Geothermal Energy First in the U.K.

Introduction

The ‘switch-on’ of the United Downs Deep Geothermal Power Project is, as reported by BBC News, a clean energy “first” in the UK context. The project marks a significant moment for the country’s decarbonisation efforts. It throws into sharp relief the challenges (and opportunities) facing geothermal energy in the UK, and the legal and regulatory framework (or lack thereof) that will govern its development.

What is Geothermal Energy?

Geothermal energy harnesses heat stored beneath the Earth’s surface. It is “Earth heat”, which is stored and carried in water. The heat originates from the planet’s formation and from the ongoing radioactive decay of minerals in the Earth’s crust. Geothermal energy can be used to access energy as heat. According to the Energy Institute, heat is the largest energy end-use. In addition, at sufficient depths, temperatures can reach levels capable of generating steam to drive turbines and produce electricity (although in the U.K. steam would more likely to be produced through the hot water vaporizing a secondary fluid).

Where is it Found?

Geothermal energy can, in theory, be tapped anywhere. However, naturally accessible reservoirs of hot water (particularly for electricity generation) are concentrated in certain regions – notably the United States, Mexico, Japan, New Zealand, Indonesia, the Philippines, Kenya, Turkey, Italy and Iceland.

On the other hand, the use of geothermal for heating purposes is much more readily available. It has found considerable implementation across parts of Europe.

‘Co-location’ v. Transportation

United Downs has had success in electricity generation and so could link up to the national grid. The location and distribution of geothermal developments for heat may require different considerations. Hot water is not like oil & gas – or electricity. The geothermal wells used for heat extraction would typically need to be located close to where the heat will be used (e.g. a hospital, housing or industrial site) or be transported to distribution networks. 

The challenge is that there is no widespread heat distribution network in the U.K. (leading to a ‘stranded asset’ concern for potential investors – although there are early signs that some local networks are now being developed (e.g. Oxford, Liverpool and, more historically, Southampton). 

What Else Makes it Different to Existing Renewable Sources in the U.K?

Unlike solar and wind power, geothermal energy is not intermittent. It can provide a stable, baseload source of power, operating continuously regardless of weather conditions. That reliability could make it a valuable addition to the UK’s renewable energy mix, complementing more variable sources like wind and solar, alongside the continued use of oil, gas and liquefied natural gas.

The domestic nature of geothermal energy production directly increases the energy security of the country in which it is produced, with the potential for securing baseload energy locally, without the inevitable influence of the geopolitics that attaches to cross-border energy procurement. The consistent nature of geothermal energy production also provides the potential for the supply of energy or heat at a consistent sell-price, which could contribute to reducing the volatility in the UK energy prices.

Even if the baseload power opportunity may be limited over the next decade or so, the reduction in power demand on the grid (by using the Earth to heat, rather than electrifying heat) can have a significant impact much sooner.

Mineral Extraction: The Lithium Opportunity

Beyond heat and electricity, geothermal operations can also facilitate the extraction of valuable minerals dissolved in underground brines. Lithium is of particular interest, given its critical role in battery technology for electric vehicles and energy storage systems. The ability to co-produce lithium and other minerals alongside geothermal energy production could significantly enhance the commercial viability of projects and contribute to the UK’s security of supply for strategically important materials.

This dual-purpose potential means geothermal projects could play a role not just in the energy transition, but also in the UK’s critical minerals strategy.

Geothermal as Storage for Heat, Wind and Solar

Geothermal could be described as ‘moving’ heat through fluids (rather than ‘creating’ heat).  The efficiency of a geothermal system is tied to the temperature differential between the fluids and the earth surrounding the well. When managed correctly, the ground doesn't just provide heat: it can store it.

Furthermore, recent research has demonstrated that enhanced geothermal systems (which uses fracking) could be used as a form of energy storage (for heat and power) – thereby assisting in the growth of green heat developments and ‘electron’-based sources, such as wind and solar.

Indeed, researchers at Princeton University and Fervo Energy have demonstrated that these advanced reservoirs can store surplus power generated by wind or solar in the form of hot water or steam by powering water injection into artificial reservoirs to accumulate and generate pressure. 

Production wells are then opened when energy is needed; the heated water and steam produced can then be used to turn electricity turbines (e.g. when renewable power isn’t available). With the ability to store energy over varying periods of time (a few hours to a number of days) and release it over similar periods – to ‘ramp up’ and to ‘ramp down’ – an EGS effectively acts as a giant underground battery on a level of efficiency demonstrated as being on a par with lithium-ion batteries.

Contractual Considerations

Structuring geothermal projects contractually is not straightforward. As discussed in our 2023 article “Geothermal: like steam, the oil & gas industry could rise to the occasion”, developers must navigate a range of commercial and legal issues, including access rights, risk allocation, offtake arrangements and the interface with existing mineral or petroleum rights.

Given the subsurface nature of geothermal resources, questions of reservoir ownership, depletion risk and liability for interference with neighbouring operations need to be addressed carefully in project agreements. Without a bespoke statutory regime in the UK (discussed further below), parties may consider relying on general contractual principles and adapt frameworks developed in other sectors.

A geothermal project would require many of the contractual arrangements common to oil & gas developments, including: 

• the initial services agreements (such as seismic, drilling, wells goods & services);
• capital projects, construction and development agreements (such as FEED, Detailed Design and/or EPC for the well pad and site, the plant and/or the transportation pipelines); and
• the operational contracts (including ongoing supply of equipment, wells and O&M services / long term services arrangements).

There may be debate around how physical risk (property, people, the environment) and financial risks (consequential loss / loss of profit) could be allocated in these contracts, but there are good arguments in favour of using the knock-for-knock risk allocation regime (with appropriate exceptions depending on contract type and efficient insurance (cost) allocation).

Under that regime (also called “mutual hold harmless”), each party to the project will take responsibility for its own losses – regardless of cause, even if another party caused the loss. It allows risk to be allocated to the party best placed to deal with the risk; it also reduces insurance (and therefore overall project) costs by requiring the same risks only to be insured once (i.e. by the party sustaining the loss, rather than by all parties insuring their own risk as well as all other parties’ risks).

The electricity / heat sale and supply agreements include power purchase agreements and/or heat offtake or heat supply agreements. For heat sales, these contracts have seen a degree of development in the broader heat market (e.g. with waste-to-energy) and may include local and/or public authority purchasers. The sales agreements are typically split into ‘bulk sales’ or ‘network sales’, which regulate supplies between generators and network operators, whereas ‘customer sales’ arrangements regulate supplies to end users. Where the buyer is a local or regional authority, this could also assist in local regulatory approvals and public relations for the project.

The UK Regulatory Position

At present, the UK lacks a dedicated regulatory framework for geothermal energy. Unlike petroleum and certain other minerals, geothermal heat and power is not subject to a licensing regime that vests rights in the Crown or provides a clear consenting pathway for developers.

The result is considerable uncertainty. Rather than functioning under a tailored statutory regime, developers are required to navigate and combine permissions drawn from general environmental consents, planning approvals, and private law mechanisms. The absence of clear rules on matters such as resource ownership, priority between competing users and environmental safeguards may deter investment and slow the growth of the sector.

International Comparisons

Other jurisdictions have moved further in establishing dedicated geothermal frameworks:

Each of these approaches, whether based on accelerated permitting, financial risk mitigation, or formal licensing, offers potential lessons for policymakers in the UK.

In particular, there are challenges for investment. In order to increase investor confidence in what is a comparatively nascent industry in the U.K., and given its proven success in Europe, it is submitted that geothermal has the hallmarks of being a part of the U.K.’s energy strategy, deserving of a supportive government policy framework. 

It is also submitted that there are considerable attractions in the approach taken by Germany and the Netherlands to help reduce ‘red tape’ and subsurface risks. Once the U.K. has a number of projects ‘online’, more detailed regulation can follow – based on learned experience and what the industry needs to develop and thrive.

Land Law and Planning

Regardless of any future regulatory reforms, geothermal projects in the UK will remain subject to the separate requirements of land law and planning. Developers must secure appropriate rights over the surface land and, where relevant, negotiate access to the subsurface with landowners and holders of competing interests.

Planning permission will typically be required for surface infrastructure, drilling operations and associated facilities. Environmental impact assessments may also be necessary depending on the scale and location of the project. These requirements apply regardless of any future sector-specific geothermal regime and must be factored into any project’s consenting strategy from the outset.

Conclusion

The United Downs news is encouraging and shines a light on a resource that has been largely overlooked in the UK. Scaling up will take more than one successful project. A clearer policy framework, informed by international experience and tailored to UK circumstances, would provide greater certainty for developers and investors. A regulatory regime could then follow. In the meantime, careful attention to contractual structuring, land rights and planning consents will remain key for anyone looking to bring geothermal projects forward in the U.K.

Article co-authored by Genti Gashi, Trainee Solicitor.