The Federal Government will provide $50 million to the geothermal industry to help it begin making the technology viable for baseload energy production.

Speaking to Alexandra Kirk on ABC Radio's AM program, the Minister for Resources and Energy, Martin Ferguson, said there was huge potential for geothermal energy in Australia.

New figures from Geoscience Australia show just 1 per cent of Australia's hot rocks supply could produce 26,000 times the country's current annual energy use.

Mr Ferguson says encouraging the development of geothermal energy is important in tackling climate change and ensuring national energy security.

The $50 million Geothermal Drilling Program, to be officially announced by the Minister at an industry conference today, will be used to give grants to cover the cost of drilling geothermal wells.

"The industry indicated that these guidelines actually suited their needs because what they want to prove is a couple of successful opportunities and then hope that one of those investors is able to take it to a commercial demonstration plant which then will encourage the private sector to further invest in the industry," Mr Ferguson said.

Mr Ferguson said if drilling proves successful geothermal energy could provide a "significant" contribution to the Government's target of 20 per cent renewable energy use by 2020.

"The geothermal industry is regarded as very important from a renewable point of view because what you're effectively doing is pumping water below ground where it's heated by hot rocks and circulated through a closed system that generates electricity which is entirely different in terms of emissions from a coal fired power station," he said.

However, director of the research institute for sustainable energy at Perth's Murdoch University, Professor David Harries, has told AM's Anne Barker the huge cost of drilling five kilometres into the earth and the vast distance of sites from the national electricity grid may just prove exorbitant.

"If you could produce the geothermal energy and use it to supply local loads the cost could be comparable to coal," he said.

"If on the other hand you're talking about getting hot rock energy coming into electricity in central Australia and then building large transmission lines to Adelaide and Sydney the costs are going to be too expensive."

Professor Harries also says there are unknown environmental risks in bringing radioactive water to the earth's surface.

Retired Adelaide scientist Dennis Matthews agrees and says Government is backing the wrong industry.

"In theory these fields only last a limited amount of time and then the heat runs out and they've got to move onto another field," he said.

"Then it takes about 100 years for the heat to come back to the first field.

"It's often claimed these are renewable energy projects but 100 years renewable is not a renewable industry in my book," he added.