| Abstract |
The Australian Geothermal energy sector experienced a rapid growth from 2000, culminating in a heat rush in the period 2006-2008. Since then, the sector has gradually declined. The reasons for the decline can be seen within the Geothermal Drilling Program (GDP). In 2008, the Australian Government established the AUD50 M GDP, designed to provide AUD7 M matching funding to each of seven proof-of-concept projects to drill two wells and establish closed-loop flow. Ultimately, only two wells were drilled as part of this Program. Examination of the reasons why this Program failed to meet Government’s intentions provides important lessons for any future measures to stimulate geothermal development in Australia. Nine factors can be observed to have impacted the GDP. (1) The Global Financial Crisis (GFC), coming to prominence in 2008, was the major factor, as it caused a massive reduction in availability of capital, especially for high-risk ventures such as geothermal. (2) Against all predictions, power demand fell in the National Electricity Market (NEM, an interconnected power network supplying approximately three-quaters of demand in Australia). Most projects in the GDP had assumed that growth of the NEM would be their market. (3) Increase in cost of drilling – international demand for rigs for oil and gas drilling (including shale gas in the US) meant that in Australia rig costs went up and availability went down. (4) The grants were too small – the AUD7 M per project was agreed at a time when wells were less costly and when capital was easy to raise prior to the GFC. (5) So-called technical failures – the Habanero-3 well control incident, and low flow of Salamander-1 and Celsius-1 caused many to believe that geothermal would not work in Australia, impacting on investment. (6) Public misinformation on induced seismicity caused negative public reaction and a need to re-address risk measures in the Program. (7) Adverse events in another Government-funded program (the Home Insulation Program) caused deeper risk aversion by Government across all of its Programs, and further re-writing of the GDP’s Guidelines. (8) Uncertainties and delays in the introduction of the Carbon Pollution Reduction Scheme (and later taxation measures) caused hesitation by investors in renewable technologies. (9) Flooding in project areas caused delays and cost increases. The combined effect of the above was that delays caused by flooding and Government, combined with some apparent technical failures, meant that most geothermal developers in Australia have been unable to raise capital since the GFC and have not been able to progress projects. This has been interpreted by politicians and media that geothermal can’t deliver on promises made to quickly ramp up supply of cost-effective base load power. The reality is that there has been insufficient investment to adequately develop and demonstrate the technology to reach that conclusion. As is the case elsewhere in the world, finance mechanisms are required to lower the high initial resource risk in a number of projects across Australia to increase investor confidence in the viability of geothermal resources and technology. |