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.
Geothermal Energy Stocks
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.
At the time of writing, key financials include:
Market Cap: $4.56bn
1-Year Return: -18.81%
P/E Ratio: 49
Dividend Yield: 0.63%
During Q3 2021, Ormat made a sizable geothermal acquisition in Nevada. It also scored a new energy storage contract, an exploration joint venture 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 of the same year it completed expansions of its operating plants and successfully integrated its recently acquired geothermal assets. Finally, it continued expanding 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.”
More recently, the business has continued its geothermal push. In 2023 Ormat signed an agreement to develop a 50MW geothermal plant in New Zealand. Meanwhile, it also signed a financing agreement for the development of a geothermal project in Indonesia.
However, the business is involved in an eye-catching dispute over some of its US-based geothermal plans. Ormat has received approval from the Biden Administration to explore northwestern Nevada with a view to constructing a geothermal project.
However, the organisers of the world-famous Burning Man festival lodged a lawsuit in January 2023. This argued that Ormat's plans would have a detrimental effect on the nearby environment and local communities. In April, Ormat's permits for exploratory wells were rescinded.
However, Ormat appears ready to push ahead with the project. It released a statement, which noted:
“Ormat is confident that the Bureau of Land Management's comprehensive review process and approval will be upheld in litigation because the extensive environmental review conducted met and even went above and beyond the jurisdictional scientific, legal and public process requirements for geothermal exploration.”
Berkshire Hathaway Energy (NYSE: BRK.B)
Berkshire Hathaway Energy (NYSE: BRK.B) is the Utilities and Energy Businesses of Warren Buffett’s Berkshire Hathaway.
Iowa-based BHE Renewables owns interests in power projects. It has approximately 4,900 net MW of generation capacity in service in the US. 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. It operates thermal electric facilities that generate electricity from coal, natural gas, or geothermal resources.
Polaris Renewable Energy Inc (TSX: PIF) (OTCMKTS: RAMPF)
Polaris Renewable Energy Inc (TSX: 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. It also holds an interest in a 5 MW run-of-river hydroelectric facility in Peru.
Last year the company produced 643,523 MWh (net). 465,935 MWh (net) of this was contributed by the company’s geothermal facility in Nicaragua.
The company's most recent earnings, which updated investors on its second quarter, showed a significant uplift in revenue and EPS. Revenue for the first six months of the year climbed from $31.3m to $40.9m, while EPS jumped from $0.05 to $0.44.
Additionally, the company's dividend yield of 5.39% makes it a potentially enticing investment for income-focused investors.
Eversource Energy (NYSE: ES)
Eversource Energy (NYSE: ES) is a provider of electric service to customers in Connecticut, New Hampshire, and western Massachusetts. The business also distributes natural gas throughout Connecticut.
The business is taking baby steps with geothermal power generation. This comes in the form of its networked geothermal pilot program in Framingham, Massachusetts. This will provide energy to 140 customers across nearly 40 buildings. These include residential homes, a cabinet store, fire station, Framingham Housing Authority buildings and the community college.
The business says it will provide an efficient and sustainable heating and cooling system.
The two-year pilot will evaluate the technology as a cost-effective option to complement or replace delivered fuels.
Eversource President of Gas, Bill Akley, commented:
“This is especially exciting for our 140 customers who are eager to participate in this innovative pilot program as we explore the potential of networked geothermal to decarbonize the natural gas system. Over the next two years, we’re going to study if this technology is cost-effective for our customers, and whether we can expand this kind of networked geothermal system to other customers and communities beyond this neighborhood in Framingham.”
Alphabet (NASDAQ: GOOGL)
Google believes AI can help create efficient next-generation geothermal energy plants. It 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. Google is partnering with it to further the development of AI and machine learning in relation to geothermal plant efficiency.
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 Climeon Heat Power system 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 of 2021, 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.
In 2021, the company 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.
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.”
Contact Energy Limited (NZX: CEN)
Contact Energy Limited (NZX: CEN) is a New Zealand-based utilities outfit that distributes electricity, natural gas and liquified petroleum gas. The business currently owns 11 hydro, geothermal and gas-fired power stations.
There are more on the way too, with the business currently building a 174MW geothermal power station near Taupō, New Zealand.
Its commitment to geothermal energy is part of significant efforts to become a renewable energy powerhouse. By the midway point of 2027, Contact Energy wants upwards of 95% of its operations in New Zealand to be renewable energy-based.
Geothermal is a significant portion of this push, but Contact Energy also invests heavily in solar projects like Kōwhai Park.
The business is building this renewable energy portfolio from a profitable base. Underlying profits increased by 16% to NZ$211m in the 12 months ended 30 June 2023 and the business appears stable. This has allowed it to reward shareholders with a significant dividend, with the dividend yield sitting at 4.22%.
As such, the company could represent a solid bet for energy investors who avoid operations that utilize carbon-intensive fossil fuels.
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. This 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. Fluids containing water, sand, and chemicals are injected at high pressure into rocks containing shale gas. This creates 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.
Nevertheless, 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.
