6 Ways to Play Clean Energy

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Includes: ABE, CPN, HTM, NGLPF, ORA, PBW
by: Marc Courtenay

Is it wind energy, or is it solar energy? Is it bio-diesel or hydroelectric energy? The debate on what is the best form of clean energy to invest in has been growing like green shoots for years. Let me give you a hint of one possible winner: The Geysers.

The Geysers in California supply power for several plants. These power plants emit only excess steam and very minor amounts of gases. In the Mayacamas Mountains, located 72 miles north of San Francisco, naturally occurring steam field reservoirs below the earth's surface are being harnessed by Calpine to make clean, green, renewable energy for homes and businesses across Northern California.

The Geysers, comprising 30 square miles along the Sonoma and Lake County border, is the largest complex of geothermal power plants in the world. Calpine (NYSE:CPN), the largest geothermal power producer in the U.S., owns and operates 15 power plants at The Geysers with a net generating capacity of about 725 megawatts of electricity - enough to power 725,000 homes, or a city the size of San Francisco.

The Geysers meets the typical power needs of Sonoma, Lake, and Mendocino counties, as well as a portion of the power needs of Marin and Napa counties. In fact, The Geysers satisfies nearly 60 percent of the average electricity demand in the North Coast region from the Golden Gate Bridge to the Oregon border. The Geysers is one of the most reliable energy sources in California delivering extremely high availability and on-line performance and accounts for one-fourth of the green power produced in California.

Recently, energy analyst Matt Badiali wrote a piece based on a question submitted to The Growth Stock Wire that sums up how undervalued and under-appreciated Geothermal Energy really is:

Q: What do you think is the best investment to take advantage of the government's support of clean energy? – D.H.

A: In one sentence, D.H., my take on clean energy is "Solar and wind bad, nuclear and geothermal good."

It all comes down to economics. Solar and wind farms just don't produce enough energy to cover their enormous start-up costs. Nuclear produces awesome amounts of clean electricity. But from an investor's standpoint, I think the biggest money will be made in geothermal energy.

Geothermal energy harnesses the heat of the Earth to produce electricity. To vastly simplify things, geothermal wells drilled into the ground allow steam to rise to the surface, which spins turbines and generates electricity. Unlike wind, solar, and biomass, geothermal power is a reliable, economically viable power source right now.

Today, about 50 countries around the world harness geothermal energy. Iceland built an entire heavy industry around smelting aluminum with geothermal power.

The one big problem with geothermal plants is the initial cost. Drilling into volcanic terrain is difficult and expensive. It's also expensive to buy and install the turbines that produce electricity and run the power lines to the grid. However, once you have spent the money, you simply harness the Earth's heat to generate the steam. You don't need fuel or much maintenance.

Unfortunately, that initial expense discouraged much expansion in geothermal. Banks and investors did not want to invest because it took too long for them to be repaid. That all changed with the Obama administration.

The Feds are doing all they can to get geothermal plants built. The Department of Energy is backing construction loans and the Treasury is covering 1/3 of construction costs through grants.

In addition, the cap and trade bill will hike electric rates two or three times their current prices. That's what will drive a bubble in alternative energy – low-cost financing, government backing, and huge upside.

It's the same formula that brought us the real estate bubble – they just changed the name to "green power." Regardless of how you view alternative energy, buying these stocks today is like buying real estate in 2002. You'll wish you loaded up once this bubble heats."

The argument for Geothermal Energy's attraction and potential is very convincing. The "one big problem" with geothermal is far outweighed by its many, many benefits. The U.S. Dept. of Energy web site does an outstanding job discussing the benefits.

Federal and state money is going to be channeled in the direction of geothermal energy in the years ahead, no doubt about it. Besides CPN we really like Ormat Technologies (NYSE: ORA), U.S. Geothermal (NYSE: HTM), and Nevada Geothermal (OTCPK:NGLPF).

It is impossible to find an ETF that exclusively invests in geothermal energy as far as I know. The PowerShares WilderHill Clean Energy (NYSE:PBW) does contain CPN and ORA as two of its top ten holdings.

Accumulating geothermal stocks and an ETF like PBW makes a lot of sense right now, especially during times of market corrections and pullbacks. Green investors should at least add them to their "wish list" and pick a buy limit price that makes sense.

Disclosure: I do not currently own any of the stocks or funds mentioned.

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