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Origin quits geothermal as Geodynamics prepares 1MW pilot plant

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Australia’s largest electricity utility Origin Energy has announced it will withdraw completely from the Innamincka geothermal joint venture, just weeks before a 1MW pilot plant – the first to feature enhanced geothermal systems technology in Australia – was due to come online.

The withdrawal was not unexpected given that Origin Energy had written down its $200 million plus investment in “hot rock” geothermal, as well at its stake in Geodynamics, and had withdrawn from funding ongoing drilling programs and the pilot plant.

The timing, however, did surprise, given that it came three months before a decision was due.

“The decision was not a surprise because (Origin Energy) chose to focus on short term project such as APLNG,” wrote Paul Jensz, analyst from Phillip Capital. ”The timing was sooner than expected as (it) could have stayed on and been diluted over time.”

geodynamicsGeodynamics CEO Geoff Ward said the trial of the 1MW pilot plant for the outback village of Innamincka would begin in April. He said this followed flow tests results which had produced one of, if not the highest EGS productivity tests in the world.

Ward repeated earlier comments saying that the development of EGS geothermal remained a long  term challenge that required significant capital investment, and new (grid)  infrastructure.

“However, we remain convinced that these resources will play a material role in Australia’s long term energy economy as a reliable supplier of large scale, continuous, predictable, controllable energy.”

Jensz said the pilot plant would be a key milestone, and could lead to the construction of a 10MW to 25MW power station. Geodynamics has received funding support for that project under the Renewable Energy Development Program, although it would need to attract new partners.

It estimates the costs of such a project at $150/MWh to $200/MWh. The long term goal of geothermal players is to bring that down to a maximum of $100/MWh

Jensz said that Origin Energy remaining stake of 19 million shares (4.6 per cent) was likely to act as an overhang on Geodynamics stock, which is already trading at lows around 10c – well short of their peaks in 2007.

Jensz said because of this, he has lowered the 12-month Price target to 50 per cent of its “highly risked” discount cash flow valuation of $0.39/share, or 18.5c/share.  

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  • Paul Wittwer

    Thanks Giles for fleshing out this rather worrying announcement. Glad to hear that the 1MW demo plant is still going to happen and that Geodynamics management are apparently unfazed.
    I sincerely hope they find another partner who can be relied upon in a way that Origin couldn’t.
    I wonder if the Germans could possibly further their own geothermal efforts by partnering Geodynamics.

  • Great read Giles, thanks. Origin’s departure from the GDY-JV is a huge blow to the Australian geothermal industry, and almost certainly ensures (confirms) there will be no utility-scale EGS generation in Australia for at least a decade, if not 20 or 30 years.

    Whilst I agree with Geoff’s cautious tone about EGS being a long-term initiative, and also understand that the Innamincka plant (1MWe) is only a demonstration plant, the economic feasibility, let alone technical feasibility of the Cooper Basin EGS-experiment, is as elusive as ever.

    Notwithstanding the recent “increase in flows” from Habanero-4, the economics of Cooper Basin geothermal power generation appears almost an order of magnitude more costly (LRMC) than current market alternatives.

    Back of envelope numbers based on the 1MWe plant, published GDY drilling costs, ignoring power plant capex (scale penalty), opex and corporate overheads and also assuming power output is net, then the real generation cost is likely to be >$500/MWh. With increased scale, further technical advances, sure, this could be halved, but for a stranded resource, there does not appear to be an obvious or even fundamental business case to be realised.

    Discovering vast energy reserves in remote areas is only worthwhile when the energy resource is valuable and can be produced cheaply. Recent developments in the Canning Basin provide an example of what attractive economics can achieve, even in remote areas.

    ___________________

    Disclosure: The author has been engaged by several Australian and International geothermal companies, however in this response is expressing his own personal opinion, specific to this particular project at this moment in time.

  • Origin has gone completely Neanderthal now under Grant King.

  • Great pity, but understandable when you look at the costs for the transmission lines. Demand must rise enormously or coal fired power stations shuttered for that grid investment to be viable. Maybe when the population increases significantly again and more de-salination plants are built will the demand side justify the investment. That’ll be expensive water, but when you need it, you need it.