We are an environmental energy technology company focused on geothermal power development and technology licensing. We operate two business segments: Power Systems and Transportation & Industrial. Our Power Systems segment develops clean, renewable geothermal electric power plants and bottom-cycling operations. Our Transportation & Industrial segment focuses on using our Symetron™ family of technologies to improve the efficiency of electric motors, generators and power electronic drives used in electric and hybrid electric vehicle propulsion systems. Through these two business segments, we are employing a “Well to Wheels” strategy in an effort to produce a positive impact on the environment and economically beneficial results for our stockholders. By executing our “Well to Wheels” strategy, we aim to become both a producer of clean, geothermal electric power as well as a provider of electric and hybrid-electric vehicle technologies and products.
Power Systems Segment
We have accumulated a large portfolio of geothermal interests in four western continental states and a geothermal concession in Indonesia. These geothermal interests are important to our ability to develop geothermal power plants. We continue to accumulate additional interests in geothermal resources for potential future projects.
We have initiated the development of eight geothermal projects in our Power Systems segment to date. We completed the major construction of the cooling towers and transmission lines and installed the power generating units at our first 10 megawatt (“MW”) geothermal power plant, located in Beaver County, Utah, in October 2008. We refer to this project as the Thermo No. 1 project or the Thermo No. 1 geothermal power plant. We placed the plant in service in the first quarter of 2009 and we expect the Thermo No. 1 geothermal power plant to become operational at or near full capacity in the first part of 2009. For a discussion of the revenues, profit/loss and total assets of the Power Systems segment for the years ended December 31, 2008, 2007 and 2006, please see “Note 19, Business Segments” to our audited consolidated financial statements.
We have either obtained or are in the process of obtaining permits for the development of seven other geothermal power projects we have initiated in the United States. These projects are located in Utah, Nevada, New Mexico and Oregon. We believe that the geothermal resource for each of these projects has the potential to provide at least enough geothermal energy for a commercial power plant of approximately 10 to 11 MW of net electrical power. However, we expect that some of the project sites that we intend to develop, have potential resources to generate significantly more than 10 MW of net electrical power. For example, the Thermo No. 1 project area appears to have the potential to support many additional plants similar in design to the Thermo No. 1 geothermal power plant. Therefore, we are evaluating opportunities to build additional plants near the Thermo No. 1 project. We expect that other project sites we have selected to develop could also prove to have resources that could support multiple plants. We intend to seek to maximize the full power generating potential of all the sites we select for project development. For additional information on our potential geothermal resources and our development plans, see “Our Potential Geothermal Resources” and “Development of Geothermal Power Plants” below.
Historically, federal and state governments have provided incentives and mandates for the development of renewable resources, including geothermal projects. The recently approved American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) provides for a number of additional grants and tax incentives to help fund renewable energy projects. Some of the provisions included in the legislation provide for grants of up to 30% of the cost of construction, loan guarantees and additional tax benefits. We believe that these provisions could help to make financing more readily available for renewable energy projects, and we intend to utilize them as much as possible.
Our ability to complete the development of our geothermal power projects is dependent on our ability to obtain adequate financing to fund those projects. We intend to evaluate a variety of alternatives to finance the development of our projects. These alternatives could include project financing and tax equity financing arrangements under our existing commitment letter (the “Commitment Letter”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), government funding from grants, loan guarantees or private activity bonds, joint ventures, the sale of one or more of our projects or interests therein, pre-paid power purchase agreements with utilities or municipalities, or a merger and/or other transaction, a consequence of which could include the sale or issuance of stock to third parties. We cannot be certain that funding from any of these sources will be available on reasonable terms or at all. If we are unable to secure adequate funds on a timely basis on terms acceptable to us, we may need to modify our current plans for plant construction, well field development and other development activities, extend the time frame over which these activities will take place, or cease operations.
We recently retained Calyon Securities (USA) Inc. (“Calyon”) to explore potential strategic relationships that could provide additional options for funding, implementing and accelerating our development efforts. The potential for significant additional power production from the geothermal resource that we identified and evaluated as part of our Thermo No. 1 project has generated a number of inquiries from potential financial partners wishing to explore a purchase, joint venture or other transaction in connection with the further development of this large resource. We engaged Calyon to help us evaluate the proposals and negotiate any potential funding, development, or asset sale structures that we believe would enhance our ability to complete our objectives. We continue to work with Calyon to advance this process.
With the completion of the major construction items of the Thermo No. 1 geothermal power plant, we believe we have demonstrated our ability to quickly develop geothermal power projects using our rapid deployment business model. We believe the demand for clean, renewable energy will continue to increase, and we believe we are well positioned to play a meaningful role in providing clean, renewable power to consumers. Not everything has been in keeping with our original timeframes and cost expectations. Some of our projects have experienced longer development timelines or higher costs than originally planned. Moreover, the current economic conditions in the United States and around the world make it more difficult to secure the financing and complete the other various steps necessary to develop our projects. Nevertheless, we intend to continue to focus on the rapid deployment of our geothermal power projects.
We believe that some of our projects will allow for expansions of the power plants through “bottom-cycling” operations. When the temperature of the geothermal fluids produced from the well field is sufficiently high, the geothermal fluids which are discharged from the plant can potentially carry enough heat to generate additional electricity. In a bottom-cycling operation, the discharged geothermal fluids are passed through additional generating units to generate electricity without the risk and expense of drilling new wells.
We also believe the technologies used in our geothermal power projects can also be used to generate electricity from waste heat associated with certain industrial operations. We intend to explore opportunities to expand our Power Systems segment to include the development of facilities that utilize waste heat to generate electricity. We believe there are a number of companies that could benefit from these waste heat recovery facilities, including cement plants, conventional power plants, steel mills, and others, which would serve to reduce their overall long-term energy costs.
Transportation & Industrial Segment
Our Transportation & Industrial segment focuses on commercializing our electric motor, generator and drive technologies, such as our series plug-in hybrid vehicle (“PHEV”) with range extender technologies, into applications. In 2008, we began work to integrate a Symetron™ traction motor, generator and controller drive in a SUV demonstration vehicle expected to achieve 100 mpg equivalent to demonstrate the benefits of our plug-in electric drive system in SUV and light truck applications. Our plug-in electric drive system is designed to allow light trucks and SUVs to achieve the equivalent of over 100 mpg in typical local daily driving with near zero emissions, by using electricity instead of petroleum as the primary fuel. Pacific Gas & Electric of California agreed in February 2008 to initially purchase two test vehicles. The SUV demonstration vehicle is being built in cooperation with a leading global OEM. During 2007 and early 2008, we entered into several other agreements and collaborative arrangements with large manufacturers to explore additional potential applications of our motor and drive technologies, including a collaborative arrangement with Hyundai Heavy Industries (“HHI”) of Korea and a license agreement with Wilson Automotive of Canada.
We intend to continue to explore opportunities to commercialize our motor and drive technologies. However, the recent economic downturn has had a dramatic and adverse effect on the automotive industry and other large industrial manufacturers that would otherwise be in a position to use and benefit from our technologies. As a result, we believe our ability to commercialize our Symetron™ technologies will be limited until economic conditions improve. In light of the current economic conditions, we have reduced our resources committed to new developmental efforts. We intend to evaluate the prospects for our technologies on an ongoing basis. If we believe there are attractive opportunities, we will devote the resources to pursue those opportunities to the extent we believe appropriate. If, on the other hand, we determine that the risks and uncertainties for this business segment are too great in light of the current economic climate, we may choose to further reduce the resources devoted to these efforts.