A layman's guide to geothermal energy

4 minute read

Contributors

Ashley St. Louis

Associate

Ashley St.Louis, Portfolio Manager at Gravis, explains what geothermal energy is and how the heat beneath our feet can be harnessed to provide low-carbon heating and electricity.

He also discusses the advantages and challenges of geothermal energy, its potential role in helping the UK meet its net zero targets, and highlights Gravis's experience as a first mover in this sector.

Geothermal energy

What is geothermal energy?

Geothermal energy is heat from the Earth. The deeper you go underground, the hotter it gets, with the Earth's core being around the same temperature as the surface of the sun. Essentially, it's extracting the heat from the Earth's core and bringing it up to the surface.

How does geothermal energy work?

Geothermal energy works by tapping into underground reservoirs of hot water and steam, which can be brought to the surface and used to generate electricity or provide direct heating. In some systems, pipes are drilled into the ground to circulate fluid, capturing the Earth's natural heat and transferring it to buildings or networks. Think of it like a giant underground radiator: water is pumped deep down into the ground where it's heated by the Earth's core, it is then brought up to the surface, where the hot water or steam can then be used to heat buildings or even generate electricity.

What potential does geothermal energy have?

The UK has significant geothermal potential, especially in areas like Cornwall, Northern England and parts of Scotland. While it's not as common as wind or solar, studies suggest that geothermal could meet a substantial share of the UK's heating demand in the future - potentially up to around 20%. It's a consistent, low carbon energy source that isn't dependent on weather, making it ideal for long term energy security.

What are the advantages of geothermal energy?

Geothermal energy has quite a few advantages. It's a clean, renewable energy source, it runs 24 hours a day, seven days a week - unlike solar or wind, it isn’t dependent on the weather. Geothermal energy also supports energy security as there is no need to import it and, over time, it can be affordable, especially with long term use and local distribution.

What are the disadvantages of geothermal energy?

The main barriers have been high upfront costs, long development timelines, and relatively low public and political awareness. Unlike solar and wind, which have received substantial subsidies, geothermal hasn't had the same level of government support. However, that's beginning to change, as the UK looks to decarbonise heating and meet its net zero goals.

What can be done to mitigate the risks?

To mitigate the risks, geothermal energy producers can diversify their users. Instead of just heating homes, geothermal heat can be also used by businesses and services that need year-round heat, like distilleries, hospitals and swimming pools. By generating electricity, they can also serve schools, farms and the NHS in nearby communities.

How has Gravis invested in geothermal energy?

Gravis has experience in sustainable infrastructure investments and was a first mover in the UK geothermal energy sector. We helped fund the deepest geothermal well in the UK, through our investment in Eden Geothermal Limited in Cornwall. Our funding helped construct a 4.5km well, situated at the Eden Project, providing heat for Eden's biomes, offices and growing point nursery.

Our backing helped bridge the funding gap and give projects like the one at Eden, the momentum needed to scale.

In the UK, geothermal energy can grow if given the right backing and support from government, namely in terms of subsidies and further funding - helping to develop existing projects, as well as helping to construct new ones.

Important information

This article is issued by Gravis Capital Management Limited (“GCM”), which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number 770680. GCM’s registered office address is 24 Savile Row, London, United Kingdom, W1S 2ES.

GCP Infrastructure Investments Ltd (“GCP Infra”) is a Jersey-incorporated, closed-end investment company. Its shares are traded on the main market of the London Stock Exchange. It is regulated as a certified fund in Jersey, pursuant to the Collective Investment Funds (Jersey) Law 1988. GCM is the Fund’s Alternative Investment Fund Manager.

Any decision to invest in GCP Infra must be based solely on the information contained in the Prospectus, the latest Key Investor Information Document and the latest annual or interim report and financial statements.

GCM does not offer investment advice and this article should not be considered a recommendation, invitation or inducement to invest in GCP Infra. Prospective investors are recommended to seek professional advice before making a decision to invest. The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of such securities. 

Your capital is at risk and you may not get back the full amount invested. Past performance is not a reliable indicator of future results. Prospective investors should consider the risks connected to an investment in GCP Infra, which include (but are not limited to), hedging risk, concentration risk, counterparty risk, inflation and interest rate risks and risks relating to property development and social infrastructure assets. Please see the detailed Risk Factors section in the Prospectus for further information.

This article has been prepared by GCM using all reasonable skill, care and diligence. It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction. 

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