Potential for deep geothermal energy in Scotland: study volume 1

4 Potential Geothermal Resource Licensing Options

4.1 Introduction

As discussed in Section 3, although it is controlled by existing development management (planning) and environmental regulation, there is currently no resource licensing system in place for geothermal energy developments in Scotland.

Existing resource licensing systems and the requirements for development of a Scottish geothermal resource licensing system are reviewed below, and recommendations have been made for such a system.

4.1.1 Is resource licensing required for geothermal energy developments?

The traditional energy resources in the ground (mainly coal, and oil and gas) are controlled by a system of state licensing. The purpose of this is to control the exploitation of these nationally-important resources in an ordered and responsible manner (including those under third-party land), provide exclusive rights to the developer to exploit the resources within the licensed area and provide income for the State.

As stated in Section 3, the lack of a resource licensing system is seen as a significant barrier to investment in commercial exploration and development of geothermal resources in Scotland, and other parts of the UK, as it potentially discourages private investment in deep geothermal projects as it is a commercial risk. Developers and investors want security of tenure and exclusive rights to the resource that they are intending to invest in exploring and developing.

It is noted, including from discussion at the stakeholder workshop, that the current primary risk facing developers and investors in the proposed deep geothermal projects ( EGS) in England is actually the risk associated with geological uncertainty, and that the lack of a licensing system is secondary to this. However, to allow the geothermal industry to develop, it is considered important to have some form of licensing system in place in the medium term, and also perhaps to have some sort of interim measure in place in the short term.

4.1.2 Definition of Resource Licensing

Where the term 'licence' is used in this Section of the report, unless otherwise stated, it refers to a resource licence which gives rights to explore or exploit a particular resource. It does not refer to other types of environmental or other licence, authorisation, registration or permit that may be required elsewhere under statute (see Section 5 - The Environmental Regulatory Regime for Deep Geothermal Energy Developments).

4.2 Review of Existing Resource Licensing

The various aspects of existing UK resource licensing systems (non-geothermal) and international resource licensing systems (geothermal specific) have been reviewed in order to assess their suitability for adoption or amendment, or whether a separate new regime is required. Recommendations for geothermal resource licensing have been made following consideration of the various options. Fuller review of existing potentially relevant resource licensing systems is included in Appendix A and is briefly summarised in the following sub-sections.

4.2.1 Petroleum Licensing in the UK (including 'unconventional' gas resources)

The Department of Energy and Climate Change ( DECC) issues Petroleum Licences. The PEDL (Petroleum Exploration & Development Licence) for onshore licensing was introduced in 1996 to reduce bureaucratic burden of issuing a series of licences.

Potentially relevant features of Petroleum Licenses include (see Appendix A):

• Rentals - an annual charge, due each year on the licence anniversary and charged at an escalating rate on each square kilometre the licence covers at that date.
• Terms - licences are valid for a sequence of periods, known as 'terms', designed to comprise the typical life cycle of a field: exploration, appraisal, production.

The landward PEDL (onshore) licence confers the right to search for, bore for and get hydrocarbons, but do not confer any exemption from other legal/regulatory requirements such as any need to gain access rights from landowners, health and safety regulations or planning permission. In particular, nothing in part I of the Act confers, or enables the Secretary of State to confer, any right to enter on or interfere with land (see section 9(2) of the Act. However, section 7(1) of the Act applies the Mines (Working Facilities and Support) Act 1966 in England, Wales and Scotland for the purpose of enabling a licensee to acquire such ancillary rights as may be required for the exercise of the rights granted by the licence.

4.2.2 The Coal Authority and Minewater Heat Recovery Access Agreement ( MHRAA)

The Coal Authority has specific statutory responsibilities associated with licensing coal mining operations and issues related to past coal mining activities in Great Britain. The Coal Authority also has obligations to consider the implications on existing and future coal mining (and the potential for coal bed methane exploitation) of any activity which intersects, disturbs or enters any of the Coal Authority's coal interests. Such activities require the prior written authorisation of the Coal Authority in the form of either a Licence, Agreement, or Permit, depending upon the activity to be carried out.

The Coal Authority has introduced a form specific to geothermal development projects that extract heat from minewaters, a 'Minewater Heat Recovery Access Agreement' ( MHRAA). The Coal Authority grants two types of MHRAA, namely:

• an Access Agreement relating to Minewater Heat Recovery at a single site, with a maximum agreement area of 500 hectares, where all other rights and permissions are in place or applied for; or
• an Access Agreement relating to a larger area, with a maximum size of 2,000 hectares, where the intention is to evaluate the potential for project(s), with subsequent Supplemental Agreements required for each borehole site within this overall area.

It is noted that the MHRAA is an access agreement granted by the Coal Authority, largely to protect its assets, and it does not specifically grant a right or licence to the geothermal heat energy itself. This is presumably because the ownership of the heat is legally undefined (see Section 3 - The Ownership of Geothermal Resources in Scotland).

The MHRAA does not absolve the applicant from obtaining all other necessary rights, including surface access rights, permissions and consents.

4.2.3 Existing Licensing Systems in Other Countries

Various licensing systems are already in place in different countries and states around the world. Holroyd and Dagg (2011) carried out an inter-jurisdictional review of geothermal energy legislation (see Appendix A). This review provides a useful summary of some of the legal frameworks that have been put in place in different countries, including the United States, Canada, Australia, New Zealand, Iceland, Italy and Germany.

The Irish Government has also developed, and is proposing to introduce, specific legislative proposals in respect of geothermal energy (see Appendix A). It is currently proposed that the Geothermal Energy Development Bill will be published in 2013, following publication of the Minerals Development Bill, on which certain aspects of it are based.

It is acknowledged that the Irish Government has put considerable effort into developing legislation for licensing of geothermal resources that it intends to introduce in the near future. It is considered that although the proposed Irish legislation is based on their proposed new minerals legislation (as opposed to oil and gas legislation), that there are many common elements between the Irish and Scottish situation and that there are useful lessons to be learnt from the technical elements of the proposed Irish legislation when developing either UK or Scottish legislation.

4.3 Definition of geothermal energy resources

As discussed in Section 3 - The Ownership of Geothermal Resources in Scotland, and stated by DECC, it is considered that a clear definition of what comprises a geothermal energy resource is important in establishing ownership of the resource.

The definition will determine whether geothermal energy is defined in legislation as a mineral, water or heat/energy (see below). This in turn determines whether existing legislation can be used or amended to control the resource, or whether new legislation is required.

An example of a simple definition of geothermal energy is that used by the European Geothermal Energy Council ( EGEC): "energy stored in the form of heat beneath the surface of the (solid) earth".

Other definitions have been used in various countries and jurisdictions around the world, depending on how geothermal energy has been controlled through legislation.

As previously discussed, geothermal energy is not currently defined in Scottish or UK legislation and would require definition in new primary legislation or amendment of existing legislation to create a licensing regime.

4.4 Geothermal Resource Licensing Legislation

The legislative review by Holroyd and Dagg (2011), summarised in Appendix A, found four main resource classifications for legislative approaches to controlling geothermal resources:

• Petroleum;
• Minerals;
• Water resources; or
• Geothermal-specific.

Legislation relating to petroleum, minerals and water resources already exists in the UK and Scotland. The legislation relating to petroleum and minerals is considered to be most relevant to potential resource licensing.

4.5 Administration of Geothermal Energy Resource Licensing

Globally, the administration of geothermal energy resource licensing has been allocated in line with how geothermal energy has been classified and subsequent legislation.

4.6 Classification of geothermal energy resources

As part of the definition of geothermal energy, the resources that legislation will apply to are in most instances classified by one or more of the following in various other countries:

• Depth(s);
• Temperature threshold(s);
• End use;
• Power or heat capacity output;
• Geological type of resource - hydrothermal / petrothermal; and / or
• Geothermal technology.

Many countries use a range of greater than 400 metres to up to 1,000m depth to define shallow geothermal, with deep geothermal defined as greater than 1,000m depth.

Determining the classification of geothermal energy is key in determining how, when and where legislation will be applied.

Basing classification on the predicted, and to date largely untested, available geothermal temperatures, output types or resource capacity may be inappropriate and lead to over-complication. Further, basing classification on the geological type of resource may also be complicated due to the unique geological nature of individual resources.

The simplest basis of classifying geothermal energy resource is considered to be to use depth thresholds as this is an absolute. This is generally consistent with the nature of the available resources in Scotland which can be broadly classified by depth:

• <200m depth - Ground Source Heat Pumps
• <1,000m depth - shallow geothermal, Mine Waters, Shallow Aquifers (all with heat pumps)
• >1,000m depth - Hot Sedimentary Aquifers (including disused oil wells)
• >3,000m depth - Hot Fractured Rock / Hot Dry Rock / Enhanced Geothermal Systems

4.7 Fees, Leases, Rents and Royalties

In countries and jurisdictions with existing geothermal legislation a system for charging fees, leases, rents, tenures and / or royalties is generally included in the legislation.

4.7.1 Fees

A licence application fee is usually charged. This varies between different jurisdictions from nominal amounts (the equivalent to say several hundred pounds), to more significant amounts (the equivalent to say tens of thousands of pounds).

4.7.2 Leases and Rents

Appropriate leases give the developer confidence to invest in the development of the resource.

The lease period is usually set at an initial period (for example 10 years) with options for a defined and limited number of extensions (for example 5 years each). Options for extensions would usually be based on satisfactory performance of the developer or operating company during the initial lease period.

Leases can be applied to both exploration and production phases of development. In the examples from other countries and jurisdictions, an exploration bond is required, which is either a fixed amount or is dependent on the size of the lease area.

Annual rents can be applied to cover the leased area. In the examples from other countries and jurisdictions, relatively low rents are initially applied (of say US$1 to US$2 per acre per year), that increase steadily over the tenure period (to say US$10 per acre per year after 10 years).

As an alternative or in addition to the rents, if their is sufficient competition to warrant it, then the license area lease could be sold by competitive bid.

4.7.3 Royalties

Royalties are potentially be paid at a pre-defined rate on electricity and or heat produced to reflect the use of a national resource for profit by private developers.

4.8 Key Requirements for a Potential Geothermal Licensing Regime for Scotland

Based on the reviews of existing relevant resource licences in the UK and the geothermal licensing regimes for other countries, and the particular requirements relevant to Scotland, key requirements for a geothermal resource licensing system are considered to be:

• Clear definition of what comprises a geothermal energy resource.
• Classification of geothermal energy resources (by depth), including those that may be exempt or given permitted rights.
• Definition of geographical areas of licences (or 'blocks').
• A phased system of licence terms for the various phases of exploration, development and production.
• Exclusive rights for exploration of resources and production of energy.
• Granting of initial licences to parties who can demonstrate sufficiently that they are already investing in exploring or producing from a particular geothermal resource.
• Ancillary rights (such as third party land access rights).
• A system of fees, rentals ('rents') and / or royalties.
• Compatibility with existing development management (planning), consenting and permitting regimes and processes, which shall still apply.
• Compatibility with The Coal Authority's Licences, Agreements, and / or Permits (if applicable).
• Relevant exclusions or general rules for applicable schemes, including for existing shallow geothermal and GSHP schemes.
• A suitable administrative body.

4.9 Options for Geothermal Licensing Legislation

4.9.1 Identification of Options for the Introduction of Geothermal Licensing Legislation

The following options for the potential introduction of a geothermal licensing regime have been identified:

• Option 1 - Do nothing (do not introduce any new or amended legislation).
• Option 2 - Amend existing legislation.
• Option 3 - Create specific geothermal resource licensing legislation.

Under Option 2 three potential sub-options have been identified, as follows:

• Sub-Option 2A - Amend existing Petroleum legislation by including geothermal energy into the legislation.
• Sub-Option 2B - Amend existing Minerals and / or Mining legislation by amending the description of minerals in the legislation to include geothermal energy.
• Sub-Option 2C - Amend existing Water Resources legislation by including geothermal energy into the legislation.

4.9.2 Assessment of Key Potential Options for Geothermal Licensing Legislation

The assessment of key potential options identified is summarised in Table 4.1, including likely costs and timing and advantages and disadvantages for each option.

Table 4.1 Assessment of Key Potential Options

Key Option	Impacts
	Costs & Timing	Advantages	Disadvantages
Option 1 - Do nothing	None. Indirect cost of under-investment in geothermal industry.	None	Unlikely to promote investment in geothermal energy, under-utilisation of the resource. Does not address indentified key requirements.
Sub-Option 2A - Amend existing Petroleum legislation	Relatively moderate cost for drafting amended legislation, parliamentary process and administration. Moderate time implication.	Financial saving over drafting new legislation. Similarities in exploration and production techniques. Experienced potential administrative body in place ( DECC).	Potential complications in incorporating geothermal energy, possibly making it subject to onerous and inappropriate regimes. Potential difficulties in adequately addressing indentified key requirements.
Sub-Option 2B - Amend existing Minerals and / or Mining legislation	Relatively moderate cost for drafting amended legislation, parliamentary process and administration. Moderate time implication.	Financial saving over drafting new legislation. Similarities in exploration techniques. Experienced potential administrative bodies in place ( CA/ DECC, local authorities).	Potential complications in incorporating geothermal energy, possibly making it subject to onerous and inappropriate regimes. Potential difficulties in adequately addressing indentified key requirements.
Sub-Option 2C - Amend existing Water Resources legislation	Relatively moderate cost for drafting amended legislation, parliamentary process and administration. Moderate time implication.	Financial saving over drafting new legislation. Some similarities in water abstraction / discharge. Geothermal energy already incorporated in water regulations in relation to environmental controls (abstraction / discharge rates, heat identified as a potential pollutant).	Potential complications in incorporating geothermal energy, possibly making it subject to onerous and inappropriate regimes. SEPA are not specialists in energy source regulation. Unlikely to adequately address key indentified requirements.
Option 3 - Create specific geothermal resource legislation	Relatively high cost for drafting new legislation, parliamentary process and administration. Potentially moderate to high time implication.	Ability to address indentified key requirements. Specific nature reduces compliance burden and thereby promoting investment in geothermal energy. Geothermal energy can be separately and uniquely defined avoiding conflicts with incorporating it in existing legislation. Can be made applicable to include possible future development of offshore resources. Shallower resources can be exempted to avoid over-regulation.	Relatively high cost, moderate to high time implication.

4.9.1 Discussion of Options

Option 1 - Do Nothing

The 'Do Nothing' option is unlikely to actively promote investment in geothermal energy in Scotland leading to under-utilisation of the resource. This is not considered to be in line with renewable energy policy for Scotland, and in particular will lead to a missed opportunity for geothermal to contribute towards renewable energy targets in the coming years.

Outcome: Not Recommended

Option 2 - Amend existing legislation

The main advantages of amending existing legislation are the relatively moderate costs and the relatively short timescale compared to drafting new legislation. For sub-option 2A or 2B (amend existing petroleum, minerals or mining legislation), if DECC were to be the regulator then they are experienced in regulating energy sources.

The main disadvantage is potential complications in incorporating geothermal energy into existing legislation, possibly making it subject to onerous and inappropriate regimes.

Outcome: Not Recommended

Option 3 - Create specific geothermal resource licensing legislation

The main advantage of creating new legislation means that it can be drafted to deal with specific requirements of geothermal energy and avoid the use of potentially inappropriate or onerous existing legislation. However, drafting and enacting new legislation would take significant time and financial resources, including the time it takes to prepare and enact that legislation, including consultation, drafting and its passage through parliament

Other risks include competing political priorities, and that the timescales involved mean that investment in geothermal energy is channelled elsewhere, the potential contribution to reducing carbon emissions is lost and the opportunity for skills transfer from Scotland's oil and gas sector is also lost.

Outcome: Recommended

4.9.2 Recommended Option for Geothermal Licensing Legislation

It is recommended that Option 3, creation of specific geothermal resource licensing legislation is adopted.

It is anticipated that given the likely timescale involved in drafting and enacting new and specific legislation (possibly several years), interim measures are required to encourage investment in the short to medium term (see below).

4.10 Application of Geothermal Resource Licensing to Shallow Resources

Renewable energy policy in Scotland, including renewable heat, encourages de-centralised and local generation of energy. It is therefore considered that the Scottish Government would not want to inhibit the take-up of GSHP technology by burdening such projects with legislative requirements. In addition, it is considered that it would be undesirable to preclude use of GSHP in areas licensed for deep geothermal developments which will be unaffected.

From experience, most GSHP well boreholes are <200m deep, 100m deep being a more typical depth, with larger capacity systems using an array of wells to get the required length of pipe in the ground for required capacity of the system due to the costs of drilling increasing with depth. Some GSHP wells could be greater than 200m depth.

It is recommended therefore that any legislation could be drafted to allow exemption of shallower geothermal resources including GSHP applications or development subject to general rules, but that they would still be subject to all other appropriate planning and regulatory regimes, and other legal requirements. Definition is therefore required to differentiate between 'shallow' and 'deep' geothermal resources.

For financial reasons (the scale of the investment, technical risk and value for money), it is considered that the best potential for development of geothermal energy in Scotland in the short to medium term is heat from relatively shallow geothermal resources (i.e. those less than <1,000m but often much shallower), including the use of heat pumps where appropriate.

It is anticipated that GSHP schemes and shallower geothermal schemes with relatively modest outputs will form the vast majority of developments in Scotland in the near future. Exempting these from a licensing system has several potential advantages, including reducing the relative administrative and cost burden on both developers and regulators, and incentivising local-scale developments, including as part of heat networks in line with renewable heat policy in Scotland.

Conversely, it is considered that exploitation of deeper geothermal resources, that offer potential for heat and power in the medium to longer term, due to the petrothermal resources in Scotland being currently a largely unproven resource and EGS being an evolving and developing technology which has not been proven on a commercial scale do require a specific scheme. Due to the level of investment required, and the risks related to geological uncertainty, the number of deeper geothermal developments in the future is always likely to be much fewer than the number of shallower developments.

Shallower geothermal developments exempted from future potential resource licensing (or subject to general rules) would continue to be controlled by relevant legislation and regulations, including the following:

• Planning;
• CAR (the Controlled Activities Regulations); and
• The Coal Authority Licenses, Permissions and Agreements (if applicable).

DECC's proposed RHI for 'deep' geothermal only applies to projects >500m depth.

4.10.1 Identification of Options for Depth Classification

The following options for have been identified for classifying geothermal resources by depth, based on various accepted definitions:

• Option 1 - exempt geothermal resources at <100m depth as being 'shallow', in accordance with the existing Scottish Planning Guidance for 'deep' geothermal being >100m depth.
• Option 2 - exempt geothermal resources at <200m depth as being 'shallow'.
• Option 3 - exempt geothermal resources at <500m depth as being 'shallow', in accordance with the definition of 'deep' geothermal for the RHI.
• Option 4 - exempt geothermal resources at <1,000m depth as being 'shallow', in accordance with some existing international definitions (and also the general consensus at the stakeholder workshop), that >1,000m depth constitutes 'deep' geothermal.

The assessment of potential options identified is summarised in Table 4.2, including advantages and disadvantages for each option.

Table 4.2 Assessment of Potential Options to Define 'Shallow' and 'Deep' Resources

Key Policy Option	Impacts
	Costs & Timing	Advantages	Disadvantages
Option 1 - apply legislation to geothermal >100m depth	N/A	Consistency with existing Scottish Planning Guidance.	Not a widely accepted definition. Existing and likely future GSHP-type schemes reach depths of >100m and would be burdened with a licensing system, although exemptions could be included.
Option 2 - apply legislation to geothermal >200m depth	N/A	Excludes the vast majority of GSHP-type projects. Concentrates licensing on deeper schemes and does not place resource licensing burden on smaller relatively shallow schemes.	Not a widely accepted definition. Existing and likely future GSHP-type schemes may reach depths of >200m and would be burdened with a licensing system, although exemptions could be included.
Option 3 - apply legislation to geothermal >500m depth	N/A	Consistency with the current proposed DECC RHI threshold for 'deep' geothermal. Concentrates licensing on deeper schemes and does not place resource licensing burden on smaller relatively shallow schemes.	Not a widely accepted definition. The proposed RHI will still apply to schemes >500m depth, regardless of licensing classification.
Option 4 - apply legislation to geothermal >1,000m depth	N/A	In accordance with some existing definitions and general stakeholder consensus. Concentrates licensing on larger schemes and does not place resource licensing burden on smaller relatively shallow schemes.	This would also exempt many potential geothermal schemes, including those in mine workings which are generally <1,000m depth in Scotland. The gap between shallow GSHP schemes (typically <200m depth) and the 1,000m depth limit is large.

It is recommended that Option 2 is adopted, apply legislation to geothermal resources >200m depth, potentially with exemptions included for closed-loop GSHP-type systems.

4.11 Withdrawn Amendment to the Proposed Energy Bill

It is noted that in early 2011, the UK Government considered an amendment to the Energy Bill as proposed by Lord Teverson (Amendment 35, Tuesday 8 February 2011) in the House of Lords.

The proposed amendment was for the Secretary of State to develop and introduce a licensing system and regulations for the exploitation of deep geothermal sources, with wording as follows (see http://www.publications.parliament.uk/pa/ld201011/ldhansrd/text/110208-gc0001.htm).

After Clause 97, insert the following new Clause-

"Geothermal power

(1) Within eighteen months of this Act coming into force, the Secretary of State shall, after a period of consultation with industry, geological experts, the devolved administrations, local authorities, energy producers and other interested parties, put into place for the United Kingdom a licensing system and regulations for the exploitation of heat from deep geothermal sources for both the direct use of that heat and for the generation of electricity.

(2) The licences shall relate to-

(a) individual geographically delineated areas on land;

(b) the heat held by rocks greater than one kilometre below the surface.

(3) Licences shall give exclusive exploration and production rights for the purpose of energy production from geothermal sources, both direct heat and electricity generation, to the licensee, for that area, and for a specific period of time.

(4) The Secretary of State shall lay down regulations for the method of allocation of licences to those organisations wishing to explore or exploit those resources, or both.

(5) The Secretary of State shall undertake the first round of allocations within six months of the licensing regulations under subsection (1) being approved.

(6) Any organisation already undertaking exploration or exploitation from geothermal sources within the United Kingdom, in that they have already undertaken, at the time the licensing regime comes into force, boring for the purpose of exploiting geothermal heat to below one kilometre, shall be entitled to hold the first licence awarded for that licence area, and any licence fee or other consideration for that licence area as a part of the licensing regime will then be determined by arbitration under rules determined by the Secretary of State reflecting the fees or other consideration paid for licences deemed to have similar potential.

(7) The holding of a licence for the exploration or exploitation of deep geothermal heat, or both, shall not convey any automatic rights in terms of planning permissions for surface development, or give any rights in terms of surface access."

The amendment was however withdrawn and was not included in the Energy Bill (which received Royal Assent in October 2011, and became the Energy Act 2011). It is not clear from the record why the amendment was withdrawn, however, there does seem to have been some discussion with the 'Minister' (presumably a Minister from DECC).

4.12 The Proposed Form of a Geothermal Resource Licensing Regime for Scotland

The proposed form of a geothermal resource licensing regime for Scotland must address the key requirements identified in Section 4.8.

Based on review of the requirements and existing resource licensing regimes, it is considered that the general form of the UK petroleum licensing regime for onshore developments ( PEDL) may be suitable for application to the proposed 'Geothermal Exploration and Development Licence' (' GEDL').

It is considered that this format would make GEDL suitable for licensing of both potential onshore, and potential future offshore, geothermal developments.

Definition of what comprises a geothermal energy resource

It is recommended that a simple definition of geothermal energy is used, for example: "energy stored in the form of heat beneath the surface of the (solid) earth" (as used by EGEC) or similar.

Classification of geothermal energy resources

As discussed above, it is recommended that any legislation could be drafted to allow development geothermal resources <200m deep subject to general rules or exemptions, for example for closed-loop GSHP-type systems that are unlikely to significantly effect other geothermal developments. The option to license shallow resources in the future, if it proves necessary, would therefore be retained. Similarly, exemptions could potentially be included.

Geographical definition of licence areas

It is anticipated that the definition of the geographical extent of licensed areas (or 'blocks' in PEDL terminology) would actually differ from Petroleum Licensing due to the differing nature of the resource.

It is anticipated that blocks would not be released in licensing rounds as in Petroleum Licensing, as the exact location of the best resources is not currently well defined.

It is instead anticipated that the developer would instead indentify a potential resource and apply to licence a particular area of interest for geothermal exploration, with later development and production phases.

The geographical extent of the area would initially be that anticipated to be the full sub-surface extent potentially effected by the development, as predicted by modelling prior to exploration. This area would then be subject to refinement following the exploration stage and more accurate modelling.

Of particular concern for potential investors is the security of the resource from other potential developments. Under the proposed GEDL, any developers would need to demonstrate that the effects to any existing licensed areas from their proposed development would be negligible.

Phasing of licence terms

The lease periods (or 'terms' in PEDL terminology) would potentially be in three phases, to allow phased development of the resource. It is therefore recommended that leases for the licensed area are introduced as part of any Primary legislation. The preliminary proposed terms are indicated in Table 4.3. These are based on the expected working life of the geothermal plant.

Table 4.3 Potential Phases of Geothermal Licensing

Term	Life cycle of field	Preliminary Proposed Term Duration	Comment
Initial	Exploration	5 years	Initial site finding, geophysical surveys, including all necessary planning permissions and environmental permitting.
Second	Appraisal and Development	5 years	Securing investment / finance, initial exploratory / production well(s), other production wells
Third	Production & Decommissioning	25 years	Production. Potentially subject to consecutive extensions.

Exclusive rights for developers

The provision of an exclusive secure tenure for developers is considered to be an important component in providing investor confidence and thereby encouraging investment in geothermal energy. The license would grant the exclusive rights to develop the resource within the defined area for the licence term, and subject to satisfactory progress.

It is anticipated that the legislation would allow for granting of initial licences to parties who could demonstrate sufficiently that they are already investing in exploring or producing from a particular geothermal resource so as not to disadvantage existing or proposed schemes.

Ancillary Rights

It is anticipated that under a proposed GEDL the Secretary of State (or a nominated Minister of the Scottish Parliament) would have the ability under the proposed Primary legislation (some form of 'Geothermal Energy Act') to confer the right to search for, bore for and recover (extract) geothermal energy, but would not confer any exemption from other legal or regulatory requirements such as:

• any need to gain access rights from landowners
• health and safety regulations
• planning permission from relevant local authorities.
• environmental regulatory requirements.

With regard to any required access onto third-party land for exploration or production, a proposed Geothermal Energy Act could be developed to either give the licensee rights to enter on or interfere with land but this may cause difficulties in legislation. Alternatively, it may be possible (as for PEDL) for a Geothermal Energy Act to apply the Mines (Working Facilities and Support) Act 1966 in England, Wales and Scotland for the purpose of enabling a licensee to acquire such ancillary rights as may be required for the exercise of the rights granted by the licence.

It is not anticipated that access onto third party land would be common, as geothermal developments can operate from a single relatively small surface site area. However, the above would allow for access in exceptional circumstances, say to prevent monopolisation of a resource by a single landowner.

Fees, terms, rentals and / or royalties

Each licence could carry an annual charge (rental), potentially at an escalating rate on each hectare that the licence covers at that date to encourage licensees to focus licensees of areas that they decide to develop, and also to surrender areas that they don't want to exploit.

Licences would be valid for a sequence of terms (see above). These would be designed to comprise the typical life cycle of a geothermal field comprising exploration, appraisal and production.

It is anticipated that each licence would expire automatically at the end of each term, unless the licensee has sufficiently progressed to warrant a move into the next term. However, in order to reduce risks to developers and encourage investment, it is recommended that under a proposed GEDL, that it would be possible to apply to extend the length of the licence terms before they expire, if it could be proven by the licensee that circumstances beyond their control had caused delay. The length of extension could be fixed on a case-by-case basis.

Licensees would be entitled to surrender a licence, or part of the acreage covered by it, at any time. It is anticipated that licensees would be positively encouraged to surrender acreage if they did not intend to develop it.

It is recommended that a provision is made in developing geothermal licensing legislation that allows royalties and rents to be charged, if desirable in the future, but that the initial level of royalties should be set at zero and rents at a nominal level. This to reflect the current early development of the industry and to encourage investment in geothermal energy as a renewable (low carbon) technology. For the same reason, royalties are not currently charged in Germany.

It is anticipated that a licence application fee would be charged to cover, or at least part-cover, the cost of administration and assessment of the application.

The relevant policies and principles for fees, leases, royalties and any other levies would need to be laid out in the Primary legislation. Determination of the level of these is beyond the scope of this report. Appropriate initial amounts should be proposed and agreed after consultation with industry on the proposed legislation.

Compatibility with existing legislation

The geothermal licensing legislation must be developed to be compatible with existing legislation and regulatory requirements, including development management (planning), consenting and permitting regimes and processes, which shall still apply. In particular, compatibility with The Coal Authority's Licences, Agreements, and / or Permits would be required within coal mining areas.

It is anticipated that the licence conditions would require all legislative and regulatory requirements to be met, for the appropriate development term, before the licence could be validated.

Administrative Bodies

As discussed in Section 3 - The Ownership of Geothermal Resources in Scotland, administration may be on a UK-wide or Scottish basis, and will depend on the form any licensing regime.

The existing Petroleum Licensing regime in administered by DECC on a UK-wide basis.

If the proposed GEDL is to be based on Petroleum Licensing, it may appropriate for DECC to also administer it is considered that they will have the most relevant experience. The Scottish Government may wish, however, for control over the proposed GEDL in Scotland (onshore and offshore).

It would then be a matter for the Scottish Government to determine which department, agency or public body would carry out the administrative duties.

The division of responsibilities between the UK Government and Scottish Government for a future potential licensing regime is beyond the scope of this report.

4.13 The Timeline for Geothermal Industry Development in Scotland

A possible timeline for geothermal industry development in Scotland is indicated in Table 4.4. This is based on similar predicted timescales in the timeline in the Australian Geothermal Industry Technology Roadmap (Commonwealth of Australia, 2008) and mainly relates to projects aiming to generate power (electricity). Heat-only projects could start to be implemented in areas with the best available information immediately.

Table 4.4 Possible Approximate Timeline for Geothermal Industry Development in Scotland (for HDR type projects)

4.14 The Interim Position for Licensing

It is anticipated that given the likely timescale involved in drafting new and specific geothermal resource licensing legislation (several years), interim measures are required to encourage commercial investment in the short term and medium term.

It may be appropriate to follow a two stage approach to legislation, initially creating relatively simple interim exploration and development legislation, as an amendment to existing legislation, to be replaced at a later date with more comprehensive and stand-alone Geothermal Energy Act (covering exploration, development and production), as the industry develops and matures. A similar two-stage approach was followed in the state of Queensland in Australia (Holroyd and Dagg, 2011) with an initial 'Geothermal Exploration Act' (2004) and a later 'Geothermal Energy Act' (2011).

An alternative mechanism is still required in the intervening interim period, until either formal interim or full legislation is introduced.

Two potential options for indirectly controlling geothermal development through existing legislation and regulations:

• groundwater abstraction licences, and / or
• the development management (planning) regime.

It is important to note that neither of these options would formally license the geothermal resource itself, they would however allow a level of control on development and provide some security for developers.

Groundwater abstraction licences are issued by SEPA. Groundwater abstraction for geothermal projects in Scotland do not currently need a groundwater abstraction licence if they comply with the conditions of the relevant general binding rules ( GBR3 and GBR17). A condition of GBR17 is that the volume of water abstracted but and not returned must not exceed 10m ³ per day (see Section 5 - The Environmental Regulatory Regime for Deep Geothermal Energy Developments), in other words as long as the same volume of water abstracted for geothermal purposes is returned (and subject to the other conditions) an abstraction licence is not required.

It is noted that in England, the Environment Agency are regulating deep geothermal energy through abstraction licences for any schemes abstracting more than 20m ³ of water per day. The EA note in their position statement ( EA, 2011) that their abstraction licence "protects the right to water quantity, not heat. If we grant a new licence to another nearby or competing scheme, our primary duty will be to prevent the loss of water available for abstraction under the existing licence or other protected rights to abstract water. We will not be liable for any loss of heat if a new scheme takes heat away from an existing scheme".

Control of geothermal developments through groundwater abstraction licences in Scotland would therefore require a change to GBR17 in the Schedules to CAR (The Water Environment (Controlled Activities) (Scotland) Regulations 2011) to require an abstraction licence for geothermal energy projects. It is considered that this would take a significant period of time and therefore is unsuitable for a short term interim measure.

Geothermal development could potentially be controlled in the interim to some extent through the development management (planning) regime, namely assessment of cumulative effects in Environmental Impact Assessment ( EIA) (see Section 5 - The Environmental Regulatory Regime for Deep Geothermal Energy Developments). The main advantage of using the development management approach is that any later adjacent proposed geothermal development(s), that also require an EIA, would need to prove prior to planning consent being granted, that there was no significant cumulative effect on an existing scheme that could be detrimental to its operation.

The interim system would require new planning guidance on the application of EIA to proposed geothermal developments, including consideration of the whole of the three-dimensional volume predicted to be effected by the development and not just the surface footprint of the site (drilling) compound ('red line' planning boundary).

4.15 Conclusions

A clear definition of what comprises a geothermal energy is vital in establishing ownership of the resource and determines whether it is defined in legislation as a mineral, water or heat/energy. This in turn determines whether existing legislation can be used or amended to control the resource, or whether new legislation is required. Geothermal energy resources are not currently defined in Scottish or UK legislation and does not come under existing legislation.

It is expected that the rights to geothermal energy resources would be claimed on a UK-wide basis and rights then licensed by a UK Government agency (for example DECC), or possibly the powers for Scotland could be 'transferred' to the Scottish Government.

From the review of legal ownership and existing licensing regimes, it is considered that adoption or amendment of existing licensing regimes would potentially be problematic and creation of new, specific legislation is the preferred option. Key requirements for a potential geothermal licensing regime have been identified.

It is anticipated that given the likely timescale involved in drafting new and specific geothermal resource licensing legislation (several years), interim measures are required to encourage commercial investment in the short term and medium term.

It may be appropriate to follow a two stage approach to legislation, initially creating relatively simple interim exploration and development legislation, as an amendment to existing legislation and to be replaced at a later date with more comprehensive legislation as the industry develops and matures.

In the intervening period before any amended or new legislation could be introduced, geothermal development could be controlled through the development management (planning) regime, and / or groundwater abstraction licences. Changes would be required to planning guidance relating to the application of EIA and / or the requirements for groundwater abstraction licences in the CAR ( GBR17, Schedule 3) if these were to be used for control.

The enactment of geothermal resource licensing should be such so as not to inhibit the take-up of GSHP technology.

4.16 Recommendations

It is recommended that new primary legislation should be introduced, a proposed 'Geothermal Energy Act', to include claim ownership of geothermal resources and implement a licensing system for geothermal resources.

It may be appropriate to follow a two stage approach to legislation, initially creating relatively simple interim exploration and development legislation, as an amendment to existing legislation, to be replaced at a later date with more comprehensive and stand-alone legislation, as the industry develops and matures.

It is recommended that the Scottish Government, in conjunction with DECC, reviews the potential political opportunities and timescales for introduction of the proposed Geothermal Energy Act, and potential interim legislation.

It is recommended that geothermal resources shallower than 200m depth should be either exempted from licensing or made subject to general rules.

To encourage commercial investment in the short term, it is recommended that in the intervening period before any amended or new legislation can be introduced, geothermal development is controlled through the development management (planning) regime through EIA, and / or groundwater abstraction licences. Some changes would be required to enable this. It is recommended that SEPA are consulted by the Scottish Government regarding this issue as they would be the primary consultee for relevant EIA issues and also administer groundwater abstraction licensing.