A small bleak township in Australia's Outback is sitting on a source of energy that could power the entire nation for thousands of years. Deep beneath the tiny community of Innamincka lie the earth's hottest rocks and the prospect of endless supplies of geothermal energy is exciting investors as far afield as the UK.

The township in South Australia, not far from the fateful riverbank where the explorers Burke and Wills died of hunger and exposure in 1861, has attracted Geodynamics, one of Australia's larger renewable energy producers, keen to exploit the hot rocks 4km below the surface.

Innamincka's 12 residents, who have always relied on expensive diesel generators, will be the first beneficiaries. To prove the efficacy of its system, Geodynamics plans to hook them up to its first, nearby power plant by the end of the year - and grant them free electricity for the rest of their lives.

The company's tenements are estimated to hold the equivalent of 50 billion barrels of oil - Australia's current total oil reserves are only 2.9 billion barrels.

Deep geothermal, or “hot rocks”, exploits granite deep in the earth's crust that is heated naturally over millions of years by radiogenic decay from the elements within it. Geodynamics has proven that it can pump water down a 4km well to 300C rocks that heat it and then recover the resultant steam from a second well nearby. By the end of the year, it plans to have a pilot electricity plant in place. It will then look to provide base-load power to the grid by 2012, with a 50 megawatt plant. Its output should eventually reach 10,000 megawatts - the equivalent of 10 to 15 coal-fired power stations.

The potential of “hot rocks” has inspired 11 listed companies to launch exploration projects in South Australia. Though, with drilling rigs and labour in short supply, only Geodynamics has put holes in the desert.

State and federal governments have provided millions of dollars in start-up finance and some of the biggest names in Australia's energy industry have taken the plunge. Origin Energy, the country's second-biggest energy retailer and the target of a takeover attempt from Britain's BG, has taken a one-third stake in Geodynamics's 2,500sq km of tenements and has committed A$106 million (£51.3 million) in cash.

Geodynamics faces challenges, including that of transmission to the nearest grid 450km away. But it hopes to get government funding to cover some of the estimated A$300 million costs once the project is proven.

While the concept has yet to be conclusively proven, Dr Doon Wyborne, executive director of Geodynamics, says that the company could deliver a quarter of Australia's new generating capacity. “The total volcanic geothermal power production of the whole world at the moment . . . is about 9,000 megawatts,” Dr Wyborne said. “We can possibly produce 9,000 megawatts just from this area. So in other words, this area could potentially double the total world geothermal output.”

Geothermal energy- studied in the Seventies - has been put back on the agenda bv climate change. Several small plants are in operation around the world.

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