Renewable Energy Journal

This morning there is news on the wire that New Jersey utility NRG has bid over $11B in an all stock deal to acquire Calpine. This is a 6% premium over the closing price of Calpine yesterday. With 26GW of generation capacity (a little less than 1GW geothermal, the rest natural gas) Calpine is a significant generator who only emerged from bankruptcy protection 4 months ago. Should the deal be consummated, the combined utility would have nearly 50GW of generation capacity in hydro, geothermal, petrochemical, coal, and nuclear powered generation.

The Calpine board is considering the offer at present. This is the latest in a wave of consolidate of the fossil fuel generators. Let’s hope the significant geothermal operation is not lost/damaged in the shuffle.

Links:
Calpine
NRG
AP Story on Bid

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Western GeoPower scored a nice deal yesterday inking a 20 year PPA with the Northern California Power Association for around $26M/year and a purchase price of $98/MWh. We thought the $78/MWh + wheeling costs that was cut earlier this year between the City of Anaheim and Raser was lucrative. $98/MWh is great and reflects the new CPUC pricing model.

With the deal, WGP has a $500M+ revenue stream set against a ~$120M capital expenditure. With operating costs of $30/MWh, that leaves a whopping $68/MWh for debt service, other SG&A, taxes, and net income.

Links:
Western GeoPower
Raser Technologies
Northern California Power Association (NCPA)
California Public Utilities Commission (CPUC)

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CBS MarketWatch ran an interesting story last week on brokerage and investment banking concern Jesup & Lamont and their analysis of small cap stocks in the renewable space. The video above was recorded at a conference the company sponsored and Brian Yerger takes the viewers through the rationale of alternative energy (we prefer renewable, there’s nothing alternative about technologies that have been used for millennia) stocks moving into the mainstream for investors, particularly institutions. Geothermal player Ormat and solar PV installer Akeena are mentioned prominently in the clip.

Links:
CBS MarketWatch Article
Ormat (ORA)
Akeena (AKNS)

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This week, CNBC published an article on the hot geothermal stock sector where companies like Ormat (NYSE: ORA) and US Geothermal (AMEX: HTM) are outperforming the S&P last year, Ormat by 40%. There are a number of interesting facts & figures along with a couple of very interesting assertions.

The article states that investment in the sector is now $3B, up 183% year over year. It goes on to say that half of that investment comes from foreign players on US soil, notably from Iceland (Glitnir & Geysir Green Energy) and Italy (Enel.) Another interesting aspect pull out of the article is that the “smart money” in private equity has taken note, pouring in over $400M in 2007.

Of the projects on the board, some $31B of additional investment will be required which will boost geothermal electricity sales to over $11B per year, up from the present level of $1.8B per year.

Switching gears, Arvind Sodhani of Intel Capital warned of a cleantech bubble when recently interviewed by the Financial Times. Sohani’s thesis is simple and logical, when equity valuation becomes disconnected from intrinsic value of assets, a bubble occurs and a crash inevitably follows. Almost certainly there is bubble risk the solar and wind segments, and arguably, the ethanol segment bubble has already popped.

As always, there are conflicting views on the world of cleantech. The facts demonstrate that the industry remains hot and the hope is that it can survive the bubble and thrive in the long-term.

Links:
CNBC: Investment In Geothermal Industry Heating Up
FT: Intel Capital Warns of Cleantech Bubble

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Geothermal developer Raser Technologies reported Q1 earnings yesterday with mixed results. If one were to judge the company purely by financial measures one would conclude this is a penny stock headed toward zero with accelerating losses, very little revenue, and negative shareholder equity. However, the market seems to be taking a much more optimistic view, assigning a market cap in excess of $500M, based on the non-financial aspects of the report which principally involves the development of 8 geothermal electricity projects in Utah and Oregon. Here is a snapshot of the consolidated balance sheet and operations statement:

With the bad news out of the way, the company has made progress toward developing its geothermal project portfolio with approximately 80MWe underway in 8 projects scattered throughout Utah, Nevada, and Oregon. Management expects that all 8 projects will be in commercial operation by the end of Q1 2009. Power purchase agreements totaling 22MW have been completed with the City of Anaheim and more agreements are in-process at this time. Ground was broken on the first plant in Utah and the company managed to secure some star power in the form of Senator Orrin Hatch for the ceremony. Project financing for 155MWe has been secured and power conversion units accounting for 45MWe have been ordered with about 8MWe now in possession of the company.

Possible snags in getting to commercial operation for these plants include: permitting, environmental impact reports, transmission, and most importantly, water availability and rights. The company has not spoken publicly about any of these issues and with 8 concurrent projects underway, there is substantial delay and completion risk yet to be mitigated. While it’s clear the company is moving full speed ahead in developing its projects, we can’t help but note that management claimed the first plant would be in operation in Q1 2008 in the earnings report one year ago. We said the company’s plans were overly aggressive then, we maintain that stance even as we’re impressed by the progress that has happened to date.

There is still substantial risk in this stock relative to the bet on positive cash flow in time to meet the committed financial obligations.

Links:
Raser Technologies

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