GREEN DEALS: Geothermal funding

Archived News, Posted on 18 May 2011

GREEN DEALS: Geothermal funding

The federal government is going to have to rethink its plans for supporting the geothermal industry, after four of the five recipients of $7 million grants announced 18 months ago to supporting drilling activities failed to come up with matching funding. The companies had until the close of business Tuesday to produce the funds, but it is believed that only Geodynamics, which received a grant to drill in the Hunter Valley, was able to do so. What happens next is unclear, and companies would not comment on the record because of confidentiality agreements with the government. Several have grumbled that the grant requirements – which required the companies to match the offering on a 1:1 basis – were commercially unrealistic. Most were small companies, and were unable to lock in financing for a second well (as was required) before the results of a first well were known.

Green Rock said in an investor update earlier this week that its geothermal heating project it had planned to begin at the University of WA this year, and then extend to other sites such as the QEII hospital in Perth, was now “some way off.” It said the high upfront drilling costs, and the lack of support for such schemes through the renewable energy target, made it hard to attract partners. It said then that it was “highly uncertain” that the company will be able to meet the conditions of its funding agreement.

The other companies are Torrens Energy, Greenearth Energy and Hot Rocks Ltd. It is not clear what action the government will take – whether it will allow extensions, negotiate different agreements, throw the money back into a pool for new applications, or cancel the idea altogether. The industry has called consistently for more funding, and for greater flexibility, given the important role that geothermal energy could play in Australia’s future energy mix. Right now, the only active drilling program is being undertaken by the deep-pocketed Origin Energy, possibly with eye on the potential to supply energy to BHP Billiton’s massive Olympic Dam project.

Solar stoush

The solar industry is due to hold its “Last Chance for Solar” rally in Sydney today, protesting against the retrospective cuts in feed-in-tariffs, and calling for the introduction of a 1:1 net tariff for future installations. The industry is seeking to embarrass the O’Farrell government by pointing to several examples where the Coalition leaders and members of his front bench promised to honour the agreements made by the previous government. “The NSW Liberal & Nationals policy will ensure that NSW leads Australia in establishing a decentralised energy sector, by honouring the state government’s current commitments”, O’Farrell wrote on his website. Just days before the election, the Deputy Premier, Andrew Stoner, wrote: “I state for the record that a future O’Farrell Government will honour all accepted applications as a matter of faith.”

On the subject of faith, and the sovereign risk that emerges when it is broken, a banker from the top end of town responded to our commentary on Tuesday, relaying a conversation he held with the visiting heads of multi-billion dollar international investment groups after the decision by Spain to implement retrospective changes to feed-in tariffs in that country. The message was quite simple: “We will never trust that government,” the investors reportedly said. Given that the NSW government will rely on investment from large corporates and investors to roll-out commercial and large scale installations, it too might struggle for credibility.

Algae a go go

US-based algae fuel company Solazyme has set the pricing on its IPO which many think could set a benchmark for all the other algae hopefuls looking to raise money in the coming year. Solazyme, which has signed a development deal with Qantas, and has also partnered with Chevron and Dow Chemical, has set a price range of $US15 to $US17 in a market float that will raise up to $US170 million and would give it a market capitalisation of around $US1 billion – not a bad return for the investors who have ploughed $US128 million into the company so far.

Solazyme is considered to be the leader in algae fuel development – at least by volume, because it has produced more algae fuel than any other company and has provided fuel for the US Air Force. Where other companies grow algae in ponds or closed systems using CO2 emissions and sunlight, Solazyme produces it in large tanks through fermentation. Still, the IPO will be watched with interest by the likes of Aurora Algae, which has just opened a demonstration plant in Karratha in WA, and is looking at a possible float to fund a commercial-size installation next year; as well as MBD Energy, which has struck a range of agreements with power stations in the eastern states. Australia’s only listed algae fuel company is AlgaeTec, which floated in January after raising $5.1 million at 20c a share, and is currently trading at 38c. AlgaeTec is developing a pilot plant in Nowra.