UK-focused IGas Energy is moving to diversify its portfolio with a deal to acquire local player GT Energy - a developer of deep-geothermal projects.
IGas — mostly known for working to develop shale gas projects onshore in the UK alongside the likes of Cuadrilla Resources and chemicals giant Ineos — is adding the renewable technology to its focus area as it hopes to “also play an important role in the UK’s energy transition”.
'Logical step'
Chief executive Stephen Bowler said: “The acquisition of GT Energy is a logical step given the operational synergies of our onshore business.
“The acquisition provides us with an exciting entry point into this highly attractive, growth market, one that has seen material progress in Europe over the past five years,” Bowler told Upstream.
“The decarbonisation of electricity generation has already made significant steps forwards with renewables and gas replacing coal, and the next significant area that must be addressed, to achieve the UK’s net zero ambitions, is the decarbonisation of heat."
Bowler said IGas expects that this push will "dramatically increase the development of deep-geothermal heating plants in the UK and across Europe".
Shale inertia
While IGas will not abandon its significant conventional and unconventional oil and gas operations, hydraulic fracturing of shale resources has all but been banned in the UK, with a moratorium in place set by the government following fracking last year by rival Cuadrilla, which caused tremors.
The UK government had been a longtime cheerleader of the fracking industry but supported the moratorium after a review published by the Oil & Gas Authority (OGA) regulator concluded it was impossible to predict the likelihood or scale of earthquakes triggered by the process.
As a result, the moratorium — which stopped short of an outright ban — requires “further detailed geomechanical analysis” before a decision can be made whether hydraulic fracturing could resume.
GT Energy acquisition
The GT Energy acquisition is in line with IGas’s strategy of diversifying into the wider UK energy market while leveraging its core competencies as a UK onshore operator, the company said.
IGas will pay up to £12 million ($15.3 million) through the issuance of up to 29.9% of its shares to GT Energy.
GT Energy’s sole project to date is a 14-megawatt deep-geothermal project in the Etruria Valley in Stoke-on-Trent.
The technology uses heat from the earth to generate heat and power.
Current plans envisage the drilling of two wells — one production, one re-injection — and the construction of an energy centre at surface.
While the processes could also involve fracturing rock, GT Energy’s plan is to use a so-called hydrothermal technology that it says will be free of emissions.
Drilling in sight
All the geophysical work on the project is complete and the necessary permitting in place, however, planning needs to be renewed, with work on this expected in the fourth quarter.
Under the current timetable, it is anticipated that drilling and testing could commence in the second or third quarter of 2021 with the installation operational by March 2022.
The “shovel-ready” scheme benefits from a long-term "take or pay" contract with Stoke-on-Trent City Council and is expected to supply zero-carbon heat to the city through the council-owned and operated district heating network, which is undergoing installation.
Padraig Hanly, GT Energy founder, said: “The Stoke-on-Trent City Council District Heat Network will use our deep-geothermal heat energy to produce up to 45 gigawatt-hours a year, save 10,000 tonnes of CO2 a year and lower energy costs by up to 10%.
“It’s the UK’s first ever low-carbon heat network system on this scale, and will help heat thousands of homes and businesses in the city,” Hanly said.
The project received pre-accreditation from the Department for Business, Energy and Industrial Strategy (Beis) under the Renewable Heat Incentive scheme earlier this year and it will have tariff guarantee from government regulator Ofgem prior to construction.
Contracted annual revenues are projected at around £3 million, IGas said.
While the support scheme in its current format comes to an end in 2021, GT Energy and IGas are lobbying for a replacement specifically for geothermal.
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'Like shale, this has scalability'
Analysts at BMO Capital Markets said: “A move into geothermal initially sounds like a quite a pivot from IGas, but the company has signaled before that it wants to be part of the wider UK energy mix, and we believe that it can provide a complementary skillset that could perhaps help unlock the geothermal potential in the UK.
“At this stage the forecast cash flows will be modest but, like shale, this has scalability, although it should hopefully face fewer objections,” the analysts said.
IGas' hopes rest on scaling up geothermal in the UK, looking to build similar projects near government-funded district heating networks and near large-scale customers, like universities or hospitals, it said.
Across the UK, IGas believes there is the potential for approximately 50 to 100 geothermal projects with an average size of 10MW.
Moving forward, the company will also evaluate the potential of re-using some of its existing wells on its acreage.
Analysts at BMO noted: “The real prize is if IGas can successfully prove the concept in the UK and either secure additional attractive sites, or utilise its existing well stock to sell to nearby industrial customers”.
