New promotion of deep geothermal plants for municipal heat supply

• Federal Ministry for Economic Affairs, KfW and Munich Re launch innovative promotional programme
• Low-interest loans for financing deep geothermal drilling
• Hedging of loans covers the exploration risk
• Documents for pre-checking can be submitted now

Today KfW has launched a new promotion for the expansion of deep geothermal energy for municipal and industrial heat supply in cooperation with Munich Re and the Federal Ministry for Economic Affairs and Energy. The “KfW Geothermal Energy Promotional Loan” is part of the Germany Fund initiated by the Federal Ministry of Finance, the Federal Ministry for Economic Affairs and Energy and KfW. It uses various financing instruments to provide state incentives to attract private capital for investments in important future areas of the German economy.

The innovative programme focuses on two points: Firstly, it supports the financing of geothermal drilling deeper than 400 metres in Germany with low-interest loans from KfW, and secondly it hedges the exploration risks associated with this drilling. Munich Re assesses the insurability and feasibility of projects.

KfW provides loans of up to 25 million euros per project with a maximum term of five years. The loan must be covered by insurance or partial debt relief. The Federal Government provides funds for risk hedging. A project overview can be submitted for assessment as of today.

“Deep geothermal energy has the potential to make a substantial contribution to climate-neutral heat generation in Germany – efficiently and independently of fossil fuels,”

says Melanie Kehr, KfW Executive Board Member responsible for domestic promotion.

"Our new promotion tackles a central obstacle to expansion and addresses the high financial risk of drilling. Together with the Federal Ministry for Economic Affairs and Energy and Munich Re we are setting new impetus for the energy transition and thus strengthening the sovereignty of Germany as an economic location."

Munich Re assesses the insurability of the projects before the loan application. Once the minimum requirements have been evaluated positively, a detailed project appraisal takes place. If this is also positive, KfW will issue a request to submit an application.

Munich Re hedges 30 to 70 percent of the loan amount. For the uninsured portion, KfW grants partial debt relief in the event of damage – for example, in the event of non-discovery – under the same conditions as in the insurance contract. This allows the executing agency to hedge up to 100 percent of the loan amount.

By assuming the risk, Munich Re solves the financing dilemma: "In the field of deep geothermal energy, we work in an area which involves a high risk of failure and stringent risk requirements. We look closely at each project on the basis of the respective data situation. Under these conditions, Munich Re is able to insure geothermal energy projects with an exploration insurance policy in designated areas throughout Germany. It is essential for these projects that we are involved from the outset, that we have insight into the measurements and calculations, and that the data is accurate," explains Thomas Blunck, Member of the Board of Management at Munich Re.

With the new promotion, the partners are making a significant contribution to the expansion of the heat infrastructure and thus to a stable energy supply. KfW is also set to expand its “Investment Loan for Municipal and Social Enterprises” to include investments in an efficient heat and electricity supply. This makes it possible to continue financing the construction of a geothermal plant after exploratory drilling has proved successful.

More information is available at: www.kfw.de/572

Details on the Germany Fund can be found here: Germany Fund | KfW.

You can access the infographic(PNG, 884 KB) on geothermal energy here.

Please note that the linked websites are currently available in German only.