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Outlook for North American geothermal stocks looking up for 2012

Outlook for North American geothermal stocks looking up for 2012 San Jacinto-Tizate, geothermal power plant, Ram Power/ Polaris Geothermal Nicaragua (source: Ram Power)
Alexander Richter 18 Jan 2012

In a recent interview, John McIlveen, Senior VP of Research of Jacob Securities gave his predictions for geothermal stocks, mentioning that things look up compared to 2011 and mentions U.S. Geothermal, Ormat Technologies, Alterra Power, and Ram Power.

In a recent interview, John McIlveen, Senior VP for Research at Jacob Securities in Toronto, Canada, provided his view on how to “pick and choose”.

John has been known as an advocate on geothermal energy and is the Treasurer of the Canadian Geothermal Energy Association.

In the interview he provides his current investment thesis and provides a good overview on the relationship between conventional energy prices and renewable energy stocks.

“Optimally, it would be better for renewables if conventional energy prices were higher. However, the reality is that renewable prices do not fluctuate with conventional energy prices because renewable power generators operate on long-term contracts with fixed prices. In the power business it is natural gas, not oil that sets the marginal price of power in the developed world. Low gas prices actually reduce prices on new renewable power contracts, but they do not affect an existing contract.”, so John.

On the developing world he mentions that it is still dominated by oil and diesel generated power and that’s why it is interesting for developers. In this context he talks about the Caribbean and the Pacific Islands and even Hawaii.

Going into detail about some of his renewable stocks of interest, he mentions several geothermal companies. On Ram Power he sees a “good near-term potential”, despite a rating of “Speculative Buy”. He also sees the current rebound, while small, as a sign that things are looking better. Clearly this is due to Ram Power’s project in Nicaragua coming online. He talks about “show-me” stocks, clearly referencing the need for companies needing to prove they can bring plants online and this “on time, on budget and with cash flow”.

On Ormat Technologies he sees the fact that there haven´t been “significant dividends” as a reason for the company being punished on the stock market in 2011, but believes it will do better compared to its peers in 2012.

Alterra Power is another geothermal company he talks about. Here he sees the fact that the company turned “cash-flow-positive with the consolidation and acquisition of Plutonic Power Corp.” … even though this means a diversification from its pure geothermal business at Magma Energy pre-merger.

With the main decline of the stock, he sees that the geothermal stocks will move into a “buy” position.

The last company he mentions is U.S. Geothermal seeing it as a “good value, and unlike other geothermals, it has not yet bounced off its one-year low”.

An interesting read and good insights in this interview.

For the full interview see: InvestorIdeas.com