LOOKING FORWARD: BARRIERS, RISKS AND REWARDS OF THE AUSTRALIAN GEOTHERMAL SECTOR TO 2020 AND 2030 Australian Renewable Energy Agency NewActon Nishi 2 Phillip Law Street Canberra ACT 2601 GPO Box 643 Canberra ACT 2601 Phone: +61 2 6243 7773 Fax +61 2 6243 7037 Email: [email protected] Contact person for this report: Damir Ivkovic Strategic Knowledge and Communication, ARENA Content: Australian Renewable Energy Agency Coordination, editing and indexing: Australian Renewable Energy Agency Design: Giraffe VCM Printing: CanPrint Communications (Printed publication) : 978-0-9925510-0-1 (PDF online format) : 978-0-9925510-1-8 (Word online format) : 978-0-9925510-2-5 This work is copyright, the copyright being owned by the Commonwealth of Australia. With the exception of the A report provided to the Board of the Australian Renewable Commonwealth Coat of Arms, the logo of ARENA and other Energy Agency by members of the International Geothermal third-party material which is protected by intellectual property Expert Group law, this copyright work is licensed under the Creative Commons Attribution 3.0 Australia Licence. Under this licence, you are free to copy, communicate and Professor Quentin Grafton, the Australian National University adapt the work, so long as you attribute the work to the Professor Roland Horne, Stanford University Commonwealth of Australia (Australian Renewable Energy Agency) and abide by the other licence terms. Professor Michal Moore, University of Calgary This work should be attributed in the following way: Susan Petty, AltaRock © Commonwealth of Australia (Australian Renewable Bill Livesay, Black Mountain Technology Energy Agency) 2014 Requests and enquiries concerning reproduction and rights should be addressed to [email protected]. This version 10 June 2014 Contents Contents i Terms of Reference iv International Geothermal Expert Group Members v Abbreviations vi Glossary viii Key findings x 1 Introduction 1 1.1 Background 2 1.2 Scope of work 2 1.3 Overview of the report 2 2 Geothermal energy in Australia 4 2.1 Geological context – Australia’s geothermal resources 5 2.2 Technology context – conductive geothermal resources 5 2.3 History of the geothermal sector in Australia 5 2.4 Current status of the geothermal sector in Australia 7 2.5 Direct-use opportunities 7 3 Australian geothermal energy sector SWOT analysis 10 3.1 The SWOT framework 11 3.2 SWOT of the Australian geothermal sector 11 Strengths 13 Weaknesses 13 Opportunities 13 Threats 13 4 International Geothermal Energy Development 14 4.1 Convective geothermal resources 15 4.1.1 Overview, history and current state 15 4.1.2 Global geothermal resources 17 4.1.3 Conductive and convective resources 17 4.1.4 Geothermal in the USA 17 4.1.5 Geothermal in Germany 19 4.2 Conductive geothermal resources 21 4.2.1 History of geothermal well stimulation 22 4.2.2 History of EGS Projects – Fenton Hill, and activity in Europe and the US 23 5 ARENA’s commercialisation pathway as applied to geothermal energy 32 5.1 Commercial readiness of geothermal energy in Australia 33 5.1.1 Technology Readiness Levels for Australian geothermal resources 34 5.2 Commercial Readiness Assessments 35 5.2.1 Commercial Readiness Index – Shallow Direct Use (Type A) 36 5.2.2 Commercial Readiness Assessment – Deep Natural Reservoirs (Type B) 37 5.2.3 Commercial Readiness Assessment – Enhanced Geothermal Systems (Type C) 38 5.3 Comments on commercial readiness 39 5.4 Uncertainty and risk 39 Resource risk 39 Market risks 39 CNO TENTS i Technology lock-in risk 39 Operational risk 39 Sovereign risk 39 Investor risk/financial risk 40 Power markets, risk and uncertainty 40 Risk and uncertainty in energy systems and investments 40 Response to risk and uncertainty 41 Reducing energy market risk 41 Public support and government actions 43 6 Australian electricity market 44 6.1 Electricity demand 45 6.2 Wholesale electricity prices 46 6.3 Renewable Energy Target 46 6.4 Levelised cost of energy 47 7 The critical barriers and critical actions 48 7.1 Finding it (flow and heat) 49 7.2 Flowing it (enhancing/engineering) 50 7.3 Financing it (mitigating risk) 51 Market failure 51 Energy projects 52 Rates of return 52 The Australian geothermal marketplace 52 8 Risks, costs and rewards of ARENA support to geothermal energy 56 8.1 Risks and costs 57 8.2 Rewards 65 9 Options for ARENA Board 66 9.1 Resume option 68 9.1.1 Description 68 9.1.2 Actions and/or strategies 68 9.1.3 Implications for barriers 69 9.2 Reconsider option 69 9.2.1 Description 69 9.2.2 Actions and/or strategies 69 9.2.3 Implications for barriers 69 9.3 Reboot option 69 9.3.1 Description 70 9.3.2 Actions and/or strategies 70 9.3.3 Implications for barriers 71 9.4 Innovation Roadmap 71 9.4.1 Purpose 71 9.4.2 Timing 71 9.4.3 Proposed components 71 Data collection 71 International collaboration 72 Collaboration with the oil and gas sector 72 ii LOOKING FORWARD: BARRIERS, RISKS AND REWARDS OF THE AUSTRALIAN GEOTHERMAL SECTOR TO 2020 AND 2030 Annexes 73 Annex A Geothermal LCOE 74 Cost comparisons 74 Cost modelling 76 Comparison with AETA Costs 76 System Advisor Model 76 Exploration costs 77 Reservoir characteristics 77 Flow rate 78 Drilling costs 78 Thermal draw down 80 Power plant 81 Operating and maintenance costs 81 Indirect capital costs 81 Financial 82 SAM Results – 2020 82 Towards 2030 86 Summary 87 Exploration costs (reducing the risk) 87 Costs of geothermal energy in Australia 87 A.1 SAM inputs technical and engineering – base cases 89 A.2 SAM inputs – financial 92 Annex B Stakeholder engagement 93 Key themes from stakeholder submissions 93 Annex C Briefing note: Commercial Readiness Index 94 ARENA’s Commercial Readiness Index 94 Commercial Readiness Index in practice 94 Commercial Readiness Level assessments for geothermal energy 97 A comment on Technology Readiness Levels for Australian geothermal resources/technology 98 Commercial Readiness Index – Shallow Direct Use (Type A) 99 Commercial Readiness Assessment – Deep Natural Reservoirs (Type B) 102 Commercial Readiness Assessment – Enhanced Geothermal Systems (Type C) 105 C.1 Commercial Readiness Indicator Descriptions 108 Regulatory environment 108 Stakeholder acceptance 108 Technical performance 108 Financial proposition – costs 109 Financial proposition – revenue 109 Industry supply chain and skills 109 Pathways to market 110 Company maturity 110 C.2 Technology Readiness Level Descriptions used by ARENA 111 References 112 CNO TENTS iii T erms of Reference 3. Identify: a. the main barriers facing pilot/demonstration projects, The Board of the Australian Renewable Energy Agency (ARENA) including technical, physical, economic, institutional is seeking advice on the barriers to, and opportunities for, and policy the development and deployment of geothermal energy in b. the main barriers to commercialisation Australia. c. the geothermal industry’s capability gaps (including To this end, ARENA is establishing an International Geothermal technical, managerial, engineering, scientific), and Expert Group to assess Australia’s geothermal prospects and present its findings in the form of a written report and briefing d. key gaps in data (including resource and technology to the ARENA Board and a report for public dissemination. specific performance data), information and knowledge. The assessment will comprise the following: 4. Include site visits and face to face engagement with 1. Determine whether, over the periods to 2020 and 2030, stakeholders in Australia. there are plausible commercialisation pathways for either EGS or HSA geothermal energy to deliver cost competitive 5. Prepare for the ARENA Board an analysis of risks and utility scale energy to Australia without long-term subsidy rewards for geothermal energy, which will help inform and to describe those pathways. the Board’s consideration of how to allocate and prioritise funding for geothermal energy as part of its portfolio 2. Critically evaluate: approach to supporting renewable energy in Australia. a. the performance of Australia’s geothermal energy sector – how effectively has it used the private investment and public funding it has received to date? b. opportunities and threats to support a SWOT analysis of Australia’s geothermal energy sector, including its size, structure, governance, skills, capabilities (technical and managerial) and finances. iv LOOKING FORWARD: BARRIERS, RISKS AND REWARDS OF THE AUSTRALIAN GEOTHERMAL SECTOR TO 2020 AND 2030 that he developed over thirty-five years’ experience in all International aspects of drilling engineering for oil, gas and geothermal Geothermal Expert resources. Bill passed away on 4 March 2014. Michal Moore, Distinguished Fellow and Professor of Energy Group Members Economics, School of Public Policy, the University of Calgary. The members of the International Geothermal Expert Group Michal formerly served as Chief Economist at the US National (IGEG) combine extensive experience in geothermal energy, Renewable Energy Laboratory and is a former regulator in the drilling technology and energy economics. energy industry in California. Susan Petty, President and Chief Technology Officer, AltaRock. Susan has over 34 years of experience in the geothermal Chair industry in electrical and direct-use project economics, optimising of power plants to meet resource conditions, Quentin Grafton FASSA, Professor of Economics, Crawford reservoir evaluation, reservoir modelling, well, plant and School of Public Policy, ANU and former Executive Director of well-field performance data analysis, well testing and test the Australian Bureau of Resources and Energy Economics. data analysis. He has published extensively in the area of environmental and resource economics including in the world’s leading science and economic journals and is the editor or author of more than a dozen books on resources and economics. Consultant Cameron Huddlestone-Holmes, Geothermal Stream Leader at CSIRO. Cameron leads research at CSIRO that integrates M embers multi-disciplinary capabilities in geoscience and resource engineering, and applies them to develop the technologies Roland N.