Potential for deep geothermal energy in Scotland: study volume 1

3 The Ownership of Geothermal Resources in Scotland

3.1 Introduction

The lack of clarity on the legal ownership of geothermal resources, and therefore the lack of an associated resource licensing system, is seen as a significant barrier to investment in commercial exploration and development of geothermal resources in Scotland (and also the other parts of the UK). This uncertainty over the ownership potentially discourages private investment in deep geothermal projects. This section therefore seeks to clarify the legal ownership of geothermal resources in Scotland.

Potential options for a suitable licensing framework are discussed in Section 4 - Potential Geothermal Resource Licensing Options, and some duplication is inevitable here.

3.2 Legal and Policy Context

Under the terms of the Scotland Act 1998 that created the devolved Scottish Parliament, energy regulation in Scotland is a matter that has been specifically reserved to the UK Parliament at Westminster.

Under the Section 30 of Scotland Act 1998 there is the potential for reserved powers to be transferred from the UK Parliament to the Scottish Parliament.

Promotion of renewable heat is devolved. The Scottish Government also has the ability to influence actual energy generation in Scotland through planning, which is a devolved matter, by both setting planning policy and by approving (or refusing) individual new projects.

3.3 Scottish Renewable Energy Policy

The following documents set out the primary policies of the Scottish Government for renewable energy generation and heat:

• 2020 Routemap for Renewable Energy in Scotland (2011, with a subsequent update in 2012), see http://www.scotland.gov.uk/Publications/2011/08/04110353/0 and http://www.scotland.gov.uk/Topics/Business-Industry/Energy/UpdateRenewableRoutemap.
• Renewable Heat Action Plan for Scotland: a plan for the promotion of the use of heat from renewable sources (2009, with subsequent updates in 2010 and 2011), see http://www.scotland.gov.uk/Publications/2009/11/04154534/0.
• Outline Heat Vision (2013), see http://www.scotland.gov.uk/Topics/Business-Industry/Energy/Energy-sources/19185/Heat/DraftHeatDeployment.
• Scotland's Heat Map (draft, 2013), see http://www.scotland.gov.uk/Topics/Business-Industry/Energy/Energy-sources/19185/Heat/HeatMap.

3.3.1 2020 Routemap for Renewable Energy in Scotland

The Routemap for Renewable Energy in Scotland (2011) updated and extended the Scottish Renewables Action Plan 2009. It sets out the target to meet an equivalent of 100% demand for electricity from renewable energy by 2020, as well as a target of 11% heat from renewable sources. It was updated in 2012 to reflect developments across the renewables sector, progress made towards the 2020 targets, and included a new interim target to meet the equivalent of 50% of Scotland's electricity demand from renewable sources by 2015.

3.3.2 Renewable Heat Action Plan

The Renewable Heat Action Plan originally sought to implement the Renewable Heat Strategy (which was developed under the Forum for Renewable Energy Development in Scotland's, FREDS), in advance of the main market mechanism, the UK wide Renewable Heat Incentive ( RHI) being introduced.

3.3.3 Outline Heat Vision

The document sets out a vision for a holistic approach across renewable and non-renewable heat supply, for domestic and industrial use, and also for developing longer term targets (to 2050). The vision sets out how renewable heat should be taken forward within the context of a holistic overall heat strategy, contributing to a low carbon and energy efficient future, including to reduce total final energy demand in Scotland by 12% by 2020, covering all fuels and sectors.

3.3.4 Scotland's Heat Map

Following an initial pilot study in the Highland Council region, heat mapping is currently being rolled-out across local authority areas in Scotland. The purpose of heat mapping to understand where heat need is (demand) and opportunities to generate and provide heat (supply). The programme is working with local authorities to support the development of local GIS (Geographic Information System) based heat maps. The local system means local data and priorities, such as fuel poverty, planning, economic opportunity or public sector estate, can be considered in the same map.

3.4 Scottish Government Consultation with DECC on Legal Ownership & Licensing

Following approach by potential developers and promoters of deep geothermal energy projects, the Scottish Government sought advice on the legal ownership of geothermal resources from the DECC. The initial enquiry was made in June 2010, with subsequent enquiries submitted in December 2010 and March 2011. In addition, as part of this study, DECC responded to further enquiries by the Scottish Government on behalf of AECOM in December 2012.

The Department of Energy and Climate Change ( DECC) is the UK Government department responsible for energy and climate change. DECC is responsible for certain aspects of energy policy on a UK-wide basis, including electricity, oil and gas, coal, nuclear energy and energy efficiency as these are reserved matters, i.e. they are not devolved to the Scottish Parliament.

DECC have stated that from a renewable energy policy point of view they welcome the use of geothermal heat. The following points summarise DECC's position in relation to the legal ownership and licensing of geothermal resources in Scotland.

3.4.1 Legal Ownership

DECC consider that while the Crown owns the right to oil and gas, and (some other) mineral deposits, the law is completely silent on the ownership of geothermal heat. DECC have, in the past, considered legislating to license the extraction (of geothermal heat energy), but this has not been taken forward as a priority. DECC understands that potential developers would welcome licensing.

DECC consider that what actually constitutes geothermal energy is not currently defined. In different countries, geothermal energy has been defined as a mineral, a water resource or as unique source of energy. For the purposes of establishing ownership and licensing, geothermal energy would need to be defined.

DECC considered that the heat which is the essence of geothermal energy is not itself capable of ownership. However, since the heat can only be transferred from the subterranean strata to the surface by the medium of some substance e.g. groundwater, it appears that any substance suitable to this purpose will be capable of ownership.

3.4.2 Right to License the Resource

Initial advice from DECC confirmed that Scottish Ministers would have the right to license geothermal heat extraction since heat (renewable heat policy) is a devolved matter. DECC did not consider that these devolved powers would be affected if the extracted heat is then converted into electricity.

DECC's later advice in December 2012 however stated that until the question of ownership is resolved, that they cannot take a view on whether or not licensing would be devolved.

3.4.3 Consideration of Licensing

DECC acknowledged the difficulties in establishing legal ownership and developing a licensing system.

DECC have previously considered amending oil and gas legislation to assert Crown rights on deep geothermal heat, but acknowledge that this would appear to overlook the question of devolved powers.

DECC have also reportedly considered how geothermal development could be controlled under Planning law as it is a devolved matter but did not specify the outcome of this consideration. With the exception of marine fish farming, current planning regulation by the Scottish Government relates to on-shore development only and a separate system would therefore for be required for licensing any geothermal developments offshore.

DECC stated that, with regard to considering geothermal energy as an inherent property of groundwater (the medium by which geothermal energy is usually extracted), then amendments that may be required to relevant groundwater regulations would need to be considered in consultation with the relevant authorities (presumably including SEPA). Considering geothermal energy as a property of groundwater would potentially avoid defining legal ownership and subsequent legislation and would treat geothermal energy as a minor aspect of water legislation, requiring subsidiary legislation as necessary. DECC expressed concern that this would result in decentralisation of control of geothermal energy extraction, creating uncertainties and inconsistencies for other (geothermal) developments.

DECC considered that there are a number of issues to address in relation to any licensing regime and the acquisition of ancillary rights for exploitation.

The rights of third-party landowners also need to be considered as geothermal energy extraction can extend underground beyond land ownership boundaries.

DECC considered that since the development of 'hot water' (hydrothermal) geothermal resources is technically different from the development of 'hot rock' (petrothermal) sources, it may be necessary to consider separate regimes for these two distinct types of resource.

3.4.4 Process to Legislate

DECC considered that if seeking to put into place a separate licensing regime for the installation and/or operation of deep geothermal heat equipment then it is likely to require Primary legislation.

DECC also considered that, if a licensing regime were to go further, for example to have accreditation scheme to set out who can or cannot install deep geothermal heat equipment (for example approved or licensed installers) then consideration would be required as to whether this infringes on both European law and reserved or devolved issues.

DECC advised that the selection of a licensing body is a matter of choice when developing legislation and Scottish Government would need to consider how a proposed regime would differ from the planning regime.

3.5 Consideration of Legal Ownership Issues of the Geothermal Resources in Scotland

Clarification of the legal ownership of geothermal resources is required prior to consideration of appropriate existing or new licensing regimes. The following sections describe the ownership of the ground and natural resources within the ground.

3.5.1 The Status Quo

Existing schemes in the Scotland, and in the wider UK, although they have been properly controlled through relevant planning, consenting and regulatory regimes, agreements and landowner permissions, they have not been subject to resource licensing as no such licensing system exists. This includes the UK's only operating truly deep geothermal scheme in Southampton, which extends to circa 1.8km depth.

The majority of existing schemes in Scotland are ground source heat pump ( GSHP) schemes, generally installed to shallow depths. At least one scheme known to the authors, extends to a depth of 200m with a total of sixty-six boreholes to supply heat to a large building in Aberdeen.

The only geothermal schemes in Scotland known to the authors are the mine water schemes at Shettleston in Glasgow (100m depth, single borehole) serving 16 new-build dwellings and a similar scheme at Lumphinnans in Fife (172m depth, single borehole).

To date, due to the scarcity of both GSHP schemes and geothermal schemes, there have been no known issues with interference between adjacent geothermal schemes in Scotland.

In London there is a planning requirement for buildings to have 10% of energy from renewable energy sources. Anecdotal evidence has been reported of interference between adjacent GSHP cooling systems in the aquifer under central London due to their prevalence and the fact that their installation is not controlled by licensing. It is anticipated that with a rise in the uptake of renewable energy, similar situations could potentially arise in Scotland's larger cities but this is likely to relate mainly to shallower schemes.

3.5.2 How Deep is 'Deep' Geothermal?

There is currently no single agreed or accepted definition of what depth constitutes 'deep' geothermal energy either nationally or internationally. This is partially due to the wide variations globally in the availability and depth of geothermal resources. This report is focussed on 'deep' geothermal resources, defined in the brief as resources at greater than 100m depth.

It is apparent that there are also various other definitions in use for defining what constitutes 'deep' geothermal resources. There is a gradation from the near surface, affected by solar radiation, to greater depths that are influenced only by heat from the earth's core ('true' geothermal energy) and no clear boundary.

This study has only directly considered true geothermal energy. Shallow and generally small-scale ground source heat pump ( GSHP) developments, which exploit the temperature variation between the shallow sub-surface (which remains relatively constant) and the atmosphere, and extend only to relatively shallow depths, have not been considered.

In developing a licensing regime, the depth of the resources that it would apply to needs to be considered.

3.5.3 Land Ownership

Under Scottish law, a landowner theoretically owns from the sky to the centre of the earth, described as "a coelo usque ad centrum", i.e. the extent to which a plot of land extends upwards and downwards. This concept is now qualified by planning and other legislation, including the rights to overfly the property in aircraft and the Crown's right to Minerals (see below).

DECC advised the Scottish Government that if a proposed licensing regime is to interfere with the property of third parties, then careful consideration would be required, including what sort of rights may be given, what sort of compensation may be due (if any) and what responsibilities may arise from these rights, e.g. potential subsidence.

3.5.4 Mineral Definition & Ownership

In Scotland (and in the UK as a whole) 'minerals' are defined in The Town and Country Planning (Scotland) Act 1997 and The Town and Country Planning (Minerals) (Scotland) Regulations 1998 as including "all substances of a kind ordinarily worked for removal by underground or surface working" but excludes mineral workings for agricultural purposes and working of peat for domestic use.

In addition, a mineral-working deposit means "any deposit of material remaining after minerals have been extracted from land or otherwise deriving from the carrying out of operations for the winning and working of minerals in, on or under land" and the winning and working of minerals includes "the extraction of minerals from a mineral working deposit".

The British Geological Survey Minerals UK website provides a useful summary of the ownership of minerals in the United Kingdom and the following summary is based on this, see:

http://www.bgs.ac.uk/mineralsuk/planning/legislation/mineralOwnership.html

In the UK (including Scotland) the "Crown" (the state) owns the mineral rights to oil, gas, coal, gold and silver. Generally other minerals are in private ownership, and information on both mineral rights, where available, and land surface ownership is held by the Land Registry.

Crown land is managed on behalf of the government by the Crown Estate and there is still a presumption that land is owned by the Crown unless there is evidence to prove otherwise. The Crown Estate is now managed by a Board who have a duty to maintain and enhance the Estate.

3.5.5 Oil and Gas

Ownership of oil and gas within the land area of Great Britain (including territorial waters, within 12 miles of the shore) was vested in the Crown by the Petroleum (Production) Act 1934. Subsequently the Continental Shelf Act 1964 applied the same provisions to the UK Continental Shelf ( UKCS) outside territorial waters to those areas of the seabed and beneath the seabed, beyond territorial waters, over which the UK exercises sovereign rights of exploration and exploitation of mineral resources.

In the UK, DECC licenses (on behalf of the Crown) the exploration and production of oil and gas resources for both on shore ('landward') and off shore ('seaward') resources through Petroleum Licences and these grant exclusive rights within the licensed area for certain defined periods (for a fuller description of Petroleum Licences see Section 4 - Potential Geothermal Resource Licensing Options).

Shale gas and coal bed methane are also covered by oil and gas exploration and production licences.

3.5.6 Coal

The ownership of almost all coal in Great Britain now resides with the Coal Authority, a non-departmental public body (and part of DECC), who grant licenses for coal exploration and extraction (on behalf of the Crown).

The Coal Authority has responsibility for all the interests in respect of unworked coal and coal mines, and also the liabilities associated with past coal mining and unworked coal.

The Coal Authority grant exploration and extraction licences for coal. Licences are also required from the Coal Authority for any other disturbance to unworked or worked coal. This would include geothermal developments, and coal bed methane and coal mine gas extraction.

The Coal Authority has also developed a separate system of "Heat Access Agreements" to control abstraction of geothermal heat from former coal mine workings and / or coal reserves (see Section 4: Potential Geothermal Resource Licensing Options).

3.5.7 Unconventional Gas

'Unconventional' gas includes underground coal gasification ( UCG), coal bed methane ( CBM) and shale gas.

SEPA's "Regulatory guidance: Coal bed methane and shale gas" (2012) sets out the regulatory regime for unconventional gas. Resource licensing for CBM and shale gas is governed by the DECC's existing Petroleum Licensing regime ( PEDL).

For UCG, under the Coal Industry Act 1994, the Coal Authority issues "Underground Coal Gasification Operating Licences" and, where necessary, an associated Lease.

For any activity that intersects, disturbs or enters coal seams, prior written authorisation from the Coal Authority is also required. The Coal Authority also grant "Coal Methane Access Agreements" to control access to coal bed methane from coal reserves.

In addition, the local Planning Authority is responsible for granting planning permission (under the Town and Country Planning (Scotland) Act 1997) for surface works associated with borehole construction, fracturing operations and wellhead development. SEPA is a statutory consultee to planning applications.

The Borehole Sites and Operations Regulations 1995 place a duty on operators of petroleum borehole sites to ensure that no operations which would make a significant alteration to the well, or involve a risk of accidental release of fluids from the well, are carried out unless they have notified the Health and Safety Executive ( HSE) at least 21 days in advance.

3.5.8 Hydraulic Fracturing

The technique of fracturing (commonly known as "fracking"), is often used to increase production of unconventional gas.

Hydraulic fracturing may be required for Enhanced/Engineered Geothermal Systems ( EGS), albeit at significantly greater depths (say 4 to 5km), and in a very different geological setting to that of unconventional gas. Operators should be aware of the increased public, political and regulatory focus that may apply to this process when applied to geothermal developments. The differences (and similarities) in the requirements have been summarised in a fact sheet prepared by the European Geothermal Energy Council ( EGEC, 2013).

Regulatory requirements to ensure that seismic risks are effectively mitigated in hydraulic fracturing operations (for shale gas) were announced by the Secretary of State for Energy on 13 December 2012 and require operators seeking consent under licences for hydraulic fracturing operations to manage seismic risks, including conducting a seismic risk assessment, creation of a 'frac' plan, and seismic monitoring.

3.5.9 Gold and silver

The Crown generally holds the rights to gold and silver, although in the past some rights were transferred by ancient charter in Scotland. Gold and silver mines are known as ' Mines Royal' and the Crown Estate grants exclusive options to take a lease of these for a specific area. These options must be obtained from the Crown Estate's Mineral Agent. Exploration and access rights must be obtained from the landowner.

3.5.10 Other minerals

Other minerals are in private ownership, and although there is no national licensing system for exploration and extraction, planning permission must be obtained from a mineral planning authority for their extraction.

3.5.11 Could Geothermal Heat be considered a 'Mineral'?

It is considered that geothermal heat is not a 'Mineral' as defined by the Town and Country Planning Acts as it is not a 'substance'.

This concurs with DECC's assessment that the heat which is the essence of geothermal energy is not itself capable of ownership.

3.6 Groundwater

Authorisation for groundwater abstraction (or discharge to groundwater) is required from the Scottish Environment Protection Agency ( SEPA) in the form of a notification, general binding rule and / or licence. Although SEPA issues licences for some groundwater abstractions this is for compliance with relevant European, UK and Scottish legislation and environmental protection and is not considered to imply ownership of or rights to groundwater by the Crown or other body.

In Scotland, the landowner generally owns the right to abstract groundwater from the ground. The existing system of groundwater abstraction licences are primarily aimed at environmental protection, as opposed to heat resource protection, and do not specifically consider geothermal heat extraction.

It is noted that the introduction of heat into the water environment is included in "pollution" as defined in the Water Environment and Water Services (Scotland) Act 2003 (see Section 5 - The Environmental Regulatory Regime for Deep Geothermal Energy Developments).

3.7 Discussion & Conclusions

An outcome of the Project Stakeholder Workshop (Edinburgh, 31 October 2012) was that participants generally considered geothermal energy should be a state resource and therefore should be legally defined as such through a statutory resource licensing regime, to control and administrate geothermal development and protect the resource.

The fledgling geothermal industry in Scotland, comprising developers and potential investors, would also welcome clear definition and a licensing system.

It was also noted that there are potential parallels between the current ongoing development of the geothermal energy industry (currently at an early stage), and the early development of the oil and gas industry in the UK.

The uncertainty of ownership of geothermal resources is a potential risk for individual projects, which along with risks associated with geological uncertainty, gives rise to increased cost and can make it difficult to obtain sufficient finance to develop deep geothermal projects (see Section 7 - Costs, Financing & Benefits Assessment). It is noted that currently the geological uncertainty may be a bigger factor in lack of investor confidence than the lack of legal definition and a resource licensing system.

On review of the information provided by DECC, and also of ownership of other rights to resources in the ground (including mineral rights), it appears that geothermal energy resource ownership or right to exploit such resources is not currently legally defined in Scotland, nor indeed the wider UK.

Existing geothermal energy schemes in the Scotland, and in the wider UK, have not been subject to resource licensing as no such licensing system currently exists.

It is considered that the State (the Crown) does not currently have a claim on, or rights to, geothermal heat resources under land in private ownership under existing legislation. It is not currently possible for the State to specifically license exploration and / or exploitation of geothermal heat resources, except perhaps those in land which is owned by the Crown (including the onshore and offshore interests of the Crown Estate).

To allow legislation to be developed, what geothermal heat resources first need to be legally defined, To claim the ownership of or rights to geothermal heat resources, what actually constitutes the geothermal 'resource'.

When the rights to oil and gas resources were established via the various UK Petroleum Acts (vesting of the rights to resources in the Crown), it was done on a UK-wide basis. Establishing the rights to ownership of geothermal resources could also be done on a UK-wide basis through the UK Parliament. DECC has indicated that although it has considered this, it has not be undertaken as a priority.

It may be possible for the Scottish Parliament to independently establish the ownership of, or rights to, geothermal heat resources in Scotland, however, it is considered that this could potentially require transfer of reserved powers under the Section 30 of Scotland Act 1998 from the UK Parliament to the Scottish Parliament and would therefore not be completely unilateral.

3.8 Recommendations

It is recommended that, to give certainty to the legal ownership status of geothermal resources, reduce project financing risks and costs and therefore encourage commercial development, the legal ownership of geothermal energy resources should be established to allow a geothermal resource licensing system to be established. It is considered that this can only be undertaken by amending existing primary legislation or introducing new primary legislation.

It is recommended that the Scottish Government liaises with DECC to determine whether establishing legal ownership (and introduction of a licensing system) can now be taken forward as UK priority, or alternatively, how this can be undertaken by the Scottish Government.

Dependent on how legal ownership is established will influence who is responsible for licensing the resource, i.e. DECC on a UK-wide basis or the Scottish Government for Scottish resources. It is anticipated that the Scottish Government would prefer to have the right to license Scottish geothermal resources independently.

Options for potential legal definition and licensing regimes are discussed in Section 4: Potential Geothermal Resource Licensing Options.