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I suppose they plan on using a transmission mechanism that will turn one meter down to as many turns as you want anyway, so I guess the depth of the hole is at least partially determined by how good a transmission mechanism you can afford. But since they explicitly say the hole will be the most expensive part, I'm not so sure.

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You're losing torque with every gear reduction, and I believe that current out of a generator is a function of torque. So there's some happy medium between hole depth & transmission ratio for the amount of power they want to generate.

You're certainly losing torque with the gearing but that's not a problem. The problem is losing energy. Energy loss can be made arbitrarily small at increasing cost to build the transmission.

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