Two geothermal sites in south-west England are proceeding toward financial close after receiving government contracts in a renewables auction.
In total three geothermal projects were successful in the auction for the first time, a big step forward for a technology that’s been deemed too expensive for decades. One project at United Downs in Cornwall has already reached final investment decision while the other two sites at Manhay and Penhallow are moving toward that stage.
Geothermal power is an abundant energy source that has struggled for decades to break out of its niche status because of the immense upfront capital costs needed for drilling that can often eclipse future returns if the project doesn’t succeed. The technology can provide a clean source of both electricity and heat crucial for meeting net zero goals.
The three projects are expected to add 12 megawatts of power to the grid, enough to supply 2 million homes. The most advanced project at United Downs will provide heat to around four thousand homes at Langarth Garden Village near Truro and trial the UK’s first Direct Lithium Extraction project.
The contracts for difference are “critical to providing investor momentum and building scale” for younger energy transition industries, according to Jason Cheng, chief executive of energy-focused buyout firm Kerogen Capital, whose portfolio company Geothermal Engineering Ltd was one of the winners of the government awards.
“The CfDs certainly make FID possible,” he said.
The contracts will provide steady revenues for over 15-years on an inflation linked basis, Cheng said. Geothermal, alongside unproven technologies like tidal lagoon have historically struggled to win government support, losing out to more established renewables like wind and solar.
