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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Photo Credit: inigo.txg
In Iceland, there is a well known Resort and Spa called the Blue Lagoon which owes its existence to Hitaveita Suðurnesja, who drilled for the geothermal fluid found in the region. The wells are as deep as 2,000 meters (~6,500′) and the extracted fluid attains a temperature of 243°C (~470°F.)

This geothermal fluid is then used to heat freshwater for central heating purposes and to produce electricity. The power plant provides about 17,000 people with hot water for central heating and about 45,000 people electricity.

The geothermal fluid, now a cooler temperature and essentially “waste water,” is piped directly to the Blue Lagoon where people enjoy relaxing in the warm aquamarine lagoon and benefit from its unique active ingredients: minerals, silica and blue green algae. The lagoon holds approximately six million liters of geothermal waste water at around 40°C (104°F.) The lagoon water supply is completely refreshed every 40 hours. Visitors from all over the world come to the Blue Lagoon for the waters positive effect on the skin, they bath, have mud treatments, and every other spa/resort type activity you can think of.

The combination of the power plant, the heating system, and the resort make very good use of the geothermal resource – who would have guessed that the waste product could not only be valuable, but is also beautiful.

Links:
Blue Lagoon Resort

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A few weeks ago Thomas Blakeslee of the Clearlight Foundation wrote an Op-Ed piece on the coming baseload power crunch which was very good. Blakeslee takes on our propensity as humans to want to gather and burn fuel in his latest intentionally pejorative piece The Folly of Fueled Power Plants at Renewable Energy World. The comments are as enlightening as the core article.

Links:
The Coming Baseload Crunch
The Folly of Fueled Power Plants
Clearlight Foundation

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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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On the heels of a very strong earnings report, Ormat announced the sale of 3.1M shares in a block to Lehman Brothers last week, sending the issue down nearly 7% on the day of the announcement. Subsequently, the stock has recovered a bit. The company plans to use the proceeds, some $60M, for equipment, development, and operations. After this placement, Ormat now has 45.3M shares outstanding and boosts a market capitalization of over $2B.

Links:
Ormat
Lehman Brothers

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