Ormat's 21.8 megawatt Desert Peak 2 plant in Nevada. Photo Source: Ormat

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The geothermal industry has been struggling with the same barriers to development for years. It's a frustrating situation: while geothermal is a reliable, steady baseload form of renewable energy, its development expenses overshadow its obvious long-term benefits. Meanwhile, other intermittent renewable sources such as wind and solar are able to take advantage – and control – of state renewable portfolio standard (RPS) policies and other incentives due to their lower costs of deployment.

‘Clearly we have a situation where geothermal is not given its due, it is not properly valued, and is being put on parity with wind and solar when we know they are intermittent technologies,’ explained Halley Dickey, director of business development at TAS Energy during a session at the recent REWNA Conference and Expo in Orlando, Florida. 

Considering these challenges, companies are burning the midnight oil to come up with innovative ways that make geothermal a smart, valuable investment for customers, and experts at ORMAT (NYSE:ORA) believe they may have come up with a winning solution. According to Paul Thomsen, director of policy and business development at ORMAT, it has strong implications for the industry as a whole in 2013 and beyond. 

The ORMAT project is set in Hawaii, where it recently built an 8-MW expansion on its 30-MW Puna geothermal power plant. In order to get the utility, Hawaii Electric Light Company (NYSE:HE), aka HELCO, to agree to purchase power from the expansion, ORMAT made the entire plant fully dispatchable, meaning that it is controlled by HELCO, who can ramp service up or down to serve the auxiliary energy load for the grid.

Hawaii has a unique situation in which it has too much power on its grid, however the state depends on imported oil for 90 percent of its energy needs, which greatly increases costs.  According to Thomsen, Hawaii has invested a lot into its diesel infrastructure, so it faces the dilemma to either stop purchasing diesel and invest in new geothermal equipment, or keep purchasing diesel using existing infrastructure.

‘From a utility perspective, the fuel costs pass through to ratepayers, so there is no impact on them as a company. Shutting down those power plants and purchasing new equipment does have a capital impact on them and they have to figure out as a company if they want to make that large capital investment to help ratepayers 10-20 years down the road,’ explains Thomsen. ‘I think they are starting to make those decisions, but at this point they are about 30 percent over capacity – they knew they wanted this geothermal power, but they had to justify it to the PUC, so that’s why they have us on grid support.’

The power contract for the Puna plant is significantly lower than the island’s wholesale prices, which are between US$0.20-$0.30 per kWh. The expansion allowed for 5 MW of the original 30-MW plant that is still on avoided costs to be reduced to a fixed rate of about $0.11 per kWh – a 50 percent savings. And for the new 8-MW expansion, Thomsen says they offered HELCO a price of $0.09 during peak, and $0.06 off-peak. 

‘We’re providing frequency control and power to the grid when the utility needs it, so they can say “Hey, were having problems; everybody is turning on their air conditioner and we need to ramp up the plant to 38 MW”,’ explained Thomsen. ‘Or they can say “It’s a relatively mild day, we don’t need this power; we want to back you off to 25 MW”.’

Thomsen believes this flexibility will influence power contracts in states like California that have a significant amount of energy but dwindling capacity with intermittent renewables. The California PUC is also considering decommissioning many power plants, and even some nuclear facilities face closure, as well, which could lead to significant renewable adoption.

Elaine Sison-Lebrilla, renewable energy program manager at the Sacramento Municipal Utilities District (SMUD) explained the future need and importance of geothermal on the grid during a geothermal session at the Renewable Energy World North America Conference and Expo.  She acknowledged the fact that the more wind and solar enter the grid, the more issues utilities will likely face in the future, and geothermal will be the renewable source that provides baseload power to support the grid. 

‘We’re going to have to back down from fossils, but we still need baseload, and that to me means biomass and geothermal – not next year or the year after, but in 5-10 years. There are a lot of policy issues in play,’ said Sison-Lebrilla. ‘But we know it’s there, we know that there are impacts on our grid, we know we have to do something in addition to bringing on solar and wind.’

Thomsen says he is seeing an increase in renewable portfolio standards (RPS) for two reasons – their design (through time they get bigger), and states are starting to look at removing compliance mechanisms. Nevada, for example, allows energy efficiency projects in its RPS, and they are seriously considering removing that, which would create more demand for renewables. So instead of buying a gas peaker plant, these states can look at existing geothermal fleets to support other renewable projects with baseload power. Thomsen says ORMAT is working with regulators to value geothermal’s ancillary benefits, and sees geothermal becoming increasingly more valuable in states that have purchased wind and solar but have no capacity.

Says Thomsen, ‘We are very bullish and optimistic on that fact that we are going to see more Power Purchase Agreements (PPAs) and better value because of what the power plant in Hawaii showed regulators and utilities geothermal can do.’

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Geothermal well photo via Bigstock

The renewable energy industry had quite a bit to celebrate this week as 2013 rang in a PTC extension that many had feared would never come to fruition. Though the extension to January 1, 2014 greatly benefits the wind industry, whose PTC was set to expire at the end of 2012, it also included a provision that could be huge for geothermal development. This provision states that projects under construction by January 1, 2014 would quality for the PTC, rather than the previous rule that required projects to be completed and operational.

A 2013 Development Boom

Karl Gawell, executive director of the Geothermal Energy Association (GEA) expects this provision to significantly boost U.S. geothermal development in 2013. He explained that under the previous provision, companies were already starting to back away from new developments for fear of not being able to finish a project and qualify in time. 

This fear stems from the notoriously long project development time geothermal typically faces – an average of seven years. Therefore, geothermal faces a much earlier drop-off for the PTC than other technologies, explained Paul Thomsen, director of policy and business development at ORMAT (NYSE:ORA). Though the geothermal PTC expires at the end of 2013, most developers had lost hope of taking advantage of the incentive years ago.

“The fact of the matter is with geothermal having such a long lead time, we faced that hurdle two or three years ago because as the PTC stands now, we have to have a project constructed, online, and delivering power to the grid by Dec 31^st of 2013,” said Thomsen. “In the geothermal development world that is right around the corner, so people stopped drilling projects a year or two ago because they knew they couldn’t risk missing that deadline.”

But with the new provision, Gawell believes the industry will now be scrambling to get more projects qualified in 2013.

“The Geothermal Energy Association estimates that new geothermal power projects in as many as a dozen states could be stimulated to move forward this year as a result of this change,” said Gawell in a release following the decision.  “Congress’ action will spur significant new employment and sustain geothermal industry growth. Consumers and utilities will benefit, as well, because developers will have greater certainty about whether the credit will be available for their project.”

Thomsen explained that the provision is like the geothermal industry’s “fiscal cliff” – if a project can start construction and still be eligible for the tax incentive, the industry won’t fall. Projects that had previously put on the breaks can now move forward and the industry can expand and take advantage of the vast amount of resources in the U.S.

Renewable Portfolio Standard Push

While the PTC provision is a huge win for geothermal, many in the industry remain bullish on other policies and strive to set geothermal on a “level playing field” with other technologies. Thomsen said that industry advocates will continue to work with energy regulators, particularly in many Western States, to properly value geothermal energy with a focus on its inclusion in renewable portfolio standards (RPS).

Many states will soon see an increase in RPS mandates, and some, like Nevada, are starting to consider removing compliance mechanisms such as energy efficiency. These changes would create more demand for renewable energy, which is where geothermal advocates are trying to state their case: while many states have brought on wind and solar to fill the RPS, those in the geothermal industry believe that states will start to have intermittency issues. Geothermal can be brought on as a baseload power to help stabilize the grid.

“Though [other renewables] they may have gotten a leg-up on us in the past couple of years, we’re catching them. It’s like the tortoise and the hare – wind and solar raced off and created tons of projects that all delivered energy, but with no capacity,” said Thomsen. “We have been a little bit slower because we are building a project that has energy and capacity and now utilities and regulators are starting to say ‘holy cow, capacity is much more valuable to us today than energy.’”

Industry advocates will not only be fighting for a level playing field with other renewables in 2013, said Thomsen, but also for the same treatments that oil and gas companies already receive. Fossil fuels have had some of the same subsidies for more than 100 years, and they don’t expire – geothermal could take advantage of some of these provisions. For example, oil and gas can deduct their well field drilling costs from their gross revenue, explained Thomsen. There are other tax incentives that these industries get in the tax code that could benefit geothermal in reducing upfront capital costs -- a major hurdle to development. 

“We are always going to be pushing policies that create a level playing field and give us an equitable tax position so that we can compete with any technology out there,” said Thomsen. “Give us the certainty in tax provision so we can continue to develop these projects in the future.”

Consider Global Expansion 

While the U.S. geothermal industry struggles with incentives and advocating for a fair playing field, many in the industry recommend shifting some business focus overseas in 2013. Companies like TAS Energy and POWER Engineers have recently opened offices in Turkey and Africa, where development is starting to blossom at a rapid rate.  

Though it may be beneficial to roll the dice overseas, Thomsen warns that the grass isn’t always greener on the other side. While there may be action in the developing world, these countries may be just as difficult to do business in as the U.S. – companies will simply face different hurdles. While the U.S. struggles with incentives, countries like Indonesia face bankability difficulties and in Kenya, companies will be bidding for projects against government-backed companies. However, Thomsen says it is never a bad idea to have an international portfolio, but to just be aware of all possible challenges. 

“While we see the international market robust at the moment, we haven’t given up on the U.S. and we think the U.S. market can be just as robust,” says Thomsen. “It’s an ebb and flow as we go through the years.”

Meg Cichon is an Associate Editor at RenewableEnergyWorld.com, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for RenewableEnergyWorld.com and REW magazine, and manages REW.com social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

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Offshore Wind Farm photo via Bigstock.

The extension of the production tax credit (PTC) and Investment Tax Credit (ITC) is expected to save up to 37,000 jobs and create far more over time, and to revive business at nearly 500 manufacturing facilities across the country. Wind energy PTC, and ITC for community and offshore projects, will allow continued growth of the energy source that installed the most new electrical generating capacity in America last year, according to the American Wind Energy Association (AWEA).

The version included in the deal would cover all wind projects that start construction in 2013. Companies that manufacture wind turbines and install them sought that definition to allow for the 18-24 months it takes to develop a new wind farm.

Leaders of the Senate Finance Committee included that version in a "tax extenders" package they assembled in August, which made it into the overall fiscal cliff deal that passed the Senate early Tuesday morning and the House Tuesday night. President Obama is expected to sign the bill into law swiftly.

The Energy Information Administration said that wind set a new record in 2012 by installing 44 percent of all new electrical generating capacity in America, leading the electric sector compared with 30 percent for natural gas, and lesser amounts for coal and other sources. 

However, America's wind energy workers have been living under threat of the PTC's expiration for over a year and layoffs had already begun, as companies idled factories because of a lack of orders for 2013. Uncertain federal policies have caused a "boom-bust" cycle in U.S. wind energy development for over a decade.

Half the American jobs in wind energy – 37,000 out of 75,000 – and hundreds of U.S. factories in the supply chain would have been at stake had the PTC been allowed to expire, according to a study by Navigant Consulting.

"On behalf of all the people working in wind energy manufacturing facilities, their families, and all the communities that benefit, we thank President Obama and all the Members of the House and Senate who had the foresight to extend this successful policy, so wind projects can continue to be developed in 2013 and 2014," said Denise Bode, CEO of AWEA for the past four years who recently announced that she is stepping down.

"Now we can continue to provide America with more clean, affordable, homegrown energy, and keep growing a new manufacturing sector that's now making nearly 70 percent of our wind turbines in the U.S.A.," said Rob Gramlich, who took over as AWEA's interim CEO yesterday.

About the authors: Renewable Energy World's network editors help deliver the most comprehensive news coverage of the renewable energy industries. Based in the U.S. and the UK, the team is comprised of editors from Pennwell Corporation's myriad of publications that cover renewable energy.This article was first published on RenewableenergyWorld.com and is reprinted with permission.

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Tom Konrad CFA

Geothermal Plant at The Geysers.  Photo Source: Calpine (CPN)

Last week, industry leader Ormat Technologies Inc. (NYSE:ORA) set the stage by beating analyst expectations for both earnings and revenue per share in the third quarter, and announcing a deal to buy a project in Honduras.  This led to an upgrade by Barclays.

As the only geothermal stock with the size and liquidity needed by large US investors, Ormat has long been too expensive (forward P/E of 23, even after a decline from over $30 in early to less than $17 today) for a relatively low margin utility business, so I prefer the much cheaper small geothermal developers, US Geothermal (NYSE:HTM, TSX:GTH), Ram Power (TSX:RPG, OTC:RAMPF), and Alterra Power (TSX:AXY, OTC:MGMXF.)

It’s hard to generalize from one geothermal company to another.  Each geothermal project is unique, not only because of the local electricity markets and legal structures, but also because of the idiosyncrasies of each project’s geology and chemistry.  Nevertheless, the smaller developers seem to be following Ormat’s lead.

On Thursday, US Geothermal (NYSE:HTM, TSX:GTH) received the $10.7 million cash grant for its San Emidio project, allowing the company to pay down a $7.5 million bridge loan.  A year ago, I would not have considered this significant news, since I assumed the US Treasury would pay all such grants in full.  That was before the Treasury cut the award for Western Wind Energy‘s (OTC:WNDEF, TSX-V:WND) grant by $12 million (3% of the request) after delaying it for almost two months.  After that experience, a cash grant delivered  seems a lot more significant than it once did.  About $1 million of the grant application is still under review by the Treasury.  This portion of the grant is related to some exploratory wells.  Management is uncertain if this portion of the grant will be accepted, but it does not seem to be something that they are counting on.

UPDATE: Since this article was first published on November 16th, US Geothermal announced that it had achieved full commercial operations at its Neal Hot Springs facility in Oregon, and that the plant was operating above expectations.  The stock is up 31% at $0.42 since then.

US Geothermal also reported third quarter earnings on Thursday, and the message was one of steady progress.  Last year, Nevada Geothermal Power (TSX-V:NGP, OTC:NGLPF) and Ram Power were both tripped up by unpleasant surprises at their biggest projects.  US Geothermal, in contrast, has been executing smoothly, and now has two operating projects.  This will make the company less vulnerable to the vagaries of geothermal development at future projects.   Part of that seems to be US Geothermal’s project selection.  San Emidio, for instance, was an existing project with a known reservoir, which they upgraded by drilling some new wells and replacing an aging power plant.  Because it was an operating project, US Geothermal knows a lot more about the idiosyncrasies of the reservoir than they would if it had been a greenfield project, and it was just those sorts of idiosyncrasies at Nevada Geothermal’s Blue Mountain project which ended in the company losing all its equity in the project because there is not enough revenue to repay the loan.

Ram Power (TSX:RPG, OTC:RAMPF) has also been making progress.  Last year, problems developing their Jan Jacinto project caused large cost overruns.  But the project now seems to be back on track with a new contractor.  The company was able to negotiate a 17% increase in the power sales agreement which will make up for some of the extra costs, amounting to an annual $10 million in additional revenues per year when the project is complete.  Despite this, the stock is being held back because steam production at San Jacinto is less than expected, a problem which they hope to remediated using the drilling reserves included in the original project financing.  While there is always a significant risk that such remediation attempts will not succeed (as happened at Nevada Geothermal), the risk seems to be adequately compensated is a stock trading at less than a quarter of its book value.

Alterra Power (TSX:AXY, OTC:MGMXF) is more diversified, and hence safer than Ram and US Geothermal, with six operating geothermal, wind and run-of-river hydro power plants.  Alterra currently hovers near profitability, with quarterly results fluctuating due to the seasonal production of its wind and hydro projects.  Alterra also has a strong balance sheet (unlike Ram) allowing it to fund development and acquisition of additional projects (like a solar project acquired from First Solar (NASD:FSLR)) without returning to the equity markets.

Alterra recently signed an agreement with the Philippines based Energy Development Corporation (EDC) to fund the development six of Alterra’s geothermal projects in Chile and Peru, subject to EDC being satisfied with the results of due diligence field work on the projects.  The stock did not see much of a boost from the announcement, most likely because EDC has not yet committed to the projects.  Yet given Alterra’s current value pricing this seems as good a time as any to buy on the expectation that EDC will chose to go ahead with development at at least one of the projects.

Conclusion

Geothermal developer stocks have remained at beaten-down levels for over a year now, despite the companies making significant progress on their projects.  While geothermal development is a much riskier business than more predictable development of other types of renewables, all of these developers are trading at a fraction of book value, which more than compensates for the risks involved, especially when held as part of a diversified portfolio.

A dip in a hot spring might be just the thing to the chill gripping the worlds stock markets in late 2012.

Disclosure: Long HTM, RPG, AXY, WND

This article was first published on the author's Forbes.com blog, Green Stocks on November 16th

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 11:43 AM | Permalink | Comments (0)

Ryan Hubbell

Two recently released reports on solar and geothermal technologies show greater than 10% expected returns for both developers and tax equity investors. Yet roughly half of both geothermal and solar respondents (350 in total) reported financial issues (project economics, PPAs, creditworthiness, and raising capital) as the largest barriers to development. In light of this, only 11%-13% of respondents reported abandoning their projects.

Figure 1. Expected returns on developer equity for all solar technologies and project sizes Q4 2009 – 2H 2011

Technology Installed Costs ($/W net output) LCOE ($/kWh) Geothermal $4.25 $0.067 Solar CSP $3.67 $0.093 Small-Scale PV (< 1 MW) $5.25 $0.115 Large-Scale PV (≥ 1 MW) $4.41 $0.132

Figure 2. Average PPA term, escalation rate, and first-year price (measured in ¢/kWh and size of bubble) by technology, Q4 2009–2H 2011

Figure 3. Project soft costs as a percent of total project costs by type and technology

Source: 2H 2011 REFTI data

Geothermal projects reported the highest returns among all technologies (Figure 1) with both developer and tax equity returns estimated to exceed 15% [1]. Returns were rather comparable between small- and large-scale solar, with concentrated solar power (CSP) reporting the lowest expected tax equity returns. Although some research suggests tax equity investors' returns can be much higher than developers', the rather tight spreads reported by REFTI participants indicate this may not necessarily be the case. Higher developer participation could also be influencing expected returns.

On the cost side, CSP reported lower estimated installed costs and LCOE than PV (Table 1), which could be due to a number of factors, including the timing of panel purchases, estimated nature of total CSP project costs, and storage capabilities. Prior to the second half of 2011, installed PV costs were declining faster than module prices [2], indicating balance-of-system costs were declining as well. This trend reversed in 2H 2011, however. Small PV, for example, reported a 60% increase from the prior period ($0.039 to $0.063/W). Conversely, LCOE reportedly dropped for both PV categories, but large PV is trending down and small PV is trending up over the entire timeframe. Geothermal reported the lowest LCOE, averaging $0.067/kWh from late 2009 through 2011.

In line with LCOE cost data, first-year power purchase agreement (PPA) prices for large-scale PV were also highest among the four utility-scale project sizes and technologies shown in Figure 2 (small PV excluded due to retail/wholesale price differences). Geothermal reported the longest PPA terms and second-highest year one PPA price at $0.098/kW. This is likely due, in large part, to its high capacity factor and dispatchability compared to wind and solar.

Additional insight into balance-of-system (or "soft") costs was gained from the most recent REFTI questionnaire, which asked participants to report various soft costs based on their percentage of total project costs. As illustrated in Figure 3, geothermal reported the largest total percentage of soft costs at 15%. Both PV scales reported lower soft costs with wind recording the lowest—at 4.5%. Combined, engineering and interest costs during construction accounted for the largest portion, ranging between 45% and 67%.

See these links for the reports:

Renewable Energy Finance Tracking Initiative (REFTI) Solar Trend Analysis

Renewable Energy Finance Tracking Initiative (REFTI): Snapshot of Recent Geothermal Financing Terms, Fourth Quarter 2009 – Second Half 2011

This article was first published on NREL's Renewable Energy Project Finance blog, and is reprinted with permission.

References

[1] Until 2H 2011, "N/A" was not an answer choice, creating a response that could slightly alter the weighted average calculations. For example, if respondents answered 0 – 6% when in fact there was no tax equity being utilized, a 3% value would be used in calculating the weighted average. Effects should be minimal, as approximately only 13% of PV respondents reported 0%-6% over the REFTI timeframe and it's likely only a fraction of those actually had no tax equity.

[2] Module prices as reported by SEIA / GTM's U.S. Solar Market Insights Reports, 2010 – 2011

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Paul Schwabe

Among renewable resources, one of the most valuable attributes of geothermal electricity is the baseload characteristic of the energy resource. That is, geothermal electricity generators are able to deliver a stable level of power production over time. Yet for better or worse, this baseload characteristic—along with other notable factors such as size constraints and varying market segments—reveals that interconnecting a geothermal plant to a transmission or distribution system poses unique challenges compared to other renewable energy technologies [1].

A recent report by NREL, "Geothermal Power and Interconnection: The Economics of Getting to the Market," delves into the specialized world of geothermal transmission. Among other things, this report finds that from a transmission perspective, not all types of geothermal energy technologies are treated equally. Conventional hydrothermal technologies likely fit differently into the transmission framework than do emerging geothermal technologies such as enhanced geothermal systems (EGS), co-produced geothermal with oil and gas facilities and geopressured geothermal.

Table 1 shows three geothermal technologies and the corresponding market segment they serve. It also describes how particular attributes of each technology present challenges to connecting to the grid and how they may be considered in long term system planning.

For example, due to their large project size and their proven commercial viability, hydrothermal geothermal technologies offer a wide range of transmission options; the electricity produced by the plants can serve either local grid networks or be exported to other networks (referred to as balancing authorities, "BA," in Table 1). The report's author suggests that until they are proven, emerging technologies such as EGS are best utilized serving their home network, but if successful, electricity from these new technologies could eventually be transmitted to other networks as well. Meanwhile, co-produced and geopressured geothermal are likely restricted to distributed generation applications due to remote project locations, large electrical demand of the oil or gas facilities, and relatively small generation capacities (i.e., less than 5 MW).

Table 1. Geothermal Generation Groupings and Transmission Requirements. Source: [1]

The author also finds that there are several emerging markets in the Western United States where there is expected to be a near-term need for new baseload generation. These markets are largely where coal plants are expected to be taken offline in the next 5-10 years.  It is estimated that there will be more than 3,000 MW of new baseload opportunities that will emerge from diminished coal usage across the Western United States [1].  While some of these resources will be replaced with other forms of fossil fuel electricity generation such as natural gas, there is likely enough of a need to also elicit interest from geothermal developers.

The report also shows what the author succinctly describes as "The Uphill Economics of New Transmission." Generally, the cost of new transmission is determined by how much electricity the new line caries. Due to economies of scale, a MW of carrying capability on a large transmission line is cheaper than a MW of carrying capability on a smaller line.  Figure 1 shows the cost of transmission per megawatt served over various transmission line sizes.

Figure 1. Total Line and Substation Costs per Megawatt of Transmission Capability.  Source: [1]

Given that most U.S. geothermal plants are less than 80 megawatts in capacity, they are relatively small energy generators compared to other baseload electricity sources such as coal or natural gas power plants.  Without economies of scale, new transmission for commercially available hydrothermal geothermal is a significant challenge, and in practice, drives even proven hydrothermal geothermal development into areas with existing, but underutilized transmission in place [1].

As each of these geothermal technologies offers the benefit of a stable electricity generation profile, there is likely to be a demand for the energy they produce. However, the role geothermal energy will play in long term transmission planning remains to be seen.

Paul Schwabe is an Energy Analyst with the National Renewable Energy Laboratory’s project finance team and has significant expertise in wind and geothermal projects. He has over 10 years of experience in the energy industry, including electricity market analysis, natural gas forecasting, and financial modeling.
This article was first published on the Renewable Energy Project Finance blog.

Posted by Guest Contributor at 09:09 AM | Permalink | Comments (0)

Calpine Plant at The Geysers.  Photo Source: Calpine

“The company helped develop the Lake County-Southeast Geysers Effluent Pipeline project, which was the first wastewater-to-electricity project in the world. This 29-mile underground pipeline delivers eight million gallons of reclaimed water to The Geysers every day. Since it began operating in September 1997, more than twenty billion gallons of treated wastewater from Lake County have been recycled into the steam reservoir, increasing the long-term productivity of the resource…. In addition, the company helped launch the Santa Rosa Geysers Recharge Project that transports 11 million gallons of reclaimed water per day from Santa Rosa to The Geysers through a 41-mile underground pipeline.”

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  ORA and CPN is included in the Geothermal Group of Crystal Equity Research’s Electric Earth Index.

Posted by Debra Fiakas at 09:19 AM | Permalink | Comments (0)

Olkaria III Geothermal Power Plant, Kenya

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  ORA is included in the Geothermal Group of Crystal Equity Research’s Electric Earth Index.

Posted by Debra Fiakas at 09:05 AM | Permalink | Comments (0)

Geothermal well photo via Bigstock

Posted by Guest Contributor at 10:35 AM | Permalink | Comments (0)

Tom Konrad CFA

Geothermal heat pump diagram via Bigstock

A couple weeks ago, I compared the efficiency of the two most advanced geothermal heat pumps (GHPs) recently launched by Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF) and Climatemaster, as division of LSB Industries (NYSE:LXU).  Like most things in life, it turns out that heat pump efficiency is a lot more complicated than just comparing a couple numbers.

Since I concluded that Waterfurnace’s 7  Series heat pumps were slightly more efficient than Climatemaster’s Trilogy 40 pumps, one of Climatemaster’s district managers pointed me to third party efficiency ratings conducted according to standards set by the Air Conditioning, Heating, and Refrigeration Institute (AHRI).  He compared Waterfurnace’s 4 ton unit (the most efficient 7 Series) to Climatemaster’s 2.5 ton unit (the most efficient Trilogy 40), noting that the former had a 41 EER at ground loop conditions, while the latter had a 42.1 EER, according to AHRI.

He concluded that the Trilogy 40 had a slightly higher cooling efficiency than the 7 Series.

The Efficiency Tango

Had I got it wrong?

I checked with the pros.  Scott Lankhorst, President of geothermal and solar thermal installer Synergy Systems in Kingston, NY said it was “an apples to oranges comparison” between 4 ton and 2.5 ton GHPs.

Lloyd Hamilton, a Certified Geoexchange Designer at Verdae, LLC in Rhinebeck, NY, called this normal marketing.  He says that the only reliable way to compare units is to look at the operational performance data for the designed condition.  The AHRI-compliant EER and COP numbers allow comparison of two units so long as they are at the same capacity, but it does not demonstrate actual performance, “like MPG for cars. … COP, SEER, and EER become worthless when comparing different types of equipment” such as air source and ground source heat pumps, because the testing criteria are different.  He calls the act of picking an choosing GHP models and operating conditions to make your company’s GHP look more efficient the “Efficiency Tango.”

Both agree that the contractor can mess up the rated efficiency of a GHP, or even make it perform above specification, with the wrong (or right) system design and installation.

I don’t have the performance data a geoexchange designer would use, but there are a lot more publicly available efficiency numbers than I used in my last article.  I put them together in a pair of bubble charts:

There are three 7 Series models and two Trilogy 40 models, each of which was tested at full load and part load, under two types of conditions.  The “ground water” series are when the ground water is pumped up out of the ground for heat exchange; the liquid water helps heat transmission and results in a higher rating.  The “ground loop” series is representative of the much more common installation, when an antifreeze fluid (usually propylene glycol) is pumped through the geothermal loop, which results in relatively lower efficiency (although still much higher than other types of heating and cooling equipment.)  Even in ground loop conditions, different heat exchange fluids will result in different effective inefficiencies.  The partial-load results are the sets of two or three smaller bubbles to the right (and a little below) sets of larger bubbles of the same color.

Looking at the charts holistically, I reach the following conclusions:

• The 7 Series is generally more efficient than the Trilogy 40 for heating.
• The Trilogy 40 is generally more efficient than the 7 Series for cooling.
• These units operate at dramatically (about 50%)  higher efficiency under partial load.  Two-stage heat pumps show only modest (5% to 15%) efficiency gains at partial load.  This is likely to lead to higher overall efficiency of these GHPs in practice than the numbers alone might lead you to believe.
• The Trilogy 40 typically operates at lower fluid flow rates than the 7 Series, which should produce some energy savings from pumping.

Hence, I revise my earlier conclusion to say that, based solely on efficiency, the Climatemaster Trilogy 40 will have a definite edge over the Waterfurnace 7  Series in cooling climates, while the 7  Series has an efficiency edge in heating-dominated climates.

Efficiency Isn’t Everything

That said, for most installations, factors other than efficiency will probably dominate the decision.  As noted above, Waterfurnace expects exclusivity from its dealers, and I expect Climatemaster and its other major competitors often do the same.  This will make it nearly impossible for a residential customer to compare the two without having to weigh other factors such as their confidence in the installer who, as noted above, can make or break a geothermal installation.

Then there is the Trilogy 40′s Q-Mode.  As Dan Ellis, president of Climatemaster told me in an interview, the potential savings from using geothermal to generate hot water year round from the Trilogy’s Q-Mode are likely to dwarf the savings from a point or two of EER or a fraction of a point of COP.  In fact, Climatemaster designed the Trilogy 40 with the whole system energy savings in mind, partially at the expense of efficiency ratings.  In a residential setting, Q-Mode (which is patent-pending to Climatemaster) is likely to make the financial returns decisively favor the Trilogy 40 in a head-to-head comparison.

In commercial settings, which typically have year-round cooling requirements, Q-Mode is unlikely to be important.  Furthermore, the two largest 7 Series heat pumps have higher capacity than the larger of the two Climatemaster Trilogy 40 models.  This should also give Waterfurnace an advantage in commercial settings, which typically have larger cooling loads than residential settings.

Ellis promised to send me some data to help quantify the overall energy savings from Q-Mode, which I plan to return to in a future article.

Conclusion

For residential customers in warm climates, Climatemaster’s Trilogy 40 seems like it will be the better GHP value when it becomes commercially available.  In other cases, the comparison is not as clear cut, and a customer should probably focus on finding a contractor who can deliver the best system design and installation possible.  That is the only way to capture the full benefit from either of these incredibly efficient geothermal heat pumps.

Disclosure: Long LXU, WFI

This article was first published on the author's Forbes.com blog, Green Stocks.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 10:04 AM | Permalink | Comments (0)

UPDATE: I just looked into the 7 Series vs the Trilogy 40 in more detail here and came to a slightly different conclusion.

Tom Konrad CFA

Geothermal heat pump diagram via Bigstock

Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF) launched its new highly efficient 7 Series geothermal heat pumps (GHP) today.  The 7 Series commercial release beats Climatemaster’s (a division of LSB Industries (NYSE:LXU)) Trilogy 40 as the first commercially available GHP with a variable speed compressor.  The Trilogy 40 is currently available as part of a pilot program, and is expected to be commercially available later this year.  The variable speed compressor enables a significant jump in efficiency over previous two-stage compressors.

I looked at the technology behind these new heat pumps in the article Geothermal Heat Pumps: The Next Generation in May, soon after Climatemaster introduced the Trilogy.  At the time, we only knew that Waterfurnace expected the 7 Series to be “more efficient” than the Trilogy.   Now we have detailed specs, I thought I’d compare them head-to-head:

As you can see from the chart above, Waterfurnace managed to nudge out Climatemaster in both cooling (EER) and heating (COP) efficiency ratings.  Both are on linear scales, so the Series 7 is 2.5% more efficient at cooling and 6% more efficient for heating than the Trilogy.  With top efficiency ratings, the Waterfurnace GHP will likely appeal to customers who must have “the best” of everything.

Other Factors

The efficiency of  the GHP unit is only one factor in overall system efficiency, and efficiency is only one factor in the decision of what to install.  Price will be an important factor as well, although given the likelihood that these variable speed GHPs will be priced at a significant premium, price sensitive customers will most likely install two-stage GHPs.  Waterfurnace’s Series 5 was launched in March, at a slightly lower price than the previous Envison product it replaced, while maintaining all the features and efficiency of that model.

The most important factor for installers will be dealer support and ease of install, especially for the residential market.  Both Climatemaster and Waterfurnace seem to have simplified installation with the new models, while dealer support is much more a local issue, and is determined by the installer’s relationship with their distributor.

Along with the Series 7, Waterfurnace is introducing  a new “IntelliZone2″ zone controller, which will simplify the installation and use of their Series 5 and 7 products with multiple zones.  On the other hand, Climatemaster’s Trilogy includes a propriatary “Q-mode” which allows the heat pump to create hot water year round.  Most rival heat pumps only create hot water when being used to heat or cool the building.  In new residential applications without an existing water heater, Q-mode could easily give Trilogy the edge over the 7  Series, since it would allow the contractor to dispense with a secondary hot water source.

Conclusion

Neither of these two GHPs is the clear winner, with the 7 Series’ edge in efficiency countered by the year-round hot water of the Trilogy’s Q-Mode.  Waterfurnace’s efficiency edge is more significant in heating-dominated climates, such as the Northern US and Canada, while Climatemaster’s Q-Mode will probably give the Trilogy an edge in new-build markets.  Existing relationships between installers and their dritributers will probably dominate both in many cases.  UPDATE: The Series 7′s earlier commercial availability will make Waterfurnace’s offering the only real choice for installations over the next few months.

The biggest winners will be consumers, who now have both cheaper versions of two-stage GHP technology available, as well as the option to enter a whole new frontier of HVAC energy efficiency.

Disclosure: Long LXU, WFIFF

This article was first published on the author's Forbes.com blog, Green Stocks.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 08:47 AM | Permalink | Comments (0)

Tom Konrad CFA

Geothermal well photo via Bigstock

Ram Power (OTC:RAMPF, TSX:RPG) recently provided an update on progress at its flagship San Jacinto project in Nicaragua.  This was the project where cost overruns and construction delays last year sent the stock plummeting from over C$2 a share to around C$0.50 a share at the start of the year.  The decline has continued, despite the fact that the project seems back on track with the hiring of a new subcontractor, and the stock now trades at C$0.23, a fraction of book value (C$0.91.)

Tariff Increase

According to the update, a tariff increase was “contemplated by the initial Project concession [and] will allow the Company to recover unanticipated Project costs associated with both the development of the resource and plant construction.”   Because it was part of the original agreement, it seems likely that some tariff increase will be granted.

The company estimates that a new tariff would result in an annual revenue increase for Ram of between $8 million and $11 million upon completion of 72MW San Jacinto project expansion, which the company expects in December 2012.

Since any additional revenue from a tariff increase would not involve additional costs, we can expect substantially all additional revenue to flow to pre-tax income, and would amount to an additional 2 to 4 cents per share.   I expect the stock to jump on this news, with a much bigger jump in the event that the tariff negotiations are successful.   I think successful negotiations are very likely, since management would probably not have announced the negotiations if they had significant doubts.

Conclusion

I think past setbacks at Ram and the high profile problems at rival geothermal company Nevada Geothermal Power (OTC:NGPLF,TSXV:NGP) have led markets to heavily discount Ram’s chances of completing San Jacinto on time and on schedule.  In particular, I don’t think markets are considering the fact that geothermal field expansions are substantially less risky than initial development, because much more is known about the structure of the geothermal reservoir.

Ram’s COO of Latin America, Tono Rodriguez says,

With a majority of the engineering and construction completed, the Phase II expansion construction continues at a rapid pace. We fully expect the project to come in on time and on budget, with an expected on-line date in the fourth quarter of this year.

I believe this.  The riskiest part of project development is over, but investors are treating it as if it were riskier than ever.  While I doubt Ram will see a C$2 share price in 2012, I think a price double is likelier than not upon completion of San Jacinto and a successful tariff renegotiation.

Disclosure: Long RAMPF

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 09:20 AM | Permalink | Comments (0)

Tom Konrad CFA

The most efficient way to heat and cool a building just got more efficient.

Geothermal heat pump diagram via Bigstock

Climatemaster, a division of LSB Industries (NYSE:LXU), recently announced that their new Trilogy 40 geothermal heat pump (GHP) had been certified by the Air Conditioning, Heating, and Refrigeration Institute (AHRI) to exceed 40 Energy Efficiency Ratio (EER) under ground loop conditions.

EER is the ratio of effective cooling (heat removed) to the energy used, at maximal load, and is the standard measure of cooling effectiveness for geothermal heat pumps. A quick perusal of the list of Energy Star qualified GHPs shows just how big a leap this is: the highest EER rating currently available is 30, and many Energy Star qualified heat pumps have EERs as low as 17.  So the Trilogy 40 is a third again as efficient for cooling as the most efficient commercially available GHP, and more than twice as efficient as some Energy Star qualified GHPs.

Scott Lankhorst, President of Synergy Systems, a GHP installer in Kingston, NY, called the jump in efficiency “pretty amazing… 30 EER has been the max for quite a while now.”  Lankhorst says that Climatemaster hopes to have the Trilogy 40 in full production by the end of the year.

According to Barry Golsen, President and COO of LSB, the Trilogy 40 will also have improved heating performance, with a Coefficient of Performance (COP, the industry measure of heating efficiency) of 5 at ground loop conditions.  This is also a significant increase, with the best GHPs in the Energy Star list having COPs of 4.1.

In addition, they’ve added new functionality, called “Q-Mode.”  Q-Mode is the result of a collaboration between Climatemaster and Oak Ridge National Laboratory.  It allows the GHP to produce hot water even when it is not being used for space heating or cooling.  According to Chris Williams, technology evangelist at Heatspring, a provider of renewable energy and energy efficiency training and certification, producing hot water year round required additional equipment (and cost) with traditional heat pumps.

The Competition

Climatemaster is not moving into 40 EER territory unchallenged.  On GHP manufacturer Waterfurnace Renewable Energy’s (TSX:WFI, OTC:WFIFF) first quarter conference call, an analyst asked CEO Tom Huntington if Waterfurnace had an answer to efficiency breakthroughs at “a competitor.”  It does.  Huntington believes Waterfurnace’s new 7-Series GHP’s will be even more efficient than Climatemaster’s Trilogy.  Variable speed compressors (see below) are available from a number of vendors, and Huntington believes that the compressor used in the Trilogy is less efficient than the on Waterfurnace has selected for the 7-Series.

The Technology

How did they achieve these efficiency breakthroughs?  Both companies speak of “variable speed technology.”  According to Lankhorst, what they mean is variable speed compressors.  Current GHP models use two stage scroll compressors.   Variable speed blower motors and pump fields have been available for some time, although they often require the special controllers.

Variable speed compressors are new.  According to Williams, “there has been a huge amount of innovation in air source heat pumps,” and the innovations are now being applied to ground source technology.

Application

The integration of components and jump in efficiency should make these new systems attractive to installers in the field.  According to Lankhorst, the Trilogy may be especially cost effective in high-end residential applications, where the integrated system will eliminate several separate components.  Year round hot water is less of an advantage in commercial applications, since commercial installations operate nearly all the time in cooling mode, when free hot water is produced as a byproduct of cooling the building.

On the other hand, the spot efficiency ratings of a GHP are far from the only factor in determining the effectiveness of a GHP system.  According to Williams, proper ground loop, distribution, and system design can potentially have a greater impact on system efficiency.

Competitive Advantage

When contractors select a GHP, technology tends to be more important in commercial operations than in residential ones.  The cost of the heat pump is a small fraction of the cost of drilling the loop field, so residential installers are more interested in the level of technical support offered by the distributor, so these competitive advantages will vary from region to region.

On the other hand, if Q-Mode makes for much simpler installations, Climatemaster stands to gain residential market share unless its competitors can offer similar integration without infringing its intellectual property.

Conclusion

The next generation of efficient ground source heat pumps are a significant step forward in energy efficient climate control.  Nevertheless, for the next few years, I’d expect that these variable speed compressor pumps will only be used in a small fractions of installation.  Geothermal heat pumps are already so efficient that the additional savings may not be enough to justify the higher up-front cost.  Additionally, Waterfurnace introduced their new 5-Series line of GHPs with two stage compression in March, at a slightly lower price point than the Envision product it replaces.

Either way, the cost of saving energy continues to fall, and the potential customer base for geothermal heat pumps will grow as higher efficiency and lower prices make them an even more economical approach to climate control.

Disclosure: Long LXU,WFI.

This article was first published on the author's Forbes.com blog, Green Stocks.

Posted by Tom Konrad at 03:41 PM | Permalink | Comments (0)

Tom Konrad CFA

This is extremely short-sighted of investors, who are no doubt spooked by the lack of information about the extent of the damage.  However, we have enough information to make a reasonable estimate as to the damage to LSB’s profits.  As I outlined Tuesday night, we know:

• The facility is insured for both damages and work stoppage.
• The potential uninsured cost will amount to at most 13 cents a share, or less than $3 million.
• Only minor injuries were reported.  Some workers were treated for high blood pressure and shock.
• There was no environmental release, so an EPA investigation is unlikely.

Even with the inevitable distraction of management time from other business, I find it hard to see how more than a $1 per share sell-off is justified.  Yet the stock is down $5.

A Second Opinion

I follow LSB because of its geothermal heat pump business, which only accounts for about 1/3 of revenues.  This business has been looking up, with breakthrough products recently introduced, and signs of a pick-up in demand.  For the chemicals business, I rely on other analysts.  They seem to agree with me.

BCMI Research analyst and biochemist Chris Damas CFA, gives an in-depth look at the fire with added perspective on the chemicals involved.  He concludes:

I think the stock is a buy here, with the insurance proceeds covering the reconstruction of the nitric acid plant. There appears to have been no environmental release, with a long EPA action as a result.

The lost sales business during the busy growing season will no doubt cause a significant operating loss for the chemical segment next quarter. But LSB has business interruption insurance that kicks in after 30 days.

This morning, Northland Securities reiterated it’s ‘Outperform’ rating, and lowered their price target from $41 to $38.

Fundamentals

Analysts were predicting $3.02 in earnings for 2012 before the explosion.  If we reduce that to $2.89/share, we still have a forward P/E of 9.6.  LSB has no net debt, and is poised for growth, both from a reviving HVAC business, and from growth in the chemicals business with an upgraded plant which was brought online in the first quarter.  Analysts estimate 39% growth for the coming year, although some of that growth may be deferred (but not eliminated) because of the damage at the El Dorado facility.

Conclusion

Writing about this incident has side-tracked my plans to write about the leap in efficiency coming from both LSB and geothermal heat pump rival Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF), but it is providing a great buying opportunity.  With uninsured losses (including work stoppage) capped below $3 million, it seems crazy that LSB has lost over $110 million in market cap over this incident.

Now is clearly the time to buy LSB, and, incidentally, Waterfurnace, which is also well valued and seeing a market turn-around.

This article first appeared on the author's Forbes.com Green Stocks blog.

Posted by Tom Konrad at 08:34 AM | Permalink | Comments (0)

Tom Konrad CFA

Ormat Heat exchanger at GKW Landau. Geothermal water evaporates the carrier medium. Preheater and the evaporator. The steam line above connects to the turbine. Photo by Claus Ableiter via Wikimedia Commons

Last Wednesday, Ormat Technologies (NYSE:ORA) reported a great quarter, beating analyst expectations for both earnings and revenues.

Investors loved it: ORA was up 8% on the day to $20.69, and are up 14% at $21.85 as I write.

I’m a big fan of geothermal power, and would love to own Ormat at the right price.  They have a great business with strong technology and fairly reliable cash flow.

Yet I have not owned Ormat stock since 2006.  The company is simply too expensive, quite likely because it is the only geothermal company large and liquid enough to be owned by institutional investors.

Although Ormat trades near book value ($19.99/share), it’s in a very capital intensive business with thin profit margins.  Profits have recently been depressed by the low natural gas price, against which some of the electricity it sells is priced.  Because of this and some problems at the firm’s North Brawley plants,  Ormat showed a profit of only $0.40 in 2011.

Going forward, analysts expect a $0.58 profit in 2012, and $0.76 in 2013.  That’s nice earnings growth, but it’s not driven by revenues, it’s driven by cost control.  Revenue is expected to grow only 13 percent in 2012, and only 5% in 2013.  Given the geothermal industry’s capital intensity and Ormat’s large size, it would be crazy to expect long term growth of more than 10% going forward.

For a company with moderate growth prospects like Ormat, the current price of $21.85 puts the forward P/E at 38.  That’s two to three times too expensive for my taste.  I also have trouble getting excited the fact that they recently doubled their quarterly dividend to $0.04.   “Double” sounds great, but a 0.7% dividend yield leaves me wanting a few more doubles.

Disclosure: None

This article first appeared on the author's Forbes.com Green Stocks blog.

Posted by Tom Konrad at 09:09 PM | Permalink | Comments (0)

In the past year, geothermal project developers used alternative strategies to overcome three common challenges to geothermal project finance. While the challenges for raising capital at the project level are consistent with those faced in previous years, they have become even more pronounced as investors' risk-tolerance remains low and capital constraints continue.

Three key challenges to raising capital for geothermal project investment have adversely affected developers in the past year.

• Concerns about creditworthiness of smaller firms. The geothermal industry is a fragmented one, with many smaller companies holding portfolios of just a few projects. With fewer assets against which to secure loans, these smaller firms pose a more significant risk than firms with more diversified portfolios. Even though many of these companies are traded on public exchanges, their capitalization levels are relatively low compared to larger renewable energy technologies companies like Vestas (VWDRY.PK), First Solar (FSLR), and Iberdrola (IBDRY.PK).
• Challenges securing debt with recourse to a single project. When conditions permit, developers prefer to secure project-level debt with no recourse to the company in the event of default. This "non-recourse debt" reduces the developer's risk in the event of default because the company's other assets are protected. Non-recourse debt, however, increases risk for lenders who generally have been unwilling to provide this type of loan in the past year. Lenders have sought more collateral to reduce the risk of loss.
• Higher transaction costs at the project level. Geothermal projects that have reached at least the permitting stage in the U.S. are smaller in terms of capacity as compared to other renewable energy projects. With few exceptions, geothermal projects are in the range of 25 to 50 MW, while wind projects are typically at least 100 MW. Similar levels of due diligence and negotiation are required for investments at this scale, resulting in relatively higher transaction costs for geothermal projects.

As a result, companies developing geothermal projects in the United States have deployed a diverse set of strategies — fitting each company's unique circumstance and leveraging the available resources — to address these challenges.

Overcoming Concerns about the Creditworthiness of Smaller Firms

Well-known but smaller-cap geothermal firms have partnered with larger, more well-established firms. These partnerships provide smaller firms with the capital needed to move forward on their projects and in some cases, the credibility needed to secure financing. At the same time, larger firms benefit from the financial returns on the project and the strategic benefits of partnership.

Over the past year, both Nevada Geothermal Power and U.S. Geothermal deployed this strategy. Nevada Geothermal Power's (NGLPF.OB) 30-MW Crump Geyser project in Oregon is a joint venture with geothermal industry giant Ormat (ORA). With a vertically integrated business model and a long history of strong financial performance, Ormat was seen as an ideal partner for the growing Nevada Geothermal Power. By providing the cash needed to complete the project, Ormat gained access to a lower-risk return on a project that was further into the development cycle than others in its own portfolio. The partnership also provided both companies with the potential to consider future collaboration.

U.S. Geothermal (HTM)partnered with Enbridge to raise equity for its 23-MW Neal Hot Springs project in Oregon. This partnership brought Enbridge, a Canadian gas transportation and distribution company, its first geothermal investment. The partnership leveraged Enbridge's familiarity with the early-stage risk profile of geothermal development, which is closely related to that of oil and gas resources. It also provided Enbridge with the opportunity to experiment with investments in the renewable energy space at a much lower risk.

The creditworthiness of the Neal Hot Springs project was further strengthened by a U.S. Department of Energy Loan Guarantee, which backed a $97 million loan provided by the Federal Financing Bank. The loan represented the balance of capital needed to complete construction on the project. With the loan and the combined equity of U.S. Geothermal and Enbridge, the debt-to-equity ratio on the project was 75 to 25.

Addressing Challenges to Securing Debt with Recourse to a Single Project

Over the past year, geothermal developers have bundled combinations of their assets in order to leverage their equity investments with debt. In many cases, these assets are limited to a portion of those owned by the company but are broader than those assets tied to a specific project. This approach limits the amount of leverage developers have because the debt typically appears on the company's balance sheet. In exchange, however, developers have secured the capital needed to continue to develop the resources to which they have rights.

Gradient Resources (formerly Vulcan Power) and Ram Power (RPG.TO) have each used corporate assets as collateral to secure credit in order to continue development. Gradient Resources secured a $13 million loan from GB Merchant Partners, LLC, with the firm's geothermal drilling and cementing equipment. The proceeds from the loan enabled Gradient Resources to continue development of three projects in Nevada. This limited-recourse loan only put select assets at stake, but was unique in that the capital was not tied directly to the projects it will support.

In March 2011, Ram Power closed on a two-year $50 million credit facility providing additional working capital to support its portfolio of projects under development. The credit facility was secured by "unspecified assets" of the company but is not tied to a single project. In addition, the lenders retained rights to exercise warrants based on Ram Power's reliance on the credit facility. The warrants provide the opportunity for the lender to earn additional returns on its investment if it elects to exercise them.

Reducing Transaction Costs Associated with Project Finance

Bundling projects to reduce transaction costs benefits both the lender and the borrower. The lender benefits from access to a portfolio of assets used to secure the loan. The borrower benefits from lower costs of capital, in terms of both fees to lenders and any arranger as well as in terms of staff time committed to closing the deal.

Both Ormat and John Hancock Life Insurance Company took advantage of these benefits in an application to the U.S. Department of Energy (DOE) for a Federal Loan Guarantee. Ormat bundled three projects — McGinness Hills, Jersey Valley and Tuscarora — that total 121 MW, achieving a scale similar to those achieved by wind projects. Meanwhile, bundling diversified John Hancock's resource risk and development risk for projects in multiple stages of development. In June 2011, DOE conditionally awarded the bundle a partial guarantee of up to a $350 million loan.

Jane Pater Salmon is an Associate Director with Navigant. Her work focuses on strategic planning, market assessment, the intersection of business and policy, and the diffusion of innovation. Her recent geothermal projects include the development of a project finance guidebook for conventional geothermal projects and the analysis of business models for coproduced and geopressured resources. Ms. Salmon earned a BA in Government from the University of Notre Dame and graduate degrees in energy and business from the University of Colorado.

Posted by Guest Contributor at 06:50 PM | Permalink | Comments (3)

DISCLOSURE: Long RAMPF, NGPLF, MGMXF, HTM.

Posted by Tom Konrad at 08:39 PM | Permalink | Comments (0)

Of all the energy harvesting technologies out there, geothermal remains the most maddening.

In theory, there should be more than enough energy below our feet to power our world, and it should be cost-competitive for a fraction of the investment needed in wind or solar.

In theory.

Right now, the extraction of geothermal energy in the U.S. remains tied to Nevada and California, where the heat is close enough to the surface and in stable enough formations that a drill can reach it without the heat dissipating quickly. This has caused investors to sour on companies like Ormat Technologies Inc., that once made Reno a hotspot for renewable energy.

In some ways, geothermal today is pretty boring, as with Ormat's Steamboat complex which provides Reno with base load power. Push water down one well, pull it up hot in another, run it through a turbine, extract the heat. Simple.

Turns out geothermal is really two industries.

The business of drilling into the Earth and extracting heat is waiting for Enhanced Generation Systems (EGS) technologies to prove themselves.

Google has invested $11 million in EGS, but in the way of a venture capitalist, not an investment banker. EGS needs better drilling techniques and it needs to become more cost efficient.

More ominously, EGS seems dependent on the same hydraulic fracturing techniques being pushed for natural gas, oil, and oil shale, which have become a red flag to environmentalists for the damage they can do to the water supply.

As a result Ormat  seems more active in the area of recovered energy generation (REG) than geothermal. An REG plant takes the unused energy from some other industrial process and turns that heat into electricity in the same way it would use Earth energy. Not as green, but it's the back-end, the cutting edge of the process, and the knowledge of how to do this efficiently is valuable.

These techniques could be useful in the oilpatch, which wastes tons of power in the form of briny wastewater. An SMU conference this month  will look into exploiting that energy, using existing infrastructure. Most speakers, like Suri Suryanarayana of Blade Energy Partners, and executives from GE and Pratt & Whitney, are interested in adapting existing products and techniques to the generation of electricity from oil industry waste.

One of the more interesting speakers will be Richard Langson, whose Gas Letdown Generator (GLG) (right) gets power directly from the pressure of natural gas wells at a price of just 4 kilowatts per penny. Gas fields, oil fields, petrochemical and industrial waste plants, and existing steam plants can all be making money using the GLG, he says.

But the GLG, if it's as good as Langson says, could be highly disruptive. It could turn go-generation systems like Ormat's into rather expensive horse-and-buggy systems, the Stanley Steamers of the 21^st century.

It would be nice to report that there's a clear investment opportunity here, either in a publicly-traded geothermal company like Ormat, in an EGS play, or in a co-generation device like that of Langson. But it remains unclear which solutions will win.

What seems clear is that something will. Co-generation is going to go into every factory producing heat, as costs for extracting it keep going down, and the value of heat keeps going up. Oil companies are going to remain interested in geothermal technologies that approximate what they are doing now. Places with the largest supplies of easily-tapped Earth heat, like Japan,  are ripe for investment.

How or when remains a mystery.

Posted by Dana Blankenhorn at 09:17 PM | Permalink | Comments (1)

DISCLOSURE: Long RAMPF, NGPLF, MGMXF, PUOPF.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

See also: Oil Money Needed for Geothermal Projects.

Posted by Tom Konrad at 11:09 AM | Permalink | Comments (4)

It's an afterthought. (Picture from Evergreen State University.)

Why are geothermal companies having to organize politically to gain crumbs from the capital table?

The answer is pretty obvious, but no one seems willing to state it plainly.

The oil industry is holding back.

A recent Time Magazine article on renewables and oil investment makes it pretty plain. Total's bought into solar, Shell and BP into biofuels. Chile's state oil-and-gas company sold-out its geothermal interests to a specialty firm.  One of the bigger geothermal players, Raser Technologies (RZTIQ.OB), has just gone into bankruptcy.

What's holding up geothermal energy is an issue the oil business knows a lot about – drilling risks.  As Brian Harenza of of Hannon Armstrong, a geothermal financier, told Oilprice.com “There are a lot of providers of capital who are interested in start-up and operation, but no one wants to finance the drilling risk.”  Hannon Armstrong has united with an Icelandic bank to invest in geothermal, but they're having a tough time because they don't want to take on drilling risks.

What's missing? Oil industry expertise is what's missing. (Where's Sarah Palin when you need her? Drill, baby drill.)

Japan, for instance, should be the Saudi Arabia of geothermal, especially as hopes for a nuclear future fade in the Fukushima fall-out. Yet a recent New York Times piece on Japan was filled with excuses as to why this hasn't happened – hot water can run cold, you might bring up smelly hydrogen dioxide, drilling can cause earthquakes, and ryokans don't want competition for their resource.

But it's not a question of geothermal or solar, geothermal or wind. It's a question of geothermal and wind and solar and tidal projects or oil and gas and coal, which are guaranteed to keep getting more expensive and, in time, run out.

The Time story, which didn't take much note of geothermal, nevertheless ends this way. “If Big Oil can really start treating renewable energy the way it does potential drilling sites—as the source for future revenue—maybe it will earn an early end to the latest round of demonization.”

Instead of pressing Big Oil to put pennies into biofuels or solar start-ups, it's time to make their tax breaks contingent on serious investment in something we know is more abundant than even oil – that's the heat of the rocks beneath our feet.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Related stories: Geothermal Stocks Overview, Geothermal Companies Receive Cost Sharing Grants from DOE

Posted by Dana Blankenhorn at 10:12 AM | Permalink | Comments (0)

A Great Deal for Plutonic Shareholders, Not bad for Magma

Tom Konrad CFA

As a shareholder of Magma Energy Corp. (MGMXF.PK), I'm reading through the joint information circular [PDF] on the proposed merger of Plutonic Power Corp (PUOPF.PK) and Magma to form "Alterra Power Corp." I'm not thrilled with the merger, although I plan to vote for it, now that it's arranged.

Overall, I think the merged Alterra will be a stronger company than either company alone. Both companies are in capital intensive niche Renewable Energy industries, so the added scale and diversification of Alterra should better enable the merged company to borrow money to finance projects at lower rates. Obtaining financing at favorable rates is essential to the profitability of renewable energy projects.

My misgivings about the merger arise from the price. Magma shareholders will have a controlling stake of 66.5% of the merged company, with current Plutonic shareholders owning the balance. Plutonic shareholders are being paid a 32% or 17.5% premium, based on pre-merger market capitalization or book value, respectively. That would be a normal buyout premium, except that Magma was a much stronger company, and so Plutonic shareholders also gain more as part of the merged entity. Although the two companies work in different renewable energy industries, their projects have much in common. In addition to raising finance, environmental permitting, grid interconnection, and negotiating with utilities are crucial to the success of any renewable power producer, and a larger company with more projects may be able to make more effective use of employees with specialized local knowledge or skills in these areas.

Before the merger, I considered Magma shares a good buy, but I would not have bought Plutonic shares, because the company would have needed to either do a deal like this or raise money in the next year or so. This put Magma in the stronger bargaining position, and so I would have liked to see a smaller premium paid for Plutonic shares. That said, since two thirds of Plutonic shareholders will need to vote for the merger in order for it to be a success, this premium is probably necessary to gain sufficient support. Passage by Magma shareholders is a virtual certainty, since the owners of 38.7% of Magma shares have already committed to vote for the deal, and only 50.01% support is needed.

As a Magma shareholder, I think the deal is acceptable, and will be a way for Magma to pursue opportunities for growth beyond Geothermal power, part of the company's current strategy. I also like Plutonic's Run of River and Pumped Hydroelectric assets, although until this proposed merger, I was unwilling to buy the company's shares because I felt its balance sheet wasn't strong enough.

Overall, I'm in favor of the deal. Too bad they couldn't have come up with a better name. Apparently "Alterra" means "Other Earth" or "Other land" in Latin, but it doesn't do much for me. I liked both Plutonic and Magma better.

Plutonic shareholders will gain an instant 32% premium on their shares, while the shareholders of both companies can look forward to steadier growth.

DISCLOSURE: Long MGMXF.

Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 04:24 PM | Permalink | Comments (0)

Posted by Dana Blankenhorn at 12:20 PM | Permalink | Comments (0)

Posted by Tom Konrad at 07:02 PM | Permalink | Comments (3)

• Nevada Geothermal Power (NGLPF.OB) announced a deal with Ormat (ORA) in which Ormat will earn a share of Nevada Geothermal's Crump Geyser property by paying for and financing most of the development costs, as well as doing the work.
• US Geothermal (HTM) secured financing from Enbridge for their Neal Hot Springs project. 
  
• Ormat retracted three applications for DOE loan guarantees, instead choosing to pursue commercial financing.  This was good news because it shows that at least some lenders don't need loan guarantees to finance geothermal projects.
  
• Ram Power's (RPG.TO) closing on financing for Phase II of its San Jacinto project.
  

• There has been an ongoing nationalist movement led by singer Björk against Magma Energy's (MGMXF.PK) purchase of HS Orka, with rumors of possible buyout by the Icelandic government.
• Ram Power reported construction delays and higher than expected procurement costs in their Nicaraguan San Jacinto-Tizate project, requiring them to switch drilling contractors.

Will the rest of 2011 offer more positive news about successful financings of geothermal projects, or will the news be more political risk and construction delays?

• Islandbanki and Hannon Armstrong announced a joint venture (to be called GeoBanc) to provide a full service, one-stop financial shop for geothermal developers.
  
• Johnathan Zurcoff, VP of finance at US Geothermal (HTM) said his company hopes to close on its DOE backed loan in the next couple weeks.
• John McIlveen Research Director at Jacob Securities pointed out the significance of Enbridge's 2010 deal with US Geothermal (HTM) to finance drilling and construction at Neal Hot Springs.  This deal was significant for two reasons.  First, the project was relatively early stage, with only two completed production wells, so the investment was riskier than the typical construction loan.  Second, it was significant because Enbridge is an oil and gas company.  He thinks we'll see one or two more large players from outside the industry entering into this sort of deal in 2011.
• Jimmy Leung of Raymond James said he's currently working on a $184 million geothermal financing he expects to close in the second quarter of 2011.

Posted by Tom Konrad at 01:57 PM | Permalink | Comments (4)

Because there are so few players and [the geothermal power industry] is so front-CAPEX extensive, consolidation will have to happen... Whether it's Ram Power Corp. (RPG.TO, RAMPF.PK) taking over Nevada Geothermal Power (NGP.V,NGLPF.OB), Nevada Geothermal taking over Ram, Nevada taking over Magma Energy Corp. (MXY.TO,MGMXF.PK), Magma taking over Nevada or a merger between Ram and Magma—there's going to be consolidation. But the question of who will be the consolidator is still up in the air.

You want to be in the company that's going to have the largest upside. We put Nevada Geothermal, Ram and Magma as buys because they're run by excellent people. They're undervalued compared to a year ago. In January, Nevada Geothermal was over $1. We recently wrote about it trading in the $0.50 range. Now the company's refinanced its debt and had a recent equity financing in which very smart money like Rick Rule participated in (as did we). It's producing close to 50 MW now and will be growing production in the very near future; and, better yet, Ormat Technologies Inc. (NYSE:ORA) just bucked up some big money to farm into one of its other projects. A year and a half ago, it wasn't producing; so it's so much cheaper today and is a much better company.

Posted by Tom Konrad at 06:37 PM | Permalink | Comments (1)

Posted by Tom Konrad at 04:31 PM | Permalink | Comments (2)

David Gold

Wind turbines stand tall and mesmerize with their motion. Solar cells bask in the sparkling sun.  Meanwhile, hidden down in the dark dirty underworld, a compelling technology sits quietly and gets no respect.  Once installed it largely goes unseen and, it seems, it’s equally invisible in the world of clean technology press, venture funding and government R&D funding.  Yet this technology provides some of the most intriguing economic returns available for reducing a building’s net energy consumption and I would welcome the right opportunity to fund an exciting business in this category.

What is this Rodney Dangerfield of cleantech?  Geothermal heat pumps, also referred to as ground source heat pumps or geoexchange.  Anyone who has gone down a hundred feet or so in a cave on a hot day probably noticed how nice and cool it was down there.  That is because in most geology, a zone of nearly constant 55-degree Fahrenheit temperature exists 50-200 feet below the ground we walk on.  Even at shallower depths the temperature hovers within a much narrower range than on the surface. Geoexchange is technology that uses the constant temperature and huge heat sink that the earth represents to generate heat in the wintertime and to cool in the summer time.  They leverage technology inside the house that has similarities to your refrigerator (which is, itself, a heat pump).  (more detailed explanation of geoexchange here).  

Much like solar and wind, this is not a new technology; it’s been around and used for decades.  Although the economics of a geoexchange system vary from location to location based on geology, local energy rates, and the need for heating/cooling, in most places the payback on a geoexchange system for a home or commercial building beats solar or small-scale wind -- usually sizably.  Whereas solar or wind generate electricity, geoexchange reduces the consumption of energy for space heating and cooling and also can be utilized to generate hot water. It has near year-round benefit, working when the sun doesn’t shine and when the wind doesn’t blow.  It is “base load” energy savings for a building.  A $1,000-$2,500 annual savings in energy costs for a middle class home is fairly typical, and the CO2 reduction is roughly equal to taking two cars off the road – permanently.

(Table from Climate Master)

In many markets, a geoexchange system can be installed with paybacks of 10-15 years without any government incentives. By comparison, except in the best markets (high sun, high electricity cost and high state tax incentives on top of federal incentives), solar still struggles today to provide 10-15 year paybacks with government subsidies. 

And here’s where it get’s really exciting:  The cost of installing the technology can pay itself back in as little as three years.  A geoexchange system isn’t like that of a solar or small-scale wind system, which almost always has a 100% incremental cost because no existing system is being replaced.  In most climates, buildings need either heat or air conditioning to be usable 365 days a year, and in many climates they need both.  Those systems age and need to be replaced (a 20-year lifetime is typical).  So for a building needing new HVAC equipment, the relevant cost is the incremental cost of the geoexchange system.  Netting out the cost that would have been spent on traditional HVAC replacement equipment in most cases drops the payback calculation down to six-12 years.  Add the current federal 30% tax rebate off the full system cost, and the buyers payback can be an incredible three to six years. 

 (Source: Cleantech Consulting Services)

27 Case Studies of Residential Ground Source Heat Pump Paybacks

(Oregon Institute of Technology)

So why is it that solar has received about 33% of all venture capital investment in cleantech and around $1B in government R&D funding over the past ten years while virtually no federal funding or venture capital has gone to geoexchange?  There are several contributing factors:

·      Each geoexchange installation is an “art” project. This is a challenge that the solar industry used to face, when every system required fairly extensive design, engineering and coordination of a potpourri of vendors.  Solar has largely overcome this by better productizing their offerings and streamlining installation; at the same time, the number of solar-focused installation companies has proliferated. Geoexchange has yet to mature in this manner, and many of the companies in the space are largely traditional HVAC vendors that can do geoexchange. 

·      Out of sight, out of mind.  One might think this is a good thing, but I suspect that it hurts geoexchange.  Your neighbor who spent $25k on his solar system is proud to have it on his roof, advertising that he’s green.  But no one knows about the neighbor who invested in a geoexchange; after the drilling rigs leave, nobody can see the good deed being done for the environment. 

·      Fragmented, unfocused installers.  Geoexchange systems are installed by a hodgepodge of mostly small HVAC contractors.  Because most don’t focus exclusively on geoexchange, there isn’t a strong marketing and sales engine to streamline the sales and installation process. 

·      A misconception that geoexchange is “low tech.” What technology advancement could there be in putting pipes into trenches or holes to capture or dissipate heat?  The common view is “not much.”  But the process of heat transfer is a complex engineering challenge that could include advanced materials, fluids and designs to enable increased efficiencies, reduced materials and reduced installation costs for a given performance level.  I believe that technological advancements and economies of scale could result in a reduction in geoexchange system costs of 20-50% with a directly corresponding drop in payback time. 

On the last point, it is truly a shame that there isn’t any federal R&D spending going to innovative technologies in this area.  I would love to find an innovative geoexchange company with compelling technology advantages, innovative financing tools and a great management team that could build a large national business to invest in.  If you know of any, send them my way.  I promise I’ll show them some respect even if I can’t promise that we’ll invest in them.



David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (www.accessvp.com).  This article was first published on his blog, www.greengoldblog.com.

Related Article:  Geothermal Heat Pump Stocks

Posted by David Gold at 12:02 AM | Permalink | Comments (1)

• Ormat (NYSE: ORA): Ormat is the leading vertically integrated geothermal power giant, involved in exploration, development, power production and maintenance both for themselves and as a contractor almost everywhere geothermal resources are found in the world.  Ormat is as close as you can get to a one-stop shop for exposure to the geothermal power sector. 
  
• Calpine (NYSE:CPN): Calpine is the largest independent power producer (IPP), owning 19 of 21 generation stations in the world-class Geysers geothermal field near Santa Rosa, CA.  Despite producing one-fourth of the non-hydro renewable power produced in California, Calpine should not be analyzed as a renewable energy IPP, since renewable generation accounts for less than 3% of total generation capacity.  The vast majority of Calpine's capacity comes from natural gas fired units, so investors in Calpine are really getting a natural gas IPP with some expertise in geothermal power production.  In the context of this article, Calpine is  most interesting as a possible acquirer of the small geothermal exploration and production companies, as it acquired its interest The Geysers in 1999 and 2000.
• United Technologies (NYSE:UTX): Like Calpine, United Technologies is a diversified industrial giant included here because of the modular PureCycle geothermal and heat recovery engine from its Pratt&Whitney unit.  While not a significant contributor to the results of a giant corporation like United Technologies, PureCycle might open up low temperature geothermal resources that cannot produce enough power to justify the cost of a custom Ormat Power Converter, but may be productive enough for an off-the-shelf generator such as PureCycle.

• Magma Energy Corp. (Toronto: MXY.TO/Pink Sheets: MGMXF).  Magma Energy has three operating geothermal plants in Nevada and Iceland, and is also developing several prospects.
  
• Nevada Geothermal Power (Toronto Venture:NGP.V/OTC BB: NGLPF.OB).  Nevada Geothermal is developing five projects totaling over 200MW in the Western United States, and brought on-line its 49.5MW Faulkner-1 plant in late 2009.
  
• Ram Power Corp. (Toronto:RPG.TO/ RAMPF.PK).  Ram Power was formed by buying up several smaller geothermal developers (Polaris Geothermal, Western GeoPower Corp, GTO Resources, and the recently acquired Sierra Geothermal Power.) Ram currently owns an operating 10MW plant and hundreds of MW of development prospects.
  
• Raser Technologies (OTC:RZTI). Raser Technologies owns one of the largest portfolios of low-temperature geothermal development projects which it intends to develop using the PureCycle energy converters mentioned above.  However, power production at Raser's first 10MW Hatch power plant initially fell short of expectations, and Raser needs significant additional funding to execute on its business plan.
• US Geothermal (AMEX:HTM). US Geothermal currently has about 11 MW of operating capacity at two power plants, with plans to quickly develop several times that in the next few years to take advantage of current US federal incentives.

Posted by Tom Konrad at 11:19 PM | Permalink | Comments (2)

by Travis Johnson

Stockgumshoe.com teases out the geothermal stock that is the current come-on for Casey's Energy Report. AltEnergyStocks.com reviewed a sister publication, Casey Energy Opportunities, last year.

Today we’re looking at a newsletter from Doug Casey’s stable, the first one of his teasers that I’ve looked at in quite a while.

The pitch is that Marin Katusa has picked 19 consecutive winning stocks for his Casey’s Energy Report, and that you can subscribe now to get in on pick number 20, which is apparently getting close to their buy price.

As they put it …

“Marin’s just getting started. Winner #20 is already on his radar, and chances are it’s going to deliver even higher returns than any of the other 19.”

Katusa apparently has a “three-tiered formula” that helps him make money for subscribers — the first tier is a network of energy insiders that he cultivates, the second tier is some kind of mathematical valuation/screening “system” that helps him target buy prices, and the third tier is his team of energy analysts, who he naturally believes are “the best and brightest.”

I have no idea whether or not those “tiers” really mean anything or are just a marketing ploy, but I would imagine that they’re probably not lying about the 19 winners (though they may not count or credit them the way you would) — notice that we weren’t told that he’s had 19 picks that beat the market, just 19 “winners,” which the little footnote indicates were all chosen in the last quarter of 2008 and the first eight months of 2009, so it’s possible that even picking 19 “winners” in a row could have your overall portfolio trailing the S&P 500. Not to throw cold water on the claim, I certainly haven’t ever picked 19 winners in a row, but we might also argue that every hot streak has to end at some point.

I didn’t receive the email ad for this one directly, I just got the link sent along to me recently, so I can’t tell you for sure when the ad started running — which means it’s possible that this “number 20″ pick has already been made.

So, with those caveats, what is this stock that’s Marin Katusa’s possible 20th consecutive hot pick? You may or may not be delighted to hear that it’s a geothermal stock … a sector we’ve looked at many times in the last couple years, but which one?

“Winner #20 is a geothermal company. And geothermal energy is not only one of the most reliable alternative energies — it will be one of the most profitable, as President Obama continues to pump money into the green sector through subsidies.

“The man behind this company is a legend in the resource sector for his financial insight. It’s no wonder he’s been dubbed the ‘broken slot machine’ for his unrivaled ability to make shareholders money.”

OK, so that’s actually maybe enough for us to identify this stock … but we get a few more clues, let’s use ‘em …

“Recently, winner #20 filed its IPO (initial public offering), and investors as well as industry insiders clamored to get a piece of the action.

“As often happens with IPOs, this frenzied buying quickly inflated and then deflated the stock price, which for now has returned to a more realistic level. During the imminent market decline, Marin believes all stocks will suffer a temporary setback, creating a tremendous buying opportunity.

“An opportunity to ‘back up the truck’ on this new hot stock at a significantly reduced price.”

And as every good copywriter knows, throwing in some quotes from well-respected news organizations makes your deal look more substantive, and quiets the voice in the readers head that says, “what if this is all just a scam?”

So yes, we get a few press quotes, too:

“‘Investors around the world are leaping on the initial public offering of [this] Canadian geothermal energy company, highlighting the soaring interest in the geothermal space and the superb track record of [the company's] founder.’ -Reuters”

and

“[This geothermal stock] ‘is definitely one of the hottest deals of the year.’ -The National Post”

and

“Geothermal is one of the great answers to our energy crisis. Add the facts that: [1] you’re not exposed to commodity prices, [2] you’re not exposed to the dictators of the world, and [3] you’re not throwing away your domestic product to foreigners. It’s just a great, great business. -IBT Commodities”

and

“‘President Barack Obama’s American Recovery and Reinvestment Act provides tax credits for geothermal projects, and the American Clean Energy and Security Act is laden with more incentives for clean energy investment.’ -The Financial Post”

If you’ve been around these parts for a while you’re probably familiar with the concept of geothermal energy — drilling into hot zones, pumping in water, using that heated water to create steam that powers turbines and generate electricity, it’s been proven as a concept for years, at least in hot zones like Iceland and The Geysers in Northern California. Geothermal generation is certainly a lot more “green” than burning coal or natural gas, and provides baseload (”always on”) energy unlike sun-dependent solar or wind-dependent turbines, though it also comes with complications (not least that it can be expensive to drill and develop, and for best results you need a very hot area, and the process is pretty tough on the equipment), so I’ll spare you the rest of Katusa’s general argument in favor of geothermal energy.

This last bit, then reiterates the importance of the man behind the company:

“When asked about winner #20, ‘Vancouver’s mining maven’ had this to say:

“‘The object is to do the same thing we did [with my silver producer]: to build the biggest geothermal energy business in the world.’

“We have every confidence he will do it.

“Indeed, the long-term profit potential is staggering.

“That’s why Marin and the whole Casey team are on board with winner #20.”

So who is this elusive “number 20?”

Thinkolator sez: Magma Energy (MXY in Toronto, MGMXF on the pink sheets — click here for the free trend analysis, which isn’t currently very pretty)

This is the latest endeavor of Ross Beaty, that “mining maven” teased above who has indeed been called the “broken slot machine” for his record of past success (he sold Equinox to Hecla Mining 25 years ago, and more recently built Pan American Silver into the world’s largest silver producer). The quote above, about how he wants to build Magma into the biggest business of its kind in the world, is from an interview that he gave almost a year ago, before Magma went public.

And the company did have it’s Canadian IPO this Summer, a bit behind their original schedule, but they got a fair amount of attention and at the time it was the biggest Canadian IPO of the year — and Beaty apparently got what he wanted, in that interview he noted that he was hoping the IPO would value Magma at $300-400 million, and it’s now got a market cap of C$450 million. That makes them one of the bigger “junior” companies in the space, bigger than the small firms that have just one or two sites under development like U.S. Geothermal, but much smaller than Ormat or Calpine. Probably the closest competitor, in terms of market cap size and focus, is Ram Power (RPG in Toronto, RAMPF on the pink sheets — one of two geothermal stocks in an uptrend at the moment, according to MarketClub), which is a similarly new company in its current form, a rollup of Ram Power and the junior geothermal companies Polaris Geothermal and Western GeoPower, both of which have been teaser targets in recent years as well.

Magma is still very much an early stage company in terms of operations — they are buying into a big established geothermal project in Iceland (they own about 43% now and are investing in expansion, it’s primarily a site that generates power for aluminum smelting), and they own one operating geothermal site in Nevada (Soda Lake, which has been operating for close to 20 years and is at about 1/3 of its nameplate generation capacity). Their other projects are elsewhere in the Northwestern US, in Utah and Oregon as well as more sites in Nevada, and in South America, with concession applications in Peru and some early-stage projects that they own in Argentina and Chile. Aside from Soda Lake and Iceland, it’s all early stage exploration, or flow testing, or drilling and mapping that they’re doing right now. I have no idea how long it takes to get these projects off the ground, but it sounds like a lot of the work they’re doing, in addition to the few places where they’re actually doing exploratory drilling, is updating old seismic and survey data from these sites that is in some cases 20-30 years old. The company describes their pipeline as having 24 early stage projects and seven advanced stage exploration projects around the world, including several new exploration targets that they just acquired in a government auction earlier this year.

The way Magma reports its projects, they have 86 MW of reserves (75 from Iceland, 11 from Soda Lake — though from what I can tell Soda Lake is only 8MW right now) and over 600MW of “resources”, which is apparently the documented potential of their other projects. Of that 600 MW about half is Iceland (HS Orka is the site they have part ownership of), and the other half is split between one big discovery in Chile and a number of smaller Nevada and Utah properties. Another 20 or so early stage properties are not counted in the reserves or resources. According to the timeline they’re projecting, they will boost production to about 100 MW overall next year, and bump up slightly again in 2012 through expansions in Soda Lake and Iceland, then have production close to double in 2013 with two new Nevada plants online, and jump considerably in 2015 with several of their other projects joining the party, including most notably the large 140 MW Maule project in Chile. So that’s the five-year growth plan, and their goal is to be acquisitive and create a global company to consolidate global geothermal generation, so they may well buy up some other projects along the way.

Magma does not have any debt, and they’ve raised well over C$100 million recently (from the IPO, the over-allotment, and a subsequent private placement) and have another C$20 million in credit available, so they should be in fine shape financially, and ready to keep growing by investing in exploration and perhaps acquiring other companies and projects, but there seems little chance that they’ll be profitable anytime soon — which is perhaps why they funded the Iceland investment by selling new stock instead of using their IPO proceeds. They have already received some federal money for their Nevada projects, and it looks like part of their calculus certainly depends on federal “green energy” grants and similar funding, which is no surprise. You can see Magma’s most recently quarterly report press release here, which details their work so far this year and their financial position, and a December investor presentation that goes into some more detail on their projects here [pdf file].

I don’t have any particular insight into which geothermal stocks are the best bet, but it does seem that Magma might be the best “story” right now — having a charismatic and successful resource investor at the helm, lots of cash, and a nice big position in the most well-known geothermal resource in the world (Iceland) certainly helps. As I noted, the other company that has a somewhat similar profile is Ram Power, and smaller firms include US Geothermal (HTM in NY, GTH in Canada — this is the other one that MarketClub thinks is in an uptrend) and Nevada Geothermal (NGP in Canada, NGLPF on the pink sheets), both of which are currently generating electricity, and Sierra Geothermal (SRA in Canada, SRAGF on the pink sheets), which is more capital constrained and not yet producing, but apparently has some promising sites and permits and may be bought up by Ram Power (or so I’ve read in one place, at least). The biggest pure play I know of is Ormat (ORA), which is an Israeli company as well known for building geothermal plants for others as for operating them themselves, it’s fairly expensive, but profitable and much less volatile.

So there you have it — one more geothermal stock to throw on the pile, it may or may not work out as they hope but I’m quite certain that this is the pick teased by Casey’s Energy Report. If you’re more “hotted up” about this sector than I, I’m sure you’ll have some insight or information to share … that’s why the friendly little comment box is sitting below, just waiting for your input.

Travis Johnson is the Stock Gumshoe.  He unravels the email teasers from investment newsletters and advisors, and tracks their performance.

Posted by Guest Contributor at 08:35 PM | Permalink | Comments (0)

From Small Fries to Big Shots? Part 1 of 2

by Bill Paul

Feel like rolling the dice on some small alternative energy stocks that appear to have big-time potential?

Just remember: sometimes you roll snake eyes.

First up: World Energy Solutions Inc. (Symbol: XWES), which currently trades on NASDAQ for $3 and change per share.

Worcester, MA-based World Energy Solutions operates online exchanges for energy and green commodities, including the one administered by Regional Greenhouse Gas Initiative Inc. (RGGI), the regulatory scheme under which 10 Northeastern and Middle Atlantic states "cap" their power plants' emissions by requiring plant owners to buy permits for the gasses they emit.

World Energy Solutions is a poster child for how to run a cap-and-trade system. "RGGI auctions continue to run like clockwork," RGGI's chairman recently said, adding, "RGGI is showing that cap-and-trade works."

With Europe and Asia already well on the way to having full-blown cap-and-trade systems, it would seem only a matter of time before World Energy Solutions attracts far wider investor interest (and just maybe a corporate suitor). While the company is still in the red, last month it reported that third-quarter and nine-month losses had narrowed significantly from a year ago, on increased revenue.

Next up: geothermal power developer Ram Power Corp., which trades on the Toronto Stock Exchange under the symbol RPG (RPG.TO, RAMPF.PK). Nevada-based Ram shares also currently sell for $3 and change, although just two months ago they were selling for under $1. But then the World Bank's International Finance Corp. proposed to arrange $216 million in debt financing for the company's 72 megawatt geothermal project in Nicaragua, now due to come online in 2011.

Ram Power's chairman clearly believes this is the start of something big for his firm. Chris Thompson said this past week that "Ram Power's mission (is) to be the premier provider of geothermal energy in Central America. We see this region, especially Nicaragua, as an area where our company can develop stable, long-term energy supply relationships."

Unlike World Energy Solutions, Ram's third quarter and nine month losses widened - significantly so - from year-earlier results, though that clearly hasn't hampered its recent stock activity. The company has other geothermal interests in Nevada, California and Canada.

(Next Week: Two more small fries whose prospects appear promising.)

DISCLOSURE: None

DISCLAIMER: This is a news article.  Please read terms and policy.

Bill Paul is Managing Editor of EnergyTechStocks.com.

Posted by Bill Paul at 01:31 PM | Permalink | Comments (0)

Tom Konrad CFA

My entire portfolio of Geothermal companies received DOE cost-sharing grants Friday.  Here's a quick run-down:

• Nevada Geothermal (NGLPF.PK, NGP.V) received $1.7M for its Crump Geyser project, and $1.6M for its Black Warrior project. NGP also celebrated completion of  its Blue Mountain Faulkner 1 plant the same day.
• US Geothermal (HTM) received $3.77M for it San Emidio project.
• Sierra Geothermal (SRAGF.PK, SRA.V) received $10M for exploration at its Alum and Silver Peak projects. 
• Ormat (ORA) received two grants, and is likely to benefit from other grants since geothermal exploration companies such as US Geothermal contract with them for many services.
• Up to $61.9M was awarded to ground source heat pump demonstrations, which will help my two Geothermal Heat Pump stocks, Waterfurnace Renewable Energy (WFFIF.PK) and LSB Industries (LXU).  

Market Reaction

While the geothermal exploration companies (NGP, HTM, and SRA) were all up today, Ormat and the geothermal heat pump stocks were down (ORA -1.23%, WFI.TO -1.12%, and LXU -2.67%, on a day the S&P 500 fell 2.81%)  Ormat was probably down in sympathy with the market because it is much larger than the other companies listed, and these grants won't make that much difference to its bottom line.  Waterfurnace and LSU may have gotten less market benefit since the grants were not directly to them, and money for geothermal heat pumps was already expected to be part of these grants.

Practically the only (nearly) pure-play geothermal company that didn't get something was Raser Technologies (RZ), which I told readers I sold in September when the DOE announced they were no longer under consideration. I sold Raser at $1.78, taking a small (11%) loss.  It closed Friday at $1.18. I'm glad I got out when I did, although readers of the article who sold on my recommendation will have done better than I.  Raser bumped around in the $1.80-85 range for a couple weeks after I published my article, and even hit $2 briefly.

DISCLOSURE: LONG NGPLF, HTM, SRA.V, ORA, WFFIF, LXU.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 03:56 PM | Permalink | Comments (0) | TrackBacks (0)

Portfolio theory can lend insights into which carbon abatement strategies policymakers should pursue.  If policymakers listen, what will it mean for green investors?

Tom Konrad, Ph.D., CFA

Good Info, Not Enough Analysis

I've now read most of my review copy of Investment Opportunities for a Low Carbon World.  The quality of the information is generally excellent, as Charles has described in his reviews of the Wind and Solar and Efficiency and Geothermal chapters.  As a resource on the state of Cleantech industries, it's generally excellent.  As an investing resource, however, it leaves something to be desired.  Each chapter is written by a different expert in a particular field, which means that the information is up to date, and comprehensive, but this approach means that there is little attempt to compare the potential of the different investment opportunities presented.  What is the point of in-depth research into carbon abatement technologies if we do not then take the next logical step and emphasize the technologies with the greatest potential for carbon abatement and investment returns?

A Portfolio Approach

The most useful attempt at investment decision-making is buried in the otherwise uninspiring last part of the book. A summary of a 2007 report from the London Accord, A Portfolio Approach to Climate Change Investment and Policy is buried among self-promoting chapters from companies such as Nissan (NSANY)and BP (BP) promoting their (real) investments in clean technology,   The report uses a Monte Carlo implementation of Modern Portfolio Theory to determine low-risk mixes (portfolios) of carbon-mitigation strategies, and was written by Professor Michael Mainelli of Z/Yen Group, and James Palmer.

While intended primarily for policy decision-makers, A Portfolio Approach attempts to determine which portfolio of carbon reduction technologies is likely to produce a desired level of climate change at the lowest cost (or highest investment returns) at the lowest risk of failing to achieve the reduction goal.  Phrased this way, it is easy to see why portfolio theory is an appropriate tool, since it is designed to minimize systematic (overall) risk even when all individual strategies in the portfolio have significant risks of achieving the expected returns and carbon reductions.

Data

The data on various carbon reduction strategies came mainly from the 2007 IPCC Working Group report, "Mitigation of Climate Change."  This report is not complete, omitting some technologies with significant CO₂ reduction potential, in particular solar thermal collectors such as solar hot water heaters and larger installations for process heat in industrial processes.  "Solar," as referred to in the report, refers solely to solar Photovoltaic and Concentrating Solar Power (CSP.)

One decision I found questionable was to ignore the carbon reduction potential of investments with "negative abatement costs on the basis that these investments should be undertaken under any business-as-usual scenario, and are not strictly investment measures as a response to climate change." (p5/22)  This is circular logic.  For an investment with negative cot to exist, there must be a market failure.  Almost by definition, in a well functioning market, all investments with negative cost will have already been made.  Simply saying that these investments "should" be made assumes that these market failures will correct themselves without any effort on the part of policymakers.  Why should energy market failures correct themselves in the future if they have not already?  

In the authors' defense, they run one scenario (#3) in which investments with negative abatement costs are allowed, and they state "Further examination of negative abatement proposals seems in order, as it should be important to understand why these investments fail to be made under current financial conditions.  Neglected negative abatement may justify regulatory intervention by policymakers, e.g. imposing minimum building or transportation efficiency requirements." (pp.17/22 and 18/22)  

From the hedging in this statement, and the fact that they spend less time discussing scenario 3 than either of their other two, I conclude that something prevents the authors from giving market failures the attention they are due.  I find this an extremely common failing among financial practitioners, and believe it is an unfortunate and common consequence of in-depth training in financial modeling.  Most financial models contain an assumption of market efficiency, and do not produce meaningful results in cases of large and persistent market inefficiencies.  Without tools to model market inefficiencies, practitioners are prone to ignore them, convincing themselves that the inefficiencies are unimportant or will cure themselves.  Most of the critiques of "Green Jobs" programs are based on this fallacy.

Put another way, if you have a hammer (a modeling technique which assumes market efficiency, such as modern portfolio theory), you tend to see all problems as if they are nails (efficient markets.)

Results

Since the authors only look at scenarios 1 and 2 (those which ignore negative cost investments) in depth, these are the scenarios I will focus on.  I believe the results of these scenarios are still relevant answers to the question, "After negative cost investments in energy efficiency have been made, which positive cost investments should we pursue?"  Even if all the necessary carbon reductions could be achieved with negative cost investments, it would most likely be unwise to pursue such an approach to mitigate climate change: like all investments, there is no assurance that the expected reductions/returns will be achieved.  Pursuing a wide variety of carbon-reduction strategies provides the greatest chance that some such strategies will achieve the expected reductions, and others will exceed expectations, thus making up for any investments in the mitigation portfolio which do not achieve the expected reductions.

The chart below shows a series of "frontier portfolios": That is, portfolios of carbon abatement investments which achieve specified levels of carbon abatement at minimal cost.  The vertical axis is gigatons (Gt) of equivalent CO₂ emissions (CO₂e) reduced annually, and the horizontal axis is the annual investment needed to achieve this level of reduction.

There are diminishing returns for carbon abatement, with the cost of incremental abatement increasing significantly above 15 Gt CO₂e per year, and no practical increase in abatement beyond 20 15 Gt CO₂e and $400B expenditure per year.  

For comparison, to stabilize the atmospheric concentration of CO₂ at 350 ppm, a goal which, according to Joe Romm, will require 8 Gt CO₂e (approximately portfolio 2) of reduction by 2030, and another 10 Gt CO₂e (for a total of 18 Gt CO₂e, or portfolio 4) by 2060.  Since the model does not include negative cost investments in energy efficiency or solar thermal collectors, it is likely that these levels of abatement could be achieved at considerably lower cost by incorporating these opportunities.

The pie charts in the first column show the fraction of carbon abatement expected from each investment in the selected frontier portfolios, while the second column shows the cost of each investment.  The two columns differ because different investments produce different levels of abatement per dollar of investment.  For instance, the cost wedge for Biofuels in portfolios 3 and 4 are much larger than the corresponding abatement wedges.  This indicates that abatement with biofuels is more expensive on a per-ton basis than for the other investments in those portfolios.

I will focus on portfolios 2, 3, and 4, since those are the portfolios which deliver the necessary levels of abatement, which we will need to ramp up to over the coming years and decades.

Forestry

The most striking thing about these portfolios is that Forestry dominates CO₂ abatement, as well as cost in portfolios 2 and 3.  The more aggressive portfolio 4 has three relatively large cost wedges: Building Efficiency, Forestry, and Biofuels.

Unfortunately, according to the report's authors, the carbon abatement from Forestry is very uncertain.  To make matters worse, the methodology used in the report is extremely sensitive to the expected returns (or abatement, in this case) of particular investment classes.  Small errors in the expected returns can lead to frontier portfolios which are dominated by a single investment class, in this case Forestry.  The report notes that "forestry abatement potential is highly uncertain." (p.8/22)  While we can conclude that forestry is likely to be a significant part of our carbon abatement strategy, there is a good chance that forestry will not dominate the mix as it does in the model.

For stock market investors who want to allocate part of their portfolio to forestry, I recently wrote about investing in forestry stocks and forestry exchange traded funds (ETFs). While I was focusing on the potential for forestry to benefit from biofuels and bio-electricity in the article, any marginal demand for forestry services (including carbon sequestration) should benefit this sector.

Hydropower

Hydropower is also a significant investment in these portfolios.  Much of this investment will probably take place in the developing world, but there are also significant opportunities for upgrades to facilities at existing dams in the developed world.  I looked at the potential for hydropower stock market investments last year.

Biofuels

Biofuels also contribute significantly to all the portfolios, especially in the higher abatement scenarios, although the costs are high relative to other investments.  I don't believe that this is very realistic if we are also going to have large contributions to carbon abatement from forestry.  My guess here is that the authors did not take into account the negative interactions between forestry and biofuels, where an increase in one will drive up the costs of the other because of competing land and water use.  Land used for forestry cannot also be used for biofuels, and vice versa.

Wind

We see significant contributions from wind in portfolios 3 and 4, and the costs and potential for wind are much better understood than for many of the other scenarios.  Better yet for stock market investors, investments in wind are simple, with two wind energy ETFs allowing a simple investment in the sector.  Of the two, I have a slight preference for FAN (you can see my reasoning here.)

Efficiency, in all its Forms

Finally, port folio 4 shows considerable investment in Building Efficiency and Industrial Efficiency (which we usually refer to as just Energy Efficiency), while portfolio 2 has a good slice of Transport efficiency (what we usually call Clean Transportation.)  Keep in mind that these slices are only investments that do not have "negative cost," that is they do not cost less than new investments in conventional generation.  Since efficiency dominates investments with negative cost, the total investments in all forms of efficiency are likely to be many times what we see in these graphs.  While there is not yet an energy efficiency ETF available, there is one focused on clean transportation, the Global Progressive Transport ETF (PTRP).  I also have a few stock picks in clean transport.

For industrial and building efficiency, there is no ETF, but here are five of my favorite efficiency stocks, and you can find a much larger list of energy efficiency stocks here.  It's also important to note that smart grid stocks will fall into this category as well, at least for the purposes of the report.   Here are five of my favorite smart grid stocks.

Geothermal

Geothermal also has a small slice of portfolios 2 and 4.  This is significant given the small current size of the industry: even these small slices imply rapid growth for an underappreciated sector.  I mentioned three geothermal stocks to consider here, but I have since sold my stake in Raser Technologies (RZ), and will probably not repurchase it.  Our Twitter followers saw that first.  Charles did a good run-down of the public geothermal stocks in June.   

Other Thoughts

It's also worth looking at what is not in the efficient portfolios, but since this entry is already quite a thesis, I'll save that for later.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 12:52 PM | Permalink | Comments (6) | TrackBacks (0)

Posted by Charles Morand at 12:03 AM | Permalink | Comments (0)

Raser Technologies (NYSE:RZ) did not get the hoped-for DOE loan guarantee.   The company still has good long term prospects, but the short term upside chances are much weaker, prompting me to sell in the hope of buying back in after a general market sell-off.

Raser Technologies (NYSE:RZ) dropped from $2.10 to $1.95 on September 1st, prompting a regular reader to leave a comment asking me if it was time to sell on the original Raser article. (Because he's a regular, he knows my policy of preferring to answer questions posed as comments on the blog to email comments: At the time, I did not see any new news, so I assumed the 7% drop was just part of the general sell-off on Monday.  

The news broke this morning: The DOE had denied a loan guarantee application for Raser's East Thermo project.  This does not mean that the project is dead (as Raser hastened to point out,) but the reason I had bought Raser was the hope that one of Raser's attempts to gain funding would pay off quickly.  I thought the DOE loan guarantee was the best prospect for a quick upside move.  

With the loan guarantee no longer an option, there are still plenty of other possibilities, such as receiving ARRA funding, or working out some sort of customer financing arrangement, like the pre-paid PPAs Raser has been working on.  I think these may take some time to come to fruition, and in the meantime, I'm still worried about a general market decline, which should hurt Raser as well.

I sold the majority of my positions at $1.78 on Sept 2 (a 12-13% loss).  I'm going to wait and see what happens to the stock over the next few months before I buy it back, just like the other 39 stocks on my Clean Energy Shopping List.  I do still own a few option positions on Raser, because options are much less liquid than the stock itself, and they're harder to sell in a hurry.

DISCLOSURE: Tom Konrad and/or his clients have long positions in RZ.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 02:57 PM | Permalink | Comments (0) | TrackBacks (0)

Tom Konrad, Ph.D., CFA

Raser Technologies (NYSE:RZ) stock has fallen almost 50% since the company announce an offering of shares on June 30.  Although the round quickly filled, the stock continued falling, and it seems like a screaming deal.  Is it?

On July 7, Raser Technologies sold $25.5M of stock and warrants in a secondary offering.  According to press reports, this amounted to 13% of Raser's stock, thereby valuing the company at (very approximately) $200M, or $175M pre-money.  

The units, each consisting of 1 share and 1/2 a warrant exercisable at $4.62 was offered at $2.98.  Depending on how you value the warrants, this means that the institutional investors who purchased the shares valued the stock at between $2.50 and $2.75 per share, which was approximately what the company's shares were trading at the day the offering closed.

Low Temperature Geothermal Development

Raser's model is to focus on previously known, relatively low temperature geothermal resources which had previously been passed over because they had historically been to cool to develop for electric power.  As I discussed in my overview of Geothermal Power, exploration risks have historically prevented much geothermal power production.  By using known geothermal resources, Raser completely avoids the risk and expense involved in exploration.  

There is also little technology risk, since the modular PureCycle turbines produced by United Technologies Corp. (UTX) are only slightly modified (by UTC) from a decades old production chiller from the same company.  Assembly-line manufacture of the turbines also speeds deployment.  The twelve to 18 months within which they expect to be able to develop projects is half that of the industry standard 2-3 years.

Raser is currently in negotiation with lenders in order to obtain financing for its 300MW geothermal development pipeline.  In order to obtain that financing, lenders want to know that Raser will remain in business in order to build and operate the proposed plants.  The additional cash from the secondary offering will go a long way towards alleviating that concern.

Raser is also pursuing a Department of energy loan guarantee, as well as stimulus funding under the ARRA.  With Raser's Thermo plant now in New Mexico selling power to the city of Anaheim since 2008, utilities now seem to believe that Raser can deliver on its promises.  Some evidence of this came in the form of a (non-binding) term sheet with  the Southern California Public Power Authority (SCPPA) for 110 MW of geothermal that envisions part of the purchase price paid up-front, in effect, having SCPPA finance part of the plant construction.

If any of these multiple avenues for project finance are finalized, I expect the stock price to receive a big boost from the currently depressed levels.

The 100 MPG Hummer

If turning the business model for geothermal development on its head is not enough, Raser is also working on hybrid vehicles.  They've put together a range extended electric drive train for large vehicles, which they chose to showcase in a Hummer H3.  Like Trinity AFS, they choose to grab headlines by ignoring the electricity used to charge the vehicle, and emphasize the relatively meaningless MPG number.  I'm not sure if much of this technology is unique; large vehicles like the Hummer are especially well suited for dual mode EV conversions because the frame is capable of carrying the extra weight of batteries without an extensive redesign.

I personally would be happiest if Raser divested their Transportation and Industrial segment, in which they are pursuing the hybrid technology.  There seems to be little obvious synergy between the two segments, and they don't seem to have an outstanding technology or business model.  Furthermore, they face significant competition, not only from incumbent car and heavy duty vehicle manufacturers, but also from countless startups, such as Trinity.  I know of two other pure-play publicly traded companies in the large electric vehicle space: Balqon Corporation (BLQN.OB), and UQM Technologies (UQM), and where there are two public companies, there are bound to be several private ones.  A third public company, Odyne, went bankrupt last year and sold its assets to Dueco, which is now a competitor in the hybrid heavy equipment market.  I would prefer if management were to focus on geothermal, where their business model is relatively unique in the industry and the main competition is with increasingly expensive fossil fueled electricity generation.

However, while management denies any intent to shed the transport arm in interviews, they seem to be doing the next best thing: Devoting most of their resources to geothermal.  According to the last annual report, assets in the Transport and Industrial segment fell from almost $1M in 2006 to $750,000 in 2008; they have "reduced our resources committed to new developmental efforts" in this segment.  Meanwhile, assets in the Power Systems (geothermal) segment grew from approximately $6M in 2006 to $168M in 2008.

Too Cheap to Ignore

Raser's future success will be highly dependent on their ability to raise project financing for their very ambitious development plans.  In the current environment, raising such financing is far from certain.  They will need to raise significant amounts of money for project finance, and successfully develop those projects if they are ever to reach profitability.  If they fail, the stock price will continue to fall.

With such large uncertainties, it is difficult to value the company, so my inclination is to rely on the implied valuation from the recent offering, of between $2.50 and $2.75 a share.  These large investors would only have invested if they felt they were getting in at a discount to the value of the business, and so I am comfortable buying at slightly over $2.00, giving me a comfortable discount to the offering.

At these beaten-down prices, any good news should cause a sharp spike in the stock price in very short order.  

End Notes 7/23/09

 I wrote this article over the weekend, and have since then tripled my position, at prices between $2.00 and $2.05.  I also bought some January 2011 $5 calls.  This morning, Raser announced the restructuring of an existing line of credit, not something I would consider major news, but it's a step along the way to advancing the projects in their pipeline.  The stock seems to be starting to rebound on the news.

Other recent articles: 

Clean Energy Stocks Shopping List: Landfill Gas and Geothermal
Q2 Performance Update: Ten Green Energy Gambles for 2009

DISCLOSURE: Tom Konrad and/or his clients own RZ and UTX.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:36 AM | Permalink | Comments (5) | TrackBacks (0)

Posted by Charles Morand at 09:45 PM | Permalink | Comments (1)

1. On June 9, I reported on the upcoming IPO for Magma Energy Corp., a geothermal exploration company. The IPO's size will be upped from an initial C$50 MM to C$100 MM, a sign of increased market appetite 
2. SunPower Corp. raised $418 MM in early May through a share and debt offering, and recently announced it had reached a $100 MM deal with Wells Fargo to fund commercial-scale solar PV projects across the US
3. John reported a few days ago that A123 Systems had amended the SEC registration statement for its proposed IPO, positing that it could be much larger than initially anticipated
4.  In late May, Suntech Power raised $277 MM from a follow-on offering of its American Depositary Shares (ADSs), and recently received a $50 MM convertible loan from the IFC
5. On June 23, Yingli Green raised $193 MM through a follow-on offering of its ADSs
6. On June 25, Trina Solar secured credit facilities of about $57 MM
7. New Energy Finance just reported a slight increase in asset financing for Q2 2009, although it cautioned that money flows into renewable energy projects were: (1) down substantially from what they were a year ago (~66% in the US); and (2) far below the level where they need to be if greenhouse gas emissions are to be brought under control by 2020

Posted by Charles Morand at 11:44 PM | Permalink | Comments (0)

Stocks seem expensive now, but that may not last.  Here are two Landfill Gas stocks and three Geothermal stocks I'm hoping to buy if the market falters.

Tom Konrad, Ph.D., CFA

This article continues my Clean Energy Stocks Shopping List series.  So far I've brought you:

• Five clean transport stocks,
• I looked at why it makes sense to wait for better prices,
• Five Energy Efficiency stocks (always my favorite sector), and
• Five Electric Transmission Stocks.

This article takes a look at two of the most economical clean electricity generation technologies, landfill gas and geothermal.

Kilowatts from Trash

As I discussed in my recent article on Advanced Biofuels, I expect that advanced biofuels are likely to have to compete with electricity generation for feedstock, and electricity generation is likely to take a large part of the pie.  More importantly, the most likely companies to gain are the ones that control the feedstock.  I like waste management companies because they already have contracts and experience in dealing with local governments.  As those governments adopt broader recycling measures, waste-to-energy, and even mandatory composting, waste management companies that have the skills to process waste effectively will be able to provide these additional services.  This should increase their revenues and profits from the same amount of trash, and may lead to new opportunities to sell byproducts such as recycled materials and electricity.

#1 Waste Management Inc. (WMI). Waste Management not only collects trash, but also does recycling and waste-to-energy services.  Over the last few years, they have been aggressively expanding their methane gas recovery facilities at existing landfills, and often works under contract with governmental entities.  To me, this portfolio of skills seems ideal for exploiting future opportunities to find value in the stuff that we throw away.

WMI has a rock solid balance sheet, with almost $1 billion in cash, strong cash flow, and low debt-to-equity and current ratios.  A modest forward P/E of 13, and a dividend yield of over 4% makes this company attractive to cautious investors, even at current prices.  This is fortunate, since the low Beta means that the stock is unlikely to decline much in response to a general market decline.

#2 Veolia Environnement (VE) Also provides world-wide waste management services, but is a much broader company with an expertise in government contracting.  In addition to solid waste, they offer a large range of environmental management services, from water and wastewater treatment (there are also opportunities to generate electricity from methane produced at wastewater treatment plants.) They're also involved in several of my other favorite sectors: energy efficiency through their energy management services, and clean transportation through their transit and rail services.

The company is much more highly leveraged than Waste Management, however, and had a very thin profit margin in 2008.  This makes the company much more riskier than Waste Management, with a Beta of 1.8 compared to Waste Management's 0.5.  However, a market downturn may provide the opportunity to buy this company at a dramatically reduced valuation.

Geothermal Stocks

Hot rocks are a hot industry these days, and geothermal electricity has a lot going for it.  First, electric utilities are very comfortable with it, since geothermal plants are baseload and are very reliable, and costing only about 6 to 11 cents per kWh.  Geothermal also has strong support on Capitol Hill, gaining explicit mention and ($350 million) in the Recovery Act.  

#3 Ormat (ORA), a vertically integrated geothermal company works with almost all the players in the industry.  Many of the exploration companies, such as US GeoThermal (HTM), contract with Ormat to build their power plants.  They also do their own exploration, construction, and operation of geothermal plants world wide.

Although I consider the company a core geothermal holding, I recently sold much of my position because the recent rally carried the company to very high valuations, with a forward P/E and dividend yield of 25 and 0.4%.  Given that the stock price has almost doubled since early March, I expect to be able to get back in at much better prices.

#4 Raser Technologies (RZ) is a sharp contrast to Ormat, being the industry upstart with a disruptive business model.  Raser is leveraging cheap, off-the-shelf technology from United Technologies Corp. (UTX) in order to greatly decrease exploration costs and time.  This modularity means that Raser can start building a power plant before they have fully explored a geothermal resource.  If they later find that the resource can support a larger plant, they can simply add units.  Their first plant in Thermo Utah was completed in less than a year, on a known low temperature resource that had been previously been considered too cool to generate power, meaning that exploration was not necessary.

The company recently completed a $25.5 million offering at a 22.5% discount to the stock price at the time.  The stock promptly sold off more than 30%.  With the company rapidly burning through cash, the raise was necessary in order to continue their rapid expansion plans.  I would not have touched the company before the raise (although I listed it as one of Ten Clean Energy Gambles for 2009.  With Raser down almost 30% since then, and some fundraising out of the way for the short term, the odds of the gamble are looking a lot better.  

#5 Nevada Geothermal Power (NGPLF.PK) is a more conventional exploration and development company with a few high quality projects.  This company now expects their first producing project at Blue Mountain to be fully operational in October 2009.  The shift from an exploration company to a power producer should bring a whole new class of investors to the stock, although the recent doubling of the stock price has quite possibly discounted most of these gains.  But with thinly traded stocks such as NGP, any change in investor sentiment could easily drop the price significantly and provide new buying opportunities in the meantime.

DISCLOSURE: Tom Konrad and/or his clients own WMI, VE, ORA, HTM, RZ, UTX, and NGLPF.  

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 09:06 PM | Permalink | Comments (3) | TrackBacks (0)

Posted by Charles Morand at 11:20 PM | Permalink | Comments (0)

1. Demonstration projects ($140 million): This will go toward geothermal in unconventional settings, including: "geothermal energy production from oil and natural gas fields, geopressured fields, and low to moderate temperature geothermal resources." The first two areas are of special interest to me. I did a bit of work on what is called "geopressured geothermal", or the type of geothermal resource typically found in and around oil & gas (O&G) operations. This resource generally comes in the form of hot, methane-saturated brine that flows to the surface under its own pressure. The methane can be separated from the brine and used in power production along with the geothermal resource in a hybrid plant. Currently, the O&G industry considers this more of a nuisance than an asset, but things could change. The Gulf Coast area is estimated to have substantial geopressured geothermal potential, and the DOE even ran a pilot project in Texas in the late 80s. Although the pilot ran fine, it was estimated that this resource was not economical at the time due to low energy prices. We know now where that argument stands and how short-sighted it can be. There are no public companies that I know of that are currently active in geopressured geothermal development, but this is an area to watch closely in my opinion.
2. Enhanced geothermal systems technology R&D ($80 million): As discussed above, EGS is the next frontier in geothermal development. Because they allow for geothermal electricity production in HDR, EGS considerably expand the geographical scope of economical geothermal development; in fact, EGS could allow for geothermal electricity production in nearly every region. A 2006 MIT study concluded that, with investments in technology development of between $800 million to $1 billion over a 15 year period, EGS could be improved to allow for the economical construction of 100,000 MWe of capacity over a 50 year period in the US. This initial money takes us 8% to 10% there, and there have already been investments by the private sector (see the Google video at the end of this post.) Should these expenditure levels be maintained in the next four years, EGS would receive a strong boost.
3. Innovative exploration techniques ($100 million): This is described as: "Funding [that] will support projects that include exploration, siting, drilling, and characterization of a series of exploration wells utilizing innovative exploration techniques." Unlike #1 and #2, this should benefit the whole of the industry. As mentioned above and in Tom's article, drilling represents the apex of risk for geothermal investors and significant improvements here could remove a major barrier to further geothermal development.
4. National geothermal data system, resource assessment, and classification system ($30 million): This is described as follows: "To fully leverage new low-temperature, geopressured, co-production, and EGS technologies, DOE will support a nationwide assessment of geothermal resources, working through the USGS and other partners. Second, DOE will support the development of a nationwide data system to make resource data available to academia, researchers, and the private sector. Finally, DOE will support the development of a geothermal resource classification system for use in determining site potential." In my view, this will be beneficial mostly to the unconventional geothermal players such as EGS and geopressured.

Posted by Charles Morand at 11:56 AM | Permalink | Comments (0)

US Geothermal, Inc. (AMEX:HTM) ) is one of only two pure-play geothermal power companies traded on US exchanges.  The other is Ormat (NYSE:ORA), a vertically integrated company widely considered to be the industry leader.  As baseload, extremely reliable power, Geothermal fits easily into utilities existing grids, making it a popular source of green power, especially with utilities uncomfortable with the intermittent and difficult to predict nature of wind and solar.  

Unlike wind and solar, the potential resource for geothermal power is quite small relative to electricity demand. At least until Enhanced Geothermal Systems (EGS) technology is commercialized, geothermal will remain a boutique form of electricity generation, producing less than 1% of our electricity supply.  In many ways, the prospects are like those for new hydropower development in the US: new large resources are unlikely to be developed, but there is a lot of potential for small projects.  Until last year, the relatively small potential for geothermal led the technology to be mostly ignored by investors.  Now geothermal is getting more of the attention it deserves as a rapidly growing (if still tiny) source of clean power.

The Portfolio Approach

I bought US Geothermal last year as part of a small portfolio of Geothermal exploration companies.  Others I bought around the same time were Sierra Geothermal (OTC: SRAGF, SRA.V), Raser Technologies (RZ), and Western GeoPower Corp (WGPWF.PK, WGP.V), which I added to previous holdings of Nevada Geothermal (OTC BB: NGLPF.OB, NGP.V) and Ormat.  The group as a whole has performed well, although I have small losses in Sierra Geothermal and Western Geopower.   In general, I have not evaluated these companies in depth.  Understanding a geothermal exploration company is a lot like understanding other mining exploration companies.  To gain insight into their likely success or failure, one would have to delve into the underlying geology of their leases, something I lack the skills to do.  This is why I prefer to take a portfolio approach to the sector, which has so far been effective at protecting me from company specific risks.

US Geothermal

That said, I agreed I would look into HTM in more detail, and since their annual meeting is coming up, the annual report for the fiscal year ended March 31, 2008 was conveniently sitting in my inbox.  I find reading the annual report from cover to cover an excellent place to start when researching a company.  Here are my impressions:

1. The company has a handful of leases, at many stages of development, from Gerlach and Granite Creek, exploration prospects, to Raft River, which began producing power this year, but which they are continuing to expand.  In between are Neal Hot Springs, where they have what sounds like very promising test results from their first well, and San Emidio, a recently acquired older geothermal plant which they have plans to upgrade and greatly expand (they recently received drilling permits to start the expansion.)
2. The company seems to be following their stated strategy of acquiring only leases where there is strong evidence of good geothermal prospects.  Although all natural resource exploration is risky, this should help to ameliorate the risks of exploration and development.
3. The company will need a substantial amount of cash to follow their chosen strategy.  This will probably come in the form of additional private placements, and joint ventures to develop specific projects.  The need to do additional private placements (where large blocks of stock are sold at a discount to the market price) will likely keep downward pressure on the stock price, which makes it likely that the share price will not see the quick tripling it had last year.
4. The interest among utilities in geothermal power is remarkably strong, so much so that they felt comfortable starting over from scratch on the Power Purchase Agreement (PPA) for the second stage of their Raft River project.  Management exudes confidence in their ability to negotiate favorable PPAs for future generation.  This is a marked contrast to other renewable electricity producers.  From my personal experience talking to wind, solar and hydro developers, they typically feel mistreated by utilities which often have the upper hand in negotiations for PPAs.

Overall, HTM seems as solid a company as could be expected from an early stage resource development company.  If you do want to venture beyond Ormat to buy a few geothermal exploration companies, HTM should be on your short list.  While it may not have the price growth potential of companies which do not yet have US listings, it is also relatively less risky due to the relatively high quality of the projects the company is pursuing.

Tom Konrad

DISCLOSURE: Tom Konrad and/or his clients have long positions in ORA, HTM, RZ, SRAGF, NGPLF, and WGPWF.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 03:46 PM | Permalink | Comments (2) | TrackBacks (3)

Like most conglomerates, United Technologies Corporation (UTC), (NYSE:UTX) won't be found in any of the Clean Energy indices, but its growing portfolio of clean energy businesses makes it fit well into a diversified portfolio with a clean energy tilt.  A conservative capital structure and solid earnings and cash flow, and a decades long history of constantly increasing dividends make this a company that I'm comfortable holding for the long term.  

In terms of sustainability, the company has been recognized by Dow Jones as in the top 10% of the world's most sustainable companies.  Long before it became fashionable for companies to greenwash by reducing their environmental impacts, UTC pledged in 1996 to reduce their power and water usage by 25%, and they have met these goals while growing their business.  Their long track record of reducing their energy usage gives them a significant head start against rivals who have only recently jumped on the climate change bandwagon.

Of the company's eight major business units,  UTC Power and Carrier are both crucial to how we generate electricity and how we use it.  Carrier has a history of pushing for more stringent energy efficiency and environmental standards for air conditioning, a strategy which helps their business strategy since UTC's scale and research allow them to remain on the technological forefront.

UTC Power has a large portfolio of products which will help modernize our energy infrastructure.  They supply microturbines and Solid Oxide fuel cells, as well as integrated combined cooling, heating, and power products, which I feel are likely to become much more popular as more companies seek ways to lessen their environmental impact and energy bills at the same time.

With their PureCycle binary cycle turbine, UTC introduced the benefits of volume production to geothermal power by making slight modifications to an existing line of Carrier's industrial chillers which allow them to operate in reverse.  Raser Technologies (RZ) plans to use this technology in their aggressive plans to develop a large number of lower temperature geothermal resources throughout the Southwest.  According to a personal conversation I had with a Raser employee. UTC's ability to deliver the turbines quickly, and willingness to guarantee performance was key to Raser's selection of that technology in preference to rival products.

One other technology likely to be of great interest to clean energy investors is their molten salt storage technology, which provides a rare opportunity for a US-based public investor to participate in what I consider to be one of the most promising solar technologies: Concentrating Solar Thermal Power (CSP).  The thermal storage provided by molten salt gives CSP the potential to provide power on a dispatchable basis, allowing it to compete directly with expensive electricity from natural gas turbines.

Other divisions of UTC, such as the Sikorsky helicopter division, are major military suppliers, so traditional socially conscious investors may wish to avoid UTC.  On the other hand, the short supply of helicopters needed in modern warfare (as well a a large backlog in their Otis elevator division) have propelled strong earnings growth, while even relatively efficient air conditioners could not prevent Carrier from being hurt by the housing slowdown.  Such are the benefits of diversification.

At roughly $74, and a 17.3 P/E, UTX is not currently cheap.  I currently have only some out-of the money short puts on the company, but it's one that I intend to continue writing puts on until the stock falls and I'm assigned shares.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in UTX, RZ.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 05:07 PM | Permalink | Comments (5) | TrackBacks (0)

This article is a continuation of my Ten Alternative Energy Speculations for 2008, with picks #8, 9, and10 published last Thursday.  If you haven't already, please read the introduction to that article before buying any of the stock picks that follow.  These companies are likely to be highly volatile, and large positions are not appropriate for many investors.   My least risky picks are part of that same article linked to above; the moderately risky picks are here.  This article contains the most speculative three picks.

#3 Nevada Geothermal Power (OTCBB:NGLPF or Toronto:NGP.V) US$1.29 or CAD$1.26

Geothermal first started catching investors' attention about six months ago.  I went into detail as to the reasons for its appeal, and the factors bringing it to investors' attention in this profile of Geothermal power in October.  

Since then, we have been given an added reason to appreciate Geothermal in the United States.  While the recent energy bill did not contain a national RPS, nor tax credits for renewables, it did give the geothermal community much of what they were asking for since it contained the "Advanced Geothermal Energy Research and Development Act of 2007." 

There are three ways to invest in geothermal power: through the technology, through existing plant operators, and through resource explorers and developers.  The provisions relating to Enhanced Geothermal Power and Co-production in oil fields should help technology and service providers such as Ormat (NYSE:ORA) and United Technologies (NYSE: UTX) over the long term, since they will help open up new opportunities for Geothermal.  Over the short term, which is what this article is about, I expect the "Industry-coupled drilling" provision will be most important, and help explorers and developers of conventional geothermal resources.

According to the Geothermal Energy Association, the Industry-coupled drilling provision "pairs the federal government with geothermal developers to reduce drilling risks and improve drilling precision."  Geothermal exploration and development is a very risky process, so government risk-sharing should greatly increase the value of Geothermal prospects by lowering the effective discount rate at which they are valued.  Coming as it does early in the development process, a reduction in risk could easily be worth more to a company which owns the rights to develop an undeveloped geothermal resource than the later boost to income that would come from a Production Tax Credit, even though the industry-coupled drilling provision is likely to cost the government far less than a Geothermal Production Tax Credit.

US-based geothermal developers are most likely to benefit from this provision.  These include US Geothermal (OTCBB: UGTH, GTH.TO), Sierra Geothermal (OTC: SRAGF, SRA.V),  Raser Technologies, (NYSEArca:RZ), and Nevada Geothermal (OTC BB: NGLPF.OB, NGP.V)).  US Geothermal and Raser Tech are up over 3x from their 52 week lows, while Sierra and Nevada Geothermal are each up about 2x, although the Nevada Geothermal share price was stagnant for the previous two years, while Sierra Geothermal has been following a steady uptrend.

Comparing these last two with the least recent appreciation, Sierra Geothermal has many more early stage projects, while Nevada Geothermal has just four high quality projects nearer to production.  In fact, Nevada Geothermal owns Sierra Geothermal's most advanced project (Pumpernickel), and Sierra's exploration and development efforts will earn them at most a 50% share of the project.   This is only Nevada Geothermal's second most advanced project, after their wholly owned Blue Mountain project which is on track to begin producing electricity in 2009, and for which they have already completed a Power Purchase Agreement and an interconnection agreement with local utilities. Nevada Geothermal is currently funding development of its projects with loans from the likes of Geothermal specialist Glitner Bank and Morgan Stanley, while Sierra Geothermal is financing its exploration needs with dilutive private placements.

Because of the relatively small recent run-up for Nevada Geothermal, its strong financial position, and ownership of a late-stage project (as well as sufficient promising projects to keep them busy with development for many years to come), I see the most potential for robust returns in Nevada Geothermal among geothermal developers.   

#2 Finavera Renewables (TSX:FVR or FNVRF.PK) CAD$0.335 or US$0.3371

I chose to include Finavera in my Top Ten Speculations for 2008 for my own reasons, but AltEnergyStocks.com Editor Charles Morand has been following the company longer and more closely than I have myself, so I asked him to profile it.  You can read what he has to say about Finavera Renewables here or simply scroll down to the next post.

#1 First Solar (Nasdaq:FSLR) $267

When I disclosed that I was short First Solar in the first installment of this series, I received an incredulous comment soon after the article was syndicated on Seeking Alpha: "OUCH!! You have a short position in FSLR? I hope it doesn't come back and bite you!"  I'm sure the commenter is not alone in his conviction that First Solar's rise will continue.  The fact that First Solar has risen so far so fast only because people like the commenter have been purchasing the shares like hotcakes all year.

Shorting is inherently more dangerous than being long, because in a long position you can not lose more than you initial investment.  Shorting a momentum stock, even when it is overvalued, can be especially risky, because momentum tends to be a self-fulfilling prophecy, with more investors becoming interested and driving the price up as they try to buy the stock.  For all those reasons, shorting First Solar deserves to be the #1 riskiest of my 10 speculations for 2008. 

Why did I decide to short at all?  What makes me think that 2008 will be the year that First Solar's bubble pops?

First Solar's valuation seems out of line because of an inherent limitation on their profitability.  Their solar panels are based on Cadmium-Telluride (CdTe) thin film technology, and Tellurium (Te) is one of the scarcest elements in the Earth's crust.  In 2006, First Solar's 60MW of production consumed 4% of the world's annual supply of the metal.  In 2008, analysts expect revenues of approximately 4x the 2006 number, meaning they will need approximately 16% of new annual Tellurium supplies.  PrimeStar Solar, a private company is using a recent infusion of capital from General Electric (NYSE:GE) to quickly begin production of their own CdTe modules.  They do not disclose the timing of production "for competitive reasons," but their hiring and equipment orders speak of an aggressive schedule; I expect they will begin production in 2008.  

With this much demand on short-term Tellurium supplies, we can expect continued price increases.  First Solar cannot set the price of their product in the market, because they will be in direct competition with conventional solar modules as will as thin film modules based on CIGS and amorphous silicon technologies.  With the failure of the US Congress to extend tax incentives for solar or to pass a renewable electricity standard, demand for solar panels may not continue to grow as robustly as it it has in recent years.  If anything, this should cause prices per watt to fall somewhat in 2008.

Ethanol producers were caught in a commodity squeeze this year by using 25% of the United States corn supply.  In contrast to First Solar, ethanol production has only been growing 20-25% a year, much slower than the demand for Tellurium from CdTe cells, and corn production was artificially sustained at an uneconomically high level before the advent of corn ethanol by farm subsidies.  Hence, I would expect a commodity squeeze for CdTe producers at a lower percentage of supply.  My 16% projection for 2008 does not seem out of line to trigger a commodity squeeze, which could cause First Solar to miss (or at least cease to beat) earnings estimates in the coming year.  Missing or just failing to exceed earnings estimates almost always leads to quick price drops for high multiple companies.  According to Yahoo!, First Solar's trailing P/E is about 195.

If First Solar produces 240MW of panels in 2008, and Te prices remain at $100/lb, as they were in 2006, Tellurium cost alone would be $87 million [NOTE 3/8/08: I received a comment that I had lost a decimal in this calculation, with actual Te cost being only $8.7 million... don't take this as gospel, make sure to double-check if this makes a difference in your investment decision.], compared to First Call average estimated Revenues of $800M, and $146M estimated earnings.  I don't know what Tellurium prices were used in those estimated earnings, although I expect it was over $100/lb.  Whatever those estimates were, a $200/lb underestimate would completely wipe out earnings for 2008, and, as the oil price has shown us, even moderate increases in demand for a commodity with inelastic supply can create massive price rises.  What will new demand for Te rising from 4% of supply to 16% of supply in two years do to the price?

UPDATE 1/2/08: Ken Zweibel, President of PrimeStar Solar and former head of NREL's thin film partnership program, got back to me today on a research question for this article, now that the holidays are over.   He couldn't tell me much for strategic reasons, but did say that he isn't skeptical of First Solar's valuation, and "There is more Te from nontraditional sources than people are aware of."  I believe he is referring to Te from oceanic ridges, which I don't believe can be extracted in significant quantity within the next couple years, although a Tellurium price rise like the one I anticipate would lead to mining of oceanic ridges in the medium to long term.  Nevertheless, Ken is responsible for much of what we know about CdTe technology, so his comments should not be taken lightly, and there may be other nontraditional sources which can ramp up production more quickly. 

The other reason to believe that First Solar's meteoric rise might halt in 2008 has to do with investor sentiment.  An unscientific survey of sentiment among Seeking Alpha bloggers (myself excluded) has turned negative (as far as I can tell, only Andrew Ling is still writing positively about the stock), and the Tellurium problem is getting wide attention.  How long will it take the mainstream press to latch on to the Tellurium story?  It's impossible to say, and another run like last quarter could easily squeeze out the shorts.  

Taking this all into account, my short position is only about 0.1% of my portfolio, more of an intellectual experiment than a real bet.  As Keynes said, "The market can remain irrational longer than you can remain solvent."   I wouldn't advise anyone to take a short position in FSLR so large that they could not sleep through another doubling of the stock price. 

If any play is for gamblers, this is it.  But cards are stacking up against First Solar.

Links: Picks #10,9,8; Picks #7,6,5,4. Pick #2 Finavera Renewables

DISCLOSURE: Tom Konrad and/or his clients have long positions in UGTH, SRA, RZ,  NGP,  ORA, UTX, FNV, GE, and a short position in FSLR.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 09:33 PM | Permalink | Comments (15) | TrackBacks (0)

Last Thursday and Friday I attended the Geopowering the West Investors' Forum in Montrose, CO (hosted by the Delta-Montrose Electric Association, Colorado's most progressive Rural Electric Cooperative.)  I've long been interested in geothermal stocks, and I first started adding them to managed portfolios in 2003.  As a whole, those stocks have more than doubled in the 1-4 years since they were purchased.

Fundamental Advantages of Geothermal Electricity

Why did I make those first purchases?  Geothermal power has some unique advantages over other forms of renewable energy.

1. Geothermal is base load power.  Utilities have a strong preference towards base load and dispatchable power generation (basically power which is always on or power which they can turn on at will.)  In fact, geothermal plants often have capacity factors 86-95%, well above traditional base load generation such as coal.  So geothermal power is a premium electricity because of its reliability.  Until a recent fire (not caused by the geothermal facility) the plant installed last year at Chena Hot Springs in Alaska, was running at 99.4% availability. 
2. It is inexpensive.  Depending on the resource, the price of geothermal power is comparable to that of wind power, new coal plants, or biomass.  It is considerably less expensive than solar photovoltaic or nuclear power, or the cost projections for "Clean Coal" otherwise known as Internal Gasification Combined Cycle with carbon capture and sequestration.  Using numbers presented at the conference, a geothermal power plant will cost $3-4 per rated watt, but produce about five times as much electricity as a similarly rated (and more expensive) photoelectric panel because of the much higher capacity factor.
3. Geothermal has a small environmental footprint.  Where solar and wind farms gather energy over large areas, a geothermal plant gathers heat from the hot rock or fluids below ground by means of one or a few wells.  Because of this, the footprint needs to be only the size of the turbines which actually generate the power, smaller than the footprint of a coal fired plant generating the same amount of power, without the the necessity of coal mining and without significant emissions of carbon dioxide or other pollutants.
4. In the later life of a geothermal plant, operations produce excellent income streams. While the plants often require refurbishment, with careful management geothermal reservoirs need not degrade over time, and net margins often exceed 60%.

New Developments

Why are people only now starting to talk about geothermal power?

1. Geothermal electric is not a new industry.  The first geothermal electric power plant was built in the 1920s.  But now we have a maturing industry seeing progress in new technology.  Not only can lower temperature resources now be used, but United Technologies (NYSE: UTX) has recently introduced a low temperature capable generator based on proven water chiller technology.  This has the potential to rapidly increase the speed and lower the cost of project development.
2. There is a growing awareness of the need for carbon-free sources of power.  The IGCC's and Al Gore's recent win of the Nobel Peace Prize is just one recent sign of this.  
3. Energy Policy Act of 2005 changed the regulatory environment.  There is a new commitment from national government to simpler lease structures and royalty payments.
4. Current projects typically developed over a three year period, which is actually quite quick when compared to typical 5 year lead times for coal plants.
5. There exists an abundance of overlooked resources because of greater temperature reach.  Historical studies assumed that electricity simply could not be generated below 300 F, but new technologies can handle temperatures below 200F, which geometrically increases the number of sites with potential for generation.
6. Was seen as relatively small potential until the MIT Study which came out this year.  Enhanced (aka Engineered) Geothermal Systems (EGS) hold out the promise that the extractable amount of energy is not limited by the resource size or availability.   There is simply so much heat stored in the Earth's crust, that only extracting a fraction of a percentage of it would allow us to meet our energy needs for the foreseeable future.  While EGS holds out promise, the technologies needed still require significant research.  From an investor's perspective, more concerned with the prospects for the next ten years than the next fifty years, EGS is much more important for the interest it generates in geothermal than it is for investment opportunities.   Nevertheless, in terms of meeting our long term energy needs, I expect Enhanced Geothermal Systems to be a much cheaper and simpler solution than Carbon Sequestration from Coal plants.
7. Geothermal as oil co-product.  Many existing oil wells also bring up sizeable quantities of water at temperatures sufficient to run small binary cycle turbines.  While this resource at any one oil well is likely to be small (less than a megawatt), aggregating all the wells in a large oil field could produce significant power at low cost given that the costs of exploration and exploratory drilling need not be paid for by the geothermal electricity generated. 

Tricks of the Trade

What does a geothermal investor need to watch out for?

1. Exploration risks. Prospecting for geothermal resources using remote sensing and surface sampling is useful for defining the drilling target, but does not significantly reduce the risk of not finding a resource sufficient to produce power.  This is in distinct contrast with oil prospecting, where prospecting significantly reduces risk.
2. Risks to resources currently in use.  Attendees were treated to a Jeep tour through the geothermal history of the town of Ouray.  Over twenty years ago, the city started a series of test wells around the town with the hope of finding enough geothermal hot water for a district heating system, and to keep their Hot Springs Pool open year round.   All did not go as planned, and three of the owners of springs around the city filed lawsuits against the city charging that the city's drilling had reduced their flows.  The parties settled, but the city was forced to discontinue drilling.  While the city of Ouray officials did not admit to decreasing flow rates of other pools, after listening to both sides, I think the owners of the springs had real grievances (and the courts seemed to agree with that assessment.)
3. Unexpected effects of new technology.  One large potential problem is induced seismicity [MS Word document] when trying to stimulate reservoirs in hot dry rock for EGS.   One reason for an investor to consider geothermal development companies rather than geothermal equipment suppliers is that a company with a known geothermal resource will generally benefit from the evolution of technology, while a technology supplier could easily lose market share to competitors.
4. A geothermal resource developer must be able to connect to the grid.  No matter how hot the resource nor how close it is to the surface, the developer must be able to connect to the electric grid at a point where there is sufficient available capacity to sell the electricity.  The ability to negotiate a Power Purchase Agreement with a local utility having a respectable credit rating will also enable the developer to gain access to financing on more favorable terms.
5. Ownership of geothermal resources is legally complex.  As the City of Ouray found in the dispute mentioned above, unless an owner has put a resource in use, they may find that a court of law will not uphold their ownership of that resource.
6. Many of the future resources to be developed are likely to be "blind."  That is, there is no surface indication of the hot rock below.  Exploration for such resources is likely to be more lengthy and costly than past exploration. 
7. As with any industry, quality management and personnel will be able to find opportunity in a crisis, while less able teams will be unable to exploit all the opportunities available.
8. Skill in managing geothermal reservoirs is essential.  Pumping a reservoir too quickly or reinjection of cool fluids in the wrong place can greatly reduce the production from geothermal reservoirs.
9. Except when the developer plans to use less efficient and more expensive air cooling, the availability of low temperature cooling water in sufficient quantities will be necessary to generate electricity.  

Companies

Here is a short list of interesting companies involved in geothermal power production and some reasons you may want to consider them for investment.

1. Ormat (NYSE:ORA).  Ormat is the granddaddy of geothermal stocks.  A vertically integrated company, they not only explore and develop their own resources, they also will contract to manage resources for other developers (such as US Geothermal's Raft River project).  Their long history and current profitability gives them the safest pure-play geothermal stock available.  They are experts with binary cycle turbines and reservoir management, as well as applying their binary cycle technology to waste heat recovery as well as a concentrating solar power experiment.
2. United Technologies (NYSE: UTX) is not really a geothermal company at all, but I include them because of their recent innovation in producing low temperature binary cycle turbines on an assembly line basis, using an adaptation of their industrial chiller technology, for which they recently won a R&D 100 award.  While this may never become a significant part of UTX's bottom line, it is likely to change the economics of geothermal development for the better.  I also expect to see the PureCycle turbine applied to a myriad of waste heat applications, quite possibly more than to geothermal.
3. Raser Technologies, (NYSEArca:RZ), Nevada Geothermal (OTC BB: NGLPF.OB, NGP.V) , US Geothermal (OTCBB: UGTH, GTH.TO), Sierra Geothermal (OTC: SRAGF, SRA.V), Polaris Geothermal (PGTHF.PK), and Western GeoPower Corp (WGPWF.PK, WGP.V) are geothermal developers.  I find it very difficult to determine which will succeed and which will fail, and so prefer to own a little of each, buying when I feel the stocks are relatively inexpensive from a technical analysis standpoint.  Raser is not a pure geothermal developer; they also develop high performance electric motor technology which is interesting to me, but the synergies are far from obvious.)   

Geothermal has long been an underappreciated renewable energy technology.  That seems to be changing, which will be an excellent thing both for our hope of moving to a less carbon-intensive economy, and for early investors in the sector.

DISCLOSURE: Tom Konrad and/or his clients have positions in the following stocks mentioned here: ORA, RZ, NGLPF, UGTH.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:48 PM | Permalink | Comments (8) | TrackBacks (4)

Nevada Geothermal Power Inc. (NGLPF) announced that it has initiated development drilling at Blue Mountain Nevada. Production test data from the wells will be used to complete a feasibility study for an initial 30 MW geothermal power plant.

In the initial program, four 13-inch diameter production wells will be drilled to 4000 feet (1200 metres) into the moderate temperature (300-330 degrees C) geothermal resource intersected in previous test holes. Permits have been obtained and drill pads are under construction. A water well rig will be used to drill the top 800 feet of each well and to set surface casing. A production drilling rig with a substructure to accommodate blow-out-prevention-equipment will then complete the holes to total depth. A suitable rig has been identified and is expected to be on site by the end of May. NGP expects to complete initial development drilling over the next six months. [ more ]

Posted by Mark Anderson at 08:31 AM | Permalink | Comments (0)

Ormat Technologies (ORA) announced that an Ormat subsidiary signed an agreement to purchase from CDC Group plc., a 14.09% partnership interest (13.67% on a fully diluted basis) in Orzunil I de Electricidad, Limitada (Orzunil), which owns the Zunil Geothermal Project in Guatemala. CDC Group's investment in this project has been managed by Globeleq, an emerging markets power company.

As a result of this acquisition, Ormat's annual net income from the Zunil project is expected to increase by approximately $0.6 million on a full year basis. [ more ]

Posted by Mark Anderson at 06:31 PM | Permalink | Comments (0)

US Geothermal Inc. (UGTH) has initiated a contract with Ormat Technologies (ORA) to begin building a binary cycle geothermal power plant that is designed to deliver 10 MW monthly average electrical power to Idaho Power Company under a 20-year term power purchase agreement. [ more ]

Posted by Mark Anderson at 09:19 AM | Permalink | Comments (0)

Nevada Geothermal Power Inc. (NGLPF) reported the completion of a geophysical survey at the Pumpernickel geothermal project in Nevada. The project is managed by Nevada Geothermal Power Company (a subsidiary of NGP), as Exploration Manager.

The final report is pending, however a preliminary assessment of the data shows that the survey successfully defined the contact between the valley fill and the basement rocks, and most importantly it established the positions of valley faults and their relationship to the geothermal system.

The data showed a good correlation with the 2005 resistivity data. The combined data will aid significantly in defining the boundaries of the geothermal reservoir and the subsequent design of the first production test wells, planned for 2006. [ more ]

Posted by Mark Anderson at 08:03 AM | Permalink | Comments (0)

Ormat Technologies (ORA) has entered into a 20-year power purchase agreement with Puget Sound Energy Inc. for the supply of power from a Recovered Energy Generation System (REGS), which will be located adjacent to the Sumas Compressor Station of Northwest Pipeline Inc. (NWP) in Sumas, Washington State.

The REGS will be owned by Orsumas and will use recovered waste heat from three NWP existing gas turbines driving compressors at the station, as well as interconnect to Puget Sound Energy's transmission grid. The facility will employ an ORMAT ® Energy Converter (OEC) and will have a design capacity of 4.95 MW net. [ more ]

This deal is expected to generate annual revenues of approx $2.3 mln with a 1% annual escalation.

Posted by Mark Anderson at 08:47 AM | Permalink | Comments (0)

Raser Technologies (RZ) announced a definitive agreement to acquire Amp Resources ("Amp"), a private company with technologies focused on geothermal heat and power generation. The deal is for about $260 million in cash and stock.

Raser will acquire Amp and its portfolio of technologies for heat transfer and renewable power generation. Raser will also assume ownership of multiple, long-term geothermal energy sales contracts with public and private utilities. These contracts call for an aggregate of $966 million from gross energy sales over 20 years. It is anticipated that these power generation projects will be developed and placed in service by December 2007. [ more ]

Raser is an early stage development company that specializes in electric motors and is a founding member of the Plug-In Hybrid Development Consortium. The shares of Raser have been up over 100% in the last month. Today the stock is currently trading down over 20% on the news. This could be interpreted as profit taking. Also, typically the shares of the acquiring company heads down on the day of the announcement due to fears of increased liabilities. Raser will assume liabilities and about $50 million in debt once the deal closes.

Green Car Congress has additional details about the technology. [ more ]

Posted by Mark Anderson at 02:11 PM | Permalink | Comments (0)

FPL Group Inc (FPL) is currently in the advanced stages of negotiations to acquire Constellation Energy Group (CEG). An FPL-Constellation merger would create a giant East Coast-based utility with a market capitalization, based on Tuesday's closing stock prices, of $26.97 billion - $16.93 billion for FPL and $10.04 billion for Constellation.

Constellation Energy Group is based out of Baltimore Maryland and is the holding company for Baltimore Gas and Electric. They also have an extensive presence in the wholesale power supply and generation business. The Power Generation Division currently uses 4.6% alternative sources for power generation.

FPL has a strong commitment to alternative energy generation and is one of the largest utilities in the US utilizing extensive wind farms. CEG has a large footprint in Nuclear power generation and the combination of these two companies would make a top-tier producer of power generation for the East coast markets and a potential of 30,000 megawatts of power generation. CEG also gives FPL the ability to enter the wholesale supply side of the power generation business.

Typically you would see shares of the acquiring company down and shares of the acquired company up with this type of announcement. The market is liking this potential merger and CEG is up over 7% and FPL is also trading up 0.6% this morning.

Posted by Mark Anderson at 10:01 AM | Permalink | Comments (0)

Ormat Technologies (ORA) said it has agreed to buy a 50.8 percent partnership interest in Orzunil I de Electricidad Ltd., owner of a geothermal plant in Guatemala, for $14.8 million. The Zunil project includes one power plant with a capacity of 24 megawatts that is expected to generate $12.5 million in revenue next year and boost Ormat's net income by $1.9 million in 2006. [ more ]

Posted by Mark Anderson at 10:30 AM | Permalink | Comments (0)

Shares of Calpine Corp. (CPN) suffered a greater than 20% loss yesterday and is now down almost another 13% today. All of this was caused by a court ruling stating that they will be unable to use the $395 million in cash they received from the sale of oil and gas fields earlier this year for the purpose of buying natural gas to run its power plants.

The dispute stems from the Bank of New York's decision in September when, acting as trustee for Calpine bondholders, it withheld proceeds from Calpine's sale in July of North American oil and gas fields.

The bank froze the money after the bondholders said money from the sale couldn't be used to buy fuel futures but should be used instead to buy other assets or pay off debt.

The move prompted Calpine to file a lawsuit against the Bank of New York and Wilmington Trust Co. seeking release of the funds, arguing that buying natural gas in storage is allowed under the terms of its notes. [ more ]

When I purchased this stock for the mutual fund I mentioned it was a very speculative play.

Shares in FPL and Calpine Purchased August 15
Calpine Corp. (CPN) is the other utility that I started a position in today. This one is a more aggressive play, but has the potential to generate better results. Calpine supplies electricity from natural gas-fired and geothermal power plants to wholesale and industrial customers in North America. This company has had some serious financial difficulties in the past and is trying to right itself. This is a very speculative purchase and I did not commit very much money into it. I purchased this stock with an average entry price of $3.35 for the mutual fund only.

With the stock now sitting at a dollar and change the big question is should I sell now? As I stated above I didn't purchase a large amount of the stock, so this loser doesn't seriously affect the portfolio. If they would have gotten a positive ruling then the small amount of stock would have seen some good gains. It was a gamble and one that is lost. There are now fears that bankruptcy is just a couple of quarters away. I'm going to sit with my shares for now since it is sitting at the 52 week lows. I will continue to watch this stock to see if they can get an appeal, but the hopes are fading quickly. The company still has a book value of over $6, so it could see itself purchased by a larger company in the future. So I will hold for now.

This is also just another reminder that many of the stocks in the Alternative Energy sector are very small companies. Many are on the verge of breaking out big over the next couple of years, but there are also many that can blow up in your face. So as they say, make sure all your money is not in one basket.

Posted by Mark Anderson at 02:59 PM | Permalink | Comments (0)

Ormat Technologies (ORA) announced that Ormat subsidiary, Puna Geothermal Venture ("PGV"), completed the re-drilling of an existing production well at the Puna Geothermal Project (the "Puna Project") located on the Big Island, Hawaii. The well re-drilling increased net generating capacity of the power plant by approximately 4 MW, bringing total net generating capacity to approximately 29 MW. [ more ]

Posted by Mark Anderson at 11:17 AM | Permalink | Comments (0)

Nevada Geothermal Power Inc. (NGLPF) reported that exploration work at the Pumpernickel Geothermal Project (5710 acres/8.92 square miles) is underway. In Phase I - 3D "E-SCAN", resistivity survey methods will be utilized to map the deep geothermal source waters feeding surface hot springs. Results are expected in four weeks. Subsequently a series of six 250-meter (820 foot) gradient wells will be drilled to test the interpretation of the E-SCAN survey. [ more ]

Posted by Mark Anderson at 11:07 AM | Permalink | Comments (0)

US Geothermal Inc. (UGTH) announced today that the company has met requirements for a listing on the OTC Bulletin Board, as confirmed by J Giordano Securities Group of New York City, market maker for the company's securities.

US Geothermal holds the rights to approximately six and one-half square miles, which comprise the Raft River project development in Southeastern Idaho, a geothermal reservoir that was a former US Department of Energy geothermal research facility. [ more ]

Posted by Mark Anderson at 12:14 PM | Permalink | Comments (0)

Nevada Geothermal Power Inc. (NGLPF) reported that the next phase of development is underway at its Blue Mountain Geothermal site, with drilling to deepen the Deep Blue 2 (DB2) well by an additional 700 metres (2,300 feet).

"We are investigating a potential deep - hotter production zone that would make Blue Mountain's economics extremely robust," said Brian Fairbank President and CEO. "A deep high temperature resource would allow us to use more efficient and cost effective 'dual-flash' technology similar to the 60MW power plant at the Dixie Valley high temperature field in Nevada. A Monte Carlo simulation by Susan Petty of Black Mountain Technology infers a minimum resource capacity of 110MW if temperatures between 220 degrees - 250 degrees C can be confirmed." [ more ]

Posted by Mark Anderson at 05:18 PM | Permalink | Comments (0)

Ormat Technologies (ORA) announced that it completed negotiations for two new 25 years Power Purchase Agreements (PPA) with Southern California Public Power Authority (SCPPA) for the purchase of renewable energy from its geothermal projects at the Ormesa Geothermal Facilities Complex and the Heber Geothermal Facilities Complex.

Ormat also announced that it celebrated the ground breaking and dedication of a new geothermal power plant within the Heber Geothermal Facilities Complex on Monday May 2, 2005. The new plant is dedicated to Mr. William R. Gould, who served as the Chairman of Southern California Edison (SCE) from 1980 through 1984, and was a driving force behind much of California's renewable energy programs. The new 10 MW William R. Gould plant is part of an 18 MW enhancement at the Heber Geothermal Facilities Complex, including an 8 MW enhancement to existing facilities, which supply power to Southern California Edison under ongoing PPAs. [ more ]

Posted by Mark Anderson at 05:11 PM | Permalink | Comments (0)

Ormat Technologies (ORA) broke ground today on the first geothermal electric generating plant to be built at Steamboat, Nevada since 1991. Known as the Galena Geothermal Project, when completed the plant will be added to the existing Steamboat geothermal plants and bring the total output from this geothermal complex to 44 megawatts of electricity through a process that extracts and re-injects the hot geothermal waters from the ground. One megawatt of electricity can supply energy up to approximately 1,000 typical homes in the area. [ more ]

Posted by Mark Anderson at 08:22 AM | Permalink | Comments (0)

Ormat Technologies (ORA) announced that two of its subsidiaries have entered into Supply and Engineering Procurement contracts for a new geothermal power plant to be constructed on Sao Miguel Island in the Azores. The contracts are for a total of 19,151,422 Euro (approximately $25 million), with construction on the power plant expected to be completed within 19 months from the contract date. [ more ]

Posted by Mark Anderson at 12:00 PM | Permalink | Comments (0)

Ormat Technologies (ORA) announced that the customer rendered final approval of the Purchase Order valued at approximately $16.9 million, for the supply of 102 remote power units for Communications and Cathodic Protection along a pipeline on the Sakhalin Island in the Russian Federation, as described in the press release dated December 9, 2004, and the Purchase Order became a definitive agreement. [ more ]

Posted by Mark Anderson at 12:52 PM | Permalink | Comments (0)

Ormat Technologies (ORA) announced that through a newly established project subsidiary, it has entered into a 25-year Power Purchase Agreement (PPA) with an electric utility according to which ORMAT will supply approximately 22 MW from recovered energy generation power plants. The power plants are to be constructed by ORMAT between 12 and 18 months from the effectiveness of the PPA. The power plants will be constructed on gas compressor stations along a Natural Gas pipeline in the Midwestern United States. [ more ]

Posted by Mark Anderson at 08:59 AM | Permalink | Comments (0)

Nevada Geothermal Power Inc. (NGLPF) is pleased to report on recent flow and injection testing of Deep Blue No.2 (DB-2) which penetrated the upper reaches of the geothermal resource, and an eight-hole temperature gradient drilling program at the Blue Mountain project in Nevada. The program has provided positive information on production capability of the inferred resource and expanded the known extent of the thermal anomaly. [ more ]

Posted by Mark Anderson at 08:30 AM | Permalink | Comments (0)

As mentioned in a previous entry, the Pennsylvania legislature passed SB1030, the Alternative Energy Bill, on November 20, 2004 which will require a total of 18% of Pennsylvania's electricity to be generated by alternative energy sources by 2020.

The standard requires 8% of Pennsylvania's electricity to be generated by so-called "Tier I" renewable sources of energy by 2020. Tier I resources include solar, wind, geothermal and biomass. The standard also requires 10% of the state's electricity to come from a second category of resources that include waste coal, integrated combined coal gasification technology, municipal solid waste, large-scale hydro, demand-side management and distributed generation systems. [ more ]

Posted by Mark Anderson at 09:59 AM | Permalink | Comments (0)

Colorado voters have approved an amendment requiring utilities to get part of their electricity from the sun, wind or plant and animal waste.

The amendment requires the state's seven largest utilities to get a portion of their retail electricity sales from renewables, beginning with 3 percent in 2007 and climbing to 10 percent by 2015. Four percent of the renewables should be solar sources. [ more ]

Posted by Mark Anderson at 08:30 AM | Permalink | Comments (0)

Nevada Geothermal Power Inc. (NGLPF) announced today that it has acquired 7 square miles of private land and has applied for a one section federal geothermal lease for a total land area of 8 square miles (22 square kilometers) south and east of Black Warrior Peak, Washoe County, Nevada. The leases are on private land and are subject to a 3.5% royalty on gross revenue from electricity sales, however, NGP can purchase the royalty for US$1,000,000. Leases include surface and water rights. [ more ]

Posted by Mark Anderson at 08:52 AM | Permalink | Comments (0)

Nevada Geothermal Power Inc. (NGLPF) announced that Inovision Solutions Inc. (ISI), a TSX-V listed company, will fund up to C$5,000,000 in exploration and development expenditures for the Pumpernickel Geothermal Project under an option agreement to earn a 50% joint venture interest. In order to earn its interest, ISI must complete C$5,000,000 in project expenditures, make C$120,000 in cash payments and issue 600,000 shares to NGP over a five year period. In the first year, ISI must fund a C$400,000 work program, issue 100,000 shares and make a C$10,000 cash payment to maintain its option. NGP will be project manager. [ more ]

Posted by Mark Anderson at 08:59 AM | Permalink | Comments (0)

The Production Tax Credit (PTC) -- a critical factor in stimulating the growth of the US wind industry -- is very likely to be expanded to include geothermal energy as part of the JOBS tax package (H.R. 4520, the "American Jobs Creation Act of 2004") just approved by a Congressional Conference Committee. [ more ]

Posted by Mark Anderson at 09:08 AM | Permalink | Comments (0)

Nevada Geothermal Power Inc. (NGLPF) is pleased to report that a temperature gradient drilling program is near completion at the Blue Mountain project in Nevada. Eight holes have been drilled to depths up to 1020 feet using an air rotary rig to map the subsurface thermal anomaly outward from the central thermal zone. At three valley locations where the depth of overburden exceeded the capability of the air drilling equipment, additional drilling with a mud circulation rig may be conducted after the initial results have been compiled. Results from the current drilling combined with earlier temperature gradient data and test wells Deep Blue No. 1 and 2 will be used to determine the optimum location for two production test wells. [ more ]

Posted by Mark Anderson at 06:57 PM | Permalink | Comments (0)

New York will dramatically boost its reliance on renewable energy sources like wind and water over the next nine years under a policy approved by state regulators Wednesday.

Clean energy advocates and state officials said the action by the state Public Service Commission places New York among the leaders nationwide in the development of renewable energy. It comes 20 months after Gov. George Pataki first called for a statewide standard that would encourage the production of environmentally friendly energy. [ more ]

Posted by Mark Anderson at 08:54 AM | Permalink | Comments (0)

"Experts generally agree that our current reliance on fossil fuels is unsustainable. Already oil is near $50 per barrel, and the great millions of Chinese and Indians destined to take to the road in the next decades have not yet gotten behind the wheel."

This week Newsweek has written several special reports about alternative energy in all its forms. All of these reports can be found at the following link. [ more ]

Posted by Mark Anderson at 06:48 PM | Permalink | Comments (0)

Colorado House Speaker Lola Spradley, R-Beulah. and U.S. Rep. Mark Udall, D-Eldorado Springs, co-chairs of Amendment 37—the Renewable Energy Initiative—kicked-off their statewide campaign Thursday with stops throughout Colorado.

Amendment 37 would require 10 percent of Colorado's electricity be generated from renewable energy by 2015. The program is scaled beginning with a 3 percent requirement by 2007, 6 percent by 2011, and 10 percent by 2015. [ more ]

Posted by Mark Anderson at 05:48 AM | Permalink | Comments (0)

Colorado is the first state in the nation to place renewable energy on its ballots, thanks in part to grassroots support from Summit County.

On Nov. 2, Colorado voters will decide whether to require the state's seven largest utilities to generate 10 percent of their electricity from environmentally-friendly sources like wind power by 2015. [ more ]

Posted by Mark Anderson at 05:04 PM | Permalink | Comments (0)

Western GeoPower Corp (WGPWF) has received approval to start drilling on their new Geothermal energy operation facility at South Meager in Canada. This new facility could amount to over 100 MW capacity. [ full story at SolarAccess.com ]

GeoPower expects to have the South Meager plant ready for commercial generation by mid-2007.

Posted by Mark Anderson at 01:35 PM | Permalink | Comments (0)

The political climate for many of the western states are slowly starting to change to see the need for conversion to renewable energy sources. These test installations for Solar, Geothermal, and Wind energy are now producing real power for these areas. The key for us is to find the vendors that supply these installations. As the funding increases in these test beds, our growth will increase.

Here is a good article from the sfgate.com about the various western states initiatives.

"California's goal is to produce 20 percent of its electricity from renewable sources by 2017. New Mexico is aiming for 10 percent by 2011. Texas, despite its oil industry, has set a goal of 2.7 percent by 2009. A referendum headed for the Colorado ballot in November would require the state to get to 10 percent by 2015." [ full story at sfgate.com ]

Posted by Mark Anderson at 01:30 PM | Permalink | Comments (0)

BusinessWeek.com discusses John Kerry's plan to increase alternative energy usage for the country.

John Kerry's blueprint for energy independence doesn't suffer from lack of ambition. In early August, he'll unveil an energy plan that he says can break America's addiction to foreign oil, revitalize the U.S. auto industry, help farmers and coal miners, fight global warming, and create jobs -- all for just $2 billion per year. "We can live in an America that is energy independent," Kerry promises. [ full story at businessweek.com ]

Posted by Mark Anderson at 05:53 PM | Permalink | Comments (0)