New ELC Publication: Gaining Steam


Strokker geyser in Iceland

New ELC Publication: Gaining Steam

NOTE: Photo of Strokkur geyser in Iceland, courtesy pixabay.com

 

New ELC Publication
Gaining Steam: A Regulatory and Policy Framework for Geothermal Energy Development in Alberta

 

The ELC is pleased to announce publication of Gaining Steam: A Regulatory and Policy Framework for the Geothermal Energy Development in Alberta.  Gaining Steam provides a review of existing legislation, other jurisdictions’ approaches, and recommendations and policy direction for geothermal resources in the province. This publication consists of an Executive Summary and four modules:

A Note about Bill 36: The Geothermal Resource Development Act

On October 20, mere days before release of our publication, the provincial government tabled Bill 36: The Geothermal Resource Development Act.  As such, the discussion and recommendations in our publication were made without reference to Bill 36.  In the coming weeks, we will review Bill 36 in detail and provide our assessment and recommendations.

Missing Pieces in Alberta’s Regulatory and Policy Landscape

Alberta’s lack of a comprehensive, effective regulatory and policy framework hinders the development of geothermal resources as a relatively clean energy source.  Some key missing pieces include:

  • There is no legal definition of geothermal resources.
  • There is a lack of clarity as to ownership of geothermal resources.  As well, there is no process for obtaining tenure (in the case of Crown ownership) and access to geothermal resources.
  • There is no licensing system specifically enabling exploration for and development of geothermal resources.
  • There are no provisions addressing environmental regulatory matters such as environmental assessment, and abandonment, reclamation and remediation requirements. (It should be noted that geothermal electrical power production projects are already subject to reclamation under the Environmental Protection and Enhancement Act).
  • The interface between geothermal resource development and oil and gas development promises synergy in terms of co-production and reworking of wells, and shared data and technical knowledge. However, it also brings significant legal challenges around subsurface conflicts and liability which are not addressed by Alberta’s regulatory system.
  • There is little to no policy framework in place to support the nascent geothermal industry.

The Path to Geothermal Resource Development: Eliminating Legislative & Policy Barriers

Alberta’s lack of a comprehensive, effective regulatory and policy framework hinders the development of our geothermal resources. The uncertainty created by unresolved legal issues and undefined regulatory processes is a significant barrier which must be overcome to clear the path to geothermal resource development. This path is made easier with the adoption of stable, predictable policy support programs which address the financial and technological risks associated with development of geothermal resources.

Regulatory Regime

Alberta’s regulatory regime for geothermal resources must provide a definition of geothermal resources, ownership of geothermal resources, and a comprehensive licensing regime.

  • Geothermal resources should be defined as a unique resource which falls into the purview of the Mines and Minerals Act. The definition should encompass all geothermal resources that can be used for direct heat or for electrical production. The definition should not be tied to a particular temperature or to a particular technology; rather, it should focus on the resource as a form of energy.
  • Ownership of geothermal resources should be vested in the Crown via legislation.
  • As a Crown resource, an appropriate tenure regime for geothermal resources (that is, a process to obtain rights to extract geothermal resources) is required. It is recommended that a new regulation – called the Geothermal Resources Tenure Regulation – pursuant to the Mines and Minerals Act be made to specifically address tenure of geothermal resources.
  • While both shallow and deep geothermal resources should be vested in the Crown, a distinction should be made for tenure in the proposed Geothermal Resources Tenure Regulation.
    • Shallow geothermal resources are those which are less found less than 400m deep and are above the base of groundwater protection. These resources should be allowed to be used by the surface landowner in geo-exchange applications without need to obtain tenure.
    • Deep geothermal resources tenure would be obtained via a hybrid staking approach which would allow geothermal rights to be applied for and granted under ministerial discretion. In addition, the Minister should have the authority to post rights and accept bids.
    • Prior to granting tenure to geothermal resources, there should be screening for environmental concerns such as impacts on species at risk, water resources, habitat and so forth.
    • Prior to extensive disposition of rights to geothermal resources, the government should articulate an approach to addressing potential conflicts with other subsurface interests.
  • While there would be no need to obtain tenure for shallow geo-exchange applications, this does not mean that such activities would be exempt from regulation.
    • There is currently existing regulation (under the Water Act) around geo-exchange systems that are completed above the base of groundwater protection (with the exception of horizontal closed-loop systems).
    • Given the typically small scale and the lack of need to access special geological conditions (i.e. do not require deep well construction), there is likely existing capacity to regulate these systems via building codes, municipal building requirements, and environmental laws of general application.
    • Additional guidelines and directives for appropriate design and installation may be appropriate (especially for more dense neighbourhood scale or district heat applications).

The licensing regime would be regulated with a stand-alone regulation – the Geothermal Resource and Energy Regulation – promulgated pursuant to the Mines and Minerals Act and implemented by the Alberta Energy Regulator (AER). This regulation would apply to deep geothermal resources.

  • In the case of geothermal resources located under private lands, a developer would be required to enter lease negotiations with the landowner or seek access pursuant to the Surface Rights Act (in the same way as other energy activities).
  • The Geothermal Resource and Energy Regulation would address the licensing of geothermal exploration and development/extraction activities.
  • Provide key definitions associated with the various stages of exploration, development, and production (for example: well, facilities, operator, project, power plant).
  • Set out the purposes of the regulation including protection and minimization of damage to the environment, useable ground waters, geothermal resources, life, health, property, and other subsurface interests. In addition, one purpose should include maximum long-term efficiency of the resource by ensuring extraction rates do not exceed natural recharge rates.
  • Empower the AER to make rules for a comprehensive licensing regime including fees, notices, and technical requirements.
  • Establish license and approval requirements. There should be a requirement for exploration licenses issued for a term of 1 year which can be renewed as long as prescribed conditions are met. In addition, there should be a requirement for well drilling and facilities approvals issued for 20-year terms which can be renewed if prescribed conditions are met. The AER should be enabled to impose conditions on licenses and approvals, and both should be subject to suspension or cancellation if specific license or approval conditions are not met.
  • Provide authority to seek security before geothermal resource activities commence.
  • Set out requirements set for the different stages of geothermal resource development: exploration, well drilling, field development, power plant operations, and closure/reclamation.
  • Set out requirements for record-keeping, monitoring and reporting. In some cases, the regulator may determine that immediate filing and release of certain data is required as a matter of public safety (as is the case with the AER’s Directive 059: Well Drilling and Completion Data Filing Requirements).
  • Consider opportunities to increase access to exploration data, including the potential for making data public after a prescribed time.
  • Set out offences and penalties.
  • Activities associated with deep geothermal resources fall into the purview of the Environmental Protection and Enhancement Act (EPEA) and the Water Act, as such, it is recommended:
    • That the possibility of a directive or code of practice be explored for deep geothermal developments (subject to environmental screening occurring at the tenure-granting stage). In particular, direct heat applications or geothermal power plants that qualify as micro-generators are likely candidates for a directive or code of practice that could be used to streamline approval or license requirements under the Water Act.
    • We recommend that consideration be given to exempting geothermal power plants smaller than 1 megawatt from the environmental assessment process under EPEA.
    • The possibility of registration along with a code of practice be explored, particularly for those direct heat applications or geothermal power plants that qualify as micro-generators, as a means to streamline EPEA requirements (in terms of design standards, operations and reclamation requirements).

In order to place geothermal resource operations within the purview of the AER, amendments to the Responsible Energy Development Act will be required. 

The Geothermal – Oil and Gas Interface

In Alberta, with its significant oil and gas industry, there is potential overlap and synergy of the geothermal resource industry and the oil and gas industry.  Synergy can arise from existing oil and gas operational experience, skills and data.  There is possibility for the co-production of geothermal resources with oil and gas wells, as well as the use and re-working of abandoned wells and other existing infrastructure. However, these overlaps also raise particular legal issues – such as subsurface conflicts and liability – that need to be addressed by a geothermal regulatory regime.

Currently, a variety of regulatory tools are enabled by the Oil and Gas Conservation Act (OGCA) to address subsurface conflicts. The ELC recommends that the proposed Geothermal Resource and Energy Regulation provide similar tools or enable use of the Oil and Gas Conservation Act tools for resolving subsurface issues that may arise with geothermal development and other subsurface interests. In order to minimize potential conflict, it may be appropriate to legislate minimum setbacks for geothermal wells from existing oil and gas wells and water wells. Further, there should be clear articulation of the approach to be adopted in the case where geothermal activities might negatively impact the extraction of oil or gas resources or other minerals (or vice versa).

Liability associated with co-production of geothermal resources with oil and gas operations or re-working oil and gas wells should be clarified.

  • In the case of co-production, given the geothermal aspect of the operations is an adjunct to the oil and gas operations, statutory liability should fall in accordance with existing provisions under the OGCA and EPEA. It is recommended that clarity be provided by regulation on apportionment of liability in cases where geothermal operations are undertaken by a party other than the oil and gas operator.
  • In the case of re-working an oil and gas well into a geothermal well, the complex liability issues likely require additional legislative refinement. This should include implementation of a pre-transfer inspection and assessment process to provide a snapshot of existing condition of the well, subsurface and surface prior to transfer for re-working purposes.  Issues detected during this process should be addressed by requiring resolution of the issues or, in some cases, it may be appropriate to require payment of security.

While the OGCA has provisions for reworking wells, given the context of the Act (which is the production of oil and gas, and storage and disposal of substances), it likely doesn’t envision reworking for geothermal energy purposes.  This should be addressed by including a provision allowing the issuance of permits and approvals to rework oil and gas wells for geothermal energy purposes in the proposed Geothermal Energy and Resource Regulation.   Furthermore, the AER or Orphan Well Association could undertake programs to encourage “adoption” of orphan wells for reworking in to geothermal wells.

Policy Considerations

Other jurisdictions have demonstrated success with using policy instruments to support a nascent geothermal industry and these are recommended for Alberta. There are a variety of policy instruments available, broad recommendations include:

  • In the initial development of the geothermal industry, it is likely appropriate to not impose a royalty in order to encourage development. However, the authority to impose royalties should exist as royalties may become appropriate in later stages of industry development.
  • The Renewable Electricity Act should be maintained as it establishes a legislated target for developing electrical capacity from renewable resources. The Act could be enhanced by placing specific requirements on individual utilities, as well as enabling a market for trading Renewable Portfolio Standards (RPS) credits.
  • Policies and programs must be put into place in order to actually achieve the target established by the Renewable Electricity Act. These policies and programs could be similar to or a recommencement of the Renewable Electricity Program  previously used in Alberta, or could be a  Feed-in-Tariff (FIT) program.
  • Aside from establishing robust RPS and FIT programs, development of geothermal resources likely requires financial incentives. These can be:
  • Loans which are backed by the government or are directly provided by government to geothermal developers.
  • Insurance which absorbs the economic setbacks associated with drilling failures. For instance, the Icelandic government provides loans which convert into grants when an attempt to develop a new field fails.
  • Early stage fiscal incentives such as easing import duties on machinery and equipment; reduced licence fees; and tax incentives.
  • Direct government support such as grants and cost sharing. Participation in such direct support programs should be conditional upon data sharing requirements.

Although some policy tools are designed to transfer risk to the public purse, which is contrary to the polluter pays principle, there are other social objectives to be considered (such as increased renewable energy sources).  The appropriate level of risk (that is, the level of support) will be a matter of assessing the various policy goals of the program.  The precise mix of policy tools – including appropriate timing and level – requires economic analysis which goes beyond the scope of this project. We note that there is precedent for government financial support for new resources in Alberta as similar approaches were adopted in the early days of oil-sands development.


 


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