Expediting geothermal energy amid German energy crisis

As reported in the AFR, Vulcan Energy (ASX:VUL) is upping its focus on its geothermal business in Germany amid Europe’s energy crisis.

Just over half of Germany’s energy consumption is used to produce heat and the main fuel used is gas, half of which comes from Russia.

But now, with gas prices surging after Russia’s invasion of Ukraine, Germany is scrambling to secure local energy supplies and wean itself off its dependence on Russian gas imports.

The AFR quoted VUL Chairman Gavin Rezos, who explained that “Germany’s first response was wind and solar. But now they are looking at the assets they have, and geothermal is the way forward.”

While much of the enthusiasm around VUL to date has been to do with its world first Zero Carbon Lithium ambitions, the geothermal energy side of its business has been seen as somewhat of an afterthought.

Located in the Upper Rhine Valley, VUL already has a 5 megawatt operational geothermal plant. It is now looking to convert that energy to heat, which would allow it to produce about 35 megawatts of heat for local use.

While geothermal is still a relatively expensive way to produce baseload power, VUL says that “in heating, [geothermal] is in pole position”.

The company is now stepping up efforts to sign offtake heat agreements and is lobbying planning authorities to cut red tape.

This was something that we identified in our VUL 2022 Investment Memo, with securing heat offtake agreements outlined as one of the five objectives that we want to see VUL achieve this year.

(You can see all five of those objectives, plus our reasons for continuing to hold VUL this year — even after its impressive share price rise in recent years — in our VUL Investment Memo here.)

Once offtake agreements are secured, VUL will make some infrastructure adjustments at its geothermal plant to switch from electricity to heat production, while the Upper Rhine Valley already has a lot of the core heating-supply infrastructure in place.

Rezos said that the opportunity in geothermal has also prompted VUL to look at potential additional medium- to longer-term opportunities on the French side of the Upper Rhine Valley and in Italy.

CEO Francis Wedin added, “We have the drillers, the rigs, the operations. We are already a producer, we just want to repeat these plants on a larger scale across the Upper Rhine Valley.”