My fears are probably negligible since I see many controllable factors but, if any, they tend to be more with the later stages of the project.
In my last post I was trying to say to a proportion of readers, "Hold on a minute, get an appropriate perspective of 'Proof of Concept'." There was also an implied corollary and, putting it somewhat more directly: Don't trade with this stock because you will achieve little but trash the share price. (It’s been done before.) The wild yoyo swings in the SP creates insecurity in holders who seem to infer that there must be some technical problems they don't understand.
It is a key thing that everyone should ask, "Will this thing work?" Further, is it enough to ask just that question? What about, how can it be funded?
To dispense with some preliminary questions first: Is the heat actually there? Can we successfully drill wells deep enough? Will the heat source last for many decades? Do we understand what we are doing? The answers to these and many others is yes, yes, yes, yes. There is no geological risk and the technological risk is minute. If we divide the project up into components then virtually every section is understood and has already been done elsewhere. The oil drilling industry is a treasure trove of available experience to tap and steam turbines have been in use continually since Stephenson's Rocket (~1769). There is a very long accumulated practical knowhow. The modelling applies more to heat flows and cooling effects. Again, provided you know the nature of the geology, these are reasonably straightforward exercises. These were probably outsourced only so that the results would appear as from 'independent experts', similar to confirmation of 'proof of concept' by Geothermex.
To consider the key question above we might need to divide the entire project into parts (The answers may be different for each):
a) The 1 MW Innamincka Pilot Plant. b) Stage 2, the 50 MW first power module (scheduled for completion end 2011). c) The 500 MW full commercial demonstration project.
a) As I see it, the 1MW plant can hardly fail to work. If not, we can make it work. (eg Will my car continue to function? By adjusting or replacing appropriate bits we can make it so.) Temperatures and flow rates have already been measured. The single existing fracture provides sufficient flow. If there were some blocking agent restricting the flow later it would be 'fixed', possibly by some further artificial stimulation. Unlike drilling for oil, here it is not so much a matter of good luck. Many parameters can be controlled. Keep in mind 1MW is a tiny power output that is easily achieved. Efficiency doesn't even matter in the first instance. As a Pilot Plant it will work. After that it can become an experimental test bed for tweaking parameters if needed.
b) For the 50 MW module we need an array of nine wells with each production well contributing 10 MW, i.e. 10x as much for the pilot plant. Flow rates through several engineered fractures and the heat transfer efficiencies become very important. This is not a colossal hurdle, just a matter of systematic development (still need to devise some tricks). Project costs are now also significant. I used to see this as the greatest obstacle since power generation is a conservative industry and funding institutions have recently become even more conservative than usual. However, with GDY in a reasonable financial position, with bonus option conversions likely in Dec, with a possible government REDP grant in support, and with a cashed up JV partner carrying 30%, I feel much more relaxed.
c) Another 9 x 50 MW modules need to be developed but if the first one works the rest are largely direct copies. The technologies are then no longer new but for such large scale very serious funding is needed (~$2.5B). Who will provide? Even this is not insurmountable. By proceeding in stages there will be a progressive demonstration that geothermal generation works and is viable. We can gradually get people used to this by the boiling frog principle. Political climate change pressures will also be increasing and forcing diehard decision makers out of their comfortable ruts. Hence overall I think this to be one of the best projects on the planet with minor reservations hinging mostly on politics.
Does this help put you at ease in any way?
Juke
RNE Price at posting:
93.5¢ Sentiment: Buy Disclosure: Held
(20min delay)