Geothermal Heat and Power

Lord Lucas Excerpts

Thursday 6th July 2023 Grand Committee

[Lord Lucas (Con)]

My Lords, I am extremely grateful to the noble Lord, Lord Cameron of Dillington, for giving us the opportunity to debate this subject, and to my honourable friend Kieran Mullan for all the work he has done in exploring its potential. I am going to approach this as a former investment banker because I think we are looking at an extremely investable set of projects, but one which needs some government support at the beginning.

Once we get going and are in the state they are in on the continent—when we know the state of the underground aquifers and know that they are permeable —we are looking at producing a long-term stream of income, which is essentially index linked. By long term, I mean 100 years or so. Essentially, these projects have low costs to keep them going. Such a project is an extremely attractive asset for big insurance companies, pension funds and others, but one that they are not used to. They need talking through, educating and working into this so that they are prepared to pay a really good price for what should be, for them, an excellent asset. That is work I hope to encourage the Government to do.

The second side is the initial risk. For instance, looking at southern England, we know that there is a good layer of carboniferous limestone. We did a lot of oil exploration in the layers above it, so we have a pretty good picture, but we do not know that the fracture zones are permeable. We could get down there and find that it is all gummed up. I do not think it will be. The British Geological Survey produced some recent mapping, which gives me a lot of confidence that that and other strata throughout the UK will prove to be productive, but we just do not know.

Although we have experienced crews from the North Sea, they are not experienced in this geology. It will take them longer to drill the first hole than the 10th hole, by which stage it will be falling off a log for them, as it were. You just do not know, when you are drilling a first hole into a stratum, exactly what it will feel like and how it will work. There are risks there, which are likely to increase costs. For the first well, there are very substantial equity risks. In a stable situation, you will get one bad hole in 20 and you can insure against that. They do this on the continent; the insurance system covers it, and you know what the picture is. But for the first hole in a new geological province in the UK, you just do not know.

There is a real role there for the Government to stand as a very expensive equity investor—not to say, “We will give you a grant or a subsidy”, but “If we are taking the risk, we want a proper return from this. If you can do better on the commercial market, then do better on the commercial market, but we will be the first equity investor because we as a country need to get this started”. If that is an attractive idea to the Government, I hope they will agree to a meeting because I have been running around the City looking for people who would respond positively to such an opportunity. There appears to be no great shortage of them.

I am optimistic that we can make this happen, even below London. We do not know anything about what happens below London. The first well there will be a complete unknown, but if we can show that there is a geothermal resource beneath London, that is a superb place to start heat networks. We can, as the noble Lord, Lord Cameron, said, start to chew into the 40% of our energy that is going on heating, most of which is coming from fossil fuels. We could provide maybe up to 10% of total UK energy demand from geothermal resources. I encourage the Government to take this seriously and do what it takes to get it started. It could be a complete bust, but without their help, we will never know.