Geothermal power is an abundant energy source that can provide clean electricity and heat crucial for meeting net zero goals, and is expected to make up a sizable share of Germany’s future heating needs. But the big upfront costs needed for drilling can often exceed future returns if a project fails, something which has deterred investment.
Reinsurer Munich Re and Germany’s KfW Development Bank are introducing a state-backed program to mitigate the financial risk of geothermal drilling and encourage exploration for the renewable heat and power source.
Geothermal power is an abundant energy source that can provide clean electricity and heat crucial for meeting net zero goals, and is expected to make up a sizable share of Germany’s future heating needs. But the big upfront costs needed for drilling can often exceed future returns if a project fails, something which has deterred investment.
To address that, the German government is working with private firms to ease geothermal financing challenges, in what Munich Re says is the first such insurance policy based on a public-private partnership in Europe.
Munich Re will insure 30% to 70% of a loan for a feasible project, and KfW will grant a partial debt waiver if unsuccessful exploration leads to a claim, according to a statement. Berlin will support that with €600 million ($705 million) in guarantees and €50 million in budget funds as part of efforts announced Thursday to attract private capital for various industries.
“We want to solve the problem that geothermal projects are not yet bankable because the outcome of a drilling operation is completely unclear,” said Matthias Tönnis, a geologist and underwriter at Munich Re.
While geothermal power has big potential, it made up just 0.5% of electricity generated from renewables in the European Union in 2024. Germany has recently taken steps to speed up the expansion of the sector. It aims to have at least 65 additional projects by 2030, which would raise the share of geothermal energy used for heating 10-fold compared to the current level.
The insurance is a positive signal that shows “the great potential of geothermal energy in Germany is being recognized politically,” said Herbert Pohl, chief executive officer of geothermal company Deutsche Erdwärme.
Munich Re previously pioneered geothermal insurance before scrapping it, and has returned because generating heat is technically less challenging than producing electricity, and because there are more projects.