Unlocking Chile's geothermal potential: Balancing costs and incentives

Chile's senate is due to debate a bill to amend law No. 19,657 on geothermal energy concessions so that they are no longer limited to electricity generation and can be expanded for direct use by industry, mining, stores and households.

The senate mining and energy committee approved the bill unanimously in July to foster this renewable energy with a very low carbon footprint.

Miners such as Collahuasi, Antofagasta Minerals and Codelco have explored the geothermal option in the past, but none have followed through on any projects.

To talk about the potential for geothermal energy in Chile, the challenges for development and its potential use in mining, BNamericas spoke with Trinidad Carmona, CEO of Santiago-based multinational drilling technology developer Drillco.

BNamericas: How feasible is it for Chile to develop geothermal energy?

Carmona: Chile is incipient in the development of geothermal versus other renewable energy sources such as hydro, wind or solar, which are much more developed, but it has very interesting potential. There are areas of volcanic activity in the country, so the heat isn’t too deep but close to the surface, which is very beneficial. But we have challenges in terms of permits, technologies, exploration, investment, etc.

BNamericas: What political, legislative or infrastructure aspects are required to accelerate the industrialization of geothermal energy?

Carmona: Geothermal energy as a viable alternative isn't yet on the table in the political-economic discussion, since the agenda is full of issues related to lithium or green hydrogen.

Construction of Cerro Pabellón began in 2015 and it started operating in 2017, but it was an exceptionally rapid case. Stable legislation is required, as is the case for mining, and there should be incentives to invest. Countries that have managed to grow in the geothermal industry have generally been able to do so through the use of green taxes or tax breaks.

BNamericas: How much geothermal energy could Chile potentially generate?

Carmona: Copper studies center Cesco estimates that Chile has geothermal potential of over 3,000MW, mainly in the north and south, since there isn't much volcanic activity in the center. However, the initial cost of installing a geothermal plant is still very high, which is why it isn't yet as widespread as in the US, Indonesia or Turkey.

[Editor’s note: Geothermal requires an estimated initial investment of US$5,000/kW, while that for wind energy is a maximum of US$1,800/kW and solar energy US$870/kW, according to a presentation by Ana Lía Rojas, director of Chilean renewables and storage association Acera, which can be seen in the Documents box].

In Chile it is easier to operate it technically, because our volcanic resources mean that the high temperatures are at a more superficial level, so it’s not necessary to drill so deep to reach the heat. Other issues associated with costs are technology, labor, infrastructure and the energy distribution matrix.

BNamericas: What incentives are there to invest in geothermal energy?

Carmona: It's a renewable and green energy, and despite having a high initial investment cost, it becomes very profitable over time. Unlike with gas or oil extraction, only a coolant is required. That's why we've seen a boom in countries like Sweden, Norway, Finland and Iceland since the war between Russia and Ukraine began, as they sought alternatives to generate their own energy and continue heating their homes in the winter to avoid dependence on Russian gas.

BNamericas: What areas or processes in the mining industry could be supplied with geothermal energy?

Carmona: Mining consumes energy in various processes, comminution being the main one, but today all equipment, trucks, shovels, drills and hoppers are transitioning to electricity, meaning electricity consumption is growing. The mining industry will require energy from different renewable sources, including geothermal, to achieve decarbonization by 2050.

BNamericas: It has been said that lithium extraction could benefit from the geothermal fluid existing in the salt flats.

Carmona: True. But in Chile and Argentina, lithium is produced by solar evaporation and not by drilling, as in Canada or Australia. If we're able to create an attractive and aggressive lithium policy in terms of production, we could take advantage of geothermal energy and store it in lithium batteries or other storage systems such as pumped water, thermal or hydrogen.

BNamericas: Drillco carried out research into geothermal energy. What were its conclusions?

Carmona: We did three years of fieldwork with a contractor in Sweden to understand how it is operated remotely and what the technical challenges of low-depth geothermal energy are – it is mainly used for heating homes and not for industry. We also analyzed the conditions of the rock, the drilling rigs and the operation, and with that, we produced a specific portfolio for geothermal energy.

BNamericas: What are the advantages of Drillco drilling rigs for geothermal energy?

Carmona: We have specialized lines for each application, including mining, water wells, etc. What we provide is efficiency, respect for the environment and care in the process. Last year, we reduced CO2 emissions by more than 1,000t in the steel industry, which is the second most polluting sector in the world after the cement industry. The benefits include a smaller carbon footprint, greater operating efficiency and reduced costs, through customized products for each case.

BNamericas: What factors would help boost investments in geothermal energy in Chile?

Carmona: Geothermal energy is a long-term industry for the future, with high required investment amounts and long investment horizons, so investors require certainty, and political and legislative stability to produce a better return on investment. 

On the other hand, state investment will never be sufficient due to the high costs of geothermal energy, so there should be public-private collaboration, including green taxes, tax breaks, quotas and other mechanisms.