Opinion piece on interview predicting mergers in geothermal sector

Alexander Richter 9 Jan 2010

A recent interview looks at the mergers in the geothermal world of 2009, and how this could make companies stronger in the years to come.

In a recent interview with Steven Li, Senior VP of Technology and Clean Tech at Raymond James, there is talk about the mergers which happened in 2009, namely with Ram Power and Magma Energy and how this could make them stronger in the years to come.

In the interview, Steven Li talks about that “The bigger you are, the more institutionally relevant you become. It opens up doors to accessing the capital markets.” While size might indeed have a positive impact, the geothermal sector ticks somewhat different than other renewable sectors.

In the end you are always financing projects, which are very much bound to the resource into which you are drilling. The financing is only available for this particular project. So while public money, like in the case of Magma and Ram Power allows you to generate cash for project development, the big bills will have to be picked up in debt financing through banks and other sources of project finance.

Another point mentioned is experienced management staff and in this I totally agree with Steven Li. With all the projects in the U.S. alone, there will be a shortage in experienced staff to develop those projects on behalf of its owners. So bigger players are better positioned to secure the necessary people to develop projects efficiently in shorter time frames. Smaller players will often find themselves having to wait for the necessary services they need. This is going to be a competitive world.

But there are voices in the banking world, who are not so convinced that both companies mentioned will have enough cash left to drive all the projects through to the point where they can raise the necessary debt financing. And so far both companies have to prove moving a project into the construction phase and get it online. At that point they will be deservedly receive more attention.

For the moment, companies that have successfully proven to take projects efficiently online, deserve to receive the same attention as Ram Power and Magma do, one of the companies there clearly is Nevada Geothermal Power.

To read the full interview with Steven Li, use link below.

Source: Seeking Alpha