Geothermal Gets Nod from DOE - How Did Ormat (NYSE:ORA) and Raser (NYSE:RZ) React?

Jun 19, 2008
Author: SCP Editor

June 19, 2008 – Geothermal technologies got a major boost yesterday from the Department of Energy (DOE) which announced that it intends to invest up to $90 million in advanced geothermal energy  technology and research. DOE Assistant Secretary Andy Karsner stated that,

“Geothermal energy is a clean, reliable, scalable, renewable energy source and these geothermal projects will help the U.S. tap domestic heat sources that were previously out of reach," and that "Increasing the use of traditional hydrothermal and geothermal base load resources is an important component of the Administration's efforts to diversify our nation's energy sources in an effort to reduce greenhouse gas emissions and enhance our energy security."

According to the DOE, geothermal represents a large, indigenous resource that, with a reasonable investment in research and development (R&D), could provide the U.S. with 100,000 megawatts of cost-competitive electricity, generating capacity by 2050, or 20 percent of current electricity generation.

Under the DOE’s plans, $10.5 million is available in FY 2008, $30 million (subject to Congressional appropriations) will be available in FY 2009, up to $49.5 million will be available in FY 2010 (again, subject to Congressional appropriations).

In terms of publicly traded geothermal companies, we didn’t see any favorable reaction, however, to the announcement: Raser Technologies (NYSE:RZ), which was presenting at Capstone Investments’ Small Cap Conference in Milwaukee, traded down $0.24, or 2.61% to $8.96. We wouldn’t expect Raser to get access to any of the DOE funds in that its modular approach, leveraging United Technologies (NYSE:UTX) technology enables it to pursue a strategy of finding shallower resources and maximizing efficiencies with less heat in the ground. The DOE seems to be looking for reservoir creation and management at depths as great as 10,000 meters – much deeper than RZ goes.

Ormat Technologies (NYSE:ORA) traded down $0.76, or 1.38% to $54.18, while Stanford Research initiated coverage on the stock with an unimpressive Hold rating.

We have written about Raser in the past, and own the stock. The company is picking up some momentum with 8 projects now under development and a stated goal to maintain a pace of 10 to 15 projects per year over the next decade. However, at $8.96 we think the stock is still probably a bit expensive – unless we factor in a multiple against FY 2009/2010 numbers when presumably, the company should be posting stronger financial results.  

Disclosure Note: SCPEditor is Long Raser.   


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