The Outlook for Geothermal Energy Stocks
Where the Hot Spots Are in Geothermal Energy
Before the geothermal energy sector can generate significant steam, it may have to simmer for a while yet...
To kick off 2010, let's take a look at government-funded projects and public companies, and their various stages of success in drawing power from "hot-rock" technology.
AltaRock Deep-sixes the Geysers Project
In the U.S., geothermal company AltaRock Energy recently packed up its drill rig and called it quits on a pilot project out west. AltaRock's "Geysers" demonstration in Northern California drew nearly $36 million in interest from the U.S. Department of Energy, Google's investment arm, and venture capital firm Kleiner, Perkins, Caufield & Byers.
In December, AltaRock admitted that a breakthrough would be literally impossible: the company's drill bits were snapping as they attempted to probe caprock formations close to the surface. Without penetrating that shallow stone, deeper, high-temperature structures can't be exploited by shooting water through cracked rock to generate steam for turbines.
Aside from the drill bits failing, AltaRock and its ultra-deep geothermal technology have come under increased scrutiny for potentially creating small earthquakes. By drilling down as deep as three miles below the soil, AltaRock's methods are similar to Geothermal Explorers, a European firm now being prosecuted for causing tremors of up to 3.4 on the Richter scale below the Swiss city of Basel.
Will a Swiss court case bring AltaRock operations in the U.S. to a halt?
Well, the $6 million in federal funds that AltaRock got for its abortive effort at Geysers is just a fraction of the $25 the same company drew for a demonstration effort in Oregon. That project appears to be continuing, and the New York Times reported on December 12 that AltaRock may have pulled out of the California operation in favor of its Oregon endeavor.
We'll keep an eye on that one.
As far as government funding goes, it will take a lot more than cracked drill bits to break the Obama Adminstration's commitment to geothermal. The president and his energy team directed nearly $440 million into geothermal exploration projects in 2009.
But the thing to remember about geothermal is that the natural resource is as globally spread as the very tectonic plates that create earthquakes.
Pacific Rim Power
In Pacific Rim countries like the Philippines, we are witnessing the impressive emergence of geothermal energy companies such as Energy Development Corp., whose locally-traded stock has more than doubled in the past year.
EDC has a 150 MW geothermal plant up and running near the south of Luzon, the Philippine island chain's biggest landmass and the center of economic and political power.
Importantly, EDC does not focus on geothermal capacity exclusively — the company also has significant hydropower and wind energy operations throughout the Philippines.
Looking around the world, industry estimates put geothermal capacity growth at 9.5% per year through 2015, as illustrated in the chart below:
That growth won't just come from tectonic hotspots like the Philippines, where the volcanic eruption of Mount Pinatubo in 1991 was a full ten times stronger than the Mount St. Helens blast in the U.S. in 1980...
Even the UK, traditionally tame when it comes to temblors, is getting into geothermal.
UK Geothermal Development
The Department of Energy and Climate Change in London is funding exploration toward a 65 MW geothermal turbine plant in Cornwall, in England's extreme southwest. That site is being developed by Geothermal Engineering, Ltd. with 1.5 million pounds in government money.
That would be Britain's second operating geothermal plant, adding to one already in Southampton where water is heated at a depth of 1.8 kilometers (about 1.12 miles).
Geothermal Engineering isn't the only company drawing funds from the Energy and Climate Change department...
EGS Energy has drawn two million for a borehole also in Cornwall, and £461,000 has been allotted to Newcastle University to bring geothermal online at the Eastgate carbon-neutral village in Durham.
All three projects are part of the UK's Deep Geothermal Challenge Fund, which aims to push British geothermal past the 5,000 shallow-earth heat pumps already installed across the country.
As for publicly-traded geothermal energy companies, U.S. Geothermal (AMEX: HTM) has moved in a tight price channel since August, and Ormat Technologies (NYSE: ORA) is dipping down from its early December high of just above $43. Ormat is a good buy at around $35 per share.
Even though you won't hear as much about it in the media as wind and solar, we'll do our best to keep you informed about progress in the geothermal sector in 2010.
P.S. Next week, I'll be writing to you directly from Peru, where the investment scenario for clean energy is heating up quickly. Green Chip International subscribers will be the first to hear about public companies making inroads down in South America's top sleeper market of 2010, so check out GCI today and don't miss a beat!