What's Really Stopping Renewable Energy


One constant refrain since the beginning of the national carbon argument has been the uncertainty a carbon price will bring to the market. Hammer and tongs industries like steel and coal will disappear offshore, jobs will be lost and the nation will suffer as a result. What you hear less frequently is that the companies who are to deliver the renewable technologies and mythical "green jobs" have been operating in an uncertain market since the abandonment of the ETS in 2009 — with all the resulting setbacks.

The geothermal industry is a perfect example of the consequences for renewables resulting from the aggressive politicisation of the carbon debate. It’s the great white hope of the renewables industry: a zero carbon source of power, with minimal environmental impacts compared to hydro, and potentially huge outputs. It’s one of the few renewables reliable enough to provide baseload power, so good in fact that the carbon tax treasury modelling has it providing almost a quarter of Australia’s power by 2050.

But the prohibitive cost of overcoming an initial development phase means that attracting interest from the market depends on both a consistent investment environment and plenty of support from government. The industry has had neither, and has suffered as a result.

Of all the effects of the carbon price, this is probably the most transformative: taxing old, dirty industries that have enjoyed historical privilege and government support for decades — and using that money to kick-start the development of new technologies.

Geothermal power works by pumping water into subterranean aquifers or hot granite deposits with temperatures of up to 300 degrees. The resulting steam is sucked back to the surface through a secondary well and used to power a turbine

Here’s the problem. The temperatures needed are found around three to four kilometres into the Earth’s crust, so enormous drilling rigs are needed even to drill test wells, let alone create the kind of arrangements necessary for an operating geothermal plant.

It costs around $15-20 million to drill each well. Factor in too the $13 million it takes to actually bring the rig to Australia because there are only usually one or two rigs in the country at any time. The upfront capital cost is obviously enormous, so to make it happen needs significant investment — which requires market certainty and assurances that eventually the outfit will be making a profit.

David McDonald, the Managing Director of KUTh Energy Ltd, a geothermal energy company currently developing large geothermal sites in Tasmania, says the opposite happened. At the time the ETS debacle was taking place, there was a suitable drill rig in Australia, but as a result of government uncertainty it was taken offshore to greener pastures.

"Our company’s like many others, we’ve done all our exploration to the point of drilling, it’s effectively drill ready, but in the last two years since we saw the ETS put back … once we went through that period of time you saw a freeze in the industry, because there was no clear direction on carbon," McDonald told New Matilda.

"So the ability of people to really get on with it, apart from the Government’s role in that … when the investment market sees the Government vacillating or uncertain, there is no investment market."

The result? A real world example of the threats the Coalition has been making about coal companies. KUTh took their business elsewhere.

"When we were unable to raise the necessary capital because it was uncertain what was going to happen with carbon pricing and renewable initiatives, we concentrated on our offshore project in Vanuatu."

Companies developing geothermal technology are in a brittle financial position because the industry isn’t yet viable. Geodynamics, the only geothermal company in Australia to have passed the "proof of concept" phase — meaning they have demonstrated the ability to make the technology work, and need only to increase flow rates to actually generate electricity — had a share price fall from $2.00 to 40c over three years after the abandonment of the ETS and a 28-day well-head leak at their Habanero 3 well. Even so, the company is on the verge of having a demonstration plant ready soon.

The share price issue isn’t an isolated one, though. "Geothermal companies have all tracked that sort of downward trend," McDonald says.

"You had a sort of euphoria when the labor government was first elected towards moving into a climate change platform and really getting a whole carbon price/ETS together, you had a bit of a jump and expectation. That whole thing has put this back … The market started to lose a bit of interest, they weren’t convinced there was a push towards a renewable future."

This has been a common trend across the renewables industry. According to Russell Marsh, Policy Director at the Clean Energy Council, better developed technologies like wind and geothermal have suffered the most. "They need significant investment in the technology, and that investment was missing as a result of the CPRS disappearing." This was further compounded by a general downturn in investment as a result of the global financial crisis.

The solution is to engage in what Marsh calls "pump priming". Technology that is viable, but can’t yet be "deployed to scale" because of start-up costs, needs a "pump priming of [government]money to help keep them down the cost curve".

This is also true of connecting new renewable energy sources to the national electricity grid. Marsh says coal companies "had their network built for them", and as a result "it isn’t fair for the renewables industry to be taking all the risk [for network connections]". Again, public money is required to help connect distributed clusters of renewables to the grid, sometimes at distances of hundreds of kilometres.

The pump may be primed sooner rather than later. The Gillard Government is on the verge of announcing another fund for emerging renewables beyond the initial $3 billion and $10 billion investment funds. It’s aimed at geothermal, McDonald says, and will enable Australia to obtain the necessary rigs and begin drilling.

Moreover, the potential benefits are impressive; government will get a return on investment, and not just in the carbon economy. Australia has an enormous capacity to generate geothermal energy; if only 1 per cent of known geothermal reserves are tapped, it could provide clean energy to the nation at current levels for 26,000 years.

KUTh’s Tasmanian site, once up and running, will be able to use the Bass Link line to export 500MW of power back to the mainland, once Tasmania is supplied, achieving what hydro couldn’t as a result of drought. It’s not a pipe dream.

What needs to happen now? McDonald says the carbon price is a good start, but "it’s likely to take a little while for some of those programs to be detailed and hopefully get into action. Really without that it’ll slow things down".

Marsh agrees: "Obviously there’s a lot more confidence now the detail of the carbon price is known … we’re just waiting for the package to be passed."

So let’s hope Kevin Rudd’s heart holds out, otherwise we could be back at square one.


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