Profile of the Icelandic Geothermal Cluster
Dr. Christian Ketels
Institute for Strategy and Competitiveness
Harvard Business School
Reykjavik, Iceland
November 1, 2010
Levels of Analysis
Overall Economy
Cluster
Industry
Firm
Geothermal Energy: Segments
Resource
Extraction
Usage
High
Temperature
Conventional
Indirect
(Electricity)
Low
Temperature
Engineered
Direct
(Heat)
Globally Installed Geothermal Capacity
Indirect Use Capacity (GW)
GLOBAL
Direct Use Capacity (GW)
10.7
GLOBAL
50.6
1
United States
3.1
United States
12.6
2
Philippines
1.9
China
8.9
3
Indonesia
1.2
Sweden
4.5
4
Mexico
1.0
Norway
3.3
5
Italy
0.8
Germany
2.5
6
New Zealand
0.7
Japan
2.1
7
ICELAND
0.6
Turkey
2.1
8
Japan
0.5
ICELAND
1.8
9
El Salvador
0.2
…
10
Kenya
0.2
…
Source: KPMG analysis, Proceedings from World Geothermal Congress, 2010
Geothermal Applications: The Lindal Diagramm
Temperature ˚C
Direct Use
Indirect Use
0
20
40
60
80
100
120
140
200
Spa treatment
Swimming pools
Snow melting
Radiators (Buildings)
Radiant panels
Air conditioning
Heat pump
Cereal fodder
Animal husbandry
Greenhouses
Food processing
Soil warming
Heap leaching (gold)
Sludge digestion
Concrete block curing
Oil recovery
Cloth drying
Wool washing
Chemical extraction
Pulp and paper mills
Binary power plants
Direct steam plants
350
Direct Geothermal Use by Sector Globally
Aquaculture Pond Heating,
1%
Industrial Users, 1%
Greenhouse hearing, 3%
Space heating,
11%
Heating for pools, 13%
Geothermal Heat
Pumps, 70%
Source: Lund et al;. 2010
Indirect Geothermal Use: Current and Potential Capacity
43,000
575
4,300
74,300
Iceland
4,100
28,600
North America
1,060
4,200
Europe
3,900
14,000
510
Central America
Asia
174
16,100
Africa
9,000
640
0
South America
Current installed capacity in region
Potential capacity in region
Oceania
Source: Islandsbanki, 2008
• Only
about
5%MWe
of potential capacity has been exploited
Total current installed
capacity:
10.954
Total potential capacity:
193.500
MWe
• About
40%
of unexploited global capacity is in Asia, and
20% in North7America
Growth of Geothermal Usage
Direct Use
Indirect Use
Countries with Active Projects
80
Installed Capacity in GW
20
60
15
7%
CAGR
40
10
20
5
0
0
1995
Sources: Lund et al. (2010) and Bertani et al. (2010)
2010
12%
CAGR
2010
2015
Geothermal Energy versus other Renewables
Production
in TWh
Capacity
in GW
600
600
Production
500
500
400
400
300
300
200
200
100
Capacity
100
Production
Production
Capacity
Capacity
0
Geothermal
Wind
Solar
Wind, geothermal, and solar account for 1.7% of global electricity production in 2009
Source: BP
0
Global Renewable Electricity Generation Capacity
Growth Rates
120%
100%
80%
60%
5y CAGR
2009 growth
40%
20%
0%
Solvar PV
(utility)
Solar (grid)
Wind
Geothermal
Source: Renewables 2010 Global Status Report
• In 2009, Geothermal accounted for less than 2% of global renewable energy investment and
global renewable energy R&D
Comparison of Energy Sources
Capacity
Factor
Land Use
Cost to Build
Total Operating
Cost
Ratio of actual
to potential
production
Sqm/Gwh
USD/KW
USD/Kwh
Geothermal
95%
404
1750 - 5000
115
Wind
37%
1335
1950 - 3900
150 - 190
Solar
20-30%
3237
5150 - 6200
390
Coal
70%
3642
1000
80 - 130
Gas
60%
2200
120
Nuclear
90%
3800
100 - 130
Source: KPMG analysis, Proceedings from World Geothermal Congress, 2010
Geothermal Project Cost Structure
Share of total cost
100%
80%
Permitting
Transmission
60%
Steam gathering
Power plant
Drilling
40%
Confirmation
Exploration
20%
Initial risk
0%
Source: KPMG analysis, Proceedings from World Geothermal Congress, 2010
About 11% of costs occur before the projects viability is confirmed
The Future of Geothermal
• Geothermal has significant technical and economic advantages
relative to other renewable and even traditional sources of energy
• There is significant up-front risk in exploration and verification of the
quality of the available resource
• The geographical availability of geothermal resources is more
limited than wind or solar
• Public policy support for renewable energy sources has
traditionally been biased in favor of wind and solar, despite their
inferior economics
• Geothermal has significant potential but is currently a niche market
compared to wind, solar, and traditional energy fields
– Low temperature and high temperature geothermal are different
businesses
Natural Conditions for Geothermal in Iceland
Glaciers
Source: Natural Energy Authority of Iceland
Net Primary Energy Use in Iceland, 1940-2009
100%
90%
80%
Coal
Oil
70%
60%
50%
Geothermal
40%
30%
20%
Peat
Hydropower
10%
0%
1940
1950
Source: Natural Energy Authority of Iceland
1960
1970
1980
1990
2000
Geothermal Energy Use by Application
Iceland, 2009
Swimming pools
4%
Snow melting
4%
Industry
2%
Fish farming
4%
Greenhouses
2%
Electricity
generation
39%
Space
heating
45%
Total 41,8 PJ
Source: Natural Energy Authority of Iceland
The Development of the Icelandic Geothermal Cluster
1930-1995: Foundations
1974
1965
Landsvirkjun
(public utility
company)
established
1940
1930
Reykjavik
District
Heating
established
1930
First
legislation on
geothermal
energy and
geothermal
research
1940
-Hitaveita
Suðurnesja
(energy
producer,
predecessor
of HS-Orka)
established
1978
1957
The first
powerful
drill arrives
1950
1960
1981
Blue Lagoon
opens to public
UN
1973
UniversityGlobal oil Geothermal
Training
crisis
Program
established
1970
1969:Bjarnarflag
power plant
1980
1978: Krafla
power plant
1976:
Svartsengi
power plant
Source: Team analysis
1990
1993: Svartsengi
power plant
1989:
Svartsengi
power plant
The Development of the Icelandic Geothermal Cluster
1995- date: Commercial Growth
2008
Landsvirkjun Power
established
1999
RES and REYST (education)
OR (energy
tart operation
1995
producer)
Consolidation among
2006
established
Samorka
engineering firms
2010
through a merger
Glitnir starts providing
(Geothermal
First full
of Reykjavik
specialized financial
Association of
take-over
District Heating
services to the
Iceland)
1997
of Icelandic
and Reykjavik
geothermal market
established
geothermal
ÍSOR’s
Electricity
company
(research
2009
2005
institution)
First foreign (Magma in
2007
predecessor
ISB Sustainable
acquisition HS Orka)
REI
opened
1996
starts to
Energy/Geysir
of Icelandic
First
operate
on
Icelandic
Green
Energy
2003
geothermal
privately
an open
Drilling
established
company
New Electricity
owned
Company market
Reykjavík
Act establishes
shares in
fully
competition in
geothermal Geothermal
privatized
the electricity
power plant established
market
company
1995
2000
1997: Krafla
power plant
Source: Team analysis
1999: Svartsengi
power plant
1998: Nesjavellir
power plant
2005
2001: Nesjavellir
power plant
2000: Húsavík
power plant
2010
2006: Hellisheiði
2008: Hellisheiði
and Reykjanes
power plant
power plants
2007:Svartsengi
2005: Nesjavellir
power plant
power plant
Drilling Activity in Iceland, 1940 – 2008
High Temperature Fields
Number of Fields
Drilled
35
30
25
20
15
10
5
0
1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source: Natural Energy Authority of Iceland
Leading Global Geothermal Plant Operators
MW under
management
1400
1200
1000
800
600
400
200
0
Source: KPMG analysis, Proceedings from World Geothermal Congress, 2010
The Geothermal Market Opportunity
Source: US Department of Energy
Global Competition in Geothermal, 2010
M ain technical consultants in the geothermal sector
Main International Players
Name
SKM
Borealis Geopower
Technip
Geox geothermische energie
EFLA
M annvit
Reykjavik Geothermal
Verkís
JFE Engineering Corporation
Global Synergy Link
Allied Industrial Engineering
Beca
M echanical Technology Limited
Geothermex
Power Engineers
ThermaSource
Country
Australia
Canada
France
Germany
Iceland
Iceland
Iceland
Iceland
Japan
Kenya
New Zealand
New Zealand
New Zealand
United States
United States
United States
M ain drilling companies in the geothermal sector
Name
Country
Perforadoras Santa Bárbara
El Salvador
H. Anger's Söhne Bohr- und Brunnenbaugesellschaft mbH
Germany
Iceland Drilling
Iceland
Constructora y Perforadora Latina (Coperlasa),
M exico
Industrial Perforadora de Campeche (IPC
M exico
M B Century
Oman
Filtech Energy Drilling Corp
Philippines
Podzemburgaz
Russia
Geothermal Anywhere
Slovakia
DHS Drilling
United States
Potter Drilling
United States
ThermaSource
United States
Trinidad Drilling
United States
Schlumberger
USA, France, and Netherlands
22
Source: KPMG
Findings
• Geothermal energy provides an interesting global market opportunity,
with significant growth rates in coming years
• The Icelandic geothermal cluster has considerable experience and is
internationally well respected
HOWEVER
• In Iceland, the economic crisis and a backlash against further geothermal
investments are affecting the outlook
• Abroad, emerging geothermal cluster efforts in the US and other countries
are increasing rivalry; market growth could easily trigger entry from new
rivals
• The stakeholders in the Icelandic geothermal cluster will need to develop a
concerted strategy and action agenda, if it is to capitalize on its leading
position and turn geothermal into a truly international opportunity