US could learn from Australia’s geothermal efforts

Summary:

In Australia major energy and electricity generation companies are developing geothermal power plants for base-load generation. They see it as a very attractive alternative to traditional power generation and a more predictable renewable energy source when compared to wind and solar power, and it fits well into their renewable portfolio.

Analysis:

The potential for geothermal power generation has increased significantly with the development of low temperature and hot dry rock technologies, which does not rely on the same natural convective high temperature hydrothermal resources as the earlier geothermal power plants.

As there is no single renewable energy source that will replace fossil fuel, geothermal power generation deserves to be treated just as seriously as wind and solar.

In US there are a number of players including the following public traded ones: Polaris Geothermal Inc.(TSX: GEO.TO), U.S. Geothermal Inc. (AMEX: HTM), Western GeoPower Corp. (OTCBB:WGP), Calpine Corp (NYSE:CPN), Ormat Technologies, Inc, (NYSE:ORA), Nevada Geothermal Power Inc. (OTCBB: NGLPF), Sierra Geothermal Power Corp. (TSX.V: SRA), and Raser Technologies Inc. (NYSE: RZ).

Except for Calpine and maybe Ormat, none of these companies have the financial backing to accelerate the development of geothermal power generation.

Today the US utilities prefer the much less committing strategy of issuing power purchase agreements with the geothermal companies, which they in turn will have to use as a bargain chip when they shop around for financing to cover the projects. This puts a damper on the growth of geothermal power generation, which can only be accelerated if more capital is made available.

However, as the sector gets more visibility the existing players should be interesting acquisition targets for major energy companies such as AES (NYSE: AES) and Tenaska Inc, and we will probably also see some merger activity in the space, when the more established companies acquires the newer entrants.

An indirect play in the market is United Technologies (NYSE:UTX), which have developed a low temperature technology, and Raser Technologies plays both the equipment and the power generation side of the business.