Geothermal Energy: Australia’s Next Source of Energy

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The oil price keeps creeping higher (it’s near a record high as we write this.) It’s dawning on the world that the supply of cheap and easy-to-recover oil is dwindling…and fast.

A motley crew of small companies and radical entrepreneurs have responded to this latest oil shock (although this shock is a permanent one and not just an Arab oil embargo) by looking for other ways to produce the energy the world has come to depend on and desperately needs for future growth. But not all energy alternatives are equal. There are three qualities a commercially-viable energy company must have to compete for investor money today.

First, renewable energy moves the front of the line. Fossil fuels deplete. Wind, waves, and sun do not. Renewable energy solves one of the key problems of the current predicament. Next is reliability. You burn coal and natural gas to produce electricity. This electricity powers factories, hospitals, restaurants, homes, and businesses. The base load required to keep the electric grid buzzing with electrons is enormous. A true energy alternative must be “scalable” so it can meet the base load needs we’ve come to expect.

Finally, the cleaner the energy the better. Say what you will about climate change, global warming, and carbon dioxide emissions. Is the planet heating up? Are humans the cause of it? All of these questions have become highly political. But at this point, from an investment perspective, it doesn’t much matter what the answers are. Clean energies that don’t require burning fossil fuels to produce electric power or liquid fuels enjoy tremendous political support.

Geothermal Heats Up

Here in Australia the surging Labour party is eager to promote a new source of energy, geothermal energy, as an alternative to a domestic nuclear industry. If Labour wins the federal election, expect to see a bull market in geothermal stocks.

Yet there is more to the geothermal energy story that the fact that green politicians have embraced it. For alternative energy technologies to be adopted at the commercial level, they must truly provide reliable, safe, and clean power to real customers, and soon. The companies must also provide investors with growing earnings and profits without huge start-up cost blow-outs.

But I’m probably getting ahead of myself here. What is geothermal energy anyway? How does the heat from the earth produce electricity you can turn on with the flick of a light switch? Why is Australia perfectly situated to have one of the best geothermal sectors in the world? And of course, how can you participate as an investor?

The short version of how how geothermal energy works is easy. The Earth has molten core. About 3-6km below the surface of the Earth, in some places, is a layer of super hot granite that can be as hot as 250 degrees centigrade. One cubic kilometre of hot granite at 250 degrees centigrade has as much energy in it as 40 million barrels of oil.

By nature of its geology, Australia has a lot of hot granite that’s within 3-5km of the surface of the earth. One Australian company I’m going to show you in a moment has a proven technology that turns the heat stored in that hot granite into clean electric power. It’s called Hot Fractured Rock (HFR) geothermal power.

HFR is different from what you might call “wet” geothermal power. “Wet” geothermal happens when you find a volcanically active area of the Earth where super hot water or steam already exists on or close to the surface. In New Zealand, for example, between Rotorua and Auckland you’ll find a geothermal facility that turns the hot steam from the surrounding countryside into electricity via steam powered turbines. As you’ve no doubt noticed, Australia is not volcanically active. Enter the hot rocks.

By injecting water deep into the hot granite rocks below the surface of the earth, HFR geothermal turns the stored heat of those rocks into geothermal energy. The injected water captures the heat of the rocks and then, through a heat exchanger, heats a fluid that powers a turbine to spin out electricity. You can see from the figure below how the whole process works for both a “wet” geothermal system (on the left), and a “dry” hot fractured rock system (on the right).

geothermal energy

Now that you know more about how geothermal energy works and why Australia is blessed with a lot of hot granite just waiting to be turned into electricity, you’re probably wondering how to invest in the growth of the industry. But before you can do that, there are a few questions worth considering.

With any small business you always ask basic questions. How do you make money? How much cash do you have? How soon will you make more money? What’s your biggest risk? Who’s your biggest competitor?

If a company can’t—or won’t—answer these questions, then you may have a management team that can’t turn the product or idea into a real business with real profits. That’s the risk of small company investing. The company could fail.

But the reward is that if it makes it big, it could make it really big.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Dan, it’s actually the “Labor” party in Australia, as opposed to the “Labour” party.

    Has been so since the formation of the party in 1891. I suspect that they wanted to differentiate themselves from the “Poms” who ruled the roost back then.

    Now we will have a Labor Prime Minister fluent in Mandarin.

    Oh, my ears and whiskers!

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  2. Why would anyone want to oppose nuclear pwoer and allow crappy wind power to exist? Geothermal is the better alyternative to wind, not nuclear. It’s amusing to note that most of geothermal’s heat comes from radioactive elements below the granit shell. Labor’s braindead.

    kent beuchert
    October 5, 2007
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  3. It will be interesting to see how Lakes Oil and soon to be listed Greeenearth Energy proceeed in Victoria.
    The advantage of their exploration leases are that they are directly adjacent to Victoria’s Power Stations. This would be a great plus as a problem with many geothermal finds is that their is great difficulty with transporting the energy to where it can be used.
    Lets hope this power source can become a reality for Victoria and reduce the use of brown coal and reduce greenhouse gases.

    NORMAN SCOTT
    December 9, 2007
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  4. In South Africa we have a major electricity problem our politicians are only really intrested in Coal driven and Diesel driven power stations how long do you expect it would take to get clear results from the companies that are investing in Geo Thermal Energy?

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  5. i think Geo thermal is our mark on the 21st centery. we will be remembered by this great discovery. well if the goverment would fund it to make it possible for all australians to know when the turn on a light that the source where its coming from is 100% clean energy. im buying shares in it. i dont have much money but i think all australian should put in a little and it will all count.. also there are other ways we can generate energy using the oceans currents i dont know why the goverment hasnt looked at build one of these. maybe the worlds first. pump water onland from the ocean for free and turn huge energy creating turbines which make the energy to power the desalanitation plant which makes fresh, clean, crisp free drinking water. im not well educated and im only 20 but how can i imagin the world we live in today will change and be worse in 20years when it should be better just because the goverment onli cares about money and not the peoples needs. its not something we want. this is something we need. our lives are build around huge energy demands. why could we live in the world where cars are run on compressed air from which was compressed with energy made from geo thermal stations. and fresh water from current powered water pumping stations. tell me why someone. let me guess the cost. why not invest in one for now and slowly switch over. like a smoker its hard to go cold turkey. we could slowly eliminate all the coal power plants and gas power plants and build new unlimited energy geothermal plants. and for the drilling problems with geothermal. drill bits cost $33,000 EACH USD. SO $35,000 AUD LOL. THATS ALOT AND THEY BREAK LOTS. THERE IS A GUY IN AMERICA WHO INVENTED THIS TORCH THAT BLASTS THE GRANIT AND CLEANS IT SOMEONE SHOULD INVEST IN HIS IDEA ASWELL. MAKE IT EASIET TO DRILL THESE HOLES AYE. THATS ME OUT IM TIRED HAHAHA SORRY FOR THE BAD SPELLING HOPE SOMEONE READS THIS AND LIKES IT

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  6. […] we can tell, the only realistic alternatives to coal and natural gas for base-load electricity are geothermal and solar thermal (and perhaps, large stacks of solid oxide fuel cells). We met one citizen of […]

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  7. […] we can tell, the only realistic alternatives to coal and natural gas for base-load electricity are geothermal and solar thermal (and perhaps, large stacks of solid oxide fuel cells). We met one citizen of […]

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  8. I really look forward to this technology being developed and proving it worth. I believe it is the real deal. Of course a lot of money needs to be pumped in and we are still a few years off it becoming a recognized force. I hope Australia maintains its position at the forefront and shows the rest of the world how to do it properly and efficiently.
    The big hurdle is the govt funding challenge that solar energy development is facing right now. In Australia commercially, it is behind the 8 ball (with the rest of the world) due to our abundance of coal. If only we weren’t spoiled for coal, we might have been at this stage 5 years ago!
    Let’s hope the $ starts shifting to these cleaner energies sooner rather than later!

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  9. Andrew: In the current business environment, Tricycle Developments (your home page link) will be a winner. I am sitting here trying to articulate a strategic risk assessment that emphasises a need for ruthless simplicication of business process, improved customer service, and greater acceptance of integrated out of the box solutions.

    Yes. The stimulous billions should have been spent on bringing new technologies like this to market but, alas, the stimulous is to be largely wasted. From the package as it now exists, only the proposed education expenditure got my tick as it will pay back the future.

    Coffee Addict
    February 23, 2009
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  10. Coffee Addict, I agree that a large chunk of the stimulus package should have been directed towards renewable energy technologies. Sadly I think in a few years we will be importing a lot of this technology simply because we failed in invest early enough in this field. Here in Japan a small fortune has been invested in solar power, hybrid cars and biofuels etc. If we had to spend 42 billion dollars we should have focused on areas that would give us an edge coming out of this mess and diversified our economy. Getting a decent broadband network rolled out would help as well.

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  11. These bloggers who can’t spell what they write, why should I waste time reading them – Marm

    Janet Salmon
    March 19, 2009
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  12. It’s the ones who forget puntuation at the end of a question who bother me, Janet!~

    Biker Pete
    March 19, 2009
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  13. What is this chinese guy talking about and why am i eating cow’s shit!!!!

    Jack Stevesnon
    March 25, 2009
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  14. anyone who is against this is muppet!

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  15. Thanks for sharing such an informative article. In my opinion Geothermal Energy plants are better than nuclear energy plant and industries. This can result in better energy and potential savings. The save energy australia provides energy saving techniques and much more. Thanks

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  16. I love thid web page

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  17. We love you three, Bob.

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  18. It is both encouraging and frustrating to watch the story of geothermal power unfold in Australia. It’s frustrating because the process of exploring and finding the funding and outlasting the biased opinions seems to have to crawl along without much public support, or government support, or investor support, and yet this resource is so very promising, and the need for a clean, constant, abundant, renewable energy source is so pressing.

    One thing that happened in the United States was that individual states grew impatient waiting for a Federal plan for greater investment in renewable energy. Some states passed measures requiring utilities to increase the percentage of renewable energy in their portfolioe (10-15%). Suddenly, geothermal power showed up on playing field, and geothermal power promised to double its output in a couple of years–and to keep doubling it, but the U.S. financial debacle destroyed the investment capital that was needed to keep the momentum going. Apparently, only a few companies have managed to find adequate financial backing in this environment. One that apparently had a good start on a truly amibitious project took a hard fall. This in a country that is rich in geological “hot” zones. Still, it does illustrate how a little legislation can stimulate the growth of geothermal power.

    I’m weak on economics, so I would ask if it is not true that a government can guarantee loans and so grease the skids for banking support? This would seem to be another relatively easy and inexpensive way for government to help develop geothermal power.

    I believe that someday a generation will look back at us carbon fuel junkies and think: What idiots.

    Excuse the spelling.

    Reply

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