geothermal energy at the top of its priorities, and the country is ready and willing to cooperate with member states on delivering tangible proposals to address obstacles facing the sector, Steiner said.
Enthused by the state secretary’s address, Marit Brommer, executive director of the International Geothermal Association, bounded onto the stage to praise Hungary’s stance and proclaim, “We need more political love for geothermal energy […] and we need more people because it’s going to grow.”
However, aware that she was preaching to an audience of the converted, for the sake of a reality check, she quickly interjected: “I speak sometimes to the six billion other people alive on this planet, and they have no clue, no idea what geothermal is.”
Hence, it is vital to market, promote and educate the public about geothermal energy as a source that can effectively provide heating and cooling and deliver affordable electricity to the grid, Brommer said. This lack of awareness is puzzling, considering that 88 countries currently exploit geothermal resources, including 31 that generate electricity.
“When it comes down to power, that’s no mean feat. However, it took us 120 years to install 16.3 GW of capacity. This sounds a lot, but it represents 0.05% of the global electricity market, meaning that the others look at us as being dwarfs. We are minute. We are, relatively speaking, invisible,” she said.
Nonetheless, 180 countries pledged to triple their renewables at the COP28 climate change summit in 2023, representing massive potential for geothermal development.
“We did a bit of a back-of-an-envelope calculation as to what this means for us. It means we need to add 63 GW [of capacity] for power, heating and cooling every year until 2030. And that translates to approximately 20,000 new wells [per annum],” she said. This is a staggering number for the industry, even spread out among 180 countries.
“If you really look at how many wells we have drilled [so far], it is just not enough, meaning we have to change our industry to become more on par with our oil and gas friends,” she reasoned. Achieving the target will entail a superhuman effort by those in the sector.
“That magnificent skill set, the knowledge, the experience, but also the physical equipment, the rigs, the people and resources that know how to drill: we need them all in order to drill the 20,000 wells per year needed to keep the pledges of our government leaders.”
As for Hungary, as several speakers noted, the regulatory environment governing geothermal exploration changed in March last year, with the responsible body for licensing projects moving from the water directorate to the mining office, although both come under the Supervisory Authority for Regulatory Affairs (SzTFH). Bence Gonda, strategic vice president for the SzTFH, focused on the progress made since the change.
“Most importantly, we have issued more than 60 licenses for geothermal exploration; I think this is a great number, and there are ongoing explorations throughout the country,” he said.
On top of this, a team had conducted extensive research in the Budapest region to establish a more detailed hydrological model for the area, and some 150 data packages covering municipalities had been developed for potential investors in the geothermal sector.
“We have an abundant amount of data; we are trying to develop the data packages, and we share these with investors and companies that would like to enter the Hungarian geothermal market,” Gonda said.
Richárd Albrecht, head of geology with Mecsekérc, a Pécs-based mining company with operations across the country, offered support for the new regulatory environment, saying it has provided new opportunities and allowed deeper drilling, although this had brought its own challenges.
“The heat demand is increasing with every project and is getting more and more complex […] We had data up to[depths of] 1.7 – 2 km, but our target and our end depth is 3.3 km, so most of the depth we went through we were lacking information [for],” he said.
At such depths, the temperatures soared to 120-130°C and reached 160°C in one borehole. While such conditions hold out excellent potential for more lucrative geothermal electricity generation projects (high water temperatures are essential for this), the systems needed to monitor such conditions inevitably become more complex and expensive, Albrecht explained.
Unsurprisingly, MOL, the listed Hungarian energy group, and MVM, the state-owned electricity company, intend to expand their roles in the geothermal sector. Dávid Kapes, head of MOL’s E&P Low Carbon and New Energies division, told the summit that geothermal energy plays a critical role in MOL’s “Shape Tomorrow” strategy aimed at meeting the company’s decarbonization goals,
“We have significant expertise; we have drilled 4,000 wells so far in Hungary and Croatia. We know what’s down there, let it be geological, let it be field development, so we should rely on our expertise […] gathered throughout the centuries,” he said.
Kapes said MOL had won four licenses for geothermal exploration in Hungary and plans to begin drilling in early 2025.
“Now, we have to work on the permitting side, where to drill and how deep to drill and how much energy we can extract and utilize. The timeline for this exploration is very short; it’s between 15-27 months, but we are capable of doing this,” he assured his audience.
Meanwhile, the company has two exploration licenses in Croatia, valid for five years, although MOL is keen to begin soon.
“We have already had previous drillings in one of these areas, near Lescan, so our target is to start drilling this year,” Kapes said.
While MOL targets heat and power from its geothermal operations where possible, its primary goal in Croatia is electricity generation, he stressed. “We see double-digit potential for megawatt capacity [there].”
The company is open to other forms of exploiting its in-house knowledge and sub-surface assets and is eyeing the possibility of repurposing depleted oil and gas wells for carbon dioxide storage. More exotically, it is examining the brine at its existing wells in Pusztaföldvár, near the Serbia-Romanian border in southeast Hungary, looking at its potential for lithium extraction.
“We identified a high lithium content at Pusztaföldvár a few years ago [and this could support] a direct lithium extraction [operation], which is much more sustainable than the other two [common] methods. It’s much more sustainable, much better and greener,” Kapes said.
Yet despite its broad, multi-pronged approach to exploiting the geothermal potential in the region, Kapes made clear MOL would not allow enthusiasm to conquer cold business facts. He had a response to the earlier talk of the possibility of double-digit returns on geothermal investment.
“Yes, double digit ROA can be achievable, maybe worldwide, that’s true, but we have to break it down for the different regions, and we have to check for our region how we can make the business case viable. This is our primary goal. Once the business case is there, then we must act, and then we can do geothermal.”
Csaba Kiss, deputy CEO, chief generation officer and chief nuclear officer at MVM, claimed he represented “the biggest energy company in Hungary,” with a renewables portfolio of more than 900 MW generation capacity. However, MVM has yet to dip its toes into geothermal waters; its renewable assets are comprised of solar, wind, and some small hydro assets. Nonetheless, the state company is determined to change this, targeting an additional 100 MW of electricity by 2035.
“I know this is very ambitious. We started investigations less than one year ago, and we have six areas where […] we are trying to identify the best places for drilling to mitigate risk and reduce the capex,” Kiss said.
In contrast to MOL’s broad-based approach to geothermal, Kiss made it clear that MVM’s strategy is to concentrate on power generation, with seemingly minimal regard for heating potential. Quite how this will affect the business case for any projects in Hungary must be an open question.
As Árni Magnússon, CEO of Iceland GeoSurvey, stated in an earlier panel, except for the three “hot water” countries of Iceland, Turkey and Italy, “I think that we must face the fact that electricity production from geothermal sources is going to be limited in Europe.”
While he argued that this “does not limit the opportunities, because 50% of the energy needs in Europe is for heating, and a lot of that is for house heating,” any policy ignoring the heating potential must limit the business case for power generation.
Indeed, as Zsófi Beck, managing director and partner of Boston Consulting Group, intoned in a general warning at a later panel: “We’ve seen a lot of numbers today, super high numbers, I’m sorry, unrealistically high numbers. Yes, everything is possible [but] is it smart to spend that much money? We have to have much, much more realistic targets in all the different segments.”
There will always be a need for infrastructure projects, but the evergreen question is how to attract private capital to finance them, Viktória Szilágyi, a partner at Lakatos, Köves and Partners Law Firm, noted in an afternoon panel on regulatory challenges and financing models for geothermal projects.
“I think there is a common misconception that I’ve seen specifically with geothermal infrastructure projects, but also generally […] that the bank that will make a project bankable. This is not the case. It’s the project owners’ responsibility to make a project bankable,” she stated unequivocally.
To avoid later, “very time-consuming and costly exercises” to redesign and renegotiate a signed contract, “from day one, investors must talk to their bankers at the same time as they start talking to their engineers to set up a project,” she said. They need to know the requirements that all banks will ask when putting together a project finance plan.
“If this is not done from day one, […] when it turns out that ‘Oh my God, we never thought that the bank would ask for this and that’ […] it may not be bankable,” Szilágyi warned from experience.
Łukasz Koliński, unit head for renewables and energy system integration policy at the European Commission’s Directorate-General for Energy, sought to highlight the apparent lack of interest within some EU countries in exploiting geothermal for heating and cooling.
“We’ve seen, in recent years, a lot of renewables coming online, and as was already said, this has been mainly wind and solar, so electricity from variable sources,” he said.
While in and of itself, this is fine for security and sustainability, it tends to hide a significant problem.
“[The] trouble is, we see this growth has been very uneven between sectors. In heating and cooling, we still see fossil fuels dominating this sector, and over 10 years to 2022, the share of renewables has grown by a ‘whopping’ 6%!” he pointed out sarcastically.
“We need to change, and there is a need for it to be changed because we have, overall, a 23% share of renewables in the energy mix, [but] we need to get that to 42.5% by 2030. We need more renewable energy, not only in electricity but also in the heating and cooling sector […]. We do the projections, we do the modeling, we see the potential for further development of geothermal energy. There is potential in the heating and cooling option in many countries, but its share, and there is no hiding this, is much too limited today,” Koliński concluded.
This article was first published in the Budapest Business Journal print issue of October 4, 2024.
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