Article on investing in geothermal stocks (U.S.)

Alexander Richter 10 Nis 2009

In a recent article on GreenChipStocks, the author is looking into the geothermal sector, “as the energy that has been quietly steaming”.

Looking at the sector quite positively he further states that it “is only a matter of time until the industry gains rock star status.”

It goes on that “unlike wind and solar, geothermal is one of the few clean sources of energy that can provide baseload power without storage devices. And while it may not have the same sex appeal, the use of geothermal energy will quietly double in the next six years.

That’s great news for investors.

Even better, the geothermal space isn’t crowded with public companies, so the profits generated will be much more concentrated. The smart money is already beginning to take notice, so you’ll want to start sniffing around, too.”

Geothermal Energy Companies: Tortoise and Hare

When it comes to geothermal investments, they can either be sure and steady or fast-moving and erratic — sometimes the same stock can be both.

You see, geothermal energy in its current form has been around for some time. The first plants came online back in the 1970s.

Since then, the sector has been largely dominated by large global conglomerates like GE, Siemens, and Mitsubishi. The only pure play has been Israeli-born Ormat Technologies (NYSE: ORA).

That company has been and will be the benchmark of the industry. Any Green Chip investor worth his salt should own shares of this company. Of the 24 geothermal plants commissioned since 2004, Ormat has provided the turbines for 12 of them. Expect that trend to continue.

If geothermal turbine production companies are the tortoises, then geothermal energy production companies are the hares.

This is because many of them are smaller companies, reliant upon signing power purchase agreements (PPAs) for revenue. Getting to that point is an expensive journey, comprised of drilling test wells, acquiring permits, and securing transmission.

The successful completion of each of those steps is a major milestone for any small geothermal company, and can send stock prices soaring.

Such was the case recently when Nevada Geothermal (OTCBB: NGLPF) announced drilling results for their Faulkner 1 geothermal project at Blue Mountain, Nevada.

According to the results, announced in late March, “The latest three production wells based on initial testing, have similar production capacities (7.0-7.5 MW) to the original three wells.”

Notice’s who’s supplying the turbines.

What’s more, the company has signed a 20-year PPA with NV Energy for 49.5 MW. So, everything is in place for power to start flowing later this year. When that happens, the 60% run of the past month will look tiny by comparison.

This is just one of many opportunities that will emerge in the sector as the use of geothermal energy is significantly ramped up.”

So overall a quite positive investment review on the industry, even though it only looks at two North American listed players.

Source: GreenChipStocks.com