Calpine A Safe Geothermal Energy Play

| About: Calpine Corporation (CPN)

Interested in geothermal energy? Consider Calpine (NYSE:CPN).

Calpine is the closest to a pure play we have in geothermal, although it's not really that close. It runs The Geysers, a geothermal plant in Sonoma County, California, now rated at 725 Megawatts/year. The company recently proposed a $200 million expansion of the plant to add another 98 MW by 2014.

In addition to The Geysers, Calpine represents a good play on cheap natural gas. It delivers over 27,000 Mwatts/year of natural gas-fueled electricity around the country, using a combined cycle technology that maximizes efficiency. Growing electricity demand and falling natural gas prices are combining to make it profitable, earning $178 million in its June quarter on sales of $1.455 billion. Results for the September quarter are due October 28 and speculation on them popped the price 5% in early trade on October 26.

The success of The Geysers represents both the promise and the problem with geothermal energy. The economics are similar to oil and gas, and there are risks that you won't find what you're looking for. One reason Republicans are failing to gain traction on Solyndra is one of their leaders, Orrin Hatch, pushed a similar company in the geothermal space called Raser.

Google (NASDAQ:GOOG) has funded yet-another map of U.S. geothermal resources, produced by SMU, but it has yet to find many deals even if it is ready to take on. It's put less than $11 million into the space and one of the biggest deals it's funding, Potter Drilling, is pushing something called “thermal spallation” that looks an awful lot like fracking.

The Google map also shows that geothermal resources - in the form of very hot water - are often located in the same areas as natural gas fields. East Texas, West Virginia and northern Louisiana all have water at 250 degrees that can be tapped at depths of 3-7 km below the surface, but with abundant natural gas in the same areas drillers aren't interested.

Exploiting such low-temperature geothermal resources may be the game for China, which has a lot of them. Research there has begun on geothermal heat pumps but it's at an early stage.

Without new technology, then, Calpine remains the best bet, and the hope is they can find another site like The Geysers to exploit. Until then you have a nice reliable profit-maker on natural gas.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.