Switzerland’s Geothermal Guarantee Program

Abstract

Switzerland has set itself ambitious targets to increase the share of renewable energy in the coming decades. Within the policy and measure framework to promote geothermal technology and Swiss geothermal resource development, a geothermal guarantee scheme for geothermal power projects has been enshrined in the Energy Act since 2008. Under this scheme up to 50% of the actual subsurface development cost may be reimbursed to project developers in case of a failure to find a geothermal resource. Technical criteria for success, partial success and failure comprise a production/circulation rate, the temperature of the produced geothermal brine at the wellhead and the chemistry of the produced phases. In practice, Swiss deep geothermal energy projects focus on the supply of both, heat and power; the latter being eligible for the geothermal guarantee scheme whereas the former is not. In addition, selected and implemented project concepts differ very strongly from one project to the next. In cooperation with the Swiss Federal Office of Energy an expert group evaluates the application to the scheme and issues a recommendation to grant a geothermal guarantee to the project and the maximum amount of money that can be reimbursed to the project developer in case of failure. In order to assess the technical criteria in terms of commercial viability (success, partial success and failure), a standardized and fit-for-purpose discounted cash flow model is used to define the net present value at a given cost of capital of the success and the failure case. Other cases constitute partial success cases. In case of failure to generate any revenue stream from the subsurface development, 50% of the actual sunk cost are reimbursed. The pay-out in the partial success case is linked to an economic valuation of the actual project. Practical learnings from the implementation of the geothermal guarantee scheme suggest that the scheme serves both; on the one hand, the government’s incentive to the developer to accept a major technical risk owing to a low probability of success in finding a resource, and, on the other hand, the project developer’s need for a vehicle to financially de-risk the venture and increase the ability to finance the project. Second, translating technical parameters into a economical valuation of the venture enables a transparent manner in which partial success cases are reimbursed. Somewhat surprising is the less than expected uptake of the geothermal guarantee scheme.