Future Trends and Development

Trends in Geothermal Investment

Assuming success in demonstration and proof of concept projects, the Electricity Supply Association of Australia concluded that 6.8% of all Australia’s power could come from geothermal by 2030 under a scenario that emissions are reduced to 70% of 2000 levels by 2030.  The forecast 6.8% represents 5.5 GW in generating capacity from Enhanced Geothermal Systems (EGS).  At roughly 2% growth, Australia’s power demand will grow from approximately 50 GW current generation capacity to approximately 80 GW in 2030.

The diagram below illustrates the current costs of power generation from alternative fuels, including geothermal, coal, wind, gas and nuclear energy. At this point in time, coal and gas are the most competitively priced fuels for electricity generation.

CO2 emissions versus costs to generate electricity from various fuels.

In a global market with carbon pricing, geothermal energy is likely to be a significant growth industry. The anticipated cost of EGS energy in Australia has been estimated at A$49-$60 per MWh (Electricity Supply Industry Planning Council (ESIPC), 2006). Without carbon pricing, many forms of conventional energy generation such as coal and natural gas are more cost effective.

Investors have continued to support capital requirements for geothermal projects, and funding continued to increase in 2006, with Geodynamics, Petratherm, Green Rock Energy, Eden Energy and Geothermal Resources raising A$20.78 million from public share subscriptions during the year.  As at 31 December 2006, the market capitalisation of these five companies amounted to about A$172 million (US$129 million). In the first two months of 2007, Geodynamics, Petratherm and Torrens Energy all announced significant additional injections of capital. There are strong indications that investors remain willing to back geothermal energy projects.


Trends in Development Costs

Drilling costs for high temperature non-sedimentary targets remain a challenge to be managed, especially while there is significant competition for a limited fleet of fit-for-purpose rigs. With each EGS well drilled in Australia, learnings will be applied to foster more efficient operations in hostile, deep and hot hole conditions, including the development of increasingly resilient drilling assemblies. With increasing numbers of companies planning to drill EGS wells, the opportunity will arise for one or more companies to commit to long-term arrangements for drilling rigs that can be expeditiously mobilised, commissioned, decommissioned and transported in a relatively low number of truck loads.

Substantial increases in the cost of consumables and steel casing are also a challenge to efficiency.

AGEG is compiling forecasts of trouble free geothermal well costs and actual well costs to gain an appreciation of expected drilling costs for the Australian geothermal sector.


Trends in the Cost of Energy

Estimated costs to generate electricity from various fuels and plant-types are indicated in the figure above. Australia’s vast coal and gas reserves and resources are an important factor behind our very competitively priced domestic power supplies. Public opinion polls suggest that a majority of Australians would be willing to pay some price to help reduce greenhouse gas emissions.

Certainly, the cost of energy is likely to rise in excess of the underlying rate of inflation (CPI) if the cost of reducing emissions is factored into the price of power supplies. The precise timing and level of price increase is, however, uncertain.


Development Constraints

Constraints to development might include factors such as the comparative low cost of petroleum and gas and environmental issues.

Whilst geothermal energy resources in Australia have vast potential, geothermal power generation is not yet price-competitive. It remains to be demonstrated that geothermal energy will be economic at price levels that may be realised with the addition of costs to constrain greenhouse gas emissions in comparison to the cost of electricity from emissive fuels such as coal and natural gas.