Geothermal Profits

Stocks in the Geothermal Sector Poised for a Long Run

Written by Brian Hicks
Posted December 7, 2005

A few weeks ago I wrote an article about how the oil companies have been strategically building a solar energy infrastructure over the past decade - despite years of misinformation campaigns about the energy source. And again, this is not me calling bullsh@% on them…merely an observation of modern capitalism and a competitive advantage.

Nonetheless, the oil giants aren't in the renewables game to make the World Wildlife Federation happy. They're doing it because this stuff is profitable. In fact, BP is on track to deliver more than $1 billion in revenues from its solar division by 2008.

But the oil companies haven't put all their renewable eggs in one solar basket either.

Last June, BP opened a new windpark at its oil terminal in the port of Amsterdam. The total energy output at the terminal is enough to power 5,000 homes.

And just last week, Chevron Corporation announced that it will be expanding its geothermal power plant in the West Java province of Indonesia. The 110 MW project is the fourth geothermal project Chevron has constructed in the area.

Of course, despite Chevron's appetite for geothermal…the oil giant hasn't even begun to tap its potential…especially in the U.S.

This past August, the Geothermal Energy Association released data that identified nearly 100 undeveloped, geothermal power sites in the western portion of the U.S. - with a total production potential approaching 25,000 MW of electrical generating capacity.

That's enough to meet more than 70% of all of California's electricity needs.

Digging for steam

Last year I uncovered a geothermal company that hasn't let us down yet.

Since the beginning of the year, the company's stock is up 63.75%! And it just landed another deal in Central America.

But while the international markets for geothermal - especially in parts of Central America, China and India is growing - the U.S. potential is already quite impressive.

In fact, there are currently more than 2,800 megawatts of geothermal capacity being used in the U.S. to power corporate office buildings, warehouses, industrial parks and government buildings and utilities.

And nearly all of this energy is coming from two types of geothermal power plants:
Steam - Steam plants use steam and hot water resources (Generally at more than 300 degrees Fahrenheit). The steam either comes directly from the source, or extremely hot, high-pressure water is depressurized (flashed) to produce steam. The steam then turns the turbines which drive generators that produce electricity. Currently, energy produced this way costs about 4 - 6 cents per kWh and produces nearly 50 times less carbon dioxide, nitric oxide and sulfur emissions than traditional fossil-fuel power plants.
Binary - Binary plants use lower-temperature hot water resources. (Between 100 degrees Fahrenheit and 300 degrees Fahrenheit) The hot water is passed through a heat exchanger in conjunction with a secondary fluid with a lower boiling point (usually a hydrocarbon). The second fluid vaporizes, which turns the turbines that drive the generators. The remaining secondary fluid is recycled through the heat exchanger.
But just like other renewable energy technologies - it's always changing, evolving and improving.

And while U.S. geothermal energy companies have been quite successful - over the last few years especially…a number of other countries are now starting to pick up the pace.

In fact, one of the latest geothermal resources is now coming from Australia in the form of 'hot rocks.'

Engineers have now identified ways in which they can tap into the natural heat stored in vast beds of underground granite, and use it to generate electricity.

An Australian geothermal firm called Geodynamics (GDY:ASX) announced last summer that their engineers have identified enough usable energy in a 1,000 square kilometer section of rocks in South Australia's remote Cooper Basin to replace 50 billion barrels of crude oil - or around 12 times as much oil there is in the country's largest proven oil reserves in the northwest shelf off the tip of Western Australia.

In November, Geodynamics completed its second 2 ¾-mile well. And based on test results, the company could make an investment decision on its first power station as soon as next month.

And back in July, Chinese officials announced that since 2000, shallow geothermal collection facilities have allowed parts of Beijing as much as a 75 percent energy savings.

Shallow geothermal energy is the low-temperature heat in the soil and water nearly 100 meters underground.

China's proven geothermal reserves equal 3.16 billion tons of standard coal. Though theoretical reserves amount to more than 135 billion tons.

Nonetheless, China is still starved for energy. Couple that with the country's renewable energy requirement of 15 percent renewable energy capacity by 2020, and geothermal plant construction is sure to increase…along with solar and wind as well.

They must hate money!

There's no doubt that solar is king in renewables right now. But any savvy renewable energy investor knows that diversification is key in this market.

You see, demand for renewables is at an all-time high. But many of these companies are still relying on government subsidies to help build the industry's infrastructure. And while I don't see these subsidies disappearing anytime soon, it doesn't take much for a politician to move a chunk of money from one renewable market to another.

In other words, just like anything - you have to cover all your bases.

Geothermal energy is efficient. It's a clean, domestic energy source, available 24 hours a day.

Moreover, the average geothermal power plant produces electricity 90 percent of the time, compared with 65 percent to 75 percent for coal and nuclear-powered plants.

Sure, it may not have all the bells and whistles of a photovoltaic installation…but that's what makes it even more attractive to savvy energy investors.

Like I said, our top geothermal play is up 63.75% for the year. And this is a company that a number of solar chasers laughed at last winter when I first started touting it.

Though it still surprises me that so many renewable energy investors continue to ignore geothermal stocks - despite the consistent profits that many of these companies have been racking up over the past few years.

I don't know. Maybe they just hate money.

But in the meantime, a number of green chip investors will continue to profit from geothermal well into 2006 and 2007.

Of course, if you're not completely convinced that there's definitely some money to be made in the geothermal sector…at least keep your eyes peeled for new geothermal installations in the western portion of the U.S.

As oil supplies dwindle and electrical grids keep getting pushed to near capacity, the appeal of fully-functioning geothermal plants within the energy infrastructure of the U.S. will continue to gain momentum.

Until next time…

Jeff Siegel
Editor, Green Chip Stocks