THE hopes of Australia's nascent hot rocks power industry were yesterday riding on the successful drilling of a 4km-deep hole in the far northeast of South Australia.

Drilling will start soon on the well and, if successful, it is expected to generate Australia's first commercially available geothermal energy by the end of 2010.

Australia's leading geothermal energy start-up, Brisbane-based Geodynamics, has put its money where its mouth is, paying $32million for a 960-tonne rig and shipping it out from Texas in June to do the job.

At a ceremony at the remote site near Innamincka yesterday, Geodynamics chief executive Adrian Williams said drilling of the company's third well, Habanero 3, was a historic moment for the Australian industry.

"We expect drilling of Habanero 3 to commence next week, marking the true beginning of the hot rocks industry in Australia," Dr Williams said.

"Habanero 3 may well turn out to be the most significant onshore well ever drilled in Australia."

The well will undergo a six-week circulation test at the end of the year. Water is passed down another well and released into the hot granite rocks deep underground. The 250C rocks heat the water, which is then brought to the surface as steam through Habanero 3. The steam turns a turbine on the surface and the power generated produces no emissions and uses no fuel.

If the well succeeds, Geodynamics plans Australia's first commercially viable geothermal power plant, a 40MW plant delivering power into the national grid, by the end of 2010.

Geodynamics faced a setback in June last year when the second well in its program, Habanero 2, became blocked with a stuck drill bit.

The company decided to move to a wider-diameter well, which required the importing of the Lightning rig from LeTourneau in Texas.

Geodynamics said the rig was the largest, most technically advanced oil and gas exploration rig in Australia, and would be operated by EasternWell Drilling Services.

Geodynamics is expected to be the first of more than 10 Australian geothermal companies to produce power.

Industry watchers say the sector would need a carbon tax imposed on coal-fired power stations to be competitive.