Munich Re Braves Drilling Risk to Insure German Geothermal Plant
Munich Re, the world’s biggest reinsurer, agreed to insure a 60-million euro ($86 million) geothermal power plant in Bavaria that’s poised to begin drilling operations in September.
The insurance company is one of a few willing to assume the exploration risk of drilling deep into the ground to find pockets of hot water that can be harnessed to generate power, Thomas Trauttmansdorff, a managing partner at Grunwald Equity Management GmbH, which manages the investment funds collectively known as Grunwald Equity, said by phone.
Grunwald Equity Geothermie GmbH, one of those entities, is developing the project in Traunreut, Upper Bavaria, as Germany shifts its energy mix away from atomic power to renewable sources following the nuclear disaster in Japan.
Insuring the projects that take five to six years to build and typically use steam from deep underground to turn turbines is expensive because the market has to develop, Trauttmansdorff said.
“The drilling is very expensive, and at the end, even if we have some studies about what we can expect, there is still a risk you don’t find enough water,” he said. In that case, the investment spent on drilling is lost.
Munich Re is insuring the drilling part of the project that could supply up to 5 megawatts of electrical and 12 megawatts of thermal in addition to district-heating power from two wells about 5,000 meters (16,400 feet) deep. It’s the third geothermal project it has insured.
Drilling absorbs about half of the 60 million-euro project cost, Trauttmansdorff said, declining to disclose the insurance price. Finance for the project should be secured before drilling begins in September, he said.
“We’ve had lots of commitment from investors to finance the equity,” he said.
Grunwald Equity Geothermie, through its unit Geothermische Kraftwerksgesellschaft Traunreut mbH, is planning five geothermal power plants in all, according to Trauttmansdorff.
To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net
To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net
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