Monday, October 11, 2010

Hot Rocks: "Geothermal Stocks Overview" (ORA; CPN)

"...two kilometers or so down in most places there are these incredibly hot rocks, ’cause the interior of the earth is extremely hot, several million degrees, and the crust of the earth is hot ”
-Al Gore talking to Conan O'Brien on the Tonight Show  
Mr. Gore was brought in as a partner at Venture Capital firm Kleiner, Perkins, Caufield & Byers which is a major investor in geothermal tech company Altarock.

I’m guessing Mr. Gore was not brought in for his scientific expertise.

Our last post on geothermal was "Ormat taps Volcano to Generate Electricity (ORA)":
Guess who's writing off their subscription to "Journal of Volcanology and Geothermal Research"?
[this will end as badly as the time you tried to write off the "Journal of Leisure Research" -ed]...
Here's a serious look at the playas, from AltEnergyStocks:
Geothermal power generation has several advantages over higher profile alternative energy such as wind and solar, but gets much less attention. 

Part of the lack of recognition for Geothermal power arises from a confusion with the technology variously called Geoexchange, Ground Source Heat Pump, or Geothermal Heat Pumps.  Geoexchange uses the near constant temperature of the soil a few feet to a few hundred feet below the ground to heat and cool a building.  According to the Environmental Protection Agency, Geoexchange is the most efficient way to heat and cool a building, and is a very interesting energy efficiency technology (and investment opportunity) in its own right, but it has little in common with Geothermal power.

In contrast, Geothermal power involves using much higher temperature heat from hot springs or wells much deeper into the earth to generate electric power.  Unlike Geoexchange, current Geothermal power technology requires an existing geothermal resource where natural geologic forces have brought an unusual amount of hot liquids into permeable formations relatively near the Earth's crust.  There is currently a great deal of research going into Enhanced Geothermal Systems (EGS) which use modern drilling and fracking technology to recreate the natural conditions that make Geothermal power generation possible, but EGS technology needs more development to become commercially competitive.

In contrast, Geothermal Power with a good resource can produce electricity for pennies per kWh.  Electricity from one of the world's best geothermal resources, The Geysers in Northern California, is sold for 3 to 3.5 cents per kWh, although many the lower grade resources being exploited today need prices between six and twelve cents, depending on who you ask....

Geothermal Stocks
Geothermal stocks fall neatly into two categories: Large cap companies and junior exploration and development companies.  The large-cap companies are:

  • 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.
Junior Geothermal Exploration and Development Companies

None of these companies are currently profitable, but all own geothermal resources in various stages of development, including producing plants.  With substantially all the cost of geothermal development coming up-front, investors in these companies need to consider the availability of funding for development as well as the riskiness and time line for developing each company's geothermal assets....MUCH MORE, between the ellipsesa nd after the jump