Renewable Energy

Investment In Geothermal Industry Heating Up

Kenneth Stier, |Features Writer

With billions of dollars now moving into geothermal energy projects around the world, it is no longer a marginal business, meriting a second look by investors looking for a clean technology subsector with significant upside potential.

Though there are just two pure-play choices trading on US exchanges - Ormat Technologies and US Geothermal, there are a dozen combined in Canada, Australia, the UK and New Zealand.

What's more, large energy and utility companies are moving into the business, creating a widening array of collateral options for investors, who can also ride geothermal through ETFs.

“The industry is on the cusp of what could be an extraordinary growth period,” says Mark Taylor, an analyst covering this sector for New Energy Finance, a clean energy financial research firm.

Ormat

Smart money appears to have noticed. In 2007, private equity firms invested more than $400 million in geothermal energy, which is derived fromhot water under the Earth's surface and  can be used for space heating or generating electricity.

Warren Buffett's Berkshire Hathaway as well as leading investment houses, such as Goldman Sachs and Morgan Stanley have also invested in the sector.

Chevron, arguably the sector’s largest player, has been active since the 1970s and invested over $100 million last year to expand existing operations in Indonesia.

United Technologies’ subsidiary, UTC Power  has also jumped in, to meet surging demand for turbines.

Last year, $3 billion was invested in disclosed deals in the sector; an increase of 183 percent from 2006, according to New Energy Finance.

Roughly half of the new investment is being spent in the US, and about half is being undertaken by foreigners with extensive geothermal experience, including Italians and Icelanders.

Investors have been rewarded. Both US Geothermal and Ormat have outperformed the S&P 500 over the last year, Ormat by more than 40%.

Growth Drivers