Tech Focus: Geodynamics and the geothermal reality check

How times have changed. When Geodynamics was first drilling its series of wells at Habenero near the small town of Innamincka in the South Australian outback nearly 10 years ago, it was amid an air of great expectation. Investors had pushed the stock price to more than $2 a share, the market value of the company was around $200 million, and it was thought that the cutting edge technology in the hot dry rock geothermal sector was such a sure thing that it would account for a good portion of the mandatory renewable energy target.

Now, as the company resumed drilling at Habanero 4 on Friday, just 120 metres from the Hanabero 3 well that suffered a blowout – both in the physical well and in investor expectations – in 2009, it is with a much more muted air. For a start, the share price is now less than one tenth of what it once was, and there is less expectation in the industry that hot dry rocks technology will be ready in time to acquit a sizeable part of the MRET, as Origin Energy CEO Grant King pointed last week out in this interview.

But if much of the hype has evaporated, there is no less confidence within the company that the hot dry rocks that lie between 4-5km beneath the surface can, and will, be exploited, and that the geothermal energy industry can and will make a sizeable contribution to the country’s electricity needs in the decades to come.

It has taken nearly three years to fully absorb all the lessons and learnings from that blowout, but Geodynamics and its joint venture partner Origin Energy are confident enough in the technology that they have committed to the drilling of Habanero 4 well, the first step in a gated appraisal program that could see the joint venture spend more than $70 million over the next 18 months – some of it financed by government grant – to drill the new well, run closed and open loop tests, do some fracture stimulation of the zone and perform test runs of the proposed 1MW pilot plant at Innamincka.

CEO Geoff Ward says the 4.17 km deep Habanero 4 will effectively replace Habanero 3, reconnect with the reservoir and fracture systems of the first two wells and, most importantly, prove that the company has addressed the problems that caused the blowout in the first place.

The company has a measured program, that includes demonstrating the first EGS (enhanced geothermal systems, the other description of hot dry rocks), and drill further wells so that it can firm up the extent of the resource and upgrade this to a measured geothermal reserve that is capable of supporting the first full-scale commercial geothermal project in Australia.

Ward, however, does not consider this to be a race. For a start, he notes, providers of baseload power – even from emissions-free sources like geothermal – simply can’t build a plant and expect to plug it into the electricity system when the developer wants; the market doesn’t work like that. The readiness of a generation project is one of only a number of factors that must come together to bring a new project on – the willingness of a customer to commit to offtake and the approval of necessary transmission and distribution infrastructure are two others that are key.

He notes that Origin’s King, as well as the other big utilities such as TRUenergy, have commented that there may be no need for any new baseload power before 2018 to 2020 – the changing consumption patterns, which have seen energy demand fall 10 per cent below forecasts of just a few years ago, have reinforced that view. The company, like other energy providers, will have to wait for the opportunity to arise.

“I have no doubt that Habanero will play an extremely large role in Australia’s energy future. But it is not solely up to Geodynamics to say when that happens; we can demonstrate that out resource is capable of providing large-scale, reliable baseload generation but we do need customer commitments to allow us to take it beyond that point ,” Ward says.

“The change in consumption may have changed the point in time when Australia needs to invest in new baseload by a few years, but it doesn’t change the underlying value of the company, due to its extremely long time scale and capacity to produce for in excess of 30 – 40 years once established.”

Ward’s point is important. The current debate around energy sources and energy costs is almost entirely focused on current costs. The government and energy planners should be thinking beyond that and work out which will likely provide the cheapest and cleanest energy in the future, and design the policies and incentives that ensure that they get there.

The first plants of a new technology cannot be built to the scale and economics that they will achieve on mass deployment, but they do need to establish themselves. This was true of the gas industry too. The electricity market has to balance what it can afford now and what will the be the cheapest in 10,20, 30 or 40 years time, because the decisions made in the next decade will largely influence what price is paid in 40 years.

This was one of the themes taken up at a workshop sponsored by the Australian Geothermal Energy Association last week, which was attended by around 50 industry types, financiers and the Federal Energy Minister, Martin Ferguson. The government’s draft white paper on energy predicts that up to 23 per cent of the country’s energy could come from geothermal by 2050.

Yet Habanero is likely to be the only well that is drilled in the country this year – Geodynamics has actually sold the rig it is using for Habanero and is looking for a buyer for the other. Some sort of mechanism needs to be found if the industry is to be in a position to satisfy the demand for emissions-free baseload when the opportunity arises.