European Geologist Journal 54

Municipality of Cestica, North-western Croatia: Techno-economic analysis of investment in geothermal energy

 

by Ratko Vasiljević ¹

¹ ECOINA Ltd, S.R. Njemačke 10, 10020 Zagreb, Croatia

Contact: rvcro@yahoo.co.uk

Abstract

The Pannonian part of ​​Croatia is rich in geothermal water sources, while there are few mineral and thermo-mineral springs. Considering the available data, the possibilities of using geothermal energy in the municipality of Cestica, NW Croatia are investigated. Its location and distance from existing geothermal sites gives a positive and realistic assumption for the existence of low-temperature (below 100 °C) reservoirs of geothermal water in the municipality. This paper presents a techno-economic analysis that includes savings in fossil fuels and a consequent decrease in greenhouse gas emissions in the atmosphere for a low-temperature geothermal site and parameters that can justify investment in further exploration and development, and also in its contribution to the energy transition.

This work is licensed under a Creative Commons Attribution 4.0 International License.

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1. Introduction

The municipality of Cestica is in the northwestern, Pannonian part of Croatia. The area of ​​the municipality is 46 km², with a population of about 6,000 people. The active population is mainly engaged in viticulture, agriculture and farming as the main economic activities. The municipality also has ambitions to develop tourism. The purpose of the feasibility study of geothermal energy use was an analysis of the profitability of the investment for further geological surveys and potential exploitation activities, in order to use geothermal water for the heating of households and greenhouses and for balneology.

The Pannonian part of ​​Croatia is rich in geothermal water sources and the thermal waters of north-western Croatia are associated with certain tectonic and lithostratigraphic conditions. Considering the expected depths of potential geothermal water at approximately one thousand metres, according to the indicated gradients, the temperature of geothermal water in the reservoir would range from 50–60 °C, and expected usability for direct heating is 30 °C  [1]. It is important to point that this location has low-temperature geothermal potential (<100 °C). This is usually not of interest to potential investors, but considering recent trends of prices of energetic resources and prices of CO₂ emissions, mostly from combustion, low-temperature reservoirs have potential to gain the attention of investors and subsequently to participate in the energy transition.

The contribution of this paper is the demonstration of geology as a basis for defining the profitability of energy projects, and emphasising the importance of economic geology and its further development with regard to new requirements.

2. Materials and Methods

This paper presents techno-economic analyses as the basis of rational research and production of geothermal energy. The following components are discussed:

1. Investments,
2. Expenditures,
3. Revenues.

Energetic projects are long-term projects, so this evaluation was done for a period of 20 years. The prices for each component depend on the market, which is volatile, so a rough estimation for each parameter was used for estimating whether such a project is feasible or not. If there is interest in further development, the techno-economic evaluation will be upgraded with more precise parameters. Starting from the initial settings, within the territory of the municipality of Cestica the expected values ​​of geothermal gradient are 40 °C/km and in more favourable situations well over 50 °C/km. Within the expected depths of potential geothermal reservoirs at a depth of one thousand metres, according to the indicated gradients, the temperature of geothermal water in the reservoir would range from 50–60 °C, while the expected usability for direct heating is 30 °C. Estimated inflows for the predicted type and depth of the reservoir range from a thousand to a few thousand cubic metres per day. Preliminary investment was taken from the feasibility study [1], which is based on prices of drilling and surveying for the Croatian part of the Pannonian Basin.

Data from the commodity exchange were used for prices of natural gas [6] and CO₂ [7]. Considering the volatility of commodity markets, averages of long-term prices trends were taken. For natural gas, the average price was taken for the time period 1998 – Jun 24 2022 (Table 3), and for CO₂, the average price was taken for the time period 2008–24 June 2022 (Table 4). Considering that the prices were expressed in different currencies, the relationship between currencies at the time of writing the paper was taken into account.

3. Geology

The Republic of Croatia can be roughly divided in two different areas: the Pannonian Basin and the Dinarides. In the Dinarides the average geothermal gradient is 0.018 °C/m. In the Pannonian Basin, the average geothermal gradient is much higher: 0.049 °C/m [2]. Since the geothermal gradient in the Pannonian area is considerably higher than the European average (0.043 °C/m), in addition to already discovered geothermal fields, it is probable that new fields will be discovered. The Croatian part of the Pannonian Basin is divided into four depressions: the Drava Depression, Mura Depression, Sava Depression and Slavonija-Srijem Depression. Oil and gas reservoirs along with source rocks are placed in a Neogene complex, which is divided into formations. Each depression has its own division (Table 1). Dominating lithology members are sandstones and marls from Lower Pannonian to Upper Pontian, which overlay eroded rocks of a pre-Tertiary complex. The municipality of Cestica is located in the Croatian part of the Pannonian Basin in the Mura Depression (Figure 1). In the area of ​​the municipality of Cestica, expected geothermal reservoirs are located in pre-Tertiary fractured rocks at easily accessible depths (at roughly 1000 to 1200 m below the surface). The drilling target is at depths of about 1000–1200 m and expected temperatures at these intervals range between 50 and 60 °C [1].

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Table 1: Lithostratigraphic division of the Croatian part of the Pannonian Basin [3].

Sava Depression	Drava Depression	Mura Depression	Slavonsko–Srijemska Depression	Stratigraphy unit
Lonja Formation	Lonja Formation		Vuka Formation	Upper and Middle Pliocene and Quaternary
Široko Polje Formation	Bilogora Formation		Vera Formation	Upper Pontian
Kloštar–Ivanić Formation				Lower Pontian
	Kloštar– Ivanić Formation	Lendava Formation	Vinkovci Formation
Ivanić–Grad Formation	Ivanić–Grad Formation			Upper Pannonian
Prkos Formation	Križevci Formation	Murska Sobota Formation	Valpovo Formation	Lower Pannonian
Prečec Formation	Mosti Formation		Vukovar Formation	Pre-Badenian, Badenian, Sarmatian
Pre-tertiary rocks, Mesozoic carbonates, Paleozoic magmatite and metamorphic complex

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4. Results of Techno-economic analysis

4.1. Investments 

Estimated investments amount to approximately EUR 2.7 million (Table 2), and consist of:

1. Investment in the construction of two wells (extraction and injection), each 1000–1200 m deep;
2. Investments in necessary underground and surface equipment.

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Table 2:  Estimation of total planned investment [1].

DESCRIPTION	EUR
Two Boreholes – drilling, materials	2,000,000
Additional geological and geophysical surveys (10% of drilling costs)	200,000
Equipment –  submersible centrifugal pump, heat exchanger, signalling and automation, connecting pipelines	300,000
Other	200,000
TOTAL	2,700,000

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4.2. Expenditures

The production of geothermal water is burdened by costs and obligations estimated according to the amount of water produced and consist of:

– Electricity consumption,

– Maintenance of well equipment and systems for preparation of geothermal water for use,

– Compensation for the exploitation of geothermal water.

Expenditures are estimated to total approximately EUR 30,000.

4.3. Revenues

Table 3 presents the calculation of thermal power for the forecasted amount of geothermal water production of 1000 m³ per day, which is a realistic amount considering the expected parameters of the reservoir and with production from a deep centrifugal pump. Revenues are thus calculated for the production of 1000 m³ of geothermal water per day  and for expected usability of geothermal water temperature of 30 °C.

Comparing the energy value of geothermal water and natural gas, it is prominent that 1 m³ of geothermal water at a temperature of 30 °C give an energy value equivalent to 3.3 Sm³ of natural gas  [1]. In calculating total revenue, the average price of natural gas from 1998 to 24 June  2022 was taken (Table 3).

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Table 3: Historical annual average prices of natural gas (USD/MMbtu). Data from Henry Hub Natural Gas Spot Price – Historical Annual Data [6].

Year	Price USD per MMbtu	Price EUR per MMbtu (1 USD = 0.95 EUR)
1998	2.09 USD	1.99 EUR
1999	2.27 USD	2.16 EUR
2000	4.31 USD	4.09 EUR
2001	3.96 USD	3.76 EUR
2002	3.38 USD	3.21 EUR
2003	5.47 USD	5.20 EUR
2004	5.89 USD	5.60 EUR
2005	8.69 USD	8.26 EUR
2006	6.73 USD	6.39 EUR
2007	6.97 USD	6.62 EUR
2008	8.86 USD	8.42 EUR
2009	3.94 USD	3.74 EUR
2010	4.37 USD	4.15 EUR
2011	4.00 USD	3.80 EUR
2012	2.75 USD	2.61 EUR
2013	3.73 USD	3.54 EUR
2014	4.37 USD	4.15 EUR
2015	2.62 USD	2.49 EUR
2016	2.52 USD	2.39 EUR
2017	2.99 USD	2.84 EUR
2018	3.15 USD	2.99 EUR
2019	2.56 USD	2.43 EUR
2020	2.03 USD	1.93 EUR
2021	3.89 USD	3.70 EUR
2022	6.01 USD	5.71 EUR[1]
AVERAGE:	4.30 USD	4.09 EUR

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Another important issue is the prevention of CO₂ emissions and cost savings. In calculating total revenue, the average price of CO₂ since 2008 to 2022 was taken (Table 4).

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 Table 4:  Historical annual average prices of CO₂ (EUR/tonne). Data from Carbon Emissions Futures Historical Data.  [7]

YEAR	EUR
2008	21.40 EUR
2009	13.15 EUR
2010	16.31 EUR
2011	19.02 EUR
2012	7.61 EUR
2013	4.49 EUR
2014	5.97 EUR
2015	7.68 EUR
2016	5.35 EUR
2017	6.22 EUR
2018	17.51 EUR
2019	26.08 EUR
2020	25.45 EUR
2021	54.01 EUR
2022	83.44 EUR[2]
AVERAGE:	20.91 EUR

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The price of 1 m³ of natural gas equivalent was taken. It is important to see whether the consumpation of geothermal energy, for which we need to conduct surveys with the ever-present mining risk, will be economically competitive against natural gas.

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 Table 5:  Energy ratio between geothermal water and natural gas.

ITEM		QUANTITY	UNIT
Volume of geothermal water for a day		1,000	m3/day
Volume of geothermal water for a year		365,000	m3/year
Energy for a day at usability temperature of 30 °C		30,000,000	kcal/day
		125,520,000	KJ/day
Energyfor a year at usability temperature of 30 °C		10,950000,000	kcal/year
		45814,800,000	KJ/year
		45.81	TJ/year
Equivalent energy of natural gas for a year in MMbtu		43,424.05	MMbtu/year
Price of natural gas in euro (MMbtu)		4.09	EUR/MMbtu
Price of natural gas in euro annual		177,604.36	EUR/year
Emission factor tCO2 / TJ (Terajoule)	56.10		tCO2/TJ
Total Emission  tCO2 / in a year	2,569.941		tCO2/year
Price per emission unit in euro		20.91	EUR/tCO2
Annual Emission Fee		53,737.47	EUR/ year
Annual expense of Natural gas annual + Annual Emisson Fee		231,341.83	EUR/year

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The annual energy value of 1000 m³ of thermal water in EUR from Table 5 represents the annual revenue parameter. The value of the annual revenue parameter was rounded down to EUR 231,000, which increases the level of security of the revenue calculation (Table 6).

According to the energy institute Hrvoje Požar [8], the average natural gas energy consumption for a five-year period (2015–2020) in Croatia was 97,776.67 TJ of natural gas per year, and the annual average value per capita was 0.024224 TJ of natural gas. For the 6000 inhabitants in the Cestica municipality this means 145.344 TJ annually.

Other fuels used primarily for heating are coal and biomass from wood. The average annual coal energy consumption for the same five-year period (2015–2020) was 23,838.33 TJ, and the annual average value per capita was 0.0059 TJ of coal; for the 6,000 inhabitants in the Cestica municipality this means 35.435 TJ annually. The average annual energy consumption from wood for the five-year period was 53,435 TJ, or 0.013 TJ of wood annually per capita; for the Cestica municipality this means 79.43 TJ annually.

The total consumption of energy for 6000 inhabitants is:

E_total = E_{natural gas} + E_coal + E_wood = 145.34 TJ + 35.44 TJ + 79.43 TJ = 260.21 TJ.

1000 m³ of thermal water can ensure 45.81 TJ, which is 31.52% of the energy consumption from natural gas or 17.61 % of the total energy consumption for heat (E_{natural gas} + E_coal + E_wood).

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Table 6: Preliminary estimation of total planned investment revenue for the production of 1000 m³/day of thermal water.

Year	Revenues	Investment	Expenditure	Revenues cumulative	Investments+Expenditure cumulative	Net profit
	EUR	EUR	EUR	EUR	EUR	EUR
1	231,000	2,700,000	30,000	231,000	2,730,000	-2,499,000
2	231,000	0	30,000	462,000	2,760,000	-2,298,000
3	231,000	0	30,000	693,000	2,790,000	-2,097,000
4	231,000	0	30,000	924,000	2,820,000	-1,896,000
5	231,000	0	30,000	1,155,000	2,850,000	-1,695,000
6	231,000	0	30,000	1,386,000	2,880,000	-1,494,000
7	231,000	0	30,000	1,617,000	2,910,000	-1,293,000
8	231,000	0	30,000	1,848,000	2,940,000	-1,092,000
9	231,000	0	30,000	2,079,000	2,970,000	-891,000
10	231,000	0	30,000	2,310,000	3,000,000	-690,000
11	231,000	0	30,000	2,541,000	3,030,000	-489,000
12	231,000	0	30,000	2,772,000	3,060,000	-288,000
13	231,000	0	30,000	3,003,000	3,090,000	-87,000
14	231,000	0	30,000	3,234,000	3,120,000	114,000
15	231,000	0	30,000	3,465,000	3,150,000	315,000
16	231,000	0	30,000	3,696,000	3,180,000	516,000
17	231,000	0	30,000	3,927,000	3,210,000	717,000
18	231,000	0	30,000	4,158,000	3,240,000	918,000
19	231,000	0	30,000	4,389,000	3,270,000	1,119,000
20	231,000	0	30,000	4,620,000	3,300,000	1,320,000
Total	4,620,000	2,700,000	600,000
Profit			1,320,000

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According to the preliminary estimation of revenue, the daily production of 1000 m³ of thermal water will lead to a return on investment after thirteen years, with expected profit of EUR 1,320,000 after 20 years of operation.

Daily production of 1000 m³ of thermal water represents a relatively small amount, which still covers 31.52% of the energy consumption from natural gas or 17.61 % of the total energy consumption for heat. The pumping rate can be significantly increased without a significant increase in expenses, which can return the investment earlier.

This energy calculation and economic-financial assessment of profitability is burdened by mining risk, which will be minimised by further surveys and more detailed study. The big problem with geothermal energy is that it cannot be transported over long distances; it must be used in an  environment close to the well.

The programme of economic use of geothermal energy will be designed according to the possible volume of production after the construction of the well. It is launched to achieve beneficial economic and social effects for the local and wider community through increasing tourist attractions with thermal baths and for use in greenhouse production.

These techno-economic indicators can attract potential investors because of geothermal energy’s reputation as a safe, environmentally friendly energy souce that is cheaper than other sources of energy. The fact is that after the return on investment, geothermal energy is certainly the cheapest energy source, burdened only with production costs.

5. Discussion 

This paper presents a plan for use of geothermal energy as an internal heating source for households, greenhouses and for balneology, which can contribute to further development of tourism and recreation. Once experience is gained at the first site, it is possible to extend the user network and to raise interest in further investment in this area.

5.1. Contribution to the energy transition and a low-carbon economy

According to the preliminary estimation of daily production, 1000 m³ of thermal water provides 34,890 kWH (34.89 MWh) of thermal energy per day, or 12,734.85 MWh of produced thermal energy per year, which means savings of the equivalent energy of natural gas.

Rising energy prices and supply instability have led to serious increase in interest in developing geothermal resources and have triggered a completely new way of understanding country’s geothermal potential [9]. The average energy capacity of geothermal direct heat consumption in Croatia is 3–4 MWt and it is expected that there is another 1,500 to 2,000 MWt, which could generate as much heat as 600 million m³ of natural gas per year [9].

Each terajoule obtained by combustion of methane emits 54.9 tonnes of CO₂, which means the emission factor of methane is 54.9 tCO₂/TJ [10]. Expected daily produced thermal energy is 34.89 MWh, or 0.13 TJ, which means a decrease in greenhouse gas emissions by 7.14 tCO₂/day, or 2,606 tCO₂/year. These annual emissions of CO₂ are relatively low; for example, installations for fuel combustion with low emissions can emit up to 25,000 tCO₂/year [10], but further experience is expected to enable development of further capacities in the future. 

5.2. Anticipation of additional surveys

In addition to establishing the framework of feasibility of the overall project, the techno-economic evaluation should  be kept in mind at each step in the project, so a further step is deciding on the type and scope of the survey.

According to general geological situation in the surrounding area, it can be concluded that this area has a great deal of potential,ut this assessment needs direct confirmation. It can be directly confirmed by drilling an exploration well that can be used for production in the case of positive results. Drilling requires the activation of significant material and financial resources, so each exploration and production well carries geological and technological risk, which can jeopardize the whole project.

In order to decrease geological and technological risk, it is necessary to have an idea of the rational scope of investment in indirect geological and geophysical surveys for risk reduction. The risk cannot be completely eliminated, and for some risks there is no indirect survey methodology for defining them. In practice, the rational level of funds for a geological survey is one tenth of the value of the construction of the exploration and injection well (Table 2). Invested amounts in geological and geophysical surveys can cover a significant scope of geophysical surveying methods, such as geoelectric, magnetic and telluric methods, and with analysis of detailed geological, hydrogeological and geochemical indications.

These methods can be efficient in combination with existing data, but the final decision on the scope of surveys should be taken by the investor(s).

6. Conclusion

In this paper the expected properties of a low-temperature (<100 °C) geothermal water deposit were calculated. The original study was performed in 2011 for the Cestica municipality in the Pannonian section of Croatia. Considering the relatively low price of natural gas at that time, combined with the low price of greenhouse gas emissions and not completely established ETS, the feasibility of this project was positive, but with small revenue compared to the initial investment. The trend of increasing energy prices in combination with the established ETS system and rising CO₂ emission prices have made projects of this type more attractive to investors in recent years.

It is clear that high-temperature geothermal deposits will always be more attractive to investors due to greater investment return possibilities, such as the possibilities of electricity production and of supplying a wider network of consumers, but the current trend of rising energy prices has increased the potential profitability of low-temperature geothermal reservoirs.

The advantage of low-temperature thermal reservoirs is their availability and wide distribution. The techno-econoic analysis reported here was done for a period of 20 years, which is a common practice for energetic facilities, in comparison with 20-year averages of gas prices and CO₂ emission unit prices. Considering expected long-term trends (energy demands, spreading of the ETS), the prices will almost certainly remain high. A conservative approach was used, with a low pumping rate used in the calculation for the minimum value, and thus there is a prospect for significant increase if higher pumping rates are feasible. The complete return on investment is expected in the third quarter of the considered period, around year 13 or 14, and after that it is expected to bring a profit.

Despite the fact that this is only a preliminary assessment, it is evident that in the future projects of this type will be of interest to investors, especially from the aspect of energy transition requirements.

Funding: This research received no external funding.

Acknowledgments: I would like to express my gratitude to all of my colleagues from the former Panel of Experts on Oil and Gas for supporting my work, especially to Mr. Bogdan Lelyk (Ukraine) and Mr. Robert Lambert (UK), and to the company ECOINA Ltd. for its support.

Conflicts of Interest: The author declares no conflict of interest.

[1] Averaged data up to 24 June 2022

[2] Averaged data up to 24 June 2022.

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References

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This article has been published in European Geologist Journal 54 – Geothermal energy – A geological contribution to the energy transition

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