Geothermal Energy: How it Works, What is its Potential, and What are its Limitations?

Geothermal energy is a reliable and renewable source of energy. Geothermal, like bioenergy-fired electricity and hydropower, is among the cheapest forms of “always on” renewable generation (in terms of ongoing operating costs) where good resources and infrastructure exist. Geothermal is a low-running-cost source of heat for industrial and commercial applications.

In this article we look at how geothermal energy is produced, types and examples of geothermal systems in use, why it has significant potential to help Australia transition to Net Zero and what’s currently limiting it’s potential and adoption rate.

How is Geothermal energy produced?

Geothermal systems extract the Earth’s heat in the form of fluids like steam or water.

Geothermal energy can be produced in two main ways. The first through direct use geothermal power plants and the second through Ground Source Heat Pumps.

Geothermal power plants: How it works

  1. Hot water is pumped from deep underground through a well under high pressure.
  2. The pressure is dropped when the water reaches the surface, which causes the water to turn into steam.
  3. The steam spins a turbine, which is connected to a generator that produces electricity.
  4. The steam cools off in a cooling tower and condenses back to water.
  5. The cooled water is pumped back into the Earth to begin the process again.

Geothermal / Groundsource Heat Pumps: How it works

  1. Water or a refrigerant moves through a loop of pipes.
  2. When the weather is cold, the water or refrigerant heats up as it travels through the part of the loop that’s buried underground.
  3. Once it gets back above ground, the warmed water or refrigerant transfers heat into the building.
  4. The water or refrigerant cools down after its heat is transferred. It is pumped back underground where it heats up once more, starting the process again.
  5. On a hot day, the system can run in reverse. The water or refrigerant cools the building and then is pumped underground where extra heat is transferred to the ground around the pipes.

Examples of Geothermal Systems 

The geothermal sector in Australia is still in the early stages of development. Large-scale geothermal electrical generation may still be at its infancy here in Australia, but small-scale geothermal power generation systems are already in place. Some examples of these geothermal systems are:

Direct-Use Geothermal

Compared to conventional gas boilers, direct-use systems can help businesses save about $5 million AUD annually from retail gas prices. This amount is enough to heat thousands of residential apartments during the winter months.

About 77GWh of thermal energy are produced by direct-use geothermal heat in Australia. Direct-use geothermal systems are commonly used to heat pools within leisure centres, like the Scarborough Beach Pool in Perth, WA. It’s also used to cool a data centre’s computers, processing of meat products, and aquaculture. 

Ground Source Heat Pumps (GSHPs)

Ground source heat pumps represent about 70% of Australia’s installed geothermal energy capacity. GHSPs are equally distributed between heating and cooling applications. These heat pumps are commonly used for HVAC applications but are now being used to heat pools. The vast majority of GSHP installations and users are residential properties (65%) with the remainder being commercial and industrial installations. 

Compared to other heating systems that require the use of direct electricity, gas, or other fuel sources, a ground-source heat pump is cheaper to operate.

Ground source heat pumps are 50% more efficient than air-conditioning counterpart.

Unlike conventional heating solutions or even air source devices, geothermal heat pumps enjoy an exceptionally high rating of energy efficiency. While the best furnaces boast a maximum efficiency of 90%, ground source heat pumps provide an efficiency return of anywhere between 300-500%. With these figures, they can help offset a large sum of electricity during peak demands and save up to $2 million AUD annually in electricity bills. 

Because direct-use and GSHP systems are cost-effective to run  they can offset the upfront cost of installing these systems. Geothermal systems can also be used by commercial building owners to improve their NABERS energy ratings and triple bottom line. 

An example would be the State of Victoria’s Sustainable Energy Pilot Demonstration (SPED). The program’s goal is to assess the feasibility and efficiency of GSHP for HVAC applications. The University of Melbourne (Melbourne Connect) is one of the program’s pilot sites, which has a 250 kWt capacity GSHP system designed to supply cooling (6.5°C) and heating (45°C). Melbourne Connect Precinct has a 5-star NABERS energy rating and a 4.5-star NABERS water rating. The precinct is also qualified for a 6-Star green sustainable rating. 

According to Geoscience Australia: One percent of a shallow geothermal energy source – at 150°C – is enough to supply the country’s entire energy requirements for about 26,000 years. “

Although Australia has a huge potential for geothermal energy, it’s not currently financially viable due to these factors: 

  • Difficulty in locating suitable geothermal energy sources 
  • Lack of geothermal reservoirs producing hot fluids at a high rate 
  • High up-front capital costs associated with electrical transmission costs to remote areas and purchasing enhanced geothermal system technologies

Despite these challenges, the Australian Government (via ARENA) is supporting on-going geothermal energy projects. Their aim is to pave the way for a sustainable Australian energy ecosystem which will benefit both commercial and residentials consumers. Organisations are encouraged to take a look (or indeed a second a look) at Geothermal given the push and incentives driven by ARENA:  Visit for more information.

Why Businesses and Organisations Should Consider Geothermal Energy 

The key is to educate organisation leaders on why they must consider geothermal energy for their business’ day-to-day operations. Some key points for them to consider are: 

  • Electricity generated by geothermal systems are sustainable 
  • Lower surface footprint compared to its renewable counterparts such as rooftop or groundmounted Solar PV.
  • It can supply a commercial building or industrial facility’s electricity demand, without the need for batteries / energy storage
  • Power is available 24/7, and the electricity baseload is at 90% reliability compared to solar or wind (30%) 
  • Creates goodwill among your stakeholders as your organisation adopts an innovative and uncommon sustainability solution (be seen as a leader in your industry).
  • Geothermal heat pumps (and even direct use systems) make unbelievable return on investment throughout their lifetimes. This is enjoyed through increased energy savings, from day one.

Electricity generation through geothermal energy systems offer a clean and reliable power supply for commercial use. Space heating and cooling heating are just some of the practical applications for geothermal energy. 

At present, the main barrier for organisations to embrace geothermal energy technology is the high upfront capital cost.  Certain companies may be able to support project design, development and installation with integrated services and funding through an Energy as a Service type agreement/arrangement. Support and incentives from ARENA can certainly assist organisations who are seriously considering implementing an enduring and cost-effective sustainable source of energy.


Ready to transition into renewable and sustainable energy sources like geothermal? Connect with 3E Group to learn more and explore the options that suits your organisation. Call us today 1300 55 77 64 


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