Consolidation and developing world as key drivers for development?

Consolidation and developing world as key drivers for development? GDC drilling site at the Menengai crater, Kenya (source:
Alexander Richter 25 Jul 2011

The opportunities of consolidation, the current drive of development in the developing world and the market situation is being discussed in a recent interview with Hezy Ram, formerly CEO of TSX-listed Ram Power Corp.

A recent interview by Tom Konrad with Hezy Ram, formerly CEO of Ram Power and now heading its own advisory business, looks at the current energy prices as an element influencing geothermal development.

He refers to the gas prices being low, effectively making electricity cheaper and therefore creating a difficult environment for geothermal companies in the U.S. Another picture can be found in the developing world, where lots of countries still generate most of its electricity from oil. With prices for oil reaching higher levels again, clearly this is a concern for those countries and they are looking increasingly at energy resources in their own countries, among them geothermal.

This reminds me of another discussion I had several weeks back, when I discussed with some colleagues the current situation of geothermal development. We then agreed that things look a lot better in the developing world. While this might not be the case for all countries, but clearly some of the best geothermal resources can be found in countries like Kenya, Indonesia, Philippines etc.  We also discussed that investors actually seem to get to the point where they don´t mind a certain political risk, if the resources are that much better than in politically more stable economies, such as the U.S. Furthermore financing seems to be more easily obtainable through development banks, which are not in a position to help finance projects in the developed world.

The article also refers to the discussion about consolidation and while this sounds interesting and true to some degree. The other truth is that the consolidation of smaller players, e.g. within Ram Power, meant a stop to their projects. A lot of the projects in development by Sierra Geothermal and Western GeoPower at the time when they were swallowed are now sitting idle, as these companies neither have the man power to do all the projects on the table and secondly the financing is not as available as hoped for to drive all those projects at once. On the other hand there are lots of smaller service companies and technology providers that could be interesting targets or even drivers of consolidation in the industry.

Interesting though is the recent announcement by Philippines  based EDC, that said its development cycle in Asia means that within 4-5 years they will have managed to bring some of their projects online, and are therefore looking at countries/ projects that could keep their momentum.

All in all very interesting thoughts. While I also believe in consolidation being a great opportunity, the financial markets and investors doen´t seem to play along to that tune … at least just yet.

Source: Tom Konrad via Seeking Alpha