Geothermal Energy Companies
The Energy That's Quietly Gaining Steam
The geothermal sector has been quietly steaming for some time now.
Often overlooked when it comes to cleantech fanfare—I've even called it the bastard child of renewable energy—it's only a matter of time until the industry gains rock star status.
Unlike wind and solar, geothermal is one of the few clean sources of energy that can provide baseload power without storage devices. And while it may not have the same sex appeal, the use of geothermal energy will quietly double in the next six years.
That's great news for investors.
Even better, the geothermal space isn't crowded with public companies, so the profits generated will be much more concentrated.
The smart money is already beginning to take notice, so you'll want to start sniffing around, too.
Here's what you need to know about investing in geothermal energy companies.
Geothermal Energy Companies: Tortoise and Hare
When it comes to geothermal investments, they can either be sure and steady or fast-moving and erratic — sometimes the same stock can be both.
You see, geothermal energy in its current form has been around for some time. The first plants came online back in the 1970s.
Since then, the sector has been largely dominated by large global conglomerates like GE, Siemens, and Mitsubishi. The only pure play has been Israeli-born Ormat Technologies (NYSE: ORA).
That company has been and will be the benchmark of the industry. Any Green Chip investor worth his salt should own shares of this company. Here's why:
This is the geothermal tortoise.
Of the 24 geothermal plants commissioned since 2004, Ormat has provided the turbines for 12 of them. Expect that trend to continue.
If geothermal turbine production companies are the tortoises, then geothermal energy production companies are the hares.
This is because many of them are smaller companies, reliant upon signing power purchase agreements (PPAs) for revenue. Getting to that point is an expensive journey, comprised of drilling test wells, acquiring permits, and securing transmission.
The successful completion of each of those steps is a major milestone for any small geothermal company, and can send stock prices soaring.
Such was the case recently when Nevada Geothermal (OTCBB: NGLPF) announced drilling results for their Faulkner 1 geothermal project at Blue Mountain, Nevada.
According to the results, announced in late March, "The latest three production wells based on initial testing, have similar production capacities (7.0-7.5 MW) to the original three wells."
Look at the stock's hare-like performance since that time:
Here's what else was announced in the press release:
Control, administration and maintenance building nearing completion;
Vaporizers, diffusers, and condensers installed;
Three generators delivered and installed on foundations;
Cooling tower frame erection commenced;
Ormat to deliver first set of power turbines by the end of March;
Switchyard structure advanced to construction;
'Faulkner 1' substation construction commenced;
Wilson Utility commenced construction of the 21-mile power transmission line (T-line) that connects the 'Faulkner 1' T-line to the NV Energy switching station at Mill City with completion expected at the end of May 2009.
Notice's who's supplying the turbines.
What's more, the company has signed a 20-year PPA with NV Energy for 49.5 MW. So, everything is in place for power to start flowing later this year.
When that happens, the 60% run of the past month will look tiny by comparison.
This is just one of many opportunities that will emerge in the sector as the use of geothermal energy is significantly ramped up.
Geothermal Energy Forecast
That's because geothermal energy capacity will grow 89% between now and 2015, from 11,007 MW at the end of 2008 to over 20,800 MW in the next six years. That works out to a compounded annual growth rate of 9.5%.
Take a look at the visual:
Here in the States, forecast growth is on par with global growth on a percentage basis. In the next six years, geothermal energy capacity in the U.S. will grow 89%, from 3,112 MW to 5,884 MW. That's a world-leading sum.
Other countries, like Germany, Australia, and Indonesia have less total capacities but will grow much more quickly.
To be sure, the recent stimulus allocated $400 million for geothermal energy development. And that's on top of the recently-inflated $45 million Congress has set aside for the DoE's geothermal program.
That bill also extends the geothermal production tax credit (PTC) until 2013, allowing project developers to recoup 30% of a new plant's cost. It creates a cash grant program to support the industry as well.
Even Google is excited about the prospects, pumping over $10 million into geothermal start-up AltaRock last year. Legendary venture capital firm Kleiner, Perkins, Caufield & Byers placed a bet on the company as well.
As I said, the smart money is already beginning to take notice of the huge potential geothermal offers. Your money shouldn't be far behind.
Like other sectors, geothermal stocks have lost significant value over the past year. But the future growth scenario remains in place, as evidenced by the chart above.
Getting in now, while prices are still low, will ensure robust returns as the industry expands and new plants come online.
Call it like you see it,
P.S. I'll be at the Renewable Energy Finance Forum - Wall Street getting the inside scoop about the U.S. stimulus and its affect on all aspects of cleantech. This is the premier event if you're interested in ivesting in renewable energy. Click here to learn more or folllow the banner below.