Funding changes give geothermal a dose of optimism

Australia’s geothermal energy industry is celebrating a new financing arrangement for one of the sector’s leading players, saying it could herald a new era of optimism for the technology, and a more realistic approach to financing and ambitions.

Petratherm, a South Australian firm with grand plans for a renewable energy centre in the heart of the state’s arid interior, has renegotiated a funding agreement for its Paralana geothermal project with the Australian Renewable Energy Agency that effectively sacrifices scale for some upfront money that allows it to bridge an impending cash crisis.

Petratherm in 2009 was awarded a $62.8 million grant under ARENA’s predecessor to help fund a 30MW “hot rock” geothermal demonstration plant near the Beverley unranium mine. However, it has not been able to access those funds, or proceed with the demonstration plant, because it ran out of financial resources to complete its drilling program. The loss of support from leading utility EnergyAustralia, echoing Origin Energy’s withdrawal from the Geodynamics project further north in the state, amplified the problem for the industry..

The company has now secured a $13 million grant that will meet half the costs of completing its drilling program, while the demonsration plant will now be a more modest 7MW facility that will only require a smaller $26 million grant from the previous program. Petratherm has also relinquished the remaining $2.8 million from a $7 million drilling grant.

The decision has been welcomed by the industry, which has been pleading for a more flexible approach in funding, one that recognizes the large up front (and high risk) costs in drilling programs, and the capital required to build the plants.

Petratherm Managing Director Terry Kallis described the funding announcement as a “shot in the arm” for the company . “It’s a massive boost for the entire project and an important vote of confidence by the Government in Petratherm’s capabilities and the geothermal energy sector in general,” he said.

Petratherm will use the money to drill a second deep well and complete  a deep geothermal reservoir at approximately 3.8km depth that connects two wells, and will allow geothermal heat to be brought to the surface and used to generate electricity.

If this is successful, a 3.5MW pilot plant will be built, which will generate revenues and be expanded to a bigger plant. with the ultimate aim of demonstrating commercial flows,” he said.

“If successful, we’ll be able to trigger our REDP grant monies which will fund one-third of our initial 3.5MW pilot plant.

The decision comes as Geodynamics completed a successful drilling program and switched on a 1MW pilot plant near the village of Innamincka.  The company’s

Habanero-4 well is the highest productivity deep EGS well anywhere in the world, with a temperature of 241°C at 4,021 metres.

Geothermal energy is widely used in countries such as Iceland and New Zealand, but this is usually with relatively shallow, easier to access volcanic formations. Australia’s “hot rocks” reserves lie between 3.5kms and 5kms underground.

Geodynamics also has a $90 million grant to hlp build a 23MW demonstration plant – but it will need to find a major customer to make that happen.

The refunding agreement is part of a major review by the newly created ARENA of past funding initiatives. Already, ARENA has called a halt to some grants – such as that for the Solar Oasis concentrated solar thermal project in Whyalla, and is putting others under a spotlight.

“ARENA will continue to review projects in the context of the market and act to support the development of renewable energy technologies, making them more affordable and ultimately increasing their use in Australia,” ARENA CEO Ivor Frischknecht said.

“The next step for Petratherm is to prove a commercialisation pathway by providing viable off-grid energy supply where there is enough demand.

“If this is successful, ARENA sees a great opportunity for Paralana to impact the energy mix in the high energy growth market of South Australia.”

Petratherm shares doubled in value in morning trade on Thursday to 3c a share. They traded as high as 19c last July.

Still, the industry believes that it may finally be turning the corner after a series of disappointing drilling results and abandoned programs because of cash shortages. “The industry is gaining momentum,” Susan Jeanes, the CEO of the Australian Geothermal Energy Association (AGEA) said in a statement.

“The Australian (geothermal) sector is capturing the attention and involvement of a global effort to locate and develop suitable geothermal resources that will change the way the world supplies and uses energy.

“Geothermal energy is clean, renewable and ubiquitous and our progress is pioneering in world terms.”