Nov. 16 (Bloomberg) -- Australian geothermal energy companies may seek merger partners during the next year because of funding needs, said Geodynamics Ltd. and Petratherm Ltd., two businesses seeking to produce power from underground heat.

“The competition is not for acreage -- it’s for capital,” Gerry Grove-White, managing director of Brisbane-based Geodynamics, said by phone Nov. 13. “It’s going to be challenging for many of these companies to find the funding they require. That’s not to say they can’t.” He said to expect “consolidation in the next 12 to 18 months.”

The number of proposed geothermal ventures has expanded as Australia pursues a target of deriving 20 percent of its power from clean energy by 2020. Australia has awarded A$235 million ($220 million) to four companies, including Geodynamics and Petratherm, to spur development of renewable technologies, Energy Minister Martin Ferguson said Nov. 6.

The government plans to allocate a further A$35 million from a A$50 million geothermal drilling program, Ferguson’s spokesman, Michael Bradley, said Nov. 13.

Arranging “ongoing funding” after the grants may be a challenge for some companies as they try to demonstrate their projects are commercially viable, Terry Kallis, managing director of Adelaide-based Petratherm and chairman of the Australian Geothermal Energy Association, said by phone.

Green Rock, Eden

Some 48 companies are involved in Australian geothermal projects, about 10 of which are listed locally, Kallis said today. Green Rock Energy Ltd., Geothermal Resources Ltd., Torrens Energy Ltd., Panax Geothermal Ltd. and Eden Energy Ltd., all valued at less than A$50 million individually on the stock market, are among the publicly traded companies.

Geodynamics fell 2.2 percent to close at 89 Australian cents in Sydney, valuing the company at about A$257 million. Petratherm dropped 1.2 percent to 40 Australian cents, giving it a market value of about A$38 million. The benchmark S&P/ASX 200 Index gained 1 percent.

While there is “very clearly a business opportunity” for geothermal energy in Australia and some companies are bound to succeed, “trying to pick a winner is frankly not really productive,” Stuart Baker, an analyst at Morgan Stanley in Melbourne, said by phone today. He declined to discuss potential consolidation.

The technique used by Australian geothermal companies involves circulating water through cracked rock as deep as 5 kilometers (3.1 miles) underground and pumping it to the surface for conversion to steam to run a turbine.

Constant Power

Geothermal energy can run 24 hours a day, providing a constant level of power, while solar and wind projects typically fluctuate with the weather, the industry group says.

Drilling poses a challenge, and achieving the right flow rates and financing the cost of delivering the energy to the market are among other risks, according to a presentation Kallis gave in October. The ventures must also compete with solar, wind, wave and other renewable energy developments for funding.

Petratherm’s Kallis said there’s “no way 48 companies will survive,” speculating that only 10 or 11 may exist in their current form in about three years.

Geothermal developers may initially seek mergers or joint ventures, he said. Oil and gas companies and utilities seeking to reduce carbon emissions may later increase their investments or make acquisitions as risk declines in the industry, he said.

Beach, CLP

Beach Petroleum Ltd., the Adelaide-based oil and gas producer, and TRUenergy Pty, the Australian company owned by Hong Kong’s CLP Holdings Ltd., are partners in Petratherm’s Paralana project. Petratherm said it aims to deliver a commercial geothermal energy plant by 2011.

Geodynamics “is not actively looking” to join with another company, Grove-White said. “It’s fair to say we’ve had discussions from time to time, none of which we’ve been keen to take forward.” Talks have not been “substantive,” he said.

Origin Energy Ltd., Australia’s second-largest electricity and gas retailer, is a partner in the Geodynamics venture in South Australia. The company’s Innamincka project, which had been delayed because of a leak, may now start up in 2013, Grove- White said.

Geodynamics won a A$90 million grant from Australia’s Renewable Energy Demonstration Program, while Petratherm attracted A$63 million in government funds.

To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.

Last Updated: November 16, 2009 01:41 EST