Publication - Independent report

Potential for deep geothermal energy in Scotland: study volume 1

Published: 13 Nov 2013

This independent study investigates the potential for deep geothermal energy in Scotland and the steps necessary for commercialisation.

Potential for deep geothermal energy in Scotland: study volume 1
Appendix A: Review of Resource Licensing Regimes

Appendix A: Review of Resource Licensing Regimes

A.1 Existing UK licensing regimes which are currently applicable to the commercial exploitation of underground energy sources

A.1.1 Petroleum Licensing in the UK (including 'unconventional' gas resources)

The Department of Energy and Climate Change ( DECC) is the government department responsible for energy and issuing Petroleum Licences. The Secretary of State has discretion in the granting of licences, which is exercised to ensure maximum exploitation of national resource. DECC can grant licences that confer exclusive rights to "search and bore for and get" 'petroleum'. Each of these confers such rights over a limited area and for a limited period.

Most licences follow a standard format but DECC is flexible in this regard and will consider adapting new licences to suit special scenarios.

A.1.2 Types of Petroleum Licence

Modern licence types are as follows and Table A.1 gives an overview of the features of each:

  • Traditional licence
  • Promote licence
  • Six-year frontier licence
  • Nine-year frontier licence
  • Petroleum Exploration and Development Licence ( PEDL)
  • Supplementary Seismic Survey Licences
  • Seaward (Offshore) Exploration Licences

Table A.1 - Types of Petroleum Licence (after DECC)

Type of licence
Seaward (Offshore) Production Seaward (Offshore) Exploration Landward (Onshore) Production
Terms Life cycle of field Traditional Licence / Seaward Production Licence Promote Licence Six-year Frontier Licence Nine-year Frontier Licence Seaward Exploration Licence Petroleum Exploration and Development ( PEDL) Supplementary Seismic Survey Licence
Initial Exploration 4yrs 4yrs 6yrs 9yrs For a company that does not need rights to drill or produce. Particularly aimed at seismic contractors who wish to gather data to sell rather than exploit geological resources themselves. 6yrs For operators of Landward Production Licence who want to shoot a seismic survey right up to the boundary of their licensed area. Lasts for one year and covers a kilometre-wide strip adjacent to the existing Production Licence
Second Appraisal and Development 4yrs 4yrs 6yrs 6yrs 5yrs
Third Production 18yrs 18yrs 18yrs 18yrs 20yrs
Relinquishment details Mandatory relinquishment at end of initial term 50% Mandatory relinquishment at end of initial term 50% Special mandatory relinquishment of 75% after 3 years with a mandatory relinquishment at the end of the initial term of 50% of the remainder Special mandatory relinquishment of 75% after six years with a mandatory relinquishment at the end of the initial term of 50% of the remainder Mandatory relinquishment at end of initial term 50%
Requirement for proof of technical/ environmental competence Before offer of licence is made
  • After 2 yrs
  • Before offer of licence is made
  • Before offer of licence is made
Before offer of licence is made
Comment
  • Designed to allow small- and start-up companies a Production Licence first and to attract the necessary operating and financial capacity later.
  • Annual rental rate is reduced by 90% for two years.
  • Designed to allow companies to evaluate large areas with greater materiality for a period, so they can look for a wider range of prospects.
  • Designed for the particularly harsh West of Scotland environment.
Cheaper than a Production Licence at flat rate of £2,000/yr Full name of the Landward Production Licence

All modern production licences run for the following three successive periods (terms):

  • Initial term - may continue into a second term if the agreed work programme has been completed and a minimum amount of acreage has been relinquished;
  • Second term - may continue into a third term if a development plan has been approved and all acreage outside the development has been relinquished; and
  • Third term - runs for an extended period to allow production

The terms are of different durations, in accordance with the licence type, and there is an escalating annual rental.

The PEDL (Petroleum Exploration & Development Licence) for onshore licensing was introduced in 1996 to reduce bureaucratic burden of issuing a series of licences. Prior to this, the following licensing regimes were used:

Table A.2 Older types of onshore licence (pre-1996)

Time Type of onshore licence
1950s Mining Licences
Pre 1984 Exploration Licence Production Licence
1986 - 1992 Exploration Licence ( EXL) Appraisal Licence ( AL) Development Licence ( DL) Production Licence ( PL)

A.1.3 Features of Petroleum Licensing in the UK

Rentals

Each licence carries an annual charge, called a rental. Rentals are due each year on the licence anniversary (except pre-20th Round Seaward Production Licences, which were only due in their initial year). Rentals are charged at an escalating rate on each square kilometre the licence covers at that date.

The rentals have dual purpose; to encourage licensees to surrender acreage they don't want to exploit, and to focus licensees on acreage they decide to exploit.

Terms

Seaward (offshore) Production Licences, and Petroleum Exploration and Development Licences, are valid for a sequence of periods, known as 'terms'. These are designed to comprise the typical life cycle of a field: exploration, appraisal, production. Each licence will expire automatically at the end of each term, unless the licensee has sufficiently progressed to warrant a chance to move into the next term.

Relinquishments/surrenders

Licensees are entitled to 'determine' (i.e. surrender) a licence, or part of the acreage covered by it, at any time (unless the licence is still in its initial term and the work programme is incomplete). DECC positively encourages the surrender of acreage if the licensee does not intend to work it, and a minimum relinquishment of acreage at the end of the initial term is a condition of most licences.

Multiblock licences

Many licences cover more than one block. 'Multiblock licences' are offshore licences for which the blocks have widely divergent licence groups of companies and are commonly applied to blocks that are scattered geographically.

Landward (onshore) licences and landowners

The Secretary of State issues landward production licences (Petroleum Exploration and Development Licences) under powers granted by the Petroleum Act 1998. They confer 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
  • planning permission from relevant local authorities.

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, it should also be noted that 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.

Licensing rounds

DECC issues licences through competitive licensing rounds. It believes this method yields better quality bids than other methods. Unlike auctions, for instance, licensing rounds do not divert significant sums of money away from exploration work and they give a much better expectation that a licence will be awarded to the bid that promises to optimise exploitation of the UK's petroleum resources.

Onshore and offshore licensing rounds generally take place every year. Out-of-round applications are available in exceptional circumstances.

Other details of licensing in the UK are available at DECC's website:

http://og.decc.gov.uk/en/olgs/cms/licences/licensing_guid/licensing_guid.aspx

A.2 Other Mineral Licences In Great Britain

A.2.1 The Coal Authority

The Coal Authority owns, on behalf of the State, the vast majority of the coal in Great Britain, as well as former coal mines. The Coal Authority is a NDPB (non-departmental public body) sponsored by DECC (Department for Energy and Climate Change), and has specific statutory responsibilities associated with licensing coal mining operations and issues related to past coal mining activities in Great Britain.

Under the Coal Industry Act 1994, the Coal Authority 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, then a Minewater Heat Recovery Access Agreement is required (see below).

A.2.2 Minewater Heat Recovery Access Agreement ( MHRAA)

The Coal Authority grants two types of Minewater Heat Recovery Access Agreement, 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). This type of "blanket" Access Agreement covers the overall area with subsequent Supplemental Agreements required for each borehole site within this overall area.

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

The MHRAA covers both open and closed-loop geothermal systems.

Details of the MHRAA can be found on DECC's website:

http://coal.decc.gov.uk/en/coal/cms/services/licensing/license_apps/license_apps.aspx

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).

A.3 Existing Licensing Systems in other Countries

Various licensing systems are already in place in different countries and states around the world. The development of these systems has generally been based on the following:

  • A legal definition of geothermal energy; and
  • Amendment of existing legislation for minerals or water resources to enable licensing; or
  • Creation of specific legislation for geothermal energy to enable licensing.

Holroyd and Dagg (2011) carried out an inter-jurisdictional review of geothermal energy legislation and policy for the Government of the Northwest Territories of Canada ( NWT) in support of developing a regulatory framework for geothermal energy in the NWT. This review provides a useful summary of some of the legal frameworks that have been put in place in different countries, namely the United States (federal land plus the states of Nevada and California), Canada (province of British Columbia), Australia, New Zealand, Iceland, Italy and Germany. The following sub-sections contain information summarised from Holroyd and Dagg (2011).

The Irish Government has also developed, and is proposing to introduce, specific legislative proposals in respect of geothermal energy. Based on a parliamentary question put to the Irish Minister for Communications, Energy and Natural Resources in October 2012, it is expected 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.

A.4 Legal Definitions of Geothermal Resources

Table A.3 summarises the various legal definitions used in the jurisdictions reviewed by Holroyd and Dagg (2011), plus the proposed Irish system, for defining geothermal resource and licensing arrangements.

Table A.3 Legal Definitions for Geothermal Resources in Various Jurisdictions (after Holroyd and Dagg, 2011).

Country Definition of geothermal resource Key Features of Licensing and Leasing Arrangements
USA (Federal Lands) The Geothermal Steam Act of 1970 defines geothermal resources as: "all products of geothermal processes, embracing indigenous steam, hot water and hot brines; (ii) steam and other gases, hot water and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations; (iii) heat or other associated energy found in geothermal formations; and (iv) any byproduct derived from them".
  • Legislation type: Geothermal specific (The Geothermal Steam Act of 1970 and The Geothermal Production Expansion Act 2010)
  • Administrative body: Bureau of Land Management ( BLM)
  • BLM / U.S. Forest Service completed a programmatic Environmental Impact Statement ( PEIS) in 2008 to identify land for lease sales.
  • Permits and leases for geothermal energy exploration or development. on BLM or Forest Service land are administrated by the BLM.
  • Exploration activities include drilling for determination of temperature gradient, for seismic operations and construction related to drilling.
  • Competitive lease sale every two years, at minimum. A lease is held for 10 years, with up to two five-year extensions.
  • For direct use projects, land can be nominated by State, Tribal or local Governments. The parcel is posted for 90 days. If expressions of interest from more than one party are received, then the parcel must follow the competitive leasing process. There are nominal fees charged for direct use.
  • The Geothermal Production Expansion Act 2010 was proposed to amend the Geothermal Steam Act to allow developers to expand geothermal leases to adjacent lands on a non-competitive basis.
California, USA The California Public Resource Code defines geothermal resources as "the natural heat of the earth, the energy, in whatever form, below the surface of the earth present in, resulting from, or created by, or which may be extracted from, such natural heat, and all minerals in solution or other products obtained from naturally heated fluids, brines, associated gases, and steam, in whatever form, found below the surface of the earth, but excluding oil, hydrocarbon gas or other hydrocarbon substances."
  • Legislation type: Geothermal specific (California Environmental Quality Act 63 and The California Public Resource Code)
  • Administrative body: State Land Commission
  • Geothermal tenure can be obtained through two methods: competitive bidding leases and prospecting/exploration permits. For competitive bidding leases, the Commission selects land to be made available, and disposes of rights with an auction similar to the federal system.
  • A Prospecting Permit gives the exclusive right to explore an area for two years with a possible two-year extension. Prospecting Permits can be issued to the first qualified applicant (for lands that have not been selected for competitive public bid). If the permit holder discovers geothermal resources in commercial quantities within their prospecting permit area, they are entitled to a lease for production.
  • Permits are available for a maximum of four years. The primary term for a lease is 10 years, with extension.
Nevada, USA The Nevada Revised Statutes define geothermal resources as "the natural heat of the earth and the energy associated with that natural heat, pressure and all dissolved or entrained minerals that may be obtained from the medium used to transfer that heat, but excluding hydrocarbons and helium.
  • Legislation type: Minerals (Nevada Revised Statutes)
  • The surface owner is the presumed owner of geothermal resources, unless it has otherwise been "reserved or conveyed to another person" under the Stock-Raising Homestead Act of 1916, which granted surface lands to homesteaders, but retained the subsurface rights, or from subsequent sale.
  • Administrative body: Nevada Commission on Mineral Resources
  • A permit from the Commission is required to drill or operate a geothermal well. Other aspects of geothermal development are regulated by other state agencies: water appropriation permits for a geothermal flash system are required from the Division of Water Resources, sewage disposal permits are required from the Bureau of Health Protection Services, and water injection permit are required from the Division of Environmental Protection.
  • Applicants apply for geothermal tenure from the Commission. A permit to drill or operate a geothermal well will be issued if the application is deemed consistent with policies to protect air, water and wildlife. The permit is issued for two years but may be extended upon request.
British Columbia, Canada The Geothermal Resources Act of 1982 defines a geothermal resource as "the earth's natural heat and all substances that get added value from it, including steam, water, water vapour and any dissolved substances." Surface hot springs that have a temperature greater than 80°C at the surface are considered a geothermal resource, but waters less than 80°C are excluded.
  • Legislation type: Geothermal specific (The Geothermal Resources Act of 1982) / Petroleum (for disposition of tenure)
  • Administrative body: Ministry of Energy
  • The geothermal legislation in B.C. is modelled on the petroleum and natural gas legislation when it comes to disposition of tenure. A company acquires a permit through auction, and there is no minimum bid.
  • Land that is of interest for geothermal resources is nominated by proponents to the Ministry of Energy. Potential parcels of land undergo a referral process, where the Ministry solicits comments about the parcel from First Nations, local government and other affected agencies. This is to determine existing land uses and environmental sensitivities, and to consult land use plans. From these comments, conditions may be set on the tenure. Tenure availability is posted for six weeks prior to a sealed auction where cash bids or work bids are submitted and tenure is awarded to the highest bidder.
  • Exploration permits are for one year and can be extended for up to eight years. A permit carries an obligation to explore for geothermal resources, and gives the holder the right to apply for authorization to drill wells. After a well has been drilled and a plan for production submitted, this can be extended to a lease for 20 years with many renewals.
  • Geoscience exploration (such as drilling a test hole) does not require subsurface rights or land tenure (but does require a geophysical licence).
Australia (general) Definitions depend on the state or territory within Australia. Some states such as New South Wales, and Tasmania define geothermal resources as a mineral. Other states have specific legislation for geothermal resources, such as Victoria and Queensland where geothermal energy is "heat energy derived from the earth's natural (subsurface heat). Geothermal legislation and regulation is unique to each of the states and territories in Australia. The legislation in these six states is described below.
Queensland, Australia
  • Legislation type: Geothermal specific (formerly Geothermal Exploration Act 2004, now Geothermal Energy Act 2011). The latter is intended to be more comprehensive legislation covering both exploration and production and support the goals of the Queensland Renewable Energy Plan.
  • The new Act will advance geothermal developments in the State.
  • Under the Exploration Act, a call for tenders is made and the winner is granted an exploration permit. The bids must include a proposed work program, and evidence that the applicant has the technical and financial resources to carry out the proposed work. The permit holder is required to conduct geothermal exploration and report on the resources to the State.
  • Other parcels for land can be accessed through application, provided that is it not in a restricted zone. Permits are granted for a maximum of five years and can be renewed for up to three years.
New South Wales, Australia
  • Legislation type: Minerals (Mining Act 1992), including geothermal resources as a mineral.
  • Geothermal tenure can be issued based on a company's request on first-come, first-served basis, or as a result of tender of designated mineral allocation areas
  • The state issues an exploration licence that gives the holder the right to explore for the minerals for up to five years (and can be renewed for up to five years). If the exploration proves positive, an assessment lease is issued to evaluate the extent of the resource. Companies must pay a security bond, reach an agreement with the landowner for surface access (including compensation for damages) and demonstrate their financial and technical ability to carry out the project.
Victoria, Australia
  • Legislation type: Geothermal specific (Geothermal Energy Resources Act) for high-end geothermal resources (more than 70°C at a depth of 1000 m) but lower-temperature resources are regulated under existing planning and environmental laws.
  • Competing applications are evaluated on the merits of the work program proposed, the benefit for society, and the social and environmental impacts of exploration.
  • Applications from proponents are accepted for established parcels of land.
  • Exploration permits (to explore in an area) can last up to 15 years. Retention leases (for discovered but not yet commercial projects) and extraction leases (to produce geothermal resources) can also both last up to 15 years.
South Australia, Australia
  • Legislation type: Petroleum / Geothermal specific (Petroleum and Geothermal Act).
  • A call for tenders is put out for areas that have a potentially high-value resource. Lower-value resource areas require only an application for exploration. The following types of licences are issued:
  • exploration licences (five years), retention licences (five-plus years),
  • production licences, pipeline licences, preliminary and speculative
  • survey licences (one year) and associated facilities licences.
  • More than one exploration or production licence may be issued for petroleum and geothermal for the same parcel. An applicant must submit a work bid (commitment to spend a certain amount on exploration) and prove technical and financial resources to complete the work.
Western Australia, Australia
  • Legislation type: Petroleum
  • The act covers the process for exploration permits (six years), specific prospecting authorities, access authorities, drilling reservations, retention leases (five years) and production licences (21 years).
  • Different licences may be issued in an area for different resources (geothermal and petroleum).
Tasmania, Australia
  • Legislation type: Minerals (Mineral Resources Development), for resources greater than 70°C and below 1000m.
  • Companies must apply for areas that they want to explore and geothermal tenure is granted as a "Special Exploration Licence." The Act provides for a number of different licences, including exploration licences (issued for up to 15 years), retention licences (up to 15 years), prospecting licences and mining leases.
New Zealand The Resource Management Act (1991) defines geothermal energy as "energy derived or derivable from and produced within the earth by natural heat phenomena; and includes all geothermal water." Geothermal water is defined as "water heated within the earth by natural phenomena to a temperature of 30 degrees Celsius or more; and includes all steam, water, and water vapour, and every mixture of all or any of them that has been heated by natural phenomena."
  • Legislation type: Geothermal specific (Resource Management Act came into effect in 1991). Existing geothermal licences distributed under the former Geothermal Energy Act of 1953 were converted to water permits when the Resource Management Act came into effect in 1991.
  • Administrative body: regional governments
  • Each region develops a Regional Policy Statement and a Regional Plan as an integrated framework for all development, including geothermal, for example in Waikato, the Regional Policy Statement divides geothermal resources into hydrologically distinct management units known as Geothermal Systems. Systems are classified as Large (up to 350 °C) and Small (less than 100 °C). Systems are also classified for future development potential according to vulnerability of significant features to development and the level of existing use. There are four system categories: Development, Limited Development, Protected, and Research (systems where insufficient information is available to classify).
  • Proponents interested in a new development file a Resource Consent Application which is assessed by both regional and territorial local authorities. This application must include a System Management Plan that describes how the proponent will manage the reservoir, mitigate surface effects, avoid damage to significant features, and monitor and report data.
  • When there is more than one operator in a system, protocols must be in place to divide responsibility for system management between the operators. The rights to geothermal tenure are distributed through the allocation of water withdrawals (known as Takes) and Discharges, which are regulated for each category of geothermal system. Takes and discharges are issued for 10 to 35 years.
Italy A new law, Legislative Decree, was approved on February 15, 2010, providing rules for exploration and production of geothermal resources in Italy. The general provisions of that law are as follows. 1. Exploration and production of geothermal resources for energy purposes made in Italy, its territorial seas, and on its continental shelves, are considered in the public (national community) interest (importance) and public (national community) utility (usefulness). 2. In accordance with the effects of this law, geothermal resources are defined as being in one of three categories: a. high-enthalpy, characterized by fluid temperatures above 150°C; b. medium-enthalpy, characterized by fluid temperatures between 90°C and 150°C; c. low-enthalpy, with fluid temperatures < 90°C. 3. High-enthalpy geothermal resources, or that which are economically usable for the construction of a geothermal project ensuring certified power output of at least 20MW, are of national interest, as well as those geothermal resources found in marine areas which are economically usable. 4. Medium- and low-enthalpy geothermal resources, or that which is economically usable for the construction of a geothermal project of power less than 20 MW geothermal fluid, are of local interest.
  • Legislation type: Geothermal specific (Legislative Decree). Existing geothermal licences distributed under the former Geothermal Energy Act of 1953 were converted to water permits when the Resource Management Act came into effect in 1991.
  • Administrative body: Ministry of Economic Development in cooperation with the Ministry for the Environment. Administrative functions for the issuance of exploration permits and exploitation concessions have been delegated to the regional governments. Operations and productions are regulated by the National Mining Office for Hydrocarbons and Geothermal, but also delegated to regional authoritative.
  • Exploration for, and utilization of, thermal water, meaning those waters to be used for therapeutic purposes, are excluded from regulation under this law.
  • The injection of water and the reinjection of geothermal fluids from the same formations, or at least below aquifers usable in civil or industrial purposes, including marine area, are regionally regulated.
Ireland (proposed) Geothermal Energy Development Bill will be published in 2013, following publication of the Minerals Development Bill, on which certain aspects of it are based.
  • Legislation type: Geothermal specific (proposed Geothermal Energy Development Bill following proposed publication of the Minerals Development Bill).
  • Administrative body: Communications, Energy and Natural Resources.
Iceland Iceland governs geothermal as a "resource" along with all other subsurface resources. A resource is defined as "any element, compound and energy that can be extracted from the Earth, whether in solid, liquid or gaseous form, regardless of the temperature at which they may be found.
  • Legislation type: Minerals.
  • Administrative body:
  • In Iceland, subsurface resources are owned by the private landowner, while resources on public land are federal property.
  • Exploration of all subsurface resources are subject to the Act on Survey and Utilization of Ground Resources which allows the government to conduct (or issue a licence to conduct) surveying and prospecting for resources anywhere, on both public and private land. In order to gain a licence for utilization (production), a holder of a survey licence must prove there are adequate resources on the land, and must strike a deal for use with the surface owner for access. Production or use must start within three years of the issuance of the licence or it can be cancelled.
  • Power plants with a capacity greater than 1 MW or that plan to distribute energy into the grid must gain a licence under the Electricity Act. Large or significant projects are subject to review under the Environmental Impact Assessment Act. Proponents of plants less than 1 MW must submit technical details of their project to the National Energy Authority in Iceland, the body which is also responsible for official monitoring of the resource.
  • Tenure for development on public land can extend for a maximum of 65 years.
  • Iceland has developed the Master Plan for Hydro and Geothermal Energy Resources, which provides an overview on the various potential hydro and geothermal energy projects and ranks them based economic feasibility, and environmental and natural heritage impacts. The plan designates resources are available for development, resources to be protected and areas for further investigation. The Master Plan is a strategic environmental assessment of geothermal energy resources and is in the process of being turned into legislation.
Germany Geothermal resources are considered a mineral under the federal mining laws. Geothermal heat and geothermal fluids are included under this law.
  • Legislation type: Minerals (Mining Act), geothermal energy is considered a federal resource.
  • Administrative body: Minister of Energy
  • Any drilling deeper than 100 metres is administered under the Mining Act.
  • Exploration and production licences are required, and water protection and environmental issues are jointly dealt with by the mining authorities and environmental authorities.
  • Environmental assessments are required for all geothermal development.
  • Rights to sub-surface area are allocated by the Minister of Energy without a depth limitation.
  • A licence for exploration is given for a maximum of five years with the possibility of a three-year extension. If the exploration proves that a viable resource exists, a licence for production is given for up to 20 years.

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