Investment Opportunities and Energy Return of Hydropower and Geothermal Energy

1. For geothermal energy and hydropower projects location is absolutely critical to make the project a success, if you want to invest in hydropower or geothermal energy.

From my point of view, there are many good reasons to invest in renewable energies. This includes carbon tariffs, rising energy consumption worldwide, and environmental pollution. Because most people are concerned with photovoltaic installations and wind energy, I thought I should take a closer look at hydropower and geothermal energy. We shouldn’t forget that hydropower and geothermal energy are renewable energies that offer a good return on investment, but they are strongly location-dependant.

Comparing hydropower and geothermal energy to wind and solar energy, hydropower and geothermal energy are more risky,  they have an impact on the local environment. The location matters more than anything else, in determining whether to invest or not. After that, it comes down to the energy ratio, i.e. how big the energy surplus is, meaning the ratio of energy output to energy input over the whole lifespan of a project.

It feels as if hydroelectric power and geothermal energy are viewed as second-rate investments. But hydroelectric power and geothermal energy can make a significant contribution to our future energy system, transforming the way we live. We have to look at Energy-Return-on-Energy-Invested (EROI) to get a realistic perspective which of these two energy sources is best suited for the energy transition we currently face. In addition, there are serious differences between these two types of energy sources, where hydropower can be used, where geothermal energy makes sense. This includes the geology of the site, such as the gradient of the river, the flow velocity, the size of the reservoir and the technical equipment used to build the dam and the plant, the geology of downstream riverbeds and their erosion, constructing tunnels to funnel water into the reservoir as is currently being done in Brazil, and stabilization of reservoirs.

For geothermal energy, important factors include the geological composition of rock strata, the proximity to hot rock strata and earthquake safety as well as safety mechanisms to prevent earthquakes from happening.


2. Hydropower is ideally suited for electricity generation

Hydropower has a very high EROI (Energy-Return-on-Energy-Invested) which is at about 50 without storage, and at 30 to 40 with energy storage. By comparison, nuclear power plants have an EROI of 40 to 80 – sometimes even less. We have to keep in mind that there are major differences between individual types of nuclear power plants. Coal use, on the other hand, has an EROI of about 30. Coal and nuclear energy have the advantage that you do not have to store the energy, and energy is constantly available. This improves the EROI significantly.

Many dams are currently under construction, mainly in China, Africa (damns are build in Ethiopia with Chinese support), Brazil and India. In the future, these countries will cover a growing proportion of their primary energy needs with hydropower. Of all these countries, China has the highest growth of hydropower consumption, as a share of primary energy consumption. In China, several dams are being built at the same time. The Yangtzeekiang Dam (with an incredible generator capacity of 22.5 gigawatts) is the largest hydropower plant in the world. This unique hydropower plant, the Yangtsekiang Dam, can thus supply around 60 million inhabitants with electricity, which is an enormous technical achievement. This is particularly impressive because the electricity generated is available at any time of the day. Solar and wind energy, on the other hand, are strongly dependent on the weather.

From my point of view, geothermal energy is completely dependent on the geology of the site – geothermal energy that is close to the edges of tectonic plates as in Japan, Turkey, Indonesia or the Philippines is particularly useful. In Europe, geothermal energy makes sense in countries like Italy and Iceland, where increased volcanic activity leads to higher heat dissipation in the rock.


3. Geothermal energy is suitable for electricity generation, but not as good as hydroelectric power, but with one exception: heat offtake.

In Iceland, geothermal plants cover only about 30% of the nation’s electricity demand. The advantage of geothermal energy is that it can be used to heat apartments, commercial and industrial facilities. If heat offtake is your objective, geothermal energy makes a lot of sense.

I think it makes sense that Iceland uses hydropower and geothermal energy to meet its primary energy needs. Up to 90% of the daily heat demand for heating is covered by geothermal energy. Geothermal energy is ideally suited for heating. Nevertheless, I would say that hydroelectric power wins over geothermal power in terms of EROI.


4. The environmental risks must be accurately assessed before I would invest in hydropower or geothermal energy.

A large part of the population associates hydropower with a change in the landscape and a human intervention in nature, some form of geoengineering. In principle, this is not wrong, because the creation of reservoirs changes the landscape. For most reservoirs engineers stabilize the embankment and the edges of the reservoirs so that they do not subside. More and more attempts are being made to recreate the habitat in order to create new habitats for animals and plants. The creation of reservoirs also provides people with a new opportunity to engage in sports, as in the case of the Hoover Dam in the state of Nevada. On the one hand habitat is taken; on the other hand new habitat is created.

In the case of hydroelectric power plants, a problem that normally occurs WITHOUT the dam is the material discharge from the higher altitudes washes into the riverbeds and deltas where it stabilizes the subsoil. Material is also regularly removed from the river deltas and washed into the sea. But WITH dams the reservoirs fill with subsoil, while the subsoil in the river deltas becomes increasingly unstable. Layers are shed; no new layers are being added on top to stabilize the subsoil below.

The triggering of earthquakes is a major danger for the safety of local populations and the future prospects of geothermal energy. I would distinguish between near-surface geothermal energy and deep geothermal energy. Various deep boreholes have been drilled in the Basel area in Switzerland with the aim of harnessing geothermal energy there. The Upper Rhine is an area which is geologically very active and therefore very suitable for geothermal energy. Unfortunately, a borehole has caused earthquakes of up to 1.9 on the Richter scale. However, engineers have penetrated up to 5,000 meters deep. In the north of Germany, some local municipalities want to put geothermal energy to use. Northern Germany is geologically not as active as the Upper Rhine region; nevertheless one can make use of the terrestrial heat in this region. In some regions of northern Germany, boreholes can be drilled to a depth of 100 meters to use the geothermal energy. Otherwise one would have to make use of the deep geothermal energy.

However, the environmental risks of geothermal energy can be mitigated by using the boreholes to inject CO2 into the upper layers of the rock. This removes CO2 from the environment. Geothermal plants cause low CO2 emissions and suppliers of geothermal plants have made great progress in recent years (dry steam, flash). Binary geothermal power plants produce practically no CO2 emissions.

Another factor that has to be considered is that the layers of earth above the borehole will gradually cool. Since the heaters are mostly used in winter in northern latitudes, the upper layers of the earth warm up again during the summer. However, research seems to indicate that the ground cools down around the residential complexes.

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5. Hydropower and geothermal energy: A long-term investment opportunity

Compared to solar and wind energy, hydropower plants and geothermal plants have a longer lifespan. Geothermal plants can last 30 – 60 years, and some hydroelectric plants have a service life of 100 years, but this depends on the characteristics of the dam and the accumulation of soil layers (soil accumulation of the reservoirs). This means that in terms of service life of the plant, I would say that hydropower has the edge over geothermal energy.

However, the service life of geothermal HEATING SYSTEMS is much shorter, and may not exceed 20 years at most. Based on my own experience, I would say that heating systems should pay for themselves after only 5 years, 7 years at most.

It is important that I, as an investor, recognize that there are additional costs over the entire life cycle of a geothermal system that are not necessarily directly related to the geothermal system itself. But then you qualify for subsidies and EEG apportionment (Renewable Energies Act levy in Germany) for the purchase of geothermal plants, as geothermal energy is one of the renewable energies after all.


6. Investing in geothermal power plants and hydropower plants – Conclusion

When investing in a hydropower plant or a geothermal plant through crowdfunding etc., I would look at the following factors in particular:

6.1 Energy-Return-on-Energy-Invested (EROI), the location is critical. The location is the most decisive factor for hydropower plants and geothermal plants, and includes the geological condition of the site.

6.2 Capital Expenditure and Operating Expenditure. The existence of subsidies, levies, including tariffs for energy offtake, taking into account amortization of the plant, operating time and capacity utilization of the plant over the year.

6.3 The political framework, knowing that I will make a long-term investment in geothermal projects or hydropower plants. These plants can run over a period of 30 years for geothermal plants and up to 100 years for hydropower.

6.4 A detailed map of any hidden additional costs, those are not immediately apparent!

6.5 The lifespan of the geothermal project or hydropower plant, just as with the construction of waste incineration plants, we have to take into account that other investors might build similar plants next door.

6.6. The economics of solar and wind energy (including the use of rooftop PV systems) and their profitability over the entire life cycle, compared to geothermal projects or hydropower plants. It may be easier to set up rooftop PV systems. Every little bit is adding costs.

6.7. Aim and purpose of the geothermal project or hydropower plant: Will the plant be used to heat an industrial estate? What form of energy is needed?

All the factors I have mentioned above make it clear to me that hydropower plants are an attractive investment opportunity. This could take the form of crowdfunding. Environmental risks always play a major role in setting up geothermal and hydropower plants. At the end of the day, the decision always depends on the location and other local renewable energy opportunities. It is the same as with real estate.


Reading list:

Conca, J. (2015). ‘EROI — A Tool To Predict The Best Energy Mix’. Forbes, Contributor, 11. February, Available at: https://www.forbes.com/sites/jamesconca/2015/02/11/eroi-a-tool-to-predict-the-best-energy-mix/#234b4ad9a027 (Accessed: 06 04 2019).

Matek, B. and Schmidt, B. (2013). The Values of Geothermal Energy, Geothermal Energy Association and Geothermal Resources Council. Available at http://geo-energy.org/reports/Values%20of%20Geothermal%20Energy%20Draft%20Final.pdf (Downloaded: 06 05 2019).

 


 

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