Image shows a geothermal energy power plant.

Table of contents

On 6 July 2023, the House of Lords is due to debate the following question for short debate:

Lord Cameron of Dillington (Crossbench) to ask His Majesty’s Government what assessment they have made of the geothermal potential for heat and power in Great Britain; and what plans they have, if any, to make use of it.

1. What is geothermal energy?

Geothermal energy refers to the heat energy stored within the Earth’s crust, which can be harnessed and converted into usable heat and electricity. It is derived from the natural heat generated by the Earth’s core and can be accessed through geothermal reservoirs or by drilling wells into hot rocks. The heat can be used for direct heating purposes, such as in residential and commercial buildings, as well as for generating electricity through geothermal power plants. It is a source of low-carbon, renewable energy.

Geothermal resources can be categorised based on their temperatures and the extraction technologies employed:

  • Shallow geothermal systems typically involve the use of ground source heat pump (GSHP) systems, which modify the temperature obtained from the geothermal resource for applications such as heating or cooling in residential and commercial buildings.
  • Deep geothermal systems utilise resources with higher temperatures that can be directly used for heating or electricity generation. These systems tap into the geothermal reservoirs at greater depths, where the heat is more intense.
  • Mine water geothermal systems, also known as mine water energy systems, utilise the thermal energy present in flooded or abandoned mines for heating and cooling purposes. These systems harness the constant temperature of water found in underground mines, which remains relatively stable throughout the year.

The International Energy Agency’s 2021 geothermal annual report for the UK revealed that the country had an estimated 43,700 GSHP systems installed which had generated approximately 1,330 gigawatt hours of energy per year. This means that geothermal technologies accounted for less than 0.3 percent of the UK’s annual heat demand. In comparison, Germany had over 440,000 installed systems in 2020, whilst France had around 210,000 systems in 2018.

2. What are the opportunities presented by geothermal energy?

Some commentators and organisations have stated that geothermal energy offers several opportunities due to its environmental benefits, status as a renewable source of energy, and its potential for job creation.

2.1 Environmental benefits

Geothermal energy is widely regarded as environmentally friendly because of its lower greenhouse gas emissions compared to carbon-based sources, minimal air pollution, efficient energy conversion, lower water use in plants than most conventional technologies, and reduced land requirements compared to other extractive energy sources like coal. Geothermal power plants contribute to mitigating climate change by emitting minimal greenhouse gases. Furthermore, geothermal power generation occupies a small land footprint.

However, there are potential environmental challenges associated with geothermal energy, including impacts on local hydrological systems and induced seismicity. These concerns are further discussed in section 3 of this article.

2.2 Renewable source of energy

Geothermal energy is also considered a renewable source of energy that harnesses the Earth’s natural heat to generate power. This heat, derived from the planet’s core, is constantly renewed through geological processes such as radioactive decay and residual heat from the planet’s formation. Unlike fossil fuels, which are finite and depletable, geothermal energy taps into this heat source, which makes it a continuous and sustainable source of energy. On its website, the International Renewable Energy Agency (IREA) reports that geothermal energy “covers a significant share of electricity demand” in countries such as El Salvador, Kenya and New Zealand and “meets more than 90 percent of heating demand” in Iceland.

2.3 Job creation

Some commentators argue that geothermal energy projects not only contribute to emissions reduction but can also provide job opportunities across the supply chain. This includes exploration, construction, operation and maintenance, planning, and research. In Germany, the geothermal industry has generated €14.9bn and created 24,500 jobs since 2000. In the Netherlands, it was observed that for each direct geothermal job, two to three indirect jobs were created.

3. What are the challenges of using geothermal energy?

The utilisation of geothermal energy presents some challenges. This includes location restrictions, high costs and environmental impacts such as pollution and the risk of triggering seismic activity.

3.1 Location restrictions

The primary challenge of using geothermal energy is its geographical limitation. Geothermal power plants require suitable locations with accessible energy sources, which means that not all regions in the UK can effectively harness this resource. In 2012, the coalition government’s chief scientific advisor, David MacKay, warned that the UK had “only a few areas where rocks are confidently predicted to be hot enough to support electricity generation”.

3.2 Cost

In 2021, the IREA found that geothermal energy was the second most expensive renewable energy source to install (behind concentrated solar power). This is mainly due to the need for deep well drilling. However, the Parliamentary Office of Science and Technology (POST) argues that once installed, the operation and maintenance costs are “very low”, making the overall cost comparable to other renewable sources over time. Geothermal systems have payback periods of five to eight years for domestic GSHPs and four to 20 years for deep and mine water installations. POST argues that these time scales are “generally longer” than conventional heating systems which, without incentives or added benefits like increased property value, means that the time scales are “beyond what many homeowners or commercial organisations are currently willing to accept”.

3.3 Environmental impact

Geothermal energy operations can have various environmental impacts that could affect subsurface temperatures, groundwater resources and gas emissions. For example, the extraction of geothermal fluids can alter subsurface temperatures and hydrological systems. If not properly managed, it may impact local ecosystems, including aquatic habitats and groundwater resources.

These operations can also risk inducing seismic activity, particularly in the case of geothermal power plants. These plants employ methods that involve injecting water into the Earth’s crust to create fissures and enhance the extraction of heat. These alterations in the Earth’s structure can potentially trigger earthquakes. For example, in 2018, two separate studies of a magnitude 5.5 earthquake in Pohang, South Korea, found evidence that it had been caused by the activities of a geothermal plant.

However, TWI Global, a research and technology organisation, states that most geothermal plants are situated away from densely populated areas, mitigating the potential implications of such seismic events. It argues that while the risk exists, the actual impact of these earthquakes is generally considered to be relatively minor due to the remote locations of geothermal plants.

4. What have successive governments done to promote geothermal energy?

In recent years, successive governments have introduced several measures to promote and support geothermal heat installations. This includes launching funding schemes such as the ‘Boiler upgrade scheme’ and the ‘Green heat network fund’.

4.1 Contracts for difference scheme

The ‘Contracts for difference’ scheme is the government’s main subsidy for supporting low-carbon electricity generation. Geothermal technologies are eligible to bid for funding under the scheme; however, some have argued that geothermal projects are less likely to win funding than other technologies because of the scheme’s current design.

A contract for difference (CfD) is a private law contract between a low-carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company. The contract is designed to provide the generator with price certainty over the lifetime of the contract. It is also designed to incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from “volatile” wholesale prices. In addition, the government states that the CfD scheme protects consumers from paying increased support costs “when electricity prices are high”.

In October 2022, the House of Commons Environmental Audit Committee stated that because no funding is ringfenced for geothermal energy under the scheme, geothermal projects have lost out to less competitive projects such as tidal power because funding for these technologies is ringfenced.

4.2. Renewable heat incentive

The ‘Renewable heat incentive’ (RHI) was a government scheme promoting the adoption of renewable energy for heating. It provided financial subsidies to residential, commercial and industrial sectors to encourage the adoption of renewable heating technologies. The RHI had two phases: the domestic RHI for homeowners, which was introduced in April 2014, and the non-domestic RHI for businesses, public sector and non-profit organisations, which was introduced in November 2011. The aim of the RHI was to reduce carbon emissions, improve energy efficiency and facilitate the transition to low-carbon heating systems. The domestic RHI closed to new applications on 31 March 2022 and was succeeded by the ‘Boiler upgrade scheme’. The non-domestic RHI closed in March 2021, but the deadline was extended until March 2023 for those who successfully applied for an extension because of the Covid-19 pandemic.

4.3 Boiler upgrade scheme

Formerly the ‘Clean heat grant’, the ‘Boiler upgrade scheme’ (BUS) was announced in the ‘Heat and buildings strategy’ published in 2021. It is a government-funded scheme that aims to assist homeowners and businesses in England and Wales to replace their fossil fuel boilers with heat pumps or biomass boilers. Its purpose is to reduce carbon emissions and enhance air quality.

The BUS grants £5,000 for air source heat pumps and biomass boilers, and £6,000 for GSHPs. To qualify, homeowners have to own the property where the new heating system is installed and employ a certified installer. They also need an energy performance certificate (EPC) indicating an energy efficiency rating of D or lower. Businesses require an EPC indicating a rating of E or lower. By June 2023, the BUS had received 17,001 applications, with 10,847 approved to the cost of £54.5mn. The government extended the scheme until 2028, allocating additional funding for each year.

4.4 Heat networks investment project

The Theresa May government launched the ‘Heat networks investment project’ in 2018. The programme aimed to increase the construction of heat networks, achieve carbon savings and establish a sustainable heat network market. It allocated £320mn in capital funding for heat network projects in England and Wales. The programme accepted applications from the public, private and third sectors and closed in January 2022. In the same month, the government announced that the programme had made two awards totalling £9.7mn for geothermal heat projects. The funding would support the expansion of the ‘Gateshead district energy scheme’, incorporating a 6 MW mine water source heat pump, and provide low-carbon geothermal heat from former coal mines to the Seaham Garden Village district heat network.

4.5 Green heat network fund

In March 2022, the Boris Johnson government introduced the ‘Green heat network fund’, a capital grant fund aimed at financially assisting heat network projects in England. The fund, totalling £288mn until 2025, supports organisations in the public, private and third sectors to commercialise and construct heat networks. Funding is only to be provided to projects using zero or low-carbon heat sources. In December 2022, the Rishi Sunak government announced the first tranche of funding, allocating more than £30mn for projects in Hull and Peterborough.

5. What parliamentary scrutiny has there been of the government’s policy on geothermal energy?

5.1 2022 House of Commons Environmental Audit Committee inquiry into geothermal technologies

In June 2022, the House of Commons Environmental Audit Committee launched an inquiry examining the potential role of geothermal technologies in reaching net zero (a government commitment to reduce the UK’s greenhouse gas emissions by 100 percent from 1990 levels by 2050). It also explored whether there were any potential challenges in using geothermal technologies and what support the government should offer to counteract these. In October 2022, the chair of the committee, Philip Dunne (Conservative MP for Ludlow), wrote to the then secretary of state for business, energy and industrial strategy, Jacob Rees-Mogg, setting out the committee’s view from the evidence it had received.

The committee expressed concerns that the government had been “slow to exploit the potential of geothermal” and had “not integrated it fully into the net zero strategy”. It argued that this “appears to be holding back the sector”, which it said could transform the UK’s capacity to meet climate goals, use homegrown energy and grow the economy. The committee was also critical of the government’s policy towards geothermal technologies, funding and the “regulatory landscape” around such technologies, stating that it did “not appear to the committee to be conducive to optimising this potential”. For example, it noted that the government had not discussed geothermal technologies in either its ‘British energy security strategy’ (published in April 2022) or the ‘Net zero strategy’ (published in October 2021). Therefore, it called on the government to implement an “appropriate” licensing regime for geothermal projects and to provide longer-term support for geothermal heat.

The Rishi Sunak government responded to the committee in a letter in December 2022. Lord Callanan, the then minister for business, energy and corporate responsibility, thanked the committee for sharing the findings of its evidence on geothermal technologies. Addressing the committee’s recommendation on licensing, Lord Callanan said that introducing a licensing regime could have benefits but “also introduces additional costs and barriers which can slow down development”. He stated that a review of regulations around heat “may be needed” as geothermal systems become more prevalent and their impacts on subsurface heat resources are “better understood”. Therefore, Lord Callanan stated that his department would continue to monitor progress in the development of geothermal projects and engage with relevant authorities (such as the Environment Agency and Coal Authority) to “consider the timing, form and benefits of creating a licensing regime”.

In response to the committee’s recommendation for longer-term support, Lord Callanan said that the government wanted to support projects that demonstrated value for money and acceptable costs for consumers. He also highlighted that extracting lower temperature geothermal heat for use in heat networks represented the “most widespread opportunity” for geothermal energy to decarbonise the energy system within the UK. Lord Callanan referred to the government’s actions outlined in the ‘Heat and buildings strategy’ (published in 2021) to develop the market, reduce costs for heat pumps and heat networks and position them as scalable options for decarbonising heat in line with net zero objectives.

5.2 2023 House of Lords Environment and Climate Change Committee inquiry into the boiler upgrade scheme

In December 2022, the House of Lords Environment and Climate Change Committee launched an inquiry into the ‘Boiler upgrade scheme’. The inquiry examined how effective the scheme had been, and was likely to be, in supporting the transition to low-carbon heating in the UK. The committee also explored the experiences of grant applicants and recipients.

In February 2023, the chair of the committee, Baroness Parminter (Liberal Democrat), wrote to the parliamentary under secretary of state for energy efficiency and green finance, Lord Callanan, detailing the committee’s findings. The committee argued that the evidence it had received revealed that the scheme was “seriously failing” to deliver on its objectives, with a “disappointingly low” take-up of grants. The committee also warned that if the take-up rate continued then “only half” of the allocated budget would be used to support households in transitioning to low-carbon heating systems. Furthermore, it expressed concerns that the necessary infrastructure, such as a “healthy market” of installers and manufacturers, would not be in place in time to effectively implement other policies aimed at producing low-carbon heating. It concluded that it was “very unlikely” that the government would achieve its target of 600,000 installations per year by 2028.

It called on the government to take several actions. These included providing clearer guidance and information to industry and consumers regarding viable options for low-carbon home heating, rolling over the remaining budget from the first year of the scheme into the second year, and establishing a review to consider an extension to the scheme.

Lord Callanan responded on behalf of the government in a letter to the committee in March 2023. Lord Callanan thanked the committee and acknowledged the concerns raised. Addressing the committee’s recommendation on guidance, Lord Callanan stated that the government “recognised the importance” of helping consumers in transitioning to low-carbon heating and mentioned the expansion of resources through dedicated website pages and a national helpline. In response to the committee’s recommendation to roll over the remaining first year budget, Lord Callanan said that departmental budgets were set for each financial year and would therefore “need to be spent in the period allocated”. He also highlighted that a budget of £150mn per year remained available for the second and third year of the scheme. Discussing the committee’s recommendation to consider an extension to the scheme, Lord Callanan stated that the government had announced on 30 March 2023 that it would be extending the scheme to 2028, which would provide “long-term certainty for industry”, encourage greater investment in heat pumps and increase heat pump deployment towards its 2028 target.

5.3 June 2023 House of Commons debate on deep geothermal energy

On 8 June 2023, a debate on deep geothermal energy took place in the House of Commons. Moving the debate, Dr Kieran Mullan (Conservative MP for Crewe and Nantwich), who in the same month had published a report into the subject at the request of the Boris Johnson government, detailed some of the benefits and opportunities he thought deep geothermal energy presented. This included geothermal energy being “always on and always there” as a renewable source and the potential for job creation.

Responding for the government, the assistant whip, Jacob Young, thanked Mr Mullan for securing an “important and timely” debate and for his report. In his response, Mr Young stated that the government recognised that the construction of geothermal plants had the potential to create numerous skilled jobs in various regions. However, he said that the technology’s significance went beyond job creation as it enabled decarbonisation in multiple sectors. For example, he noted that clean heat network schemes could be implemented to decarbonise heat, while battery-grade lithium extraction from geothermal waters “shows promise”. He stated that Geothermal Engineering Ltd, which operated the United Downs deep geothermal site in Cornwall, predicted that extracting lithium from the site could meet around a quarter of domestic demand, producing approximately 15,000 tonnes of battery-grade lithium annually.

Despite this, Mr Young stated that the technology was “not without its challenges”. He said that departmental analysis had revealed that its price was “substantially higher” than that of other renewable sources, largely due to the “high cost” involved in drilling safely. Mr Young also argued that the potential capacity of geothermal power was “significantly smaller” in comparison to other renewable sources, estimated to be between 170 MW and 2 GW. He stated that this meant that large-scale deployment was “likely to be limited”. He also said there were “uncertainties concerning geological risks” which “must be taken into account”.

6. Read more

Cover image by WikiImages on Pixabay. Updated on 29 June 2023 to include information on the House of Lords Environment and Climate Change Committee’s inquiry into the boiler upgrade scheme in section 5.2.