Sometime in the next few days, the listed geothermal company Geodynamics will spud the Habanero 4 well -- that is, start drilling operations -- in the heart of its hot dry rock geothermal prospect in the Cooper Basin in South Australia.
The well will replace the Habanero 3 well, which failed in a spectacular fashion with a blowout in 2009, and will be a critical step towards establishing a 1 megawatt pilot plant at Innamincka in 2013.
But it will, in all likelihood, be the only geothermal well to be drilled in Australia this year, despite a new tax deduction that comes into force from July 1.
And the industry, which is tipped by the government's draft energy white paper to provide up to 23 per cent of Australia's electricity generation by 2050 (and 8.4 per cent by 2030), is wondering how to unlock the funds to deliver on this potential.
The Australian Geothermal Energy Association yesterday convened a special workshop in Sydney to try to find the answer, inviting representatives from the industry, equity and debt financing specialists from the banking and super funds sector, and Energy Minister Martin Ferguson, to share their ideas.
The basic problem is that the geothermal sector and the dozen or so small companies that comprise it are found where some say they should not be, listed as public stocks on the Australian Securities Exchange.
Like other sectors in emerging industries, be they clean-tech or biotech or some other cutting-edge technology, the geothermal sector should be a largely unlisted investment play, the province of private equity and venture capital.
But because those avenues hardly exist in this country, money can only be found in the public arena, and after the problems with Habanero 3 and other disappointments, there has been less of that too.
Most geothermal stocks are trading at a fraction of the levels of two to three years ago, and this in turn has made it all but impossible for the companies to match the grants-based funding programs of the federal government.
Mark Rogers, an asset manager in the infrastructure investment division of Colonial First State, says it is a classic chicken and egg situation.
He says the technology has yet to prove itself, and until it does, it will not attract investment from the infrastructure investment sector, because these investors are inherently conservative people who only want to deal with known risks and known parameters.
Rogers says the government needs to get involved at the front end, and provide some sort of mechanism that de-risks the project either by providing equity itself, or tax incentives, or providing guaranteed returns -- as has proven successful in Europe and elsewhere in pushing wind, solar and geothermal to the forefront. "You have either got to de-risk it, or you have to lift the return," he says.
"It's the classic chicken and egg situation. We are more than happy to buy brownfields versions of this technology after it has been around for five years or so, but it needs to be proven," he says.
"The Geodynamics experience sums it up."
This, ironically enough, was the theme of Mr Ferguson's speech to the workshop.
He said the industry was made up of a number of small companies with prospective exploration licences and volatile share price fluctuations, and they faced significant barriers with high upfront drilling costs.
To overcome this meant government "sharing some of the early-stage risks with industry and setting a flexible policy framework that encourages private sector investment", he said.
"I recognise that 2011 was a very challenging year for many in the geothermal sector but, with a suite of new policies coming into force, I am optimistic that geothermal can turn the corner in 2012," he said, citing the introduction of a carbon price and a tax deduction for exploration.
"While I recognise there has been a tightening of capital markets globally, now is a good time to invest in geothermal technology."
But even within the industry there appears to be disagreement about the best way forward, or how to prove the technology.
Many want to see incentives that would encourage the sort of drilling programs envisaged by the AGEA, which wants to encourage companies to drill in multiple areas and multiple situations, to test the possibility not just of hot dry rocks, but of hot sedimentary aquifers and geothermal heat, and in a range of states.
Some, however, suggest the industry would be best served by focusing on a couple of "flagship" projects that could prove the technology and make it ready for when there is increased demand for new baseload power -- something that might not actually occur until 2020.
The two most likely candidates would be the two companies that have won (but not yet spent) the $153 million awarded under the Renewable Energy Demonstration Program: Geodynamics for a 25MW demonstration project in the Cooper Basin, and Petratherm for a separate 33MW project.
Indeed, Petratherm is proposing to create a "clean energy province" in South Australia that could serve the needs of power-hungry projects such as the Olympic Dam expansion, initially with a combination of gas and wind, and then with geothermal and solar.
Susan Jeanes, the head of the AGEA, said the geothermal industry had mostly survived on private investment, with more than $500m spent over the past decade, and less than 10 per cent of that coming from government grants or incentives.
"We are confident that we can make those contributions by 2050, but the question is, how do we start?" Ms Jeanes said.
Even to meet the ABARE prediction of 4 per cent of the national supply by 2035 would require billions of dollars of investment.
But apart from a small power station that has been operating in Birdsville, Queensland for the last 30 years, drawing energy from a relatively shallow resource of hot water, there was no operating geothermal plant in the country.
Without such plants it was impossible to estimate the costs and the potential returns.
"The main thing is that we need to do things concurrently. We just can't sit and wait until one venture is successful or not."
Finally a grant
FOR the last 18 months, the local wave energy and geothermal industries have been eagerly awaiting the first of the grants in the government's Emerging Renewables Program to be announced.
Emerging Renewables was first announced by Mr Ferguson in the lead-up to the last federal poll in August 2010, with a promise to spend $40m by the end of that financial year.
That didn't happen. But in the meantime, the fund grew as unspent monies from the Geothermal Drilling Program and the Renewable Energy Development Program were added, taking its total to $126m, with a promise to spend on wave, geothermal and enabling technologies under the auspices of the newly constructed Australian Renewable Energy Agency.
Finally, the first grant has been announced, with $1.9m to go to a $5m program by NICTA, Australia's ICT Research Centre of Excellence, to use "big data analytics" to locate geothermal energy sources beneath the surface.
It will help a leading team of university experts from four states to find "better, automated ways" to define geothermal targets, using "machine learning techniques and advanced data analytics instead of drills".
NICTA says it will work with the School of Information Technologies at the University of Sydney to develop algorithms, and the Schools of Earth Science at the Australian National University, University of Melbourne and University of Adelaide to apply these methods to the problem of geothermal target characterisation and exploration.
It will also work with listed companies Geodynamics and Petratherm, as well as GeoScience Australia and the South Australian Department of Manufacturing, Innovation, Trade, Resources and Energy.
The rest of the wave and geothermal industries will be hoping that more grants will follow soon.
Giles Parkinson is the editor of RenewEconomy.com.au
