3.4        Economic Implications

Most of the power plants used to be competitive even at the time when the price of fossil fuels was favourable, but with the rapid increase in the price level of traditional energy sources, geothermal energy has become more economic then ever before.

Though geothermal energy is an economic and environmentally sound resource, power generation typically involves relatively high levels of capital investment, especially in the phase of reservoir exploration, drilling and plant installation. The technology how to exploit geothermal energy is well known but both start-up investment and production costs vary depending on the location. It is also very important to reduce drilling costs as many fields presently thought to be economically unviable could become profitable if based on proper calculation and rational business plans.

Though the start-up investment is high, plants have low operating costs because of the low marginal cost of steam. Return on investment certainly cannot be achieved as quickly as with power plants running on the cheaper fossil fuels, but in the longer term economic benefits will increase.

Factors determining the costs of geothermal power plants are usually the followings:

·         the cost of drilling: set by the geothermal gradient, the drilling depth and the hardness of rocks,

·         the cost of power generation: determined by the characteristics of the reservoirs, depending on the pressure, temperature, salt concentration and the concentration of non-condensable gases,

·         the operational and maintenance costs.

The main problem of assessing geothermal utilization arises from the significant financial risk, which is mainly due to the high cost of often unsuccessful exploration drills. These costs are particularly high compared to gas, but also to other alternative sources.

3.5        Political Implications

Following the oil embargo, geothermal energy utilization increased by 14% annually in the early 1970s. However development has been stagnating since 1986 when oil prices started to fall. With the stabilization of oil prices the increase of geothermal energy use continues to fall by 8% annually. Even the direct use of geothermal energy shows only moderate expansion. The reason might be that geothermal energy production represents a financial risk. A well elaborated support system, however, could ensure sustainability and successful development, as has already been proved by technological developments that were achieved with the help of government support in France and Iceland. In addition to government support, the utilization of geothermal energy, especially the lower temperature fields, depends on the local political and economic situation, the availability and price level of fossil energy sources, the government’s attitude, the level of environmental awareness and the system of taxation.

After the USA and Japan, the geothermal industry of the EU is the main supplier on the world market. Europe retains its position in the world market of geothermal energy due to the high quality experience gained in the fields of both direct use and power production. The HDR technology program of the EU made it possible for the European industry to gain valuable experience that facilitates the spread of electricity produced by geothermal energy. In order to vindicate the EU’s know-how on geothermal energy in the world market, it is ultimately important to elaborate a long-term system of financial support. Investors badly need guarantees, - especially during resource exploration and drilling phase - long-term credit constructions and energy acquisition contracts which balance the high initial capital investments. The relationship between investors and public utilities, national subsidy systems and public awareness raising should also be improved.