The project The Negotiaction Challenge is an initiative designed to foster commercially useful solutions to a nominated client or industry-level challenge. The ‘Advancing Geothermal Energy ~ Opportunities, Options and Strategies’ project saw the company recently complete its largest round of challenges to date.

The geothermal project brought together eight academics from Australia’s major universities, three panellists who are acknowledged experts in their field and a team from Negotiaction to form views on the ways in which geothermal companies and interested organisations could accelerate their development.

In Negotiaction’s experience, discussion in nascent technology industries tend to be dominated by an understandable volume of technical consideration, whereas high level strategy and engagement skill-sets may not necessarily be so well represented – despite their value. The goal of the geothermal challenge was to contribute innovative perspectives, in particular relating to strategy and engagement, to the geothermal industry.

The landscape Not all 35-plus geothermal energy companies in existence today will be successful. Thus far a small number, Geodynamics perhaps best known, have made substantive advancements towards commercial viability. What can companies do to advance their prospects?

Considering the high levels of uncertainty prevalent within the industry; the high costs and risks faced in stages of development; and the imperative to position for scarce resources such as skills, transmission infrastructure and (more recently) capital, geothermal companies need to ensure they consider the potential of relationships and to apply ‘options’ thinking – to think differently about uncertainty and how they should be playing.

For example, when you look at the level of competition for skills, capital, infrastructure and materials currently prevalent in Australia’s energy sector it seems strange that few exploration companies are cooperating to gain access to drilling rigs and other scarce and costlyequipment. Knowing where competition is relevant and where cooperation is critical is vital for this industry.

Options are about maximising the upside and minimising the downside. Uncertainty can be a source of value creation and can also be a source of value deterioration. There is an opportunity for geothermal players to make better strategic choices under uncertainty.

However to do so, such uncertainty must first be understood. Organisations need to think about the role of uncertainty in shaping their options and the options of other players. What options have I created or should I create? How and when should I exercise these? What option value might my organisation create for other players? A simple example is that of a company trying to gain access to a drilling rig. By thinking only within the boundaries of a technical exploration company, trying to get access to a drilling rig may be limiting the options a company believes it has, and therefore its ability to drive growth and capture value.

The relationships we see forming in the geothermal industry point to the use of ‘options’ thinking and application of nontraditional relationship structures to reach a workable mix of risk and reward between parties. Consider the relationships formed between Geodynamics and Origin; Petratherm, Beach Petroleum and TRUenergy; Torrens and AGL.

Though a simplification, these partnerships essentially reveal plays that are providing geothermal companies with project-specific finance and complementary resources. They also show the opportunities provided for large energy companies to diversify energy portfolios(and ultimately take a leadership position if desirable), gain further intelligence before making stronger commitments, and the ability to manage their growth options – and manage stakeholder perceptions.

Negotiaction’s geothermal project suggested that in order to accelerate the development and diffusion of geothermal, innovative strategic relationships should be designed and executed by geothermal proponents.

These relationships should have an underlying design that: • Reduces exposure torisk by individual players through cost sharing • Enables companies to hedge sitespecific risks for example, by commitment to advancing several projects • Generates support/closer links with organisations that can shape uncertainty, including governments • Could be useful in advancing the geothermal industry.

These relationships would involve parties both within and beyond the geothermal energy domain, including major diversified energy players, technology vendors, government, proactive energy users and specialist service providers.

Elements of the relationship structure may accommodate joint project evaluation, commitment to advance high value projects – from a portfolio management perspective, planned gain-sharing/costsharing structures, and flexibility to optout at agreed points.

Where to next? The potential of geothermal energy is non-trivial. The recently released Garnaut Climate Change Review contends that “the development of storage technologies and the reduction in solar costs – driven by larger-scale deployment and ongoing technological innovation – are expected to combine with geothermal energy to begin to replace fossil fuels as the long term solution to our energy needs.”

This project was in and of itself an engagement with the geothermal industry. Beyond this project, Negotiaction will continue to engage with the geothermal community. We’ve become quite passionate about it, and we are definitely open to ideas and creative relationships.