Geothermal Power generation opportunities in the CEE region May 2012 István Pócs CEO CEGE Ltd.
Introduction István Pócs Economist More than 15 years experience in project management, business development 7 years track within MOL in various positions 4 years specified experience in field of renewable energy production CEO of CEGE since 2011 Index Geothermal energy within MOL Group and positioning compared to competitors Brief introduction of combined heat and power generation techniques technically applicable in CEE region Overview of Hungary s geothermal potential from power utilization point of view Technical, regulatory constraints, directions and opportunities of project development Economical perspective 2
Central European Geothermal Energy production is aiming to be one of the firsts in power CEGE is aiming to be one of the first geothermal power generation players in the region generation from geothermal sources in the CEE region SHAREHOLDERS GreenRock Energy Limited MOL Plc. ASX listed energy developer with diversified portfolio of hydrocarbon and geothermal projects Several ongoing geothermal project in South- and Western Australia and Europe Comprehensive geothermal competencies (investment, operation) In 2011 the Company branched into exploration for hydrocarbons in the Canning Basin of Western Australia which holds potential for large volumes of conventional and unconventional gas 50 % 50 % One of the leading integrated oil and gas companies in the region The Exploration and Production segment has diverse portfolio with oil and gas exploration activities in 13 countries and producing assets in 7 countries MOL tends to use its deep upstream experience in exploring geothermal opportunities for power generation in the CEE region Central European Geothermal Energy Key information: Founded: 2008 Objective: being significant player in geothermal power generation and heat production in the CEE region Financials: EUR 2,5-3 million spent since foundation Staff: 4 employees Recent developments: CEGE applied for concession in 2011 and is waiting for public concession tender 3
Green Rock Energy (GRK) is an ASX listed energy developer with a diversified portfolio of hydrocarbon and geothermal projects in Australia and Europe Mid West Geothermal Power Project Some other projects JV with MOL Harvesting synergies with BESTEC, the leading geothermal developer and operator company based in Germany 4
Based on 75 years outstanding exploration success rate track of MOL Upstream CEGE is in a unique position to perform its projects Source: MOL Investors Presentation March 2012 5
Solid financial position over 117 MMBOE reserves booked in in 2011 planned expenditures expenditiures only for Hungary reaches USD USD 275 275 million million for for Y2012 Y2012 Source: MOL Investors Presentation March 2012 Exploration Expenditure for Hungary 2012: USD 133 million Development Expenditure for Hungary 2012: USD 142 million Total US Hungary = USD 275 mn (~ HUF 60 billion) 6
Various renewable energy sources can be utilized for power generation and heat supply Possible utilization of various renewable resources Power generation Heat supply Transport Bio energy Solar Geothermal Wind Hydro Source: ERRA 7
Renewable energy is a potential to reduce green house gas emission, but not the only way From abatement cost perspective geothermal power generation is one of the most attractive renewable energy production technologies How to fight against climate change? Cost of GHG abatement Source: McKinsey 8
ELECTRICITY NETWORK NATURAL GAS TRANSMISSION READY FOR DISTRIBUTION REFINERY Extending exploration activities to geothermal sources is a rational step to increase success rate of exploration activities DRILLING OIL? API NATURAL GAS? MJ H 2 O? CELSIUS DRY Geothermal project development is facing the same risks like traditional HC exploration but with significantly lower returns. The biggest risk at the early phases is the geological risk. 9
Combined Heat and Power generation has clear advantages from utilization point of view Efficiency of geothermal binary cycle CHP system is lower compared to gas engines (installed for same purposes), however significantly better compared to most of the PV systems which efficiency varies between 10-15 % Heat supply 150 Celsius 150/90 n=10% 90/40 n=90% =60*0.10=6 =50*0.9=45 =51/110=46% Due to seasonality even with lower efficiency the supplied energy is significantly more in case of CHP system compared to simple direct heat utilization Heat supply 150 Celsius 150/90 n=10% 90/40 n=90% =60*0.10*8000=48000 =50*0.9*4000=180000 =228000/180000= +26%! In simple words: by producing 1 MWe electricity we can supply 3-5 MWt heat market 10
Binary Cycle Power plant considered as a mature technology, ready for commercial use Due to synergies operational experience is available for CEGE Schematic view of the binary cycle Power Plant If the water that reaches the surface is not hot enough to produce steam, it can still be used to produce electricity by feeding it into a Binary Power Plant. The hot water is fed into a heat exchanger. The heat from the water is absorbed by a liquid such as isopentane which boils at a lower temperature. The isopentane steam is used to drive turbines, producing electricity. The isopentane then condenses back to its liquid state and it can be used again. Source: V. Ryan 2005-2009 3.6 MWe Geothermal Power Plant in Landau (Germany) considered as useful sample for CEGE s project development. Reasons: First commercial CHP binary plant in Germany Adequate size Operational experience exists Comparable basic numbers: 165 Celsius and 65l/s Reasonable CAPEX: ~ EUR 20-25 mn 11
From technical point of view Hungary is ready to meet the 57MWe target until 2020 set by the Hungarian government in the National Action Plan Pannonian Basin is rich in karstic reservoirs which may supply adequate flow rate and heat required for small scale binary Power Plants (up to 5 MWe) Source: Ungemach-Antics-Lalos: Sustainable geothermal reservoir management practice, Trieste, 2008 Share of geothermal technologies in % around the world 62 11 27 Under 130 Cesius Between 130-200 Celsius More than 200 Celsius The total geothermal installed capacity reached 10716 MWe in 2010. More than 1000 MWe were supplied by binary cycle power plants around the world 12
Take over of the high-end part of geothermal energy production segment in Hungary has clear strategic advantages POWER AND HEAT GENERATION ~150 C temperature, adequate flow rate and reservoir + Obligatory take-over, regulated feed-in tariff until payback in portfolio Stable, baseload power generation after payback Significant EU subsidy on CapEx Focus on regions where geological information is available promising ~150 C temperature, adequate flow rate and reservoir - Concession required. (Time and more CAPEX consuming) Higher CAPEX need due to deep drilling and power generation equipments DIRECT HEAT UTILIZATION + Significant potential in several area of Hungary More old HC wells could be eligible Lower CapEx requirements (shallower wells) Lower CapEx of surface facilities Faster permitting process - Project development is more simplified Mature market with some newcomers stronger competition Hódmezővásárhely, Szentes (Brunnen Hőtechnika, Aquaplus, Árpád Agrár) Miskolc, Szentlőrinc (Pannergy) - Need for large heat market Availability of local markets only Produced MWe in Hungary = 0 (2011) Produced direct heat in Hungary = 4.23 PJ (2010) 13
Dealing with environmental issues From initial idea until production geothermal project development requires 3-5 years Due to unpredictable regulatory environment duration of project development in Hungary is a question Exploration Field Development Production Abatement Review available geological and business information (grid connection availability, heat market distance, well data, other useful geological information) Obtaining Exploration rights. CEGE has been waiting for these rights since 2010! 2D/3D, MT and other geological measurements Drilling first well, stimulations Well tests Drilling second well, stimulations Long term well tests Specification of the Power Plant Construction of surface facilities Signing long term power purchase and heat market contracts Dealing with operational risks 1-3 years. In Hungary due to not published concessions the time is uncertain 1-3 years. In Hungary due to unpredictable permission procedures the time is uncertain 35 years, or more. The oldest and still working Power Plant was installed in early 1900s in Italy Not significant 14
However Hungary has significant advantage from geological point of view unfavorable Feed-in Tariff system prevents entrance of investors Geological advantage Biogas 200 150 Economical disadvantage: Hungarian Feed-in Tariff prices for geothermal power generation are the lowest in the region. Hungary is loosing its competitive position. Cogeneration 100 Biomass 50 0 Hydro Wind Hungary Croatia Slovakia Geothermal Feed-in Tariff prices in the region EUR/MWh (2010) 15
Portfolio approach could significantly improve economic conditions of geothermal projects Geological risks Power Generation Risk Uncertain Feed-In Tariff prices Electricity Market risk in long term Heat market risk Political and stakeholder risk May be mitigated with portfolio diversification Disciplined exploration Free of charge 3D seismic information (Germany) Tax incentives (Norway) May be mitigated with product diversification Geothermal Power generation is facing high upfront CAPEX and risks (may reach EUR 5-10 million). This is not playground of small and medium sized companies. The payback time could be more than 10 years. Significant and diverse portfolio could act as a shield to prevent the company against various risk thus reducing OPEX with optimization of maintenance activities. 16
Summary MOL Group as a leading regional energy company is considering to enter new segments of the power generation in order to maintain its position In MOL s 2011-2015 business strategy geothermal energy utilization is represented and significant amount of financial source is allocated Extending exploration activities in Pannonian Basin to geothermal sources serve as logical step for Upstream companies Significant CAPEX has been spent by the owners of CEGE in recent years for geothermal project development and stable financial position enables further progressive development Binary cycle small scale power plants are suitable to meet targets of Hungarian National Action Plan (57 MWe until 2020) However geological conditions are very attractive in the Pannonian Basin investors are facing with unpredictable regulatory environment (missing concession tenders, low and uncertain Feed-in Tariff Prices, unpredictable and long permission procedures) Risk mitigation techniques are inevitable to maintain favorable economics of geothermal projects 17
Thank you! István PÓCS CEO CEGE