Investing in Geothermal Energy Stocks

By Kirsteen Mackay

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Geothermal energy is an alternative to wind and solar and offers stability and low emissions. What are the opportunities for retail investors?

Geothermal energy is an alternative to wind and solar. It offers stability and low emissions but it’s still an early-stage market. Read on to discover how you can invest in geothermal energy stocks.

What is geothermal energy?

Geothermal energy refers to heat derived from the ground and geothermal power is electrical power generated from geothermal energy. 

Technologies being used to generate geothermal energy include dry steam power stations, flash steam power stations and binary cycle power stations.

Geothermal electricity generation is currently used in 26 countries, while geothermal heating is in use in 70 countries.

How does geothermal energy production work?

Deep underground the temperature is very high and water is very hot. A geothermal power plant pumps this water through a well under high pressure. The pressure is dropped at surface, turning the water into steam. Then the steam powers turbines connected to a generator to produce electricity. There are no carbon emissions during the process so it’s considered a green way to produce energy.

These power plants are often found near hot springs, geysers, or volcanic activity, where underground heat is closer to the surface.

For instance, Top Energy, a New Zealand electricity network provider, has successfully commissioned the Ngawha geothermal power plant in New Zealand. Ngawha Springs is a small settlement known for its therapeutic hot water springs. And is the source of the steam used at the Ngawha geothermal field's power station.

There are many private companies involved in geothermal energy but publicly listed options are still thin on the ground. Here are a selection of geothermal stocks operating today.

Ormat Technologies (NYSE: ORA)

Ormat Technologies, Inc. (NYSE: ORA) is a pure-play geothermal stock. Its business segments include:

  • Electricity: This area of the business sells the electricity it generates from the company's power plants.

  • Product: The company manufactures and supplies turbines and power units to generate electrical energy.

  • Energy Storage: This segment consists of battery energy storage systems as a service and contracts with US retail energy providers and directly with large commercial and industrial customers.

Ormat Technologies was founded in 1965 and is headquartered in Reno, Nevada. The company completed its New York Stock Exchange IPO in 2004, and currently trades under the ticker symbol ORA.

Key financial include:

  • Market Cap: $4bn

  • 1-Year Return: -15%

  • P/E Ratio: 65

  • Dividend Yield: 0.67%

During Q3 2021, Ormat made a sizable geothermal acquisition in Nevada, new resource adequacy contract for its Energy Storage segment, a joint venture for exploration in Indonesia, and several new product wins. However, it suffered operational challenges at three plants which it sees recovering over the next few months.

In Q4 it completed expansions of its operating power plants, successfully integrated its recently acquired geothermal assets and continued axpanding its exploration activities to include a much higher number of drilling campaigns. 

Doron Blachar, CEO, Ormat Technologies, Inc. said:

“We see encouraging increases in the demand for geothermal energy. Both California and Nevada, which employ massive amounts of intermittent power, recognize the importance of geothermal as a zero emission, high capacity energy source.”

The company goal is to achieve a run rate of $500m in annual EBITDA towards the end of 2022 and it is confident it will hit this target. This year, Ormat plans to commission 15 new geothermal energy storage and solar PV projects, with  total emission-free capacity of 210 MW. Long-term it plans to increase its combined geothermal, energy storage and solar generation portfolio to more than 1.5 GW by the end of 2023.

The consensus analyst rating on FactSet is Hold with a target share price of $75.83.

Q4 Highlights include:

  • Total Revenues: $191m

  • Consolidated Gross Profit: $75.5m

  • Gross Margin: 39.6%

Doron Blachar, CEO of Ormat Technologies, stated:

“With the growing demand for geothermal energy and current regulatory tailwinds, we remain confident in our long-term plans to increase our combined geothermal, energy storage and solar generating portfolio to more than 1.5 GW by 2023.”

Berkshire Hathaway Energy (BHE)

Berkshire Hathaway Energy (BHE) is the Utilities and Energy Businesses of Warren Buffett’s Berkshire Hathaway. 

BHE Renewables, based in Iowa, owns interests in independent power projects having approximately 4,900 net MW of generation capacity that are in service in several US states. These independent power projects sell power generated primarily from wind, solar, geothermal and hydro sources under long-term contracts.

BHE Renewables’ geothermal facilities operate as CalEnergy Operations and are based in Calipatria, California. The company owns 10 geothermal facilities in California’s Imperial Valley that have the capacity to produce up to 345 MW. Its natural gas-fueled plants include a 512-MW plant in Illinois, a 245-MW plant in New York, a 212-MW plant in Texas and a 50-MW plant in Arizona.

PacifiCorp is also a subsidiary of Berkshire Hathaway Energy, which operates thermal electric facilities that generate electricity from coal, natural gas, or geothermal resources.

Polaris Infrastructure (TSE: PIF, OTCMKTS: RAMPF) 

Polaris Infrastructure (TSE: PIF, OTCMKTS: RAMPF) is a Canadian company with geothermal and hydroelectric projects in Nicaragua and Peru. It has an interest in a 72 MW geothermal project located in Nicaragua, and a 5 MW run-of-river hydroelectric facility in Peru.

Last year the company produced 643,523 MWh (net) of which 465,935 MWh (net) was contributed by the Company’s geothermal facility in Nicaragua, the San Jacinto facility.

Unfortunately, Polaris only generated $59.5m  in revenue last year,  compared to  $74.7m in 2020.

Other key financial include:

  • Market Cap: CAD 305.7m

  • 1-Year Return: -25%

Alphabet (NASDAQ: GOOGL)

Google believes AI can help create efficient next-generation geothermal energy plants so could be one to watch as it makes further inroads into the geothermal energy sector. The tech giant has already struck deals with companies involved in the field to further its research. A private start-up called Fervo is building one of these in Nevada and Google is partnering with it to further the development of AI and machine learning in relation to geothermal plant efficiency and production.

Google’s director of energy Michael Terrell said:

“As part of our agreement, Google is partnering with Fervo to develop AI and machine learning that could boost the productivity of next-generation geothermal and make it more effective at responding to demand, while also filling in the gaps left by variable renewable energy sources,”

Climeon (STO: CLIMBE-B)

Swedish firm Climeon (STO: CLIMBE-B) produces heat power systems, converting waste heat and geothermal heat into clean electricity.

The small company claims it is the world leader in converting low-temperature heat into clean electricity. Its product includes the Climeon Heat Power system that utilizes the energy in waste heat and low-temperature geothermal heat to generate electricity. The company is developing its next generation of Climeon Heat Power, which is initially being optimized for the marine market. 

In Q4 Climeon completed the installation of a Heat Power system on one of Maersk’s container vessels. Maersk will now evaluate waste heat recovery as part of reducing its CO2 emissions.

Climeon is also working on cruise ships for Havila Voyage and Virgin Voyage.

Climeon’s geothermal customers are primarily in Japan and Iceland. Varmaorka's power plant Flúðir was able to report a continued high availability of 98% from Climeon's Heat Power system. Two more systems are currently being commissioned in Japan.

The company recently conducted a directed new share issue to Peter Lindell, thus making him Climeon's second-largest owner. Through his company Cidro Förvaltning AB, Lindell purchased five million Class B shares for SEK 35m.

The company is not yet profitable and is working on becoming more sustainable. Key metrics include:

  • Market Cap: SEK 534m

  • 1-Year Return: -76%

Lena Sundquist, CEO Climeon said:

“Every day, our Heat Power modules deliver renewable electricity to our customers. But that is not enough, we need to go even further, we need to create a product that is more cost-effective and generates more electricity at a lower cost, in order to meet our customers' expectations.”

Climeon was founded by Thomas Öström, Joachim Karthäuser, and Sven Löfqvist on March 16, 2011 and is headquartered in Kista, Sweden.

What’s the downside to geothermal energy?

Carbon-free emissions and clean energy seem like a winning combination but geothermal energy also has its downsides, which may be why it currently provides less than 1% of global electricity.

Drilling into the core of the earth creates serious environmental concerns. However, it’s a misconception that geothermal production is like fracking. Fracking is used to harvest shale gas. It involves fluids containing water, sand, and chemicals being injected at high pressure into rocks containing shale gas to create openings that allow the gas to be released.

Geothermal energy production does not break into geographic formations in the same way that fracking does. Instead, it pumps warm water out of reservoirs and passes it through a heat exchanger. 

Furthermore, it's only suited to certain locations, usually those close to volcanic activity. But operating in uninhabitable locations often makes it an expensive process. Indeed, geothermal projects are more costly than solar, wind, coal, and natural gas.

Neverthless, geothermal energy also has its advantages. It can be harnessed to produce electricity or to heat buildings of any shape, size, or formation. Plus, geothermal heat pumps use 75% less energy than traditional heating systems. It's not intermittent and it takes up less surface space than many renewable alternatives.

Geothermal energy stocks, along with other renewable energy stocks, are enduring a market sell-off despite surging demand for clean energy. This comes as supply-chain bottlenecks, rising commodity prices and the prospect for higher interest rates create a challenging environment.

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In this article:

Industries:
Energy
Companies:
Ormat Technologies
Google
Google
Polaris Infrastructure
Berkshire HathawayClass B

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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