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Polaris Reports: Inside the Numbers

San Jacinto Plant
Photo of San Jacinto Plant in Nicaragua
Photo Credit: Polaris Geothermal

Polaris Geothermal recently reported full results for the year 2007. A detailed press release about the earnings is available here. The high points: The company got a full year of production from the Phase I of its plant in San Jacinto-Tizate, Nicaragua at around 7MWe of average output, the drilling program continued to grow Phase I to its planned 34MW target, and the full 72MW of production appears to be on track for the 2010 timeframe.

The low lights involved a question about the validity of the concession from the Nicaraguan government which was resolved and accelerating losses, the net loss rate for the company increased nearly $2M to $6.7M on the year. Shareholder concerns about Polaris have to revolve around project finance where additional dilution and access to debt financing will present distinct challenges going forward.


Rather than making this a straight financial story, one of the things that struck us about this release was the transparency of the operational aspect of the SJC plant. We applaud Polaris for disclosing this information and believe since it is there, at least at this plant on this project, we can see some of the real cost and benefit of geothermal plant operations.

In 2007 the SJC plant produced 64,778 MWh of power accounting for $3.9M in power sales and $0.7M in carbon credit sales for a grand total of $4.6M of revenue for the project. Plant operations expenses totaled $2.2M yielding a gross margin of $2.4M for the project at an average output of 7.37MW per month. Hidden in these numbers are outages of over a week in June which cost the company approximately 1,000 MWh of sales.

We can reverse engineer that the company is being compensated $10.80 per MWh for carbon credits and $60.20 per MWh for power sales against operations cost of $34 per MWh. As the project grows to 34MW and finally tops out at its planned 72MW, these numbers should improve as the plant operations costs won’t scale in a linear fashion relative to output due to economies of scale (after all, the operations infrastructure is in place now, operations cost will increase but the slope should be pretty flat.)

NCPA, an operator at the Geysers, sees operations costs of about $19 per MWh at 132MW of output. It seems reasonable to believe that Polaris could achieve that level of efficiency over time, but even if the SJC project split the difference and only improved to $26.50/MWh, there would still be interesting impacts on the bottom line.

If nothing changes except capacity and output, at a 34MW and present availability and capacity factor, the company would bring in $13.2M in power sales and $2.4M in carbon credits balanced against $7.5M in plant operations producing a pre-tax, pre-corporate expense run rate net of $8.1M. If the company was able to hit the $26.50/MWh operational improvement, that would result in a $1.7M increase to $9.8M.

At 72MW and current operational levels and assumptions, the project is a real money machine producing $28M in power sales and $5M in carbon credits against operational expense of $15.8M. With numbers this attractive, why isn’t everyone building geothermal plants? The answer lies in the development expense. Effectively, the lifetime cost of production is incurred upfront and then amortized over the lifetime of the project. Therein lies the rub, the development cost per MW of output is in the $3.2M range presently meaning to reach 72MW Polaris will likely have spent $230M developing the plant.

It’s always nice to see real numbers, thank you for disclosing Polaris and we wish you well as you build your SJC project out to scale.

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Ormat Revenue Up, Net Down

Geothermal and waste heat harvest equipment maker and electricity generator Ormat issued a short earnings preview this morning stating that revenue was up year over year from $72M to $73M. Net profit however dropped from $87M to $47M; however, the prior comparison period had a one-time capital gain of $47M reported. Excluding this gain, profit increased from $40M to $47M year over year.

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Polaris Raises $27M

Polaris Geothermal, who recently announced a successful well test on their Nicaraguan concession, has recently announced a debt funding round of $27M in exchange for 27,000 units. A unit will consist of $1,000 in 9.5% senior debt, 667 warrants, and 75 penalty rights. The debt is due in 18 months time and will be paid quarterly in arrears. Jacob & Company, the underwriters of the deal, stand to benefit $1.89M for their fee and an option to acquire 7% of the offering.

The proceeds from this funding round will be used to retire $8.3M in debt due and the balance will be used for general corporate purposes according to the company. This debt round comes on the heels of a prior $32M private placement completed in July, 2007.

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Two views of Raser

Here’s the core question: Is Raser a legitimate geothermal developer or a company chasing the latest hot trend pumping out news to prop up valuation?

There has been some spirited discussion inside our shop about which is the “real” Raser, and as a team, we’ve really taken a “wait and see” attitude. One side of the argument goes: this is a company that has entered the geothermal developer space with both feet. The company has acquired development rights on nearly 12,000 acres, has now inked a PPA for 21MW, has secured funding for 155MW of construction, has drilled a well and hit resource, and has secured a deal with a supplier for the harvest technology needed to convert geothermal resource into electricity. If that’s not the profile of a “real” geothermal developer, then what is?

The other argument centers around the fundamentals. The company’s cumulative revenue is under $1M and its cumulative loss is now over $50M. Yet, it maintains a market capitalization of nearly $400M! The first Raser business centered around electric motors and was branded Symetron and targeted for use in the automotive industry. Despite a few agreements, the business has failed to materialize. Thus, a strategy switch to geothermal developer with an initial false start where a definitive agreement to purchase a geothermal company was terminated at the target’s request. Now, the company has charted a course to fund the geothermal development with heavy debt and dilutive equity agreements. The facts are stark: The company has under $6M in cash and near-term liabilities due this year over over $34M according to its own financial filings. In fact, in those filings, the company’s independent auditor questions the company’s ability to carry on operations.

There are the two arguments, there is validity in both positions we believe, but recent developments show the company is serious about geothermal development even if the financial underpinnings are very precarious. One way or another, 2008 is the year that should answer the question definitively.

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What is Green?

It’s not only about sustainability, but it’s also about $. After all, eco- is a prefix in ecology as well as economy. Recently due to a comment on the blog a new site came to our attention, Cleantech Finance Insider. Since we happen to be acquainted with the author and the initial content has been such high quality, we thought we’d give it a plug.

So, you want to spin up a renewable energy project and change the world? Yes? Well, read the three part series on Renewable Energy Startups keys to Success on Cleantech Finance Insider. It’s a great place to start and the perspective painted by Bill in these entries certainly rings true to us. If you’re looking for a distinct voice on the finance part of the house, add Cleantech Finance Insider to your RSS reader.

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