Geothermal Energy: Ways to Invest

Includes: HTM, NGLPF, ORA
by: Greg Group
Geothermal energy has experienced a rebirth due to new technological advances and the U.S. movement to clean energy technology. You probably did not know that the U.S. led the world in geothermal energy capacity and untapped potential beneath the surface. Improved technologies have the ability to tap unused geothermal energy that has 50,000 times more energy than all the oil and gas in the world. The potential for growth is substantial, with the international market for geothermal power possibly exceeding $25 billion over the next 10 years.

In October 2009, U.S. Department of Energy Secretary Steven Chu announced up to $338 million in Recovery Act funding for the exploration and development of new geothermal fields and research into advanced geothermal technologies. These grants will support 123 projects in 39 states, with recipients including private industry, academic institutions, tribal entities, local governments, and DOE’s National Laboratories. The grants will be matched more than one-for-one with an additional $353 million in private and non-Federal cost-share funds.

“The United States is blessed with vast geothermal energy resources, which hold enormous potential to heat our homes and power our economy,” said Secretary Chu.

These investments in America's technological innovation will allow us to capture more of this clean, carbon free energy at a lower cost than ever before. We will create thousands of jobs, boost our economy and help to jump start the geothermal industry across the United States.

These grants are directed towards identifying and developing new geothermal fields and reducing the upfront risk associated with geothermal development through innovative exploration and drilling projects and data development and collection. In addition, the grants will support the deployment and creative financing approaches for ground source heat pump demonstration projects across the country.

Collectively, these projects will represent a dramatic expansion of the U.S. geothermal industry and will create or save thousands of jobs in drilling, exploration, construction, and operation of geothermal power facilities and manufacturing of ground source heat pump equipment.

“President Obama has laid out an ambitious agenda to put millions of people to work by investing in clean energy technology like geothermal energy,” said Secretary Chu.

The Administration is committed to funding important research like this to transform the way we use and produce energy and reduce our dangerous dependence on foreign oil.

Conventional geothermal energy systems must be located near easily-accessible geothermal water resources, limiting its nationwide use. EGS technology would allow power generation in a broad variety of geographic locations. EGS makes use of available geothermal resources to heat engineered reservoirs, which can then be tapped to produce electricity.

The DOE grant awards were recently announced. As geothermal has been led to date by large corporations such as GE, Slumberger and others, there are several pure plays to invest in this sector. One potential investment is in Ormat Technologies (NYSE:ORA) which received $13.8 million in DOE grants compared to GE's $8.8 million.
Ormat designs, develops, builds, owns and operates geothermal recovered energy-based power plants, usually using equipment that it designs and manufactures. Ormat conducts its business activities in two business segments: Electricity and Products. In the Electricity Segment, the Company develops, builds, owns and operates geothermal and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world, and sells the electricity generated by these plants. In the Products Segment, Ormat designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation, remote power units and other power generating units, and provides services relating to the engineering, procurement, construction, operation and maintenance of geothermal and recovered energy power plants.
Ormat has a market capitalization of $1.96 billion. For the nine-month period ended September 30, 2009, total revenues increased 28.3% to $320.0 million, compared to $249.3 million for the nine months ended September 30, 2008. Net income for the period was $53.9 million, or $1.19 per share of common stock (basic and diluted), compared to $37.9 million, or $0.87 per share of common stock (basic and diluted) for the same period last year, which represents an increase of 42.3% in net income. Shares trade near a 52-week high of $44.00 with a P/E of 30.
Other investing choices are microcaps: U.S. Geothermal (NYSEMKT:HTM) and Nevada Geothermal Power (OTCPK:NGLPF). US Geothermal has a market cap of $97 million with net income loss of ($5.2) million. HTM trades at 2 times book value at $1.50 per share. Nevada Geothermal Power has a market cap of $96 million with a net loss of ($5.1) million. NGLPF trades at 2.2 time book value with a recent price of $1.02 per share.
Disclosure: no positions