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The first large-scale geothermal electricity generating plant in the US was developed in the 1960s in northern California. Unocal, now part of Chevron Corp. (NYSE: CVX), did the initial work and the complex, known as The Geysers, is now mostly owned and operated by Calpine Corp. (NYSE: CPN). Calpine generates about 725 megawatts at the plant, around half the total generation capacity.

A new report funded by a grant from Google, Inc. (NASDAQ: GOOG) from Southern Methodist University researchers estimates that the potential for geothermal electricity generation in the US is about 3 million megawatts. In addition to Chevron, which is the world’s largest supplier of geothermal energy, companies like Ormat Technologies, Inc. (NYSE: ORA), and smaller rivals are developing more geothermal generation but very slowly.

Following last spring’s earthquake in Japan, there was discussion of replacing some of that country’s nuclear generating capacity with geothermal. The difficulties, though, are long lead times and expensive construction costs. A hypothetical 1,000 megawatt plant would take up to 7 years to build at a cost of about $3.5 billion. That’s more than double the cost of an equally sized wind farm, and the lead time for a wind farm is also much shorter. Compared with a new nuclear generating plant, the time frame to build a new geothermal plant is much shorter and the price is much lower.

The accompanying map shows the locations with the best potential for geothermal development in the US. The best places include Yellowstone National Park, the area around the Grand Canyon, and southern California, where what’s left of the Colorado River empties in the Gulf of California. Most other high-potential locations include places where lots of people don’t live. That increases the cost even more for transmission lines to get the power to where it can be used.

A further problem for geothermal developers in the US is difficulty in getting financing for the high-cost projects. Virtually all of Chevron’s investment in geothermal is in Indonesia, where it may soon face competition from General Electric Co. (NYSE: GE) and other turbine makers, mainly from Japan. Australia’s Origin Energy Ltd. (OTC: OGFGF) is already developing a plant in Sumatra in a joint venture with India’s Tata Corp. Small US firms have a difficult time convincing lenders of their creditworthiness and often can’t get financing at reasonable interest rates.

The SMU research is interesting and valuable. Whether it is actionable or not is the issue. Compared with solar PV and wind power developments, geothermal remains uncompetitive in the US except for deep-pocketed companies like Chevron and GE — and they are looking outside the US to build new projects.

Paul Ausick

An industry group called the Geothermal Energy Association has issued its annual update on the state of geothermal energy development in the US. The report notes that US geothermal generating capacity now exceeds 3,100 megawatts in nine western states. Publicly traded companies that focus on geothermal projects include Ormat Technologies, Inc. (NYSE: ORA), Calpine Corp. (NYSE: CPN), and US Geothermal Inc. (AMEX: HTM).

According to the association, there are 170 active geothermal projects in 15 states developing about 5,100-5,700 megawatts of geothermal generation. The report notes that up to 772 megawatts are in an advanced state of development and should be completed in the next few years. The long project development times and the relatively limited amount of electricity available from any single project are probably the main contributors to the slow development of geothermal projects in the US.

In Idaho, the state senate has rejected an extension of the state’s alternative energy tax credit by a vote of 18-17. An apparent deal to extend the rebate and to lower the maximum energy generation level for alternative energy projects. Some legislators and lobbyists contend that the end of the tax rebate will kill wind development in the state.

Idaho legislators had already rejected a moratorium on new wind farm construction. The state had encouraged wind development in recent years, and the tax rebate helped build 400 megawatts of wind generation since 2005. Rather than institute a moratorium on new construction, which some legislators saw as reneging on past promises, the state will achieve the same result by eliminating the rebate.

Finally, the European Union’s executive body, the European Commission, is set to propose a carbon tax of about $29/metric ton beginning in 2013 on fossil fuel products like gasoline, natural gas, and coal. The Commission’s goal is to meet the agreed 2020 emissions target of reducing carbon dioxide emissions in the EU by 20% in 2020 relative to 1990 levels. The carbon tax supplements the existing EU carbon market, which has not been entirely successful in bringing down emissions.

The carbon tax faces significant hurdles, not the least of which is a reluctance by sovereign governments to allow the EU to set tax policy for member nations. And before the tax can be levied, all 27 member nations must agree unanimously on the new tax. Such an outcome is the longest of long shots.

Paul Ausick

Japan has offered little support for geothermal generation in the past, but that could change as the country looks for safer ways to generate electricity. Mitsubishi Corp. (OTC: MSBHY), Toshiba Corp. (OTC: TOSBF), and Fuji Electric supply the bulk of the world’s supply of steam turbines and power machinery for geothermal plants. Publicly traded companies that build the plants include Ormat Technologies, Inc. (NYSE: ORA), Calpine Corp. (NYSE: CPN), Australia’s Origin Energy Ltd. (OTC: OGFGF) and Japan’s Idemitsu Kosan (OTC: IDKOY). Utah-based Raser Technologies, Inc. (OTC: RZTI) also plays in the sector, but the company filed a “going concern” letter with the SEC on March 1st. Long lead times and costly construction have hampered the development of geothermal, with a 1,000-megawatt plant (there’s no such thing yet) costing upwards of $3.5 billion to build and taking 5-7 years to complete.

On the solar front, US homebuilder KB Home (NYSE: KBH) is building an 88-house development in southern California that includes 1.4-kilowatt solar PV array as a standard fixture with every house. The company has offered solar as an option before, but this is the first time it has been included as part of the basic plan. The arrays are using panels from SunPower Corp. (NASDAQ: SPWRA). Home buyers can upgrade to a 3.2-kilowatt system that would likely be enough to keep the house off the grid.

In Europe, Spain’s largest savings bank (or caja), Bankia, is reported to be discussing the sale of its 20% stake in wind energy firm Genesa to Portugal’s EDP for $1.9 billion. Genesa is Spain’s third largest wind energy company, trailing Iberdrola Renovables SA (OTC: IRVDY) and Acciona Energia (OTC: ACXIF).

Germany’s Solarworld AG (OTC: SRWRY) says that it will exceed 2010 revenue of 1.3 billion euros in 2011 as a result of a stronger market in the US and an expected shift in Japan to more renewables to replace the lost nuclear reactors. Most important, Solarworld sees prices continuing to stabilize following changes to subsidies in both Germany and Italy.

Paul Ausick

As the global economy pushes more for green energy, Geothermal stocks are up 10.5% in the past month. The best performing stocks in the sector are Nevada Geothermal PW, (OTC: NGLPF) up 26.5%, US Geothermal Inc., (AMEX: HTM) up 9.9%, and Ormat Technologies Inc., (NYSE: ORA) up 4.7%.

Brazil stocks and ADRs are up 10.5% in the past month. The best performing stocks in the sector are Braskem S.A., (NYSE: BAK) up 23.4%, Brasil Telecom S.A., (NYSE: BTM) up 22.1%, and Cosan Ltd., (NYSE: CZZ) up 17.6%.

Chinese Travel Stocks are up 10.1% in the past month. The best performing stocks in the sector are eLong Inc., (NASDAQ: LONG) up 27.1%, Home Inns & Hotels Management Inc., (NASDAQ: HMIN) up 20.1%, and Ctrip.com International Ltd., (NASDAQ: CTRP) up 16.1%.

Jon C. Ogg

There is certainly potential in geothermal, proven by the performance of Ormat Technologies, Inc. (NYSE:ORA). In the first quarter of 2009, Ormat reported EPS of $0.32, up from $0.24 EPS a year ago and well above average estimates of $0.25. Revenues reached $99.9 million, up 44% from $69.4 million a year ago.

Ormat’s electricity sales were up 5.2% on an increase in megawatt-hours sold of 21.5%. The company attributed the disparity to a decline in rates at the one of its plants that is “sensitive to oil prices.”

Geothermal energy gets no love, but it is really cheap to build and operate. Only a little more than 10% of US available geothermal resources have been utilized so far, so there is plenty of room for growth.

Raser shares are off more than 5% in early trading this morning. Ormat shares are down about 2%. Both companies are thinly traded, but geothermal energy could get a boost from the federal economic stimulus package, which contains about $400 million for geothermal development.

There is also the much smaller US Geothermal Inc. (AMEX: HTM) in the sector with some operations in Oregon, Idaho, and Nevada.  Unfortunately, this one has gone quiet as a church mouse.

Paul Ausick
May 12, 2009

Ormat Technologies Inc. (NYSE: ORA) filed last night for a universalshelf registration of up to $1.5 Billion in mixed securities.  Itscurrent market cap is $1.69 Billion and as of June 30 it had $709.79million in total liabilities.  There  are no indications pre-market onthis stock.

Texas Capital Bancshares, Inc. (NASDAQ: TCBI) has filed for existingshareholders to sell up to 4,000,000 shares of common stock.  Allshares will be sold by selling shareholders and the company willreceive none of the proceeds from the sale of stock. It will have over30.8 million shares outstanding after this offering.  Shares closed at$18.89 yesterday and have not traded this morning before the open.  Wewould note that the reason this isn’t an impact is because earlier thismonth the company sold these shares to T. Rowe Price (NASDAQ: TROW)funds and these are those shares.

Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) announced last nightthat it was going to sell 7 million shares of common stock subject tomarket conditions via Goldman Sachs.  It priced its offering with moreshare at 7.5 million shares for a price of $25.50.  Shares are tradingdown 4%at $25.50 and the 52-week trading range is $13.84 to $40.10.

Otter Tail (NASDAQ: OTTR) has already filed to sell 5 million shares ofcommon stock and we were expecting that to come this week.  As of thismorning we have not seen a pricing nor any color on how the currentmarket meltdown will play into this.

Jon C. Ogg
September 18, 2008