By Tom Konrad, Ph.D., CFA

Geothermal power is a type of renewable electricity that even the most conservative electric utilities find it easy to get behind.  Like conventional coal and gas plants, it uses heat to drive a turbine which in turn creates electricity.  The main difference is that the heat comes from natural geologic processes, rather than burning fossil fuels, making it renewable and free of greenhouse gas emissions, giving it considerable environmental appeal as well.

Where Geothermal Developers Stumble

The problem lies in the resource.  The potential for producing power from solar, wind, and hydropower at any location can be determined both easily and cheaply (at least relative to the cost of building a power plant using these technologies.)  

In contrast, the process for assessing a geothermal resource involves drilling a large number of expensive slim wells into some of the most complex underground formations in the world in order to measure the temperatures and composition of the rock below. Even when sufficiently hot rock and geothermal fluids have been located this way, the resource remains uncertain. Now the geothermal developer must drill larger production and injection wells, and test to see if the formation can maintain its temperature even as large quantities of heat are extracted.

The quality of a geothermal resource depends not only on its temperature, but how well it can maintain that temperature when large quantities of heat are extracted to continuously produce electricity.  This is why developers use longer term (one to two months) flow tests on their production and injection wells before they take on the expense of building a geothermal plant.

Unfortunately, even those tests are more useful for gauging near term production than assessing the long term viability of a geothermal resource.  

As an investor, this is a lesson I learned the hard way.  Two of the geothermal companies I have owned failed because their resource they expected they could rely on after their long term flow tests declined faster than they expected once it was put in long term production. The difference between expected and actual production are often substantial and have repeatedly driven small geothermal players into bankruptcy.

One such bankruptcy was Ram Power, which eventually reached an agreement with its debtholders in 2015.  This agreement effectively wiped out the previous shareholders, including me.  Hence the hard lesson.  More importantly for current shareholders, it also removed most of the company’s debt burden.   The company’s former debtholders gained control of the company and its assets.  The company changed its name to Polaris Infrastructure  and Canadian ticker to match (TSX:PIF), but retained its old US pink sheet stock ticker RAMPF. 

The Good Type of Geothermal Company

Six years later, Polaris still owns its 53MW (net) San Jacinto geothermal plant in Nicaragua, as well as 18MW (net) in three operating run-of-river hydropower plants in Peru.

Most importantly, Polaris is much better capitalized than the old Ram Power, with only $93 million of net debt.  (Except where otherwise specified, all dollar figures are in Canadian dollars). This gives it a conservative debt to equity ratio of only 25%. The lower debt burden means that shareholders are much safer should power production fall short.

Now that San Jacinto has over a decade in operation, its power production will be much more predictable going forward. While power production from hydro also varies with precipitation, it, too, is much more predictable than a geothermal plant with a poorly understood hydrothermal resource.

Valuation

With predictable cash flows come the opportunity to understand a company’s valuation.  Polaris recently re-negotiated and extended its power purchase agreement with the Nicaraguan government.  This resulted in lower power prices, but a longer contract term and the opportunity to sell additional power by  adding a binary power plant to San Jacinto.  This power plant will generate electricity from the waste heat of the main power plant, and so allow San Jacinto to increase its power output without any additional strain on its geothermal resource.

Given the new power purchase agreement, we need to look at the first half of the year to predict longer term revenue.  For the 6 months ended in June, Polaris produced 331,659 MWh of electricity resulting in $29.8 million in revenue and $21.8 million in adjusted EBITDA. For the full year in 2020, production was 662.9 MWh, $74.7 million in revenue, and $58.7 million in adjusted EBITDA.  Price per MWh dropped from $112.68/MWh in 2020 to $89.85/MWh in 2021.   If we were to assume annual electricity production and expenses to remain constant, revenues in 2021 would be $59.6 million, and adjusted EBITDA will be approximately $43.6 million.  Since production at San Jacinto continues to decline, this should be considered a ceiling for near term revenues and EBITDA, not a floor.

Polaris’ enterprise value (equity +debt) is $557 million, giving it an expected EV/EBITDA ratio of 13 or more.  I generally look for an EV/EBITDA to be below 10 to consider a stock a great value, so while I own some of the company, I don’t consider it a great buy.  That said, it pays (and can afford to pay) a 15 cent (US) quarterly dividend for a 4% yield, and the addition of the new binary power plant should increase production by as much as 20% at San Jacinto (100 annual MWh and an additional $11 million in annual revenue) when it is installed with only a small increase in operating costs.  This could potentially bring Polaris EV/EBITDA ratio down to near 10 at the current stock price ($18.60 for TSX:PIF).

Considering that there are few, if any, clean energy stocks currently trading at great valuations, Polaris looks relatively inexpensive, and has a place in a clean energy income portfolio.

NOTE: The subject of this article was chosen by one of my supporters on Patreon.  Have something you’d like me to research and write about? Become an EV level patron.

DISCLOSURE: Long RAMPF / PIF.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Polaris Infrastructure: Deleveraged, Derisked appeared first on Alternative Energy Stocks.

Ormat Technologies, Inc. (ORA:  NYSE) recently reported financial results for the three-month period ending September 2018  –  the first full quarter without the revenue and earnings of the company’s Puna geothermal electricity generation project.  In early May 2018, the Kilauea volcano erupted, giving the Hawaiian Islands a grand fire show.  For Ormat and its neighbors near its Puna Geothermal Power Project the volcano was more nightmare than entertainment.  Within a few days Ormat was forced to shut down the facility on Kilauea by removing surface equipment and plugging the geothermal well holes.  Nonetheless, three well sites, the electric substation, an adjacent warehouse and drilling equipment were overtaken by flowing lava and destroyed.

The last revenue Ormat received from the sale of electricity generated at the 38 megawatt plant at Puna was in the month of April 2018.  The sting of the loss in the second quarter was reduced by the receipt of $7.2 million in insurance payments related to the loss of the drilling equipment. Management pledged to negotiate for additional coverage for the loss of property and profits.

In the meantime, the company must limp along without Puna.  In the quarter ending September 2018, Ormat reported a total of $166.5 million in sales, of which $116.9 million was from the sale of electricity at its several geothermal generating plants.  This compares to $157.2 million and $110.9 million, respectively, in the same quarter of the previous year.  The increase is largely due to the acquisition of three operating plants in the continental U.S. totaling 38 megawatts  –  about the same size as the shuttered Puna plant.  Ormat had also elevated new power plants to commercial operations  –  the Platanares plant in Honduras, the Tungsten Mountain plant in Nevada and the Plant 1 expansion at Olkaria in Kenya.  Altogether power generation increased to 1.37 megawatt hours compared to 1.24 megawatt hours in the previous year period.

Even though Puna did not contribute to the top-line in the September quarter, the plant did incur some costs and expenses.  Indeed, management indicated in the quarter report that excluding Puna items, electricity costs would have been 35.3% of total electricity sales or $41.3 million.  The company is building new access roads, cleaning up damaged facilities and assessing the repairs needed to bring the Puna plant back into operation.

If nothing else, Ormat’s last quarter report proves there are still profits without the Puna project.  The company reported a net profit of $10.6 million or $0.21 per share for shareholders in the September quarter.  This compares to $24.0 million or $0.48 per share in the year-ago period when Puna was still steaming along.

The company generated $36.1 million in operating cash flow in the recent quarter, representing a sales-to-cash conversion rate of 21.7%.   Operating cash flow covered more than half of capital expenditures of $61.5 million. Sales and profits are down, but the company still appears capable of paying its own way.

Ormat shares traded off sharply at the beginning of the year, but had begun a recovering when Kilauea shook mountains…and shareholders.  The shares have traded mostly sideways along a line of volume-related price support/resistance hear $52.00, but has recently attempted another recovery.  Nonetheless, the stock remains interesting as Ormat steams along without Puna.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 12/7/18 as “Ormat Steams On.” 

The post Ormat Steams On appeared first on Alternative Energy Stocks.

Holders of Ormat Technologies (ORA:  NYSE) shares may feel somewhat blindsided by the cessation of operations at the Puna geothermal power plant on the Hawaii Island.  Lava flowing from neighboring Kilauea volcano has overrun two of the geothermal wells as well as a warehouse and an electricity substation.

Shareholders cannot claim they were not forewarned.  Ormat’s annual report for 2017 mentions the risk of volcanic eruptions seventeen times.  However, since no geothermal power company has ever experienced an interruption in operations due to a volcanic eruption, investors most likely overlooked the real dangers of locating a business on top of geological ‘hot spot.’

Ormat is not the only geothermal power company with publicly traded common stock.  Innergex Renewable Energy (INE:  TO) is began its first foray in geothermal energy with the acquisition of Alterra Power in early 2018, and Calpine Corporation was taken private in 2017 by the private equity fund Energy capital Partners.  The actions left two fewer public stocks through which minority shareholders can take a stake geothermal power.  Of the five remaining, geothermal power sources represent a significant portion of total power production for all except one.  The Italian utility company Enel has a very strong track record to renewable power production, but is just getting involved in geothermal.

Notably, initial news reports related to the volcano and the Puna Geothermal facility appeared print and online media.  The company remained silent on the topic until well after the initial volcanic eruptions before issuing updates through a news release service.  Ormat has yet to submit an 8K filing with the SEC and waited until the week of this post to display updates about the Puna Geothermal facility on the corporate website.  Sluggish communications with shareholders appear to be the norm for Ormat, a habit that has attracted a scrum of law firms investigating the company for breaches in fiduciary duty by management.

The more diversified Enel has been given something of a pass by investors.  The rest of the geothermal power group has been punished by traders over the last few months. Ormat, with its high profile difficulties has seen its stock price trimmed by 18.7% over the last six months and reduced by 28.2% from the 52-week high sent in late January 2018.  A good share of the sell-off was in initial reaction to the announcement of year-end financial 2017 results.  The stock has been attempting a recovery until news of the Kilauea volcanic activity become more visible in the news.

Innergex Renewable Energy has also been given a thorough thrashing by traders, perhaps because of new exposure risk in geothermal power generation through Alterra Power.  The stock has lost over 20%% value over the last three months.  Polaris Infrastructure (PIF.TO) is focused on developing geothermal power in both North and South America.  The company has been stripped of 28.7% of its market value over the last three months.  Yet it seems Polaris price trends appear to be more in reaction to sales and earnings performance rather than growing awareness of the risks in geothermal power production.

Average forward price/earnings ratio for the green and renewable energy sector is 38.96.  The forward price/earnings ratios for the S&P 600 Index is near 24.0 times.  It seems plausible that renewable energy earnings higher multiples because of expectations for faster growth than most of the companies in S&P’s index of small companies.  The S&P 500 Index of large companies, against which Enel is best compared, merits an average price/earnings ratio of 16.5 times forward earnings.

Ormat’s forward price/earnings ratio is higher than the rest of the group. However, this is to be expected given that the company’s sales and earnings have been trimmed beginning in the current quarter with the loss Puna Geothermal plant closure.  It might even be too simplistic to assume ORA shares are trading only in reaction to difficulties in Hawaii. Ormat has a restatement of financial results underway and the threat of delisting from the NYSE looming over its corporate head.   There are many reasons for investors to worry about the company.

The valuation dynamic for Ormat is probably the same for each of the other geothermal power companies.  There will be a mix of factors that influence valuation for stock.  Yet, with the lava spouting out of Hawaii’s Kilauea volcano it is certain that forewarnings of the risk of volcanic activity will be taken more seriously than ever.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Blindsided with Advance Warning appeared first on Alternative Energy Stocks.

Geothermal power producers use Earth’s internal heat to power electrical generators.  It is the quintessential renewable energy source.  Most geothermal plants are located adjacent to underground pockets of super hot water.  Developers look for locations where these thermal reservoirs are near the earth’s surface, providing availability of the super hot water at a reasonable cost.  Unfortunately, those locations are often in tough neighborhoods.

Ring of Fire

The overwhelming majority (85%) of current geothermal power installations in the world are located along the Ring of Fire that circumvents the Pacific Ocean.  More a horseshoe than a circle, the Ring of Fire is a geographic anomaly that is home to numerous ‘hot spots’ from which the Earth’s heat rises to the surface.  The Ring of Fire offers geothermal power developers an abundance of points to economically access to Earth’s heat.

Yet, it is not the hot spots that give the Ring of Fire its reputation.   Along the formation huge slabs or plates of the Earth’s crust or mantle are moving atop a layer of solid and molten rock.  When these plates collide the event makes for interesting fireworks.  Over 75% of all active volcanoes in the world are located along the Ring of Fire.  Besides the fireworks the footing can get a bit precarious as well.  The Ring of Fire is ground zero for about 90% of all earthquakes on Earth.

Puna Geothermal Venture

With so many geothermal power plants perched on hot spots around the Ring of Fire, it is surprising that there has been so little damage from volcanic or seismic activity.  It was only last month when Kilauea volcano erupted in the southeast corner of Hawaii Island that any geothermal plant has been in jeopardy.

The geothermal reservoir tapped by the Puna Geothermal Venture is located in volcanic rock along the Kilauea Lower East Rift Zone, the very part of the volcano that is now active.  The Puna Geothermal Venture is a 38 megawatt power plant operated by Ormat Technologies (ORA:  NYSE). The Puna plant provides about 25% of power needs for Hawaii Island.

While it is difficult to predict the impact underground, up top there has been limited damage to the Puna power plant.  A structure housing a well drilling rig and an electricity substation located on the 815-acre property have burned.  Ormat engineers had taken the Puna geothermal wells off-line in early May 2018, well before Kilauea lava began to flow.   The wells were depressurization with water or sealed with cold mud.  Additionally, topside equipment was removed.  Thus Ormat was ready when lava flowed over two of the well locations.  The lava may be the least of the company’s worries. So far there have been hundreds of earthquakes in the Kilauea vicinity, suggesting that below the surface things are chaotic.

Some Ormat investors may have been taken by surprise by the Kilauea event.  Management was not.  The company has business interruption insurance that includes volcanic events and earthquake.  Combined coverage is $100 million.

If the company is forced to abandon the Puna site, it is not certain what asset value will be lost.  Ormat does not disclose the asset value of individual power plants.  Aggregate gross asset value of all U.S. geothermal and recovered energy generation power plants was $1.7 billion at the end of December 2017.

Kilauea’s Future

It is uncertain what the volcano has in store for its neighbors in the coming weeks and months.  Kilauea’s current eruption is the most long-lived in the volcano’s history.  According to the U.S. Geological Survey, Kilauea has had sixty-one eruptions in the current cycle.  It has been erupting on a continuous basis since 1983.  It may be some time before Ormat engineers can return to Puna and determine whether the power plant can be brought back into operation.

Interestingly, the company has made no official announcements regarding the current status of the Puna Geothermal plant.  Management has a full plate of worries besides hot lava.  The company just closed the acquisition of U.S. Geothermal in April 2018, and must now integrate the two operations.  Additionally, the company must restate its financial results for the second, third and fourth quarters of 2017, as well as the full-year 2017 financial results.  Errors in the income tax provision have triggered the restatement.  Shareholders will see a change in the income tax provision and net income as well as changes in deferred income tax assets and liabilities. The NYSE is also turning up the heat for Ormat’s accountants by sending the company a delisting warning for the failure to file the first quarter 2018 results.  Of course, that quarter cannot be filed until the restatement is completed.

Call to Caution

Ormat is not alone in worrying about volcanic eruptions.  There are eight other active volcanoes on the U.S. side of the Pacific Ocean that the U.S. Geological Survey says need monitoring.  These are the mostly likely to erupt.  Geothermal power plants are located in the immediate vicinity of several of them.

The Ring of Fire is not the only location on Earth where floating plates can be found on its crust.  The Mid-Atlantic Ridge is a ‘divergent’ tectonic plate boundary.  Iceland is located along this ridge and sits right above accompanying hot spot.  The country is also home to thirty active volcanoes.

Iceland has is king for the geothermal power industry. There are sixteen geothermal power stations on the island with an installed capacity of 665 megawatts.  Geothermal provides about 30% of the island electricity supply.

The Hellisheidi Geothermal Power Station is the second largest geothermal power plant in the world with an installed capacity of 300 megawatts.  It is located in the Hengill volcano area on a tectonic plate boundary.  Hengill is still active although it has not erupted in over 2,000 years.

No doubt Ormat’s current difficult situation in the hot seat of Kilauea has been a wake-up call Iceland’s National Power Company and to all operators of geothermal power plants.  Likely there are now a lot of fingers crossed that their installation will not become the next geothermal power plant to be overtaken by the very earth energy they have sought to capture.

In the next post we look more closely at valuation in the geothermal sector and investor reaction to news of the Kilauea volcano.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Geothermal Power: Business in a Tough Neighborhood appeared first on Alternative Energy Stocks.

Geothermal stocks are publicly traded companies whose business involves using the earth’s heat energy for productive use, such as generating electricity and space and process heat.

This list was last updated on 10/27/2020.

Calpine Corp. (CPN) Bought out. No longer publicly traded.
Climeon AB (CLIME-B.ST)
Contact Energy Limited (CEN.NZ, COENF)
Enel SpA (ENEL.MI, ESOCF)
Energy Development Corporation (EGDCY)
Innergex Renewable Energy Inc. (INE.TO, INGXF)
Mercury NZ Limited (MCY.NZ)
NIBE Industrier AB (NIBE-B.ST, NDRBF)
Ormat (ORA)
Ormat Industries (ORMT.TA)
Polaris Infrastructure Inc. (PIF.TO, RAMPF)

If you know of any geothermal stock that is not listed here and should be, please let us know by leaving a comment. Also for stocks in the list that you think should be removed.

The post List of Geothermal Stocks appeared first on Alternative Energy Stocks.

Ormat Technologies (ORA:  NYSE) is buying U.S. Geothermal (HTM:  NYSE) for $5.45 per share in cash.   The offer represents a 29% premium to the HTM closing price the day prior to the announcement.  The shares had been in a steady decline over the past several months, hitting a 52-week low of $3.11 earlier in January 2018.  So while the offer price pales in comparison to the U.S. Geothermal’s all-time high stock price of $28.68 way back in October 2007, shareholders may be feeling a warm breeze coming off Ormat’s cash.

Should Ormat shareholders be as thrilled as the company ponies up $110 million in cash to buy U.S. Geothermal?

U.S. Geothermal has three operational geothermal power plants located at Neal Hot Springs in Oregon, San Emidio in Nevada and Raft River in Idaho.  Total power generation is about 45 megawatts.  The company has projects in development that could add another 115 megawatts to power production.  This compares to Ormat’s worldwide operating portfolio of over 700 megawatts.

Folding U.S. Geothermal’s production and development properties into the Ormat portfolio could nudge output by only 6%, but upon completion the development projects would increase Ormat production by 22%.  One of the projects in development by U.S. Geothermal is at The Geysers in California, the largest geothermal property in the world.  It might be of particular interest to Ormat, which has no foothold there.

U.S. Geothermal has been working on a 30 megawatt project at the Geysers.  By the end of September 2017, the company had invested a total of $10.2 million in the project, but expects the entire project to require $148 million.  All permits are in place except for air quality and building permit go-aheads that are expected once the final engineering design is finished.

The targeted commercial operation date is sometime before the end of 2019.  The completion date would be more exciting if there was a power purchase agreement already in place.  Investors are never well served by ‘build it and they will come’ business models.  U.S. Geothermal has targeted power purchases that appear to have an interest in replacing based load from fossil fuel sources.  Perhaps Ormat can accelerate negotiations.

U.S. Geothermal has a tidy balance sheet with $10.5 million in cash in excess of cash security bonds and other restricted cash holdings.  Long-term debt totals $104.3 million, which is backed up by $169.6 million in property, plant and equipment.  The balance sheet is fortified by strong cash flow generation.  In the twelve months ending September 2017, the company converted 32% of revenue to operating cash flow.

Naturally, in the first trading session after the deal was announced, HTM was bid up to Ormat’s offer price.  U.S. Geothermal’s largest shareholder, JCP Investment Management, has reportedly already signaled an intention to vote in favor of the offer.  Shares of Ormat also gapped higher on the news as investors applauded the geothermal tie-up.  The targeted closing sometime before June 2018, seems more likely than not.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.  Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Geothermal Tie-up appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Geothermal power generator US Geothermal (HTM:  NYSE) came up short in reporting financial results for the first quarter ending 2017  –  at least from the perspective of the four analysts with published sales and earnings expectations for the company.  Operating revenue of $8.4 million slipped slightly from the same period a year ago, but produced slightly lower net income of $1.1 million.  The company’s share was $260,000 or a penny per share.  Not good enough say the analyst’s who were collectively looking for two pennies per share in earnings!

Missing earnings expectations has become a bad habit for US Geothermal, having failed to clear the consensus hurdle three quarters in a row.  The previous missed had resulted in modest trimming of expectations.  Investors should be prepared for another round of nipping and tucking in revenue, profit margin and earnings predictions.  The steady drumbeat of lower numbers, and the muted commentary that comes along with it, is usually a drag on share price.

Investors have to question whether a period of price weakness is a good time to pick up shares of a quality company at bargain prices…or a time to run for the hills.  It is May after all, when it is ‘time to sell’.

From a revenue standpoint, US Geothermal benefited from increased output at its Raft River facility after installation of a new production pump at one of the Raft River wells.  That installation was completed in late March 2017, suggesting that the real impact will not be observed until report of the June 2017 financial results.  Unfortunately, the company also faced a setback in the quarter.  The Neal Hot Springs Unit 1 was out of production for five weeks in late January and early February 2017, after vaporizer tubes froze.  The company reported a negative impact on power generation valued at $830,000 due to the equipment failure at Neal Hot Springs.

Total generation was 89,613 megawatt hours in the quarter compared to 93,787 megawatt hours in the same quarter last year.  With Raft River up 100% during the quarter and San Emidio follow up in second place with 98.6% availability for the quarter, it was really Neal Hot Springs with just 82.5% availability that was the cause of the slippage in power production in the quarter. Fortunately, business interruption insurance will cover about 38% of the lost revenue. Property insurance will provide another $2.0 million to repair and replace the damaged equipment.

Management seemed unfazed by turn of events at Neal Hot Springs, reiterating previous guidance for revenue and earnings in 2017.  Revenue is expected in a range of $30 million to $34 million, providing net income in a range of $4 million to $8 million.  US Geothermal’s cut of net income would be $1 million to $4 million.  Thus it would seem that Neal Hot Springs is fully back to normal and with the increased production at Raft River, management is apparently expecting another decent year.  The increased output from Raft River in the first quarter was valued at $200,000 for about one week of power generation.  Simple math provides an incremental addition of $1.2 million for a full quarter, more than enough to make up for the shortfall from Neal Hot Springs in the first quarter.

Importantly, management’s guidance is based on existing production facilities.  There are expansion projects in the works, but potential power from these projects is not included.  Altogether the development pipeline encompasses 115 megawatts of incremental power production capacity.

• Progress has been made at the Geysers in California where the company is at the point of sourcing turbine generators and is negotiating a power purchase agreement with a single buyer.  The company is targeting end of 2018 for bringing the project on-line.
•  The company has received permits to deepen three wells in its San Emidio II reservoir in Nevada that could elevate power production at that location from the current 10 megawatts to over 40 megawatts.    Drilling will commence this year when spring weather conditions allow.
• Additionally, at San Emidio an application for new development of three power plants, twenty wells and a power transmission line has already been submitted to the U.S. Bureau of Land Management.  The company has targeted 25 megawatts to 45 megawatts as the ultimate resource size for this latter expansion project.
• A geothermal power production project in El Ceibillo in Guatemala is awaiting a request for proposals from the government, to which US Geothermal is planning a competitive bid.  The process is expected to unfold yet in 2017.

Successful commissioning of all these projects would more than triple the size of US Geothermal’s power production capacity, which is around 45 megawatts today.  It will not be accomplished at the hand of current chief executive officer Dennis Gilles.  In late April 2017, the board of directors issued a cryptic press release indicated they would not be extending the employment agreement with Gilles.  A search committee will be looking for a successor to take over after Gilles’ current contract expires in July 2017.  Gilles may still have an influence over operations through an advisory agreement.  If the board could not accept an extension to his employment agreement, what foundation could be built into an advisory role that would be more palatable?

The market has had an opportunity to fully digest the news of Gilles department as CEO.  However, slippage in the first quarter production reminds investors of the many moving parts and sources of business risk inherent in geothermal power production.  Knowledgeable leadership is a key hedge against those risks.  The specter of a shuffle in the boardroom is likely to resurface as a source of worry in the coming weeks.  Thus the price weakness that might ensue following a ‘quarter earnings miss’ might be deeper and more protracted than usual because of leadership change.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post US Geothermal Fizzles appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Last week, one of the leaders in a development consortium, Iceland’s largest privately owned energy generator HS Orka hf, announced the completion of a project to prove the merits of deeper geothermal wells.  The project in the Reykjanes Peninsula in southern Iceland reached 4,659 meters depth in January 2017, where temperatures measured 427 degrees Centigrade and fluid pressure was 340 bars.  By all accounts the project was successful, suggesting that deep wells could a cost effective approach to geothermal energy.

The drilling program was mentioned in early December 2015 a recent post “Hot Rocks, Warm Stock,” which touched on the option of investing in a larger company, Statoil (STL: SW or STO:  NYSE), for a stake in geothermal technologies for renewable energy.   Unfortunately, a position in Statoil brings with it the noise of Statoil’s fossil fuel interests.  Fortunately, for the more environmentally-conscious investor, there is an alternative.

HS Orka is majority owned by Alterra Power (AXY:  TO or MGMXF: OTC) a Canada-based geothermal power generation company.  Alterra has interests in eight different power facilities totaling 825 megawatts of generation capacity using hydro, wind, geothermal and solar technologies.  The assets are located in Texas and Indiana in the U.S., British Columbia in Canada and, of course, the HS Orka asset in Iceland. Alterra’s development pipeline includes additional geothermal projects in Iceland through HS Orka, in Peru through a local Energy Development Corporation, and in Italy through Graziella Green Power.  Notably HS Orka is also planning new hydro-electric projects, in which Alterra will participate.  No doubt the knowledge gained during the recently completed deep well drilling project will boost HS Orka’s geothermal development as well.

Alterra Power reported $42.9 million in total sales in the first nine months of the year 2016, providing $2.7 million in net income or $0.06 per share.  Since there is considerable noise in reported income from charges and benefits through the shifting values of equity derivatives, the financial fortunes of this company are best viewed from the perspective of cash earnings.  Operations generated $15.5 million in cash in the first nine months of 2016, representing sales-to-cash conversion rate of 33.8%.  This compares favorably to the conversion rate in the previous year of 28.0%, and suggests Alterra can consistently generate cash for future investments.

Internal cash resources have not been enough for Alterra’s ambitious development plans.  The company had $273.6 million in long-term debt on the balance sheet at the end of September 2016.  The debt-to-equity ratio was 1.15, suggesting there is potential for additional leverage if the company needs to move aggressively in its renewable energy markets.

Alterra’s common stock trades on the Toronto exchange under the symbol AXY, but investors can also gain access through the Over-the-Counter Pink Sheets where the stock is quoted as MGMXF.  The shares have traded off in recent weeks providing a compelling entry point for shareholders with the lengthy investor horizon and risk tolerance for smaller companies.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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by Debra Fiakas CFA

US Geothermal (HTM:  NYSE) has been on our radar for some time.  Despite considerable accomplishment in terms of building electricity output from a portfolio of geothermal power installations, investors seem reluctant to embrace the company and its stock.  Earlier this week, US Geothermal management issued its usual quarterly update on its development work, this time detailing progress in expanding capacity and improving well performance on three of its geothermal installations.  Altogether an incremental 90 megawatts are under development, which would triple the current power generation capacity of 45 megawatts.  The company press release was met by investors with a yawn.  Perhaps most are waiting for the earnings press release scheduled for November 10th.

The consensus estimate is for a penny in net profits per share on $7.2 million in total sales for the quarter ending September 2016.  Compared to the same quarter last year, that prediction represents flat earnings on slightly higher revenue.  US Geothermal appears to have done a good job of conditioning its analyst following to the current potential in sales and earnings.  At any rate, the company mostly meets the consensus expectation and rarely exceeds the earnings per share hurdle by more than a penny.

If investors are not willing to bid the stock above the $1.00 price level, the company is going to force the stock to whole dollars.  The day before the earnings announcement a 1-for-6 reverse split will be executed, leaving the stock price quoted at about $3.90 per share and the shares outstanding near 18.9 million shares.

Whether HTM remains at current levels is another matter.  The stock is valued at 22 times earnings expectations for 2017.   That might seem a bit expensive to some investors who are not impressed by pennies in earnings per share.  For those who have the patience to wait for the company to build out its power generation portfolio, the current stock price could be considered a bargain.  US Geothermal has assets that, if developed, management claims could triple current output.  Granted there will be capital investment requirements to reach this goal.  Debt outstanding is currently $110.6 million and the debt-to-equity ratio is currently 85:1.   Yet the company has hardly reached its limits in terms of raising either debt or equity capital.  Current cash balances of $18.3 million imply net debt of $92.3 million, and there is more cash where that came from.    In the twelve months ending June 2016, the company converted 41% of its revenue to operating cash flow, a performance metric that should cheer both creditors and equity investors.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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Jennifer Delony

Reno, Nev.-based Ormat Technologies (ORA) is seeking mergers and acquisitions that will help the company enhance its geothermal projects with energy storage technologies, Ormat CEO Isaac Angel said on Nov. 4.

“On the storage solutions side, we are progressing well,” Angle said during a 3Q15 earnings webcast. “I’m very optimistic that we will be able to add a lot of MW … and profitability to our existing power plants.”

Angle said that he also is optimistic that the company will secure a deal soon that will initiate Ormat’s energy storage strategy.

“We’re almost there,” he said.

According to Angel, Ormat also plans to expand its strategy to include project opportunities that have solar energy as part of a “blended solution.”

“This is a long process,” he said. “And it will take at least another year to come up with more and more enhanced power plants.”

Addressing ongoing project construction during the webcast, Angel said that Ormat expects an earlier completion of its 24 MW project in Olkaria, Kenya, as a result of improvements in construction lead time.

The company originally expected to complete the project in the second half of 2016, but now expects the completion date to fall in 1Q16.

In addition, Angel said that infrastructure work on Ormat’s 14 MW portion of the 330 MW geothermal project under construction in Sarulla, Indonesia, has been “substantially completed.”

“The drilling of production and injection wells are also in progress for the project, however, the project company is experiencing delays in drilling,” he said, adding that Ormat expects the first phase of operation to begin by the end of next year. The remaining phases of operation are scheduled to begin in 2018.

Angel said during the webcast that, despite strong competition from low solar power prices in the U.S., some utilities still are seeking geothermal solutions at “reasonable prices.”

“It would be naïve to say that solar prices are not having an impact on geothermal prices, but on the other hand, the new [renewable portfolio standard in California] is giving us some back wind,” Angel said. “We are negotiating more than several [power purchase agreements], and I am happy with their prices as they stand today.”

On Nov. 3, Ormat reported total revenues for 3Q15 of $162.9 million, compared to $140.2 million for 3Q14. The company reported electricity revenues for 3Q15 of $97.2 million, compared to $102.5 million in 3Q14. In addition, Ormat increased and narrowed its revenue guidance range for the year to between $570 million and $585 million.

Jennifer Delony is associate editor for RenewableEnergyWorld.com. She worked previously as an analyst for PennWell’s TransmissionHub. Jennifer started her career as a B2B news editor in the local and long-distance telecommunications industries in the ’90s. She began covering renewable energy issues at the local level in 2005 and covered U.S. and Canadian utility-scale wind energy as editor of North American Windpower magazine from 2006-2009. She also provides analysis for the oil and natural gas sectors as editor of Oilman magazine.

This article was first published on RenewableEnergyWorld.com, and is republished with permission.

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