OPINION | For Alberta, the potential of geothermal energy is clear, if it's done right

This column is an opinion from Sara Hastings-Simon, a research fellow at the School of Public Policy at the University of Calgary, and Brendan Haley, the policy director for Efficiency Canada at Carleton University.

Recently there have been increasing calls for geothermal development in Alberta.

At first glance, it seems an obvious fit.

Repurposing abandoned wells along with skills and resources from the fossil fuel industry represents an opportunity to develop low-carbon heat and electricity while supporting workers and companies that have been hard hit by the twin forces of the COVID-19 pandemic and the oil and gas downturn. 

This is the type of thinking we need to manage the politically fraught issue of low-carbon transitions in Canada.

We need solutions that are tailored to our distinct regional economies, and that build on existing expertise and assets, rather than solutions that seem to penalize the people who work in existing industries. In addition, theories of regional innovation and natural resource economies suggest the importance of exploiting linkages with adjacent industries.

But the failure to date to launch a robust geothermal sector in the province, despite decades of discussion, points to real barriers that a targeted industrial policy needs to address if Alberta wants to capitalize on this clean growth opportunity.

Understanding the barriers

One way to understand the barriers to developing a geothermal industry in the province, as well as the opportunities, is by tracking key processes that must take place for successful innovation and economic development to occur.

These include entrepreneurial experimentation; knowledge development and exchange; guiding the search for solutions; creating niche markets; mobilizing financial, human, and physical resources; and creating political legitimacy.

Alberta has a leg up on many of these processes thanks to the province's history of oil and gas development.

Oil and gas workers and businesses have similar skills in areas such as drilling. Subsurface data from oil and gas exploration can help find geothermal resources. Some existing oil and gas wells, including orphaned and abandoned wells, could be used for geothermal projects.

These complementary linkages have enabled the geothermal industry to learn more about the resources Alberta has available and initiate pilot projects. They've also helped the public and regulators buy into the idea of geothermal energy development.

But despite these opportunities, barriers remain. Thankfully, there is even more potential to borrow from the oil and gas industry to overcome them.

Legislation gaps

Legislation for geothermal is lacking, leaving a gap in rules for regulatory approval, royalties and ownership of geothermal resources. To fill these gaps, the province can draw on the experience of its oil and gas institutions in regulating issues like subsurface tenure, exploration drilling, and water use.

Similarly, although Alberta has previously used public sector support to reduce risk and prove new projects and technologies in the oil and gas industry, this same support has been lacking for geothermal. This is critical because geothermal projects also face high risks at the exploration stage that private capital may be unwilling to take on. 

One of the reasons for these gaps could be that geothermal has struggled with creating a strong, independent political voice. The industrial actors that could provide it are in the oil and gas sector, and they have historically focused on the traditional resource. Oil and gas sector actors are also not as well acquainted with the heating and electricity markets for geothermal.

The boom/bust nature of the oil and gas industry has created an additional challenge for geothermal.

When the oil and gas sector is booming, it is difficult to attract attention to geothermal projects that have higher risks and lower returns. When the oil and gas industry faces economic challenges, the interest grows but there is limited capital available to pursue projects.

Right now, we are in this second phase, with heightened interest from workers, drilling companies, some oil and gas producers and regulators, but capital is limited.

4 keys to development

Government leadership is needed to overcome the barriers that have prevented Alberta's geothermal industry from growing to date —taking advantage of relevant expertise and assets from the oil and gas industry to strengthen the weak innovation processes in a way that recognizes the current economic situation. 

First, core enabling regulatory and royalty structures should be put into place to provide long-term certainty for entrepreneurs and investors. 

Second, smart policy approaches should be used to reduce exploration risk and encourage investment. Government insurance for drilling costs could effectively eliminate the risks associated with dry or low-producing wells at relatively low public cost if the significant subsurface data from the oil and gas industry results in high drilling success rates. 

Third, offering a limited number of contracts for electricity produced from geothermal projects could play a role in kick starting the industry by ensuring a secure return on investment. The previous Renewable Electricity Program and Alberta Infrastructure Solar procurement reinvigorated the wind and solar sectors in the province by creating an attractive investment for private capital and drawing in experts from across the electricity sector both domestically and internationally. 

Finally, in light of the current economic situation, government policy should include training and other transition assistance for oil and gas workers along with capital assistance for pilot projects and exploration costs.

However, care must be taken with the management of well liabilities for projects using orphaned or inactive wells to ensure geothermal development doesn't become simply a mechanism to offload liabilities.

There is also a need to be realistic about the scale and potential for geothermal energy in Alberta. While a promising avenue for economic development, it isn't a comprehensive solution to the broader orphan well liability issue, which requires broader regulatory reforms. 

The potential for geothermal energy in Alberta is clear, and the current economic and well liability crises creates an opportunity for development. But without a strategy focused on developing this industry, the ability to leverage oil and gas capabilities for a renewable and low-carbon resource will not be realized.

This column is an opinion. For more information about our commentary section, please read this editor's blog and our FAQ.

Haley and Hastings-Simon have co-authored research on unlocking geothermal technologies in Alberta with Aletta Leitch. You can find it here.