VZCZCXRO8375
PP RUEHPT
DE RUEHBY #0338/01 0930432
ZNR UUUUU ZZH
P 030432Z APR 09
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC PRIORITY 1313
INFO RUEHBJ/AMEMBASSY BEIJING 9422
RUEHLO/AMEMBASSY LONDON 2042
RUEHNE/AMEMBASSY NEW DELHI 1158
RUEHKO/AMEMBASSY TOKYO 3476
RUEHWL/AMEMBASSY WELLINGTON 5709
RUEHBN/AMCONSUL MELBOURNE 6212
RUEHPT/AMCONSUL PERTH 4475
RUEHDN/AMCONSUL SYDNEY 4431
RHMFISS/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 CANBERRA 000338 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB MONOSSON, ENERGY FOR EERE WALL, BECKERT 
 
E.O. 12958: N/A 
TAGS: ENRG SENV ECON AS
SUBJECT: RENEWABLE ENERGY FUND: GEOTHERMAL LEFT OUT? 
 
REF: A. CANBERRA 268 
     ¶B. 08 CANBERRA 701 
 
¶1. (SBU) Summary: The Rudd government's A$435 million (US$305 
million) Renewable Energy Demonstration Program (REDP) 
provides the best vehicle for companies seeking to 
commercialize new renewable energy technologies.  The program 
is currently taking applications for what will eventually be 
8-10 A$50-100 million (US$35.8-$71.7 million) grants to 
commercialize new renewable energy generation projects. 
However, the scale of the program is modest compared to the 
size of Australia's emissions reduction targets, and more 
importantly, the focus on commercialization, rather than late 
stage research and development, potentially leaves geothermal 
energy (one of Australia's leading candidates for 
emissions-free baseload power generation) out in the cold . 
End Summary. 
 
RENEWABLE ENERGY DEMONSTRATION PROGRAM 
-------------------------------------- 
 
¶2. (SBU) The Renewable Energy Demonstration Program (ref A) 
provides A$435 million (US$305 million) to "accelerate the 
commercialization and deployment of new renewable energy 
technologies for power generation in Australia."  Australian 
companies close to commercializing new solar, wind, 
geothermal, biomass, hydropower, or ocean energy technologies 
are eligible.  The grant application period will close on 
April 14; the government expects to announce winners sometime 
around August of this year, after reviewing all applications. 
 While Department of Resources, Energy and Tourism (DRET) 
officials say there is no technical bias in the program, 
mature technologies like current generation wind and solar 
will not be funded under this program.  Wendy Launder, who 
heads the REDP program for DRET, told econoff on April 2 that 
the government hopes to fund 8-10 projects, within a range of 
A$50-100 million (US$35.8-$71.7 million).  She noted that the 
government had raised its projected cost range from initial 
plans for A$25-50 million (US$17.9-$35.8 million) projects 
based on cost growth in ongoing demonstration programs, but 
said in her view there might be room for much smaller grants 
for some technologies like biomass. 
 
¶3. (SBU) The emphasis in the program, according to Gary 
James, Manager for Technology Policy in the Energy and 
Environment Division at DRET, is to take technologies that 
have passed the proof-of-concept stage and "jumpstart" the 
next step in commercialization.  Grantees will be expected to 
demonstrate that they can match each GOA dollar with two 
private sector investment dollars before they can sign a 
grant agreement.  This focus on commercialization will result 
in rapid power generation from renewable projects, but 
creates a problem for many of Australia's most promising but 
less-well developed renewable technologies.   The leading 
example is the geothermal industry.  According to Susan 
Jeanes, head of the Australian Geothermal Energy Association, 
there are 40 companies working in Australia to develop power 
generation from both conventional geothermal and enhanced 
"hot dry rock" geothermal systems.  An analysis of geothermal 
potential in Australia shows that it has the potential to 
displace a huge chunk of the current brown coal generation 
now powering Australia - providing as much as 10 percent of 
Qnow powering Australia - providing as much as 10 percent of 
Australia's baseload power by 2050.  The leading development 
company, Brisbane-based Geodynamics, sees the possibility of 
generating 500 megawatts of electricity from its Cooper Basin 
site alone if transmission and capital challenges can be met 
(ref B). 
 
MUST DEMONSTRATE CONCEPT FIRST 
------------------------------ 
 
¶4. (SBU) Geodynamics is also the only geothermal company (so 
far) in Australia to meet the government's proof-of-concept 
requirement, having announced a successful closed-loop test 
on March 31.  Jeanes told econoff on March 31 that while this 
is good for Geodynamics, the proof-of-concept requirement is 
likely bad for the rest of the industry.  Jeanes described 
the government's focus on commercial demonstration as a 
"closed loop" that locks almost all of the geothermal players 
working in Australia out of the REDP.  Geothermal companies 
received more than A$50 million (US$35.8 million) in grants 
 
CANBERRA 00000338  002 OF 002 
 
 
from the Howard government as part of the initial research 
and development process, but the amount of funding for each 
project was far below that needed for commercial 
demonstration.   Petratherm Managing Director Terry Kallis 
told econoff on April 3 that the government's requirements, 
between proof-of-concept and matching funding, basically 
eliminated all other players except Geodynamics and 
Petratherm from the program.  Without the ability to tap into 
the REDP, many of the companies involved will face a tough 
challenge generating sufficient private capital to develop 
commercial operations, especially under the current global 
financial crisis.  DRET's James said he expected that many 
would fail over the next 12-18 months, with only a few major 
players like Geodynamics or Petratherm having sufficient 
finances to survive.   Kallis said that the proof-of-concept 
focus was a concern, but that he expected the government to 
look at work done outside Australia (Petratherm is a major 
partner in development of geothermal power in Madrid) and so 
sees their concept sufficiently demonstrated to qualify.  In 
Kallis' view, only Geodynamics and Petratherm would be 
competitive, but as both were already relatively 
well-financed with major joint venture partners, and own 
their own drilling equipment, the decision in the end would 
be more political than either economic or technical.  He said 
there was no strong indication that there would be a repeat 
or replenishment of the REDP in out years, so this was a 
one-time chance.  Launder told econoff separately that while 
there was no decision at this point on repeating the REDP in 
future years, some vehicle to continue to support 
commercialization would be needed.  She said she expected 
something to be done, for example, to replace the Howard 
government's much larger Commercial Ready grant program. 
 
¶5. (SBU) The plight of the geothermal sector highlights a key 
challenge for the government in encouraging renewable energy 
development - one of its core pledges during the 2007 
election.  The REDP, and the Mandatory Renewable Energy 
Target (MRET) scheme, are designed to force technologies out 
of the lab and into generation as quickly as possible. 
However, by focusing on technologies close to commercial 
deployment, critics charge that the government is hampering 
the development of longer-lead time technologies like 
geothermal, wave, other systems.  Jeanes said her fear was 
that the MRET targets, for example, would be met very early 
on by wind and solar, where costs are better known and risks 
lower, and this would crowd out the longer-term developing 
technologies.  Kallis said he agreed that was a risk 
initially, but that once developed, geothermal and other 
technologies would be able to "savagely" undercut wind and 
solar on a cost/megawatt basis.  This would only happen, he 
noted, if the electricity customers like Origin energy and 
AGL were willing to buy, and not own as investors, renewable 
resources.  If they end up being heavy investors in renewable 
generation, then they will act to protect those investments 
and future technologies could be crowded out. 
 
¶6.  (SBU) Comment:  DRET is struggling to define the REDP 
program and has had to accelerate their management because of 
Qprogram and has had to accelerate their management because of 
political pressure on Rudd to get money out the door.  While 
REDP will be very good for some players, the rapid pace of 
the program and the steep requirements being laid on it means 
that it is unlikely to receive many high-quality proposals. 
If the money is not spent, it is not clear to us or to 
interested applicants that it will not disappear into other 
programs in what is expected to be a very tough budget year 
for the government.  End comment.