Australian geothermal developer looks for A$10m injection

An Australian geothermal developer, New World Energy, is seeking to raise A$10m (£5.7m) in a public float in what will be a key test of local investment appetite for renewable companies.

New World will be the 11th aspiring geothermal producer to list on the Australian Securities Exchange, although it is the first in nearly two years.

The global financial crisis has made it difficult for geothermal companies to to raise funds for the high upfront drilling costs needed to prove the viability of their resources, and the resulting delays have caused a major re-rating of geothermal stocks in Australia, with most at little more than half the value of their 2007 highs.

However, geothermal is still regarded as a potentially huge contributor to Australia's renewable energy supply because it can provide baseload power and will be cost-competitive with wind, and with coal and gas with the help of a carbon price and certificates generated by the renewable energy target.

Morgan Stanley said the sector could provide up to 2,000 megawatts of energy by 2020, generating more than A$4bn of revenue.

"From somewhere on the list of tiny companies in this space, we expect a giant to emerge," said Morgan Stanley analyst Stuart Baker.

New World has geothermal exploration permits in the Perth Basin surrounding the capital of Western Australia, and in the Pilbara region, the home of most of Australia's massive iron ore mines and the imminent expansion of huge LNG (liquefied natural gas) projects.

Chief executive John Libby sees great potential in the Pilbara, which has relatively high energy costs and little competition in other renewable technologies, apart from solar thermal. "I think it is a huge market up there for us," Libby said.

New World will use the money raised in the initial public offer to identify specific geothermal targets in the two regions before embarking on a drilling pr ogram to prove the viability of the resources.