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Welcome back everyone. Today we embark on a sequel to last week’s article and further explore geothermal energy, specifically looking to identify potentially exceptional returns in coming years. Like any speculative investment, geothermal energy is a high-risk area and investment in producers could either swell or dwindle. My bet is that alternative energy is here to stay but one needs to be invested in leading technologies and only a few companies will lead the race.
One of our readers, Neil Ryan commented this week that geothermal technology has been in place in New Zealand for a number of years. As a Kiwi myself, I am well aware of this, but for a country sitting on the Pacific Rim (which is practically one big volcano), New Zealand’s geothermal development leaves a lot to be desired. New Zealand could easily meet all of its electricity needs through the development of future geothermal resources and Mighty River Power, a state-owned enterprise, has invested $1 billion in renewable energy projects in the last five years. But this is just a fraction of what is spent on fossil fuels in developed countries.
The U.S.A. and The Philippines are the world’s biggest producers, responsible for about a third and a fifth of global geothermal energy production respectively. Neither country is well-known for their volcanic activity, yet both have the technology in place to produce significant energy.
So who are the major producers and where do they operate?
There are a number of companies intertwined in the geothermal energy production process. America has several publicly-listed producers but nearly all use equipment supplied out of Japan, which has established itself as the world-leader in geothermal plant and equipment manufacture. China is yet to significantly compete in this field but will surely enter the race soon.
At the forefront of American geothermal development is Ormat (NYSE: ORA), which oversees two plants in Guatemala and others in Nicaragua, Mexico, California and Nevada. Ormat’s brave foray has bumped into problems not of its own making. Oil is cheaper (down from its $147 high back in 2008 to around $97 today) and the Global Financial Crisis has led to a restructuring of economic values and priorities. Environmental concerns are now well down the agenda of both companies and governments, replaced by the pragmatic reality of economic survival. ‘An Inconvenient Truth’ has been replaced by ‘Inside Job’. The environmental argument still exists but preventing a modern-day depression with the potential to last a generation has, understandably, become a greater priority.
Ormat’s share price clearly reflects this shift in priorities but Elliott Wave traders will note the weekly and daily moves lower are reaching stages of maturity:
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It’s not a matter of ‘if’ but ‘when’ priorities will again turn to alternate energy. But for now it is safe to say that until the developed world crawls its way out of the European and US debt debacles, it is likely the oil price will remain subdued and alternative energy will take a back seat to more immediate concerns for both governments and investors.
What we do know is that technology is improving, leading to cost efficiencies and competitive environmental advantages. Companies such as Ormat and Mighty River Power will continue to grow their geothermal presence and the world will eventually unite in the quest for cleaner energy solutions, as well as the stocks of leading developers. Every continent has volcanic activity and many countries are well-placed to profit from geothermal energy technologies in coming decades.
Stay ahead of the game,
Lachlan McPherson
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