Geothermal Is Getting Red Hot, Part II 17 comments
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In the first half of this article, “Geothermal Is Getting Red Hot, Part I”, I discussed the key characteristics, advantages and disadvantages of geothermal energy. Part II continues with the key trends and new technologies, as well as a review of the list of publicly traded geothermal companies.
The future for geothermal energy
The crucial advantages of geothermal energy we reviewed last week, namely a mature and proven technology with a very high capacity factor (meaning that geothermal can supply utilities with baseload power around the clock) and low levelized cost of energy, make geothermal one of our high growth renewable energy sectors for the next decade. Recent advances in geothermal technology, such as the binary power plant, have made possible the economic production of electricity from geothermal resources lower than 302°F.
The most promising technology developments are the so-called Enhanced (or Engineered) Geothermal Systems (EGS) which generally refer to natural resources which have to be fully engineered and require artificial stimulation. This really means the creation of a man-made geothermal reservoir in hot dry rocks at depths of 13,000 to 16,500 feet by fracturing the rock with explosives or high pressure water injections. The hot water is then pumped back out of the reservoir and fed to the power plant.
There is a lot of new research in progress spurred in large part by funding from the Department of Energy (DOE) and a recent surge of private investment in early stage exploration/research companies. There are many technical challenges with these new technologies, not the least of which are the potential earthquakes they trigger. A case in point was an EGS project in Basel, Switzerland in which the “hydro fracturing” process was directly linked to a 3.4 magnitude quake under the city, causing the immediate termination of the project. Aftershocks lasted for another 9 months.
Still, if the fracturing process can be controlled (and performed safely, away from large urban centers), the hope is that EGS technologies could help extend the production life of existing fields and make geothermal projects feasible in locations previously out of reach and tap an estimated additional 200,000 MW in the U.S. alone. The $350 million earmarked for geothermal research grants under the American Recovery and Reinvestment Act (ARRA) is about to provide one more boost for the geothermal electricity generation sector.
How to take advantage of the geothermal opportunity
As the U.S. is expected to continue to lead geothermal development activities, there are a number of exciting ways to participate in this promising market. With the sector heating up, there are many participants jockeying for position, from drillers to oil and gas companies, turbine manufacturers, utilities and Independent Power Producers (IPPs) both pure-play and diversified, and finally pure-play geothermal developers.
At the small, private end of the scale are the hot pure-play geothermal developers, most of them tiny startups, with little or no revenue, but sky-high ambitions for their EGS research projects. There are a couple of dozen just in Australia. Here in the U.S., you can re-live the fever of the Silicon Valley technology boom of the 1990s, with venture capital firms and other private investment funds fighting to get in on the next big thing. There must be dozens of them, most of them offshoots of academic research, but perhaps the most over-hyped of the bunch is AltaRock Energy which has been getting all the headlines, including for raising $26 million in a second round of private investment from companies like Google (GOOG) and legendary venture capital firm Kleiner Perkins Caufield & Byers. Late last year they also received an EGS research grant of $6.25 million from the Department of Energy. But last week, they made headlines for all the wrong reasons: they announced their drilling project at the Geysers in California had run into problems and was suspended indefinitely.
It is probably just as well that as individual investors we cannot invest in these potential stars of the future, because most of them will not be around in a few years.
Let’s take a look at the publicly traded companies. In Part I, we reviewed companies at the extremes of the investing spectrum: an early stage company that just completed its initial public offering, Magma Energy Corp. (MGMXF.PK) and our preferred pure-play geothermal stock Ormat Technologies, Inc (ORA). We will not discuss these here except for including them in our list of publicly traded geothermal companies in Table 1 below.
Table 1: Publicly traded geothermal companies
Geothermal stock | Geothermal company names |
Calpine Corp. | |
GTORF.PK | GTO Resources Inc. |
Magma Energy Corp. | |
NGLPF.OB | Nevada Geothermal Power Inc. |
Ormat Technologies Inc. | |
PGTHF.PK | Polaris Geothermal Inc. |
Raser Technologies Inc. | |
SRAGF.PK | Sierra Geothermal Power Corp. |
U.S. Geothermal Inc. | |
WGPWF.PK | Western GeoPower Corp. |
The list is ranked alphabetically. There are no large caps on the list. The only mid cap companies are Calpine Corp. and Ormat. We include Calpine because they are often mentioned for the many geothermal power plants they operate. They are a utility, and they have about 725 MW of geothermal electricity generation capacity, but since this represents about 3% of their total capacity we are not particularly interested.
Besides Calpine and Ormat, the rest of the list is made up mostly of smaller pure-play geothermal companies, several of them traded on the over-the-counter market or Pink Sheets, and very illiquid. Even those traded on larger exchanges, such as Raser Technologies, have been hurt by the economic downturn. They are experiencing cash flow issues, are forced into dilutive stock offerings or other desperate measures and most on the list are in trouble. In the current financing environment and new project funding as tight as it is, the established, proven low-risk geothermal developer will win deals more often than not.
Raser just got another round of bad news from the DOE which turned them down for a loan guarantee. GTO Resources, a mostly unknown Canadian geothermal company, which previously had a market cap of about $68 million, just announced the completion of a $179 million equity financing deal.
The only one we can really get excited about here at TheGreenInvestor.com is about to graduate from being an exploration and development stage company to a revenue generating electricity producer. Its multiples are about to change.
Disclosure: No positions
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On Sep 08 11:50 AM rz60 wrote:
> which stock are you talking about in your last paragraph?
The problem is the oblique nature of it all. As the Switzerland project happened, the project was immediately shut down. If we start to see other seismic activity near geothermal projects, the authorities will have no choice put pull the plug and protect the community. Did the geothermal project cause the quake? Maybe and maybe not. Makes no difference because authorities will shut it down as a precaution.
I honestly believe this will become a huge issue with geothermal. There is no way you can tell the community that the project won't cause potential earthquakes.
Your investment in any of these companies can come to grinding halt literally overnight.
The technology for very deep oil well drilling is getting advanced enough to bring to bear in this area.
From the Federal EREE newsletter,
U.S. and Australian Advanced Geothermal Projects Face Setbacks
Efforts to develop and commercialize a new type of geothermal energy, called Enhanced Geothermal Systems (EGS), are facing technical setbacks in both the United States and Australia. EGS involves injecting water at high pressure into deep, hot rock formations to fracture the rock, creating either a new geothermal reservoir of hot water embedded in hot rock or expanding an existing geothermal reservoir. But drilling into hard rock at high temperatures and pressures has always presented a technical challenge to EGS technology. As previously reported in this newsletter, Geodynamics, Ltd. of Australia finally completed drilling the wells for its EGS project early last year, after encountering drilling problems over the course of nearly 5 years. See the January 2008 article from this newsletter.
Last week, AltaRock Energy Inc. announced that it has suffered similar difficulties in drilling a well for a demonstration EGS project at The Geysers, an existing geothermal resource in northern California. Citing "geologic anomalies," AltaRock announced that it is giving up on the current well and is evaluating alternative well locations. In Australia, Petratherm, Ltd. appears to be having similar problems, as a drilling effort for a well that was supposed to take 2-3 months is now expected to take 3-4 months. Petratherm experienced slow penetration rates for its 17.5" hole in the hard rock, but the company is now drilling a narrower (12.25"), deeper section of the well and is making better progress. See the press releases from AltaRock (PDF 29 KB) and Petrotherm (PDF 274 KB). Download Adobe Reader.
Meanwhile, Geodynamics has moved on to a whole new set of technical problems at its demonstration project at Cooper Basin in the Australian outback. In late April, the company experienced a blowout at its Habanero 3 well, causing an uncontrolled release of steam and hot water at the wellhead. It took the company 28 days to get the well back under control with weighted mud, and the well was then capped with two cement plugs. In late August, the company released the results of its investigation, which found that the fluid chemistry in the well caused hydrogen embrittlement in some of the high-strength steel used in the well, making it prone to cracking. The investigation blamed the embrittlement on dissolved carbon dioxide and hydrogen sulphide in the reservoir fluid. Because of those findings, the company installed a cement plug in another well, Habanero 2, and planned to also secure Habanero 1. Despite the setback, the company still intends to generate geothermal power in the Cooper Basin, but its near-term plans for a 1-megawatt pilot plant are currently being reevaluated. See the Geodynamics announcements on the well blowout (PDF 28 KB), the well capping (PDF 167 KB), and the results of the investigation (PDF 134 KB).
I believe Rasor's business model is flawed. Even though their first plant was three times over the market capital cost ($/mw) it will be impossible for them to get down to an cost competitive economical cost. It is like saying that I will keep installing portable 1MW gas plants as opposed to building a larger 100MW gas plant. It has never worked and never will. No utility builds tiny plants for that reason
Anyway, I would appreciate your help. You mentioned that the analysis report of GeoDynamics report is finished. I went to their web site and could not find it. I would appreciate it if you would post the web link to the analysis report. Thanks
On Sep 09 05:43 AM jerrydd wrote:
.
I also agree with the author's preferred pure-play geothermal stock Ormat (ORA) - they are not only pure-play, but real-players, not just in planning stages, but operating many plants and operating them well. They also manufacture the equipment and supply other geothermal developers, so they are a very solid play.
Magma seems very ambitious and now has a lot of money, so it will be interesting to see where they go.
I do not think the EGS technology is necessary - it is a bit overhyped just because it is new. There are plenty of "traditional" geothermal resources around that can be tapped without EGS. I would not invest in any company that is relying on and only hyping its EGS.
Disclosure: I am an industry insider, and also own small amounts of stock in ORA, NGLPF, and HTM. Maybe will buy Magma later on. The others, I would stay away from.
On Sep 08 08:18 PM singularityjumper wrote:
> I think the earthquake component is being downplayed. Here in Nor
> Cal wine country it is under strong suspicion and more stories are
> linking geothermal to seismic activity.
>
> The problem is the oblique nature of it all. As the Switzerland project
> happened, the project was immediately shut down. If we start to see
> other seismic activity near geothermal projects, the authorities
> will have no choice put pull the plug and protect the community.
> Did the geothermal project cause the quake? Maybe and maybe not.
> Makes no difference because authorities will shut it down as a precaution.
>
>
> I honestly believe this will become a huge issue with geothermal.
> There is no way you can tell the community that the project won't
> cause potential earthquakes.
> Your investment in any of these companies can come to grinding halt
> literally overnight.
You should actually read both articles. In them I am extremely bullish on geothermal, enough so to recommend 2 stocks (ORA) and (NGLPF.OB).
On Sep 09 10:11 AM dave_onju wrote:
> Good headline !!! Not!!! Is getting Red hot and then all you do is
> to proceed to critisize every stock out there.Its kind of like writing
> an article on people who don"t believe in god !! If you are going
> to write to inform, write about something you know.
I should clarify that geothermal resources occur naturally near tectonic plate boundaries or fault lines where earthquakes also happen naturally. Geothermal plants in operation around the world today all exploit such natural geothermal resources, and none are of the (EGS) man-made ilk.
EGS technology on the other hand is clearly in its infancy, with earthquakes being one of the potential risks. This is why we are not interested in investing in any company depending primarily on EGS at this stage.
@Urbane_Gorrilla ;=)
On Sep 08 08:18 PM singularityjumper wrote:
> I think the earthquake component is being downplayed. Here in Nor
> Cal wine country it is under strong suspicion and more stories are
> linking geothermal to seismic activity.
>
> The problem is the oblique nature of it all. As the Switzerland project
> happened, the project was immediately shut down. If we start to see
> other seismic activity near geothermal projects, the authorities
> will have no choice put pull the plug and protect the community.
> Did the geothermal project cause the quake? Maybe and maybe not.
> Makes no difference because authorities will shut it down as a precaution.
>
>
> I honestly believe this will become a huge issue with geothermal.
> There is no way you can tell the community that the project won't
> cause potential earthquakes.
> Your investment in any of these companies can come to grinding halt
> literally overnight.
Is there anything we should know about companies that use geothermal for heating? A friend of mine had a heat pump installed in his house, but I think it was very expensive. He did as an environmentalist, not because he got a good return on his investment.