1. Summary

Geothermal energy occupies a unique position within Europe’s clean-energy transition—delivering firm, low-carbon electricity and heat from indigenous resources. As of 2025, Europe operates approximately 4.5 GW of installed geothermal power capacity and more than 400 district-heating networks sourced from geothermal reservoirs. While the pace of capacity additions remains modest relative to solar and wind, geothermal’s value lies in baseload reliability, grid stability, and decarbonisation of industrial heat.

The continent’s short-term growth will stem primarily from new direct-use and district-heating projects, with selected countries (Iceland, Italy, Turkey, France, Germany, Hungary) leading deployment. Over the medium to long term, Enhanced Geothermal Systems (EGS) and advanced drilling technologies could unlock far larger portions of Europe’s deep heat resource base—potentially supplying up to 15 % of electricity and over 25 % of heating demand by 2050 if technology and policy pathways align.

2. Current Operations and Regional Overview

2.1 Installed Capacity and Geographic Distribution

• Power generation: Around 4.5 GW across Europe (2024), representing roughly 30 % of global geothermal electricity capacity.

  • Leaders: Turkey (~1.7 GW), Iceland (~0.8 GW), Italy (~0.9 GW), and France (Guadeloupe + mainland pilot projects).

  • Emerging markets: Germany, Hungary, Croatia, and Greece show new pilot activity.

• Direct heat and district systems: >400 networks, primarily in France, Germany, the Netherlands, Hungary, and Poland.

• Capacity factors: Typically 70–95 %, depending on plant design and reservoir type—significantly higher than most renewables.

2.2 Technology Mix

• Conventional hydrothermal systems dominate current generation (flash and binary plants).

• Binary Organic Rankine Cycle (ORC) units are increasingly deployed for low- to medium-temperature resources.

• Ground-source heat pumps exceed 2 million units installed EU-wide, mainly in northern and central Europe.

3. Technological Developments

3.1 Enhanced Geothermal Systems (EGS)

Europe pioneered early EGS projects (Soultz-sous-Forêts in France; Insheim in Germany). Newer demonstrators—DEEP Geothermal, DESTRESS, and GeoSmart—are advancing reservoir stimulation, seismic risk monitoring, and closed-loop circulation. By 2030, the European Commission expects 5–10 commercial EGS plants in operation.

3.2 Advanced Drilling and Well Design

Drilling represents 40–60 % of upfront project cost. Recent R&D under Horizon Europe and national programmes (notably Germany’s GFZ Potsdam and the UK’s Cornwall Geothermal) have achieved:

• 20–30 % faster drilling through high-temperature muds and improved bit materials;

• Downhole sensors for real-time lithology detection;

• High-integrity casing to mitigate thermal cycling fatigue.

3.3 Hybrid and Co-Production Concepts

Co-utilisation with oil & gas wells (Netherlands, Denmark) and geothermal–solar hybrid plants (Turkey) broaden resource options and improve economics.

4. Economics and Market Dynamics

4.1 Levelised Cost of Energy (LCOE)

• Current European geothermal LCOE ranges between €55–120/MWh, depending on depth and reservoir productivity.

• Direct-use heat is typically €20–40/MWh-th, competitive with gas heating under EU ETS carbon prices > €60/t CO₂.

• Cost drivers: drilling success rate, exploration cost, and access to concessional finance.

4.2 Financing and Risk Mitigation

Europe employs several instruments to reduce exploration risk:

• Geothermal Risk Mitigation Facility (GRMF) (for East Africa but EU-linked expertise);

• EU Innovation Fund, Horizon Europe demonstration grants;

• National geothermal insurance schemes in France and the Netherlands.
  Capital markets remain cautious, but the inclusion of geothermal in the EU Taxonomy for Sustainable Finance (2023) improves investor confidence.

4.3 Integration Value

Unlike intermittent renewables, geothermal provides firm capacity and inertia, easing grid management. Ancillary-service remuneration remains limited but is under review by regulators (e.g., Italy’s ARERA, Germany’s BNetzA).

5. Policy and Regulatory Landscape

• EU Green Deal & REPowerEU: Identify geothermal heat as a priority to displace fossil gas in district-heating networks.

• Fit for 55 package: Allows geothermal to access Contracts for Difference (CfDs) and state-aid flexibility.

• Permitting & environmental governance:

  • The 2024 EU Geothermal Directive Proposal aims to harmonise licensing and induced-seismicity management.

  • National frameworks vary widely: France and the Netherlands have well-established licensing, while others (e.g., Poland, Croatia) are updating subsurface laws.

• Carbon pricing: High ETS prices indirectly support geothermal by raising fossil-heat costs.

6. Outlook

6.1 2025–2030: Near-Term

• Gradual capacity increase to ~6 GW power and ~1 GWₜₕ/yr of new heat capacity.

• EGS pilot scaling (France, Germany, Italy) and replication in Alpine and Baltic basins.

• Expanding district-heating retrofits using geothermal as a baseload component.

• Digitalisation (AI-based reservoir modelling) to improve drilling success and operational efficiency.

6.2 2030–2050: Long-Term

• Technical potential: Estimates from the Joint Research Centre (JRC) and GeoERA suggest >300 GWₑ technically recoverable with EGS.

• Scenario modelling: If EGS and drilling innovations achieve 50 % cost reduction, geothermal could meet:

  • 10–15 % of EU electricity and

  • 25–30 % of low-temperature heat demand by 2050.

• Strategic role: Firm renewable resource complementing variable solar/wind, reducing dependency on gas imports, and providing process heat for industries (chemicals, food, district heating).

7. Key Challenges and Risks

8. Strategic Recommendations

For Project Developers

• Pursue integrated heat-and-power projects to diversify revenue streams.

• Engage early with municipalities for district-heating integration.

• Adopt digital twin modelling for exploration targeting.

For Policymakers and Regulators

• Implement EU-wide exploration risk guarantee schemes.

• Streamline permitting through unified geological data portals.

• Ensure EGS projects have clear seismicity thresholds and compensation protocols.

• Reward firm, low-carbon generation in capacity remuneration mechanisms.

For Investors and Utilities

• Evaluate geothermal assets for long-duration hedging and portfolio diversification.

• Support pilot-to-commercial transition via corporate PPAs or heat-offtake contracts.

9. Conclusions

Europe’s geothermal sector stands at an inflection point. Mature hydrothermal fields demonstrate operational excellence, but true scale will come only through EGS commercialisation and policy harmonisation. The combination of carbon pricing, heat-sector electrification, and EU decarbonisation goals creates a structural tailwind for geothermal deployment. With sustained R&D investment, risk-sharing frameworks, and public trust, geothermal energy could evolve from a niche contributor into a cornerstone of Europe’s 2050 net-zero energy system—providing reliable, domestic, and sustainable heat and power.

References

1. European Commission (2024). EU Strategy for Geothermal Energy. Brussels: DG ENER.
2. International Renewable Energy Agency (IRENA). (2024). Geothermal Market Update 2024. Abu Dhabi.
3. International Energy Agency (IEA). (2023). Renewable Energy Market Outlook. Paris.
4. Joint Research Centre (JRC). (2023). Geothermal Energy Potential in Europe. Publications Office of the EU.
5. Geothermal Research Cluster (EGEC). (2025). EGEC Geothermal Market Report 2025. Brussels.
6. Horizon Europe Programme (2024). GeoSmart and DESTRESS Final Reports. European Commission.
7. NREL (2024). Annual Technology Baseline – Geothermal. Golden, CO.
8. ARERA (Italy). (2024). Capacity Market Design for Firm Renewables. Rome.

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