A combination of nature's bounty, government support and entrepreneurial spirit may well help Australia win the race to generate electricity for commercial purposes from the rocks, which some say could produce more than the country's known oil or coal reserves.

Based on encouraging test results, pioneer explorer Geodynamics Ltd. could make an investment decision on its first power station in early 2006, the climax of five years of drilling in the South Australian desert.

"This is the best spot in the world, a geological freak," Geodynamics managing director Bertus de Graaf told Reuters. "It's really quite serendipitous, the way the elements -- temperature, tectonics, insulating rocks -- have come together here."

Geodynamics has completed the drilling of its two 4.5-km Habanero wells -- named after the world's hottest chili variety -- and is now testing geothermal levels in the surrounding rock to establish a proven reserve level.

"Mother Nature has been kind to us. Australia could be the world leader within the next couple of years given the geological anomalies present in South Australia," says Peter Reid, chief executive of another explorer, Petratherm Ltd.

"The Europeans had a head start in establishing pilot schemes but they remain academically focused and have been slow to commercialise a resource that can economically compete with fossil fuels as a means of electricity generation."

HEAT SENSITIVE

While the United States, the Philippines, Iceland, New Zealand and Japan already produce commercial volumes of geothermal electricity, their system uses naturally occurring steam from underground reservoirs and springs, rather than the renewable dry rock technology the Australians are developing.

Hot dry rock (HDR) geothermal energy is one of the great hopes of the renewable universe, analysts say. It has the potential to supply larger volumes of power at cheaper prices than wind and solar alternatives in areas where the required geology exists, and at any time of day or night.

The key to HDR lies in special hot granite rocks located no more than five km below the earth, whose heat from its core has been trapped beneath layers of insulating rock. Temperatures in excess of 250 degrees celsius are considered vital.

"Temperature is the key driver of economics," says Geodynamics' de Graaf. "You double your power cost for every 50 degrees you lose in heat, but luckily we're touching 300 degrees well within the five km cut-off."

Water is pumped down through a well at extremely high pressure, to widen existing rock fractures. This increases their capacity to super-heat large volumes of water, which are then transferred to a nearby geothermal power station to heat liquids with a low boiling point to generate steam and then electricity.

"The resources are large enough to generate significant volumes of power," says Petratherm's Reid. "There could one day be plants supplying more than 1,000 megawatts of power if the market allowed it, which is theoretically a good chunk of the 1,200 megawatts required to power South Australia."

GOVERNMENT SUPPORT

Recent drilling points to the potential of commercial HDR, the climax of three decades of global research, more than A$500 million of investment and fresh encouragement from governments keen to meet environmental emissions targets. Despite staying outside the Kyoto Treaty on global warming, the Australian government maintains ambitious clean air goals, while South Australia has been quick to grant exploration licences to companies joining the emerging sector.