Managing director Terry Kallis said initial work for the study included site clearance and the preliminary re-entry of two existing deep wells in preparation for detailed well inspections.

According to Kallis, the inspections will allow the company to assess the wells' physical and economic potential in order to aid its final decision on the project.

The full feasibility study will also include an environmental impact statement, securing a rig to drill any additional deep wells up to 2km deep, and confirming final customer demand and price setting.

Petratherm aims to begin first well construction 40km northeast of Madrid by November next year, with first sales of district heating by August 2010.

In May, a pre-feasibility study estimated that the two wells could generate 8MW of thermal energy to meet the needs of seven nearby building complexes, including a university, hospital and retirement village.

In addition, the pre-feasibility study estimated that the Madrid site could produce around 45,000MW hours of thermal energy - enough to support the heating needs of 4000 households, and reduce carbon dioxide emission by about 20,000 tonnes.

"Even with conservative technical and commercial assumptions, and without factoring in the high potential of the government subsidies that might become available, these measurements provide for very attractive project returns," Kallis said.

"In addition, recent discussions with the university located on the site have confirmed plans to build two new green building complexes, which will further enhance the economics of the Geo-Madrid Geothermal District Heating project."

Kallis also said Petratherm is continuing to negotiate with several Spanish companies over potential sales and joint venture agreements, including parties best able to bring additional local expertise and capital to the project.