Under the agreement, Torrens will be responsible for carrying out the exploration activities and provide AGL with the option to farm-in to Torrens' Geothermal Exploration Licences at permit and project level.
AGL would earn a 50% interest in future projects providing Torrens funds upfront exploration and geothermal assessment of a project, and identifies a location for drilling the first deep well to about 4000m.
According to AGL, the alliance combines its energy market development experience with Torrens' geothermal exploration capabilities.
"Geothermal energy is an emerging renewable technology that will complement AGL's existing pipeline of renewable energy projects in wind and hydro," AGL managing director Michael Fraser said.
"This is an opportunity for AGL to participate in the development of this new industry," he added.
AGL said it would also acquire a 9.99% cornerstone investment in Torrens through a share placement at 40c per share for a cash outlay of $2.2 million.
Torrens currently has 21 geothermal permits totalling about 9800 square kilometres in South Australia.
A recent opinion from an independent geothermal consultant supports expectations that heat flow values from Torrens' permit areas are comparable to those recorded in the Cooper Basin.
According to Torrens, its permits also have the added advantage of being close to established electricity transmission infrastructure, providing cost advantages in commercially exploiting its geothermal resources.