The cleantech bubble blowout

Business Spectator 
Monday July 12, 2010
Page: 1

Australia's first cleantech bubble has well and truly burst. The geothermal energy industry has lost practically all support from the investment community, and share prices are just a fraction of what they were just a year or two ago. Hundreds of millions in market value has been wiped from the board. In the history of market bubbles, this event might have passed unlamented. But geothermal energy is not a mere passing fad, or a cool iPhone app - it forms a crucial part of the government's renewable energy strategy, and is supposed to be the centre of $15 billion of investment over the next decade.

As things currently stand, that looks impossible, and the government, in danger of another embarrassing debacle in its renewable energy policy, is under increasing pressure to take action to help de-risk the sector. Cleantech and renewable energy investments as a whole are in a sorry state in this country. The 75-company Australian Cleantech Index, a basket of renewable, environmental, waste and biofuel stocks with a combined market value of $10 billion, slumped 32% in fiscal 2010, compared to an 11.8% gain for the ASX200 and a 10.5% gain for the ASX Small Ords.

Cleantech Australia managing director John O'Brien blames "weak and inconsistent political leadership" on environmental issues for this fall. "The story of environmental investments in Australia is a depressing one compared to global cleantech stock performance", he says. The geothermal index was the weakest component, losing 57% in the last 12 months, following a 34% loss the year before. Even the two market leaders, GeoDynamics and Petratherm, who share $153 million in government grants between them - if they can advance their projects far enough - have slumped by two-thirds in the last six months.

Yet, according to the federal government's own estimates, geothermal energy could provide more than one quarter of 41,000GW hours required to meet its 20% renewable energy target. And the government's own Energy Resource Assessment rates geothermal as the likely cheapest and cleanest form of baseload energy (including "clean" coal and nuclear) by 2030. But in its current state, the industry fears it will be unable to deliver. It simply doesn't have the support of the market to raise funds for the relatively expensive task of drilling.

Insiders in the industry say it is difficult to get investors on board because they cannot yet see the business case for the technology. The lack of a carbon price has not helped, nor has the uncertainty surrounding the renewable energy target, weak global equity markets and, most recently, the withdrawal of the exploration rebate as a result of the compromise over the mining tax. There have also been set-backs at some of the few wells that have been drilled, most notably the blow-out at GeoDynamics' project in the Cooper Basin and the uncertain results from the Panax Geothermal well at its Penola project.

Geothermal is not a new power source. It has been exploited for more than 100 years, there's 10,000 megawatts of capacity already installed around the world and there are predictions of rapid growth across the world. Australia's resources, 1% of which could power the country 26,000 times over, according to Geoscience Austraia, lie deeper than the rest of the world and pose unique challenges because of that. The industry recognises that there will be setbacks in certain developments, but rather than focusing assistance on a handful of projects and putting all eggs in one basket, there needs to be broader support from the government.

For a start, this would encourage more rigs to be made available across all states for drilling - right now there is an interminable queue for the few available, and would increase the chance of success that would create the necessary trigger for large scale investment in the sector, and expand targets - industrial, heating, and energy. The industry estimates around $500 million is needed - much less, it argues, than has been promised to the large scale solar and carbon capture and storage sectors. Like other renewable sectors, it would also favour broader based mechanisms such as specific feed in tariffs, tax credits, or loan guarantees - a mixture of which is available in almost every other industrial nation, but has not so far been countenanced in Australia.