Another Look at Geothermal Energy

I've decided to do a follow up on Geothermal Energy. Back in December of '08 I did some research on the industry, which you can read here:

• Alternative Energy: A Look at Geothermal
• More News on the Geothermal Front

Since that point, we've seen economic pressures increase, and very recently (maybe) improve. The key to growth in the Geothermal, or any alternative energy for that matter, relies on a couple of key factors:

1. Political will. This means commitment of enticements (tax credits) or legislation requiring a switch (such as renewable portfolio standards).
2. Private capital.

#1 is happening. The Obama administration had shown that they are not going to let the financial situation stop them from plowing through their agenda. This can be both good and bad, but politics aside, its good for alternative energy. For example: Energy Sec. announces $193M for energy research.

#2 is also happening: Nevada geothermal growth: Full steam ahead. One of the main concerns about this is that lower traditional energy prices (oil and gas specifically) will cause private capital to lose focus on alternative energy because of higher costs. This hasn't totally happened, which is good. The reflation trade is starting to gain traction too, and most feel energy prices are going to rise again soon.

I found an interview with U.S. Geothermal CEO Daniel Kunz for some more insight on this.

Currently the biggest obstacle to geothermal development is the lack of sufficient direct economic incentives for the drilling of geothermal resources. There are no significant technical obstacles that are curtailing current growth and development.

The prospects look good now for some stimulus of the renewable energy sector with the Obama administration's recognition of the long-term strategic imperative to develop domestic, renewable and clean energy sources to secure the future of our country.

Renewable energy projects can still attract investors and funding. Geothermal energy is base-load power that can be more reliable than intermittent sources like wind and so is more desirable to a utility. The primary financing problem goes back to the cost of initial geothermal reservoir discovery and development drilling. This type of capital is higher-risk and harder to find in the difficult financial environment that Wall Street and Washington has placed upon us.

Kunz mentions a couple of the key factors:

1) Geothermal is base-load power. This means that it can provide a continuous amount of power that utilities need to provide to its customers. Wind and Solar are intermittent depending on conditions and, thus, can't provide this.

2) With Geothermal, you are basically paying for your power up-front. The infrastructure to build a plant is very expensive, but cheap once its going. That's why its difficult to secure private capital for Geothermal (the payback can be many years, which can be forever on Wall Street).

Here are the expected costs of Geothermal vs other energy types (in 2030, which is an expected date for these technologies to mature):

Geothermal energy is expected to cost about 7.3 cents per kilowatt hour by 2030 compared to 8.1 cents per kilowatt for wind, 12.5 cents per kilowatt hour for concentrating solar thermal and about 22.9 cents per kilowatt hour for solar photovoltaic, according to the Energy Department.

The stock I focused on in previous articles was Ormat Technologies (ORA). Ormat is one of the best pure plays on Geothermal. The stock remains expensive, at 22x forward earnings. They report earnings on May 11, and that's when we'll get our best take on its outlook, so I'll wait and write a follow up then.

There is also U.S. Geothermal (HTM). The company's got a great name, but is still quite small. Still a little speculative, but this is the type of company that could really take off.

Raser Technologies (RZ) is another. Smallish company with plenty of debt. Still, lots of potential upside.

There's also got Calpine (CPN) and Chevron (CVX) which are major players in Geothermal, but you lose the pure-play buying these. This is sort of like buying GE for their exposure to wind.

Investment wise, none of these are jumping out to me as screaming buys, but I still like Ormat Technologies the best in this sector. The stock has seen some nice movement in price and volume in the past week, but I'd wait until earnings (May 11) before I buy.

Disclosure: Author has no positions in stocks mentioned.

Comments

[John Petersen:]

Overall, the thermal potential locked in the earth is enough to make available solar power pale in comparison. If we could ever get the oil and alternative energy industries working together in concert and sharing knowledge, we would find that most of the technology needed for a rapid ramp-up in geothermal power production already exists. Given its depth of experience in drilling very deep wells in the U.S., I would not be the least bit surprised to Chevron become a first tier player.

May 03 03:58 AM

[Ferdinand E...:]

Geothermal is interesting. Some of my best students were from Iceland, and one of them reached a nice position in the government of that country, but I still could not convince them that Iceland should build a couple of very large bauxite processing plants, and go all out with supplying those plants with the low-cost Geothermal energy in that country. Therefore, I am NOT so sure that geothermal is as wonderful as suggested in this article. Something must be wrong somewhere.

May 03 10:19 AM

[Steve Ward:]

To F.E. Banks: What's wrong are earthquakes, yes earthquakes. Once the original water in place is diminished and sooner or later it will be, they use forced injection of outside water.This causes earthquakes up to 3.5 on the Richter Scale.

Bottle Rock in California is such a geothermal plant. Re-opened some years back, the engineers had to re-juvinate the whole operation. Water table dropped so they re-injected water and they got earthquakes.
The French suspended their geo-thermal ops in the Alps when right across the border Basel Switzerland had earthquakes for the first time in recorded history. The French stopped drilling and no more earthquakes.
The water table gets used up in all these operations, just ask the New Zealanders who have experienced massive water table drop in some of their geo-thermal operations.

Water, earthquakes, cost of drilling, yes there are problems.

May 03 01:03 PM

[Valley Boy:]

There is already too much junk floating in space according
to aviation and aerospace authorities.


On May 03 06:10 AM Freya wrote:

> I, on the other hand, feel that Earth has suffered enough from Man's
> hands.
>
> Aerial platforms above the clouds covered with Solar Panels, direct
> sunlight. More power than anyone could need.
>

May 03 11:17 PM

[33Nick:]

Geo-thermal is the ideal energy source, plenty available at all time with minimal environment impact. We hope to see it evolve and help the quick evolution of the electric car.

Electricnick.com

May 03 11:27 PM

[Nick Gogerty:]

Geo thermal is highly interesting and fairly mature technology. The costs have declined with the lower demand for drilling gear. Ormat and United Technology have very strong locks on the dual cycle rankine turbines which are in short supply. Ormat is a very powerful supplier, but has a reputation for being difficult to work with.

It should be noted that geothermal projects and investments need to be assessed in the context of transmission costs. The role of geothermal is quite interesting and compelling for many generating portfolios.

May 04 09:18 AM

[Fred W:]

It is very unlikely that Solar PV will cost $0.229/kWh in 2030--LCE of $0.06-0.12/kWh is much more likely.
If PV were to cost $0.23/kWh in 2030, it would be a result of much higher labor and raw material costs than could be assumed given the projections for CSP, wind and GT...all of which are material and (initially) labor intensive.

"Geothermal energy is expected to cost about 7.3 cents per kilowatt hour by 2030 compared to 8.1 cents per kilowatt for wind, 12.5 cents per kilowatt hour for concentrating solar thermal and about 22.9 cents per kilowatt hour for solar photovoltaic, according to the Energy Department."

May 04 12:26 PM

[billp37:]

According to pnm/epri geothermal HEAT RATE is 29,050 BTUs per kilowatt hour. The lowest of all technologies for generating electrictity.

home.comcast.net/~bpayne37/pnmelectric...

?

May 04 08:33 PM

[wind4me:]

I am trying to find any Geothermal company that actually makes money off of selling the electricity after drilling and installation is complete?????

will Nevada Geothermal be the first ??? NGLPF.ob

as an investor in Wind, I can appreciatte clean green '''base load'''' renewable electricity!

May 16 09:13 AM

[Freya:]

Gee, I would have thought the idea of screwing around with that massive Supervolcano sitting under Yellowstone would put some fear into someone's heart.

Meanwhile, the Aerial platforms are reality waiting to happen. They are already on the drawing board.

John? I do not remember which company is pushing this idea, do you?

May 04 05:01 AM

[Freya:]

I, on the other hand, feel that Earth has suffered enough from Man's hands.

Aerial platforms above the clouds covered with Solar Panels, direct sunlight. More power than anyone could need.

May 03 06:10 AM