Geothermal Companies Getting Hotter: Carbon-free is the New Black

Geothermal energy is like a crazy genie who is sometimes helpful and sometimes a weapon of mass destruction.  The natural escape valves of subterranean nature are volcanoes, geysers and bubbling hotsprings, not to mention the massive energy stored in tectonic plates butting into one another, which causes earthquakes.  As a source of useful energy, it has been slow to be harnessed in a big way other than by locals — Iceland, for instance, is powered almost entirely by renewable hydro and geothermal energy.  This article encapsulates the most common ways of using geothermal energy, and is descriptive of the Icelandic exemplar: http://www.energy.rochester.edu/is/reyk/works.htm.  Note the generation of hydrogen, a clean-burning fuel whose only emission is water. 

But in these days when renewable energy is approaching Holy Grail status (for good reason), geothermal companies merit a good look-see.  See this virtually evangelical message from the very persuasive Jigar Shah regarding carbon emissions: http://news.carbonwarroom.com/2010/10/04/creating-wealth-by-reducing-carbon/.  There is a useful survey of geothermal generating companies in this article by Tom Konrad in Seeking Alpha: http://seekingalpha.com/article/229522-8-geothermal-stocks-for-your-consideration.  As he points out, the clear leader as a pure-play geothermal company is Reno-based Ormat Technologies Inc (NYSE: ORA, http://www.ormat.com/), which, at $1.35 billion market cap, is a bit large for this blog — but worth looking at for its relatively complete picture of geothermal potential.

In the United States, federal government incentives can be a powerful impetus toward “clean” renewable energy (keeping in mind that almost every industrial process, no matter how “clean” generates some detritus that can present problems at some point).  As with most such incentives, the big bucks are frequently sucked up by big companies that in some ways don’t need them, but on the other hand may be more likely to create jobs, an unmitigated political good. 

One company to look at is Boise ID-based US Geothermal (NYSE Amex: HTM; http://www.usgeothermal.com/).  Like a lot of semi-development-stage companies, it is pretty short on revenue, long on cash consumption, with revenue of less than $1 million in its latest (June 30) quarter, and a cash balance that dropped from $13 million to $8.7 million in 90 days while the P&L only showed a loss of $1.5 million.  Its projects are all in the Idaho-Oregon-Nevada area, over the hotspots they need to produce their electricity.  Numerous analysts in Canada and the US cover HTM, a list of them being available on the HTM website.  HTM shares are at about half their 52-week high, selling for $0.84 vs the high of $1.74 on average volume of 200,000+ shares per day.  Market cap is about $66 million.

Provo UT-based Raser Technologies (NYSE: RZ; http://www.rasertech.com/)  is not a pure play in geothermal energy, but close enough.  It qualifies on price action as a “fallen angel,” having sold for as much as the mid-teens a couple of years ago (you could hear the champagne corks popping), but today it is a pennystock, trading at about two bits ($0.25) vs a 52-week high of $1.69.  The low price seems to indicate a skepticism on the part of investors about RZ’s ability to achieve power production goals, and a conservative position about what looks like fairly sizeable financing needs in the short and medium terms.  Revenue is moving up (looks like an annual rate of $4.5 million, mas o menos), but the losses are staggeringly large compared to current revenue size, and much of the “game” here is dependent on government grants — which, to give credit where credit is due, RZ has been good at so far.

There are other geothermal plays, several of them mentioned by Tom Konrad in his Seeking Alpha article referenced above: Magma Energy (OTC: MGMXF.PK); Nevada Geothermal Power (OTC: NGLPF); and Ram Power Corp (OTC: RAMPF.PK).

But no serious discussion of renewable energy makes total sense without a discussion of how to USE the energy that is produced.  The part of most renewables is that they are time-and-space-restricted, and geothermal is more so than most.  Geothermal energy can only be generated when there is access to the hot core of the earth, or to the hot water/steam that is generated by the heat of the core.  That’s a relatively uncommon situation: being able to tap into the earth’s molten core.  In most cases the geothermal fields are pretty far out in the middle of BFE, as this picture of US Geothermal’s San Emidio plant aptly demonstrates: 

The practical side of that is that in order to USE the energy that is generated, there are 3 options (and possibly only 3): (1) build power lines to the site, with the cap-ex and ongoing maintenance that implies; (2) convert the power into a power substitute, such as hydrogen, so that it can be transported to a place where it can be used; or (3) store the energy in a battery or by other means, such as a flywheel contraption or as compressed air (which could drive a turbine when released).

It seems sensible at this point in time to just eliminate expensive energy storage technologies, because even with stimulus money, nobody is in a mood to light cigars with $100 bills these days.  That means there are principally 2 or 3 small-cap companies to look at for energy storage.  There is a useful survey of such companies in this article by Swiss expatriate John Petersen, also from Seeking Alpha: http://seekingalpha.com/article/229197-battery-technologies-no-secret-sauce.

Of the companies mentioned by Petersen, there are two that are worth a deeper look: New Castle PA-based Axion Power* (OTC: AXPW; http://www.axionpower.com) and Tyngsboro MA-based Beacon Power (Nasdaq: BCON; http://www.beaconpower.com/).  The similarities and contrasts between the two are worth noting.  In the first  place, AXPW is a battery company with a singular technology that no one else can pursue (PbC batteries) and BCON is a flywheel company with lots of IP.  Their market caps are very similar (today BCON is $63 million and AXPW is $60 million).  Both are lightly traded.  Both companies are the only “pure plays” in their technology niches.  Both companies tend to be treated as footnotes to the lithium-ion industry, which has taken off like a striped-assed ape while AXPW works on a singularly thorny manufacturing issue and BCON labors for acceptance of an old-but-new physics approach to energy storage.  Both companies have had issues with federal support — in AXPW’s case the grant money was given to their partner, Exide Technologies instead of being split with AXPW.  In BCON’s case, the feds, having underwritten earlier BCON work, elected to back out for a second round (http://phx.corporate-ir.net/phoenix.zhtml?c=123367&p=irol-newsArticle&ID=1480786&highlight=). 

Nonetheless, both technologies are potential winners, though both look like dark horses at the moment.  Petersen has some sensible things to say about both companies, as well as numerous other energy storage companies. 

Nothing’s ever as easy as it looks.  You look at Old Faithful and you think, well, that would be relatively easy to harness and make it turn a turbine wheel.  But it just ain’t that simple.

*client of Allen & Caron, publisher of this blog